Welcome everyone. Thank you all for standing by. At this time, all participants are in listen-only mode until the Q&A session of today's call. To ask your question, please press star followed by the number one. Today's call is being recorded. If you have any objections, you may disconnect at this point. I'll turn the meeting over to your host, Kenny Chae. You may begin.
Thank you, Jackie. Hello, welcome to AkzoNobel's Investor Update for the fourth quarter and full year of 2022. I'm Kenny Chae, Head of Investor Relations. Today, our CEO, Greg Poux-Guillaume, and CFO, Maarten de Vries, will guide you through our results. We'll refer to the presentation, which you can follow on screen and download from our website at akzonobel.com. A replay of this webcast will also be made available. There will be an opportunity to ask questions after the presentation. For additional information, please contact our investor relations team. Before we start, I would like to remind you about the disclaimer at the back of this presentation. Please note this also applies to the conference call and answers to your questions. I will now hand over to Greg, who will start on slide 3 of the presentation.
Thank you, Kenny. Good morning, everyone, and welcome to our Q4 investor update, and my first as AkzoNobel CEO. It's an honor to be CEO of AkzoNobel. 2022 was a challenging year, and it shows in our Q4 results. I'm confident that AkzoNobel has what it takes to thrive. In Q4, we delivered EUR 2.6 billion of revenue and revenue growth of 8.4%, driven by better than expected pricing of 11%, with double-digit percentage pricing in both paints and coatings. Pricing more than offset raw material inflation for the fourth consecutive quarter, but adjusted operating income was EUR 126 million as a result of lower volumes driven by weak demand, particularly in Europe, but also in China because of lockdowns. Full year 2022 revenue grew by 13% to EUR 10.8 billion.
Strong pricing growth of 14% more than offset the total raw material and freight cost headwind of over EUR 1.1 billion for 2022. Lower volumes and higher operating expenses resulted in a lower adjusted operating income of EUR 789 million for the year. We completed a EUR 500 million share buyback program in December. We are proposing a final dividend of EUR 1.54 per share for a total dividend of EUR 1.98 per share for 2022, as per our policy of stable to rising dividends. Now turning to slide 4. I've been impressed by the caliber of people at AkzoNobel. I'm pleased to announce four appointments to our executive committee, four business leaders who bring a market view to the executive committee.
This brings our executive committee to nine people, including three women. Combined, our four new members have over 50 years of experience within AkzoNobel, and we will increasingly expose them to you, our investors, addressing one of the suggestions from our investor survey. I'm also pleased to have Ben Noteboom as our chair-elect of the supervisory board. Ben has a strong track record and brings years of experience in the chemical industry. He's currently meeting our people and investing significant time in getting to know AkzoNobel from the inside, and I look forward to working with him on our transformation. Moving to slide five. In the fourth quarter, we completed the acquisition of Lankwitzer's wheel liquid coatings business. This is a smaller but strategic acquisition which complements our wheel power coatings offering and makes us a one-stop shop for the automotive wheels industry.
We continue to work closely with our customers and it's paying off. Tata Steel recently recognized AkzoNobel as their global supplier of the year. They only designate one, so I'm extremely proud that it was us and that our team were recognized for the value they provide to Tata Steel and also to all our other customers. We've also broadened our partnership with BYD, the world's leading manufacturer of electric vehicles. We're now their global refinish partner, and we are extending our relationship to serve their body shops and approved repair networks on a global level. Finally, the launch of our new high-performance, biocide-free anti-fouling technology is helping recreational boaters to reduce the impact on the environment and to protect the marine ecosystem. I'm excited that we continue to champion progress in this space through the International Brand, an undisputed leader in marine protected and yacht coatings.
Turning to slide 6 and our ESG ambitions. AkzoNobel leads the paints and coatings market when it comes to sustainability. We hold the highest possible rating for ESG performance from external rating agencies like MSCI, and the company is considered low risk by Sustainalytics. We're making a difference from the ground up. If you take our Paint the Future platform, we're driving collaborative innovation with customers and suppliers to reduce Scope 3 emissions. Together with our partners, we launched five additional emissions reduction projects in Q4. I'm also pleased to announce that our North American operations are now 100% on renewable electricity, as are already our European operations. We're halfway to reducing carbon emissions in our own operations by 50%, and with our new product launches, 40% of our revenue comes from sustainable solutions.
We achieve circular use of materials for 56% of our obsolete material and waste streams and have made good progress through social programs, running through our AkzoNobel Cares umbrella, empowering almost 40,000 members of local community with new painting skills. Moving to slide 7, we provide an update and more information on recent significant acquisitions, Orbis and Kansai Paint Africa. In April, we welcomed our new colleagues from Grupo Orbis, a strong business which will help strengthen our market position in Latin America. We're pleased with how this business is performing. 2022 revenue and profit was ahead of our plan. Based on last year's run rate, our total Latin American business is now more than EUR 1.4 billion in annual revenue.
In the midterm, we also see a great opportunity to realize synergies and bring profitability in line with the AkzoNobel Latin business, Latin American business. Our historical businesses trade at 200- 300 basis points higher than Orbis does today. Orbis is around 9% EBITDA today. You know, your math will get you around 12, but actually, this is in a depressed year of 2022. Usually we're mid-teens in terms of EBITDA profitability in Latin America, for AkzoNobel. We also announced in June 2022, our intention to acquire the African Paints and Coatings activities of Kansai Paint. Pending merger clearance currently in phase II in South Africa, we expect this transaction to close during the second half of 2023.
Similarly to Grupo Orbis, this acquisition will strengthen our position in the region and provide an excellent platform for future growth. Turning to slide 8, we outline the current state of market demand. In Europe, we continue to see the impact of low consumer confidence and incrementally weaker market demand. While the impact of destocking will continue to linger in some segments into Q1. In China, COVID continued to impact demand in Q4. We're encouraged by the reopening and the signs of demand recovery. However, we anticipate that the recovery will take a number of months as infection rates remain at elevated levels. As a result, we expect demand to remain weak in Q1 and to recover sequentially thereafter in China. Within coatings, the macroeconomic environment is driving softer demand in our industrial coatings business, but also in many segments of powder coatings.
In automotive and specialty, we see strong demand in aerospace and automotive, especially in Asia, with vehicle refinish, which continues to show positive trends. The sequential recovery in marine and protective continues with particularly encouraging volumes in Asia. I'll now hand over to Maarten to dive into the numbers on slide 10.
Yeah. Thank you, Greg, hello, everybody on the call. In the fourth quarter, our reported revenue was up 8% versus prior year and up 9% in constant currencies. Volumes were 9% lower, which was more than offset by pricing of 11%. Grupo Orbis acquisition added 5% to revenue, with top and bottom line performance ahead of plan. Adjusted operating income decreased to EUR 126 million. Fourth quarter revenue for decorative paints was up 7% versus prior year and up 9% in constant currencies. Paints volumes were 9% lower, mainly due to lower demand in Europe and COVID-19 impact in China. The decrease was more than offset by strong pricing of 10%, while acquisitions added 8% to revenue.
Despite the strong revenue and pricing performance of decorative paints, the impact from volumes resulted in lower adjusted operating income of EUR 54 million. Fourth quarter revenue for performance coatings was up 10% versus prior year and up 9% in constant currencies. Coatings volumes were 9% lower, mainly due to weaker demand in industrial and powder coatings, along with COVID-19 impact in China, while marine and protective aerospace and automotive segments saw positive volume trends in the fourth quarter. Coatings volumes were also impacted by suspension of businesses in Russia, which has a negative 1% impact on volumes for the fourth quarter. Lower volumes in coatings were more than offset by strong pricing of 12%, while acquisitions added 3% to revenue. In the fourth quarter, adjusted operating income for coatings came in at EUR 96 million. Now moving to the next slide.
As highlighted earlier, I'm pleased to inform that we delivered our fourth consecutive quarter of positive net pricing versus raw material inflation. Pricing of EUR 275 million was more than enough to offset EUR 209 million of raw material and freight inflation in the quarter. The decline in volumes of 9% translated into a negative EUR 98 million impact on adjusted operating income, while mix impact was positive EUR 60 million. Currencies, though, had a negative impact of EUR 8 million. Operating expenses and other one-offs, excluding the hyperinflation accounting impact, were EUR 43 million higher year-on-year. Savings initiatives were more than offset by higher operating expenses from supply chain and manufacturing costs. Hyperinflation accounting for Turkey and Argentina led to a negative EUR 60 million impact versus prior year in the fourth quarter.
Moving to the next slide. For the fourth quarter, the impact of raw material and freight inflation was EUR 209 million, as I just mentioned, versus the same period of prior year. Combined with the EUR 325 million impact from the same quarter prior year, the total cumulative inflationary impact over a two-year period was EUR 534 million. With cumulative inflation having plateaued in Q4, we expect raw material and freight inflation to impact the first quarter 2023 results by EUR 80 million-EUR 110 million versus prior year. On pricing, we delivered 11% in the fourth quarter, which combined with a 12.5% pricing from the same quarter last year, represents a cumulative pricing of 23.5% over the two-year period.
For the first quarter of 2023, we expect pricing to land between 4%-6% year-on-year. Over the past 8 quarters, cumulative impact from raw material and freight inflation reached EUR 1.9 billion, which we have now fully offset with cumulative pricing. Turning to the next slide. Operating working capital for the fourth quarter continued to be impacted by raw material inflation. Fourth quarter operating working capital as % of revenue came in at 16.9% versus 13% for the end of the same period last year. Seasonal reduction in inventory and continued destocking in the fourth quarter resulted in EUR 275 million less inventory versus the end of the second quarter, an equivalent of EUR 177 million in constant currencies. Payables decreased mainly as a result of our destocking initiatives in the second half of the year.
Free cash flow was positive EUR 195 million for the quarter, which is an improvement versus prior year, mainly due to sequential reduction in working capital. Our destocking initiatives, which will continue in the first quarter in an effort to normalize working capital. The next slide. At the end of 2022, our total debt stood at EUR 5.9 billion, and we had EUR 1.9 billion in cash. Around 60% of our debt is long-term, with maturity staggered to 2032. Our outstanding bonds are at fixed rates with a weighted average coupon of 1.6%. Half of our short-term debt is in commercial papers, and the rest is in bank loans, which we will be rolled over as needed in the normal course of business. I would like to highlight that all debt is covenant-free.
We finished the year with a net debt/EBITDA leverage ratio of 3.8x, which is well above prior year. Moving forward, we expect to end 2023 with a leverage less than 3.4x, which includes impact from Kansai Paint Africa acquisition. Post-2023, we will continue to delever to a target leverage ratio of around 2x. Moving to the next slide. adjusted EBITDA was EUR 220 million for the fourth quarter and EUR 1 billion hundred fifty-seven million for the full year. Despite positive net pricing versus raw material and freight inflation throughout the year, 2022 profit was mainly impacted due to lower volumes and higher OpEx.
Fourth quarter adjusted earnings per share was down to EUR 0.16 per share, while a final dividend of EUR 1.54 has been proposed in line with our stable to rising dividend policy. Having completed our EUR 500 million share buyback program, we ended the year at around 170 million shares, net of treasury shares. This represents a 33% reduction of share count versus the end of 2018. Back to Greg to talk about the outlook for 2023.
Thanks, Maarten the backdrop of continued macroeconomic uncertainties, we have set four clear priorities for the organization in 2023. The first is pricing, which will continue in the 1st quarter to be inflationary. As raw material prices progressively retreat, our focus will shift to protecting our pricing gains, and we believe this is achievable on around half our portfolio where we are not indexed. Our second priority for 2023 is to realize benefits from raw material deflation. It is key that we continue to destock and rightsize our inventories, not only to generate cash, but also to capitalize on the ongoing raw material deflation. Given current inventories, the lag to get cheaper raw mats to our bottom line ranges from a month in China to five months in Europe, which is too much.
As a word of caution, while we expect meaningful benefits from raw material deflation in the coming quarters, it is difficult to predict how much more deflation there will be in the second half of the year. Our third priority is cost. While raw material prices are coming down, operating expenses, including wages, energy, and inland freight, continue to ramp up with inflation to the tune of an expected EUR 200 million in 2023. We've launched aggressive cost saving initiatives with the aim to fully neutralize the EUR 200 million in 2023. Once again, these initiatives are already launched. Finally, we need to delever. As Maarten mentioned, our leverage is currently high, and we will focus on normalizing our operating working capital to improve cash flow.
As our margin management and cost initiatives improve profitability, our leverage ratio should drop by 1 turn in 2023, excluding acquisitions. As we expect half a billion EUR of cash out in the second half for the Kansai Paint Africa acquisition, that means getting below 3.4 times by the end of the year. This will require strict capital allocation with no share buybacks and no new M&A of significance. With the four priorities in mind, we turn to slide 18 and our 2023 financial projections. Based on the current market conditions, we expect to deliver adjusted EBITDA of between EUR 1.2 billion-EUR 1.5 billion. This is based on our expectation of volumes being down between 1%-5% for the year.
As the raw material basket declines, we also expect to realize margin expansion of between EUR 250 million-EUR 450 million, with most of the benefits to be realized in our P&L from Q2 onwards. Let's now move to slide 19, which provides a breakdown on how we see volumes across our businesses for 2023. We expect Paints EMEA to be down mid to high single digit for the year, with Q1 particularly weak before we hit easier year-on-year comps from Q2 onwards. Within Coatings, we're expecting the weakness seen in Industrial and Powder Coatings during Q4 to continue, resulting in 2023 volumes down mid to high single digits. This is largely reflective of the slowdown within the construction related segments, especially coil, wood, and architectural.
We see a wide range of possible outcomes for our China business, reflective of uncertainty over the speed and the magnitude of the business rebound from Q2 onwards as the economy reopens. We also see the benefits of easier year-on-year comps in Q2 onwards. Altogether, we anticipate volumes at group level down 1%-5%. In terms of phasing, Q1 will be weak before sequential improvement after. Turning to slide 20, we remain confident that we will see margin expansion in 2023. We've experienced two years of significant disruption in raw mats and unprecedented inflation, which we have mitigated with pricing. In 2021, pricing lagged the inflationary impact, resulting in a negative impact of EUR 153 million in our P&L.
As Maarten mentioned, we were successful in catching up with raw materials and freight inflation throughout 2022, resulting in a positive impact of EUR 212 million. Based on the priorities we have laid out, we expect EUR 250 million-EUR 450 million of positive pricing versus raws this year, this is based on our expectation of retaining prices in around half of our portfolio during the deflationary cycle. We continue to see clear signs of declining raw material prices and expect low to high single digit % deflation in 2023. Moving to slide 21, which covers our expectation for operating expenses and summarizing our current position on cost savings across the group.
We anticipate continued inflationary pressure on our OpEx in 2023, largely reflective of non-product related expenses such as labor and energy. We are working to fully offset this by our cost saving program, which are expected to deliver EUR 200 million of savings in the year. Phasing wise, savings should meaningfully ramp up from Q2 onwards with annualized run rates of EUR 240 million by the end of the year. It's important to say that all corresponding plans are already launched. Turning to slide 22, our midterm priorities. Our approach to growth will be focused. Our ability to innovate will generate targeted growth opportunities for us, even in difficult markets. We will focus on further boosting our already strong market positions rather than planting new flags across the world.
We also see sizable potential from reducing complexity and driving efficiencies in our day-to-day operations. This is the case in the way we approach pricing through the cycle, but also through significant opportunities to simplify and transform our integrated supply chain, resulting in higher asset turnover. We believe this is a material value unlock, and we will give you more details later in the year. We're also working to return our leverage ratio back towards 2 times net debt to EBITDA, a good level for AkzoNobel, and we remain committed to maintaining an investment grade rating. Our dividend policy remains stable to rising, and as leverage normalizes, we will reassess M&A and buybacks. Moving to slide 23. In summary, we continue to see uncertainties in the fourth quarter, especially with further macroeconomic slowdown in Europe and COVID-19 impact in China.
Significant pricing of 11% helped us deliver 8% revenue growth in the fourth quarter, while pricing more than offset the impact of raw material and freight inflation throughout the year. In 2023, we expect macroeconomic uncertainties to continue to weigh on organic volume growth, especially in Q1, with the year expected to be 1%-5% down in volumes. Based on our four strategic priorities for 2023, we expect to deliver adjusted EBITDA between EUR 1.2 billion and EUR 1.5 billion and a leverage ratio of less than 3.4 times by the end of the year. I now hand over to Kenny for information about upcoming events.
Thank you, Greg. Before we start the Q&A session, I would like to draw your attention to some of the upcoming events shown on slide 24. On March 1st, we will publish our annual report, and we will hold our annual general meeting of shareholders on April 21st . We will publish our first quarter 2023 report on April 25th, and the ex-dividend date of our 2022 final dividend is on April 25th, and the record date is on April 26th, followed by the payment on May fifth. This concludes the formal presentation, and we would be happy to address your questions. Please state your name and company when asking a question, and please limit the number of questions to two per person, so others can participate. Operator, please start the Q&A session.
Thank you, Kenny. We will now begin the Q&A session. For participants, if you would like to ask a question, please press star followed by the number one. Please unmute your phone and record your name slowly and clearly when prompted. Your name is required to introduce your question. To cancel the request, you may press star and then the number two. Our first question is from Matthew Yates of Bank of America. Your line is open.
Hey, good morning, gentlemen, and welcome, Greg Poux-Guillaume. Maarten de Vries, maybe for you. You have pricing up 13% in the quarter, which is a bit better than the 9-10 you guided. I know the waterfall chart shows that there was a slight mix benefit, even so, it looks like you had 11% pure pricing. Sorry to be a bit pedantic, was there any particular part of the portfolio that did better than you expected in terms of price increases sticking? The second question is whether you can give me a sense of how much inventory you were carrying at year-end versus what you would consider normal. I think earlier in the year, you talked about a couple of extra months of kind of buffer stocks.
In the introductory remarks, Greg referred to, I think it was a number of five months for Europe, which seems very elevated, but just where that inventory balance is sitting going into 2023 would be helpful. Thank you.
Yeah. First on the pricing. The net pricing was 11%. Indeed, we originally guided 9%-10%. We're very pleased with the progress we are making. In fact, it's a little bit across the portfolio, and it also talks to the overall initiatives we have stepped up to ramp up further pricing, including in the first quarter. By the way, the 2% mix is very much a reflection of marine and protective, as marine and protective has generally higher ASPs, and that's also where we saw the sequential growth coming through. No specific areas on the 11%, unless there is anything you want to add to this, Greg?
No. The, if you take China, where market prices have been under pressure since last summer, we're holding pricing as much as we can, and we're essentially stimulating the channels with promotions. That's a market that's already under pressure for obvious reasons. The rest of our business environment is pretty healthy from that perspective.
On the inventories, maybe if we take a step back, from mid-last year onwards, we have launched this initiative to bring our inventories down with EUR 300 million. We realized EUR 200 million on a comparable currency basis in the second half of the year. Still EUR 100 million to go in the first half. Part of that has to come down, or the main part has to come down, by the way, in the first quarter. Where Greg talked about is really the lag effect before we see the raw material, the lower raw material pricing coming through in our P&L.
Q3, we see from a price index perspective, we saw the peak in raw material pricing, and we clearly saw the peak from a P&L perspective in the fourth quarter. We should start to see now, raw material coming, raw material pricing coming through in the first half. To be honest, given the lag, mostly will be really visible in the second quarter of this year. That is related to the lag effect of roughly the five months which we see in Europe.
Very good. Thank you. Bye.
Thank you. Our next question is from Akhil Dattani of JPMorgan. Your line is open.
Yeah. Hi. Thanks for letting me on. I just wanted to follow up on Maarten's previous comment on seeing the peak of raw materials in Q1. I was just wondering how do you think then about the first quarter absolute EBIT development? Because, you know, historically, Q1 EBIT is roughly similar to Q4, but given that you are talking about peak in P&L raw materials already seen in Q4.
Should we be expecting a big improvement in first quarter EBIT versus Q4? That was the first question. The second question was, I was just looking at the guidance on volumes and net pricing. I was just curious because, you know, the top end of EUR 450 million of net pricing, at least when I look at my model, I've not seen Akzo deliver that sort of net pricing ever in the history. Not to mention that with the volume decline of just 1%. I'm just curious, how do you see that two dynamic playing out together, you know, delivering on EUR 450 million of net pricing with a volume decline of just 1%?
I mean, if you can share more light on those two numbers, because they tend to typically move in the opposite direction, that would be useful. Last question, any guidance on the interest costs for 2023? Thank you.
Very good. We'll take those three questions. I'll take one and two. Maarten will jump in, he'll take three. Your question on raw materials, we've seen raw materials peaking, as we said, we have a lag time which varies depending on the business and the region. We're not expecting very significant margin expansion from that perspective in terms of pricing versus raws in Q1 because of the lag, also because of the fact that we'll have some inventory revaluations in Q1, that will neutralize part of the effect. I think in simple terms, you should assume that Q1 is gonna look remarkably like Q4, both in terms of year-over-year volumes and in terms of profit level.
If I move to your margin expansion question, you said that, you know, 450 at the high end of the range is more than AkzoNobel has ever experienced, and I think that's factually correct. I think it's also factually correct to say that a 24% increase in pricing as a stack in two years is, you know, I hate the word unprecedented, but it is unprecedented. Therefore, it's really a factor of how much of the pricing we believe we can hold on to. We've guided to about half of our business, and you're gonna say, "Well, is it half in value or is it half in businesses?" You know, we can try to dwell further into that.
If we, if we do manage to do that, and we see the raw material deflation that we're talking about here, and that raw material deflation carries into the second half of the year, then there's an opportunity for significant margin expansion. There's also a lot of question marks because, I think there's a number of market observers who would argue with you that in the second half of the year, raw material prices could go back up as China accelerates and as some of the European suppliers take out capacity because of the high energy costs. There's still a lot of volatility in the year, and that hence the wide range, and hence the fact that we don't have absolute answers for all these questions just because of that volatility.
I think that as we progress out of Q1, we'll start being able to give more intelligent answers. Maarten, you wanna take the rest?
Yeah. The last question you had on interest costs. I mentioned the weighted average coupon, the 1.6% for our bonds. Of course, the short term debt is higher, so the interest cost will go up a bit in 2023 versus 2022. I would say it's not significant in the bigger scheme of things.
Thank you.
Thank you. Our next question is from Christian Faitz. Your line is open.
Yes. Thank you. I guess that's me. Christian Faitz, Kepler Cheuvreux. Thanks for taking my questions. Yeah, I have two. First of all, can you give us an early indication of how fast Chinese demand has recovered for your product range after the New Year celebrations? What are your salespeople in the field telling you? Second, sorry to come back on pricing, indeed, pricing in both deco as well as Performance Coatings has been rather robust since Q3 21, so congrats on that. When do you expect to see some resistance for further price hikes at the customer level, particularly given the still difficult demand environment in quite a few of your customer segments? Thanks.
Hi, Christian. I'll take the first question, Maarten will take the second. China demand recovering post-Chinese New Year. I mean, we are still very close to Chinese New Year, so I can't say that I have got meaningful information for you. What I would say is that we don't expect demand to go up significantly in Q1 in China. We believe there's a lag time in all of this. We believe that there's essentially a COVID rollout effect, for lack of a better word. I'll try to give you leading indicators so that you get a feel for what we're seeing.
We've got 4,000 people in China, a number of factories, and if you take our 4,000 people, post the reopening, that was decided by the government, 70%, that's 70, of our employees in China contracted COVID, and the quick recovery rate was 98%. Essentially, everybody recovered quickly. It was quite mild. We only had three people out of 3,000 that went to hospital, and all three of them got out safely. If you talk to our people in China, their belief is that, you know, AkzoNobel is mostly a tier one, tier two city implementation in terms of our plants. Chinese New Year essentially spread that to the tier three, four, five, six cities. Our people locally expect a similar phenomenon, and they're quite optimistic that the country is actually moving past COVID.
I mean, famous last words. I don't want to, I don't wanna predict something that I have very little control over, but that's what we're seeing today. Therefore, we're seeing something that doesn't really lead to a significant volume up spike in Q1, but starts improving sequentially thereafter. That's our thinking in China, and that's what we're seeing. Martin, you want to add anything or talk about pricing?
Yeah. On pricing, maybe to give some more color on pricing. What we are doing is we are still deploying price increases in the first quarter. I would say that is across the portfolios, kind of you talk about a low single-digit %. These are pricing initiatives which are staggered, some are going per January, some per February, some per March, some even per first of April. We will see some of the impact coming through still in the first quarter. There are also areas, like Greg mentioned earlier, in China, where raw material started to come down already in the fourth quarter and there is a lot of pressure in the market in terms of price pressure going down.
We are holding our prices in China, this is typically an area where we are not able to increase prices anymore. Overall, the argument is of course an further inflationary price increase given the overall inflationary environment.
Okay, great. Thanks. Thanks, very helpful, Martin, and also welcome to the team, Greg.
Thank you.
Thank you. Our next question is from Jaideep Pandya, On Field Research. Your line is open.
Thanks a lot. The first question is really on pricing. If you think about the 50% portfolio that is indexed, how do we expect pricing to develop there as raws sort of normalize and go down? Do you expect to give back all the pricing that you got? On the other 50% which is not indexed, you know, what is your confidence to hold prices, especially in areas where demand is still relatively weaker and, you know, you might see more competition? The second question really is on marine and protective. What is your visibility on the order book these days? And, you know, what do you expect for 2023 in terms of organic growth, and how big is marine and protective as a part of the contribution to the, to the EBITDA growth for 2023?
Thanks a lot.
Very good. I'll take the first question. Martin will take the second. When we say the 50% of our portfolio, which is in index, it's a simplification. I think the actual number of sort of percentage of our revenue that is on index contract, I think it's probably closer to 25% or 30%. There's another 20%, which I called index for simplicity, because these are in industries where there's a concentrating buying power and customers that have very active discussions on those topics. Essentially, areas where we believe that we will follow the patterns of an index business. In these situations, there'll certainly be discussions on the raw material baskets and that going down and are adapting.
If you look at the inflationary environment that we're facing, it goes way beyond raw materials. It also impacts things like wages and impacts things like road transport and energy. Therefore, these will be active discussions throughout the year. It's not just a question of let's apply a formula and that's the number. It's a question of where is the balance in terms of the give and take that we have within these contracts and within these discussions. As for the other 50%, I think we've demonstrated in our retail businesses, in our Deco business, that there is pricing power to those brands and there is a constructive discussion with the channels.
There'll be an interesting discussion if there's a moment where retailers feel like footfall is falling, you know, traffic's falling, because paints is one of the categories that brings in people, that brings in customers. For the time being, we still see inflationary pricing. If you take Europe, for example, in our retail channels, we believe that there's still a strong argument for that, and we will continue to push pricing through in Q1. Thereafter, it's really a question of assessing how the market develops and what's the raw material trajectory and how we can absorb the rest of the cost increases that we're facing in 2023. Martin de Vries?
On your question on NPS, maybe a few remarks to be made. First of all, as we mentioned in Q4, we've seen sequential improvements in the NPS business. For 2023, we flagged that we see a growth, an overall growth of low single digits. You're asking about the visibility and specifically for marine and protective. We see more and more projects coming on stream, in fact, in the coming 3 years, not only this year, but also 2024, 2025. That bodes well for this segment.
In that respect, we have pretty good visibility for 2023 on how we see the low single-digit growth developing throughout the year. As you know, Marine and Protective went from a profitability perspective through quite a cycle, we went through a situation that profitability went through kind of low single-digit levels from a profitability perspective. Yes, in 2023, Marine and Protective has a material impact on the improvement for the total coatings portfolio in terms of profitability. I hope that gives you a little bit of color.
If I can just-
If I can-
Follow up on that.
If I can add one thing on. Go ahead.
Yeah, sure. Please go ahead. Go ahead, Greg. Yeah.
If I can add one thing to that. You know, Maarten said Marine Protective cycled and essentially went to low single digits. You know, the market is better than that, and part of the impact has been essentially the cleanup of some of the contractual situations that we had from past years, where we were not necessarily as observant and stringent on terms and conditions as we should have been. You know, Marine and Protective in many ways is a projects business masquerading as a products business. When we look at 2023, we see a significant potential for improvement.
Part of that will be volume, part of that will be the raw material deflation, and part of that will be the non-recurrence of those impacts that we've had for historical reasons. We believe we have a good plan and we're positive and optimistic about this business.
Right. If I could just ask one follow-up on net debt to EBITDA ratio or leverage ratio. The below 3.4 you're targeting, is that on the midpoint between 1.2 and 1.5? Do you expect to generate fundamental organic free cash flow, including Kansai's EUR 500 million cash outflow?
The leverage ratio is really, we say it will be below 3.4, it's the minimum which we are targeting. Again, that is including Kansai. Greg mentioned earlier that overall we should be able to reduce 1 term a year, that is of course, that would be in a situation excluding M&A. Is that clear?
Thanks. No problem. Yep. Thanks a lot and welcome, Greg. Thank you.
Thank you.
Thank you. Our next question is from Mubasher Chaudhry of Citi. Your line is open.
Hi. Thank you for taking my questions. Just a couple left on raws. I think, Greg, you mentioned there's a five month lag in Europe, so I guess you kind of got a feel for what the 2Q raw material picture is likely to be. Is it likely to be positive already on a year-on-year basis in the second quarter for raw materials? That's the first question. The second question is on the China volume development, you talked a little bit around recovery already starting. Could you perhaps talk about the volume development, how that -1% to -5% breaks down within Asia specifically, just to try and understand what the assumptions you're using for Asia? Thank you.
Sure. I'll take your second question first, and then I'll, and Maarten will take your first one on the, on the rawls for, I think the rawls for Europe, for the Deco business in Europe and the impact in Q2. The second question on, on Asia. If you look at what we're guiding on, I think it's page 19 of our presentation, we say Paints China, we see that as weak in Q1, and we see it as accelerating for the year, and we believe that will be positive in volume, low single digit to high single digit. It really depends on the, on the steepness of the recovery. We're convinced there's gonna be a sequential recovery. We're just not sure how fast it's gonna go.
We do believe that we'll see positive volumes in China this year-on-year. As your question as to whether we see that currently, we don't. Q1, you know, we're a month into Q1, and January was in line with our forecast but was not better. If your question is, are we seeing signs of life, we don't in terms of actual volumes. We see something in line with our forecast, which was for a low Q1. What we do see is early indicators of an improvement. I think as the year progresses, we'll be able to put a little bit more meat on that bone. That's really what I can tell you today. Maarten, raw mats?
Yeah. On your question on Europe, yeah, it's exactly what we said earlier. Given the lag, -
Sorry, Martin. It wasn't specifically for you, but I was just using Euro-Europe as a basis. It was more for raw materials overall for the group, going into second quarter. But I was just referencing the comment around Europe.
For the group, specifically Q2, we will see the impact coming through of the lower raw materials, and of course, the net impact in terms of pricing versus raw material. Q1, we will not see it yet, and will be very similar to Q4, as we've indicated. In Q2, we will see the margin expansion coming through.
You would expect it to be positive on a year-on-year basis already in the second quarter, 'cause in the first quarter.
YeahAbsolutely.
Okay. Understood. Thank you.
The first quarter will be positive, but will be still... yeah, a pretty small, I would say, overall.
Understood. Thank you very much.
Thank you. Our next question is from Charlie Webb of Morgan Stanley. Your line is open.
Morning, everyone. Maybe just a couple more from me. Just first up on the OpEx inflation. Can you just elaborate a little bit what's in the others, kind of negative effect in OpEx inflation? I mean, if I think back to the last 12, 18 months, we obviously talked about carrying a lot more OpEx in terms of contractors and various overruns because of raw material disruption. You had to kind of carry more cost in that environment. As that normalizes, and I'm just trying to gauge why, you know, perhaps the inflation is what it is when you should be taking some of it out, which was always the plan, and just trying to understand what others amounts to. I guess energy and salaries is somewhat clear.
Secondly, just on leverage, just thinking, you know, beyond 2023, you know. Thank you very much for the clear steer on where you see pro forma leverage for 2023. Over what kind of timeframe do you expect, or do you think it's realistic based on what you see all else being equal, to get towards that 2x leverage, you know? Is that by... You know, is that achievable by 2024, or is that kind of really folding into 2025? Just trying to understand the flexibility you have in the balance sheet and when that, you know, you expect that to materialize again.
Thanks, Charlie. I'll take the OpEx question. Maarten will t ake the leverage question. The OpEx question, I think you're referring to slide 21. We say salaries and wages, we say energy, and we say others. If I try to give you round numbers for AkzoNobel, 2023 in terms of wage inflation, we're talking about EUR 100 million. We're talking about EUR 40 million of energy inflation. That's the delta. I mean, we're. You know, energy is only 1% of our sales and it's hedged, but these contracts are staggered, and we've got about a third of our contracts expiring, and that's a EUR 40 million year-on-year hit.
EUR 100 million of wages, EUR 40 million of energy, and about EUR 30 million of road transport because even the whole discussion about transport prices falling, that's really true for shipping, but it really is not true for road transport, particularly in Europe. That's still gonna be a significant impact for 2023. I think I've accounted for EUR 170 of the EUR 200 million, and the rest is, you know, various things. I'm not sure I have a breakdown for that. Hopefully, that helps.
Yeah. No, that's helpful. Thank you.
Maarten, you wanna take...
Yes. On the leverage, I think, if you take a step back, we focused this year to get the leverage below 3.4. We've also said that, in a normal situation, excluding M&A, it's roughly a turn a year. In that situation, we should get by the end of 2024, roughly in the 2-3 zone, and beyond 2024, close to 2. That's how you should see it. Again, this is based on a lot of assumptions and the world can change in the meantime. Our focus is really to in steps to get our leverage down to the roughly 2 times.
Okay. No, that's helpful. Thank you very much.
Thank you. Our next question is from Tony Jones. Your line is open.
Thank you. Good morning, Greg and Maarten. Maybe a question for each of you, two final ones. Firstly, I wanted to follow up a bit on the cost savings and get a bit more clarity there, especially the supply chain costs. Is this mainly something in central procurement, or is it site rationalization or something else? Could you help us with the split between decorative and coatings? That would be great. My second question is quite high level, probably more for Greg. Since you started at AkzoNobel, do you think the company is too diverse geographically with paint being quite a local business or maybe also from an end market perspective? Thank you.
All right. Hi, Tony. I'll try to take both questions. Maarten will jump in on the numbers if I get fuzzy. On the cost savings, the EUR 200 million, there's about a third of that which is already fairly advanced because these were actions that we launched late into 2022. There's two-thirds of that, which is based on actions launched in early January. If you take the EUR 200 million, there's about two-thirds of that, which is people-related and a third of that which is not people-related. The stuff that's not people-related is essentially non-profit related procurement and formulation optimization so that we use cheaper or less raw materials and things like that.
The two thirds, which is people-related, is essentially, it's on the industrial and the commercial side, but it's mostly on the industrial side, actually. There's not gonna be big social plans because, one, we started some of these measures in 2022, and two, we are getting to the limits of what we can do without significantly rejigging our industrial footprint. I'll explain that in a second. Essentially, if you take the breakdown. About two thirds of the EUR 200 million, 60%-66% of the EUR 200 million is Europe-related. In Europe-related, as you know, in Europe, as you know, a big chunk of our business is Deco. Deco is more than half of the business. Things like marine protective and automotive are going up.
You can safely assume that the lion's share of the 2/3 in Europe is actually related to the deco business. Hopefully that gives you a little bit of flavor. If we take our what we call our integrated supply chain, so essentially manufacturing and supply chain in Europe, since over two years, we will have taken down our headcount essentially by something like 15%. If you bring that back to an efficiency ratio, something like kilos of paints per head, we will at the end of this program, be more efficient than we were pre-COVID in 2019. That kind of gives you a little bit of perspective on this.
Hopefully this is enough to give you comfort that this is detailed. Then Maarten?
Maybe only still to add to that. We have indicated that the restructuring costs, which will be reflected in Identified items, will be between EUR 100 million and EUR 125 million. And that is normally kind of a one-to-one ratio. Here you see what kind of the people aspect will be. Mostly that as Greg mentioned, that is mostly in Europe. That is all we've spent especially in the fourth quarter to underpin this. This is all in motion, we will start to see this coming through from the second quarter onwards.
overall, this EUR 200 million from a restructuring perspective, but also from other, cost saving actions perspective, has been detailed out and underpinned, it's a matter of now executing. of course, it's very much a reset of our cost base in mainly Europe.
Thank you. That's really helpful.
You had a second question.
I did, yes. This was the higher level one about geographic diversity and that kind of thing. Yeah. I'm not sure which one.
Your question around how Greg sees the portfolio. is the portfolio too diverse?
Yeah. That was my new CEO question about should we be, you know, trimming the edges of the empire. you know what?
I think we say somewhere in the document that we'll focus on our leadership positions and, you know, the coatings businesses or global businesses and therefore you need to have scale at global level. The Deco businesses are really local businesses. It's important to have scale for procurement reasons and for some of the product development. The reality is that the brands are local, the distribution is local, the products don't travel very far. I think there's a valid point that you can be the market leader in China without having a presence in Latin America. You know, you can be strong in Europe without having a presence in the U.S. it's a multi-local business, Deco, rather than a fully global business.
Our intent going forward is to look at some of our more marginal positions, you know, countries where we're number four, and we don't have a path towards number two. To decide once and for all whether we need to be in these countries or not, you know, purely from a complexity reduction perspective, but also from a margin management perspective. In Deco, you're a lot more profitable if you have a large market position in one country than if you have three smaller market positions in three other countries that add up to similar volumes. Does that answer your question? It does, yeah.
That's really helpful. Thank you. Thank you.
Thank you. Our next question is from Jeff Harwood of UBS. Your line is open.
Hi. Actually, all my questions have been asked, so I don't need to ask any, but thank you very much.
Well, it's good meeting you, Jeff.
Thank you.
Bye, Jeff.
Thank you. Our next question is from Laurent Favre of BNP. Your line is open.
Yes, good morning. Two small questions, please. The first one for Greg, related to what has just been said. Have you already done a strategic review of the portfolio, or is it something that you intend to do? I mean, it sounds like. I just want to make clear that sounds like you're thinking of selling small non-core assets to accelerate the deleveraging. I just want to make sure that I got that right. Then the second question is related to that slide 22 on the medium-term opportunity around integrated supply chain transformation. I'm sorry, this is something that I think AkzoNobel has talked about consistently since 2017.
I was just wondering, are we talking about the same old plan that has not been executed yet, or are you thinking of having a step change in terms of the footprint? Thank you.
That's a good question, and it's a fair question. It's a tough one, but it's a fair one. I think I commented that on in an interview recently in Financial Times. You, you'd have to do Google Translate, but essentially the journalist said the exact same thing. Every single one of your predecessors talked about the industrial simplification. You guys have never done it. You know, why should we believe you this time? It goes back to the earlier question that I answered, where I said that we're getting to the limits of what we can do in terms of industrial efficiency by just painting the corners of the boxes that we have, i.e., keeping our plant network the same and just adjusting locally.
What we have to do as a step change is we really have to rethink our footprints. The reason why this hasn't been done is that there's a lot of preparation work that goes with that, because essentially, to transfer production from one plant to another, you've got to harmonize the raw materials because you can only have so many raw mats in the tanks in a given plant. Akzo grew through acquisitions and has never harmonized formulations, and therefore we've got very similar products with very different raw mats. You've got to simplify the formulations. We sometimes have too much complexity that don't add customer value. If you can do that, then suddenly you gain the ability to do load balancing and transfer from one place to the next.
I mean, we have a famous example of during COVID, where we had a shortage of white paint, white wall paint in the U.K., and we had white wall paint capacity in France, but we couldn't send it over 'cause it was a different formulation with different raw mats for, you know, what should be one of the most basic products. Yeah, there's healthy skepticism on that, but I think that we've made progress over the last few years on some of that preparation work on simplification. Our intent is to come out with something that we can talk to you guys about with actual numerical targets and a phasing. We need a little bit of time to work on that for obvious reasons.
As you said, you know, we get one chance to overcome your skepticism and to present something that you'll measure us on. I think you should expect something around the mid-year, you know, maybe right after the holidays in September or something like that. It will be detailed, and it will be phased, and we will be measured upon that. All I can say is that we're putting some skin in the game because we believe that this is a significant value unlock for the company. It's not gonna have an impact on 2023, but it's gonna have a material impact beyond that. There was a second question. Maarten, do you recall?
The second question was.
Selling assets deleveraging. Right. It's what I was saying a cryptic way of saying we're gonna sell some smaller stuff in order to delever. It is and it isn't. We will make these, we will manage our portfolio actively because companies like ours should manage their portfolio actively. Because some of these smaller positions may not make business sense, that will contribute to deleveraging. You know, smaller positions will have smaller impact on deleveraging. It's not so much because we believe that we've got to sell stuff in order to drive our ratios down further. We think we've got the cash flow generation that essentially will reassure the markets that we can deliver on our plans to get back towards 2 times in a reasonable timeframe.
It's really more... So it's less the proceeds and more the complexity reduction. There's too much complexity in AkzoNobel, and this is something we have to tackle. Hopefully, I've answered your questions.
Absolutely. Thank you.
Thank you.
Thank you. Our next question is from Peter Clark of Societe Generale. Your line is open.
Yes. Good morning, everyone. It's a question on the defensive part of the portfolio. This has come up before, and I know you're very confident that you have this pricing resilience, particularly in the distribution-focused businesses. I wanna nail down on something like powder, because powder, I know you have got this leadership, great positions. For me, powder is a business where I would have thought there might be some risk of pricing deflation along with costs going down. If you could address that. The second question, Greg, you're coming into a business that hasn't delivered volume growth over the long term. It has delivered value growth, though, and a lot of the businesses are more value-focused, like auto refinish. How you see that conundrum, because there tends to be a lot of focus on volume, even if value is the more important?
How do you see that? Thank you.
Yeah, on your first question on pricing and powder coatings, I think you need to really look at the different segments because there are absolutely more commoditized segments in powder coatings, which are extremely competitive from a pricing perspective. In fact, these some of these segments we have stepped out because of raw material shortages and because of the margin profile. We can step in back anytime. There are other segments which are very much driven by our position and our innovation, which are less sensitive for pricing. If you look at these different segments, that is where you see the pricing differentiation. That is what I wanted to indicate.
Yeah. I'd add to that, you know, in powder coatings, I mean, Maarten's answer is spot on, but in powder coatings, we're the market leader globally, and we have a responsibility. Volumes went down in 2022. I think as the leader of that market, we will be quite observant on making sure that we defend our pricing and that we don't chase volume for the sake of volume. I think that the proof will be in the pudding. Akzo doesn't have the greatest track record of price management on the way down, this is something that is one of our four priorities for the year 2023, because we think it's important that we show the market that we will behave differently.
You know, we'll, we'll report based on actuals rather than on promises. Your question on volume versus value, look, I couldn't agree more that the debate sometimes has been overly on volume rather than value. You know, we're in a market where people are looking at the pricing and rightfully asking questions about volumes. You know, is this level of pricing killing volume? Our focus is not gonna be volume driven. We gave an indication of -1% to -5%. Our aim is not to stimulate that by dropping prices, but certainly we aim to defend market positions that we have around the world because we believe that over time, scale matters.
Once again, it's not, we're not giving our people volume objectives, we're giving our people margin objectives.
Thank you.
Thank you. Our next question is from Alex Stewart of Barclays. Your line is open.
Hi there. Good morning. Two very similar questions on OpEx. You typically face fixed cost inflation, non-COGS inflation. It's something between EUR 100 million-EUR 150 million a year. This year is obviously higher. You can't keep taking out EUR 100 million-EUR 150 million of cost every year to offset that. What is your medium-term plan to combat what is ultimately a 5%-10% earnings headwind each year, just from the gradual increase in your fixed cost base? Related to that, you talked a bit earlier about the measures you're taking in Europe, particularly personnel, particularly paint, decorative paint costs to rightsize the business, which sounds very sensible in the scenario that inflation is pushing margins down.
What's the risk here that you take an already low growth or low demand growth business and jeopardize further your future ability to grow volumes? A business can't keep cutting costs and keep cutting personnel and expect to make the same amount of business. Very interested to hear your perspective, Greg, and indeed Martin.
Yeah
on both of those points.
These are good questions. Maarten and I will both try to give you answers on that. Your question on, you know, how long can we keep cutting and does this ever end? I mean, I think they're connected questions. I would say that you can't have a program of EUR 100 million to EUR 200 million every year where you're kind of leaving everything the same from a structural perspective, and then you're nibbling at the edges every year. You know, there's a moment where the business runs out of steam, you know. I mean, essentially, you can't diet your way to being an Olympic athlete. It doesn't work that way.
As the market stabilizes, I think the conversation's been has been dominated by conversations on inflationary pricing and compensating raw mats. The really important lesson, I believe, for AkzoNobel has been that we've rediscovered pricing management and margin management. I believe that going forward, we should have a much more value-oriented way to look at pricing, and that we do have possibilities to manage our margins without having the tailwind of inflation, which is not really a tailwind because it's actually depressing our margins, because all we're doing is essentially compensating for raw mats. I believe that we're building a better engine in terms of our ability to do differentiated pricing, to do value pricing, and I think that will pay off over time. That's one aspect of the answer.
The second aspect of the answer is that industrial transformation that I was referring to. You know, it ties to the second part of your question, which is how much extra capacity do we have? I'm not gonna give you a number at this point, but I would say that we are in no danger of running out of industrial capacity to produce paints and coatings. Sometimes we struggle with service levels because of supply chain issues, you know, raw material availability in the last few years. In terms of the size of our industrial assets and how they're dimensioned, the capacity that we have, we do have the opportunity to look at our industrial footprint in a very significant manner.
If we're able to transfer production from one place to the other by simplifying these formulations and harmonizing raw materials, then we can get to more sustainable levels of capacity utilization. What I mean by that is more sustainable from an economic perspective, i.e. currently we're too low, but not at a level where we lose the ability to grow or to react. It's a really long answer to say that, we've got a lot of wiggle room from that perspective, and we haven't been capitalizing on it, and this is what we aim to do going forward. Martin?
Yeah, maybe to Alex to add here. 2023, clearly, we're doing a reset in our cost base also based on the volumes and specifically the volumes in Europe, which we commented on earlier. I mean, in a normal situation, because you mentioned it, in a normal situation, cost inflation sits more at an at a EUR 70 million-EUR 80 million type of level. In a normal situation, we would be able to just compensate it with productivity because that's what you normally do in an in a business as usual. Clearly, business has not been usual over the last years.
We need to get to a situation where we do a reset, but also do an structural simplification, and that's where Greg was alluding to.
Thank you so much. Really helpful.
Thank you. Our next question is from Georgina Fraser of Goldman Sachs. Your line is open.
Hi. Thank you. Good morning, Greg. Good morning, Maarten. Just one question, and it'd be great if Greg could answer, please. Not asking for an early look on the strategic update. I've got a bit more of a backwards-looking question. If we go back to kind of the 2017, 2018 time when AkzoNobel Paints and Coatings was delivering EUR 1 billion-ish in EBITDA, if we think about volume growth since then, all of the cost saving programs have been enacted and all of the M&A transactions that Akzo's performed. If we think about a normalized raw material environment, where do you see a normalized EBITDA level for Akzo as of today? Maybe put another way, to what extent is Akzo under earning in the guidance that you've given for 2023?
What I've tried to do is I try to stay away from midterm targets because I believe that there's a healthy skepticism as to the promises that we make, and that my incentive as an incoming CEO is to give you visibility for 2023 and then to deliver on that and to rebuild that confidence that from our investor survey has been slightly eroded. I've stayed away from making promises for the long term. Let's have a look at how we perform this year. Let's look together at what we can do to unlock that value on the industrial side. That will underpin longer term targets that we will come out with at some point.
I won't intend to give midterm targets this year because I believe it's about short-term delivery, and it's about essentially demonstrating that what we say is something that we can deliver on.
Okay. also not-
I'm sorry. Give you any adjustments at this point.
Okay. Still not willing to kind of even say if 2023 is generally a quite depressed environment for the business overall still or?
No, no, for sure. For sure. Hopefully that was clear. 2023 is a complicated environment for the business. We've got half of our coating businesses that are shrinking. We've got the deco market, which is under pressure around the world. We've got, you know, deco volumes that are gonna be down in Europe, which is, which is 50% of our business. We've got deco volumes that are gonna be flat at best in Latin America, give or take. I think we gave you guidance in the document. We were expecting a rebound in China, based on the 2022, that was a really tough year in China. It really is not a great market environment.
The only thing that brings a little bit of sunshine to our prospects in 2023 is that we've shown our ability to keep up with inflation in terms of pricing. We believe that's part of that pricing can be retained in deflationary environments, and that we see that raw materials have peaked and have started to drop, and that we see the potential for margin expansion from Q2 onwards, as Martin explained. That's the story in 2023. This is not the story of a very supportive market environment at all, quite the opposite. It's also, you know, we already had some of that impact last year in Europe because we have quite a European exposure.
Therefore, we're banking that this impact will be negative but less drastic, again in Europe in 2023, and that all these other elements that I talked about will click in, and that we will be restoring profitability at a higher level and delivering within that range that we gave you. That's the thinking. It's not, it's not a story of a supportive market environment driving performance in 2023. That will come later.
Great. Thank you so much.
Thank you.
Thank you. At this time, we don't have any questions on queue. I'll turn it back to Kenny for some closing comments. Thank you.
Thank you, Jackie. Well, this concludes the Q&A session and our Q4 investor update. Thank you, everyone. If you have any further questions, please reach out to the investor relations team here at AkzoNobel. Operator, please close the call.
Thank you. That concludes today's call. Thank you all for joining. You may now disconnect.