Welcome and thank you for standing by. At this time, all participants are in a listen only mode until the question and answer session of today's conference. This call is being recorded. If you have any objections, you may disconnect at this point. I'll now turn the meeting over to your host, Lloyd Midwinter.
You may now begin.
Hello, and welcome to AkzoNobel's Investor Update for the Q2 of 2021. I'm Lloyd Midwinter, Director, Investor Relations. Today, our CEO, Thierry Van Lanker and CFO, Maude Van de Vries will guide you through our results. We'll refer to a presentation, which you can follow on screen and download from our website, axonobel.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 answer to your questions. I now hand over to Thierry, who will start on Slide 4 of the presentation.
Thank you very much, Lloyd. Hello, good morning, and Very well warm welcome to everyone on the call. Even though it seems That there's finally some light at the end of the COVID-nineteen tunnel with the increasing vaccination rates in meningococcal. It's also clear to us that it's still very much a rough reality in many parts of the world. So I would like to emphasize that I hope that you and your loved ones Continue to be safe and well.
Our Q2 results demonstrate our grow and deliver strategy in action With strong growth and higher profit versus the same quarter in 2020, but an even important Even more important versus our Q2 in 2019. The revenue for the Q2 was up 29% in constant currencies compared to 2020 and 8% higher than Q2 2019 With strong growth both for our paint segment and our coatings segments, adjusted EBITDA increased 31% to €419,000,000 showing good progress Adjusted operating income was up 41% at €335,000,000 with the return on sales at 13.3% as compared to 12% last year. The adjusted EPS from continuing operations increased by 50% to €1.20 Revenue in constant currencies for the first half of twenty twenty one was 20 3% higher compared to the first half of twenty twenty and adjusted operating income increased 42% over the same period with the return on sales at 13.4% versus the 11.2% in the same period of 2020. Between April 27 the end of June, we have now completed €223,000,000 of our current 1,000,000,000 Share buyback program and continue to make good progress with this. We've also announced the intended acquisition of Grupo Orbus, expanding our strong presence in South and Central America.
Let's now turn to Slide number 5. We continue to achieve strong momentum with our grow and deliver strategy as we demonstrated growth for the 4th consecutive quarter With revenues up 8% versus 2019 in constant currency, Our intended acquisition of Grupo Orbi's, which is expected to close sometime around the end of this year, We'll add around €260,000,000 revenue to our business in South and Central America, but more about that later. We launched another start up challenge as part of our pioneering Paint the Future innovation ecosystem, And we have received more than 200 submissions, to be exact, 216 submissions, which is the highest level of submissions Since starting this program in 2018, we've already signed several agreements with winners from previous challenges, And we continue to provide more innovative and sustainable solutions to our customers through our own internal R and D as well as this open innovation platform. Our strong focus on margin management means we are accelerating our pricing initiatives To address the significant and ongoing industry wide raw material cost inflation, We delivered already 4.5 percent higher selling prices in Q2 and have taken the latest raw material inflation view into account when updating our pricing initiatives to offset the full 2021 euro impact by the end of Q4.
During the quarter, we also received the highest possible rating by MSCI, CI, AAA, which makes us the only Paints and Coatings company with a AAA rating, and we have, In fact, we have achieved that rating now for 6 consecutive years. Our people, planet, Paint approach to sustainable business is delivering results. I'm extremely pleased to share the latest results from our continuous focus on organizational Which now means that we are really seeing the highest participation rate for this survey company wide survey as well as the highest OHI score since we started this quarterly survey in 2018. Let's turn to Slide number 6. As mentioned, we recently announced the intended acquisition of Colombia based Grupo, Orbis.
This aligns perfectly well with our grow and deliver strategy and is really a perfect puzzle piece for our Deco businesses and our Coatings businesses in South America. The deal extends our long term leading position across South America, by establishing us as a front runner in the region, including now the Andean and the Central American Countries which in fact show the highest growth rankings. Grupo Orbis has a 100 year heritage with Strong brands aligns very much with our core value of sustainability. The Pintuco Paints and Coatings business represents about 70% Of the 260,000,000 business acquired, of which around 75% is executive paints. The acquisition also includes Mundial, which is a premium distribution network across the Andean and Central American geographies, which is an immediate revenue synergy for the products we already market in other parts of that company.
The completion It's subject to the normal regulatory approvals and is expected by end of this year or early 2022, pending the local regulatory timelines. Moving into slide number 7. As you know at AkzoNobel, sustainability is one of our key Core values and we're leading the industry in the current rankings as well as we have our ambition to keep that lead for the future. Last year, we announced clear targets to minimize our environmental footprint, housing our carbon emissions And moving towards 0 waste, as well as pioneering even more sustainable solutions for our customers and creating an increasingly diverse and engaged organization. As one of the examples, I'm very proud to announce that we will be In the EU at 100 percent renewable electricity by next year.
Our achievements and ambitions are widely recognized, And we're the only paints and coatings company with a low risk rating from Sustainalytics and a platinum rating by EcoVardis. AAA rating from MSCI already mentioned is well above the industry average of BBB. For us at the company and for our teams, It's all about focusing on the things we can truly influence, and we call that approach people, planet. Thanks. Let's now turn to Slide number 8, which summarizes how we view current demand trends in the markets we operate in.
The underlying demand for paints is strong in all regions. Positive momentum continues for China and South America. In EMEA, demand from the Professional segment is returning to previous levels. And as anticipated, Post COVID, the do it yourself segment is gradually normalizing, but at a higher level than the 2019 rates. Compared to the previous quarter, South Asia has been impacted by renewed lockdowns in various countries, especially India and countries in Southeast Asia like Vietnam and Indonesia.
Demand for Industrial Coatings remains strong, especially in the Packaging segment. Growth trends for Powder Coatings are also particularly strong and driven by both market demand and our own market share growth, especially In the automotive industry segment, automotive and specialty coatings trends are also positive, Both Vehicle Refinishes and Aerospace Coatings show further signs of sequential recovery and are in fact The segments like Big Refinish and Aerospace back at 2019 levels. While demand for Marine and Protective Coatings is weaker than other segments, we're seeing further signs of recovery And positive order book. Demand for Yacht Coatings continued to be very strong. We're delivering on our ambition to grow at least in line with our relevant markets with our increased focus on growth underpinned by robust and market demand.
Let's turn to Slide number 9 with a focus on one of our business units Where we continue an item we started in the previous quarter, so really taking a bit of a deep dive in specific segments. Today, We'll be zooming in, in our Intuva businesses, the Industrial Coatings business and the Decorative Paints EMEA business. Our Industrial Coatings business is made up of 3 sub segments: packaging coatings, coil coatings and wood coatings. Our packaging coatings are mostly used inside metal cans, which is a fast growing segment As the world moves increasingly away from single use plastics, coil coatings are used on large metal sheets where growth is traditionally linked mainly to the construction industry. The wood coatings market is relatively fragmented, where we serve our customers who make things from doors and windows to floors and furniture.
We're a leading player for packaging coatings with an increasing share and also have number 2 market positions for both coil and wood coatings. Our products transform surfaces to more safe and sustainable coatings, and we've expanded our offering for packaging coatings and as well launched new UV cured Wood Coatings, which saves time and energy during application. Since 2017, we've delivered robust Margin expansion through complexity reduction, manufacturing footprint optimization and product management. We've continued to grow the profit All sub segments with our clear focus on margin management demonstrated by the 60% increase in adjusted operating income over the 2 last year. During Q2 2021, revenue for Industrial Coatings was up 31% in constant currency and 14% higher compared to the Q2 of 2019.
Let's move to slide number 10. Paints EMEA represented 26% of Total revenue in 2020 at €2,200,000,000 We're the clear number one player when it comes to decorative things In both Europe as well as in Africa, we have a presence in all major markets. We have strong brands and distribution, including our well known Dulux family of brands with Flourish as well as Cuprinol and Hammerite for wood and metal applications. During the recent years, we've been very busy building on a strong foundation with several successful bolt on acquisitions, for example, Teton Paints in Spain and Fabio in Romania, which has positioned us as a clear leader in the respective countries. This is an important factor, Considering that relative market share in a country is a key driver of profitability in the Decorative Pain segments.
Revenue for Q2 2021 was up 13% versus Q2 last year and 20% higher than the same period in 2019, excluding currency impacts. We've doubled our adjusted operating income for this business unit over the past 2 years. As anticipated, we see post COVID The gradual normalizing of our do it yourself segment, albeit at a higher level than in 2019, as we had predicted. The Trade Professional segment, which was down in 2020, on the other hand, has in the meantime fully recovered to its 2019 levels. And so as you clearly see, both our Industrial Coatings and our Paints EMEA segments show how we are living our grow and deliver strategy.
And with that, I'm handing it over to Maarten, who will share with you in abundance the financial results of Slide 12 onwards.
Yes. Thank you, Thierry, and hello, everybody on the call. So during the Q2, revenue was up 29% in constant currencies and 8% higher versus the Q2 of 2019. Volumes increased with 26% and acquisitions also added 2%. We focused on implementing pricing initiatives resulting in price up 4.5%, Although price mix was adversely impacted by geographic mix mainly related to Decorative Caints EMEA.
Adjusted operating income increased 41 percent to €335,000,000 due to strong margin management and cost discipline. This resulted in a return on sales 130 basis points higher at 13.3% And the return on investment up at 19.3% versus 13.8% in the Q2 of last year. Adjusted operating income excludes the impact of identified items, which had a net positive impact of €49,000,000 for the Q2. This included positive one off items related to a tax ruling in Brazil and UK Pension Plan. Identified items related to transformation initiatives had around €10,000,000,000 negative impact for the 2nd quarter.
Adjusted EBITDA was 31% higher at €419,000,000 versus the Q2 of 2020. So now over to Slide 13, which shows the development of Operating income during the Q2. Strong demand and margin management delivered almost €100,000,000 more profit in the Q2 of 2021. Higher volumes contributed €285,000,000 Significant price increases delivered €89,000,000 while geographic mix had an adverse impact of €61,000,000 And currencies represented a €7,000,000 headwind. Raw material and other variable costs, including freight costs, Increased high teen percentage resulting in a net negative impact of €128,000,000 compared with the Q2 of 2020.
This was mainly driven by the continued intensity of raw material and other variable cost inflation. Operating expenses were $66,000,000 higher Then the Q2 of 2020, as a reminder, we had EUR 78,000,000 temporary savings in the Q2 of last year due to significantly lower activity levels as a result of the COVID-nineteen pandemic. The majority of these temporary cost savings returned in 2021 as expected, including volume related cost. We've retained some of the temporary savings in 2021, including from advertising and promotion, travel and third party labor. Turning now to Slide 14, the results for decorative pants.
Revenue growth was 23% in constant currencies and 18% versus the same period in 2019, driven by strong demand in most regions, resulting in volumes 22% higher than the Q2 of 2020. This increased with 3%, although this was offset by 5% adverse geographic mix Due relatively to higher volumes in Middle East and Africa compared to the Q2 of last year versus more normalized demand in Europe. Average selling prices for some countries in Europe can be around 3 times higher Countries in the Middle East and Africa, which is what contributes to this significant mix impact. Ant and EMEA continue to be strong, driven by both the professional segment returning to higher levels And the DIY segment gradually normalizing with revenue up 13% in constant currencies and 20% higher versus 2019. Revenue for South America doubled in constant currencies It was 57% 56% higher than 2019, mainly driven by price increases and strong recovery From the impact of COVID-nineteen, that first currency impact was driven by the Brazilian real and the Argentinian peso.
In Asia, revenue was 34% higher in constant currencies compared to the same quarter last year, while still 2% below 2019 levels. Ant continues to be strong for China, Well, India and countries in Southeast Asia continue to be impacted by lockdown measures. Strong growth in volumes combined with ongoing margin management and cost discipline resulted in an adjusted EBITDA Up 7% at €226,000,000 and adjusted operating income 9% higher at €191,000,000 resulting in a return on sales of 17.6%. So in the next slide, moving to the 2nd quarter result of Performance Coatings. Revenue was up 35% in constant currencies compared to last year And 4% higher versus 2019, driven by strong growth, especially in powder coat Thanks as well as in the automotive and specialty coatings.
Volume increased with 30% As end market demand continue to improve, our strong focus on pricing initiatives resulted in prices up 5%, Although mix was slightly lower resulting in a 4% positive pricemix overall. Revenue for powder coatings was up 51% and increased 15% compared to 2019 in constant currencies, mainly driven by higher volumes on the back of strong demand and market share gains. Marine and Protective Coatings showed Further signs of sequential recovery, which resulted in revenue up 19% in constant currencies versus the Q2 of last year, although still 7% below the same period in 2019. And then revenue for Automotive and Specialty Coatings It was 44% higher in constant currencies, mainly due to significantly higher volumes, although still 6% below 2019 levels. Demand for vehicle refinish continued to recover, while the Aerospace business showed further sequential improvements, especially in the maintenance and repair segments.
Therefore, Industrial Coatings revenue was up 31% versus last year and 14% higher than the Q2 of 2019 in constant currencies. This was supported by growth in all segments, particularly Packaging Coatings. And overall, adjusted operating income was 74% higher at €179,000,000 and return on sales increased to 12.6 percent, adjusted EBITDA up 57% at €218,000,000 for the Performance Coatings segment. Moving now to the next slides. We continue to maintain a strong focus on cash and working capital management.
This resulted in operating working capital as percentage of revenue at 13.2% in Q2 versus 17.4% last year and also lower than the 14% for the same period in 2019. Free cash flow, Excluding pension prefunding and top up payments was $107,000,000 in the Q2 of 2021. Cash generation for the quarter was impacted by an outflow in relation to changes in working capital offset by higher EBITDA. As a reminder, we extended payment terms to our customers last year to support them through the pandemic. And in addition, We return to a more normal activity level this year.
Capital expenditure for the quarter were €62,000,000 We are investing in growth, the optimization of our asset footprint and ongoing integration of our ERP systems. As mentioned during our Q1 results, for the full year 2021, we expect capital expenditures to be around EUR 270,000,000 Net debt to EBITDA leverage ratio was 1.2 times at the end of Q2, 2021, in line with our target leverage ratio of net debt to EBITDA of 1 to 2 times. We remain committed To retain strong investment grade credit rating. Moving out to the next slide. Adjusted EBITDA increased 31 percent to €419,000,000 for the Q2 of 2021 It was 30% higher at €810,000,000 for the first half year, driven by strong demand and margin management.
This demonstrates how we're making good progress towards our ambition of €2,000,000,000 adjusted EBITDA for the full year 20 Adjusted earnings per share from continuing operations was 50% higher at €1.20 And we've completed now 223,000,000 Euro of our current €1,000,000,000 share buyback by the end of the second quarter, which will be finalized in the Q1 of 2022. And now I hand back to Thierry for some concluding remarks on the next slide.
Yes. Thank you, Maarten. So to summarize, we achieved strong growth and a significant step up in profit during the Q2, not only versus 2020, but also versus 2019, while delivering on all our capital allocation priorities. Although trends differ pretty wildly per region and segment and significant raw material inflation is expected to continue In the second half of twenty twenty one, our margin management process and cost discipline are in place to deliver an average Annual 50 basis points increase in return on sales over the period 2021 to 2023. As mentioned with our grow and deliver strategy, we target to grow at least in line with our relevant markets.
Building on the strong foundation, we are steadily progressing towards our stated ambition of €2,000,000,000 adjusted EBITDA for 2023. And with that, let me hand it over for Lloyd
Thank you, Thierry. Before we start the Q and A session, I would like to make a personal remark. After around 7 years leading The Investor Relations team here at Agnobel, I'm moving to a new role as Director of Strategy and Corporate Development. I'm very happy to introduce my successor, Kenny Che, who I'm sure will do a great job as Head of Investor Relations from August 1 onwards. And thank you for the excellent collaboration during recent Of course, the rest of the team will continue to be available and look forward to continued strong relations in the future.
AkzoNobel will announce our Q3 results on October 20, 2021. And this concludes the formal part of our presentation. We would be very happy to address your questions. Please state your name and company when asking Operator, please start the Q and A session.
Certainly, we will now begin the question and answer session. Please unmute your phone and record your name clearly when prompted. Your name is required to introduce your question. Speakers, one moment please for questions to begin. Speakers, our first question is coming from the line of Gunther Zechmann.
Your line is now open. You may ask your question.
Good morning, gentlemen. Gunther Sechmann from Bernstein here. Thanks for taking my question. It's on raw material costs, please Thierry. So you mentioned that you are aiming to catch up on raw material cost inflation with price initiatives by Q4.
I'm trying to get some help quantifying the pricing required for that. Are you saying that you will run rate At this close to 20% full year cost inflation with pricing initiatives, are you also looking to recover the lost Earnings mainly in Q2 where raw material cost inflation was about €40,000,000 higher than the pricing initiative that you've already pushed And then the second part linked to that is on the margin guidance. You confirm the 50 bps average annual margin expansion per year. That will be difficult for this year. If you could give some steer where you expect margins given raw material cost inflation and pricing this year, please?
Yes. Thank you, Gunther, for the question. First of all, on the raw material dynamics, You've seen that we're not the only ones in the industry taking up their forecast on what the impact was going to be from raw materials, from Low single digits, mid single digits, high single digits, low double digits. And I think now we're actually talking about high teens, and you've seen some Official reports coming out from Oren Bost. You saw some other comments from other players in the market.
So we see obviously the same things. Now that high teens is in fact in that's the impact across the year, which of course more of a heavyweight in the second And I'll answer your specific question. We want to offset the impact of the raw material inflation in 2021 Without pricing in 2021, so indeed we want to really come out at the top of the wave there On the margin, on absolute terms, we want to offset it. And I think, as you know, we're basically a 50% margin business. So It's not too complicated to calculate that 4.5%, although that is the average for the quarter and it was ramping up during the quarter, That is a bit better than half of the journey maybe that we need to do.
So there's still a lot to come on pricing. And that's also by the way has been an activity that our teams have already been doing in the Q2 as follow-up ways. We're now at wave number 3 Many customers together prices up. The best of the raw materials, I'm sure there's going to be more questions around it. On the average of the 50 bps per year, I think we are as committed and in fact, a little bit emboldened, I would say, to have that target over the 3 year period.
It is not a linear situation. If you go to the ratios gain, the percentage indeed is more difficult to obtain this year. But frankly, when I see the pricing momentum and what we see as the dynamic in the raw material And probably a correction downwards that later in the year and for 2022, it will probably be an over dimensional margin expansion than in 2020, so 2022.
So in that sense,
I think we are very comfortable sticking to the targets we have set. I don't know, Martin, if you want to add something to that.
No, I think I mean maybe it's good to add that I mean obviously from an absolute perspective, just at OPI, We will see clearly an improvement this year, but as Thierry said, it's not linear. But over the planning period, we clearly see The 150 bps improvement. Maybe Gunther, it's probably good to
put some context around what's happening in the markets out there and Why we're actually pretty optimistic for the future for the company in all this dynamic? First of all, the raw material dislocation is For everybody in the market, which means that even the typically the slowest movers in fact are forced to move in our industry. So it is industry wide because there's no way of avoiding it. We were, as we've indicated in the previous quarters and you see with our percentages we announced On our 4.5%, we were probably one of the first and maybe one of the more aggressive ones to move, and that will continue to be the case, by the way. So yes, it's going to be a bit heavy rolling in the Q3 because the wave crust there in fact.
But if you look at the underlying market demand, we see the effectiveness of our price increases and the traction we have. And we then look forward on what is to come then for the next, I would say, the next 12 months. With the dynamic, it's actually Pretty positive. So in that sense, we're pretty comfortable where we are.
Thank you. That's been helpful.
Our next question is coming from the line of Mubasher Chaudhry. Your line is now open. You may ask your question.
Hi, thank you for taking my question. This is Vashti Chaudhry from Citi. Just a couple of questions please. 1 on Volumes, how do you see the volume moving into the second half of the year and maybe into the first half next year given the base gets Significantly stronger. Just some comments around the trading and the volume outlook would be helpful.
And then secondly, on the group of Orbis, Can you highlight that your plan is to retain the remaining non deco or non coatings part of the business? And some comments around the valuation would be helpful. Is it, for example, higher than what was offered for Ticarilla by Appsil? Some context and some sizing on the valuation would be really helpful. Thank you.
Thank you, Mombasa. Let me maybe start with Question and then going to second question, there is also one last where you then can chip in on that. On the Grupo, Orbi is extremely excited about the acquisition. In fact, there's been an Ongoing conversation for multiple years now with that group. Maybe just to again highlight what the Strategic value is for us, we are the strong leader in the South Cone of South America, Argentina, Uruguay, Brazil.
We were a bit missing in action in, I would say, the Andean region and Central America, And Grupo Orbi is exceptionally strong in that area. So that's actually weighted a perfect marriage to make it really The reference in all different aspects for Latin America going forward. So we're very excited about it and very high growth areas. And although it is not an easy region to operate in, I think we've demonstrated with our own businesses that it's a high profit, High performing team that to all of the economic cycles has been delivering almost spotless in the past. And then I'm very excited to have this thing happening.
Secondly, on the activity, so what we've actually acquired for that is, of course, Bintuku's decorative paint. We also have quite some nice Performance Coatings brands, which actually very well fits with our own Performance Coatings activities in the other parts of Latin America. So that is very positive. A very nice element in there is Mundial. Mundial is their distribution network.
We have So that's the Central America and the Andean region, which is very highly regarded, very well organized. So that is an immediate Revenue synergy, when our products can go through a really established store system, a very well established store system in that region. So that is very positive. The other activity, and I think that's what you're referring to, Mombasa, there's also a resins business in there and some other businesses. We do have quite some resin activity ourselves in Latin America.
You may not be aware of that, but we actually are pretty active Also in supplying to other players in that market, we also have our wood adhesives business, Which is in fact centered in Colombia in that country. So there are some synergies in there. And in fact, there may very well be some of the activities, but those are really smaller items we made to see if they actually long term fit or not, but I think this would be really Smaller elements in there. On the valuation, well, we don't comment on the valuation, but I might add that we stuck to our golden rule That with clearly identified synergies, we don't want to pay more than our own multiple and that we stuck golden rules out there to stick to. And did we pay anything close to the Ticarilla notable?
Absolutely not. We've I think we were disciplined in that story, We definitely haven't changed our personality since then. So in fact, we feel that it was really a good Valuation both for the seller and for the buyers, we're very enthusiastic about it. Let me then go to the second question around the volumes, which is A complicated easy question, but a complicated answer given the unbelievably different dynamics and different seasonalities Compared to 2020 and coming out of coming now out of that zone with all sorts of raw material constraints that we went through, Let me put it this way. Let me go a little bit to Deco and then to the Performance Coatings situations and maybe that puts some more meat on it.
If I look at Decorative Coatings, first of all, then I've already commented on Deco EMEA in the prepared notes. DECO EMEA is gradually normalizing as we had predicted from the COVID situation, but in fact it is normal I think it is very encouraging way and very much as we have predicted. That means do it yourself in Europe is gradually returning to normal, but it's Clearly, at a higher level than the 2019, which is very positive. The other equally big part of the market It's Professional, the trade business, that was significantly down in 2020, as we commented, and that is in effect Back at 2019 levels and in fact going quite strong in there. So in that sense, I think for Deco EMEA, we're pretty positive On the revenue and volume despite all the difficulties to compare in 2020.
If I go for the rest of the globe, It's actually only good news. Deco South America, we just talked about it, but our business in Brazil, Argentina, Uruguay has been doing incredibly good Both on top line and bottom line. Our Asian business, China, as we indicated we are on a growth strategy there is performing very well. So that is very good. Southeast Asia, the underlying market is good, but that has basically been a stoplight where in India, but now in Vietnam and Indonesia, It's a lockdown.
It's open. It's closed. It's open. It's closed. So that basically makes it a bit more, I would say, handicapped, and that's probably still going to be the case in the Q3.
So PRODECO volume globally and in each of the individual regions, no issue there. If I go to the 4 Performance Coatings areas, Marine and Protective is still performing a bit lower than 2019. The one exception there is the Yacht business that seems to be going from strength to strength, including the new Nautical acquisition. It really It has been the Synergetic acquisition as we hoped it would be. But for the rest of the businesses, the order books of our customers are obviously increasing, But we've already commented that is probably more a 22 story by the time they actually used our material for it.
And IQOS Industrial Coatings, There, I think I commented in the prepared notes, doing very well also versus 2019. That is a business that has done heroic stuff and continues to do heroic stuff on their pricing. Volumes are okay. And in fact, they are recovering their pricing probably faster. They probably also have a higher hill to climb, but they're doing it faster also than the others.
If you look at Automotive and Specialty Coatings, that is actually a very positive story. Our consumer electronics business But it's mostly centered around Asia continues to run ahead of what it was in 2019, so very positive. The vehicle refinish in the second quarter was in fact back at 2019 levels With specific strength, I would say, in Europe, Middle East, Africa, so that is back as if COVID never happened. Our Aerospace business is probably the most positive surprise because during the quarter 2, as you know, we are the biggest coating supplier In that segment, in the second quarter, we were back at 2019 levels. So very encouraging Maintenance and repair, but also the OEM part was actually pretty good.
In that sense, I think aerospace is back and that is good news for us. If you look at the segment that was a bit lower than 2019, that's automotive, and that is the well documented chips that that was for the lower build of cars. For us, it's a minor segment, but that was a bit down in there. And last but not least, powder has been spectacular. There's another work around it.
As you know, this is really a growing market segment. We have the strongest franchise in that segment, and that has really been double digit growth, not only versus 2020 but also versus 2019 also has been impacted and hampered to some extent by the raw material situation, but also that team has really It shows also, I think, the market position they have been able to get really fast on getting their margins back in place While continuing to grow in that market. So, Moshe, I apologize for the long, long listening, but that probably gives you some color on the different Magnus, if you want to comment on that.
Yes, maybe I mean if you take a step back and you look at our first half of the year And this is from a revenue perspective. We basically showed a revenue increase of high single digits versus the first half of twenty nineteen. And we see that strength, in fact, continuing in the second half with also a high single digit revenue increase in the second So that's basically the continuing what Thierry mentioned and And the momentum we have in the business comparing to 2019 in that sense.
Wamsi, does that answer your question?
Our next question is coming from the line of Peter Clark. Your line is open. You may ask your question.
Yes. Good morning, everyone, and congratulations, Lloyd. Good luck. Two questions, obviously. The first one, just Confirm on the margin in the Q1 of next year on the assumptions you have, which I presume you have raw materials flattering through the The winter may be coming off a little bit.
The margin is up on the EBIT line, so there'll be 2 quarters of depression. Because obviously, when we look at the 9 months going from the Q2 of this year to the end of the year, you're looking at the 9 month period where the raw material inflation will be worse than anything you saw In 2017, 2018, I accept demands better, I accept pricing better, but just want to confirm that's what you were indicating. And then just secondly, looking at some of the comments on the wire about M and A and talking about Asia actually. I thought Asia was not a no go area, but a very difficult area based on pricing and the opportunity and the risk Over there. So just wondering what those sort of comments were referring to.
Thank you.
Yes. So let me address the last one because I'm a bit confused also about it. Because the comment I made is that we would love to do acquisitions in Asia. That I think we've been saying that all along. It's just not easy to do because of the multiples that are for a listed company there and that a private owner often prefers to try to do There's some kind of an IPO versus selling to a strategic who already gets the sweaty hands if it goes to 15 times multiples.
So that was the reference. So I don't know What the wire comment was about on that. On the margin element, maybe let me give you the assumptions and then Matt maybe you can look at that. We see the raw material impact in our numbers as we actually had anticipated, actually getting to its peak in the Q3. We do see on the inputs, so this is in our books, but on the input, we do see that stabilizing and then gradually our assumption for 20 22 is that it actually will land somewhere between what was a low point in 2022 and the high point in 2021.
And now we can I have a bet on where it's going to land, but that's going to be sitting somewhere there in the middle between those two? Our pricing, of course, is as we just indicated, It's all targeted at recovering the margin right now. So that would bring a margin expansion in 2022. But I don't know, Martin, if you Want to put more color on it?
Yes. So on the raw material, as Thierry mentioned, we will see the peak clearly in the Q3. And as It flows through the P and L, really raw material at elevated levels in the second half, While we are catching up with pricing and then fully offsetting in amount, the raw material increase in amount offsetting with pricing, But indeed, towards 2022, while we do expect that raw material starts Flatten uneven starts to decline. That, of course, gives the opportunity for further margin expansion sometime in 2022. So that is kind of the phasing you should see.
Does that answer your question, Peter?
It does. Thank you very much. I think so anyway. Thank you.
Our next question is coming from the line of Georgina Iwamoto. Your line is now open. You may ask your question.
Hi, good morning, Thierry. Good morning, Martin. Nice to speak to you. I was wondering if you could maybe give us some kind of a look into how mix for the group And particularly in Deco, it might shape up in the second half of the year. And then kind of just bigger picture, the 2020 message was like a lot of lower margin businesses weren't in action.
And so certainly in Performance Coatings, I was expecting quite a big step up this year. So just to check on the kind of outlook for mix would be really helpful. And then I was just wondering from As group sustainability perspective, you said 100% green electricity in Europe. How do you see your ability to deliver like that same metric in other regions? And how much of a focus for your business is that?
Yes. Let me start with the last question first, Regina, and then we'll work our way up to the other thing. On sustainability, indeed, next year, we will be at 100% renewable energy for AkzoNobel in the EU. For the other regions, as you say, as you know, we've stated that we want to be at 100% renewable energy globally July 2030, and the step up is actually pretty massive. I don't know if you follow us on social media, but you will see that in our Mexican plants, we actually went completely to solar.
In fact, I think in the current communications, we've seen Chinese plants that actually go full blast on solar energy, wind, etcetera, etcetera. So I think that's our goal is to get to 100 percent renewable energy by 2,030, but we're making well steps ahead of that. So I don't think that's an impediment for the rest of the targets we have outside of the EU. Does that answer the first question, Georgina?
Yes. But can you just maybe give an are you kind of securing long term supply agreements? And is that the kind of The same strategy in Europe and Rest of the World? Or are you going to have to kind of build any of your own, I don't know, wind farms, something like that?
Well, it's well, as you know, it's not that silly because AkzoNobel actually has quite some wind farm Knowledge based on our chemicals experience from the past, but it's in fact, it's all of the above. Mostly, it is actually making sure that we Procure electricity that comes from renewable sources and that mostly goes to the utility companies that we have long term agreements with. But to be honest, there's also quite some elements where we frankly do electrical or solar off the grid, And which then frankly is directly used on the site. We have this on the site in India, for example, where we actually use it directly to the grid, which is then Free energy that it's not this you sell and then you buy it back, etcetera. Windmill, same thing.
We have quite some windmills where we basically in Europe Have direct relationship with all of the above. And in fact, we have the energy buying part of our procurement group, which is basically pretty much looking at what is the best And the most efficient deal to basically get there. So it's all of the above.
Great. Yes, that answers that part.
Yes. So then let's go to the mix questions. I'm not sure if I got completed the question on the coatings one. But for the Deco mix, I've commented on that I think in the past. First half of twenty twenty, there's so many moving parts.
It's difficult to compare, but let me then maybe still try to give some comments around it. If you look at the mix, for example, in the pricing we did and then the mix in BECO, almost all for the company, The negative mix is in DECO EMEA, but that is in fact is hiding good news. You may remember that in the Q2 of 2020, Our Middle East, to some extent Turkey and then African business was really completely in lockdown And that is that IngFACT doing quite well right now. Now that is a business that is at a lower pricing point, high profitability, however, it's just because we Stop at a certain point in the sales channel, and therefore, our pricing point is a different one than we have in the rest of Europe. So That negative mix is in fact the point that the North Africa, Middle East, Sub Saharan businesses came back.
So it's actually good news. For the mix for what the other regions, well, first of all, if you look at Deco EMEA, you have The non EMEA businesses are still operating at a higher margin and they are basically doing quite well. So that gives the, I think, Kind of a margin and mix enrichment, if you like, regional enrichment. The second thing is in Deco EMEA, you have on the one hand, you have do it yourself Starting to normalize, but do it yourself is typically at a somewhat lower price point than trade, a professional business. That will continue to be at a normal strong level.
So pricing 1 in mix 1 segment 1, that would be a bit of a positive. So I think in that sense, I think the mix would probably be pretty much comparable to what we have right now, I would say, going forward in the Q3 and Q4. Just want to add that one other mix element that actually is in the other part of the universe Was that we had this quarter a bit less wood coating in Teco EMEA, less wood and metal because of the really Bad weather, but actually it's a good bad price, but that was a minor element. On Coatings, Georgina, I'm not completely sure if I understood Your question, what you were asking on the smaller segments, I'm not sure, the lower margin segment.
Yes. So maybe It's me that's misunderstanding. So if I think about the business performance during 2020, In the second half, a strong bounce back in Deco, but you had in Performance Coatings where there are a lot of higher margin businesses, very low volumes and very sub Due demand last year. Now obviously, that's recovering this year. And so for me, like the way that I would think about your Question is that you're gradually having better mix as the higher margin businesses come back, like particularly thinking of Aerospace.
And so I was just Kind of trying to understand at the group level, should mix be improving from here?
Okay. Good question. Well, In fact, yes, on what the mix is concerned, I think all indicators are green for what Performance Coatings is concerned over the next 12 months because you are right. I think our Automotive Specialty Coatings business, Aerospace, VR, tend to be the higher margin businesses in that segment. They were actually relatively harshly impacted last year.
And as I indicated in one of the previous responses, they Are actually operating back at 2019 levels, so they actually came back. So that is a mix enrichment. And I'm just going here to the different segments. You would expect indeed that the mix of anything in Performance Coatings is trending up. And in fact, for us, it's pretty clear.
Market demand is there. The segments are coming back. We are at the very minimum holding our share and even expanding some share in some of those segments. So for us, the task is pretty clear. It's actually Offsetting the raw material inflation, which we are I think we have we're probably ahead of the pack in doing so, We will we are very determined to keep doing that.
And then frankly, I think for the next 12 months, it's actually going to be pretty positive development for the company.
Yes. So Georgina, I think the thinking about mix is correct, and we compare more and more with 2019. But the key gain for us is, of course, as Sherry just mentioned, is offsetting the raw material and driving Our pricing actions, that is the key focus and the key driver. Okay.
Thank you both.
Does that answer your question, Pune?
Yes. Thank you.
Thank you.
Our next question is coming from the line of Jaydeep Panya. Your line is now open. May ask your question.
Thank you.
Yes, the first question really just is around operating leverage and sort of SG and A costs. So obviously, SG and A costs are around 28% of sales. You haven't you've done a very good job in reducing costs. I mean, there are sort of record low levels in terms of percentage of sales. So when we think about sort of going forward, I mean, will you have to put more cost The business as life comes back to a bit of normalcy.
And the second part of that question really is, Does operating leverage remain relatively high, I. E, about 50% because your utilization right now is very, very strong? That's my first question really. Sorry for the 2 parts. And then the second question is really around Maybe I misunderstood your theory because you gave a lot of information today.
But are you sort of saying that 2021 50 bps margin target May not be achievable and we should think more in 2021 to 2023 because of the Significant dynamism in raw materials right now. And therefore, on a 3 year view, 150 bps is very much Achievable, but this just may be a little bit of a difference in progression. And then just finally, just to follow-up on Georgina's question on mix. Considering how Turkey and the Middle East was doing in Q2 versus Q3 last year, should we think then that mix If everything is the same, in Q3 this year, it's going to be stable versus Q3 last year? Or Are you going to sort of see a monster 7%, 8% pricemix in Q3 because of the pricing actions and then obviously on top of that, The mix comparable.
Thanks a lot. And Lloyd, good luck from my side as well. And yes, make sure if you buy Axalta, you get a good deal. Thanks.
Okay. Thanks, Adit. Let me try to take your questions in reverse order. And by the way, we will have the pleasure To work even more with Lloyd, so I think looking forward to that. I'm not sure if Lloyd is looking forward to that, but I think we're looking forward to it.
On the mix In Deco EMEA, you're totally right. I think there's many puts and takes and lots of stuff to compare, but you actually have to look at a pretty similar situation as As was in the Q3 of 2020. So I think that and there's so many puts and takes and what is in and what is out and what is It's geo mix changes, it's pricing changes, channel changes, etcetera, etcetera. So it's all sorts of stuff. But The way that we predict it, it would be pretty similar to the Q3 last year.
So no stellar monsters, whatever, that would come up there. The second question that you had It was around the expansion of the basis points. You are right. I think if you go through the math, given the high inflation of raw materials, It is not realistic to look for the 50 bps increase in 2021. Having said that though, It is actually a tailwind for 2022 and beyond.
That's also why, 1st Why do we do the pricing work? Because we have to. That's clear. Secondly, we also know that this Situation with raw materials is pretty well, I would say it's a very specific artificial Temporary situation, temporary as in 2, 3 quarters that we have to take the medicine there. But when we get to the correction of it, It is also pretty obvious for those that in many of our channels, the pricing sticks independent of the raw material cycle.
So it is for us actually a very nice margin expansion opportunity at the other side of the mountain, to be honest. We first have to climb the mountain, and that's what we're busy doing On the other side of the mountain. So that was my reference around the 50 bps on average a year. If anything, I think we're more certain about it than before, but it's Not going to be linear given this significant dislocation that we've seen in raw material. On the operating leverage, Martin, maybe you take that one.
Yes. So maybe on your comments on SG and A and OpEx, maybe to confirm, if you look at the Q2, We've really shown very strong cost discipline. You might remember that in the Q2 of last year, we had $78,000,000 of Temporary savings, dollars 66,000,000 came back. That includes, by the way, also additional volume related It's cost. On top of that, we have compensated inflation.
And then we had still we retained basically temporary cost savings in travel, some 3rd party labor, 3rd party services as well as advertising and promotion. So what I want to say is that The cost discipline is strong. We continue obviously that cost discipline in the second half, But it might be that at certain moments, some of these temporary costs are coming back, travel and entertainment at a certain moment, Some spending additional spending in advertising and promotion. So that is more On the generic OpEx line, from an operating leverage, I think we have earlier indicated and I want to reconfirm that that's from an If you take a step back from an operating leverage, you really need to think of the 40% operating leverage in generic terms.
Pradeep, does that answer your question?
Yes, it does. Thanks a
lot, folks, and keep up the good work on sustainability. Thank you.
Thank you very much. We will do. Absolutely.
Our next question is coming from the line of Laurence Alexander. Your line is now open. You may ask your
Good morning. Just one quick one. Are you seeing any signs of demand destruction,
Particularly on the industrial side, given the size of the price increases you were discussing over the next 6, 9 months? The answer, Laurence, is actually no. Now you have to couple the raw material inflation and therefore the pricing work we have to do, you have to couple that On the availability issue from raw materials, so you have a bit of a constrained element there. Now that doesn't mean that the discussions are easy, of course. I think There is always a viscosity in getting our own prices through because it's end of month, it's end of quarter.
Sometimes you have contracts where you have So if you go outside of this certain bracket, you can renegotiate. So that's the typical inertia in there. But it's yes, I mean, it gets a bit more aggressive if you come for the 3rd time at a customer who is already stressed because their wood or their metal or other inputs Just on open price, but I don't think we see necessarily value destruction, I would say, or
at least demand destruction on our end.
One element I would like to highlight is that in places like Asia, but specifically China, that has been It's invisible to get our prices up. I would say fortunately, but I don't take that too literally. Fortunately, the raw material increases are such That even the most ardent local supplier cannot ignore it anymore and has to start doing something about their prices. So It's pretty brutal out there, but I think we have we don't think we necessarily lost market there. The one element that I would point out, But we didn't mention that in our notes is that there is a part of the demand we could not fulfill Because simply the raw materials or the logistics were not able to be there in time.
Now that's a minor part, so that's why we didn't mention it, but it's really hand to mouth From raw materials, starting to stabilize a little bit across the network, but it's still pretty tight on just the availability of raw materials. And that ironically Helps in the pricing work that has to do. Does that answer your question, Laurence?
No, no, that's great. Thanks.
Thank you.
Our next question is coming from the line of Laurent Favre. Your line is now open. You may ask your question.
Yes, morning. Two clarifications questions for me, please. Thierry, going back to the point on mix and Q3 and what you just said, I was a bit surprised because I think Q3 last year had a minus 6% on mix in Deco. Due, I think, to Middle East recovering faster, etcetera. So I was surprised that are you announcing that Q3 this year, the mix should be similar to Q3 last year.
So all we have to play for from a price mix standpoint is just the underlying price increase. That's question number 1. And then question number 2, around raw materials, so you just mentioned availability. I was wondering on the actual cost side, if there's any component of that which is a bit exceptional in nature as in you adding to buy But materials from different providers compared to usual, etcetera. So in that high teens inflation, is some of these
Maarten, you cannot comment on the mix because it's as it has been the last 18 months, everything is complicated to compare with everything. But let me start on the raw materials. Yes, there has been a lot of spot buying. Again, in the basket of our raw materials, let's say, 10,000 to 12,000 raw materials, we typically always have a couple of force majeures ongoing on a normal in a normal year. That at one point was more than 500 horse majeurs and it was actually this time not in some exotic additive.
It wasn't actually mainstream products Raw materials that we source, that has just to give you the current flavor that is when I say stabilizing, we're now probably more at 40 to 50 force majeurs and it seems to be increasingly so again for the medium to small volume product That requires still a nuisance for our teams by the way, but it gives you a bit of the flavor I think on how this wave is going to our supplier network. And because of those force majeures have been declared, we, depending on who we were buying from, but the same we believe is true for every other paints and coatings company, Austin had to switch pretty much on the dime, turn around and start buying from somebody else, which were spot buys. With people who are also tight on supplying. So you have the underlying inflation, but when we talk about this high teens and the infamous ore and moss 20%, which is Very similar to what we see, that is a combination of underlying inflation. It's a small device, but also logistics, by the way, which also has been pretty wild ride to get things in place, to get Sometimes different silos installed, temporary silos to get the new raw material in and then don't mix it up with what is still the other grades that's in another silo, etcetera.
I spare you the details, but that is also part of that inflation. All of that will, of course, if you're going to 2020, will start filtering out of the system. So The current percentage is anyway not sustainable as an increase for raw materials, hence our optimism for 2022. But at the same time, I think there's also some of these extra costs that will disappear because as the network supply network starts stabilizing. Maarten, if you
want to talk about that. Yes, on the mix, I think we need to be a little bit careful to just reverse The mix of last year to a significant positive mix this year because in the meantime, And a lot of changes in the portfolio have been going on in terms of geographic mix, general mix, etcetera, etcetera. So that's The reason why Jerry mentioned that a reversal of that mix is not so likely, so it will be more Comparable to last year, maybe slightly positive, but not in a way that you reverse that total. That is more the context which we want to give.
Okay. And then if
But tomorrow?
It does, yes. And then if I summarize everything, so it sounds like you're a bit more optimistic than consensus on top line, in particular with pricing. And on the margin side, well, the effect of inflation means that the percentage margin has got to suffer also with raw materials. So how do you feel about as a summary, how do you feel about current expectation for absolute profit forecast for 2021?
Well, I think we're pretty positive around the absolute, absolutely, yes. I mean, but I think your summary is correct, Laurent. I think if this is To the France Mountain Stage, I think we're on the mountain. I think we're leading on getting the prices out there. I think I generally believe It's pretty sweaty getting up there, but frankly, we're pretty positive around the descent of the mountain where actually that's actually going to accelerate the speed of the business.
So in that sense, the optimism is that you sent is also real.
Yes. And you heard my comment on the absolute. We absolutely see an increase from an absolute adjusted OPI, but we have also said that the percentage will not be linear. So we are more I think that's kind of what we mentioned earlier, the almost 50 bps over the 3 year period.
Thank you, guys.
Have a good day.
Yes. Thank you, Laurent.
Our next question is coming from the line of Alex Stuart, your line is now open. You may ask your question.
Hello. Good morning. Thank you for the call as always. First on raw materials, you started the year talking about low single digit inflation, then it was high single digit inflation and now it's double digit inflation. But back In February, you also talked to us about better visibility into your raw materials because of changes you've made And contracts that you've set up, and I think you talked at the time about having visibility into the second half of Q3.
Clearly, that statement is now called Question, given the changes in the basket that you've seen over the last 6 months, so why is it that you didn't have as good visibility as you thought? Was it just because of the force majeure? Or was it Something else on the system, the internal side that meant that you perhaps couldn't predict or couldn't anticipate what happened in the market. Your views on that would be really kind. And then on in Industrial Coatings, if I look very simplistically, I know this isn't A perfect measure.
But if I look at volume growth over the last 2 years compounded, You're actually seeing a slowdown in volumes in the Q2 relative to the Q1. In Q1, you were running at somewhere about 2% above 2019 and now you're running roughly flat relative 2019, it's interesting that slowdown given what's happening in industrial markets. If you've got any specific comments on that, that would be really useful too. Thank you so much.
Yes, thank you, Alex. First of all, first question, the visibility was indeed correct. And I think this one price It's our early warning system that obviously was not in the company before mid-twenty 17. I think how that has been spot on. What is a big difference here is a legitimate question, and I see that other people in the market have been showing some things, struggle to predict it.
1 is indeed the high amount of force majeure. Again, this was we already saw the things coming, then there was a famous Texas freeze, And then you had a number of freak incidents and accidents with people who were starting up their reactors again or had postponed the maintenance In 2020, will the Portmejour then really force you to go to other suppliers, spot buy, etcetera, And that became a pretty that started feeding on itself. I also want to point out that as you would expect that typical contracts for big products, They do have a break clause in there if the input cost goes out of a certain bracket. And I would say for the majority of those contracts, Those clauses have been invoked by suppliers because it's also their input cost was higher, orally had a force majeure, etcetera, etcetera that was there. So, not sure if we have if that has come through, but our raw material field or the whole network into paints and coatings has been in Complete disarray.
So, hence, the lack of the predictability on there. The second element that should not be forgotten It's the, I would say, the over enthusiastic or much more than we anticipated bounce back of markets, which in fact is positive for a company like us, of course, at the same time, hasn't helped the story Around the raw materials and the predictability. And in fact, the bounce back was not always where we had expected it. Good news, as I just indicated, For example, there's an aerospace business actually coming back much quicker than anybody had expected. I think 1 or 2 quarters ago, we talked about 20 23 and here we are, it's back where it was in 2019, but that also then gives quite some demand Spikes for those already stressed supplies of raw materials.
So there's a number of elements that actually came in. Again, logistics, I'm not going to start talking about the Suez boat, but that's just one symbolic example of shipping containers, sea freight, etcetera, That was has been stabilizing a little bit. It was completely in disarray. So that's actually on the road. On the Performance Coatings, Alex, I mean, I'm frowning here a little bit and I think Martin has been looking at the numbers.
Our coatings business is definitely up 1st 2019, so I'm not sure if we're looking at the same numbers here because if there is a positive element in 2020 COVID, The industrial markets were hit much more negatively than our Deco business. But as I just did a rundown of the 4 segments we are in, Maybe with the exception of marine and protective, I would say the other markets are all basically Coming back quite nicely. So there we maybe have to compare notes, but that is not exactly how it works.
Alex, you were referring to the Industrial Coatings business. Is it
the Performance Post Coatings and Industrial Coatings, but for both actually it's not visible.
So if you look at Performance Coatings, you did minus 7% on volumes in the first 20 plus 10% in the Q1, which is a compounded plus 2%. In the second quarter, you did minus 23% last year, plus 30% this year, so that's a compounded 0. So I know we're sort of squabbling over tens or hundreds of basis points, but it's about the 2 year trajectory slowing down.
Yes. But that's okay. So that's the execution of volume wise, definitely up Significantly. So that's maybe something offline to check because in fact that is one of the positives that we see in the business. Again, Arena Protective is probably the one that is trailing 2019.
All the other three businesses are actually significantly ahead of 2,000 the first half of So let's compare notes there because that's not correct.
We accept in automotive as VVA, the OEM segments. Yes, but even there,
it still applies for osmosis, especially coated, even including osmosis. So Arash, can we take that offline because that is not how we look at it. Yes.
All right. And I see still some questions in the queue and we're running out of time. So we'll see if we can do some pretty quick Qs and As, so please go ahead with the
next question.
Understood. Our next question is coming from the line of Perry, your line is now open. You may ask your question.
Good morning, everyone. Firstly, just on M and A, you've seen Gripo, Orbis and Ticarilla come Market recently. You're seeing a lot of opportunities at the moment or at least more than in recent years? And can you get to your EUR 2,000,000,000 20 20 3 EBITDA target in the absence of further bolt ons. And then secondly, if there's time, I know there's been quite a few questions on mix, so apologies.
But You've spoken about geographic split as being the main driver of that negative mix. But have you seen any sort of down trading given the Level of price increases and I guess going forward, is that something that customers do or not something you see so often? Thanks.
Yes. Thank you for the question. On M and A, do we see more, I would say, directionally, Yes, but it's not that much. Don't forget that the companies that are typical targets for the larger players tend to be family owned businesses and Those decisions are a bit different. I mean, the decision making process is different than just so we had a bad quarter, let's do something that's a different one.
I would expect there's going to be, again, directionally a bit more opportunities, specifically in companies that either were in the Performance So I think areas that were but it has been distressed for a long period of time, I think more related to automotive, which is not necessarily something that is our first Attention to look at in Deco, there may be some companies that either were in regions that were depressed That may have started to think differently about the future or in EMEA companies that feel like this was actually an exceptionally strong run. So maybe specifically if they were focused more on do it yourself and therefore decide maybe it's a monetizing option. But I don't think it's going to be a floodgate. And in fact, it's also still the quality of the assets that you look at and not just demands come available. Answering your question flat out on the 2,000,000,000 EBITDA for 2023, that plan is not based on acquisitions.
So it is an organic underpinned Program, so we are not counting on acquisitions that would actually be not serious to count on acquisitions to get to a SEK 2,000,000,000 EBITDA, Whatever comes in at night, I mean, in the whole noise factor, but it's not based on that. On the your last your first question was on the down trading. We don't see that. I mean, that's a Clear statement that we don't see down trading, and we don't see that in Vecto EMEA. And again, there's always exceptions on the rules, but in generally, not at all.
In fact, if you go to Latin America, we just We upgraded our medium line to a much better printing system, which is now being rolled out in Uruguay, Brazil and Argentina. And actually the market success is actually pretty strong. So we don't see that at all. And in fact, in coatings, that's not an applicable situation anyway. Does that answer your question?
Yes, that was great. Thanks very much. Cheers.
Yes. Thanks.
Our next question is coming from the line of Chetan Udeshi. Your line is now open. You may ask your question.
Yes, hi, thanks. Good morning. Quick one. For Q3, when I think about the net impact of price and mix on the EBIT bridge, you had minus 100 in Q2 Net of price mix and rose, will it be better than minus 100 or you see similar numbers in Q3 before it gets better in Q4? Thanks.
Yes, I would say we don't give specific guidance for Q3. I think the key to do for us in Q3 is really our pricing actions. We commented earlier That's raw material we see peaking in Q3 and it's and our pricing actions are there really to catch up and All to compensate by the end of this year the total amount of raw material with also the Same amount in terms of pricing.
Thank you.
Our next question is coming from the line of Geoff Haire. Your line is now open. You may ask your question.
Hi, thank you for the chance to ask some questions. Just could you hopefully help us with what the EBITDA or EBIT margin is of group Orbis? I mean, if you don't want to give us a number Just to say what it is relative to the Deco division as a whole. And then we also had one of your competitors yesterday talking about impact of volumes, particularly Endecco from raw material shortages. Is that an issue that you're facing as we go through into the second half of the year?
Yes, two questions. I think on the EBITDA group of Orbi's, to be honest, since we haven't acquired them yet, it's probably for them to give you the information. So it would be Not appropriate for us to comment on that, but suffice it to say that we wouldn't have done the acquisition If we weren't convinced that we can actually improve on that number to the synergies, etcetera. So I think it would not be appropriate to go there. Secondly, on the volumes, we haven't necessarily spoken, I alluded to that, around what we missed.
But because, yes, because of raw materials, sometimes because of Packaging, we actually couldn't ship the material or we couldn't fulfill it. So there's a number of backlog items that we have to go through. We didn't necessarily use it. It's a 3 digit number if you rack it all up. But to be very honest, I also think there were some other business that we had Somebody else couldn't apply.
So I don't want to get into a situation where we only calculate the negatives to justify the numbers And forget the upside that came from that. So I'm not sure if it's very serious to really point too much on business we missed because we gained some stuff too because of that. So that's why we didn't mention it.
Okay. Thank you.
Our next question is coming from the line of Matthew Yates. Your line is now open. You may ask your question.
Hey, good morning. A couple. If I heard correctly earlier on the call, you said you were even more confident About the midterm margin outlook, obviously, in effect, you talked about a difficult I think in the slide deck, you talk about by the end of the decade, over half the products are sustainable. Can you just address then the other half of the portfolio? I guess by definition those are unsustainable.
So Are there just certain products that are not possible to reformulate because of performance issues? Or is there a part of the portfolio we need
Yes, good question. Let me maybe start with the second question. When we talk about we have a very clear methodology on how to rank our products on sustainability. When we talk about Products that are more sustainable, that means we look at what is the best sustainable alternative out there in the market and are we doing better. So that's what we call with a sustainable So if it's solvent that's being used, can we do it with waterborne as we're now rolling out, by the way, with the Deco wood finishing product, which is actually It'd be nice to have an exterior wood product waterborne that has the same UV resistance as solventborne or bio based, etcetera.
That's why we call it more sustainable. The others are not non sustainable. These are the ones where frankly we feel there is no differentiation between us and the rest of the offer. I'll give some examples. If you look at a solvent borne vehicle refinish thing that is isocyanates, a solvent borne, etcetera, That is what the market, in fact, requires.
That's also what specified that frankly, our product is the same sustainability or lack of sustainability Then what the competitors are doing. So we talk about where we have a competitive differentiation versus what's in the market. So hopefully that answers the first question. That's the second question. The first question why am I more confident?
Because frankly, this is a it's actually A really nice margin expansion opportunity. Sure, the Q3 is going to be the mountain stage in the Tour de France where it's going to be a bit sweaty. But frankly, the price the cost inflation for raw material is clearly a temporary situation. It is a 6 The 9 month situation that floats to our industry, we do get the traction on our pricing and we have the determination To put our pricing up, as you've seen already in the Q2, and let's not forget that probably 2 thirds of Our network is distribution based, where in fact distribution and we play it by the rules, loves in fact opportunity for them to also increase their prices in the market. So that means those prices typically stick.
So for me, This is a very nice opportunity to go for margin expansion. And sure, we talked about the percentages this year, absolutely, don't feel too uncomfortable about this year, but Percentages, but frankly, I think that's going to pay, I would say literally, in fact, it's going to pay dividends in 2022. So that's why I'm more confident about.
Thank you.
Great. Thank you very much for all your questions. We've been through many this morning. So hopefully, you found that helpful. If you do have further questions, please get in touch with the Investor Relations team.
And thank you for your continued interest in Axi Inovail.
And that concludes today's conference. Thank you all for participating. You may now disconnect.