Akzo Nobel NV

AEX:AKZA

Earnings Call Transcript 2021-Q1

[Operator]

Welcome, and thank you for standing by. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at this point.Now I will turn the meeting over to your host, Lloyd Midwinter. You may begin.

[Lloyd Midwinter, Director of Communications & Investor Relation]

Hello, and welcome to Akzo Nobel's investor update for the first quarter of 2021. I'm Lloyd Midwinter, Head of Communications and Investor Relations. Today, our CEO, Thierry Vanlancker; and CFO, Maarten 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, akzonobel.com. A replay of this webcast will also be available.There will be an opportunity to ask questions after the presentation. For additional information, please contact Investor Relations.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 now hand over to Thierry, who will start on Slide 4 of the presentation.

[Thierry F. J. Vanlancker, Chairman of the Board of Management & CEO]

Hello, everybody. Thank you, Lloyd. Hello, everybody, and a very warm welcome to everyone on the call. Yes, we're still in COVID-19 around the world, so I hope you and your loved ones are all safe and well.Our Q1 results demonstrate very much the change in trajectory due to our new Grow & Deliver strategy. We achieved strong underlying growth and a further step-up in profitability. Revenue for the first quarter was up 16% in constant currencies compared to 2020 and 10% higher versus 2019, including strong growth in Asia. In Q1, we delivered organic growth of 15% and acquisitions added 1%.Before we go on with the text, you may recall that we used to report ROS, or return on sales, excluding unallocated costs. This was in relation to the metrics set for our Winning together: 15 by 20 strategy. As of now and just as a reminder, we now focus on ROS defined simply as adjusted operating income as percentage of revenue. And hence, our ROS in our definition used as of now increased to 13.6% versus 10.4% for the same period last year.Adjusted EBITDA was 29% higher at EUR 391 million, and adjusted earnings per share from continuing operations increased 66% to EUR 1.18 per share. Free cash flow improved by EUR 118 million, and return on investment increased to 17.7% as compared to 14.7% in 2020. We also have now concluded our EUR 300 million share buyback, and we will start the additional EUR 1 billion share buyback, as announced early this year, we will start it on April 27.In addition, we have completed the acquisition of Titan Paints, which strengthens significantly our business to be a clear leader in Spain for decorative coatings.Let's turn to Slide #5. In summary, the results for the first quarter, we believe, demonstrate a powerful start to our Grow & Deliver strategy. Volumes grew for the third consecutive quarter. They are 16% higher than Q1 last year and up 8% versus the same period in 2019.Our recent acquisition of Titan Paints in Spain expands the portfolio of sustainable solutions that we are able to offer to our customers there. In addition, we continue to see strong growth for our Powder Coatings business and now have a dedicated portfolio in place to supply the electrical vehicles segment.We've kept a laser strong focus on margin management, accelerating our pricing initiatives to address the significant industry-wide raw material cost inflation and delivered already in Q1 a 2% higher selling prices. During the quarter, we've also completed a major ERP integration in China and also reached 100% renewable electricity use in France, and this is in addition to the 11 countries where this is already the case.Let's now turn to Slide #6, which summarizes how we view current trends in the markets where we operate. Demand for Decorative Paints continues to be strong in all regions where we operate. Strong positive momentum continues for China and South America. Compared to the previous quarter, Southeast Asia continues to recover driven by India, Malaysia and Pakistan. In EMEA, the do-it-yourself segment remains particularly strong, and we believe that is structurally so.Demand for Industrial Coatings remained strong, in particular, the Coil and Packaging segments. Growth trends for Powder Coatings are very positive globally and especially strong in Asia. Our growth in Powder Coatings continues to be driven both by end market demand and clear market share growth.Automotive and Specialty Coatings strengths remain strong for consumer electronics and continue to improve for automotive OEM and vehicle refinishes. Demand for Aerospace is still impacted by COVID-19, although improving sequentially, especially in the so-called MRO segment.Demand for Marine and Protective Coatings has remained subdued as marine and oil and gas-related projects continues to be impacted.We've already done very well in relation to our stated intent to grow at least in line with our relevant markets with our increased focus on growth underpinned by robust and end-user markets.Turning to Slide #7 with a focus on one of our key business units. We intend in the coming analyst calls to feature 1 or 2 of our business units during each of our quarterly result presentations. And this time, we will start with Powder Coatings and Decorative Paints in South America.With our Powder Coatings business, we enjoy a leading position in the fastest-growing and high-performing segment of the coatings industry. We are more than twice the size of other players. Powder Coatings is truly one of the crown jewels in our portfolio.Growth in this segment and for our business is driven by several factors. Due to the specifics of the powder technology, powder coatings provide clear sustainability advantages compared to liquid coatings because it's completely solvent-free and highly efficient in re-usage. In addition, due to continuously lowering the baking temperature, we are constantly opening up new market opportunities. You may recall that last year, the technology acquisition of Stahl enabled us to penetrate the low cure domain, opening up new markets such as wood and thermal plastics.Our position in this segment has been traditionally and continues to be exceptionally strong, and we've increased our investments in both our own manufacturing sites and our product range. Recent examples include our R&D facility in Como, Italy, dedicated to delivering low-cure powder coatings as well as our dedicated portfolio for the electrical vehicle segment where we also try to protect the IP.During the first quarter, revenue for Powder Coatings was up 19% in constant currencies and 12% higher compared to the first quarter of 2019. We also increased at the same time our return on sales by 700 basis points over the same period since the first quarter of 2019.Now moving to Slide #8 for the second of our business units featured this quarter, namely Paints South America. As you are aware, we have a very strong presence in the paints markets of South America with about a EUR 400 million revenue. Our growth in the region is driven by both end market demand as well as market share gains. In total, the market size for decorative paints is estimated to be around EUR 3.5 billion in that geography. We have leading positions in Argentina, Bolivia, Brazil and Uruguay with our strong local versions of our Dulux family of brands, including Inca and Coral.We have been outgrowing the market over the last 4 years through solid margin management, offsetting significant transactional currency headwinds and building strong customer relationships, especially so during the COVID-19 pandemic. We are currently on the verge of introducing an upgraded premium offering for the market with a focus on decoration and protection.Revenue for Q1 was up 62% in constant currencies versus the same period in 2019, and we've delivered double-digit revenue growth in each of the last 3 quarters. Margins have also increased significantly with 550 basis points increase in ROS between the first quarter of 2019 and 2021.And with that, I'll hand it gladly over to Maarten who will run you through the financial results in more details as of Slide 10. Go ahead, Maarten.

[Maarten Jan de Vries, CFO & Member of Management Board]

Yes. Thank you, Thierry, and hello, everybody, on the call. During the first quarter, revenue was up 16% in constant currencies and 10% higher versus the first quarter of 2019. Volumes were 16% higher, especially in Asia, and acquisitions also added 1%. Price increased 2% and was especially strong in Decorative Paints, although price/mix was adversely impacted by geographic and segment mix.Adjusted EBITDA increased 29% to EUR 391 million due to strong margin management and cost discipline, and adjusted operating income was up 43% at EUR 307 million. And this resulted in a return on sales of 320 basis points higher at 13.6%.The next slide shows the development of adjusted operating income during the first quarter. We delivered 43% more profit in the first quarter compared to the same period last year, mainly resulting from revenue growth and cost discipline. Higher volumes contributed EUR 175 million. Price increases contributed EUR 41 million, while geographic and segment mix had an adverse effect of EUR 59 million and currencies were negative with EUR 17 million.Raw material and other variable costs increased with EUR 38 million, in addition to the impact of higher volumes, compared with the first quarter of 2020. The increase was mainly driven by raw material inflation and mix.Operating expenses increased with EUR 9 million mainly due to higher volumes and increased advertising and promotion, offset by cost discipline in other areas. Continuous improvement initiatives successfully offset inflation.Turning now to the next slide for the results of Decorative Paints during the first quarter. Revenue grew with 31% in constant currencies and 20% versus the same period in 2019 driven by strong demand in all regions, resulting in 28% higher volumes. Price increased with 4%, although this was partly offset by 3% geo mix. Within EMEA, volumes grew faster in Southern Europe, and growth in Asia was also strong. Demand in EMEA continued to be strong, especially in the DIY segment. Revenue was up 24% in constant currencies and 22% higher versus 2019.Revenue for South America was up 56% in constant currencies, and as Thierry mentioned before, 62% versus 2019, mainly driven by significant volume increases on the back of strong demand. The significant adverse currency impact was driven by the Brazilian real and the Argentinian peso.Compared to previous quarter, volumes were significantly higher in China and continued to recover in Southeast Asia driven by India, Malaysia and Pakistan.Revenues were up 41% in constant currencies and 4% compared to the same period in 2019. Strong volume growth, combined with ongoing margin management and cost discipline, resulted in adjusted EBITDA up 83% at EUR 183 million and adjusted operating income 131% higher at EUR 148 million. The return on sales decreased -- increased with 740 basis points to 15.9%. And finally, we are in the process of repaying around EUR 4 million furlough support received in the U.K. last year during the COVID times.Moving now to the first quarter results of Performance Coatings. Revenue was up 8% in constant currencies and 5% higher versus 2019 driven by strong growth in Powder and Industrial Coatings. Volumes increased 10% as demand continued to improve. Price was positive 1%, although mix was impacted by segment as well as geographic mix effects, resulting in 2% unfavorable price/mix. Revenue for Powder Coatings was up 19% in constant currencies and increased 12% compared to 2019 with significantly higher volumes compared to the first quarter of 2020, especially in Asia.Demand for Marine and Protective Coatings continues to be impacted by postponed projects, partly offset by strong growth in Yacht Coatings. This resulted in revenues 2% lower in constant currencies compared to the same period last year, although up 4% versus the first quarter of 2019. And volume growth for Automotive and Specialty Coatings was offset by adverse currency and mix impacts.Demand for consumer electronics was strong, and the Aerospace segment is showing early signs of recovery with sequential improving demand. Strong growth for Industrial Coatings, with revenue in constant currencies up 14% and 11% higher versus 2019, was driven by significant volume growth, especially in the Packaging and Coil segments. But overall, the adjusted operating income increased 3% to EUR 196 million mainly due to volume growth, and return on sales was 14.7% for Performance Coatings.Now turning to cash. We continue to maintain a strong focus on cash and working capital management. This resulted in improved operating working capital as a percentage of revenue to 13.4% in the first quarter from 16.5% last year and 14.4% in the first quarter of 2019. Free cash flow, excluding pension prefunding and top-up payments, improved by EUR 121 million compared to last year mainly due to higher profit and lower working capital outflow.Capital expenditures for the quarter were EUR 57 million. We are investing in growth, the optimization of our asset footprint and ongoing integration of our ERP systems. For the full year 2021, we expect capital expenditures to be slightly higher versus the previously indicated EUR 250 million. Our cash tax rate is expected to be slightly lower for 2021 at around 20%.We ended the first quarter with a net debt/EBITDA leverage ratio of 1x. We continue to target a leverage ratio of net debt/EBITDA of 1 to 2x and remain committed to retain a strong investment-grade credit rating.Moving now to the next slide. Adjusted EBITDA increased with 29% to EUR 391 million driven by strong demand and margin management. Adjusted earnings per share from continuing operations was 66% higher at EUR 1.18. We've now completed the EUR 300 million share buyback, and our EUR 1 billion share buyback, as announced earlier this year, will start on April 27.And now I'm handing back over to Thierry for his concluding remarks.

[Thierry F. J. Vanlancker, Chairman of the Board of Management & CEO]

Yes. Thank you, Maarten. Let's look at Slide 17. To summarize, we delivered with Akzo Nobel strong growth and profitability in the first quarter, with revenues up 16% in constant currencies, return on sales increased to 13.6% versus 10.4% last year.As mentioned, with our new Grow & Deliver strategy, we target to grow at least in line with our relevant markets, building on our strong foundation. Although trends differ per region and segment with raw material disruptions and inflation expected, especially in Q2 and Q3, margin management and cost-saving programs are in place to really keep us on track to deliver the 50 basis points increase in ROS.I'm now handing over to Lloyd for information about upcoming events and the Q&A session on Slide 18.

[Lloyd Midwinter, Director of Communications & Investor Relation]

Thank you, Thierry. Tomorrow, April 22, we'll host our Annual General Meeting of Shareholders. The AGM takes place in a fully virtual format like last year with the opportunity to ask questions during the meeting. We'll announce our results for the second quarter of 2021 on July 21.This concludes the presentation, and we would now be happy to receive your questions. [Operator Instructions] Operator, please start the Q&A session.

[Operator]

Our first question is from line of Mutlu Gundogan of ABN ODDO.

[Mutlu Gundogan, Research Analyst]

Yes. Two questions. The first one on Decorative Paints. So 28% volume growth is obviously very strong. Do you think there was some restocking of channels that might have benefited you? And also, can you tell us how that volume growth has continued into Q2?And then secondly, on raw materials. You indicated you expect inflation to have a bigger impact in Q2 and Q3. Do you still believe you can offset this via price increases this year? And if so, how should we think in terms of phasing, i.e., by when will you have offset this?

[Thierry F. J. Vanlancker, Chairman of the Board of Management & CEO]

Yes. Thank you very much for your questions. On Decorative Paints, I don't think this has anything to do with restocking, to be honest. The numbers are indeed pretty high, but they are high around the world. So high growth numbers. We've alluded to the fact that the momentum in Europe continues to be strong, and that continues to be the case. By the way, if we talk to the bigger retail channel partners that we have in home improvement areas, they indicate that they see a structural change that also in Western Europe, for example, you see younger adults doing do-it-yourself and home improvement and that, clearly, everybody is anticipating that home office work with going to the office will be mixed. And therefore, the home office, but the importance of the home is more important.So I think if you correlate that with what you hear from the big players on the retail side, they will actually say the same thing, and it correlates with our own surveys. So I don't think that, that necessarily has to do with restocking. Now of course, the percentages, to be honest, we compare more with 2019 than with -- the first quarter of 2019 than versus the first quarter of 2020, specifically for Asia because, frankly, there, China was off the map but [ really ] was closed for business on the first quarter. So that distorts the numbers.But even if you look in a place like Asia, for example, for our Decorative Paints business versus 2019, it's already up 4% in those numbers. And if you go in the Rest of the World, actually, the numbers are even bigger for Decorative Paints. So there, we're very, very -- continue to be very bullish, by the way. And it's not only underlying demand. It's not only what our channels are, but we clearly are gaining share in key markets where we operate.What does that do for the second quarter? Well, of course, in fact, we start getting a glimpse for the second quarter typically for our geographies in March because that's kind of the buying for spring. And that was actually very promising. Again, so we don't see that momentum changing at all.Second to your question around raw material inflation. I think we do believe that for the whole year, the raw material inflation will be more in the high single digits. And in fact, that is excluding, to some extent, logistics costs and all sort of, how do we call it, opportunistic buys or spot orders that you have to do because it is pretty wild on the availability of the raw materials. The reason why we say that that's going to impact us more in Q2 and Q3 is share -- the supply chain. In fact, that's how it flows through our supply chain. We saw the impact already in our input costs in Asia because there, the supply chains tend to be shorter. But in fact, that's going to be zooming in, in all our businesses in quarter 2, quarter 3.So our price increases, you've seen we've done 4% in Paints already. And that's just wave 1. We've also already had the impact already in our P&L from our increases in Coatings, and that will just keep compounding because most of these things were announced in the first quarter, that it takes a while, a month -- 2 months to get it effective. So that will keep going up. So for us, it's very clear that by the third quarter, we want to offset all of the raw material impact, and we are pretty confident that, that will be very much feasible. Does that answer your questions?

[Mutlu Gundogan, Research Analyst]

Definitely.

[Operator]

Our next question is from Alex Stewart of Barclays.

[James Alexander Stewart, Chemicals Analyst]

Just 2, according to the rules. If I look at the negative mix effect in your bridge, the EUR 60 million, could you confirm whether that was impacting both the Paint and the Coatings division? And if you can give us the specific segments and regions which have caused that, that would be very helpful, too.And then just secondly, on your bridge again. The -- could you just tell us or remind us how you split costs into the volume and the variable cost components? If I sell an extra 100 cans of paints, do you put the direct selling costs into the volume bucket and the -- so the variable operating costs into the other one? I'm trying to understand how much of the raw materials variable cost bucket is because of higher expenditure related to the volumes.

[Thierry F. J. Vanlancker, Chairman of the Board of Management & CEO]

Okay. All right. All right. Thank you, Alex, for your question. Let me try to take the first one, and I'm happy to delegate the second one to Maarten, I have to say. On the mix part, just a couple of things there. So if you bought from us a liter of paint in any region, in any segment, et cetera, your prices went up in the first quarter. So they were about 4% up in Deco, and they were about 1% up in the Performance Coatings element, and that will compound.Now what are the effects then in the bridge? Well, Asia was up about 30%. And that has -- and in fact, Asia has typically a different mix already. So the variable margin per liter might be slightly different. Secondly, also in this -- and that also had an impact. Asia tends to be the quicker one in the supply chain, so you have the impact in your accounting much faster from your raw materials. So in fact, a big part of the bridge is the impact that we saw in Asia because of the growth and also the somewhat quicker pull-through of that. Again, there, all of the activities on pricing are underway, so that is actually a temporary effect that comes out of that. Again, don't forget that we're comparing here for Asia a severely COVID-impacted first quarter of 2020 with -- specifically for China, and almost not impacted first quarter of 2021.The second element is then indeed around the segments. Probably the most -- I would say, the most clearest 2 examples of where you have geographies impacting it besides the Asia point is in Europe, Decorative Paints EMEA, where you have, in fact, Southern Europe and Middle East, Africa doing very well. Now there, we often go via importers or national distributors. So that means that the margin per product might be slightly different, but our cost is also different. So in fact, it is extremely attractive business for us, but that's what actually shows up in the bridge.And the other clear example is in Automotive and Specialty Coatings where most of the segments, frankly, are back where they were before COVID. There's 2 notable examples. Aerospace, which is a very high-margin segment, is still down. It's about 20% down. Sequentially, it was improving, but it's still about 20% down versus the first quarter in 2020. At the same time, Consumer Electronics, very attractive but a lower-margin per liter business for us than Aerospace, is significantly up. So if you look at Automotive Specialty Coatings, it looks like it's back at the levels where it was pre-COVID, and that is correct. But there's a significant mix in segments there.But again, I want to stress that if you were buying material from us, you're actually -- in a specific region, specific channel, you've been paying 4% more for our decorative paint, and that's just step 1 for it, and you've been paying 1% more when it comes to Performance Coatings across the board.Assuming that, that answers the question, Alex, I'll pass the second question on forward to Maarten on how we put that in which bucket.

[Maarten Jan de Vries, CFO & Member of Management Board]

Yes. So Alex, on the volume-related part of the bridge, it's really raw material, packaging and other variable input costs. And this is really the volume-related part, whereas as mentioned earlier, in the bridge, the real raw material price impact sits in the EUR 38 million. And as mentioned by Thierry earlier, that is very much driven by the strong growth in Asia and the pulling in of the supply chain in Asia, where the supply chain is, of course, much shorter driven by this 30 percentage growth in Asia.Now the last piece, the EUR 9 million, is to the OpEx. So that relates to, on -- because you might ask that later, that EUR 9 million relates to, on one hand, our operational higher volume-related costs in manufacturing, in distribution and warehousing, also additional advertising and promotion, and then on the other hand, compensated by cost-saving actions, whereas overall inflation is offset by our normal recurring improvement actions. I hope that helps to clarify this.

[James Alexander Stewart, Chemicals Analyst]

It does. Just to confirm, the EUR 60 million on mix, that was both Coatings and Paint both contributed to that.

[Maarten Jan de Vries, CFO & Member of Management Board]

Yes, that's -- indeed, that was the first question, that's both Paints and Coatings, and Thierry just gave some examples of what we've seen underlying. Yes.

[Operator]

Our next question is from Mubasher Chaudhry of Citi.

[Mubasher Ahmed Chaudhry, Vice President]

Just 2, please. Just firstly, on the raw materials, you said that the headwind in the first quarter was mainly due to the shorter supply chains in Asia coming through and, therefore, the raw mat impact coming in a bit quicker. And then if I look at Asia Deco, that is a relatively smaller part of the business compared to, say, EMEA. And therefore, should I be thinking about the proportional increase in raw mats as we go into second and third quarter in line with the size of the EMEA business and, therefore, a much, much bigger headwind?And then just secondly, on the cost savings side. Could you just break out the -- in the bridge, you talked about OpEx and cost savings. It was a negative number. So going forward, with the higher volumes and with the one-off costs coming back in, just how should I be thinking about that in terms of the bridge going forward? And should -- are we retaining a large portion of those? Or will that be a headwind in the second and third quarter as well?

[Thierry F. J. Vanlancker, Chairman of the Board of Management & CEO]

Yes, I'll hand the second question to Maarten, but just to be careful here, though, because a big part of the impact was -- in Asia on the pull-through of raw materials was in our Coatings business. So I just want to put it in perspective. And I just want to point out, our Coatings business in total is bigger than our Decorative Paints business. So I don't think you have to see a -- you don't have to expect to see a change here.Now probably more specifically for the question you asked around Deco EMEA. Deco EMEA will, of course, also see increases in the raw material input. But believe me, they were the ones very fast out of the gate with adjusting their pricing and are continuing to work on that. So of course, also, the price increases will bring more to the bottom line proportionally to the size of the other businesses. So yes, the impact of raw materials as that wave comes actually to our whole industry will indeed be higher in the second quarter, third quarter, but the impact -- the reverse impact and the positive impact of our pricing will definitely be equally bigger.So we feel -- I just want to stress to everybody on the call, it's always a bit of a churn to go to price increases, but our teams have been working like clockwork on it. Prices are there. We're tracking it. They are tracking it. And we're, in fact, getting extremely good traction on the implementation because, again, this is an industry-wide situation. So you would expect everybody to face the same hurdles there.So I just don't want to get it as a Deco thing. This is, in fact, on the whole company. And in fact, the Asia impact was proportionately even more in our Coatings business in Asia. With that, Maarten, maybe the second question.

[Maarten Jan de Vries, CFO & Member of Management Board]

Yes. On the OpEx question. So what we've said, and we said it also post Q4, is that really the run rates we exited Q4 and going into the first quarter were really the run rates we were focusing on, and that's all about maintaining our cost discipline. But we've also at the time flagged that we would likely see some volume -- some higher volume-related costs in our OpEx related to our manufacturing and warehousing and distribution while still focusing on making cost savings.Now part of the cost savings we continue to see, and I flagged it also last time, is the COVID-related travel and entertainment. That's roughly EUR 5 million per quarter. And as long as COVID continues to be with us, we will see that coming through, plus additional structural savings. But -- so the net effect from the volume-related costs, the additional advertising and promotion and then -- vis-a-vis the cost savings is the minus EUR 9 million versus last year. I hope that paints the picture.

[Operator]

Matthew Yates from Bank of America.

[Matthew John Peter Yates]

A couple of questions. The first one is can you help me think about your utilization rates across the production footprint? You mentioned in the introductory remarks that the CapEx may be slightly higher than you originally guided. Is that the volume growth or the expectation of future volume growth creating a necessity to add capacity? And I'm just wondering generally how interchangeable are your plans depending on where that demand is being pulled from, whether that's on the Deco or the Industrial side.The second question is specifically around the Marine business. I think in your slides, you highlighted that was a market still somewhat subdued. I just wondered whether there are any green shoots in here, be it higher freight rates leading to maintenance or whether you're beginning to see any increase in the order backlog at some of the Korean shipping yards. Or even if that was the case, does it still take a couple of years to feed its way through into Akzo's paint backlog?

[Thierry F. J. Vanlancker, Chairman of the Board of Management & CEO]

Yes. Thank you, Matthew, for your question. First of all, on the utilization rate, as you know, paint manufacturing is pretty much batch processes. And in fact, you can extend your capacity quite significantly by going, for example, to a 7 days a week extra shift, 24 hours, 7, et cetera. And in many cases, that has been what we've done. So a lot of our manufacturing cost is somewhat volume related as you put in more temporary workers to handle more to do the manual part of the process.So in that sense, I think we can absorb quite some volume. So the utilization rate in our industry is a slightly different definition, I would say, than what you would typically get in the -- I would say, more the hardware, chemical part of the chemical industry. So in that sense, that is not a big concern. Of course, these growth rates have our team and our engineering team looking at what else they have to do for the future. But frankly, that is more planning ahead and manageable within our normal processes.In fact, the increase that Maarten indicated in the prepared notes to be slightly EUR 100 million, EUR 250 million, it may be EUR 250 million, somewhere between EUR 250 million, EUR 275 million, but that is more the combination of some other projects we wanted to do, putting some higher productivity, newer tooling in some of the plants. And that comes together with, for example, our ERP rollout, which is also, to a certain extent, capitalized. So -- but that's about the order of magnitude. It's not driven by knee-jerk reaction on having to do something here. So on the capacity, that is not such a big issue.Secondly, is it interchangeable? To be honest, the raw material supply has been so -- yes, how should I say it, unpredictable in certain extent that we've tested what we can do there. But it's only on short term. It's only limited interchangeable because there are specifications. You have requalification at customers, et cetera. So we didn't have to revert on that, but it was more behind the scenes, quite some shipping from materials between sites, et cetera, to keep everything running. So that's on the utilization rate.On the Marine and Protective business, we are, in fact, relatively optimistic for what is coming. On the new ship, if I stay on the Marine side, the dry docking was somewhat postponed in 2020 because a lot of the shipping companies didn't want to have their crews onshore out of fear for COVID. We do see those calendars filling up, so that's actually pretty positive. New ship builds, clearly, it's that after years of drought in new ship building, there are much more new ships being built. So that is, in fact, a very positive situation. Now also, to be honest, that the paint job comes at the end when the ship is built. So I think the new shipbuilding is probably for us an upside in 2022. But there, the order books are definitely bigger.The business that is really doing well and, in fact, our -- also after the acquisition we did at the end of last year of the Marine -- the Yacht Coatings business where we enjoy a very strong position in that niche market is doing exceptionally well. So probably part of it is the -- of all the behavioral changes people go through in COVID, recreational boating has been extremely strong around the globe. So that's also part of that business.On Protective, you may recall that in the first quarter of 2020, we saw a significant uptick in our Protective business, again, more directed to where the energy industries, oil and gas, et cetera. With COVID, that took definitely a step back. We do see quite some things on the books for new projects, but there is in that industry quite some force majeures things they're going to. So we believe that may be coming more in the second half of the year. So our team in Marine and Protective is actually pretty positive, but it seems it's going to be more in the second half of this year and then into 2022 when it comes for shipbuilding. Does that answer your question?

[Matthew John Peter Yates]

That's great.

[Operator]

Next, we have Charlie Webb of Morgan Stanley.

[Charles L. Webb, Equity Analyst]

Maybe just first, you obviously all talked a lot about raw materials and their impact on the P&L, but just understanding your comments around availability. How is raw material availability or lack of availability being an issue and impacted volume? And how do you see that impacting your business versus some of your local competition or peers in certain markets? Is it a case where you are able to produce and others perhaps aren't, which could lead to some mix shift or share shifts? So just understanding what that means for you. What do you see there in the market more broadly?And then just one on kind of sequential development in demand. You touched on briefly in April, looks to continue the same vein, but perhaps you can just run us through divisionally what you're seeing in terms of the sequential trends Q1 into Q2. I think that would be very helpful.

[Thierry F. J. Vanlancker, Chairman of the Board of Management & CEO]

Yes. All right. Thank you, Charlie. First of all, the impacts on the volumes from raw materials, that was not part of the first quarter. We don't think that necessarily is going to impact the second quarter. But to be honest, Charlie, I mean, there is force majeure threats towards the paints and coatings city all over. Paints -- and by the way, coatings, if you have a liter of it, it is a cocktail of multiple ingredients. In fact, since somewhere in the beginning of the fourth quarter, we've seen it started with TiO2. That seems to be plateauing, so we see some light that things are actually getting -- not getting worse, I would say.Latex at one moment of time, which is the key ingredient for decorative paints, latex was at 50% of worldwide capacity. So that, of course, constrains it. We haven't necessarily been impacted that much. We do see in markets, but I think our teams are very busy selling our own products without doing necessarily all the analysis on local competitors that we do feel we can get our hands on the product versus some of the other players maybe not being able to get their hands on the material. Secondly, of course, we source from multiple people around the world. So it was hinting at us shipping material between plants or from region to region ourselves to get it just in time to a specific place. And that has -- there's quite some pyrotechnics on putting TiO2 from China on a train, for example, to get it a week earlier than by boat. So there's a lot of creativity, but I think it has been helping quite well.So it's not constraining yet, but it is actually -- there's a lot of close calls. There's a lot of involvement from all of us to talk to suppliers around what's happening and then also coordinating with customers because we do want to avoid that customers start -- would start to over-order just to be on the safe side because the system for everybody in the market could not handle that anymore.So if you go on where it's tight, it's been tight on the latex, as I've indicated. Polyurethanes, which is a key ingredient in some of the coatings businesses in the industry, has been pretty tight. And then often, there are the more exotic, I would say, additives, dispersant, or whatever you can call, which often there have been some minor force majeures being called. And then we have to ship inventories amongst ourselves. So it hasn't necessarily impacted volume. I don't expect we'll get -- be impacted from our volume of what we need to do. But there's a lot of tired faces around the hallways trying to get stuff from A to Z. And there is -- obviously, already in the first quarter, you see some extra costs hidden on shipping stuff to ourselves from one side to the other as it becomes -- as there is an availability issue from a supplier.The other element is around sequentially -- I think on Paints, I can be very short. I think on all of the Paints businesses, all 4 of them in the 4 regions, there, sequentially, it is strong, and if anything, it is strengthening. The one region that was a bit slower versus the others, I would say, was maybe Southeast Asia. But it has more to do with still rolling lockdowns in certain places in India, Pakistan, Indonesia, et cetera, although that also seems to be getting back to normal. So they're sequentially up, and in fact, that can only improve further as such.In our Coatings businesses, I would say the exit of the quarter was strong. But that is somewhat seasonal, that could be expected. Powder Coatings, I expect that to continue at an extremely high level. It's driven by Asia, but it's also the automotive, but on top of that, the architectural markets that are extremely strong around the world, I would say. So there, I think that continues.If I go to Automotive and Specialty Coatings, the automotive-related markets are mostly back where they were last year. And in fact, I think there, I'm somewhat optimistic for what I see on market share gains that we are doing in the market.Aerospace, I think, will sequentially come back, but I think that will be a track to the whole year, I would say, until it gets in 2022 to -- for the newbuilds to something that is more or less resembling what it is. I do think the MROs, so the maintenance and repair, will probably be a positive surprise in the next quarters as people get their planes back in gear to use them, and also some painting/repainting that happens as airlines shift planes between each other.If I go to our Marine and Protective, I think I covered that in the previous answer. And if I then go to Industrial Coatings, I think there, the coil demand, the packaging demand and actually the wood demand were sequentially trending stronger and we do expect that to continue. So all in all, Charlie, I think we're pretty optimistic for, I would say, virtually all our segments right now. Does that answer your question?

[Charles L. Webb, Equity Analyst]

Yes. Yes. I mean that's perfect.

[Operator]

Next, we have Gunther Zechmann of Bernstein.

[Gunther Zechmann, Research Analyst]

A couple of questions, please. One on mix, one on demand. Can I ask you about your comment you made with 4Q around what is underlying demand, what is end market demand? You referenced 2% increase versus 2019 levels. So is that a guidance that still holds given the start to the year and your comments that this is sustainable and that there's been structural changes that have been driving that demand? So that's the first one.And the second one is if I can pick up on the mix impact and the contributions today in Deco and in Performance Coatings. I'm just trying to get my head around what the driving factors behind that minus 3% mix are. You mentioned geo and segment mix in Performance Coatings. Powder was up 19%, but then in the slide, you show that it's improved operating margins by 700 basis points over the last 2 years. So is that still dilutive to margins in Powder despite that improvement? It would just suggest it didn't make much money in that 2 years ago, you might do now.And on the Deco mix side, you also said with the 4Q results that Europe is still a lower-margin business than Asia and Lat Am. Now I take your point that EMEA has got different margin profiles, of course, by country, but it's just striking that EMEA has grown very strongly but still much less than Lat Am and Asia. So I'd like to understand the mix impact on both businesses a bit better, please.

[Thierry F. J. Vanlancker, Chairman of the Board of Management & CEO]

Yes, Gunther, this is -- we will have to have a PhD in trying to explain all those numbers. But let me start with the first one, and I'm looking here, I'm going to dial a friend called Maarten de Vries to handle these questions. So the underlying demand, I think you referred to what we said on what we expected for 2021 versus 2019. I'm just checking, Gunther, is that what you're referring to?

[Gunther Zechmann, Research Analyst]

Yes, that's right. You mentioned 2% increase second half 2020.

[Thierry F. J. Vanlancker, Chairman of the Board of Management & CEO]

Yes, correct, it's 2%. And I think we -- of course, if you now look at what we see the demand and you see also what needs to happen in the pricing, I think we're probably more looking at about 5% versus 2019. So it's significantly up. Now I think there's always -- I think there's so many things, moving parts in supply in markets, et cetera. But I think for modeling purposes, taking a number that is much closer to 5% is probably a safe bet for what we expect 2021 to be revenue-wise versus 2019. Does that answer your first question, Gunther?

[Gunther Zechmann, Research Analyst]

It does, yes.

[Thierry F. J. Vanlancker, Chairman of the Board of Management & CEO]

Yes. Now on the geo mix, I'll start, but then I'll have to pass it on to Maarten here. But if you look at the geo, the segment mix, the 2 elements here is indeed Asia, which, in fact, was very strong, and I'm talking about Coatings. Let me start maybe by Coatings. The Asia markets were up quite significantly in the segment. And I'm not sure if I have the exact number here, but I think if you look at our total Asia business for Coatings, we look at -- again, versus first quarter of 2020, we look at about 30% up more or less.And again, these are our good profit businesses. It's just a variable margin which is slightly different here. And that is almost true, I would say, with the exception of Marine and Protective. That uptick in percentage is almost true for all 3 Coatings businesses. And therefore, it is -- the price/mix here is quite different. I don't know, Maarten, if you want to add something on that.

[Maarten Jan de Vries, CFO & Member of Management Board]

Yes. And if you then look at Coatings and that 30% in Coatings up in Asia, then you look, for instance, at Consumer Electronics, which is an Asian business, which is up significantly, in fact, twice the level of the 30%, and that business in the Automotive and Specialty Coatings business has relatively a lower margin. So that then drives the mix differences. That is one of the key drivers, but there are also a lot of other underlying segments which are obviously different in the total picture.

[Thierry F. J. Vanlancker, Chairman of the Board of Management & CEO]

Just want to underline here when we talk about, for example, Consumer Electronics, it is a lower variable margin for the product. So the -- but in fact, they are very good business because also then the servicing model and the costs associated with it are different. So don't want to have any confusion here around the margin versus what the bottom line is from those businesses. So that's actually on the Coatings. Now Gunther, let me check whether that actually answers your question on the Coatings part of the house.

[Gunther Zechmann, Research Analyst]

Yes, that's helpful.

[Thierry F. J. Vanlancker, Chairman of the Board of Management & CEO]

Yes. And then you also -- on Paints, somewhat similar, I would say. But again, in Lat Am -- and Maarten, you probably have the more exact numbers here. You have, of course, the impressive percentage numbers up. That is also because they have to get their prices up significantly just on the foreign exchange and they often get dollar input raw materials. I think, Maarten, you can probably give some of the data there on how they really did versus the years if you take that element somewhat out of the...

[Maarten Jan de Vries, CFO & Member of Management Board]

Yes. If you look at Lat Am, of course, strong growth from a value perspective. But you need to look at the volume is significantly lower. And then if you look underlying in the Latin American region, the growth has been very much in -- specifically in Argentina. So there, you see also a change -- Brazil has been a strong, but again, Argentina is even stronger. So you see there are also underlying changes.

[Thierry F. J. Vanlancker, Chairman of the Board of Management & CEO]

And then one other point, Gunther, I would like to make on Paints for mix and geo mix, et cetera, is that if I look at our Paints EMEA business, this first quarter was much stronger and even comparing it with the first quarter of 2020. It is much stronger in Southern Europe and then Middle East, Africa. Very good profitability businesses but at a lower price per liter out there because of the distribution model that's behind it. So that -- and secondly, there's still a higher proportion of consumer versus professional market because of the do-it-yourself. That's starting to normalize a bit, but it's still a difference in the mix.If I go to China, for example, we see, to some extent, 2 elements in there. One is the fact that our high-end Dulux is doing extremely well. If we compare that -- and you have to take all the wobbles out, but if we compare that versus the growth of our premium Dulux versus the first quarter of 2019, it's about 15%. So that is actually pretty strong. At the same time, we have now -- since about 6 months we started our geographic expansion and also introducing a medium range Tier 3, Tier 4 cities, that is doing very well. But that is then the counterbalancing effect if you just look at percentage on margin, et cetera.So there's a lot of moving parts. That's why I was stressing that if you are sitting as a user of our materials, all in all, you've been seeing a 4% increase in price for your paints, and you've seen an increase on 1% already on Coatings. And in fact, that number will go up quite significantly in the second quarter because this is just announced, and that's what we've booked already in the first quarter. Does that answer your question, Gunther?

[Gunther Zechmann, Research Analyst]

Yes. That's been very helpful.

[Operator]

Our next question is from Laurent Favre of Exane.

[Laurent Guy Favre, Research Analyst]

I've got only one question. It's not on mix. It's actually on Performance margins. When we look to Q2, Thierry, you've said a few times on this call that there was more impact or a quicker or faster impact from raw materials on margins in Performance because of the supply chain in Asia. You've talked about some of the recovery or accelerating momentum in the higher-margin parts of the business and more pricing. My question is would you assume you can defend the Q1 margin in Performance into Q2?

[Thierry F. J. Vanlancker, Chairman of the Board of Management & CEO]

I think, Laurent, yes, I think, because you have the -- again, you have a lot of things happening in the market, but I see no reason why that would not be defendable. And I think we are encouraging the teams to actually take it up a notch. So -- yes.

[Laurent Guy Favre, Research Analyst]

And then separately, as a follow-up, on M&A, are the current disruptions leading managers and owners to refocus internally as opposed to being -- entertaining discussions with potential acquirers? Would you assume that the M&A pipeline can get better for you for the rest of this year?

[Thierry F. J. Vanlancker, Chairman of the Board of Management & CEO]

You're talking about our people? Or are you talking about the targets?

[Laurent Guy Favre, Research Analyst]

Well, I guess, your ability to deliver on bolt-on acquisitions for the rest of this year.

[Thierry F. J. Vanlancker, Chairman of the Board of Management & CEO]

No. I think the pipeline is -- continues to be there. So I think, as before, nothing has changed in that approach there. As we said before, I think we're very focused on the target that we really would want to have. So we're not going to go for a wholesale, let's buy everything that's not bolted to the floor because that doesn't bring any value on the medium term. So I think in that sense, nothing has changed at all.

[Operator]

Next, we have Jaideep Pandya of On Field Research.

[Jaideep Mukesh Pandya, Analyst]

Yes. First question is really just around the volume leverage. So you guys are well above 50% now on volume leverage. So is this now a new paradigm for the coatings industry, Thierry, in your view, that because for the first time, you're seeing volume growth as an industry and there's potentially more scope to come with markets like Aero and Marine on a path of recovery? Should we expect that if consistently your industry grows sort of 3%, 4% for the next couple of years, that volume leverage actually could be not sort of the old 40% but more like 50% and above?And the second question is really just around your price raw material dynamics. So considering you guys have FIFO accounting and if raw material costs spill over into 2022, am I understanding this correct that you're actually saying that 2021/2022, you're going to be offsetting all the raw material inflation with price increases and sort of mix negative goes away as things normalize?

[Thierry F. J. Vanlancker, Chairman of the Board of Management & CEO]

Yes. Thank you, Jaideep. On the volume leverage, I think it's -- yes, I see no reason why that would change from what you've seen in the recent numbers. But that is probably more to do with the fact that the paradigm, that if you sell more volume, you therefore can increase proportionately all the other costs is not valid anymore. So I think we are -- we mentioned that a couple of times. We are very much on keeping the costs flat. So fixed costs, the word fixed has a meaning in that respect.So in that sense, I think that's why you see the volume drop down because we do look at our cost base as more of it set. And then, of course, the volume leverage, you have a big drop-through from your variable margin dropping through in the numbers. So I think, yes, I haven't done the calculation on what that would be mimicking as an outlook, Maarten, but I think I would say if it's -- it actually should mathematically be higher than what has been historically the case.Secondly, on the raw material costs, we do believe that the raw material costs will be more a 2021 situation. So I'm not sure if that necessarily would trickle through into 2022. I mean that's our current knowledge because it is very much driven by, yes, the strong demand, so that would almost give opportunities in supply to get their prices up. But at the same time, there is really an odd streak of force majeures, explosions, fires, ransomware, COVID, Texas freeze, you call it. And that at one point, it's very much like a peak crisis more than anything else.But answering your question very specifically, we are intent to -- and in fact, we have the plans together and we're executing on it to offset the raw material costs ASAP. So what we see currently in our own simulation on what -- how it would hit our books by somewhere end of third quarter, we want to have that completely offset.

[Jaideep Mukesh Pandya, Analyst]

Great. All right. So 50 bps is too low then for a margin increase. Anyway, that's not a question or comment. Bye-bye.

[Operator]

Next, we have Peter Clark of Societe Generale.

[Peter Clark, Equity Analyst]

Yes, it's just on the margin situation, particularly on the Deco and what you're saying on raw materials. My understanding is, obviously, with some of the contracts you've put in place for the paint season, so Q2 and Q3, where you're up against this very stiff margin of close to 20% on EBIT, gave you some protection. Obviously, we're seeing things that are [indiscernible] in nature, so there's going to be a raw material hit to some degree. But just how defendable these margins are given what you're also saying on mix in Deco, how you see that through the next couple of quarters?And then onto the Performance Coatings. I was a bit surprised, actually, the Auto business -- the Auto and Specialty Coatings business in terms of the volume growth year-on-year, particularly the Auto, [ we've been ] reading between the lines and certainly against what was still a soft comp for you that it wasn't stronger. I know there were some one-offs with your colleagues in Pittsburgh or your competitors in Pittsburgh. But effectively, just looking at the year-on-year, I was a bit surprised, it wasn't a bit stronger. So if you could -- just a few comments on auto refinish would be good.

[Thierry F. J. Vanlancker, Chairman of the Board of Management & CEO]

Yes. So on the margin for Deco, and I think you're specifically referring to Deco EMEA, if I understand the question correct, I see no reason why that would not continue. And in fact, as we go to the season, it would actually be slightly a plus, I would say. Again, that business, we said it before, that business has changed its paradigm now since a while around going to price list increases. As we saw the raw materials coming, they actually did exactly just this going into 2021. So the effect they have their adjusted price list and effect then, there's probably other ways still to come. There's also stuff you could do around your commercial conditions that actually can offset some of the other items. So I see no reason why the margins would not continue to evolve in a positive way.Secondly, on the vehicle refinish. In fact, if there were positive one-offs at some of our competitors, we probably had a negative one-off in the sense that in the comparison, we did our price increase this -- we did our price increase early. So it didn't affect our price increases already at the end of 2020. That always gives a bit of customers who want to prebuy, et cetera. Last year, that happened in the first quarter, so we had basically the buying effect in the first quarter. So we're comparing apples with oranges here for the first quarter. But all in all, I mean, we keep track very detailed of our gains and our losses at body shops. We actually are hedging -- continuing to hedge since a while now at increasing -- and it's marginal. [ Interior ] finishes all goes very slow, but we marginally are increasing our market share. So I'm not worried there at all.

[Peter Clark, Equity Analyst]

Got it. And then, yes, it was about Deco generally, but -- because, obviously, in Q2 and Q3, you've got this hurdle of 20% EBIT margins. And obviously, there's a lot of moving parts here. But you're pretty confident with what you see today with this demand momentum. You're not seeing that as a massive hurdle for you.

[Thierry F. J. Vanlancker, Chairman of the Board of Management & CEO]

No.

[Operator]

Our next question is from Geoff Haire of UBS.

[Geoffrey Robert Haire, Managing Director and Equity Research Analyst]

Most of my questions have been asked. I just wanted to see if you could confirm. Could you give us what the volumes in both the Decorative business and the Performance business are relative to Q1 '19, please? I think you said it was 8% for the group overall.

[Thierry F. J. Vanlancker, Chairman of the Board of Management & CEO]

Yes, let's go -- I mean, Maarten, do you have the list in front of you?

[Maarten Jan de Vries, CFO & Member of Management Board]

Yes, let me quickly check, but it's -- I think...

[Thierry F. J. Vanlancker, Chairman of the Board of Management & CEO]

I have it here. If you go to the volumes, if you look at the Paints, and I think we talked versus Q1 '19, the Paints volumes are up probably more than 20%. I mean that is versus the Q1 '19. That's a combination of what's happening in South America and what's happening in Asia. So I think that's very, very positive. If you look at Coatings, volume-wise, it's more around 2% that we're up.

[Maarten Jan de Vries, CFO & Member of Management Board]

Yes. So low single digit in Coatings and around 20% in Paints.

[Operator]

Our next question is from Rob Hales with Morningstar.

[Rob Hales, Equity Analyst]

A couple of quick ones on Deco. I'm just wondering if anything's changed in distribution channels, just depending on how COVID is moving around the world. And the second one, where is the trade business in EMEA Deco versus pre-COVID levels right now?

[Thierry F. J. Vanlancker, Chairman of the Board of Management & CEO]

Yes. Good question. So I think distribution, you mean specifically around paints or...

[Rob Hales, Equity Analyst]

Yes.

[Thierry F. J. Vanlancker, Chairman of the Board of Management & CEO]

I think that's what you're referring to, correct? Yes. Well, okay. So it's still -- it's a bit of a daily or weekly changing situation where things get shut down for a period of time, et cetera. Right now, at this moment of time, I think with some exceptions in Pakistan or in certain places in India, and I think we had a recent one in Indonesia, I think for most of it in Europe is actually open or opening up again. But that means that sometimes in the quarter, it's like 1 or 2 weeks that what country X decides that they're going to shut it down, et cetera.The country that is probably -- despite the strong results, that probably is the most impacted tactically on the market is probably Brazil right now, where, frankly, the COVID-19 has been pretty severe. So that's probably where there is more channels being intermittently been closed, et cetera. But right now, I would say distribution-wise, it is more or less overseeable and open, I would say.If you ask around the trade business, trade business is actually doing a bit stronger than it was last year, but it's still somewhat trending lower than what the usual levels would be. Do-it-yourself is obviously going very strong. But if I look at the trade business, it is trending up, but it's still behind on where it was in 2019. And in fact, that explains also why -- again, if you look at the top line margin, it's a bit different between consumer and trade business. Profitability-wise, at the end, if you go to the bottom line, it's equally profitable. But that's why you see also there a bit of an optical mix dilution at the top end of it. But we see that trending back, to be honest. Does that answer your question?

[Rob Hales, Equity Analyst]

Yes. That's great.

[Operator]

Next, we have Laurence Alexander from Jefferies.

[Laurence Alexander, VP & Equity Research Analyst]

Just 2 quick clarifications. You mentioned earlier a structural shift in the architectural towards the younger demographic. Do you have any sense for the elasticity of demand, how that demographic reacts to pricing? And secondly, with respect to the aerospace activity starting to pick up, do you have a sense for how much of a tailwind over, say, the next 12, 18 months restocking in that channel could be?

[Thierry F. J. Vanlancker, Chairman of the Board of Management & CEO]

Yes. Thank you for your question. Laurence, I'm going to give you an answer on the young demographics, but that's even the people who are seeing the young demographics working in their stores are still trying to figure it out. The only thing that I can say is from 2 big retail chains in Europe that we work with who see -- who claim that they see the young demographics showing up much more for do that, they couple that to a request for having more of our premium end products.And in fact, if I quote one of the key players in one of those big channels, they probably -- these people want to have -- get it done with one paint layer that is actually scuff resistant, has hiding power, et cetera. They don't want to climb on a ladder 3 times a week just to save a penny because we would have thought maybe that they were downtrading, but that doesn't seem to be the case. Again, we'll see what happens over time. But there doesn't seem to be necessarily a downtrading in that market at all.Secondly, on Aerospace. As you know, our Aerospace business is -- in normal days, it's about 50-50 newbuilds and 50% is MRO. The newbuilds, we do believe, that will be probably more a '22-ish situation. But on the MRO, which was significantly down, and there we talked at one point it was almost half down from where it was in 2020, right now, the trend in the quarter is getting -- if that trend were to continue, the MRO may be closer to normal as we get to the middle of the year again. So it's actually sequentially actually trending upwards, which will be a good thing.If I look at our Aerospace business, for example, in the first quarter, it was down about 20%. Now that is still not fun, but that is significantly better than where it was, I would say, 6, 9 months ago, and it's sequentially trending better. Now that is restocking now. I think that's -- actually, if you hear what the request is for materials, it seems like it's being used pretty quickly on the machines, and it's not really stock building at airlines.

[Lloyd Midwinter, Director of Communications & Investor Relation]

Okay. Great. I think we've got time for just one last question.

[Operator]

The last question is from Chetan Udeshi from JPMorgan.

[Chetan Udeshi, Research Analyst]

Last question, hopefully, a quick one. Typically, second quarter sees the seasonal sort of uptick in margin, at least that's been the past seasonality. Do you see at this point any reason to think differently given the raw material dynamics? Or you think that will be the case even in second quarter this year?

[Thierry F. J. Vanlancker, Chairman of the Board of Management & CEO]

Yes. There's 2 dynamics here, Chetan. I think we see no reason why the demand and the mix, et cetera, would not support a positive upward trend. At the same time, the second quarter is probably the one where the raw materials are going to have more impact. So it depends. They're really punctual, I would say, on when our prices hit versus the raw material hit. So we are -- hopefully, we portray some confidence in how the year is going to develop. I think the second quarter, we'll see where it comes out, but I think it's probably going to be a bit of 2 forces there and see what it does. But that for the third quarter, fourth quarter, we're actually pretty positive because the wave can only hit you once, and we'll see in which quarter that exactly happens.

[Lloyd Midwinter, Director of Communications & Investor Relation]

Thank you very much for your questions and your time today and your continued interest in Akzo Nobel. If you do have any further questions, please contact Investor Relations.

[Operator]

And that concludes today's conference. Thank you all for your participation. You may now disconnect.