Akzo Nobel NV

AEX:AKZA

Earnings Call Transcript 2021-Q2

[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.I will now turn the meeting over to your host, Lloyd Midwinter. You may now begin.

[Lloyd Midwinter, Director of Communications & Investor Relation]

Hello, and welcome to AkzoNobel's investor update for the second quarter of 2021. I'm Lloyd Midwinter, Director, 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 made available.There will be an opportunity to ask questions after the presentation. For additional information, please contact our Investor Relations team.Before we start, I would like to remind you about the disclaimer at the back of this presentation. Please note, this also applies to the conference call and answers to your questions.I 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]

Thank you very much, Lloyd. Hello, good morning, and a very well warm from -- a very warm welcome to everyone on the call.Even though it seems that there's finally some light at the end of the COVID-19 tunnel with the increasing vaccination rates in many geographies, 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 & Deliver strategy in action with strong growth and higher profit versus the same quarter in 2020 but -- and even important -- even more important versus second quarter in 2019. The revenue for the second quarter was up 29% in constant currencies compared to 2020 and 8% higher than Q2 2019, with strong growth both for our paints segment and our coatings segments.Adjusted EBITDA increased 31% to EUR 419 million, showing good progress towards our firm ambition to deliver EUR 2 billion EBITDA for the year in 2023. Adjusted operating income was up 41% at EUR 335 million, with a return on sales at 13.3% as compared to 12% last year. The adjusted EPS from continuing operations increased by 50% to EUR 1.20.The revenue in constant currencies for the first half of 2021 was 23% higher compared to the first half of 2020. And adjusted operating income increased 42% over the same period, with a return on sales at 13.4% versus the 11.2% in the same period of 2020.Between April 27 and the end of June, we have now completed EUR 223 million of our current EUR 1 billion share buyback program and continue to make good progress with this.We've also announced the intended acquisition of Grupo Orbis, expanding our strong presence in South and Central America.Let's now turn to Slide #5. We continue to achieve strong momentum with our Grow & Deliver strategy as we demonstrated growth for the fourth consecutive quarter, with revenues up 8% versus 2019 in constant currency. Our intended acquisition of the Grupo Orbis, which is expected to close sometime around the end of this year, will add around EUR 260 million revenue to our business in South and Central America, but more about that later.We launched another startup of 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&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% 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 the fourth quarter.During the quarter, we also received the highest-possible rating by MSCI, the AAA, which makes us the only paints and coatings company with a AAA rating. And we have, in fact, have achieved that rating now for sixth 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 health, 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 #6. As mentioned, we recently announced the intended acquisition of Colombia-based Grupo Orbis. This aligns perfectly well with our Grow & 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 frontrunner 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, which strong brands aligns very much with our core value of sustainability.The Pintuco paints and coatings business represents about 70% of the EUR 260 million business acquired, of which around 75% is Decorative 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 continent. The completion is subject to the normal regulatory approvals and is expected by end of this year or early 2022, pending the local regulatory time lines.Moving into Slide #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, halving 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% 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 EcoVadis. Our AAA rating from MSCI already mentioned is well above the industry average of BB. 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. Paint.Let's now turn to Slide #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, for the segments like vehicle 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 a 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 an increased focus on growth underpinned by robust end market demand.Let's turn to Slide #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 [indiscernible] businesses, the Industrial Coatings business and the Decorative Paints EMEA business.Our Industrial Coatings business is made up of 3 subsegments: 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-used 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 the leading player for packaging coatings with an increasing share and also have #2 market positions for both coil and wood coatings. Our products transform surfaces to a 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 for all subsegments with our clear focus on margin management, demonstrated by the 60% increase in adjusted operating income over the 2 last years. During Q2 2021, revenue for Industrial Coatings was up 31% in constant currency and 14% higher compared to the second quarter of 2019.Let's move to Slide #10. Paints EMEA represented 26% of our total revenue in 2020 at EUR 2.2 billion. We're a clear #1 player when it comes to Decorative Paints in both Europe as well as in Africa, with a presence in all major markets. We have strong brands and distribution, including our well-known Dulux family of brands with a Flourish as well as Cuprinol and Hammerite for wood and metal applications.During the recent years, we've been very busy building on our strong foundation with several successful bolt-on acquisitions, for example, Titan Paints in Spain and Fabryo 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 Paints 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 a 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're living our Grow & Deliver strategy.And with that, I'm handing it over to Maarten, who will share with you in abundance the financial results on Slide 12 onwards.

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

Yes. Thank you, Thierry, and hello, everybody, on the call.So during the second quarter, revenue was up 29% in constant currencies and 8% higher versus the second quarter of 2019. The 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 Paints EMEA.Adjusted operating income increased 41% to EUR 335 million 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 second quarter of last year. Adjusted operating income excludes the impact of identified items, which had a net positive impact of EUR 49 million for the second quarter. This included positive one-off items related to a tax ruling in Brazil and U.K. pension plan. Identified items related to transformation initiatives had around EUR 10 million negative impact for the second quarter. Adjusted EBITDA was 31% higher at EUR 419 million versus the second quarter of 2020.Turning over to Slide 13, which shows the development of adjusted operating income during the second quarter. Strong demand and margin management delivered almost EUR 100 million more profit in the second quarter of 2021. Higher volumes contributed EUR 285 million. Significant price increases delivered EUR 89 million, while geographic mix had an adverse impact of EUR 61 million, and currencies represented a EUR 7 million headwind.Raw material and other variable costs, including freight costs, increased high-teen percentage, resulting in a net negative impact of EUR 128 million compared with the second quarter of 2020. This was mainly driven by the continued intensity of raw material and other variable cost inflation.Operating expenses were EUR 66 million higher than the second quarter of 2020. As a reminder, we had EUR 78 million temporary savings in the second quarter of last year due to significantly lower activity levels as a result of the COVID-19 pandemic. The majority of these temporary cost savings returned in 2021, as expected, including volume-related costs. 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 Paints. Revenue grew with 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 second quarter of 2020. This increased with 3%, although this was offset by a 5% adverse geographic mix due to relatively -- due relatively to higher volumes in Middle East and Africa compared to the second quarter of last year versus more normalized demand in Europe. Average selling prices for some countries in Europe can be around 3x higher than countries in the Middle East and Africa, which is what contributes to this significant mix impact.Demand in EMEA continued 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 and was 57% -- 56% higher than 2019, mainly driven by price increases and strong recovery from the impact of COVID-19. That first currency impact was driven by the Brazilian real and the Argentinian peso.In Asia, revenue were 34% higher in constant currencies compared to the same quarter last year while still 2% below 2019 levels. Demand continues to be strong for China, while India and countries in Southeast Asia continued 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 EUR 226 million; and adjusted operating income, 9% higher at EUR 191 million, resulting in a return on sales of 17.6%.So in the next slide, moving to the second 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 Coatings as well as in the Automotive and Specialty Coatings. Volume increased to 30% as end-market demand continued to improve. Our strong focus on pricing initiatives resulted in prices up 5%, although mix was slightly lower, resulting in a 4% positive price/mix 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 Coating showed further signs of sequential recovery, which resulted in revenue up 19% in constant currencies versus the second quarter of last year, although still 7% below the same period in 2019. And then revenue for Automotive and Specialty Coatings 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.Then for Industrial Coatings, revenue was up 31% versus last year and 14% higher than the second quarter 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 EUR 179 million, and return on sales increased to 12.6%. Adjusted EBITDA up 57% at EUR 218 million for the Performance Coatings segment.Moving now to the next slide. 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 EUR 107 million in the second quarter 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 extend the payment terms to our customers last year to support them through the pandemic. And in addition, we returned to a more normal activity level this year.Capital expenditure for the quarter were EUR 62 million. 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 million.Net debt-to-EBITDA leverage ratio was 1.2x at the end of Q2 2021, in line with our target leverage ratio of net debt-to-EBITDA of 1 to 2x. We remain committed to retain a strong investment-grade credit rating.Moving now to the next slide. Adjusted EBITDA increased 31% to EUR 419 million for the second quarter of 2021 and was 30% higher at EUR 810 million for the first half year, driven by strong demand and margin management. This demonstrates how we're making good progress towards our ambition of EUR 2 billion adjusted EBITDA for the full year 2023.Adjusted earnings per share from continuing operations was 50% higher at EUR 1.20. And we've completed now EUR 223 million of our current EUR 1 billion share buyback by the end of the second quarter, which will be finalized in the first quarter of 2022.And now I hand back to Thierry for some concluding remarks on the next slides.

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

Yes. Thank you, Maarten.So to summarize, we achieved strong growth and a significant step-up in profit during the second quarter, not only versus 2020, but also versus 2019, while delivering on all our capital allocation priorities. Although trends differ pretty widely per region and segment and significant raw material inflation is expected to continue in the second half of 2021, 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 & 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 EUR 2 billion adjusted EBITDA for 2023.And with that, let me hand it over for Lloyd to -- on the information for the upcoming events and the Q&A session on Slide 20.

[Lloyd Midwinter, Director of Communications & Investor Relation]

Thank you, Thierry. Before we start the Q&A session, I would like to make a personal remark.After around 7 years leading the Investor Relations team here at AkzoNobel, I'm moving to a new role as Director, Strategy and Corporate Development. I'm very happy to introduce my successor, [ Kenny Chae ], 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 years. 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. [Operator Instructions]Operator, please start the Q&A session.

[Operator]

[Operator Instructions] Speakers, our first question is coming from the line of Gunther Zechmann.

[Gunther Zechmann, Research Analyst]

Gunther Zechmann from Bernstein here. 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 these close to 20% full year cost inflation with pricing initiatives? Or are you also looking to recover the lost earnings mainly in Q2, where raw material cost inflation was about EUR 40 million higher than the pricing initiative that you've already pushed through?And then the second part linked to that is on the margin guidance. You confirmed 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?

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

Yes. Thank you, Gunther, for the question. First of all, on the raw material dynamics, you've seen, but 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 digit, mid-single digit, high single digit, low double digit. And I think now we're actually talking about high teens, and you've seen some official reports coming out from [indiscernible]. You saw with some other comments from other players in the market. So we see obviously the same things. Now the high teens is, in fact, in that the impact across the year, which, of course, more of a heavy weight in the second half of the year.Now answering your specific question, we want to offset the impact of the raw material inflation in 2021 with our 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 at 4.5%, although that is the average for the quarter, and it was ramping up during the quarter. But 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 second quarter. As follow-up rates, we're now at wave #3 at many customers to get our prices up. So that's about 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 as, in fact, a little bit [ involved ], I would say, to have that target over the 3-year period. It is not a linear situation. If you go to the ratios game, 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 inflation and probably a correction downwards then later in the year and for 2022, it will probably be an over-dimensional margin expansion than in 2020 -- 2022. So in that sense, I think we are very comfortable sticking to the targets we have set.I don't know, Maarten, if you want to add something to that.

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

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.

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

Yes. 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 the dynamics. 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 do, and that will continue to be the case, by the way. So yes, it's going to be a bit heavy rowing in the third quarter because the wave crest there, in fact. But if we 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.

[Operator]

Our next question is coming from the line of Mubasher Chaudhry.

[Mubasher Ahmed Chaudhry, Vice President]

This is Mubasher Chaudhry from Citi. Just a couple of questions, please, one on volumes. How do you see the volumes moving into the second half of the year and maybe into the first half next year, given the base gets significantly stronger? And just some comments around the trading and the volume, that would be helpful.And then secondly, on the Grupo Orbis, can you harness 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 Tikkurila by Akzo? Some context and some sizing on the valuation would be really helpful.

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

Thank you, Mubasher. Let me maybe start with the second question, and then go into the second question that is then also one, Maarten, where can chip in on that.

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

Yes.

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

On Grupo Orbis, 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 Orbis is exceptionally strong in that area. So that's actually -- waited 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 cycle has been delivering almost spotless in the past. And I'm very excited to have this thing happening.Secondly, on the activity. So what we've actually acquired for that is, of course, Pintuco decorative paints built to 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, very positive.A very nice element in there is Mundial. Mundial is their distribution network we have through that 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 storage system, a very well-established storage system in this region. So that is very positive.The other activity, and I think that's what you're referring to, Mubasher, 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 and 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, they may very well be in some of the activities, but those are really smaller items. We may see if they actually, long term, fit or not, but I think this would be really smaller elements in there.On the valuation, where we don't comment on the valuation, but I might add that we stuck to our golden rule. But with a clearly identified synergies, we don't want to pay more than our own multiple, and that we stuck -- golden rules are there to stick to. And did we pay anything close to the Tikkurila multiple? Absolutely not. We've -- I think we were disciplined in that story, and 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 buyer. So we're very enthusiastic around it.Let me then go to the second question around the volumes, which is 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 normalizing at a very encouraging way and very much as we had predicted. That means do-it-yourself in Europe is gradually returning to normal, but it's clearly at a high level than the 2019, which is very positive.The other equally big part of the market is professional, the trade business. That was significantly down in 2020, as we commented, and that's an effect back at 2019 levels and, in fact, are 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. It's performing very well. So that is very, very good. Southeast Asia's underlying market is good, but that has basically been a stoplight where in India, but now in Vietnam and Indonesia, it's 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 third quarter. So for deco 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. That really has been the synergetic acquisition as we hoped it would be. But for the rest of the business, 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.In ICO, 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, and 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, that is mostly centered around Asia, continues to run ahead of what it was in 2019, so very positive. 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, pretty good. So 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, et cetera, so 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 not a 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. It also has been impacted and hampered to some extent by the raw material situation, but also that's been -- has really -- it shows also, I think, the market position. They have they have been able to get really fast on getting their margins back in place while continuing to grow in that market.So Mubasher, I apologize for the long listening, but that probably gives you some color on the different segments. I don't know, Maarten, if you want to comment something.

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

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 digit versus the first half of 2019. And we see that strength, in fact, continuing in the second half with also a high single-digit revenue increase in the second half. So that's basically the continuing what Thierry mentioned and the momentum we have in the business comparing to 2019 levels.

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

Mubasher, does that answer your question? Probably too much information.

[Mubasher Ahmed Chaudhry, Vice President]

That's very helpful.

[Operator]

Our next question is coming from the line of Peter Clark.

[Peter Clark, Equity Analyst]

Congratulations, Lloyd. Good luck. Two questions, obviously. The first one, just to confirm on the margin in the first quarter of next year on the assumptions you have, which I presume you have raw materials plateauing through the winter maybe coming off a little bit. The margin is up on the EBIT line, so there will 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 is worse than anything you saw in 2017, '18, and except demand is better, except pricing is better. I 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&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.

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

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 a little long. 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 some kind of an IPO versus selling to a strategic, who already gets the sweaty hands if they go to 15x multiple. So that was the reference. 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 Maarten, maybe you can look at it. We see the raw material impact in our numbers as we actually had anticipated actually getting to its peak in the third quarter. 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 2022 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 have a bet on where it's going to land, but that's going to be sitting somewhere there in the middle between those 2. Pricing, of course, is, as we just indicated, is all targeted at recovering the margin right now. So that would bring a margin expansion in 2022.But I don't know, Maarten, if you want to put more color on it.

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

Yes. So on the raw material, as Thierry mentioned, we will see the peak clearly in the third quarter. And as it flows through the P&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 to flatten and even 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.

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

Does that answer your question, Peter?

[Peter Clark, Equity Analyst]

It does. I think so, anyway.

[Operator]

Our next question is coming from the line of Georgina Iwamoto.

[Georgina Iwamoto, Associate]

I was wondering if you could maybe give us some kind of a look into how mix for the group and particularly in deco 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 a 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?

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

Yes. Let me start with the question first, Georgina, 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 by 2030, and the step-up is actually pretty, pretty massive. I don't know if you follow us on social media, but you will see that in our Mexican plant, we actually went completely to solar. In fact, I think in the current publications, we see in Chinese plants that actually go full blast on solar energy, wind, et cetera, et cetera. So I think that's our goal is to get to 100% renewable energy by 2030, 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?

[Georgina Iwamoto, Associate]

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?

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

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 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 this directly off the grid, which is "green energy" that then it's not you sell and then you buy it back, et cetera.Windmills, same thing. We have quite some windmills, where we basically in Europe have direct relationship with. So it's 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.

[Georgina Iwamoto, Associate]

Great. Yes, that answers that part.

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

Yes. So then let's go to the mix questions. I'm not sure if I got completely the question on the coatings one. But for the deco mix, I've commented on that, I think, in the past. First half of 2020, 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 with this and then the mix in deco, almost all for the company, the negative mix is in deco EMEA, but that is, in fact, hiding good news. You may remember that in the second quarter of 2020, our Middle East, to some extent, Turkey and the African business was really completely in lockdown. And that is, in fact, 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 distant one that 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 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, I think, kind of a margin and mix enrichment, if you like, a 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 Professional business. That will continue to be at a normal strong level. So pricing one -- a mix one segment 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 third quarter and the fourth quarter.I just want to add to that one other mix element that's actually on the other part of the universe was that we had this quarter a bit less wood coating in deco EMEA. That's wood and metal because of the really bad weather but actually subdued that 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 -- or the lower margin segment.

[Georgina Iwamoto, Associate]

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 subdued demand last year. Now obviously, that's recovering this year. And so for me, like the way that I would think about your progression is that you're gradually having 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?

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

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 and Specialty Coatings business, aerospace, VR, et cetera, tend to be the higher-margin businesses in the segment. They were actually relatively harshly impacted last year. And as I indicated in one of the previous responses, they're 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 in detail the mix, if 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 a 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're -- I think we have -- we're probably ahead of the pack in doing so. And 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.

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

Yes. So Georgina, I think the thinking about mix is correct, and we compare more and more with 2019. But the key game for us is, of course, as Thierry just mentioned, is offsetting the raw material and driving our pricing actions. That is the key focus and the key driver.

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

Does that answer the question, Georgina?

[Georgina Iwamoto, Associate]

It does.

[Operator]

Our next question is coming from the line of Jaideep Pandya.

[Jaideep Mukesh Pandya, Analyst]

Yes. The first question really just is around operating leverage and sort of SG&A costs. So obviously, SG&A costs are around 28% of sales. You haven't -- you've done a very good job in reducing costs. I mean, they are at 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 in the business as life comes back to a bit of normalcy? And second part of that question really is, does operating leverage remain relatively high, i.e., above 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 you, Thierry, because you gave a lot of information today. But are you sort of saying that 2021 50 bps margin target may, 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 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 is going to be stable versus Q3 last year? Or are you going to sort of see a monster 7%, 8% price/mix in Q3 because of the pricing actions and then obviously, on top of that, the mix comparable?And Lloyd, good luck from my side as well. And yes, make sure if you buy Axalta, you get a good deal.

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

Okay. Thanks, Jaideep. 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 we're looking forward to that. I'm not sure if Lloyd is looking forward to do that, but 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 we actually have to look at a pretty similar situation as it was in the third quarter of 2020. So I think that -- and there's so many puts and takes on what is in and what is out and what is its geo mix changes, its pricing changes, channel changes, et cetera, et cetera. So it's also [indiscernible]. But the way that we predict it, it would be pretty similar to the third quarter last year. So no cellar monsters, whatever, that would come up there.The second question that you had was around the expansion of the basis point, 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, first of all, 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 though 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 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, and 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 dislocations that we've seen in raw material.On the operating leverage, Maarten, maybe you take that one.

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

Yes. So maybe on your comments on SG&A and OpEx, maybe to confirm. If you look at the second quarter, we've really shown very strong cost discipline. You might remember that in the second quarter of last year, we had EUR 78 million of temporary savings. EUR 66 million came back. That includes, by the way, also additional volume-related costs. On top of that, we have compensated inflation. And then we had still -- we retained basically temporary cost savings in travel, some third-party labor, third-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 at a certain moment, 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.

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

Jaideep, does that answer your question?

[Jaideep Mukesh Pandya, Analyst]

Yes, it does, and keep up the good work on sustainability.

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

Yes, we'll do. Absolutely.

[Operator]

Our next question is coming from the line of Laurence Alexander.

[Laurence Alexander, VP & Equity Research Analyst]

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 putting through in the -- over the next 6 to 9 months?

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

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 the 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 to -- if you go outside the 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 third time at a customer who is already stressed because they're wood or their metal or other inputs have just gone up in price. But I don't think we see necessarily a value destruction, I would say, or at least demand destruction on our end.One element I would like to highlight that in places like Asia, but specifically China, that has been an exercise in discipline to get our prices up, I would say, fortunately, but don't take that too literally. Fortunately, the raw material increases are such that even the most [ odd ] local supplier cannot ignore it anymore and has to start doing something about the 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 it 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 we have to do.Does that answer your question, Laurence?

[Laurence Alexander, VP & Equity Research Analyst]

No, no, that's great.

[Operator]

Our next question is coming from the line of Laurent Favre.

[Laurent Guy Favre, Research Analyst]

Yes. Two clarification questions for me, please. Thierry, going back to the point on mix in 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, well, Middle East recovering faster, et cetera. 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 one.And the question number two, 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 having to buy spot materials from different providers, competition, et cetera. So in that high-teens inflation, is some of these exceptional? Or is it all purely, I guess, price?

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

Let me take the second question first, Laurent, and then Maarten, you can then comment on the mix because it's -- as it has been in the last 18 months, everything is complicated to compare with everything. But let me start on the raw materials.Yes, there has a lot of spot buying. Again, in the basket of our raw materials, let's say if you have 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 force majeures, and it was actually at this time, not in some exotic additive. It wasn't actually mainstream products or 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 majeures, and it seems to be increasingly, so again, for the medium to small volume products that require. 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're buying from, but the same, we believe, is true for every other paints and coatings company, often have to switch pretty much on the dime, turn around and start buying from somebody else which were spot buys with people who were also tight on supplying. So you have the underlying inflation. But when we talk about this high teens and the infamous [indiscernible] 20%, which is very similar to what we see, that is a combination of underlying inflation. It's just [indiscernible] 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 grade that's in another silo, et cetera.I spare you the details, but that is also part of that inflation. All of that well, of course, if you go into 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 mix.

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

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, a lot of changes in the portfolio have been going on in terms of geographic mix, general mix, et cetera, et cetera. So that's the reason why Thierry mentioned that -- and 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 will be able to give.

[Laurent Guy Favre, Research Analyst]

Okay. And if I summarize...

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

Does that answer your question, Laurent?

[Laurent Guy Favre, Research Analyst]

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. But so how do you feel about, I guess -- as a summary, how do you feel about current expectation for absolute profit forecast for 2021?

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

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 the Tour de 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 that. 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 that you sense is also real.

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

Yes. You heard my comments on the absolute. We absolutely see an increase and a progression from an absolute adjusted OPI, but we have also said that the percentage will not be linear. So we are more looking at kind of what we mentioned earlier, the 50 bps over the 3-year period.

[Operator]

Our next question is coming from the line of Alex Stewart.

[James Alexander Stewart, Chemicals Analyst]

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 into 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 majeures? Or was it something else on the system on 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 in Industrial Coatings, if I look both 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 second quarter relative to the first quarter in Q1. You were running at somewhere about 2% above 2019 and now you're running roughly flat relative to 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.

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

Yes. Thank you, Alex. First of all, first question, the visibility was indeed correct. And I think if there's one pride, it's our early warning system that obviously was not in the company before mid-2017, I think how that has been spot on.What is the big difference here is a legitimate question, and I see that other people in the market who have been showing some things struggle to predict it. One is indeed the high amount of force majeure. Again, this was -- we already saw the things coming. Then there was the famous taxes 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. So the force majeures then really force you to go to other suppliers, spot buy, et cetera. And that became a pretty -- that started feeding on itself.I also want to point out that as you would expect that typical contract 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 or they had a force majeure, et cetera, et cetera, that was there. So not sure if we have, 0if that has come through, but our raw material field or the whole network into paints and coatings had been in complete disarray. So hence, the lack of the predictability on there.The second element that should not be forgotten is the, I would say, the overenthusiastic 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, if, for example, that an aerospace business actually comes back much quicker than anybody had expected. I think 1 or 2 quarters ago, we talked about 2023, and here we are in the back where it was -- what it was in 2019, but that also then gives quite some demand spikes for those already stressed suppliers of raw material. 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, et cetera. That was -- had been stabilizing a little bit to what's completely in disarray. So that's actually on the raw.On the Performance Coatings, Alex, I mean, I'm frowning here a little bit, and I think Maarten has been looking at the numbers. Our coatings business is definitely up versus 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 said, the rundown of the 4 segments we're 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...

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

Alex, you were referring to the Industrial Coatings business, are you?

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

Is it the Performance Coatings or Industrial Coatings? But for both actually...

[James Alexander Stewart, Chemicals Analyst]

So if you look at Performance Coatings, you did minus 7% on volumes in the first quarter '20, plus 10% in the first quarter 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.

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

Yes. But -- okay. But that's -- actually, the [indiscernible] volume-wise.

[James Alexander Stewart, Chemicals Analyst]

But I can take it offline, if you like.

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

Definitely up significantly. So that may be something offline to check because, in fact, that is one of the positives that we see in the business. Again, Marine and Protective is probably the one that is trailing '19. All the other 3 businesses are actually significantly ahead of -- the first half of 2019. So let's compare notes there because that's not correct.

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

Yes, except in automotive is really the OEM segments.

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

Yes. But even there, still applies for automotive -- Specialty Coatings even including automotive. So Alex, can we take it offline because that is not how we look at it, yes?

[Lloyd Midwinter, Director of Communications & Investor Relation]

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&As. So please go ahead with the next question.

[Operator]

Understood. Our next question is coming from the line of Sam Perry.

[Samuel Perry, Research Analyst]

Firstly, just on M&A. You've seen Grupo Orbis and Tikkurila come to the market recently. Are you seeing a lot of opportunities at the moment or at least more than in recent years? And can you get to your EUR 2 billion 2023 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?

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

Yes. Thank you for the question. On M&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 they -- there, those decisions are a bit different. I mean, the decision-making process is different than just, "Oh, we had a bad quarter, let's do something." That's a different one.I would expect it's going to be, again, directionally, a bit more opportunities, specifically in companies that either were in the Performance Coatings 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. And 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 the amounts become available. And answering your questions about the EUR 2 billion EBITDA for 2023. That plan is not based on acquisition. 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 EUR 2 billion EBITDA. Whatever comes in that's nice, I mean, in the whole noise factor, but it's not based on that.On the -- your last -- the 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 deco EMEA. And again, there's always exceptions to the rule, but in general, not at all. In fact, if you go to Latin America, we just basically upgraded our medium line to a much better tinting 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?

[Samuel Perry, Research Analyst]

Yes, that was great.

[Operator]

Our next question is coming from the line of Chetan Udeshi.

[Chetan Udeshi, Research Analyst]

Yes. Quick one. For Q3, when I think about the net impact of price and mix on the EBIT bridge, you had minus [ EUR 100 million ] in Q2, net of price/mix and raws. Will it be better than minus [ EUR 100 million ], or you see similar numbers in Q3 before it gets better in Q4?

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

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 raw material, we see peaking in Q3. And our pricing actions are there really to catch up and overall to compensate. By the end of this year, the total amount of raw material with also the same amount in terms of pricing.

[Operator]

Our next question is coming from the line of Geoff Haire.

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

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 the number then, just say where 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 in deco from raw material shortages. Is that an issue that you're facing as we go through into the second half of the year?

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

Yes, good questions. I think on the EBITDA of Grupo Orbis, 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, et cetera. So I think it would not be appropriate to go there.Secondly, on the volumes, we haven't necessarily spoken and alluded to that around what we missed 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 reckon all up, but to be very honest, I also think there were some other business that we had because somebody else couldn't supply. 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.

[Operator]

Our next question is coming from the line of Matthew Yates.

[Matthew John Peter Yates]

A couple. Thierry, if I heard correctly earlier on the call, you said you were even more confident about the mid-term margin outlook. Obviously, in effect, you talked about a difficult couple of quarters ahead. So can you summarize why you're even more confident now about your mid-term earnings power?The second question is around sustainability. I think in the slide deck, you talked 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 to worry about demand and sales disappearing in due course?

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

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 the 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 solution. So if it's solvents 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 pretty nice to have an exterior wood product. Waterborne has the same UV resistance as solvent-borne so -- or bio-based, et cetera. So that's why we call it more sustainable.The others are not non-sustainable, these are the ones, but frankly, we feel there is no differentiation between us and the rest of the offer. I guess, some examples, if you look at the solvent-borne vehicle refinish paints that is isocyanates, solvent-borne, et cetera, that is what the markets, in fact, requires. That's also what's specified. But frankly, there, our product is the same sustainability or lack of sustainability than what the competitors are doing. So we talk about where we have competitive differentiation versus what in the market. So hopefully, that answers the first question -- the second question.The first question, why I'm more confident? Because, frankly, this is actually a really nice margin expansion opportunity. Sure, the third quarter 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 materials is clearly a temporary situation. It is a 6- to 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 second quarter. And let's not forget that probably 2/3 of our network is distribution-based, where in fact distribution, and we play it by the rules, [ loves ], in fact, an 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, I'm sure. We talked about the percentages this year, absolutely. We 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 it.

[Lloyd Midwinter, Director of Communications & Investor Relation]

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. Thank you for your continued interest in AkzoNobel.

[Operator]

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