Akzo Nobel N.V. (AKZA) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to today's AkzoNobel First Quarter 2025 Results Call. My name is Seb, and I'll be the operator for your call today. [Operator Instructions] I will now hand over to Kenny Chae, Head of Investor Relations, to begin. Please go ahead.

Thank you. Good morning, and welcome to AkzoNobel's Investor Update for the first quarter of 2025. I'm Kenny Chae, Head of Investor Relations. Today, our CEO, Greg Poux-Guillaume; and CFO, Maarten de Vries, will take you through our results. We'll refer to the presentation, which you can follow by webcast or download from our website at akzonobel.com. A replay of the webcast will also be made available following the event. There will be a Q&A session after the presentation. For additional information, please contact our Investor Relations team. Before we start, a reminder of our forward-looking statements disclaimer on Slide 2. Please note, this also applies to the conference call and answers to your questions. I will now hand over to Greg, who will start on Slide 3 of the presentation.

Thanks, Kenny. Good morning to everyone on the call. In Q1, we delivered better-than-expected results despite softer markets with adjusted EBITDA flat year-on-year at constant currencies. This performance was underpinned by positive pricing and strong cost reduction, demonstrating that our self-help measures are starting to deliver with more benefits to come. Organic sales were flat with a 2% positive price/mix, offset by volumes down 2%, of which half was from the timing of an in-year commercial rebalancing in Turkey. We mitigated the impact of softer markets and cost inflation through our efficiency measures. OpEx was flat year-on-year despite wage and general cost inflation. Over 70% of the targeted 2,200 SG&A reductions we have planned are already effective. And not everyone who has left is off the payroll yet, so the full effect is still to come. Execution of the SG&A program is ahead of schedule and recent collective labor agreement negotiations have been completed on target. Our industrial transformation plans also continue to gather pace with restructuring in France underway, including stores and site closures. As the benefits of our actions flow through the P&L, we expect OpEx to be down year-on-year in Q2. Our adjusted leverage ratio came in at 2.8x, reflecting seasonal working capital buildup and ongoing restructuring activities. We also successfully issued a EUR 500 million bond -- 10-year bond at 4% in March, securing long-term funding at attractive terms ahead of market volatility. Let's now turn to Slide 4 on the volume development. Q1 reported volumes were down 2%, half of which once again was from the timing effect of an in-year rebalancing in Turkey. I mean, essentially, our customers were using our products as a currency devaluation hedge in Turkey, and we adjusted our commercial terms to smoothen out the demand throughout the year in order to make our production more efficient. It's an in-year adjustment. So it's a timing issue more than anything. So excluding that, you're at 1% volume reduction in Q1. So overall, we held up well in softer markets, continuing to gain market share in Powder and in Marine and in Protective. Let's start with Decorative Paints. In Europe, Middle East and Africa, underlying demand remained stable. The modest decline in Q1 volumes was primarily due to what I mentioned in Turkey to rebalance production volumes. And overall, in Europe, the Professional segment showed sequential improvement in the quarter, which is an encouraging sign. In Latin America, the market remained healthy. In Brazil, our volumes were temporarily impacted by the timing of our price increase ahead of more passive competitors. This is a cryptic way of saying that we took prices up and BASF, which was in the process of selling their business did not. We expect that to normalize as the year progresses. In Southeast Asia, our Indian business outperformed in a temporary market low, performance elsewhere in the region was mixed. In China, the year started better than expected. While we had anticipated a double-digit decline, actual performance was more favorable with a solid sequential improvement versus prior quarter. This bodes well for the rest of the year. Turning to Coatings. Volumes were relatively more favorable than in Deco even as demand in North America softened on increased macroeconomic uncertainties. In our Powder business, Architectural and Automotive experienced weaker demand, while the Industrial and Consumer segment grew. Even in a softer demand environment, our leadership in Powder enables us to continue to outperform the market and gain market share. Marine and Protective delivered double-digit volume growth with continued momentum in marine new build, while Protective accelerated. We have a clear pipeline of projects extending into 2027, and we expect growth rates to normalize over the year as we begin to lap strong prior year comps. In Automotive and Specialty, the slowdown in Q4 extended into Q1 for the Automotive and Vehicle Refinish segments. Aerospace saw a strong start to the year, although trends in North America continue to be dictated by ongoing challenges at the main OEM. In Industrial Coatings, good trends in Packaging are momentarily distorted by volumes returning to appear after we stepped in during their supply outage last year. It was -- Sherwin had a fire. We stepped in to cover some of that volumes going back as planned, but overall, Packaging is healthy. Coil was slightly down and Wood was up. Looking ahead to Q2, we closely -- we're closely monitoring trade dynamics, particularly for North America. Our Deco businesses are local for local and mostly driven by local consumer continents and less by global trends. Our coating businesses are GDP-driven and generally more sensitive to macro events. Let's turn to Slide 5 and talk about tars. We try to illustrate our business resilience by breaking down key trade flows to and from the U.S. Over the years, we deliberately localized both our procurement and production in the U.S. We also largely run China for China and use the rest of Asia instead as an export base. Finally, we've already reduced our reliance on China as a source of raw materials for our global operations. As such, China and the U.S. at AkzoNobel are largely decoupled already. And globally, the vast majority of our business operates on a local-for-local basis, which significantly limits our direct exposure to tariffs. In the U.S., we import only 2% of finished goods sold in the U.S. and only 10% of the raw materials consumed in the U.S. Everything else is local. For this analysis, we're taking the existing 145% tariffs on China and 10% on everyone else by the U.S. and assuming the reciprocal measures against the U.S., essentially 125% from China and 10% by everybody else. Taking into account both the raw material and finished good flows from the U.S. to the rest of the world, this annualized P&L impact of tariffs is anticipated at EUR 25 million, with finished goods to Canada and Mexico, the largest contributors. The tariffs on imports to the U.S. and for both raw materials and finished goods are estimated at EUR 10 million EBITDA. This is after short-term mitigation actions, which are largely already underway, but it's before any pricing actions to mitigate. So look, it's an indicative number just to give you a feel for the fact that these are not very material impacts at AkzoNobel given the way we are organized. But once again, we have mitigation potential beyond what you're seeing on this page. What's less predictable and likely more impactful is the broader macro effect, changes in trade flows, consumer confidence and overall customer investments could start to influence demand patterns. And while our products don't travel much, our customers do. But taking into account, as an illustration, our revenues in China that are generated on coatings that are applied to products that our customers are exporting. So essentially, product that we sell in China for -- that goes on to customer products that are exported, you're only talking about EUR 50 million of sales. So once again, that aspect of things is manageable. The question mark is more the macro demand environment, which will impact everybody one way or another. So in short, we've derisked our direct exposure through localization and procurement anticipation and the immediate impact is manageable. The bigger watch out is how this uncertainty affects the broader economic environment. Moving to Slide 6 and an update on our SG&A actions. As previously mentioned, our Q1 OpEx is flat year-on-year despite last year's 8% wage increase across AkzoNobel in addition to general inflation. This was achieved through streamlining actions. We continue to make progress on our SG&A reductions, actually really good progress. We've already reduced our number of employees by 1,600 out of the 2,200 that we're targeting, meaning that we have implemented over 70% of the planned headcount reduction. There's more to come, and we will deliver on our commitment of 2,200 FTE reductions, and we plan to do that essentially by the middle of this year. The reduction in staffing is already delivering financial benefits, even though some of the department employees have not yet left the payroll. The drop in headcount has helped drive sequential decline in total base pay, which you see on the right side of the slide, and there's a further reduction of 600 roles already announced, which will more than offset the 2025 wage increase from recently completed Collective Labor Agreement negotiations. These CLA negotiations concluded at less than half the 2024 increase, in line with current economic realities and in line with what we were targeting. This year has already mapped out, and we have no doubt that we will achieve our saving targets. Maarten will now provide an update on our financials on Slide 7.

Thanks, Greg, and good morning, everybody. Organic sales were flat in the quarter. Reported revenue was down by 1%, mainly due to unfavorable foreign exchange rates. Our volumes were down 2%, mostly driven by softer performance in Deco, reflecting robust prior year comps and the 1% impact from the rebalancing of Turkey, which Greg highlighted earlier in the call. At group level, price/mix of positive 2% offset the volume decline, resulting in flat organic growth. Foreign exchange movements were a 1% headwind to revenue, mainly driven by the Turkish lira, Brazilian real and the Argentinian peso. The impact from foreign exchange rates became more unfavorable as we exited the quarter, which we anticipate will contribute to further FX translation headwinds in Q2. In terms of adjusted EBITDA, Coatings delivered a solid quarter despite softer demand in North America. In Deco, lower volumes across all regions weighted on profit for the quarter. At group level, the adjusted EBITDA of EUR 357 million resulted in an adjusted EBITDA margin of 13.7%. While flat at constant currency versus last year, our result was ahead of expectations. Operating working capital as a percentage of revenue was flat versus prior year at 18%. This reflects stable DIO, days inventory outstanding, and a smaller sequential build into the painting season compared to the prior year. That said, we remain focused on further improvements throughout the year and still expect to finish the fiscal year around 14.5% of revenue for working capital. As expected, seasonality in our Q1 trading period resulted in negative free cash flow of EUR 183 million. The lower outflow from a smaller build in working capital was offset by higher cash out of EUR 51 million from identified items. And I think it's also important to mention that we had a higher cash out from CapEx of EUR 30 million in the quarter versus last year. Return on investment was lower than prior year, largely due to lower trailing 12 months adjusted operating income and movements in our tax assets. Now moving to the outlook. While macroeconomic volatility continues to create an uncertain demand environment, our performance in Q1 bodes well for the rest of the year. We remain committed to our full year guidance of adjusted EBITDA above EUR 1.55 billion at constant currency. We expect that the strengthening euro will increase our FX headwind in Q2, but this will be largely a translation effect. Our long-standing strategy of localized procurement and production has built agility and resilience into our business model, particularly against the first order effects of the tariffs announced. That said, we acknowledge the lack of visibility on broader demand macro trends driven by tariff uncertainty. We will mitigate this by continuing to overdeliver on our efficiency measures. These actions are delivering tangible results and will support our bottom line. I'll now hand over to Kenny, who will close with information about upcoming events and the Q&A session.

Thank you, Maarten. Before we start the Q&A session, I would like to draw your attention to the upcoming events shown on Slide 10. Our AGM will be held later this week on April 25. The ex-dividend date of our 2024 final dividend is on April 29, and the record date is April 30, followed by payment on May 7. Finally, we will update the market on our second quarter results on July 22. This concludes the formal presentation, and we would be happy to address your questions. Please state your name and company when asking a question and limit the number of questions to 2 per person so that others can participate. Operator, please start the Q&A session.

[Operator Instructions] First question comes from Thomas Wrigglesworth of Morgan Stanley.

My 2 questions. The first is really on net pricing. On the pricing side of net pricing, is the 2% that we've seen in 1Q, is that a full contribution? Or is the exit rate suggesting that there might be more pricing to come through the course of the year? And then on the cost, the raw side, you said low single digits, I think, at the full year results, is that picture changing for you given the lower oil price? How do you think that will play out from a net pricing perspective on a full year basis at this point? And my second question is around the Southeast Asian strategic review. We've seen some deals being pulled because of market uncertainty, obviously, not necessarily in the same geography as your strategic review. Any -- is there any changes there or is there a potential for delay or any risks associated with any potential transaction?

Thanks, Thomas. Taking them one by one. Net pricing, we have price increases planned for beyond Q1, so later in the year. If you think to how the pricing increases happen in our various businesses? In Europe, for example, in Deco, you've got to notify the price increases. It leads to a discussion and that discussion leads to an implementation timing, which rarely happens before the end of Q1. So there's more pricing to come from that perspective. And in other businesses, we review our prices more than once in the year. So we plan to continue increasing pricing throughout the year and, therefore, Q1 is not the end of that story. The raw material basket, as you said, the oil prices are down. About half of our basket is correlated to oil. Raw materials are complicated these days, though, because the world is deglobalizing to a certain extent. So you're at risk of having parts of the world like Asia where you'll have overcapacity and dropping prices and parts of the world like potentially Europe or the U.S. where there might be a different effect. So overall, we do think that the raw material environment will be more beneficial to us than for the full year than originally planned. But it's too early to put a number on things. And we're pretty much locked in for the Q2 raw material prices already in part of Q3. So if there is a positive effect, that effect will happen later in the year, so like the second part of Q3 and into Q4 essentially. And then South Asia, we have ongoing discussions. It's been, I think, well covered in the Indian press. And these are dynamic discussions and our focus is on finding the best outcome for AkzoNobel and for our business locally, and we don't have anything to report on this at this point, but discussions are continuing. Did I answer your questions, Thomas?

Our next question is from Laurent Favre at BNP Paribas.

I understand you don't want to give a guidance, a specific guidance for Q2, but I was wondering if you could talk about the big businesses in terms of volumes and what you're seeing? And if there was any sign of prebuy ahead of all the tariff activity? That's question one. And then the second question, if I can press you on India, you've told us before that you would be disappointed if you didn't announce a deal before the end of Q2. I was wondering if this statement is still valid?

Thanks, Laurent. India, our timing is still to be able to come to a conclusion in Q2. So that hasn't changed. But once again, discussions are active. They're dynamic. The world is an uncertain place, but this is largely an India-for-India business, and India is a healthy economy with really good prospects. So I don't see that our plans should change in any way. Prebuying, there's no signs of prebuying linked to tariffs. There's actually no change in our volume patterns to date. I looked earlier today, I looked at our volumes in April and it's in line with last year. So there hasn't been visible signs of the market correcting volumes for tariffs, either by accelerating purchases or by decreasing the level of spend. But there's a little bit of nervousness in the market. And otherwise, the stuff that is driving our performance, it's -- I'd refer back to Slide 3, is it, where we talk about the segments. And what's been soft to date is Vehicle Refinish and Automotive. Automotive is not very significant for us, but Vehicle Refinish is. It's a high-margin business, and that's been soft since the summer of last year in the U.S. and in Europe. And otherwise, there's been some fairly pleasant surprises like Deco China, which started picking up. But pluses, minuses, as you saw, our volumes were essentially flat in Coatings, and they're slightly down in Deco, but not by much. And once again, we're not seeing a change to those trading patterns in Q2 at this point, but it's -- we're only talking like 3 weeks in. So we do wish for a more stable macroeconomic environment, but we'll focus on what's within our control. Laurent, any follow-up on this?

Our next question is from Christian Faitz at Kepler Cheuvreux.

Two questions, please. Thanks for flagging the potential tariff impacts in your presentation. If I look at another effect of Trump politics, Europe possibly having to put some money into its own hands and reinventing/rebuilding itself. Would you see your activities benefiting from this being well aware that it's hard to put a number and time line on this? And then second, coming back to M&A, but this time more globally, could you possibly give us any update on your M&A ambitions with BASF's coatings activities being on the block? I'm well aware I'm not asking this for the first time, but time is progressing and BASF has flagged the communication during Q2.

Let me start with the question on Europe. I would say it's too early to tell. But if you take a step back, structurally, the investments which are deployed in Europe like in infrastructure in Germany or in defense, of course, structurally is a plus for us, but I would say this is still too early to tell how this will pan out. And for sure, this is not something which we see coming through for this year. Then on your current -- on your question on other M&A, I mean, for now, let's be clear that we are focusing on executing our agenda for 2025. And our agenda is very much focused on the efficiency measures we are taking as a company with our SG&A program and our industrial efficiency programs, but also with the portfolio review, which we do in South Asia. So just to reconfirm that, that is our focus right now.

The next question comes from Tony Jones at Redburn.

I've got 2 questions left. Greg, you called out the uncertainty on indirect tariffs or the indirect impact from tariffs. Do you have a plan or any thoughts about what you can do if we do head into some sort of prolonged recession? And then my second question, something we've not really talked about for a while, but can you update us on the raw material SKU reduction program and potential for gains, cost gains and working capital?

Thanks, Tony. I'll start with the second one. The raw material SKU reduction, as you're highlighting something that we've been talking about for a few years, which is to simplify and rationalize our raw material basket so that we have more industrial agility, and we've made really good progress on that. This is actually what's enabling the closures that we're making because you can't really close plants and shift the volume elsewhere if you haven't rationalized the raw material basket. So as much as we haven't reported on specific numbers and metrics, the 5-plus closures that we are planning to announce this year is a good indication of the fact that this is progressing according to plan. And then the indirect impact of the tariffs, if any, essentially, if there's a prolonged recession, as you said, we'll -- we're already engaged in an efficiency drive, which is tackling our cost base. And I think it's really a case of amplifying some of those measures if we have to. That is already a muscle that's getting a lot of exercise at Akzo these days. So we're well positioned to double down if we have to. Tony, did I answer your questions?

Our next question is from Georgina Fraser at Goldman Sachs.

I've got 2 left. The first is, Greg, could you talk about how the organization is responding to the cost restructuring and industrial efficiency measures that you're putting through? It seems like there's some quite quick activity going on the headcount reduction side. So I'd just like to hear a bit more about how the organization is feeling about it. And then the second question is, we've highlighted several times on this call, the risk to demand given the macro backdrop. Why has Akzo maintained its expectations for flat to low single-digit volume growth this year given that and given that you came in with weaker volumes in Q1 and that you have also said on this call that Marine and Protective, which was very strong, should be normalizing over the course of the year. I would love to hear your thoughts on that.

The efficiency measures, the cost reduction, look, this is not the first time we do this at Akzo, but I think it's probably the fastest. If you think back, we announced SG&A measures, I think it was like on the 24th of September, and we're already 70 -- north of 70% done on those measures. So I think what you have to do when you start cutting, you have to do it fairly and you have to do it quickly. And I think we've been doing both. So I spent a lot of time communicating and going around the business and talking to people and actually also engaging with our social partners. And everybody understands why we're doing this. We're not tackling things that people were not aware of, that functional heaviness that we had is not a surprise for anybody. So it's painful for people individually, and we make sure that we support them and we treat everybody fairly, but it's well understood by the organization and seen as needed and positive for Akzo. So as long as we move swiftly, I think that, that is not going to break our momentum in any way. And if anything, it reminds everybody in the company that we are serious about our performance targets and that we will push hard to achieve them. Maarten, do you want to take the demand question?

6 Yes, Georgina, I mean maybe a few remarks. First of all, on Q1, I'd like still to reiterate that we came in very much in line and, in fact, a little bit better from -- versus our expectations, our internal expectations on volumes because underlying, it's a minus 1% if you take into account the whole phasing throughout the year of our Turkish business. Going forward, yes, there is uncertainty as we have indicated demand uncertainty. But it's very hard to tell at this moment. So we are sticking to our guns, and that is very much focused on the efficiency measures we are taking, and we take it from there. So at this moment, no reason to deviate from our plans. And if there would be some volume softness, we need to make sure that we recover that and double down, as Greg earlier said, on other measures.

Okay. And just thinking about the comparable base that you have into the coming quarters, could you talk about how that fares for China, given you said that you're seeing an inflection there? And then anything that you might want to add on some of the other end markets, like how are we trending into the second quarter? I think you did answer it in response to Laurent's question earlier, but a bit more specifics would be really helpful for us trying to figure out this 2Q.

Yes. But if you -- so if you refer to China, and we made comments on China Deco, then we've seen China developing, in fact, better than expected in the first quarter. And we'll see how that trend will evolve in Q2 and beyond Q2. But overall, again, the trends which we saw in Q1 bodes well for how we see that going forward, but let's wait and see how that evolves.

What's fascinating about China, and I think we -- it almost surprised us to some extent when we looked into it is that even on the coating side -- and on the Deco side, it's clearly -- it's local for local. It's about local consumption. On the coating side, we knew we weren't exporting our products from China. But when we assessed how much of our coatings went on products that our customers themselves were exporting, we found that even on the coating side, we're really driven by domestic consumption. And if you look at what's happening in the world right now, clearly, China feels under fire sale to some extent. But the signs is that they're countering by stimulating domestic consumption and the domestic economy. And that directly correlates, I'm sorry, to AkzoNobel performance. So if you look at our comps for this rest of the year, our comps in China and Deco were not -- were pretty soft. In Coatings, the business was doing well last year and, therefore, these are more -- these are healthier comps. But in Deco, there were rather easy comps for the rest of the year, at least from the middle of Q2 onwards. Then the rest of the world, Marine Protective, once again, in Marine, there's backlogs at customers, shipyards are full for the next few years, pretty much whatever happens. So those volumes are locked in. Protective, there's some infrastructure spend in different countries, and that helps on the Protective side. Vehicle Refinish is soft and doesn't show any signs of picking up for the time being. Automotive is going to be depressed, I would think, for the rest of the year. Powder is a mixture of a bunch of end segments and powder is -- as a market, I think, is -- will be -- probably be down for the year, but Akzo once again is gaining market share based on technology differentiation and service differentiation, too, to be clear. What else am I forgetting? The industrial coating businesses, packaging and coil, it's probably something to keep an eye on as we look at the GDP development around the world. But the point I'm trying to make is that 40% of Akzo is decorative and decorative is really local consumer confidence driven. And if you take the other 60%, quite a few of these businesses have some level of volume protection, whether you're calling kind of customer backlogs for marine or sell some element of local demand that I illustrated talking about the other segments. So we're not immune to global demand by any stretch of imagination, but we don't see signs of lower trading at this point. And as Maarten said, it's too early to conclude either way, and it will be a debate between volumes and costs essentially. And we're more than ready for that debate because we're already pushing hard in improving that trade-off. Georgina, I hope that answers.

[Operator Instructions] Our next question is from Peter Clark at Bernstein Societe Generale Group.

Sorry, I had tech issues, so I came in on the Q&A session. But I know you were pointing at Marine and Protective normalizing. I heard that comment. And I'm just wondering, particularly on the protective side in North America because I think the oil and gas business is a very profitable niche for you there. You're obviously seeing nothing yet, but just your expectation on that sort of business as you see it today? And then going back to the Deco business in the second quarter of last year, of course, you took this awful bump in Western Europe with the weather and the U.K. trade, I think, wasn't great and a lot of the high-margin trade wasn't great. I'm assuming in Deco, whatever happens, particularly help with the cost cutting, given that bump you took last year, you're pretty optimistic you can drive that business ahead in the second quarter.

Yes. Maybe start, Peter, with your first question on MPY, I do want to confirm your point that indeed, we see a healthy positive trend in Protective on the back of new projects and investments in oil and gas. So yes, that is a confirmation. On Deco EMEA, I mean, let's not try to predict the weather here for the second quarter. But overall, so far, as Greg also mentioned, so far so good. The Q2 is always a very important quarter from a seasonality perspective. And so far, trends are in line with last year, as we mentioned earlier.

And maybe, Peter, to build on what Maarten said, because your comment on Protective is oil and gas is a profitable niche for us and if we can call it a niche, and Akzo has a strong position. So I guess you're asking with oil prices falling, will that mean that we're expecting a slowdown in Protective? And I think for the Oil and Gas segment, if lower prices persist, then you're probably looking at lower investments. But if you look at last year, our performance in the U.S. in Protective was -- we underperformed in the U.S. last year. So we're rebounding from that perspective. And therefore, there's probably a negative for the market, but a positive in terms of our momentum. I don't know whether they balance out, but at least there is some sort of balancing effect. And then the further point I would make is that Akzo historically has -- I mean, in the last decade, Akzo had made the choice of focusing in protective, particularly on oil and gas at the expense at times of infrastructure. We rebalanced that -- in the last 2 years, we invested heavily in upgrading our product range in passive fire protection. Essentially, all the more infra-driven elements for Protective. And that is leading to rebalancing of the segment. So yes, oil and gas is still important, but we're no longer an oil and gas robust shop in protective. So I agree with you that this is something to keep an eye on with probably a positive on infra and a negative on oil and gas. But given these various effects that I've mentioned, it's not something that we're nervous about at this point.

Got it. And just to check, EMEA Deco was really pumped in June, wasn't it? It was the end of the second quarter last year?

Yes, I think it was that. Yes, it was about the second half of the second quarter where in the high season, it rained a lot and volumes were sluggish overall.

That's correct, Peter. Yes.

It's a sunny week in Amsterdam, so we're feeling good right now. It's our ability to predict the weather is probably doesn't extend far from -- far beyond like looking out the window right now. But in Amsterdam, at least, I feel good.

Our next question is from Stefano Toffano at ABN AMRO and ODDO BHF.

Two questions remaining from my side. I hope I don't ask them again. I had some technical issues as well. The first one is, I might have missed it, but can you quantify the impact of the restructuring efforts in Q1, just from my understanding. And the second one, I know it might be a little bit too early to quantify the impact on the oil price, but if you can give us a little bit of an indication if oil prices would remain as on the levels that they are now, what will that mean for H2?

I'll take the second one, and Maarten will take the first one. The second one on oil prices, about half of our raw material basket is correlated to oil prices. So lower oil prices means lower raw material cost to us. As I said earlier, I alluded to earlier in this conversation, it's not a Q2 effect and largely not even a Q3 effect because we lock up prices ahead of time, and we have longer supply chains. Our supply chains extend from like a month in China to 5 months in Europe. So if lower oil prices persist, you'll see a comparatively favorable impact on raw materials in Q4. But Q4 is a smaller quarter for us. And Q2 is already spoken for and as is Q2 to some extent -- Q3 to some extent. So it is an effect, but it's not an effect that you'll see in our numbers tomorrow. Maarten, you want to take the Q1 restructuring?

Yes. So I assume you are asking for the impact from restructuring in terms of P&L and cash. Our identified items in the first quarter was EUR 72 million, if I have it right. And from a cash out, it was EUR 51 million. We have clearly commented and that's more important that for the full year, it is a total of identified items of EUR 220 million and also a cash out of EUR 220 million, of which from a cash out perspective, it will be more phased in the first half because of our SG&A actions, which we talked about earlier, are very much front-end loaded in the year as we execute the FTE reductions, which are mostly done by mid this year. I hope this helps.

Our next question is from Jaideep Pandya from -- on Field Investment Research.

Two questions. Firstly, on the sort of M&A landscape, but just stepping a bit outside the paint and coating basket. Greg, given your background is not like an old school traditional coatings guy, you came to Akzo in relatively recent years. Do you see opportunity on the more lighter side building and construction industry for Akzo to venture into maybe adhesives, sealants or any alternative technology, which could be bolted on to the distribution network that you guys have, especially in the U.S. or maybe even in Europe? That's my first question. And second question is around the industrial footprint plan. Could you give us some indication of what is the current utilization of your big factories in Europe? And on paper, if volumes don't go up, what would that look like once you rejig the factory footprint? And also tied to this, how has the service levels improved? Because I remember in the past, there were some issues with fulfilling customer orders. So has that KPI improved meaningfully in recent quarters?

Thanks a lot. Good questions. I'll take the second one, and I'll move back to the first one. The second one is, yes, our service levels are very good now, and our capacity utilization is progressing in the direction that we targeted. So let me try to be more specific here. In Deco Europe, about 2 years ago, our capacity utilization was around -- it was in the mid-50s, call it, 55%, mid-50s. And we said that we'd be closing some factories. We'd be rationalizing our footprint, and our ambition was to run our Deco Europe assets in the mid- to high-70s in terms of capacity utilization. We don't aim to be higher because Deco is a seasonal business, and it's not a high fixed manufacturing cost business. So essentially, if you try to operate at much higher capacity utilization, essentially, you're saving a little bit of fixed manufacturing cost at the expense of a lot of working capital costs because you have to build inventories ahead of the season to compensate for the fact that you don't have additional capacity. So kind of mid- to high-70s in terms of capacity utilization for Deco Europe is where we need to be. And the plan that we're executing gets us there, and it's going well. So we're confident that we'll be at the levels that we aim to be at as we complete the plan at the end of next year. And if anything happened in the market that made us need to do more, we know how to do it because we're in the process of doing this energetically, and you can imagine that, that always gives you additional ideas. So, so far, so good from that perspective. And the service levels, once again, they're in the 90s, which is pretty much more than what we need for businesses that sometimes have distribution in the value chain, so where we also have the channels that are holding stocks. So we don't need to be at a higher level of service. It'd be expensive, and it wouldn't pay off dividends in terms of performance. We're exactly where we need to be. And that's what we fixed in the last 2 years, and we've been operating at a high level since the summer of last year. If you remember, we had a Q2 miss last year where the market slowed down and we were still adding costs -- operating costs because we were in the process of fixing these service level issues. And as we fix them, we started taking people out and taking cost out, and this is what you're continuing to see and you'll continue to see throughout this year. So all good on that front. And once again, if we need to do more for market-related reasons, we know how to, and we already have ideas. Your M&A question, Maarten already answered to a large extent. We're focusing on our portfolio rationalization in South Asia. We're focusing on our self-help measures becoming increasingly more cost competitive. We're not focusing on anything else and particularly not focusing into getting into segments that we're not already present in. So adhesives and sealants, they do make sense for coating companies, for paints and coating companies. But we're not going to be making acquisitions in these areas. And you could always do something through a partnership where you're, I don't know, using Akzo's distribution to commercialize somebody else's adhesives and sealants or vice versa. But we're not going to do it by acquisitions. That's not where our focus is right now. Hopefully, that answered your questions.

Our next question is from Ranulf Orr at Citigroup.

Just 1 left for me. I think you probably just answered it mostly in the last question, but I was just thinking in relation to the tariffs, are you sort of reevaluating any of your plant closures or any sort of risk that these are delayed or canceled? And then maybe just a bit more broadly, any additional details on the plans you might be making to respond to this new tariff world order would be very helpful.

We're not reevaluating any of our plant closures. They will all happen. And we've made a conscious effort to localize, and we've actually accelerated localization in the last few years. We've also made a conscious effort to derisk our procurement flows, so we're in a pretty good spot at this point from that perspective. And all of the plants that we're closing are plants that we can function without. And therefore, there isn't any logic for us to hold back a plan to say, for example, well, we're closing a plant in this market and there's a tariff wall and, therefore, we might need to have local production and, therefore, we shouldn't close. There's really none of that. That plan is going to be executed as is. And the question is not of doing less, it's a question of doing more. And that will be dictated by market conditions. Was there anything else that we need to answer in that question? Did I miss any part of your question? Or did I answer it?

No, no, that's great.

The next question is from Chetan Udeshi at JPMorgan.

I was just wondering, and maybe apologies if this was covered, but can you give us a sense of how much of your EUR 170 million cost savings already came through in Q1? And apologies again if this was taken already. The second question was just looking at price/mix, it was up 2%. We've had debate on Akzo over the last few years, myself included, where we've been more, let's say, circumspect on the pricing power in the business. And I remember, Greg, at some point in Q1, you talked about typically your pricing increases come through in Q2, but it seems some of that has already come through in Q1. So just curious in terms of how you see the pricing in the business across divisions, anything that we should be aware about as we look about or think about second quarter? Yes, that's it.

Just on the first question, so I mean, we are executing per plan, and that is also visible in Q1. As we've said, the EUR 170 million is our gross savings and the net is EUR 70 million. But the great thing is that on the SG&A plan, you've seen the reductions, and you've also seen that we have basically in Q1, fully offset the 8% wage inflation. And we also start to see savings coming in from the Industrial Excellence plan. So in that respect, we are in line with the plan. And as we earlier said as well, the savings are ramping up throughout the year because we've always said that it will be more back-end loaded as we are implementing these actions.

At this time, we have no further questions on the line, and I will hand back to Greg for closing remarks.

Yes. I think it's been an hour or so. You guys are busy, so we'll close this call. Look, a solid Q1. The points I would make is that the world is an uncertain place, but our model is derisked. So once again, we can deliver products and we can control our costs. And we can do that in an effective manner, as you saw in this presentation, even before we take pricing measures. So I think from that perspective, Akzo is a fairly resilient model in this current environment. The part that we can't protect ourselves against is impact on global demand, which, once again, the rising or the lowering tide will impact everybody. But we are engaged in an overall direction or exercise of cost efficiency. And if we have to step up those efforts, we will step up those efforts. And then beyond that, we report in euros and the euro has gotten stronger, so there's an FX translation. But once again, it's translation, it's not transaction because that model is naturally hedged and derisked in local. So those are the parameters that we point to. And beyond that, we thank you for your time today and look forward to speaking to you soon again. Thank you.

This concludes today's call. Thank you all very much for joining, and you may now disconnect.