Akzo Nobel N.V. ($AKZA)

Hello, and welcome to the Akzo Nobel Q1 Results 2026 Earnings Call. My name is Alex. I'll be coordinating today's call. [Operator Instructions] I will now hand it over to Jan Willem to begin. Please go ahead.

Good morning, and welcome to Akzo Nobel's investor update for the first quarter of 2026. I'm Jan Willem Enhus, Head of Investor Relations. Today, our CEO, Gregoire 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'll now hand over to Greg, who will start on Slide 3 of the presentation.

Thanks, Jan Willem. Good morning to everyone on the call. In Q1, we delivered a clear beat with EBITDA of EUR 345 million, coming in 7% ahead of the EUR 323 million consensus. Organic sales were 1% lower year-on-year with a 1% pricing gain offset by 1% declines in both mix and volumes. Profitability improved meaningfully. Adjusted EBITDA was up 7% at comparable scope, while adjusted EBITDA margin rose to 14.5%, up 80 basis points. This marks the fourth quarter of margin expansion year-on-year, driven by disciplined pricing and strong execution on our cost actions in soft end markets. Operationally, our industrial transformation will be completed by year-end. We closed a further 3 sites in Q1, bringing the total to 15 since the program's inception. We've done all of this without business interruption. We also delivered a key milestone to our ongoing portfolio review in Deco Asia, signing the sale of our business in Pakistan at 14x EBITDA for an enterprise value of about EUR 50 million. Close is expected in the second half of the year. It's not a very large transaction, but it's another proof point after India that Deco assets are valuable, particularly to the right owner. On financing, we issued a EUR 1.1 billion bond dual tranche in March, extending our maturity profile and reinforcing liquidity ahead of the proposed Axalta merger, which is on schedule. We enter the rest of the year from a position of strength, well equipped to navigate the raw material headwinds ahead. Turning to Slide 4. In Q1, volumes were down 1% year-on-year, reflecting a mixed regional picture. We saw strong growth across Asia and South America, while North America and Europe remains slow. In Coatings, volumes declined 2% in Q1 against the backdrop of continued macroeconomic uncertainties. Powder, specifically, Powder demand improved in both architectural and automotive. And the strong momentum in Asia continued. Marine, Protective delivered a lower quarter driven by project phasing and tougher comps in Marine, while Protective continued to grow, particularly in Asia. Automotive and Specialty remained sequentially flat. Aerospace is a clear growth engine, while Refinish grew in Asia and stayed at trough levels in North America as expected. Industrial Coatings declined low single digit with growth in coil, more than offset by lower volumes in packaging. Moving to Deco, Q1 was a solid quarter. Volumes grew strongly across Asia and South America, offset by lower volumes in Europe, Middle East and Africa, where the season started more slowly but accelerated through March and is also doing well in April. Latin America volumes were low single digits up, driven by Brazil's return to growth together with Colombia. In Asia, growth accelerated sequentially with continued outperformance in China and Vietnam, while Indonesia is showing signs of recovery. I'd add as a comment in reaction to some of the questions we got this morning and some of the headlines that we saw that we don't see a whole lot of evidence of prebuying in either Deco or Coatings. I mean they're very different businesses. But once again, there's no evidence of significant prebuying in any part of our business at this point. Take us to the next page, Maarten.

Yes. Thanks, Greg, and good morning, everybody. At group level, organic sales declined by 1%. Volumes were down 1%, while 1% price was offset by a negative mix impact of 1%. The divestment of India had a negative 3% impact on revenue. Finally, FX translation reduced revenue by 5%, resulting in a reported revenue decline of 9%. Coatings were impacted by geopolitical uncertainty with volumes down 2%. Growth in Asia and South America was more than offset by lower volumes in North America and Europe. Deco delivered strong price mix of 2% on flat volumes. Group adjusted EBITDA was EUR 345 million, representing a 7% increase at comparable scope excluding our India disposal and in constant currencies. The EBITDA margin improved to 14.5%, up 80 bps year-on-year. This improvement was driven by 300 bps margin expansion in Deco on strong pricing and structural cost savings. In Coatings, softer volumes and negative mix weighed on profitability. Next slide. We delivered another quarter of free cash flow improvement by EUR 39 million at minus EUR 144 million versus minus EUR 183 million in Q1 last year. The first quarter is seasonal quarter with inventory build and related outflows. Working capital also improved, ending the quarter at 16.8% and 20 bps below prior year. Notably, this was achieved while we closed 3 sites as part of our industrial transformation program, which requires inventory buildup to support volume redistribution. Return on investments rose to 13.6%, up from 13.1% last year. And finally, supported by the improved cash generation, we maintained our leverage ratio at around 2x. Now handing back to Greg.

Thanks, Maarten. Moving to Slide 7, I think, tensions in the Middle East have pushed oil prices higher and caused significant disruption across the chemical value chain, driving expected high-teens raw material inflation for the remainder of the year. In response, we moved decisively to protect margins and have announced price increases ranging from the mid-single digits to the low teens. The announced price increases will fully offset raw material and logistics inflation based on current market conditions. We'll execute further pricing actions if conditions worsen. So once again, these price increases have been announced, they've been discussed with customers, they're being implemented. The last cycle demonstrated the strength of our ability to pass through inflation. If you think back to that time, '21, '22, EUR 2.3 billion of cumulative pricing to fully offset the EUR 2 billion of raw material inflation, although pricing took time to catch up. This time around what we're building on that experience and we've acted faster, bringing pricing and inflation into closer alignment in the early stages of the cycle. We're not executing at pace with the P&L impact of our pricing actions ramping up in Q2 and the full effect visible in Q3. Beyond pricing, we're actively managing input cost inflation contractual terms and competitive sourcing are limiting cost increases from suppliers, while our regional-for-regional sourcing model keeps supply continuity and act and provide resilience against further destruction. In short, we've navigated this before, our response is in motion, and we believe we have the track record to back our confidence. Turning now to our outlook on Page 8. Looking ahead, our 2026 adjusted EBITDA target of at or above EUR 1.7 billion remains unchanged. The EUR 100 million step-up continues to be driven by what we control, EUR 90 million of net savings from our industrial program, with SG&A carryover and productivity offsetting inflation. We remain firmly focused on completing the industrial program by year-end while maintaining strict cost discipline. Although the Middle East conflict has limited impact in the first quarter, raw materials and logistics costs will ramp up throughout the year. The exact impact is still evolving, but additional pricing has been announced, as I said, and we'll fully offset this inflation we see. And therefore, we believe that the actions that we have in place have neutralized that impact and we'll take further actions if needed. For Q2, we expect adjusted EBITDA of around EUR 400 million. Volumes are forecasted to be broadly flat against comps that are less challenging than in Q1. And pricing will build progressively throughout the quarter, offsetting raw material inflation, while OpEx savings will be delivered as per plan. Moving to Slide 9, the merger preparations with Axalta are progressing as planned with three critical work streams running in parallel. On integration, the management office is up and running with a strong cooperation between the teams, focus is on day 1 readiness and accelerating synergy capture. The shareholder preparations continue to advance. The PCAOB audit is complete. The confidential F-4 filing was submitted end of March, and the EGM is expected to be held in early July. Separately, the regulatory process is underway with active dialogue across many jurisdictions, including the U.S., the EU and the U.K. We remain firmly on course to close by the end of the year or early next year. I'll now hand over to Jan Willem, who will close with information about upcoming events, and then we'll start the Q&A session. Jan Willem?

Yes. Thank you, Greg. Before we start the Q&A session, I would like to draw your attention to the upcoming events shown on Slide 10. Our AGM that will be held tomorrow, April 23, the ex-dividend date on our 2025 final dividend, April 27, and the record date is April 28, followed by payment on May 6. This concludes the formal presentation, and we'll be happy to address your questions. [Operator Instructions] Operator, please start the Q&A session.

[Operator Instructions] Our first question for today comes from Thomas Wrigglesworth of Morgan Stanley.

Two questions, if I may. Firstly, around the volume outlook that you have I mean clearly an evolving picture, but obviously, you've kept the volume picture flat and you're pushing through pricing. Are you expecting to see some demand erosion? Or do you think that is too early to tell or there are mitigating factors within there that mean that, that doesn't -- that shouldn't arrive this time around? And secondly, just on the -- you successfully -- you very successfully passed through pricing in the previous cycle. But one of the issues we found was in the coatings industry, less so Akzo, was kind of unique components that were missing or became short. Just in terms of your total inventory picture, how does that vary by region? How many weeks, how many days of inventory do you have in terms of visibility and in terms of lead time to get -- to enable you to get prices up?

Thanks, Thomas. I'll take the first question. Maarten will take the second. From a volume perspective, we've kept the outlook flat. When we look at -- so when we look under the hood, we're not really seeing -- we didn't see any prebuying of any significance, we are not seeing a slowdown either. We're essentially seeing a trend that is -- seems to be fairly stable. So will -- if we stay in a world of higher inflation because that [indiscernible] inflation creates price inflation and creates inflation overall, would that have an impact on demand overall? I mean I think economic theory would tell you it would. But it's -- one, it's not visible today. Two, it's too early to tell. Three, we're playing against easier comps starting in Q2. You have to remember, you had Liberation Day last year and all sorts of things that made our life exciting. So I'd say so far, so good. And March was healthy. April was healthy, too. We announced price increases that we discussed with our customers without seeing them ramp up their orders or -- I think there's a view in the market that there's potentially a resolution on the horizon. But whether that's correct or not, we're not seeing anything that would lead us to change our volume outlook for the time being. Maarten, do you want to take the second question?

Yes, on the pricing dynamics and maybe a few points to make. First of all, this is really a very abrupt price increase. But of course, there is a different picture per region and also per business or per business segment. So we use differentiated pricing, of course, in that context. And on your question on lead time, what you see in general that in Asia and particularly in China, supply chains are significantly shorter compared to, for instance, Europe. So that's why in Asia, within shorter supply chain, but also a more material increase, you see also there a faster reaction to compensate.

It's really interesting, by the way, because Asia structurally has a higher impact from what's happening in the Middle East and the Strait of Hormuz just because where these oil and some of these refined products go. And as Maarten said, it's a shorter supply chain. So you should say, well, there's going to be more of an impact in Asia and that impact will be felt earlier. But actually in Q1, what really pulled the performance is Asia. So it's holding up well at this point in terms of demand, once again, to link Maarten's answer on the second question to the first question.

Our next question comes from Laurent Favre of BNP Paribas.

Greg, how much of the pricing that you're targeting for the rest of the year is underlying pricing rather than surcharges, which I guess is a way of trying to understand how much carryover we get into 2027 as things are now? And then the second question is on the Asia disposals in Deco. So you did Pakistan and obviously at a good valuation, but I guess the process there started before the war. So I'm wondering, to what extent you think the current Middle East situation is just going to push back all your, well, I guess, expectations around announcing more deals either from a valuation standpoint or just because just too much uncertainty and people don't want to [ move ] capital now?

Yes. Thanks, Laurent. I'll take your questions in reverse order. You're right, Pakistan, we started discussions before the war in Iran. But the war in Iran did not lead to a value erosion of that process or a fragilization of that process. So there was no time when potential buyers try to use that as a reason to either take down the price or push things back. And if you look at what we have in mind for the rest of Asia, it's really interesting. I mean we're in this world where people WhatsApp you stuff all the time. And while we were getting ready for this call, I got a WhatsApp from a senior executive of a well-known company that asked me about the availability of one of our Deco businesses in Asia. So this is like real-time stuff. So I -- what that tells you is that people look through the crisis. These are really good businesses. Nobody is trying to figure out whether -- what's the impact for 3 to 6 months. They're buying for the long term. And these are franchises, these are well-known brands with entrenched positions in countries. And I don't want to be cynical that things -- this too shall pass, but that's not how buyers look at assets. And once again, a few data points, no change on Pakistan despite events and people actively knocking on our door pretty much in real-time for anything else that we might have in mind in Deco in Asia. Your question on the price versus surcharges is -- I think it's a really good one. And we've explained in the past that about 25% of our business -- 25% of our revenue is based on formula indexes. So take Akzo overall, there's about 25% of our revenue where prices adjust based on the formula. In Industrial Coatings, for example, that's a significant part of it, but there's other places, too. Those formulas, they're not very effective for small variations, but they're really effective and really impactful for big variations. And we're in big variation land. So essentially, I was touching base with the Industrial Coatings business. And essentially, they told me yesterday that these formulas have already been agreed to the impact, and it's already being passed on. So that's being rolled out in invoices in April, in May. I think the tail end of that is things that go in on the 1st of June, no later than that. So it's kind of actually spread out between 1st of April, 1st of May, 1st of June. So that's about 25% of our revenue base. And everywhere else, in some cases, we have longer-term contracts, but a lot of it is spot essentially. And there, you have the option of going with price increases or surcharges. Our preference is to go for price increases because these -- the surcharge stuff is -- you're right, it's less sticky, but it has an advantage, though, that usually you can implement it faster. So overall, we've gone proportionally more for price increases, but there are certain areas of the business where we've gone for surcharges, usually in areas where that's the acceptable or accepted practice. But once again, that's not our preference, but that's something we do when that's the market practice and when we believe that speed is the essence.

Our next question comes from Matthew Yates of Bank of America.

A couple of questions. The first one just around cash flow and working capital management. If I think back to the prior cycle, you ended up consuming the best part of EUR 1 billion in additional working capital. Can you talk about sort of how you're thinking about the impact this time around and any lessons learned? I think with the benefit of hindsight, I think you yourselves were prioritizing security of supply that then led to quite a prolonged effort to unworking that. How are you engaging with your raw material suppliers at the moment to balance what you need versus not buying too much at perhaps what is the top of the market? And the second question, I'd like to follow up on what Laurent was asking around the process for Asia, and I'm a bit confused as to what the strategy here. I was under the impression that you were reviewing positions where you did not have a pathway to being a market leader. Based on recent press reports, it suggests that you're taking a more holistic look at whether keeping any Asian business would be worthwhile if it has a lack of scale. And I'm just curious, how you're thinking about this process? Is it going to be piecemeal? Or are you looking at a total exit of your Asian Deco franchise?

Matthew, I'll take the second question. I'll start with that, and then Maarten will take the first one. To clarify, our strategy hasn't changed. We love our Deco businesses, we believe that our capital is better allocated to leadership positions. And if you take Deco specifically, the part of the world where we don't always have a leadership position is actually Asia. So hence, the fact that in September, I think, 2024, we announced a review of our Deco Asia position. So it's not coatings at all, it's just Deco Asia. We sold India. India was a great business with 5% market share. We sold Pakistan. And we're looking at some of these other positions. And to your question of is that wholesale or retail, is that -- are we looking at potentially selling as a package? Or are we looking at assets individually? Right now, we're just having discussions in general. We're not -- we haven't decided anything, but we've been clear that if we're not the leader and we don't have a path to leadership, we will consider options. And that -- these are the options that we're talking about. By the way, that discussion does not include China. China is a really good business that is recovering ahead of the market that we're excited about for the years to come. But it's -- the scope that we are looking at from a strategic perspective is essentially the rest of Asia, which once you've taken out India and Pakistan is about EUR 300 million of business at a profitability, which is a little bit higher than the Deco average. So hopefully, that answers the question. But I don't have anything else to communicate on this at this point beyond the fact that we're continuing with the exact same strategy, taking a critical look at these assets, and we are having a bunch of conversations because it's not like we've been discrete about it. So people are calling up or to allude to my answer to Laurent's question, people are WhatsApping me. We're very modern. Maarten, do you want to take the first question?

Yes. Yes, Matthew, it's a very good point. And obviously, we have taken the lessons learned from the previous cycle. We are operating at the moment end of Q1 at an inventory level, which sits just above 100 days and is in line with last year Q1, by the way, despite the massive transformation we are doing as part of our industrial footprint. Clearly, we will -- and we are and we will manage our inventories at a tight level because it doesn't make sense to start to buy when prices of raw material have spiked already because the spike is already there in terms of raw material prices. So we manage it tightly, not buying at the highest level to make sure that we manage our working capital in a proper way. And as you know, yes, in value, inventory goes up, but payables will also go up. So that compensates each other, and that underpins kind of the trajectory we see from -- for working capital throughout the year.

But Matthew, you're correct. Last time around in '21, '22, we did really well in terms of pricing to mitigate the impact. We did really badly in terms of anticipating raw material prices and availability, and we had a tendency to hoard. And when the situation started normalizing, we had 2 or 3 quarters of relative underperformance because we were still working down higher-priced inventories. So in terms of lessons learned, that's lesson learned, which is we're going to keep a very close eye on days of inventories. And we haven't given our people relief, we haven't told them that target of getting under 100 days of the [ IO ] is suspended. Let's go out and buy whatever we can. That's absolutely not what we're doing. It's business as usual, but it's business as usual in a more dynamic way because the market is a little bit stretched.

Our next question comes from Katie Richards of Barclays.

Two questions from me, please. The first, I just want to understand, to what extent the positive margin momentum in the Deco side was driven by the higher inventory backlog you've been describing? Because you were talking about ahead of site closures, you are building inventories ahead of that. And secondly, you mentioned earlier that now the market has a view that there's a resolution on the horizon, so I'd just be interesting to understand whether you're finding it more difficult to push through price increases now that the news headlines are focused on a ceasefire.

Thanks, Katie. The second question is -- I'm not trying to be a geopolitical commentator. I was explaining why -- I was giving a reason or an explanation of why we're not seeing a lot of prebuying. People are fairly calm in the value chain. But I think we all understand that even if there's resolution tomorrow, oil prices will remain at a higher level for the quarters to come and the chemical value chain will take some time to resorb. The moment you open the Strait of Hormuz, in all likelihood, the ships that will be given priority are the VLCs, the very large crude carriers. And all the stuff that has chemicals on them will be at the back of the queue. So I think we all understand that whatever happens, this impact is going to be carried for the rest of the year. There's no magic wand to go back to pre-Iran quickly. So no, whatever is happening is not impacting our price discussions. And also, I think people have gotten used to the fact that those discussions are a roller coaster. So no specific impact from that perspective. Your point on Deco margins, you saw that our margins were up 300 basis points in Q1. And actually, your question is a really good question because you're essentially -- if I phrase it differently, you're asking whether that performance is supported by positive inventory revaluations. And the answer is that it's not. The inventory revaluations have not impacted Q1. And therefore, that performance was achieved the old-fashioned way. And the old-fashioned way has been specifically to this, this industrial transformation that we undertook where we're closing a lot of factories, we're streamlining the business, we're taking out some of the overheads. Over time, it pays off. And what you're seeing is those actions paying off. You're not seeing any kind of weird one-off accounting impact of raw [ mats ] go up and therefore, we do an inventory revaluation that's positive that underpins the Q1 performance. That's not the case. I can confirm that.

Our next question comes from Tony Jones of Rothschild & Co.

I've got two. On site closures, you have reported you've taken out 3 in this quarter, and I think you said that's 15 in total. Could you remind us what the target is for this calendar year and how that might split by division and region, if that's possible? And also, what are the criteria now with -- we're at the end of April, you have the Axalta merger hopefully on track for the next 6 to 12 months. Is that also starting to take effect? And then in terms of the divestments, sort of circling back to early questions, how much of the divestment strategy, particularly Asia, is now starting to also consider the combined footprint with Axalta? Or is that just not relevant at this point?

Thanks, Tony. The site closure question, we said we've done 15. We never gave an overall target. But if you go back to where we were last year, we were at 12. And we said that we've done 6 for the year, and we said there were at least as many in 2026 as in 2025. So at least as many, it means above 18. I'm sorry to be coy and to -- but you understand these things are sensitive. But roughly 18 plus, and all of those are going to happen. And none of that is changed by the impending Axalta merger. These are all things that we believe makes sense regardless of whether we merge with somebody else or the market environment. So we're going ahead with those. And there was a divestment question, I think, Maarten?

Yes, there was a divestment question. And again, we are going ahead, as we mentioned earlier. And there is no relationship to the Axalta merger, also not related to the footprint. We are executing our stand-alone strategy. And we are focusing on this year, and the merger will come from early next year onwards.

And I think if I may add something to what Maarten said, it ties to a question we've been asked multiple times by investors, which the merger, there's really good investor support. But if they have one gripe, it's -- this pushes returns out into the future because a lot of people look at this and go like, "Well, you're going to be busy with regulatory until closing. So that takes care of 2026. And in '27, you're going to spend $600 million to generate EUR 600 million of synergies. So that means that the earlier I can start seeing returns is 2028." But the reality, if you read the merger agreement is that we've maintained the right to monetize some of our assets in Deco Asia. And as you can tell from what we're saying, we're continuing, which means that some of those returns are being brought forward by whatever we do with those assets specifically. And once again, no change, no change because of Axalta and no change because of the market. If anything, that those processes are generating quite a bit of interest.

Our next question comes from Chetan Udeshi of JPMorgan.

The first question I had was, Greg, you mentioned the local sourcing for local region strategy. But I mean, correct me if I'm wrong, I sort of remember in Europe, about 12% to 30% of your raw material requirement is actually typically imported from China. And I'm just curious, is this going to change how you look at importing from China in the future? Of course, the prices from China tends to be much lower. But then if you have these sort of supply shocks like COVID, wars, does that make sense or does it make sense in your view to double down on local sourcing in Europe or rest of Asia, even if that means you have to pay higher prices to local suppliers? The second question, just going back to the pricing, it seems to me at least that these are the price increases that you are pushing through. Can you give us any color on how the acceptance has been so far from your customers? Are they -- do they understand? Are they pushing back? Is it a kind of war? Because we all take the price increases on the face value, but of course, what matters is how much will stick.

Let me take the first question on regional or local sourcing. In fact, what happened post-COVID, we have focused more and more on local sourcing. And if you look at specifically Europe, and our local sourcing versus what we source from Asia, particularly China; that is, in fact, a very low piece. So it is significantly lower versus what you are mentioning. Currently, we are more or less at a 10% level. So our model has more change to regional/local sourcing.

Which, by the way, we talked about, I think, maybe 18 months ago or 2 years ago because the question was, are we taking advantage of the exceptionally low prices in China at a time, if you remember, it was when Europe was passing on tariffs on Chinese [ TiO2 ], antidumping. And what we said at the time is that we had derisked our flows. We realized that there's a geopolitical risk associated to having too many eggs in the same basket and that we were willing to absorb a little bit more cost to have more certainty. So it's exactly what Maarten said. And if you kind of go back to what we said at the time, you'll see that it's very consistent. The second question, Maarten?

It's on the price increases and customer acceptance.

Customer acceptance. It's -- I go back to my answer to Laurent's question. There's about 25% of our revenue, which is formula-based, and then that takes away a lot of the emotion. On the B2B side, so the other coating businesses, it's been -- the industry reaction has been fairly kind of consistent across the board. If you look at the announcements that came out from different players, we're all pretty much saying the same thing. And our customers are also B2B players. So they're also looking to see how they pass on. So those discussions have been constructive. On the Deco side, it really depends. In some Deco markets, we are still on the tail end of discussions for the annual price increase for 2026 because these things have -- they have a tendency to be settled at the beginning of the high season, and the beginning of the high season is essentially now. So it puts a lot of things on the table at the same time, but everybody understands that this phenomenon is something that has to be mitigated. And actually, a lot of our customers are -- have already increased their prices in Deco. And any discussion that they have with us is more about margin expansion for them than it is about whether there's a logic to the price increases. But I'd say so far, so good, Chetan.

Our next question comes from Georgina Fraser of Goldman Sachs.

I wanted to just ask a bigger-picture question, just revisiting the strategy to shrink Deco and consolidate and get bigger in the Coatings business. Are there actually any dis-synergies to owning both of these businesses? Or how do you present the value-creation strategy behind this idea to shareholders? Or is the disposal strategy in Deco just about the fact that you haven't been able to delever organically? Looking at the balance sheet, it's -- we're kind of just stuck and have been for some time.

Thanks, Georgina. It really is not about the balance sheet at all. Our cash flow generation was really solid last year. We are delivering at a higher level also in Q1. We're -- we've been actively managing working capital. We're not worried about our ability to generate cash, and we're certainly not worried about the balance sheet. And it's not at all about wanting to shrink Deco. It's about wanting to make sure that we are fighting battles that we can win, meaning that we have -- we want to focus in Deco on businesses, on countries where we have a leadership position because Deco is a local game, and it's a relative market share gain. We're very strong in Latin America. We're the market leader in Colombia, we're the market leader in Argentina. The impact of having Colombia on Argentina is pretty much zero and vice versa. These are not different brands, the products don't travel from one country to the next, production is local. So the way you win in Deco is by having the strongest brand and the best distribution. So it's a relative market share gain. So once again, if you look at the profitability of our businesses in Q1, I mean, Deco is at like 17.3%. It's 400 basis points higher than Coatings almost. Now it's a moment in time, Coatings is more impacted than Deco by what's happening in the world. But these businesses are really good businesses. But once again, we want to be in the countries where we have a winning hand. And we are -- we've also demonstrated with India and Pakistan that in countries where we're not necessarily the leader, these businesses are way more valuable to people other than us. So I don't know that any investor will look at me strangely if I sell a business where we have 5% market share and the market leader has 50%, and we sell that business at 24x EBITDA, which is exactly the situation in India. So once again, not about the balance sheet, it's about focus, it's about making sure that we are not to -- spread too thin. And to your question of are there dissynergies to owning both? Not really. I mean, I think the -- there's complexity, which is that it makes -- it forces investors to have conversations ranging from the weather in the U.K. to aerospace travel to whether people are crashing their cars in North America. So it makes the story a little bit more complex. And from a management perspective, we're essentially within Akzo, we're running a B2B business, and then we're running a smaller version of Unilever. Deco is essentially an FMCG business, although it's -- the F is a small F, but it's very similar to those businesses and -- which means that you manage them and you allocate capital to them in a very different way as you would for the Coating businesses. So that's all it is. It's not -- it's pretty straightforward, not about balance sheet, a little bit about complexity and a lot about capital allocation and value.

Our next question comes from Sebastian Bray from Berenberg.

There on the Refinish business, please, can you give an idea of the geographic distribution of sales at Akzo Nobel within Refinish? And any comments on both the underlying market development, given that volumes have been weaker in recent quarters? And the relative performance of Akzo's own business would be welcome.

I don't think we've ever given the geographical split of the Refinish business. What I would say is that we're top 4 in the U.S. and in Europe. We have a stronger position in Asia. Our Refinish business in Asia did very well in Q1. Refinish in the U.S., as you know, was impacted by that sort of tension between higher insurance premiums and lower disposable income, and that stabilized at a trough, but it hasn't picked up yet. And Europe was less impacted, but is not rebounding yet. So if you run a Refinish -- if you own a Refinish business these days, what you have is growth in emerging markets, you have -- you're stabilized at a trough in Europe and the U.S. And -- but with an impending rebound that the bigger guys, PPG and Axalta, we're forecasting for the second half of the year, which might shift a little bit if gas is $4 per gallon at the pump in the U.S., maybe that has an impact on driving season. But it's a business that continues to have significant pricing power because it's a business that differentiates on technology. For the body shops, the cost of the paint is not a big cost item. What makes a body shop profitable or not is essentially throughput and labor costs. So if you offer a product that achieves a better result in less time, you're going to make good money and you're going to have pricing power. Hopefully, I've answered your -- I didn't give you percentages, but hopefully, I gave you some color.

At this time, we currently have no further questions. So I'll hand it back to Greg for any further remarks.

Thank you. Well, look, strong Q1 in a market that is a little bit distracted by what's happening in the world. The market was soft in the first place that is always a source of concern. But as we look at how our business unfolded, January, February, small months; March was actually a good month, April is looking pretty good, too. There doesn't seem to be any signs of panic or significant disruption in the market, no significant prebuying, no changes in consumer patterns that we can see at this point. Once again, we're keeping a close eye on that for the rest of the year. But keep in mind that we're forecasting flat and our comps get easier. Our cost structure is really under control. We continue to take cost out, and it continues to have a positive impact, as you can see from the performance of Deco in Q1 as just one data point. And then we were pricing up before Iran, and we've stepped up one level because of the raw material impact, once again, in the high teens in our basket for the rest of the year, but mitigated by already announced price actions that we believe will neutralize the effect. So that gives us some level of comfort for the rest of the year. Once again, volumes are always the question mark, but so far, so good. We expect EBITDA to be about $400 million in Q2. And once again, you'll see progressively, you'll see the raw material impact materializing in our P&L, but you'll also see the corresponding price increases making their way through our P&L at the same time. And our aim is not to capitalize to expand margins. Our aim is really to price to neutralize the impact. Merger is making good progress. And we thank you for your time and your attention today. Thanks.

This concludes today's conference call. Thank you all for joining. You may now disconnect your lines.