Good morning, and welcome to Oxenobel's Investor Update for the second quarter of 2026. I'm Jan-Willem Enhuis, Head of Investor Relations. Today, our CEO, Greg Boubillon, 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, oxenobel.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 two. 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 three of the presentation.
Thanks, Jan-Villam. Good morning to everyone on the call. In Q2, we delivered a quarter of growth and margin extension. Organic sales were up 2% year-on-year, with pricing up 3% and volume stable, with a 1% headwind from mix. We did what we said we would do. we implemented pricing to protect margins, we kept volume stable, and we continued to execute on cost. Profitability continued to trend up. Adjusted gross margin came in at 42.7%, up 70 basis points, and adjusted EBITDA margin was 15.4%, up 40 basis points, making this the fifth quarter in a row of margin expansion year on year. adjusted EBITDA was 398 million euros up 5% at comparable scope with discipline pricing offsetting raw material inflation on funding we issued a 750 million euro bond in june completing the financing of the special dividend related to the proposed merger with exalta the merger preparations are progressing as planned with the shareholder vote to be held on august 5th i'd also like to highlight a milestone on sustainability that i'm particularly proud of We achieved our 50% reduction target for scope one and two, carbon emissions, and we did it four years ahead of schedule, showcasing that we continue to proudly lead the way in our industry. Moving to slide four, Q2 volumes were stable year on year in line with our guidance. In coatings, growth resumed with volumes up 2%. Powder delivered mid-single-digit growth with architectural up in all regions and strong momentum in Asia continuing. Marine and Protective had a smaller quarter with Protective up in Asia, but project delays impacting the Middle East because of the Iran War. Marine was lower on tougher comparatives and also the fact that a lot of ships were stuck at sea. Automotive and specialty volumes were up mid-single digit, with aerospace remaining a clear growth engine. Refinish returned to growth overall while stabilizing further in North America. Industrial Coatings was up in the quarter, with growth in coil partly offset by lower volumes in packaging. In Deco, volumes were down 4%, mainly driven by EMEA, where a slower DIY season in Western Europe was only partially offset by strong performance in Southern Europe. Latin America was up mid-single digits, driven by a strong performance in Brazil as well as in Colombia. China continued to outperform a soft market, while Southeast Asia delivered growth across all markets, led by a strong volume momentum in Vietnam and in Indonesia. I'll hand over Martin for the numbers.
Thanks, Greg, and good morning, everybody. At group level, organic sales returned to growth up 2% with 3% price and flat volumes, partly offset by a negative mix impact of 1%. The divestment of our liquid businesses in India reduced revenue by 3%. FX translation, which has been a headwind for some time, only had a slight negative impact this quarter. As a result, total revenue was down 1%. Coatings delivered healthy volume growth of 2% with 2% pricing. Mix impact was negative 2%, mainly driven by lower packaging volumes. Lower volumes in Deco were more than offset by robust pricing of 3% and positive mix impact of 2%, resulting from lower DIY volumes in Western Europe. Group adjusted EBITDA was 398 million euro, representing a 5% increase at comparable scope, excluding our India disposal and in constant currencies. The EBITDA margin improved further to 15.4%, up 40 basis points year on year. Both segments improved on pricing, with coatings also supported by growth in aerospace and refinish, and paints continuing to benefit from structural cost savings from industrial excellence program. The next slide. Q2 was operationally solid. Trade working capital improved to 15.6% of revenue, 140 basis points below prior year. This contributed to a higher return on investment of 13.8%. We delivered 108 million euro of free cash flow, driven by higher EBITDA and continued working capital efficiency. Supported by the resilient underlying free cash flow, net leverage came in at 2.2 times. Now handing back to Greg. Thanks, Martin.
Looking ahead, our 2026 adjusted EBITDA target of at or above 1,470,000,000 euros remains unchanged. The 100,000,000 euros step up continues to be driven by what we control, 90,000,000 euros 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. From material and logistics, inflation is starting to moderate in certain regions, though the picture remains volatile. Announced and implemented pricing will fully offset the inflation we currently see, and we will go further if required. For Q3, we expect adjusted EBITDA of around 390 million euros. Volumes are forecast to be broadly flat. Pricing will build further as the full impact of raw material inflation comes through, while OPEX savings will be delivered as per plan. Moving to slide eight. Merger preparations for Accelto are progressing as planned. The F4 became effective and the proxy was filed in late June. The shareholder vote to approve the merger is set for August 5th. The value case here is substantial. We've identified north of $600 million with cost synergies, with roughly 90% expected within the first three years post-close. Beyond cost, we're targeting 100 to 200 basis points of revenue synergy uplift. In addition, the combined company will have a single listing on the New York Stock Exchange after 12 months of view listing. Looking past the vote, the roadmap is clear. We'll finalize integration planning to accelerate Synergy Capture, announce the operating model and the leadership team, complete the revenue synergy work supported by clean teams, and obtain the remaining regulatory clearances. We remain firmly on course to close by the end of 26 or early 27. In short, this is a compelling combination. The preparations are fully on track, and we're focused on executing every step between here and close. I'll now hand over to Jan Willem. We'll close with information about upcoming events and the Q4 session.
Before we start the Q&A session, I would like to draw your attention to the upcoming events shown on slide 9. The EGM for the merger with Exalta will be held in two weeks' time on August 5th, and our Q3 results will be published on October 21st. This concludes the formal presentation, and we will be happy to address your questions. Please state your name and company when asking a question, and limit the number of questions of two per person so others can participate. Operator, please start the Q&A session.
Operator
Thank you. As a reminder to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from James Hooper from Bernstein Associate General Group. Your line is open. Please go ahead.
Good morning, everyone, and thanks for opportunity to to ask questions um two for me today please um the first one is is on the disposal strategy so in terms of the the offers that you've received um it's clear there is some interest in deco and in the past on these calls that you've said that you're still looking into smaller disposals of the asian businesses um do these offers change that change your strategy on those disposals, particularly given that their Asian volumes look like they're running much faster than EMEA or Chinese Deco volumes. And then the second question is about marine and protective. So it's been a strong growth drive for a few years, but it had a slightly slower start to 2026. Do you think that the growth potential of this business has changed at all longer term? Is this a temporary effect, i.e. you can't coat shit stuck in the straight? Or is there going to be a structural step down in the growth of this business. Thank you.
Thanks, James. I'll take your questions one by one. So the disposals, our strategy hasn't changed. We said, I think it was in September 2024, we said that we would refocus our Deco portfolio on countries in which we have a leadership position. We didn't have a leadership position in India or Pakistan, but these countries where these operations were more valuable to people other than us, and we ended up selling them. We are asking ourselves the same question with Deco Southeast Asia, and we are in the process of evaluating next steps for that business. The fact that that business is growing only makes it more attractive, and I think that bodes well for a process if we decide to launch one, but it doesn't change anything to the fact that we have a leadership position in Vietnam, but the other countries are countries in which we'd have to do something to get to a leadership position. So no change, just more attractive. Marine Protective. Marine Protective is one of our key franchises. It's a great business. It had a slower of Q2, not really for anything, for any structural reasons. Protective was fine. Marine was a bit down. And Marine is down because, as you rightly said, there's a lot of ships stuck at sea, and the day rates are high. And even if they weren't stuck in the Strait of Hormuz, they'd probably be sailing because now is not the time for most ship owners to go to dry docking. So There's a little bit of demand that's being pushed out into the future. Also, from an AXO perspective, the marine business is a fixed-price business. You work on tenders that are generally multi-year tenders for multiple ships, and you commit to a fixed price with some escalations, but the challenge is to make sure that you don't get caught out by the raw material cycle. And I think the current market environment lends itself to a little bit of caution because the direction of that raw material cycle is a little bit hard to predict. So a combination of Strader Hormuz, which is temporary, and a little bit of cautiousness on our part as we wait to see in which way the wind's going to blow in terms of the raw material cycle. But the business in itself has a lot of potential, and the story is far from over in terms of the rebound, not only in terms of growth, but also in terms of profitability. Did I answer your question, James?
Can I just ask a quick follow-up on the first one? So just to clarify, if you were to think about launching a process for the SEA businesses, you don't think that would impact the value of potential sales that perhaps some of the parties who've made you offers in the past few months?
The only party that has made an offer for all of Deco in the last few months is Nippon. And this is really a question that you'd have to ask them, not us. What we are is focused on our strategy, and our strategy is to refocus the business on leading positions. Now, if Nippon has an interest and is willing to step up, then who knows? But the reality is that we're not a seller of these businesses apart from a question mark on Southeast Asia. And then the rest of it, you know, Nippon's timing, they're coming in late in the game. and I'm not sure that anything needs to be discussed in a hurry because, once again, we're focused on our merger and we're focused on finding an outcome that we are happy with for DECO Southeast Asia and everything else is a question for somebody else than us. Okay? Thank you, Greg.
Our next question comes from Christian Freitz from Kepler-Chevro. your line is open please go ahead yes good morning thanks i had technical difficulty so i might have missed some comments um but i'm going to ask these questions anyway um can you comment a bit on the negative volumes you saw in q2 in deco in europe and in china and pertaining to europe could this be a weather related issue due to the early heat waste we have seen in large parts of your relevant regions and what kind of feedback are you getting how those volumes in europe have developed in the early part of Q3. And my second question, powder. In powder, you saw bleasing come back in Q2 on the volume side, I guess. Obviously, benchmarking against a rather weak Q2 last year. Any drivers behind this? Is this also automotive driven or also architecture? Thanks.
Let me start with the first one, on Deco Emea first. What we saw in Deco Emea is softer DIY volumes in Western Europe. It's very much consumer confidence driven, specifically in the UK. But overall, we see, I mean, this is also a quarter, of course, where we have increased prices. But overall, we see a continuing trend, I mean, a stronger trend in Q3 and Q4 for Deco EMEA. For China, it's more the real estate market. As you know, the real estate market is down. and that is impacting structurally impacting our volumes but overall we are pleased with the trajectory specifically how deluxe is doing the premium deluxe brand is doing in the in the retail markets okay thanks and powder you want to take that uh yeah powder powder has been doing well Powder has rebounded in architectural, and the U.S. market has been active.
We've done well in pretty much all the geographies. I'll get the proportions wrong, but powder is something like 30% or 40% architectural, and about 20% is auto-related. So that just shows you that after a little bit of disruption linked to tariffs on the other side, you know, we do a lot of wheel coating where there were debates about production in Mexico versus the U.S. and tariffs and the likes. That situation is normalizing. And on the architectural side, it means that there's good signs of life in the market. We're happy with the direction of the powder business, and I think apart from North America was roughly flat in Q2 in powder, but everywhere else in the world, we were growing volumes, and that bodes well for the rest of the year.
Operator
Thank you. Yeah, thank you. Our next question comes from Matthew Yates from Bank of America. your line is open Matthew please go ahead.
Hey good morning everyone I just wanted to ask the question about the full year guidance consensus it's a little bit below the guidance that you've reiterated today and I guess given you've been explicit about Q3 we can infer what is implied for Q4 and if I've done this math right it looks like you're assuming a bit of a step up in terms of year-on-year growth in Q4 compared to most recent quarters. What is the basis for that? Where would the optimism come from in terms of volumes or trajectory of cost savings as to why Q4 would land something like up 10% year-on-year?
Now, our assumptions for Q4 are very similar as our overall assumptions in terms of our trajectory of our cost savings on the back of the industrial excellence program in terms of pricing versus pricing offsetting raw material. I think there is one thing to mention is that Q4 last year was a very weak quarter. So we have, I would say, easier comps from a volume perspective in Q4.
And that will support some of the coatings businesses and also how we see the phasing in some coatings businesses, specifically in marine and protective, which is also a project business. okay that was everything thank you thanks matthew thank you our next question comes from jade penja from on-field investment research your line is open please go ahead uh thanks first question is around uh actually sort of tagging into what matthew was asking could you give us some color of what price versus raw materials did in q2 and then how do you see that developing in q3 you know, or H2 rather going into 2027, because I suppose quite a few of your peers have commented that Q3 is probably going to be the most sort of painful price versus raw material. So we'll be very curious to know what's happening there. And then the second question sort of zooms in again around decorative coatings. Greg, could you give us some color of like, you know, once the industrial optimization program is over, how many large sites would you be left with in Deco? And what sort of margin uplift are you sort of expecting? I guess, in other words, I'm trying to understand, you know, Nippon's trying to pay you roughly 10 times EBITDA for the current earnings. So obviously you see higher potential here and therefore you're reluctant. So what sort of increase in expectation on the earnings or the multiple could we expect if this deal was to happen? Thank you.
Thank you, Jordy. I'll take the Deco question and Martin will take the price versus roadmap question. You know, as you said, 10 times current earnings for Deco, that seven and a half billion euro number, it's more an intelligence test than it is an offer. I mean, I don't know who would transact at those levels, especially given the fact that we're taking industrially, we're taking 90 million euros of cost out this year and there's still 110 million to come next year, which is not from new actions, but just the full impact of actions that have been taken last year and this year. So that's, you know, that's in two years, that's 200 million euros in industrial cost. And actually quite a bit of that goes to the Deco businesses because of the roughly 20 factories that will have closed, there's the line shares in Deco. So you're looking at Deco businesses, which over time, you still have, I don't want to start guiding on Deco specifically, but you have a few hundred basis points of profitability uplift still to come in these businesses. So the many reasons why we're not entertaining discussions on DECO is that, one, our strategy is to focus on DECO countries where we have a leadership, and the only exception to that is Southeast Asia, where we're evaluating our options currently. Two, we're under a merger agreement where any offer that's for less than 50% of the asset base of AXO cannot be considered unless Exalta is willing to go along with it. And frankly, it's not a debate worth having because of the third point, which is that the value that's being talked about is in no way, shape, or form representative of the value of the business today. Because buying current earnings at 10 or 11 times is not a good offer for a Deco business. By any comparative basis, you just look at transactions in general and the cash-generative aspects of these businesses. and that's even without the longer-term potential, the mid-term potential that you live to. So hopefully that's the last question today on Nippon and Deco because I think at some point we start going around in circles. But good businesses, they're going to be even better, a few hundred basis points of profitability to come, and we like those businesses very much as long as we're a leader. Martin, Price, and Robert?
So when we at the Q1 call, we have been talking about a second half mid-teens impact from raw material. Currently, we see for the second half raw material impact in the teens. What happened is that specifically in Asia, raw material has been moderating. Obviously, the situation is still pretty volatile. Let's also be clear, given the events in the last week. In Q2, we have been ramping up our pricing actions with overall a pricing of 3% and pricing, and we've been able to offset raw material in the second quarter. And that's all the actions are implemented and we see further ramp up of pricing. So overall, you should see kind of a mid-single-digit pricing coming through in the second half to offset the raw material increase in the second half. But again, the situation remains volatile. And if further actions need to be taken, we will take them to make sure that we create an offset. I hope that clarifies what we're doing and the underlying assumptions.
Just one small follow-up. You are not seeing any signs of a demand destruction, at least at this point, with regards to such sort of aggressive pricing?
No, we've not been seeing this. Volumes are resilient, as you see also in our numbers. The only thing we've seen, and we've also commented on that, is that we saw some pre-buy at the end of April, but also the negative effect in May. But overall, throughout the quarter, volumes have been resilient and you see it coming back in the numbers.
Operator
Our next question comes from Laurent Favre from BMP Paribas. Your line is open. Please go ahead.
Good morning. Actually, following up on this point of, let's say, pre-buy and then normalization in the second part of Q2, and I'm just wondering, where do you feel we are starting in Q3 in terms of volumes versus underlying demand? Do you think that will get ahead, a bit below, or in line? And is there any wild difference by units? That's the first question. And then the second one on CAPEX, if I'm not mistaken, a cut on the guidance on the full year from 350 to 300. Is it a delay of spending or is there an underlying cut? And can you talk about whether or not it's related to the merger, for instance?
No, on the CAPEX, we are clearly very, very stringent and tight on our CAPEX outlay. But we reprioritize, of course, our industrial excellence program, which is the focus to be able to end the program by the end of this year. So we are just a little bit lower, and I would say it's more in line with what also the spend of last year. On the volume question, we don't see any change in trajectory to your question on what we see in July versus what we've seen, how we end at the quarter in Q2. So nothing to comment at this stage.
Operator
Thank you. Our next question comes from Tony Jones from Rothschild. Your line is open. Please go ahead.
Oh, good morning. Thanks for taking my questions. I've just got two left. Firstly, on Deco, you talked about Southeast Asia, but for Europe or EMEA, there are some market positions where you don't have market leadership either. What's the plan there, please? And then can you provide any updates on what you expect to regulate with clearances beyond the AGMs, H2?
Thanks, Tony. Your question on Deco, you're right that we don't lead in all the European markets. We lead in most of the European markets that we're in, certainly not all of them. But Europe is really being run pretty much like one country. You know, the reason why relative market share is important in Deco is that you win in Deco based on brand impact and distribution. And you also have to be cost competitive. And the wonderful thing about our business in Europe is that we do all the production as one region and we optimize our assets and the products can move around because the products are allowed to move around in Europe. So I guess Europe is the exception to the rule in the sense that even with low relative market share in a country, as long as you've got the scale of the region industrially, you can still do really well. So we're not looking at we're not looking at selling anything in Europe. We would always consider adding to round out some of those positions, because once again, higher relative market share is beneficial, but we're not intending to sell anything in Europe. And Southeast Asia, I think we've addressed earlier in the conversation. Regulatory, Martin?
Yeah, so, of course, the first step is the EGM on the August 5th. And then the other step is regulatory antitrust. We are in discussions, obviously, it's U.S., EU, and the U.K., but the specific focus is on the EU and the U.S. So far, discussions are progressing, and we have constructive discussions, but there's not so much to say at this stage. More clarity will be post the summer, which direction this will take. So, not so much to update at this stage. Thank you very much, gentlemen. Thank you.
Operator
Thank you. The next question comes from Sebastian Bray from Berenberg. Your line is open. Please go ahead.
Hello, good morning, and thank you for taking my questions. I'd have two, please. The first is on the full year EBITDA.
Operator
It appears we've just lost connection with Sebastian. Sebastian, if you would like to re-prompt your question, please just press star followed by one. just as a reminder if anyone would like to ask a question it is star followed by one on your telephone keypad now i'd like to make it clear this isn't censorship of sebastian yeah we had no idea what question he was going to ask but if he types it we're we're more than ready to answer back in the queue yeah he's back in the queue we now have sebastian please go ahead and re-ask your question sebastian hello good morning can you hear me yep yep yep good morning thank you I had two questions moderator we have just lost connection with Sebastian
Operator
we'll go back to Sebastian afterwards let's let's keep this moving thank you our next question comes from Renalf or from Citigroup please go ahead and ask a question your line is open hi good morning thanks for taking two questions please first one is just on on cash flow a bit bit below content from down year on year in in q2 um how should we think about pre-cash flow in the second half please any identified um cash outs uh working capital views um would be super helpful and then uh secondly just um as you've had some uh changes to your russian asset base um just kind of curious to better understand what is happening there please, and whether you think you will retain those long term. Thank you.
Yeah, maybe to start with Russia. As you've seen, per the decree, our Russia entities have been temporary put under the state administration. We have also said, have you seen that we will deconsolidate our Russia activities per the 13th of July. And we have stated that our net assets are 214 million euro in Russia, as well as we have an FX on our balance sheet of 449 million. This situation is pretty recent, so it's an evolving situation so we are assessing uh how this will evolve and uh there's not so much further to comment at this stage uh and when we when we have more certainty where this will go we will uh we will inform you so that's just maybe what we can address also is that it's uh it's not material to our to our four-year results you know it's that business is less than two percent of sales it's hence the fact that we don't feel any need to change our guidance. And then the other question is on free cash flow. In fact, I'm pretty pleased specifically how working capital is evolving during the year. So for the full year, there are, in fact, no changes in our assumptions. Working capital for the end of the year is 14.5%. CAPEX is lower, as we have indicated, roughly $300 million. We have also included in our guidance that the cash out from identified items will be higher because that includes merger costs. So we talk about $250 million roughly. And then, of course, the adjusted EBITDA, as we have guided. So, for the full year, no change in our free cash flow trajectory. Great. Thank you.
Operator
Thank you. Our next question is from Sebastian Bray from Berenberg. Sebastian, please go ahead. Your line is now open.
Hello. Good morning. Can you hear me? Thank you. I had a follow-up on Russia and one on the ICSIS litigation. So just on the topic of Russia, this business had over 200 million of assets associated with it. Was it really basically making no money, which is why there's no impact on guidance? Because I suppose at the margins, one could say that the price cost recovery may have been a bit better than expected. So Russia matters less than if these assets had been taken away, let's say, two or three months ago. And my second question is on the ICFIS arbitration. Is this going to go ahead in 27? And if so, could you give an indication if it's likely to be the first or second half of the year or if there might be another delay that takes it out to 28? Any update on that is welcome.
Now, on your 8th question, we've stated that there will not be any judgment before the end of this year, so it will be in 27. It's at this stage not clear when it will be during 27. So no, I cannot answer your question on that point. On Russia, we've indicated, as Greg just said, that the overall revenue is less than 2% for the group. It's not material. The profitability is more or less in line with the average of the group. So, again, on a total group level, this is not the material for us.
That's helpful. Thank you. I'm sorry for the difficulties dialing in.
The third time was lucky, so all good. Any other questions?
Operator
Thank you. We currently have no further questions waiting in the queue. I'd now like to pass back to Greg for any closing remarks.
No. Okay. Thank you very much. We'll wrap up. Look, this was a solid quarter for us. Organic sales up 2%, pricing up 3%, margin expansion and growth margin, you know, 70 basis points, and an EBITDA percentage, 40 basis points, and robust cash flow. So in a quarter where there was quite a bit of uncertainty, I think we're able to answer a lot of these questions, and it bodes well for the rest of the year, Because although you're seeing 3% in pricing, these price increases have gone through and they'll continue to be invoiced and therefore to ramp up just as the raw material impacts are ramping up and probably peaking in Q3. So we feel confident about the rest of the year, and we also feel optimistic about the shareholder vote in the Accelta merger coming up soon, and good shareholder support and good interaction. And we believe that that merger will create a lot of value, and we're excited about it. So lots to look forward to, and we thank you for your time and for your attention, and we look forward to talking to you soon. Thank you.
