Okay, so we're still in decorative paints and we're going move to the EBIT bridge.

So our idea is to grab the EBIT, which will then be possible, turn it to ebitda, which will be useful for our model and useful for our some of the parts valuation.

In terms of structure, what we're going to do is a base calculation.

We're going to take last year's EBIT.

Then we're going to calculate the impact on the EBIT of various ideas, and then we're going to sum all of those and that will give us this year's EBIT.

We can then take the EBIT, divide it by the segmental revenue, and we can start to see the impact of various factors on the EBIT margin.

And in some models you may actually see percentage impact as opposed to absolute impact.

The way we're going to model Now, you can see at the moment the only impact is the restructuring, which is very costly at the moment because they're really ramping up the restructuring and you can see that the EBIT margin is going to take a no dive.

Now we'll see whether there are any other saving graces in terms of pricing, raw material, perhaps deflating and operating leverage, where we might ramp up the business's volumes and experience an EBIT margin expansion because of it having the sums all the way to the right, we can now get stuck in and start doing the individual factors.

The way pricing will work, the first job is to find the slice of revenue, which represents price or mix expansion.

So it'll be expanding from last year and that's why I've grabbed last year's revenue.

Now, if we left it at that, that would be the impact on revenue, but we don't want the impact on revenue, we want the impact on EBIT.

Next what we do is we bring in the idea of the drop through, and you can see the drop through is below a hundred percent, so the price increase is not getting through to EBIT as much as you'd expect.

If you found the revenue increase, it would be a higher number than the number I've just created.

Now what this represents is factors that aren't captured elsewhere in the model that are cost related.

If we relate it to two years, which are quite different, it might be easier to understand back in 2021 when Axo raised its price, it had an outsized effect on the EBIT.

This would represent a very slow increase in costs such as labor or freight.

However, going forward, we would expect things like labor and freight to be outpacing price increases, which means any price increases that Axo makes over the next four or five years will partially be consumed in terms of EBIT by non raw material related factors like I mentioned, such as labor.

Next we're going to do raw materials.

Raw materials here are expressed as a percentage of revenues, so what we do is we say what will last year's revenues and what impact will raw materials inflation or deflation have In terms of the EBIT, You may be wondering about the revenue We attach the raw material impact to the change in EBIT.

Due to the change in raw material prices has been modeled against prior year's revenue.

This is to show the inflation from prior year raw material.

This is the assumption we've used in the forecast going forward, recognizing the best way to model the raw material impact is to drive it from last year's revenue.

And you can see if I left it like that, I'd be making quite a common error.

Conceptually, if raw materials go down, EBIT would be expected to go up on this and it's more accurate and I can pull it to the right.

And what I'll find is that the initial good effects of deflating raw materials have quite a big impact on EBIT, and then we return to EBIT being chipped away by raw material inflation.

You can see that 2025 is a tricky year because not only do we have raw materials deflating the EBIT by inflating, we also have the price going down to presumably encourage some kind of demand.

And so the EBIT is being attacked on all sides by pricing where the pricing is going down by pricing drop through, where even if we were to increase the price, some of it would be consumed by other costs such as freight and by raw materials which are going up.

In terms of how raw materials work for a company like Axo, you would probably need to find out the major constituents of the product and do some research to put together a forecast like this.

So for example, in the near term, we can see that there's going to be a lot of volatility in one of the major inputs to paint, which is titanium dioxide, but there is some stability in Brent crude, which is one of the other major inputs, solvents and other hydrocarbon or oil-based products.

There are significant events that could be tracked.

So for example, the EU is going to try and stop China from dumping excess production onto the European market, and so it's gonna put in place some anti-dumping duties and this may have an impact on pricing.

However, overall, there's just too much supply of titanium dioxide, and so companies like Axo are maybe in a good position to bargain away some of those prices or costs, and so that contributes to an overall deflation or lowering of the raw material price for Axo in 2024.

Finally, we've got the operating leverage.

The starting point here is to reperform the same calculation we did for volume.

What happened to revenue because of volume.

Then we bring in is this idea of operating leverage.

And what that represents conceptually is that if revenue were to go up or down because of volume, we might reasonably expect ignoring the effect of inflation, which is what's been captured by Rose 13 and 14, but we might reasonably expect the variable costs in the business to go up or down as well.

Operating leverage represents the idea that not all costs in Axo are variable.

In fact, you can see the bulk of costs are fixed.

And so what we end up with, if I presser and then I go to the right when Axo is predicted to shrink in 2024 in volume terms, you would expect that to have a positive impact on EBIT because you would say, right, you're shrinking the business.

That means we can shed some variable cost, and that is true, but it's not as true as you'd think, and that's because of this operating leverage.

What we end up with is a shrinking business, but fixed costs that stay the same and then damage EBIT when the business is growing. However, what happens is it grows, not all of the costs grow because they're not variable, they're fixed, and this has a good impact on the EBIT.

And what we're seeing there again, is the idea that scale creates success in the chemical industry.

Overall, what you can see is this forecast predicts pretty good year in 2024, however, still weakening margins primarily due to their restructuring efforts.

Then a kind of fading into about 10.2, and what we're seeing there is the interplay between lots of different factors, which are now much easier to analyze.

If we had a model which just had the EBIT margin for the segment, or perhaps just had even one EBIT margin for Axo, which is very common for less detailed operational models, then it would be really difficult to analyze what's actually going on historically, and it would be really difficult to create really good accurate forecasts if that's what you want.