So we're going to start doing the segmental forecasting and modeling.

If we collapsed our grouping as part of the last video, let's open it back up again and let's take a look at the overall shape of what's happening here. Within one of the segments decorative paint, you can see we have historical figures, which are quite detailed.

We know, for example, that 2022 was a difficult year, and in terms of paint volume went down quite dramatically.

And this is because of mainly a phenomenon called Destocking, where the customers of Axo decided to reduce their inventory, and that meant that they didn't buy as much from Axo itself.

Also contributing to this is an overall weakness in the Chinese demand, which has plagued Axo and is predicted to plague Axo going forwards.

You can see the forecast is quite detailed, especially in the initial years where we might be more confident.

And then as the forecast goes out, it becomes less confident and perhaps goes to a more generic forecast.

Now, related to volumes is price, and the idea of elasticity means that these should really be linked.

So if you raise the price, you would expect to see volume dip and vice versa.

It is a little more complicated than that because of this word mix.

If Axo just sold one product, say tins of paint, then any change in this row would be purely price-based, and that would be a much more simple world.

But it may be that there are premium lines or more expensive or budget lines.

And so changes in price could also just be mix.

Pricing is also related to cost and should be tried to fit into your head all in one, which is a difficult task.

So if we zoom in on 2024, you can see that raw materials are going to dip in terms of price.

So there's deflation.

We'll talk about why that is in a couple of minutes.

If Axo were facing lower input costs such as raw material, which is one of its biggest input costs, you would expect them to pass that saving on to their customers.

And so it's a little surprising to see raw materials go down and price go up.

When you're forecasting chemical companies.

It's a good idea to think about the interplay between supply demand and cost and be ready to explain if things aren't moving the way perhaps that would be expected from the outside.

So here for example, Axo has a history of not passing on raw material savings to its customers.

It did so in 2023.

And so our forecast expects that to also be the case in 2024.

And what it's trying to do is prop up its margin because it anticipates losing volume.

The volume and price will contribute to the revenue growth.

They're related to EBIT Bridge and we'll see that there's an interplay between them. EBIT Bridge is Made up of the drop through in this model.

Raw materials, which we've spoken about.

And then operating leverage, probably the easiest way to think about it is 2025.

You can see that raw materials will go up and price will go down.

This will probably have a bad effect on the EBIT margin.

There are two other factors at play in the bridge.

The first is the concept of pricing drop through lots of jobs.

You could define it as the extent to which pricing changes drop through to EBIT, and it represents the cost, increases of costs that aren't represented by other lines, such as raw materials represented here on this line.

So what this 99.4% represents is that when we change our price, it doesn't have as big an impact on the EBIT margin as you would expect.

And conceptually what that represents is non raw material costs, such as perhaps labor shipping, transport, freight, moving out of line with pricing, and this creates complex interplay between all of these factors for EBIT.

Finally, in the bridges we have operating leverage, which also contributes hugely in chemical companies.

You may have already heard that chemical companies thrive on scale.

Volumes are very good for chemical companies, and that's because there is often a large proportion of their costs that's fixed.

This means that when volumes go up, it's not necessarily the case that their costs go up in proportion, which they would do if they were variable in this model that's represented by this concept operating leverage.

The higher this number, the higher the fixed costs and the more impact on the EBIT margin the volume growth would have.

Moving down, we have other costs.

This is a tricky line to forecast, but what we've done here is try to examine the restructuring that's happening, try to examine that Axo is trying to pivot a bit and improve their operations and trying to anticipate those operational improvements here.

And perhaps also up here, once we've done this, we'll have revenue and we'll have EBIT for one of the major segments.

This is what we'll do next.