Sika Ag Adr

Ladies and gentlemen, welcome to the SICA Health Year Report 2023 Conference Call-in Live webcast. I'm Andre, the Corvus Call Operator. I would like to remind you that all participants will be in a listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Dominik Znaplnik, Head Communication and Investor Relations of SICA. Please go ahead.

Thank you, Andre, and good afternoon, good morning, and welcome to our half-year results conference call. Present on the call with me today is Thomas Hasler, CEO, Adrian Wittmann, CFO, and Christian Kukan, Head of IR. We published our half-year figures this morning at 5 o'clock. The presentation to the half-year is as well published on our website. With this, Thomas Hasler and Adrian Witmer will provide further details on the results and the outlook. Afterwards, we will be ready to take your questions. I hand now over to Thomas to start with the highlights of the first half-year.

Thank you, Dominik, and welcome everybody to our half-year reflection. And let me start first with a view on the markets. The markets have been challenging. The environment has been, let's say, challenged by the interest in the inflationary tendency. But at the same time, no major disruption took place in the last six months. Therefore, the main trends have been reconfirmed and are positive. Markets have learned to adapt to this environment more and more. If I look into Europe, which has certainly the biggest impact with negative volumes in the beginning of the year, last year, we see here a steady move upwards. It's less and less impactful as it has been. On our side, distribution is leading here exceptional growth patterns. North America, another steady growth element in our markets. led by infrastructure, commercial, industrial, manufacturing, giving a boost to the North American overall environment. China, after a rather tough first quarter with the relaxation of the COVID measure, started the Q2 rather softly, but now steady growing. Here again, on our side, the distribution business is already back on a double-digit growth pattern. And then finally, on our global business, business that is mainly the automotive manufacturing business here, we have a good base effect by the build rates that have double-digit increased in the first six months. But on top of that, we have our additional content on the traditional, but especially also on the electric-driven vehicles, basically the battery business that is gaining traction. This is the market, but now most excited about the first six months is our acquisition highlights. And here, of course, after 18 months of pregnancy, we were able to close and bring home the NBCC transaction on the 2nd of May. And since then, we have been working on our first 100-day reviews with the specifications on the implementation and the synergies. Amazing first two months included in our results, but also amazing in the potential that is visible through the first two months review. We have an accelerated integration effort here, which Adrian also will then refer to with the, let's say, front-loaded costs that have been accrued in these regards. We have excellent feedback from the stakeholders of MBCC, Customers, employees, we have clearly brought the message across that this is a creative for all the stakeholders. In particular, also our new 6,000 employees that are now part of the Zika family, the one big Zika family, and they are excited about the untapped potential that we can now dive in and bring to realization. On the acquisition, also beginning of actually the second semester, early July, we brought home the Thyssen team, a mining expert in Shotcrete and Grouts in the US, which we will be able to leverage into our Canadian as well as into our South American mine business very nicely. Here, maybe just a brief comment on the M&A side. You know, it has been a bit slow since we had this this let's say antitrust ongoing in Europe and in North America, but we expect now to be back into the game and more to come in the near future. All this all together resulted in an outstanding first six months. We grew 7.9% in local currency. I think the material margin increased by 330 base point is most remarkable and is a result of our pricing discipline and excellence. The EBIT, if we leave out the one-time effects, has increased by 6.9% and is now at 14% margin level. And the cash flow has increased strongly to 316 million. Also here, a strong improvement compared to the prior year period. So all in all, a solid set of performance numbers but most excited about the acquisition and the possibilities that the MBCC acquisition is offering for the now even bigger ZECA. With that, I hand over to Adrian to go a little bit further into the numbers and the details.

Thank you, Thomas, and good afternoon, good morning to all of you.

As our CEO said, I will now go into a bit more detail on the financial result of the first half year 2023. In a challenging environment, we delivered sales growth of 7.9% in local currencies in the first six months of the year, which also marked the first time consolidation of NBCC and includes two months of results. Organic growth was 0.7%, while acquisitions almost entirely related to NBCC added 7.2% of additional growth in the first half of 2023. Negative currency effects were significant, reducing local currency growth by 6.1%. Currency effects were particularly negative in Q2, with a 7.7% negative impact and was driven by the strong Swiss franc against all nature currencies, particularly the Euro, the US dollar, but also the Japanese yen, as well as vis-a-vis the high inflation environment in many emerging markets. Corresponding growth in Swiss francs was 1.8%. All regions, with the exception of global business, benefited from the acquisition of NBCC. However, growth patterns by region were quite different. Region EMEA grew 3.2% at constant currencies. Organic growth was minus 4.2%, although volume development showed an improving trend in Q2. The Middle East and Africa posted solid growth, and Europe South showed a significantly improved development in the second quarter, whilst Eastern Europe and the Doha area remained very subdued. NBCC added 7.4% of growth, and foreign exchange effects at minus 6.6% were also in region EMEA significantly negative. Region Americas recorded a growth of 11%, also heavily driven by NBCC. Parts of the business in North America were somewhat negatively influenced by rising inflation. and increasing interest rates, but particularly by destocking in the roofing sector. Key growth supporters were infrastructure projects and ongoing reshoring activities. Most markets in Latin America showed solid growth, particularly Mexico and Argentina. Acquisition growth contributed 11 percentage points of growth, and foreign exchange effects also turned negative in the second quarter, and reducing growth in Swiss francs by 3.6%. Sales in Asia-Pacific increased also double-digit by 10.1% in the first half, as organic growth in Q2 picked up significantly. Particularly China, having emerged from COVID-related impacts at the end of Q1, recorded double-digit growth in Q2, primarily in the distribution business. Also, India was very strong, while Japan stagnated, and Southeast Asia showed a mixed picture. NBCC contributed 5.1 percentage points of growth on top of the 5% organic growth, while foreign exchange impact was the highest in this region, with a negative minus 9.2%, driven by a very weak Japanese yen, but also a weak Chinese RMB. Finally, in the global business segment, SICA achieved a very strong growth of 16.2% in the first half year. Underlying car build rate growth was positive on the back of solid demand, particularly for e-vehicles and supply chain normalization. SICA sales outgrew car build rate growth in spite of significantly negative production volumes in the market for white goods, which is also included in global business and accounts for about 10% of sales of that segment. Foreign exchange impact also here turned negative or more negative in the second quarter, reducing local currency growth by 4.3%. If we move down the P&L, where we, as heard, delivered a significant expansion of the material margin with the gross result expanding by 330 base points to 52.7%. This is up from 49.4% in the same period of last year. Solid pricing, which includes pricing effects from 22, as well as smaller additional pricing elements this year, in combination with declining input cost, led to this significant material margin expansion. Material margin continued to expand in Q2 quarter-on-quarter. As you can see in the EBIT bridge provided as part of the half-year presentation deck, there was a small dilutionary effect coming from short-term purchase price allocation effects relating to NBCC of 15 base points. Without this effect, organic material margin would have expanded even a bit more at around the 340 base points. Reported operating costs, which include both personnel costs as well as other operating expenses, developed over proportionally but include significant one-off costs related to M&A, all reported in the other operating expense line. These one-time costs are detailed in the EBIT bridge provided as part of the half-year slide deck, and I will allude to them in a minute. But first, a word to personnel cost, to the personnel cost side, which increased by 8% versus a top-line growth of 1.8%. The acquisition of MVCC was the main contributor, while organic account development was flat, but wage inflation accounted for about 5% personnel cost increase on a like-for-like basis, leading to a negative cost leverage of about 100 base points. Other operating expenses increased significantly, but as mentioned, were impacted by an extraordinary one-time profit last year, resulting from the divestment of the corrosion protection business. My last year's expenses in connection with the acquisition of NBCC Group were relatively moderate, and in combination resulted in a positive net impact last year of 140 million Swiss francs. This was reported in other operating expenses. On the other hand, one-time costs related to the acquisition and integration of NBCC in the first six months of 2023 were expedited and front-loaded, and amounted to 89.5 million in negative impact. Excluding these items, other operating costs increased by 10.8%, driven by NBCC, but also due to modestly higher marketing and travel costs, as we maintained high level of customer engagement and market-facing activities, leading to a negative cost leverage also here of 110 base points. Depreciation and amortization expense increased by 26.9 million in absolute terms to 220.7 million or 4.1% of net sales, primarily due to NBCC and additional intangible amortization of 17 million in the two months since closing. This corresponds to an MBCC amortization expense on a 12-month basis of about 100 million Swiss francs. As a result, EBIT decreased by 21.6% to 660.4 million and an EBIT ratio of 12.4% of net sales. However, excluding mentioned one-time cost related to the acquisition and integration of MBCC, as well as the one-time gain last year, EBIT margin increased significantly by 60 base points, from 13.4 in the previous period to 14.0, or by 48 million in absolute terms in the first six months of 2023. And this on a broad basis with three out of four regions, with the exception of EMEA, delivering strongly overproportional EBIT growth. On a pure like-for-like basis, also excluding initial dilution from NBCC, EBIT as a percent of net sales increased by 110 base points to 14.5% compared to the same period of last year. Also here, reference is made to the EBIT bridge provided. Below EBIT, net interest expense increased significantly by almost $18 million compared to the same period of last year to $42.7 million. Increase is largely related to the refinancing of the NBCC acquisition and the three bond issuances in November 2022, as well as March and May of this year. Other financial expenses increased by 32.9 million to 51.6 million in the first half year of 23, primarily due to higher hedging costs driven by significantly increased interest differentials, as well as higher foreign exchange valuation effects given the high volatility and the NBCC. In addition, hyperinflation accounting impacts relating to the activities in Argentina as well as Turkey weighed negatively as well. The group tax rate in the first half year of 23 increased from 25% to 27.5, partially related to tax effects in connection with the NBCC acquisition, and in that sense were also partially temporary or one-off ISFO, then revert back to more sort of normal tax levels but we also had a different country and profit mix in the first half year. As a result, net profit decreased to $411.9 million, or 7.7% of net sales, down from 11.4% in the same period of last year. Lastly, operating free cash flow, as mentioned, saw a significant increase compared to the same period of last year, In the first six months, we delivered $316.5 million in operating free cash flow, which is up by more than $270 million from $39.7 million in the same period of last year. Focused networking capital management, lower inventory valuation, as well as a normalization of the supply chain were the main contributors, as well as positive cash flow effects relating to intercompany financing and hedging activities. cash taxes, on the other hand, were higher. With this, I conclude here my remarks on the result and hand back over to Thomas for the outlook.

Thank you, Adrian. And I would just quickly summarize the outlook. Our expectation for the next six months are no massive changes in the market, which means the positive trends, the momentum that I explained initially in Europe, in China, but also the steady market in North America and in Latin America will give momentum in the second half. And therefore, we expect a sales increase of about 15%, including NBCC for the full year. At the same time, we confirm our earlier guidance from February this year of over-proportional EBIT increase. Here, this is excluding the NBCC effect as we have done previously as well. Here, of course, the material margin recovery is a significant contributor to our confidence in this outlook overall. With that, I would now open up for the Q&A.

We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press star and 1 on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use only handsets while asking a question. Anyone who has a question or a comment may press star and 1 at this time. The first question comes from the line of Priyal Wolf with Jefferies. Please go ahead.

Good afternoon. Thanks for taking my questions. I'll just ask two for now. The first one is just clarification on the local currency growth guidance. In the presentation in the release it says now expected to be over 15%. Slightly pedantic, but should we interpret this to be around 15% or is that 15% a flaw? And you could come in a few percentage points above. And the context for that is that NBCC alone looks like it could be a substantial proportion of that 15%. But presumably, there's a couple of extra points from pricing and bolt-on M&A to come through as well. And then the second question is just with regards to gross margin. Obviously, it went up substantially in H1. Is it fair to assume that pricing stays fairly flat in the second half while raw materials continue to fall? And if so, should we assume the gross margin uplift year on year in the second half will be even higher than in the first half? And if so, could the gross margin exit rate actually get back within that 54% to 55% range? Thank you.

Well, thanks, Priyal.

Let me maybe clarify your questions here on the top line growth. I mean, it is clear that obviously, you know, MBCC will have here a major impact as part of this guidance, given also here prevailing exchange rates. probably rather at sort of around 1.4 billion or a bit below. So that's one element, you know, pricing will continue to play a role. I think we have also seen here some, let's say, improving trends while obviously, you know, China a bit, slower than anticipated, quite strong destocking activities in the US, which was also a bit higher than anticipated. But at the same time, we continue to be positive that there will be a clear improvement here also on the organic side overall, while maintaining quite some strong discipline here on the material margin side. But the 15% should not read 15.0%. Obviously, the exact amount we'll have to see, but it's clearly a 15% or more overall in terms of this guidance. On the material margin, I mentioned obviously there has been sort of a continuous increase here of the material margin throughout the first half of 2023. Yes, pricing is rather going to be flat or there around. As always, there is selected continued price increases. Some of the raw materials, for example, cement, also continue to increase. But overall, there will not be a broad additional pricing element going forward. And I think there is a likelihood that obviously material margins will also increase in the second half year, although we have typically sort of a negative seasonality in this regard. I think to look for sort of an exit rate of 54% is probably on the high side. but we're working towards that to eventually again be in our target range, but I don't necessarily see this for, let's say, the end of the year or early next year.

Thank you.

The next question comes from the line of Martin Flueckiger with Kepler Showroom. Please go ahead.

Yeah, afternoon, gentlemen. Thanks for taking my question. Two as well from my side. Now, thanks so much for your elaborations on your growth outlook, particularly with regards to the specific markets. But, you know, I was just wondering whether you could – dissect that a little bit more because we know that residential markets are the most hit and I was just curious how you see the various market segments i.e. resi, non-resi and infrastructure or civil engineering as you want to call it So just wondering whether you have some more flesh on the bone with regards to your market outlook here, particularly for Europe and North America. That would be my first question. And then the second one, I guess, is for Adrian. If I understand Adrian correctly, he's talking about pricing around flat in the second half. on a sequential basis, or is that a guidance in terms of year-over-year comparisons? Thanks so much for clarifying.

Okay, let me start with the first question on the markets and what we see and expect also for the next six months. You are absolutely correct. I mean, the residential market is much more affected by the high interest rates. And we see this clearly in the segment reporting. But nevertheless, it is a lesser, let's say, relevance to us than the non-residential. And here, I would like to start in Europe, where we have seen a huge impact by the inflation and the interest rates coming in. And on the commercial construction here, we see a tendency that the pipeline is full, but projects are still, let's say, delayed or postponed for the insecurity that the geopolitical situation offers. So we see here a certain delay that's especially, let's say, in the manufacturing countries like Germany or Central Europe, clearly visible that that there this momentum is not kicking in, even so projects are lined up but not executed. On the other hand, in Europe, we have this positive trend on the distribution side, which is fueled by incentive programs that are still kicking in, in southern part of Europe, in France, Italy, and Spain, where we are back to a double digit growth in distribution. These investments are going mainly into residential refurbishment, energy upgrades that are driven by subsidies from the Green Deal. This is a bit offsetting, let's say, the general residential difficulties that also in Europe are very clearly visible. When I look into the North American dynamics, the North American dynamics is very strong on the commercial infrastructure elements. Here we see full-fledged investments. Our concrete business, our waterproofing business, which is a precursor for the activities, is up double digits. And that's an indication that there the projects are starting to be executed and more to follow. So here we have a very positive momentum. It is also fueled by The reshoring of industries, it's the chip industry, the e-battery topic that is coming more and more back to the North American manufacturing. This is very positive. The infrastructure investment, the refurbishment of infrastructure, a very healthy element and very important for us since this is the majority of our businesses. The residential in North America is, for us, a rather small portion. And yes, we do see there are tens in the volumes because of hesitation to invest. This would be kind of the two main markets and the trends that we see.

Okay, but just to clarify, residential... Just to clarify, the residential assessment that you've just given on North America, housing starts have stabilized. You don't see stabilization on the residential side yet?

You know, the housing, as mentioned, it is for us a very small portion of our business. That's not the key business. So we see it indirectly through our big box business that goes mainly into the residentials. And there we don't see a huge difference from Q1 to Q2. Okay, thanks.

Maybe then the clarification on the pricing is this is meant to be sequential from here, basically a flat development. On the other hand, we also have seen last year sort of in terms of the impact of incremental pricing, a flattening curve, but overall, yes, the comment was made basically sequentially from here.

Okay, great. Thanks.

The next question comes from the line of Marcus Meyer with Badr Elvea. Please go ahead.

Good afternoon, Thomas, Adrian, Dominic, and Christine. I have three questions. One is an add-on question to the question before and to our last one. Firstly, the add-on question on America. We have said we have a lot of different kinds of trends, but have you already seen the impact from the US IRA program specifically? Many companies are reporting that many projects related to the US IRA have been delayed. And then secondly, can you give us a little more flavor on the underlying MVCC margin for modeling purposes?

Sorry, can you repeat quickly your first question? Somehow your voice was not so clear.

Okay. So my first question was an add-on question on the Americas business, in particular on North America. Have you seen already a positive impact from the US IRA program? As you have heard from many companies that they see a delay in related projects there. And just a clarification if this is also the case for you. and then have two other questions, and maybe it's better to ask the questions one by one.

Okay, I mean, the first one, I cannot refer to what others are seeing, but we have very strong feedback from our organization that they become real, and that is driving our growth rates on the concrete and waterproof. The more concrete is poured, and in volumes goes into infrastructure, into main buildings, main commercial construction. This is flowing. This is real and this is related to projects that are kicked off from the government side, the IRA, as well as from private investors. Reshowing takes place as we speak.

Okay, thank you. My second question would be on the underlying MDCC margin. If you could quantify it, at least give a certain indication. Is it in line with the margin we have seen when we announced the deal or has it changed? And if so, what has happened there that we also can get a feeling for modeling purposes how the next quarters are looking like?

Yes, Marcus, on the margins of NBCC, maybe here two or three comments. If we look at Material margin level, this light dilution has basically all come from temporary effects. Material margins are at the very similar level as, let's say, the rest of ASICA to start with. On, let's say, the profit margins here on EBITDA level, incoming EBITDA margin is about 15%. This has not changed compared to let's say the announcement progression given some of the pressure was a little bit less but very broadly comparable. What we will see is obviously a higher element of amortization which basically then translates into an incoming EBIT if you consider that the purchase price allocation amortization of around 8% overall, obviously increasing with the synergy realization and the amortization expense, let's say, not increasing in absolute terms. go down over the years and in relative terms they will have a lesser impact going forward as there will be growth.

on your guidance. With the closing of the NBCC, do you reflect your ambition to achieve over 12 billion sales for 2023? But since the forex effect has significantly worsened and therefore I guess we have not repeated this number or this ambition, is there still internally the target to achieve this 12 billion revenue target for this year?

also a bit tricky thing with obviously absolute numbers given the strong Swiss francs overall and you know we have all seen here the Swiss franc strengthening in the second quarter and continue to do so let's say at this you know development I think the 12 billion will be challenging okay thank you so much

The next question comes from the line of Omani Ebrahim with CIC. Please go ahead.

Hello everyone. Two questions if I may. The first question is about working capital. It has improved in H1 compared to H1 2022. What to expect in H2 compared to H1? And my second question is about personal expenses, which increased by 17% in H1. How do you explain this, please?

Yes, on the working capital. get an echo here yeah I think it's better now on the working capital here we you have seen that this has been one of the the strong contributor to our strong operating free free cash flow and I clearly see here more let's say coming from the working capital side as we continue to work through, let's say, particularly on the inventory side, the normalization and going back to, let's say, the old efficiency given the supply chain disruption, also the valuation side will have an impact. And secondly, I think also on the receivable side, particularly now, with NBCC having a similar type of seasonality, there will be more positive working capital effects in the second half year. Thank you.

The next question comes from the line of Arnold Christian with Stiefelschweiz AG. Please go ahead.

Yes, hello everybody. I have a question on NBCC. If I look at the half-year report, page 16 here, we see that we have a net cash outflow of 3.1 billion. And in addition, you took all the financial abilities of 1.9 billion, hence involved enterprise value is around 5 billion for two-thirds of the NBCC you have now acquired. Back in November you talked about the 5.5 billion enterprise value for the whole MDCC. Does it mean that you actually got some 500 million for these post-MDCC activities or am I missing something?

Thanks here Christian for the question. This is not quite Right. Obviously, here the enterprise value of the business sold was higher than that. Obviously, there is a certain element of tax leakage also related to then some of the transfers that need to be done, for example, on the IP side, which is usually a cash out that comes later and comes in future at an improved tax effect as it's already in the right place, as with all the other, let's say, ownership of, let's say, the brands and the intellectual properties overall. So that's one effect. The other one is on the cash flow side, where similarly to, to ourselves, the cash flow buildup was a bit more significant compared to the original target given the strong increase of cost and pricing. Also, this is an opportunity going forward to reduce this as I was talking about this just relating to the question before. So overall, we also have a positive element in future coming from this carve-out which initially led to a somewhat higher cash outlay and was part of the overall acquisition cost.

Okay, thank you. And maybe also in relation to that, You gave on your EBIT bridge this indication about the intangible amortization on an annual basis of 100 million. Is this linked to the intangible assets of 1.3 billion you have acquired now, or will also the generated goodwill of some 3.4 billion being reduced over time?

Now, this is entirely related to amortizable intangibles, which is the 1.3 billion we took on the balance sheet. The 100 million of annual expense are for the next 12 months. There will be a step down the year later of about 8 million, then again 7 million the year later in 2021. 25, 26, and would then remain at around 85 million per annum for the next few years. Next few years means next 10, 12 years? Well, six or seven, yes. And then there is sort of a gradual decrease.

Okay. Thank you. And the last question would be on the net debt. By mid-year, your net debt is around $7.4 billion, and I'm fully aware that we have here some seasonality in terms of cash inflow, and also that NBCC has generated cash only for two months. So this net debt level, of course, will be declined until year-end. Do you have here... kind of a guidance where we should land at the end in terms of net debt. And maybe in relation to that, are you thinking of going for an early redemption for your convertible bond, which actually is technically possible?

Yes, here on the net debt level, this is, of course, very much related to, let's say, the pattern of cash flows. And yes, the second half will be a lot stronger. I would clearly expect here the net debt level to reduce substantially here in the second half year and the so-called soft call is clearly an option in this regard. We haven't taken a formal decision yet, but that's a possibility as you say, as we're currently in that window where this is possible. In terms of, let's say, the leverage, I would see coming down and now without the the soft call two to around three times on a full year basis. If you were then to exclude, let's say, the one-time cost and allow for a 12-month EBITDA contribution, which will only be eight months of MBCC, this would even be more below three times already at the end of the year. And the soft call would then reduce this by another, you know, have a turn or dare about this. Okay. Thank you very much.

The next question comes from the line of Bernd Pomren with Fontobel. Please go ahead.

Good afternoon, Christine. Good afternoon, gentlemen. One question left, please. Again, on these financial liabilities of 1.9 billion Swiss francs, which you took over with the acquisition of MBCC, what kind of financial liabilities are these? Are these mainly bank loans? Because I think MBCC had no bonds outstanding. So, obviously, I want to model your interest costs going forward and consequently would appreciate some information about the nature of these financial liabilities. Thank you.

Yeah. Let me clarify this. I mean, these financial liabilities, it says here repaid at day one. So, this is basically... with the exception of about 100 million, which are ongoing leases on the balance sheet. They are all repaid and refinanced through our takeouts we have done. So there is no other or additional debt that's all included here in our combined balance sheet and has been fully repaid.

Okay. Okay. Thank you, Adrian.

The next question comes from the line of Yacine Touari with On-Field Investment Research. Please go ahead.

Yes, good afternoon. I just would like, could you speak a little bit more about the development of MBCC now that you are in control of the assets? What are your, do you have any positive surprise, any negative surprise, anything you're excited about any adding challenges that you see in the future and i'd like to also can you have a view do you have a view of the development versus last year uh our volume growing is the gross margin improving uh what kind of outlook do you see for the for the concrete mixture on the same mentality for the second part of the year would be very helpful to get some some color about about the assets and your plan and the perspective as well for the second part of the year and maybe mid-term as well.

Okay. Yes, let's take this question. I have been traveling a lot and will again this weekend go to Saudi and Middle East. So it's clearly a key topic for me to follow up on NBCC. And what we can see, let's say the underlying business, he is quite strong. We see that the business has not suffered. It was a long period of uncertainty, but we see that on day one when it became Zika and since then, there is no disruptive element or there is no confusion. The organization is fully up to the task, is fully, let's say, excited and engaged. And on the, let's say, surprise side, On a very positive side is that when the first two months have passed and when I was in Japan or India, markets where we have strong organizations on both sides, when the details came to the forefront, we could clearly see that the complementarity is even bigger and stronger than initially anticipated. Even in areas like the ad mixture business where you would assume that the two leading companies would have a much stronger overlap. For instance, in Japan, we saw that only 5% of the customers are really sourcing from the number one and two in the market and therefore leave a huge room for further sales. synergies on the sales side in this important market for us, similar in India and in other regions. And as I mentioned, I go to the Middle East, another exciting hotspot where the economy is booming and where the concrete and admixture market especially is super strong. And also there, I expect to see a continuation of that very positive element where this addition of the number one and two is leading actually to more opportunities than even anticipated. Besides, of course, that now the product offering in the segment of concrete admixture is super strong and is almost unchallenged or unchallengeable by others because we have now really the full innovation pipeline for the future ready. and also very strong backup with the supply chain that is coming together.

Maybe you asked specifically about the development versus last year, if you've got a view on the margin side or the volume or the pricing.

Yes. And there, I mean, you have seen that the material margin evolution from our side is also clearly visible on the MBCC side. You know, the material margin recovery has been a key for MBCC as well, and this is in line with our expectation. Also, profit line, I think Adrian mentioned it, you know, the incoming EBITDA level is is as expected and leaves further room for improvement. The markets on the admixture side, I would say, are probably the most attractive at the moment, globally speaking, since, as I mentioned, North America, concrete is high in demand, infrastructure is growing, but we see also the same in China, we see the same in Asia in general, And we also expect that this will become more pronounced in Europe, even so with a certain delay because of the mentioned, let's say, hesitation to commit to big projects, especially on the private side. And on the public spending, I think that's not a huge difference to before.

Maybe just a very last question on the, you mentioned in your slide 12, short-term PPA impact of minus 0.2%. And what does it mean? Is it something that is only visible in H1 that will disappear in H2? What is it related to exactly?

It's a very specific element relating to the revaluation of asset liabilities, which includes the inventory, which you also have to basically revalue at market value as opposed to cost. So there is a margin impact, but there will only be a certain residual impact left for Q3, and then this impact will cease to exist and will also not exist next year. Thank you very much.

The next question comes from the line of Pierre Defraguier with Goldman Sachs. Please go ahead.

Hi, good afternoon. I have questions regarding the operational efficiencies. So you've been targeting 50 basis points extracted on an annual basis. I was wondering, how did that actually play out in the first half? How do you expect that to evolve in the second half? And maybe if we step back and look to the longer term, What's the potential to continue to extract these operational efficiencies, especially with the now combined entities, CCAPLUS and BCC?

Thank you. Thank you, Pierre. Yes, here on the operational efficiency initiatives, they are very important initiatives, the sort of continuous improvement areas across the the value chain. In the first half year we're pretty much tracking this 50 base points on the OPEX level and I would clearly say that in the second half we should be very well on track to deliver those efficiency on a continuous basis. Going forward and also here we believe there is still lots of room particularly on let's say on the operation side on the footprint side on the alignment and in this regard you're absolutely right the let's say alignment with the mbcc footprint and also on the logistics side in production but also including you know some of the products that are relatively similar and can be can be combined and made more efficient, there is quite some room to come. So this will continue to play a role in our overall improvement of margins going forward.

Right. And how much of that has been factored in the guided synergies for MDCC? Would that be incremental to the guided synergies?

Yes, we will certainly not be double counting. There are specific initiatives where there is, let's say, major moves, but in terms of which will be counted as synergies. But what we will be reporting out is ongoing operational efficiency improvements will then obviously not be the same as on the synergy side. I mean, at some stage, obviously, there is a a bigger pool to basically optimize, but the clearly identified moves will be shown on the synergies.

Very helpful. Thanks a lot.

The next question comes from the line of Sebastian Bray with Burford. Please go ahead.

Hello. Good afternoon, and thank you for taking my questions, please. The first one is on the raw materials basket of the company. I appreciate that a raw material tailwind becomes more pronounced as the company works through inventories that have been bought in at lower prices. But if one were to compare the behavior of an aggregate basket of raw materials in August, let's say, versus July, would this be roughly flat? My second question is on personnel costs. I didn't quite catch the answer. I think it was a line issue to the question that was asked on this earlier. But did personnel costs largely develop as the company had been anticipating at the start of the year, or were they more inflationary? And my third one is just a more theoretical question. Much of the acquisitions that Seeker have made over the last three, five years have been targeted at the infrastructure space. And I imagine it might start to run up against hard barriers when it comes to market share in certain areas. For future M&A, is it possible we see an increasing precedence of residential?

Thank you. Good. Well, Sebastian, thanks for these questions.

Let us answer them one by one. On the raw material side, in terms of the overall basket, Obviously, week on week, it's difficult to exactly answer this or even month on month, but we clearly have seen lately a continued decreasing trend, which is continuing. Now, obviously it also takes a certain while until this has filtered through in terms of the P&L, but yes, it is correct that the input cost trend on the raw material side continues to go down, and that sense is having a positive effect. On the personnel cost side, There is not really a difference compared to expectation. I said in my initial remarks that there is about a wage inflation of around 5% across, let's say, the group as we operate over traditionally in quite a high inflationary environment. This is clearly a bit higher than what we typically see, also higher than last year as inflation. already indicated this is not a surprise and obviously here we're working also on as part of the efficiency measures to here improve efficiency across the board but this wage inflation will probably not be this similar in the second half as in the first half year and But the third one was on the acquisitions. I guess I would slightly disagree here that the acquisitions in the past were particularly targeted on the infrastructure side, and we had a lot of acquisitions. And then here, you know, Parex is a clear and the biggest one here on the building finishing side, also sort of heavily going through the distribution channel. This will continue to be a mix going forward as we continue to see opportunities in many, many areas, and I don't think it will become prohibitive in any way to continue to make acquisitions also, let's say, in the infrastructure space.

That's helpful. Thank you. Just a small technical question. Tax rate post-NBCC on an underlying basis, leaving aside one-offs in 23 years, low 20s, roughly, on a going-forward basis?

Yeah, we'll probably, for the full year, also leaving sort of a one-off aside, be, you know, slightly higher than in the previous year. But as we sort of, you know, continue to progress, basically this will come down to sort of, you know, similar levels. you know, SICA levels overall. So you can assume that this will, let's say, come back to sort of the levels we have seen in the last, you know, two or three years.

That's helpful. Thank you for taking my questions.

The next question comes from the line of John Fraser Andrews with HSBC. Please go ahead.

Thank you and good afternoon everybody. First question for me is on EMEA sales. Thanks for the comments flagging what's going on there. Do you see that the strength in Southern Europe and Middle East Africa and the lower base in the second half is enough to have a positive outcome in the second half on volumes in EMEA. That's the first one. Secondly, synergies, the 200 million, I believe the integration costs will be front-loaded, and perhaps, Adrian, you could just sort of flag out the timing of the integration costs of 200 million, and then, likewise, will the synergies also be more front-loaded on the cost side than you originally anticipated, and perhaps you could sort of put some numbers on those in 23 and 24. And then the third question is on the NBCC margin. The EBITDA has come in at 15%. You've reported 16.5% within the overall business in half one. which is down for reasons you've set out from sort of usual at 17%, 18%. So how quickly can that NBCC margin assimilate with a SICA margin and what needs to be done there? Thank you very much.

Thank you, John, for the questions. Let me...

sort of tackle some of them, and I leave the EMEA one to Thomas. On the acquisition of the one-time cost, the 200 million, we have also indicated that we see about sort of 120 million of one-time cost this year, so there will be another sort of 30 to come. which would then pretty much conclude the overall cost. There may be some smaller elements in 2024, which means that the 200 in total may be slightly exceeded, but only slightly. Given the carve-out activity and all the elements we have done, we have very much advanced to this and had to advance it, but also at the benefit that synergies in some areas are materializing earlier. We believe we can already achieve about 25 million this year in 23 years. And then, although here the phasing has not been fully concluded, so I can't give you a detailed figure, but the lion's share of, let's say, the remaining synergies will then materialize in 2024 and 2025 with the phasing then communicated a bit later. We need a few more weeks on that. On the EBITDA margin and sort of the question when will the NBCC 15% sort of live up or move up to, let's say, the normal SICA margins, and clearly the 16.5% is impacted by one-offs, which is not representative, but going back to, let's say, normal levels, we see this by 26%.

Okay, and then John, I try to answer your first question on Europe and here, can the positive trend in Europe, South, Middle East, Africa offset and bring, let's say, the organic growth, which is at minus 4% in the first six months to a to a break even. I think here, you know, we clearly see that there's a good momentum there. It is double digit in growth. Now also in Europe South on the distribution side, that's very reassuring. And we also see that the Middle East is further booming and growing. Also, Africa has very solid double digit growth and Turkey is contributing. On the brighter side also we see after a very harsh start that Eastern Europe is slowly moving upwards from a very negative trend into more neutral ground and we expect also that probably in the next six months to contribute overall. And the DACH region, Germany and the Central European countries may then also see that it is offset by those elements when we go into Q4. But this is a bit speculative. This is not yet, let's say, secured. But our optimism that this trend will further accelerate, we don't see any reasons why not. But at the same time, we haven't yet seen how the markets are then really evolving in the near future. But we expect, and that was always my expectation, that given also the tough comparison, Q1 in EMEA is the toughest one. Q2 is probably the low point compared to last year. And now we see Q3 and Q4 further improving. And ultimately, yes, I'm quite optimistic that EMEA will be on the positive side, contributing to the group towards the end of the year.

Thank you, Thomas. One more. Actually, Adrian, I set out the purchase price allocation timeline of costs. Could you just rehearse that, please? That there's 100 million in the next 12 months, and I didn't catch all the other numbers.

Yes. The 12 months they're off, they're going down to 92%. And the next 12 months would then be 85, and then we will see a plateau for about six, seven years at 85.

Thank you. The next question comes from the line of Stefanie Szoltysik with Mirabu Securities. Please go ahead.

Yes, hello everyone. I have an additional question on your sales guidance. I mean you're guiding 15% including MBCC and at your full year you were so kind and broke the 6% to 8% down on what was bolt-on, what was pricing and what was volume. Does this also include bolt-on acquisition to 15% and how much would be coming from bolt-on? And speaking about bolt-on, how much of your growth in the first half was coming from bolt-on?

Yeah. Yes, Stephanie, I'm happy to give here a bit of color. Yes, there will be bolt-ons, given, let's say, the phasing, and given the almost zero impact, as we still had a bit of a divestment impact. The actual sales impact was a mere $4 million in the first half year. So we are sort of assuming that, let's say, the bolt-on impact for the full year will this year not be more than half a percentage point off of growth. This is not to say that there will not be, let's say, more M&A transaction coming, but they will not have, let's say, given the timing, a significant impact this year.

Okay. So then, I mean, in fact, it is a low sales guidance and this low sales guidance is mainly coming from lower bolt-on because you're busy with MBCC and have no time to go for bolt-on or were there no targets around or?

Yeah, no, I mean, we continue to have quite an active pipeline, and what Thomas was also alluding to, obviously, there was a number of antitrust processes running here in the background. It was, let's say, more difficult to navigate, obviously, additional acquisitions on top of this, and this is certainly not let's say, changing in strategy or slowing down our, you know, acquisition pipeline remains quite robust and there will be more to come.

Okay, great. Thanks a lot.

The next question comes from the line of Yves Bromhead with Societe Generale. Please go ahead.

Good afternoon, everyone. Thank you for taking my questions. My first question is just on the comments that you've made on the OPEX, Adrian. I think you flagged that you had a dilutive impact of 100 bps on personal expense and 110 on the other OPEX line. I'm just wondering, for the second half of the year, do you expect a similar magnitude of dilution, or should we anticipate... some improvements with regards to the OPEX line. My second question is on the automotive business. If I look at where you stand today in absolute revenues in H1, you're not too far off from 2018, 2019, albeit the volume may be still quite below that. But you've also taken quite significant cost savings in the time being. So I just wanted to understand the gap of margin that is the case today between H1-23 and the historical of 2017-2019. And how should we think about that going forward, please? Is there any way where you could get back to sort of the 2019 levels by the end of H2 on an exit rate, or is that too early? Thank you very much.

Thanks, Yves. Let me talk about here the cost on the personnel cost and the OPEC side and the development first. In terms of the personnel cost and let's say the inflationary element I was alluding to before, this is probably not going to change significantly in the second half here, neither to the worst nor to better. We will see a bit more efficiency elements, also with, let's say, increasing volumes, lower dilution. On that line, it will be a bit less so, but I would clearly see on the other OPEX an improving picture in terms of negative leverage in the second half here. And then on the global business side, I think in terms of margin improvement, yes, we're making good progress. I mean, the cost side is one that we have also taken here at a time, obviously, where sort of volumes were impacted by, you know, various factors, particularly on the supply chain side of our customers, too, also here. optimize pricing and reestablishment of the material margin is an important element as well, on top of obviously here the volume leverage. So I would see here an improvement, a further improvement in the second half, clearly with the ambition to go back to, let's say, the levels of 18-19, but this will not yet be for this year as we're still sort of, you know, working through some of the elements, but there will be more, you know, upside next year.

Thank you very much. And Adrian, sorry, when you say an improving picture on negative leverage, just so I understand correctly, you mean less of a dilutive impact in two edge 23 versus what you've seen in one edge. Okay, very clear. Thank you very much, Adrian. Have a good weekend.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Sika for any closing remarks.

Thank you. And this brings us to the end of our call. We take this opportunity to highlight the date of our next Capital Market Day. It will be in Zurich on October 3rd. And with this, we thank you for listening to our call and for your interest in SICA. We wish you all the best and a very great summer. Bye-bye. Thank you. Bye-bye.

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