Sika Ag Adr

Ladies and gentlemen, welcome to the SICA 9-month 2022 Results Conference Call and Live Webcast. I am Sandra, the Chorus Call Operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Dominik Schlapnick, Health Communication and Investor Relations. Please go ahead, sir.

Thank you, Sandra, and good afternoon and welcome to our 9-month Results Conference Call. Present on the call with me today is Thomas Hasler, CEO, Adrian Widmer, CFO, and Christine Kukan, Head of IR. We published our nine-month figures this morning at 5 o'clock. The nine-month presentation is as well published on our website. With this, Thomas Hasler and Adrian Widmer 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 these nine months.

Thank you, Dominik, and good afternoon to our nine-month results call from my side. In summary, SICA performed very strong in a very challenging economic environment and geopolitical distress. It is a nine-month result that needs a few explanations as we have the reported numbers and underlying business evolution, which we will present in the coming 45 minutes. We reported an increase in net sales of 5.6% in Swiss francs, a heavy impact from the currency appreciation because our local currency growth is 12.4%. The vast majority of our growth comes from acquisition, 11.1% in local currency. So that leaves 1.3% on the organic side. The organic side has strongly come back from a weak start into the year and we have momentum going forward. This gives us confidence also going into the Q4 and into next year. On the material option, which has been and still remains a strong target for us to reestablish our corridor of 54% to 55%. We achieved 53.1% in the first nine months, a strong recovery considering last year's level of 49.3%. On the reported EBIT margin of 13.5%, which is lower than prior year, we have to consider in there also the one-time effects. So if you take the one-time effects out, our underlying EBIT margin is at 14.8%, which again is 100 base points higher than prior year. Here, Adrian will go into the details guiding you through this. For me, it's very important that the underlying organic business is going and moving in the right direction. As an indication for this, our Q3 performance is the strongest Q3 our strongest quarter ever on absolute numbers in profitability but it is also one of the strongest ever achieved in Zika's history. It's 24.3% higher than Q3 2022 and it is a quarter where we had little impact from one time so it is a much more transparent comparison of the going rate of Zika given all the great let's say, achievements in the first nine months with NBCC now being closed, but at the same time, of course, also having then one-time effects into our reported EBIT. This leads me also to the biggest highlight of 2023, which is the successful closing of the NBCC transaction in the beginning of May. And since then, the very positive momentum we have seen across the globe which also reconfirmed our strong positive synergy momentum, allowed us also to increase the capital market day, our expectation from the synergies now being at 180 to 200 million from the former 160 to 180. This clearly is the highlight and it's also probably the momentum where the company now is gaining traction every day as we advance in the integration. And we will come back to that also from Adrian's side in regards to how this momentum will contribute into the future performance. We did also other acquisitions, Thyssen team in July and Schema in August, important additions to the concrete business in North America or to the local business in Peru, a strong market where we now have more opportunities, almost doubling our presence in the distribution market. Again, one of the typical bolt-on transactions that we stand for and that we are aiming also to continue in the future. Organically, we further invest in India. India is one of the hotspots. We have double-digit growth in India. India, we also foresee in the coming period in the coming years that with all the infrastructure activity, India is the place to be and we added just in time another plant to our footprint in India, which now is up to 12 factories all across the continent. We also reinforced our business in the US, the Chattanooga plant, which is producing fibers for the concrete business. So all in all, a very eventful nine months. Challenges from the outside, which we tackle, which we turn into opportunities. And from the inside, the integration of MVCC and the expansion of our footprint, all in line with our strategy, which, by the way, we also then reported. Beginning of October, not exactly within the nine months, but certainly another highlight which is indicating our confidence into the future, into the next five years with the elevated growth expectation and again with the new EBITDA target range of 20 to 23%, which we aim starting to implement the beginning of next year into the new strategy period. With that, I would close the introduction and hand over to Adrian to go and give some more details on the business.

Very good, and well, thank you, Thomas, here for the highlights. Good afternoon, good morning to all of you here listening in. I will talk a bit more about the composition of our growth also in the regions and provide, you know, further insights into the financial results. We have heard it. We're currently operating in quite a challenging environment. We have been able to deliver local currency growth of 12.4 percent in the first nine months of the year, which is strongly driven by the acquisition of NBCC and includes five months of the NBCC results. Organic growth was 1.3% for the first nine months. If you look at Q3 in isolation, these are 2.5% organic growth in spite of one working day left. So clearly here also a notch up in the right direction. Acquisitions almost entirely related to MVCC added 11.1% of additional growth in the period in the first nine months. Currency effects continued to be very significantly negative and also here even picked up a notch in Q3, reducing local currency growth by 6.8 percentage points with a corresponding Swiss franc growth of 5.6%. And here, negative currency effects are, you know, across the board, but primarily driven by the main currencies, the US dollars, the euro, the Japanese yen, and also the RMB, as well as generally a high inflation environment in many of the emerging markets. When we look at the regional growth, you're all Regions delivered double-digit growth in the first nine months, and all, with the exception of global business, benefited from the acquisition of NBCC. Region EMEA grew 10.6% of constant currencies. Here, organic growth was minus 2.2%, although growth and volume development showed a further improving trend in Q3. The Middle East posted very strong growth, and also Europe South showed a very solid development in Q3 and a further improvement, while Northern Europe and the Dach area remained subdued. NBCC added 12.8% of growth in the EMEA region, and the foreign exchange effect was minus 5.8%. Region Americas recorded the growth of 40 percent, also here heavily driven by NBCC. Business in North America was negatively influenced by rising inflation and increasing interest rate environment, but also by destocking in the roofing sector in the first half of the year. Key growth supporters were infrastructure projects and ongoing reshoring activities. Most markets in Latin America showed a solid growth and acquisition contributed 13.9% of growth. And here also foreign exchange effects heavily negative, which reduced Swiss franc growth by 6.2%. Sales in Asia-Pacific increased by 13.5%. As organic growth in Q3 remained solid, particularly the distribution business in China recorded double-digit growth, while project activity saw a slight decline. We have heard about India, double-digit growth, while Japan is showing an improving trend in Q3. NBCC here contributed 8.1 points of growth, on top of a solid organic growth of 5.4%. And in the Asia-Pacific region, foreign exchange impact is the most negative one with minus 10.2%, particularly due to the weak Japanese yen and the RMB. And finally, global business delivered 13.3% growth in the first nine months, with underlying carbon rate growth being positive on the back of solid demand for e-vehicles, but also supply chain normalization. Seeker sales outgrew carbon rate growth in spite of continued negative production volumes in the market for white goods, which is also included in global business. And in addition, the strike in the U.S. automotive sector in September had a negative impact on growth. Also here, a negative ethics impact of minus 5.1%. If we move down the P&L, we have heard it. We have delivered a very strong and significant increase of the material margin with a gross result expanding by 380 base points to 53.1% from 49.3% in the first nine months of the previous year. Also quarter-on-quarter Q3 marked a further expansion of the material margin. And solid pricing in combination with a continued decline of raw material input cost, but also ongoing structural saving initiatives led to this significant expansion. As you can see in the EBIT bridge provided as part of the nine-month presentation, there was a small dilutionary effect coming from short-term PPA effects relating to NBCC, 15 base points of impact, as well as initial procurement synergies included in the synergy bucket in NBCC. Reported operating costs, which include both personnel costs as well as other operating expenses, developed over proportionally, but include significant one-off related M&A costs, all reported in the other operating expense line. Also here I will allude a bit in more detail later on. Just in looking at personnel costs, here an increase by 12.8% versus a top-line growth of 5.6%. With the acquisition of NBCC as the main contributor, while organic headcount development was slightly negative, but wage inflation accounted for about a 5% personnel cost increase on a life-for-life basis, leading to a negative cost leverage. 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. While last year's expenses in connection with the NBCC acquisition were relatively moderate, but in combination resulted in a positive net impact of 129 million in the first nine months of 2022. This was reported in other operating expenses. On the other hand, this year we had one-time costs related to the acquisition and integration of NBCC of 105 million. million and with a similar negative impact. Excluding these items, other operating costs increased by 13.1%, driven by NBCC, but also due to higher energy costs and modestly higher marketing and travel costs as we maintain high level of customer engagement and market-facing activities. If you look at Non-material cost and the negative cost leverage thereof minus 210 base points. This is an improvement of 20 base points versus the first half year and is more than 60% inflation driven. Depreciation and amortization expense increased by 68 million in absolute terms. to 358 million or 4.2% of net sales, primarily due to NBCC and additional intangible amortization in the first five months since closing. This corresponds to an NBCC amortization expense impact of about 100 million on a 12-month basis. As a result, reported EBITs decreased by 7%. to 1.145 billion, down from 1.232 billion, and an EBIT ratio of 13.5%. As mentioned, reported EBIT 423 in isolation, however, increased by a strong 24.3% to 484.4 million. If we exclude the above-mentioned one-time costs related to the acquisition and integration of NBCC as well as the gain last year, year-to-date EBIT margin increased significantly by 100 base points from 13.8% in the previous year period to 14.8% this year or by 150 million in absolute terms. On a pure life-for-life basis, basically the organic development, here EBIT as a percentage of net sales increased by 170 base points to an underlying EBIT margin of 15.5%. Also here I make reference to the provided bridge. And looking below the EBIT line, net interest expense also increased significantly by 53 million compared to the same period of last year to 87.7 million. The increase is largely related to the free financing of the MPCC acquisition, the three bond issuances in November 22, as well as in March and May of this year. On the other financial expense line, also here an increase by 59 million to 80 million in the first nine months of 23, here primarily due to the impact of hyperinflation accounting, higher hedging costs, which are driven by the increase in interest differential and higher foreign exchange volatilities. Looking at the tax rate, here the group tax rate remained at the same level, 24.9%, and was positively impacted by a goodwill amortization benefit resulting from the NBCC transaction in the amount of 19 million. This 19 million was booked in quarter three. As a result, net profit decreased by 16.9% to 736.5 million. This is down from the previous year level, but a clear improvement versus the first six months of the year also on that line. Turning to cash flow, here operating free cash flow developed very, very strongly with a significant increase compared to the same period of last year. In the first nine months, we delivered 877 million in operating free cash flow, which is more than double the amount of the previous year period. Year-focused working capital management, lower inventory valuations and levels as well as the normalization of the supply chain in general were the main contributors, as well as the positive cash effect relating to intercompany financing and hedging activities. This strong cash generation as well as the early conversion of the outstanding convertible bond that was concluded in September led to a strongly reduced net debt to EBITDA ratio of 3.0 times on a reported basis. This is down from 4.1 times in June this year. And with this, I conclude my remarks and hand back to Thomas for the answer.

Thank you, Adrian. On the outlook, which is a really confirmation of what we also presented at the Capital Market Day, we expect our sales in local currency to exceed 15%. This is including the NBCC top-line aspect. as well as an overproportional increase in EBIT, excluding the MVCC acquisition, which I consider the organic performance of the company. In addition to that, the operating free cash flow will be in the range of the mid-term growth. target of the strategy, which means above 10%. That's our expectation for the fiscal year 23, going into Q4 and into the finish of the year. With that, we would now open up for questions.

The first question comes from Arno Lehmann from Bank of America. Please go ahead.

Very good. Thank you very much. Good afternoon, everybody. I have two questions, please. Firstly, on the Q3 organic growth, as you mentioned, was a little bit better, 2.5% on my estimates. We know that the base effect is going to get easier in the fourth quarter because the volume started to slow down in Q4 2022. So I guess, assuming we keep the same run rate into the fourth quarter, do you expect an acceleration of the organic growth on a year-on-year basis? That's my first question. And within that, what are the moving parts in terms of the volumes and the pricing that would be helpful? And secondly, we have seen kind of raw materials, in particular oil, prices moving higher. Could you give us an indication of the implications for your material expenses and whether that is driving you to consider new price increase, maybe for January next year? Thank you.

Okay. Thank you, Arnold. What makes me feel confident, so not only in Q4, but going forward, is the organic production As you mentioned, it's of course a combination of price and volume. And here, when we look into the evolution from Q1 into Q3 and then also a bit in continuation in Q4 and into next year, It's very obvious that the high impact from the price is coming constantly down and is going back into a range which we would almost say is a normal price adjustment year over year. So this is good in a way that it doesn't distort, let's say, the volume aspect, which I see as a more relevant factor here. when we consider that we started into Q1 with a double digit negative volume in EMEA in particular, but also the other regions with exception of global business had negative volume. This has shaped over the course of the year in the right direction, still leading to negative overall, but now we are at the level of the volume where we can say that all our reporting regions have a positive trend. And overall, when I look at our largest region, EMEA, we see that here there's a good probability that we will come back into positive volume, driven by especially, let's say, our distribution business in the in Europe South, in Spain, in France, in Portugal, in the UK. So I think, yes, it's also a relatively weak prior year quarter ahead of us. But overall, the progression and the momentum, especially on the volume, is giving us confidence also to finish the year and also to start next year strong. On the raw material side, It's correct. It's less maybe dependent on the oil. I think the oil hasn't, let's say, peaked or changed even so the Middle East events were a risk in this regard. But the raw materials overall, having seen, let's say, adjustments downward, are now leveling and there is a decrease Capacitation is visible upstream to respond to a weaker demand. Therefore, the price in general is leveling or starting to pick up again. And here then we have also some outliers that are constantly going up. And cement, as a good example, is a raw material significant to us that has seen quite strong increases in the past 12 months. And this is going to continue, which to answer your question, of course, together with other inflationary elements on the non-material side is going to influence our pricing going forward. But as mentioned before, probably more within normal terms of price adjustments and not the huge adjustments we have seen in the past 18 months, which were mandated by the special situation we had on the input cost side.

That's very helpful. Thank you very much.

The next question comes from Cedric Blum from Morgan Stanley. Please go ahead.

Thanks very much. Good afternoon, everyone. I've got a question on the antitrust inspection that happened earlier this week. I don't know if you'd be willing to comment on that and also maybe give us a bit of an understanding on the percentage of revenues that might have been inspected and also if this was just an inspection for European assets or if it included any of your U.S. assets. And then secondly, on the gross margin, I think the recovery has been much faster than expectations, or at least my expectations. On your comments on sort of raw materials now maybe starting to find a level, should we assume that most of that gross margin recovery is done and not to expect too much more from here into the end of 23? Or is there a potential for a little bit more gross margin recovery to come through? Thank you.

Okay. Thank you, Cedar. And I take the first question on the – antitrust investigation. I can confirm that the antitrust authorities in the EU, in the UK, as well as in Turkey and in the US have started an investigation into the concrete admixture market. This is an investigation across the whole industry and we are here with highest, let's say, interest active to collaborate and to investigate this investigation. This is a lengthy investigation we just started. We cannot comment on the progression, but I would say it's for us very important that this business is acting behaviorally in line and fair with the regulations and SICA has a strong compliance structure and zero tolerance policy in place. So here, this is an investigation we fully support. It is an investigation which will take time and I cannot go further in details other than I can confirm that some of our premises in Europe and in Turkey have been visited. And this is an ongoing investigation.

But maybe secondly, here on your question regarding material margin and further evolution, maybe a few comments here. Yes, obviously, input or raw material cost development has an impact where we see as just commented by Thomas in sort of a flattening curve now. We also had obviously the lowest material margin in the third quarter last year. So here in comparison, let's say the improvement is getting, I would say, smaller. On top of this, we typically have seasonality in Q4 where you cannot just, let's say, extrapolate. In terms of a trend, you would expect, or let's say in terms of seasonality, you would typically expect a lower material margin in Q4. I think the underlying trend I think it is a continuation where I think it will be relatively similar in Q4 compared to Q3, but obviously many sort of elements still being a bit volatile in this area, but I would not foresee, let's say, you know, a significant here further, you know, increase in Q4, you know, given, let's say, the time of year.

Thanks very much. Just a follow-up, Thomas, on the antitrust issue. I don't know if you can talk about to what period this relates to and if there is anything to say about the culture at NBCC, which might have been a bit different to Seeker's culture on zero tolerance, and if there is any risks that you might have now inherited, which we need to think about. Basically, ahead of your buying that business, right?

Yes. I can't go into details, but I can answer your question in regards to NBCC. NBCC, since... since we have now five months behind us, but also as to be expected with the long, let's say, ownership of BASF as a very strong compliance culture. And it's very similar to ours. There's a zero tolerance policy in place, and this is constantly, let's say, conveyed and trained across the organization. And it is... much too early to come to conclusion. The whole industry is checked and revised, and the outcome will take some time to have conclusions there, but we are confident that our approach to these requirements is strong and good, but the investigations are ongoing. And then maybe just, Cedar, to add to this, the MBCC business in Europe has been sold to Sinven as well as the MBCC admixture business in North America. So that's not part of our business today.

Great.

Thank you so much. The next question comes here from Onfield Investment Research. Please go ahead.

Yes, maybe a question on your scope effect. I think in the previous conference call, you were suggesting like you would expect a scope impact of close to 1.4 billion in 2023. Is it still the case? And how much would come from NBCC and how much would come from the Bolton acquisition that you've done over the past 12 months? That would be my first question. And then a second question. On the volume development, you talked a little bit about Europe. In the US, it looks like the volume is a little bit weak. Do you see a recovery in the fourth quarter? And in Asia, we are hearing a lot of negative news about the Chinese economy. Do you feel you can continue to outperform, or do you think that there could be a little bit of a slowdown in your activity in the coming quarter?

Yacine, I'll take the first one. I'm not quite sure whether I understood it correctly. You were referring to, let's say, 23. What is sort of the acquisition impact? Is it entirely NBCC or is there, you know, additional acquisition impact? Is that the question?

Yeah, that's correct. And I think you gave a number of 1.4 billion Swiss francs last quarter. And I just wanted to know if it's like still the order of magnitude is still the same.

Yeah, broadly yes, obviously here it is a number which is also impacted by, let's say, foreign exchange. I mean, we consolidated actual rates. So to the extent, you know, currencies move, you know, there may be, you know, a certain impact on that overall number. But I can confirm that, let's say, acquisition impact this year will be by and large, you know, NBCC. Let's say the other bolt-ons in terms of, you know, impact will be less than half a percentage point.

And next year, the bolt-on that you've done, would you expect also the same order of magnitude, like 0.5 percentage points, based on what you've done?

Yeah, the one that we've done, that is roughly the level, yes.

Okay, and then, Yassine, to the volumes of the Americas here. This is similar to EMEA. We haven't started with, let's say, a double-digit negative volume into the year, but rather with a higher single-digit number. But this number is more constant than in EMEA and remains negative also over the course of the year. And therefore, where we have seen a much stronger improvement from double-digit negative into single, into low single-digit in EMEA, the Americas is more, let's say, resilient in a negative mid-range volume pattern. And therefore, initially, we have seen, especially in the US, some destocking elements that were driving this, but we also see Here, some more, let's say, inflation and the interest cost-driven elements that faster recovery are probably hindering. So that's a bit the difference between EMEA and the Americas. Asia-Pacific actually is constantly getting better with positive volumes from the beginning of the year. being still slightly negative but moving after Q1, after China came back at least to levels that were providing volume growth and keeps this positive volume growth also in Q3 and we expect also in Q4 that we will see nice volume growth in Asia Pacific and here. It's not only China that is relevant, but India is very relevant. Also, Japan has a positive trend. Even so, let's say the economy is stagnating, we have a nice, I would say, momentum to play on. And then Southeast Asia, with the exception of Vietnam, is also very strong on the volume side.

Thank you very much.

The next question comes from Yves Bromhead from Societe Generale. Please, go ahead.

Good afternoon. Thank you very much for taking my question. I just wanted to come back to a few questions and add a bit of clarity, if you could. Just coming back to the antitrust, can you confirm that the concrete technology division is about 15% of sales, and therefore, U.S. and Europe is probably the bulk of it? And also on that point, Do you inherit from any wrongdoings of MBCC, or can this be tied back to BASF? That's my first question. Maybe my second question, coming back on the raw materials, you talked about flattening of raw materials. Just wanted to make sure I get this right, but are we talking about a flat curve sequentially from the current levels, or are we talking year on year? Just want to make that clear. And last but not least, maybe last question on wage inflation for next year. What should we have in mind on a like for like basis? And can you offset some of that with cost savings?

Okay, first to the question on the antitrust and the magnitude. Your assumption in regards to concrete is about correct. It's about 15% plus or minus. The business is well spread across the globe. It's a core business of ours. And since we have not taken over the NBCC business in Europe and in the U.S., I would say it's probably much more balanced in regards to the activities as if we would have been able to integrate the NBCC. So the NBCC business in Europe and in North America has been sold to Sinven prior to us taking control. So that's not part of our business. investigation. And in size terms, I mean, we have significant business in Asia and the rest of the world. So I think this is well balanced. And your second question?

My second question was on the raw materials. You talked about flatlining or flattening, sorry. I just wanted to make sure this is like a sequential move that you're referring to rather than a year-on-year move.

That's a sequential move, yes.

Great. And my last question was on wedge inflation. What's your expectation for 24, and if you can sort of offset that with cost savings?

Yes, I was mentioning here that the 5%, which we'll be incurring this year, the expectation for next year would be a bit less. We have, let's say, historically, as we have been operating, obviously, across the globe, also in many high-inflation environments, sort of had a 3%, 3.5% wage inflation impact across the board, which we are typically able to offset in terms of impact with a certain level of growth. That would also be the expectation for net.

Perfect. Thank you. Have a good weekend. Thanks, Steve.

The next question comes from Christian Arnold from Stiefelschweiz. Please go ahead.

Yes. Good afternoon, gentlemen. One question on the operating free cash flow, which was enormous in 2003, I think, from 560 million. And you mentioned the working capital management, lower inventories, normalized supply chain. So, I mean, that is not the new runway, right? There's probably also some seasonal effect. So, what shall we consider as a normal rate increase cash flow? Some 300, 400 million?

But, no, it is, I mean, very clearly in terms of seasonal pattern, The second half year is typically much, much stronger than the first half year, let's say, in a normal environment. You can almost assume it's sort of, you know, 70, 75% of the cash generation. Q3 has been very strong. That is, on the one hand, related to the factors I've been alluding to. You know, obviously also let's say, you know, profitability improvements. So there is many elements. I mean, typically, you know, Q3 is a strong quarter sort of overlaid now with these with these elements, but clearly our target is to exceed 10% of sales on an ongoing basis. So obviously as we grow and improve also profitability, we will continue to see a strong cash generation, but probably not quite every time at the Q3 rate.

Thank you. The next question comes from Elodie from JP Morgan. Please, go ahead.

Oh, hi. Thank you for taking my question. I have a question on pricing. We talked a lot about raw materials leveling up or flattening the country. But at the moment, volumes are maybe improving a bit, but stay weakish. Consumers are under pressure with multi-year high interest rates. Do you have any pushback at the moment from your customers if you're trying to push pricing further up, especially into 2024? So we're just curious to see what the reaction is at the moment from customers. And if you think that the business is strong enough at the moment to push further prices up if needed. And my second question is on just a little bit on China. If you go into detail, you said you're seeing double-digit growth in distribution, but the project activity seems to have declined. So I was wondering if you could give us the run rate of the China business at the moment. Are there any pricing differences between distribution and project activity in general? Thanks very much.

Okay, yes, I take those questions. On the pricing, I mean, pricing is an art. Pricing is a communication art with the customers. Over the past 24 months, you know, we have to engage and we do this in a professional way. It's a lot about the communicating where the pressure comes from. and also then helping our customers to eventually offset some of that by offering alternative solutions, achieving the same goals. So we are heavily, let's say, interacted and linked with our customers as we understand that no customer likes cost increase in general. And this is different, let's say, in the direct and in the indirect business where we strongly engage and find them let's say win-win solution even so that the prices have to go up and the understanding broadly speaking is also clear and also expectations when let's say key raw materials come down also those discussions are not easy discussions but they're very professional and since we have a strong sales force across the globe that is close to the customer we try to create let's say possibilities to offset and so that the customer is not taking the full heat but can also offset through changes in the portfolio or in the processes as the product is only one cost. It's also labor cost that we can help to reduce. So it is very, very interactive, but it is very, very close to each of the customer and their needs. And we have done this through, let's say, a very turbulent time with the massive increases we had to push through. But now also when things are more flattening, when things are, let's say, more selective, those discussions are very similar and definitely no customer makes you an extra coffee because you bring in a price increase discussion. But at the same time, they understand it's also an opportunity eventually to optimize total costs instead of just going into a discussion. What's the lead? What's the kilogram price? What's the change? So this is our daily work. This is our sales force art to communicate and involve broadly that just this is my need. This is what you have to accept. That's not our style. And then China, yes, the China question. The China business in distribution, I mentioned it many times. There's a fantastic business model behind the expansion, but also the transformation from on-site to pre-bagged. This machine is running at double digits and at a good double-digit growth rate. But you're correct, our direct business is more impacted by, let's say, the slow construction business in general. And in combination, let's say, the direct business pulls down the double-digit growth of the distribution to a high single-digit, slight double-digit range. So there is an impact. You are absolutely correct that both businesses are not going at the same pace. But in combination, we are almost at the double-digit level, and we also expect there that this will also in the coming quarters improve, and also on the direct business we will see some improvements. Here, for instance, the manufacturing industry, the export of goods is on an all-time low, so to say, but here we also expect that there will be also more export coming for manufacturers goods, where we also have a strong presence in the direct business in China.

The next question comes from Stephanie from Mirabol Securities. Please, go ahead.

Yes, good afternoon. I have a question on the DACH region. You mentioned in Europe that the southern part of Europe was strong and the DACH region less so. Could you share with us if this dynamic or the momentum in the DACH region weakened over the third quarter or did it improve and what do you expect in the fourth quarter and also maybe going in 2024? How do you see Germany, Switzerland and Austria at the DACH region? Do you think we have seen the lowest point already?

I mean, in the DACH region, we also have a south deviation. because there is a clear difference between Germany, Austria and Switzerland. Switzerland is performing very strong, very resilient. The construction industry is slightly impacted, but actually we have a much bigger impact in Germany and in Austria. I mean, Switzerland as we all know, is still, let's say, short on residential living rooms. So we have lots of activities on that side. We have infrastructure projects that are advancing. We have refurbishments. So Switzerland clearly cannot be put in the same bucket when it comes to the trend than Germany and Austria. Germany and Austria, here we see a very strong impact coming from the residential side, the distribution side, but unfortunately also, let's say, the infrastructure and the commercial areas are rather weak. And here, that's an element that I would say is the insecurity or the uncertainty in regards to the policies on energy, on sustainability, the complexity that that is hindering, let's say, investments as we would consider to come into play. So your question, have you seen the bottom of the evolution in Germany and Austria? I do think so. At least our business is indicating this. So we see that the low point is behind us. It's a slow recovery. It would very much benefit from some stronger, let's say, guidance from the authorities. Not expecting this means that probably this slow recovery in Germany and in Austria will take more time, but it is at least, let's say, an upward trend and no longer a downward trend, which we have seen in the past 12 months. So I'm Slightly optimistic. We have a strong organization that can outperform, let's say, the market and is outperforming. We have the reinforcement. of our strong presence with the MBCC acquisition. So when I look at this, I'm much more positive about our business in Germany, but the economical outlook and the activities are just slightly coming back in the coming quarters probably and also into next year.

Okay, very good. And then a second question, if I may, on global business, I expected this one to be a bit stronger. Can you maybe elaborate a bit on what has caused the troubles in the automotive industry? Was it mainly the strikes in the US or is it just the consumer that's not picking up and therefore production is also lagging or still supply chain issues? And what were the reasons? And what exactly were the volumes and the price, maybe, just to start with?

Yeah, I mean, it's well observed. I mean, we had an all-time high in the build rates last year. And we had a constant recovery of build rates starting in Q3 last year. That continues still. But the Q2, Q1 this year, in comparison to last year, were significantly higher in build rates with the Q3. This year compared to last year was only a slight change in the build rate. So we see now a flattening of the trend going forward. And this is, let's say, the underlying volume of the industry. It's normalizing more and more. But then we should not forget we have, unfortunately, the strike in the US, which is shutting down several plants of our customers. That has, let's say, not yet a huge impact, but it will probably further slow the outlook for Q4 that the build rates are not going to recover much beyond what the build rates were last year in Q4. Therefore, it's a bit flattening. And in addition to that, of course, the currency impact is also in global business quite heavy, as we have euro and US dollar and also yen, sorry, RMBs in that mix. So the local currency growth is more indicative.

Okay, thanks a lot and have a nice weekend.

Thank you, Steffi. There are no more questions. This brings us to the end of our call. We take this opportunity to highlight the date of our net sales figures publication. It will be on January 10th, 2024. With this, we thank you for listening to our call and for your interest in Zika. We wish you all the best. Bye-bye. Thank you. Bye-bye. Thank you.

Thank you.