Sika Ag Adr

A wonderful good afternoon, ladies and gentlemen. Welcome to the CECA half-year 2024 results conference call. My name is Francie, the course call operator. I would like to remind you that all participants will be in a listen-only mode and that the conference is being recorded. The presentation will be followed by a question and answer session. You can register for question at any time by pressing star and one. For operator assistant, please press star At this time, it is my pleasure to hand over to Mr. Dominic Slapnick, Head of Communications and Investor Relations. Please go ahead, sir.

Good afternoon and welcome to our half-year results conference call. Present on the call with me today is Thomas Hasler, CEO, Adrian Widmer, CFO, Christine Kukan, Head of IR, and Jomi Limmermann, IR Manager. 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 Hafler and Adrian Wittmer 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, Dominic, and welcome to our half-year call. And I'm very proud to present here a very strong operating result for the first six months, which are a clear demonstration of our strong and excellent position to gain market share, even in demanding conditions or under demanding conditions. Starting on the top with a record net sales of 5.8 plus 9.2% in Swiss francs, or translated into 12.8% in local currency, we are well advancing and taking market shares in all the markets we are present. It is also a currency impact of 3.6% that we have to consider still on the high side, but with a lowering trend going forward. One of the most remarkable achievements clearly is the material margin expansion above 55% in the first half of this year. Adrian will go into the details, but of course it starts all there where it then trickles down with a good cost management into an EBITDA margin jump of 220 base points compared to the first half in 23. So this will be explained in all details by Adrian in the coming session. I would like now to steer over to the highlights that is overarching and is most significant. It's the integration efforts of MBCC, which also allowed us to raise our synergy guidance for the current year up to 100 to 120 million. It is just fantastic to see how the combined organization is advancing in the implementation of the well-defined actions to gain synergies on the commercial side with the cross-selling activities, the portfolios that have been put together, as well as also on the cost side in integrating very well on the back office side, on the operational side, and all this with a momentum and with an energy level that is making this that the outstanding results possible. At the same time, I would like here also to mention our global employee survey, which we have conducted for the first time under the 28 strategy. And the results have been very, very encouraging and led to extraordinary engagement rate of 86%. And this is the clear manifest of the organization that our employees are highly engaged. And you have to consider that many of the employees have been recent joiners of the SICA group. 6,000 came in through NBCC less than 12 months, 4,000 have come in as a normal cause of fluctuation, so many new joiners. But from the beginning, being highly engaged, contributing, making those fantastic results possible. I would also like to outline that our drive for the net zero implementation has been validated by the SPTI, and so our roadmap and our implementation for net zero targets are well in line, and we are working towards those according to our strategic targets that we have outlined in our 2018. strategy. Other highlights of the first half are the acquisition of Quick Bond, the bridge deck renovation company in the US. It is a fast implementation system that allows that we have only very limited downtime and can operate bridges during the day while overnight they are going to be renovated. It's a system that has been adapted to over 30 DOTs in the US. and it is expanding and we see also great opportunities to use it in other mature markets where we have plenty of, let's say, aging infrastructure and needs also for fast renovation and where we can then also build on this technology that QuickBond has introduced 30 years ago in the US and is now available for Zika worldwide. We also have worked on our our organic expansion of our footprint with the fiber factory in Peru. We are addressing an ever-growing mining opportunity in Lhasa. With these fibers, we are providing concrete solutions to secure mines in an advanced and in a more cost-efficient way. We also have continued our expansion in China. with an additional factory for the tile adhesive business that Seeker BFM is so well introducing and expanding into the Chinese distribution market. So ongoing investments on the organic as well as on the inorganic, as well as on the people side are the key for us to drive further momentum in the coming months and years ahead. But now I would like to hand over to Adrian to provide us more details on the set of key financials that we have disclosed today.

Very good. Thank you, Thomas, and good afternoon, good morning, everybody in the call. As you have heard from Thomas, we have been operating in a challenging and volatile market environment, but have again delivered strong numbers, strong sales growth of 12.8% in local currencies in the first six months of the year, which also includes four remaining months relating to the NBCC acquisition, which we closed in May 2023. Organic growth for the period was 0.5%, while acquisition here mostly related to NBCC, but also including They mentioned a quick bond acquisition in Q2, added 12.3% of additional growth in the first half year of 2024. Negative currency effects continue to be significant, but have reduced in impact in Q2, reducing local currency growth overall by minus 3.6 percentage points. Currency headwinds continue to be most negative in the APAC region and overall corresponding group-wide growth in Swiss francs was 9.2%. All regions benefited from the acquisition of MBCC in terms of top-line development. However, overall growth patterns by regions were somewhat different. Region EMEA grew 13.5% of constant currencies Organic growth was 0.4%, with a further slight uptick in Q2. The positive trend towards more infrastructure and commercial construction projects continued, while we also achieved growth in the distribution channel. At local level, particularly the Middle East, Africa and Eastern Europe showed further growth, while Germany, one of the most important markets, showed an improving momentum. By contrast, the automotive and industry business recorded a subdued first half of the year owing to declining production figures for vehicles. And last but not least, NBCC added a further 13.1 percentage points of growth. Foreign exchange effects at minus 3% were negative, but also here reduced significantly in Q2. Region Americas recorded the strongest growth at 15.1%, driven by NBCC as well, but also the acquisition of Quick Bond at the beginning of the second quarter. Organic growth was 1.2% for the half-year period and was up from the first quarter as well in Q2. Factors supporting the positive trend in North America were state-funded infrastructure projects and commercial projects related to reshoring, mainly of manufacturing activities to the U.S. Latin America also contributed to the positive trend in the region, with Brazil being the most dynamic one. In the automotive business, SICA achieved a slight increase in sales, with further increasing its content per vehicle. Acquisition growth contributed 13.9 percentage points of growth. Foreign exchange effects also in region Americas continued to be negative at minus 2.2% for the period, but mostly coming from Q1. Sales in Asia-Pacific increased by 8% in the first half of 2024, with organic growth slightly negative at minus 0.3% for the first half year. In China, we achieved moderate growth in the distribution channel despite declining markets, while the project business experienced a clear decline versus the first half of last year, and particularly against difficult comps in Q2 of the previous year. On the other hand, Southeast Asia has gained momentum over the course of the year with high single-digit growth. In the automotive business, CK expanded its content per car with local and international automotive manufacturers in China and India. NBCC contributed 8.3 percentage points of growth, while foreign exchange impact continues to be very negative at minus 7%, driven by weaker Japanese yen and Chinese RMB but likewise with a relative improvement in Q2. Now moving down the P&L, looking at material margin, here we delivered another significant expansion of the material margin with the growth result expanding by 240 base points to 55.1% of sales. This is up from 52.7 in the same period of the previous year maintaining material margin at Q4 2023 level. Declining yet flattening material costs year in year, as well as structural procurement initiatives and NBCC synergies led to this significant material margin expansion. Dilution effects from acquisitions on material margin level was rather small at minus 20 base points. Reported operating costs, which include both personnel costs as well as other operating expenses, developed broadly in line with sales growth in spite of a continued inflationary environment, particularly related to wages, and also a further dilution impact of MBCC relating to the additional four months, which was offset by strong cost synergies operational efficiency initiatives and significantly lower MVCC-related one-time costs compared to the same period in the previous year. On the personnel cost side specifically, those increased by 15.2% versus a top-line growth of 9.2%. An additional dilutive acquisition impact of NBCC was the main contributor. And secondly, as mentioned, underlying wage inflation continued to account for a little bit more than 5% personnel cost increase on a like-for-like basis. This was partially offset by synergies as well as operational efficiency initiatives, but still at the negative leverage overall of about 100 and base points. Other operating expenses increased on the proportionally by 4.5% versus a top-line growth of 9.2, driven by lower acquisition-related one-time costs, synergy development, and operational efficiency initiatives. Overall, the integration of MBCC, as we have heard, is going very well. We've realized total synergies in the amount of 53 million Swiss francs in the first six months of 24, already significantly exceeding last year's contribution of 41 million for eight months and pointing towards a full year 24 synergy number above 100 million, exceeding our previous guidance and the reason for this increase to 120 on a full year basis. As a result, EBITDA increased strongly over proportionally by 24% to a record amount of 1,093,000,000 up from 881,000,000 in the previous year and an EBITDA ratio of 18.7% of net sales also here up from 16.5 in the previous year for 220 base points. Depreciation and amortization expenses increased by 50 million in absolute terms to 271 million or 4.6% of net sales, primarily due to the residual impact of NBCC related to the four additional months, while here depreciation and amortization expense on an organic basis were virtually flat. As a result, EBIT also increased strongly over proportionally by 24.5% to 822 million. Looking below EBIT, year net interest expense increased by 36.7 million compared to the same period of last year, increased to 79.4 million. The increase is largely related to the financing of the NBCC acquisition primarily through the issuance of bonds. By contrast, other financial expenses decreased very significantly by 53 million to result in a small net income of 1.3 million in the first half of 24. This is primarily related to a hedging gain on a currency swap, but also significantly lower foreign exchange valuation effects, mostly related to NBCC. as well as lower financing charges for the initial bridge financing arrangements in the previous year. On the tax line here, group tax rate in the first half of 24 decreased from 27.2% to 22.4. It is largely related to higher tax deductibility related to financing, as well as a favorable country and profit mix. Resulting net profit increased very strongly to 577.1 million or 9.9% of net sales. This is up more than 40% compared to the same period in the previous year. Also cash generation was very strong in the first half year with operating free cash flow for the first six months at 401 million. This is 79 million above strong 2023. Here increasing profitability, high depreciation and amortization, overcompensated modestly higher taxes, capex and the normalization of the seasonal networking capital patterns to end the first half year at the record level. Quickly on the balance sheet here in comparison to December 2023, We saw the normal seasonal development in terms of networking capital balances, but also an extension related to a slight depreciation of the Swiss franc. In May, we entered the Swiss capital market with a two tranche trade bond issuance in the total amount of 400 million Swiss francs at favorable rates, reducing the drawdown of our RCS facilities The RCF drawdown stood at 790 million at the end of June, and net debt EBITDA leverage stood at 2.6 times. This is unchanged to the end of December, owing to the aforementioned seasonality, but particularly also the payment of the dividend in April. With this, I conclude here my remarks and hand back over to Thomas for the outlook.

Okay. Thank you, Adrian, for the detailed explanation of the numbers and the performance that leaves almost no room for questions. But we will see later if there are still some questions open. Let me summarise. Maybe it's half time. It's a football term we learned during the Euro Cup. It's half time. And unfortunately, the Swiss team didn't make it to the final. That's in football. But in construction chemical, the clear leader, SICA, has in the first six months extended and built a bigger spread between us and the other players in the market. We have gained market shares. And this is also our model for the second half. We go into the second half with the strong performance that we have from the back office and the sales side, I think we are in full attack mode. And we are going to gain further market share in the next six months. This is the confidence that we have. This is our, let's say, drive for the next six months. And this is also giving us the reconfirmation that we can stay with our outlook that we have provided early in the year with six to nine percent increase in sales, in local currency, Further expanding our EBITDA in an over-proportional way and also confirming our 28 strategic targets for sustainable and profitable growth. And with that, I guess we are open for questions if there still remain some questions.

Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question, they press star and one. If you wish to remove yourself from the question queue, you may press star and two. Anyone who has a question may press star and one at this time. One moment for the first question, please. Our first question today comes from Zeda Ekblom from Morgan Stanley. Please go ahead with your question.

Thanks very much. Hi, everyone. Can you talk a little bit about how we think about gross margin on a little bit more medium-term view? You mentioned that there was a dilution from NBCC in the number for H1, so underlying as that sort of comes towards your gross margin, that should pick up. And then you've obviously got your initiatives around value selling, innovation, trying to use more recycled content in your materials. Is there a potential that your gross margin should be structurally above 55% on a medium-term basis? So that's the first question. And then the second question, a little bit more near-term. I'd like you to dig a little bit more into the cost development because, to be frank, the numbers came in higher than I'd expected. You are talking about 53 million synergies coming through from NBCC, which should have helped in the H1. But I can't really see that reflected in the numbers. So a little bit more on the cost side would be helpful in understanding how that trends into 25 if volumes come back. And then one very quick one. How do we think about DNA in the second half? Is it a similar percentage of revenues? Thank you.

Okay. Thank you, Sita. I take the first question on the on the gross margin and especially also on the expectation in regards to the integration power as well as the conversion and the transformation of the industry. It is very clear that we have an ambitious target range on the gross margin of 54 to 55. Our aim is to keep it as high as possible. New products that come in generally are carrying a higher gross margins than, let's say, more, let's say, established products. That's no different for products with, let's say, a higher sustainability contribution. We aim at this and we generate more value for our customer and the gross margin, therefore, has to be clearly above. That's That's a given in our innovation pipeline overall. The combination of the two portfolios that we have implemented and are still further expanding is of course also allowing us to not only, let's say, optimize the offering to the customer, but also using the best platform to deliver the solutions and the cost efficiency that we have from both sides in delivering the best, let's say, price-cost offering is also part of the integration efforts. So we have these two elements that are contributing to the healthy gross margin evolution. And also going forward, I'm optimistic that our gross margins will hold strong and will also be probably moving to the upper side of the range that we have indicated.

Then, Cedar, here on the cost side, let me give you a bit more color. I mean, there is indeed a number of elements. Maybe firstly, as I mentioned, MBCC in the first four months of, let's say, residual contribution here also came in with any initial dilution similar to the last eight months of the previous year and this account let's say on a heavier basis for around 80-90 base points overall in terms of margin dilution which was pretty much let's say countered by the 53 million of synergies relating to the first half year. So that's more or less a wash. And then if you sort of back out the impact of the one-time cost, which were quite significant last year, significantly lower this year, we basically here expanded the EBITDA. by 70 base points, so a positive, let's say, top-line cost spread, clearly driven by material margin, but obviously here also underlying cost development is a consideration in pricing and managing our overall margin. On the other hand, very clear, I mean, we continue to have in that sense a negative leverage, driven particularly by let's say, a wage inflation of a little bit above 5% at, let's say, relatively low organic top-line growth here, having an impact on, let's say, pure leverage from a cost point of view, which we're countering with operational efficiency initiatives. If you look at the pure cost development, also quarter over quarter, we have clearly here shown an improved picture in Q2. So exit rate is actually better. And going forward here, let's say the incremental synergies, also our continued efforts on the operational efficiency side. And in general, I would expect a somewhat more contained inflationary element on the cost side will, let's say, further improve that part of the equation, but we will overall continue to drive that positive cost-price spread. Maybe lastly, I think that was on the DNA cost here. I mean, there's no additional let's say acquisition impact. I mean, the one on QuickBond is very small. So on an absolute basis, just a small increase driven by organic development given seasonality, percentage of sales should rather be lower than in the first six months on the full year.

Great. Thank you so much.

Next question comes from . Please go ahead.

Hi. Good afternoon, everyone. Thanks very much for taking my question. The first question, I'll come back on margin. Sorry about that. But to be a bit more blank, in terms of material margin, 55.1% in H1, why couldn't this stay flat for H2 if volumes are looking to be better? and input cost stabilized. So is it just because you're a bit prudent into H2? And do you think that EBITDA margin at 20% is now achievable this year? So that's my first question on margin, both gross margin and EBITDA. And second question on the outlook for like-for-like top line growth into H2 as well. So you did 0.5% in H1. but you're looking more optimistic for H2 on that one. And you mentioned looking to gain further market share. Can you develop on how you plan to achieve that and what kind of acceleration we could expect for H2? Thank you very much.

I'll start here with the material margin. Probably sort of the... The prudence element, that's never wrong, so I will certainly not discard, but maybe more seriously. I think overall, yes, input costs are flattening. On the other hand, they continue to be relatively volatile, and we also obviously see here impacts, for example, here in the Red Sea can have, particularly on let's say, transportation from Asia, also, let's say, availability from Asian raw materials. So I think there we will see continued volatility. We typically also, and this is more from a seasonality point of view, we tend to have, let's say, slightly lower material margins in the second year, you know, absent, let's say, any movements here on, let's say, pricing and input cost. So we were not expecting here, let's say a deterioration, but let's say to call for a linear increase is probably also a bit, well, not prudent, but clearly we will continue to manage here. Material margin is one of the of the elements, but as I said before, that's, let's say, not a dogmatic range, but clearly it's also driven by innovation, but also by some of the efficiency initiatives.

Okay, and Elodie, on the organic evolution in the second half and why we are confident that we can here again outperform, it is very clear The market environment is probably not going to do the major part to this. There are some, let's say, positive elements. But I would say, like the first half, it's in our hands. And what we have done consequently in all the markets is steering our activities towards the areas where we have, let's say, a good base. volume like for instance in Germany where infrastructure refurbishment is always available it is not declining it is solid and there we have a clear initiative on the not only on the road and rail infrastructure but also in the water infrastructure on fresh water as well as sewage water there is huge potential and we have We have proactively steered the organization into this direction. This takes a little bit of time. We have this initiated last year towards the end of the year in line with the new strategy. But this is driving additional momentum also in markets that are still challenged. The same in the U.S. I think everybody knows is aware of the reshoring activities. We have also articulated in our activities to have a clear momentum there as well as on infrastructure and a little less on residential activities. Another element where we have very solid, let's say, underlying market conditions and they are delivering also in the first half but still further potential in the second half are areas like Southeast Asia that we see good potential to further accelerate. We are expanding our footprint there. We have initiatives in place that will deliver in the second half, the same in the Middle East. The Middle East and Africa are growth engines, high single digit to double digit growth, and we are not exhausting that potential. So we are steering that as well. And so therefore, let's say a lot is in our hands to steer and our organization is fully up to this and understands we've got where the money is, means also that we tap into areas where we are present, but eventually can even further penetrate by using the full power of the integrated portfolio that we have and it delivers. It is one of the elements why, for instance, Germany has turned from a very negative, let's say, start beginning of last year into the positive. That's not because the market has been, let's say, super supportive, but our activities have shifted and therefore we see now also the fruits of those readjustments that we have done. And the same happened in the UK, the same happened in all the major markets where we just consider the world is changing and our offering and our that the activities must anticipate that and it is delivering. We are agile in these regards and therefore also the outlook on the acceleration of the organic side, we see quite positive.

Thanks very much. And if I just may, I was asking also about EBITDA margin this year. Do you think you can achieve 20%? Thanks very much.

I mean, we are all aware that this is the aspiration. That's part of the strategy 2028. And it is clear, you know, we are aiming high and we don't give up on such aspiration. It's too early to promise anything, but it is also not completely out of reach. I think we have it also there in our hands. We will drive for the best possible result. It will be I think a very solid result. And at the end, I think in three months, we probably are closer to guide in this regard. But the 20% is a clear aspiration for the whole organization. We want to be earlier. We want to be more impactful in everything we do. And therefore, your question is very valid. I'm a bit hesitant to say yes immediately, but it's a clear direction that we want to go. And I think the momentum is there and it is, let's say, something that is not excluded.

Understood. Thanks very much.

Next question comes from Efrem Ravi from Citigroup. Please go ahead.

Thank you. Two questions. First, on your sales to the automotive market at a group level, the sales for your products to industrial manufacturing fell around 4% year-on-year in the first half, which I suppose is the automotive impact. How do you see the sequential progress from here? And within that, how much can increasing content per car offset lower car production? Historically, how much has your content per car increased, let's say, over the last 10 years? And secondly, personnel costs as a percentage of sales was 18.8%, I think one of the highest in recent years. Is this, you explained 5% of that was because of this 5% increase in the wage cost per person. Is this the biggest cost inflation that you've seen? And how long do you think it will take for you to basically bring it down to the 17% sort of level that you have been doing before? Thank you.

Okay, I take the first question, and I'm not sure where you got this 4%. I think we are outlining that our, let's say, construction industry growth in the first six months has been 0.9%, the organic, and on the industrial manufacturing, it is minus 1.1%. And you are absolutely right. In this industrial manufacturing segment, there is a big portion of the automotive business which I would say in Asia, for instance, in China is going quite well. We have an expansion in build rates, but unfortunately, Europe is drifting more and more into the negative in regards to build rates, given the uncertainty about the transformation to e-vehicles. Our customers, the OEMs, are changing their launch plans for models constantly. It is an unseen situation where these startup productions are delayed by six to 18 months. The new models are running at a very low capacity level where the old models are still keep going. This is a very unfortunate, let's say, situation. in terms of the content per vehicle build up as we have here. Naturally, with all the new book sales, more content on new vehicles compared to the outgoing vehicles. So here we have a certain distortion. Overall, we are going to show those numbers then at the capital market in more details, but we are gaining CPV if you look at the total market worldwide, but that's mainly driven by our advancements in Asia Pacific, but as well North America is doing better. But Europe is clearly shifting. Europe also from an industrial manufacturing point of view, is not doing, let's say, very well. We have here, let's say, the leisure part, caravans and motorhomes that have been hyping in the last two years are coming down quite significantly. Truck business is also showing some weaknesses. So here in Europe, we have a bit of a clear indication that the inflationary elements are making investments into these kinds of goods for consumers as well as for businesses a bit less attractive. This is not the case in Asia where we have a strong momentum. And North America is more, I would say, flattish in these regards.

Then on the personnel cost, I mean, you're right. Here, let's say the wage inflation is one of the drivers. The other one is... here as i you know called it sort of initial uh dilution by mbcc running at you know higher um personnel cost as a percentage of of of sales so these are let's say two um main main drivers this being said um there is also a seasonality element typically on a full year basis at the ratio is lower, so I also expect here then on a full year basis to be a bit lower than the 18.8. Further elements that will again drive this down is further synergies, our operational efficiency initiatives, And in general, obviously, improving leverage as growth is improving. So these are the elements that will lead to a gradual decline of that ratio.

Okay. Thank you. If I can just quickly clarify, the 4% decline was the product for industrial manufacturing that you report, 885 million Swiss francs in 2024. That's on page 18 of the report.

I guess you're looking at the change in Swiss francs, which is 4.2%. Yes, we are looking at the organic change in local currency as we have a currency effect in there.

There's about 3% current in there as well. Thank you.

Next question comes from Brijesh Sia from HSBC. Please go ahead with your question.

Hi, good afternoon. I have a couple as well. So starting with the market share gain, Thomas, you talked about. If you could just give a little bit elaborate how the underlying market is behaving, especially in your footprint, and what kind of magnitude of market share gain you had in first half, and looking into H2 and beyond, how do you kind of look at the market competitive dynamics behaving? Then the second one is on the new plant openings. You had one in Middle East. Can you just elaborate a bit what's your plans into this year and into next year in terms of new plant openings and potential revenue that could generate? And the last one is you talked about, Adrian, you talked about that the exit rate for June was looking stronger in terms of how the costs are moving. And so basically, if you could just go a little more into how you see the cost developing into H2. So if you can just elaborate a little more about that H2 trade, what do you mean by the better one in comparison to Q1 or last year, Serge?

OK. I tried to take the first one. It was not very clear. But I think it's about the market trends and the dynamics in the market. that you were interested in. And here, yes, this is now, let's say, a little bit decoupled from our net sales evolution as we are outperforming, in most cases, the market trends. But when we look at the market trends starting in China, it is very clear that there is no real sign of recovery. The residential market still is very challenged. The initiatives so far Also, the recent one that the central government has made has not shown any impact. Here it's very clear that the consumer confidence and the confidence of the Chinese into the system buying apartments or investing is very, very limited. The only aspect that works is the strong drive of the central government. governments for electrification. So the incentives are high and therefore we see a strong transformation momentum on the automotive side in China. But other than that, I think the hesitation by the consumers is pretty high and not yet addressed. So here we don't expect also that there will be substantial change in the coming six months. In Europe, I think here we have bottomed out. Things are showing signs of improvement. And for us, as I mentioned, even more than that, we are moving into the positive while many markets still are in the negative. Germany is a good example. But I also would like to outline that Italy is a market that is growing. It also is a bit subsidized, dependent on the energy efficiency initiative that Italy has in place. That's good for SICA, but I would also say it's good for the market overall. That market is in the positive and also further advancing in our expectation. It is in the Middle East where I think we have lately heard about a certain shift in Saudi Arabia, a little bit more towards Riyadh instead of the Neom. But that is kind of trading big projects from the north into the central region. So here we expect that that momentum will continue being quite strong and substantial. And that goes a bit into your question on the new plants. I know we are planning, I can't announce now, but we are planning to further expand our footprint in the Middle East, given also the strong momentum that we have, that we want to capture this. This is clearly part of our, let's say, strategy for the next six to 12 months. The expansion in Africa is well advancing here, very clear continuation. North America, I would say, with the change in the race for presidency, not much has really changed. The momentum is still a little bit open, questionable in regards of the market evolution. We expect here probably also not much to happen. The interest cuts... may now come in the later part of the year, but probably too late to have a real, let's say, stimulating effect on our markets. But this may then be different when we look into the next year. Maybe back to the plant opening, we have a few that are in the make-up. I think also from a CapEx side, we allocate quite a bit of our CapEx into the expansion of our footprint. Of course, also into, let's say, into upgrading into efficiency for existing ones. But like the one in China, like the one in Peru, these are expansion investments. And we have several of those in the hopper that we will announce when they are ready. and we intend also to continue those investments. But those investments are not the first. Those investments are building on the momentum, on the commercial momentum in a country or in an area, and then it's reinforcing and it's building on volumes that have been already, let's say, acquired and then are giving base volume for these new factories, these high-capacity factories, to then, let's say, quickly turn to a high-efficiency industry operation with best cost structures.

Then maybe lastly here on the cost development, my comment was related to the fact that in Q2 we have seen, let's say, a lower OPEX and personnel cost growth vis-à-vis top line growth compared to the first quarter. And that is also what I do expect for the second half, that on the one hand, wage inflation should ease at least slightly, and then synergy and our initiatives will drive here a lower cost growth to then also drive eventually operating leverage.

Fair enough. Just to follow up to you on North America, when you talk about second half, given the growth we had in the first half and possibly that's better than what you had guided early in the year, how do you look at it second half? You have an easy come coming in Q4. So despite the market not doing much, what should we expect from SICA?

If it will be so easy, no, you're right. I mean, I think that The North American market has had some softening in the second half last year and we don't see any reason why our momentum that has built up over the last six to nine months would abruptly stop. So it's absolutely correct that we have the positive momentum that we anticipate also to continue and also further accelerate. It's just that the market environment probably is not going to change that much. But again, it's in our hands, and we have a very strong, motivated team, a stronger team than ever in North America. And they are delivering, and they will also deliver in the second half, let's say, organic growth, gaining market shares in North America.

Perfect. Thank you very much.

Next question comes from Ibrahim Omani from CAC. Please go ahead.

Hello, thank you for taking my question. If I may, the first one is about the roofing market. In North America, could you please give us your update and maybe your expectation on this market trend in H2? And my second question is about the market share. You say that Zika gains market share in all the markets. Is there against the large competitors or against the small ones? Thank you.

Okay, I tried to answer the first one. I didn't get the second one, but let me start on the roofing side. I think it's a great market. It's a market that has had some challenges. We have seen last year in the first half quite significant destocking issues in the roofing market. Roofing market needs to be also kind of put into different buckets. Our roofing market is different than the general roofing market of other players like Carlisle or others. Our roofing market is a single ply market. It's oriented towards commercial, high-end construction. It's not in the residential, and it is a combination also of, let's say, single ply, liquid and green rules. So we have a bit different setup probably than Pierce that you may look at that have been let's say very much challenged last year during the first half but going into this year there's some recovery which we also see in our business that's very positive but I would say it's not that easy to compare with the one-to-one players in the whole thing.

Thank you. On the market share?

That's related to which market, the market share?

In the major markets, so Europe, America. Do you gain the market share against the small competitors or against the largest ones?

It's both. It is both. I think markets are shifting, let's say, more to innovative, renewable solutions here. It's clear that the small players have a bit of a tougher time to adapt as quickly. So that's in mature markets probably a bit more pronounced than in emerging markets. In emerging markets, I think we win against the large players because of our existing full-fledged footprint that we already have that you can build on our over 400 factories that are ready for expansion in Africa, Middle East, Asia. I think there it is less that the small players, the small players are not active on these infrastructure projects. They are not so active on the large investment projects. They are rather in the very, let's say, local residential businesses. So we are winning market share against both, but with a little bit of different magnitude according to the market maturity.

Okay, thank you very much.

question comes from Martin Flukia from Kepler. Please go ahead.

Yes, good afternoon. Thanks for taking my question. I've got three. The first one is I'd like to get back to the topic of construction activity in European key markets where you see some improvements. Now, my understanding is that Southern European markets have fared overall better over the last, I don't know, 12, 18 months or so versus Northern Europe or Central Europe. Just wondering whether you could talk a little bit more in more detail about Germany, France and Italy when it comes to the various construction market segments, i.e. resi, non-resi and infrastructure. That would be really helpful. That's my first question. And then secondly, again, I would like to come back to what Adrian was earlier talking about regarding the race guidance on the 2024 synergies. I was hoping you could provide a little bit more granularity there, what the sources are. I realize it's related to MVCC, but whether it's procurement, whether it's production setup, streamlining, whether it's layoffs, those kind of drivers. And then finally, just a housekeeping question. on the corporate line and the tax rate for 2024. If Adrian could provide some kind of guidance on what we should expect from the other segments and activities line in terms of EBITDA. I seem to remember we were around 140, 150 million miners on that line last year. Just wondering what is a reasonable number to assume for 2024. And then also, you know, looking at the tax rate, it was at 22.4% based on my calculation in H1. Just wondering whether that's a good proxy also for the full year. Thanks so much.

Okay. Thank you, Martin. And I go into the first one, looking a bit at the three countries that you mentioned, Germany, France, and Italy, Germany being also, let's say, a bit a cursor for Northern Europe, so Scandinavia and so on. A market that is very much challenged for quite a while now and where we, as I mentioned, are focusing on readjusting our efforts towards segments where we have, let's say, a strong underlying base demand like the infrastructure. But on the other hand, also in Germany, the acquisition of NBCC has opened up a significant distribution channel to us with the PCI business coming together with the Zika business. We have realigned our distribution access towards the German market and we have established a very strong portfolio and are also taking in this very challenged market, let's say, a strong position to advance. This has been established over the last six to eight months. It has been part of our initial, let's say, synergy plans for Germany, that Germany will be elevated much more to a balanced direct and indirect market where it was before very much misbalanced. So here, these are two initiatives in Germany that helped us to create the positive momentum. Even so, market conditions, I wouldn't say are in line with that. So we are outperforming there. France is an interesting market. France has been, as you said, part of the Europe South cluster, has been performing very well, has been early on let's say, turning positive for SICA in Q2 last year. We see at the moment, friends, a little bit sideways going. That happened about mid-May timeframe. We expect this to be probably lasting until September when all these Olympic Games and the Olympics Then the other, the games are over. We see that activities in construction are reduced. Greater Paris is a celebration location, not a construction site. So we have here an impact that we see seasonal and not structural. So we expect France to come back in late Q3 and Q4 to the same momentum as before. And Italy... And then in France, maybe similar to Germany, France is a strong distribution business for SICA. And also here in France, we have initiated, similar to Germany, a direct approach towards the infrastructure, infrastructure refurbishment, which is also in France a big topic, also a big spend. And we are also there going with a dual approach, distribution and direct. with a focused approach to drive market share gains. Italy is doing very well. It's one of the countries where we have double digit growth and here It is sustainable growth. It is now also, let's say, expanding from the pure energy efficiency initiative, which was in the beginning, also into other parts. So we have here a good momentum that we build on.

Good. Martin, I'll take the other two. I guess the second question was here on the synergies and a bit of color. around them. I think as we have initially guided in terms of development of synergies that they will be at least initially more heavily related to on the one hand procurement but also other cost synergies and here top line related ones are rather smaller. That is correct. Here the 53 million are I'd say to a smaller extent here, top line driven, although we have good initiatives and also a corresponding contribution. And then I think here, the large part of actually procurement synergies have now been realized as we have quite, let's say, a good start because we were able to prepare. So if you look at sort of the 53 million, I would say roughly About 35-40 million are more material margin related and the rest is cost. Overall, in terms of the synergies itself, we have an average monthly impact of 8.8 million if you calculate this with, let's say, an increasing run rate. So that's the dynamics here around the synergies overall. On the tax rate, we had, as I mentioned, a couple of, let's say, positive or favorable impacts here in the first half. Would also anticipate a rather positive development and therefore would see for 2024 sort of a tax rate, you know, quite similar to last year, which was sort of 20 and a half percent, but so around 21% here as an estimate, obviously there's always a certain volatility here in the tax rate.

Okay, sorry, and on the corporate line, what do you expect for the other segments and activities?

Because that's quite volatile, yeah, from one... I mean, our tasks are largely driven by, let's say, the significant one-time costs. I think on EBITDA level, that was 240 million negative. I think we are obviously here much... We have much smaller one-time cost, so the first half year is actually a good representation, so it will be roughly double. I would say 170, 180 million here on EBITDA level on the corporate segment.

Thanks so much.

Next question is from John Bell from Deutsche Bank. Please go ahead.

Yeah, afternoon, Thomas and team. I've certainly enjoyed your football analogies. My question is really, apologies. My question is on the America's slightly better than expected performance. If I look at the organic sales growth number, when you think about your activities in the U.S., How can you express your exposure to both the IIJA and the IRA in relative terms?

In relative terms, they are significant investments. We are benefiting, but we should not forget that, of course, the commercial investments are very significant as a segment, as well as, let's say, the government spending on hospitals, on big infrastructures. So I would say it is an area where we have special focus on to benefit for our concrete business, for our... infrastructure business in general but and it is this is positive but it is not that we are dependent that these these activities are let's say for us decisive we take advantage also the reshoring activities are excellent activities for us as a new build but we should not forget that On the reverse side, companies investing into new construction are a little bit pushing back regular refurbishment jobs. They make it a bit more discretionary. They push them out and allocate their cutbacks to new construction. And new construction is volume-wise big spend for an excellent, let's say, revenue stream. But compared to, let's say, refurbishment spend, refurbishment spend has a much higher contribution for SICA for products, while, let's say, the structure remains. We are, let's say, fixing structural issues with our products and have, therefore, a much higher contribution. So if a company spends $500 million in a new semiconductor factory in Texas, that's great But if the same company would spend 200 million in refurbishment for SICA, that would be a multiple in potential. So therefore, yes, we want to participate where the money flows. But at the same time, it also goes in a reverse direction when it comes to the total spend, especially of private owners in the U.S. market.

Very clear. Thank you.

Our next question is from Anat Lehman from Bank of America. Please go ahead.

Thank you very much. Good afternoon. Firstly, on the financial position, the net debt, I think you mentioned I think around 2.5 or 2.6. Obviously, there is seasonality. So are you confident that you could get close to two times by the end of the year? That's my first question. And related to it, I guess, from next year, you're likely to be back below two times. Would you consider again medium or large size acquisitions? And my other question is related to one of the slides where you mentioned your total addressable market. I think you said 2023 was 110 billion Swiss francs. And looking historically, I see this number just getting bigger. I think not so long ago, you were only talking about 80 billion. So it's a 30 billion increase on a two to three years period, which is quite a lot. Is it SICA entering new markets and therefore adding potential addressable ones? Or is it largely the fact that Asia and Africa are just growing very quickly and you don't necessarily fully participate to this because you're more exposed to Europe and the U.S.? ?

Arno, this is Adrian. I'll take here the first two. On net debt, I mentioned 2.6 times. And yes, this is very much in line with here the planning and confidence that we will drive this down towards two times. This is the normal seasonality, particularly given that the dividend is paid in the first half. On the related question on acquisitions, also next year, yes, that is the plan based on continued strong cash generation that we will also, from a leverage perspective, uh be uh or should be clearly below below the two uh two times which uh again opens opportunities uh um for investments uh particularly also on the m a side i mean clearly you know bolt ons will continue to do but at the same time we also look uh here at medium-sized type acquisitions. Overall, as we normally do, have quite a good funnel here of projects, so no change in the overall, let's say, strategy and focus to really accelerate here organic growth through acquisitions.

Okay, and on the second question, I think we We have here a very, let's say, thorough exercise when we establish a new strategy that we look into the markets in a more holistic way and also reset, let's say, the aim. And we do that every three to four years. So let's say the 70 to 80 was a part of our assumption in 2018, 2019. When we look at the 110 billion, I would say probably half of the increase comes from what you mentioned, the expansion of our activities, activities which are more global, which are also within the regions more independent. I think in the meantime, we have the full-fledged value chain in all the regions available. So the markets are addressable and that has added certainly some 10 to 20 billion just from that side. And on the other hand, we also see that there is a shift in demand. There's also a shift towards, let's say, a more complex environment where salmons are no longer salmons. Salmons are blended materials. They require more additives. Construction gets more difficult. The expansion of megacities, they go vertically into the ground or above ground. This is adding potential for us. So I would say it's a structural element that we also highlight with our famous content over the last 30 years in construction chemical where we have a factor two between 1990 and 2020 and where we expect this to accelerate into a factor 2.5 or even higher up to four in the coming years because of structural needs that markets have in availability, in sustainability, recyclability, factors that are more and more also opening up new revenue streams and adding to the overall addressable market for Zika.

Thank you very much.

Next question comes from Yassine Touhari. form on field investment research. Please go ahead.

Yes, good afternoon and thank you very much for taking my questions. Firstly, a question on the recent developments. Can you give us a little bit of color on what you've seen in July? Do you see volume picking up versus what you achieved in H1? And do you see any potential improvement or deterioration in prices in the second half versus what you achieved at the end of June? And then the second question, which is a little bit more about the competitive landscape. Again, we see a lot of companies that are emulating your business model and trying to provide a solution rather than products. and entering the SICA market. And it's a big challenge. A lot of the building material companies are trying to replicate SICA. So the competitive landscape is very different today from what it was like 15 years ago. Do you see any reason for you to adjust your strategy or to develop an answer? Or how do you look at the competitive landscape and your strategy over the next cycle?

OK, maybe the first one. That's a rather easy one. You know, July has not yet closed, but of course we have an indication on the month. And I think also, let's say the positive outlook and the momentum that we have shared about the first half is reconfirmed in July. So we know what we are talking and July in these regards is a continuation of what we have seen. I think, Yasim, maybe a little difference is France. France has a bit of this anomaly that the Olympic Games have an impact, but that's not significant for us. For us, the overall momentum towards the middle of the year and into Q3 and also into Q4 is a momentum that we build on and that is positive. On the second question, the competitive landscape, It is obviously something that we notice. We see a lot of our initiatives being copied, being also, let's say, replicated. It is, of course, something we take seriously at the same time. Our recipe is just to move on, to advance. And some of the, let's say, moves that we see are quite complex moves We do have some doubts in regards how quickly and how fast this can be replicated because it takes more than just, let's say, a few slides and a few strategic moves. You need a whole organization behind the complexity that SICA is managing with 103 countries. You know, the way we steer our business the way our general managers in the countries are incentivized but at the same time also linked to the overall regional and global targets is quite let's say unique and it is very much let's say the essence of our success story that the people understand the model and when you are acquiring when you are adding things it may look great in in top line in in in synergies but you need the people to implement so here we see this we understand we love our business we we believe it is an exciting business but we want to drive further and further and here i think the the forward strategy for ck is taking market share constantly bringing solutions innovation and concepts which are unique to the market. As a leader, we have an obligation to do so and we will do so. But as the Chinese say, you know, the honor of being a market leader is that you are copied and the copies over time eventually will advance. But once they are there where you are now, you are already two steps ahead. That's our clear goal that we here do not forget. spend too much time looking into the rear view mirror and looking who is around and what's announced you know the the battle happens in the field at the customer and the customer is looking for performance cost performance solutions advice and more and more they are also looking at at less complexity, which means more out of one hand, a competent support that is fully committed to this business. We are fully committed as a construction chemical company to construction. Others still carry a lot of other things, which I don't want to comment, but this is also, I think, a structural strength that we have. Our customers, they are the customers that build construction infrastructure, buildings, or they build automotive or, let's say, industrial products. These are the focus areas, and this is giving us a lot of strength that we can leverage. The people, the segment orientation, and then ultimately, of course, also we have here a lead that we don't want to... reduce but rather expand and it is in our hands. We are spending on innovation, we are spending on the expansion and it's an underlying growth market for many years to come. The megatrends are all in our favor and we respect competition. Competition is a healthy thing per se but it is nothing where we are concerned or worried. I think we have them all on the radar and we know how to deal with them.

Thank you very much.

Next question comes from Remo Wozenauer from Helvetische Bank. Please go ahead.

Yes, hi. Hi, Thomas. Hi, Adrian. Just a few clarifications left. Did I get that right from your previous statements? Germany came back to a positive growth path in the second quarter.

That's correct, yes.

Okay. And just slightly or significantly?

It is a significant improvement, but it is slightly positive. So I hope I can then in three months revisit that answer and also say it is now significant. It is slightly positive, but we are very happy. It's an important milestone for our German organization, demonstrating that they can outperform and that they can by their own initiatives, find a way to the positive, to the black numbers on growth.

Okay, great. And then about Europe in general, EMEA showed the 0.5% positive organic growth in the first half. And is it the right assumption that EMEA, Middle East Africa, showed a pretty positive growth, while the E for Europe overall was still negative? However, with the improving outlook going into H2?

Yes and no. I mean, the 0.5% for EMEA, if we would just look at construction and deduct, let's say, the automotive, let's say, challenge that we have, the EMEA growth rate would be in construction roughly 1%. And it's correct. A little bit above 1%. Plus 1%. Plus 1%. So the Middle East and Africa and Eastern Europe are contributing more, that's clear. But we have more and more countries like Italy, now Germany also, France, that are positively contributing. We still have, let's say, in the Nordics, several countries that are not yet at that point. But overall, yes, Europe is more challenged But we are moving, we are moving in those countries as well.

Okay, so without automotive, Europe would have been, you know... 1.5%.

1.5%, yeah.

Okay, good. That's it from me. Thank you.

Thank you, Remo. Okay, I think this brings us to the end of our call. We take this opportunity as well to highlight the date of our next Capital Market Day. It will be in Zurich on October 3rd. So please mark this in your agenda. With this, we thank you for listening to our call and for your interest in SICA. We wish you all the best and an excellent summer.

Thank you. Take care. See you soon. Bye-bye.

Bye-bye.

Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you very much for joining, and have a pleasant day. Goodbye.