Sika Ag Adr

Ladies and gentlemen, welcome to the SICA 9 Months 2024 Results Conference Call and Live Webcast. I'm Sandra, the Chorus Call Operator. I would like to remind you that all participants have been listened only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcasting. At this time, it's my pleasure to hand over to Dominik Schlappnig, Head of Communication and Investor Relations of SICA. Please go ahead, sir.

Thank you, Sandra, and good afternoon, and welcome to our nine-month results conference call. Present on the call with me today is Thomas Hasler, CEO, Adrian Widmer, CFO, and Christine Kukan, Head of IR, plus Yomi Lemmermann, HR Manager. We published our nine-month figures this morning at 5 o'clock. The presentation to the nine-month results is as well published on our website. With this, Thomas Hasler and Adrian Wittner 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 nine months.

Thank you, Dominik, and good afternoon. for all joining this call. It's a pleasure to present insights into our nine-month results. As highlighted also in our morning disclosure, we have reached in many aspects new record heights as a company. We are proud of the results overall. They are in line with our expectation and with our guidance. I think starting here, On the top, with 8.9 billion in sales, 5.5% growth in Swiss francs, we have delivered according to our expectation and guidance. A lot of that coming from the NBCC transaction has also, I think, very transparently shared, but significantly also supported by the organic growth. 1% on a year-to-date rate, but with a very positive steady improvement quarter after quarter, which we regard as very significant as it demonstrates our ability in challenging times to take any moment up the chance to gain market share. And in particular, in the Americas, it's becoming very visible that if the underlying trend turns slightly positive, we overproportionately take advantage of that in contributing significant organic growth. As you have seen in Q3, this is above 4% for the whole region, Americas in particular, the North American market has been driving and contributed to that top line evolution. But besides the top line, also, of course, on the margin side, a great expansion of our material margin base from 53.1% last year to now 54.7%, a significant improvement on this, as well as, of course, on the EBITDA margin, where we moved from 17.8% to 19.1%. Also here, multiple key contributor, of course, to this improvement, and not least, of course, also the strong synergy collection from the NBCC transaction, which also led then early in the year to an upgrade of our targeted synergy expectation for 2024 in the range of 100 to 120 million for the full year. Next to that is also to be mentioned that the expansion of our footprint, the organic footprint with plants opening in Latin America in Peru for fiber, which is a strategic complimentary offering on the concrete side, which has demonstrated great potential. Also, at the Capital Market Day, we talked a lot about the fiber possibility. This expansion in Peru has to be seen as a concerted action with the implementation of a footprint in the U.S., as well as in Germany, as well as in Australia, and is a consequence of our belief into the fiber possibilities going forward, and it's demonstrated and also reconfirmed with the business evolution in LATAM in regards to this technology. Also China, I think here further investing into our distribution journey in China, but also in Indonesia, both are related to our distribution journey to penetrate further and reinforcing our activities in these key markets. These were the organic investments. On the acquisition side, Quick Bond, the bridge tech renovation company we bought in the US, a fantastic enhancement to our infrastructure offering in North America and integration is very well on track and is contributing and is also benefiting from the overall increased spend on infrastructure in North America. Right in time and a great combination with our business in North America. Then also in the Americas, the Vinaldom, this admixture company acquisition, it makes a difference in the Caribbean and it is a hub for future expansion like any other acquisition for CK. It's always a platform for acceleration of growth and penetrating markets at a higher rate of speed. Then ultimately, coming to the outlook, we confirm everything we have provided since the start of the year in February, the 6% to 9% growth in local currency. We are well on track with the overproportional increase in EBITDA, as well as the confirmation of our strategic targets that we have outlined in our 28th strategy. And with that, I would then hand over to Adrian to give some more granularity.

Well, thank you, Thomas, and good afternoon, good morning to all here listening in on our nine-month result conference call. Following our CEO's business summary and presentation of the highlights, I will now give you some further insights into the financial results. In an environment that remains quite volatile and challenging, Seeker delivered sales growth of 9.1% in local currencies in the first nine months of the year, with acquisitions as the main contributor, but also, as mentioned, an increasing organic contribution throughout the quarters. Organic growth was 1% for the first nine months, gradually increasing from 0.2 in Q1 to 1.7% in Q3 in isolation. Acquisitions, here being the residual NBCC impact, as well as quick bond and willow dom in the Americas, added 8.1% of additional growth in the period on the review. Currency effects continue to be significantly negative and picked up again in Q3, whereby reducing local currency growth by 3.6% to 5.5% in Swiss francs. The currency effect particularly driving this other weak US dollar, the euro, but also continuing Japanese yen and RMB as many currencies in higher inflation emerging markets. Overall, we saw a further improvement in organic growth, as mentioned in Q3. If we look at the region EMEA, overall growing 9%, where of 0.7% organic. Here, also in Q3, organic growth was slightly higher at 1.0%. The positive trend towards more infrastructure and commercial construction projects also in Europe continued. At local level, the Middle East, Africa, and Eastern Europe showed further growth, while gradually improving growth in Germany is still in negative territory. And the automotive and industrial manufacturing sectors are facing declining volumes due to the strong downturn in demand for new vehicles in Europe. Also here, foreign exchange effects with minus 3.3% year-to-date negative. They were also, again, stronger in Q3 after reduced impact in Q2. Region Americas recorded growth of 12.2%. So here, double-digit growth with a clearly positive and improving trajectory on organic growth. As mentioned, organic growth here in the region amounted to 4.3% in Q3, particularly in the U.S. The positive trend is here supported by government-funded infrastructure projects as well as the reshoring of production activities. But also Latin America showed a solid growth that contributed to the positive trend in the region. Acquisitions overall contributed 9.9%. of growth, primarily NBCC, as well as the recent acquisitions of Quick Bond in the U.S. and Vindledom in the Dominican Republic. Foreign exchange effects also here with a negative impact, minus 2.8% for the first nine months of the year. Sales in Asia-Pacific increased by 4.7% in the first nine months, with organic growth slightly negative at minus 0.5%. In China, we achieved moderate growth in the distribution business despite a sluggish residential market while the project business overall declined. Southeast Asia showed strong momentum with high single-digit growth year-to-date. And in the automotive business, Sika expanded its content per vehicle further with local and international automotive manufacturers in China and India. NBCC contributed 5.2 percentage points of growth, while foreign exchange impact continues to be negative at minus 5.2, but with a further relative improvement in Q3 quarter over quarter. Now moving down the P&L, where we, as mentioned, and thomas highlighted delivered a significant expansion of the material margin the first nine months with gross results expanding by 160 base points to 54.7 percent up from 53.1 in the previous year and generally declining at flattening material costs year and year as well as structural procurement initiatives and mbcc synergies led to this significant material margin expansion. And dilution effect from acquisitions on material margin level was rather small at about 20 base points. And in Q3, material margin was slightly above the previous year. Reported operating costs, which include both personnel costs as well as other operating expenses, increased slightly over proportionally to sales growth in spite of a continued strong inflation environment, particularly related to wages, which was offset by strong NBCC cost synergies, operational efficiency initiatives, and lower NBCC-related one-time costs compared to the same period in the previous year. In Q3, absolute operating cost development was largely flat with cost growth ratios further reduced. On the personnel cost side, which increased by 10.2%, an additional dilutive acquisition impact of NBCC was the main contributor. Secondly, underlying wage inflation continued to be close to 5% increase on a like-for-like basis. This was partially offset by cost synergies as well as operational efficiency initiatives overall. Q3 saw only a small overproportional personnel cost increase as a result of higher efficiencies, synergies, and slightly reducing wage inflation impact. Other operating expenses increased underproportionally by 2.8%. driven by lower acquisition-related one-time cost, synergy development, and operational efficiency initiatives. Isolated Q3, other OPEX in absolute figures were slightly below the previous year. Overall, as we have heard, the integration of NBCC continues to progress very well. We've realized total synergies in the amount of 80%. 9 million in the first nine months of 2024, well on track to push towards the upper end of the 24 synergy target range of 100 to 120 million. As a result, EBITDA increased strongly over proportionally by 13.2% to a record amount of 1.7 billion and an EBITDA ratio of 19.1% of net sales. up from 17.8 in the previous year. Depreciation amortization expenses increased by 53 million in absolute terms to about 407 million or 4.6% of net sales, here primarily due to the residual impact of NBCC-related amortization on four months in the beginning of the year. Organically depreciation amortization expenses were virtually flat. Also here EBIT increased over proportionally by 13.1% to 1.295 billion and an EBIT ratio of 14.5% of net sales. Below EBIT, net interest expense increased by $34 million compared to the same period of last year to $121.6 million. Here, the increase is largely related to the financing of the NBCC acquisition, primarily through the issuance of bonds. By contrast, other financial expenses decreased significantly by close to 83 million to result in a net income of 2.9 million in the first nine months of 24, primarily due to a hedging gain on a currency swap, significantly lower foreign exchange valuation, and also lower hyperinflation accounting impacts. The group tax rate also developed significantly favorably with a decrease from 24.6% to 21.5%, largely due to higher tax deductibility on financing, as well as a favorable one-time effect related to a deferred tax benefit in connection with a legal restructuring. As a result, net profit increased very strongly to $922.6 million or 10.3% of net sales. Also here, a double-digit ratio up here more than 25% compared to the same period in the previous year. Cash generation also continued to be very strong. with operating free cash flow for the first nine months at 850 million, generating close to 450 million of additional free cash flow in Q3, which is close to the record level of last year. Here, increased profitability, high depreciation and amortization expenses, overcompensated, modestly higher cash taxes, capex, and the normalization of the seasonal networking capital patterns. Lastly, net debt to EBITDA leveraged stood at 2.4 times, which is 0.2 turns lower compared to June this year. With this, I conclude my remarks and hand back to Dominic to kick off the Q&A.

Thank you, Adrian. And we are now opening the line for your questions. Please.

We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press star and one on the touch-tone telephone. You will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question and eventually turn off the volume of the webcast. Anyone with a question may press star and one at this time. Our first question conference today is from Morgan Stanley. Please go ahead.

Thanks very much. Hi, everyone. Just two questions. On the North American business, we understand that there might have been some weather impacts to construction activity in the third quarter. Would you have said that you saw some impacts from a weather perspective? And if you did, is there any way to think about what a more underlying level type of growth was in the quarter? Because it was very impressive. And then if you can just talk about how we should think about that division into the fourth quarter. I think the comp's easier in the fourth quarter. Who knows if we get weather issues or not. But is it fair to assume, based on what you're currently seeing, that you could actually have another sequential pickup in growth in the fourth quarter and maybe even closer to 10% considering the comp? Thank you.

Good. Thank you, Cedar, and let me become the weatherman for North America. I would, you know, we refrain from using weather only if it is really something extreme, and it rather applies to local condition and the U.S. as a huge market. Of course, we had, let's say, the hurricanes in Florida, and they were some disruptions there, but nothing significant, nothing that really has, let's say, moved the needle at all. And of course, also going into the fourth quarter, unless we have huge blizzards that are, let's say, bringing down half of the US also there, the weather is part of the seasonality, which is part of, let's say, a good predictability, how the Q1 to Q4 are evolving. So I would really refrain from using weather as an influencer, and certainly not this year so far. I would say it is within the range. So the Q3 performance, and rightfully outlined by you, is a stronger performance. It shows that that not only on the infrastructure side where we are benefiting from the increased spending on the IRA bill, but also on the reshoring activities we are gaining there. Overall, when you include residential, probably the whole construction still not being positive, but for us, let's say in certain segments already having A bit of a positive momentum accelerates immediately. And also rightfully, looking into the fourth quarter, yes, we are positive. This trend is not, let's say, a seasonal one. It has built up over the last three quarters, and we don't see a break in that trend also going in Q4. So we will see to what level we will achieve that, but we are optimistic about the Q4 in North America. The only caveat I would make, and that's a bit given to the election in the US, we have seen in the past, there can be wild times in the US, which has a possibility to stir up things. We don't expect this. This seems to be a more regular election than maybe the prior two. But other than that, the business is going in the right direction. Our ability... to accelerate with our strong, let's say, resetting with the NBCC integrating. Everything is ready for future growth and we capture that growth. Even if it is small, we double or triple it with the increased, let's say, competitive offering and the footprint that we have now in North America. So I'm very optimistic. But as I said, the election is something I wouldn't predict the outcome first and foremost, and then, of course, also the aftermath. But it's not the weather. Actually, it's nothing that really... It gives me concern about North America. It's one of the pleasant evolutions where we see, you know, the investment into making the organization future-ready is working very well, and the traction we have is delivering.

That's great. Thank you so much.

The next question comes from Rayon Wolfe from Jefferies. Please go ahead.

Hello. So I've got three questions, please. The first are a follow-up on North America. So the first question is, I think you said previously, selling into a lot of these onshoring projects, it's really the stuff that goes in later that benefits you more, like roofing and flooring. Is that something that has shifted quite a lot going into Q3, as in are we getting to the later stages of those projects? Is that what's contributed to this big step up, or is it still just some of the earlier stage products? The second question is just you've talked about wanting to be more flexible with pricing on big projects. I just wondered, again, did that help at all in that America's division in Q3? And then the last question, you've talked a lot about gaining market share. I just wanted to check, is that broad-based across all divisions, or is it more an America's theme? And what is that data based on? Is it the same sort of seven to nine players you discussed at the Capital Markets Day or something else? Thank you.

Okay. Maybe on the reshoring activities, you have to see that this is not limited to the roofing and the flooring. We consider us a key player on the concrete side as well, which is very much the first component The first part of the construction is, let's say, the underground and is the foundation. And that's a key element. It is also very important to be early on the projects in the planning phase. And it starts, let's say, with the concrete. And then it moves, of course, then with the installation, with the roof and the floor. And then later on, of course, also then being part of the manufacturing process. So this is also not to forget that later on we have repeat business projects. When it comes to batteries, when it comes to e-mobility, this is also. But it is not, let's say, back-end loaded. It is actually from the very beginning of these projects that they are generating for us opportunity. And that's then also maybe linked to your second question. These big projects are for us. of course, also great opportunities for upselling. Once you have the foot in the door, then you can also then being close to the main contractor, to the specifier, you can then penetrate more solutions. So strategically speaking, when we talk big projects and we say, we want to apply also here strategic pricing, we always look at the total project potential and then what is the lever to open this potential completely up to us and that may then also flexibilize some components that go in there to get the food in early on and penetrate and upsell during the build phase of the construction. Not to forget, on such a production site, every day there are needs for solutions. Every day you have opportunities to continue to upsell and penetrate And therefore, to be early on is super crucial, being present on these large sites. And then at the end, we can pretty much predict the full potential and make them the smart, let's say, entry door decision in case needed for smart pricing. That applies not only in North America. This is a universal approach that we take in looking at these big projects as holistically and not component by component. And then ultimately on the market share side, and of course we have not yet seen the reportings from others on the nine month, on the Q3, but our reading and our expectation is what we have shown at the capital market day, the spread in the first six months is going to enlarge. We feel that we have more momentum there, but let's say the verdict is out, we will gather, we use this, let's say benchmark that we're also using to benchmark our company overall. That's also outlined in our annual report. This is a good thing to compare ourselves, not only on the financials, on the growth and on the profitability expansion, but then of course also on the market share. We use this also in the coming months and we will compare, but our expectation is very clear when we then have to choose three numbers in that here, Our growth that moved now upwards will probably outperform the peers in Q3 again.

The next question comes from Martin Flueckiger from Kepler-Chevreux. Please go ahead.

Good afternoon, gentlemen. Thanks for taking my question. Actually, three, sorry. First one is if you could provide a trading update for October and if you could also talk about your expectations with regards to the growth drivers, the organic growth drivers in Q4 by region. That would be my first question. The second question is, if I calculate correctly, your EBITDA margin in Q3 was actually down year over year. It was up on the nine-month period, but based on my calculations, correct me if I'm wrong, they were down. So I was wondering whether you could explain that, firstly, and secondly, how we should think about the EBITDA margin in Q4 versus Q3. And then my third question is on the automotive business. I understand the current market situation in the automotive sector, but I was just wondering how you experienced organic growth in your automotive business in Q3 and how that compares with your performance in the first half. That's it for me. Thanks.

Okay, I take the liberty to answer the first and the third and then leave the middle question to Adrian. When you look at the quarterly evolution of our regions, and of course here America stands out with 4.3% organic growth, Also, please have a look at EMEA, which is moving from 0.4 to 1%. So the direction is also going in the right direction. And when you look back where Americas was in Q1 and Q2, our expectation here is also that it further accelerates. Really, as much as Americas, I think here, let's say, the stimuli are not as strong, but the trend is positive. And also connected with your third question, It has to be noted when you look at EMEA, consider all that this is now construction and industry combined. In the past, we had EMEA separate from global business, and this makes this year quite a difference as the automotive, let's say, reduction in build rate is mainly happening in Europe. We are facing here a demand dilemma with the confusion about the electrification, the demand the subsidies that are, let's say, running out. And so we have here, let's say, a situation where actually demand would be there, but the incentives are not in place and the backlog is rising. But the build rates, factually speaking, are moving rather to one million less cars produced. If we would incorporate that or exclude that, the The growth of EMEA of 1% would be quite a bit higher as when you look at the total industrial change in organic, it has been minus 4.2 for the quarter three and construction is up 2.7. So this gives you a bit of flavor that the combination in EMEA is a bit more impacted. The other two regions are less or not impacted there. You don't make a big difference. But it does really matter. The million cars left produced in EMEA are, let's say, on the organic growth traction in EMEA to be considered. So this 1%, overall, we consider a good progression. And we also expect here the momentum to continue. We don't see any reversal. And when... looking into asia pacific here in asia pacific even so let's say the quarter by quarter evolution is more flatish or slightly negative clearly driven by the direct business in in china but also there i think with the recent measures with the massive investment and the money flowing into the residential and into the stock market I think here we don't see yet impact, but I think the Chinese government is also similar to the U.S., let's say, accelerating their programs to stabilize and to further vitalize the business. And sooner or later, this will then also lead to underlying growth, and therefore also for Asia Pacific, with China being Most challenged, but I think also there, the look into Q4 and into further evolution, my confidence is high that these measures will also stabilize and provide then again for us ground for further organic growth.

Good, then I'll take the second one. And here, Martin, yes, of course, your calculation is absolutely correct. Maybe a bit of color there. I mean, firstly, here the difference is 20 base points. And at the same time, Q3 was actually historically a very, very, last year, a very, very strong quarter overall. And overall, I think we're managing quite well here on the cost base overall, given the continued inflationary pressure, particularly on the wages. This has come a little bit, but it's still very close to, let's say, 5% underlying on a like-for-like. So we're managing here on the efficiency side, also here the synergies contributing overall also vis-a-vis top line growth still in an environment where we have a certain negative leverage but clearly here improvement and the cost progression overall actually going in the right direction here in Q3.

The next question comes from Pierre from Goldman Sachs. Please, go ahead.

Hi, everyone. Two questions, if I may. The first one is I'd like to come back to potentially the September and October trends you've seen across your regions. I mean, organic has improved nicely quarter after quarter, just to get a sense of how that's tracking into the fourth quarter. And maybe it's early days, but, yeah, early expectations are relative to your 6% to 9% target into 2025. Second question would be related to the gross margin. We've seen a very nice expansion over the past two years. But 3Q, I think, marked the first sequential deceleration, so around 54% compared to 55%. It feels that pricing is stable. Romats are probably stable or down. So I was wondering how much of that was related to some of the large projects, maybe cross-selling strategy, and the rest, if you can provide color, would be very appreciated. Thank you.

Okay, I think from a going rate, I wouldn't make a big difference between, let's say, Q3, September, and now October, where there is nothing magic happening between September and October, besides that we changed the clock, but I think it is No, I repeat myself. I think the momentum is predictable quite to a large degree, and we also see it now as we start the Q4. I think also Cedar commented on it. We have here expectations. We have comps. So we feel confident that the continuation in Q4 is absolutely possible. in line with our expectation. Going into next year, six to nine percent, that is the overall growth commitments that we stipulate in our strategy. I can't see any reason why this shouldn't apply in 25. We are going to formulate, let's say, our guidance in February, when we then take, let's say, all elements in. But at this moment, I mean, it's to me one element that makes us strong That's our commitment overall. Of course, it will be calibrated. It will be reviewed. But at this point, I must say, no discussion to deviate from our long-term targets. But this will be then, let's say, refreshed and then also shared in regards to our expectations concrete guidance for next year in the February full-year call? On the material margin.

Yeah, I mean, maybe on the material margin here. And, I mean, broadly speaking, I would clearly say this has also been in line with the expectation. Also, what we have guided for that from, let's say, a seasonality point of view here, the second half is typically lower than here, the first, and I think that was the case. There is, of course, always several elements playing into this. We generally still also have on the input cost side here, it's particularly, let's say, the sea freight side, which is quite a bit higher, so there's quite a few elements here playing into it, but nothing in terms of a major shift or deviation in terms of the overall material margin development, so this is quite in line with what we have also guided for previously.

Great. Thank you very much.

The next question comes from from HSBC. Please go ahead.

Good afternoon. I have two questions as well. I think the first one is on North America. Thomas, you talked about things moving nicely and picking up. If you say that you were involved from foundation to flooring and roofing as well. the opportunity is quite huge and we see that how the pipeline is building up across North America. So when you think about in the medium term, what's the growth potential for North America business? Is it mid-single digit, high-single digit, anything you can just give a color where you think the business has the potential to deliver in a sustainable basis in the medium term. Then the second is on the EBITDA margin and So kind of a question about gross margin for this year or at least Q3 or into Q4. When you look into 2025, how should we think about EBITDA margin? Will it kind of at least go beyond the bottom end of that 20 to 20, 23% EBITDA margin guidance to 2028?

Okay. Let me start with the first question. I think North America is, you know, when you look at the underlying elements and at the moment it's, let's say, infrastructure, it is the reshoring, but we should not forget North America is a growth continent. It is offering us market share opportunity gains. It is a market that will also on the residential side sooner or later gain traction. I expect also the interest rate to to further come down. You know how soon, how quick, but underlying North America is a solid market with underlying growth potentials that I would say are above the global average. And therefore, our ambitions also, of course, to outperform is also built on leverage our strengths in North America and generating their substantial growth. And substantial growth is a higher single-digit growth. Not, let's say, like maybe emerging markets where we expect double-digit growth, but significant growth for a mature market, definitely. outperforming underlying market. That's the mid to long term. Now, how much of that will realize in 25, as mentioned here? Interests play a role, underlying the infrastructure spend. Just keep in mind that of this trillion of infrastructure bill, only one-third has been funded, which means one-third is now allocated. Some of that is actually but it's, let's say, the smaller part, but this will constantly generate business opportunity in the coming years. This is something that will probably fuel incremental volumes for the next three to five years just by the sheer size and the relevance for us. And then what was the other credit? EBITDA. The EBITDA, we have a clear commitment to reach the 20% to 23% by 26. And our aspiration, again, we will then outline in our guidance call from February upcoming. But I guess it's no surprise that the famous word for CK is overproportional. So... not making a commitment, but probably a suggestion in which direction it goes. It will start with over something, and it will be more quantified than probably in February. But that's the clear aspiration overall that we have.

Okay. Can I ask a supplement question to Adrian? On this... other operating costs, how do you see Q4 evolving? Will that be similar to Q4 of last year, or more like looking like a sequential movement will be similar?

Yeah, and here, in terms of, let's say, the underlying inflationary trend, we'll probably not see sort of a major change there. There's probably, you know, a further slight relaxation, and we will continue to drive here our initiatives, particularly on the efficiency side. We will also see additional synergies, and here I would expect that, you know, the direction will continue, which we have seen here in Q3.

Okay, so it's basically here on your basis there will be slight increase, but nothing major.

On the cost side, yes.

Other operating costs. Yes. Okay. Fair enough. Thank you.

The next question comes from Ephraim Ravi from Citigroup. Please go ahead.

Thank you. Two questions. Firstly, could you break out the miners' 0.2% constant currency kind of decline in Asia Pacific? How much of that was China? And just to kind of get a sense as to how strongly the rest of Asia, especially India and Japan and Southeast Asia are growing, because if China is half the business, it has to be down at least 2% for the overall business to be down a little bit. And secondly, looking again into 2025, I mean, you've got QuickBond and Vinaldom, which are probably, you know, in aggregate 100 million sort of businesses at best. And so the inorganic part of your 68% growth seems a little bit stretched from that point of view. So again, how confident are you about organic growth pick up into the next year to kind of meet that long-term target. Thank you.

Okay. Let me start with the second one. Of course, I mean, the 6% to 9% is a combination, and it's correct. What we have disclosed so far are these two transactions. We are working on other transactions as well. We can't, of course, share any of that, but this will also then play into our guidance for next year. On the organic growth side, I think it's pretty obvious that we are optimistic that the trend that we have generated in the past quarters is also to continue. I mentioned, besides North America, also the positive momentum in EMEA, very much challenged the region in the past, but moving clearly in the right direction, positive To your question on China, or let's say Asia Pacific, yes, the impact of China is significant. And here, the direct business, the direct construction business is in a double-digit decline, still in a double-digit decline. And our distribution business that has been always, let's say, equalizing that in the past year, is still growing but lower single digit, which then makes, let's say, for the rest of the region more difficult to provide a positive organic growth. The rest of the region, which is half of Asia Pacific, we have good momentum in Southeast Asia. We have a moderate growth in Japan. We have good growth in India. So I would say in line with where we come from, but I think the Chinese impact should not be underestimated, especially on the direct side. It's still significant. And here we also expect, and with these measures taken, that this may come then also slowly but surely to a soft landing and then may create also next year new opportunities. Thank you.

The next question comes from John Bell from Deutsche Bank. Please go ahead.

Yeah, afternoon, everyone. I think I've got three. Firstly, could you tell us about activity levels in the water segment at present? The second one is probably for Adrian. I'm not sure whether this is written down anywhere, but could you give us the one-time costs for MVCC in the third quarter, if there are any? And the third one... Around about a year ago, he did a fairly major reshuffle of the management team. He talks about that quite a bit at the CMG. How do you feel about that a year later? Is that process now gone, and have you seen some tangible benefits from that? Thank you.

Okay. Let me take the first and the third one on the water management. I think we have highlighted that over several years to the outside. even much more to the inside, of course, as we walk the talk. And it is fantastic to see, you know, this is the, let's say, the potential even in challenged markets that investments in refurbishment of the water treatment facilities in mature markets, but also in emerging markets, the expansion of new facilities offers us a great opportunity leverage potential because here the uniformity of the needs of the portfolio, we have everything for those markets and this is a clear area where we can drive, let's say, even in challenge market growth. For instance, in Europe, the initiatives, when residential are soft. Shifting in this gives us an agile approach to offset some of the market declines. And that's what takes place. That's clearly not only since yesterday, this is now for several years, a clear call for action. It's a fantastic, let's say, area, just like the road infrastructure, renovation, tunnels. They are all contributing by themselves. They are significant. But if you take more activities in there where good life exists and good growth potential is, this helps also to generate organic growth when markets are still soft. What was the third question? The management rotation, yes. A year is a long time. I think you have some. Some introduction, you know, all three are very senior managers, more than 20 years of experience. But again, you know, we are not in a restructuring. We are changing a very successful company regions. And so a cautious approach with very competent teams in place. But once the leader is changed, you have some new angles to look at this. And it's fantastic to see, for instance, how Mike, as an American going back, let's see, into the Americas with his eight or nine years experience in Asia, is now also bringing new elements in. And we see that also in Latin America with an increased focus let's say, on different segments of distributions. And we also see it in the US and in Canada, where he brings, let's say, his knowledge from Asia that drives the organization to excel. Similar, Christoph, with his very energetic management style, you know, has been well received. We see the organization likes his clarity and he's very demanding but also very supportive. So the organization EMEA really fully up to this agile and very growth-oriented mood. So that's well received. And then also Philipp in his role in Asia Pacific. It's just a pleasure to see how well they have arrived and how well they are enhancing an already strong regional setup with their, let's say, knowledge gained across the organization. So I would say that move is one of the key moves also for strategy 28, kind of going beyond the expected means also, you know, reconsider things that go beyond the ordinary. And this is, This is very much the theme and the drive of the three-region management. I would say the whole group management. I think I'm very proud of the group management and the senior managers to open up to new business models, to new business opportunities, and always calibrating, of course, then to the most meaningful, impactful one, providing shorts to mid-term results.

And then I think the... Yes, on the Q3 integration and M&A cost impact in Q3 isolated, this was 7 million.

Many thanks. Thank you very much.

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

Yes, thank you very much. Maybe your first question on foreign exchange. When I'm looking at the currency evolution, it looks like you could have, again, a headwind of maybe 3% to 4% or maybe a couple of percent. Sorry, a couple of percent next year. Is that correct? Based on the current spot rate. That would be my first question. Secondly, when we think about the pricing next year, so this year pricing was relatively subdued. Do you see a more normal pricing environment of like low single digit price increase next year? Or do you have any indication of what could be the discussion with your customer? And third question on leverage. Do you have a view of what could be approximately your leverage by the end of the year? And also, could you be comfortable ramping up a little bit your bolt-on strategy in 2025? to drive more growth?

Good. Let me start here. Probably it's the most difficult question on the foreign exchange. I would love to give you a prediction. Obviously, if you do this from today's standpoint, yes, there could be a bit support but of course it is very very difficult to break currencies and I would say historically the Swiss franc has always been strong I don't necessarily see here a different picture and what I think one can say is that probably volatility will remain and obviously we're acting according to this but I think it's the definitely a bit too early to give a prediction on 25 foreign exchange rates, although we see particularly here where we had a big negative impact on less aviation currencies, at least here an improving trend. And then maybe on leverage, I mentioned the 2.4 Here the expectation is that this will be going further down closer to 2, maybe 2.1 around there. That is sort of the overall, I'd say, expectation for year-end.

On leverage, just for a level you would be comfortable with, for next year would be something below two times, a level at which you would be ready to go back to mid-size acquisition.

Here on the M&A and the bolt-on size, I mean, let's say, including sort of a normal... sort of level of bolt-ons, which is resulting here in sort of 1.5% to 2% of top-line impact here. I mean, we would be looking at, let's say, a further deleveraging, probably by about half a turn, which also indicates that, of course, there is here on the financial side flexibility for more bolt-ons, and this is anyway not – let's say, a number that is costing in stone. It's an element how, let's say, strategic growth is built up. But of course, we are having quite an active M&A pipeline. We're also driving a number of projects here. And yes, to the extent there is a mid-sized one that makes sense. we will clearly have the ability to do this from, let's say, an organizational perspective as well from a leverage perspective.

Okay. Then maybe on the pricing, here I would be very clear. The times are over where we talk about annual pricing expectation. I think the wild trend is clearly demonstrate these days are over. These were the 2011 to 2019, where this was more regular and normal. Nothing is normal at this point. We have constantly changes. So adaptive pricing is here the key. It's correct that the moment we have a relatively stable environment, but then all of a sudden logistics costs are spiking. some commodities have for whatever reason. So I'm refraining here also to give guidance because here the guidance very clear is that we have to have adaptive pricing in place and we do have that. And so we review our situation constantly and we have an excellent, let's say, also a tool in place, an internal tool in predicting the near future and also signal then to the organization specifically the momentum by product group, by geography, and then take early measures. So this really is misleading because this is no longer as predictable and it is actually harming organizations that are too, let's say, much into long-term prediction when actually short-term adaptions are much smarter and wiser to not be surprised by evolutions on the input cost side. So pricing is an everyday topic for every senior manager, but we have tools in place that give us quite good confidence, visibility in the coming three, four months. That's more than enough. That's what we're utilizing for project pricing, for list pricing, for That's a different mode of operations than, let's say, five years ago.

Thank you.

The next question comes from Elodie Rall from JP Morgan. Please go ahead.

Hi. Thanks for taking my questions. So the first one is, sorry to come back, on gross margin and the set weakness that we've seen in H2. I know you mentioned seasonality, sea freight rates increasing, but I was wondering if there isn't a negative impact maybe coming from the automotive or industrials or China exposure on top of the seasonality and what kind of gross margin expectation you plan for 2025 that's still between 54% and 55%. And my second question is on the M&A pipeline. I was wondering what kind of multiples you're seeing at the moment, margins of the businesses out there, and how quickly you think you could improve these to seek out a role should you be a bit more aggressive on M&A. And then last question is on OPEX and early views in 2025 with regard to personal and SG&A costs, please. Thank you very much.

Okay, good. Well, thanks, Elodie, for the question. I mean, going back here to the growth margin side, as mentioned, I mean, there is obviously always a number of here impacts. You have a certain volatility on many fronts. There's also different markets, but there is nothing which is, let's say, fundamentally changing or deviating from, let's say, the view that typically here in the second half year. Yes, they are. a bit lower than in the first due to seasonality and here there is also let's say no deviation from let's say the overall view that we are here sort of well within that range and this is also the target here for next year to be well within the 54 to 55 percent range overall whilst let's say working on all the other pockets here driving here our profitability. And here, let's say, the OPEC side, particularly relating to operational efficiency projects, remain in place, I think, in terms of, let's say, giving a guidance on underlying, let's say, inflationary element in OPECs or overall cost development, obviously, depending here on a number of factors, but at least according to or in relation to wage development, I would rather see a somewhat lower pressure compared to, let's say, the last two years on wage inflation. But that also here still remains to be assessed in a bit more detail overall. And I think on the M&A pipeline or our activity, I can say, again, we have quite sort of an active year pipeline. It's an overall very active process where we quite specifically look at several opportunities where it makes sense. It's then also a consideration what the value and the related price we're You're paying, I think, where we're not seeing issues to generate value at, let's say, the prices we offer. But this is a very project-specific topic relating to the impact. you know, such a specific acquisition will have. But here we continue to be quite, you know, active on pursuing, you know, several potential transactions.

Thank you very much. The next question comes from Christian Arnold from Stiefel, Schweiz. Please go ahead.

Thank you and good afternoon. Sorry to come back again on cross-margin, but from today's point of view, I mean, Q4, is it fair to assume that it will be kind of similar to Q3, which then brings us to more or less the midpoint of your target range of 54 to 55? and going into next year would be also fair to assume that we have again this kind of normal seasonality that the best guess today would be to be again somewhere in the midpoint of that range that would be my first question the second one would be on the synergies you commented that you had 89 million in the first nine months, well on track to reach actually the higher end of your 100 to 120 million range. What does this imply for next year? Would it be fair to assume that you also will be at the higher end of the 140 to 160 you are aiming for next year? And the last question would be on the momentum. Thomas, you mentioned that, yeah, you assumed this positive momentum. We have seen that we will continue. Is that also from a, let's say, relative regional point of view, meaning that the Americas would be the growth driver so to say outperforming the other two regions followed by emea followed by asia pacific thank you very much but i'll start here with the and with the synergies and yes we're well on track we also

said here that this is particularly here an element of timing that we're making very good progress, but we will also specifically then address the synergy guidance for next year when we give broader guidance for the year in February. But overall, we remain very well on track. And then maybe again on the material margin, here I think we're sort of, you know, well within that range of 54 to 55, which I think as we have always said, this is, you know, for us a guidance. It's not a religion, and it is where we, you know, see, you know, here the broader business playing, there is a bit of volatility due to seasonality and other factors, but I mean, we're clearly here driving the overall bottom line in terms of over-proportional growth, and this is an element which is important also eternally to steer, but less of, a target which is really very much to the point and has some fluctuation.

Good. And Christian, to the growth drivers and the regional differences, I think building trust means SICA is predictable. We talk the walk. We guide it at the beginning of the year and we have repeated and repeated and we deliver according to our commitment and our guidance What is underlying there are the trends that we are communicating and that we are reconfirming. And so when I'm positive about the outlook and the future, reading the signs that you are reading the signs are absolutely correct. You know, the growth driver or the trends in the Americas are expected to continue. The positive momentum also in EMEA will continue. That's an expectation. And Asia Pacific, you know, also there we have seen Asia Pacific has in past years been a growth engine by itself and it will come back as a growth engine. How fast, how quick, we will see. But we are very much into trend reading and then bringing that in a consolidated view to you and share this. But it is all based on underlying, let's say, momentum in the business. which clearly indicates that Q4 and also going into next year, America's will be certainly on the upper side, EMEA probably in the middle, and Asia-Pacific a bit on the lower side. But ultimately, all three of them, especially America's EMEA, are on a very good traction. And as I mentioned before, Asia-Pacific, no concern, because underlying, this is the future market. Asia-Pacific has a huge construction market. output. It is the leading automotive region. More than 40% of the cars are produced in that region. So, Asia-Pacific is relevant, and the Asia-Pacific will also find back to its, as an economy, into growth traction. It's a growing population. Every megatrend is hit in Asia Pacific. So absolutely no concern, but we are reading the signs and we translate and yes, we communicate. And that's why, yes, we are confident that the near future will continue as Q1, Q2 and Q3 has evolved. We don't see a disruptive element in there. And so it's giving us the confidence for the close of the year and then also into 2025.

Thank you very much.

The next question comes from Arnold Lehman from Bank of America. Please go ahead.

Thank you very much. Good afternoon. I have three questions left, if that's okay. Firstly, on the Americas region, the 4% plus organic growth in Q3, would you mind giving us the standalone for North America or for the U.S.? ? Has the U.S. done better or worse than the 4%, I guess, is my question. The second question is the overall 1% organic growth you've delivered year-to-date. Could you give us a bit of color by products? I appreciate your report by region, but could you give us some colors about mortars, the adhesive, the admixtures, the coating, et cetera, which products are better than one and which products are below one? And lastly, I think, Adrian, in the introduction, you mentioned some gains on currency swap and accounting for inflation. Would you mind giving us some numbers, some quantification of these effects? Thank you.

Okay. I start with the Americas question, so 4.3% in Q3. And here, no secret, the U.S. has overproportionately contributed to that. I would say significantly has contributed. Even so, Latin America is also solid in growing. But here, the U.S. momentum is clearly above this 4.3 going rate. Very clear, yes.

Then here on my comment on the financial expenses, as you know, let's say our financing is a combination of Swiss franc bonds and Euro bonds. On the one hand, Euro bonds due to market capacity, but also initially in relation to the underlying currencies of the NBCC acquisition we have now, obviously progressed well on the integration, which also includes legal integration and the funds flow. So we're swapping a larger part of the Euro financing into Swiss franc, which still shows me with the Euro bond interest on the interest line, and then a hedging gain on the swap. Here, the impact on a year-to-date basis in terms of effectively

lowering interest cost is is about 30 million three zero and and any common by product please okay we don't we don't go down to that granularity level as as you know this is a mixed target markets regions and we don't we do not I mean, we have the industrial and the construction outlined, and that's as far as we go down as we feel it's misleading and not helping, really.

Understood. Thank you very much.

The last question for today comes from Martin Flukinger from Kepler Chevrolet. Please go ahead.

The mic. Thanks. Thanks for taking my follow-up question. Just on the EU Commission's investigation that, if I remember correctly, started a year ago roughly on price fixing in concrete, if I remember correctly. Can you provide us with an update, what's happening there, what you've been seeing, how the whole case is moving on? Thanks.

That's a great question to close the call. This is a matter that we take very seriously. It's an ongoing matter. There's nothing new to report. The investigation hasn't yet begun. even reach, let's say, an advanced preliminary stage. So this is very time consuming, and we support these activities with all the means. We support fair competition in the market, but we have nothing new to disclose. This may take years until we have here something to share, but fair competition is a key criteria for free markets, and we contribute and we collaborate with the authorities. But I can't share anything else than that. It's an ongoing procedure.

Thanks.

Okay, thank you very much. This brings us to the end of our call. We take this opportunity as well to highlight the date of our sales results communication. This will be at January 9th, 2025, when we have this. And with this, thank you very much for listening into our call and for your interest in SICA. We wish you all the best for the rest of the year. Bye-bye.

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