Sika Ag Adr

Ladies and gentlemen, welcome to the SICA 9-month 2025 results conference call and live webcast. I am Matilde, the course call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Dominik Zlapnik, Head Communication and Investor Relations of SICA. Please go ahead.

Thank you, Matilda. And good afternoon, everyone, and a warm welcome to our nine-month results conference call. Present on the call today is Thomas Hasler, our CEO, Adrian Wittmer, our CFO, Christine Kukan, head of IR, and Yomi Lemerman, IR manager. We are excited to share with you the highlights and key messages for the nine months. Earlier today, we published our results and made the investor presentation available on our website. With this, Thomas Hasler and Adrian Widmer will provide further details on the results and the outlook. Afterwards, we will be ready to take your questions. I hand now over to Thomas to start with the highlights of the nine months.

Thank you, Dominik, and also from my side, a warm welcome to this afternoon call. And let me... quickly summarize the publications of today and some highlights underlying that we would like to share with you this afternoon. Zika has delivered a resilient performance in the first nine months in a market that has remained to be dominated by uncertainty of various kinds. We have been able to increase our sales by 1.1% in local currency, despite a heavy impact from our China construction business with a double-digit decline. Also, this year, we are facing an unprecedented foreign currency impact. It's almost 5%, primarily due to the weaker US dollar. But let me summarize a little bit our regions. And here, starting with EMEA, EMEA has seen for the whole year so far a very nice double-digit growth in the area Africa and Middle East. This is in line with the trend we have seen from last year and it's strong also to continue. At the Eastern Europe business, we see green sprouts of growth. Eastern Europe is moving back to growth. It's mainly coming from the residential, so from the retail side, but it is clear this has picked up in pace and will also support the future evolution in EMEA. The region overall has reached 1.5% organic growth in the first nine months. America, on the other side, offers huge opportunities in the U.S., Here we are collecting every day data centers opportunities that are unprecedented and growing and are not impacted at all by the uncertainties that are influencing other segments. The data center business has become a cornerstone of our direct business in the US. Just similar to our infrastructure business, which is doing very well in the US. Also here, we see more and more the impact of the Infrastructure Act that is delivering us opportunities from the east to the west coast. We also see that the US currently has some uncertainty that holds back on the reshoring. But here, plenty of these projects are ready to start And we are also expecting that soon there will be more clarity and then production or construction stock can start soon. We also see in the mature market of North America, a huge backlog in refurbishment, which is an opportunity to come soon, as this backlog cannot push out very long. When I come to Asia Pacific, this is the region which has been most challenged, mainly influenced by the decline in our China construction business. If you would take the China construction business out of the equation, actually the region Asia Pacific would have been the region with the highest growth, organic growth of around 4% in local currency. This comes from Southeast Asia and India with high single digit growth. But as I mentioned, The China business is challenged and also we have taken here decisive measure to take here the margin and profit orientation of the volume orientation. But let me now move further into the P&L. And here I would see the material margin increase to 55%, a significant demonstration of the synergies that we have been able to further increase from the MBCC and other acquisitions, efficiencies in our operations, and also a good cost management on the input cost side. This has also then trickled down to the EBITDA margin, which has rise by 10 base points to 19.2% compared to prior year. Also here, The bottom line impact by the ethics is quite significant. It is almost 100 million when we look at the EBTA alone. As mentioned before, we are taking decisive actions. This is in line with our manage for result key principle. We introduce our fast forward investment and efficiency program today, which builds on our leadership position. It will enhance customer value. It will improve operational excellence through digital acceleration and therefore drive growth and profitability in the future. This program is built on a few blocks like investments of 100 to 150 million in the coming years. It is also coming with a shorter term oriented structural adjustments in markets where we see ongoing weak momentum here the China construction most pronounced, where we are making adjustments which come with one-off costs of roughly 80 to 100 million in 25 and the workforce reduction of up to 1,500 employees. The program overall will drive annual savings of 150 to 200 million per annum with the full impact become then implemented in the year of 2028. But now I hand over to Adrian to provide us more details and flavors to the financial nine-month performance.

Thank you very much, Thomas, and good afternoon, good morning to everybody attending. After Thomas' highlights, I would like to now put additional insights here to the financial results. In a market environment that remains challenging, as we have heard, we have achieved a modest sales growth in local currency of 1.1% in the first nine months of the year, driven by acquisitions, while organic growth was flat year-to-date, owing to a minus 1.1% decline in Q3, driven by China. Without China, organic growth year-to-date in local currency was 1.7% or close to 3%, including acquisitions overall. Acquisition growth primarily came from the initial contribution of the five transactions we have consummated this year including some residual impact of last year's bolt-ons, overall adding 1.1% of additional growth in the first nine months of 2025. Sales were clearly adversely impacted by foreign exchange effects, especially as mentioned related to a weak US dollar, but also the RMB and the general strengthening of the Swiss franc. Overall, adverse foreign exchange effects reduced local currency growth by 4.9 percentage points in the period under review, with a Q3 impact of minus 5.9%, slightly improved from a more significant impact in Q2, but still above the overall run rate. Corresponding growth, therefore, in Swiss francs was minus 3.8% for the first nine months. In looking at regions, region EMEA showed a similar Q3 trajectory as in the first half year, growing 2.1% overall, 1.5% organic, and 0.6% through acquisitions. As Thomas has highlighted, business performance was particularly strong in the Middle East and Africa, where we recorded double-digit growth, but also with a good momentum in Eastern Europe. Here, foreign exchange effects at minus 3.3% year-to-date remained unchanged in Q3. Sales in the Americas region increased by 2.9% in local currencies, while Q3 growth was in line with Q2. Overall year-to-date organic growth was 0.8%, while acquisitions continued to add 2.1% of growth in the period under review. While the business year got off a good start, U.S. trade policy measures triggered dimensioned uncertainty in the markets and slowed down momentum. While this caused Seeker's growth in the U.S. and Mexico to soften, performance remained solid in Latin America overall, but also in the U.S., as highlighted by Thomas, some strong momentum in several areas. Here, adverse foreign exchange effects were most profound and reduced local currency growth by minus 7% in the region in the first nine months, driven by particularly here the strengthening Swiss francs against the US dollar of more than 10%, starting in Q2, but also the devaluation of the Argentinian peso. Sales in Asia Pacific declined by minus 3.9%, while organic growth was minus 4.3% for the period. This result is mainly attributable to the challenging deflationary market environment in the Chinese construction sector, for which we're focusing here on protecting our margins and driving efficiency. If we exclude here the impact sales in the region would have been around 4% in local currencies. And also here, the strongest market was in India and Southeast Asia, and also in automotive and industry, where SICA continued to expand its share in its technologies in both the local as well as international manufacturers. Also here, an M&A impact, namely the acquisition of Elmich, contributing here 40 base points of growth, and adverse foreign exchange impact at minus 4.6%, reduced here local currency growth to minus 8.5 in Swiss francs in the first nine months. Now turning to the full P&L and looking at material margin, Here we have, as highlighted, driven up gross result by 30 base points year on year due to also very strong Q3 expansion, 55% of net sales in the first nine months. This also in spite of the deflation environment in China and the small dilution of 10 base points coming from M&A. but also overall material costs in recent months, also driven by our procurement initiatives, showed a slightly declining trend. Reported operating costs this year, including personnel costs as well as other operating expenses, decreased slightly under proportionally in the first nine months of the year versus the same period of 2024. Here continued strong NBCC-related synergy trajectory, as well as efficiency measures were offset by ongoing yet reducing cost inflation, currency impacts, as well as initial one-time cost of around 18 million in Q3 related to our structural cost reduction program. In looking at personnel costs specifically, which were down by minus 0.3% year-on-year on a reported basis, we have seen continued underlying wage inflation at around 3.5% per annum on a like-for-like basis. This is partially and increasingly being offset by cost synergies as well as operational and structural efficiency initiatives, but negatively affected by this initial fast forward severance expenses. Other operating expenses decreased strongly over proportionally by minus 6.5% driven by accelerated efficiency measures and NBCC synergies. Overall, the integration of NBCC It's largely concluded while strong delivery of synergies is ongoing. Real life total synergies amounted to 130 million in the first nine months of 25, an incremental 41 million versus the same period of last year, representing an annual run rate of 166 million and therefore well on track to push towards the upper range of the increased guidance of 160 to 180 million for this year. Overall EBITDA margin as highlighted increased by 10 base points to 19.2% up from 19.1% in the first nine months. Absolute EBITDA decreased under proportionally by minus 3.3%. from 1.702 billion to 1.645 billion due to foreign exchange translation effects broadly in line with the effect on the top line. Also here highlighting our strong natural hedge and decentralized cost base in line with invoicing currency. Depreciation and amortization expenses were virtually flat in absolute terms at 407 million or 4.8% of net sales, as favorable translation effects were offset by PPA effects on the intangible side, as well as a slightly higher depreciation rate. As a result, EBIT ratio decreased by 10 base points to 14.4%, while absolute EBIT also was impacted by currency translation effects. If we turn below the EBIT, here net interest expenses decreased and continue to increase significantly by 16 million to 105.5 million in the first nine months. This compared to 121.6 in the same period of last year. Decrease is largely related to the scheduled repayment of our First euro bond in Q4-24 that was taken out for the financing of NBCC. And in addition, other financial expenses also showed a favorable development representing a net income of 10.2 million, up roughly 7 million compared to the same period of last year. Unfavorable hedging cost development, lower inflation accounting effect, and also higher income from associated companies. On the tax side, group tax rate increased from 21.5 to 23.8% in the first nine months. This is largely related to a positive one-time effect in the previous year. This is primarily deferred tax benefit relating to a foreseen legal restructuring. And this year we had also higher withholding tax on internal dividends distributed in the second quarter this year. As a result, net profit ratio was modestly down to 10.1% of sales. This is 20 base points lower than last year. But also here, absolute net profit of 870.9 million was impacted by currency translation effects. On the cash flow side, operating free cash flow in the first nine months was 630 million, which continues to be about 220 million lower than cash flow in the same period of last year. However, cash generation in Q3 was strong and in line with last year. And the reduction here is primarily due to unfavorable currency movements compared to last year, particularly impacting here hedging of intercompany financing, but also partially due to a modestly higher seasonal increase in working capital, slightly higher capex, as well as higher cash taxes. For the full year, we expect to partially close the gap in Q4 and a full year operating free cash flow in line with our strategic targets of higher than 10% of Net sales additionally supported by group-wide working capital initiatives. With this, I conclude my remarks on the nine-month financials and hand back to Thomas for the outlook.

Good. Thank you, Adrian. Let me be short. Brief on the outlook, we have published our outlook and we confirm for 2025 our expectation of modest increase in net sale in local currency for 2025 and our EBTR margin of approximately 19%, including the one-off costs from the Fast Forward program, which I referred to earlier. The medium-term guidance, we confirm our profitability and cash flow expectation with reaching the band of 20% to 23% EBITDA in 2026. And we have created here a new guidance based on the revised Gross assumptions for the market of 3% to 6% local currency net sales gross for the period of 26 to 28.

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 may press star and 1 on their telephone. You'll hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast while asking a question. Anyone who has a question may press star and one at this time. The first question comes from the line of Ben Radamartin from Goldman Sachs. Please go ahead.

Great. Good afternoon, Thomas and Adrian. Thanks for the time this afternoon. And I have three questions, please. My first was on, I guess, the annual savings you've introduced today, the kind of $150 to $200 million amount. Could you maybe break down the source of these between the two programs, being the efficiency program and investment program? The second would just be on pricing growth. I assume you're starting to have some conversations around 2026 pricing. Can you maybe just give us a steer on what kind of level of pricing growth you expect at the group level? And then finally, on China construction, thank you for the disclosure today around that business. I'd be interested... for our kind of housekeeping side, what share of the China business would be in construction at the moment? And what would be the split between, I guess, the channel side and the project side within China construction? Thank you.

Yeah, thank you, Ben, here for the question. I'll start with the first one. We will provide more granularity here on, let's say, sort of the breakdown and the content of the impacts here then in November. But maybe at this stage, we expect about 80 million out of the 150 to 200 to hit the P&L in a positive way in 2026. On maybe the pricing, and I'll take this one here too, we had about a 0.6% price increase year-to-date here, excluding China. negative environment with negative pricing, but about a 60 base points for the first nine months, which we're expecting to sort of, you know, roughly, you know, stay at that level for the full year basis.

Good, and to the third question in regards to our China business, our China construction business is about 70% of our China business. The remaining 30 percent is related to the automotive industrial manufacturing business, a business that is growing nicely in line also, let's say, with the transformation to e-mobility and the increased volumes overall. The 70 percent of the construction-related business, the larger portion, also roughly about 70, 75 percent is the indirect business, the business that is related to the tile setting business in the residential area. And then the 25% direct business is especially strong with sensitive infrastructure programs and with the foreign direct investments of multinationals building in China. As we all know, the residential business in China has some challenges with huge inventories still being around. And the foreign direct investment business has declined this year substantially, roughly 25%. These are the two drivers. for the very soft business that we are facing and also then mandating that we take here decisive steps to structurally adjust to this condition as we don't see that quickly to resolve in the near future.

All right, thank you.

The next question comes from the line of Priyan Wolf from Jefferies. Please go ahead.

Hiya. Afternoon. Thanks for taking my questions. I've just got two, actually. So the first one's just on the rebasing of the mid-term local currency sales growth. Would you mind just reminding us what the contribution was from market growth back when the target was 6% to 9%? Was it around 2.5%? I'm just asking that in the context that You've obviously cut the midterm target by 3%. Are you effectively now implying that market growth will be flat or possibly even down for the next couple of years? Or is there something else sort of buried in the target cut today in terms of lower outperformance or lower pricing or lower M&A? And then the second question is just on the 120 to 150 million investments that you're talking about. Is that capex or is there some sort of P&L cost involved with that? Thank you.

Okay. Thank you, Priyal. I'll take the first one. And here you are absolutely correct. Our former guidance was built on a 2.5% market expansion and our current or our adjustment is basically correcting for the current but also for the foreseeable future and he is more neutral or slightly negative. The elements of the strategy of the market penetration and the acquisition are from our side unchanged but the market has changed substantially. longer than anybody could have anticipated. And therefore, we made this readjustment. But it's mainly or it is the market that really is unpredictable at this point. And we have taken that down to a neutral, slightly negative level.

Then the second one here, Priyal, on the investment program, the 120 to 150 million, this is largely CAPEX. There is about a 30% OPEX element as this is also relating to implementation of platforms, ongoing support. digitalization, also training activities and so on. So about a 30% of this is ongoing here OPEX, which we don't see as sort of one-time costs, but really sort of ongoing implementation and support cost.

Thank you.

We now have a question from the line of Paul Roger from BNP Paribas Exane. Please go ahead.

Hi, it's Anna Schumacher on for Paul today and thank you for taking my questions. I have two. Does the right-sizing China suggest you believe the slowdown is structural rather than cyclical and will it impact your distribution strategy in the country? And secondly, when do you expect to see any benefits of reshoring in the US and how meaningful could it be? And what are your expectations for US infra next year? Thank you.

Okay. Thank you. Yes, I think we have to differentiate in China between the two segments. I think the residential market expectation also for the next one or two years are still on a very low level. So this overbuilt is not being addressed and it is also of lesser priority for the Chinese government. So here This is a market that will remain challenged probably for a year or two longer and therefore our, let's say, adjustments are structural in nature by now serving these reduced volumes with our market leader position that we have in that segment. and also adapting the portfolio to the key application, the tile setting and waterproofing area where we have a dominant position and also, let's say, discontinue low-margin sections of that market. The distribution channels are well established. They are the backbone. that we serve. Here, actually, we are adapting that distribution channel to increase the spread and be able to further get closer to the market. So here, actually, we are increasing, and this is also helping to get better coverage and build on our market leadership in the segments where we have very good margins and where we also see possibilities to outperform the market. The construction direct business is a business where we believe that this is cyclical in a way that this foreign direct investment has an impact, but at the same time we have in China also a more maturing let's say, base infrastructure in place that requires more refurbishment and renovation. We are working in building up this in China with our competencies. So here, I would say the foreign direct investments, that's speculative how fast that will normalize, but we have there also possibilities to offset. And here we are structurally adjusting also to be more dominant in the refurbishment, which when you look at mature markets like Europe or the US, this is the core of our business in construction. It has been relatively small in China so far, but that's a great opportunity for us to offset some other weaknesses. And then on the US, I'm always optimistic about the US market. The US market has seen a great start into the year. It has then been challenged with uncertainties and unpredictabilities, which many projects for industrialization or restoring have been put on hold, ready to go. These projects have been, let's say, engineered to the level where it can start the digging and building. And this is now a bit the speculative question, when will enough clarity be there? But I think with the tariff discussions, things are more and more becoming, let's say, predictable, but it is easier for corporations to make conclusions. And I expect that we see in 26 on the reshoring some nice progression as this holdback of projects as we see at the moment will probably then be overwhelmed by also serving the increased demands. The consumption in the U.S. is not that bad, and I think this is a bit artificially pushed back, and here I'm more optimistic that this will take place going into 26.

That's great. Thank you.

The next question comes from the line of Elodie Rall from J.P. Morgan. Please go ahead.

Hi, good afternoon. Thanks for taking my questions. I have three for me. First of all, on the China restructuring, you're talking about reducing headcounts by 1,500. So can you give us a bit of color about how much that this represents as a percentage of China headcount and also how much that this represents versus the 80 to 100 million total cost savings? How much is China from there? And how could we think about China growth in H1, therefore, next year, given still the hard comp, I believe. So all the growth will be H2, I believe. Second, you talk about other weak markets driving this mid-term growth outlook cut. So maybe you can elaborate on what they are. And lastly, on dividends, I was wondering if you would aim to protect the dividend level given additional cost this year. Thank you.

Okay. Let me start with the China restructuring. The 1,500 employees and the largest portion from a single country comes from China. And it is a substantial reduction. It's a double-digit reduction of the Chinese workforce that is ongoing. You know, this is something we... we are implementing without any further delay, but this is substantial. But we also have other markets that are segments of markets. Maybe it's a better way to put it because it's not countries or markets. It is actually segments that have softer performance. And here this will then in some come up with the 1500 employees. You asked about the China impact in H1 next year. It is clear that we will have some spillover from this year into next year as the effects that you have seen in Q3 and that you expect to be significant in Q4 will of course compare the base of the first half of 2025 still be negative, but it will then also turn in the second half of next year and the impact will also, let's say, reduce. And as I mentioned before, Asia-Pacific has a strong performance. It is the strongest if we exclude China. So here we are also confident that Asia-Pacific will contribute to the overall growth next year, having strong engines in Southeast Asia and India.

Maybe on the dividend, obviously, this is then a decision by the board. This has not been taken yet, but I'm not expecting here that, let's say, the program will have a negative impact here on our dividend policy.

Sorry, just to come back on China, how much does this represent in terms of the overall 80 to 100 million cost savings, cost this year, cost restructuring?

This is a bit too early. I mean, we are going to really make an effort then in four weeks' time to give you more granularity about the program in regards to the investments, but also in regards to the cost split and so on. But it's clear, it is significant. I mean, it would be premature now to go into the details, but China is a large portion of the structural adjustment.

Thanks. And just to finish up on my previous question, what are the other markets that you have identified as weak?

The point is, as mentioned, markets are soft. Weak is something I attribute to segments. Segments where you see, for instance, In Europe, we had a very good initiative on energy savings initiative coming from the Green Deal. These are fading. These are implications that we are, of course, considering also in our business. But the markets overall are soft. Europe is soft, but we see Eastern Europe is coming back. We also see that the northern part of Europe. So here, when I look into 26, I'm quite optimistic that we will see positive trends.

Thank you.

We now have a question from the line of Efrem Ravi from Citigroup. Please go ahead.

Thank you. So two questions. Firstly, given the reduction in the overall growth target to Priya's point, 2.5% was the market, but does this change your view on the market going forward or this is strictly a function of the fact that last two years the growth has been less than your 2023 to 2028, 6% to 9%, so you're just resetting for what's already happened and your medium-term actual view in terms of how the markets are going to grow hasn't really changed so it's just mainly a mark to market of what's already happened in terms of local currency growth you know so far and secondly China I thought it was about 1.2 billion of sales last year and if it is down double digit percentage probably goes down to closer to a billion so you know given the low base, do you expect that to kind of be less of a drag going forward? So in theory, you know, you should see faster growth just because of the mixed effect of China not being a drag being on the numbers. Thank you.

Yeah, I think what is very important in our adjustment of our mid-term guidance this adjustment is related to our assumptions of the market compared to the original assumption. For us, most important is the outperformance of the market wherever they are and this is in our strategy clearly outlined with the market penetration. We have not changed our ambitions on the outperformance of the competition and the market. And we also haven't changed our approach to be the consolidator in a very fragmented market through our acquisition activities, which I think also this year we see with five transactions and the full pipeline of prospects I think we are very confident on those elements where we have it in our hands. The markets, we had to reflect and also consider that there is also not a balancing act between the regions. We have a situation where actually softness is a global topic with a few exceptions, like maybe the Middle East. but not so relevant in the global scheme. So here, this is the driving factor for the adjustment is that we do reduce the market aspect, but do not change our commitment to outperform organically. And then also on the acquisition, we will deliver as we originally have indicated.

Thank you.

The next question comes from the line of Martin Fluegerger from Kepler-Chevreux. Please go ahead.

Good afternoon, gentlemen. Martin Fluegerger from Kepler-Chevreux. I've got three questions, and I suppose I'll take one at a time. Firstly, I'd just like to go back to your statements regarding pricing in the nine-month period. If I understood you correctly, you were talking about 0.6% up year-to-date. Excluding China. Now, I was just wondering, what does that mean for the group overall? Because that's really the number, I guess, that interests most people. That's my first question. I'll come back with the second one.

Yeah, I mean, this means overall it's pretty much a flat-ish picture for the group overall.

Okay. Okay. Thanks. And then secondly, you were talking about, I think Thomas was talking about data centers being, you know, ramping up pretty rapidly in the U.S. Can you, if I remember correctly, the U.S. data centers accounted for about 8% of sales, construction sales. Has that number changed in a nine-month period? And What kind of growth do you expect from this vertical in 2026? That's my second question.

Yeah, you're right. This is about the magnitude. And this is the fastest growing segment in construction. And therefore, also logically, the contribution to the overall construction business in the U.S. is increasing. But it's about 8%. And what makes us very optimistic, I mean, these are also projects that are lined up, they are executed, they are actually rushed in execution whenever possible. So the lineup of projects that we have visibility gives us high confidence for the next 18 to 24 months. So this is business that we like very much as it is also a premium business. It is driven by customers. that buy not let's say products or systems, they buy peace of mind. They want to have undisrupted operations 24-7, 365. That's a key element of our unique position in that market. Not only in the US, this spreads all over the globe because the owners of the data centers have very similar names at the end and they don't want to take risks when they go abroad and therefore we also leveraging that very much into Europe and other parts of the world.

Okay, but sorry, just to clarify, when you say it's the fastest growing segment in the US, I guess that's not really surprising. But you know, I was just wondering whether you could tell us what kind of growth Zika is expecting from data centers in the US in 2026. Do you have any broad idea at this point in time?

Of course I have, and I would sum it up, this is double-digit growing, and it's significant, so it is not 10 or 11, it is really a business that has drive, and we also put full focus on it. This is the time.

Okay, that's helpful, thanks. And then finally, my third question, Could you talk a little bit about competitive pressures in construction chemicals this year, what you're seeing on the ground and whether it's intensifying or whether it's stable, whether there are any particular regions apart from China where you're seeing competitive pressures easing or worsening?

I think here, I mean, China is a particular case and I think Adrian indicated China is, of course, price is super relevant. And as he mentioned, the overall group is at 0.6 without China. With China, we are at neutral. So China is a market in itself. But when I look at the rest of the globe, you can say, when you have a booming market, pricing is probably less pressured because it's about getting the jobs done. We don't have booming markets everywhere, therefore, I would say this is a normal situation where price is of high relevance, but nothing exceptional, nothing, you know, which you say this is kind of strange, this is a normal behavior of markets when volume are slow, and this comes from small, medium, large, this is nothing in particular, nothing has really changed. But of course, when you have soft markets, then here the tendency is that you have more pressure on price. But I think our performance in the first nine months demonstrates we do have pricing power. We have here a leadership position that we can. This is probably for small players, mid-sized players, a bit less convenient as they are suffering more in soft times. Great, thanks.

We now have a question from the line of Sedar Ekblom from Morgan Stanley. Please go ahead.

Thanks very much. Hi, everyone. I've got some follow-ups, please. On the growth for 2026, the exit rate at the end of this year is likely to be breakeven, maybe even modestly negative if trends don't really change in your core markets. I'd like to understand how we get to 3% in 2026. I think Elodie touched on this question, but I'd like to hear explicitly if you actually think 3% was the right number for 2026 based on what you see today, appreciating that things can change, or if in 2026 we should actually be anchoring around a number below that range within the potential for growth to accelerate into 2027 and beyond. So that's the first question. And then the second question, just in terms of the guidance on your on your margin improvement into 2026. So this year, I think it's 19 and a half to 19.8 without the costs. And then if I've got the moving parts right, you have 80 million of cost saves from the program next year. You have 40 million synergy still to come if I look at the midpoint of what you're guiding to. So that gives me about 100 basis points of margin improvement. But I'd expect your leverage is still going to be negative. I mean, if I look at that chart on slide eight, I think it is, you have negative operating leverage this year with growth that's probably not dissimilar to what the growth is going to be like next year, unless anything doesn't change. So what other levers should we be thinking about into next year that actually allow us to see margins rise? Is there something we should be thinking about on gross margins improving? Is there some other kind of cost initiative that we should think about beyond this 80 million program, just like sort of ordinary course of business efforts that's sort of coming on top of the 80 million sort of special program? So those would be the two questions. Exit rate on growth is clearly below the 3%. How do we get to 3%? And then how do we actually get higher margins year on year, even withstanding the 100 basis points or so of improvement that comes from this program plus synergies not yet come through from MVCC? Thank you.

Okay. Thank you, Cedar. And I take the first question. probably the most difficult question because it is clear we don't know what's going on to happen next year. So let me phrase it in a way, this is not a guidance for next year, but if you assume everything equal, you know, China, Europe, North America and so on, your assumptions are correct. You know that the exit rate at the end of the year will be low low modest growth going into next year we will still have spillovers from from china we will have benefits from from trends that are supporting but the magnitudes to to the lower end of our midterm or our adjusted midterm guidance is still there. So this is not yet a guidance, but it's also not a promise that every year of the coming three years will be within that range. I think the first year is probably the one that has, let's say, the highest challenge, but we also anticipate that there's a good likelihood in 2027, 2028, where we can substantially also move on that, depending on how markets are evolving. So here, I think we have to be clear. This is not a straight line. This is also a line of recovery, which we can drive to some degree ourselves. I think we have a healthy trajectory. acquisition pipeline. We see there some opportunities. I think also when we look at the pricing power that we have and also expecting that China is going to, let's say, be less impactful. So we have this element as well. But this is not the guarantee at this point of time that this three to six will be applicable to every of the consecutive years. Over the three years, we are very confident. But going into next year, we will assess the situation. Of course, we will assess the markets and then we will establish our proper guidance for 2026.

And on the elements here of the margin improvements, and it's essentially the ones we're driving, I think there is also an opportunity on, let's say, the material margin, the gross margin to continue to drive. I mean, you have the synergies, as you mentioned, there will be another 30 to 40 base points. our improvement bucket, which will clearly be driven here by the Fast Forward program. Here, let's say, the 80 million impact plus the ongoing activities we have, but there is not going to be an additional program on top of it, but really driving the different elements to an EBITDA of above 20%.

Okay. Thank you very much.

We now have a question from the line of Arnaud Lehmann from Bank of America. Please go ahead.

Thank you very much. Good afternoon, gentlemen, and good afternoon, Christine. Could we talk a little bit about the gross margin? I guess that was quite a solid performance in the short quarter. I think the five-year high when there was back in Q3 2020. So is this the new normal? Is 55%, you believe, the new normal going forward for FICA and into 2026? That's the upper end of your historical range, or do you think there could be upside to this? My second question is coming back on the fast-forward plan. Is it something you've been thinking about in the last years or in the last month, let's say? Was it something you were going to do anyway? Or is it more of a reactive move on the back of the recent decline in Chinese volumes, or maybe a little bit of both? And the third question and last one on you hinted in the previous question around M&A activity. Considering the slower trends in underlying markets, do you think you could ramp up M&A activity while remaining within the criteria of your A- credit rating? Thank you very much.

Let me take here the first one. Thanks, Arnaud, for the question. I think here, of course, the 54% to 55%, that's, you know, is for us uh you know clearly sort of a also a range where you know we uh and sort of monitor and steer the business i mean it's never been sort of a very sort of dogmatic um um let's say um hard target and i think there is several elements obviously impacting uh here uh material margin which again for us is an important uh um you know element to to steer uh the business i think we're obviously here that the pricing element, selling value, driving innovation, also being able for us to position our solutions at the higher value point is important and an ongoing activity. I think on the input cost side, we have more recently seen, I would say, a more favorable picture, also driving here clearly initiatives to improve it. So I think there is obviously a bit of upside here on the material margin, although this is influenced by many different elements. So I think it's obviously something we actively steer as one of our profitability buckets overall.

Okay, then on the fast forward question, it's an interesting question because it has both elements. You know, digitalization is something we have highlighted as a mega trend in our strategy. And we are doing quite well in progressing. We bring digital solutions. We just announced this week our carbon compass. You can say, yes, we do. We are implementing SAP across the globe. But honestly, the speed of adoption, the speed of implementation is, in my view, not the speed that I would like to see. Digitalization has a different speed than the construction industry. And the construction industry is our great opportunity to be here the unprecedented leader in digitalization. So this has been, let's say, something I have observed over a longer period of time than two, three months. And I see this as a great opportunity here to make firm steps, invest into the customer value. Customers are challenged many different ways digitalization can ease, let's say, those complexities, can make business easier to execute and focus on core things. I think this is something that we want to drive and this is the opportunity to integrate it also into this fast-forward program. We have done great. I mean, SICA has a unique data pool. It's the leader in the markets, the innovation leader, it's the market leader. We have data all over the globe. We are creating a pool that we can exclusively use to do data mining and leveraging those competencies. So for me, I'm a big fan of this digitalization and I'm happy that fast forward gives us now also the possibility to accelerate substantially let's say on the tools, on the solutions, but also upskilling our organization that we also here can adopt much faster than in a regular environment. The other part, let's say that China, the restructuring in general is something that has become in line with our, let's say, guidance adjustment for the midterm. Markets are soft. Markets, we cannot change them. But in markets that are soft, this is the best time to make substantial adjustments. This is the time to act because when you act at this time out of a position of strength, you can then, when backlogs are worked off, when markets are turning, you are in the strongest position to benefit from a boom in construction that will come, that has to come. The underlying demand is there, it's not served. So it is also a point that came to our realization over the course of this year and then more pronounced in the second half, which ultimately results in this fast forward program with the two elements that are super relevant short-term improvements, but of course, and also more mid-term, let's say, benefits for the customer, driving our growth and utilizing the unique, let's say, digital footprint that we can have and that we want to have going forward. This is something I consider these digital capabilities a key competitive advantage that we are going to achieve. Here, size matters. The globalization matters. We have a global input. We have it from Japan, China, India, Middle East, Europe, North and South America. All these bundled together gives us huge opportunities, which I want to tackle with our fast forward in an accelerated way. And on M&A, I think here I come back to the prior question. I mentioned smaller and mid-sized companies are more challenged when it comes to pricing power in soft markets. And we see here a clear, let's say, pain level reach for small and mid-sized player that they are considering selling their companies, even though it is probably not the best time to get the best price, but they hang in there and they consider selling much more now than maybe a year or two ago. And yes, we do have here also opportunities to, let's say, to acquire for attractive multiples business that maybe a year or two ago would have rejected to entertain And I do think with our strong cash generation that we also have the ammunition to serve those increased possibilities. But it's also, I think, as always, every challenge has its opportunity. The opportunities on M&A are excellent and we have the power and the will also to take advantage.

Thank you very much.

The next question comes from the line of Gosh Puyarini from Bernstein. Please go ahead. Hi.

Thanks for taking my questions. So I have a few. So my first question is on the EBITDA margin guidance for this year. So without the restructuring costs, you have not cut your margin guidance. And in nine months, you've done 19.2%. So to get to the bottom end of the range without the restructuring, you would need to do something like 20.5% in Q4. And looking at the historical trends, we've never seen such a big jump between Q3 and Q4. So could you explain why this year might be different and the various levers that you could pull in Q4 to get close to that trend? your target. And my second question is just a housekeeping. So what is your current guidance on the tax rate for the full year and for future years? And finally, coming back to the China restructuring plan, So of the 150 to 200 million cost savings, could you give the split between how much of this would come from the restructuring in China and how much from the investment program that you're going to do?

Thanks, Pujerini. I'll hear the question one by one. On the 2025 EBITDA guidance here, I think a couple of points. On the one hand, you're right, the 19.2 here in the first nine months, as I mentioned here before, we have about 18 million of here and one of costs already included in Q3. So that's one element that basically puts here let's say the anchor at 19.4. And also in terms of, let's say, the one-offs regarding for the 80 to 100, not everything is EBTA relevant. We have about 25 to 30%, which is more sort of write-downs and impairments overall, which obviously then for Q4, yes, means of course a solid, profitability quote to, let's say, get at least here to the lower range here of the 19.5 to 19.8. On the tax rate, here we had in previous years, as reported, also one or the other positive impact, one-off effect I'm expecting here for this year, sort of around 23% in terms of the overall tax rate, which is also, you know, the level here of the next years to be expected, roughly. And thirdly, on the question here of, let's say, sort of the China impact and the breakdown again, I would say like to defer here the answer and more granularity then to our November event where we will provide more sort of granularity on the various aspects of the program.

Thank you. We now have a question from the line of Patrick Raffais from UBS. Please go ahead.

Thanks. Good afternoon, everybody. Two questions. One is on your cash conversion targets. You confirmed the 10% plus for this year. I was just wondering with the extra spending for the fast-forward program, both on the cost and the capex, would you already fully commit to a 10% plus cash conversion also for 2026? That's the first question. Maybe related to that, can you also talk a bit about the phasing of these investments? And then the second question would be on China and the portfolio adaptation you talked about. Can you add some color around the share within the China business that we're talking about that you're exiting due to the maybe market conditions or too low profitability and also how long that will take to implement. Thanks.

Good. Thanks, Patrick. I'll take the first two on the cash conversion. Yes, clearly also confirming for 26 here the targets to remain in place in terms of the cash conversion of at least 10% of net sales. Obviously, there is an additional element of capex, but that will be within that threshold. And second one on the phasing again, I'll try again to convince you that we will provide more granularity then on the various sort of elements of the program, also the impact and the phasing then at the end of November.

Good, and then Patrick on the China business. Our China distribution business is built on exclusive distributors all over China. and with the start of the softness of the of the market our china team has tried to introduce let's say lower margin trading products to support our distributors so that they can take a bigger share of wallet and this came of course at the at the back side that the top line was then still showing some progression, but dilutive on material and profit margin. And this came then to a level where we had to say this needs to be reversed. So this has been a rather short-term element that has been introduced and it is also something that we can flush out relatively soon. But it will be visible this year and next year as some part is still in this year from the first half and it will be out in the second half next year. So we will have some comps there that are maybe not so clear to read, but this is rather something that has been used tactically, but had to be revised. And that's what I mean with the core range, the core range, which is our tile setting range and waterproofing range, which we produce ourselves and not tolling products that are adjacencies.

Super, thank you both. You're welcome. Thanks, Patrick.

The next question comes from the line of Alessandro Foletti from Octavian. Please go ahead.

Yes, thank you very much for taking my question. Just on the automotive business, maybe we don't speak much about it. Obviously, it has been growing strongly in China, but how is it doing in the other regions? Particularly also Europe and the US, I would guess.

Yeah, I take that gladly. I think we haven't talked much, but as you have seen, our growth in the industrial area is at organically 0.8%. It is doing better than our construction organically. It has here support from China, but also our business in Europe and in North America is holding strong despite a declining volume situation. And also, especially in Europe, we have still, let's say, a bigger, let's say, variation of models in the market which means we are carrying more complexity serving let's say our customers and despite that we can still have above the build rate top line and especially also maintain a very healthy bottom line in that business. It is having a different direction. I think in Europe we see Also going forward, probably a comeback of the incentives for the electrification. This will be very positive. Germany is considering this for the years to come. So I'm on the automotive side in Europe. With the conversion, we will have more contribution, we have more opportunities. So I think we will see a positive trend in Europe. And in North America, We have there a bit to hold back with the tariffs. The automotive business in North America is highly, let's say, linked between the three countries with the supply chain. We serve the market out of Mexico and of the US. But also here, there's a different demand. The electrification is less of a relevance. Truck and SUVs, pickups are relevant. These are for us, higher contribution vehicles anyhow. But we also expect that when the new North American trade agreement is finalized, which hopefully takes place by the beginning of next year, then there will be also clarity and investments in automotive so that they can come back with competitive offerings. to the end market, which at the moment is hesitant to buy in North America. So I'm optimistic. I mean, the business also in Brazil is doing very well. The business in Southeast Asia is doing very well. They are, of course, of smaller volumes than the three main markets. But I think we will have a year-over-year nice contribution from the automotive or industrial side.

Right, but thank you for this. But I'm not sure I get it right. It seems from your talk that maybe both in Europe and the U.S. is maybe still slight negative or slattish.

Yes, yes. I mean, the build rates are minus three, minus four percent, the car build rates. And we are flattish in Europe and slightly below in North America.

All right. Thank you.

We now have a question from the line of Yassine Touhari from On-Field Investment Research. Please go ahead.

Thank you very much. Just two questions on my side. We've seen all prices coming off over the past couple of months. Does it mean that we should see limited raw material inflation at the beginning of 2026 and also a relatively muted pricing environment? Should we think of the coming quarter being close to what we've seen with relatively prices up a little bit and and cost broadly in line with this pricing. And then my second question would be on the competitive landscape. Do you see, I think, some of the largest building material companies in China, CNBM and Conch, have started to invest in mortar, in construction chemical. Do you see competition in China being tougher today than it was five years ago? And another one on the competitive landscape, I think Kingspan in the U.S. is planning to open a PVC roofing membrane next year. Do you think it could have an impact on your activity, or do you believe they will target different segments?

Okay. I think the first question was on oil prices, right?

Yeah, and whether it means that we could continue to have an environment with limited price increase and limited cost inflation.

Yeah, I mean, this is quite volatile. It is low at the moment. This is, in general, for us, positive. But I would say it's limited. I mean, this is also what we have talked about this year. Some commodities have some softening, but others are still increasing. Salmon, for instance. So I think on the input side, I think we are having here, as far as we can predict, a relatively stable environment. So that is giving us the possibility to make our price adjustments in line with our margin expectation. So I'm not concerned. But of course, things can change if one source becomes unavailable and the prices could rapidly move upwards. But at the moment, it's not the major concern. The second question was on the competitive landscape in China. I mean, here you have to see that We are the only remaining sizable international construction chemical player in China for years. This is not just yesterday or the day before. This is our position in China. We have an exclusive position in the direct construction market. These are the higher-end construction. I talked about the multinationals, but I also talked about let's say sensitive infrastructures, nuclear power plants and other airports and so on. So we have been able, I mean, there are thousands of players in China and super aggressive in all aspects, but we have been able to hold strong in this market and I believe our possibility to benefit through our, let's say, global excellence in a market that is maturing, in a market that is also demanding higher building codes. The government is pushing for higher building codes as they see the adversarial effect of cheap, let's say, infrastructure built 10 or 20 years ago. And we have a reputation in China that is outstanding, and we can also enlarge our addressable market in China through these trends. So this is on the direct side. On the indirect side, I talked about our distribution. But you have to see that this is an application where our company has a market-leading position in China. Our international brand stands for reliable products to the homeowners. Homeowners, they buy, let's say, Expensive tiles from Italy and homeowners do care that they are installed in a brand of trust. That's our unique, of course, our products are up to the highest standards. But it is also our network that involves not only the applicator, but also the owner bring across this value. And this is very difficult for, let's say, these mainstream Chinese competitors to attack us. they attack themselves. So it is oriental Yu Hong and Nippon paint that are crossing each other's way, left and right, and through brutal price war, try to steal each other's market. Our market is much more protected through our unique positioning with our brand in China. And then Kingspan, yeah. I think, I don't know if I should comment, you know what I mean? I don't see it as a threat, not at all. I mean, the North American roofing market is huge and it has sizable players. I mean, sizable, you know, and we are active in a very, let's say, clear designated area with large commercial buildings where we have a reputation, where we have specifications, where we have applicators. I feel well protected. I have no fear. But if you go in such a market area, where there are the big boys playing, I would say I have respect for the courage to go into that market, but that's not me to comment and it's not me to make assessments there. It is an attractive market, I agree. It is for us a fantastic market, but I think we have here also a unique position with our focus on the high end, on durable, and sustainable solutions with owners, with the focus on clear commercial large-scale roofs.

Thank you very much.

So, thank you very much. I think this brings us to the end of our call. We take this opportunity as well to highlight the date of our Fast Forward Investor and Media Conference on November 27th. The conference will be held in Zurich, Tüfenwies, and it will start at 10 a.m. CET. So for all these who would like to fly in and out the same day, I think this will be possible. With this, we thank you for listening to our call and for your interest in SICA. We wish you all the best.

Thank you. Thank you very much. Thank you. Bye-bye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Coruscall and thank you for participating in the conference. You may now disconnect your lines. Goodbye.