Ladies and gentlemen, welcome to the Sika 9 Months 2021 Results Conference Call and Live Webcast. I'm Moira, the Chorus 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 and A session. The conference must not be recorded for publication or broadcast.
At this time, it's my pleasure to hand over to Mr. Dominic Slapnik, Head of Communication and Investor Relations of Sika. Please go ahead, sir.
Thank you, Moira. Good afternoon, and welcome to our 9 Month's results conference call. Present on the call with me today is Thomas Huttler, CEO Adrian Wissmer, CFO And Christian Kukan, Senior Vice Chair Manager. We published our 9 months' paper this morning at 5 o'clock. Now Thomas and Adrian will provide further details on the results and the outlook.
Afterwards, we will be ready to take your questions. With this, I hand over to Thomas to start with the highlights of the 1st 9 months.
Thank you, Dominik, and welcome to all. And it's my pleasure to present you in brief the results of our 9 months period. Please go to Slide 2, Which shows an overview of the achievements during these 9 months. It's a continuation of what we have presented in July. We have a continuous Strong growth on the top line of 18.1%, reaching a total of 6,800,000,000 Also our over proportional EBIT evolution continued in this 9 months with 32.2% increase to Above €1,000,000,000 in total.
Our EBIT margin has stayed at 15.4% Just at the level as it was at the 6 months mark. We also announced today An important change in the group management in which we have reflected our enabling and sustainability focus By giving more attention and reinforcing our innovation and sustainability drive by separating this From the operational efficiency and improvement on the quality and EHS side, Giving these two areas separate leadership and having with Patricia Heitman, a new Chief Innovation and Sustainability Firstly, I think it is also for Zika relevant to say the key challenges We are not immune to key challenges on the rising raw material prices and the supply chain impacts. It remains difficult to predict how this will evolve. We have a cautious approach to this, But we see every day, everywhere some new elements coming in. So far, we have managed quite well, but we will see that later on When Adrian goes into more details.
Please go to Slide 3. Here, we have seen our acquisition results mid of the year by adding now 2 more acquisitions, the one in Mexico, XL and the one in China, waterproofing London. Two great additions, which reinforce our footprint locally very much. At the same time, we are also close To complete the transaction with Hammerstein in Japan, we expect closing in November. Next slide, please.
And with that, I hand over to Adrian to give a bit more insight into the regional Evolution as well as the financials.
Very good. Thank you, Thomas, and good afternoon and good morning to all of you. Following Thomas' business summary and highlights, I will now give you further insights into the results. Starting with the top line. Tika has continued, as you have seen, to deliver solid growth in all geographical regions We have a local currency growth of 18.1 percent for the 1st 9 months of the year.
Organic growth was 16.8%, While acquisitions added 1.3 percentage points of additional growth, primarily representing The initial impact of the consummated acquisitions this year, as Thomas has shown, this is particularly Dry Tech, Crepes, Beyond Monster, American HydroTOK and Baxdell in Mexico. Currency effects have turned slightly positive for the first time In several years, with foreign exchange impact contributing a 0.1% positive Addition to our growth, which brings total Swiss francs growth to 18.2% for the year to date period. Organic sales growth versus 2019 also remains at double digit level for the period under review. In going into the regions, starting with EMEA. EMEA, as you can see, grew 17.6% At constant currencies, organic growth was 16%, driven by growth in distribution and the renovation business.
Growth was particularly dynamic in Eastern Europe, the U. K. As well as the African continent. Residual acquisition impact From Aldeplast and Modern Waterproofing as well as the newly acquired Krebs in Russia contributed 1.6% Of growth. Foreign exchange effects also here in the EMEA region were slightly positive at 0.9 Percent of contribution.
Region Americas recorded a strong growth in local currencies of 19.3% And for the 1st 9 months, pretty much in line with growth in the first half year. Despite the challenging supply chain situation, the region delivered Double digit growth, driven by strong growth in Mexico, Colombia, Brazil, Peru and Chile. The U. S. Also grew double digit with large scale maintenance projects and new build projects such as logistics and data centers driving growth.
Acquisition contribution increased in Q3, driven by the newly acquired American Hydrotech and Bexhill And contributed 2.3% in the 1st 9 months of the year. Although to a lesser extent than in the first half year, foreign Change effects continue to weigh negatively in the Americas with a negative foreign exchange effect of minus 2.1% in the 1st 9 months. Sales in Asia Pacific grew by 20.7% Driven by China with a continued strong growth momentum and double digit growth rate due to infrastructure projects And strong sales in the distribution business. India as well contributed to this dynamic performance In Asia Pacific, while Southeast Asian countries and here particularly Vietnam, Malaysia and Thailand are suffering The situation in Japan also remains quite challenging. Foreign exchange impact in Asia Pacific turned markedly positive in recent months and contributed 1.3 percentage points of growth In the 1st 9 months.
Finally, in the Global Business segment, Teekay achieved a growth of 9.9% in the 1st 9 months, But declined sharply in Q3 as expectations of a strong car build rate recovery from previous year faltered Due to the limited availability of semiconductor components. Given these circumstances, the automotive industry is now expecting Flat build rates compared to 2020. However, we anticipate sustained growth stimuli from an accelerated transition To electromobility and lightweight construction, once bottlenecks in the supply chain are easing. Foreign exchange In this segment remains slightly negative.
Now moving down the
P and L and going to the next slide. If we look at the gross result, material margin contracted by 200 basis points to 52.6 percent of net sales, primarily driven by a continued strong increase in raw material costs as a result of global supply chain disruptions, energy shortages and solid demand. Through pricing actions, We were able to mitigate a large portion of this increase. Pricing component in the 1st 9 months was 3.5% Sales year to date with a higher run rate, of course. Formulation efficiency initiatives, Structural procurement savings also contributed positively.
Acquisition related dilution effects in the 1st 9 months We're 30 basis points. On the cost side, operating costs, which both include Personnel costs as well as other operating expenses continue to increase on the proportionally at 8.7% for the 1st 9 months And this compares to a sales growth of 18.2%. Due to a strong operating leverage, disciplined execution Of the many operational efficiency projects as well as a continued good synergy capture related to Parex and other acquisitions. Consequently, we were able to increase EBITDA by 23.9 percent with EBITDA margin up by 80 basis points To 19.3 percent for the period under review. As a result of reduced CapEx in 2020 and the limited acquisition impact, depreciation and amortization expense remained flat in the 1st 9 months, Providing further leverage.
And as a result, EBIT increased strongly by 32.2 percent To $1,054,000,000 and an EBIT ratio of 15.4% of net sales. Below EBIT, net interest expenses decreased by 16.5% compared to the same period of last year To $32,000,000 on lower debt and higher interest income. Other financial expenses decreased sharply in the 1st 9 months, Primarily due to a lower hedging costs and foreign exchange valuation. Overall, net financial expenses reduced by almost €15,000,000 or close to 30%. Group tax rate during the 1st 9 months remained almost flat at 24.6 percent, this is 20 basis points up compared to the previous year on a slightly negative country mix.
And also here as a result, net profit increased over proportionally by 36.3% to a record level of $765,100,000 or 11.1 percent of net sales, which is up from 9.7% of net sales In the same period of last year. And with this, I pause and hand over back to Thomas for the outlook.
Thank you, Adrian. And please go to Slide number 6. Our outlook for 2021 It's the same as by the mid year outlook. We see sales growth in local currencies between 13% 17%, An over proportional EBIT increase and an EBIT margin, which will reach 15% for the first time, Despite the challenging situation still ongoing on the supply chain and on the material price development. In addition, once more, we can confirm our 2023 strategic targets For a sustainable and profitable growth.
And with that, I guess we open up for the Q and A session.
We will now begin the question and answer session. The first question is from Yves Bromhard from Exane BNP Paribas. Please go ahead.
Good afternoon, gentlemen. Thank you for taking my questions. I'll have 2. My first one is just on volumes And specifically looking at your local currency growth and with what you expect for Q4 pricing, it sort of Means that there's a wide range of outcome here. Can you maybe help us to understand if we look at what happened in Q3 With some of the headwinds, including the summer cool off and supply chain disruption, I guess some of that is easing into Q4.
So How should we think about the Q4 volume outlook given that, again, your outlook implies either a decline year on year or an increase of about 4% And my second question is on gross margins. In Q4, given that you have more pricing, should we expect Q4 to be higher than Q3? And How soon do you think you could get back towards the more normalized range of 54%, 55%. I guess, have you seen any normalization in raw mats here?
Yes. Thank you, Yves. On the material margin, I mean, clearly, we see quite a strong In adverse input cost dynamics and there was clearly, let's say, at the beginning and In midyear, sort of an outlook of possibly a normalization in the Q4. I think there is probably a higher level of uncertainty whether this is going to happen. So we will continue to Increased prices and also in November, December and clearly also into next year.
So here clearly In terms of exact material margin and development, the situation It's such that it's relatively difficult to pinpoint, but I think we have our Reaction here and set up and in place, where we would obviously continue to act Accordingly, in order to protect profitability. And in terms of volume outlook, There is also here a certain element of, let's say, supply chain difficulties, which Obviously, we have to encounter. I think we have managed relatively well, particularly if you look at, let's say, The growth in the Q3, let's say, except on the global business, on the automotive side where there's a clear Impact on build rates, actually also here with a much increased pricing component Volume growth, which we have been able to deliver in spite of some of the supply chain difficulties. So all in all, We continue to be confident on our overall growth outlook for the year and will We're in that range also in the Q4.
Thank you very much.
The next question is from Markus Mayer from Baader Helvea. Please go ahead.
Yes. Thomas Alker and Thomas Licht and Kristine. Three questions from my side. When I look at the sequential local currency growth, organic growth in Continental, Western Continental Europe, as far as I can see, it turned out out of the comments you have elaborated in your speech before. And it looks like that the growth slowed down in the Q3.
Can you quantify if this is correct? And also what have been the reasons for this? That would be my first question. And the second question would be on your global business. Normally, the Q4 is, from a seasonality, the strongest quarter in the global business.
We also expect this to happen this year. Well, at least you expect a sequential demand improvement, while the chip shortage issue Basically, still completely overshadowing this seasonality. And then the last question would be On Asia Pacific, not only a research, but it's more basically your kind of retail customers, which are MBS And then for Asia Pacific. Do you see there already a negative demand effect due to the inflationary effect? That will be my last question.
Thank you.
Thank you. And Markus, I'll take the first one here on EMEA. If you just look at Q3, yes, it is right that volume development was not As before, this, I would say, is owed to sort of 2 elements primarily. On the one hand, It's sort of the comps, particularly in the Southern European part of EMEA During the last year where we have seen a COVID catch up effect in a sense that particularly during the summer holidays, They were shortened and construction activities was maintained in order to catch up. This is an effect we have not seen This year and secondly, also in EMEA, we have seen certain supply chain impacts, which have To some extent, limited growth, but we have clearly also pushed on the pricing And sorry, not only in Europe, but across the board.
Okay. May I answer your second question on the automotive business and the seasonality? Yes, clearly, the semiconductor shortage is putting everything more or less upside down. The industry was Quite confident in mid year that the Q3, especially September, would be a strong recovery after the summer break, But they became clear towards the end of August that this is not going to happen and actually the acceleration of the impact of the Shortage is piling up. Where we had in the Q1 1,400,000 units lost due to this, It was 2,600,000 units in Q2 and it is now at 3,400,000 units alone in Q3 That we are lost due to this shortage and the Q4 so far outlook is €1,400,000 but rising With every update of IHS.
So here, we see many unexpected plant shutdowns or Partial work weeks across Europe, especially China. In Europe, we saw a 33% Climb in September alone on the build rates compared to last year, and last year wasn't the greatest year either. So here, clearly, the industry He's really out of sync and has more problems to get back into the gears. So we expect for Q4 a continuation of that trend. And as Adrian mentioned, it will probably be At 75,000,000 units for the whole year, which is the same low level as 2020.
And the expectation into 2022 was still a bit open, but It could also still last well into 2022 that this ship shortage will continue to hassle The last question was Asia Pacific.
And the inflationary effects on particular in Asia Pacific or the retail customers?
Yes. I mean, if you look at growth in Asia Pacific was actually quite strong and solid with sort of the differences across the region. I mean, particularly in China, we continue to see Very solid growth and this is across the board and but particularly also On the BFM side, on the retail side, in that sense, we have not seen any, Let's say inflationary impact on demand here in China nor in other I mean, where we see more impact, this is really again related to COVID related measures, particularly in Southeast Asia, Where we also have a good distribution and retail business relating to lockdowns Or in Japan, also here being restricted on the business side. But on the inflationary side, we haven't seen any impact to the business as of now.
Okay, perfect. Thank you so much.
The next question is from Arnaud Lehmann from Bank of America. Please go ahead.
Thank you very much. Good afternoon, gentlemen. I guess I have 3 questions, hopefully quite brief. Firstly, on the pricing, I think last time you reported you were talking about Hoping to get to, I think, 4% price effect for the average of 2021. Is that still the case or are you revising this guidance higher now that you're hoping to increase prices further in Q4?
And I guess related to that, are you confident that your customers who have taken a lot of price increases this year are going to be Happy or at least we'll tolerate more price increases, especially now that demand is normalizing. That's my first question. My second question is on the Americas region, actually a very strong performance in the Q3. I remember in Q2, you had Some disruption on U. S.
Chemicals and you lost a bit of volumes. Have you sorted these issues now? Did you I think you had to import some of the chemicals China into the U. S, is it still the case? And lastly, just the 7 acquisitions that you mentioned, Could we have an indication of overall sales contribution on a full year basis?
Thank you very much.
Yes, maybe on the pricing side, Quickly to sort of also here repeat, we have 3.5 percentage point pricing impact year to date From about 2% in the 1st 6 months. So here we're on a good trajectory in terms of Impact vis a vis our guidance from today's perspective, I would see 4% impact for the Full year as the minimum is probably all going to be more as we continue to increase prices. In terms of receptiveness, I think it is very clear. I mean, if you look around and obviously our Customers are faced with this in other areas as well. I guess to call them that they're happy is probably a bit an But clearly, this is something which is very sort of visible not only In Building Materials, but really across the board.
And to that extent, we continue To be successful in being able to increase prices. In the U. S, here on the volume side of the Americas, yes, we had quite A good development in Q3. A large part is also Latin America, where we see good Growth, continued growth across the board. We mentioned a few countries where we have seen specific Strong developments, but also the volumes in the U.
S. Are quite solid. And this being said, we're still faced with, let's say, daily challenges, obviously, to secure All the raw materials in the right form at the right time, I mean, the year, the, let's say, Negative impact or the challenges are not over, but I think clearly managing relatively well If you compare to others.
So question is about acquisition sales contribution. Yes.
And on the overall Impact on an annual basis, we will not see all obviously Being materializing here, Hematite will only come in, in November, but the full year impact is around €340,000,000 of all these things.
Very clear. Thank you very much.
The next question is from Yassine Tewari from On Field Investment Research. Please go ahead.
Yes. Good afternoon. I would have two questions. My first question would be on the appointment of Patricia Hightmann As new Chief Innovation and Sustainability Officer, could you tell us a little bit more about her background? What was the decision process to change the group management?
And what will be our target over the next few years? And then my second question is on cost inflation. What are you monitoring when we look at 2022, could we see a normalization in freight rate? Could we see the supply coming back? Could we see the demand from some material normalizing?
What are you monitoring to assess whether prices could go continue to go up or might normalize than what?
Okay. Let me elaborate on your first question about the change in the group management. For many years, we had strong focus on CTO, on the R and D, on the innovation pipeline, Which is the backbone of our strategy for many, many years. Recently, we added the operational efficiency, Still under the same leadership, also the operations as such being managed through The technology head and then adding to that over the recent years also the sustainability topic, which became much more Relevance has been managed by this single function on group level. And we have clearly seen all these pillars are very vital and contributing nicely to our overall performance, But it is too much and may risk that we lose some focus here.
And therefore, we decided that the Forward looking concerns like innovation and sustainability are reinforced under 1 leadership. With Patricia, we have a strong well known individual with excellent strive for innovation And also driven by sustainability that will have this focus area. And Frank, our CTO up to now, which has presented excellent results on the operations side, He's focusing more on the operational side and leveraging our operational footprint, at the same time also focusing on improvements On other ESG relevant aspects as quality, safety and so on. So this is a reinforcement of the organization giving Clear leadership to future concerns as well as to current concerns as in operations. And maybe Adrian, on the I'd say that
the picture and the trends for next year, what the raw materials are concerned, I To some extent, obviously, it is a bit of a crystal ball reading in terms of the exact impact And the exact development going forward. I think from today's perspective, it is quite clear that And raw material cost inflation will also be prevalent in 2022. Certainly, in the first half year, I think it always it will be a combination of different factors. Obviously, we're monitoring here Feedstock price development, but also any other factor that could impact Obviously, the production of our raw materials. And here, I think we're Well, as close as we can be, given that this is very much forward looking.
Obviously, also the energy side It's something which has or can have an impact, particularly when it is used for production of raw materials. We believe we're, let's say, relatively close in monitoring the situation, but also we I mean, we don't have A clear visibility now and to what extent and how long this will continue In terms of inflationary development and what we particularly focused on is obviously our actions and countermeasures In order to mitigate this situation and then here pricing is clearly one important element, But also having alternatives for certain applications and making sure that we can satisfy demand.
Thank you very much.
The next question is from Bernd Pomrehn from Vontobel. Please go ahead.
Yes, good afternoon. In your presentation published today, you mentioned that sustainability initiatives are positively impacting operational costs. Could you please elaborate on this? What major opportunities do sustainability initiatives provide in terms of cost savings? And then the second question, just can you provide please an update on the targeted CapEx for the current year?
Thank you.
Start with the CapEx. Here, we will Continue to be below sort of the 2.5% to 3% on the CapEx spend for the full year. I would clearly say this is going to be at or below €200,000,000 We will not exceed that mark this year.
On the sustainability and operational efficiency, I think we So an example at the Capital Markets Day, the need for lower footprint products It's requiring that we are revisiting main product lines and upgrade them. And this is an opportunity To really bring in smarter raw materials, and I think we had the presentation of the China Motor Initiative where we are bringing in multiple solutions or let's say, cement solution with 30% lower Geo2, while providing us the opportunity through smart formulation to also bring the overall cost So it is a cost improvement as well as a performance improvement as well as a CO2 significant CO2 reduction. So this drive for sustainability is also touching all products that we currently have in the pipeline And there is an opportunity to upgrade not only the CO2 footprint, but also to look with a fresh I have of eyes into the whole setup and optimize the formulation. So this is a significant Opportunity that we showed at the CMD as one example.
Okay. Okay. Pretty impressive. Okay. Thanks a lot, Thomas.
The next question is from John Fraser Andrews from HSBC. Please go ahead.
Thank you and good afternoon. My two questions, please. The first one on the operational leverage, The non material cost growth that was flagged in the presentation at half the sales growth, Could you just elaborate on that, please, just what's behind that? I'm aware that last year you cut a lot of costs out temporary and have you become More efficient on that as you've grown sales this year. So that's the first question.
And then the second question Is in the end markets in construction that you're serving, you've called out residential as the key driver of the growth in the 1st 9 months. Perhaps you could comment on the non residential sector, whether that's been a drag or static And whether you're seeing any benefit in infrastructure yet, see it was a feature of the Capital Markets Day, but whether you're Seeing that in the numbers we see today. Thank you.
Okay. Let me start with the first question on leverage and operational efficiencies. And these are really the two elements Here driving the good cost leverage on the operational efficiency projects and this is really an ongoing A program where we have many, many different initiatives on local, on regional And on global level to, let's say, drive efficiency across the value chain and the lot is centered around, I'd say production, logistics, footprint and these are really ongoing elements and initiatives And dedicated programs
in the
various areas. And I've also Reported on this during several occasions, but also on the Capital Market Day, this is one of The drivers here of cost leverage and profitability improvement Basically, contributing 50 basis points of improved profitability on an annual Basics. And let's say that the pure, I would call it, Operating leverage is really driven by the fact that obviously the various sales initiatives, be it Cross selling or otherwise have a positive effect in a sense that we don't have to add Additional cost at the same pace as we add basically resources and also Fixed assets contributing here, as you can see, in sort of a flat depreciation and Amortization development this year. I mean these are really the two elements which we basically
Okay. Then maybe I answer the second question On the construction markets, yes, it's correct. The residential market has a slightly higher Growth pace than the nonresidential, this is mainly also driven by incentive programs that are Starting to kick in to upgrade for energy reason, facade, especially Applications are high in demand in countries where subsidies are already in place. This doesn't mean that the non residential business is not growing. It's growing at the lower pace, but Especially when we look at the commercial area and here data centers and distribution centers are high in demand and Providing a lot of healthy growth for us.
And yes, it's true on the infrastructure side. I would say, so far, it's business as usual. We don't see yet the big announcement Turning into an increased level of activity, but we expect this to then show further Probably movements going into 2022, but also there are nothing, let's say, negative, but it's just Not yet showing additional inputs from the government programs that are in discussion or announced.
Thank you.
The next question is from Patrick Rafaisz from UBS. Please go ahead.
Thank you. I have 2 follow-up questions, please. The first one is on Americas and you talked already a little bit About the solid volumes in the U. S. And recovery we're seeing in Latin America.
Looking specifically at LATAM in South America, how far would you say have we come in terms of recovering to pre COVID levels here. What I'm trying to get at is, is there further recovery potential ahead in 2022 or will that be pretty much And the second question is a follow-up on pricing gross margins And raw mats. There were a couple of questions on that already, but given the lag effect of price increases That you see in coming in Q4 and of course pricing is currently running at probably 6% And judging by your numbers, do you think the gross profit margin would sequentially Improve again in Q4 from what you're seeing today? And how long do you think will it take for you To fully compensate raw mats, you mentioned it could input cost inflation could last until H1 2022, but will it take that long as well for you with prices to catch up entirely or could that already be achieved a bit earlier? So will you be back at your usual gross profit margin level 54% to 55% for 2022 or is that Too early
to say.
Okay. Thank you, Patrick. Let me answer the First question on LatAm recovery. It's difficult to say how much of our Exceptional growth rate in LatAm still is less in regards to the recovery. I would clearly see that LatAm He is outperforming because of the, let's say, latest investments over the past 3 years In building and creating there a stronger footprint, the acquisitions that we have done, but also The new leadership that we have in place across the whole region, it's not LatAm alone.
We have a lot of very Positive influence by having the Americas regions using the operational and the logistic excellence from North America, Now also across Latin America and this is driving a lot of the results. So it's clear we are gaining market share In Mexico, in Brazil, in Chile, in Argentina, and this is clearly above what the recovery is. To let's say, to put this in numbers, it's difficult, but I'm convinced the results that we see are the results of the Organic evolution of the organization and the leverage that we have across the whole region America.
Then maybe secondly on pricing and material margin. Maybe 2 elements here. On the one hand, let's say, at least the sort of long term seasonally 4 is not necessarily the strongest material margin quarter. I mean, this is something we have to consider on the one hand. But I think more importantly, obviously, the input cost evolution is still Very dynamic.
So it is very difficult to pinpoint now what exactly the material margin will be. And particularly on the pricing side, as you pointed out, the trajectory is actually quite good. We will continue To also here add additional sort of pricing to In Q4 and also going forward. I mean looking into 2022, Clearly, we see here a continued need also to further increase prices. The development We'll, particularly in the first half year, be that we will continue To increase prices and we have to see how the input cost side is developing.
In that sense, it is Too premature to tell where we will end up in terms of material margin from today's perspective, But obviously the 54% to 55% looks quite ambitious given The input cost dynamics and also the fact that just mathematically, I mean, if you have a substantial Price increase component, even when it's fully mitigating The cost increase on the material side in absolute terms, you will still have A relative impact on the material margin. And with this type of price increase, you can actually see that.
Okay. Thank you very much both.
The next question is from Daniel Jelufcam from Mirabu. Please go ahead.
Yes. Hello. Just have two questions. The first of all, I was quite Positively surprised when I looked at your personnel costs only up 8%, so substantially below the top line. I mean, when I look at the left and right in the world, the whole world talks about wage inflation and I mean, Carlisle yesterday said that it was tough to get enough qualified people and they have to pay much more and so on.
And I wonder why you are so much under control for the personnel cost or is that due for lag effect maybe that you will feel that Maybe especially next year. And second question is, yes, Carla, Today, they said they had 23% organic growth in the Q3 in the construction material
And they
were talking a lot about roofing and reroofing, especially in the U. S. Is that an area where you're not that Strong or are you in different areas? So just to understand The big difference between them and you in terms of growth? Thanks.
Yes, maybe I'll take the first one here on the Personnel cost side, I mean, across the board, I think, yes, On the one hand, I think we managed this quite well. And in terms and I was referring to Operational leverage and not having to add, let's say, as much resources or as many resources as Growth are increasing, so that's one element. If you specifically look at the sort of the wage inflation, there is A certain element of it, if you compare it to, let's say, previous years, there is a bit of a higher Inflation on the personnel cost side, but it's relatively limited. It's also not in all the countries the same way. There is Countries and here I would point out that the U.
S. Where it is more prevalent, But we also work a lot on optimizing and making our processes more efficient in order To be able to mitigate this, I think the let's say, the impact is more than on the customer side to actually find qualified In our labor to actually do projects, we have some of it in our factories, but overall, You have been able to manage quite well so far.
Okay. And then maybe on the second question on Carlyle. I cannot give you details on the 23% on Carlisle, but certainly, our roofing business is Doing very well.
We are in the
commercial in the large projects, less in the residential, Which may be part of the answer why it may be in the summer season and considering especially also last year's A COVID situation, there may be some other elements that are playing a more important or pronounced role for Carline. Our Roofing business is doing strong. We had in Roofing some issues with raw materials availability that certainly is not the secret. This is one of the areas In the U. S, it has been more impacted, but still so we were able to deliver The required volume, sometimes with some extra efforts bringing in stuff from Europe or from Asia.
But our roofing business has a solid growth and it may not be comparable 1 to 1 with the Carlyle business model Being more diverse, we are also more in the new builds than in the renovation and more in the large projects than in the small residential
The next question is from Manish Beria from Societe Generale. Please go ahead.
Yes. So good evening. So my first question is on Europe. So I know it has been asked before, but I will ask it again. So if you see the volume growth in 3Q in Europe that was flat versus 3Q 2019 level, the volumes, yeah.
And it was up 9% in first half twenty twenty one. So there is a huge difference from 9% to flattish kind of In Europe versus 2019, so really what explains that? I mean, I'm still not able to reconcile. I mean, I understand There had been some supply chain issue, maybe 2 percentage off from that. But still, there's a lot of gap to fill up.
So please, if you can explain that?
Yes. Thanks, Manish. Again, on Europe, if you look at volume growth, you're right. It's More or less flat and I was giving the two reasons. I mean, particularly on the availability side, Here we have seen some areas where we have been more limited than in the first First half year.
And so that's really one of the reasons if you look at the also the geographical composition And here I was alluding to Southern Europe, the impact there. And there is also the Middle East where we have seen
a slower
growth in Q3, Which basically is explaining here the difference. It's obviously also not always Quite linear if you look throughout the year. But really not many more specific Reasons here why in Q3 here the growth was more limited than before other than The elements I've been alluding to.
Okay. So, okay, good to hear. So the second question is basically on this Raw material and pricing again. I understand you want to go back to 54% to 55%, but not clear when that will happen. So my question really is here like, okay, there is some inflation that continues.
But let's say, I mean, this inflation doesn't see an acceleration from here. So the inflation the raw material remains at a very, very high level and you are doing this pricing. So the next year pricing will be such That gives you gross margin expansion or really the gross margin expansion really depends on the raw material cooling off from here. So you of course, you explained, I mean, the price cost, I mean, can be neutral, but you can still have a negative impact on the margin. So my question here is, I mean, the raw material stays here.
So will you get to a pricing that gives you some margin expansion, but not only covering the price cost?
Yes. And I mean, if you look sort of
across sort of
a longer period of time in an environment where there is, let's say, stable Input cost, I mean, we typically have sort of a 50%, 75% base points of sort of net price effect. And obviously, this is something which we will continue to drive. This is different across The countries depending on the circumstances and many different factors. But Yes. In an environment where we have stable prices or slightly declining, we can clearly expand our margins.
It is, however, very difficult to sort of pinpoint when this inflection point will be Given all the, let's say, elements out there. And secondly, that's the other element which is really ongoing and it goes into And with operational efficiency improvement initiatives, there is also many initiatives Basically touching material margin in terms of improving formulation. And for example, as we also have talked about examples here, but also specific Procurement initiatives, structurally looking at our
procurement
And also structurally looking at certain recipes From a procurement point of view, very closely working with R and D, so this is also an ongoing element. And last but not least, It's the innovation side, where obviously new systems typically come at the higher margin And then the ones that are being replaced. So also here, this is a continuous gradual effort to Maintain and improve our material margins. And this obviously in spite of the situation now is very much continuing.
And also the last one maybe like I read your press release today, you say 50 basis point Expansion through operational efficiency, but you also add there formulation efficiency and things like that. So the question is really this 50 basis point is just on the OpEx line or it also include your formulation and procurement efficiency?
Yes. Good question. It's only the OpEx line, the 50 basis points, Where we specifically have a target out, yes.
Sure. Thank you. Thanks Manish.
The next question is from Raimo Rosenau from Helvetica Bank. Please go ahead.
Yes, thank you. In Q3 alone, the automotive business was down 18% organically. This must have had pretty strong negative operating leverage in the Q3 alone. So in H1, you had 11% EBIT margin. Is it Fair to assume that in the Global Business in the Q3, the profitability was going down to a very low single digit EBIT margin?
Yes, it is fair to assume obviously that this has an impact On profitability, this relatively pronounced volume impact in terms of having And negative operating leverage. And yes, profitability in Q3 in Global Business was single digit, yes.
Okay. But it was still profitable?
It was still profitable, yes.
Okay. And did I get you right In one of your previous answers that looking forward on the whole automotive situation, your best guess That the Q3, Q4 will not be much changed in terms of the whole supply situation and in the first half of twenty twenty two Probably as well, so that we might end up with global car production. I mean, this is all guesstimating, it's clear. But we might end up with, I mean, volumes in 'twenty one being the same as in 2020 and in 'twenty two probably as well.
That would be a very negative outlook at the moment, €75,000,000 for 'twenty, Probably the same this year. The best guess is around €80,000,000 €81 Marion, but it requires of course that some of these limitations will really recover And it won't happen so fast. So in the first half, probably still we see some issues there, but it Can and will not last forever. So I think to assume a €75,000,000 for next year, that would be very, very conservative and it would also be, I would say quite catastrophic to the industry and its suppliers, at least for those that are fully dependent on that industry. For us, we can mitigate that.
We are working on the future on de electrification. We have higher contents. But of course, we can also not overcome, let's say, the volume effect. And as you asked the prior question, Of course, we also see that we cannot offset things like the build rates completely, but we remain at It is profitable and we can work on the future challenges that the industry still is facing In addition to the short term issues.
Okay. And my last question, apparently, one here is left and right that Chip producers basically select which core manufacturer receives how many chips, also a bit Depending on how they've been treated in the past, I mean, you have many customers in that field. You have some insight. I mean, could you probably Tell us, who is faring better in that sense, who receives a bit more chips than others?
Okay. I tried to phrase it this way and this is maybe a German expression, but as you shout into the forest that it comes back to you. So That means more or less, yes, there are clear differences between the different producers, car manufacturers. Some have a very strategic long term relationship with its suppliers, and I would call the premium manufacturers Into this category, I would also call the Japanese traditionally into these categories. And then you have others that are much more opportunistic that Try to force by sheer force and volume suppliers into, let's say, conditions that are not so favorable.
And the chip suppliers certainly at the moment are on the longer side of the stick and they are not going back to provide those So customers with the same, let's say, attention as the others or the alternative Consumer of these high quality chips.
Okay. Okay. Very interesting. Thank you very much.
You're welcome. Thank you, Remo. Remo, Ramon.
Thank you, Remo, For this last question, and this brings us to the end of the call, we take this opportunity to highlight the date of our next publication. We will publish our sales figures for 20 21 on January 11. And with this, we thank you for listening in and for your interest in Sika. We wish you all the best.
Bye bye. Thank you. Bye bye. Bye.
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