Ladies and gentlemen, welcome to the Sika Half Year Report 20 21 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 has been 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 Communications and Investor Relations of Fika. Please go ahead, sir.
Thank you, Majra, and good afternoon, and welcome to our half year
Results Conference Call. Present at
the call with me today is Thomas Hassler, our CEO Adrian Wietmer, our CFO And Christian Kukan, our Senior IR Manager. He published our half year figures 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 first half year. Thomas, please?
Thank you, Dominik, and welcome everybody to this half year update of Zika. I guess for most of you, this is a standard procedure. For me, it's the first time and the premier. So I'm excited To be able now to present to you the 1st 6 months results of Zika, and I'm also excited that I can start with Records results on all key figures for the 1st 6 months. On the top line, We grew 23.5%, very strong, especially we have seen very strong growth momentum in China, In some European and American countries as well as an exceptional wealth business on residential and distribution Overall, we are gaining market share, which is our utmost Target, we grew above market level based on our strategy, the pillars that we have outlined in the strategy 2023.
This contributed, of course, and also together with our operational leverage, our efficiency initiatives And the synergies from M and A to a record operating EBIT of CHF685 million. And for the first time, we have crossed the 15% EBIT margin with 15.4%, Another record. But then also further down, this was also in the free cash flow and over proportional Growth of 26.4%. Nevertheless, it has to be noted that the 1st 6 months, We were not a stroll in the park. We had a lot of challenges.
Here, of course, the supply chain situation disruptions, the various Disruptions to supply and logistics have also impacted our business. I would start there probably On the customer side, where customers and here particular automotive was hampered by unavailability Of semiconductor chips and other commodities, which led to a €4,000,000 Loss of vehicle build in the 1st 6 months, they recovered nicely from last year, but the €4,000,000 would have been the demand that they couldn't Supply and of course and also for us is a lost opportunity. Other businesses were also impacted by this And of course also we had a tough time securing the availability of our raw materials To make sure that our customers can be supplied on time. But through the organization, we took firm, early and decisive actions To counter this momentum from sales to operations, procurement, R and D, the whole organization Was engaged in offsetting these supply chain challenges and Ultimately, we were able to deliver these outstanding results. We do have other highlights in the 1st 6 months, which I would briefly outline Here on the M and A side, we had 3 acquisitions closed in the 1st 6 months, Kratz in Russia, Iamasa in Brazil and Wipec in the USA.
We also signed the acquisition of Hematite Adhesives in Japan, which we intend to close in Q4 2021. Overall, you can see there is now again Much more action ongoing on the M and A front when we compare to 2020, where we had a rather low Activity level due to COVID. In addition to that, we also expanded further on our Organic footprint and build up production facility in Sweden as well as in Qatar. But our investments also go into our Innovation pipeline and here we made the announcement with our very innovative recover Process in processing concrete waste materials into raw materials for future Buildup of cement structures. We also reinvest in our organization.
Our organization, our 25,000 employees Are the ones that are carrying this company forward and we celebrated on June 11 at Global Seeker Day where all Employees participated and we were joining in activities locally and add activities From local social engagement like we see here on the picture in Algeria at the beach, cleaning the beach To barbecues and so on, it was a day to come together after a long COVID period where we had to stay And this was a great event also reinvesting in our organization. With that, we have another highlight that we announced earlier this week, the acquisition of American Hydrotech. It's not related to the 1st 6 months, as I just mentioned, it just happened this week, but it's another highlight, another investment into the future, Showing the green roof activities in North America where American Hydrotech has a leading position, Roughly 30% of the market share in green roofs and this is a position for us to grow further in this fast growing Segments where Green Roofs are going to play a much more vital role going forward. And Zika has the leverage through its organization in North America So now I hand over to Adrian to give you a bit more insight And to the set of figures that we have communicated
earlier. Well, good afternoon. Good morning, everyone, and thank you, Thomas, here For the business summary and the highlights, I will now give you further insights into the financial results. Let's start with the top line again. We have, as you have seen and heard, delivered strong Double digit growth in all the regions in the 1st 6 months of the year with a local currency growth of 23.5%.
Organic growth was 22.4%, while acquisitions added 1.1 Percentage points that in addition, this growth represents the residual impact of the 2020 acquisitions As well as the initial contribution of the last transactions as just highlighted, namely Dry Tech, Crepes and Beyond Muscle. Currency effects were relatively mild, reducing the local currency growth by 0.4% only. Negative currency development was primarily owed to a weaker sorry, to a stronger U. S. Dollar and the number of emerging market currency.
Corresponding growth in Swiss francs was a strong 23.1%. In looking at the regions, we have the region EMEA, our largest Regions which grew 24.1 percent at constant currencies. Organic growth was also here very strong, 21.9 On the back of very solid growth across the region, particularly distribution business As well as renovation activities in the residential sector were very strong. Growth was most dynamic in Europe South, At the U. K.
And also the African continent. While the pandemic impacted Q2 last year provided An easier comparison, organic sales growth in comparison to 2019 was also double digit And the residual acquisition impact of Adiplast Modern Waterproofing As well as the newly acquired CREEP in Russia contributed another 2.2 percentage points of growth. For a change, foreign exchange effects were mildly positive in this region in the 1st 6 months at plus 1.1%. Region Americas, also Region Americas recorded a growth in local currency, which was quite Strong 19.5%, primarily organic. We saw a strong bounce back in development In Latin America, namely Colombia, Brazil, Peru and Chile throughout H1, While the U.
S. Was still a bit muted in Q1, but gained good momentum in the second quarter, Particularly large scale maintenance projects and new distribution and data centers were key drivers here. Foreign exchange effects continued to weigh negatively in the Americas in H1 with a negative impact of minus 3.7%. Sales in Asia Pacific increased by 26%, driven by China with strongly double digit growth rates across the board, Particularly further increase of the available point of sales and the focused drop in shop strategy contributed to the strong sales growth. Southeast Asia and particularly India showed a partial recovery despite the prevailing difficult situation Due to the pandemic, the situation was more difficult in Japan where the government stepped up lockdown measures To keep infection rates low in the run up to the Olympics.
Also here foreign exchange impact mildly positive at Finally, in the global business, as mentioned by Thomas, this segment achieved A growth of 27.6 percent in the first half year and here while the volumes recovered compared to The pandemic related shutdowns in Q2, the automotive industry experienced major bottlenecks in the supply chain for semiconductors. Also, geographical and OEM mix was unfavorable in the first half, but has started to reverse in Q2. And here, foreign exchange impact remained negative at minus 1.2%. On gross result level and now we're sort of moving down the P and L, material margin Contracted by 130 basis points to 53.3 percent net sales. And this was primarily driven by Strongly increasing raw material costs as a result of the global supply chain disruptions and strong demand.
Through formulation efficiency initiatives, structural procurement savings and particularly pricing actions, we were able to mitigate a large portion of Acquisition related dilution resulted also contributed a negative 20 basis points And to the lower material margin. On operating cost level, this includes Both personnel costs as well as other operating expenses, they increased only On the proportionally by 9.1% in this versus a sales growth of 23.1%, Due to a very strong operating leverage, disciplined execution of the many operational efficiency projects across The organization and functions as well as the continued good synergy capture related to Parex and the other acquisition. As a result, we were able to significantly increase the EBITDA margin to 19.5%. This is up from 16.4% in 2020. As a result of the reduced CapEx in 2020 and the limited Position impact in terms of intangibles, depreciation and amortization expense decreased slightly in absolute terms to €181,100,000 in the 1st 6 months, providing further leverage.
And as a result, EBIT increased very strongly By 67.2 percent to €685,900,000 And a record EBIT ratio of 15.4 percent also here strong increase compared to the previous year, which was 11.3%. If we move below the EBIT, net interest expense also decreased by 15.6% Compared to the same period of last year to CHF 21,100,000 and this is related to lower debt and higher interest income, Whereas the other financial expenses decreased very sharply by almost CHF 10,000,000 from CHF 14,000,000 in 2020 To SEK 4,400,000 in the first half year of 'twenty one, this is primarily due to much lower hedging costs And also lower foreign exchange valuation impact. Overall, net financial expenses decreased Very strongly by almost 35%. Looking at the group tax rate, also here we had a slight decrease From 25.8 percent in the previous year to 25.1 percent in the first half of twenty twenty one On a slightly positive country mix, but no major impact otherwise here. Also here as a result, net profit increased strongly over proportionately to 70 9.5 percent to a record level of CHF494,700,000 For 11.1 percent of net sales, this ratio is up from 11.6% in the same period of last year.
On the
back of this higher profitability and modest capital expenditure level As well as a disciplined yet higher net working capital buildup and this is related to the strong volume development, Operating free cash flow even exceeded the strong previous year level and increased by a further CHF 67,000,000 To SEK 318,400,000 for the 1st 6 months of the year. The balance sheet at the end of June 21, therefore, shows a healthy cash balance of DKK1.13 billion, which is seasonally lower than at year end Due to the aforementioned seasonal working capital buildup effect, but also to the dividend payment of DKK 355,000,000 Back in April, as a result, however, net debt only increased by SEK172,000,000 compared to year end 2020 to CHF 3,030,000,000 financial leverage based on net debt Compared to a trailing 12 month EBITDA, reduced further to 1.7 turns On a reported basis, this is down from 1.9 turns at year end 2020. With this, I conclude my remarks to the financials and back over to you, Thomas, for JAPL.
Thank you, Adrian. Coming to the outlook for the fiscal year 2021, Here, we are positive and confident regarding the full year outlook as indicated in prior statements and in line with our long term Strategy, we have on the top line further narrowed in our double digit growth expectation To a mid teen number of 15%, plusminus2%, and we remain confident regarding Our bottom line evolution providing over proportion of increase in EBIT and also reaching 15% EBIT margin for the first time in Zika's history. Looking further out, we can absolutely Our long term strategic target for a sustainable, profitable growth as outlined in our strategy.
Okay. Thank you, Thomas. And we are now ready to take your questions, please.
We will now begin the question and answer session.
The first question
is from Yves Bromhed from Exane BNP Paribas. Please go ahead.
Good afternoon. Thank you for taking my questions. I'll have 3 if I can. My first question is on margins. Can you maybe help us to understand how we should think about margins in H2 Given the rising inflationary headwinds in Q3, and at this point, given what you're seeing in terms of raw materials, Is it fair to assume margins in H2 should be lower than in H1?
Or do you expect an improvement sequentially? My second question is the divisional margin evolution. There's quite a big difference between Europe and Americas, Has improved in H1 still at very high levels versus the Asia Pacific and the global business, which saw some sequential margin versus H2 2020. Can you maybe give us some color here? And I'll leave my last question maybe to the end, if that's okay?
Yes, Yves, maybe I'll continue here With the second question you had on sort of the raw material and evolution, it's clear The situation is quite volatile and dynamic given the disruptions Here we have been facing it and still obviously difficult to predict The exact magnitude and particularly when the impact will be peaking, We are clearly driving price increase this year to mitigate the situation. I think we're On a very good track, but it is fair to say that raw material costs will continue to go up, but so will our Pricing impact in the second half year as we have already initiated quite some strong Actions and more will follow. And maybe more broadly on the margin evolution, Obviously, we are delivering here on all the different buckets of basically Our model, I mean, we have operational efficiency, which will clearly continue very good traction there To deliver the 50 basis points also in the second half year, we have an additional contribution On the M and A side also here integration activity, synergy realization is going Quite well. And we will also see further operational leverage. Obviously, the comparison will not be Quite as easy as last year given the recovery we already had in the second half of last year And also the quite low cost level, but there will be further leverage to come in the second Happy as well.
And on the material margin, again, the expectation is not that we will have a Significantly bigger additional impact looking out. There is typically Sequentially, the second half year is a little bit lower than the first one on the material margin. But as I said, input and cost development is still quite volatile and not entirely Maybe just a couple of words on sort of The regional margin development, I mean, if you look across the regions, we have actually, in all the cases, quite A strong increase compared to 2020, the first half year. There is a different, let's say, seasonality typically depending on the region. So it's not quite fair to, let's say, compare it To the second half, the better comparison is to the first half of the year.
Typically, as there is quite some differences, the direction in all the regions is quite clear. But we also have a somewhat different impact on the material margin side. But overall, we're actually quite Happy with the development in looking at all the rigs.
Thank you, Adrian. Maybe just a quick follow-up on the first question. I mean, at the Current spot levels of raw material, assuming they stay at this level when your price increases goes through, would you expect margin in H2 to reach at least the levels of H1?
Yes, I mean, obviously, the spot levels are typically not sort of the best indicator for our Business as we if we don't obviously have to don't buy spot typically. Some of the spot levels have peaked, but Still very different development also region by region, material by material, and I would still expect Somewhat bigger impact in Q3.
Okay. And maybe just one last question for Thomas. Given your previous experience in the global automotive, Can you maybe share your vision and strategy for this division and where do you see the attractive opportunities medium term? And thank you very much.
Yes, I mean, there we have to decouple a bit the short term, let's say, turmoil in the automotive industry from the longer term Evolution of this industry, this industry is moving away from additional combustion Driven vehicles into electric driven vehicles, we have outlined that this even further Let's say increases the potential for us to participate in this industry and we have also made Major progress in this regard on the battery side, on the charger side, but also on the Traditional conventional technologies, which also slightly change the adhesives, the usage of adhesives, the acoustic Counter measurements, they need to be tuned to the new setup of the cars and that again gives for us Provides for us great opportunities as we have the competencies and the solutions to adapt and provide therefore And more value to these vehicles. But absolutely, we are far from the peak production volumes of 20 'seventeen, 'eighteen where we reached €95,000,000 last year that was €72,000,000 this year It may be €82,000,000 but could also be €80,000,000 I'm not too optimistic about the fast recovery On the supply situation, we still see that Q3 will have an impact. So we should not be derailed by the short Term issues, long term, this is for us a fantastic segment to be in and we have a strong position also To support this industry into the future, into the CO2 neutral future of the cars.
Thank you so much. Have a good afternoon.
The next question is from Yassine Touare from On Field Investment Research. Please go ahead.
Yes. Good afternoon. I would have two questions. So my first question is that we've seen many building material within it Along with private equity funds that have accelerated the purchase of consumption chemical assets over the past couple of years, Do you see more competition on merger, on acquisition? And in this respect, could you share the average multiples That you paid for your recent acquisition or maybe give us some color on the returns that you expect From those operations.
And then I would have the second question, which is related to raw material. It's a bit crazy at the moment. What are you monitoring in terms of potential normalization? Are you going to what could be the trigger for raw material costs to come down? Is it related to The container liners, is it related to force majeure issue?
Is it related to the oil price? If you could give us a little bit more color about what we should monitor to better understand the development of the raw material situation.
Yes. Well, thanks for these questions. Let me take the 2 first On the M and A side,
I
mean, we continue to operate in a very, very fragmented industry, I mean, to start I mean, you have seen our sort of strong execution on the M and A pipeline, which is actually and continues to be Quite full at various stages, and we have now also been able to increase execution speed again. Of course, there is competition in these transactions typically. But with many, We have actually quite a strong and longstanding cultivation, which sometimes goes over A number of years, and we continue to see very good opportunities for us and also our ability To continue to execute and close transactions from this regard, no Major change compared to a couple of years ago. On the multiple side, I would say it's It's fair to say there has been a bit of a rerating, but it's not been, I would say, excessive In terms of the multiples we pay, we're anyway not too hung up on sort of static multiples. We look at each Individually, what it will bring as a platform, as an additional growth driver, but also on the cost And synergy side, and we continue to see quite good opportunities, and there is still Also quite a big range of multiples, which is typically sort of
Okay. Maybe then your question regarding the raw material, I picked it up. It would be almost too easy to say we do have the one indicator to pick. What we can clearly say is that It is very, very different from the regions from Asia, China or outside China, Asia from North and South America and Europe. So we have to stay very close to the base chemicals.
There, the force majeure play a role, but this role is really the more regional We can clearly see also that the traditional, let's say, shortages and then the Importation from other regions is not happening at the moment. So that's why these shortages Tends to prolong longer than usually and also that the return to normality will take more time. Therefore, our expectation that Q3 is kind of going to be the peak doesn't mean that Q4 is normal. It will just be A bit better than Q3, hopefully. But here really, we have to look at all these regional aspects Well, for instance, in EMEA or North America, some of the raw materials are actually on allocation.
They are still available on a high price level in Asia. And for us, I think we cannot change those circumstances, but with our global footprint, we have done Quite a good job in making sure that we help each other. So we bring raw materials from one region to the other to help out and compensate The in availability are also the peak pricing in certain locations, but there's not one That really drives it across the globe. This is very, very specific to the situation. There are few suppliers of basic chemicals In North America and Europe and China, in Korea and the situation is different from those places to each other.
So
very strong increase in shipping rates for containers have an impact on your cost. And could we see a normalization of the shipping rate in the coming into next year or maybe in 2023
Okay. I got the question. I hope you can hear us as well. So yes, good point. The Notation limitations are not going away so soon.
We don't see a free up. Actually, we see Further increasing costs, the containers are not coming back, the ships are not coming back as we would hope for. So this is going to last into 2023 and the short lead times that we used to have and let's say Rather modest transportation costs between the regions, this will probably not come back also in 2022. We have to expect that To remain a challenge.
Thank you very much.
The next question is from Matthias Pfeissenberg from Deutsche Bank. Please go ahead.
Yes. Good afternoon, gents. Two questions from my side. Sorry to come back on the margin point. I appreciate you mentioned, obviously, higher input costs in the Q3.
But last time I heard you say that you were going for price increases of 3%. Now before we spoke before the Quarter, it's I think you're now going for 4%, so incrementally better. And also the higher top line guidance would suggest Even better contribution from operating leverage. So is this really what's happening in terms of material margin? Do we expect Do we have to expect a weaker margin in the second half?
You said previously that material margins on the full year basis would Trend down to the lower end of the 54% to 55% range. So are you now saying it's rather going to 53. Or am I missing something in terms of mix? Or related to that, maybe do you expect the Strong residential and distribution momentum to slow down. Are you already seeing something like that?
Thanks a lot.
Thanks for the questions. I think coming back to sort of the input cost dynamics here and Already, as you know, previously indicated, it's been very sort of difficult to have sort of clear visibility, Particularly on the time line what the impact will be, I think it's fair to say that the dynamic As certainly still stayed quite high and as commented, we expect this to be A bit more prolonged, hence, also the yet again increased Action on the pricing side. But I think important to understand is that this is A temporary effect. And I would also, from today's perspective, say that we will stay obviously below 54% for the full year, but we will continue Our path here, we will compensate this. At some stage, we do this in a sort of very sort of measured And sustainable way and particularly when it comes to the tipping point where input cost will A decline again, we will be able to retain that benefit.
So it's more a timing and therefore it's also Relatively difficult to exactly pinpoint the quarter impact this will have, but we are here basically on a very Good track in our execution.
And then your second question was in regards to residential and distribution business. Here, This is certainly a key driver during the pandemic that we saw much more momentum there than in on-site and on Large projects, it's still going strong, but it's correct that we also expect that it will rather than Come down a little bit in the future. It won't stay on that level. At the same time, of Of course, we also see now clear indication that investments from private and governments are picking up. Projects are coming again To the forefront, especially in North America, we have some very good momentum also in Europe.
So this is To us, not a concern. It's just the balance of the 2 that will generate for us, let's say, the underlining base market growth. And then with our activities where we want and are above the market trends, this will fuel future growth Independent on these two segments evolution.
Yes. Okay. Thank you. Fair enough.
The next question is from Shadrim O'Bosha from Citigroup. Please go ahead.
Hi. Thank you for taking my questions. Just two, please. You provided some commentary around the weakness in the APAC margins. And I think you highlighted that there was some integration costs.
That related to the Paris integration and putting Decaf products in high number of stores. And if that's the case, can you confirm an update as to how many schools that we are with Zika products? And how should we See this margin tracking in the coming years as the integration continues. And then the second question is, Apologies, back on the margins. Given that the second half is expected to be A bit more of a headwind in terms of raw mats.
So potentially lower than the 54% 54% to 55% guidance range. As I said on the other hand, you kept your EBIT guidance at 15%. So is there something that you're doing between The material margin and EBIT line, that's helping you or giving you the confidence that you can achieve that 15% still. Just some thoughts on that would be helpful. Thank you.
Yes. Good. Yes. And on EU Pacifico, the regional margin again, it's I mean it's not so much a question of onetime costs, but also if you, let's say, compare The development of the margin in Asia Pacific compared to last year, I mean, we had about a sort of a 300 basis Points improvement here relatively speaking, which is actually quite similar to the other regions. EMEA was a bit higher.
I think here, we can, let's say, see that obviously quite good The development on sort of efficiency and leverage, whereas in Asia Pacific, and you mentioned it particularly the sort of Former Parex business, we're obviously continuing to invest in growth where the leverage It's a little bit less pronounced, but obviously very strong growth, increased penetration. As I mentioned before, we're quite happy With the development overall, it's just some sort of regional differences. If you go back and compare it to 2019, we have obviously additional amortization effect in here coming From M and A and then here, obviously, Parex, we had a large impact in Asia Pacific as more of 50% of the Parex business is actually in that region, again, most notably in China. But overall, actually quite a good development. On the overall EBIT guidance in here, very clear.
We sort of absolutely continue To be very firm and confident on this 50% level, again, As said, the second half from a, let's say, operating leverage perspective, Given the strong recovery already in the last half year second half year of twenty twenty It's a bit less pronounced, but we will continue to see leverage. We'll continue to execute on the other areas, which will I also contribute here. And then obviously, we have the material margin impact, which particularly in comparison to the second half year of Last year, where we were at 55%, which is historically, clearly, the high point and was driven by Still declining input costs last year is a bit more challenging. But again, mostly timing And therefore, we believe we're quite well on track.
Thank you very much.
The next question is from Arnaud Lehmann from Bank of America. Please go ahead.
Thank you very much. Good afternoon, gentlemen. 3, if I may. Firstly, on COVID cost. I mean, I'm sure you haven't been traveling that much in the first half of this year, but I guess things are starting to get back to normal progressively.
So how much, let's say, savings did you have in 2020 related to COVID around travel and marketing? And has any of that come back in the first half or when do you expect it to come back and what could be the order of magnitude? Secondly, very impressive performance on the top line in the first half, including in the second quarter. Do you think CICA gained market share relative to some of the competitors in the 1st 6 months? And is that the case In which we join in particular.
And lastly, if you don't mind saying a word on your recent announcement around The recycling of old concrete technology, how that works and how much potential could this business have? Thank you.
Thanks, Arnaud. I'll take the first two ones. On COVID and that Or the related costs, it's probably the question how you look at it. In terms of, For example, the positive impact we had last year on reduced, let's say, salary and labor costs Due to the sort of the various programs available worldwide, we had a Decrease in cost or a positive impact last year of around CHF 26,000,000 in the first half year, which was not Available again this year across the group. In terms of travel costs, we're actually Still, if you compare first half year, first half year at around the same level of last year, obviously, a bit in terms of quarter, certain increase in the Q2, whereas in the Q1 last year, we were still at sort of The normal level, it's actually quite balanced.
This will continue to increase slightly, but also not expecting this to Go to the 2019 level in the Q3. So it's rather a gradual increase Again, to sort of more normal levels. But overall, I think we're managing this in a quite a disciplined way in terms of For the cost build up and particularly in combination with all these efficiency programs we have running.
Okay. And then coming to the question regarding our concrete recycling Process recover as we launched this earlier in H1. We are now building up the 1st industrial Plant in this regards, we have prototype plants going, which indicate A very strong case here that we can, through our chemicals, make this process Not only efficient, but also that the output, The fractions that come out of this process are of higher value, meaning active ingredients, which can We placed into concrete as supplementary cementitious material and this is one element where we Can, let's say, monetize this process. And then another very interesting aspect and still to be verified But in this process, we can roughly bring 50 kilograms of CO2 back into The mix and it will be absorbed by the recycled material and also act as active ingredient In the output, this offers, of course, for us the possibility that we can hear Go into the certification of the process and again add value for the user of such plants. And thirdly, it can be clearly noted that with our info campaign, we have generated a very high interest From the market and we are here now working with many strong partners Bringing this as fast as possible into the next phase.
Very promising, but still to be said that we still have to do some We'll work on the verification, but exciting project, top innovation from Sika.
Thank you very much. Just my question around market share, do you think you can gain market share in the Q2? Absolutely.
That's our underlying measurement. How we look into the different segments, we have our, Let's say baselines and we monitor how we are doing against those baselines. In some industries, it's by, Let's say, given standards from the market in other such build rate like in automotive. So absolutely for us internally, we want to see that we grow above the market and That's in most cases also what we see delivered in the 1st 6 months of 2021.
Thank you very much.
The next question is from Sadar Ekblom from Morgan Stanley. Please go ahead.
Thanks very much. I've got one question on your China business. You've delivered a very strong increase In your store rollout in that region over the last couple of quarters and it continues to be a very big driver of the revenue growth I wanted to understand where you think you are in the organic growth story in China. How many more quarters Of double digit growth, do you think we can look forward to from an organic perspective? And then can you also talk a little bit about how you see the M and A opportunity in China, is that something that you would look to in that market or is your strategy very much focused on organic growth there?
Thank you.
Okay. Can I take the question, Adrian? On the store penetration of the rollout in China, This is again, this is a market that is by itself growing very fast. There is Change from on-site to pre bagged solution, so this by itself It's giving us a growth potential of, let's say, 4% to 6%. And then we have a very aggressive Growth plan, we certainly is expecting double digit growth also in the coming years.
For how many years? That's a bit loaded question, but the expectation is that the underlying business evolution We would support this and we are also investing in this regard. So as you mentioned, the stores, but also Footprint, the extension of the footprint is a top priority for us. So we see our opportunity here to play An important role in China in this specific segment. Then in regards to acquisition, Acquisitions are a topic everywhere.
We see them as a mean to further accelerate and extend our Organic strategies and therefore also in China, this is absolutely an option. And I just remind that we what is it 18 months ago or maybe 2 years ago, we made an acquisition into an adhesives company in China. It has very well performed. It is nicely integrated. So we don't see any reason why we would exclude China, even so, let's say, the prospects, they look a bit different than a typical European or American company, and We have to deal with certain, let's say, issues or situations, but we have a strong team in China.
We can handle this. We can integrate and therefore China is clearly a market for us also up for acquisition.
Fantastic. Thanks very much.
The next question is from Patrick Rafaisz from UBS. Please go ahead.
Thank you, and hi, everyone. Two questions from me, please. The first is on the Growth outlook or guidance, you provided 13% to 17%. Now given the 23.5 percent you reported for H1. This leaves quite a wide range for the second half.
What are your scenarios for the lower end, the higher end of that range in terms of local currency growth? Is it really the pipeline execution, M and A? Or is it also uncertainty around the organics? Then the second question is On the acquisition this week of Hydrotech, do you also see an opportunity for green roofs Outside of the U. S, is that something you would be looking to roll out across the globe as well?
Thank you.
Okay. Thank you, Patrick. And absolutely correct, the AeroMatics works. Of course, in this case, we have an expectation of 4% to 11%. That's the range for the second half to make up I will meet team expectation for the full year.
And yes, in here, we see some, Let's say further recovery possibilities, which would push it up to the upper range, but we also have to be cautious. We see that The pandemic is by far most behind us and some markets like Southeast Asia are going in the wrong direction. We have there Further lockdowns and the incident rate is coming up. The vaccination rate is rather low. Questions around The effectiveness of certain vaccinations, so most of China is not excluded, could become A topic so we have many, many factors that we have to factor in.
As mentioned before, we see that on the automotive side, for instance, Rather compared to last year, a negative probably evolution in the second half. So far from normal and therefore, I think the range of 4% to 11% is actually pretty narrow and considering all these Variation.
How much M and A would you build into that?
I mean, we have the M and A's that have been announced that includes also our Latest one, the Hyboh Tech announcement. So that's in, but other than that, we cannot factor M and A in that we have not yet
Closed.
Okay. Thanks.
Okay. And then to your questions in regards to Green Roof, Here, I would say that green roof trend has its origin in Europe. We have many more Greenhoofs in Europe and in North America. North America, I would say, is just about to get started. That's why we are also excited that we can leverage our competencies from Europe over to North America and further Utilize this platform, it's of course demand driven.
And in the past, the demand wasn't that Big in the U. S, but certainly with the regulations changing, with the billing codes changing, There is a lot of momentum there and I think we are spot on with this acquisition to benefit from the growth potential in North America.
Okay. And did you already have The green roof business in Europe, that's sizable enough that it's worth mentioning?
The roofing business in Europe is a little bit different in its structure than in North America. North American Roofing business is very much system driven. So that means you're selling full system. Well, European roofing systems are more divided into different components. And there we participate with our solutions, but less on complete systems like the Hydrotech, which offers a complete system.
But that's again the markets are different in Europe than in North America. Yes, we absolutely, we are in the great growth in Europe, but not the same way as in North America to bring it to the point.
Okay. Thank you. Thank you very much.
Next question is from Mark Meyer from Baader Helvea. Please go ahead.
Yes. Good afternoon, Thomas, Adrian, Dominik and Kristine. I have four questions, So 2 add ons and 1 and 2 more in detail. Maybe I'll start 1 by 1. Can you quantify the effect of The chip shortage at your automotive customers in the first half and also what do you expect for the second half?
That would be helpful. Maybe as the first question and follow-up with the other questions afterwards.
Okay. Here I can give you quite Precise numbers because these numbers are collected by IHS from the car manufacturers. In the Q1, it was 1,400,000 units that were impacted. And in the Q2, it was 2,600,000 units that were not built due to the shortages. And there is a rolling forecast, which currently comes close to €1,000,000 for Q3.
You have to see these numbers are updated every month and I can just give you an indication. 1 month ago, the indication for Q3 was down at 300,000. So now we are close to €900,000,000 almost €1,000,000 So if you ask me what will it be in a month, it's probably Again, above €1,000,000 but these are recorded by carmaker, by model and so on Through the association.
And this is also then linked to the volumes or the demand you see from your customers because normally you're growing 7% to 10% ahead of the market. So that's basically linked then also to your demand.
Yes, absolutely. Yes, clear.
Okay. Then my second Question again would be on this market share gain. You already answered this. But can you give us Any specific regions or competitor groups, maybe smaller competitors? Where you have gained market share, I guess, That smaller competitors might have had more supply chain issues than you.
And as such, you might have then chances To get market share and also how sustainable do you think are this market share gains you have had in the first half?
This is a bit tricky. This is similar to the question on the raw materials and the indicators. We are very close to the market, Which means when we talk country by country, we are very specific. Also our, I would say, M and A activities give us A very good understanding. Our management locally has a very good understanding on the local situation, Who is participating to what percentage in which segment?
And then, of course, we are following up on those figures And do this with the individual countries to compare the evolution of us versus the Rest of the market. But this is really only, I would say, in automotive where we have precise numbers globally speaking by customer, by By region, that's probably the most precise, but when it goes down into the construction segments, we rather than take the French, the German, The U. S. By itself and look at the specific market figures, there are also numbers from the associations, but then we have to break it down more specifically into our real competitors and the market participants.
Okay, understood. Thank you. Then my third question would be on D and A and CapEx. D and A went down somewhat and not somewhat A little bit basically. What should we expect then for the second half or the full year?
The first half D and A, good run rate for the second half? And given this high demand, we currently see are there any changes from the CapEx Guidance assumptions for this year or for the next year and also then potentially also for D and A for next year?
Thanks, Markus. I'll take this one. Obviously, last year, we had a lower Then let's say average CapEx spend, we're also quite restrictive On newer projects, that's also something you can still see in terms of the cash out in the first half of 21, I would expect that the second half is going back to, let's say, more normal levels in isolation, which means 2.5% to 3% of sales. And in combination for the full year, I would probably And I'll expect a cash out that is meaningfully more than 2% of sales. Okay.
Thank you. That's very helpful. And then last question again on this concrete recycling. If I remember correctly, also BASF has such a technology now owned by Lone Star. Can you explain me the difference of Few technology versus the BASF technology.
And if I remember correctly, BASF already presented this technology At least 2 years ago, and therefore, I'm not sure if you are the market mover advantage or if BASF technology is already in the market, Maybe some more information on this would be helpful as well.
Okay. Maybe we take BASF out of the equation This is no longer related to BASF, it's NBCC, that's the name of the Lone Star Acquired company. And I assume you are referring to the NBCC LC3 Technology.
Yes, exactly. That was the name.
Yes. That's a different process. That's not comparable to our recover process. LC3 is another way, But it's not it's a way, a path to reduce The cement by bringing in calcinated clay and replace the cement in this Our process is taking the waste material, breaks it down again and makes it an active ingredient. It's not Just, let's say, separation, milling and recycling.
These two processes have Nothing in common, but of course, in common is the drive to reduce the cement consumption for For concrete and there are multiple ways and LC3 is also something that our R and D is working on helping our customers To reduce their footprint, so we have absolutely no, let's say, Bad feelings about it. It's just a different approach and many other companies are also engaged on the LC3 Many companies are also engaged on the crushing concrete recycle, But again, that's questioning that's recycling in the traditional way and our recover processes is really unique and different
Okay. That was very helpful. Thank you so much.
The next question is from Manish Berya from Societe Generale. Please go ahead.
Yes. Good afternoon. So I will take Question 1 by 1. So first question is on the M and A. So I thought at the start of the year, you were talking about doing couple of large deals, But it seems you're progressing well, but still a smaller one.
So just any update, I mean, you're still pursuing those large deals or It has not worked
out. Okay. Well, let me take this. I'm not sure whether This came across in the right way. I think we have been commenting and this Continues to be the case that we're obviously that M and A for us continues to be very important to Look, we delivered additional growth platforms that our pipeline is quite Full, we had some limitation in execution and continue to do so.
I mean, given The market composition, the fragmentation, the number of or the large Number of transactions will always be smaller and midsized deals. But obviously, we are also looking And are open to look at somewhat larger transactions. There is not that many available that make sense. And this is, of course, also something we continue to do. And I think I would put hematite into that And basket or bracket transaction that will close sometime in Q4, but clearly, we're not limiting ourselves to the small bolt ons, but continue to And work across the spectrum.
Yes. Thanks for that. The second one is also on the margins, but not really talking About margins, but in another way, so we know the pricing. So you did 2% pricing in the first half. You say 4% pricing For the full year, that implies 6% pricing growth in the second half.
So we know the pricing more or less. So raw mat is 5% higher in the first half. So what is the raw mat Inflation in the second half, is it 10% or much above that?
Yes. Again, So it's a bit crystal ball reading given the evolution, but also The regional differences Thomas was alluding to, again, we assume that the material Cost inflation in the second half year will be higher than what we will see in the P and L in the second half. But How much exactly in which quarter is from today's perspective, very difficult to say. Again, very important message here. I mean, we continue to do this, particularly on the pricing side, in a very Sustainable and targeted way and we also obviously adapt our Pricing level depending on the evolution here and eventually we will be able to catch up and Basically, deliver the full pricing impact, mitigating and reversing that margin trend.
So if I'm getting you correct, you are saying the second half gross margins will be better than the first half twenty twenty one margins, correct?
What I said is that the let's say, the input cost Increase compared to the first half year will be higher in the second half, probably Peaking in the Q3 and obviously price impact will also go up. The timing It's a bit difficult to say. On a full year basis, as I said, we expect This to be below the 54%, but we should not be dropping below the 53%.
Okay. I understand. And also if you can quantify the scope impact on EBIT in first half 2021, so what was the acquisition that you have done? So what was the impact on the EBIT from those acquisition in the first half?
Yes. On the EBIT, that's very, very limited. We had about a $45,000,000 sales impact. And typically, EBIT levels, particularly initially also Given the PPA is clearly below the group average, so it's only a few or a couple of million.
And the last one, so just trying to understand, I mean, you have already given your guidance about this Operational efficiency that will bring you 50 basis point margin expansion, then there are formulation and procurement efficiency. So just to get it right, I mean, this is different from the operational leverage, I mean. So whatever the volumes you get, you will get some margin improvement because of operating leverage. And this is This operational efficiency, formulation efficiency is top of those operating leverage. Is that correct way of thinking?
It is correct that these are 2 different things when we talk about the operational efficiency initiatives. These are Structural and continuous specific improvement initiatives, which we do on local level, there is Also regional and also global programs, but dedicated initiatives, which will lift EBIT margin on an annual basis by 50 basis points. And here, we're very well on track to deliver this 50 basis points for the Full year 2021 as well as we have done last year and they will continue to Due in the years to come. The operational leverage, when we talk about this, this is more sort of the volume effect Yes, on leveraging the existing fixed cost and resources and not including these specific improvement initiatives.
Yes, perfect. Thank you so much.
Thank you.
The next question is from Christian Arnold from Stifel. Please go ahead.
Yes. Hi, everybody. Sorry to come back on the gross margin topic again. But I mean, assuming your 4% price increase or plant price increase And your view on the raw material being peakish in Q3, Is this price increase sufficient to go back to your 54% to 55
It will clearly depend on the development of the input cost increase, the magnitude and also Yes. The timing and basically the tipping point. But again, here we're actually quite Sort of measured and clear in our approach to the extent it will meet more, we will do more. It's It's more a question of timing. Again, it's a bit difficult to very much pinpoint this In detail, when and then how much, but it's clear that we will move back into the 54% to 55
Okay. Thank you. My second question would be on EMEA region. And there you were talking about this very dynamic performance of the private residential sector. I wonder If there was a difference between Q1 or Q2, has there been a change in the momentum?
And what's your view on The residential sector in EMEA going forward and maybe then also compared to the commercial sector and infrastructure What are your expectations here for the EMEA region? Thank you.
Maybe in terms So of the momentum, obviously, the comparison is a somewhat different one. Obviously, last year, the big pandemic impact was in So obviously, this dwarfs everything. In terms of the underlying momentum, we have not really seen a difference For a meaningful slowdown in the activity, it has remained very robust. And I think just also coming back to Thomas' comments, I mean these, let's say, The distribution residential refurbishment has been quite dynamic, continues to be dynamic. It's probably fair to say that at some stage, it will come back to, let's say, more normal growth levels, but we clearly Do not anticipate that there will be a reverse load that certain demand has been sort of Advanced?
Clearly not. But also this will then be complemented and somewhat By particularly the initiatives driven by the various governments, be it the Stimulate packages on the infrastructure side, but also the building envelope and the drive for more sustainable And solution and also how you can operate buildings and this will continue to have a very positive impact On particularly on the refurbishment side.
Okay. Is the commercial sector ready to tackle this sustainable construction already, yes, In the short term?
Absolutely. I mean, this is when we had this high impact Soon after the peak of the COVID, it was probably more private driven activities, But the educators doing this, they are also in the area of the commercial buildings and We are ready for this. It is the demand will change and demand will probably be fueled by many initiatives To upgrade the building codes and that will then also, let's say, further Incentivize renovation on commercial buildings, well, residential probably will then at that time We are a bit less in the focus, but the applicators doing the job, they are diversified and ready to move Into the commercial part as well.
Thank you very much.
The next question is from Alessandro Folletti from Octavian. Please go ahead. Mr. Folletti, your line is open. We cannot hear you.
Yes, I was on mute. Sorry for that. Good afternoon, everybody. Thank you for taking my questions as well at this late hour. Try to make it quick, I just have 2 more.
One on restocking, I heard many other companies reporting now that they were saying there was restocking effects in H1. Did you notice anything of that? And can you quantify?
Yes. And Alessandro, I'm happy to do so. I mean, restocking is Really not an issue in our business. I mean, if you think particularly of sort of the direct project business, I mean these systems we deliver there typically for certain application, a project, which you either do or you don't. So it's not feasible also from a logistical point of view to really But if you know, stock these materials if you don't need them.
So there is very And I think also in most of the distribution channels, these are big, big volumes. You might See this in one or the other country, if, let's say, a big price increase is announced from, let's say, 1 month to the other, but it's very, very limited. And on a global scale, there is no impact on our business.
Okay. Thank you very much. And then my second question on the recycled concrete. Can it be used in all applications? Like Remember when we were in New York and we saw this tall high rise building that require super, super strong concrete because they are the top one stock every day and so on.
Could you imagine recycling concrete and using it all in this type of application?
I don't know, tunneling or bridges? I can imagine many things. And of course, the question will be What kind of waste stream do you have? If you have a high quality waste stream, you can most likely Also expect to get high quality output that you then can reutilize also For, let's say, the high end applications, if it is more a mixture, then you have to be more careful and then Probably, you will probably use it in, let's say, mid grade or in the lower grade Concrete. I mean, theoretically, it's really input related.
And if the input is clean And this is of high quality. I couldn't see any reason why not. We are not yet there because we are in the, let's say, scale up phase, but From a theoretical point of view, absolutely invisible. Thank you.
Thanks, Alessandro.
That was the last question.
Okay. We thank you for listening to our call and for your interest in CCAF. We take this opportunity as As well to highlight the date of our next Capital Market Day, it will be held in Zurich at October 7. So please note this down in your agenda. We wish you now all the best.
Stay safe and have a great summer. Bye bye, Everybody
from my point and of course, thank you all. And I hope that next time we have more opportunities to meet face to face. In the meantime, maybe on an individual basis, looking very much forward to meet you in person sometimes in the future. Thanks.
Thank you very much.
Thank you.
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