Ladies and gentlemen, welcome to the Sika Half Year Report 2020 Live Webcast. I am Alice, 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. Participants wishing to verbally ask questions are invited to pre register in advance by clicking the Q and A button. The slide webcast must not be recorded for publication or broadcast.
At this time, it's my pleasure to hand over to Mr. Dominik Zlutnik, Head Communication and Investor Relations of Sika. Please go ahead, sir.
Thank you, and good afternoon, and welcome to the first half year results conference call. We published our figures this morning at 5 o'clock. Now our CEO, Paul Schuler and our CFO, Adrian Wittmer 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 Paul to start with the highlights of the first half year.
Okay. Thank you, Dominik. Good afternoon, everybody, and thank you for joining our webcast today. I'm happy to inform you about our business development in the 1st 6 months. Despite full lockdown for up to 3 months in many countries, SIK was able to continue to grow by 2.9% in local currency and reached sales of CHF3.6 billion.
Negative currency effects of 6.1% led to a decline in Swiss francs of 3.2%. Due to the impact of the coronavirus, organic growth was negative at minus 10.5%. In April, March and also May, the business impacted by the coronavirus pandemic in almost all subsidiaries. So we are in 100 countries. In June, second record positive organic growth again as lockdown measures ended or were relaxed.
At the end of the first half year, business activities started to normalize and the dynamic in the construction sector picked up. With our local management structure and empowered organization, we were able to quickly implement measures to protect our employees, customer and suppliers, but also to consistently manage costs and at the same time maintain business activities and capture opportunities to gain further market share. Sales in local currency increased in the region EMEA, Americas and Asia Pacific. In the segment global business, we saw an effect of the strongly decline for global car production rate. EMEA was mainly impacted by the coronavirus at the beginning of the second quarter with extensive lockdowns in Italy, France, Spain and the UK.
Already in May, an improvement was seen and in June, the region achieved a single digit organic growth. Overall, the impact was limited in most Northern, Eastern and Central Europe countries. Southern Europe showed a clear improvement in May. Middle East and the UK showed a more mixed picture, slightly improving into. Despite partial lockdowns in Argentina, Chile, Colombia and Peru and higher infection rates in Mexico, Brazil and the U.
S, Zika saw an improvement in Americas region in June. For this month, Canada recorded a strong performance with positive organic growth and in the U. S, the distribution business achieved a double digit sales growth. In Latin America, the development continues to be uncertain as most countries are still in partial or complete lockdowns. In the Asia Pacific region, numerous countries were in lockdown during longer periods in the first half year.
We were happy to see that several countries were back to grow in June, in particular China with double digit sales increase. The development in China was supported by the Parex business with its wide network of distributors, which proved that to be quite resilient throughout this crisis. Many countries in Southeast Asia stayed longer in priority. With this, I hand over to our CFO, Eitan Wietmann.
Thank you, Paul, and good afternoon, good morning to everybody listening here. Following our CEO's business summary and presentation of the highlights, I will now give you further insights into the financial results. As just heard in the 1st 6 months of the year, the business continued to show growth of 2.9% in local currencies in spite of the worldwide corona crisis, which strongly affected the business in the March to May timeframe with the biggest impact in April. Acquisitions added 13.4% growth, while organic growth declined by 10.5% in the first half year. Currency effects reduced local currency growth by 6.1% or by 225,000,000 in absolute terms to an overall sales decline of minus 3.2% in Swiss francs.
Negative currency development was primarily owed to a weaker euro and a number of emerging market currencies. Region EMEA grew 3.2% at constant currencies. Organic growth thereby was a negative 8.5% while the acquisitions of Parex and Albeplast in Romania contributed 11.7% of growth. COVID-nineteen impact across the region was quite different, while Southern Europe experienced a strong negative impact in March April and started to recover in May, the DACH area Eastern Europe and Northern Europe showed a much milder impact overall. Due to the weak euro, foreign exchange effects were strongly negative at minus 5.8%.
Region Americas recorded a growth in local currencies of 2.6%, while organic sales development at minus 8.8% was negative, primarily driven by extended lockdown measures in many Latin American markets. North America overall showed a lower impact and an improving trend after the trough in April, May. Negative foreign exchange effects for the region were most pronounced at minus 7.1% on the back of a weaker U. S. Dollar and strongly depreciating currencies across Latin America in most cases between -15% and -25% against the Swiss francs.
Growth in Asia Pacific was a strong 21.8% driven by acquisitions, which contributed 30.8 percentage points of growth. Organically, China showed a strong recovery from the COVID-nineteen impact in Q1, posting solid growth in Q2, while many markets in Southeast Asia have been impacted by extended lockdowns for a number of months. And therefore also significantly negative. Finally, the segment global business was hit the hardest with sales declining by 21.3% in local currencies against the backdrop of a very weak market and declining car build rates in the 1st 6 months of the year. This was particularly driven by widespread full shutdowns of the car manufacturing plants in the Americas and Europe for about 2 months.
Negative foreign exchange also hit here in this region with -5.4 percent. On gross result level, we have managed to improve material margins substantially by 80 basis points to 54.6 percent driven by a combination of reducing raw material costs, structural procurement savings and pricing. Excluding acquisition related dilution effects of 40 basis points, organic material margin development was a positive 120 basis points year on year. On operating costs, these include both personnel costs as well as other operating expenses, including acquisitions. Operating costs decreased slightly under proportionally by minus 0 point 5% versus a sales decline in Swiss francs of minus 3.2 percent due to a strongly negative operating leverage during April and May as well as a slightly higher cost ratio of acquisitions.
However, due to strong cost control and fast adaptation of the cost base, we were on a like for like basis able to decrease other operating expenses over proportionally compared to organic sales development, while personnel costs, which are more fixed in nature, showed a lower decline, but were also reduced substantially on a like for like basis. As a result, we were able to maintain a high EBITDA margin with only a slight decline from 16.7% in 2019 to 16.4% in 2020 on a reported basis. On a currency adjusted basis, this represents the same absolute EBITDA as in the same period of 2019. And excluding acquisitions and one offs, EBITDA margin in the 1st 6 months was flat. Depreciation and amortization expense increased strongly by 29.1% versus the previous year to CHF183,400,000 in the 1st 6 months.
This was driven by additional fixed asset depreciation and intangible amortizations coming from acquisitions. As a result, EBIT declined by 14.8 percent to CHF410.2 million. Moving below the EBIT line, net interest expense decreased slightly compared to the same period of last year by $1,000,000 and residual impact of our Eurobond issuance in April last year was more than offset by missing pre financing costs related to the acquisition of Parex during last year. Other financial expenses decreased by 4,000,000 dollars from $21,500,000 in 20 19 to $17,500,000 in the same period this year. Group tax rate, the group tax rate increased from 24.5% in the previous year to 25.8% in the first half year of 2020 due to country mix and shift in relative profitability.
However, underlying expected tax rate has not changed. As a result, net profit decreased by 16.7 percent to 275,600,000 dollars down from $330,700,000 during last year. On the back of the measures taken and the clear working capital and liquidity focus, cash generation remains strong in spite of the difficult COVID-nineteen environment. Operating free cash flow even exceeded the previous year level and increased by SEK 75,000,000 to CAD254.7 million during the 1st 6 months of the year. Cash from operating activities increased by $58,000,000 driven by lower net working capital buildup, lower cash taxes and positive cash impact from hedging transactions.
In addition, CapEx was reduced by $16,000,000 compared to the same period of last year. Cash flow from financing includes the maturity and repayment of a bond of $160,000,000 in March as well as the dividend payment of 3 $26,000,000 in April. The balance sheet as at the end of 2020, therefore shows a healthy cash balance of $557,600,000 which seasonally tends to be lower than at the year end. Net working capital is $174,000,000 lower compared to June 2019, reflecting strong focus on working capital management. Gross financial debt was reduced by $70,000,000 compared to year end, while net debt increased $355,000,000
due to
seasonal effects. With this, I conclude my remarks and hand back to Paul Suler for the outlook.
Okay. Thank you very much, Adrian. Sika's outlook 2020. Despite the coronavirus crisis and its impact on business operation, we confirm our strategic targets 2023. This means that we aim to grow by 6 to 8 a year in local currency until 2023 and the target an EBIT margin of 15% to 18% from 2021 onward.
The execution of our growth strategy will continue to deliver sustainable profitable growth. From June onwards, we have seen a positive trend in the construction market and sales volume are steadily returned to normal levels. Global construction activities is gaining momentum, thanks to the gradual reopening of construction site around the world. For the remaining part of the year, we are expecting more favorable market. With the anticipated improvement in sales volume, we expect an all proportional EBIT increase for the second half of this year.
Okay. Then I would ask if you have questions, please open the question session now.
Ladies and gentlemen, we will now begin the question and answer session. The first question comes from the line of Yves Bromhead with Exane BNP Paribas. Please go ahead.
Good afternoon, everyone. I hope you can hear me.
Yes.
Great. I'll have just two questions, if I can. The first one, I just wanted to come back to the comments you made on the restructuring and integration costs. I think you said that it would EBITDA would have been flat, which implies a $40,000,000 type of hit. Can you confirm this is the degree of those costs?
And given that you're talking about restructuring costs, what savings should we expect in H2 or even in 2021? That would be my first question. My second question is on the recent development of your main input costs. Is it fair to assume at this point that your H2 gross margins will be higher than in H1? Thank you very much.
Good. Well, thanks for the question. I'll start with the second one. We typically have due to mix effects in the second half year as a tendency, a somewhat lower material margin without any, let's say, input movements. So you should not necessarily assume that material margins will further increase let's say, a percentage of net sales basis due to this.
But the input cost development has been quite favorable. We have now seen some slight increases here and there, but with the relatively overall low volumes there is at the moment, at least at this point in time, no significant upward pressure. Then maybe to the first question on EBITDA, I was referring to, let's say, relative EBITDA organically. If we excluded one offs that this was basically flat in percentage terms this year compared to previous year. In terms of onetime costs related to the integration of Parex this year, this was below SEK10 1,000,000, but we had additional one offs, particularly also relating to investments in efficiency programs and also some structural adjustments in areas where we see volumes to be depressed a bit longer, for example, in automotive.
Are you able to quantify that?
It's together roughly at the same level as the integration onetime costs relating to the Parex transaction last year, so between SEK 15,000,000 and SEK 20,000,000
altogether.
The next question comes from the line of Tom Wrigglesworth from Citi. Please go ahead.
Paul, Adrian, Dominic, good afternoon. Thanks for the presentation. A couple of questions, if I may. Could you give us some of the kind of most recent color in terms of the exit rate from the Q2 by region, so that we could understand how things are shaping up for Q3, assuming obviously no further shutdowns, that would be super helpful. And then I just wanted to touch on the kind of the cost savings stroke costs incurred in the first half.
Are there temporary cost savings in this number that are actually going to kind of come back? And are there cost savings that might offset that? How should we think about kind of the ebb and flow as business normalizes? And I assume travel goes back up and some of those overheads come back in. Thank you.
Thanks, Tom, for these questions. I'll start with the second one. As we have also published, we have received about SEK 60,000,000 of, let's say, support measures on the personnel side across the globe. And they are obviously tied to programs like Kurzarbeit or Furlog, but we have also taken other measures and basically reducing some of the costs, which are tied to volume and ongoing business, as well as some more structural measures, which I have just alluded to. So that's the first part is more shorter term, which obviously as volumes and business normalizes, the cost base would increase again accordingly.
In terms of the sort of the ongoing initiatives, I think particularly on the integration of Parex, we're doing well. We have also expedited this. So we clearly believe from this from today's point of view that we should exceed the $30,000,000 impact for the full year. On the Parex side in terms of synergies, So that's going quite well overall. In terms of business activities by region, and here we, of course, continue to see quite a mixed picture and obviously June in isolation is probably not just to be extrapolated, but I think we have seen quite a good recovery in EMEA in June with single digit growth in June, whereas the Americas, particularly Latin America, are still more subdued due to this ongoing lockdowns in many Latin American countries.
Also global business, obviously, although car build rates have started to or car production rather have started to bounce back slightly more pronounced in North America. Here we have seen some improvement, but still negative with the exception of China.
Talking about Asia Pacific, I'd probably add here that we had great results in China. It's on the right way. We really could improve in May June. And also Australia was quite strong. New Zealand was in lockdown coming back now, Philippines, Malaysia and Singapore still closed in lockdown, so this hurts a little bit.
But also Vietnam and Thailand are back on stream, so positive June and also positive in July.
Sorry, I muted myself.
Yes. No, no, that's so still ex if we take our M and A, still probably the group still kind of we might see the group back to organic growth in Q4. Is that realistic, assuming that there's no change in we continue on this unlock, broadly speaking?
I hope earlier, but assuming there's no second wave coming, we should be on the way to achieve that in this year, the next 6 months.
Next question comes from the line of Martin Hoesler with ZKB. Please go ahead, sir.
Yes. Good afternoon. Can you hear me?
Yes, Martin.
Okay. Thank you. I had problems with my phone. So my questions are about the margins in the regions. If I calculate correctly, I saw that the EBIT margin in Europe or actually in EMEA was increasing even though you had quite a dip in organic sales.
Can you give us the reasons behind that surprise, I would say? And maybe then talking about the other regions profitability there was, of course, quite weaker. What were the main drivers? And last question, turning to global businesses, EBIT margin there was quite low. And I was wondering whether this was mainly due to capacity measures that you undertook and that cost at the beginning?
And what do you see for the second half?
Okay. I take the global We have to see that in starting already the period of the year, their production volume went back. And then the major customer around the world closed shop for at least 6 to 12 weeks and we have specialized factories there. So we really had to suffer in the global business. And on the other side, you get it right, we also took measurements to reduce our footprint to the volume we expect around SEK70 1,000,000.
Last year was more towards SEK90 1,000,000. So we really adapted the footprint in automotive and we see that in the EBIT margin. I hand over to Adrian for
Yes. Thanks, Paul Martin, on the sort of regional EBIT margins, I mean, there is many factors affecting sort of the relative performance here. I think in EMEA, there is a number of points to mention here. On the one hand, it's on the material margin side, here we had particular positive development compared to sort of the average of the group. That's one factor.
We also have to see that in terms of the impact, as mentioned before, in sort of Central Northern Europe dock region, for example, a relatively sort of milder impact also leading to sort of less negative operating leverage here. And then some of the obviously support measures extended by governments are predominantly available in Europe. And maybe to the Americas here, two things, I mean, particularly Latin America with a big impact, big volume impact, also less easy to basically get support measures of any sort, also exchange rates significantly impacting that's really the driver there. And in Asia Pacific, it's also a combination of a number of things, but also let's say relative margins, particularly in Southeast Asia and typically very profitable countries with quite an impact as well in the second quarter.
Okay. Thank you. Just maybe one short add on, I understood correctly, you said that in June, the whole group was on an organic growth path again. But listening to you, Nalla, I think it was only EMEA that is actually having organic growth and all the other regions not is this correct or not?
It was also Asia with a small organic growth.
Okay. Thank you.
And U. S. Was fair close to last year or last year. The real issue we really have is the lockdown in the countries. If we don't then produce or stop every activities in Argentina, that's just hurts.
But overall, we are on the right track now and I guess they are going to release more and more of these lockdowns.
Next question comes from the line of Martin Floeckiger from Kepler Cheuvreux. Please go ahead.
Firstly, I would just like to go back on North America. Is it just me or did you achieve a larger organic sales decline in North America compared with EMEA? And if yes, why was that? And in this respect, if you could also provide an outlook for North America in the second half, my understanding is that you're still rather cautious on Latin America. That's my first question and I'll take one at a time.
Okay. I agree. We are cautious on Latin America. We see the increasing COVID cases and we see that different measurements is a go and stop measurement in Latin America. So they open, they close, they reopen.
So therefore, we don't see it correctly. Difficult to say what's going on in the U. S. In the moment, we are on last year's level or a bit below last year's level. That is still going good in U.
S. Canada had an organic growth, was quite nice. So from that side, we are pleased with the performance in North America. We will see what's going on increasing cases but we assume they don't close the job sites and they don't close the distribution. So we're still positive that we can handle the next 6 months.
Is that good for you, Markus?
Yes, good for my first question, sorry. My second question was on the automotive business in Q2. I was just wondering whether you could explain what appears to me to be a significant difference in the rate of outperformance in Q2 versus Q1. Am I right in my conclusion? And if yes, why?
I would not say it's we have 2 situations there. The market came down by 35%, the production rate, and we came down by 23%. Here we couldn't outperform. One of the main reason is we are have a very strong position here in Europe and the market here went more back than in China. We have a strong position in China that we could not outset it.
In U. S, we still on a good way that yes, we suffered a little more in the second Q than in the first one, but this is more a mix of products and customers and we should continue to outperform the market in the next 6 months.
And my third question and I'll go back in line. So when excluding the one off items from the operating loss in other segments and activities, Can you explain what is the reason for the fair amount of volatility in the result of the corporate line? And if you could provide a forward looking guidance, that would be very much appreciated.
Yes. I'll take this one. I mean there is this year, but particularly also last year to a larger extent, there was these one off items in there related to the Parex transaction. I mean, if you back that out and this year, these onetimers were more in the regions as opposed to central because that's more than the sort of integration and operational measures. So the actual difference in central cost is not that big.
If you want to model or have a number for the full year, this will basically be around 100 and 25,000,000 to 30,000,000 for the full year what central costs are concerned.
Thank you.
Okay. Thank you, Martin.
Your next question comes from the line of Shingtong Wu Yang from Ontfield Investment Research. Please go ahead.
Hello, good afternoon. Can you hear me?
Not so well.
Not so well? Is it better now?
Yes. You have to speak louder if possible.
Okay. It's a better number. Okay, perfect. So I have two questions, if I may. The first one is on the outlook for H2.
I remember that you mentioned a hopefully, a V shaped rebound at the end say, in the second half of this year. And I'm just wondering how much of your business can actually be towed from the order book? And what is the current situation that you're seeing from your order book in the sense that how much visibility you have? And also, do you see any negative impact on your order book because of the coronavirus for the rest of the year? And the second question is on the cost cutting measures.
So I understand that you have done some kind of cost cutting, structural wise or temporarily, but then most of them might kick in, in the second half of the year on your account. So I'm just wondering, is it possible to provide any more, say, quantitative indicators on the level of cost savings so that we can factor that into the account?
Okay. I'll take the first question. The order books enter the next 6 months. Our way to work is we work with job sites and the job sites are the pipeline is quite full, but usually the customer orders a product and we ship it the next day. So you see our pipeline on project we're working on is very remarkable throughout the world.
The question is just if there is a next lockdown or not. So we will we feel very strong in our pipeline. So we don't have an ordering book, but we have a project pipeline, which seems very, very strong. But also on the other side, it's we are in refurbishment and refurbishment we sell 40% over distributors or our builder merchant and there we have a strong position and we feel strong there that we can continue to big risk is there for second way, then it's challenging. If not, then we should have strong second half.
And Jinko Mondi on the cost side, yes, I mean, this is a combination of temporary measures and of course also taking advantage of the variability of certain expense items, particularly in other OpEx, travel and marketing cost, maintenance and so on. But also structurally, as we have invested in efficiency measures and also making some structural adjustments. I mean this will very much depend on the business development in the next 6 months. But as we clearly say, we believe that with more favorable volumes, we will be able to increase our profitability higher than sales growth, whatever the sales growth is going to be.
I see. Thank you. Just two follow ups, if I may. The first one is on the project, say, RMI or project pipeline. I'm just wondering what you're seeing now, is it a catching up effect because of the coronavirus?
Or is actually because, say, there are a lot of new projects coming in and they're going to translate into, say, Q4 or H1 2021? Which type of project are you seeing? And the second one, I just want to confirm that you were mentioning the gross margin and you don't expect any improvement above the 120 basis point that we saw in H1. Is that it?
Maybe quickly on the margin. What I said, I'm not expecting an improvement for the full year of the the 54.6% we have achieved in the 1st 6 months of the year due to the fact that usually the second half year in terms of the material margin compared to the first one is tends to be lower. Whether there is going to be a further improvement on the material margin comparison compared to last year, that will depend on the one hand, obviously, the input cost development, which as always are relatively difficult to predict. But from today's perspective, we're not seeing a strong upward pressure here on the input cost side.
Okay. I will come to the questions. Cash in China? Yes. Starting in February in China, they closed the whole country.
Then we saw it in Europe, mainly Italy, in France, in Spain, then also in other region. So it's of course that these top sites catching up now. So it's a good month. It's good. And on the other side refurbishment went very well because a lot of people started to repair.
Do we see the catch up for all the year? I think it's continued business. It's a lot of job sites out there open. The permits are there. Will the permits will be enough for, let's say, October, November?
We believe, yes. I think with all these stimulus programs they're running, with all the money they pumped in the market, We see positive that also this pipeline will be filled and will continue to be built. So quite positive for the next 6 to 12 months and strongly, strongly positive for all the money they will going to spend in infrastructure as well as on refurbishment. So this case a small dip in November, December, we cannot tell that the pipeline and the future sees a lot of big projects coming.
All right, great. Thank
you. That's clear. Thank you very much.
Okay. Thank
you.
The next question comes from the line of Arnaud Lehmann from Bank of America. Please go ahead.
Thank you. Good afternoon, gentlemen. 3 hopefully brief questions from my side. Firstly, I think you confirm the margin outlook for 2021. Are you still confident to be at the low end of your medium term margin guidance, I think 15% to 18% next year.
That's still going to be a significant uplift relative to 20 20 or 2019 for that matter? My second question regards M and A activity. Are you starting to see potentially more opportunities on the M and A market? Or is it still essentially shut down and we should probably wait for next year to see a bit more M and A? And lastly, just on CapEx, I think you guided earlier this year something like CHF 90,000,000 or CHF 100,000,000 of CapEx.
You've already spent I think CHF65 1,000,000 in H1. Does that mean that the full year CapEx spending is likely to be above CHF100 1,000,000? Thank you very much.
Okay. I'll take the one with M and A. As you know, we feel strong in M and A. I think it's a good way to consolidate our markets now with the integration of Parex, which runs excellent. I guess we proved to the market, to ourselves that really can manage integration even in crisis time.
So we are feeling quite confident. We still work on several acquisition. The pipeline is full and I hope we can bring 1, 2 or 3 to the end this year and of course we're working on it. We see in the market many of our competitors suffer for a little bit and it's great opportunity to see what's going on and then there is a lot of bolt on which we still want to do. So yes, we want to continue MDI.
I guess it's a good timing to do that. And if you look at our margin for 2021, I still feel strong we can go there. We announced also here that we want to have no proportional growth in EBIT, which we convinced we can do if the volume not really goes down to another second wave. And therefore, we will have an increase compared to last year and then we're getting close to the 15% and the team is confident that we're going to hit it always if there is a second wave always if they're going to lock down the countries. If it stays like that, very confident.
And CapEx, Adrian? Yes, Arnaud, just on your question here.
I mean, we also here, we stick to the guidance of SEK 125 $1,000,000 to $130,000,000 for this year, where we're a little bit above in the first half year, but obviously that's still continuing to be a main focus of this year to really preserve cash and support cash flow.
Is that good for you, Arnaud?
That's excellent. Thank you very much.
Okay. Thank you.
The next question comes from the line of Alessandro Foleti with Octavian. Please go ahead.
Yes, good afternoon. Thank you for taking my questions. Can you hear me well?
Yes, Alessandro.
Okay, perfect. Thank you. I would like to come back to the global business, excuse me if I did not understand you, but a couple of questions on this one. The extraordinary cost, how big were they in H1? First question.
You mean in total or?
For the global business only.
For the global business?
Yes, the automotive global business, yes. Just trying to understand what has been the operating leverage in that business?
For the global business, the cost was about SEK7000000 to SEK8000000.
All right. So we for our forecast, we could add to the like double the EBITDA that you have published. That would be the level we are now. So, the question comes back to what can be then the development into H2 and into next year and whether you need that business to be above 10% again to hit the 15% target for the total group?
On the automotive business or the global business going forward, I mean, we clearly see an improvement for the second half year on how the volumes have been developing. Again, this is always assuming that the plants will not be fully shut down again, but particularly in North America now, volumes are also strongly improving together with Asia. And with now the, let's say, reduced cost level and measures we have taken, we will significantly improve that part of the business in the second half year. And this will continue into 2021. And this will not, let's say, jeopardize our guidance for reaching the 15% of EBIT in 2021.
And the magnitude obviously will depend a bit how quick this volume recovery is, but our assumption today is clearly it's taking much longer than on the construction side.
All right. Thank you. That was very helpful. My last question maybe on working capital. Obviously, you really had a very good cash flow in H1.
I was wondering if you can sort of estimate how much of the working capital reduction basically came in just because sales went down. So to speak, a bit of a tailwind from the sales decline, which I would assume then reverts once sales go up again?
Yes. I mean, of course, sales level does influence sort of the working capital buildup and there is certainly an influence there. Obviously, going into this crisis, the fear was a very different one that even with declining sales level, it will be much more difficult to collect and we would basically have a significant ratio increase. As we have put a lot of focus on it, but also obviously the liquidity in the market has supported also the liquidity and solvency of basically of the economy. This has not materialized.
And yes, should we go back to very strong growth, there will some cash effect be attached to this. But to me, it's very, very positive how we have developed and how we have been able to collect and to actually reduce working capital beyond a level which we would have had normally. So that's a very positive development.
So if I may add on, do you think that the so to speak, the conversion is now structurally higher or it will renormalize then as soon as sales are normalizing?
Well, I mean, if you look at the conversion, I mean, this is not, let's say, higher on an exhaustive basis. If you look at the last couple of few months of business. Here you see this effect of obviously lower business in the last few months. But the ratios have not materially deteriorated and that's a very positive effect. And so with strong increasing growth, we will consummate more working capital.
And so structurally, the business has not changed and particularly important, it has not deteriorated.
The next question comes from the line of Erik Karlsson from Cape View. Please go ahead.
Hi, thanks for taking my question. Typically in difficult times, we see strong companies getting even stronger in many industries. And CK SK Telecom the strongest company in your industries. How do you think you can take advantage of your position and strengthen it even further in this downturn? Thank you.
Eric, thanks for the question. And yes, I guess we are the clear market leader. We see many, many countries that our competitor reduced their sales force, they cut cost where we cut cost another way. So we run customers, we are there. So we didn't walk away.
They kept our good people in many countries. Even we had lockdowns. So we see in June and I'm pretty, pretty confident that in future we take much more market share and the customer always will remember who was around the difficult times. So positive, we can build our strong base around the world and improve it.
Thank you. That's very helpful. And on behalf of all shareholders, thank you for hard and excellent work.
Okay. Thank you, Erik. We want to continue and want to boost it even more. Thank you. Thank you, Erik.
Next question comes from the line of Seder Erik Blom from Morgan Stanley. Please go ahead.
Thanks very much. Hi, I've got one question, just a follow-up on M and A. If you look at your 2 acquisitions that you did in the first half, both of them seem to be linked to sort of building efficiency, building renovation to some extent. Would it be fair to say that that's a strategic end market that you'd like to grow in further? And then the second question, if you do look at your different product lines in your different regions, are there any of those regions or product lines where you think that there's bigger opportunities for M and A?
Thank you.
Okay. Thank you, Zita. If you look at our portfolio, we have our 5 technology. And in around 2012, 2011, we made the strategic decision to enter more to market with FASADE with tile adhesive. And this other plus the company's name fits perfectly for the Romanian market.
In the meantime, we build up a SEK1.3 billion business from around $300,000,000 $400,000,000 from Mortars. So a strategic decision to go there and we'll continue to build that up. We have a nice leverage still in the nice five technologies. However, acquisition in adhesives or also in coatings are still always an option for us. So we will acquire companies, they fit factories and then we want to have cross selling and improvement of this.
So there are options out there, good things. And yes, it's correct. It was one of the strategic acquisition in Romania. Is that good for you, Utsida?
Yes, that's fine. Thanks very much.
Thank you.
Next question comes from the line of Bernd Pomrehn with Vontobel. Please go ahead.
Yes. Good afternoon, gentlemen. How do you see your pipeline specifically in commercial construction for the coming years? Obviously, we are hearing a lot of companies telling us that they are cutting CapEx this year to a minimum level, which obviously should have an impact on commercial construction companies talking about working from home permanently. Some companies are closing their brick and mortar shops, etcetera, especially with the roofing business, you have quite some exposure to commercial construction.
So how do you see the development there in the next 1, 2 or 3 years? Thank you.
It depends. Thank you, Bernd. It's a little bit depending on the areas. Like we feel in Central Europe, yes, it could go a little bit back, not so sure. However, there's a huge demand on commercial.
There's a huge demand on parking houses still going on. If it's offices, probably a little less, but over time it will also be stable here in Central Europe or Eastern Europe. Think there still is need for commercial buildings. If we go to U. S, quite strong, quite improvement in commercial buildings, not office sites, but also high rise, the urbanization trend will still continue.
And if then go to the emerging market, we at least we have received our pipelines, the commercial building, the new commercial buildings. So yes, probably Central Europe, it will go back a little bit. I think so, yes. But yes, and in that if they are not building any more commercial building, at least a lot of refurbishment. And as we have a very, very strong position refurbishment, I think we will just leverage between refurbishment and not building new ones.
The last question is a follow-up from Mr. Martin Flueckiger with Kepler Cheuvreux. Please go ahead.
Thanks for taking my follow-up. Just to come back to the Parex integration, I understand that you've expedited the integration process there. But could you just elaborate a little bit what your latest achievements were, some milestones that you've reached, just a little bit more color would be helpful.
Yes. I guess the crisis helped us to go faster, mainly in operational leverage of our factories. For example, we had in Australia, we had 6, 7 factories. We wanted to reduce it to 3, making putting them together, making more efficient. During when the volume was high, we could not, we have to play, we have to see that we can supply.
The volume came back a while in Australia. So we moved swiftly. We reduced everything. We moved the equipment. And now we are in 3 locations that go 6.
We could save some people on the operation side. We could push that. And if we go now to all the 23 countries around the world, we can start from Argentina, we go to Brazil. So in many, many countries, we could do the operational integration much faster due. Unfortunately, volume went down.
That also really helped us.
Okay. Thanks.
And then we had a lot of synergies, the run rate now in purchasing, it's around SEK30 1,000,000. So very, very pleased. It's very nice and product mix goes and mainly cross selling is coming as well as the saving on purchasing side and as I said on operation side. So good for
us.
Very good. Thanks.
Okay. Thank you.
Gentlemen, there are no more questions at this time.
Okay. So I would like to thank everyone from my side. Dominik?
Thank you. And this brings us to the end of this call. We take this opportunity as well to announce that we will hold a Capital Market Day on September 30, a safe date will be sent out in the next days. With this, we thank you for listening to our call and for your interest in Zika. And we wish you all the best and safe and good summer.
Okay. Thank you, everyone.
Thank you. Goodbye.
Bye bye.
Ladies and gentlemen, the webcast is now over. Thank you for choosing Chorus Call and thank you for participating. You may now disconnect. Goodbye.