Ladies and gentlemen, welcome to the Sika Half Year Report 2020 live webcast. I am Alice, the conference 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&A button. To ask a question, please click on the Q&A button and enter your name and company. Once you join the conference call, please press star and one on the virtual keyboard. This live webcast must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Dominik Slappnig, Head of 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 5:00 A.M. Now, our CEO, Paul Schuler, and our CFO, Adrian Widmer, 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, thank you for joining our webcast today. I'm happy to inform you about our business development in the first six months. Despite full lockdown for up to three months in many countries, Sika was able to continue to grow by 2.9% in local currency and reach sales of CHF 3.6 billion. Negative currency effects of 6.1%, that the decline in CHF of 3.2%. Due to the impact of COVID-19, organic growth was negative at -10.5%. In April, March, and also May, the business impacted by the COVID-19 pandemic in almost all subsidiaries. We are in 100 countries. In June, Sika recorded a positive organic growth again, as lockdown measures ended or were relaxed. At the end of the first half year, business activities started to normalize, 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 declined 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 U.K. 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 U.K. showed a more mixed picture, slightly improving in June.
Despite partial lockdowns in Argentina, Chile, Colombia, and Peru, and higher infection rates in Mexico, Brazil, and the U.S., Sika 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 growth in June, in particular China, with double-digit sales increase. The development in China was supported by the products 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 quarantine.
With this, I hand over to our CFO, Adrian Widmer.
Thank you, Paul. 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 result. As you have heard, in the first six months of the year, the business continued to show growth of 2.9% in local currencies, in spite of the worldwide COVID-19 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 CHF 225 million in absolute terms, to an overall sales decline of -3.2% in CHF. Negative currency development was primarily owed to a weaker EUR and a number of emerging market currencies. Region EMEA grew 3.2% at constant currencies.
Organic growth, thereby, was a -8.5%, while the acquisitions of Parex and Adeplast in Romania contributed 11.7% of growth. COVID-19 impact across the region was quite different. While Southern Europe experienced a strong negative impact in March and 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 -5.8%. Region Americas recorded a growth in local currencies of 2.6%, while organic sales development at -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 -7.1% on the back of a weaker US dollar and strongly depreciating currencies across Latin America, in most cases between -15% and -25% against the Swiss franc. 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-19 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.
Organic growth in the region was -9% in the first half year. Foreign exchange impact was -5.5%, 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 first six months of the year.
This was particularly driven by widespread full shutdowns of the car manufacturing plants in the Americas and Europe for about two months. Negative foreign exchange also hit here in this region with -5.4%. On gross result level, we have managed to improve material margin substantially by 80 basis points to 54.6%, 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 -0.5% versus a sales decline in Swiss francs of -3.2%, 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, show the 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. Excluding acquisitions and one-offs, EBITDA margin in the first six months was flat. Depreciation and amortization expense increased strongly by 29.1% versus the previous year to CHF 183.4 million in the first six months. This was driven by additional fixed asset depreciation and intangible amortizations coming from acquisitions.
As a result, EBIT declined by 14.8% to 410.2 million CHF. Moving below the EBIT line, net interest expense decreased slightly compared to the same period of last year by CHF one million. 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 CHF four million from 21.5 million CHF in 2019 to 17.5 million CHF in the same period this year. 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 group tax rate has not changed. As a result, net profit decreased by 16.7% to 275.6 million CHF, down from 330.7 million CHF during last year.
On the back of the measures taken and the clear working capital and liquidity focus, cash generation remained strong in spite of the difficult COVID-19 environment. Operating free cash flow even exceeded the previous year level, and increased by CHF 75 million to CHF 254.7 million during the first six months of the year. Cash from operating activities increased by CHF 58 million, driven by lower networking capital build-up, lower cash taxes, and positive cash impact from hedging transactions.
In addition, CapEx was reduced by CHF 16 million compared to the same period of last year. Cash flow from financing includes the maturity and repayment of a bond of CHF 160 million in March, as well as the dividend payment of CHF 326 million in April. The balance sheet as at the end of 2020, therefore shows a healthy cash balance of CHF 557.6 million, which seasonally tends to be lower than at the year-end.
Net working capital is CHF 174 million lower compared to June 2019, reflecting strong focus on working capital management. Gross financial debt was reduced by CHF 70 million compared to year-end, while net debt increased CHF 355 million due to seasonal effects. With this, I conclude my remarks, and hand back to Paul Schuler for the outlook.
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%-8% a year in local currency until 2023, and to target an EBIT margin of 15%-18% from 2021 onwards. 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 overall proportional EBIT increase for the second half of this year. Okay.
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. Anyone who wishes to ask a question may click on the Q&A button and enter their name and company. Once you join the conference call, press star and one on the virtual keyboard. Please make sure to close all applications using your microphone. If you would like to ask questions, please give the browser permission to access your microphone. To avoid echo, use earphones or a PC speakerphone or headset. We recommend to use one of the suggested browsers, Chrome or Firefox. Upon connection, an operator will conduct a brief sound check with you before announcing your question. The first question comes from the line of Yassine Touahri 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 comment you made on the restructuring and integration cost. I think you said that EBITDA would've been flat, which implies a CHF 40 million type of hit. Can you confirm this is the degree of those costs? 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.
Well, thanks for the question, and 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 input movements. You should not necessarily assume that material margins will further increase in a percentage of net sales basis due to this. 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. Maybe to the first question on EBITDA, I was referring to 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 one-time costs related to the integration of Parex this year, this was below CHF 10 million. We had additional one-off, 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 one-time costs relating to the Parex transaction last year, so between CHF 15 million and CHF 20 million altogether.
Thank you so much.
The next question comes from the line of Tom Wrigglesworth from Citi. Please go ahead.
Paul, Adrian, Dominik, good afternoon. Thanks for the presentation. Couple of questions, if I may. Could you give us some of the most recent color in terms of the exit rate from the second quarter by region, such that we could understand how things are shaping up for third quarter, assuming obviously no further shutdowns? That would be super helpful. Then I just wanted to touch on the cost savings/costs incurred in the first half. Are there temporary cost savings in this number that are actually going to come back, and are there cost savings that might offset that? How should we think about 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 CHF 16 million of, let's say, support measures on the personnel side across the globe. They are obviously tied to programs like Kurzarbeit or furlough. We have also taken other measures, 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. That's the first part. This is more a shorter term, which obviously as volumes and business normalizes the cost base would increase again accordingly. In terms 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 today's point of view, that we should exceed the CHF 30 million impact for the full- year on the Parex side in terms of synergies. That's going quite well overall. In terms of business activities by region, 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 these ongoing lockdowns in many Latin American countries. Global Business, obviously, although car build rates or car production rather, have started to bounce back slightly more pronounced in North America. Here we have seen some improvement, but still obviously negative with the exception of China.
Talking about Asia Pacific, I'd probably add here that we had great good results in China. It's on the right way. We really could improve in May and June. 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. Also Vietnam and Thailand are back on stream. Positive June and also positive in July.
Sorry, I've muted myself. Still if we take out M&A, still probably the group still we might see the group back to organic growth in the fourth quarter. Is that realistic, assuming that there's no change, we continue on this unlock broadly speaking?
I hope earlier, but assuming there is no second wave coming, we should be on the way to achieve that in this year, the next six months.
Okay. Very good. Thank you very much.
Okay. Thank you, Tom.
Next question comes from the line of Martin Hüsler with ZKB. Please go ahead, sir.
Yes. Good afternoon. Can you hear me?
Yes, Martin.
Okay. Thank you. I had problems with my phone. 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? Maybe talking about the other regions profitability there, was of course quite weaker, what were the main drivers? Last questions, 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 Business. We have to see that in starting already the beginning of the year, their production volume went back, and then the major customer around the world closed shop for at least 6-12 weeks. And we have specialized factories there, so we really had to suffer in the Global Business. On the other side, you get it right, we also took measurements to reduce our footprint to the volume we expect, around CHF 70 million. Last year was more towards CHF 90 million. We really adapted the footprint in automotive, and we see that in the EBIT margin. I hand over to Adrian for-
Yeah, thanks. For Martin on the sort of the regional EBIT margins. There are many factors affecting sort of the relative performance here. Thinking EMEA, there are a number of points to mention here. On the one hand, it's on the material margin side. Here we had a 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, DACH region, for example, a relatively sort of milder impact also leading to sort of less negative operating leverage here. Some of the obviously support measures extended by governments are predominantly available in Europe.
Maybe to the Americas, here two things, I mean particularly Latin America with a big volume impact, also less easy to basically get support measures of any sort, also exchange rates significantly impacting that really the driver there. In Asia Pacific, it's also a combination of a number of things. 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. Listening to you now, 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.
U.S. was fair, close to 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 just hurts. Overall, we are on the right track now. I guess they are going to release more and more these lockdowns. That good for you, Martin?
Yes. Thanks a lot.
Okay.
Next question comes from the line of Martin Flueckiger from Credit Suisse. Please go ahead.
Good afternoon, gentlemen. Thanks for taking my questions. 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? If yes, why was that? 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. It's a go and stop measurement in Latin America. They open, they close, they reopen. 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, a little bit below last year's level, are still going good in U.S. Canada had an organic grow, was quite nice. From that side, we are pleased with the performance in North America. We will see what's going on, increasing cases. We assume they don't close the job sites, and they don't close the distribution. We're still positive that we can handle the next six months. Is that good for you, Martin?
That's fine. Yeah. 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? If yes, why?
We have two situation there. The market came down by 35%, the production rate. We came down by 23. We couldn't outperform. One of the main reason is, we 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 offset it. In U.S., we still on a good way. Yes, we suffered a little more in the second Q than in the first one. This is more a mix of products than customers, and we should continue to outperform the market in the next six months.
Okay, thanks. My third question, then I'll go back in line. 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? If you could provide a forward-looking guidance, that would be very much appreciated.
I'll take this one. There is, this year, but particularly also last year to a larger extent, there were these one-off items in there related to the Parex transaction. If you back that out, and this year these one-timers were more in the regions as opposed to central, because that's more than the sort of integration and operational measures. 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 CHF 125 million-CHF 30 million for the full- year where central costs are concerned.
Thank you.
Okay. Thank you, Martin.
The next question comes from the line of Xintong Liang from On Field Investment Research. Please go ahead.
Yeah, good afternoon. Can you hear me?
Not so well.
No.
Not so well. Is it better now?
Yeah, you have to speak louder if possible.
Okay. Is it better now?
Yep.
Okay, perfect. I have two questions if I may. The first one is on the outlook for H2. I remember that you mentioned hopefully a V-shaped rebound, say, in the second half of this year. I'm just wondering how much of your business can actually be told 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? The second question is on the cost-cutting measures. 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.
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? Thank you.
Okay, I'll take the first questions. The order books and the next six months. Our way to work is we work with job sites, and the job sites or the pipeline is quite full, but usually the customer orders a product and we ship it the next day. You say 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. We feel very strong in our pipeline.
We don't have an ordering book, but we have a project pipeline, which seems very strong. Also on the other side, we are in refurbishment. Refurbishment, we sell 40% over distributors, over our build merchant. There we have a strong position, and we feel strong there that we can continue. The big risk is there a second wave, then it's challenging.
If not, we should have a strong second half.
Xintong on the cost side.
Yes.
It's a combination of temporary measures and of course also taking advantage of the variability of certain expense items, particularly in other OPEX, travel, marketing cost, maintenance, and so on. Also structurally, as we have invested in efficiency measures and also making some structural adjustments. This will very much depend on the business development in the next six months. 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 it's actually because, say, there are a lot of new projects coming in and they're going to translate into, say, Q4 or H1 in 2021? Which type of project are you seeing? 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 54.6% we have achieved in the first six 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 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. 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.
Catching up.
Yeah. Starting in February in China, they closed the whole country. We saw it in Europe, mainly Italy, in France, in Spain, then also in other regions. It's of course, these job sites catching up now. It's a good month, it's good. 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 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.
Quite positive for the next six to 12 months and strongly positive for all the money they will going to spend in infrastructure, as well as on refurbishment. If there is a small dip in November, December, we cannot tell, but 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. three, hopefully brief question from my side. Firstly, I think you confirmed the margin outlook for 2021. Are you still confident to be at the low end of your medium-term margin guidance, I think 15%-18% next year? That's still going to be a significant uplift relative to 2020 or 2019 for that matter. My second question regards M&A activity.
Are you starting to see potentially more opportunities on the M&A market, or is it still essentially shut down, and we should probably wait for next year to see a bit more M&A? Lastly, just on CapEx, I think you guided earlier this year something like CHF 90 million or CHF 100 million of CapEx. You've already spent, I think CHF 65 in H1. Does that mean that the full- year CapEx spending is likely to be above CHF 100? Thank you very much.
I'll take the one with the M&A. As you know, we feel strong in M&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. We are feeling quite confident. We still work on several acquisition. The pipeline is full, I hope we can bring one, two, or three to the end this year. Of course, we working on it. We see in the market, many of our competitors suffer a little bit, it's great opportunity to see what's going on. There is a lot of bolt-ons which we still want to do. Yes, we want to continue M&A. I guess it's a good timing to do that.
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 grow in EBIT, which we convince we can do if the volume not really goes down to another second wave. Therefore, we will have an increase compared to last year. Then we getting closer to the 15%, and the team is confident that we 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. CapEx, Eugen?
Yes. Arnaud, just on your question here. We also here, we stick to the guidance of CHF 125 million-CHF 130 million for this year, where we're a little bit above in the first half year. 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 Folletti 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, a couple of question 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. For 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 CHF 7 million-CHF 8 million.
All right. For our forecast, we could add to the double the EBIT that you have published. That would be the level we are now. 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, we clearly see an improvement for the second half year, how the volumes have been developing. This is always assuming that the plants will not be fully shut down again, particularly in North America now, volumes are also strongly improving together with Asia. 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. This will continue into 2021. This will not, let's say, jeopardize our guidance for reaching the 15% of EBIT in 2021. The magnitude obviously will depend a bit how quick this volume recovery is, 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.
from the sales decline, which I would assume it then reverts once sales go up again.
Of course, sales level does influence sort of the working capital build-up, and there is certainly an influence there. Going into this crisis, the fear was a very different one. That even with declining sales level, it would be much more difficult to collect, and we would basically have a significant ratio increase. We have put a lot of focus on it, also obviously the liquidity in the market has supported also the liquidity and solvency of basically of the economy, this has not materialized.
Yes, should we go back to very strong growth, there will some cash effect be attached to this. 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. That's a very positive development.
If I may add on, do you think that, so to speak, the conversion is now structurally higher or it will re-normalize then as soon as sales are normalizing?
If you look at the conversion, this is not, let's say, higher on an exhausted basis. If you look at the last couple few months of business. Here you see this effect of obviously lower business in the last few months. The ratios have not materially deteriorated, and that's a very positive effect. With strongly increasing growth, we will consummate more working capital. Structurally, the business has not changed, and particularly importantly, it has not deteriorated.
Okay. Thank you.
Okay. Thank you, Alessandro.
The next question comes from the line of Erik Carlson from Capeview. Please go ahead.
Hi. Thanks for taking my question. Typically, in difficult times, we see strong companies getting even stronger in many industries. Sika is clearly 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.
Erik, thanks for the question. Yes, I guess we are the clear market leader. We see in many countries that our competitor reduced their sales force. They cut cost. Where we cut cost another way. We won customers. We are there, so we didn't walk away. We kept our good people in many countries, even we had lockdowns. We see in June, and I'm pretty confident that in future we take much more market share, and the customer always will remember who was around in difficult times. Positive we can build our strong base around the world and improve it.
Thank you. That's very helpful. 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 Cedar Ekblom from Morgan Stanley. Please go ahead.
Thanks very much. Hi, I've got one question, just to follow up on M&A. If you look at your two acquisitions that you did in the first half, both of them seem to be linked to 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? 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&A? Thank you.
Okay. Thank you, Cedar. If you look at our portfolio, we have our five technologies. In around 2012, 2011, we made the strategic decision to enter more the mortar market with facade, with tile adhesive. This other cluster company's name fits perfectly for the Romanian market. In the meantime, we build up a CHF 1.3 billion business from around CHF 3, CHF 400 million from mortars. 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. We will acquire companies, they fit our technology, our factories, and then we want to have a cross-selling and improvement of this. There are options out there for good things.
Yes, it's correct, that was one of the strategic acquisition in Romania. Is that good for you, Cedar?
Yeah, that's fine. Thanks very much.
Thank you.
Next question comes from the line of Bernd Palmen 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 an impact on commercial construction. Companies talking about working from home permanently. Some companies are closing their brick and mortar shops, et cetera. Especially with the roofing business, you have quite some exposure to commercial construction. How do you see the development there in the next one, two, three years? Thank you.
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. Over time, it will also be stable here in Central Europe or Eastern Europe. I think there still is need for commercial buildings. If we go to U.S., quite strong, quite improvement in commercial buildings, not office sites. Also high rise, the urbanization trend will still continue. If then go to the emerging market, at least we see our pipelines, the commercial building, they need commercial buildings. Yes, probably Central Europe, it will go back a little bit, I think so, yes.
In that, if they are not building any more commercial building, at least a lot of refurbishment. As we have a very strong position in refurbishment, I think it will just leverage between refurbishment and not building new ones.
Okay, excellent. Thank you, Paul.
Okay. Thank you, Bernd.
The last question is a follow-up from Mr. Martin Flückiger with Jefferies. 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, 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. Thanks.
Yeah. I guess the crisis helped us to go faster, mainly in operational leverage of our factories. For example, in Australia, we had 6, 7 factories. We wanted to reduce it to 3, putting them together, make it 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, we moved swiftly. We reduced everything. We moved the equipment, now we are in 3 locations instead of 6. We could save some people on the operation side. We could push that. If we go now to all the 23 countries around the world, we can start from Argentina, we go to Brazil. In many, many countries, we could do the operational integration much faster. Few, unfortunately, volume went down. That also really helped us.
Okay, thanks.
We had a lot of synergies. The run rate now in purchasing, it's around CHF 30 million. Very pleased. It's very nice, and product mix goes. Mainly cross-selling is coming, as well as the saving on purchasing side. As I said, on operation side. Good for us. Is that good, Martin?
Very good. Thanks.
Okay. Thank you.
Gentlemen, there are no more questions at this time.
Okay. I would like to thank everyone from my side. Dominik?
Thank you. 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 30th, as safe. The date will be sent out in the next days. With this, we thank you for listening to our call and for your interest in Sika. We wish you all the best and a safe and good summer.
Okay. Thank you, everyone.
Thank you. Goodbye.
Bye-bye.
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