Ladies and gentlemen, welcome to the Q1 2020 results conference call. I am Shari, 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. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded through publication or broadcast. At this time, it's my pleasure to hand over to Mr. Dominik Slappnig, Head communications and IR of Sika. Please go ahead.
Thank you, good morning, and welcome to the first quarter sales conference call. We published our figures this morning at 5:00 A.M. Our CEO, Paul Schuler, and our CFO, Adrian Widmer, will provide further details on the sales and the outlook. We will be ready to take your questions. For those who know us, you know that we normally do not have a Q1 call. Since our AGM this year has no speeches and presentations due to COVID-19 and the special situation in the world, we would like to take this opportunity to speak to you in this call and give you the opportunity to ask questions. I hand over now to Paul to start with the overview of the regions of the first quarter 2020. Please, Paul.
Okay. Good morning, all, and thank you for joining the call. We will discuss a little bit the sales and the business development in the first quarter 2020. Overall, we saw a strong start to the year, but with sales slowing down in March due to the COVID-19. In the first quarter, sales in local currency grew by an excellent 50.4%. Negative currency effect of 5.1% led to growth in CHF of 10.3%. Due to the slowdown in March, organic growth came down slightly by -1.3%. All regions were impacted by COVID-19, especially Asia Pacific and the segment of the global business. EMEA showed strong development until March, especially in the German-speaking countries, but also in Nordic, Eastern Europe, and in the Middle East.
In the beginning of March, Italy, followed by many other countries, started to go in lockdown mode, with less flat sales performed in the first quarter, but a double-digit growth in local currency. In the region Americas, North America started the year with an excellent performance and double-digit growth. First impact of the corona pandemic were seen towards the end of March. In Latin America, the effect was larger with complete lockdown in Colombia, Ecuador, Argentina, Peru, so many other countries as from March 20th.
Despite the slowdown at the end of the quarter, the region showed a strong organic growth of 5.3%. Asia Pacific was negatively impacted by the lockdown in China from mid-January to March, and the lockdowns were introduced in other countries like Singapore, Philippines, New Zealand, Malaysia, Thailand, and of the region at the end of the quarter.
With the acquisition effect of Parex, we still saw a double-digit sales growth of 29.8%. Organic growth came down by -9.7%. Global business was impacted by strong decline in the global car production rate, which dropped by -25%, or 5.7 million cars less produced. Many car producers like Volkswagen, BMW, Ford, including all Japanese and Chinese producers, closed their production for four to seven weeks.
Even in this difficult environment with substantially declined car production figures, Sika clearly gained market shares but recorded a negative growth of -7.1%. The integration of Parex continued to make excellent progress. The synergies are generated according to plan. This year, they mainly will come from cost benefits due to combined procurement activities, operational organization efficiency measurements. In China, 2,100 shops in shops, which Sika products in Parex point of sales, have been introduced so far.
The distribution business has again proved to be more resilient in a difficult market environment. In the first quarter, we also saw this in China, with the former Parex business being less negatively impacted than the direct business on the construction side. We continue to be interested in attractive opportunities for bolt-on acquisition. As already communicated at the beginning of the year, we will not embark on any larger M&A deals in 2020. The main focus is on a fast and successful integration of Parex. Since the situation with the coronavirus started, the central focus has been the health of our employees, customers, and suppliers. The extent of the lockdown and the restriction in place is very different from country to country.
With our decentralized organization and our strong local management team, we have been able to react quickly and efficiently to the situation in all countries where we are present. The focus is on cost initiatives and liquidity, of course, also in continuing to serve our customers and to find and explore opportunities in this challenging market environment. Now, I would like to hand over to our CFO, Adrian Widmer. He will describe our cost initiatives as well as the cash and balance sheet situation in more detail. Adrian?
Thank you, Paul, and good morning to all of you. After Paul has given you the sales highlights of Q1, as well as an update on the COVID-19 situation as it presents itself around the globe, I would like to talk about the priorities and some of the measures we have been taking. First priority and primary focus is on the health and well-being of our employees, customers, and suppliers.
Ensuring safety and social distancing in the factories, home offices across the world, remote customer contact, and training. At the same time, we're taking decisive actions to mitigate the potential financial impact of the Corona situation with a number of operational measures. These measures have been developed and are being executed by our local country organizations under the leadership of the general manager in line with the local situation, which still differs from country to country.
This enables us to move fast in line with market requirements and local regulations. These measures include rigorous cost control, a cut of non-essential expenses, deferral of non-critical projects, reducing temporary labor, advancing holidays, introducing flexible working hours, furloughing, to name a few. Driving efficiency, which is a pillar of our strategy, is even more important in the current environment. We are therefore reinforcing the focus on these initiatives across the value chain, starting from formulation efficiency, production automation, and logistic optimization, as well as SG&A efficiencies. In order to increase and advance cost synergies, we are expediting even more the integration of Parex. Structural adjustments are taken where necessary and where the crisis could have a prolonged impact. However, all these measures will not jeopardize our long-term growth, nor our ability to innovate or introduce new products.
Last but not least, we maintain our strong customer focus, providing training, support, and service, and continue to gain market share. Cash management is another key focal point, obviously. We reduce or defer non-critical investments, which will lead to a CapEx reduction of about 50% of the originally planned amount for 2020. Tight monitoring and management of working capital is absolute key.
Proactive receivable management, a focus on collection, but also prudent and reliable payable management, as well as continuous monitoring of order levels, order intake, and tight inventory control. On top of this, Sika has a strong balance sheet with available cash at year-end 2019 of almost CHF 1 billion. In addition, the group has available credit lines of CHF 1.25 billion, including a recent increase by CHF 500 million, which gives us a significant liquidity buffer. With this, I'm handing back to Paul for the outlook.
Okay. Thank you, Adrian. Our outlook 2020, yeah. Given the volatility of the current market environment, it is not possible to give a concrete forecast for 2020. Much will depend on when large countries will come out of the lockdown and how the spread of the coronavirus can be contained over the year. Sika will not be able to stay unaffected by a global recession, but thanks to the measurement taken and our proximity to the market and customers, we are convinced that we will be able to continue to improve our market position and come out of the current situation as a stronger company. Looking ahead, we confirm our strategic target 2023. We will continue to deliver sustainable, profitable growth. Okay, thank you.
We are now opening the line for your questions. Thank you, Paul.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only hands to asking a question. Anyone who has a question may press star and one at this time. The first question comes from the line of Tom Witherspoon from Citi. Please go ahead.
Good morning, Paul, Adrian, Dominik. Thanks very much for the presentation and the opportunity to ask questions. Two from me, please. You spoke about the difference, I think, in China around the distribution channels versus the direct sales. Could you just elaborate what that difference is, how you're seeing things play out through the end of one quarter and maybe into early two quarter? Secondly, just in terms of U.S. and European markets, could you give us a little bit of color around just what activities are ongoing across the different regions? I know that the shutdowns mean different things for different countries. If you can shed any light on those developments, that'd be super helpful.
Okay. Thank you, Tom. I take the Chinese one. It's amazing actually to see the difference a little bit. Where the lockdown was on for all the factories we had, we had 14 factories in China. They were closed for two or three weeks, and then they reopened. From that until March, the Parex business, that's the distribution business, were almost even of the year before. Really almost no impact and really could recover very, very fast. On our construction site, the big construction sites were still closed. They had not enough laborers, and it was very slow to open the construction site. Our business was down by around 40%. A real impact because we were ready to produce, ready to ship, but on the construction site, they were not ready to explore. It will change now. The people are back.
Also that business will recover in the future. It was very clear to see the smaller distribution network really recovered fast and, I think it's the same. The second question, I think we have many countries, and the difference is a complete lockdown, like in Italy or in Spain, where they close job sites and factories that we cannot sell. It's not allowed to sell. That's the worst case, like in Colombia or everywhere. As soon as they lock down also the construction site, it hurts us most. In the recent days, a lot of many companies started to open the construction site. As soon as you see they open construction site, we can sell, then it's easy for us, and we can do business. France, Spain, U.K., even Italy start now to open up the construction site.
This is for us a good sign that many, many countries will go in this direction. That's the differentiation where we have complete lockdown or a lockdown. It still hurts, but at least we can sell and can do business with the people. If you go to U.S., I think they are in different states. Also, for example, in New York City, we still could go to job sites, but there is no job site open at the moment. As long as there is lockdown, they're difficult to build. On the other side, in Texas, they still open, even there is also a lockdown. Same in California. Areas is always a little bit different. If you try to analyze as they have job site open, this tells us that we can do business.
If the whole country is closed down and nothing goes on, that's very difficult to see. This situation we have now in Canada, Eastern Canada is in total lockdown for another two or three weeks. There will be no or very small turnover of your distributors. Does that answer your question, Tom?
Yes, very helpful. Thank you, Paul.
The next question comes from the line of Martin Flueckiger, Kepler Cheuvreux. Please go ahead.
Good morning, gentlemen. Thanks for taking my question. I've got three, actually. Just to come back, these first two are clarification questions on what you've discussed over the last five, 10 minutes. Just coming back firstly to Parex in China. Did I understand you correctly that Parex was pretty much or close to flat organically in Q1, whereas the Sika business was down 40? Is that four zero or 14%? If you could clarify that would be my first question. The second clarification question is again on the U.S. It wasn't entirely clear to me what the situation was. I now understand what's happening in New York City, but if you could just talk a little bit more in depth about what you've seen in California, Texas, and other states, and what your expectations are with regards to lockdowns in the U.S.
That would be my second question. My third question is really about your automotive business in the global business. I was just wondering how you exactly managed to mitigate that pressure from minus 25% global light vehicle production decline in Q1. Minus 7% in the light of this very dismal situation seems to be very outstanding, also compared to some competitors that I've seen. Were there any deferred sales from December? How were you able to capture market share, and why? That would be my third question. Thank you very much.
Okay, Martin, coming first question Parex, yes, is correct. They could recover the business in the first quarter equals to last year's results. Main reason is all the shops had to open. They're very clear, that's good. The 40 is only in March. Overall, we are not so down that March was really down where Parex already recovered. There is real driver in our whole business.
Okay, that 40% in March, is that for the entire combined business, Parex plus old Sika, or is that just old Sika?
I mean, the 40% of the Sika business, that's basically the quarter decline due to the lockdown in China. The recovery of the Parex business, Paul was mentioning, is referring to the month of March.
Okay, thanks.
Okay. I give the question to you as to Adrian. If we talk about the U.S., it's really a very mixed picture, what we see, depending on the state and the restrictions to the business. In some cities such as New York, where there is a complete lockdown, also affecting construction sites and general business, there, the restriction and impact is bigger. In other parts of the country, it varies to a large degree. Indirect channels are still open. We have been having a very strong quarter in North America, in the U.S. There is now also a partial slowdown in the U.S., the situation is still very much different basically from state to state. Does that help, Martin?
Perfect. Yes. Final question was just on the global business, please.
Yeah. Okay. 25% the market, we went down by 7.1%. Main reason is we got some nice new orders in for adhesive in several car producers and for new models. I think that's last year and beginning of this year, we got some new contracts, and we could change some suppliers. The advantage we have in the moment a little bit, they see now their supply chain so important, and they appreciate now local production as we're one of the few where we produce in all the three major areas. We won some contracts from our competitors. We got some clear market wins.
Perfect. Thank you.
Okay. Thank you.
The next question comes from the line of Priyal Woolf. Please go ahead.
Hello. Yes, it's Priyal Woolf here from Jefferies. I've just got two questions. Firstly, obviously, in the quarter, you've reported organic growth down 1.3%, but you've said that this was very much driven by trading post the middle of March. Is there any way you can just split that organic growth between what it was before the middle of March and then what it was for the last two weeks of March? Better yet, just give us a better sense of what trading has been like in April at that one rate of organic growth. The second question, obviously, you've kept your target for 15%-18% EBIT margin from 2021 onwards, and I appreciate you don't have any guidance in place for 2020, but presumably margin expansion will be difficult this year in a low-growth environment.
What gives you confidence or what will be the key drivers of that big step up in margin from 2020 to 2021? Thank you.
Good, Priyal. I'll take the first one. In terms of growth rates, up to mid-March, we have still been slightly positive on overall organic growth. With now the last two weeks, particularly related to these full lockdowns in a number of countries, this has moved into negative territory. Now again, expectations for the full- year but also for the next weeks and still very much a changing picture, but the expectation is clearly then that in April there will be a much bigger impact.
Thank you.
Priyal, I take the second one. We had a great January and February, which improved our growth of our EBIT. We were on the right line even for 2020 to really succeed our goals. We have to plan for the V shape or for the U shape. V shape, we still believe we can recover during this year. For 2022 margin, we are quite optimistic that even in this challenging margin environment, our material margin will benefit. We will get much better margin. We also have a lot of special products out there, so we don't have to give this margin immediately back to our customers. This will really help. In home countries, we adapted our organization, or will adapt our organization to assure that we have a better increase in EBIT than we lose on the sales side. We're going for that.
That's one, and that's the EBIT for 2021. We go for material margin, it's one of the big things. The second is our cost efficiency. Now in these critical countries, country by country, the local management will improve their margin. That's the goal for 2021, even to cut costs, to make the right organization for the volume we can deliver. Of course, we will have a lot of synergies from the Parex integration, and then also from the cost side. Pretty confident we will adapt whatever shape this curve will take for 2022. Of course, 2021 is then we will be ready to deliver the EBIT.
That's great. Thank you very much.
Thank you, Priyal.
The next question comes from the line of Patrick Rafaisz, UBS. Please go ahead.
Thank you. Good morning, everyone. Three questions from me and two follow-ups. The first follow-up would be on the explanations you just gave on the EBIT margin in 2021. What's the assumption for the material margin, for the gross margin in all the commentary you just provided, and what's the assumption for cost takeout, please? The second question is a follow-up on global business and automotive. You mentioned the new contract wins in adhesive.
Would you also think there was some stockpiling in there as European and U.S. customer base built up stock in anticipation of the lockdowns? What would you think about the second quarter here? By how much can you outperform build rates that will be down significantly more than in the first quarter? The last question, just a quick one on CapEx. In the presentation, you talked about the 50% reduction.
Is that a 50% versus last year or 50% versus the usual range of 2.5%-3% of sales? Are we talking about 1%-1.5% of sales in CapEx? Should we see a full recovery in 2021? Will these just be added to 2021, or are these projects that are delayed indefinitely? Thank you.
Thank you, Patrick. I'll take your question number 1 and 3, and I'll start with number 3. The 50% reduction is really on sort of the planned amount, which basically would be between 2.5% and 3% of turnover. The reduction here is more than CHF 100 million planned for 2020. Talking about the specific elements and drivers of 2021, we would clearly expect, as far as material margin is concerned, to move into this 54%-55% range, given all the activities, the action where we're doing here on the procurement side, on innovation, on pricing. Also, as Paul has alluded to, in situations where there is a demand weakness in the market, not only in our market, but generally for our type of raw materials, that there is the expectation of reducing raw material costs going forward.
In terms of the cost takeout and leverage here, and here you can clearly think along our guidance as part of the strategy, 50 basis points improvement of efficiency or EBIT related to it. As was also mentioned, a clear progression on the synergy side, what Parex is concerned. Of course, also no one-off costs anymore related to that transaction.
I go with question two, the global business. The question was, did they build up the stock? Probably one or two customers, yes. In principle, they don't build up any stock. They rely on the supply just in time, and they need the cash more than we do. Even we need the cash as well. They wouldn't put anything on stock in general. No, it's not stock build. Probably one or two customer, not sure. The question is how we see their performance in the future. It's very clear.
They closed down the factories. Now they announced they reopen. The question is, how many cars they build, how many cars they do around the world. We will have this additional business, so we will probably outperform the market. To give a rate, it's not possible at the moment for me.
It also depends which model they will produce. No stock build-up, and if they produce enough cars, confident we will outperform them as we did in the first quarter. Is it okay, Patrick?
Yes. Thank you very much for the answers. Thanks, Paul.
Okay. Thank you.
The next question comes from the line of Xintong Ouyang, On Field Investment. Please go ahead.
Good morning, everyone. Thank you so much for the presentation. There are basically three questions from my side. Two follow-ups. The first one is, can you please provide a little bit color on the price and volumes change in Q1 before and after the COVID-19 outbreak in countries outside of China? For example, do you see any significant volume decline and also your pricing? I understand that you announced some kind of price increase in certain regions in the beginning of Q1.
Are you able to sustain with that? Looking forward into Q2, do you expect it to extend? There is one follow-up on that is that you are saying that you are seeing improvement in countries where construction sites are gradually opening up. I am wondering what is the rate of resumption. How do you see the demand is picking up?
How quickly the demand is recovering or is it just gradually like happened in China in March? The second question is on Parex in China. I'm wondering, can you please provide us with the organic growth of Parex in China in 2020 in Q1 versus 2019 in Q1? Looking into Q2, I understand that there was some kind of stocking up situation in Parex in Q1, because if you look at last year, Q4, the leading indicators, the real estate or infrastructure market was quite optimistic. I'm just wondering in Q2, do you expect the situation to deteriorate a little bit for Parex and growth because I assume there's no stocking up anymore? If you look at the national statistic, the retail sales of certain products are still down by 14% in March year-on-year.
I'm just wondering how do you expect the downstream market to recover in China? The third one is, I'm wondering, we've seen that the oil price has been down a lot and the WTI oil price went to negative yesterday. I know that the raw materials of Sika is not directly linked to crude oil, but the trend is pretty consistent. I'm just wondering how much tailwind are you expecting from the oil price decrease? Also in 2019, we see a 400 basis point gross margin expansion. Why are you expecting only the maximum 100 basis point gross margin expansion this year when the oil price is down in a pretty similar scenario? Thank you.
Okay. Xintong, we had a little bit not a good line here, but we try to answer as good as we can. First question I thought is the question on China with the Parex, if they stocked up. The dealers still had the stock, so was not the stock up, but retail, we're monitoring it very closely and a lot of people wanted to fix their houses. It was a lot of sales to the customer. No stock-up.
Pricing, yes, we had a big price increase, beginning of the January around the world. In many parts of the world, we increased the prices and we still maintain these prices. From that side, no stock up. Yes, we increased the price in many. This other question we understood a bit about oil. Oil is always a small drive for our business.
We are down the value chain. It will impact the fabric just a little bit because all the lines or the stock feeds are coming down. We have to see how this develops. At least it's on the much better side than if it goes up. Adrian?
Maybe just to add on the material margin. As Paul said, oil has a certain impact. It certainly helps, if it's low.
For the incoming feedstock into the products we're buying. It's much more related to supply and demand. What we're seeing going forward is much more prices being driven by this part, rather than the oil price itself. Does that help, Tina?
Yes, thank you.
Okay. Thank you.
Okay, thank you.
Next question comes from the line of Markus Mayer, Baader Helvea. Please go ahead.
Good morning, Paul, Adrian, and Dominik. I have two questions, basically, on the comparison to the last crisis. Could you remind us versus, for example, the financial crisis, how your portfolio has changed? Also remind us how quickly the demand came back in specific areas and where you basically can also maybe saw delayed effects, for example, for the rebuild project. Secondly, also for this kind of infrastructure projects or financial stimuli projects of certain states, do you see, for example, in Asia that large infrastructure projects are already facilitated by the regions or the states?
Okay. I will try to start. Markus and Adrian will continue. I will compare the crisis from 2009 to the crisis today. I guess the crisis 2009 was a financial crisis, and then it started to roll out. It was liquidity, and then everything broke down. We could, at that time, reduce. We had also less sales by 6%, but also we could recover the EB to same amount, so we were quite good on that one. This crisis seems to be completely different. I think that it's unheard that the world closed down the business. It's unheard. I haven't heard in all the crises that in so many countries, the government locked down the business. I think that's a different crisis. The good news probably is they really pump a lot of money in this.
I guess the big job site will reopen, and then we have the same amount. We will build the same. The question here is if the money is ready to go for new construction in 2021. If that is the case, I guess we will come out. In the global businesses, different crisis. First is also shut down, but they have also a structural challenge.
Maybe just addressing the first part of your question as to the portfolio change. In the last 10 years, we have become even more global and, let's say, more diverse and balanced. Particularly also the indirect channel has a bigger share now, which also tends to be more repair and refurbishment business, which is an area which, let's say, a crisis actually performs relatively well as you do smaller jobs, you do repairs, whereas maybe the big projects are a different story. In that regard, we have actually even skewed the balance in a more favorable part. I think what we have seen initially here in China is a bit testimony to this. Nevertheless, complete lockdowns, if you're not allowed to do business, that of course, has an impact no matter what.
Is that okay, Markus?
Yes. Yeah, sure. Okay.
Okay. Thank you.
The next question comes from the line of Bernd Pomrehn from Bank Vontobel AG. Please go ahead.
Yes, good morning, gentlemen. Adrian, you mentioned this planned CapEx reduction by 50% compared to your initial budget. Last year, expansion CapEx accounted for 44% of your total CapEx. Does this actually mean that you're now stopping all expansion CapEx? How will this impact the opening of new plants? The beginning of the year, you had the idea of opening, I think, seven to nine new plants this year. Will this rather impact the opening of new plants this year or also next year? What's the timeline, a little bit, of the opening of new plants? Thank you.
Maybe giving a bit more color on this number. The focus here is clear on also integration CapEx, on efficiency, on maintenance, health, and safety. The biggest reduction is in, let's say, capacity or expansion CapEx. This will not impact, basically, our long-term growth. There will still be, of course, the one or the other plant we're opening. It's also not to say that we're not expanding capacity at all wherever it is needed. Certainly, there is less pressure from that side. Let's say the number of factories, that's not a sacrosanct number. If that's currently not needed, we can also delay this. Maybe in adding to this and completing one of the previous questions, in 2021, we do not expect a huge catch-up.
There's probably a bit more than coming in 2021 in terms of CapEx compared to the normal rate, but not in a major way.
Okay. Thank you, Adrian.
Thank you, Ben.
The next question comes from the line of Eric Carlson, KP. Please go ahead.
Hi. Thanks for taking my question. Just wondering if you could give us some kind of steer on run rate organic growth now in April, very quickly for the group as a whole. Thank you.
It's a bit a crystal ball reading. It will certainly be a bigger impact than in March. Sales will be down double digits in April. I think that's very clear. Again, the situation is so strongly evolving, particularly around these lockdown situations, whether it's now full, whether construction sites are allowed to operate. We've seen actually a number of encouraging signs in Europe, as Paul has mentioned. It's difficult to predict. Clearly on the automotive side, the impact will be actually even more pronounced in April.
April will be.
Thank you.
a difficult month, Eric, for all.
Yeah. Maybe one more follow-up. The oil price has come down a lot, and I appreciate you don't buy oil directly, but maybe you could also give us a spot picture of what you're seeing in your raw materials at the minute in terms of pricing.
Yeah. As we have said, the indications are clearly that input cost or pricing for our key materials are coming down. Not so much or not only oil-related, but it's really sort of the demand vis-a-vis the available capacity. As of today, although there is also here quite a volatile picture, we always have to also consider potential supply chain or capacity constraints given the situation. Clearly as of today, there is a clear tendency that input costs are coming down.
Thank you.
Okay. Thank you, Eric.
Next question comes from the line of Christian Arnold, MainFirst. Please go ahead.
Good morning, gentlemen. A follow-up question on your midterm target of 15%-18% EBIT margin. You already pointed out that you are basing on a higher gross margin. I wonder if you could also give us some clarity on your working assumption in terms of top line, which is underlying this 15%-18% EBIT margin for 2021. Is, for example, CHF 8 billion enough? Do you need CHF 8.5 billion? Some kind of working assumption you have here, that would be helpful. The second question I have is, the oil price. The raw material is one side, but I believe it can also have impact on your top line, that some markets are also impacted by this situation. I'm thinking of North America, I'm thinking of Middle East. What do you expect here in terms of your top line?
How much can that be affected that oil and gas end market related business will be lower? Thank you.
Yes, Christian. I'll start with the second one. Of course, you're right, the oil price movement is not one directional. By and large, let's say a decline in oil price, although it's only part of the input cost of our key raw materials, has on balance a positive effect, even including that some of the markets you have been mentioning do very much rely on oil in terms of their overall economic activity. This is typically only a number of countries.
The balance is still positive. Secondly on, let's say that the rebound expectations of 2021. Of course, again, here, difficult to predict an absolute level, but we clearly expect for 2021 a recovery. Return to organic growth here, which will also allow us to move into this margin bracket that we have been guiding for.
I think it's important, Christian, to understand our Sika model. Each company is measured on the sales they generate, and then they have to improve their cost base. We have a lot of initiatives that each country around the world can improve their cost base. It doesn't matter where the sales is.
They have to deliver over portion, EBIT margin, and we work on that and everyone is very clear because we are very local and the local management will handle that. If we sum that up, then of course we'll have that result. It's not a break-even like with other companies with a lot of investor, a lot of volume where they say we need CHF 8 billion to do it or with CHF 8.5 we are better. We can do it with CHF 8 or we can do with CHF 8.5. Top line is important.
It's easier to get there, but also we can do it if the top line decline, because we will adapt our cost base. Is that okay, Christian?
Yes, thank you very much.
Next question comes from the line of Daniel Jelovcan, Mirabaud. Please go ahead.
Good morning. Just a clarification. You mentioned the United States and Canada had double-digit growth until mid-March. Do you talk about organic growth or including the acquisitions?
Organic. We had an excellent start organic growth, yes. I think in March they closed down Canada, so of course, it was difficult to produce if no one is around.
Yeah.
It was organic growth.
Actually this one I haven't understood really when you say for instance, New York City, the job site is there, but there is no stuff there.
Yes.
I mean, why is that?
They're all afraid of the Coronavirus. Second, the bigger job site, they just not open it because they also have unions there. They have a lot of discussion there. For many people said, "We wait the storm until they really do open." In principle we could produce, but in New York City, no one is on the job site.
Is that for instance, quite different to Germany where a lot of construction sites are open and also work, right?
Yes, they're completely different around other countries. Even Spain, they open job site now. In New York City, it's just everything is so close together. They really shut down the street. If you see a picture from New York City, there's no one around. No one really wants to go to the job site. It's probably the size of the city themselves. It's as I said, it's different in California, it's different in Texas where they do their work on job site. Mainly New York City is just closed down.
Okay. The last question. In China, let's say on the big construction sites like all these high-rise buildings. What is your experience there? Is it already a V shape? The Chinese are quite famous that they want to recover the business quickly or even, let's say, catch up the lost business. Let's say they work instead of eight hours, 10 hours and whatever. Do you see such things in China?
Yes, fully agree, Daniel. The whole government and all even our employees are so keen to prove that China has a V shape. They're working hard. They believe they want to change it. Even in our company, they really are eager to show. Time will tell, but they do everything to get a V shape. They do everything to open the big construction site. Yes, probably the most positive side is China. They really work on the V shape. Not sure if every European country can have a V shape, but at least China, most probably the best candidate for fast reinstallation of the business.
Okay, thanks.
Thank you, Daniel.
Next question comes from the line of John-Fredrik Andresen, HSBC. Please go ahead.
Thank you. Good morning, gents. Three for me, please. The first one on cost reductions. Can you give a little bit more of a picture, as to whether it's plants that you won't be reopening, whether you've actually shut any for 2020 because you've got enough supplies. Also, staffing costs on the furloughing schemes. Have you put, in multiple countries, staff off your payroll for the time being? That's the first one. Second is on the supplies of raw materials.
I heard what you said in answer to questions, but are those supplies, do you have enough stocks? Your local sourcing policy, have you got enough access to what you need on those? Finally, on bolt-ons, are you still in that market? I heard what you said about deferring any major acquisitions, but are you still in the market for bolt-ons? Thank you.
Okay, Tom. I take the supply first. We have a lot of international suppliers and, in difficult times, we have to stay together. We will have enough material. Probably we don't fight for all the best price. We want to have a fair agreement with our suppliers as well as we want to have a fair agreement with our customers. We will weather the storm together. From that side, positive that we have enough material to supply either on our own stock or with our suppliers. We make sure that we can supply the customer. From that side, confident that even if some force majeure, if they not really a breakdown in their supply chain of our suppliers, we will have enough there, and we will manage it very carefully. I think you can do the cost reduction.
On the cost side, we're thinking here in scenarios, again, very different from country to country. Of course, reducing non-essential expenses in some areas where maybe there is a higher likelihood, there is, let's say, a more prolonged downturn. We're also taking structural measures, particularly also in regards to integration, really advancing it, very much different country by country. As an effect, we will also have a lower structural cost base going into 2021.
We will use all the opportunities from Brazil to Argentina to Philippines, wherever we have to adapt to the local situation. That makes us strong because we have local management. If it's full load or if it's short time work or all the opportunity, even IT, we will, of course, reduce our force to adapting to market. However, as we believe in a V shape in the first scenarios, we don't have the massive layoffs like other companies. Of course, we still in the acquisition market.
I still hope a lot of people have a little bit more problems than we, and probably find one or two nice, good company we could acquire. The only thing is, as we said, it's not another CHF 2 billion deal on the table. It's probably the wrong time for the really big ones.
For all the CHF 300 million, CHF 400 million, CHF 500 million companies, we're still eager to get it, and if it's fit for us, we're still there. With our cash in hand and our credit lines, we can do deals like that as planned.
Thank you, Paul. I just have one follow-up, if I may. Just looking at the Q1 numbers, clearly COVID-19 only impacted outside of China at the back end. Do you sense already that your local supply structure and network is behind some of the resilience in your numbers, that you've taken market share, not just in automotive but also in construction?
Yes, fully convinced. As we said, we are really decentralized. The people already, we adapted the cost. We are already fighting for all the jobs. It's our major thing. I'm pretty confident that we will show a lot of market wins here because we are financially stable, we have a good team, we are motivated. Yes, I think end of the year, we can clearly prove that we won a lot of market share.
Thank you.
Thank you, John.
Next question comes from the line of Alessandro Foletti, Octavian. Please go ahead.
Yes, good morning. Thank you for taking my questions. I was wondering if you can give an indication of the Parex growth organic also outside of China, maybe. That would be the first question. The second question on China. I saw some traffic statistics of travel across the regions, also between Hubei and so on, that sort of indicated that there was a big rebound after February, so like in March. In April, those numbers are sort of slowing down again. I wonder if there is some sort of seeing back in China, because, obviously the government there is scared about the second wave. I would wonder if you can give some indication about what you see there.
Okay. In China, I'll do the first one. In China, I think it's a big rebound. Our people are very positive. We don't see that it slows down. I think they started to manage. It's clear out of Wuhan, Hubei, everybody wanted to leave, which we didn't have to stay there. Therefore, it was a big move out of Hubei because there were a lot of people locked down. In the business side, from our people, we just get very good impact else in April.
Okay, thanks.
Alessandro, on the question regarding growth outside of China of the Parex business. I think this would be a bit too crude, China, non-China, because it really depends also on the situation in Southeast Asia, where we do have full lockdowns. Of course, it's then very difficult to grow or to sell if you're not allowed to. What we have been seeing through the indirect channel, due to the fact that the nature is even more repair and refurb, smaller jobs, that on balance, this business has actually fared better than the direct one.
Okay. Can I maybe try to ask the question in a different way? Just because of the M&A effect on your top line, which is still very big and mainly driven by Parex. Is it fair to assume that before the coronavirus, we were going for something like CHF 550, maybe a little bit more sales contribution from Parex, and now we are down, I don't know, CHF 450 or can you give a number from that one, maybe?
Yeah. In Q1 year,
For the full- year. Sorry.
Yeah. For the-
As a bunch for the full- year.
Here, it's a bit crystal ball reading, how the next weeks and months will develop. I can only tell you that in the first quarter, there was basically very little effect in this regard. It will, again, very much depend on the next months and particularly how significant the restrictions in any given country are. If there is full lockdowns, again, very difficult to sell. If the restrictions are manageable, then the impact will be lower. It's too early to tell.
Alessandro, you have to see, we integrated all the companies now. We have only one Sika in Philippines, and that's one company. We have one Sika Thailand, we have one Sika in Argentina. The cross-selling, all the initiatives, all the things is done. If it's a lockdown, we cannot do. If it's open, I assume we will have a cross-selling stronger position. I expect both company will grow the same.
Okay.
Okay.
Thank you.
Thank you.
Next question comes from the line of Martin Hüsler, ZKB. Please go ahead.
Yes, good morning. I have two questions. First of all, coming back to your automotive outperformance. I was just wondering whether this outperformance of about 18% as the market, you would say that you can keep up this high speed or if in the course of the year, you would expect actually this progress to decrease a bit. In this regard, what's your assumption for the full- year car production globally? The second question is, I'm wondering whether you already faced some defaults of customers or receivables that this might become more an issue in the next couple of months.
Martin, I'll take the receivable or the working capital question here. No, we have not been seeing any impact or any negative impact yet. Of course, in some cases, we need to find solutions, particularly in areas where there's a lockdown, but we have not seen any negative receivable impact as of now. Of course, it's in many cases, a bit early to tell. It's in any case, a great focus, strong awareness, and of course, that this is a very critical area, and we're certainly not compromising in this regard.
Okay. Martin, I take the automotive. Yes, we believe if the volume goes in that direction, I think we will outperform the market because we have the new models, and they produce the new models. We will see, but yes, we're confident we stay at least outperform, if it's seven, if it's five or six, that's the direction. If you see the automotive business, IHS, that's the company, they provide the data. Last year, they produced 88 million cars, and the forecast of this company is 70 million, means a reduction of around 20%, 21%. That's the forecast. We will see. Even if our folks on the street, they open, the question is: What is the stimulus for the customer to buy new cars? That's the forecast from IHS, 88 down to 70 million.
Right. Well understood. You seem to be a bit modest, saying you will outperform by 5%-6%. In the first quarter, you outperformed by 18%, right? 18% the market. I was just wondering if there is a special influence in the first quarter, or why do you think you can only outperform by 5%-6% when you have such a huge gain in the first quarter already?
Probably wrong from my side. No, we outperformed by this 18%-20% the market, we believe. No?
Okay.
I think that's a pretty high, Adrian?
I also have to see in the first quarter. There has been a lot of movements, shutdowns in some areas, ramping up in China, new models. It will very much depend, as Paul has said, what are the models that are being produced and how is the demand being composed. We will clearly outperform the market. Just to extrapolate to say 18%, that would be too high.
He's the money maker. Martin, sorry. I think we will clearly outperform the market.
Okay. Thank you.
That was the last question.
Thank you very much for your interest. I think this brings us to the end of our call. Thank you for listening to Sika. We wish you all the best. Stay safe.
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