Ladies and gentlemen, good morning or good afternoon. Welcome to the Sika Half Year Report 2018 conference call. I'm Sherry, 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. After the presentation, there will be a Q&A session. You can register for questions at any time by pressing star and one on your telephone. Should you need assistance, please press star and zero to connect to an operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Dominik Slappnig, Head Corporate Communications and Investor Relations of Sika. Please go ahead, sir.
Good afternoon and welcome to the Sika first half results conference call. We published our figures at 5:00 this morning. Our CEO, Paul Schuler, and our CFO, Adrian Widmer, will now provide further details on the results. Afterwards, they will be ready to take your questions. With this, I would like to hand over to Paul Schuler to start with the highlights of the first half year.
Okay. Thank you, Dominik. Good morning, everyone. Thanks to you for joining the call. The highlight of the last month is surely the resolution of the takeover attempt by Saint-Gobain and the fair solution we found to solve it. This resolution has an impact on the balance sheet and in the P&L, which Adrian later will explain in more detail. Operationally, I'm happy to inform you about our very motivating half year closing. We had an excellent sales growth of 13.9% in local currency and 15.9% in CHF, with a new record to CHF 3 billion and 470 million. Nice to see that all our four regions were able to grow. EMEA, this is in our case Europe, Middle East, and Africa, increased by 13.6% in local currency. We recorded a double-digit growth in many countries and areas.
As example, Eastern Europe, Africa, the Middle East, and strong, solid growth also in Spain, U.K., and Turkey. The newly established region Americas, has also an excellent run with also 13.6% double-digit growth in the U.S., Mexico, and Argentina. Sika Brazil posted a sales growth of 7.3% after some difficult years, and Ecuador also with 12.5%, as well as Peru are also back on the growth path. Latin America is on the grow again. In Asia Pacific, we grew with 5%. Double-digit growth in India, in Indonesia, and a part of Southeast Asia. China construction market picked up further in the first half year, enable us to grow high single digit. Good growth in Japan and Australia. The segment Global Business includes our automotive business with the new acquisition, Faist, in January, and SikaAxson, our market leader in tooling and composite.
With 28.5%, an excellent run, driven by the acquisition effect and high single digit organic growth. The pressure from high input cost was well managed throughout many price adjustments, lacking a bit behind. Volume growth together with this proportional low-cost development also helped to compensate the high raw material prices. The one-off cost effect connection with the resolution of Saint-Gobain of CHF 23 million impacted the EBIT negatively. EBIT improved by 10.6% to CHF 444 million. In the first six months, we continued to invest in the future growth in emerging market by opening three new factories in Senegal, Saudi Arabia, and Vietnam. We also founded a new subsidiary in Honduras. With the takeover of Index, we could acquire the market leader in the roofing waterproofing business in Italy, and the closing of Faist in February extended our access and offering to the automotive industry.
The integration of the two companies runs excellent, the synergies are even higher than expected. Overall, we had a great start to the year. I would like to hand over to our CFO, Adrian Widmer. He will guide you through the financial information. Adrian?
Thank you, Paul, good afternoon or good morning, everybody. Following our CEO's business summary and highlight presentation, I will now give you further insights into the financials and drivers of our strong first half year. In the first six months, the business showed an excellent growth on top of a strong first half 2017, with sales growth of 13.9% in constant currencies, picking up further momentum in the second quarter with a growth of 16.3% in constant currencies and 19.3% in Swiss francs. Organic growth contributed 6.8%, also increasing from 4.7% in the first quarter to 8.6% in the second quarter, while acquisitions added another 7.1% growth in the first six months.
Currency effects were positive for a change, with an additional growth contribution of 2%, primarily owed to a much stronger EUR, while a number of emerging market currencies such as the BRL, the ARS, and the TRY weakened significantly. All elements resulted in a total CHF growth of 15.9% in the first half-year. As highlighted by Paul, again, all regions contributed to our growth in the first six months of the year. Region EMEA grew sales at the rate of 13.6% at constant currencies. Here, picking up quite considerably from the first quarter. Organic growth was 6.1%, while the acquisition of KVK in the Czech Republic, ABC in Turkey, and Index in Italy contributed 7.5% of acquisition growth.
The core markets, U.K. and Spain, as well as Eastern Europe, the area Africa and Near East, contributed strongly to the organic growth, while FX effect were most pronounced in this region with an additional growth of more than 6%, and to a total regional growth of almost 20% in CHF. Region Americas continued to record strong growth, also at 13.6% in local currencies, beating the strong growth of 11.7% in the same period of last year. In North America, we have again been able to leverage the robust activity in the U.S. construction sector in our key target markets, while Canada has found back to solid growth.
Double-digit growth, as mentioned in Mexico, Argentina, as well as Ecuador, has been driving a pickup in Latin America, with overall organic growth in the Americas at 8.5% in the first half year, while the acquisition of M-Seal and Butterfield contributed another 5% growth. Foreign exchange effects in this region were quite negative at minus 4%. Growth in Asia Pacific was a solid 5%. Most dynamic growth was achieved in India and parts of Southeast Asia. China grew in the high single digit on the back of a robust construction market, while foreign exchange impacts at plus 0.7% were rather minor. The new segment, Global Business, achieved a very strong growth at 28.5% in local currencies compared to 9.2% in the previous year period. The Global Business includes our existing automotive OEM/OES business, which was previously reported as part of other segment and activities.
Organic growth in this segment was 7.8%, while the acquisition of Faist ChemTec contributed more than 20% percentage points of additional growth. Positive foreign exchange effects contributed another 3.5%, leading to an overall growth in this segment of 32% in CHF. Moving down the P&L, the gross result as a percentage of net sales decreased by 150 basis points from 55.1 to 53.6%. Price increases as well as various initiatives on the procurement and R&D side limited the impact of significantly higher raw material costs, while the dilution effect from acquisitions accounted for about 40 basis points of this material margin contraction.
Offsetting this and driven by strong volume growth as well as further efficiency improvements, we showed a strong operating leverage with both personnel costs as well as other operating expenses growing significantly below sales growth at around 70% of sales, in spite of a certain dilution effect from acquisitions. Organically, cost growth was less than 50% of organic sales growth. The successful resolution of the long-standing dispute led to a one-time cost of around CHF 23 million, which are included in other operating expenses. In consequence, EBITDA increased double digit by 11.6% to CHF 544.8 million. This is up from CHF 488.2 million in the same period of last year. If one-time costs related to the dispute resolution and this stuff include the board remuneration for the period 2015 to 2018 were excluded, EBITDA growth would have been over proportional compared to sales growth with an increase of 16.4%.
Driven by increased intangible amortization coming from acquisitions, depreciation and amortization expenses increased also by 16.4% versus the previous year period. Resulting EBIT growth was also double digit with an increase of 10.6% year-on-year. Excluding one-time costs, also here, EBIT growth would have been over proportional at 16.4% growth. In absolute terms, EBIT is up by CHF 42.5 million to CHF 444.6 million on a reported basis. Net profit after tax increased 11.4%, from CHF 285.7 million to CHF 318.2 million. Net interest costs were higher by about CHF 1.3 million in the first half-year, related to the bridge financing for the share purchase of the 7% of the Sika shares from Saint-Gobain for CHF 2.08 billion, and the subsequent partial takeout through a convertible bond. Net other financial expenses also increased due to higher hedging costs related to increasing interest differentials, particularly compared to the U.S. dollar.
Group tax rate, on the other hand, reduced markedly from 25.9% in the previous year to 24.7% in the first half-year, primarily related to lower tax rates in the U.S. Seasonality in the business provides for the lion's share of the cash flow being generated in the second half-year. First half-year operating free cash flow was CHF 11.5 million. Cash generation from operating activities increased by CHF 35 million to CHF 160 million, while CapEx was at CHF 148.7 million, including a one-off CapEx related to two operating lease buyouts in Switzerland for around CHF 71 million, leading to lower operating costs going forward, and which was done in anticipation of the upcoming changes in the accounting standard regarding leases. The resolution of the dispute, and introduction of a unit 3 share structure also had an effect on the balance sheet.
Obviously, the repurchase Sika shares of 6.97% of the outstanding capital voted for cancellation at the EGM, introducing equity by CHF 2.08 billion, with a resulting equity ratio of 22% at the end of June. Corresponding bridge financing of CHF 2.1 billion initially put in place has already been fully financed by July 12, through a convertible bond in the amount of CHF 1.65 billion, as well as a triple tranche straight bond issuance for the remainder of the amount. As a result, undiluted EPS increased over proportionally by 14%, versus a total net profit growth of 11.4%, and this will continue to be highly accretive on an EPS basis, as annual incremental financing cost will be about CHF 14 million only, or less than 70 basis points of the principal amount. With this, I conclude my remarks and hand back over to Paul Schuler for the outlook.
Okay. Thank you, Adrian. The strong start to the year supports our full year targets. We have an outstanding pipeline of big, newly won construction projects, many new products and initiatives, as well as several acquisition candidates throughout the world. We are well on track to increase sales by more than 10% to exceed CHF 7 billion for the first time. It's nice to note this last year was six, now we try to go for seven, so we are on a good run there. Volatile and rising commodity prices continue to present a challenge in the next five months. However, with efficiency improvements and continued price adaption, we expect EBIT and net profit to further increase in line with our guidance. Thanks to the commitment of our employees and the strengths of Sika growth model, we can look forward with high confidence to the second half of 2018.
Thank you, Paul. I think we can now open our Q&A session.
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. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only hands while asking a question. Anyone who has a question may press star and one at this time. The first question is from Markus Mayer, Baader Bank. Please go ahead.
Yeah. At first, congratulations to resolving of the dispute. I have three questions, if I may. The first one is related to your guidance, how I should read it. Does it mean that in any case, the EBIT will grow faster than sales, or does it mean that it will grow faster than the guided 10% sales growth? That's the first question. Second question is on Global Business. This 8% organic growth we saw at Global Business in the first half, is this a good run rate going into the second half? As well, this 50% EBIT margin, what was the effect from the integration cost there, and what would be a good underlying EBIT margin for this business? In EMEA, the organic growth in the second quarter looks that it was nearly double-digit.
Was this due to a catch-up effect from the stronger and longer than normal winter effect in the first quarter, or is this high growth driven by price increases? Thanks so much.
Maybe I'll take the first one here on the guidance. The guidance is a slight over proportional EBIT increase over sales growth. Depending on the sales growth, this obviously is going to be more than 10%. On maybe the second one on the Global Business. Yes, this is heavily impacted by acquisitions here. As usual, there is an initial dilution effect. It also depends a bit on some other factors. There is no clear underlying margin guidance yet, but integration is well on track and the underlying EBIT percent net sales will improve over time.
On the organic growth Global Business?
On the organic growth here, clearly the automotive part, as we have said, will grow basically about 10% over market growth. Car build rate growth in the first half year was very minor, around 1%. We're well on track there. Maybe a word to EMEA, last question here. There is a certain element of, let's say, more working days included here. That's the difference between the first and the second quarter in terms of growth. Underlying organic growth is also very strong in many markets, as Jost indicated previously.
I had a question, this one, is this organic growth mainly volume or also to some extent price driven?
It is to some extent price driven as, of course, we are increasing prices in EMEA, across the board. There is also a price element in there.
Okay, perfect. Thanks so much.
Okay. Thank you, Mayer.
Next question is from Martin Hüsler, ZKB. Please go ahead.
Yes, good afternoon. I have two or three questions, if I may. First of all, maybe looking a bit at your gross profit margin decrease by 150 basis points. Maybe just looking at the 110, which you lost because of raw material price increases. Can you maybe give us your view, what's going to happen here in the second quarter, i.e., how will you catch up with price increases compared to raw material price increases? The second one is just a minor one, but if I look on page 13, where you elaborate on the acquisition of Faist, it just strikes me that you say Faist added a net profit of CHF 2.2 million for more or less five months.
In the first month, which you haven't consolidated yet, the share of profit would have been CHF 1.9. I was just wondering why is the margin for the part of the year that is not consolidated yet, so much higher? That's maybe my two questions.
Okay, maybe the second one, good observation. I mean, that's a bit related to, let's say, the IFRS disclosure here. Of course, the sort of the integration one-time cost you only have once. The underlying profitability is obviously higher in this business, that's what makes this difference, how it is being disclosed.
Okay.
On the raw material, Martin, I would like to say that everywhere there are heavily price increased in certain materials, more in certain material less. We see also some signs out there which we have more stabilization now, with few product group, we see still an increase. The challenge in the first six months was the waves. We had three major waves of price increases, we luckily a bit behind to go to the customer, increase the price also by three times. It's a little bit a leverage, we are confident that we will have a better result end of the year. Also on the efficiency we are strong, we think on the final EBIT, we can handle it. It's also always a decision management on volume against just gross margi n. I think that's always the same play.
We need to fill the factory on one side and decide we want to be fair partners to our customers, but we are able to increase the prices in a fair amount to keep our result.
Okay. I read into this that in the second half of the year, the burden on the gross profit margin will probably be lower than this 110 basis points seen in the first half.
Working hard on it. Yes, you can assume.
Okay, thank you.
Next question is from Eric Carlson, Industrial Equity Partners. Please go ahead.
Thanks for taking my question. You have an amazing track record of acquisitions going back many decades. Perhaps this episode with an unclear shareholder situation slightly dampened your opportunities, at least for larger deals over the last couple of years here. How is the pipeline now for deals in general and for larger deals specifically?
Okay. Thank you, Eric. Yes, fair observation. I fully believe that we can have increased speed now as our current board is more willing to go for the bigger acquisition.
I'm having trouble with the connection.
Sorry, with the shareholders on the board, we will go for biggest acquisition. We have one or two big now talking after the resolution, and the pipeline is quite full, but as it is with acquisition, it always takes some time and willing, but we are very confident that we will show more acquisition and bigger acquisition, as I said, in the round of three, four, CHF 500 million.
Very encouraging. Thank you very much.
Thank you, Eric.
Next question is from Louis Rosenberg, from Bernstein. Please go ahead.
Good morning. Good afternoon, gentlemen. Just a couple quick questions, please. We saw the acceleration in like-for-like growth of sales in quarter two, which is even higher than the full year of 2017. There were a lot of sort of effects going on between Q1 and Q2. Can you sort of give us an idea of where the run rates of like-for-like growth should be sort of going into the second half of this year? Second question, just digging a little bit more on the last question about the acquisition pipeline. We had, over many years, sort of a 2%, 1.5%-2% growth in the sort of bolt-on from acquisitions every year. How should we think about that going forward? I know it's very difficult with lots of different deals at different times, are we expected to double that?
Are we expected to go much further? It's just to try and understand the sort of the runway we can expect.
Okay. Thanks, Phil. I take the second one on acquisition. As you mentioned by yourself, it's always difficult to predict. The aim is to grow faster, so as we said, we had 2% acquisition always in. We try to go at 2%-3%, whatever we see. It's clear we like to go for a bigger acquisition, and we like to go a little faster.
Understood.
Thanks, Phil.
I'll take the first one on the run rate, as you correctly point out, Phil, there is always a number of influencing factors here. If you just look at the sales days in the first quarter, we had about two less on average compared to the previous year. Now, in the second one, I think it was around one, or not even. I think it's in terms of organic growth, the first half year run rate is probably a fair run rate going forward.
Okay. Thank you very much.
Next question is from John Ravel, from Rogers. Please go ahead.
Good afternoon, gentlemen. A couple of quick questions just regarding the outlook. You're targeting CHF 7 billion sales this year, and you've had a very good start to the year so far. I was wondering, how much higher than CHF 7 billion do you think you can get to in 2018? Also, then moving into 2018, any indications of what you might be aiming for next year? Thank you.
Thank you, John. You sound like a board member asking me to give more in. I guess with our guidelines, with CHF 7 billion, we are on the very positive side. We can go there. We don't know what's really coming, so I think we still stick to the 10% growth rate. We stick to this one, and for going on, if we can keep a pace of this six to eight, or even go to 10 in the coming years, I think that's also very fair in the growth rate. In the moment, we stick to our general guidelines, six to eight, and cross the CHF 7 billion first.
Right. Thank you.
Thanks, John.
Next question is from Bernd Pomrehn from Vontobel. Please go ahead.
Yes. Good morning, gentlemen. Thank you for taking my questions. Two, if I may. Firstly, on the CapEx. CapEx more than doubled in the first half. I think this includes one or two kind of special projects. Could you please provide an update for the absolute CapEx guidance for this year? Also a relative guidance, so CapEx to sales ratio going forward. That's the first question. The second one, your implicit EBIT margin guidance for this year sounds a little bit more cautious as you introduced this slightly comment. What has changed really in the last three months? Is it the continued high raw material price level, or do you already include the potentially negative impact of further margin dilutive acquisitions in the second half? Thank you.
Thanks, Bernd. Maybe on the CapEx. Yes, roughly CHF 150 million of CapEx in the first half-year indeed was quite a bit higher than in the previous year. This is really owed to this one factor I was mentioning. We did buy out two plants out of operating leases for about CHF 71 million, which will lead to lower operating expenses going forward. This is really a one-off, if you will. In terms of the absolute CapEx this year, without this one-time effect of around CHF 71 million, is slightly higher than in the previous year, sort of keeping around the same percentage of sales as in previous years.
Okay. Thank you, Adrian.
On the EBIT guidance, there is, of course, this one effect, the CHF 23 million of one-time expenses, which we have to absorb. This is really fundamentally the difference to the slight change in wording. In terms of acquisitions coming and the effects, I think we will take it when it comes.
Excellent. Very clear. Thank you, Adrian.
Next question is from Patrick Rafaisz, UBS. Please go ahead.
Thank you and good afternoon, everyone. Two questions remain. Two follow-ups, actually. The one is on the organics in the second quarter. Adrian, you talked a bit about the working day effects. Can you also talk about weather effects and how you feel these influenced your performance, especially in Europe, where organics were very strong? Then the second question around the gross margin. Again, you gave us a split between M&A dilution and the raw materials impact. Can you talk about your assumption for M&A dilution in the second half? Can you split the raw material impact across the segments, so the regions and Global Business to get a feel which regions were impacted the most? Thank you.
Okay. Maybe on the weather effects first, of course, yes, there is always an influence. It's typically, let's say in the first and the last quarter where you have most weather effects potentially. As always, we don't like to talk so much about the weather, because the weather is as it is. It was probably a rather bit of a harsher winter in North America, but also in parts of Europe. There is probably also a little element of this year in the first quarter. Other than that, as I said, I think, sort of the first half year organic growth is a fair assessment here.
Maybe on the raw material side or raw material margin rather, I would expect what the acquisitions are concerns based, of course, the ones that have already been secured, that this dilution is rather going to reduce in the second half year to a lower rate, as these effects are typically initially the bigger ones. In terms of price effect across the regions, across applications, that's very difficult to divide out, because there is also foreign exchange effects. As Paul had mentioned, there have been different waves and also the raw materials not moving very uniformly. There was certainly an impact or a bigger impact in Asia-Pacific and to some extent in EMEA.
Can I just follow up on one question regarding the M&A that has already been announced? In your EBIT guidance, do you model a significant uplift from these M&A contributions? I don't mean the absolute number, but from increasing the margins and bringing them to Sika levels, or would you say everything that's been announced will see the impacts more in 2019?
I guess we have a strong track record of integration these companies. It takes us then a while, and we will have them on our margin. It's always the target to bring us to the same margin, but it always depends on the business, depends a bit on the region. In general, you can assume that we will bring the companies to our level.
Okay. It's still like a two or three-year period?
That's correct.
Yeah, okay.
It depends a little bit, but it's always fair assumption over this period.
Yeah. Thank you very much.
Okay. Thank you, Patrick.
Next question is Martin Flueckiger, Kepler Cheuvreux. Please go ahead.
Yeah. Good morning, gentlemen. Thanks for taking my questions. Actually, I have three. Firstly, I was wondering whether you could talk about what you see in terms of market environment in North and also in Latin America. Particularly I was interested, do you see any ramp up yet in infrastructure projects in the U.S. and what do you see in Brazil? Are you still bullish on that market? That would be my first question. The second question is with regards to your track record for acquisitions. What do you think is your, let's say, recipe or secret in terms of maintaining management's external focus in spite of several acquisitions being integrated at the same time? That would be my second question.
My third question, apologies, I must have overheard that statement on the split for the gross margin decline, the split for dilution and raw material price effects. If you could repeat that very quickly. Thank you so much.
Okay, Martin, thanks. I'll take the one with the environment. First with U.S., I think U.S. has a strong run overall. They have a fair, strong base. The big infrastructure program we don't see yet for Mr. Trump's initiatives, but we have a good run, and I think a double-digit growth rate. We gain market share. We have strong position and a strong pipeline. It's not so that we really see an impact now. We still hope on it, but it's not yet given. If we go to Latin America, I guess we have a strong run in Argentina, Mexico. We think the environment is very good, also Ecuador. Overall, Latin America seems to be stronger than the last few years. In Brazil, we have a very nice run, I guess. They are seems to be out of the really decline.
Future will tell, but we are more confident to have a very strong results this year in Brazil. Overall, Latin America, Americas are very on a good run. If you look then to the second question on the management, I think, the acquisition, we always have different areas, different countries, different people. We make sure that the general manager and the whole team focus on the integration. We also try not to change too much for the customers of the company we acquire. Therefore, we have time for our own business as well as leave this company running their business, then we go step by step to find then the synergies. That's a little bit the model we try to work with, which works well.
Thank you.
Question three, Adrian, maybe the last one, Martin, on the breakdown of the 150 basis points, about 110 is basically the net effect of higher raw material costs and about 40 basis points is the dilution from acquisitions.
Thanks. Just a quick follow-up, if I may. That 110 basis points raw material price impact, what does that correspond to in terms of average raw material price increase for H1?
It has been across the board very different in terms of the raw materials. The effect on the raw material price increases has been around 4% or a little bit more.
You see that declining for H2, maybe 3% or something like that? Correct?
I don't quite have my crystal ball with me, as Paul had mentioned, there has been several waves. We see in some areas some plateauing, others are continuing to go up. It also depends on the foreign exchange movements. It rather looks a little bit less steep, the increase than in the previous months.
Thank you very much.
Thank you.
Next question is from John Fraser-Andrews, HSBC. Please go ahead.
Good afternoon, gents. I've got four questions, please. The first one is the accounts receivable particularly, but also stocks seem to have gone up very strongly and the accounts payable not so strongly. Perhaps there's something going on in the acquisitions, perhaps if you could explain that, please, Adrian.
Yeah.
The second is a clarification of what you said earlier on the call about working days. I thought I heard you saying Q2, one day less. I certainly heard two days less in Q1, but I'm thinking you might have meant one day more in Q2 to explain the difference in those sales rates. The third question is, have you finished now price increases after these raw material rises, or are there more price rises to come in the second half? The final and fourth question is in Asia. It's a more moderate growth than some of the other EM areas. Are there any countries in double digits or the star performers, India, China, is it limited to high single-digit growth in that region? Thank you.
Okay. Very good. Thanks, John. Maybe the second one first on the working days. That's what I
This meant to say, yes, the second quarter had one working day more, and not less. Maybe on the working capital, there is quite a number of effects here. If you look at the overall, there has not been, let's say, an increase or a deterioration in any kind. Of course, you have some valuation effects here on Forex, but also in terms of inventory, the fact that raw material prices have gone up also means that the same volume, the inventory value is also higher in the books. Then you have also the effect that due to the fact that we did or closed two larger acquisitions in the first half year, well, there is a higher balance and not the full-year sales against it if you look at the ratios.
All in all, continued disciplined management, but also, of course, the receivables are most related to the last two to three months of turnover, and here the growth has been quite significant, and hence also the increase, a bit more pronounced than in previous quarters.
Sure.
Okay. John, regarding the prices, no, we are not finished. As I mentioned before, we lag a little behind because there were three waves. We will continue price increases. We had just in several countries additional price increases last for July. This will go on, and we will follow the development of the prices in the next six months very closely. Wherever necessary and possible, we go and increase the price. That's a continuous management job of all the general manager around the world and the salespeople. It's not finished now. To the region, Asia, I think we lag a little bit on the growth rate, mainly in four countries: Malaysia, Singapore, Korea, and Thailand. That's a little bit lacking. We have to see. Thailand had last year an excellent run. We are a little behind there.
Korea, difficult in the moment to several projects are lacking a little bit. Malaysia and Singapore just have a very low construction market a little bit. That's a little bit set us down. Where we have a strong run is in Indonesia, double digit, in India, double digit, and strong high single digit in several countries. Also Japan, we are strong. We lag a little bit in four countries, but also the same run around the region and confident probably we can pick up one or two points in the next six months.
Can you talk to China, please, as well, Paul?
China, the construction market, also the car industry market is nice. We are around 9% growth rate there. A very solid position. The real challenge in this market is this environmental cleanup of the Chinese government. They really start to close now many competitors due to environment reason. We so far working close together with the government. We are good. That could be a challenge in the future. That's a little bit where we have to watch. In the moment, the construction market and the automotive market are strong.
Thank you.
We have a follow-up question from John Ravel. Please go ahead. Mr. Ravel, your line is open.
Oh, hello. Yeah, thanks for taking my follow-up. I was just wondering, we're quite interested in the moment at about, obviously, the trade tensions and things like that, and I was wondering if you see any kind of spillover effect into your business in terms of raw materials. You see them getting more expensive because of this, or any effects on demand out there. Thank you.
Interesting question also for us. I think we see the dark clouds around the world. We will follow if there is really a trade war. We believe it will slow down the whole economy. However, in the Sika respect, we have a very nationalized or local production around the world. For example, U.S., we do almost 100% own production in the U.S. For us, it's a little bit not so critical as long as the whole economy not turns down. We are very local organized, local strong position, and local production. We, of course, follow very closely the development and react where we have to.
Do you see any kind of increases in raw material prices as a result of tariffs? Does that affect you guys more broadly or somewhat?
Not really. Unfortunately, Sika has pushed us already hard enough with the price increases. I think it's not really to the tax reason there.
No, thank you.
We also purchase local.
Okay, good stuff. Thank you.
Thanks, John.
That was the last question.
Thanks very much for joining the call. Nice to hear you guys with the questions. We always learn a little more about our business while you ask questions. Thank you. With this, we close the call. Okay. Thank you.
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