Ladies and gentlemen, good morning or good afternoon. Welcome to the SECA Half Year Report 2015. I am Maria, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. After the presentation, there will be a Q and A session.
The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Dominik Slopnik, Head of Yara of Sika. Please go ahead, sir.
Yeah. Good morning and welcome to the Sika Half Year Results Conference Call 2015. Due to our EGM on Friday, we set this call today to give everybody the opportunity to catch up with our figures. Our CEO, Jan Jenisch and our CFO, Atjorn Widmer will give you now more details on the first half results. Afterwards, they will be ready to take your questions.
So let's start now. Jan begins with the statement first.
Yeah. Good morning and good afternoon to everyone. This is Jan. Thank you for the interest in the call today and we are very happy to give you more details and also answer your questions later regarding our half year results. I think as you can imagine, we are quite pleased with the first half of the year.
Was not an extraordinary easy half year. As you know, we had high translation losses or a bit of pressure from the high Swiss francs. And then we had some key markets like China, Brazil, Russia or France where we had some market downturn. However, we are very pleased that we could continue with our strategy execution, which also includes over proportional improvement in our margins. So you have seen the result while the Swiss franc puts a bit of pressure on the top line after translation, we were still able to grow the volumes more than 5% and to grow the EBIT by +8.3 percent and the net profit by +11.1 percent.
Very pleasing except for these some of the markets which were in a negative development. We were very pleased that we had a very high growth in key markets like U. S, all Latin America, in Africa, in the entire Middle East. In Eastern Europe, even including Russia, we had double digit growth rates and also double digit growth rates in Southeast Asia and the Pacific. So I think that was a good half year.
And even more so that besides these numbers, we were very active with our initiatives for Strategy 2018. So we had 4 new production plants we could open in Dubai, in Sri Lanka, on La Reunion and in Paraguay. We opened our country number 91 in Myanmar and this gives us just in the last three and a half years we opened 14 new countries with wholly owned Zika subsidiaries. On the acquisition side also we continued with 5 acquisitions in the first half. I think this must be a new record in terms of numbers.
And we are very pleased to see these 5 acquisitions across all regions and target markets and with annualized sales of CHF 150,000,000. So I think overall, we are well on track with our strategy and look forward also for a promising second half of the year. I hand over to Adrian, who will give us some more details on the numbers. Well, good afternoon and good morning. Following our CEO's business summary and presentation of the highlights, I will give
you now further insights into the financial results of the first half year 20 50. In spite of a very strong prior year period, which saw sales growth of 18.1%, we again achieved a significant volume growth with sales up 5.6% in constant currencies. Organic growth of 3.7% was complemented by acquisition growth of 1.9% coming from last year's acquisition of Luart in Brazil as well as the transactions we consummated in the 1st 6 months of 2015. Again, all regions contributed to our growth in the first half year. In the region EMEA, sales grew at the rate of 3.8% at constant currencies with accelerating growth in the 2nd quarter.
2nd quarter growth was at 6.3% versus 1.1% in Q1. On top of an organic growth of 1.5 percent, acquisition growth primarily Axon and Duramosa contributed another 2.3%. Moving to North America. The healthy U. S.
Construction sector, further expansion of our supply chain and the range of new products led to a strong growth of 8.2%, offsetting sluggish markets in Canada and driving above average improvements in operating profit. Despite the difficult market environment in Brazil as well as weak currencies, gains in market share led to a 13.1 percent increase in sales in Latin America. Growth was strongest in Mexico, Paraguay and Argentina. Investments in a new factory and the launch of new products are paving the way for future growth. Acquisition growth stemming from last year's acquisition of Luehart contributed growth of 3.1% in the region.
Growth in Asia Pacific slowed to 1.7% owing to the negative market development in China, while double digit growth continued in Southeast Asia and the Pacific area. The period under review also saw the acquisition of CTA, a leading tile adhesive and mortar producer in Australia. Due to the strong Swiss franc and resulting significantly negative foreign exchange translation effects of minus 6.8%. In Swiss francs, Swiss franc growth was slightly negative at minus 1.2%. Negative translation effects were biggest in EMEA at minus 10.8 percent followed by Latin America at minus 10.4%, while the impact in Asia Pacific was modest.
North America on the contrary exhibited a positive translation effect of around 5%. Gross results developed very positively in the first half year of twenty fifteen with material margin expanding by 110 basis points. Lower raw material costs and a disciplined pricing led to this margin expansion, offsetting negative effects from currency movements in some markets. Non material cost developed in line with sales. Disciplined cost management and efficiency improvements counted effects from the strong Swiss franc.
Personnel cost increased slightly disproportionately due to a higher share of personnel cost in Switzerland. As far as other operating expenses are concerned, expense ratio improved slightly on the back of a reduction in transportation cost and overall disciplined cost management. In consequence, EBITDA increased by 6.5% to $370,200,000 This is up from $347,700,000 in the same period of last year. Depreciation and amortization expenses increased only marginally compared to the same period last year. Resulting EBIT growth was a strong 8.3% year on year and an increase from 10.0 percent to 11.0 percent of net sales.
Net profit after tax again improved over proportionally by 11.1 percent to 190 $7,300,000 on the back of lower interest costs and lower tax expenses. Net interest costs decreased by about $5,000,000 compared to the same period of last year. This is due to the $300,000,000 bond repayment at the end of June 2014. Net other financial expenses increased by about $8,000,000 compared to last year due to valuation impacts and hedging costs. Tax rate, the reduction here from 28.4% to 26.4% percent is in line with the alignment of our license and management fees introduced in 2014.
With this, I conclude my remarks and hand over to Jan for the outlook.
So for the outlook for the full year, respectively for the second half of the year, we are confident that we will continue our growth momentum. So we will we believe it will be between 6% to 8%, like we say in our strategy. We will continue. We will see another 2 to 3 new factories in the second half of the year. So for the full year, we're going to end up with 7 to 9 factories.
And we have increased our original forecast for acquisitions from 3 to 5 to 5 to 7 as we have already acquired 5 companies in the first half of the year. We when we look a little bit at the markets, we believe that the positive development in the key markets will continue. And also maybe in the Europe West, we see the one or other opportunity for some additional growth. Markets will remain difficult in China, Brazil, Russia and France. Appreciation of Swiss franc remains a challenge.
However, we are confident that we continue our above average increase in margins based on our volume growth, our ongoing efficiency improvements and also some tailwind from lower commodity prices. Dominik, I think that's our conclusion. We go to Q and A. So thank you
very much Jan. Thank you very much Edwin. So this now the floor is open for everybody to join to the Q and A session. So please your questions.
We will now begin the question and answer session. First question comes from Martin Fikukir, Kepler Cheuvreux. Please go ahead.
Yeah. Good afternoon, gentlemen. Martin Fikite from Kepler Cheuvreux. Thanks for taking my questions. 2 actually.
Firstly, coming back to your outlook regarding the construction industry, I was wondering whether you could elaborate a little bit more in detail what you actually see for the various regions, which I find of most interest? That's Europe, Latin America and China. And if you could also explain the implications that you see for CECR's top line growth in these regions for the second half 2015? And should we take 1 by 1? Or should I go for the 2 questions now?
What's the second just give us the second question.
Okay. And then the second question will be on the automotive industry. We've seen a slowdown in the automotive industry particularly in China. But we've also seen some rather what I would call rather erratic growth rates in Western Europe. I was wondering what your take is on that?
What you've been seeing over the last few months? And what kind of trends you're projecting into the second half of this year? Thank you very much.
Okay. So
if I look at the markets, we again, we are very positive that we achieved double digit growth rates in many key areas. Let me start with Europe. Here we are Eastern Europe is a very good environment except for the Ukraine and Russia. We have very good growth in Romania, in Hungary, in Poland. And we are it looks promising our pipeline that we will continue also in the second half of the year.
We have then also a good situation in the area of the U. K, Scandinavia and also the former crisis markets in Europe, South, Spain, Portugal, but also Italy they show some growth again, of course, on a lower level, but they are growing again. A little bit slow was from our taste in the first half year was West Europe, so France, Germany, Austria, Switzerland. We also believe we see some effect because we had a very strong first half twenty fourteen. So we believe there are some opportunities for growth in the second half of the year.
When we move on then to the Americas, we are very excited about the U. S. U. S. Was growing more than 10% in the first half.
And I have reported about this before. This is one of the hottest areas for growth we have. We see ongoing increase in construction demand in the residential area, but also in the commercial area. Infrastructure, we are not sure yet. There's a huge demand obviously, especially for repair and refurbishment of bridges, hospitals, schools.
Here we have to wait. However, at the moment already since last summer, we have a very nice growth in the U. S. And we have reacted accordingly and beginning of last year started our improvements of the supply chain, new investments in Denver, Colorado in Atlanta, Georgia where we build 2 new factories. And also we acquired BMI in the San Francisco in Vancouver to further improve our factory capacities.
When we look in Latin America, I saw a lot of talk about slowdown of the markets. If you look at our numbers, we cannot unfortunately, we cannot confirm it. We had a good growth, double digit growth in all Latin America. It differs a little bit from country to country. We have extremely good construction market in Mexico.
Then we have a little bit of mixed bag in Ecuador, Peru, also Colombia. It's a little bit of slowdown in the markets. If you go further down then of course Brazil everyone talks about a huge slowdown. But overall our people were able to grow here again double digit and we are I think well on track also for the second half of the year. Then we go to Asia.
In Asia, I think we have to confirm that China has a significant slowdown in the construction markets. And here also we had a double digit slowdown in our sales in China. Doesn't make us too mirth negative at this point. We have a good situation with on the margin side in China despite this slowdown. And we believe we are well positioned here for the future with our 7 target markets and all the plans we have in place.
The rest of Asia was very satisfying. We have a growth in Japan. We have then double digit growth in Southeast Asia with very good market environments from Vietnam to Thailand, from Malaysia, Singapore to Indonesia to the Philippines here we are very satisfied. Also in the Pacific with Australia, New Zealand also growing double digit. We have a good base.
And with all the investments we made, we also see that for the second half of the year. Automotive market, I think I agree with you that the automotive market is a little bit maybe slowing down globally and we don't know where China will go with the production numbers. However, we are quite confident. We have all these innovative new products in place. Our adhesives for the structural bonding of the car with growth rates of more than 40%.
We have our acoustic and reinforcer solutions. So we have here quite some growth momentum, which also led to a sales increase of more than 10% in the first half. So we are not really worried so much if the production rate, the global production rate comes down by maybe 2% or something combined. That doesn't affect so much our momentum.
Okay. Sorry just to clarify in China, are you still positive or negative?
We have a negative sales development we had in the first half of the year.
Okay. Thank you so much.
Next question comes from Martin Hoesler, Turkey Continental Bank. Please go ahead.
Yes, good afternoon. I also have two questions. Maybe the first one, I refer to Page 17 in your semester report, where you show the operating profits per region. And there my question is as other segments and activities had higher negative contribution, I was wondering whether you allocated some costs from the regions to the segments of others? Or what is the reason that other segments had a higher negative contributions?
That's the first question. And the second one is referring to the impact of lower commodity prices. You mentioned that in the first half you could increase the gross margin by about 110 basis points due to lower prices, but also no pricing concessions or pricing strategy. I was just wondering whether for the second half we could expect a similar trend or if you now have to give away some if you have to decrease your prices stronger in the second half? Thank you.
Karsten, you take the first question.
Yes. Maybe just the first one. No, there is no reallocation. I mean, the main reason really for the increased cost here is really related to the hostile takeover attempt of St. Germain.
This is the main impact here.
Okay. And would you say that this will be in the same amount also in the second half? Or should this cost be lower? Or does proportional amount of the impact of these defensive measures or higher?
I think this is Jan again. I think first of all, if they give up with their hostile attempt, we have no more cost that this would be obviously the best solution. But if this not happens, I think I like to draw your attention to the overall picture where we were able to have CHF 22,000,000 extra operating profit. And I'm very proud you see the margins for each regions and we could increase the margins significantly. Even in the EMEA region, which was hard hit by the weak euro, we nevertheless could improve the margin from 12.8% to 13%.
So I think overall, we feel very strong also to absorb any additional costs there might be and we will deliver a good result also in the second half of the year.
Sure. Thank you.
The lower commodity prices is that's a mixed bag. We discussed it already last year and also beginning of the year. And I had to dampen a little bit to high expectations, because at this time we of course see the very big drop in the crude oil price. However, the capacities in the chemical industry are a little bit difficult. So what happened in the last 3 months from March to June, there was an official number of 42 force majeure in the European Chemical Industry alone.
42 in 3 months only where chemical suppliers announced publicly that they have some unforeseen unstoppable problem to produce certain products. A normal number I think is around 15 for a full year. So you see life is not so easy when you have to purchase or realize lower prices for these materials. So this is just a little bit background information. And then of course you see our big attempt already over the last three and a half years to increase the margins not only based on raw materials, but based on every semester we improve our sales, our product mix, our new products into the market.
And of course, we make big improvements in our global purchasing organization. So we expect some tailwind for the second half of the year compared to 2014. But I just want to dampen a little bit the expectations that this is kind of an easy trend. We have not such an easy situation actually
in the raw material markets. Okay. I understand. And just maybe to quantify a bit, would you say the tailwind will be lower or stronger than
in the first half? Okay. I think we did a great job in the first half. And if you give me the same improvement for the second half, I will sign this paper today. We have besides these raw material trends, you have to see this high translation loss we have from the Swiss francs.
We had in the first half year, we had 6.8% negative currency variation for the strong Swiss francs. But in June alone, it was 9%. So we have to see this a little bit as a challenge for us. Why is that? Because obviously, if you translate straightforward, you have 9% less profit into the Swiss francs.
But also you can imagine the pressure we have in certain markets with this high currency depreciation, we have a huge challenge to increase prices, adapt prices and so on or realize lower raw material prices based on U. S. Dollar into the books. So the second half year has quite a challenge with the Swiss francs. So again, for me, the improvement we showed in the first half year is our target for the second half and we will try to reach it.
But I cannot promise that we will make the same magnitude.
Thank you. That was very helpful.
Next question comes from Bernd Pomrehn, MainFirst. Please go ahead.
Yes. Good afternoon, gentlemen. One question on North America, please. I think your organic growth rate in North America came down to about 5.5% in the 2nd quarter from above 10% in the 1st quarter, While you actually made pretty positive comments on the especially on the U. S, what was the reason for the slowdown in organic growth in the quarter?
Was it Canada or any other specific reason? Thank you. Yes. We have I think two effects here. We had actually we had a very bad weather in the Q1 2014.
Maybe you remember this big flooding into New York and so on. So we had a very, very big base effect in the Q1. We have then Canada is correct. Canada is the market is very negative in Canada at the moment. We also expect this to last for the rest of the year.
However, overall, we are very confident the U. S. Has full project pipeline and we believe we will continue with about the same growth rates for the second half of the year. Okay. Thank you, Jan.
Very helpful.
We have a question from Mr. Tobias Lofkamp, HSBC. Please go ahead.
Yes, good afternoon. Just wanted to ask you on the Swiss market, whether the effects from the stronger Swiss francs have accelerated in the second quarter versus the Q1? Can you elaborate a bit on this market please?
I want to make 2 comments maybe here Tobias. 1 is on the Swiss domestic market for demand and then the second one is on our factories to give you a more detailed picture. I think on the demand side, you can imagine we are in Switzerland a little bit under pressure with the so called euro prices. A lot of consumers not only for automobiles, but also of course our partners here in the markets they realize that a lot of lower priced products might be available from the neighboring countries. So here we also have to adapt our sales prices a little bit.
So not like we normally do it upwards. Here we have some pressure to offer competitive prices to the customers. We are very successful here, but of course this leads then also to pressure on the top line. When we look into our factories, this is actually the bigger concern or the bigger challenge we had in the last three and a half years to stay competitive in our big factories for adhesives and membranes. And here I'm I have to say I'm very, very confident that our ongoing improvements led to very competitive factories.
And you can see in the first half year that we managed to how to say to more than out balance the strong Swiss francs here for the factory segment.
Okay. Thanks a lot for the update. And then a final follow-up one on the I recall when we met in June, you said the visibility is not that good yet for the French and the German market. Can you talk a bit about the sequential performance there? Are the markets further deteriorating?
Are they stabilizing on a flattish level in Germany and a weaker level in France? Or what is your latest sense?
Thank you for checking on these markets on a monthly level. But I don't want to be too excited. But I think for the German market, I the German market, I expect to have a better second half compared to the first half. I think the market was a little bit had a high comparison last year and also April May had very funny calendar days. So we see our projects in the pipeline and I think Germany will be better in the second half of the year.
For the French market, we are not so optimistic.
Okay. All right. Thank you.
We have a question from Mr. Andy Schneider, ZAR Capital. Please go ahead.
Hi. I have another question on China. Can you remind me what percentage of your total sales you're currently generating in China? And can you elaborate a little bit more what you saw in H1? So double digit, what means double digit?
Is it high double digit in volume? And what does it mean in Swiss francs? How would it develop that? And probably also a little bit the submarkets in China, where do you see problems? Where do you see still growth in which regions?
And what can we expect here into which? Thanks.
I think thank you for the question. I think China this year will be around 5% of our global sales. And again, we have now for the last 10 years everyone was talking about possible bubbles in the market and possible negative effects. And we had for the last 10 years, we only had growth in basically every year on year comparison. And now it's the first time we have in the first half a double digit negative sales variation.
Again, doesn't make us too nervous at the moment, because our margins are good in China and we are very careful not to make not to compromise our margins versus the volume.
Gentlemen, there are no more questions at this time. Would you like to add any comments? Sorry, we have a question from Michael Heider, Bank and Belvieu. Please go ahead.
Yes, good afternoon and sorry for the late question, but I also want to come back to China. I mean, you've given us your view, but maybe I'm not sure if you can give us a little bit more detail just maybe on the situation of the automotive market versus the construction market. Do you see a very big deviation between the two markets? Or is it a general slowdown over all markets? Thank
you very much.
Okay. Well, that's a good question. Thank you. I was talking about the construction market, which is where we have this negative development in the first half. The automotive market is very positive for us.
We are able here with our market share gains, we are delivering or supplying not only the Western brands, we have the same market share we have with the Western companies, we have with the domestic Chinese brands. This is very good and we will we had a very positive sales growth double digit sales growth in this segment in China in the first half.
Great. Thanks.
Michael any additional question?
No, thanks. That's fine for me. Thank you very much.
Next question comes from Jan Hendrik from Bloomberg. Please go ahead.
Good afternoon. On the Investors Day, you kind of insinuated that you may want to discuss more ambitious sales targets. Could you give us an update on that front? And then I have a question regarding the outlook. You're speaking of over proportional margins for the year.
Could you give us a bit more color of what is driving those margins exactly? And could you also quantify it a bit more? Could you give us more color? That's the question.
Okay. Thank you. I think when we talked about the long term targets, we talked about Strategy 2018. And many of you have of course well recognized that we are overachieving the targets of our strategy. So we just set the EBIT target at above 10% or the cash flow target above 6% and the return on capital employed is above 20%.
And now as you know, we were last year well above these targets. And also this year, we target to close well above these targets. So we start now in the second half. How do we say this? A strategy review to ensure that our strategy with all these elements and initiatives is the right one.
And then of course, we will have a discussion if we uplift basically some of the targets on the financial side. But please don't expect anything coming before year end. We will take some time here. Sika style means we will we have some discussions with all our managers around the globe. We do not only a top down review, we do a very strong bottom up review.
And I think we will end of the year, we will have a review result, which we will present to our directors. And then after this is all decided, we will present to you. When we look at the outlook, again, please realize that the strong Swiss francs and also the raw material markets will make it difficult to be stronger than we already were in the first half of the year. So my top target is to achieve around the same improvement as we have shown in the first half the year. But this would be really the target and we hope we can do it, but we cannot promise it at this time of the year.
Was that good for the outlook?
Yes. I think that's clear. Thank you.
Thank you very much.
Gentlemen, there are no more questions.
Okay. Thank you very much. This brings us to the end of our call. We thank everybody for the interest in FICAM. Goodbye.
Thank you. Bye bye. Bye bye.
Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.