Sika with sales up by 7.9% – Consolidation of MBCC Acquisition – Profit expectations for 2023 confirmed

Strong material margin and operating free cash flow improvement

In the first half of the year, Sika expanded its material margin significantly to 52.7% (previous year: 49.4%), and thereby takes an important step on the road to a material margin recovery. Profit at EBIT level was shaped by one-time effects. In the prior-year period, Sika recorded an extraordinary book profit of CHF 168.3 million due to the divestment of its European industrial coating business. In addition, the first half of 2022 saw one-off expenses amounting to CHF 28.0 million incurred in connection with the MBCC acquisition. In the first half of 2023, Sika had costs of CHF 89.5 million relating to the acquisition and integration of MBCC. When adjusted for these effects, Sika expanded its EBIT margin significantly to 14.0% (first half of 2022: 13.4%). Excluding the one-time effects, EBIT increased to CHF 749.9 million in the first half of 2023 (first half of 2022: CHF 701.6 million). When one-time effects are included, EBIT amounted to CHF 660.4 million (first half of 2022: CHF 841.9 million).

Overall, Sika is anticipating the costs relating to the MBCC takeover to amount to approximatively CHF 200 million (of which CHF 167.8 million already have been booked).

Operating free cash flow significantly increased to CHF 316.5 million (2022: CHF 39.7 million). Focused net working capital management and the normalization of the supply chains were the main contributors.

Sales growth in local currencies across all regions

In the first half of 2023, Sika recorded growth in local currencies in all regions, despite challenging economic conditions. In addition, this half-year report incorporates two months’ contribution from MBCC activities. Every region, except for Global Business, benefited from the acquisition. At Group level, the acquisition effect amounted to 7.2% in the first half of the year.

The EMEA region (Europe, Middle East, Africa) reported a sales increase in local currencies of 3.2% (previous year: 12.9%). The countries of the Middle East and Africa posted strong growth rates. A positive development was also recorded by countries such as France, Italy, and Spain. By contrast, business activity was subdued both in the DACH region (Germany, Austria, and Switzerland) and in Eastern Europe. The distribution business showed a slightly improving trend, while in the project business, volumes were down even though programs to stimulate the economy and investments in the transition of the energy sector supported Sika’s business. A well-filled project pipeline of infrastructure and commercial construction projects continues to be in place for the EMEA region.

The Americas region achieved a 11.0% increase in local currency sales (previous year: 35.8%). Rising inflation, high interest rates, and an increasing shortage of skilled labor weighed on construction activity in many of the region’s markets. The growth achieved by Sika in the first half of 2023 was primarily attributable to the MBCC acquisition. In the USA, destocking in the roofing sector negatively impacted business development. Overall, the sentiment in the USA was positively influenced by infrastructure projects initiated under government-supported infrastructure programs as well as planned projects under the Inflation Reduction Act. In addition, increasing funds are being invested in reshoring, which involves bringing industrial know-how back to the United States from Asia and building new manufacturing plants. Latin America contributed to the increase in sales by recording moderate growth. While countries such as Mexico and Argentina benefited from a positive market dynamic in the construction industry, Chile and Peru have slowed down. At the start of July, Sika reported the takeover of Thiessen Team USA, a manufacturer of shotcrete and grouting products for the US mining sector. The acquired company supplies mines in the Western region of the USA, which among other excavates critical minerals for the growing electro-mobility industry. The takeover will create significant cross-selling potential and strengthen Sika’s expansion in the US mining sector.

Sales in local currencies in the Asia/Pacific region increased by 10.1% (previous year: 17.0%). The first quarter of the year in China was heavily impacted by the surge in COVID cases. However, the situation improved significantly in the second quarter, allowing Sika to record double-digit growth, primarily in the distribution business. Sales in Japan stagnated, whereas India recorded double-digit growth. Southeast Asia started the year modestly, with stronger growth in Indonesia and Thailand. In the first half of the year, Sika opened a new factory in Kharagpur in Eastern India, hence expanding its production capacity in this high-growth market. This factory will produce mortar products, concrete admixtures, and shotcrete accelerators for customers in the West Bengal region, an area populated by over 100 million inhabitants.

In the Global Business segment, Sika achieved growth in local currencies of 16.2% (previous year: 13.2%). The automotive business grew faster than the market. Growth was driven by solid demand for new vehicles, especially electric cars, combined with supply chain normalization. The business not related to automotive in this segment was impacted by lower build rates. Sika continues to further develop and expand its range of solutions for batteries, as for example thermal conductive adhesives for the new generation of battery electric vehicles. A record of new nominations was set for Sika’s automotive business in the first six months of the year. The newly gained platforms will generate sales in two to three years and ensure a continued strong performance of this business. Sustainable, long-term growth stimuli are expected to primarily come from electromobility and alternative drive concepts.

Outlook for the year 2023

For the current fiscal year, Sika is convinced that it will successfully continue its strategy built on sustainable and profitable growth even in a challenging economic environment. With its innovative technologies, Sika is the partner of choice for many customers in the construction and industrial sectors. These sectors are being heavily shaped by the megatrend of sustainability, coupled with the rise of automation, digitization, and easy-to-apply products.

For the full 2023 fiscal year, Sika is expecting a sales increase in local currencies of above 15%, after factoring in the acquisition effect of the MBCC takeover (previously: 6–8% in local currencies excluding MBCC), and confirms an anticipated over-proportional rise in EBIT, excluding the influence of the MBCC takeover.

¹ Dilutive effect due to convertible bonds issued.
² As of December 31, 2022 / June 30, 2023.
³ Shareholders’ equity divided by balance sheet total.
⁴ Capital employed = current assets, PPE, intangible assets less cash and cash equivalents, current securities, current liabilities (excluding bank loans and bond).

¹ Divestment of European industrial coatings business.

² Cost related to the acquisition of MBCC.