Sales rise by 12.4% thanks to MBCC Acquisition - Significant profitability increase in Q3

STRONG EXPANSION OF MATERIAL MARGIN

In the current fiscal year, Sika has significantly increased its material margin to 53.1% (previous year: 49.3%). The company has therefore made further progress on the pathway back to a sustainable margin recovery. Adjusted EBIT increased to CHF 1,250.1 million, and the adjusted EBIT margin advanced from 13.8% to 14.8%. When including the one-time effects from divestments and acquisitions, the company recorded EBIT of CHF 1,144.8 million (previous year: CHF 1,231.5 million).

Sika is expecting the overall acquisition and integration costs relating to the MBCC acquisition will amount to CHF 230 million. Of this amount, around CHF 200 million will have been booked by the end of 2023. 

Operating free cash flow significantly increased to CHF 877.3 million (previous year: CHF 422.4 million). Focused working capital management and the normalization of the supply chains were the main contributors.

DOUBLE-DIGIT SALES GROWTH ACROSS ALL REGIONS

The EMEA region (Europe, Middle East, Africa) reported a sales increase in local currencies of 10.6% (previous year: 10.5%). The countries of the Middle East recorded strong growth rates. France, Spain, and Portugal also developed positively. Among others, Sika benefited from economic subsidy programs and investments in building technology energy saving measures as well as the rapidly growing e-mobility. Once again, business activity was subdued both in the DACH region (Germany, Austria and Switzerland) and in Northern Europe. In general, the positive trend continues, with more infrastructure and commercial construction projects being implemented in EMEA. The distribution business recorded a slight sales increase compared to the first nine months of 2022.

In local currency terms, the Americas region achieved a 14.0% increase in sales (previous year: 31.9%). Rising rates of inflation, high interest rates, and an increasing shortage of specialist labor weighed on construction activity in many of the region’s markets, with the corresponding negative repercussions for the construction economy. Growth in this region in the first nine months of 2023 is first and foremost attributable to the MBCC acquisition. Sentiment in the US has improved generally as a result of infrastructure projects, supported by state subsidy programs and projects planned in the context of reshoring of manufacturing facilities and the Inflation Reduction Act. Latin America contributed to the rise in sales with solid growth. 

At the start of July, Sika reported the takeover of Thiessen Team USA, a manufacturer of shotcrete and mortar products for the US mining sector. This company supplies mining companies in the west of the USA, which among others supply the growing electro-mobility industry with critical minerals. The takeover should open up significant cross-selling potential and strengthen Sika’s position in the US mining sector.

Sales in the Asia/Pacific region increased by 13.5% in local currencies (previous year: 17.6%). In China, Sika recorded double-digit growth in the distribution business, whereas project activity in this country recorded a slight decline. Sales in Japan increased slightly. By contrast, India posted double-digit growth. Business volumes increased further in both Indonesia and Thailand. 

In June, Sika opened a new factory in Kharagpur in the east of India, thereby increasing its production capacity in this high-growth market of the future. The factory will produce mortar products, concrete admixtures, and shotcrete accelerators for customers in the West Bengal region, which is home to more than 100 million inhabitants.

In the Global Business segment, Sika achieved growth in local currencies of 13.3% (previous year: 22.0%). Growth in the automotive business surpassed that of the overall market. The background to this increase is robust demand for new vehicles, particularly electric vehicles, along with normalization of the supply chains. However, the strike in the US automotive sector in September had a negative impact on growth.

Sika is continually developing its spectrum of solutions for battery systems. These include, for example, heat-conducting adhesives for the latest generation of battery-driven electric vehicles. Sika gained a record level of new orders in the automotive business during the first nine months of 2023. The newly acquired platforms will generate sales within a timeframe of two to three years and ensure sustainable strong performance of this business.

OUTLOOK FOR THE FULL 2023 YEAR CONFIRMED

In October, Sika unveiled its Strategy 2028 “Beyond the Expected”, including the associated medium-term targets. The new strategy will enable Sika to grow profitably over the long term even in a challenging economic environment. Thanks to 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 sustainability megatrend, as well as by increasing urbanization, resource scarcity, automation, digitalization, and the trend toward easy-to-apply products.

For fiscal 2023 Sika expects sales in local currencies to rise by over 15%, including the MBCC acquisition effects. At the same time, Sika is confirming an expected over-proportional rise in EBIT, excluding the MBCC acquisition. Operating free cash flow should reach over 10% of net sales for the year.

¹ Divestment of European industrial coatings business.

² Cost related to the acquisition of MBCC.