Sika can look back on a highly successful 2019. It was a year in which numerous projects were realized to set the course for an even stronger performance, in particular the acquisition of Parex, the largest in Sika’s history.
With sales of CHF 1.2 billion on an annualized basis and more than 4,500 employees, this takeover makes a significant contribution in bringing Sika to the next level of growth. The integration of Parex forged ahead in the year under review. Fully integrated management structures are now established in 20 countries in which Parex has a presence. The first integration successes were quickly achieved, with around CHF 100 million of synergy potential identified. An additional sales volume of CHF 230 million is being targeted purely through cross-selling activities and the marketing of the expanded product portfolio.
New Growth Strategy
The new 2023 growth strategy was launched and publicly unveiled in October 2019. The strategic targets include annual growth in local currencies of 6–8% and an increased EBIT margin target of 15–18%, which is to be achieved from 2021 onward.
"In addition to these ambitious financial targets, the most important elements of the company’s new strategic direction include the introduction of an eighth Target Market, “Building Finishing”, a focus on operational efficiency, and the targeted orientation of the Group toward sustainability."
Records for Profit and Cash Flow
With sales having already exceeded the CHF 7 billion mark in 2018, Sika was able to build on this success in 2019 and pass the CHF 8 billion level, recording sales of CHF 8,109.2 million. This equates to growth of 14.4% in Swiss francs and 16.3% in local currencies. Organic growth reached 3.3% (previous year: 6.8%). The material margin recorded a year-on-year increase from 53.0% to 53.6%. With a record EBIT level of CHF 1,055.1 million, Sika exceeded the billion-franc mark for the first time in its history. This was achieved thanks to a year-on-year EBIT improvement of 11.5%. The operating result includes one-time costs incurred in connection with the takeover of Parex. Excluding one-off and acquisition effects in 2019, EBIT would have recorded an over-proportional increase. The tax rate was brought down further and amounted to 21.5% in the year under review (previous year: 23.0%), which meant that net profit also set a new record of CHF 758.5 million, equivalent to a rise of 10.4%. Operating free cash flow, which amounted to CHF 1,026.1 million (previous year: CHF 513.2 million), also posted a new record figure. Return on capital employed (ROCE) reached 19.2% (previous year: 26.2%).
Growth in all Regions
In a challenging market environment, Sika has grown more strongly than the market in all regions.
The EMEA region (Europe, Middle East, Africa) reported a sales increase in local currency of 11.6% in 2019 (previous year: 14.1%), seeing a strong development with double-digit growth rates in Africa and high single-digit growth in Eastern Europe. In Belarus, Sika acquired Belineco, a specialist manufacturer of polyurethane foam systems. In Romania, the company agreed to acquire Adeplast, a leading manufacturer of mortar products and thermal insulation solutions. This deal is expected to close in the first quarter of 2020. Production capacity was expanded in Egypt, Qatar, Serbia, Senegal, Cameroon, and Ethiopia, with new factories opened for concrete admixtures and mortars.
The Americas region continued to focus its business activities on the largest metropolitan areas and generated impressive sales growth of 19.2% in 2019 (previous year: 11.7%). Growth momentum was particularly pronounced in North America. In Latin America, political tensions in countries such as Mexico, Chile, and Ecuador, are leaving their mark on local construction industries. Brazil, Colombia, and Peru all posted strong growth rates. In Canada, the acquisition of King Packaged Materials in the reporting period brought a market leader in concrete repair systems into the Group.
Growth in the Asia/Pacific region amounted to 35.1% (previous year: 5.5%). This figure includes a significant acquisition effect of 30.3%. The highest organic growth rates were recorded in China, India, and the Philippines. In China, Sika acquired Crevo-Hengxin, a manufacturer of silicon-based sealants and adhesives. The newly acquired range of products opens up cross-selling opportunities in the extended distribution channels. Furthermore, a new factory in the Bekasi district on the outskirts of Jakarta commenced operations in Indonesia in the reporting period. Sika now produces concrete admixtures and mortar products for the local construction market in three factories.
The Global Business segment recorded a growth rate of 3.0% (previous year: 29.2%). Sika gained further market share in the Automotive area in 2019, despite the sharp decline in global production figures in this sector. The megatrends in modern automotive construction, which are dominated by electro-mobility and lightweight construction, are opening up new avenues with significant long-term growth potential for Sika, thanks to multi-material designs and new adhesive technologies, as well as heat management in modern battery technologies for electric vehicles.
Innovations for the Future
At the end of 2019, Sika won the Swiss Technology Award in the “Innovation Leaders” category for its ground-breaking new adhesive technology.
SikaForce® Powerflex, which combines the properties of elastic and high-strength structural adhesives in a single product, enables manufacturers of cars, rail vehicles, buses, and trucks to implement new, lighter, more ecological vehicle concepts while maintaining body stiffness, good elasticity – and thus ideal mechanical properties. The new adhesive features the extremely fastworking curing technology “Curing-by-Design”, which can be triggered virtually at the touch of a button and dramatically reduces assembly time. This means that customers can greatly accelerate their production processes, while at the same time making them much more efficient.
Sika also confirmed its innovation leadership with an array of new products for the construction industry. For example, new, sustainable solutions with improved performance have been developed in the areas of low-emission epoxy resin floor coatings and hemp-based mortars. Sika has also been making progress with new concepts for future building, such as modular construction and 3-D concrete printing.
Dividend Increase and Outlook
In keeping with the double-digit increase in net profit and the strong development of operating free cash flow, the Board of Directors will be proposing a 12.2% increase in the gross dividend to CHF 2.30 at the Annual General Meeting of April 21, 2020.
The prerequisites for further dynamic growth have been put in place with the launch of the new 2023 growth strategy and investments in seven new factories and five acquisitions. Thanks to these twelve key investments, pronounced innovative strength, and a clear sales focus, Sika is in an outstanding position for the future.
For the 2020 financial year, due to the higher acquisition impact, we are expecting a sales increase of more than 10% in local currencies, as well as an over-proportional increase in profitability.
In 2020, we will continue to commit ourselves to a successful strategy implementation, generate sustainable growth in value, and enhance Sika’s excellent reputation among customers, investors, shareholders, and business partners alike.
"We look forward to tackling further entrepreneurial challenges and seizing opportunities, and would like to assure you, our shareholders, that we will do so with dedication and determination. Our heartfelt thanks to you for your trust, your loyalty, and your sustained commitment. "
Dr. Paul Hälg