Substantial Impact of the Coronavirus Pandemic
Despite the substantial impact of the coronavirus pandemic on business, Sika managed to increase sales in local currencies in the EMEA, Americas, and Asia/Pacific regions in the first half of 2020.
The coronavirus pandemic has had far-reaching effects on Europe’s economic output. The International Monetary Fund expects economic growth to be down by more than 7% in 2020. Downward trends are also expected in the construction sector, which is set to contract by 11.5% in the current financial year. A trend reversal is expected in 2021. The decline in the construction sectors in Eastern Europe and Germany is predicted to be less steep, at 2.4%, with falls of 10%–20% becoming apparent for the French, Italian, Spanish, and UK construction markets.
Within the Sika Group, the distribution business proved more resistant during the coronavirus crisis than project business, a trend that was driven by building materials trade and e-commerce channels. Parex, in particular, posted a strong increase in distribution business in June. In project business, Sika supplied – inter alia – the airport extension in Doha, Qatar, with waterproofing solutions, and the major construction project “The Circle” at Zurich Airport with products from its comprehensive portfolio from several target markets. In addition, two important OEM customers selected Sika’s flooring solutions for use in their new plants.
The acquisition of Adeplast (Romania) was completed in the reporting period, and Sika also acquired the Modern Waterproofing Group in Egypt, a leading producer of roofing and waterproofing systems. The acquisition extends Sika Egypt’s product portfolio, opening up further growth opportunities.
Sika invested in the expansion of the Sarnen site in Switzerland, bringing into operation a new production line for the manufacture of the SikaProof® structural waterproofing membrane.
North America, and in particular the countries of Latin America, were hit hard by the coronavirus crisis. Mexico, Brazil, and the USA are among the countries with the highest infection rates in the world. Even though the USA refrained from imposing a full lockdown, unlike Canada, economic output slowed and the unemployment rate shot up. The crisis also had a negative impact on the construction sector, although business with builders’ merchants and projects in the food and beverage segment posted above-average results. Ten countries in Latin America went into lockdown, with the states of emergency declared by governments affecting Colombia, Argentina, Ecuador, Bolivia, and Peru, some of which are Sika’s largest markets in the area. In some countries, the closure of building sites brought construction activity to a complete standstill.
Huge state support and investment programs have been initiated to stimulate economic activity in both North and Latin America. The USA alone plans to invest CHF 1.4 trillion in infrastructure. With its comprehensive product portfolio, Sika is exceptionally well positioned to benefit from these major investments.
In the reporting period, Sika invested in the production of concrete admixtures, acrylic-based liquid-applied membranes, and mortars in Barranquilla, the fourth largest city in Colombia. Activities at an existing facility were transferred to the new state-of-the-art site and expanded.
The first cases of the COVID-19 virus were reported in China in December 2019. After falling by some 7% in the first quarter, gross national product in the People’s Republic posted a return to growth of 2.5% in the second quarter. Once the virus had been contained, the economy rebounded, stimulated by major investments in infrastructure in particular. Japan’s gross national product contracted by 3.4% in the first half of 2020. The pandemic affected exports first and foremost, and investment by private households fell significantly. In Southeast Asia, infrastructure investments due to strong urbanization trends led the area to post economic growth of around 7% until the outbreak of the pandemic, but this then weakened under its impact. The crisis also reduced economic output in the Pacific region. Australia posted negative economic growth in June 2020, and New Zealand is also forecast to see a decline in gross national product this year.
Infrastructure investments that will particularly benefit the construction sector are planned throughout the region. Sika has positioned itself successfully primarily in China in readiness for the implementation of infrastructure investment projects in connection with 5G mobile networks, in major data centers, and in intercity high-speed rail projects. Wind turbine manufacturers and wind farm operators are also focusing increasingly on high-performance solutions from Sika.
The coronavirus pandemic has had especially grave effects on international automotive markets. All regions were significantly impacted by COVID-19 lockdowns and the associated repercussions on supply chains, manufacturing processes, and vehicle demand. Most auto manufacturers in China, Europe, and North America halted production completely for an extended period, and in the first six months of 2020 the global automotive industry posted a decline in production figures of 35%. While some signs of improvement are visible in June, it is expected to take some time until the numbers climb back to 2019 levels again.
New vehicle registrations in Europe collapsed by up to 80% in April alone, and the average age of vehicles on Europe’s roads is currently around ten years. In North America too, production of new vehicles fell by nearly 41% in the reporting period to 5 million, and it was not until June that it reached 70% of the previous year’s level. China’s automotive sector is expected to post the fastest upturn following the coronavirus crisis; aided by state support programs, the 2019 production level may well be reached as early as the second half of 2020.
Generally speaking, Sika cannot escape the impact from weak demand in automotive manufacturing. This said, during the crisis Sika was able to increase the share of its components used in each new vehicle produced by nearly 8%. In the USA especially, manufacturers such as Tesla, Ford, and Toyota have brought to market new vehicle platforms featuring an increasing level of high-performance technologies from Sika. New orders were also obtained from further manufacturers of electric vehicles in the United States. Thanks to its local presence in China and intact supply chain, Sika captured market share from competitors during the crisis. Growth in demand for fire protection coatings and battery management solutions for electric vehicles was particularly positive.
Worldwide Market Presence
The Regions in Brief
|Net sales in CHF mn (previous year)||1,584.2 (1,626.0)||942.0 (986.7)||746.7 (641.8)||341.7 (477.9)|
|Growth in local currencies||3.2%||2.6%||21.8%||-23.1%|