Sika AG (SIKA.SG) Earnings Call Transcript & Summary

So good morning. It's a pleasure to welcome you today to our Fast Forward Media Investor Conference. With me today on the stage is Thomas Hasler, our CEO; Adrian Widmer, our CFO; and Philippe Jost, our Manager, Asia Pacific. As well present today, here in the room is our chair, Thierry Vanlancker; and the members of our group management. Thank you very much to be here as well. With this, I hand over to Thomas to start the conference.

Good. Thank you, and also a warm welcome from my side. And for all the guests from far and near. And also the online participants here, a special welcome to the early birds in the U.S. that have a very long Thanksgiving today. So that's the good part, but it's 4 a.m. to join this next 90 minutes. I would also like to welcome my team, colleagues, employees of the Sika Group, and it is them that enables us here in front to present a strong Sika with clear way forward and clarity on the Fast Forward program that we will comment in the coming 60 minutes. But I would like also, before we go into the program, talk about the foundation of Sika a little bit. It's a foundation from the past that is also guiding us into the future and key elements in there are very elementary to our success also going forward. We will also talk about China, in particular, and Philippe will take that part. Before we then go into the details of the Fast Forward program on one side with the cost measures and efficiency measures on the other side, I think the very exciting digitalization path that we have ahead of us. And of course, at the end, we then talk -- answer your questions at the final stage. Strong foundation. At the beginning of this year, we started -- we declared in February, Sika's stronger than ever. And that's absolutely true that the foundation of our strength is delivering. Our Strategy '28 is on track. We are controlling the controllable and we deliver on the controllable. There are elements that we don't control. We don't control the markets and we don't control the FX, but many things we control. And I think we are delivering on that, most particularly on the outgrowing of markets and peers. Talking about markets. Markets have been challenging the last 3 years, and they are still challenging. But we come back to that in a moment. It's not everywhere the same, and the momentum. I will also comment on the momentum of the market. But the markets are challenged. And the demand -- underlying demand in the market is actually growing, which means the backlog in construction is piling up, which I will also show later on. On our side, since the markets are the markets, the outperformance is leading then also to safeguarding our profitability, taking action on the efficiency. Also investing in tools that enable us to outgrow also going forward with even more drive. This is all our organic contribution the bolt-on M&A is a key factor in our strategy as well. So let me show you briefly, this is our strategy. Nothing has changed, except the guidance for the annual growth in local currencies, 3% to 6%. And here, let me clarify very specifically, what has changed. As you can see here on the picture on the left, the 6% to 9% growth, annual growth in the strategy, as outlined at the end of '23, was assuming a market contribution of 2.5%, which has been a long-time average that has delivered over the last 20 years. But the past 3 years, haven't seen that kind of growth. And this is the part we don't control. But what we control is our market penetration, market share gains as well as the M&A, and they are unchanged. So the 3% to 6% is an unchanged commitment of the company to outperform in the existing markets and also with contribution from M&A. This is not an indication that we assume the markets are going to be the same in the coming 3 years. Whatever we assume for the annual market situation, we will guide at the right time. And if we have, for instance, a market condition where we assume more normalized growth of 2.5%. This will be additive to the 3% to 6%, which means we are in the 6% to 9% range, as indicated at the beginning of the strategy. Now top line growth is one thing. The other thing is we commit to 20% to 23% in the strategy starting in '26. And of course, we have different levers contributing to this and growth is a key lever as well as material margin efficiency and M&A. As you can see here on the chart, since the growth is limited, here, we have a gap. And this gap, we are proactively filling with higher efficiency measures that are compensating so that we can, despite, let's say, limited market support still deliver on the profitability and safeguard our commitment to 20% to 23%. Now talking about the markets, core markets like the mature markets in Europe and in North America. Of course, we all have seen big impacts from inflation, from interest rates, political uncertainty and the residential construction market has been one of the most challenged in these regards. But still, in this residential, there are also market spots, pockets that are outperforming. And here, I think Spain, Italy, France, for different reasons, also driven by energy efficiency program have been stable and helping us also in these countries to offset the overall residential decline in the industry. On the industrial and commercial construction, also here, we have a lot of demand. Demand that comes from derisking of the former global supply chain, most pronounced in the U.S., we call it reshoring. It is a trend that is ongoing for the last 2 years. Unfortunately, with the tariff discussion this year, this has been put a bit to the site, waiting how the tariffs are going to set the frame for future North American activities. But the derisking of the global supply chain is a topic not only in North America is also in Europe. But in Europe, we are facing also some instability from the political uncertainty that is hindering big investments. Nevertheless, in this industrial commercial market, we have hotspots like data centers. They grow despite any of the market condition at the high growth rate, not only North America, in Europe, across the globe. It's a fantastic business opportunity for Sika as we have been an early mover and we provide peace of mind in this. Everything that is AI and digital-driven is still going strong. On the infrastructure side, infrastructure is a market that is more resilient. The limitation in infrastructure is more the budget of the governments to spend, but money is flowing. It's not enough, so the backlog in infrastructure is building, but we also have these nice programs in North America and Europe, in particular, the new German Infrastructure Act that is also stimulating more activities in this market. Talking about backlog. Housing has a huge backlog that is building that needs to be addressed, that will be addressed also, but it requires here interest and consumer confidence to increase. But you can see here alone in the U.S., 5 million missing in the U.K., 4 million missing. So a huge backlog here on the residential side. On the industrial side, as I mentioned here, activities are lined up. This is ready to go for most part in North America, but we need clarity on the interaction between the economies in North America. Infrastructure. That's a fantastic business for us. It's there. Every year, the infrastructure ages a year, and it is an old infrastructure. As you can see, the U.S., U.K., France, Europe, in general, we have an old infrastructure that needs more renovation, but also programs to upgrade our infrastructure, not only road and rail, but also the energy, the power supply is going to be the big topic to support our AI-driven economy in the future. Power is a major infrastructure need going forward. The investment programs take time, but they are significant, and they are accretive to the normal spend in infrastructure. And in addition to the one in the U.S. and in Germany, also the commitment in Europe to reinvest into defense requires a lot of renovation of existing military infrastructure and new structure that is going to be built in the coming years. Now this is the mature market situation, but we have also very strong markets across the globe, starting from Southeast Asia over to the India, Middle East, Africa, Latin America. This is the source for us to grow good mid-single digit, high single digit, double digit in Middle East and Africa. So it's not all the same. We have pockets of growth. We have regions that are less impacted by the global uncertainty. Now let me show quickly what we showed you at the 9 months result, 2.5% is our local currency growth if we exclude the China construction, if we include the China construction, we are at 1.1% growth in local currency. And then the other big, let's say, influencer is the FX with minus 4.9%, which is, again, it is out of our control. But our control is that the impact of the FX is only a translation aspect and not a transactional aspect. Now how do we measure ourselves against the peer? This chart, I think we have shown for quite a while. We have now added here with and without China, the outgrowth over the last 3 years. And as you can see, we outgrow our peers by roughly 2% to 3% and constantly over these 3 years. You can also see the impact on the growth from China in '23, a significant contributor to the group growth in '24 and '25 for reasons Philippe will also show then it's being a detractor of the growth. But overall, we outperformed our peers. On the organic growth, now here, we also show how we outperform our peers on the EBITDA. And the EBITDA outgrowth is even more significant than the organic growth outperformance. Here, we outperformed by 6%, and if we include everything and if you exclude China, even 8.8%, a significant outperformance. So we gain market share and we gain profitability. That's the bolden rule of Sika. That's the secret sauce delivering market share gains with higher profitability. Now this is the peer comparison. Let's ask the customer. We have done this year the first global survey, customer survey in more than countries, asking how the customer rates us against the peers that the customer is defining. And here, the Net Promoter Score is much higher than the peers, and it is much higher than the industry benchmark. This is the reason we can outperform because our customers are convinced their businesses with us in better hands and helps them also to create more value for their customer. It's also a clear intent by our customer to buy more from us to expand the share of wallet in the coming 12 months. This is an indication they like what they have and they would like to have more. This is a strong supporter of our outperformance. Back to the strategy, the levers on the market penetration our strong position that we have achieved over the past years is helping us to leverage that cross-sell using all channels that are available, go where the money is, there is less money in certain parts of the markets. There is more money flowing, data center is a good example, shifting activities into renovation, refurbishment instead of new build. This is the way how we can agile adjust. The key geographies are the key geographies. They represent roughly 70%, 75%. So the key geographies from Japan, China, India, Europe and the U.S. are core markets for us to build on and then the innovation aspect. That's what customers like us, love us for. We provide tangible value to them through our innovation, leadership position. And then, of course, the acquisition, the yellow part, that is an incremental with the bolt-on acquisitions. The innovation power I mentioned before is generating 23% to 25% of our net sales with products not older than 5 years. This is a steady source of incremental growth and profitability. This business comes in with higher material margins. This is how we price innovation and how we are also gaining traction with our new products in the market. And don't forget, construction is a relative conservative market. Products are having a longer life span than in other industries like, for instance, automotive or consumer goods. What we have here, 5% of our workforce dedicated to R&D. Our spend is healthy and is contributing with innovation that are relevant to our customers. And then ultimately, I come back to the very beginning, it's the people. Our people generate this. It's the outperformance. It is the people's dedication, it's the performance drive of the -- of our organization. Our organization, our people don't want to just play the game. They want to be winning the game. They want to be a leader in the market. They want to be a leader in technology. They want to be leader in digital. It is coming through the organization, this empowerment that is fundamental to our success that makes us unique with our Sika spirit and that is compared also with the willingness of the company to support entrepreneurial drive. Also having courage, courage for innovation, courage for new business model. This is, at the end, the source, how we can deliver. Now I hand over to Adrian to talk about the inorganic part of our deliveries.

Very good. Well, thank you, Thomas, and good morning. Now talking about another pillar that is clearly driving value is M&A, is acquisitions, is something which we are driving and addressing very specifically and very successfully, I think, a very strong track record, if you look across the last 10 years, more than 40 transactions on average per year and particularly being sort of highly accretive overall, driven by strong synergies. It's also the way how we look at M&A, driving additional growth platforms, leveraging capabilities essentially, in the end, driving strong top line as well as cost synergies and resulting on average in about a 4 turn reduction of the original multiple in the full year 3, very strongly driving here superior capital returns, but also strong earnings growth. If you look at acquired profit over the number of years, a clear double-digit increase per annum coming through bolt-on acquisitions. If you look at 2025, we've already closed 6 acquisitions. This is also based on quite a strong pipeline. A pipeline is also driven a bit by the environment, which, of course, given some of the challenges in the market, also driving quite a healthy pipeline, particularly the small to midsized companies having here more pains in this overall market environment, but we specifically continue to very sort of methodologically and structurally look at M&A, driving growth platforms, try to close selective gaps here, be it sort of market share, market access or also product and system capabilities, driving this strong synergy capture, which we have seen before. Six transactions, the latest one, for example, in Saudi Arabia, I think also a very good example of here demonstrating how we think about M&A, adding here a specific solution to our offering in this very strongly growing market. Also here, again, being able to drive cross-selling and leveraging capabilities across the board. But we also do invest in innovation and new business models, also 2 examples from 2025. On the one hand, a joint venture with Sulzer, which is here addressing here sort of the plastic recycling in construction on the one hand, the big pain point of our customers, on the other hand, a valuable source of sustainable raw materials. Here, we're piloting here a system starting in the German-speaking part of Europe. And second example here, Giatec a minority investment in here also new capabilities, a company that is the leader in digital concrete technology platforms, specializing here in smart testing and AI-driven solution to optimize concrete mixes across here, the value chain also for us here, complementing similar type of capability investments we have done in the past. Also adding here potentially to our offering in the future. Now when we talk about M&A, we also have to talk about MBCC, I think, particularly the successful integration of MBCC with a very strong realization of synergies, synergies that we have been able to increase in terms of the target by CHF 20 million originally CHF 180 million to CHF 200 million, now lifted to CHF 200 million and CHF 220 million by 2026, very strongly driven by this strong complementarity in terms of solutions, in terms of market channel access, but particularly also a very aligned set of values essentially enabling here a very successful integration and driving value and synergies across the board very successfully being on track here to deliver this strong set of synergies. And this has already resulted in quite a strong margin improvement. If you look at sort of the MBCC perimeter, if you will, prior to us acquiring MBCC coming in with an EBITDA of around 15% having obviously performed quite well in terms of the underlying business, but adding now all these synergies. We currently have a 12-month trailing months run rate of CHF 166 million, which also means we're pushing here towards the upper end of the guidance of this year coming, on the one hand, from the top line. Here, this is the profitability contribution. That's about 1/4 of it and 3/4 are related to cost synergies on the SG&A side, operations and footprint but also procurement, including here optimization of formulations, quite a strong development overall as shown. And adding this together, clearly here a very strong performance, driving here profitability of MBCC above 20%, slightly above 20% currently. And as shown, we're not at the end here of the synergy capture. But overall, a very strong and successful delivery of synergies and in general of the integration. Also, when we look specifically at '25 here another bridge also, well, firstly, on a reported basis, when we look at EBITDA 19.2% reported in the first 9 months, slightly up from last year. Here, separating the impact of China, clearly, a strong underlying improvement to 19.7%. Driven, on the one hand, by here, M&A synergies coming from MBCC, that's the contribution or the incremental contribution of this year. And but also a very strong material margin development with, let's say, a cost leverage that is slightly negative, but obviously owed too here, the low organic growth overall, given the market backdrop, but also reflected here largely translation here the impact, as Thomas has mentioned, due to a very decentralized cost structure. We also continue to have a very strong deleveraging profile, where our net debt-to-EBITDA ratio will be sort of around -- slightly higher 2.1, 2.2 at the end of this year, being in line with our commitment of strong investment grade rating, but also showing here, if you look a bit back in time, the larger investments Parex, for example, MBCC, at least initially, increasing here leverage quite significantly. But at the same time, in a very brief period of time, over 2 to 3 years, clearly being able to significantly delever driven by a strong cash generation. This is also reflected here in our capital allocation policy, which is obviously strongly linked to our strategy, firstly, first pillar investing here in the business with obviously strong returns on the one hand on the CapEx side, where we have sort of around 3% of sales invested in capital expenditures, but also the bolt-on acquisitions driving here these superior returns as shown. Secondly, here also the commitment to an attractive dividend to a progressive dividend policy that is typically in line here with earnings growth and then, of course, a healthy balance sheet, strong investment-grade rating with a net debt EBITDA leverage commensurate with it. Here, 1.3 to 2.3 turns as here shown before, our targeted range, very much supported hereby the strong cash-generating profile. And of course, should we be below that range, and we should not find here acquisitions that drive that superior return on an opportunistic basis. Share buybacks is a possibility, but we clearly look at this from a risk/return perspective overall. Good. I think with this, we look specifically at China, the situation there, but particularly also how we're addressing here the current challenges in China. Over to you, Philippe.

Thank you, Adrian. Good morning, everyone. Thomas and Adrian mentioned China a couple of times. So please allow me to spend the next 5 to 10 minutes to give a little bit more context on our business in China and the Chinese overall construction environment. If you look at China contributed approximately 10% of our group sales today. If you look at the split of our business in China, we have about 20% of this sales are in our Automotive and Industry business, about 80% in construction. Deeper dive into the construction numbers shows that we have about 70%, which we do mainly in our distribution business, mainly focusing on residential construction and about 30%, which is the industrial and infrastructure part of the construction business. Same as in the rest of the world, we also position our products to offer benefits to our customers and position them at a higher price point than most of our competitors in the market. This allows us to have a very profitable business in China with a solid double-digit profitability and also generating healthy cash flow. If you look a little bit deeper in those 3 areas, the construction business on the distribution side here, as mentioned, focused mainly on the residential construction Sika is today #1 in the tile adhesive sector, for example, in that segment. We built up over the years, also through the acquisition of Parex. When we acquired Parex, they had about 90,000 point of sales that they were servicing. We've grown that network to roughly around 280,000 point of sales across the whole of China. We also have an end user engagement where we engage with people that use our products, craftsmen, contractors and grow that network to over 6 million users that we interact with digitally through WeChat and other channels. The products that we sell here are mainly tile adhesives, waterproofing and sealing and bonding solutions. Then the construction -- the direct part here, we're dealing with contractors, applicators, mainly in industrial construction, these are manufacturing facilities, warehouses, electronic manufacturing, food and beverage plants, warehouses, data centers and the like, where we mainly offer flooring and roofing solutions but also sealing and bonding and waterproofing refurbishment, all the other products that we have in our portfolio. And then infrastructure construction, these are transportation, airport bridges, the water infrastructure, but also investing into green energy. We have a lot of business with on and offshore wind power plants that we supply with our grouts and other products. So a very broad basket of products that we have here in the direct sales offering to the customers. Then the last part automotive and industry very similar to the rest of the world, where we have the sealing and bonding dampening solutions that we offer here to car manufacturers, both Western and Chinese. We have transportation, buses, trucks, but also supply our adhesives for the wind blade adhesives, also sealing and bonding products that we supply into solar panels in the Chinese market. So a very broad portfolio that we offer here, and this puts us at the 1 of the top 3 players with very advanced technological solutions in the Chinese markets. If you look now at the different parts of the business, how the underlying market is performing. I'm sure all of you read some news a few years back about bankruptcies of companies like Evergrande as a residential developer in China. You see here 2 numbers on the chart. On the 1 hand side, you see in the gray bar, you see the new starts of housing. This is when the building starts to being built, the basement, the structural concrete part of the building and then you see the new completed. And as you remember, the products that I showed on the slide before, the main activity of Sika in this construction is linked to the completion of interior finishing of those buildings. And you see here, this is a pretty stable output, even though you had a peak in 2019, 2020 of completion -- of starting of houses, the completion of the residential structures is more stable over the years. We were able in the years 2021 to have a strong double-digit growth in this stable environment also last year with about a 25% drop. In conclusion, we were getting very close to being on the same par in sales that we had prior year with a very slight decline. But you see this year another 40% drop in house completions, which is very difficult for us. So overall, the decline is more than 70% in housing starts. We also see a drop in house prices, which leads to a weak consumer confidence, very high savings rate that the Chinese consumers have and the government policy trying to encourage and revive this sector have so far been -- had limited success. We expect that this is a market that will start to stabilize in 2026. We see, for example, land sales that we track as well as one of the leading indicators, starting still slightly negative this year, but starting to bottom out. And we then expect the market to stabilize and recover in 2027, '28. But -- so overall, I think we also -- if I talk to our Chinese colleagues, they are convinced that with the launch of the 15th 5-year plan of next year, there will be some further government actions to try to have a strong start of that new 5-year plan. If we then jump into the industrial and infrastructure construction, industrial construction is -- after COVID and many companies had this China Plus One strategy, meaning that their supply chains were affected heavily as the country shut down, and they started to diversify by putting other manufacturing plants in countries like Southeast Asia, India or other parts of the world to have a more stable supply chain this led then to drop in foreign direct investment, which mainly then was in the industrial construction part. But at the same time, also the trade tensions continue. This effect, but at the same time, large national companies increase their investments and gravitate and kind of fill the gap for some of those missing foreign investors. Here we see the main opportunities that we see still growth is electronic manufacturing plants, semiconductors, but also food and beverage and data centers. The infrastructure construction part of those years was the only one that we had continued growth, even though it has slowed a little bit, but this is still a key part of the Chinese government to continue to invest also in the 15th 5-year plan that I mentioned, there is continuous mentioning of infrastructure, communication networks, water infrastructure, waste water, freshwater and also green energy, wind and solar are areas where the government continues to invest in those infrastructure. The other area of growth and optimism for us is refurbishment you see here that about only 15% of those investments last year were into refurbishment. This is expected to grow as the infrastructure that was built is aging to 40%. If you compare that to Western countries, Europe, North America, that number would be around 70%. So there's still a lot of opportunity for us with the products that we've developed over the years for Europe for America to have similar products that we launch in the Chinese market to address those needs of refurbishment of infrastructure. What does it mean for us? We've grown in China high double-digit growth over the last 10 years. So this is a very successful story for us. But with this growth, both organically and through acquisitions, we've built a network of over 30 plants over those years. You see they're very dispersed, but you also see clusters in 3 geographical areas in the Yangtze River delta around Shanghai, the Greater Bay Area with Hong Kong, Macau, Shenzhen, Guangzhou, and also then in the Chengdu-Chongqing area in the western part of the country. So looking at this footprint, it isn't -- there are some actions that we are now accelerating with consolidating some of the decentralized production combining small volume plans into the larger plans, increasing some -- in-sourcing some of the toll manufacturing volumes that we had in some of the more remote areas, automation and efficiency but also looking at using the historically low raw material prices that we have in China to use China as a hub to export products into the rest of Asia Pacific. So we've seen, on the left-hand side, very hidden in the left corner, you see the graph here how the volumes that we're exporting from China into other parts of Asia Pacific have increased significantly. Of course, we're also optimizing the organization, readjusting the team size is reflecting the different businesses, how they've developed over the years. But the plan is then in a couple of years to end up with a footprint that is more efficient with about 25 production sites as we go forward. We also, of course, have actions on the commercial side. Here, you see the distribution part working with distributors that we have in wholesalers. Here, we're looking at increasing our share of wallet. The penetration to Tier 3 and Tier 4 cities here, we still have a conversion from site mixed mortar, meaning that the mortar is done by the contractor on site mixing sand and cement in a small mixture and wheelbarrow on creating the mortar themselves. Here, we're pushing into those areas offering prebagged mortar solution. This has worked very well for us over the years, increasing this in the Tier 1 and 2 cities. And as we're going into more cities. Tier 3 cities still is cities with more than 1 million inhabitants. So this is not a small market in China. The other part that we see here is the home decoration companies. This is an area that is growing rapidly in China, where it's about refurbishment of apartments. And this is a turnkey supplier. You go, it's like a huge store but they then refurbish everything from one hand. So you pick a new floor, a new wall, new furniture, new fittings and everything and they come install this with the contractor network that they have. This is a very attractive market for us because it's a high-end market. We're talking here tile adhesives that are very high performance because the trend there in China is to go towards tiles -- large tiles, and this is not 60 by 60 centimeters, but meanwhile we're talking 120 by 180 centimeters. So huge tiles that go on the walls for decorative purposes. Also on the industrial construction, we hear, as I mentioned, FDI is going down, but we increased our activities with Chinese owners, developers and contractors and really prioritize the high-growth segments, whether they're in the green energy transition or in some of the industrial manufacturing plants that are going up. specification selling, of course, same as everywhere in the world is a key area for us. And then, of course, as I mentioned before, we also go both in housing and residential as well as in infrastructure. We're going towards the growing refurbishment demand that we see in that market and specifically launch products for those areas as well. So the last topic I want to address why China is extremely important for us in the group. We see more and more Chinese companies not only focusing on China, but focusing on being successful in the rest of the world. So on the one hand side, this is main contractors that we work with. They currently -- if you look at the top 10 international contractors, meaning the business that they do outside their home country, 4 of those top 10 contracts are Chinese contractors. This has changed radically over the last 5 to 10 years. So they have a project value of USD 2.5 trillion, 64 major projects and 167 industrial projects across the globe. But the other part is companies like BYD, Sunwoda and other companies that you're probably very familiar with, they also start expanding outside of China. So here also, we're tracking 63 industrial projects with those companies outside of China with those Chinese owners and contractors. Just to give you 2 examples here, on the industrial infrastructure projects. These are examples even outside of Asia Pacific with projects in Latin America, the Metro Bogota, and also in Saudi Arabia, where you have Chinese companies being selected as the contractor to deliver on those projects. Having worked with those contractors in China and having the contact, having Chinese-speaking teams that work together with those contractors puts us as Sika in a premium position to service those projects. There's many projects that I could have mentioned in Southeast Asia and the strong growth that was shown before that we have in Southeast Asia, of course, is also linked to a certain extent to being able to capitalize on these projects with those contractors. The other area is Automotive and Industry, Sunwoda was expanding to Thailand. We have BYD with projects in Brazil, Indonesia and Hungary. And also here, we see the benefit of being there, helping them providing products from our construction portfolio in building the plants, but also then having products for us from our portfolio in automotive and industry that they're used to work with in China and also work with them in countries outside of China. That was short excursion to China. So I'm going to hand back to Thomas to go back to the Fast Forward program.

Okay. Thank you, Philippe, and definitely, China is a place to be. China is a strategic economy for Sika. And as just outlined, for the Chinese companies, China is not large enough. So the expansion into the rest of the world is going on at full speed. Just like we have seen it from other economies like the Japanese, the Koreans, many years back. So nothing new, but we want to be with them and in their home turf as well as in their expansion, as I said, 40% of the main contractor. And you see that very actively in Africa, in the Middle East, in Southeast Asia, they are everywhere, and they need support. They need support just like the other main contractors, the international need support, they need support because those constructions are built to international standards. The owners of those constructions are international. This is the play field, and this is our access into that business with the Chinese companies. Besides the automotive that are also doing the same as the Koreans and the Japanese have done many years back. But let's now talk about the Fast Forward program. And a quick introduction before I hand over to Adrian to give some more, let's say, scale and numbers to the program. I think here, it's very important. We have seen the growth level is not as strong as anticipated because of the underlying market. So we are offsetting that with more efficiency. And one way to drive more efficiency is just to squeeze more efficiency into an organization. That's not that smart as you are exhausting. You have to provide tools to enable to accelerate tools which are digital tools to elevate and automate internal processes and also interactions with customers. So the investment part of Fast Forward is much more significant in the long term for sika as it transformed Sika also on the digital side into a leadership position in the markets that we serve. And here, this will lead to overall benefits already within the next 3 years of CHF 150 million to CHF 200 million, but it comes also at 1 time cost expense as well as mentioned investments. But first, I hand over to Adrian to give some more clarity on those elements.

Thanks, Thomas. And I think very important here Fast Forward is indeed designed here to strengthen performance now, but particularly in the future and obviously talking about benefits here, the investment part will clearly have benefits beyond here the 3-year time frame, which we have here given to that program. But it does consist of an element that is more shorter term, more related to cost measures, but particularly driving here accelerated efficiency also compensating some of the missing growth leverage at the moment, but particularly also here putting the ground here then not only for shorter-term optimization, but then really also in combination with our digital investments here, driving long-term efficiency, long-term value also for our customers and across the value chain where we will talk about more details in terms of what this is and what will be driving here the impact. The first part here more on the cost side, the shorter one here also comes with an element of one-off cost. I'll come to this. It is, on the one hand, as said designed to further here optimize here also our footprint and supply chain, some capacity measures, for example, as in -- or primarily in China, but also some simplification on parts of the portfolio overall. And in generally, here, aligning your operational staffing levels also to of the market prospects really taking here the opportunity to drive efficiency and basically also prepare the ground here then for investments that will be starting. There's about an CHF 80 million to CHF 100 million one-off cost attached to this part. About 80% of it is EBITDA relevant. The other 20% is then write-downs or impairments of assets. This will drive about CHF 80 million to CHF 110 million benefit over the next 2 years with a large portion already being -- or having effect in 2026. This is also reflective of the fact that, particularly when it comes to the organizational side, also to the personnel side where quite well advanced. It's also not something that has just materialized over the last few weeks here, preparation have been ongoing for a while, and we have already addressed about 60% here of the reductions already. So being well on track and making strong progress. The investment part clearly related to an accelerated digitalization to drive long-term value. On the one hand, on the customer side simplifying our interactions with our customers, providing leaner processes, but also increasing here in some areas, and we'll talk about this specifically later on here our time to market. And then across here, the supply chain and the organization, driving structural efficiencies through digitalization with some more foundational projects as we called them, for example, a worldwide ERP rollout acceleration, but also particularly building here a system to effectively use the wealth of data we have for various use cases to drive efficiency but also to generate additional business here within the time frame, but obviously, this will go beyond. But within the 3 years, we're expecting here a CHF 70 million to CHF 90 million benefit gradually increasing, obviously, starting relatively slow as this is related to investments and buildups and rollouts, but providing a very strong foundation here coming with investments of about CHF 120 million to CHF 150 million over the 3 years. We will now talk about some of the specific here initiatives and elements, and I'll hand back over to Thomas for that.

Okay. Thank you. Adrian and now we come to the, let's say, most exciting part of the program, the investments, the investments which will make us in the industry, the digital leader. We are a market leader. We are a technology leader. We are an innovation leader, and this is our opportunity to become the digital leader. Digital leader in 3 aspects, we would like to emphasize or 3 buckets here, digital leader in creating customer value. Customer direct or indirect customer are facing an increase -- a massive increase in complexity to deal with this with regulation specifications with demand from owners and so the engineering part or specification part becomes enormous complex. And here, digital tools make life easier for those stakeholders. Contractors are facing difficulties in executing for various reasons as well. Here, again, we can provide ease of doing business, simplicity, also faster response, less lead times to serve our customers. And it is also a mean to elevate our own operations, our own processes to make, let's say, redundancies in repeat operational steps automated instead of human or manual. This is a great opportunity to streamline our supply chain and drive more operational excellence. And the third the most exciting part is driving through data's innovation, innovations into the market innovations also in our processes. And we want to show you in 3 blocks, these elements, and I start with the first one, customer value. Before I start with the customer, I talked about our people are everything. We have and we will, and we do invest into the skills, the digital skills of our organization. We are all exposed to digitalization in our private life in our business life. But here, we also want to empower and provide the skills that the organization, as mentioned before, can also, on a digital journey, be entrepreneurial, they know their procedures, they know their processes best. The interaction with the customer. But for this, we also have to give them the confidence and the ability to embrace the full power of digital. This with trainings, of course, with communities, but also selective additions. We need scientists, we need chemists, engineers, but we also are looking for data scientists to also bring us this angle in and onboard them. As mentioned, this is to simplify, automate as much as we can and then leaving, let's say, the human brain and the human factor for the real creativity and interaction with the customer. AI is a buzzword everywhere, AI is, in many ways, already implemented, but it's more to come when we have also the tools in place. And I will show a few examples there. But here on the digital journey, value creation with our customers. We have a digital excellence in China. Philippe was explaining that a little bit this ecosystem end to end. This is coming from us, from our supply chain into the distributor with the 280,000 point of sales and then 6 million applicators. And in China, it's even going further with 8 million homeowners that are also on our platform. as the homeowners in China are involved in selecting the materials to finish their apartments. Homeowners in China are very different than in the rest of the world. They are used to fake and cheap, and they want to have quality and they buy the interior finishing the tiles that Philippe mentioned, the big ones, eventually coming out of Italy, coming out of any place they want to be sure that they are not fools, but the installation of the waterproofing of the tile setting. Nobody cares about that in Europe or in the U.S. You take it for granted. Nothing is granted in China. And if you don't watch, you will be fooled. So this system that the Chinese have established several years back, is a system that we are rolling out across Asia, but also then other markets as well. I talked about the complexity for our designers, specifiers the environmental footprint is becoming more and more relevant across the globe, you need data points, you need to verify. This is very cumbersome if you do it in an analog way. This can take months and months to have validated numbers that are credible and can be used with the automation tools that we have in place or soon have in place, we can automate that and can have thousands of data sheets, credible data sheets in a very short period of time, enabling then also our specifiers and the contractors to have here a tool to be faster in their work. The Carbon Compass that we recently launched is one element. It's one of many more that will follow to provide here platform, the EPD next year. It is also an opportunity inside the organization to accelerate. And I will have here the example of our lab catalyst by utilizing data across the globe to speed up the time to market by speeding up our development process. Nuage is the name for this tool. We have more than 500 chemists already on the tool. They put their data every day into the system. The system is then available for everybody. All experiments that go into the system can be read and can be retuned through machine learning, also to new requirements or adaptations in a foreign country where you can benefit from learnings in other locations. So the retail journey that I mentioned in China, this is the network that is connecting all the dots in the whole supply chain from us through the through to the end customer. Visualized here our own logistics going out, the distributor in the middle and then the applicator actually using our product. In an analog world, we have a very strong connection to the distributor. We have then only limited access to the applicator. The applicator is then through promotions, trainings, eventually, but you only can go so far, you don't have all the applicators handy. With this program, we have all the applicators. We see them daily where they are, where they are working, what they are working, what they're not doing, and we can steer our information and our marketing and promotion directly to the people that make the election with which product they are working, supporting also our distribution channel, giving them the data where the demand is also making them more effective. This is the picture of the journey as it is in Asia Pacific. Thank you, Philippe. This is the transformation of the Chinese way into Southeast Asia. And as you can see, we are already at 150,000 points of sale in Southeast Asia. In various countries. Our aspiration is to reach 300,000 points of sales in Southeast Asia. That's the amount -- that's about the amount that we have currently in China. And on the upper right, you see this leads to significant double-digit growth. This works, this is in full rollout mode and this is also what we want and will bring to other markets in the Middle East, into Eastern Europe, into South America relatively soon. This is working. This is enabling us to perform the markets and the peers. Okay, I hand over quickly to Adrian to talk more on the inside benefits in supply chain and efficiency.

Of course, here, the customer value being most important, but very strongly related to this, it obviously what we do in-house, I mean, the full sort of value chain, supply chain and operational excellence, also extremely important to ultimately drive customer value. And I think here, the program through digitalization will, on the one hand, enhance resilience, drive efficiency, but particularly also here further improve quality and add transparency to drive also new and improved solutions for our customers. There is an element of what we call sort of foundational investments, if you will, one being here a full ERP rollout across the group, accelerating and leveraging here some of the integration activities we do with MBCC with a clear target at the beginning or by the beginning of 27 to have this rollout being concluded across the group being able then to fully sort of leverage here the benefits of aligned processes. The second element, very importantly, and I touched upon this briefly in the beginning is really the ability to make use and sense and monetize the wealth of data we have. We collect on a daily basis through the buildup here of in internal data lake and the system that essentially allows here to increase transparency on the one hand. Also again, benefiting here our customers, but also making sure we have full visibility on the various touch points and also in the various areas of quality, of delivery performance, for example, but also then driving here on the cost side, for example, through harmonized transport management system, which we have now piloted and will start to roll out at the beginning of '26 also here, driving efficiency across the value chain. This will also drive further optimization across the network, particularly here on the factory side, and this is one specific investment part of that bucket is basically the digitalization or scale-up of digital capabilities across our factories essentially to drive optimization also to more autonomous production, for example, but also being able to capture here the wealth of data that is being generated, and to use that through a full connectivity here of the production environment, linking it to our system, our data lake. Also, at the same time, improving and increasing here security. That's also a big topic today to fully sort of have a fully integrated process landscape and at the end of the day, being able to drive efficiency and safety. Sustainability and performance across many areas in terms of inventory tracking in terms of preventive maintenance, for example, but also process improvements overall, which ultimately will lead to faster growth, but also to optimization and cost reduction when it comes to logistics and operations cost. And last but not least, also addressing here the optimization of our working capital, particularly on the inventory side. Also here, we have designed basically that program in '25. We're currently piloting it in a couple of factories and we'll start with a more full-blown implementation here in '26 with targeted 40 plus factories, including some of our key factories to be implemented and in '26 and gradually go on from there. Now for the innovation part, the last element here, I'll hand back to Thomas.

Thank you, Adrian. And yes, if we keep the best for the last so the digital innovation. I talked about Nuage. This is utilizing, as I mentioned before, all the test data that are collected globally, accelerating incremental product improvements. And here is an example of a mortar that through this tool can be much faster brought to the market can reduce also the efforts in R&D by 75% less experiments. This is significant in enabling us to go faster in incremental innovation. The database is collecting all the results of so perceived failed and successful trials as any failed trial can be the source of a feature for the performance demand of a future product that can help to get faster to incremental -- not incremental, fundamental innovation, which is the potential of this tool going forward. The more data we have in this system, the more R&D hubs are onboarded. The chemist will always be the ones that are handling the system, but they are supported by the machine learning, benefiting from all experiments worldwide. If you have ever been in a lab, you see this magic black lab book where every chemist is scribbling down whatever the trial shall be and what then the outcome was, this is all electronically now available or becoming available for machine learning. And first, fundamental improvements that we have seen is for cement additives. Cement is changing quite a lot. We have here calcinated clay, LC3. We have new elements in there where incremental optimization of former know-how is not successful. And this tool has enabled us to be here much faster with fundamental innovation because of learnings across the whole organization, it doesn't need to be from the cement. It can be also from the mortar side, which influences them and helps us to generate more powerful new additives for new cements as they come forward. This is an example of Nuage. Patricia is leading this and here much more is to come. And here, we invest heavily. But we also are exploring with outside data coming in, you remember we have the tools in place, [ Citra ] to measure concrete from the mixing until it is on the site poured, we can control the performance of the concrete. This gives us data, real-time data point of uncured concrete. Now we -- with this data, we can also optimize the mix of the concrete, but we can now go even further. We can also measure when the concrete is poured and cured how the concrete is aging with sensors. Here, we have a collaboration with a start-up DuraMon, to be able to stay with the construction, not only during the build, but also post the build during the lifespan. This is also on the roof with sensors that are measuring the effectiveness or let's say, the leakage potential in a roof. So we get data, real-time data already today back from the roofs that we can then also convert into refurbishment jobs, which we can also convert back into customer confidence that our system is the best system in the industry, giving real-time data during the life of a construction structure or building. And this is the beginning. This is ultimately the vision that we not only are involved at the build and the renovation that we are in between. Waterproofing is a key aspect that is driving renovation needs. Sealing is another key element that is driving innovation refurbishment needs. This can be watched, monitored and optimized through digital means. This is innovation to come. This is also reflected in our interaction with external partners. Tulsa has been mentioned. Construction waste, especially plastic waste is huge issue. And this is not only in Europe, this is globally an issue. Here, engaging and finding new ways to steer these waste and make out of waste, new input material for us, but also for others, this is the drive that we have here in the partnership that we have established, creating new business models. And lastly, I think as a global leader, we know 100-plus markets. We have the technology leadership. We have the best customers. We have all the data, our data there in our data lake. We can connect them. In the past, we had connections through an ERP. We had connections through CRM. We had connections through our sales organization, we can connect everything in our data lake. The data lake of Sika is the most powerful data lake in the industry and we want to fish, we want to fish in this data lake. We want to make this connection. We want to use here models -- machine learning models to give us benefits out of this unique data pool that we have in our hand. Adrian talked, we are building the foundation, we are connecting, but this is going to be a key additional competitive advantage of Sika besides the innovation, the R&D, the technological expertise that we provide to our customer. And with this, I hand over to Dominik for the Q&A.

Thank you very much, Thomas. We start now with our Q&A. The people that are in the live screen stream they have as well the opportunity to ask questions. We installed a chat. But the first questions, of course, go now here into the room. So please raise your hand if you have any questions. And let's start over there directly with Cedar, please.

It's Cedar Ekblom from Morgan Stanley. I'd like to dig a little bit into China. You put up a chart there that showed that housing sales had actually started to decelerate around '21, '22. And the sales in China have actually been relatively resilient for the group. Can you please unpack what the strategy has been in China in the last 2 to 3 years? Whether you have been introducing products that might have supported the revenue growth at the expense of margins. And I ask this question because there is a very clear intention now to size down the China business in order to support the margin profile of the product mix. So that's the first question. Give us some color on what the approach has been in the China market. And we're not at the beginning of a downturn. We're well advanced and now there is the strategic shift there. So that would be helpful to understand the journey. And then if you could just reflect on, say, the last 2 years, I know that you've been very clear that you've been controlling the controllables. What do you think you could have done differently or maybe more rapidly? Obviously, we've got to a point now where obviously the business is addressing some of the margin headwinds, et cetera. But I'd just like to sort of get a perspective on -- with retrospect, which is obviously a perfect or with hindsight, which is always perfect science, where we could have responded quicker or otherwise?

Okay. Thank you, Cedar. And on the China, I think the China chart is very important that you look at the yellow bars that are indicating that's the actual consumed residential housing square meter in China. And it has been almost constant for many years while the gray bars indicate the overbuild, the speculative overbuild that ultimately led to this, let's say, dilemma that there's so much, let's say, empty capacity in the market. But the actual consumed square meters in China have been kind of very stable over many years, indicating that the urbanization need and the movements in China are supporting such a level. 700 million square meter is the number. In '23, this is the last year where we had this, we came out of COVID, and it started to pile up and that's when also the consumer confidence into the housing market started to deteriorate. But to your question, what happened, how were we able to have significant outperformance in this 700,000 square meters, is very clear. The geographical expansion we moved from Tier 1 into Tier 2 and Tier 3, we expanded our distribution network as indicated by Philippe, from 90,000 point of sales at the year 2020 to 280,000 point of sales. We also have a Chinese maturity level in this application field, which is far lower than in other parts of the world. As Philippe mentioned the wall. The wall is a sensitive application for tile. In China, this is done today at the prefabricated level of about 70% because this is sensitive. The floor is only at the level of 25%. This has also helped us that this conversion from on-site mix to a more mature approach is -- has been driving exceptional growth in China in those years. And this is also continuing. This is also to your -- the second part of the question, how can we outperform now in a very challenging volume reduction with the square meter being so down. It is the value aspect. It is this -- the high-profile application where the owners and where the requirement of the applications are high. That's the focus. That's what Philippe indicated. That's where we are also proactively expanding. And we have growth in those segments, but we have on the lower entry-level side, we have more let's say, challenges where we have local players that try to penetrate where we have made a decision that we put margins over volume as the Chinese competitive landscape is very different. It's the first time they have this situation, and they try as hard as possible to continue to grow while deflationary effects are making that very disastrous when you look at the profitability that companies result in with going down that path, and we don't want to go down that path.

Okay. Next question goes to your neighbor, Pujarini, please?

So in terms of the one-off costs, is there any risk that some of it might spill over to next year based on one of the charts that you were showing? And then related to that, the benefits that you shared, is there a possibility of deceleration. And then going back to the question of optimizing your product portfolio and your plant footprint. Could you give us some more color into exactly what kind of products you're trying to skew towards and more color around the plant optimization?

Yes. On the onetime cost, I mean the CHF 80 million to CHF 100 million, I think there is a very sort of limited risk that there will be an amount in '26, I mean it could be a few million, but I don't expect this to be significant. As mentioned, we're well progressed here with here the program and also defining and communicating exactly what it is. In terms of the benefits, and that's sort of the logical answer to that given that we're well on track. I think that's also well confirmed. I think there is no risk that this will decelerate.

Good. And then I've seen questions over here. Patrick, please. Yes.

It's Patrick Rafaisz from UBS. Maybe have a follow-up to Cedar's question. If we look at China, Currently, there's a conscious decision to rightsize the organization, bringing in tolling products but also maybe some limited points of sales cuts, right? I think you alluded to that with the Q3 call. And this process will take until mid 26, right? I think that's what you said. By Q3, this will be washed out. So if you fast forward to that point, where are your China sales compared to, let's say, 2019 when Parex was fully included I'm just trying to understand, right, you had a period of relative outperformance, but now we're going into relative underperformance. So where do you stand? And then a similar question on MBCC. Adrian, you showed us the chart with the synergies, the implied margin for MBCC. If we took the same approach for growth how has MBCC tracked versus Sika on organics in that period?

Maybe on the -- I'll take the MBCC one. I mean here on top line growth, the synergistic element and obviously, the underlying performance. I mean together, the -- let's say, the MBCC, including the synergies is over now is basically low to mid-single-digit growth, including here the synergy element, which essentially means that, let's say, the underlying organic performance, if you will, is pretty similar to, let's say, the overall group.

Good. And then on China, to your question, where are we next year compared to 2019. We are substantially higher than 2019, even with the rebasing that takes place. We had significant growth in the years before. And if I add this up, this is absolutely still the case that we hear have almost doubled the business in those years, including the rebasing. So this -- just to give the magnitude of how much we have been able to achieve in -- when you look back in these yellow bars, in a more flattish. We have outperformed with the point of sales with the distribution network with our retail journey, and I'm absolutely convinced also that when this yellow bar moves back into more normal ranges, we will have here a very strong growing business. But this rebasing is not over from a build rate, so this confidence in the Chinese economy from the consumer needs to be improved. But in absolute term, it's absolutely still very significantly higher and it is profitable. But just to be very clear, our China business is a profitable business. Many of our international players exited China because they couldn't make money in China. We are profitable, and we preserve this because we believe in the long-term future of the China economy. And then to your question, the point of sales -- the point of sales, 280,000 point of sales we are not aiming at reducing that significantly. We are replacing some of the distributors that are not effective by other distributors. So for us, it is crucial that we have the reach into the point of sales because this is a very fragmented market. These are small applicators across China that are doing this job. So the point of sales, I would rather say stays on this is eventually even increasing, but the distributors behind there, we have movements in directing those that have more success and those that have less replacing by new ones.

Okay. Further questions? Priyal, please.

Priyal Woolf from Jefferies. My first question is just on capital allocation. There was a slide there where you said right towards the bottom, you might consider buybacks if there's not much else to do effectively. Is there a nuance there in terms of strategy. Obviously, you're still targeting the 1.5% to 2% from bolt-on M&A, but is there anything to read into that in terms of maybe some of the larger deals will be slightly smaller or there's less of an appetite to do some of those bigger deals, and therefore, we could see buybacks coming through? And then the second question was just in terms of the FTE cuts. It looks like it's fairly evenly split across your 3 regions? I just wondered outside of China, are there any particular regions or operations where you've seen those cuts coming through?

Maybe here on the capital allocation and the M&A side. I mean, clearly, on the M&A, we see strong possibilities. And I think I've also demonstrated that they are highly accretive. That is the clear focus. I think we have also said that for the time being, this is the clear focus as opposed to let's say, looking specifically at very large transactions. I mean, this being said, I mean, there is obviously also bolt-ons that are slightly higher, which can be very strongly value creating for us in that context. So I think that's one element. I don't see a change there. The other one is the overall leverage consideration. Obviously, we have here sort of moved into sort of that range we're targeting. I think it will take a bit more here also from an overall perspective driving them. But -- and this is essentially to say not excluding here the possibilities as specifically, we haven't done in the past, but there is also no let's say, clear plan to do so. But it is an element that is really related to risk and return.

Thank you, Priyal. And now we have some questions from the live stream. Christine, you formulated them and kindly read.

We have a few questions, and I tried to bundle some of them. One is, since you now take out the -- or you exclude the external market growth in the 3% to 6%, can you please give a view on your expectations on the underlying markets over the next 3 years in the different regions?

Okay. That's a fully loaded question, the crystal ball again. But it is -- let's start where we are today. We have a lot of confusion starting from this tariff discussion, the geopolitical tension. So we have seen that North America has put some projects on hold in regards to the reshoring, we expect that there will be relatively soon clarity on how the tariffs in North America will turn out. I'm sure it will be the best deal ever that will be defining the NAFTA trade agreement, and this will provide companies clarity in then allocating substantial CapEx either in Texas or in Mexico or in Canada. That's what these investments are waiting for clarity. And I think those discussions are going to take place in the next 3 to 6 months. So this will be a boost clearly, in North America, which I anticipate rather in the early part of the next 3 years that we have here in North America. We are back to this reshoring and we are back to -- besides also the, let's say, the continuation of a very strong data center investment and infrastructure investment. Europe, I think here, we know we have a lot of issues here in Europe Lately, we talk about potential peace talks for Ukraine. This is, I would say, from the sentiment point of view, a very important part to bring back some stability to Europe. I think Europe has a good opportunity to advance in these 3 years. A few elements need to come back. I think also from a political clarity, I think the German government is helping to bring some more business-oriented decision. The Infrastructure Act is one. We expect more to come. So also in Europe, we expect within the 3 years, again, that we go into a growth mode. We already see now that Eastern Europe, for us, is a place where there is growth visible. It has built up over the last 3 quarters. So in Europe, it's not all the same. Spain is doing very well given the circumstances, so Europe has absolutely also a possibility to advance I talked about those strong markets, LatAm, Africa, Middle East, India, Southeast Asia. I expect here a continuation. They do much better than the mature markets. Some of them extremely well. Our business in the Middle East is in a double-digit mode of growth. This will continue. Also Africa is on an expansion, double digit. India is close to double digits. Also that is to be expected under the current government to continue. So we are confident on that. China, we talked a lot about '26 to be a transitional year for us, the rebasing year, but China is a huge market. construction super relevant, housing is relevant. So things will also come back. This cycle will not be forever, but it's going to be a difficult '26 for the economy. So I think here, we will articulate that and more precise when we guide for next year's expectation. But we are very clear, our 3% to 6%, the outperformance the market penetration in our hand, the acquisition in our hand, we are fully committed to deliver and how we then based in the markets and add that to our own, we will then define early next year. But I see elements that bring us rather more back into normal terms, the 2.5% of construction growth over the last 20 years has only been disrupted during the financial crisis, and it came back rather strong. Now we have several elements in a short sequence. But as we call the backlog is building because we are in a relevant field. This is tangible, and we need infrastructure urbanization, the mega trends are continuing with or without challenging market condition, this is for us absolutely a perfect, let's say, market to be, a market that will also recover how quick I have to be a bit careful because we have indicated in the original strategy, 2.5% as a base, the base has been, let's say, become questionable. But overall, the 2.5%, my strong conviction in the next 10 years, the 2.5% will be realized. In some years, we'll be clearly above that to catch up with the unserved demand due to uncertainty and consumer lack of confidence.

Thank you, Thomas. And maybe one more question from the live stream.

Could you please expand on the initiatives in America and Europe, which represents 2/3 of the split? How are you making those production footprint and product offerings more streamlined?

Okay. Yes. That's a very good and valid question because when we talk about automation, digitalization, I mean, scale is of relevance. And here, in these mature markets, these open markets, we have still, let's say, technologies in our footprint that we can consolidate. That's less reduction in sites. It's rather a concentration of expertise, bringing scale of similar technology in one factory and moving things into another factory so that we can then also absorb the investments into automation and digitalization by having more, let's say, technologically-oriented factories instead of territorial factories because a few of our products don't travel far. Many of our products within Europe, within the U.S. can travel, and this is part of the consolidation that we less like in China, are reducing production sites, but rather consolidate competencies and then allow for more significant investments into automation.

Thank you very much and being mindful of the time, maybe two more questions here in the room. Yes, please.

[indiscernible]. I just want to come back to the discussion on capital allocation. If you look where your share price is trading at now relative to the last 10 years, it's the lowest valuation, 5% plus free cash flow yield I mean it seems like the best investment you can possibly make is buying back your own shares. Why not prioritize that over M&A?

Shall I?

You can, yes.

I think our cash flow is above 10%. I mean this is also a consistency that we are aiming at a healthy cash flow so that we have cash that we can allocate. I think what Adrian also demonstrated is that we have a very good return on our M&A investments. I think the -- this is significant. We have strong benefits from our credit rating. We have very favorable conditions for our company stability. But the deleveraging is still a priority for us. But at, let's say, the next 12 months, 18 months, this question that you raised is a fair question. It will, of course, also depend where our share price will be in that period, and that's why we call it optional. That's absolutely something to consider. But we cannot anticipate now where we will be, but the stability of the credit rating and the deleveraging our current priorities as well as the bolt-on investments that are very accretive to the company. But the cash flow is not 5%, but 10%.

Okay. Further questions? If this is not the case, thank you very much. Thank you very much for coming. We have now lined up a light meal that we will have up on the Riverside. And if you will as well join us in this meal, and this would be, in fact, very welcome. Please take all your belongings with you because we have afterwards, we have another conference here for other investors just following that one. Thank you very much.