Sika AG (SIKA) Earnings Call Transcript & Summary

So good morning and welcome to this year's media and investor conference, an excellent start. Dominik, thank you for timing this conference to the second day of our freedom or our back to freedom possibilities here in Switzerland. Good to see all your faces straight. And I hope also for those that are joining via the screen that this will spread and more and more countries will open up and we can go back to normal life. Before I start the presentation, I would like just to remark that it's my pleasure to present the annual results as well as then the outlook later on. But all this is the achievement of our 27,000 employees worldwide that we're able to combine to deliver outstanding results in '21, handling all the challenges in a very proactive, agile, pragmatic way, and I want to share my big appreciation to the organization. And it's just me and Adrian and my team here to demonstrate to you how the consolidated performance of Sika looks like. Let me get started with the highlights of '21. I think it's -- we shared already the top line, 17% growth or 17.4% -- 17.5% in Swiss francs. But more important also, we achieved overproportional EBIT improvement by 23% and reaching, as we indicated for the first time, 15% operating EBIT margin. Also very relevant, of course, it further created overproportional net profit increase of 27%. As always, every year, we have several key investments that we are executing. Last year, we're very proud that we were able to conclude 7 acquisition plus the one that we go deeper into, MBCC, which hasn't closed, but of course, a very important milestone. We invested into our factories, expanded or built new factories. And we also opened another national subsidiary in Africa. On the innovation and sustainability front, many, many activities and increased activities on the patent and innovation side. We need new innovation for the challenges ahead. It's driven by the demand for more sustainable solution. So I'm very proud to see that also here, we have an acceleration. On the other hand, our own contribution to the decarbonization, very happy to see that we have another double-digit reduction on our scope 1 and scope 2 footprint, our own energy production and consumption in our factories and in our organization, reducing the CO2 to 17-kilogram per ton sold. These are other key figures related to the sustainability path that we have. We are achieving this reduction by consequently switching over to renewable energy. We have already achieved 50% of our energy consumption in the group, which comes from renewable sources, and we're going to further increase this ratio. It's also great to see that our community engagement worldwide, even so many restrictions applied, has been able to reach over 40,000 beneficiaries directly from these programs. Waste and water reduction are topics that we have been launching several years back. And we continue to constantly reduce the footprint, the needed resources for the output of our products. Here again, the key figures, which then, of course, Adrian will go much more in details. But I think most impressive, the overproportional improvement, very strong organic growth, very strong improvement in the profitability on EBIT and on net profit side. Of course, we also see here the heavy impact from the input cost increases. Our material margin has been reduced by 3%. In normal years, this would be a very concerning evolution. But of course, here, you can see we have been able to offset very much this evolution by increasing prices, getting more efficiency and also benefiting from key investments of the past, especially here, the big acquisition of Parex. Not all the regions have the same pace of growth. I think the geographical regions, which are present here, have demonstrated a very strong organic and inorganic growth, above 20% in the Americas; but also close to 20% in Asia/Pacific; and also in EMEA, 16%. Global Business with the continuous decline or with the stagnation in the build rates on a very low level is still very much challenged with 4% growth. At the same time, this is clearly above the market and clearly also gaining further market share in that segment. I think it's been an outstanding year. So I cannot remember when we closed 7 acquisitions and even have, let's say, a mega acquisition still in progress. So we had in 2022 acquisitions, now we have 7, and all of them are beautiful additions to our growth strategy. As you can see, it starts in Russia with Kreps, in Brazil, in the U.S., in Japan, Thailand and China. In the U.S., with the green roof company, Hydrotech; Bexel, another beautiful one in Mexico; and then Landun in China, a waterproofing expert company; and then, of course, the MBCC, which I will touch later on. All this very clear, spot-on acquisitions to reinforce our growth strategy, helping to accelerate our organic growth in all these countries that are affected. As mentioned, we have further expanded our footprint here, opening in November, the Ghana subsidiary in Africa. And as you have probably noted also in our annual report, we put an emphasis on our Africa strategy, which I will come back to. We started that in 2014, and it shows very nice progress, and I will comment on that. And this Ghana subsidiary is just the latest in the expansion of our footprint. Factory-wise, we built 2 new factories in China and in India for our cementitious products and adhesives, very important expansions, but also in existing factories, substantial investments in Sweden as well as in Qatar. '21 has been a very challenging year, and so was 2020, started the COVID situation. Then in '21, we had further issues with COVID, but then also new issues with the supply chain disruption. So I think it's a fair comparison to say what if we compare to prior years. In 2019, let's say, the pre-COVID year, shows very nicely that even though all of these uncertainties and changes in the global setup hasn't stopped us. We grew 10% year-over-year in this period. And we overproportionately grew our EBIT, which is a very strong sign that our strategy is resilient to almost everything that may happen on planet. What are our growth drivers? I think here, I come back to our strategic megatrends that we have built our strategy on. They are, of course, still very valid. The urbanization is continuing. There were some question marks about how COVID may change this. We don't see a reverse in this trend. The population is growing. The population is growing in different parts of the world. The megacity are growing, and we will see that also in Africa. The climate change, the needs to decarbonize the economy, I think that has also very much increased in the attention, but also in the activities and in the legislative area to really achieve short-term impact and not just talk about what we all aim at in 2050. So here, we see an acceleration as well. And here, I added also digitalization, which has been part of our considerations, but certainly also has completely changed in its relevance in all aspects, and I will come back to that in a moment. Actually, it's here. Digitalization has many facets. I would consider there are industries that are more advanced in the utilization of big data and the digital means. But when we look at our markets, I strongly feel we are here clearly at the top of the industry going for new models, how we interact with our customers, how make use of the data that we collect, that we can bring to the advantage of our customers. It goes also in the supply chain, which we all I think have as consumers enjoyed for several years, but it is now spreading over into the e-commerce on construction material. Here, we have 2 examples. One is on our direct business, our direct customers, which are more moving to our B2B platforms, which we are offering country-specific to ease the process of ordering and delivering and planning and also to reduce administrative costs. A substantial increase on that side with 45% of business going through these B2B shops. And then very exciting to see also that the pure Internet player, the Amazons and so on that we see here clearly also trends that this is not just retail or end consumer buying 1 or 2 boxes or cartridges of our product, but it's more and more also the applicators that are using this channel to get their products faster and easy. As mentioned before, our strategy I guess is well-known. We shared it many, many times. It's a resilient strategy. It's a holistic strategy. It's a strategy with an end-of-life date, '23. And here, I just would like to remark that we are going to postpone the next strategy definition to next year. Usually, it would have been this year that we start, around this time of the year, and would then conclude at the Capital Market Day. We're not going to do that. For obvious reasons, we want to have MBCC fully part of our company. And then also together with this large organization define and, as usual, from the megatrends to the specific initiatives, bottom up and top down, the strategy 2028 together. It's such a substantial addition that we don't want to miss the opportunity to integrate that into our next strategy. Let me share some thoughts about one of our very exciting growth initiatives, Africa. We started in 2014. We more than doubled our presence. We are now 18 countries. Before, we were in 8 countries. We have already achieved sales above of CHF 300 million. Africa is a growing continent, very clear. 2 billion is the midterm expected population. Enormous needs for infrastructure come with that. We have some examples. This goes, of course, into road and rail, into energy, wastewater, power, you name it. CHF 300 billion is already spent currently, and this will further grow. And as you can see, we have participated on the continent more and more with a growth of almost 300% during this period from 2014. So again, an early investment into a continent that is on the move. We believe strongly with our presence, we help also that this expansion in Africa is supported with our products and with our know-how in a more sustainable way going forward. Just a few examples how Africa compares to other parts of the world. So when we look at the infrastructure, the road infrastructure, just to compare Africa with the EU, there are 5x less or 6x less actually roads paved in Africa. And it's clear that this will rapidly also needs to increase. Wastewater treatments, which we all know for decades, have been a focus here in Europe or Germany with 4,200 wastewater plants; in South Africa, a similar size, only 900. This will need to go up. And here, we have excellent opportunities to support these needs. The megacities, the cities above 10 million, 6 of them very soon will be already in Africa. Only I think 2 or 3 we have in Europe. So this is clearly also a part of the megatrend of the urbanization, which we see in Africa. On the industry side, automotive side, 43 cars per 1,000 inhabitants in Africa compared to 500 in Europe. Also here, there will be tremendous growth in coming years and decades. A few examples, and they have been outlined also in the magazine that we have in supporting the annual report. It's very clear, when we look at Africa, we find everything. We find very mature, state-of-the-art buildings. Like here, the Mohammed VI Tower in Morocco, over 200-meter, using the latest technologies to really build one of the most advanced sustainable building in Africa. But then also, more traditional projects for the infrastructure, we see many of them. Here, one of the examples in South Africa with this Bridge project. We have shown this before. We expect also this to be a major part of the future growth, organic growth, volume growth, the economists. The economical stimulus programs are going to offset some of the COVID-related issues. CHF 850 billion are going to be invested in the U.S. It passed the Congress. And so it's going to be implemented. CHF 8 trillion in China alone; and also, in Europe, CHF 400 billion. So this is very positive for us as this brings the opportunity to expand our participation there. And it comes together with the regulatory initiatives to make this construction more sustainable. So this is a win-win to recover what we missed during the COVID time, but at the same time, also to go for a more decarbonized footprint going forward. These are some examples, again, I also further detailed in the magazine. But we see this everywhere, this is in North America, this is in Montreal, a huge project, an infrastructure project similar to the Grand Paris that we have for several years ongoing in Paris. So here, many, many solutions are needed. And for many of them, we have the perfect answer. And then also sneak peaking a bit into the MBCC side, there are complementarity in solutions that we can then furthermore provide on such construction sites. For those that like American football, this is a very, let's say, actual picture of the SoFi Stadium in L.A., which was the host of the, I think, 57th Super Bowl event, an unbelievable event by itself, but also an unbelievable construction. This has many, many outstanding challenges, starting from the roof into the building structure itself. Here, we have a very strong participation. I don't know how many of the prior Super Bowl stadiums we have supplied. I think we have missed one of them to at least provide that roof and the ceiling and bonding solution. So a fantastic project, CHF 5 billion was spent on this building. Sustainability, we take it serious. We are working on this for several years. We are going to accelerate, I'll come back to that. We see us also obliged to reduce our footprint, our scope 1 and 2, as mentioned before. We're going to tackle also the scope 3 with our road map that we are planning to share with you at the Capital Market Day. But we are even more excited about our ability to help to reduce the CO2 footprint of our customers, of the end owners of the buildings, the products in use. So we see us as a strong enabler to decarbonize and to transform the construction industry, the mobility industry, help them to achieve the very ambitious goals outlined for 2050. On that side, we have several elements where we can help to reduce the carbon footprint for our customers. One simple -- a not so simple aspect is the durability and longevity of the products or the buildings that are built. The longer they are in use, very simple, the less the impact is. If a building needs to be torn down every 20 years, of course, you restart, and you have a lot of CO2 related to that. So helping to make the building structure more durable or also requiring less maintenance is a key contribution. Therefore, we need, of course, advanced solution that can also stand 40, 50 and even higher durations. When you look at tunnels, for instance, 100 years expectations for tunnel solution is for several years the standard. But we are now going into, let's say, construction infrastructure buildings where we see still sometimes bridges collapse 10 years after construction, which, of course, is a disaster. But the bridge should also last much longer. And you need, of course, for these products solutions that support this. And here, we can help a lot to make bridges, infrastructure buildings and so on last much longer. Energy efficiency. The consumption of energy during the lifetime of a building represents 40% of the total carbon footprint of the whole structure. So here, as well, to help to insulate the structure so that less energy is needed to cool and heat is an obvious goal. But also to reduce the maintenance effort to have floors, for instance, that are requiring less maintenance, less chemicals to clean that can last longer is another element that helps to increase the -- or decrease the CO2 footprint. And then, of course, the decarbonization by itself, by making solutions possible where you can replace high CO2-emitting raw materials like cement by supplementary cementitious-like material. And those materials are around, you can use them. But to make them really performant, you also need the right chemicals to have an equivalent solution to the pure Portland cement. And so our chemicals can go into the cement, so we help also the cement producer to reduce their -- the cement -- the CO2 footprint at the production by adding smarter chemistry and enabling also to reduce the clinker content. But then, of course, also when it comes to the concrete final product then before it's poured can also be optimized with our chemicals. This has been presented at the last Capital Market Day in October. We are making more progress in the advancement in reconfirming our assumptions and what we presented, 60 kilograms of CO2. We can reconfirm. We can decarbonize in this process. So here, we have a video giving a brief update on that process. And maybe we can start the video? [Presentation]

That's not everything we do. We have much more done in the recent past. As you have been informed, we changed a bit our approach to innovation and sustainability, combining this as almost similar for a charter by also having appointed Patricia to the new Chief of Innovation and Sustainability. We also just recently had a Board decision that besides the AC and the NCC Committee, we're going to form a Sustainability Committee consisting out of 3 Board members, focusing very much on the environmental and social topics and also the sustainability road map. Background here, this is a topic that will probably for many years stay very strategic, and the Board takes it also strategic. And I very much support this move towards, also giving it a very strong position within the Board of Directors. Also the sustainability reporting, the GRI Standards, have been included into our, let's say, standard annual report. So I apologize for the 270 pages that the annual report now consists of. But it is comprehensive. It has all aspects in there. I think it's really a book of information that makes it easy for you to find the relevant topics and to navigate through. We are in the TCFD as an official supporter heavily engaged on the procurement side and other elements. So this here is, for us, a serious matter. And we are working also with our up and downstream partners. We also see high engagement from customers and suppliers in this. There are companies that are taking this as an opportunity. And we link ourselves to them and work with the best. And we will move the transformation of the industry from that side. We need to work together. Not a single company can solve this huge challenge, but the best in the industry working together can achieve tremendously. This is our road map to net zero. This is science-based target initiative. At the Capital Market Day, we are going to present our approach, also our ambitious targets for the short and the long-term achievement. We are working diligently according to this timetable, which we have presented before. We are on track. We are also happy that the Board takes this into account. And so we're working also with the Board on the setting of these targets. And then, of course, the execution is on us to deliver then the result, as always. Most important growth driver for us are our employees. I consider our company a people company. The people make the difference. They are enabling our success. 27,000 employees that are contributing with their brain, with their heart, highly engaged, that's the power of Sika, that's where I'm most proud of and what I also see the biggest differentiator. Our strategy can be copied. The slides can be copied, but you cannot copy the soft factor, the people. This also means that we have to respect all employees and also make sure that we are an attractive employer and that we are an inclusive employer and that we do not discriminate and that we offer equal opportunity to every one in our organization. And here, when we talk diversity, we talk about a lot about gender diversity, but we also have, of course, cultural diversity, age and so on. And here, a few figures, we have 23% of our overall population is female. We have now 25% on group management which corresponds with the overall. We want to increase this, but this will happen in steps. To me, most important is that we have equivalent percentages of female representative in all levels in our organization. And here, a signal from the group management is very strong. But also on the age side, we need young and more seasoned employees. It's a combination. It's the experience. It's the digital-native generation that is entering. We need to balance this. This makes us a stronger company. And we need the cultural diversity, 45 nationalities within the 150 senior managers. That's a good balance also to make sure we have the Chinese, we have the Indian, we have the Brazilian, we have the American, we have the Russian, we have -- we have all the elements in there, and we respect and are tolerant to each other. The organization is strong, but the organization also needs to further develop. And therefore, we invest into our talents, that's very key. Very often, we cannot find them in the market. And so we take this on us so that we really offer opportunities to entry, host, study young trainees in the company, but also then to help them to make a career in our company and that we also have a strong succession pipeline for the future. Again, here, the gender part, we have to take care that our talent pool is also balanced and the talent pool has 25% of female in it. So that's also a good reflection. With this, I would then hand over to Adrian for the more exciting part of the financials.

Very good. Well, thank you, Thomas, and good morning to all of you here in the room. Good morning, good afternoon to everybody following here on our livestream. In a challenging environment, Sika has again delivered a strong set of numbers with records in terms of growth, in terms of profitability. And we have seen some of the highlights here. We're listing it here again, namely net sales of CHF 9.252 billion, for the first time above CHF 9 billion in sales; a local currency growth of 17.1%; and even a little bit higher in Swiss francs, 17.5% growth. A strong profitability increase on all levels, an EBITDA growth of 17.4% to CHF 1.758 billion and the record EBIT of CHF 1.3914 billion, representing a growth of 23.1% overproportional and 15% as a percentage of net sales also for the first time. Lower financial expenses and also a lower tax rate has resulted in an even stronger overproportional net profit increase to CHF 1.0485 billion This is an increase of 27.1%. While cash generation was solid in 2021 with CHF 908 million, it is down about CHF 350 million from really an exceptional 2020, particularly driven by growth, but particularly also by higher inventory. But we also have further reduced our leverage. We have continued our deleveraging with a net debt-to-EBITDA ratio of 1.4x at the end of 2021. And lastly, the Board of Directors is proposing a further attractive increase in the dividend of 16% per share. But let me now look at some of these metrics more specifically. Here, starting again the top line. The sales growth in 2021 was predominantly organic, 15.1% organic growth. Here, the volume component was about 9.3%, whereas price added 5.8 percentage points to growth. Acquisitions contributed 2 percentage points for the full year. And as I like to say, for a change here, currency has supported a little bit, actually another 0.4%. This time, owed to, let's say, particularly a more stronger U.S. dollar and, to some extent, also the British pound throughout the year, adding a little bit of additional growth to our top line. If we look at this across the years, we have continued our overall growth trajectory also across the pandemic year 2020 with a 3-year CAGR of more than 12%. Solid organic growth also through the pandemic of around 5% per annum, and acquisitions during the 3 years adding 7 percentage points per annum. If we look again at 2021 in isolation, the 2% represents the initial impact of our 7 consummated transactions, Thomas has been alluding to, with the majority of the impact still to come in 2022. Let's look now at the P&L and move further down from the sales line. We have obviously mentioned this already. 2021 was characterized by really an unprecedented raw material price increase in combination with ongoing supply chain disruption throughout the year as a direct or indirect result of the pandemic, but particularly also in combination with energy shortages and many force majeures we have, again, been experiencing in our supply chain. As a result, our raw material cost on a comparable basis has increased more than 15% versus the previous year. We have been able to counter these effects or the majority of it by ongoing price increases. With a contribution of close to 6% to the top line, we have a higher run rate in Q4 and together with ongoing formulation efficiency measures and other measures here supporting material margin. As a result, material margin has contracted by 3 percentage points to 51.8%, down from 54.8% in the previous year. On the cost side, operating expenses have clearly under-proportionately increased in 2021 by 7.7%. It's against the net sales growth of 17.5% here, exhibiting a very strong operating leverage driven by top line growth, but also by disciplined cost management and continued strong synergy capture from Parex and other acquisitions. With a 7.2% increase, personnel costs also increased strongly under proportionally compared to sales growth even at the backdrop of roughly CHF 23 million of short-time work benefits in the previous year. This development was driven by a limited personnel buildup and the contained underlying sales cost, salary cost development. As a result, personnel cost as a percentage of sales have decreased 170 basis points to 17.7% of net sales. Other operating expenses as a percentage of sales also decreased strongly from 16.4% to 15.1%. Also here, solid operating leverage, disciplined cost management, but also accelerated efficiency and integration activities as well as lower claim cost and bad debt provisions have offset the higher logistics costs, which we have had in 2021. As a result, as I mentioned, EBITDA grew by 17.4% to CHF 1.758 billion in 2021. Depreciation and amortization was virtually flat as fixed asset depreciation was slightly below previous year. And also on the intangible amortization, only a very small increase. As a consequence, strongly overproportional EBIT increase by 23.1% to CHF 1.391 billion. Now if we summarize this and translate this EBIT improvement into the respective margin drivers, the picture looks as follows. Here, on the material margin, again, on an organic basis was very strongly impacted by raw material cost increases, but to a large extent, mitigated by solid price increases, formulation efficiency, but also new products and structural procurement initiatives. It's probably worth mentioning at this point that at, let's say, a 6% price increase, even passing on all the raw material, the absolute raw material cost increases, there is a mathematical dilution on the material margin of around 3%. So we have been able with all the additional measures to basically pass on all the material cost increase on an absolute basis in 2021 and continue to strongly drive pricing to basically get ahead of the curve here as input costs also continue to increase. On the other hand, we have been able to almost fully mitigate this material margin percentage decrease by a significant operating leverage. Here, obviously, a strong top line was supportive, but also the disciplined cost management and which clearly reflects the ability to deliver incremental growth at -- on the proportional cost increases. Our specific operational improvement initiatives, which are very broad across the value chain on local, regional and global level, have added 70 basis points here to profitability, clearly, ahead of our annual target of 50 basis points of margin improvement. We also delivered on the Parex synergies here, adding an additional CHF 30 million in 2021 or 30 basis points of profitability in -- during 2021. The remainder is an initial dilution from the acquisitions made in 2021 as well as certain one-off effects, which, in total, overall, had a very small negative impact of 0.1 percentage point. Now moving back to the P&L and looking below the EBIT line. Here, we reduced debt level and higher interest income had led to a decrease in interest cost. Even more significantly on other financial expenses here, a decrease of more than 40% largely driven by lower hedging costs, lower interest differential, at least, for most parts of the year, and also lower intercompany and foreign currency lending. As a result, net financial expenses have decreased by CHF 14 million or 20%. On the income tax side, effective group tax rate saw a further decrease from 22.2% to 21.5%. On here, the expected tax rate decreased only marginally. We had an additional positive effect due to lower tax provisions related to favorable outcomes of a number of tax audits. So as a result, overall net profit increased strongly overproportionally by 27.1%, as already mentioned. In looking at the balance sheet, here, the strong growth in 2021 is also reflected here with the balance sheet total increasing by 9.2% compared to 2020. If you look on the asset side, here, particularly working capital balances, all the biggest expansion, particularly on the inventory side with an increase of more than CHF 300 million driven by valuation due to the increased raw material costs, but also growth and also reflecting certain effects related to the current supply chain environment, longer lead times and obviously a certain element of inefficiency and which we will obviously continue to mitigate in 2022. On the receivables side, we saw an increase also of CHF 215 million, but this was underproportional compared to sales growth, so further improving our accounts receivable ratio. On the passive side, while growth in current liabilities, this is mostly payables mirrored the receivable development year-on-year. Financial liabilities decreased substantially through the repayment of CHF 170 million bond in Q3 2021, but also the partial early conversion of our outstanding convertible bond added to this. Total financial liabilities at the end of 2021 stood at CHF 3.71 billion. This is a significant decrease of CHF 460 million compared to the previous year. And net debt decreased from CHF 2.86 billion to CHF 2.54 billion. Equity as a result of our record net profit, but also due to the aforementioned partial early conversion of the convertible increased very substantially by more than CHF 1 billion to CHF 4.4 billion, lifting the equity ratio from 34% to 41%. And overall, our capital efficiency increased quite substantially in 2021 with ROCE improving from 16.6% to 20.1%. Now in looking at cash flow development, as mentioned, we saw another solid cash generation with an operating free cash flow of CHF 908 million or 9.8% of sales, but down from the abnormally high level in 2020, which was CHF 1.26 billion. Here, the higher 2021 net profit and then underproportional increase in income taxes paid were more than offset by a somewhat higher CapEx, but particularly also due to higher working capital. Whereas in the previous year, we had an absolute decrease of CHF 125 million, working capital increased by CHF 325 million driven by growth. And particularly, also the inventory valuation, if you were to sort of normalize these 2 years, we would have seen sort of a normal or a more normal progression with around 12% of sales. As mentioned, and we have continued to delever strongly in 2021. And in looking at the peak in June 2019 upon the initial consolidation of Parex, we -- where our leverage stood at 3.4x net debt-to-EBITDA, we have substantially reduced and also in 2021, decreased another 0.5 turn to 1.4x net debt EBITDA on a reported basis. This is a clear testimony to strong cash generation profile while we continue to also fund ongoing bolt-on acquisition activities. And then lastly, this brings me to the dividend proposal. The Board of Directors of Sika proposes another double-digit dividend increase of CHF 0.40 from CHF 2.50 to CHF 2.90, which represents an increase of 16% per share. The payout ratio here on a fully diluted basis is 44.4%. On the basis of the currently issued and converted shares, here, the ratio is about 42.5%, so broadly in line with previous years. With this, I hand back to Thomas for an update on MBCC as well as on the outlook for 2022. Thomas?

Thank you. So here, maybe to start with a very positive news on MBCC as a stand-alone, they also had a great finish to the year and were able to exceed their forecast on top and bottom line, which, of course, is also positive for us to, let's say, come together with a very strong company moving in the right direction. As we have presented before, that hasn't always been the case. But since they are separate and stand-alone, we see a steady improvement on the top line organic growth as well as on the bottom line. Once again, to reiterate the excitement that we have, MBCC offers us an excellent platform for future growth. The growth comes from the complementarity that we see in the product offering as well as in the channels. We see that as a major accelerator to our growth strategy. We will also then see how that transforms into the next strategy that we then form together with MBCC. And ultimately, I'm very excited also about the combined possibility to drive this transformation of our construction, customer, strive towards the decarbonization, to sustainability. We see us as a sustainability champion helping to lead through this huge challenge of the construction market. Better-than-expected results, I mentioned that already. This is a good sign for us. Both companies are working still, of course, independent. And we have selected a few that are working on the integration planning. This will expand the closer we get to the day 1. But we started this process to be ready for the day 1 integration. We have established roughly 15 teams. They are functional teams. They are regional teams. And the closer we get to day 1, there will then also be country-specific integration teams. Of course, this is all in line with our obligations to maintain strict confidence on critical information, and this is taken well care of. In parallel, a very heavy workload on the antitrust stream. This is clearly with the magnitude and the many authorities that are involved our key workload at the moment. We make good progress. We are within the time frame that we have set. And also, so far, the discussions are well within our different scenarios that we have for those over 15 jurisdictions. We have achieved the first green light from China Antitrust Authorities, and we expect more to come. But ultimately, we need to have the key jurisdictions clearly approved. That is the U.S., it's Canada, it's the EU, it's China, it's Australia, Japan and others. We also interact very much with the organization of MBCC. This has happened on the day when we announced, 11/11. We were present in 87 locations with our local management sharing the excitement about the possibilities together, but also presenting our organization to the MBCC organization. We have done 2 town hall meetings, which means all-employee meetings. But we also had meetings on the top management from our side as well as on their side exchanging to the extent that we can do. It's also great to see how the transaction has been received by the internal and external stakeholders. Also great to see that the MBCC organization sees this, to a large part, as a great opportunity to have now a strategic home and being able to unleash the full potential of that organization. Also on our side, on the Sika side, there's a great excitement to be able to then combine and benefit from each other, but also from customers where we have excellent feedbacks as they appreciate to have more solutions out of one hand and that they look forward to have this combined competencies then available to them. Nothing has changed on our time line. We expect to close in the second half of '22, and we are on track to achieve this. The complementarity has many aspects. I mentioned the product portfolio. But also the way to the market, the channels can be quite different when we look country-specific, and that's how we have to look at it. This is not 1 uniform in 1 country. They are stronger in the indirect. We are strong in the direct. And it may be the opposite in another country. The geographical complementarity, here, an example, in Japan, we have been very much Tokyo and Osaka oriented. And here now, we are covering the full island of Japan. Supply chain and other aspects, with the many factories that come with MBCC, we can also reinforce our footprint here. An example from North America where we have blue dots that help us also then to cover this part of the region much better. The excitement of our customers goes around what we can offer to them. And here, the complementarity by some examples in the underground construction where we have clearly a very strong presence with our membranes. We have this -- for many, many years, we have been there. But on the concrete side, it's very clear that the MBCC organization has been for years, clearly, here in shotcrete and fibers and injection a strong player. The renewable energy, the wind tower, Sika is very strong with the blades, the blade, the adhesives of the blade. But then the towers themselves are much more, I would say, an MBCC expertise. But the customers, to a large extent, are the same. So we are talking here customers like a Vestas that we can share and where we have absolutely no overlap, but can only benefit by bringing these competencies to our customers. The same applies to the concrete production as well as to the interior finishing parts where our products very much have complementarity nature. Important in such an acquisition is also that the company fits to our culture. And here, this is just an overview to show you our values and principles, the 5 that we have for many years announced and we live every day. And then you also see the 4 values and principles of MBCC, which are mirroring and matching our approach, how we want to execute business. Beyond that, we also asked our top management on 150 -- 160 Sika senior managers as well as the top 150 on their side since we had this opportunity to meet. Some of it was physical, some of it was virtual. But we all asked -- prior to the meetings, we had a survey of around 30, 40 questions to see how we see each other, how we see the future and how we operate. And it's amazing to see the outcome of this survey. And here, this is just an extract that shows you the similarity of the 2 companies and the culture that we have. This is great. This is reconfirming. To me, personally. It's not too surprising since we are active with customers, construction customers, which are local customers, we are active on construction sites. To make a deal in construction, you have to be authentic, you have to be long-term oriented, you have to act integral, you have to bring value and you have to speak the language of the market. And to be successful, you have to have this in your DNA. And this DNA is very much similar. When you go further up in the organization and ultimately, in the old days when BASF was owning that business, there, you have then, of course, seen a very different approach to up and downstream business. But there, where the action took place, that action very much is similar when you want to have success on a construction project. Now I would like to give you a glimpse and expectation for 2022. It's going to be a challenging year. We see it already. The news of todays are not so reconfirming. But we have a very positive outlook ready to share with you. And here, we have also the region managers here, which I ask now to come up and present in a few words how they see the regional outlook for 2022. And Ivo, if you would like to start?

So good morning. First of all, I would like to take the opportunity to express my special thanks to all our colleagues out there in the region, EMEA, our 11,000 colleagues who delivered a strong contribution to the group result last year and are fully motivated and ready to go the extra mile again in 2020 and, of course, deal with all the challenges we have, but I think the opportunities which are out there are by far bigger. And we really are quite positive for another year. I just would like to mention here a few points. Generally, we are positive when we look across our areas in the region. When you look at the construction markets, we don't see really any signs of not further growth there. So we are really positive. And especially, as we heard before, infrastructure offers really a great growth potential. But I mean you saw a few examples from Africa, I mean the emerging markets where it's obviously a new project, new buildings and new infrastructure. But I think for us, at Sika, especially when it comes then also to the more mature markets, the refurbishment or the strong focus on refurbishment of bridges, water treatment plants, as you see it here, airports, power plant and others, offer for us really a good differentiation possibilities in the market because we can combine our systems, we can offer value, we can contribute really to the extension of lifespan of infrastructure and offer there really great opportunities for our customers, for the owners, for the authorities even more. The energy efficiency, there is a great demand of higher energy efficiency also for residential buildings. There, we see a great growth potential. It's not only in the countries like here in Switzerland or in Europe, it's also a strong need to reduce energy to cool buildings. Overall, this market is, I would say, even bigger. And we focus also strongly on this part. And then for us, in the direct business, it's extremely important that we are as early as possible at the projects in the design phase, in the specification phase. You see here on top, one example, the Tesla Gigafactory in Germany, in Berlin, where the specification is, of course, shared those with the U.S. And here, we have great collaboration with our teams in the U.S. Christoph I think will also show one example. So there, we can be very early there. And the Tesla there is then strongly believing in our systems. So they are convinced. And they also saw it that our systems really work. And here, in Berlin, we were able to supply product for several million Swiss francs. Then when we go more in the indirect sales, you heard us also saying distribution grows very nicely. I would like just to mention here the e-commerce, the online business again, you heard it already from Thomas before. And these additional channels, I would call it, keep really growing at very high speed. And we see clearly, again, I would like to repeat, it's not anymore just a private person ordering one pail, one cartridge. It's really more and more the professional customers that the big main contractors see these channels as a very effective way to order their goods. And we are growing there nicely. It's just one example. On the bottom here, of course, you have to also adapt the marketing. Of course, we take part in Black Friday, for example, or other promotions as well. And we're really happy how this is progressing. Then in industry, besides the construction market, we have still very great potential to further increase our presence in industry applications. You see here just one example in transportation. I mean the cruise ships I mean are being built. So this industry, of course, was suffering. But I think they believe in it. And we have now this example in Finland, a great shipyard, where we position our systems. But besides that, also for me, I think a great trend is also the modular building. And as the colleagues in the U.K. call it, the off-site construction. And I think here, I also see Sika as an enabler to contribute to more efficient production methods then also in construction because, as we know, construction -- or many buildings are like prototypes. So if you compare it to the automotive industry, I think there, we can have -- we can offer many solutions and systems. You heard our -- you heard the progress of our African strategy with the latest subsidiary in Ghana. So this is progressing really well. Also, can I just add one example? You saw it on the slides the -- for example, the number of wastewater treatment plants in South Africa. We have other countries like Ethiopia, 120 million. And just a few years ago, when I was there, I visited the first-ever wastewater treatment plant in this country. So you see, there's tremendous opportunities for further growth there. MBCC, of course, we're working also on the -- in the region with local town hall meetings just going on at the moment to get to know our future colleagues and then also prepare the integration. And obviously, we also further benefit from the recently acquired companies. Operational footprint is going on. I mean we are increasing our efficiency and strengthening the footprint across the region. This is an ongoing task. This will continue. And then also in the region, we focus strongly on the ESG performance. We have -- particularly, we focused on the CO2 emissions but also safety culture. We would like -- we have to decrease our number of accidents. And this is -- we have many programs ongoing here to work in this field. And then the last point here, obviously, also in the region, we developed our internal talents, and we are quite proud that we can fill our positions always internally. And obviously, also work on the diversity, of course, increasing also the female rate, but in general, diversity and specifically female rate in sales, where we are still have underproportion number of ladies. So that's us from EMEA. And I would like to hand over then to Christoph. Thank you.

Thank you, Ivo, and good morning, everyone. The same, really happy to report on a strong year 2021. You've seen from Adrian and from Thomas, 21% top line growth, translating into a pretty strong EBIT growth as well. All areas, I have 5 actually, contributed to this with double-digit top line growth. Also can report Latin America is definitely back on a very strong track, making a lot of pleasure now, I must say. And the market environment was really rough, I must say, pandemic, supply issues, inflation, labor shortage in North America. I mean basically, the full range actually. But our guys, they just simply learned how to deal with this. We adapt, we persist, and we were able to further strengthen our market position. All my 8 target markets in Americas, they grew at double digit. And I think this is proven of that, obviously, we're doing the right things. So I can only give my compliments to my guys in Americas, well done. I just have to repeat it again this year as we know. Talking about opportunities, I would really say we see many opportunities, I mean, like actually more than ever before right now in Americas. Infrastructure investments are definitely back here in North and in South America. You see on one picture, the LAX Airport in Los Angeles. I mean this is a project going on since 2018 and continuing yet for another 2 years. Just one example, also the Newark airports, billions of dollars being invested there, and we are participating very nicely on all fronts in these kind of projects. Also investments in renewable energy, very interesting, wind. Americas has rediscover the wind energy, I must say. A lot of huge wind park projects happening in North America but also in Brazil, in Chile, Colombia, which is quite new, huge wind parks being built. And every wind park is a project for us of several million of Swiss francs. Distribution, retail, e-commerce, like in EMEA, this is -- here, we profit a lot from the positive consumer mood. People invest again in their homes. So these businesses have contributed already a lot to our performance last year, and this will continue also this year. We won a few really prestigious projects. A few I just would like to mention here. You also see the Tesla factory there. Actually, this is -- we've done already several Tesla factories in North America over the last year. So I must say this is the brand new factory where they're going to produce this fancy truck, which you see also on the picture there. So it's real. Still pretty secret project. And we've already the whole floor. We're working on other parts of this factory. And I think this is an interesting example of what Sika can do. We are also supplying adhesives to build the truck. And of course, at the other side, we're also helping them to build all these beautiful plants all over the country. Stadiums, you've seen the SoFi Stadium in Thomas' presentation. It was a fantastic project for us. But we already work on the Super Bowl stadiums of the future. For example, the Raiders Stadium in Las Vegas, so if you going to go there once, it's an unbelievable stadium that they're building, a $2 billion stadium. And Sika has been providing the roof membrane but also inside the building. Actually even down to the bathrooms now where with Parex, we can now also offer the tile adhesive for the bathrooms and kitchens. So these acquisitions also open up new opportunities for us. Public transportation, this is very important. There's a lot of investment going on in public transportation, always been pretty poor in North America, as you know. For example, this REM project in Québec, it's a huge project ongoing already for several years and will continue for another 2 years, 26 railway stations alone. And Sika is everywhere in applying products for fixing the rails themselves but, of course, also to build these railway stations. Or the Toyo tunnel in Colombia, the largest tunnel in all of Latin America, linked with bridges, with tunnels also. So this is also a project ongoing for years. Or subway Line 6 in Sao Paolo, $2.6 billion project, also connected to tunnels and bridges and highways being built there, or in the South of LatAm, the new Santiago de Chile airport just opened at the end of last year. For those of you who are asking themselves, how does Sika continuously grow at double digits every year, I mean one of the secrets is definitely, we're constantly launching new business initiatives. I think you've seen this also in Ivo's presentation. I'm sure you see it also in Mike's presentation. And what we start today is contributing in 3 years to this double-digit growth. And for example, one thing that we really heavily invest in right now is what we call a digital lead generation. So we try to get or make dollars out of social media. For example, we work with certain influencers, not maybe the ones you know but, let's say, architect influencers' webinars. We're very active there, and we try to transform these, let's say, these digital marketing initiatives into dollars later on. Then mining, building finishing, wind, 3D printing, et cetera, and new focuses that we're launching now is or bridge repairs and water treatment plants. You've seen this also from Ivo. We've done a lot of investments into production capacity but also into supply chain, like mortar capacity in Chile, Brazil, U.S., Canada. Fibers for Latin America, we bought a company in the north. Now we're also building our own fibers plant in the south, PU capacity in the U.S., ViscoCrete capacity also in the south of U.S. In Texas, we opened 2 large anchor warehouses in Orlando and Dallas to better serve the south of the U.S. And we are investing heavily into sustainability projects throughout all the region, solar roofs, for example, sand dryers, et cetera, et cetera. And then you also have seen, we've done a lot of acquisitions last year. America's been traditionally very active in acquisitions, actually, 4 larger ones. And these ones we're integrating right now. And they will contribute this year and, of course, in the years to come to our performance. We prepare ourselves for the MBCC integration. This is a very exciting project for us, a very professional company, very professional colleagues that are going to join us here, really an eye-level acquisition. And we believe we can -- this merge or wed or however you want to call it will make both companies much stronger. And last but not least, ESG is also a big topic for us in Americas. We defined 4 main focuses, actually pretty similar to my colleagues in the other regions and safety. Definitely, we have to become better CO2 as well. Interesting projects that we're running. And last but not least, of course, also diversity. Happy to report we're having 4 female country managers now in Latin America, rather unusual for companies in LatAm. And they do all a fantastic job, and we're about to promote, push, develop more lady managers into important positions. But overall, positive outlook despite a difficult environment. But we know how to deal with it. And I'm sure in the year from now, we'll be here, hopefully, to report again on a strong year for region Americas. Now Mike for Asia.

Okay. Good morning. So it's my pleasure now to give you a bit of an update on how we're doing in Asia/Pacific. You heard already from Thomas and Adrian that we had quite a good year in sales and profitability development in 2021. So I have to really take this opportunity, first and foremost, to thank the nearly 7,000 employees spread out across the Asia/Pacific region, who delivered these excellent results in a really difficult environment through close borders, difficulty to travel, difficulty to meet with customers. But they found a way, and they worked hard to keep that customer contact and deliver the needed services to our customers. So again, my deep appreciation and thanks to our team. And as you know, we'll do it again in 2022. So despite the reports of slowing or even stagnant GDP growth in many large countries around the Asia/Pacific region, notably in China, where the GDP is expected to drop below 5 -- or just above 5%, we see really a very strong increase in the construction activity throughout the region. This is further to 2021 in China, we're going to see a clear growth leader, and they'll continue to grow -- the strong growth that they saw already in 2021, we'll see this again in 2022. This growth is coming from both their direct and their indirect business. In China, the year of the Tiger is upon us. And we see also in the e-commerce side of the business in China an excellent growth development, really strong and overproportional to our normal growth. In India, despite a weak year in 2020, we had a very strong year, come back year in 2021. We expect to see this again in 2022. In Southeast Asia, probably our hardest-hit region or area in the region, they had a very difficult first 3 quarters in 2021. And -- but they rebounded strongly in the fourth quarter. This fourth quarter rebound allowed us then to achieve 6% for the year. And we see again in 2022 a strong double-digit growth in both sales and profitability. So this tremendous growth in the region is driven by extensive infrastructure investment programs designed to stimulate economies throughout the region. Many of these investments are fueled by government subsidies for climate-related projects tied to legislation. In Asia/Pacific alone, we're looking at nearly CHF 8 trillion in infrastructure investment in the coming years. And we're positioning ourselves to secure a significant portion of those projects. When we look at those projects, as you see here on the slide, we do some offshore wind. We do some high-speed rail, highways, bridges, airports, things that we look at as our normal infrastructure development projects in Asia/Pacific. However, we also look now at the new infrastructure development. This is projects and initiatives on 5G, on data centers, on artificial intelligence and e-mobility. In e-mobility, we not only can help to build the factories that build these e-mobility products but also have products within those batteries and e-mobility products. So really, this new -- as Christoph mentioned, new investments, new opportunities in many different markets. So the first step in this process of strengthening our infrastructure development is specification capabilities. And here, we look to partner with our partners in design and construction communities. These solutions will foster cross-selling opportunities and in many projects throughout the region and a significant portion of these projects. So examples, I mean these infrastructure investment programs -- sorry, we'll continue to go with these infrastructure programs. The first step in the process is strengthening our -- or excuse me, I lost my spot. Okay. While we continue to change these large projects, we'll also continue dynamic growth in our distribution business. In the last 5 years, our direct-to-indirect business ratio has gone from 70% projects to 30% indirect business. So this has moved now to nearly 50% in direct and indirect business. So we have a very nice mix now that allows us to maximize our portfolio. So this allows us really to move from site to shelf and with our professional customers. And it also allows us to take a very strong position in the retail market with our increased brand awareness. To give you an idea, in Asia/Pacific, we went from 120,000 points of sale to nearly 160,000 points of sale in 2021. We see another 40% increase in 2022 of these points of sale. So we'll continue to overproportionately grow in our distribution business. At Sika, we believe strongly and the courage for innovation. It is critical to our long-term success and the continued trust and loyalty bestowed upon us by our customers. We'll continue to strengthen our regional and local capabilities to bring our solutions closer to the customer. We broke ground on our newest -- okay, sorry, we broke ground on our newest tech center in China. It's a large [ CHF 40 million ] investment, and we're well on track to bring this online very soon, end of the year. We're now implementing a full array of digital solutions in Asia/Pacific region, focused on improving our overall operational efficiency. And this is in line with some of our expansion investments. My colleagues in other regions are a bit further ahead of us on the digital applications, but a lot of these are copy/paste, so we expect to move very quickly to implement these digital solutions. We continue our strong focus on our operational efficiency, which really goes hand in hand with our sustainability initiatives, the reduction of CO2 or water usage and waste, driving towards our net-zero goals. In 2021, we achieved over 112% of our aggressive efficiency goals, and we expect to do even better in 2022. We acquired 2 companies in 2021. We acquired Landun waterproofing in China and also the Hamatite business in Japan, Thailand, China and the U.S. Both acquisitions offer us new platforms to offer expanded technology and capabilities in the areas of automotive, sealants and adhesives and waterproofing categories. We've had a successful day 100 reviews in both companies, and the integrations are going well on track. Finally, as I mentioned earlier, our people is really the most important element of our entire business. I believe our people are the best in the industry. And we'll continue to train and develop our people for the challenges ahead. We will strive a more diverse workforce, both externally and through our various acquisitions. We'll continue to live the Sika Spirit and deliver excellent results again in 2022. Thanks.

Thank you, Mike. And sorry for shortcutting a little bit. I want to make sure that we have still time for questions. And therefore, I also want to be brief on the Global Business outlook here. This is a business very much hammered by the limitation to build cars. Currently, we can say probably [ CHF 15 million ] to [ CHF 20 million ] is the backlog of the demand. So everywhere, the pipelines are dry. Unfortunately, the debottlenecking on the semiconductor side is still not showing much progress, but it's expected by the middle of the year that it will improve. But it's still not on the level where it's required to really have this, let's say, huge backlog worked off. Other than that, I mean, the industry is in this transformation process, which offers us huge opportunities. The battery conversion is, for us, an additional application area where our chemicals, our adhesives, our sealants play an important role to make those batteries more efficient. And we are heavily invested into that conversion of the car industry. Nevertheless, a car is still a car, requires adhesives to bond the car body, requires sealants, requires all other acoustic means so that we enjoy comfortable and safe ride. So this is incremental opportunity. But I think here, clearly, the region still in this mode of reduced volumes. Nevertheless, we performed better than the market. We increased our content per vehicle steadily. And with the acquisition of Hamatite, which took place last year, we even have now a much stronger access to the Japanese OEMs, which still represent 34% of the total production worldwide. And the strong footprint in Japan will help to leverage our solutions even further there. It's not just automotive, also the industry target market is benefiting. We see a lot of momentum on the truck, on anything that is mobile to go full electric. And here, we can leverage also the competencies and help this transformation also on that side. Renewable energy, solar wind, great opportunities also for our industry target market to grow. So with that, I would like to then move to the outlook for the company as such. And here, we clearly see 2022 much more on the positive side than on the negative side. It is clear we are going to succeed or exceed CHF 10 billion for the first time, and we will be well above 10% in growth in 2022. Our expectation is also to continue our successful strategy by not only growing top line but also overproportionately grow the bottom line. So we expect that the EBIT will clearly also be overproportional in 2022. Therefore, we confirm our strategic targets as outlined in our strategy. And as a precursor, we are going then at the Capital Market Day also to explain our sustainability road map in more details how we are tackling Scope 1, 2 and 3 but also how we are seeing us as enabler to the transformation of the construction industry. With this, I would like to also save some time for questions. We are a bit over time in the presentation because it's very important that you can ask your question. With this, I would then already come to the Q&A part.

I see questions. Yes, microphone, please?

Remo Rosenau, Helvetische Bank. On the guidance, the well-above 10% guidance does not include ForEx, but it includes acquisition impact, of course. In that sense, you must have made an assumption when MBCC will be included in the consolidation. So how much sales of MBCC are included in this guidance?

Thank you for that question. I can clarify that this guidance is not including MBCC. It includes, of course, the acquisitions, the recent acquisitions that we closed that have been presented. But since MBCC may close sooner or later in the second half, it would just, let's say, skew all the figures too much. So we do not include MBCC in this guidance.

Okay. Great. That's great. So the assumption is 31st of December then, so to speak.

It could be, could be the 1st of July, could be 31st of December. I mean this is very clear. It has a tremendous impact on the overall. And I think it's also more fair to say, we plan here with what we have visible now. Of course, we are working towards a sooner closing. But as mentioned, the authorities are ultimately to be convinced, and this is work in progress. We are very confident about the second half closing. But it would be speculative to put in 1st of September, 1st October, November. It would just change everything in the expectation.

Okay. Great. Very good. Then the 7 acquisitions you did last year contributed 2% in '21. You said more of that is to come in '22. However, the base is higher. So it will be, again, around 2%, I guess.

2.5% growth.

Okay. Great. Then a more general question. I mean you did 7 deals in the last year, smaller ones, as usual. Then you are doing this very big deal with MBCC. Potentially, there will be more smaller deals in the pipeline or are in the pipeline. I mean, isn't it getting a bit much? I mean, can you handle it?

I think we're not going to stop to look at the -- at prospects, certainly rather in the small to middle range. We will also look at the local situation. MBCC will keep several countries quite busy. They are excluded from acquisition. But it is also so that other countries will not have or have very minor impact. And we have many local acquisitions. So why not advancing when the local organization is capable. Also, MBCC is an acquisition in construction, so anything in industry, for instance, would not be affected with the, let's say, occupation on MBCC. So we are here very pragmatic. We don't shut down, let's say, our M&A activities. But of course, we are pragmatic. We will not overload the organization. And certain countries certainly are not going to make investments, and they're busy with the integration of MBCC.

Christian Arnold, Stifel. Just to clarify. So MBCC is not included in your top line guidance, is therefore also not included in your margin guidance, so to say, of 15% plus. Is that correct? I mean having an overproportion of EBIT increase, it must be EBIT margin above 15%.

That's correct. Yes.

That's correct. Then yes, I think we have to talk a little bit about gross margins. Especially, Q4 came down by some, yes, 500, 600 basis points. And it's very impressive to see that EBIT margin only came down 200 basis points. So you made there a great job. Nevertheless, going forward, what can we expect in terms of gross margin development? I think initially, we thought that the trough level would be in Q3. We now see it in Q4. What are your expectations for the coming quarters?

Maybe I can take this. In terms of an input cost increase, I mean, we continue to see increases here further to what we have experienced in 2021. At the same time, we continue to increase prices. We have -- and I mentioned it, that Q3 and 4 was clearly above the roughly 6% pricing, 8%, 9% in Q4. And sort of ingoing rate into 2022 is, let's say, closer to the 10%. So we will also continue to have here a strong pricing impact for the full year. I would actually expect this to be bigger than in 2021. And I was alluding to the sort of mathematical effect, just looking at material margin, will very much depend on the magnitude of price increases and raw material development. So I think looking at pure material margin is probably not the right thing at this point in time. Of course, that the target is to keep it at least on 2021 level. But it will very much depend on the further development of the input cost increase, how long, to what extent and when and whether we will see an inflection point sometime during 2022.

Further questions? Yes?

John Fraser-Andrews, HSBC. I'll have 3, please, if I may. The first is on Parex and the margin improvement. Have we seen now all the cost synergies from Parex? And on the point-of-sale synergies, Mike mentioned the 40% increasing points of sale in Asia. Is there much more to come in Asia on Parex points of sale and any more in other regions? So that's the first one. The second is on working capital. Adrian, have we seen that peak now as a percentage of sales if you got to a new level for the time being and that may increase with sales? And then finally, within the end markets or your drivers of sales growth, would it be fair to say that distribution is outperforming the 9% volume growth across the group? Or other markets like infrastructure and commercial, are they holding their own in terms of that growth rate?

Good. I'll try to address them one by one. Here, on Parex, I mean we have now delivered CHF 80 million of the targeted CHF 100 million of total synergies, right on track. There's another CHF 20 million to come in 2022. As far as, let's say, cost synergies are concerned, there is still some increase for 2022 to be expected with, let's say, a larger part now coming from top line synergies. But also, this is quite well on track. In terms of the point of sales, I mean china is one thing where we have also quite successfully started to -- in some of the larger emerging markets in Asia to replicate the similar type of model. And that that's particularly related to also these increases in point of sales, obviously, with a certain trajectory but a buildup. But overall, quite well on track on both costs as well as top line synergies what Parex is concerned. On the working capital, obviously, there's different elements. As I mentioned previously, I think, on the receivables side, done a quite a good job to even improve the ratio in this environment. The inventory development is a somewhat different picture. And it's very much related to also raw material cost increases, which will add additional inventory from a value point of view also in 2022. That's clearly the expectation. But on the area of working through this supply chain, let's say, difficulties in terms of, let's say, more prebuying, more or longer lead times, also in some cases, not having a full set of raw materials to produce given the [indiscernible]. This is within 2022, hopefully, easing. We have also the opportunity here to, let's say, regain some of the efficiency here. And I would expect not in an absolute value but on a ratio point of view, that we will slightly improve in 2022.

Good. Further questions here? Yes?

Dani Jelovcan, Mirabaud. Just 2 questions to Mike and Christoph. I mean Mike, you were extremely bullish on China. And when you read the newspapers, it's mostly negative. So I wonder a bit about your optimism, which is good, of course. And for Christoph, the stimuli program now have passed all the hurdles. When do we see the impact? I mean it's -- I guess it's not so easy to differentiate. I mean there are [indiscernible] generations already, of course. But is that just a big extra boost to expect it -- to be expected? And what time line can we expect?

Okay. Maybe if I go first. I mean I remain very bullish on China. We see, as I mentioned, that the GDP drops a lot, but we see the construction activity remain very strong in China. Again, and as I mentioned before, in the direct and in our indirect, our points of sale, maybe going back to John's question, it goes almost 50% of those points of sale will increase in China. So we continue to expand our retail and distribution network. But along with this, this huge infrastructure investment, which we also go after. So we have 2 arms there. We work on the retail and distribution side but also on the infrastructure side. And both are growing in -- both areas grew very strongly in 2021, and there's no indication that they won't do the same in 2022. From the outside, it looks a bit difficult. I mean the borders are still closed. I think China has this zero-tolerance policy. I don't believe the borders will probably open until 2023. That's just my estimation. But the dual-circulation policy that they have within China seems to be working extremely well. The business isn't affected, and it continues to grow strongly.

Yes. And about the U.S. question, I mean I get this infrastructure question all the time, almost drives me crazy. You never know when it comes or when it doesn't. I mean we do not base our strategy and what we do on this infrastructure build. I mean it's such a big country, the U.S., and there is a lot of state money being invested also. And I reported infrastructure is definitely coming back. There are plenty of projects, and when it comes, we expect bridges, water treatment plants. You've seen this is our new focus. So we have specific sales team going after every each of these bridge, projects. And this, I guess, is where a lot of this money will go into. Airports, you've seen Newark airports. They're independent of this Biden bill because this is a lot. It's a New York State money also, et cetera. So we haven't seen it yet. We've got plenty of work. So whether it comes or not, we just got to make sure we can produce the products. That's my more important concern than when these projects are really going to happen.

Good. Further questions here in the room or online? Yes?

Yes. Patrick Rafaisz, UBS. Two questions, please. One is on your personnel expenses, and you did a good job in containing that in 2021. How should we think about 2022, especially with wage inflation and labor shortages in the U.S. becoming a bigger theme. And the second question is on CapEx spending. That was again historically a pretty low number in 2021. Is that -- were there delays? Is that related to the acquisition activity that's happening? How should we think about the -- that ratio going forward, also including maybe MBCC in 2023?

Good. Let me take the CapEx point first. And starting, excluding the MBCC impact, your point this is right. In terms of the cash out, that was still a bit impacted by lower sort of approval activity and initiation coming out of the pandemic year. I think on a sort of run rate basis, we would clearly say that in 2022 and going forward, we will move back closer to the 3% of sales. To what extent then MBCC will have an impact here, I mean there will be obviously elements of having capacity that does need to be built, but there's also integration activity. I mean this is a bit too premature to pinpoint. But it will not, let's say, materially change in terms of the ratio as a combined group going forward, probably rather a bit at least midterm to the lower side. On the personnel expenses, yes, I mean clearly, particularly in some markets, this has been challenging to obviously attract people and talent and just, let's say, labor in general. I think overall, it's not been sort of meaningfully different to -- in terms of the cost impact organically compared to previous years. We have probably had about sort of 50 basis points more personnel cost growth and -- but overall, relatively confined, as I said. In 2022, the expectation would be that this is, to some extent, higher but not by a large extent. It's also obviously driven by the overall inflationary environment. But the first and foremost focus is to get enough labor, particularly in markets like the U.S.

Good. Yes. Maybe from the virtual room, we have roughly 250 people joining as well to this conference virtually. And we have a big lineup of questions. So probably first one to ask the question is -- should be Martin Flueckiger then. Please remember -- from Kepler Cheuvreux. Please remember, turn off your camera like this, we have the opportunity to see you here in the room. So Martin, go ahead, please.

Can you hear me?

Yes.

Okay. Yes. Sorry. Just first question, please. Could you please elaborate a little bit on the situation in the U.S.? I understand what Christoph was talking about earlier on. But just I was wondering what the latest developments were in the commercial market in January and early February with regards to construction activity, whether you continue to see the good momentum there in the very short term. That's my first question. And then the second question is on the pricing situation in 2022, if you're -- what kind of price increases do you target for this year? And what kind of price cost spreads are you envisaging?

I guess the second question, Adrian?

Yes. On the price increases, as I mentioned, we expect a higher price increase contribution compared to 2021 with a clear goal to get ahead of the curve to fully compensate and partially overcompensate input cost increases now. As I also mentioned, input costs are continuing to increase. So from today's perspective, to give you an exact price increase target is not possible. But we clearly drive forward here. And I think we have quite a good momentum, particularly also reflected in the fact that, here, as I mentioned, outgoing rate was close to double-digit, and we continue to increase and have increased prices at the beginning of the year as well. So that's clearly ongoing. Then maybe on the U.S., Christoph, if you want to give at least a bit of a flavor.

Well, I can say is that top line growth or orders, this is exactly not my problem. I mean the last 4 months we're seeing top line growth like I've never seen before. We have to turn down orders. We actually have to focus now on more profitable projects. And for example, these large distribution centers of some of these e-commerce giants, we have to turn down because there, our margin is rather low. Again, my struggle is rather to be able to produce as much as we can. And our advantage is we're a global company, so we can source material from other regions also. We bring in a lot of materials from China now also but also from Europe because it's not available right now in the U.S. Labor, this is -- these are my issues right now. Top line, it's opening like never before. I would even call it's overheated. I -- this is a bit -- and then we're talking really about high, too high top line growth. That's the honest answer.

Rarely expressed in this way. So next question then to Markus Mayer. And we try once more, whether we can have a glimpse of Markus and whether you are as well on screen here. So please, Markus?

Three questions from my side as well. The first one is more on the situation in Eastern Europe and in particular, Russia and Ukraine. Can you remind us what the exposure is there? And if conflicts there are increasing, do you see any risk for your supply chain there? That would be my first question.

Okay. I want to answer that question. Eastern Europe, just to be clear, is one of the strong growing areas, just like China, just like U.S., Brazil, Mexico and so on. And we see a continuation of that. But when it comes to the conflict, we have in Russia and in Ukraine, both we have business. But as I mentioned before, this is far below 1% of the total revenue of the group. So far, we don't see any impact. So far, business operates as usual and is growing. But of course, it's unpredictable. If this conflict gets out of control, what will happen? As mentioned before, we try to support the organizations on both sides so to calm and stay out of this situation as much as possible. But from an economical impact, if this is not spreading, let's say, further out, it has very minor impact on Sika.

Okay. Understood. Second question is you said on-time supply chain issues with your customers but also last year with logistical issues as well. How do you see the situation there? Is the situation easing at your side but also at customer side? And also, how do you see the inventory levels of your customers? Are they back to normal? Or there's still potential -- restocking potential at the customer side?

We are not back to normal. That's very clear. And I think that's also the indication that we provide or Adrian provided. The input costs are still increasing. And there are limitations. There are still bottlenecks. The logistics still is not helping. The parts are still, let's say, blocked. And we don't see a free flow between the regions. Therefore, local or regional shortages immediately are reflected in the costing of the -- or pricing of the raw materials. And you heard it from Christoph, one of his main concerns is the availability and, of course, the cost. And clearly, we don't expect this to go away within the first half of this year. We are optimistic that there will be a pivoting point in the later part of this year. We don't expect this to continue forever. But at the moment, still the momentum is there. And therefore, also our own pricing initiatives are very vital. And back also what Christoph mentioned, also selective pricing and also making sure that we are using the resources, the materials in the most efficient way. That's a bit the name of the game at the moment. But overall, the demand is very strong. That can also be clearly concluded. We see volume growth. And we see also, in some parts, we see also us gaining above, let's say, the market volume. That's what we aspire for. Therefore, we are also not too concerned about certain, let's say, deceleration that may be visible. When you look at the overall economical evolution, in particular, China, I'm going to come back to that. We have so many initiatives going and so many initiatives with good traction that even if the overall growth is slowing down, it doesn't hinder us to advance. And we have seen it last year very impressively in China. It's one of the hotspots of our growth. But as I mentioned, we have many hotspots. Africa, clearly, also above the 20%. Mexico, U.S., many good examples where we also see a continuation, let's say, going into this year.

My last question would be on potential demand effects from the product price increases. We've heard only a few anecdotal evidence or stories from retail customers, for example, for paints and the construction industry that there was already a downgrading or even negative demand effect due to the high prices. Do you see this kind of effect as well in your return customer base?

I would say we are much less exposed. I mean the paint industry, that's their main channel to the market. And of course, the impact is much larger. We are more diverse. I mean our distribution partners are, let's say, much more in the builders merchants, which are mid-sized, so to say. And their ability to also pass on the price increases is much better than when it goes into the pure retail and into the big-box customers. So of course, price increases are never, let's say, well received. Nobody opens the door for increases, but I think the acceptance level that we see is quite high. And our partners understand the reason why we have to also get their participation in the environment we face at the moment.

Thank you, Markus. And the next question then to Cedar Ekblom from Morgan Stanley.

I've got 3 questions. I just wanted to come back to the pricing and margin discussion. So I get the point that you're basically securing price increases at the moment that offset absolute increases in raw material prices that could still result in weaker margins due to the dilution effect. If we say a 10% price increase for 2022, you're looking at a sort of implied raw material impact that would need to be offset there of about 20% or so, 21%, would it be fair, therefore, to say that earlier comments that you made around recapturing your gross margin towards 54% to 55% in 2022 is probably a bit of a stretch? So that's the first question. And could you actually have flat gross margins in 2022 even with very solid pricing momentum coming through? And then on MBCC and the 6 important regions that you mentioned with regards to antitrust, I think that we have approval in Australia and China. Can you please confirm that? Or have I missed anything there? And then finally, just a longer-term question on reCO2ver. Seeing as you highlighted it, I wanted to ask, have you considered carbon offsets as part of the revenue model for that business?

Okay. Good. I'll take the first one on the pricing and the margin side. I mean the -- basically, the magnitude you've been alluding to and I think how the situation presents itself, it is very fair to say that obviously, 54% to 55% in 2022 will not be feasible. Again, it's also, let's say, compared to, let's say, a year back, a different environment in terms of the magnitude of the price increases and this dilution effect. But also, as mentioned, our ambition is to at least keep it stable, get ahead of the curve and overcompensate some of the raw material price increase effects that are to come in order to recapture some of the gaps from 2021.

Good. And then maybe on the last question on the reCO2ver, we demonstrated and showed that the pilot plant, which is nearby here in Zurich. In the meantime, we can confirm that the plant is scalable to the 100-ton per hour to be economically meaningful. We can also confirm the potential to capture the CO2. And we're working on the certification so that this CO2 capture becomes also a tangible value then for an operator of such a plant. And then the second question was...

It was on the antitrust approval.

On the antitrust, yes. On the antitrust, we have currently approval in China. Australia is still work in progress, like the other jurisdictions are work in progress.

Thank you, Heather (sic) [ Cedar ]. And then next question and then I'll give it back to the meeting, to the room here. But the next question goes to Matthias Pfeifenberger from Deutsche Bank. Matthias, please come up with your question.

I hope you can hear me. The one I've -- okay, starting the video. Perfect. So it's the when I asked the last time, the strategic one. You're now facing more competition in chems with Saint-Gobain powering ahead there, still very much smaller than yourselves. But also the news today from Kingspan, we discussed it. Mentioned interest in waterproofing, now finally during the acquisition. So are you pretty relaxed about that because these markets, roofing and also [ camps ], they're big enough for new entrants? Or are you a bit concerned because you have to integrate MBCC, so maybe the scope for paradigm-shifting deals is maybe limited for 1, 2 years?

Okay. Maybe on that side, we never underestimate our competition. And we, of course, very much follow those moves. This, let's say, reinforced interest on construction chemical, we fully understand. We are very much excited about this business. And obviously, Atos are also reading our strategy and our -- following our lead. For instance, with Saint-Gobain, as long as it is, let's say, an absorption of existing competitors like Chryso or GCP, not much changes in the landscape. I mean we have been in competition with these 2 companies before. And it will be up to Saint-Gobain and also to demonstrate how they will then leverage and create synergies between this. We have been in the U.S., let's say, against GCP for many years, successful. And also Chryso is a well-known, let's say, competitor to us. So here, we're not too concerned because it's quite bit a of work to bring then synergies across continents and to make that work. But nevertheless, yes, we see also outsiders considering to go from more pure construction material into construction chemicals, and that's certainly something to watch. So far, we haven't seen a single move where we say this is a strategic threat because it brings new elements into the equation where we would see we fall short to offset. That's not the case. So we are absolutely not afraid. But we are watching and we are considering also how we further position us so that, let's say, the gap between us and the rest remains constant and opens up further. Good questions from here in the room, which I think we are still good in time, right? Yes. Please, yes. Yes, John?

It was just the earlier question on the sales rate of distribution and whether the other end markets are holding their own with that 9% volume growth.

I guess we didn't answer that one then. In terms of -- I mean the distribution growth in 2021, it was, again, to some extent, above the direct growth. But here, the margin is a lot smaller compared to, let's say, the pandemic year 2020. And the direct business has clearly done very well as well. I mean for us, we are overall agnostic to the channel. We try to serve our customers the best we can. And given where we come from, we see still a lot of potential on the indirect side. But the direct business has come back quite, quite strongly. And with the reinforced impact on the infrastructure side, this will continue.

That gives me the opportunity. Still have 2 questions from the virtual attendees. It is Pierre de Fraguier from Goldman Sachs.

Two questions on my side. Hopefully, you can hear me. The first one is on the MBCC acquisition. Obviously, you were working on all fronts to prepare the integration. You've previously earmarked, I think, CHF 200 million of integration costs. And I was just wondering what's the phasing of this cost across '22, '23, '24. And if these costs are included into your 15% to 18% target for the year as well as the overproportional EBIT growth?

Yes. Thanks, Pierre. For this one, obviously, it does depend to quite some extent on, let's say, the point of closing. I mean in 2021, we already had about CHF 10 million of acquisition-related costs. For 2020 -- 2, I mean, a fair estimate would be sort of around CHF 40 million and with the lion's share then being in the '23 to '24 time frame. But again, it will depend on the time of closing and then how, let's say, quickly we can execute, therefore, as large parts of this is obviously then cost related to the actual integration work. Also here, I mean, we have, for 2022 guidance, as said, excluded MBCC impact. In terms of the overall, let's say, margin guidance. Also here, it depends a bit on timing. But for now, we are not, let's say, changing this overall as we will continue to improve profitability overproportionally.

Great. And second question I have is on the concrete recycling machine, so reCO2ver. You've flagged the -- already many times the significant opportunity. When do you actually expect to start commercializing the machine? And to the extent you can provide any early read on the client acceptance, interest and potential contracts you've signed, that would be very fruitful.

We are very active, engaged with potential users of that concept of that plant. Of course, it requires that the pilot plant or the scale-up plant is delivering the evidence. So that the orders for full-size plants can be executed. This goes in parallel. So we are engaged with potential recyclers that have high interest to implement, but it will require, of course, also some time in between. These plants won't be built in 90 days. This is also a bit an issue on the equipment side that the lead times are extended, components are not available. Originally, we anticipated that probably should be a 9- to 12-month period. Now it is much more like 12 to 18 months, unfortunate situation. But nevertheless, the high interest to get started, and also then to include the certification option is driving here a strong demand.

And the next question then to Yassine Touahri from On Field.

So I'm not sure I -- can you hear me?

Yes, we heard you. Yes.

Can you hear me now?

Yes. Yes, that's good. Maybe not.

Okay. Can you hear me now?

Yes. Can you hear us?

Perfect. I can hear you. Sorry, I don't know what happened. So just one question, which would be on the global market share for the additive and admixture. Could you let us know after the acquisition of MBCC what is the -- your position and what the market looks like, maybe excluding China? What I have in mind is that yourself, including MBCC would be the clear leader, that Saint-Gobain would be #2 after the acquisition of GCP and that you would have some smaller player like [ Mate ], Fosroc or MC-Bauchemie. But it would be very useful to get a sense of how the new landscape in concrete and admixture and cement additive is after those 2 large acquisition. And how do you see the industry evolving after these very substantial changes?

I mean we never had better numbers than at the moment with the heavy involvement of the authorities is, of course, a key question. And here, maybe, Adrian, if you want to elaborate a little bit. It is clearly a key question and also time-sensitive that we bring these answers forward. And for most parts, we have, I think, a very clear and straightforward picture. But Adrian, if you want to elaborate?

Yes. And maybe on this one, as I said, obviously, there is we have relatively good visibility now obviously, on the different markets. I will answer it such that I'll be a bit general here as, obviously, in -- there's quite some differences market to market. But it's clearly field, obviously, where we have a strong position compared to some of the other markets. But probably at this stage, you're not going into too much detail on the various markets.

Thank you very much, and this is all from the virtual room so far. And we can give it back now to Thomas.

Good. Thank you, Dominik. Any further questions here in the room? All clear for '22? I guess we all know that it will be another year with a lot of unknown, unexpected situations. Like last year, like the year before, I'm very confident with the organization we have. Whatever comes, we will be able to master it better than our peers. That's, to me, the most important element. We cannot make them go away, but we can cope with them in a better way. Our decentralized organization but also the smart network, the metrics, how we collaborate between the countries and the regions and there from corporate side makes me feel very comfortable for '22 that if the sky stays up and it's not collapsing, we will have another record year. And we will deliver, as we have presented in the outlook, an overproportional profit improvement as well as we are very confident about the MBCC closing, even so it's not completely in our hands. Therefore, we have to be a bit careful in driving too fast to conclusions that we are in the middle of this. And as soon as we have further information, we will keep you updated about the progress of that most important transaction in the history of Sika. So with that, I thank you all for joining us here in Zurich or joining us online through the portal. I think it worked quite well. For those here present, I would like to invite you also to stay a little bit longer. We have some finger food ready and some our [ key ] members are here also for further discussion, if you like to. Just as always, we are very casual and very pragmatic. And we don't try off when you ask questions. Some of the questions, we need to be a bit more careful as we are in the middle of a process. But other than that, I'm very happy that you showed up that you showed interest in our company, and thank you for your continued support and wish you all the best for 2022. Thank you.