Sika AG ($SIKA)

Good afternoon, everyone, and thank you for joining our Q1 '26 revenue call. Before I hand over to Thomas, a couple of housekeeping points, this is a 30-minute call. We have prepared remarks, followed by Q&A. To give as many of you as possible the chance to ask questions, please limit yourself to one question each. We will do our best to get to as many as we can. Thomas, over to you.

Thank you, Dominik, and also welcome all from my see,and thanks for joining our call. The first quarter, as you know, is typically the smallest one of the year. And for the fourth quarter, Sika delivered revenues of CHF 2.49 billion versus CHF 2.68 billion last year. In local currencies, our business delivered around 1% growth, and we gained market share outperformed across all regions. Our Q1 performance was in line with our full year revenue guidance. We continue to expect global market conditions to be muted this year with a low single-digit percentage decline of our underlying markets and the gradual improvement in momentum as the year progresses. Our local currency growth in Q1 was driven by EMEA, which delivered 3.6% growth. In Europe, we saw improved momentum through the quarter in every European country. In the Middle Eastern region, the strong growth we saw in January and February cooled in March after the events impacting the region started. Our customers in the region continue to operate and are focused on delivering the project, as you would expect in this dynamic region. Following the events in the Middle East, we are very proud of the way that we have been able to support our customers in that region by reorienting our supply chain a tremendous speed to continue to serve them reliably. For all our customers, the #1 priority is availability. We have been proactively securing capacity and ensure flexible routing we have rapidly developed alternative input sourcing and we monitor and help our suppliers through this time. These actions serve to deepen our relationship with critical customers globally and leading us to gain share from others that are unable to draw on the benefits of such an agile global manufacturing and sourcing footprint. In the Americas, we saw a continuation of a weaker trend from the fourth quarter as we expected and saw local currency revenues down around 1%. In North America, as was the case in the fourth quarter, we saw strong growth from activities serving data centers but saw the subdued trends from the fourth quarter remaining across the rest of the commercial and residential market. Infrastructure activities remained solid in the U.S. Latin America delivered good local currency growth in the quarter. In Asia Pacific, we saw an improved local currency performance versus fourth quarter. In local currency, revenues fell just over 2% year-over-year. Outside of China, our performance improved versus the fourth quarter of last year with most countries showing a better operating performance. Asia Pacific, excluding China, construction was up by 5% in Q1 with notable strength in India and Southeast Asia. China developed according to our expectation with distribution still being strongly negative, also due to our rebasing of the business but also seeing positive growth in our Automotive and Industry business. As we progress through the year, we faced notably easier year-on-year comps in China. In Q1 '26, was an important quarter for the future direction of Sika. Given it was the first full quarter of the implementation of our Fast Forward initiatives. We have made strong progress towards our delivery of the CHF 150 million to CHF 200 million of EBITDA contribution and the CHF 60 million of savings to be delivered this year. Across our markets, customers are more willing to embrace innovation for example, fast bridge repair systems that enable our customer to do the job in days instead of weeks or our move towards bio-based raw materials such as bio-based epoxies gives us alternatives that are less exposed to oil price movements. This is a natural hedge that did not exist a few years ago. Our customers are also excited by alternatives to petrochemical products and that's also a big benefit that we are seeing under the circumstances now. But now I hand over to Adrian that we'll walk you through some further details of the first quarter.

Well, thank you, Thomas. And indeed, yes, in Q1, we delivered revenues of CHF 2.49 billion, which represents a modest growth in local currency, while at the same time, foreign exchange had a very strongly adverse impact. Specifically, in local currencies, our revenues grew 0.9% year-on-year in the first quarter, with Europe delivering a solid 3.6% growth year-on-year. Overall, our organic revenue growth of minus 0.2%. So a small decrease in Q1, but the sequential improvement quarter-on-quarter. For EMEA, organic growth in Q1 was 1.5%, with Europe seeing a strong march across the board. Overall, this was a similar performance versus the fourth quarter in '25. The Americas fell 1.2% organically in Q1, which was slightly lower than [indiscernible] and APAC, as heard, organic revenue declined minus 2.3% in the first quarter, but a clear improvement versus the 2025 outcome for the region and also in the fourth quarter. As Thomas highlighted, excluding China, Organic growth was a good 5.2%, driven by Southeast Asia, by India, but also our automotive and industry business. For the region as a whole, the biggest impact had again, in line with our expectations, a continued negative development of the China distribution business. However, the share of China in the first quarter is always seasonally low, hence, the lower impact. China will have a more normal impact in the coming quarters. And for the second quarter onwards, China is typically close to half of regional revenues in the first quarter, it was closer to 1 to 1/3. And turning to external growth. Here on the M&A side. M&A added 1.1% to our revenue growth for the first quarter, driven by the closed transactions in Quarter 4 '25 and at the beginning of Q1. All in EMEA and so far, are expected to add about 1.5% growth for 2026 as a whole, which assumes the closure of OCI in the third quarter, but we also continue to run here a very robust pipeline. Foreign exchange was the primary driver of the 7% year-on-year decline in revenues in Q1 with a minus 7.9% adverse impact on the currency side. This was most pronounced in Asia Pacific, where the foreign exchange drag was minus 10.5% and also in the Americas where foreign exchange caused a minus 10% revenue headwind largely driven by the weak U.S. dollar and weak Asian currencies. Based on today's rates, foreign exchange headwind for the year, is expected to moderate somewhat to approximately minus 3% to minus 4% due to the strong previous year declines from Q2 onwards. Our call today is mostly to discuss our revenue performance, but I also wanted to help you understand how business deals with input cost inflation that has been a theme over the past few weeks, clearly, given the Middle East situation. As a company, our input costs have a dependency on supply and demand and some correlation with the oil price but it is not direct. We buy further down the value chain. So the link to crude oil is diluted and come through with a certain lag. The lag means the impact of recent input cost moves will be seen later in Q2. However, and this is important, we're acting preemptively with pricing and other measures, and have moved rapidly to protect margins drawing on our experience from previous inflationary period also being quicker as we do these increases. Also, if we pass through the full absolute input cost increase of our raw materials, this could still have a mechanical mathematical negative impact on our material margin in percent net sales depending on the magnitude. But as you have seen, historically, we have managed our margins well also through new and higher value-added solutions, leveraging procurement scale, and the ability to diversify our input base. And also, as heard through our Fast Forward program, and through additional NBCC synergies, this will alleviate much of the pressure on the group EBITDA level forward, we'll deliver CHF 80 million of incremental benefits in 2026 and we are on track to deliver CHF 30 million to CHF 40 million of additional NBCC synergies for the year. Now with this, I turn back to you, Thomas for a few final remarks.

Okay. Thank you, Adrian. And we be here coming back with any of these geopolitical developments we monitor for potential FX closely, but at this stage, the direct impact on our business has been limited. Our team's ability to rapidly reorient supply chains to serve customer has been exceptional and exemplifies Sika strengths. We have preemptively addressed expected supply chain costs with pricing to protect our best-in-class margin, and we continue to leverage the CHF 280 million we invest annually in R&D to drive industry-leading innovation and returns for our customer. This is when our customers deepen their partnership and rely increasingly on us to solve their problem. When supply chains are disrupted when customers need availability and reliability, our ability to shift resources across regions and serve them when regional competitors cannot is helping us to achieve market share gains and growing trust with our global customer. We are seeing this play out right now. The current environment highlights the Sika uniqueness, and we intend to build on this. Through Fast Forward, we have invested in improving productivity, which will deliver CHF 80 million of savings this year. We are accelerating our investment in product innovation and improving our customer value proposition. Our digital transformation and investment across distribution channels will accelerate our future industry outperformance, profitably by giving our customers best-in-class solutions efficiently. Our outlook for the year is unchanged. We confirm our full year guidance of 1% to 4% in local currency sales growth and an EBITDA margin range of 19.5% to 20%. We continue to expect global market conditions to remain muted in 2026 and remain watchful of the unfolding events in the Middle East. We continue to expect a softer first half for the global construction industry and gradually improving momentum as the year progresses. Q1 was a constructive start that we will remain vigilant and agile to react to market conditions. Back to you, Dominik.

Thank you, Thomas. With this, we open our Q&A. As a reminder, this will be a short call to give all of you the possibility to ask questions, please limit yourself to one question each. Thank you very much.

[Operator Instructions] The first question comes from the line of Ben Rada Martin from Goldman Sachs.

Great. Thomas, Adrian and Dominik. My question was on the 2026 guidance. I know at the start of the year, we were talking about a broadly flat pricing and inflation backdrop. That's obviously changed a whole lot in the last 1.5 months. What is your -- I guess, your updated expectations in terms of pricing contribution and inflation from raw mats as we sit today. understand that this situation continues to evolve, but just in light of, I guess, the reiteration of guidance, it might be helpful just to speak about what kind of contribution you see at the moment?

Okay. Thanks for the question. And it is too early to really quantify for the full year the impact as we have seen here almost daily, weekly changes in the direction. We see punctual limitations and especially on transportation. But so far, our approach is, clearly, we are putting all those elements that are increasing our input costs into proactive pricing measures. But so far from the magnitude, as I outlined also for the Q1, it is rather limited. It might increase in the coming quarters, but it's really the magnitude will very much depend on the evolution that we are going to see. And the evolution is at this point, unpredictable. We see limitations, but at the same time to draw now already let's say, an absolute contribution for the full year is premature.

The next question comes from the line of from Ephrem Ravi from Citigroup.

Related to the pricing on the cost side, given different dynamics in the petrochemical chain, are there any materials where you are facing in particular pricing increase or, in fact, kind of just pure supply shortage, given kind of just a bit on refining and processing capacities in the Middle East?

Yes, there are nuances in certain commodities. So let's say, the polyethylene streams are very much, let's say, challenge the epoxies as well. So this is not across the board. It is more also to the supply chain set up. Some of this feedstock are coming out of crackers in Asia, which have difficulties to get their input material and the input materials are at higher cost. So there, this is when we refer to supply chain routing and our mitigation means compared to local players or regional players. We can then also tap into availabilities of other regions to support, but this comes at a higher cost, which we then also transforming to our product pricing. But as mentioned before, especially in the Middle East, construction is ongoing and the biggest concerns for our customer is that they would have to stop activities on the site because of inavailability of products. And therefore, it's rather our discussion centered around give them the confidence that we are a reliable source, and we can help them to maintain the operations going. And this is very different from other parts of the world.

The next question comes from the line of Ebrahim Homani from CIC.

So could you give us maybe more details on the Fast Forward cost reduction can impact of CHF 80 million between H1 and H2? It is balanced between H1 and H2 or the costs are more may be back-end loaded?

Yes. Thank you for this question. I think on first forward, as I mentioned, we're making very good progress in terms of also impact on the P&L in terms of execution or even, let's say, further advanced. I mean we're currently running, if you take this CHF 80 million at sort of around a 70% run rate. So this is going to increase here over the course of the year. had some early effects last year in Q4. So the expectation is second half is higher, but continuing to ramp up from here.

The next question comes from the line of Martin Flueckiger from Kepler Cheuvreux.

Just a quick one on business conditions in the U.S. If I look at the Architecture Billings Index, still slightly below 50, but it's starting to show encouraging signs. Just wondering whether you can reconcile that whether -- what kind of feedback you're getting on the ground, particularly with direct sales in terms of the sentiment across the U.S., not only in residential, but also in Commercial & Infrastructure, please?

Yes, I mean,. the start of the year in the U.S. as well as in parts of Europe were also impacted by some more severe weather condition. And we have seen that March was then kind of trying to catch up as much as possible from that. So the momentum going into Q2 was really also a bit in this catch-up mode. But the underlying, let's say, sentiment, especially on the commercial side hasn't changed that significantly. positive sentiment around, let's say, the data centers, absolutely is continuing. We have here excellent momentum. Also the infrastructure is moving very nicely in the right direction. But the other parts haven't that much changed even though we have seen a bit of a catch-up lately, but that's more of the delayed activities that then were executed in the past few weeks and also going into April. But that's not -- I think it's premature to say this is now a fundamental change.

The next question comes from the line of Elodie Rall from JPMorgan.

Sorry to come back on pricing, but could you tell us what kind of price increases you've already announced, what has been already announced and maybe that you see realized? And you said that this will have an impact on margin lagging. So how much impact do you expect that cost and when will you recover the gross margin of 54% to 55%?

Okay. Here, of course, situation is very different from region to region, even country to country. So what you can say in general, we have seen that transportation costs have gone up. I mean, the famous or infamous fuel surcharges are almost everywhere applicable. But they are also, let's say, in the magnitude, not, let's say, that's big. But then you have some like in the Middle East with the, let's say, rerouting and with the higher costs, you have a more significant contribution there. But the Middle East -- the effect in Middle East countries are only 4% of the Sika Group revenues. So also this, we have to be a bit, let's say, calm in reactivating this and not to make the one thing applicable to everything. So here, there might and will be slightly more pricing visible going forward. But this can also change any time when things are changing in the Middle East when the straight forms is opening up when oil price comes down or goes up. So here, it's just really at this point, too premature to make here already a forecast for the full year. But it might be slightly higher than what we have indicated at the beginning of the year, we talked about that at full extent, that's probably to be expected. But the magnitude, I would just be cautious to modeling something. It's -- we are not in a situation like after COVID. After COVID, we had demand going through the roof and supply chain collapsing. We don't have that demand situation now. We are rather in muted market conditions. Yes, we do have limitations. We have restrictions, but it is not the same pricing momentum that we have seen post COVID.

The next question comes from the line of Pujarini Ghosh from Berstein.

So coming back to your guidance for 2026, given that when you gave the guidance initially, we didn't have this worse situation. Standing here almost 2 months later, how do you expect or what do you expect the impact of the war to have been on your local currency growth guidance as well as the margin guidance?

Okay. Thanks for the question. And I really want to reiterate also here, as you know, we started the year with a cautious guidance. We talk to extend the plus 1% to plus 4% in local currency is also anticipating eventual for the full year, muted the market condition with negative growth rates. But it could also change over the year, and we still expect also some momentum there. signals, especially also in big markets like Europe are indicating some improvements. At the same time, we also on the margin side, we have been cautious giving a range that we feel comfortable and not the first, let's say, unexpected move is already jeopardizing our guidance. So at this point of time, we want to be very clear that our initial guidance, we don't see any reasons why we would change our top line guidance nor our profitability guidance. And there's also Adrian has outlined our -- the things that we have in our control I mean pricing is in our control. Our supply chain is in our control. But also, of course, it's in our control to deal with market opportunities going in both directions. So here, I think have a lot that we can still bring. We have the Fast Forward. That's purely organic, let's say, contribution, the remainder synergies of the NBCC. This gives us the confidence that we can that we can reconfirm our guidance as articulated in the middle of February.

The next question comes from the line of Cedar Ekblom from Morgan Stanley.

I just wanted to follow up on how your customers are responding to price announcement, have you seen any prebuying from any of your customers? And if a customer was thinking of prebuying, what kind of time frames are we thinking about that they might want to have a little bit more stock. Does your product category sort of lost a while? Like can you put it in stock for 6 months or 9 months? Or is it really a case of your customers buying for immediate consumption? It would be helpful to hear how customers are responding to the likelihood of future price hikes?

Thank you, Cedar. And I mean it's clear these are discussions which customers don't like that much because it's putting their cost up. But our documentation and our clear also commitment. We transfer what we incur from the input side, from transportation side. So we are very transparent and these discussions very soon center around availability because customers still keep in mind that that's how it started after COVID and then it turned from a pricing into an availability dilemma. And we see that customers have this still in their minds. And so I think this -- of course, it is always a delicate conversation. But I think we learned a lot that we have to go earlier, and we have right ammunition to explain. But at the same time, we are also firm on installing those price increases. And they are, of course, tuned for each customer individually in each country individually. And our products don't offer that much of a prebuy opportunity. We are not talking here about months or so that you can maybe pre-buy for a week, 2 weeks, maybe 3 weeks maximum. And we are also watching this as we don't want that, let's say, we get into this hamster situation where the early movers than empty our warehouse, we are balancing. We are looking at the forecast. We're looking at -- and we also look at new customers wants to buy from us and see how we can serve them. So it's a balancing act that we are executing. And I think it's also well understood in the market that we are reliable that we have also resources available to maintain availability to them when others fall short, and this is super relevant.

The next question comes from the line of Yassine Touahri from On Field Investment Research.

Just one question. I think when I look at the period when you had a big increase in oil price, like in 2011, 2018, 2022, your gross margin temporarily fell below the 54% of your target. Could you -- if we assume that oil prices remain elevated -- could we see again a scenario where gross margin end up a little bit below the 54% knowing that if we can see what happened in the previous years after it was recovered afterwards when oil prices fell down, but it would be good to get a sense of how to think about the gross margin range in month where oil prices could remain high for a long period of time.

Yes. Thanks for that question. And I think, again, to really sort of give definitive answers here where will be landing in terms of, let's say, input cost movements is difficult to say from today's perspective. So I think we have to think in scenarios. And of course, there is scenarios where we can let's say, fall below that range. On the other hand, there is also clearly some which will keep us in there. Maybe secondly, and I think this is also important here in the overall context. I mean the 54% to 55% is not sort of a hard target. It's really very strongly a steering mechanism. And if you look at sort of EBITDA margins, which we manage from starting point before onetime costs last year, the CHF 19.2 million. I mean we have these elements, which are very much under our control in terms of the Fast Forward impact, 60 to 70 basis points of improvement, the NBCC incremental synergies and other 20 to 30 basis points. And of course, here, the swing factor is operating leverage, which is also here related to pricing which clearly, given the environment is skewed towards the upside. And then you have the input cost side, which in connection with, let's say, the price increases. We will pass-through in order to protect absolute margins depending on the magnitude, obviously, can have a mathematical effect on material margins. So I think, yes, it is possible. But clearly, we're managing here the whole P&L and the respective elements, particularly here, pricing versus input cost too early to really clearly pinpoint.

The next question comes from the line of Priyal Woolf from Jefferies.

I just had a question on autos. You obviously called out in Asia Pacific as being a positive influence I just wanted to check if it had a tangible impact in EMEA or Americas?

Here on the automotive and the industry business, Yes, I think the automotive one, obviously, is clearly related also to build rates and the ability of us to continue to increase content, which we have actually been able to enroll in all the regions. Here also in the other regions we have here increased sales more strongly than car build rate performance sort of across the board or for the industry business in most of the key countries and the regions has been quite solid. Overall, a bit stronger than construction growth across the regions.

The next question comes from the line of Remo Rosenau from Helvetische Bank.

In the fourth quarter, you mentioned the negative impact in the Americas from the government shop. Have you seen some catch-up effects already in the first quarter due to that? I mean we should expect them sooner or later, right? Or should we rather expect those to come in, in the later quarters?

Good point, Remo. And very clear, this catch-up is something that takes time as release is not done in a week or in a month. So we have seen that this backlog of approvals has been worked through in Q1, which will also then probably become more visible and pronounced in Q2. Now this effect has been, let's say, now faded out from the administrative point of view, but now it's, of course, in the pipeline of projects for execution.

So bottom line, that means that you didn't see that much of a catch-up already in Q1.

That's correct. Yes. We didn't see that much of a catch-up. But Q1 is also a bit difficult to reach. We had very bad weather conditions in North America, particularly in the East, which is a very strong region. So here, it's not so clear visible to see what contributed. So -- but going forward, I expect here to see a bit more stronger input from that.

The next question comes from the line of Alessandro Foletti from Octavian.

On Asia Pacific, you mentioned, Adrian, that maybe in Q1, the negative impact from China was below average. But in previous calls, you also said that the phaseout of your distribution the closing of your distribution points of sales might end at the end of H1. So I was wondering, if I look in the next 3 quarters, is it fair to assume maybe a bit of a more negative organic growth in Q2, but then going back maybe above Q1 and maybe even positive in Q3 and Q4?

Well, thanks, Alessandro. Here, maybe to sort of reframe a bit what I said here. I was particularly referencing, let's say, the weight of, let's say, China as a percentage of Asia Pacific sale, which is clearly lower in Q1, hence, having sort of a disproportionate impact on overall sales trajectory, which, by the way, outside of China as out rate was quite solid with 5%. On China specifically, I mean, overall, we have seen in spite of, let's say, the or next to the lower weight -- a certain improvement compared to Q4. Q2 will have, let's say, more weight of China. So yes, we're not expecting a further improvement maybe a more negative impact on Asia Pacific, but also given the comps, but particularly also the activities we're driving, and it's less, let's say, closing of her point of sales. Here, the expansion will continue to progress. We're more focused on let's say, the refurbishment part with, let's say, sort of the quality of the program. But yes, all in all, we're expecting here a better relative performance in China in the second half year.

The next question comes from the line of Patrick Rafaisz from UBS.

Thanks, and good afternoon, everybody. And a quick follow-up on pricing. And I think, Adrian, you talked about the potential for a mathematical dilution of the margin from price increases ahead. But you also said you are implementing the price increases preemptively with input cost inflation, probably hitting you more towards the end of Q2. Does that mean that we should anticipate a degree of windfall profits in the second quarter.

Yes. Thanks. Patrick, I mean, here, of course, firstly, it continues to be quite a moving target in terms of impact. Thomas talked about, let's say, sort of the immediate impact on the transportation cost side, I think here, we're also -- we have also been very immediate. On the pricing, particularly the preemptive was clearly focused on our reaction in terms of obviously announcing it, there is typically still a certain lag in some cases to actually get it implemented. So I would not hear count on as you call it, windfall profits, but we're trying to be as much aligned here with the actual cost as possible. And I think that's clearly quicker in, let's say, previous situations.

The next question comes from the line of Arnaud Lehmann from Bank of America.

I have 2 questions, if I may. The first one is a follow-up on your cost outlook. In terms of your own raw materials, have you been able to secure everything you need for the next few months for the second quarter? And do you have visibility on your cost base for Q2? That's the first question. And the second question is related to your recently announced acquisition of Akkim in Turkey. Do you have an idea on the closing of the deal? And is it included in your full year sales guidance?

We wanted to have one question only, but I think the Akkim question is one that is of general interest anyhow. So I start with that one, and I do kind of reconfirm what we already mentioned in February. Yes, we are on track to close the transaction in Q3. And we have included in our top line guidance, 1 quarter of contribution from that, which is 0.5% net sales growth. So that's unchanged. So we are advancing with that process as planned. And then on your first question, I think on that side, we do have visibility for roughly 1.5 to 2 months on the cost side. And what Adrian mentioned before is that we are kind of integrating the visibility in our preemptive pricing measures. So it is kind of going in parallel. And as we progress in Q2, and we have not yet the full visibility for the full quarter. But we have a pretty good visibility on which we then also utilize to adjust our pricing in line with that. And we don't know yet where the prices or the input cost situation will be. Let's say, mid of May, end of May, which still has an impact for Q2. But at this point of time, I think have availability and also transparency for a good part of Q2.

The next question comes from the line of Aria from Roche Deco.

Just one question really on the step up in activity in March in Europe that you mentioned, if you could sort of pull out some of the strongest growth by country in Europe and whether those trends to continue through to April to today?

Yes, we have seen -- I mean we talked in February about let's say, good momentum in Eastern Europe, which has been building up over the whole year in '25, and it has continued, and we also have seen this further contribute. We also have talked about the Nordics, so the countries, the Scandinavian countries, but also about the U.K. Our business in the U.K. has further progressed, mainly because of our activities in the market, our integration of the last few acquisitions, the synergies, so we have there. We talked about that. But in the meantime, also, we talked about, let's say, the Iberian Peninsula as well as parts of Europe. And in the meantime, also, Germany and France are signaling a progression in the Q1. So now it's to be seen, how much of that is going to further accelerate? Or is it just at this level? But good overall, let's say traction that is building up.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Dominik Slapping for any closing remarks.

Thank you very much. This brings us to the end of our Q1 discussion. Thank you for joining our call and speak to you soon, the latest for our Q2 conference call. Thank you, and bye-bye.

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