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Sika AG
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Ladies and gentlemen, welcome to the Q1 2020 results conference call. I am Sherry, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast.At this time, it's my pleasure to hand over to Mr. Dominik Slappnig, Head of Communications and IR of Sika. Please go ahead.
Thank you, and good morning, and welcome to the first quarter sales conference call. We published our figures this morning at 5:00. Now our CEO, Paul Schuler; and our CFO, Adrian Widmer, will provide further details on the sales and the outlook. Afterwards, we will be ready to take your questions. For those who know us, you know that we normally do not have a Q1 call. But since our AGM this year had no speeches and presentation due to COVID-19 and the special situation in the world, we would like to take this opportunity to speak to you in this call and give you the opportunity to ask questions. With this, I hand over now to Paul to start with the overview of the region of the first quarter 2020. Please, Paul.
Okay. Good morning, all, and thank you for joining the call. We will discuss a little bit the sales and the business development in the first quarter 2020. Overall, we saw a strong start to the year but with sales slowing down in March due to the coronavirus. In the first quarter, sales in local currency grew by an excellent 15.4%. Negative currency effect of 5.1% led to grow in Swiss francs of 10.3%. Due to the slowdown in March, organic growth came down slightly by minus 1.3%. All regions were impacted by COVID-19 especially Asia Pacific and the segment of the Global Business. EMEA showed strong development until March especially in the German-speaking countries but also in Nordic, Eastern Europe and in the Middle East. In the beginning of March, Italy, followed by many other countries, started to go in lockdown mode with less flat organic sales performed in the first quarter but a double-digit growth in local currency. In the region Americas, North America started the year with an excellent performance and double-digit growth. First, the impact of the corona pandemic were seen towards the end of March. In Latin America, the effect was larger with complete lockdown in Colombia, Ecuador, Argentina, Peru, so many other countries as for March '20. Despite the slowdown at the end of the quarter, the region showed a strong organic growth of 5.3%. Asia Pacific was negatively impacted by the lockdown in China from mid-January to March and the lockdowns were introduced in other countries like Singapore, Philippines, New Zealand, Malaysia, Thailand and of the region at the end of the quarter. With the acquisition effect of Parex, we still saw a double-digit sales growth of 29.8%. However, organic growth came down by minus 9.7%. Global Business was impacted by strong decline in the global car production rate, which dropped by minus 25% or 5.7 million cars less produced. Many car producers like Volkswagen, BMW, Ford, including all Japanese and Chinese producers, closed their production for 4 to 7 weeks. Even in this difficult environment with substantially declined car production figures, Sika's clearly gained market shares but recorded a negative growth of minus 7.1%. The integration of Parex continues to make excellent progress. The synergies are generated according to plan. This year, they mainly will come from cost benefits due to combined procurement activities, operational organization efficiency measurements. In China, 2,100 shop in shops with Sika products in Parex point of sales has been introduced so far. The distribution business has again proved to be more resilient in a difficult margin environment. In the first quarter, we also saw this in China with the former Parex business being less negatively impacted than the direct business on the construction side. We continue to be interested in attractive opportunities for bolt-on acquisition but has already communicated at the beginning of the year we'll not embark on any large [ MDA ] deals in 2020. Still the main focus is on a fast and successful integration of Parex. Since the situation with the coronavirus started, the central focus has been the health of our employees, customers and suppliers. The extent of the lockdown and the restriction in place is very different from country to country. With our decentralized organization and our strong local management team, we have been able to react quickly and efficiently to the situation on all countries where we are present. The focus is on cost initiatives and liquidity but, of course, also in continuing to serve our customers and to find and explore opportunities in this challenging market environment. Now I would like to hand over to our CFO, Adrian Widmer. He will describe our cost initiatives as well as the cash and balance sheet situation in more detail. Adrian?
Thank you, Paul, and good morning to all of you. After Paul has given you the sales highlights of Q1 as well as an update on the COVID-19 situation as it presents itself around the globe, I would like to talk about the priorities and some of the measures we have been taking. First priority and primary focus is on the health and well-being of our employees, customers and suppliers, ensuring safety and social distancing in the factories, home offices across the world, remote customer contract -- contact and training. But at the same time, we are taking decisive actions to mitigate the potential financial impact of the corona situation with a number of operational measures. These measures have been developed and are being executed by our local country organizations under the leadership of the general manager in line with the local situation, which still differs from country to country. This enables us to move fast in line with market requirements and local regulations. These measures include rigorous cost control, a cut on nonessential expenses, deferral of noncritical projects, reducing temporary labor, advancing holidays, introducing flexible working hours, furloughing, to name a few. Driving efficiency, which is a pillar of our strategy is even more important in the current environment. We are therefore reinforcing the focus on these initiatives across the value chain starting from formulation efficiency, production automation and logistic optimization as well as SG&A efficiencies. In order to increase and advance cost synergies, we are expediting even more the integration of Parex. Structural adjustments are taken where necessary and where the crisis could have a prolonged impact. However, all these measures will not jeopardize our long-term growth nor our ability to innovate or introduce new products. Last but not least, we maintain our strong customer focus, provide training support and service and continue to gain market share. Cash management is another key focal point obviously. We reduce or defer noncritical investments which will lead to a CapEx reduction of about 50% of the originally planned amount for 2020. Tight monitoring and management of working capital is absolute key. Proactive receivable management, a focus on collection but also prudent and reliable payable management as well as continuous monitoring of order levels, order intake and tight inventory control. On top of this, Sika has a strong balance sheet with available cash at year-end 2019 of almost CHF 1 billion. In addition, the group has available credit lines of CHF 1.25 billion including a recent increase by CHF 500 million, which gives us a significant liquidity buffer. With this, I'm handing back to Paul for the outlook.
Okay. Thank you, Adrian. Our outlook 2020, yes. Given the volatility of the current market environment, it is not possible to give a concrete forecast for 2020. Much will depend on when large countries will come out of the lockdown and how the spread of the coronavirus can be contained over the year. Sika will not be able to stay unaffected by a global recession, but thanks to the measurement taken and our proximity to the markets and customers, we are convinced that we will be able to continue to improve our market position and come out of the current situation as a stronger company. Looking ahead, we confirm our strategic target 2023. We will continue to deliver sustainable profitable growth. Okay. Thank you.
We are now opening the line for your questions. Thank you, Paul.
[Operator Instructions] The first question comes from the line of Tom Wrigglesworth from Citi.
Two from me, please. You spoke about the difference, I think, in China around the distribution channels versus the direct sales. Could you just elaborate what that difference is, how you're seeing things play out through the end of 1Q and maybe into early 2Q? And then secondly, just in terms of the U.S. and European markets, could you give us a little bit of color around just what activities are ongoing across the different regions? I know that there's -- the shutdowns mean different things in different countries. So if you can shed any light on those development, that would be super helpful.
Okay. Thank you, Tom. I take this Chinese one. It's amazing actually to see the difference a little bit. Where the lockdown were done for all the factories we had, we had 14 factories in China, they were closed for 2 or 3 weeks, and then they reopened. And from that until March, the Parex business, that's the distribution business, were almost -- even of the year before, so really almost no impact and really could recover very, very fast. On our construction side, the big construction sites were still close. They had not enough labors. And it was very slow to open the construction sites, so our business was down by around 40%. So a real impact because we were ready to produce, ready to ship, but on the construction side, they were not ready to explore. This will change now. The people are back, so also that business will recover in the future. But it was very clear to see the smaller distribution network really recovers fast, and I think it's the same.The second question is more I think we have many countries, and the difference is a complete lockdown like in Italy or in Spain, where they closed job sites and factories, that we cannot sell, it's not allowed to sell, that's the worst case, like in Colombia or everywhere. So as soon as they locked down also the construction site, this hurts us most. In the recent days, a lot of many countries started to open the construction site. As soon as you see they open construction site, we can sell, then it's easy for us that we can do business. So France, Spain, U.K., even Italy start now to open up the construction site, so this is for us a good sign that many, many countries will go in this direction. That's the differentiation where we have complete lockdown or a lockdown. It still hurts, but at least we can sell and can do business with the people. If you go to U.S., I think they are in different states. Also, for example, in New York City, we still could go to job sites, but there is no job sites open at the moment. As long as there is a lockdown, it's difficult to build. On the other side, in Texas, they still open even in days of the lockdown, same in California. So areas is always a little bit different. If you try to analyze as they have job site open, this tells us that we can do business. If the whole country is closed down and nothing goes on, that's very difficult to see. The situation we have now in Canada, Eastern Canada is in total lockdown for another 2 or 3 weeks, so there will be no or very small turnover with the distributors. Does that answer your question, Tom?
Yes, very helpful.
The next question comes from the line of Martin Flueckiger, Kepler Cheuvreux.
I've got 3, actually. Just to come back and these first 2 are clarification questions on what you've discussed over the last 5, 10 minutes. Just coming back firstly to the -- to Parex in China, did I understand you correctly that Parex was pretty much close to flat organically in Q1, whereas the Sika business was down 40, is that 4-0 or 1-4 percent? If you could clarify that, that would be my first question. Then the second clarification question is again on the U.S. It wasn't entirely clear to me what the situation was. And I understand what's happening in New York City. But if you could just talk a little bit more in-depth about what you've seen in California, Texas and other states and what your expectations are with regards to the lockdowns in the U.S., that would be my second question. And my third question is really about your automotive business in the Global Business. I was just wondering how you exactly managed to mitigate that pressure from minus 25% global light vehicle production decline in Q1. I mean minus 7%, in the light of this very dismal situation, seems to be very outstanding also compared to some competitors that I've seen. So were there any deferred sales from December? How were you able to capture market share and why? That would be my third question.
[Foreign Language] Okay. Martin, coming -- first question, Parex, yes, it's correct. The business, they got recovered the business in the first quarter equal to last year's results. The main reason is all these shops had to open. We're very clear and it was good. And the 40, 4-0, is only in March. Overall, we are not so down, that March was really down, where Parex already recovered. There is a real driver in the whole business.
Okay. But that 40% in March, is that for the entire combined business, Parex plus old Sika? Or is that just old Sika?
I mean the 40% of the Sika business, that's basically the quarter decline due to the lockdown in China. And the recovery of the Parex business Paul was mentioning is referring to the month of March.
Okay. Then I guess the question that you asked to Adrian, if we talk about the U.S., it's really a very mixed picture what we see depending on the state and the restrictions to business. In some cities such as New York, where there is a complete lockdown, also affecting a construction site and general business, there the restriction and impact is bigger; whereas in other parts of the country, it varies to a large degree. Also indirect channels are still open, and we have been having a very strong quarter in North America, in the U.S. There is now also a partial slowdown in the U.S., but the situation is still very much different basically from state to state. Does that help, Martin?
Perfect. Yes. So the final question was just on the Global Business, please.
Yes. Okay. Yes, 25% the market, we went down by 7.1%. Main reason is we got some nice new orders in for adhesive in several car producers and for new models. I think that's what's really good last year. And beginning of this year, we got some new contracts, and we could change some suppliers. The advantage we have in the moment a little bit, they see now their supply chain is so important, and they appreciate in our local production as we're one of the few where we produce in all the 3 major areas. We won some contracts from our competitors. Therefore, we had -- we got some clear market wins.
The next question comes from the line of Priyal Woolf.
Yes, it's Priyal Woolf here from Jefferies. I've just got 2 questions. Firstly, obviously, in the quarter, you've reported organic growth down 1.3%, but you said that this was very much driven by trading post the middle of March. So is there any way you can just split that organic growth between what it was before the middle of March and then what it was for the last 2 weeks of March? Or better yet, just give us a better sense of what trading has been like in April, that run rate of organic growth. And then the second question, obviously, you've kept your target for 15% to 18% EBIT margin from 2021 onwards. And I appreciate you don't have any guidance in place for 2020. But presumably margin expansion will be difficult this year in a low-growth environment, so what gives you confidence? So what will be the key drivers of that big step-up in margin from 2020 to 2021?
Priyal, I'll take the first one. In terms of growth rates, up to mid-March, we have been -- still been slightly positive on overall organic growth. But now the last 2 weeks particularly related to these full lockdowns in a number of countries, this has moved into negative territory. Now again, expectations for, well, the full year but also for the next weeks and still very much a changing picture, but the expectation is clearly then that in April, there will be a much bigger impact.
Okay. Priyal, I'll take the second one. We had a great January and February, which improved our growth of our EBIT. So we are on the right -- we were on the right line even for 2020 to really succeed our goals. Now we have to plan for a V-shape or for a U-shape. V-shape, we still believe we can recover during this year. For 2022 margin, we are quite optimistic that even in this challenging market environment, our material margin will benefit. We will get much better margin. We also have a lot of special products out there, so we don't have to give this margin immediately back to our customers, so this will really help. Then we are -- in all the countries, we adapted our organization, we'll adapt our organization to assure that we have a better increase in EBIT than we lose on the sales side. So we're going for that. And then -- that's one, and that's ready for 2021. So we go for material margin. It's one of the fixing. Then the second is our cost efficiency. Now in these critical countries, we will -- country by country, the local management will improve their margin. That's the goal for 2021. Even to cut costs, to make the right organization for the volume we can deliver. And then, of course, we will have a lot of synergies from the Parex integration and then also from the cost side. So really confident we will adapt whatever shape this curve will take for 2022. And of course, 2021 is then we will be ready to deliver the EBIT.
The next question comes from the line of Patrick Rafaisz, UBS.
Three questions from me and 2 follow-ups. The first follow-up would be on the explanations you just gave on the EBIT margin in 2021. What's the assumption for the material margin, for the gross margin in all the commentary you just provided? And what's the assumption for cost takeout, please? And then the second question is the follow-up on Global Business and automotive. You mentioned the new contract wins in adhesive. Would you also think there was some stockpiling in there as European and U.S. customer base built up stock in anticipation of the lockdowns? And what would you think about the second quarter here? By how much can you outperform build rates that will be down significantly more than in the first quarter? And the last question, just a quick one on CapEx. In the presentation, you talked about the 50% reduction. Is that 50% versus last year or 50% versus the usual range of 2.5% to 3% of sales? So are we talking about 1% to 1.5% of sales and CapEx? And should we see a full recovery in 2021 or, i.e., will these just be added to 2021? Or are these projects that are delayed indefinitely?
Thank you, Patrick. I'll take your question number one and three, and I'll start with number three. The 50% reduction is really on sort of the planned amount, which basically would be between 2.5% and 3% of turnover. So the reduction here is more than CHF 100 million planned for 2020. Talking about the specific elements and drivers of 2021, I mean we would clearly expect, as far as material margin is concerned, to move into this 54% to 55% range given all the activities, the actions that we're doing here on the procurement side, on innovation, on pricing. But also as Paul has alluded to, in situations where there is demand weakness in the market, not only in our market but generally for our type of raw materials, that there is the expectation of reducing raw material costs going forward. And in terms of the cost takeout and leverage here, and here you can clearly think along our guidance as part of the strategy, 50% -- 50 basis points, excuse me, improvement of efficiency or EBIT related to it; and as was also mentioned, a clear progression on the synergy side, where Parex is concerned; and then, of course, also no one-off costs anymore related to that transaction.
Okay, I go with question two, the Global Business. The question was did they build up the stock. Probably 1 or 2 customers, yes. But in principle, in principle, they don't build up any stock. They rely on the supply just in time. And they need the cash more than we do. Even we need the cash as well. They wouldn't put anything on stock in general. So that's -- no, it's not stock building, probably 1 or 2 customers, not sure. And the question is how we see the outperformance in the future. I mean it's very clear. They closed down the factories. Now they announced they reopened. The question is how many cars they build, how many cars they do around the world. We will have this additional business, so we will probably outperform the market. But to give a rate, it's not possible at the moment for me. It also depends which model they produce. But no stock buildup. And if they produce enough cars, confident we will outperform there as we did in the first quarter. Is that okay, Patrick?
Yes.
Okay. Thank you.
The next question comes from the line of Xintong Ouyang, On Field Investment.
So basically 3 questions from my side. The first one -- 2 follow-ups. The first one is can you please provide a little bit color on the price and volume change in Q1 before and after the COVID-19 outbreak in countries outside of China. So for example, do you see any significant volumes decline and also your pricing? I understand that you announced some kind of price increase in certain regions in the beginning of Q1. So are you able to sustain with that? And looking forward into Q2, do you expect it to end? And then this one follow-up on that is that you are saying that you're seeing improvement in countries where construction sites are gradually opening up, but I'm wondering what is the rate of resumption. So how do you see the demand is picking up? What is the -- how quickly the demand is recovering? Or is it just gradually like what happened in China in March? And then the second question is on Parex in China. So I'm wondering, can you please provide us with the organic growth of Parex in China in 2020 in Q1 versus 2019 in Q1? And also pertaining to Q2, In understand that there was some kind of stocking-up situation in Parex in Q1 because, if you look at last year Q4, the leading indicators, the real estate or infrastructure market was quite optimistic. If the company [ indiscernible ], so I'm just wondering, in Q2, do you expect the situation to deteriorate a little bit for Parex and growth because there is -- I assume there is no stocking-up anymore? And also, if you look at the national statistics, the retail sales of certain products are still down by 14% in March year-on-year. So I'm just wondering how do you expect the market -- the downstream market to recover in China. And then the third one is I'm wondering -- so we've seen that the oil price has been down a lot, and the WTI oil price went to negative yesterday. I know that the raw materials of Sika is not directly linked to crude oil, but the trend is pretty consistent. So I'm just wondering how much tailwind are you expecting from the oil price decrease. And also in 2019, we see a 400 basis point basis gross margin expansion. And why are you expecting only the maximum 100 basis point gross margin expansion this year when the oil price is down in a pretty similar scenario?
Okay. Xintong, we had a little bit not a good line here, but we'll try to answer as good as we can. And first question, I start with the question on China with the Parex, if they stocked up. The dealers where they still had the stock, so it was not stock-up. But retail, we're monitoring this very closely. And a lot of people wanted to fix their houses, so there was a lot of sales to the customers. So no pickup. Pricing, yes, we had the big price increase beginning of the January around the world. So in many parts of the world, we increased the prices, then we still maintain these prices. So from that side, no stock-up. And yes, we increased the price in many. Then this other question we understood a little bit about oil. Oil is always a small driver for our business. We are down the value chain. It will impact -- will probably impact us a little bit because all the lines or the stock feeds are coming down. But we have to see how this develops. But at least, it's on the much better side than on the -- if it goes on. Adrian?
Yes. Maybe just to add on the material margin, as Paul said, I mean oil has a certain impact. It certainly helps if it's low for the incoming feedstock into the products we're buying. But it's much more related to supply and demand, and what we're seeing going forward is much more -- price is being driven by this part rather than the oil price itself.
The next question comes from the line of Markus Mayer, Baader-Helvea.
I have two questions basically on the comparison to the last crisis. Could you remind us versus, for example, the financial crisis how your portfolio has changed and also remind us how quickly the demand came back in specific areas? And you basically can also maybe saw delayed effects, for example, for the new build projects. And then secondly, also for these kind of infrastructure projects or financial stimuli projects of certain states, do you see, for example, in Asia, that large infrastructure projects are already facilitated by the regions or other states?
Okay. I will try to start and then -- Markus, and then Adrian will continue. I will compare the crisis from 2009 to the crisis today. I guess the crisis in 2009 was a financial crisis and then it started to roll out. It was liquidity and then everything broke down. And we could, at that time, reduce. We had also less sales by 6%, but also we could recover the EBIT to same amount. So we were quite good on that one. This crisis seems to be completely different. I think it's unheard that the world closed down the business. I mean it's unheard, I haven't heard in all the crisis that in so many countries, the governments locked down the business. And I think that's a different crisis. The good news probably is they really pumped a lot of money in this. So I guess the big job sites will reopen and then we have the same amount. We will build the same. The question here is if the money is ready to go for new construction in year 2021. And if that is the case, I guess we will come out. In the global business, it's a different crisis. First, it's also shutdown, but there is also a structural challenge.
Maybe just addressing the first part there of your question as to the portfolio change. I mean in the last 10 years, we have become even more global and, let's say, more diverse and balanced, particularly also the indirect channel has a bigger share now, which also tends to be more repair and refurbishment business, which is an area which, let's say, a crisis actually performs relatively well as you do smaller jobs, you do repairs whereas maybe the big projects are a different story. So in that regard, we have actually even sort of skewed the balance in a more favorable part. And I think what we have seen initially here in China is a bit testimony to this. Nevertheless, complete lockdowns, if you're not allowed to do business, I mean, that, of course, has an impact, no matter what.
Is that okay, Markus?
Yes, sure. Okay.
The next question comes from the line of Bernd Pomrehn, Vontobel.
Yes. Adrian, you mentioned this planned CapEx reduction by 50% compared to your initial budget. Last year, expansion CapEx accounted for 44% of your total CapEx. So does this actually mean that you are now stopping all expansion CapEx? And how will this impact the opening of new plants? The beginning of the year, you had the idea of opening, I think, 7 to 9 new plants this year. So will this rather impact opening of new plants this year or also next year? So what's the timeline a little bit of the opening of new plants?
Yes. Maybe giving a bit more color on this number, and the focus here is clear on also integration CapEx, on efficiency, on maintenance, health and safety. The biggest reduction is in, let's say, capacity or expansion in CapEx. However, this will not impact basically our long-term growth. There will still be, of course, the one or the other plant we're opening. It's also not to say that we're not expanding capacity at all wherever it is needed. But certainly, there is less pressure from that side. And let's say the number of factories, I mean, that's not a sacrosanct number. If that's currently not needed, we can also delay this. Maybe in adding to this and completing one of the previous questions, in 2021, I mean, we do not expect, let's say, a huge catch-up. There's probably a bit more than coming in, in '21 in terms of CapEx compared to the normal rate but not in a major way.
The next question comes from the line of Erik Karlsson, CapeView.
Just wondering if you could give us some kind of steer on run rate organic growth now in April very crudely for the group as a whole?
Again, it's a bit crystal ball reading. It will certainly be a bigger impact than in March. I mean sales will be down double digit in April, I think that's very clear. But again, the situation is so strongly evolving particularly around, let's say, these lockdown situations, whether it's now full, whether construction sites are allowed to operate. We've seen actually a number of encouraging signs in Europe, as Paul has mentioned. So it's difficult to predict. But clearly, on the automotive side, the impact will be actually even more pronounced in April.
April will be a typical month, Erik, for all.
Yes. Maybe one more follow-up. The oil price has come down a lot, but I appreciate you don't buy oil directly. But so maybe you could also give us a spot picture of what you're seeing in your raw materials at the minute in terms of pricing.
Yes. As we have said, the indications are clearly that input cost of pricing for our key materials are coming down. Not so much or not only oil-related, but it's really sort of the demand vis-à-vis the available capacity. But as of today, although there is also here quite a volatile picture, we always have to also consider, let's say, potential supply chain or capacity constraints, given the situation. But clearly, as of today, there is a clear tendency that input costs are coming down.
Next question comes from the line of Christian Arnold, MainFirst.
Follow-up question on your mid-term target of 15% to 18% EBIT margin. While you pointed out that you are phasing on a higher gross margin, I wonder if you could also give us some clarity on your working assumption in terms of top line, which is underlying this 15% to 18% EBIT margin for '21. I mean is, for example, CHF 8 billion enough? Do you need CHF 8.5 billion? So some kind of working assumption you have here, that would be helpful. And the second question I have is the oil price. I mean the raw material is one side. But I believe it can also have an impact on your top line that some markets are also impacted by this situation. So I'm thinking of North America, I'm thinking of Middle East. So what do you expect here in terms of your top line? How much can that be affected that oil and gas and market-related business will be even lower?
Yes, Christian. I'll start with the second one. Of course, you're right, the oil price movement is not one-directional. I mean, by and large, let's say, a decline in oil price, although it's only part of the input cost of our key raw materials, has on balance a positive effect, even including that some of the markets you have been mentioning do very much rely on oil in terms of their overall economic activity. But I mean this is typically only a number of countries. So the balance is still positive. Secondly on, let's say, that the rebound expectations of '21, of course, again here, difficult to predict on an absolute level. But we clearly expect for '21 recovery, so return to an organic growth here, which will also allow us to move into this margin bracket we have been guiding for.
I think it's important, Christian, to understand our Sika model. Each company is measured on the sales they generate and then they have to improve the cost base. So we have a lot of initiatives that each country around the world can improve their cost base. It doesn't matter where the sales is, they have to deliver over-proportional EBIT margin. And we work on that and everyone is very clear because we are very local and the local management will handle that. And if we sum that up, then, of course, we'll have that result. So it's not breakeven, like with other companies with a lot of investors, a lot of volume, where they say, "We need CHF 8 billion to do it or with CHF 8.5 billion, we are better." We can do it with CHF 8 billion or we can do it with CHF 8.5 billion. So it's not -- top line is important. It's easier to get there. But also we can do it if the top line declines because we can adapt or we will adapt our cost base. Is that okay, Christian?
Yes.
Next question comes from the line of Daniel Jelovcan, Mirabaud.
Just a clarification. You mentioned United States and Canada had double-digit growth until mid-March. Do you talk about organic growth or including the acquisitions?
Organically. We had an excellent start, organic growth, yes. And then I think in March, they closed down Canada. So of course, it was difficult to produce if no one is around. And it was organic growth.
And actually, this one I haven't understood really when you say, for instance, New York City, the job site is there, but there is no staff. I mean why is that...
It's, first, they're all afraid of the coronavirus. And second, they just -- the bigger job sites, they just not open it because they also have unions there. They have a lot of discussion there. So for many people that we wait the storm until they really do open. But in principle, we could produce. But in New York City, no one is on the job sites.
Is that, for instance, quite different to Germany, where a lot of construction sites are open and also work, right, or...
Yes, completely different around other countries. Even Spain, they opened job sites right now. In New York City, just everything is so close together and they really shut down the street. So if we see a picture from New York City, there's no one around. So no one really wants to go to the job site. It's probably the size of the city themselves. It's, as I said, it's different in California, it's different in Texas, where they can, they do, they work on job sites. Mainly, New York City is just closed down.
Okay. And the last question, in China, let's say, on the big construction sites, like all these high-rise buildings, I mean, what is your experience there? Is it already a V-shape? Or the Chinese are quite famous to -- that they want to recover the business quickly or even, let's say, catch up the lost business. So let's say they work, instead of 8 hours, 10 hours and whatever. Do you see such extremes in China?
Yes, fully agree, Daniel. They -- the whole government, that all even our employees are so keen to prove that China has a V-shape. They're working hard. They believe they want to change it. And even in our company, they really are eager to show. So time will tell. But they do everything to get the V-shape. They do everything to open the big construction sites. So yes, probably the most positive sign is China. They really work on the V-shape. Not sure if every European country can have a V-shape, but at least China most probably the best candidate for fast reinstallation of the business.
Next question comes from the line of John Fraser-Andrews, HSBC.
Three for me, please. The first one on cost reductions. Can you give a little bit more of a picture as to whether it's plants that you won't be reopening, whether you've actually shut any for 2020 because you've got enough size? And also staffing costs, on the furloughing schemes, have you put in multiple countries stop of your payroll for the time being? So that's the first one. Second is on the supplies of raw materials. I heard what you've said in answer to questions. But are those supplies -- do you have enough stocks? Your local sourcing policy, have you got enough access to what you need on those? And then finally, on bolt-ons, are you still in that market? I heard what you said about deferring any major acquisitions. But are you still in the market for bolt-ons?
Okay, John. I take the supply first. We have a lot of international suppliers. And in difficult times, we have to stay together. So we will have enough material. Probably, we don't fight for all the best price. We want to have a fair agreement with our suppliers. As well as we want to have a fair agreement with our customers. So we will weather the storm together. So from that side, positive that we have enough material to supply either on our own stock or with our suppliers. And we make sure that we can supply the customers. So from that side, confident that even if there is some force majeure, if there is not really, really a breakdown in the supply chain of our suppliers, we will have enough there and we will manage it very carefully. Then I think you can do the cost reduction.
On the cost side, I mean we're thinking here in scenarios. And again, very different from country-to-country. Of course, reducing nonessential expenses in some areas, where maybe there is a higher likelihood, there is a, let's say, a more prolonged downturn, we're also taking structural measures, particularly also in regards to integration, really advancing it but very much different country-by-country. But as an effect, we will also have a lower structural cost base going into 2021.
So we will use all the opportunities from Brazil to Argentina to Philippines, wherever we have to adapt to the local situation. That makes us strong because we have local management, so if it's furlough or it is short-time work or all the opportunities, even we will, of course, reduce our workforce to adapting the market. However, as we believe in the V-shape in the first scenarios, we don't have the massive layoffs like other companies. And then of course, we're still in the acquisition market. I still hope a lot of people have a little bit more problems than we and probably find 1 or 2 nice, good companies we could acquire. And the only thing is, as we said, it's not another CHF 2 billion deal on the table. It's probably the wrong time for the risky ones. But for all the CHF 300 million, CHF 400 million, CHF 500 million companies, we're still eager to get it. And if it's fit for us, we're still there. With our cash in hand and our credit lines, we can do deals like that as planned.
I just have one follow-up, if I may. Just looking at the Q1 numbers, and clearly COVID-19-only impact is outside of China at the back end. But do you sense already with your local supply structure and network is behind some of the resilience in your numbers that you've taken market share, not just in automotive but also in construction?
Yes, fully convinced. As we said, we are really decentralized the people already. We are good, we adapted the cost. We're already fighting for all the jobs. It's our major thing. I'm pretty, pretty confident that we will show a lot of market wins here because we are financial stable, we have a good team, we are motivated. So yes, I think end of the year, we can clearly prove that we won a lot of market share.
Next question comes from the line of Alessandro Foletti, Octavian.
I was wondering if you can give an indication of the Parex growth organic although outside of China, maybe. That would be the first question. And then the second question on China. I saw some traffic statistics of travel across the regions, also between Hubei and so on that sort of indicated that there was a big rebound after February, so like in March. But now in April, those numbers are sort of slowing down again. So I wonder if there is some sort of swing-back in China because obviously the government there is scared about the second wave. I was wondering if you can give some indication about what you see there.
Okay. In China, I'll be the first one. In China, I think it's a bigger rebound. Our people are very positive. We don't see that it slows down. I think they started to manage. It's clear out of Wuhan and Hubei, everybody wanted to leave, which we didn't have to stay there. So therefore, it was a big move out of Hubei because there were a lot of people locked down. But in the business side, from our people, we just get very good impact also in April.
Maybe just on the question regarding growth outside of China of the Parex business, I think it's -- this would be a bit too crude, China, non-China, because it really depends also on the situation in Southeast Asia, where we do have full lockdowns. Of course, it's then very difficult to grow or to sell if you're not allowed to. But what we have been seeing through the indirect channel, through -- due to the fact that the nature is even more repair and refurb smaller jobs, that on balance, this business has actually fared better than the direct one.
Okay. Can I maybe try to ask the question but in a different way. Just because of the M&A effect on your top line, which is still very big and mainly driven by Parex, is it fair to assume that the -- before the coronavirus, we were going for something like CHF 550 million, maybe a little bit more sales contribution from Parex. And now we are down, I don't know, CHF 450 million. Or can you give a number from that one, maybe?
Yes. I mean in Q1 here...
For the full year, sorry. As a bunch for the full year.
Yes. Again, here, it's a bit crystal ball reading how the next weeks and months will develop. I can only tell you that in the first quarter, there was basically very, very little effect in this regard. But it will again very much depend on the next month and particularly how significant the restrictions in any given country are. I mean if there's full lockdowns, again very difficult to sell. And if the restrictions are manageable, then the impact will be lower. But it's too early to tell.
And Alessandro, you are aware to see, we integrated all the companies now. So we have only one Sika in Philippines and that's one company. Or we have 1 Sika in Thailand, we have 1 Sika in Argentina. The cross-selling, all the initiatives, all the things is done. But if it's a lockdown, we cannot do. But if it's open, I assume we will have a cross-selling, stronger position. So I expect both company will grow the same.
Next question comes from the line of Martin Hüsler, ZKB.
I have two questions. First of all, coming back to your automotive outperformance, I was just wondering whether this outperformance of about 18% versus the market, you would say that you can keep up with highs as steep or if in the course of the year, you would expect actually this progress to decrease a bit. And in this regard, what's your assumption for the full year car production globally? And the second question is I'm wondering whether you already faced some defaults of customers or receivables that might or -- that this might become more an issue in the next couple of months.
Martin, I'll take the receivable, the working capital question here. No, I mean we have not been seeing any impact. There weren't any negative impact there yet. Of course, in some cases, we need to find solutions, particularly in areas where there's a lockdown. But we have not seen any negative receivable impact as of now. But of course, it's in many cases, a bit early to tell. It's in any case, a great focus, and strong awareness. Of course, this is a very critical area and we're certainly not compromising in this regard.
Okay. Martin, I take the automotive. Yes, we believe if the volume goes in that direction, I think we will outperform the market because we have the new models and they produce the new models, we will see. But yes, we're confident we will stay, at least outperform. If it's 7%, if it's 5% or 6%, that's the direction. And if you see the automotive business, IHS, that's the company, they provide the data, last year, they produced 88 million cars. And the forecast of this company is 70 million, means a reduction of around 20%, 21%. That's the forecast. So we will see, we will see if folks are in fact open. The question is what is the stimulus for the customer to buy new cars? That's the forecast from IHS, 88 million to down to 70 million.
Right, well understood. You seem to be a bit modest, saying you will outperform by 5% to 6%, in the first quarter, you outperformed by 18%, right, 1-8 percent, the market. I was just wondering if there is a special influence in the first quarter. Or why do you think you can only outperform by 5% to 6%, but you have such a huge gain in the first quarter already?
Probably wrong from my side. No, no, we outperformed by this 18% to 20% the market, we believe. No? Okay. I think that's really, really high. So Adrian?
I mean you also have to see in the first quarter, there has been a lot of movement, shutdowns in some areas, ramping up in China, new models. And it will very much depend, as Paul has said, what are the models that are being produced and how is the demand being composed. We will clearly outperform the market. But just to extrapolate it and say 18%, that would be too high.
He's the moneymaker. So Martin, sorry. But I think we will clearly outperform the market.
That was the last question.
Okay. Thank you very much for your interest. I think this brings us at the end of our call. Thank you for listening to Sika. We wish you all the best. Stay safe.
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