Sika AG (SIKA) Earnings Call Transcript

So good morning, and welcome once again to the Capital Market Day 2022 also to the virtual participants. But I'm also very glad to see so many faces here coming to our location here in Zurich. And I hope we have an interesting program for you and we are looking for the interaction during the morning and especially also in the afternoon when we go into the different sessions of our presentation. The key topic today and of this capital market, that is our pledge to the net zero commitment which we signed just recently. But we have more to share in the coming 1.5 hour. First, I would like to start with an introduction to the state of the business and where we are and what are the key drivers of our success. Then briefly, I will go into the net-zero topic, which then will be later on further deepened by Patricia Heidtman. She's doing that part. I will then also briefly touch the innovation part in the breakout session before then coming to the update on MBCC acquisition as well as then the outlook for the full year 2022. So here, up to date, we have a very strong performance. We shared this already at the 6-month time frame, and we are soon going also to present the 9-month result. Very strong double-digit growth in all our regions. Here outstanding growth we have seen in the Americas with a 35.8% growth. Some acquisition in there, but the vast majority is organic growth and it's also a volume growth that drives this market above all the other regions. EMEA, 12.9% growth. Here, we have a small negative acquisition effect because of the divestment that we did earlier in the year. Asia Pacific, 17% growth. Here also a very strong performance given the dynamics that we see currently in China, where we have many lockdowns that are affecting us. At the same time, our diverse footprint in China still allows us to strongly grow double digit in this important market for Sika. Global Business, our mainly automotive business had a double-digit growth in the first half, still recovering from a very low base volume, but it is increasing and we'll expect also here then to see later on further recovery on that market. 19.5% in local currency, our growth rate in the first 6 months, and we expect also the second half to be in the positive, and I'll come back to that in the outlook. It has reached more than CHF 5 million for the first time in the first 6 months this year, which is very reassurance of our strategy. The EBIT increase here also impacted by the onetime gain on the divestment, but I think we have explained that in details earlier. Strong performance over 5 years. This is our strategy that is delivering under almost all circumstances, which leads me to our growth strategy. You have seen this many, many times. I think here, it can be mentioned that this is not only a great strategy for good weather condition, but also for bad weather condition and the resilience of our strategy has been demonstrated. It's a litmus test for our business. When we look at the past 2 years when we really had outstanding circumstances with the pandemic year 2020, the huge disruption in '21 on the supply side with many, many forced measures and issues on logistics and availability. And in both years, we have demonstrated our strategy is resilient and is delivering also under very special circumstances, double-digit growth top line and over proportional EBIT development at the same time. Also this year, our strategy is driven by our key contributors M&A. We have done 2 acquisitions, one in Canada and 1 in the U.S. As mentioned before, we did 2 divestments in Europe, the industrial coating business and the small equipment business here in Switzerland, Aliva, which concluded in August this year. Our organic expansion with new factories, 2 in Africa, which supports our expansion drive in Africa, Ivory Coast, Tanzania; nice locations, nice organic growth that we generate through this. Then in South America and Bolivia, the opening of our factory in May and then also in mature markets in the U.S., supporting our nice volume growth that we have in the U.S. I think here, it's important to summarize our performance drivers that contribute to our over-proportional EBIT growth. It's very clear that pricing is a must under the circumstances we have seen in the past 18 months, never stopping increases of raw materials, lately also we have other inflationary costs coming in, energy, transportation, wages are coming to new levels. So here, pricing is clearly a key element to offset and we must have our customers participate in this cost evolution. The internal efficiency drive. Very important. It's the 50 basis points of EBIT improvement that we want to achieve, and we achieved it constantly. Here, this is our commitment to get better and also leverage our footprint and gain the efficiencies through volume growth. Synergies. Still, this year, benefiting from synergies of acquisition, Parex, as we have outlined 3 years ago, it's contributing, and it is going to be also shown then by Adrian, how much that contribution is. So here, clearly, acquisition and the following synergies are a key driver also for our over-proportional EBIT growth. Innovation. That's our portfolio. That's the new products that we are launching, addressing the needs of the customer, addressing the needs of our net zero topic, which I come later on, our new products, they carry better margins than the older ones. So here, clearly, another driver of our performance. Then the resilience, which is a natural hedge that we have with 8 target markets with the geographical footprint with our markets that can offset weaknesses in some parts of the world. Here, clearly, a very strong footprint. It's the new build versus the refurbishment activities. We have a very balanced platform to build on. And overall, that's the resilience that helps us also to provide the performance, as outlined. Just briefly on the new build. There has been many questions on the new build and how is that going to change? We have to recognize that in the mature markets, our participation in refurbishment in construction is almost 70%, which I saw on the rooftop some of that presented by Ivo. That's not only, let's say, on the water side, that's also infrastructure, roads and tunnels and bridges that are constantly needed to upgrade. So mature markets have, let's say, a challenge that aging infrastructure needs refurbishment and new infrastructure needs to be added for the growing population. So the balance of new build and repair and refurbishment is clearly helping us in this environment. Another one is the emerging market needs. I think here, there's also been mentioned by Ivo, the huge demand for infrastructure in these fast-growing countries with an average age of the population sometimes below 20 years, below 30 years. So this is the magnitude of infrastructure that is needed. And we see it in our growth momentum. When we look at the Middle East, we look at Africa, South Asia, Southeast Asia, South America, everywhere we have very nice volume growth, and we have growth in our business, which is also driven by the needs that they are moving forward, they are more and more adapting international standards to their infrastructure construction. And this is, of course, a perfect base for us to utilize our global competence to leverage this into these markets. Another element, which is related to the COVID pandemic situation and the stimuli that were granted at that time. They are still on the preparation front. So here, we have CHF 850 billion. This is now becoming more and more visible that these are implementing projects. The same applies to Europe, where we have CHF 400 billion and probably more to come given the environment we have currently, and then China that has a huge commitment in the 5-year plan going forward to invest into technology and infrastructure. So here, very clear, great growth potential for us in the coming years. Back to the automotive industry, which has seen a steep decline in volumes produced due to semiconductor issues, which still is on the way to recover. As you can see, it will take still 2, 3 years until levels of prior to COVID build rates are achieved. Here's a huge backlog in demand that is going to drive this. The supply chain is further normalizing if, so to say, and the electrification of the mobility is a huge opportunity for Sika as e-vehicles more or less double our potential per vehicle going forward. So here, the outlook is positive, currently still working out of this reshaped build rate. Probably one of the most relevant growth drivers on the internal side is our people, our people that are highly engaged that drive this company through the empowerment that has lived throughout the 27,000 employees. We have the results as our guiding principle for our discussions, integrity and sustainability across the whole organization and ultimately also courage; courage for innovation, courage to leave the beaten tracks and start new activities, challenge ourselves constantly and move forward. So our people are the engine of our company, they drive us, and that's the secret of our success first and foremost. Now we made the pledge to net zero following the Paris Agreement, and we commit ourselves to reduce our own footprint on Scope 1, 2 and 3. Patricia will go into the details there. But here, clearly to be outlined, the CO2 emission of construction contributes to 40%, the mobility is another 20%. So 60% of the global CO2 footprint is related to markets where we are in and where we can play a decisive role in helping to transform these markets in these industries into a more sustainable way. This is the enabling part where we can clearly see great opportunities, but also great challenges. We are ready for this. We commit ourselves to drive this and support this transformation of the construction as well as of the mobility industry going forward. We want to do our own homework. We want to reduce our CO2 footprint by 2032 by 25% and by 90% by the year 2050. This is the visualization of our ambition and our key driver to get there. It will accelerate in the later part with key initiatives changing the source of raw materials away from CO2-intensive raw materials like cement or petro-based raw materials. This will require engagement with our partners in supply chain to work on this. This won't happen overnight. But short term, we have many elements that we can already drive, and this is the short-term commitment of us, replacing raw materials with a lower footprint or with a negative CO2 footprint and bring it into the markets until 2032. We will see examples later on in the afternoon. It is also a drive to be more mindful about the materials used in construction and in the manufacturing industry. So to achieve the same with less is a clear aim and also to utilize the materials for a longer time is going to benefit overall the CO2 balance of the industry. So here, clearly, high-performance solutions are key recycling and circular aspects are a key element as well. And then on the internal side, of course, we have to move away from fossil fuel-based energy into renewable energy to work in our plants. Operational efficiency, waste elimination on all aspects is key commitment of ourselves. And then, of course, the innovation on our part that will provide new solutions for challenges of the future, which as well will be shown by Patricia and then in the afternoon, also in the workshops that we have prepared. Innovation. A key topic for Sika. And here you see our innovation pipeline. Like in the past, we have many, many new great ideas, which have converted into patents and innovations for our customers. I would like to highlight here that the digitalization is more and more playing a role in our innovation pipeline as well as our 27,000 employees where we have launched recently a new platform to really collect and share the initiatives across the whole organization to make sure that we tap into the potential of the whole organization. So this is digitalization in relation to innovation, but also in the way we collaborate and bring our company forward. The [ 4 stations ] that are going to be presented in the afternoon are the net-zero initiatives with the short-term aspects of reducing the footprint. The infrastructure and refurbishment markets, which will be presented by our regional managers, the smart city, the growing fit is the urbanization aspects in all its variants, including the mobility, the infrastructure and the necessary flow of material and people and then the transformation of the construction industry on automation and digitalization, which will be highlighted in the afternoon. Now I would like to come to our nice acquisition, MBCC. It has been presented a year ago. And it is a beautiful acquisition in many, many ways. It's a complementary acquisition on the solutions, on the channels, on the direct and indirect channels, the footprint, the specific footprint in the markets that we are integrating on the supply chain. This is reconfirmed and makes us excited all the way. When it comes to the product and solution also here, I think this is an exciting acquisition for our customer as well. We are going to enhance and enlarge our product offering in multiple ways. Some illustrated examples are here on the tunneling and mining field where we are combining the 2 strong offerings that we have in the renewable wind energy where we are very strong on the blades and then on the upper side, but less on the towers where MBCC is. On flooring solutions, where we have an excellent complementarity of the product range between our Sika floor and Ucrete products of MBCC as well as on the Thomsit adhesives and the floor covering applications. Just a few examples where we are going to offer to our customer benefits of these acquisitions, getting the best of both combined under our Sika brand to the customer. Now it's a time-consuming acquisition. We have to gain the approval of many, many authorities across the globe. And we can say that in most jurisdictions, we have achieved unconditional approval. Most significant approvals are the ones highlighted here. So China, Japan, Brazil, but also in Saudi, South Africa, Turkey, Thailand and Colombia. These are very important markets to us, and we are ready to go. On the other hand, we also have some divestments to execute before we can close the transaction. And here, we have 3 clusters that are going to be addressed with divestments. This is the North American, the admixture business in the U.S. and Canada as well as the European admixture business that's including the U.K. as well as Switzerland, that is going to be divested. And then also in New Zealand and Australia, where the admixture business will be divested through a process that we are starting as we speak. And the scope of this divestment is roughly CHF 850 million and to demonstrate how that will influence the overall transaction you can see here on the left-hand side, CHF 2.15 billion will be integrated into Sika and CHF 850 million, as mentioned before, will be divested. And we have a very nice lineup of interested parties for these divestments. It is a very attractive business. We would have loved to integrate, but we can't, but it is an attractive business as it is admixture business, it is the business that is required to transform the construction industry going forward. And therefore, we see here high interest, and we are confident that we can also find the competent buyer for this business, which will also be then accepted by the authorities for implementation in the first half next year. Very important, this divestment does not change the attractiveness and the accretive nature of this acquisition. The synergies, the net synergies are still in the range of CHF 160 million to CHF 180 million. This is driven by the divestment, which has some attrition originally considered in the buildup of the synergies, but also on the, let's say, further deepened knowledge about the business that gives us the possibility to reconfirm the overall synergy level. The leverage of this transaction will be at the maximum of 2.5% at next year's level. And Adrian is going to show how that is going to translate then over the coming years. The funding is unchanged. Here, I would also like to just mention the FX impact, which is maybe also nice to recognize; at the time we signed the deal, the euro was more expensive than it is now; it was 107 and as you know, now we are at 95 or 94. So I would say we take it. That's definitely a nice evolution over time. Closing in the first half of next year, that remains our target, and we can reconfirm this going forward. Now the outlook. As mentioned, we have a strong year-to-date, and therefore, we are in a position that we can lift our top line expectation for the full year to above 15%. We are going to surpass the CHF 10 billion for the first time in our history. The over-proportional EBIT growth to above 15% is clearly our expectation. And we can also confirm the strategic targets as outlined in our 2023 strategy for sustainable and profitable growth. And with that, I would now hand over to share our journey to net zero, which Patricia will go into. And then later on, Adrian will share a bit more on the financials. And then we will have a Q&A to answer your questions towards the end of this introduction session. So Patricia, please.

Thank you, Thomas, dear friends of Sika here in Zurich and also online. It has been a milestone marked in our agenda already a year ago that today, we can make our pledge to net-zero per the science-based target initiative. We have worked hard to get an in-depth understanding on this topic and are happy to share with you today our findings. I would like to tell you first what our pledge is, touch on the methodology and then show you some key levers we have found on our road map then to get to net zero. Today, we officially announced that Sika aims to be a driver of the transformation of the construction and manufacturing industry towards net zero. We are committing ourselves to the net zero target by 2050 based on the science-based target initiative. Over the next 24 months, we will submit our targets for validation to the SBTi. And in the near term, we aim to significantly reduce our direct and indirect emissions and will continue collaborating effectively and ambitiously with our suppliers and customers. The challenge to achieve this ambitious goal is substantial and it requires all stakeholders to actively contribute, in particular our suppliers and our customers. Due to Sika's organic growth, the absolute reduction is even larger, and we aim to achieve a win-win environment with committed stakeholders up and down the value stream. For our direct emissions, I'm going to a little bit later to explain you the whole Scope 1, 2 and 3. But for our direct emissions and the Scope 2 emissions, we are committed to have a reduction of 42% by 2032, minus 90% by 2050. This is in line with the minus 1.5 degree scenario of the science-based target initiative. When it comes to the Scope 3, this is the indirect emission that is emission we inherit from our suppliers and pass on downstream. Here, our ambition is aligned with the 2-degree scenario at minus 25% by 2032 and also minus 90% by 2050. We have submitted our letter to the SBTi and now there's next steps where we will work out the targets, get those validated within the next 24 months and move on our journey where then we track our emissions, respectively, the reduction thereof. As a scientist, I must say the science-based target initiative sounds very scientifically, but really what makes it science-based is that you need to really pay attention to the method that you apply as you crunch the numbers. So we did work on our methodology, also issued that paper. You can see it on our web yesterday, and I would like to explain you about this. First, for those that are not knee-deep in this topic, just a very easy illustration on what the Scope 1, 2 and 3 is all about. The Scope 1, you can imagine it's kind of the fuel we burn in our factories, whether it's to power a boiler, a [indiscernible] dryer or something of that nature. When it comes to the Scope 2 emissions, this is energy we procure in form of steam, electricity used to heat our buildings or cool them down. The Scope 3 takes place up and downstream of our factory. It is raw materials that we procure, it's a transportation energy that is taken to bring it from the supplier to our factory and then also downstream, how does it reach our customer and what ultimately will happen to the material at the end of its life. That's all accounted within the Scope 3. According to the SBTi requirement and dissociated net zero standard we must develop a complete Scope 3 inventory. We have worked on the methodology paper where each category was assessed and is further described. On this picture, you see our emission factors on Scope 3 and also Scope 1 and 2. You can notice very quickly that Scope 1 and 2 are rather miniscule in size compared to the Scope 3. The big buckets that we will address going forward is clearly the missions that we get from the purchased goods and services. In our case, these are the raw materials. 1/3 of our emission is from the end of life or from our sold products, what they do after they have been working its duty. To give you an explanation, if I have a thermoplastic membrane, and at the end of its life, it gets incinerated, you can imagine CO2 will be released. If I will rework it back into membrane you can imagine we could reduce our CO2 emission. All in all, we have a footprint of 12.5 million tonnes CO2 equivalents. As I said, the 12.5 million is a number that it's very important to know how we came up with this and what our databases were on, what our estimates were on and we have written this down for you to look up, for others to copy. And it's very important to have full transparency on the method that was used to get to this number, because maybe some classifications change in the future, and then we won't be able in a very clear way to show how does this number change? How does it move? What was our doing and how can we positively influence and transform the business going forward. Now Thomas has shown you the high-level road map and the reputation is always good for learning because now that you have seen where our emission factors are, I think you will understand why we put emphasis on circularity. It's going to be very important to address that 1/3 of emissions that we have. But also the alternative low carbon supply, so used materials that are replacing high intense carbon footprint materials is very relevant to us. We will never stop to become better in how we produce our materials, so we're going to continue our focus there, not to waste energy. And at the end, though, and this is, I think, one of the intentions of the science-based target initiative, we cannot do this alone. We need to line ourselves up with our suppliers, with our customers and work together on this really challenging quest. The nice thing, and this is where innovation and sustainability comes together. We have some good ideas how we can replace our CO2 intense materials. How we can bring solutions to our customers with less material used and we will work really hard on our innovations going forward to support our path to net zero. We did some modeling on the Scope 1 and 2, how could this journey look, where are the key levers coming from when we look at our emissions and what is the world around us doing. So we look at the paths that our suppliers have submitted, that governments have stated and have seen that a big lever is by replacing -- by using our energy first and foremost, more efficiently. By moving over to biomass and then the biggest bucket is if we can electrify the heat. So if you can make this out of renewable energy, this will be a big impact. Furthermore, it will be, of course, needed that the power sector on its own will also decarbonize. The Scope 3, the big elephant in the room, how we call it friendly, is, of course, driven by, I would say, 3 buckets. One is the transportation. So we have to see how could we reduce the emission there. Then the second big bucket is the raw materials. So it is raw materials. We put it in 2 main buckets that rates -- then linked to virgin cement or if it's petrochemical based. So we're going to really focus on there and see how do we get the high-intensity materials out of our solutions. And then the third one is the recycling. So we have to see how can we bring a circular economy to the building industry, and we will also see later on a really nice example how this is a very positive thing for us at Sika, but also the industry. I have -- I like to call out some nuggets. So these are some examples where we can show charts and percentages. But at the end of the day, what makes me sleep good at night is if I can say, we have a program where we can actually reduce so many tons of CO2 emissions. This is, I think, the hands-on parts that you know from Sika, where really the rubber hits the road. This is the first example. I see my friends back in the room from Evelyn and her team. And it is that if we can replace portland cement with supplemental cementitious materials, we will be able to reduce for each ton that we replace, we can reduce 770 kilograms of CO2 equivalent. So if we do our math and we did this -- for these type of materials, we have found 480,000 tons of CO2 that we will be able to take out of this construction business by year 2025. So that's one of our first and very strong initiative, how we're going to address this topic. You will see a demonstration later on in the afternoon. The nice thing is substitutions we have found they do not or, let's say, we're skilled in formulating that when we substitute this, the quality is not being given up. We have high performance and often, it's even easier to play. So we can give our customers a more sustainable and a more performing solution. Another example I have for those that were on Capital Markets Day, maybe a year or 2 ago, I showed you about recycling roof membranes. So we did the business case on this. So here, we get two times the benefit; in one time, I can use the recycled material on the backside of my membrane; on the other time, I can divert the membrane waste away from incineration. So this is this recycling that we have to address. This is this end-of-life category that we have 1/3 of our emissions in and very [indiscernible] reduction. We did this in the case for the U.S. And here, we have found 15,000 tons of CO2 that we could achieve by 2032. And if you calculate this up globally, we are a little bit short of 50,000 tons of CO2 reduction by 2032. Staying with the recycling topic. We also have shown you last year the recover plant. This also goes totally into the concept of circular economy and is in line with this emission reduction to keep the global warming at 1.5 degrees. We have had very good customer interaction in the last year, and we have seen that with our additives, we can do -- we can have a variety of [ SCM ] like powders and always bring up the performance to outstanding properties. And this is something we have to do if we want to take our CO2. And it also fits very well if you think of that we will not transport our waste too far away if we can break it down and reuse it right away. This is a really nice lead into this beautiful building that you will learn more about this afternoon. And in this particular case, we were able, thanks to our product to retain 95% of the original building structure. So we had a high-rise building and instead of tearing the whole thing down, which if you do, we can use wrecker, but also if you use in this particular case, one of the key products was Sika CarboShear so we could strengthen the core to allow the architects to build on more storeys on top of the building and increase the entire space, not only do we save time and money, respectively our customer did, but they also saved 7,500 tons of CO2. And this is something we expect in the future to happen much more. And we believe we are the best partner to the architects and specifiers to really embrace circularity on all levels. We are an enabler to the industry. Thomas has shown the automotive and construction have quite an amount of CO2 to address. And if we work together we have the solution. We have the innovation strengths to enable the necessary transformation. So this will be a really good collaboration going forward, where we and our solutions can help the customers to reduce their CO2 footprint. This does not help our net zero calculation -- so -- but this is the [ handprint ] we have where we positively influence our customers and support them on their journey to net zero. So we believe this is also very important, and we will not lose focus of being the enabler in this industry. This is an example on how we cannot do this alone, and we need to partner with our suppliers and customers. In this case, this is a collaboration that chemical industry has under the name together for sustainability. Sika is committing their time and expertise on to these different [ boards ] and work streams and I think just about 4 days ago, we, together with a sustainability issued a product carbon footprint guideline that helps everyone to calculate what is the carbon footprint of your solution. And then we're able, through the value chain to use each other's numbers and show and demonstrate through improvements. This is my favorite slide because I'm just speaking for a great team. I'm speaking for all 27,000 employees at Sika. We have the brain, we have the heart to transform this industry to take care to do business in a sustainable way. We see sustainability as a great opportunity. And I want to thank all the employees for their contribution so far and going forward, and this ends also then my speech about the net zero. Thank you.

Very good. And well, thank you, Patricia. It is now up to me to complement here these main hall sessions by giving you an update on our margin delivery on one hand, and secondly, also talk a bit about the MBCC transaction, also giving here an update, particularly also relating to the envisaged divestment. Now Thomas has talked about the continued strong strategy execution about the resilience of our business and we'll go into sort of the more near term later on. But maybe to start here, take a step back and also look at how we're driving over time here our margin expansion with a targeted EBIT margin of 15% to 18%, the 15% we have achieved last year. You see here the starting point in 2019, but more importantly, here the different elements and it's really sort of the 4 key levers here. On the one hand, growth is not providing only, let's say, absolute contribution, but also a potential to leverage existing structures and resources on one hand. Secondly, material margin management, obviously, a very important topic, particularly in this environment with strongly increasing input costs, particularly on the raw material side. And then obviously, the pricing element countering this and driving and continue to drive material margin forward. Operational efficiency, also mentioned several times, one of our here key profitability drivers, ongoing initiatives since a number of years, obviously, throughout the organization here, creating additional profitability on an ongoing basis with a target of 50 basis points improvement each and every year. And then the M&A side, also here not only providing platform for growth, but also over time, a potential to improve our margins overall after, let's say, an initial dilution due to some accounting effects and typically, that incoming acquisitions have a lower profitability. But very quickly, and we'll see this also then later on being overcompensated by synergies driving here the business forward. Now how does this or has this looked in the first half year here in this challenging environment, particularly from a raw material and overall cost perspective. Here, we have continued to expand our margins. You have seen this earlier on here, the breakdown into these levers, and I start with the material margin. Obviously, still quite a sizable dilution in percentage points. But if you think about it with a very strong pricing element in the first half year of around 14% just mathematically. The impact, if we were not to pass on input cost increases in absolute terms would be about minus 7% at the 50% margin. So clearly, here making grounds and we'll talk about this later on, a very important here metric, obviously for us to focus on. On the other hand, leverage potential, I mentioned it due to the strong top line development driven by pricing, here a good potential, something that will expand going forward. And then we have the elements also talked about operational efficiency, continued to deliver 50 basis points on an ongoing basis. M&A synergies here, particularly from Parex, the residual incremental synergies, will also see this a bit later and the aforementioned dilution of the new acquisitions we have done in the last 12 months or so. We also had a positive onetime effect due to the sale of the corrosion protection business on one hand and ongoing negative one-off costs relating to the MBCC transaction here with 2.7 percentage points in the first half year with impact, but overall 16% EBIT margin. Now going forward, we confirm, continue to confirm here our overproportional EBIT growth guidance for 2022. Again here comparing last year's 15% with the target of this year. So higher than 15% overproportional. What is driving this? And it's clearly here a further mitigation of raw material cost impact through pricing. We will go into a bit more detail later on, but also other measures in here supporting the margin, which we will also talk about. Operational efficiency and synergy realization continues to be very key. And also when talking about sustainability, here many, many of these initiatives, which drive an improved sustainability in our business also has a positive impact on cost, on efficiency, which is important here also to mitigate some of the cost drivers. It's not so much the direct energy in our case, but obviously inflationary elements relating to transportation, labor and other elements. And then obviously, as a percentage impact here, these one-timers will have a lower impact for the full year. But overall, we will drive profitability higher overproportionately in 2022 as well. Before going into some of the margin elements, maybe just a couple of comments on growth. Obviously, growth is an absolute contributor, but also a relative one in terms of leverage. And yes, the market environment is more challenging than it used to be, but market growth is only one element here of our growth. We have many what we call structural growth elements, be it changing technologies being applied, focusing on area, which are driven by megatrends, some we have been seeing and will be also seeing today. So many additional layers of growth and the continued market penetration through expansion, through increased share of wallet and other measures to basically grow our business above the market. And then this is complemented by M&A activity. And if you look back the last 10 years, basically a CAGR of around 10% growth each and every year at constant exchange rates. Now material margin, very important element. And here, we continue to deliver good traction on pricing with about a 15% year-on-year impact clearly driving here also the material margin development in the right direction. We will continue to have this base effect in terms of relative material margin, but we should be seeing basically a reversal of this relative material margin trend in the second half year, targeting a higher material margin than in the first half year and other elements like innovation, also many initiatives on the procurement side. Formulation efficiency, also continuing to drive here the material margin mid- to long term, again into higher territories. And maybe here, specifically on sales price impact, if you look at last year where we clearly had a lag in passing on input cost increases. So this cost impact on the raw material side being higher than pricing we have now in the second quarter moved into a territory where price impact is overcompensating absolute ongoing cost increases also recovering part of this time lag and continue to do so going forward, also applying surcharges to compensate for cost increases below the material margin line, as mentioned, transportation cost, labor and so on, which will, over time, here also, again, turn material margin in relative terms into positive growth territory. On the other hand, on the raw material cost side, the situation here is still very, very volatile, in general, more flattening in terms of the ongoing input cost increases, but not uniformly. Also availability is somewhat improving, but still clearly not back to normality. But it's also here to be noted that regional or even country developments are quite different. And in general, volatility remains quite high, particularly also related to energy or energy costs, which are particularly here in Europe, the dominant element. I was also mentioning other elements driving here our material margin and clearly, innovation, new products but also improvement on the formulation side, a very important ongoing material margin driver, typically, new products through obviously, higher value added through better positioning, but also in addressing, let's say, the formulation side and provide for better margins, typically between 3 and 5 percentage points on material margins once fully ramped up. And as innovation here goes together or additional value goes together with increased sustainability also here quite positive effects as we have seen. And you saw already the example of replacement of cement in mortars here, particularly the Chinese example where we have already reached a substitution rate of 30%. And -- well, according to Patricia, as seen before, this is not, let's say, the end of the journey. This will continue to increase and improve and also be expanded to other products. The same on, let's say, the sand side here, a very scarce resource moving also here into solution where manufactured or recycled sand can be used. And as always, and you see this at the bottom also with a positive cost impact not only significantly improving here the sustainability footprint. Operational efficiency is the next topic, and here, we continue to drive this very systematically, several hundred projects on an annual basis, really on all levels, sometimes small, sometimes bigger really across the value chain, and it's a continuous improvement program with an ongoing positive impact of 50 basis points each and every year. Also here, many of these with improved sustainability aspect, not only improving operating cost but also being more sustainable. And obviously, a big field here is factory and warehouse consolidation and optimization to improve the supply chain. And I'm not going to go into all the details, but also here, very different elements at work, obviously, taking advantage of digitalization, combining here robots with humans in terms of doing the work and generally driving automation and, let's say, process efficiency, but also a very important topic, particularly today on the renewable energy. Here, an example of our large plant in Switzerland in Dudingen. We have about 15 or so projects running currently also here, providing a positive sustainability aspect, but also driving costs down and obviously improving here energy self-sufficiency. Big topic, as mentioned on the factory and logistics side, also here a couple of examples with quite tangible impacts on project which started in the U.S. largest warehouse optimization with first year saving of about CHF 2 million increasing over time or in the U.K. ever builds also here, production improvement in terms of the process and the handling automization is the big topic. So very clearly driving many initiatives on a continuous basis, improving profitability as well. M&A as obviously one of the key growth drivers, but over time, also lifting margins apart from the initial dilution here. Currently, Parex continues to deliver stronger and higher synergies, which we can see here on this slide also here an update, we are now at the monthly run rate of more than CHF 8 million. So very well on track to reach here the CHF 100 million of synergies originally targeted for 2022. And maybe sort of trying to break this down a little bit in terms of here the different elements, top line impact on the cross-selling side with a good momentum, but I would clearly say here, we will only see the full impact actually beyond 2020, also had a bit of a delay given, let's say, the pandemic and all the implementation of the initiatives, but with very good traction now and not yet having exhausted the full potential, whereas on the cost side here, procurement that was early on, fully realized, strong also on the SG&A side with outperformance of the initial target as well as on the formulation side. I mean this whole optimization, be it on a sustainability as well as on the cost side, clearly, here very much also driven by the Parex acquisition. And then lastly, on the operation side, also a bit impacted by COVID in terms of the ability to, let's say, do these footprint improvements and the ability to install equipment. Also here, the full impact is beyond 2022. So there is more to be expected in spite of being on track with the original target. So I think these are all, let's say, good elements of -- also on that side, the continued execution of our strategy being very much also focused on here, continued delivery of improved margins in line with our strategy. Now let's switch to MBCC. And here, as you have seen, expanding on the update Thomas has given, recapping on, let's say, the status unconditional approval received in most jurisdictions, we will be divesting here the North American, European and Australia and New Zealand admixture business to a competent buyer, which means in terms of sales, about CHF 850 million in net sales on 2021 basis will be divested, whereas CHF 2.15 billion will be remaining. On the synergies, I think very importantly, and I'll go into a bit more detail here and unchanged in terms of the guidance and the expectation and also on the funding side, unchanged. And Thomas also mentioned, let's say, the positive foreign exchange impact as the price is payable in euro compared to last November about a 10% favorable development. Now talking about the expected synergies, CHF 160 million to CHF 180 million. Why is it unchanged? On the one hand, we have clearly thought in scenarios in terms of potential divestments, on the one hand. On the other hand, it is clearly an area where we would have then had more attrition which is now not the case. And on the cost and integration side, having sort of progressed here and quite a strong confirmation here of the potential. So on the revenue side, we will -- clearly, and this was also shown before by Thomas and clearly have an improved offering for our customers and an improved supply chain, driving top line as well as the opportunity to increase cross-selling and particularly also having jointly improve the capabilities on the portfolio side when it comes to sustainability. On the cost side, clearly here, procurement savings, economies of scale. Also on the formulation side, I think a big potential and then one of the big topics here, supply chain and logistics efficiency, rearranging here product flow and footprint. And then last but not least, here also in G&A, particularly synergies to be achieved. So with the CHF 160 million to CHF 180 million, we feel very confident that this can be achieved unchanged compared to the previous guidance. On the financing side, also here, no change. We have obviously a fully committed bridge facility in place. The long-term funding structure and the takeout will be a combination of cash, bank loans and bonds. No additional equity here envisaged. It will come at a somewhat higher interest cost given the interest environment annual cost of around CHF 90 million expected from today's perspective. On the leverage, I mean, we continue to have and I'll show this later on, a very strong deleveraging profile, starting from a very low base. And obviously, also the divestment will reduce the initial capital outlay but it is actually quite strong here, and before we look at into the future, maybe just a couple of comments here on let's say, the historical leverage development where you can see a very constantly [ half a turn ] per annum in reduction of leverage. 2019 was actually the first year where we had partially -- Parex in also here a very similar leverage expected compared to now '23 with MBCC and the continued strong deleveraging will be starting off a very low base, as mentioned, the end of the year will be around sort of 1.2x. And even disregarding here the potential conversion of the existing convertible bond, the expected leverage will be around 2.5x, assuming first half year closing of MBCC as just alluded to and using sort of reasonably conservative assumptions on the divestments. The additional, let's say, impact of the convertible bond conversion would be around [ half a turn ]. But again, even without this leverage expected of around 2.5x for 2023 and obviously a continued fast deleveraging profile, also in combination here with MBCC of around [ half a turn ] per annum.