Sika optimistic on China prospects despite Evergrande concerns

Sika can overcome rising raw material costs globally and uncertainty in China linked to debt concerns at developer China Evergrande (3333.HK) to reach its 2021 goals, Chief Executive Thomas Hasler said on Thursday.

The Swiss construction chemicals maker expects to increase its sales when measured in local currencies by 13%–17% this year following last year’s pandemic driven downturn in building projects.

The company also expects to achieve an operating profit margin of 15% for the first time this year, confirming the guidance it gave in July.

Hasler, who took charge at Sika in May, said he remained optimistic about China despite uncertainties surrounding China Evergrande.

“There is a lot of speculation, but our Chinese organisation is much more relaxed. The exposure is rather small,” Hasler told Reuters at the company’s investor day in Zurich.

Sika, whose products are used to strengthen and waterproof building materials, is more involved in high-end projects like bridges, ports and tunnels than the mass market like accommodations, where mainly Chinese companies operated, he said.

“Our value is if you build a nuclear power plant or a bridge, then they rely on high tech, then they want reliability,” said the 56-year-old executive.

“This type of construction is going to be reinforced and accelerate going forward,” Hasler added. “Our growth strategy in China is well balanced; our aim is to grow in China like in other regions.”

Sika now gets around 10% of its annual sales in China, a share that “may increase a little bit”, Hasler added, although it was not the company’s goal to double this level.

Sika confirmed its 2021 targets “despite a challenging raw material price development and supply chain restrictions.”

Sika expects a four percentage point increase in its bill for raw materials this year as suppliers of polymers, for example, had problems restarting full-scale production.

The company would respond with price rises in the fourth quarter and early next year, Chief Financial Officer Adrian Widmer told the event.