* Posts jump in nine-month sales and profit
* Gross margin hit by higher cost of raw materials
* Passes on price increases to customers (Recasts, adds CEO, analyst, background)
ZURICH, Oct 22 (Reuters) – Swiss chemicals company Sika is increasing output and raising prices to contend with a “sharp rise” in raw material costs that are squeezing profit margins, it said on Friday after posting increased nine-month sales and profit.
Sika said the chemicals it uses to make construction additives have become more expensive and harder to source, hit by shortages of materials that are affecting large chunks of global industry because of the lingering fallout from the COVID-19 pandemic.
“Despite the persistently strong impact of the coronavirus pandemic and the associated bottlenecks in the procurement of raw materials, Sika was able to continue on its consistent growth trajectory,” the company said.
Sika, the products of which reinforce and waterproof tunnels, walls and floors, reported that sales increased 18.2% to 6.86 billion Swiss francs ($7.48 billion) during the first nine months of the year. That was also up 10% from the same period of pre-pandemic 2019.
Net profit jumped by a little more than 36% to 765.1 million Swiss francs, but the gross profit margin slipped to 52.6% from 54.6% a year earlier because of dearer raw materials.
The biggest price increases were in polymers, silicon and PVC, which had risen by 20-40%, Sika Chief Executive Thomas Hasler said this month.
“There are few (suppliers), they have some issues restarting their factories, which immediately means some constraints and spikes in prices,” Hasler told Reuters at the company’s investor day.
The company had introduced price increases and would see if further steps were needed, Hasler said.
“We will see how we start the year and see if we can relax or if we need to go further,” he said. “There is always a certain delay; the costs come first and then the pricing follows.”
Bank Vontobel analyst Bernd Pomrehn said Sika would be able to pass on price increases to customers because demand was so strong, though there would be a time lag.
“They are not losing sales when increasing prices because competitors will also not sell at lower prices,” Pomrehn said. ($1 = 0.9172 Swiss francs) (Reporting by John Revill Additional reporting by Mrinmay Dey in Bengaluru Editing by Anil D’Silva and David Goodman)