Good morning, ladies and gentlemen. Welcome to our Analysts and Media Conference. Welcome also for the participants at the webcast. The presentation is structured as follows, and as usual, first, I will provide you with an overview of 2023 and comment on the sales development. Thereafter, Tobias will present the final financial results. Then I will talk about the outlook for this year, and also as usual, you have the opportunity to ask questions at the end. Let me start with 2023, our key figures. 2023 was a very difficult year for Geberit. However, we managed, in a very challenging environment, to deliver good results, in particular, improved margins again. Net sales declined in local currencies by 5% due to a volume contraction of -13%, the strongest volume decline since decades.
EBITDA margin reached 29.9%, an increase of 310 basis points, thanks to our strong operational flexibility and consequent price management. EPS decreased by 4% in local currencies and reached 18.39 CHF, due to a favorable tax base effect in the previous year. Without this tax effect, currency-adjusted EPS would have been up 10%. Free cash flow increased double-digit by +11%. More than 100% of free cash flow were distributed to shareholders via dividend payments and share buybacks. The board of directors proposes a dividend of 12.70 CHF per share, which corresponds to an increase of 0.10 CHF per share. This confirms, once again, our shareholder-friendly and attractive distribution policy. Relative CO₂ emissions, again, decreased double-digit by -16%, thanks to our newly implemented CO₂ strategy two years ago.
Let me go now into a little bit more detail about our sales and marketing activities in 2023. We reached, again, a very high level of 450,000 individual professional customer contacts. The number of professional participants for customer trainings and events increased significantly. We conducted last year, trainings for 78,000 participants and events for 61,000 participants, which is twice as much as pre-COVID in 2019. Thanks to a new dedicated digital B2C marketing initiative, we generated last year also 30,000 digital end consumer leads, a massive increase versus pre-pandemic levels. Let me give you now some examples of our marketing activities last year. We have launched an online training platform called Geberit Digital Campus in the DACH region.
The Geberit Digital Campus educates our professional customers on a variety of our core competencies, such as drinking water hygiene, wastewater hydraulics, or sound insulation. We also launched a new portal to deliver important product data for our customers, which covers several international and national data standards. A third example is the further rollout of our new fair concept, House of Geberit. It was present at last year's ISH, this is the world-leading fair for sanitary products, and at several local fairs. In total, we spent last year CHF 84 million for marketing, which corresponds to 2.7% of net sales. Marketing expenditures were below 2022 due to three reasons: first, a negative currency effect, second, efficiency gains, and third, less B2C media spend due to weaker market demand. 25% of total marketing expenses were spent for digital tools and digital channels.
2023 was, again, an important year for new product introductions. Let me give you a few examples. In bathroom systems, we introduced our new mid-level toilet, Acanto. This WC is easy to clean and features a best-in-class flushing performance, as well as a more silent flushing. Furthermore, it reduces installation time for plumbers by around 40%. In installation of flushing systems, we introduced the new flush valve 208. This new valve saves water and is easier to maintain. We also introduced a new Monolith. The Monolith is a design-oriented WC flushing system and is especially suitable for renovations. The key features are a new lighting concept, a better user experience, thanks to touch activation or via app, and an integrated hygiene flush to prevent stagnation in the water systems, for example, in holiday homes. We also introduced a new shower drain channel called CleanLine 50.
This channel complements our mid-price segment with a slim rim asymmetric design. We also continued last year to invest into our innovation pipeline. In total, we invested CHF 70 million in R&D. This is slightly lower versus the last years, mainly due to the development of Flowfit in the previous years, the largest R&D project in Geberit's history. We have consistently filed a high number of patents over the last years, with a peak in 2020 and 2021, which was driven by the new WC flushing technologies, combining the competencies behind and in front of the wall. On average, we have annually filed 32 new patents over the last five years, compared to an average of 20 patents before the acquisition of the ceramics business, 2015. Let me now comment on our CapEx in 2023.
CapEx reached a record high level of CHF 197 million, +27% compared to previous year. The increase is due to several multi-year investment projects, such as strategic plant expansions in Pfullendorf and in Lichtenstein, and a new customer center, also in Pfullendorf, Germany. Overall, 52% of investments were dedicated to modernization and rationalization, 41% to capacity expansions, and 7% to new products. Let me briefly give you a few examples of investment projects last year. In Jona, in Switzerland, we invested another CHF 8 million to add further production capacities for our new piping system, Flowfit. Additional injection molding and assembly lines increased capacity by 80%, with a payback of four years. In our plant in Langenfeld, Germany, we invested into new machinery and equipment for our stainless steel fitting production.
This has not only improved efficiency, flexibility, and lead times, but also the product quality due to an enhanced welding process. The investment amounted to EUR 6 million, with a payback of 5.8 years. In our ceramic plant in Haldensleben, also Germany, we invested EUR 3 million to enable the plant to run with liquefied petroleum gas instead of natural gas only. This investment was a risk mitigation measure to ensure business continuity in case of shortages of natural gas. Let me now comment on the productivity of our 26 manufacturing plants. Despite the strong volume decline of -13%, productivity in the plants fell only by 3%. We consider this as an excellent achievement, as it is also was a key driver for our margin development last year.
This high level of productivity, despite strong volume contraction, is a testimony for the quality of our operations organization, the excellence of our processes, and the strong relationships between management and our employees. Compared to 2014, productivity was still on a 28% higher level last year. This corresponds to an average annual productivity improvement of +2.8% per year since 2014. This brings me to the development of our number of employees. The number of FTEs decreased by 5%, mainly driven by reductions of agency and temporary staff, and natural fluctuations in operations due to the volume contraction. Despite the weak volumes, we continued to invest into the sales organization with a buildup of 19 FTEs, following our strategic stability principle. The majority of this increase was outside of Europe for dedicated sales growth initiatives.
The decline of 27 G&A FTEs was mainly a result of our continuous effort to gain efficiency in all areas of the company. Let me now comment on the sustainability achievements last year. We measure our global environmental impact since years, according to the Swiss impact assessment method of ecological scarcity. This method takes into account all relevant environmental dimensions, for example, energy consumption, water consumption, or waste. Last year, we decreased our total environmental impact in relation to net sales by impressive 13%. In absolute terms, the environmental impact went down even by 18%. Compared to 2015, we now reduced our relative environmental footprint massively by 63%. The two main drivers for this very significant reduction were relative energy consumption, which we reduced by 49%, and relative water consumption, which we reduced by 47% since 2015.
This slide shows a few examples how we managed to reduce the ecological footprint of our business over the last years. An important contribution to the environment from Geberit is obviously the water consumption of our products during their use phase, for example, to flush a toilet. While in 1952, a toilet flush consumed still 14 liters of water, we managed to bring down consumption to four, respectively 2.6 liters of water for a small flush in 2023. With this, Geberit products saved around 35 billion cubic meters of water over the last 25 years. In 2023 alone, the water saving amounted to roughly 3 billion cubic meters. That's the equivalent of 75% of all water consumed in all German households last year, so a significant number.
Other examples of sustainability achievements are the share of renewable electricity, which we increased to 79% in 2023, or the internal recycling rate of plastics, which reached almost 100%, or the internal water consumption for manufacturing and R&D purposes, which was last year 27% lower compared to 2015 level. Another obviously very important contribution to our environmental footprint are CO₂ emissions. Our new CO₂ strategy, which we introduced and presented here two years ago, delivered again strong results last year. Our Scope 1 and 2 CO₂ intensity, meaning CO₂ emissions relative to net sales, declined in 2023, again, significantly by 16%. But also in absolute terms, we reduced CO₂ emissions by impressive 20% last year.
Compared to 2015, we have been able to reduce the relative CO₂ emissions now by 63%, which corresponds to an annual reduction of 12% per year. Main drivers of the reduction in CO₂ emissions were efficiency gains in our ceramic plants and the sourcing of renewable energy. These results show that actual results and achievements to reduce CO₂ emissions are more important than long-term reduction and net zero targets in 2045 or 2050. Inclusion and social responsibility is another important pillar of our sustainability strategy. In 2023, we directly employed 210 full-time equivalent positions for employees with disabilities within the Geberit Group. We again consciously sourced products and services from workshops which employ disabled or socially disadvantaged people, for example, long-term unemployed. In 2023 alone, we purchased an amount of CHF 9 million from these workshops.
With this conscious sourcing, we support around 550 disabled or socially disadvantaged people. Finally, let me give you an example of a social project that we conducted in 2023. In Eastern India, we supported the construction of a new sanitary facilities for a local school with 246 children. The work has been carried out again by Geberit apprentices and was fully financed by Geberit. After this overview, let me now comment on the sales development a little bit more in detail. Net sales in Swiss francs reached CHF 3.08 billion, which is 9% below previous year's level. We faced, again, a strong negative effect from weaker currencies versus Swiss franc. We lost last year, CHF 147 million, or -4%, due to the unfavorable currency development.
Since 2019, we lost in total CHF 570 million of net sales due to negative currency effects. This corresponds to 18% of net sales in 2019. In local currencies, again, last year, net sales declined by -5%. This decline was driven by the historical volume context of -13%, and was partially compensated by a positive price effect of around 8%. The positive price effect of around 8% confirms our consequent pricing management based on our pricing power in an environment of very high inflation and declining demand. Let me briefly comment on the sales development per quarter last year. The positive sales price effect eased in the course of the year, in line with the decreasing inflation. Volumes were mainly affected by three factors.
First, strong stocking effects of wholesalers, who built up stocks until summer 2022, and destocked their inventories in the first three quarters of 2023. Second, an overall decline in building construction industry due to higher interest rates and cost inflation. And third, a declining renovation business for the sanitary sector, due to pull forward effects from the COVID-19 induced home improvement trend, and the shift from sanitary to energy-related renovation in several European countries last year. On top of these general volume drivers impacting almost all regions and countries last year, let me give you some additional information and color on the level of individual countries or regions. I start with the region, Central Europe. The strongest decline in Central Europe was recorded in Germany with a -10% and in Austria with a -8%.
Both countries were most impacted by the beforementioned shift to heating-related renovations and a very weak market environment. Net sales in Switzerland declined by -4%, driven by a weaker demand for sanitary renovations and new residential. Benelux net sales declined by -2% due to declining sales in Belgium and in Netherlands. Net sales in Italy were up by 2%, thanks to a more favorable market environment and much less pronounced stocking effects of wholesalers. Let me now turn to the rest of Europe. Net sales in Western Europe were on previous year's level, driven by growth in UK, Ireland, and Iberia, offsetting a decline in France due to a weak market demand. Northern Europe declined by -6%, with a sales decline in all countries except Norway.
The market decline was mainly driven by the new build segment, since residential building permits in Sweden, Finland, and Denmark already started to collapse by -50% in the second half of 2022. In the context of a strategic review, we sold by end of 2023, our shower enclosure and cubicles business in the Nordics, including a small manufacturing plant. The business which we sold, generated CHF 6 million of net sales last year, and will impact our net sales in Nordics this year correspondingly. Let me finish the sales review in Europe with Eastern Europe. Net sales in Eastern Europe declined by -9%, driven by a strong previous year and the exit from Russia. Outside Europe, we recorded a strong growth of 17% in Middle East, Africa.
Main driver for the sales growth was a strong business in the Gulf region and Turkey. Net sales in Far East Pacific declined by -4%, mainly due to a strongly declining market in China and Australia. This decline was partially offset by double-digit growth in India. America grew by 2%, driven by growth of the Chicago Faucets portfolio, as well as the concealed system business. Let me now comment on the sales development per product area, again, in local currencies. Net sales declined across all three product areas. Installation and flushing and bathroom systems declined each by -6%. Piping system declined only by -2%, thanks to the strong growth of the new supply piping system, Flowfit. For the financial results, I now hand over to Tobias.
Thank you, Christian. Let me start with a general remark. All P&L items were negatively affected by the currency development. However, the impact on margins was limited due to our strong natural hedge. Profitability has improved despite the volume decline due to three reasons: our high operational flexibility and cost discipline, lower raw material and energy prices, and our consequent pricing management. In numbers, EBITDA increased by 1.4% in Swiss francs and reached CHF 921 million. In local currencies, EBITDA increased by 7.8%. EBITDA margin reached 29.9%. EBIT increased by 1.8% and reached CHF 769 million, resulting in a EBIT margin of 24.9%. In local currencies, EBIT increased by 8.8%.
Net income in Swiss francs decreased by -12.6% to CHF 617 million, mainly driven by last year's favorable one-time tax effect. EPS was supported by the share buyback in 2023, and thus decreased only by -10.2%. Free cash flow increased by 11.3% and reached CHF 625 million. This increase was mainly driven by improvements of the net working capital. I will now comment on the P&L. Two major factors favored the cost position. First, the currency development, and second, the lower sales volumes. Consequently, cost of material decreased by 17.5% in Swiss francs, also due to slightly lower purchase prices. Personnel expenses in local currencies stayed level despite strong tariff increases. This is thanks to our operational flexibility. Depreciation increased by 3.5%.
The amortization of intangible assets decreased by -22.4% due to an impairment charge last year. Other operating expenses decreased by -16.8%. Main drivers were low energy supply costs, as well as lower marketing expenses. Turning to the raw material prices, let me briefly comment on the unprecedented cost inflation we have seen over the last years. Raw material prices in 2022 have increased until Q2 2022 due to the outbreak of the war in Ukraine. Since then, we have seen a relaxation with raw material prices declining continuously since May 2022, except for a slight increase in Q1 2023. In total, average raw material purchasing prices in 2023 were currency adjusted 3% below prices in 2022.
In the fourth quarter of 2023, average raw material prices were 6% below the fourth quarter of 2022. Overall, however, raw material prices are still around 25% above pre-war and pre-COVID-19 level. Looking at the EBITDA margin 2023, the full-year EBITDA margin bridge highlights the most important factors that impacted the 2023 margin. The unprecedented volume decline of 13% only had a negative effect on the margin of 350 basis points. This shows our high operational flexibility. The net price effects were positive, contributing 640 basis points, driven by our sales price increases and slightly lower raw material prices. Other cost effects had a positive effect of 60 basis points, mainly due to easing energy prices.
Despite strong currency headwinds, the FX effect on the EBITDA margin was very limited at -40 basis points, thanks to our high natural hedge. In sum, the EBITDA margin improved from 26.8% last year or in 2022, to 29.9% in 2023, a strong increase of 310 basis points. Turning to Q4, the Q4 EBITDA margin increased by 350 basis points, from 21.3 in Q4 2022, to 24.8% in Q4 2023. A positive volume effect added 170 basis points, driven by the operating leverage. Volume increased also due to a base effect, as Q4 2022 was negatively impacted by wholesale and destocking. Although price effects faded, net price effects lifted the Q4 EBITDA margin by 400 basis points. The main reason for this are lower raw material cost.
Other costs reduced the margin by 180 basis points, primarily because of wage inflation. Lastly, currency headwinds were mitigated by our strong natural hedge. The negative effect on the EBITDA margin amounts, like in the full-year, to -40 basis points. I am now turning to the positions below the operating profit. The financial result declined primarily due to increased financial expenses, resulting from higher debt, higher interest rates, and FX losses. The effective tax rate substantially increased from 4.7% in 2022, to 16.8% in 2023. As a reminder, the tax rate in 2022 was positively affected by a one-time effect related to the Swiss tax reform. Due to this one-time positive tax effect last year, net income declined year-on-year by -12.6%.
Without the one-time tax effect, net income was on previous year level, and in local currency, even increased by 6.7%. EPS decreased by -10.2%, less compared to net income, supported by our s- share buyback program. Without the one-time tax effect, EPS, EPS increased by 2.3%. In local currencies and adjusted for the one-time tax effect, EPS increased even by 9.7%. Please note that in 2024, the tax rate will increase, mainly due to the introduction of the minimum taxation according to BEPS Pillar Two. Let me now comment on the free cash flow. Free cash flow in 2023 increased by 11% to CHF 625 million. This corresponds to a free cash flow margin of 20.3% and an EBITDA conversion rate of 67.9%.
Net cash flow from operating activities increased by 17% to CHF 858 million. This was mainly due to lower inventory levels in 2023, resulting in the positive development of the net working capital. CapEx increased by CHF 44 million, and as a result, free cash flow landed at CHF 625 million. In summary, the higher EBITDA and the improved net working capital compensated, overcompensated, actually, the higher CapEx. I will now comment on the balance sheet in 2023. Overall, we see a strong FX impact on most balance sheet positions. Two comments on the asset side. The net cash position increased by CHF 151 million, reaching CHF 357 million. This growth was driven by the issuance of a new bond.
Net working capital decreased by CHF 41 million due to a lower inventory level. Total debt increased to CHF 1.321 billion. This increased debt position was partially compensated by the higher cash position, resulting in an increase of net debt by CHF 141 - CHF 965 million. Equity decreased in absolute terms due to the share buyback program and FX effects. The balance sheet remains very strong, with an equity ratio of 37% and a net debt to EBITDA ratio of 1.0x. Commenting on the share buyback program, in June 2022, we started our latest share buyback program with an execution period of two years and a maximum volume of CHF 650 million.
In the course of 2023, we bought back around 493,000 shares in the total amount of CHF 238 million as part of this new program. Since the start of the current program, we have bought back around 1 million 121,000 shares in the total amount of CHF 524 million. Let's turn to the dividends. For 2023, the board of directors proposes a dividend of CHF 12.70 per share, an increase of ten Swiss cents or 0.8%. This is the 13th consecutive year with an increasing distribution per share. Even since the IPO, the distribution per share has continuously increased, with the exception of two years in 2001 and 2010.
The payout ratio of 70% of net income is at the upper end of the 50%-70% payout corridor. Since 2014, the distribution per share in 2023 has increased by 53%. With the current dividend proposal and the ongoing share buyback program, Geberit continues its stable and attractive distribution policy, which has been applied for many years. Let me briefly comment on our shareholder distribution policy over the last five years. Since 2019, Geberit has generated about CHF 3.4 billion free cash flow. This corresponds to an average free cash flow margin of 21% of net sales. From this accumulated free cash flow, an amount of CHF 3.2 billion, or 97%, have been distributed back to shareholders via an attractive mix of dividend and share buybacks.
In 2023 alone, we distributed over CHF 662 million to shareholders through the dividend and the share buyback program. These numbers confirm Geberit's ability to consistently generate stable cash flows over an extended period, even during crises, reflecting our shareholder-friendly distribution policy. With this, I hand over to Christian.
Thank you, Tobias. Let me continue now with an outlook on the building construction industry this year. We expect, again, a very challenging environment with an overall declining building construction market this year due to increased macroeconomic pressure and ongoing geopolitical risks. Let me start our market outlook with Europe. The increased building costs and interest rates over the last two years significantly dampened demand for building construction activities, especially in the new build sector. Building permits in Europe declined by almost 20% in the first nine months of 2023, mainly driven by the residential sector, leading to a contraction of the European new build construction business this year. The strongest decline of the new build sector is expected in Northern Europe and in Germany. The most robust new build sector should be seen in Switzerland due to lower inflation and lower interest rates.
Unlike the new build sector, we expect the renovation business, in which we generate around 60% of our sales, to be more robust, mainly driven by the fundamental need for renovation in several European countries, and no additional pressure from the shift from sanitary to heating solution, as experienced last year. Despite the overall negative sentiment for the building construction industry, we expect several positive catalysts for the sanitary construction markets. For example, the general and structural trend to better sanitary standards and a strong demand in several markets outside Europe, for example, in India or the Gulf region. The overall weak market environment became also visible in the business performance of the first two months of this year. Net sales in January and February declined like for like, however, at a slightly less, less negative decline rate compared to the full-year 2023.
Please keep also in mind that Q1 this year will have one working day less due to early Easter break in March this year. With this, I come now to the Geberit outlook for this year. The overarching objective this year is to gain further market shares regardless of the declining market environment. We stick also in 2024 to our two guiding principles: strategic stability and operational flexibility. The purpose of these principles remains to manage the volume uncertainties in 2024 with a maximum of flexibility, but without harming the midterm potential of our business. This means that we continue to execute on our strategic agenda as presented at the Capital Market Day last October. We will further execute our growth initiatives and further invest into our businesses, processes, efficiency, and especially into R&D.
Innovations will remain a key pillar of our strategy to further strengthen our market position. Therefore, let me now present our new product introductions this year. I start with Silent-Pro SuperTube. We will roll out the SuperTube concept to our existing noise-insulating drainage pipe system, Silent-Pro. The SuperTube concept saves space in buildings, since the ventilation pipe in drainage systems can be omitted, thanks to optimized hydraulics. The new system was developed and optimized for mid-rise buildings. With this, it's perfectly positioned to target the multifamily house segment in Europe. Another innovation this year is Mapress Therm. Mapress Therm is a supply piping system specifically designed for heating and cooling applications. This low-alloy stainless steel system provides excellent corrosion resistance at a competitive price level. Moreover, the new system reduces potential installation mistakes. Therefore, it is particularly suited for installation companies lacking skilled laborers.
With Geberit Connect, we introduce a central communication tool for Geberit products. This hardware box works like a router and connects centrally all Geberit devices in buildings. One benefit of Geberit Connect is the central access and control of facility managers to Geberit products. For example, the transparency on user frequency or failures. A second application of Geberit Connect is an improved drinking water hygiene. Facility managers can customize and run efficient flushing programs across the entire building. Let me briefly show you a video about the new Geberit Connect. Another new product this year is the renewed ceramic series, Bambini, for children. The series now includes also shrouded and rim-free WCs and creative washplaces for different ages and sizes. It's a perfect product for Kitas and other applications, obviously. In the product line of shower toilets, we will introduce the new AquaClean Alba.
This new shower toilet has an appealing design at a very attractive entry price point. The new Alba looks like a normal toilet, is equipped with the basic functionalities of a shower toilet and the latest flushing technology, and is positioned at an end consumer price of around EUR 1,000, a relatively small surcharge compared to a normal toilet. The substantially lower price point allows us to target more price-sensitive end consumers, real estate developers or real estate companies in the rental business, and hotels. The last example of our new product introductions this year is the Geberit Mix and Match concept for washbasins and furniture. It allows end consumers to freely combine washbasins and furniture across the core series, Geberit iCon, Acanto, and Geberit One. This modular principle enlarges the product offering for end consumers, simplifies the decision-making, and eases the orientation within the assortment.
Mix and Match is also beneficial for the plumber due to a standardized installation. In addition to introducing new products, we will focus on various other initiatives this year to strengthen our market position. First, we will invest into dedicated sales initiatives in emerging markets, for example, in India, to strengthen the local organization with additional salespeople and targeted marketing efforts. Secondly, we will increase our marketing expenditures in the context of the launch of the new shower toilet, Alba, and our 150th anniversary this year. And thirdly, we will further increase our investments into IT and digitalization, specifically into IT security and AI initiatives. In total, we will increase our operational expenditures by CHF 30 million this year for these initiatives. Let me continue with our CapEx plans for 2024.
Overall, we plan to invest again around 200 million CHF, driven by a few larger investment projects, which are already in the implementation phase. Let me briefly update you on these large ongoing investment projects. In Lichtenstein, Germany, we are in the process of expanding our plant for installation frames and prefabricated installation systems. The investment amounts to EUR 56 million, with a payback of 3.3 years. In Pfullendorf, Germany, we are currently expanding our plant for framing walls, in-wall cisterns, and toilet seats. This investment amounts to EUR 23 million, with a payback of 1.4 years. In Pfullendorf, also, we are building a new customer training center for EUR 37 million. This new building provides 5,000 square meters of capacity to host state-of-the-art training and exhibition formats for our customers.
Let me continue with an outlook on investment projects in our ceramics manufacturing network this year. We have launched a specialization initiative of our ceramics manufacturing network. The target is to improve our production efficiency, the product of the quality and availability, and the environmental impact. Applying the same one product, one plant principle, as successfully implemented in our metal and plastic plants, we have started to specialize our ceramic plants in terms of specific product portfolios and production competencies. To illustrate, in the Nordic region, we leveraged the regular plant renewal cycles of our manufacturing facilities in Ekenäs, that's Finland, and in Bromölla, in Sweden. Going forward, the Ekenäs plant will focus on the production of wall hung, rim-free toilets, and washbasins. Whereas Bromölla plant will focus on floor-standing toilets and exposed cisterns.
Therefore, we are investing CHF 9 million in these two plants in fully automated pressure casting cells. Let me continue with a few other investment examples in the area of piping systems. In Givisiez, Switzerland, we will invest CHF 3 million to insource the production of polybutene pipes. The additional extrusion line, with higher efficiency, has a payback of 4.3 years. Also, in Givisiez, we will invest CHF 1 million to automate the packaging process and, of piping bars. The new fully automated packaging and palletizing cell will simplify material flow, eliminate work in progress, and improve productivity for the production of MEPLA and Flowfit pipes. The payback of this investment is 2.7 years. In Pune, in India, we will invest CHF 3 million to localize the production of polyethylene drainage pipes currently manufactured in our plant in Italy.
The payback of this capacity increase is 2.6 years. Let me close our presentation with a short summary. 2023 was one of the most difficult years for Geberit, with an unprecedented volume contraction. Nevertheless, we managed to increase our margins again and to deliver good bottom-line results, thanks to an excellent operational flexibility and cost discipline, and a successful management of the high inflation phase over the last two years, with a consequent and disciplined price management. Despite the very difficult market environment, we stuck to our strategy and focused on the execution of various initiatives, with the highest CapEx in Geberit's history. We also launched, again, several new products and further rolled out Flowfit. With a free cash flow margin of 20%, we have proven that we are able to generate very high and industry-leading cash flows, even in a contracting market environment.
We also distributed, again, more than 100% of free cash flow to shareholders last year. We also, for the second year in a row, significantly reduced CO2 emissions last year. Let me briefly summarize our outlook for this year. For 2024, we expect overall a decline in building construction market, due to the ongoing challenging macroeconomic environment and geopolitical risks. We expect, again, a high wage inflation of around 5%-6% in 2024. However, raw material prices are expected to slightly decline sequentially in Q1 2024 versus Q4 last year. Our two guiding principles remain to be operational flexibility, combined with strategic stability, regardless of the prevailing market environment. In line with this long-term view and thinking, we will focus on various initiatives this year, as outlined before, with additional operational expenditures of CHF 30 million.
Geberit remains strongly positioned, even in an environment that has become significantly more difficult. The fundamental success factors for our business remain a clear and stable strategy, a resilient business model, a strong focus on innovation, efficiency improvements supported by continuous investments, a functional and lean organization with high level of internal expertise, and finally, a strong and down-to-earth corporate culture that suits our customers and is lived by motivated employees. These factors form the basis for further value creation for our customers, our employees, and for our shareholders. With this, we are at the end of our, of our presentation. Here you see the dates, the financially important dates for 2024. And before we go into the Q&A session, I want to finish the presentation with a short movie about our new shower toilet, Alba. And what you will see is the Alba.
There is a lake called Alba in Switzerland, and that is the start of that movie, and then we go into the Q&A session. For the participants in the room, you will have. Sorry. You will have the chance to see the product live, obviously, afterwards. Only look, not use. Okay, with that, we are opening the Q&A session. Mr. Rosenau?
Thank you, Christian. Obviously, with Geberit, it's always difficult to judge, you know, looking at the volumes, how much is the underlying market, how much is the inventory cycle contributing to it? Now, in the fourth quarter, we have seen again, for the first time since the four quarters, positive volumes at around 6%, I think. Now, this could point to at least a turning point in the inventory cycle. I mean, would you agree on that, or were there any other special effects? Or were there any other special effects in the fourth quarter which could have impacted these volumes, which we are not aware of?
We believe the main reason why we have seen a volume increase in the fourth quarter was just a base effect, because the fourth quarter, 2022, was the first very weak quarter with a volume decline due to destocking. Listening to wholesalers, we have not heard that there was any change of inventory management in the fourth quarter, so they kept it more or less stable on a below normal level.
Okay, but the message is that the inventory levels are now already below average?
Yes.
Not normalized, below average.
So if you go back two years, two years ago, let's assume whatever the level was, it was a normal level of wholesaler inventory levels. It went up due to the price increases, and the peak was after Q2 2022, the last big price increase. And since then, we have seen a decreasing level. We assume that it was around a normal level at Q1 last year, and went below normal level until end Q3, and that's where it stayed.
My second question is, on the conference call in January, you said that you will not do this usual 1%-1.5% price increase across the board. However, will you do still a few, you know, individual price increases here and there, or not even that?
No, not even that. It's a zero price round across the portfolio.
Okay. Thank you.
You're welcome. Mr. Hüsle r?
Thank you. My first question is about your outlook on the renovation market, actually. Obviously, you state that new builds may be minus 15%. What's your take on renovation? And shouldn't we assume that the importance of renovation has become much stronger because we have a decline in new builds, and which probably helps to kind of for your products, which with higher price points? That's my first question.
Talking about the market, obviously, if new build goes down massively and renovation less or even slightly up, then the shift is moving, clear. The question around the price point, I'm not sure if I understood the question, but we don't have any different price points between new build and renovation. The question where we have different price point is if there is a large project, obviously, you have also a little bit of lower price point, independent of new build or renovation. That doesn't play a role?
No, no, I just thought that maybe in renovation, there's might be a bit of more upselling, so you go for a nicer bathroom once you renovate it, so.
I would agree on that, yes.
Share of wallet, yeah. Okay, and then the second question may be a bit more philosophical one, but if in Germany, for example, the installers face such a decrease in the market, what do you see at installers? Are there people going out of business, or how do they get new orders? Because I think -15% or so in new builds is quite significantly. And is there a certain risk that maybe once we would have an upswing, maybe in 2025, there might be capacities missing on the installer side?
No, I do not see that as a significant risk, because don't forget, a plumber still has a lot of work, but it's more shifted to heating. So from his point of view, it's not that bad. But obviously, all these shifts and uncertainties is also a challenge for a plumber. It's also a challenge for wholesalers, by the way, not only. But I don't see, or we don't see any significant capacity reductions, but I would not exclude that some of the many, many players are getting more and more in difficulties because of this uncertainty shift, who have maybe the wrong products on stock. But in general, this lower demand for sanitary products does not mean that we should assume that the capacity in the same amount would go down.
Okay, thank you.
Mr. Arnold?
Yeah, Christian Arnold from Stifel. On the new build weakness, to what extent has Geberit's P&L actually been hit from this weakness in 2023? And to what extent or to what much larger extent will Geberit being hit from this new construction weakness in 2024? Do you have a feeling for that?
It's a very difficult question to answer because that would mean or imply that we have a view how much was stocking effect in 2023 versus fundamental, in that example, new build decline. We don't know, but I think in relative terms, the impact, whatever it was last year from the new build sector, was less severe than what we have to expect this year. I think that is quite clear.
Okay, but no, no, no quantification on.
We can't.
No.
We can't.
Okay. Then maybe on the CapEx, I mean, having volume decline of 13% last year, I think 4% the year before, you are actually investing a lot in expansion still, in 2023, CHF 80 million, I think also in 2024, if I calculate correctly, CHF 80 million. I mean, I know you're thinking long term, I know there's probably production which has to be built up for Flowfit, but it looks like that you are actually building up a lot of expansion. Does that mean that maybe going forward, 2025, 2026, your CapEx will be clearly lower because you have enough production capacities for years?
So these larger capacity expansions, which I also explained in my presentation, the two in Germany, actually, we decided these capacity expansions more or less in, I think it was 2020 or 2021. In all fairness, if you would have known that in six months, nine months, in terms of. We would have delayed that maybe a bit, but it's now in the building process, and maybe it's a bit too early, I agree.
It doesn't matter that much. Therefore, if I could turn back the time, we would have waited a bit, maybe. But, n the other hand, we have maybe still the lower prices, because now everything is 20% more expensive, therefore.
True. My last question, maybe on the scale effect. I mean, in the past, you were talking about positive scale effect kicking in with a organic growth rate of 3%-4%. Now, looking at last year's performance is -13% volume, and actually just scale effect, negative of 3%-4%. Do we have to assume that this positive scale effect will actually kick in earlier, based on where you are right now? So kicking in already with a organic growth rate of 1%-2%.
I will formulate the answer differently. I would assume more or less a symmetrical operating leverage effect. If you go up with the same volume effect, you have more or less the same effect than on the margins again.
Okay. Thank you.
Mr. Fehrenbach.
Fehrenbach, AWP. Regarding the share buyback program, this runs till June this year. You're something over CHF 520 million. Will you go to the full amount with that? And is a new share buyback possible? And the second question is, a year ago, you disclosed with the press release to the year-end results that Mr. Baehny applies for another year as chairman. We didn't read anything about that. How, what can we think about this? What do you know, or what can you say? And just an understandable question, did you say that the sales in January and February of the group, compared to the previous year, were slightly lower? What's correct?
I would.
Thanks.
To the share buyback program, the current program is delegated to a bank, to a third party, so we don't know exactly where we will end. There's a certain flexibility. I can't give you the precise answer.
It will maximum CHF 650 million. The question about the new share buyback program, that will be discussed in one of the next board meetings. It's not yet decided, so I can't give you an answer here. With regards to the chairman, all board of directors are up for re-election and are up for re-election at the general meeting. So we don't expect any changes in the board of directors. Number three, to January, February, net sales in January, February, were like for like below previous year's level, so it declined. A little bit less severe than what we have seen in the full-year 2023, so a little bit less than the -4.8% what we have seen last year.
Yeah.
Hi, John Revill, Reuters. I've got a couple of questions, if I may. First of all, the franc took a big bite out of your sales last year, and as Mr. Knechtle said, since 2019, it's taken CHF 570 million out of your sales. I was wondering, how much of a concern is this? How much, how much of a general pain is this for the company? And how does it affect you moving forward? That's my first question. And the second one is, Red Sea logistics problems, which a lot of companies have had. Has that been an issue for Geberit in terms of either shipping stuff out through the Red Sea or bringing stuff, I know, components, in through the Red Sea, and how are you dealing with it? And then the final one is just China.
I know it's a small market for you guys, but just how do you see the Chinese market moving forward this year? Thank you.
To the first question, it doesn't bother us a lot, to be honest. Obviously, it's a translation effect. It's bad for Swiss investors. But the more important part is what happens to margins. If you look what happened to the margin over the last four years, although we lost 18% currency-wise, relatively, that has a lot to do with what Tobias said, the natural hedge, which we are following since years. That's a very good example of continuous strategy execution. We continuously manage. So therefore, it doesn't. There's been a positive thing. You know, this constant pressure from the strong Swiss francs keep you fresh, keeps you fresh and alive. It forces you to be innovative, to develop products like Flowfit, by the way, fully developed in Switzerland, 100% manufactured in Switzerland. That gives you pressure.
You know, the currency is like a competitor sometimes, and that is helpful. Therefore, bad for Swiss investors, but, for us, not really the big topic. The logistics, similar answer, there was no big impact, due to the logistic issues in the Red Sea. That has a lot to do with our very regional supply chain setup. We are depending almost, not zero, but relatively limited from any imports, from Asia, for example, to Europe. And also, that brings me to question number three. For the local markets in Asia, we are manufacturing locally in China and India, therefore, also the other way was not an issue, to that extent. And in China, the market is very difficult. Already last year, will be so also very difficult this year. As you all know, the real estate sector is in a strong decline.
However, we are quite okay, I would say. We lost sales last year, but in a range which is still okay. But as you said, rightly, it's also not a big part of our business. The last row.
Nathalie Olof-Ors from the Agence France-Presse. You still have a factory in Ukraine, and I see from your annual report that you had several interruptions during the year. If you could give us some details on how you're coping with the situation, how difficult it is to get products in the country, out of the country, and keeping the factory running, and how committed you are to maintain operations in Ukraine now?
So it's obviously a very challenging situation. We had, have two or three interruptions last year, couple of days, two, three weeks. The plant is located in the western part of Ukraine, so about 300 km west of Kyiv, so it's not that close to the war zone. But the biggest impact is obviously that we have a high number of employees which are in service, in the military army service, around 100 people. Nevertheless, the colleagues do a great job. The remaining colleagues, they are still producing, and we are also able to bring out products out of the country. However, about 50% of manufacturing is for the local market anyway, so it's kind of limited export exposure. But it's running, and we also stick, obviously, to this plan.
If I may add, how has the situation evolved from 2022- 2023? Has it improved, become worse? What's difficult in running this operation?
If I may say so, sorry for my word, but it's a kind of a normalization of the situation in obviously, in a war situation. And if you ask me, it's quite surprisingly normal how it runs. Even the output is almost at normal output. I think it's about 80%-90% of the output what we have generated before the war. Yes? Oh, sorry, sorry, yeah, webcast. Sorry.
So there are a couple of questions from the webcast. First of all, Daniela Costa, Goldman Sachs. One question: Can you comment on the extent of raw material tailwinds expected in 2024?
We can comment on the first quarter that we expect that in the first quarter, raw material prices will be slightly below Q4 level last year. Further out, we can't just due to the fact that we are not hedging any raw material prices. We are buying most of the raw materials on a monthly basis, so we don't know.
Okay, next question from Arnaud Pinatel, On Field Research: Could you please comment on the activity you see in the first months of 2024?
I think that's what I said before. Sales decline a little bit less severe, like for like, compared to full-year 2023.
Then a question from Elodie Rall from JP Morgan. You expect global renovation to be more resilient than new build activity in 2024. First, do you expect overall renovation volumes to be positive in 2024? And second, could you provide the outlook for renovation for the main European countries, please?
First of all, our statement were mainly mainly made for Europe, and we don't talk about the global world. We are mainly a European company with 90% in Europe. We don't know what happens in South America. Number two, we don't know if the renovation sector will decline or grow, but what we are very confident, it will be more robust compared to the very weak new build sector. If it will grow or decline, is very hard to predict. It's also hard to find any indicators, giving us an indication quantitatively how the renovation market is going. Therefore, I can't give you a precise answer.
Okay, then two questions from Axel Stasse from Morgan Stanley. First of all, when demand picks up, is it fair to assume cash flow on the per-performing earnings recovery due to working capital investments? Or would you say the step down in working capital is sustainable?
There's always a positive correlation of inventory and working capital, et cetera, with the uptick. So yes, if there's an uptick, net working capital would slightly increase, but it's normally not a massive correlation.
Okay, and the second question: Could you please explain why personnel cost increased by high single digit in full-year 2023, while you cut full-time equivalents by 5%? How should we look at this heading into for full-year 2024?
So we have in Q4, which I guess is the core of the question. We had a one-time inflation compensation payment in Germany, which is non-recurring. And, as for the outlook of 2024, there will be increases, but we don't quantify it at that time.
Thank you. Then the last question group from Christoph Derschau. First of all, you are not mentioning your midterm guidance in the release that you normally always refer to. Is that on purpose or just coincidence?
No, that's not on purpose. We didn't change the midterm guidance, but we just don't repeat it every day. I guess you know it.
Me, yes.
No, no hidden message or something.
And then second, where do you think we are in the residential cycle, especially in Germany and Northern Europe? Have you seen the bottom?
We would be very happy to know that, obviously, but we are definitely in a cycle, not yet on a reversal or turnover, as you said before, Mr. Rosenau asked before, not at all. The key question is, are we at the bottom? Is it going further down? New build, definitely not at the bottom. That's going further down, no question. Hard to say, hard to predict.
Okay, and the last question from Christoph Derschau. You reduced employees by 5% in 2023, primarily temporary workers. Should we expect a similar number for 2024 as the material, the market environment remains challenging?
That all depends on the volume development. So if volumes would stay stable scenario, then people will be more or less stable. If volumes would go further down, we still have capacity in terms of flexibility, also in terms of temporary employees. And don't forget, natural fluctuation is always also a contributor, so it depends all on the volume development. That's the key of the word operational flexibility. Yeah, Mr. Flueckiger.
Thanks. Martin Flueckiger from Kepler Cheuvreux. I've got several questions, but I'll go one at a time. Let me scroll back up. Firstly, could you elaborate a little bit what you're expecting into. I've understood your guidance regarding zero round for pricing in 2024. But, if I'm not mistaken, there's still a carryover effect in Q1. Could you remind us where, about the magnitude of that, please? That's my first question.
So mathematically sharp, there's no carryover effect because the last price increase we implemented in January 2023. However, as you know, sometimes you have some delays because products are delivered still a little bit later than what expected. There might be a little bit of carryover effect, but sharply, technically, there should be none. But a little bit of hangover, not hangover. What do you say?
Carryover.
Carryover. You still have.
Hangover comes afterwards. Yeah, joke aside, second question. You were talking or repeating your guidance on the increased OpEx spend by CHF 30 million this year. Could you provide us with some more granular guidance with regards to the phasing across the four quarters, please?
Honestly, no, because we don't have it exactly. That's across the year. As I, as you said before, that's for marketing expenditure in, in the context of our 150th anniversary, that I would assume is more or less flat. We do some specific activities around Alba. That's also more or less flat because we already started with these things. IT, I would also assume there is more or less a flat increase. I don't know.
Okay, so ballpark CHF 7 -CHF 8 million incremental every quarter. Thanks. And, regarding the medium-term tax rate, forgive me, if you've already talked about this at the sales call back in January, but could you just remind us, what we're looking at, going forward over the next three years?
So for this year, we expect 19%-20%, but then a bit longer term, and that really depends as well on the volume recovery, volume mix, et cetera, it should then tend lower than that, probably between 18%-19%. But that is really depending on the country mix then.
Right. Got it, thanks. And, okay, wage inflation, no guidance. Did I understand correctly?
Yeah. I mean, to be a bit more precise, I think we can do that, probably again, between 5% and 6% for this year.
That high?
Yeah.
How come?
The mix of countries we have, Eastern Europe, Germany, et cetera.
Thanks so much.
If you read the news about the Germans, and you should not be surprised. A large inflation, we have also wages in Austria and Poland, by the way.
Right.
But the bulk charge is Eastern Germany.
Okay, speaking about Germany, any strikes being threatened to you?
No, no.
Okay, thanks.
Good.
Again, a couple of questions from the webcast. First of all, George Devas from Maine: Do you expect the decline in new build to have greater impact on sales as you progress in 2024, compared to January and February? So going forward.
I don't know, but it has an impact, obviously. I couldn't make a differentiation between January and February and the rest of the year, and then also for the new build. I don't know. New build has an impact on our business this year. That's quite obvious.
Okay, then a couple of questions from Manish Beria, Société Générale. Your volume are down 6% in full-year 2023. This could be due to big impact from destocking. At the same time, you are investing, and investing a lot. So can we say that your organic growth, when market is more normalized, your initiatives will pay off with much higher growth rate versus 3%-4% organic growth in the pre-pandemic times?
So of course, the overall objective is that we invest in this difficult market environment to get the benefit of that in then better times, obviously. And obviously, also to have then stronger, better growth rates than compared to what we see now at the last, the last year. Obviously, yes. In average, structurally, do not see any reason that we should have midterm another growth rate than what we have in our midterm targets, the not mentioned 4%-6%. That doesn't change.
Okay, next question. In the past, also, Geberit was gaining market share, but you are introducing new product innovations and marketing investments. So does that mean that your market share gain could be more versus history?
I think if you go into history, you will realize that the market share gains of Geberit were always higher than normal in the most difficult times. So we are in a difficult time. It's not yet over. We don't know how long it lasts, but the probability that we can use this phase in a disproportional market share gain, I would say, is quite high, based on the past of the last 25 years.
Okay, thank you. Last question: How much was the energy cost in full-year 2023 and in full-year 2019? So probably to compare-
2023, it was CHF 57 million. Energy cost, that's 1.8% of net sales. Energy prices were down 37%. In other words, it was almost CHF 100 million, was the peak in 2022. I don't know 2019 as a number, I guess you neither, but,
No.
It was definitely still lower. I would assume CHF 30-CHF 35 million, something like that. CHF 35, I would assume, in 2019. So we are at a higher level than pre-energy crisis, but massively lower than obviously in the year 2022.
Okay, then, and next question from Harry Dow, from Redburn Atlantic. Can you comment on industry competitor pricing behavior?
I can, but I don't, because we don't comment, obviously, also for legal reasons, any competitive price movement, pricing movements. We don't.
The second question, in the statement, you talk about continued high margins in 2024. Should we consider this still within the 28%-30% target range?
For 2024?
2024, yes.
As you know, and as we do that since 25 years, since we are a listed company, we only provide the guidance for the year for top line and margins with H1 results. By the way, to remind some maybe of the newer participants, the reason why we have no financial guidance at the beginning of the year has very much to do with our visibility, which is very, very low. The visibility of our business, I have to remind you, maybe, is two weeks. Also, now, we know exactly we have an estimate for the next two weeks. That's the order book which we have on hand, and this is the reason why we can't provide any financial guidance as since 1999, not at this point in time.
Okay, then the next question from Jon Bell, from Deutsche Bank. What is the latest situation on heat pump subsidies in Germany? How do you see this competing sub-sector behaving at present?
There are still subsidies for that. I don't know exactly the latest detail, because it's so fastly changing and, to be honest, also very difficult. I tried to understand the so-called, this energy law. You need a PhD to understand what is exactly going on there. My remark to that is, it creates a lot of uncertainties, and it's extremely difficult for all, not only end consumers, also for all market participants. And this is a huge hassle also for the heat pump suppliers, for the adjacent businesses as we are. It's, sorry to say, it's almost a mess, and that makes it very difficult, and also, we don't spend any more time to understand every second month what has changed. Again, our answer is we need to be flexible. Whatever happens out there, we need to be flexible and don't spend too much time.
Therefore, I can't give you a precise answer what is the latest subsidy program and how much you get in which situation. It's highly complicated.
The last question from my side, from TS, from Carlton. Any new big innovation in the pipeline, similar to the importance of Flowfit?
Obviously, any innovation is important. Similar to Flowfit in the extent that it could be a blockbuster, meaning relevant sales, relatively fast, I would say no. Because we have important products like the SuperTube, as mentioned before. Alba is a very strategically important product for the, for the category of shower toilets. But in terms of share of sales, I think, the example of Flowfit, you have maybe every 10, 15 years, and I wouldn't say that we this year have kind of a Flowfit blockbuster in the new product sort. Mr. Rosenau.
Tobias, you mentioned just before this some kind of special payment, wage payment in Germany due to bonus something. I mean, could you just repeat? I mean, what was that exactly, and, and how large was it, as it was non-recurring?
Yeah. So it was a one-time inflation compensation payment. Instead of increasing the salaries, it was a one-time inflation payment. The wage inflation in Q4, I think, was at 8.7%. Without that, it was at around 6.3%, I believe.
Oh, okay, 6.3 versus eight point. Okay, so the normalized number would be 6.3.
Yeah, round about. I don't have that exact, but, slightly above six.
Okay. Thank you.
Mr. Uzel?
You mentioned that you will divest, or you divested in Scandinavia, the shower enclosure business. Do you have any other non-strategic businesses that might be up for sale?
Not at the moment, no. There are always small, little things which doesn't fit perfectly, but nothing at the scale like, like this Nordic shower enclosure and cubicles business.
Could you maybe share a bit, some insights on the prefab business, which I think, is quite a successful growth story? How did this, develop last year? What size might it have, roughly, and where might it grow to?
So the share of prefab business, compared to total Geberit sales, to the CHF 3 billion, is a low single-digit percentage. But if you go into the relevant business, so the installation system business, there is a double-digit percentage part of the business, so it's a relevant one, and it's growing, and it's growing faster, or it's growing. The rest is not growing. Therefore, we are happy. We are currently, as I mentioned also before, also investing into the prefab business in that plant in Lichtenstein. It's a smaller part of the CHF 56 million. We are also investing into the sales organization there, meaning capacities and competences, and we are also investing and having more efforts into what we call the OEM business in prefab, so directly supplying our products to, for example, prefab house manufacturers.
However, this segment is also suffering at the moment, obviously, for example, in Germany. Therefore, this business, for example, is not growing because this new build prefab house is also suffering.
Thank you.
Roman, webcast?
No. No. Oh, sorry, Paul. Yeah, sure. Thanks. I'd just like to come back to the energy cost topic, you. I think Tobias was mentioning earlier on. So if I understood you correctly, we're still some CHF 22 million higher in 2023 versus the 2019 level. I realize that there's some geopolitical element to energy prices, but as things currently stand, and you know, just wondering how you're trying to budget things here, what kind of incremental tailwinds can we expect in terms of energy cost savings in 2024? And I understand if it's difficult to predict, but if you could, you know, provide some ballpark guidance, that would be super useful. Thanks.
So on the prices, we don't make an outlook. We don't expect big movements, round about, and of course, then the energy consumption depends on the volume. But maybe also it's the time to say that all the CapEx we do also have a positive impact on our energy consumption. All the new plants and new machines are much more energy efficient.
Okay, thanks. Just one question, Tobias. Can you repeat again the wage inflation expectations for 2024?
5%-6%.
Thank you.
I think there are no more questions. With this, I say thank you to the participants at the webcast. We wish you a great day.