Good morning, ladies and gentlemen. Welcome to our analyst conference here in the room and also at the webcast. As you can see, unfortunately, I'm alone today. Tobias Knechtle is unable to be with us today due to a death case in his family. There are sometimes in life priorities, and that's clear now the priority is with his family and not the conference today. He's fine, all good. He's just not joining today. I will present tday on my own, and the presentation is structured as follows and as usual. First, I will start with an overview of 2022. I will then comment on the sales development and now also on the financial results. Thereafter, I will talk about the outlook for the year in terms of market, but also Geberit, and then, I finish with a summary.
Let me start with our key figures. 2022 was a very challenging year for Geberit. However, we managed to deli ver good results after the record year of 2021. Net sales grew in local currencies by 4.8%. EBITDA declined from the historical record high level in the previous year to CHF 909 million. The EBITDA margin reached 26.8%, mainly due to the unprecedented input cost inflation and the delay effects in our industry to pass on prices. EPS increased by 4.7% in local currencies and reached CHF 20.48. We also achieved a significant reduction in relative CO₂ emissions by -22%, thanks to our new CO₂ strategy introduced last year here in this room.
The strong cash generation and strong financial position allowed to distribute CHF 1 billion to shareholders in 2022, corresponding to 6% of the market capitalization per end of last year. The board of directors proposes a dividend of CHF 12.60 per share, which corresponds to an increase of CHF 0.10 per share. This confirms once again our shareholder friendly and attractive distribution policy. The year 2022 was characterized by a very different dynamic in the first and the second half of the year, leading to strongly fluctuating volumes in the course of the year. Sales volume reached new record levels in the first half due to the ongoing demand from the COVID-19 induced home improvement trend and the buildup of inventories at wholesalers driven by the expected extraordinary price increases.
This environment reversed in the second half of the year, with wholesalers starting to de-stock their record high inventory levels and the COVID-19 induced home improvement trend came to an end. The energy crisis in Europe led to a temporary shift from sanitary to energy-related renovation activities in a selected number of European countries. A key driver for the volume volatility were the extraordinary sales price increases to compensate the historical surge of raw material and energy prices. This unprecedented and unexpected volatility of volumes was a huge challenge for operations, requiring enormous flexibility in our plants and logistics centers. Let me therefore briefly comment on the unprecedented cost inflation seen last year and impacting Geberit as well.
After raw material prices already rose significantly in 2021 due to the COVID-19 supply chain issues, raw material prices further increased last year after the outbreak of the war in Ukraine. Since then, we have seen only a slight relaxation with slightly declining raw material prices since May, as you can see on the chart on the top. In total, average raw material purchase prices in 2022 were currency-adjusted 19% above full year 2021. As a consequence, raw material prices were at the end of last year, still more than 30% above the level of January 2021, so a little bit more than two years ago. Obviously, the impact of the war in Ukraine on our energy prices was even more pronounced. You see that on the chart below.
After the jump in March, the peak was reached in late summer, when the fear of energy shortages in Europe ahead of the winter started to emerge. Our energy prices, average energy prices doubled in 2022 compared to 2021. The higher raw material and energy prices led in total to an additional cost of more than CHF 240 million. This is more than 30% of the previous year's profit. Thanks to our consequent price increases, we managed to fully compensate raw material prices as of Q3 and to overcompensate raw material and energy pric es as of Q4 on EBITDA margin level, as we will see later on. Let me now go into a bit more detail about our various initiatives and business activities in 2022. I start with our customer activities as usual.
We focused again on the B2B key decision makers for our business, which are mainly sanitary plumbers and planners, but also bathroom showrooms and retailers, architects, real estate investors and developers. In total, we conducted 461,000 individual customer contacts last year. Typically, that is a physical or a virtual meeting. 461,000 contacts corresponds to almost 2,000 high quality customer contacts per day. We trained 67,000 customers in one of our training centers, which corresponds to an increase of around 80% versus pre-COVID-19 level 2019. This increase was possible thanks to newly introduced digital training formats. The number of participants at customer events doubled compared to 2019 and reached 75,000 participants last year across 4,000 events.
One important topic was our new piping system, FlowFit, for which we developed a dedicated event format, for example, in Germany with FlowFit on Tour, and you see a picture from this event bottom right. Let me now continue with some examples of our marketing activities last year. We put again a strong focus on digital marketing tools and activities. In B2B, we concentrated on the further development and rollout of various established tools. For example, our plumber app for professionals providing support on construction sites. The usage of the app is continuously increasing with 750,000 active sessions only last year. We further rolled out our installation calculator, the so-called GIS Duofix Calculator in four countries, and we continued to further penetrate our plugin for the Autodesk BIM software.
This plug-in is now used by more than 8,000 professional sanitary planners working with BIM. In B2C, we developed a new lead generation tool which we have piloted in Switzerland last year and further rolled out our wash place configurator and 3-D bathroom planner in European and selective international markets. As part of our physical marketing activities, we rolled out our new exhibition concept, House of Geberit, last year. We will use this new fair format also at the upcoming Global Sanitary Fair, ISH, in Frankfurt next week. In total, we spent last year CHF 99 million for marketing activities, which corresponds to 2.9% of net sales. This is slightly less than in 2021, mainly driven by the currency development and efficiency gains. We spent 27% of total marketing expenses for digital tools and digital channels.
Let me now turn to the innovation and our new product introductions last year. In piping systems, we further rolled out our new supply piping system, FlowFit, in Italy, Belgium, Nordics, Croatia, and Slovenia. In installation and flushing systems, we introduced the new concealed system, Alpha 8 centimeters, for the Indian market. In bathroom systems, we extended our Geberit ONE wash place offering, allowing now for more than 2,000 different wash place configurations. In our shower toilet business, we introduced the AquaClean Cama in Switzerland, which is the first self-installable shower toilet. Cama is used either as testing tool for end consumers or as a sales product to target the tenant market. Besides these new product introductions, we continued to invest into our innovation pipeline last year. In total, we invested CHF 72 million in R&D.
This is slightly below last year's level, mainly due to development of FlowFit in the previous years, which was the largest R&D project in Geberit's history. We have consistently filed a high number of patents over the last years, largely driven by combined innovations behind and in front of the wall. On average, we have filed 35 new patents per year compared to an average of 20 patents before we acquired the ceramics business. Let me now comment on our CapEx in 2022. CapEx reached CHF 155 million, 8% below previous year. The decrease is mainly driven by the currency development and the delay of a few projects. Overall, 53% of investments were dedicated to modernization and rationalization and 38% to capacity increase. Investments in new products corresponded to 9% of CapEx last year.
Let me now give you a couple of examples what we did with the money last year. In Pfullendorf, Germany, we have built a new assembly line for the new flush valve Type 212. This assembly line is further optimized compared to the existing lines, leading to an excellent payback of less than one year. In Ekenäs, our ceramics plant in Finland, we invested into a new fully automated high-pressure casting cell for rim-free wall-hung toilets. These investments for a capacity of 60,000 additional WCs amounted to CHF 4 million. In Carregado, in Portugal, and other ceramic plants, we have invested in further automating the glazing process. The new glazing tower robots will lead to better process control, resulting in improved yield, better quality, and a positive environment impact due to the less glaze consumption.
The investment amounts to CHF 4.5 million spread across 2021-2023 with a payback of 3.4 years. As part of our continuous improvement strategy, many other mid-sized and smaller improvement projects focusing on automation and process improvements were implemented last year. These efforts led to a productivity improvement of 2% last year. This productivity improvement in an environment of extreme volatile and overall declining volume is an excellent achievement and a testimony for the quality of our operations organization, the strength of our processes, and the strong relationships with our employees. This brings me to the development of our number of employees. The number of employees decreased slightly by 2.5%, mainly driven by regular fluctuations and the reduction of temporary employees in operations due to the beforementioned low volume decline.
This demonstrates the operational flexibility in the plants and the logistics centers. In contrary to operations, the umber of employees in R&D remains stable, while we continued to invest into the sales organization with a buildup of 42 FTEs, with the majority of these people outside of Europe for specific sales growth initiatives in various markets. Let me now comment on the sustainability achievements last year. We measure our total environmental impact according to the Swiss Impact Assessment Method for Ecological Scarcity. This method takes into account all relevant environmental dimensions, for example, energy consumption, water consumption, or waste. We have updated the calculation method with the latest set of data from the year 2021. For comparability reasons, we also updated the historical numbers since 2015. Last year, we decreased our enviromental footprint in relation to net sales by over 21%.
On absolute level, we achieved an impressive result. The absolute environmental impact went down by 17%. Compared to 2015, we managed to reduce our relative environmental footprint by 57%. The main drivers were the relative energy consumption, which we reduced by 45%, and the relative water consumption, which we reduced by 46%. An important contribution to our environmental footprint is obviously CO₂ emissions. Our new CO₂ strategy, which we introduced last year, delivered strong results. Our Scope 1 and 2 CO₂ intensity, meaning CO₂ emissions relative to net sales, declined by 22%. Also in absolute terms, we reduced CO₂ emissions by impressive 18% only last year. Compared to 2014, we have been able to reduce the relative CO₂ emissions now by 56%, which corresponds to a reduction of 11% per year.
Main drivers were the usage of energy-saving technology in our ceramics plants, the sourcing of renewable energy, and efficiency gains. Our strong sustainability performance has also been acknowledged and awarded by external experts. EcoVadis, the world's leading provider of business sustainability ratings, awarded Geberit with a platinum ranking, its highest rating, for the third consecutive year. This places Geberit among the top one percent of all companies rated by EcoVadis and as a leader in our industry. Second, the sixth external stakeholder panel held last year, consisting of leading sustainability experts from academia and industry, provided a very good feedback and testimony for our sustainability efforts and achievements, especially also for the new CO₂ strategy. An important element for CO₂ is also our contribution for Scope 3 reductions. Let me give you two examples how we contributed to reduction of Scope 3 last year.
First, our drainage piping fittings, SuperTube and Sovent, save space, but also pipes, and therefore material. Less material means less CO₂ emissions. The SuperTube and Sovent products sold last year led to a significant reduction of 5,400 tons of CO₂. The second example is packaging. We reduced the packaging for our hygiene flush product by 35% and replaced the rest with recyclable material. This le to a reduction of 85% of CO₂ emissions per unit sold. Inclusion and social responsibility is also an important pillar of our sustainability strategy. We directly employ 230 full-time positions for employees with disabilities within the Geberit Group. Furthermore, we consciously source products and services from workshops which employ disabled or socially disadvantaged people.
In 2022, we purchased an amount of CHF 10 million and supported around 185 full-time workplaces for disabled and socially disadvantaged people. In total, we therefore provide around 400 full-time equivalent jobs for disadvantaged people, which corresponds to around 3.5% of our total workforce. Our strongest effort in terms of social responsibility last year was obviously our support of our 590 employees in Ukraine since the beginning of the war. We supported and offered accommodations for Geberit refugees and their families via our local organization in neighboring countries. At the peak, we directly supported around 100 refugees. We also guaranteed salary payments irrespective of business and production interruptions for all our 590 Ukrainian employees. We even made salary payments in advance.
We also provided additional financial support for selected employees and families in Ukraine. After this overview, let me now comment on the sales development in more detail. Net sales achieved with CHF 3.39 billion, which is 2% below previous year's level in CHF. We lost CHF 234 million or -6.8% due to the unfavorable currency development. This is the strongest negative currency impact since 2015, when the Swiss National Bank has given up the minimum CHF to EUR rate of 1.20. In local currency, as already mentioned, net sales grew by 4.8%. The war in Ukraine led overall to a sales loss in Russia and Ukraine of around 1% of group net sales.
Compared to 2019, the pre-COVID level, net sales grew by 22% last year in local currencies. Let me now comment on the development in the different countries and regions. We recorded currency-adjusted growth in all of our sub-reporting regions, respectively countries. Germany, Austria, and Benelux grew with growth rates between 1% and 4% slightly below group average. Main reasons were the record high results in the previous year, stronger destocking effects of wholesalers due to our strong market position in these countries, and thirdly, a shift from sanitary to heating-related renovation activities as of the second half of the year. Switzerland grew with 4.1%. This is a good result, considering the currency-related lower price increases in Switzerland.
Strong double-digit growth was recorded in Italy with +14% due to less stocking and destocking effects driven by the more fragmented wholesaler landscape, and secondly, still some catch-up effects from the COVID-19 lockdowns in 2020 in Italy, which was among the strongest in the European building construction industry. I continue with the European expansion markets. Net sales in Eastern Europe were up by 6%. This is a remarkable result considering that the war in Ukraine led to a loss of around 10% of sales in the region, since we also stopped all sales activities in Russia since end of March last year. In the Nordic region, we grew by 5% with growth in all countries and double-digit growth in Finland. We recorded a growth of 4% in France with growth of all three product areas.
Strong double-digit growth was recorded in U.K., Ireland with +14% and Iberia with +10%, with strong growth in all three product areas and a double-digit growth rate in shower toilets. Let me now comment on our net sales development outside Europe. Net sales in Far East Pacific were up by 7%, substantially driven by strong growth in India and Southeast Asia, which was partially offset by a slight decline in China due to the lockdowns in Q2. In Americas, net sales were up by 3% with strong growth in the first three quarters and a weaker Q4. Net sales in Middle East, Africa region increased by 21% despite the strong comparison with the behind-the-wall flushing systems as key driver for growth. Let me now comment on the sales development, the product area again in local currencies.
All three product areas grew in 2022. Installation and flushing systems net sales grew by 2%, piping by 11%, and bathroom systems by 2%. The stronger development of piping systems versus the other two product areas was driven by the strongest price increases in piping, a solid project business, and the very good development of the new FlowFit supply piping system. Bathroom systems were affected by a stronger negative base effect from the home improvement trend compared to the other two product areas, whereas installation and flushing systems were affected by the strongest destocking effect at wholesalers. I continue now with the financial results. EBITDA declined by 15% in Swiss francs and reached CHF 909 million. In local currency, EBITDA declined by 8%.
EBIT declined by 16% and reached CHF 755 million, resulting in an EBIT margin of 22.3%. Net income increased disproportionately by only 6.5% to CHF 706 million, thanks to a favorable one-time tax effect. EPS was supported by the accelerated share buyback in 2022, and thus decreased only by 4%. Free cash flow decreased by 31% and reached CHF 562 million. This decline was mainly driven by lower operating results and an increase in net working capital, which were only partially offset by lower investments. The ROIC decreased slightly to 26.5%, driven by the lower operating results. Looking now within the P&L at the cost positions, there are two major impacting factors.
The currency development, which had a favorable positive impact on OpEx, and second, the massive already mentioned surge in raw material and energy prices. Cost of materials increased by 7.8%, driven by the inflation effects. Personnel expenses declined by 4.4%, depreciation by 4.3%. Amortization decreased stronger by almost 25%, mainly due to a base effect in the previous year related to an impairment charge caused by our brand harmonization strategy. Other OpEx increased by 8.7%. Main drivers were the surge in energy prices. They are recognized in other OpEx, higher freight prices and normalization of travel costs and conscious investments into digitalization. The full year EBITDA margin bridge shows the most important factors that influenced the margin last year.
The volume and product mix effect led to a margin decline of 140 basis points. The net price effects were positive by 70 basis points as sales price increases more than offset the continued increase of raw material prices. The surge of energy prices led to a negative impact of 150 basis points, and increases other cost categories resulted in a negative effect on the EBITDA margin of 160 basis points. Due to our strong natural currency hedge, there was only a small negative Forex effect of -30 basis points on the EBITDA margin despite the strong before mentioned currency headwinds.
The record high EBITDA margin of 30.9% in 2021 decreased to 26.8%, partially due to the fact that sales price adjustments can only be implemented with a delay in our industry, meaning it was not yet possible to compensate raw material and energy price inflation last year. While the full year EBITDA margin decreased significantly, the Q4 margin was only slightly below previous year's level. This slight decline was driven by a negative volume mix effect of 650 basis points due to the strong destocking of wholesalers in Q4. Net price effects were positive, increasing the EBITDA margin by 590 basis points now in Q4.
For the first time in 2022, this net price effect was positive, enough to also offset now the impact of the rising energy cost amounting to -60 basis points in Q4. Other costs, excluding energy, had a positive margin impact of +40 basis points, mainly due to lower marketing expenses in Q4. Adverse currency effects had a negative effect on the EBITDA margin of -60 basis points, mitigated by the already mentioned strong natural hedge. The Q4 margin development shows that the sales price increases have now fully materialized. I am now turning to the positions below the operating profit. The financial result decreased slightly, mainly driven by higher financial expenses due to higher debt. With 4.7%, the tax rate decreased significantly due to a favorable one-time effect in relation to the Swiss corporate tax reform.
As a consequence of the above, net income decreased disproportionately less compared to EBIT by only -6.5%. EPS with -4% decreased even less, supported by the share buyback programs. As already mentioned in local currencies, EPS grew by 4.7%. Free cash flow decreased by 31% to CHF 562 million after the record high results in the previous year. Net cash flow from operating activities decreased by -26%. The net working capital increased in 2022 due to higher inventory levels and lower accounts payables. Income taxes paid decreased by CHF 50 million. The adverse development of net cash from operating activities was partially offset by lower purchases of PPE and intangible assets.
The CHF 562 million free cash flow corresponds to a margin of 16.6% and an EBITDA conversion ratio of 62%. From the CHF 562 million free cash flow, CHF 1 billion were paid out, CHF 433 million were distributed as dividend, CHF 570 million were used to buy back shares on the second line. On the balance sheet, the cash position decreased by CHF 305 million due to the higher distribution to shareholders compared to free cash flow. The higher net working capital is mainly a result of lower accounts payables and higher inventory, as mentioned before. Deferred tax assets increased mainly due to the one-time effect in connection with the Swiss corporate tax reform.
Total debt increased by CHF 246 million to a little bit more than CHF 1 billion as a result of the emissions of a new bond of CHF 150 million in March and 2 new bonds, a total of CHF 400 million in September, partly compensated by the bond repayment of CHF 300 million later on in October. The decreased cash balance and the increased debt position resulted in an increase of net debt by CHF 551 million to CHF 824 million. The balance sheet remains to be very solid, with an equity ratio of 44% and a net debt to EBITDA ratio of 0.9.
In the course of 2022, we bought back around 1,109,000 shares in a total amount of CHF 470 million. In June, we concluded the share buyback program running from 2020 to 2022, reaching the maximum volume of CHF 500 million. Immediately after, we started the new program, which will run now until 2024 and has a maximum volume of CHF 650 million. Let me now comment on the dividend. For 2022, the board of directors proposes a dividend of CHF 12.60, which is an increase of CHF 0.10. This is the 12th consecutive year with an increasing distribution per share. The payout ratio of 62% of the net income last year is in the middle of our 50%-70% payout corridor.
Since 2014, as shown on the chart, the distribution per share has increased by more than 50%. 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. Therefore, let me briefly comment on our shareholder distribution policy over the last 5 years. Since 2018, Geberit has generated about CHF 3.3 billion free cash flow. This corresponds to an average free cash flow margin of 21% of net sales. 21% of net sales. From this accumulated free cash flow, the amount of CHF 3.1 billion or 95% have been distributed back to shareholders via an attractive mix of dividend payments and share buybacks.
In 2022 alone, we distributed, as mentioned, CHF 1 billion to shareholders, thanks to the accelerated share buyback. This corresponds to the 6% of Geberit market share and market capitalization as per end of last year. I think these numbers confirm the ability of the Geberit Group to generate stable cash flows over a longer period and on high level, also in terms of crisis, and reflect our shareholder-friendly distribution policy. Let me now continue with an outlook on the building construction industry this year. Due to the ongoing geopolitical and macroeconomic uncertainties and risks, we expect overall a challenging environment for the building construction industry in 2023. Challenges, especially for the sanitary industry, emerge from the significantly higher price levels and increased interest rate environment. Building permits in Europe started to weaken since the third quarter of last year.
Secondly, from the potential pull-forward ffects driven by the COVID-19 induced home improvement trend over the last years. The third challenge comes from the shift from sanitary to heating solution, mainly to heat pumps. However, keep in mind that this effect has also limitations due to the ongoing supply chain constraints with specific components for the heating segment, and the fact that only a limited number of markets where we are operating are affected. Positive catalysts for the sanitary construction markets emerge from the fundamental need for renovation and for new housing in several European countries. For example, in Germany, with a market requirement of around 400,000 new residential units per year, and the upcoming renovation cycle from the last big building boom in the 1990s. A seond market catalyst is the structural trend to better sanitary standards.
For example, in the context of the demographic change in many European countries. Outside Europe, we expect quite positive market environment in several emerging markets, for example, in India or the Gulf region. With this market outlook, I come now to the Geberit outlook for this year. The overarching objective this year is to gain further market shares, regardless of the prevailing market environment. In the context of the befo rementioned market challenges, we defined for Geberit two guiding principle for this year. First, strategic stability, and second, operational flexibility. The purpose of these two principles is to manage the volume uncertainties in 2023 with a maximum of flexibility, but without harming the midterm potential of the company. This means that we continue to execute on our strategic agenda, for example, the execution of several sales growth initiatives or continued investments into R&D.
Short-term volume challenges in H1 emerge from the still existing, however, significantly reduced excess stocks in the distribution channel. Keep in mind that we face, in the 1st half of the year, a significant base effect from the record high volumes in the 1st half of last year, when wholesalers build up their inventories. Net sales in January and February were currently adjusted slightly below previous year's level. Regardless of the short-term volume challenges, we will again have a strong focus this year on new products. Let me start with our new wall-hung toilet called Acanto. A key feature of the new toilet bowl, Acanto, is the further improved flushing technology based on the TurboFlush technology, which we introduced 2 years ago.
The unique asymmetrical toilet flush leads to a 10 times better flushing performance versus what the norm requires. It ensures a very quiet flushing as well. Furthermore, this new WC is very easy to clean since the design avoids any dirt traps. A key benefit for the plumber is an easier installation, reducing the installation time by 40% due to an integrated mounting bar. An important focus during the development of the new Acanto were manufacturing costs to address a broader market segment with a mid-level price point. To illustrate the appeal of this new Acanto, I will show you now 2 videos, the first one demonstrating the flushing performance and the second one showing you the faster installation of this new toilet. Before I start the video, the picture you see right now, these are 500 balls which will be flushed with this toilet.
The norm requires 50 balls. We do 10 times more. Asymmetrical flush, as you can see for efficiency. 500 balls. Flushes everything away. The second test with paper, 5 times better than the norm. If you are planning a new bathroom right now, I recommend this toilet or obviously a shower toilet. The second video will demonstrate the installation for the plumber. This is a new screw system developed by Geberit, patented. Makes it extremely easy to install the toilet. Also, without the seal it is very easy to install. It's also a clear benefit for the plumber. That will be one of the focus next week on our fair in Frankfurt, to demonstrate to the plumber that life is much easier if he chooses for the end consumer, the toilet of Geberit. Other important new innovations this year.
Another one is the new sanitary or flushing module Monolith Plus. The Monolith is a design-oriented WC flushing system and is especially suitable for renovations. The key features are the new lighting concept, aligned with the Geberit ONE mirrors. A better user experience, since the Monolith Plus can be easily activated by touch or even via an app. Thirdly, an important feature, an integrated hygiene flush to prevent stagnation in the water system of your house, which is very useful, for example, for holiday homes. Another innovation this year is the new flush valve type 208 for slim cisterns. This new flush valve saves water, is easier to maintain, and is made out of higher quality material. To strengthen our important actuator assortment, we will introduce a new design-oriented actuator plate, the new Sigma70.
This new plate has a minimalistic floating design and offers a wide range of colors and materials. In the area of shower solutions, we will roll out our new shower channel, CleanLine50. The CleanLine50 comes in an especially slim design in the middle price segment. It is available in two very popular colors: stainless steel and black chrome. Colors are, in general, an important topic this year. An important trend are matte colors, which are requested more and more by architects, but also by end consumers. We will introduce new matte colors options for a broad range of our bathroom products. For example, Geberit ONE, iCon, the Acanto you have just seen, or the new toilet at the shower toilet Sela, sorry. To address the need for cliate neutral products, we will introduce a CO2 neutral label for our mid and upper ceramic series.
For example, Geberit ONE, iCon, Smyle, Acanto. We will fully compensate all Scope 3 CO2 emissions for these ceramics with a high-quality certificate from myclimate. Beside new product introductions, we will focus on several other levers and sales initiatives this year to gain further market shares, regardless of the prevailing market environment. Let me give you 3 examples. First, we will continue to focus on new product innovations, which proved to be an important contributor for growth over the last years. For example, the concealed WC flushing system Alpha, for the markets outside Europe, or ProFit, which we will introduce in France and the U.K. this year. A second example is our focus this year on the full WC system to further penetrate the concealed system technology and to promote our best-in-class WC flushing performance, as you have just seen before.
A third example of our initiatives this year is prefabrication. We will put a strong emphasis on our prefabrication business in the DACH region to offer efficient solution, while at the same time addressing the bottleneck of qualified installers in these markets. Let me now continue with the Geberit outlook with our investment plans for 2023. Overall, we plan to invest around CHF 200 million, also driven by a few specific large investment projects this year. As already mentioned last year, we will expand our plant in Lichtenstein in Germany, where we produce installation frames for concealed cisterns and prefabricated installation modules. In total, we will invest EUR 56 million with a payback of 3.3 years into additional buildings and new fully automated production lines. Completion is expected for 2024.
In Pfullendorf, our plant focusing on the production of concealed cisterns, we expand the existing production hall to increase the efficiency for the production of our fitting valves, the Alpha cistern for the markets outside Europe, and our new seat production. CapEx for the expansion will amount to EUR 23 million with a payback of 1.4 years and will be completed also in 2024. Due to the strong growth of the new piping system FlowFit, we started already last year to add further production capacity in our plant in Rapperswil in Switzerland. The whole FlowFit system is fully manufactured in Switzerland. CapEx for this capacity expansion amount to CHF 8 million with a payback of 4 years. In our plant in Langenfeld in Germany, we will invest into new machinery and equipment for our stainless steel fitting production.
This will not only improve efficiency, flexibility and lead times, but also the product quality due to an improved welding process. The investment amounts to EUR 6 million with a payback of 5.8 years. In our ceramics plant in Carregado in Portugal, we will invest into a new energy efficient tunnel kiln. The new kiln will replace 3 old kilns, resulting in an increased efficiency, thanks to lower energy consumption. The lower energy consumption also leads to substantial savings in CO2 emissions of around 3,500 tons per year. We have 150,000 tons as total footprint. We will invest in total CHF 8 million in 2023 and 2024 with a payback of 4.6 years.
In our ceramic plant in Haldensleben, Germany, we will invest EUR 3 million to enable the plant to run with liquefied petroleum gas instead of natural gas. This investment is a risk mitigation measure to ensure business continuity in case of shortages of natural gas. In Pfullendorf, Germany, we have already started to substantially invest in building a new customer training center. With this new modern building, we will have a training center with 5,000 square meters of space. This new facility will allow state-of-the-art training formats as well as exhibitions to best accommodate our customer needs. Overall, we will invest around CHF 33 million in this new customer training center. Completion is planned for the fourth quarter next year. Let me finish our outlook with an outlook for our raw material and energy prices.
We expect raw material as well as energy prices in Q1 to be on Q4 level of last year. In terms of personnel expenses, we expect for the full year a wage inflation of around 5% to 6%. Due to the before mentioned overcompensation of raw material and energy prices in Q4 and the expected stable development of these two input prices in Q1, we do not plan a further increase of our net sales price level with regular price increase for April this year. Let me now close the presentation with a short summary. 2022 was a very challenging year for Geberit. I think we managed to deliver good results with net sales above the record year, 2021. Main challenges emerged from the unexpected sharp increase in inflation.
The strong inflation focused us to adjust our prices accordingly, leading to an environment of an unprecedented volatility in terms of volumes in the course of the year due to stocking and de-stocking effects in the distribution channel. Furthermore, the delay effect to pass on prices in our industry led to a substantial pressure on our margins. However, the plants managed to further improve productivity despite the severe volume challenges, a testimony of the quality of our operational setup. We also successfully introduced new products last year, especially the further rollout of new piping system FlowFit. Despite the very challenging environment, we distributed CHF 1 billion to shareholders, the highest distribution in Geberit's history, thanks to our strongly cash-generating business and our financial stability. Finally, the new CO2 strategy delivered convincing results with a substantial reduction of CO2 emissions. Let me briefly summarize our outlook.
Overall, a challenging environment is expected for the building construction industry and especially for the sanitary industry, driven by the significant higher price and interest rate levels, the pull-forward effect from the COVID-19 induced home improvement trend, and the temporary shift from sanitary to energy-related renovations in a selected number of European countries. Positive catalysts emerge from the fundamental demand for renovation and new housing in many European countries, but also the structural trend to higher sanitary standards and a positive outlook in several countries outside Europe. While raw material and energy prices seem to remain on high level, at least for the first quarter, wage inflation will be significantly higher this year. Our target this year is again to gain further market shares regardless of the prevailing market environment.
This is based on various initiatives as outlined before, for example, new product introductions and 2 guiding principles: strategic stability and operational flexibility. Short-term volume challenges in H1 emerge from the still existing, however, significantly reduced excess stocks in the channel and the base effect from the record high volumes in the first half of last year. I think Geberit is very well prepared to also master the uncertainties emerging from this environment, as already demonstrated several times during the past. Our confidence is based on the fundamental need for our products, our, I think, proven strategy and resilient business model, our innovation and efficiency focus, and last but not least, our motivated and lean organization. Based on these fundamentals, we have delivered industry-leading results since the acquisition of the ceramics business 8 years ago.
With an annual currency-adjusted organic net sales growth of 5.2%, an average EBITDA margin of 28.7%, an annual currency-adjusted EPS growth of 10.9%, an average free cash flow margin of 19.9%, an annual reduction of relative CO2 emissions of -11%, and an industry-leading number of 35 new patents every year. Based on these fundamentals and results, we are convinced to continue to achieve our midterm targets of an average annual net sales growth in local currencies of 4%-6% and an average EBITDA margin level between 28% and 30%. I'm at the end of the presentation. On this slide, you see as usual our financial calendar. I'm now happy to take your questions. I sit down. Mr. Rosenau.
Thank you. Rosenau, Baader-Helvea. Did I understand you correctly that you do not plan to implement a further price increase on top of the ordinary price increase in April, or you don't plan to do any price increase in April?
It's a bit complicated.
Okay.
I understand the question. First of all, we did an extraordinary price increase as of January, just to repeat that, in select with an effect of about 1.5% as of January. What we do now in April is we will have, in selected countries, a price increase on the list level, a regular price increase. It's a relatively small one, but we expect that will be given back with rebates and bonuses this year. At a net sales level, we do not expect an impact of this price increase as of April.
Okay. basically none.
For the financial modeling, don't assume a price effect as of April. That's the key message.
Okay.
Technically, it's a bit complicated, but don't expect a price effect.
Okay.
as of April.
The adjacent question to that: what is the spillover effect of the price increases you did already up to January, ending Q three, ending Q four, going into Q one, Q two?
The total price effect we expect this year, including the 1.5 in January and spillover, is 6%-7%. That's the number we already communicated.
Yes.
in our first information in January. That didn't change. 6%-7% what we expect for the full year.
My last question is, you mentioned this volatility in the volumes, many other companies said the same, that, you know, if you have a stable, low volume, it's much easier than volatile volumes, i.e., that creates extra costs. I mean, could you kind of quantify what these fluctuations did on European sales, you know, versus if the volumes had been stable lower?
I can't give you a sharp answer to that, but I think what you can take maybe as a reference, our productivity improvement. The productivity improvement obviously is hampered by volatility. The more difficult it is to have productivity improvement. As I've shown you before, we increased productivity in the plants last year by still 2%. Normally, it's more 3.5. I would say this difference from 3.5 down to 2 might be driven by the volatility. Having said that, 2% productivity improvement, I think is a huge achievement of our organization with this volatility. That's the closest quantitative reference I think I could make, what the impact was on the results. Still a very good result, as I mentioned, 2% productivity improvement.
Okay, good. Thank you.
Mr. Arnaud.
Just on the on the pricing. The 6%-7% that includes no price decreases. You don't foresee price decreases at this point in time, excluding these rebates you just mentioned?
No, you're correct. Doesn't include any price decreases. We also not, at the moment, think about any price decreases.
Okay. I mean, potentially, where would be the highest risk for price decreases in terms of markets or product lines?
I wouldn't have a clear opinion on this question, not from a regional perspective, but also not from a product perspective. What we obviously are doing since a couple of weeks, months, we're always checking, is the price point at the right level? Are we losing kind of volumes? There, that's more qualitative feedback. We believe we are fairly priced. If you take the last two years, that's the reason why I've shown you the chart of the last two years. Raw material prices are up 30%, 35%. Energy prices are still up something like 150%. Wage inflation plays now into role. Comes maybe, if you add last year and the last year before, 8%, 9%. Freight prices, we didn't talk about that, and also up last year, by the way, by 30%.
If you add that all up, and then you look at our price increases, which were cumulative around 20% over these 2 years, now including this one, that's basically a fair balance, or that compensates more or less. From a financial perspective, I think it's fair, and as long as we don't see that we lose kind of market shares, we will stick to these price levels.
Could you just remind me on the energy bill, for 2022 versus 2021?
2022, we had CHF 102 million in energy costs. That's 101% higher than the previous year, which was CHF 56 million. The 101 is currently adjusted, that's the reason why it doesn't match. We had now last year 3.0% of net sales were energy costs.
Okay. Maybe last question for the time being. I mean, you accelerated your share buyback program or strategy some years ago, actually. At that time, you were telling us that you feel comfortable with a net debt to EBITDA ratio of 1 time. You are reaching out this 1 time, I think 0.9 at the moment. Do you feel comfortable to, I mean, have the same speed in the share buyback program going forward, maybe going above this 1 time net debt to EBITDA? Do you see here some limitations for share buyback programs?
I don't wanna give an indication too much looking forward in terms of our share buyback program. I'll give you an answer in terms of the net debt to EBITDA level. We are now in this comfortable zone.
Yep.
of one. That could even be a bit higher, to be honest. I think we could afford a little bit more, but obviously we will look... The opportunity must be good as well. Therefore, I wouldn't exclude that it goes up a bit more. We could consume that easily, I would say, our balance sheet as well.
Okay, thank you.
I think we, I jumped behind. Sorry, Tobias.
Hi, it's Andre Kukhnin at Credit Suisse. I wanna start to talk about the market share gains that you cited during 2022. Could you give us an idea where you gained share geographically or maybe across the product lines?
To be honest, I'm a bit struggling talking about market share last year because we had so many stocking effects. Therefore, I'm a bit reluctant to answer too precisely this kind of question. I think it's more important to look at the three-year period or two-year period. That's why I mentioned before our sales last year were 22% above 2019 level. Obviously, there's a significant price effect in there as well. If you take this number, you deduct pricing, we have clearly gained market share. For the last year, it's a bit difficult because we have these various stocking effects. Therefore, I'm a bit reluctant to talk about 2022.
Thank you. Can I extend that question to the last two years, then? If you could talk about last two years, where those market share gains were most pronounced.
Honestly, I would say more or less in all the countries. In terms of product categories, that's also very difficult because the tailwind of the market was different for the different product categories. Obviously, bathroom system was more benefiting from COVID-19 than, for example, piping. On the other hand side, piping, we have seen with FlowFit, which is above our expectations now in the third year, starting now. There, I think we clearly gain market shares with FlowFit. Therefore, in average, I don't have a number, by the way, I would say it's roughly also equally distributed.
Thank you. Regarding the stocking and destocking effects during 2022, the destock in the second half, was it all related to the inventories that were built during first half and into that large price increase, as of, I think it was July 1? Or do you think there was inventory being carried into 2022 already at an excess level, from 2021? I'm just trying to understand for 2023, the restock, destock effect. Is it neutral because you kind of built stocks during 2022 and then destocked? Or was there a net negative effect in 2022 that should be net positive in 2023?
It's the second one. It started already in later, the second half of 2021. Also, less driven by the price increases, but more driven by the strong demand and the supply chain issues during COVID-19.
Thank you. Last one, sorry for nitty-gritty, but that BIM module that you mentioned for the Autodesk with 8,000 users, it's obviously where the construction industry is heading is to kind of industry 4.0 or buildings 4.0. Is there any way to assess what that yields for you? Is there a kind of average purchasing per user per annum that you can see on there versus the non-BIM users or something like that? Another KPI that we can track?
To be honest, no, we don't have. I know what you mean. We don't have a kind of a KPI relating that to what, how much that turns into sales. We don't know. The reason is the planner landscape, not only the plumber, also the planner, is extremely fragmented. You don't have three or four planners in Switzerland. You have thousands and 10,000 other in Europe. Therefore, it's too fragmented to have kind of this conversion rate. We don't know.
Will follow. Thank you.
I go into the front. Yes. Yes, please.
Stephanie Scholz, CS and Europe. I have a question on the first two months of trading this year. Can you give us some sense on how volumes developed in the first two months?
So-
Was it the same magnitude as you've seen in Q4?
The sales, as I said before, were slightly below previous year. A bit less worse than what we have seen in Q4, where we were down -7.6%. The price effect, I don't know if you have the numbers, but the price effect, I would assume, is roughly the same in January and February than what we have seen in Q4. Therefore, the volume decline is a bit less severe, obviously, than in Q4.
An additional one on your share buybacks. You have, like, this CHF 1 billion in distribution in term with share buybacks and dividends. Would you expect that this is the new normal, especially also given that you have already used most of your CHF 650 million share buyback?
Program in place. You actually have only left CHF 360 million. Would you then consider to increase the dividend substantially to get to this CHF 1 billion distribution, or was this just an exception?
One billion to declare the CHF 1 billion as the new norm for the coming years, I think that has to be too enthusiastic. I think that will not be the case. We always try to find a balance, a mix between dividend and then share buyback. For the dividend, I think it's important for us to have a certain stability. Stability means for me, but also an increasing trend. That is the reason why we increased the dividend by CHF 0.10 this year, to have also a track record of increasing dividends. The rest is then the kind of part where we can breathe, depending a bit on the share price development. There I can't make a clear guidance what we do.
The current program runs, and most probably when that will be finished in 2024, I would assume, but ceteris paribus, we will launch another one. Foletti.
Yes. Alessandro Foletti, Octavian. I have 2 questions, if I may. On the mentioned shift, from sanitary to heating, can you be a little bit more specific which countries are impacted? Also what does it mean temporary? If you can.
The first one is easier, the second one is more difficult. Number one, it's basically the main countries which are affected are Germany, Austria, Netherlands, and Belgium. These are the most prominent countries at the moment because of their gas dependency and also subsidies. These are the four main countries where we believe this effect is the strongest at the moment. The second one is difficult, you know, because it depends also how fast the heating industry is capable to deliver these heat pumps. As you all know, I guess it's a huge supply shortage at the moment. The second one is that they're also struggling with the fact that there is a bottleneck of plumbers. Therefore, having a feeling when... The only thing I know, it's temporary. At a certain point, it will be over.
At a certain point, sorry for my simple language, you need a toilet again. It's a bit black and white now, but I just don't know exactly how long it is. It's not that black and white. It's not that no people are buying toilets at the moment. Just this effect has a temporary period.
Do you have an idea what's the sort of the headwind? No.
No.
Right. Let's move to the next one. Just we don't speak much about these countries, the Nordics and also Eastern Europe, et cetera. So far, they have been very good for you. I was wondering if you can be specific on the outlook, particularly also Eastern Europe. I think the inflation there has been quite high. I wonder.
Maybe I can comment on the Geberit outlook better than on the market outlook, to be honest, because I think that it's quite difficult. On the Geberit outlook, we have specific initiatives, for example, in Eastern Europe, but also Nordics. They're a bit different to grow and to outperform the market. One important initiative in both of these regions is basically still to promote our concealed systems. The Nordic market is still what we call so-called a floor standing toilet market. It's still the large majority is a floor standing toilet with a visible system. Also, we are selling many floor standing toilets. Converting this market more and more into a concealed system market, which is in a more attractive sales level and important and more attractive margin level is one of the initiatives. Similar initiatives are running in Eastern Europe.
That's one of the big levers in these countries. Another one, just to add maybe because you asked about Nordics, we introduced FlowFit last year in Nordics. Nordic is already, from that point of view, an advanced market. It is already a pressing market if it comes to supply piping systems. As I said, already advanced. There we are using FlowFit now to gain market shares against other pipe systems.
Can I add another one, on the ceramics business? A couple of years after you acquired Sanitec, I think you mentioned in this environment a couple of times that you have picked out one plant, I think in Germany, where you wanted to sort of analyze, scientifically the production process of ceramic to industrialize it on a much better level. I'm kind of interested to know what happened from that one, where you stand. You know, we see also some investments now that you're doing. Can you give some indication what's going on there and...
Typically for science, it's never finished. We are still working on this scientification. That's real. It's still an important initiative. We call it the scientification of ceramics manufacturing process. We have built up not only in this plant now, we have also built up in the headquarter, a small little team to drive this process of this scientification. It's an ongoing process. We are making progress. For example, the yield rate, which you see coming out of it, is improving more and more. That will be a never-ending story. There's still many years to go. We are happy with the initiative. We think we did the right thing, or we are doing the right things. Out of that, many investment approaches are coming out.
For example, the new tunnel kiln in Carugate is also one, not only, but it's also one of the drivers was also kind of the scientification initiative. Maybe I jump briefly to the web or so. No, maybe make first the room. Okay. Mr. Flückiger. Not Huesler.
Thanks for taking my question. I've got two, actually, and I'd like to come back to your trading update for January and February.
The volume decline, do you think that's down to wholesaler destocking again or are these other effects? Is this underlying... You know, I'm just trying to figure out whether it's just noise or whether it's a new trend or force coming into play. That's my first question, and I'll go one at a time.
I think there are two drivers. One is the base effect now, that's what I mentioned before. We have now the strong base effect from last year. The second one is the majority of the overstocks were destocked per end of the year. There's still something left. I think that's the second driver in January, February.
Okay, great. thanks. Just on the profitability side, I realized you're not providing an EBITDA margin guidance for 23.
We didn't do that for 22 years.
Yeah. Not until all this-
We never did that at this point in time.
Yeah, exactly.
Sorry.
I'm just curious on, you know, in terms of your EBITDA margin bridge, what are the expected drivers gonna be for the so-called other cost effects? I mean, at the end of the day, you know, I realize it's all, a lot of it will depend on volumes and net pricing and so on. You know, one, let's say, category of effects, people like ourselves are having some difficulties in assessing is this other cost effect, block. I was just wondering whether you could provide us with some color on that, what to expect 2023.
The two important drivers also this year to think about the other costs and the impact on the EBITDA margin are energy prices, that's part of energy costs, of other costs, and personnel costs. These, I guess, will be the two most important drivers. For the personnel costs, I gave you an indication what we expect, around 5%-6% wage inflation.
Energy costs, to be honest, I don't know. These are, I guess, the two major drive. The other part, another large part is marketing costs, that I would assume is more stable post-pandemic.
Mm-hmm.
Therefore, the two big drivers in terms of variance this year for other costs will be personnel costs.
Mm.
Wage inflation and energy prices.
Okay. I realize energy prices are difficult to forecast, but let's just assume that, you know, that they'll be constant at the current level. What does that imply for the year? Do you know?
If you check, I think they would be more or less than on the previous year's level. We have this graph. If you look at the share at one of the last slides, the outlook of energy prices. There you see in red our energy price index 2022. If you make now a straight line now from today where we are, where you expect for Q1, I didn't do the math, but I think that is maybe average. I don't know.
That looks like they're gonna be down.
Yeah. I don't know, actually. I don't have any problem.
That is slide 51.
Oh, thank you. I am, yeah, I don't know. Waiting plays also a role, maybe. I don't know. Mr. Huesler.
A question to the German market. According to a survey in the sanitary sector, it looks like that the mood in Germany is on a very low level, if you compare it to heating and other sectors. I was just wondering whether you see something like this if you talk to installers or to architects, that the mood is really that bad. What is different in reality than if you look at surveys such as those?
Honestly, I don't look too much into surveys, to be honest. One element, what we hear also from our customers, and that's what is referring to what I said before, if you talk about sanitary, that that is more under pressure than heating for the reasons we talked about before. I think that is definitely one of the sources, from this kind of surveys. Obviously, what you also hear is that this, what we call home improvement trend, which has been over since the second half of last year. Obviously, that is also feelable for plumbers, that they see, certain renovations or bathroom topics which have been, started, or initiated during COVID-19. That is still... That is a way. So that's maybe a second source.
Maybe on the positive side, we still hear that the order books are quite well-filled at the moment. It's not that they don't have anything to do. You're referring to Germany now, I think. Germany, I think also there the order books are still quite okay. Nevertheless, as I said before, the building permits for new build came down for residential as of Q3, and also into November, sorry, in October and November. That may be the third source of this, third reason for this, more negative sentiment in this survey.
Maybe an add-on to that. There will be this very large fair in Germany, ISH. Usually, do you see kind of a huge demand after the fair and beforehand a bit of a reluctance?
No. The only thing what we see is huge costs after the fair. No. That's not how our industry is not working like that. No. Obviously, investments, not costs. Meaningful investments. Mr. Raffitz.
Patrick Rafaisz from UBS. Maybe three more questions. One on innovation and the Cama system in AquaClean that you're rolling out. Obviously price point significantly lower, right, than for regular shower toilets, makes sense. Different addressable markets, I get that. How big can that become? Versus the traditional shower toilet business. Is that in any way related to the double-digit growth in U.K. and Iberia you were referencing?
No, it's not. Carma is not a tool to generate sales. A little bit provocative. The primary target of Carma is to have a testing opportunity for end consumers. The idea is not to sell that larger. We do that in Switzerland for specific reasons, because in Switzerland, first of all, we have a higher penetration of shower toilets. People know better what it is. You have the restriction that 50% of people are tenants. They're renting an apartment. There, it's obviously very difficult to install a shower toilet because you're not allowed, basically. It's the owner. It's not a sales article. It's a marketing tool. Therefore, I would not take that into consideration in terms of double-digit growth or a significant contribution.
The idea is basically telling you in a room, every one of you, please test it for four weeks. You can buy it and you send it back, and hopefully afterwards, you buy a shower toilet. That then contributes double-digit growth.
Okay.
Marketing tool, not a sales tool.
Okay, understood. On the sustainability improvements and the charts you showed around the environmental impact and CO2 emissions, big improvements in 2022. You also showed the historical performance. I think we talked about this in the past, but can you remind us for Geberit, excluding Sanitec, what kind of rates of improvements in terms of impact and CO2 have you achieved? Or was it all to Sanitec?
Honestly, I don't know. I'm not even sure if we had, on a CO2 level, such a detailed reporting. What happened when we acquired Sanitec, our environmental footprint, also CO2 emissions, went up by a factor of 5, roughly. I think your question is in the direction, is that all coming now from Sanitec? I would say it's a disproportional part from Sanitec because 80% of the footprint is from ceramics. I would say it's also a large part. I don't have a reference number, to be honest, before...
Okay.
Before Sanitec.
The last one, I'm just circling back to the EBITDA bridge 2023. I realize you won't give any quantification, but if you look at the bridges you've showed for the full year 2022 and for Q4, right? We get a sense of the magnitudes of the volume impact maximum that we could see in H1, assume nothing more in H2. We get a sense for pricing net of input costs, right? Then other costs can be up or down a bit. I mean, there must be substantial tailwind on the margin this year.
Just one comment to this comment. Personnel costs, 5% to 6% is part of other costs. Secondly, raw material prices still have, in the first quarter, a negative impact. Since, again, coming back to page 40... What was it? Thank you, 51. We will see that in the first quarter. I don't know what happens in the rest of the year. Raw materials are still higher than previously at Q1.
Q1 probably still a bit softer in terms of margins, right? The gross margin was already up in Q4, first time since Q4 2020. EBITDA margin is still down. Probably a similar picture. Then we should see improvements then after that.
The problem of your comment statement is you have to make an assumption about the volumes. This is the challenge.
Yeah. Okay. Okay, good.
Maybe from the just a neighbor then. Okay. That's fine.
Yes, it's working. Just coming back to the volumes, I realize it's super difficult to make any, you know, reliable predictions at this point in time. Just big picture, do you see any change in dynamics or drivers between H1 and H2? If we look at building permits, particularly Germany, right, in the second half, they soften pretty significantly and particularly towards the end of the year. If I remember correctly, at, I think at the last call, you said that the lead time was between 9 and 15, 18 months, something like that, depending on the product category.
You know, if we take the average of that, say 12 to 15 months, it looks like H2 is gonna be impacted the most by the building permit declines that we're seeing in some important markets. Would you say that's gonna change the dynamics that the overall picture in terms of volume developments between H2 and H1 for 2023? Right now, we still have this destocking noise and, you know, some of the tough comps from last year. The comps will get much easier in the second half, right, particularly in Q4. If I remember correctly, volumes were down 20% in Q4, and I think high single digit in Q3. Just coming back, big picture, different dynamics in volumes for H2 versus H1.
The only thing I know is the past, and the past is that we have a stronger base effect, much stronger base effect in the first half of year than in the second half of the year. That's what I know for sure. All the rest is speculation.
Okay, thanks.
Yeah.
I have an add-on question on the installers in Germany. Can you share with us what's the current backlog in terms of weeks?
Nothing new. That's again, the same number as I've shared with you in January. It's at 16.7 weeks, if I remember correctly. That's the same. No new information. Yeah, Mr. Breiti.
Just, maybe a curiosity, but I saw on the projects that you investment projects that you mentioned, and I appreciate the fact that you put down paybacks for every single one of them. One you didn't write is the customer center.
Yes.
Still a CHF 33 million investment, but has no payback.
Yeah.
I was wondering if you can tell me why and what's the difference, and how you measure the payback on investments?
It's very simple because that's like the same problem with marketing. You never know exactly the payback. If anyone is able to calculate the payback of a marketing activity, I would be very happy. It's very difficult to say, you know. It's obviously a very long-term investment. You know, A reference which I take to the CHF 33 million we invest is, if you look at the market capitalization of Geberit, what is it? CHF 18 billion? I don't know. CHF 16 billion? You know it better.
Seventeen.
Seven. Seven. You look at the book value of Geberit, the difference, a large part of that is brand and customer relations. It's an investment into this asset, so to say. That, if you compare the CHF 33 million to this, whatever, CHF 14 billion, sorry, value market, then it seems to be relatively low. That's the closest I can go with numbers, but you never can calculate the cost payback of a customer center or marketing in general.
Maybe you can expand a little bit more there. How many of these customer centers do you have?
Mm-hmm.
How many do you think you need?
We have worldwide around 29. 30? 30 customer centers. Obviously, smaller ones. This one will be the biggest. In Germany, it's the biggest market. It's significantly bigger than the one we have currently there. It's not only bigger, obviously the standard is much better. The existing customer center which we have in Pfullendorf is, I think, roughly from the 1990, something like that, so it's relatively old as well. It will be significantly bigger. It will be the biggest, obviously, in the group. 30 we have worldwide, so in all the countries where we are, where we have a certain significance in terms of grow, you know, size and also in our organization, we have basically a training center.
Thanks.
Mr. Pomrehn.
Daniel Enderli from Vontobel. You achieved impressive efficiency gains in the last years, really year by year. Obviously, we are a lot concerned about energy costs. Regarding especially your ceramics business, do you think the low-hanging fruits have been picked or do you even believe that you could accelerate energy savings, energy efficiency motivated by the high energy prices in the next years?
I'm confident that we are able to continue to deliver productivity improvements. I don't think there we have had low-hanging fruits which are gone now. Specifically to energy, I don't know to be honest. There, I don't. In general, I'm very confident that we are able to deliver also in the future. Coming back to the ceramic plants, to what we talked about before, the scientification of the manufacturing process, I'm confident that we will deliver. If it's always driven by energy, I don't know. The webcast. Yes.
Do you have some energy still? We have a lot of questions here. A long list of questions. Let's start.
Yeah.
First question from Matthias Volkert from DZ Bank in Germany. Which activities are planned to growth with higher momentum outside of Europe? Do you have strong brand recognition? Is there a transformation process to get this recognition outside of Europe?
One of the big initiatives outside Europe, not new, but an important one, coming back to the Nordic example, by the way, is promoting the concealed system technology. That is an ongoing initiative outside Europe. We have developed this new Alpha system, I mentioned a couple of times now. This is a dedicated product, concealed system for the markets outside Europe. We don't sell that within Europe. Maybe, more, example specifically for this year, we launched a new initiative in North Southeast Asia, so headquartered in Singapore, where we promote, you might remember, the new SuperTube system which we have launched. It's a product optimizing the hydraulics of high-rise towers three or four years ago. We have now a dedicated initiative in the region.
We build our people, I think 8 or 10 people dedicated to a couple of cities even in the region to promote this optimized drainage pipe system. That's just an example now for this year. Market by market are different ones. Other example is China. In China, retail is very important. Showrooms are very important. A large part of the market is driven by end consumers deciding for their bathroom. There we have a dedicated initiatives which is addressing the showroom presence. In China, we are now in around 60 showrooms present, dedicated Geberit showrooms run and managed by customers in China. Just as 2 specific examples this year.
Okay, thank you. Three questions from Daniela Costa from Goldman Sachs. Working capital seems to be at a much more elevated level than in prior years, and despite the uncertain volume situation in the industry in 2023, you talk about pushing new products strongly. Will this means we await WC levels are likely to stay above normal for longer?
Oh, networking capital.
Yeah.
Not WC. WC levels. Networking capital is it.
No, no, no. No, no. She was asking, will this mean WC levels are likely to stay above normal for longer because of the networking capital? That was my understanding of the question.
I think she means networking capital stays longer. Okay.
Working capital.
not the net. Okay. sorry. No, okay.
Yeah, yeah.
Don't just remain still.
Otherwise, we have to re-ask her.
Maybe I briefly comment why net working capital went up over the last 12 months. Basically, it went up because we increased inventories. To be fair, inventories last year have been a relatively low level. We still had these supply chain issues due to COVID, raw material levels were relatively low. The second reason why net working capital went up and the inventories went up was it's just inflation. Don't forget that price increases obviously have also an impact on inventories. If we increase 20% the prices, they're also 20% higher. In volume terms, it's not that much. We also, in all fairness, build up some safety stocks for specific components at the moment in the inventories.
I don't think that we will have a systematically higher net working capital in the future than compared to the last five, seven years in terms of volume.
Okay. Second question regarding the buyback. You seem to have an accelerated buyback. How quickly can you complete it, or do you consider increasing the cash amount distributed over two years?
As we said, we have defined that it's a maximum of CHF 650 million. We have defined the end date in, I think June 2024. Might be that we are finished a bit earlier. Could be. As I said before, most probably we can just launch a new one.
Okay. last one. When you say you intend to keep margins at the high level in 2023, is that consistent with your 28%-30% EBITDA margin guide medium-term, or levels below that would be considered still high margin?
It's the second one. That's not a statement with regards to the 28%-30%, but I would consider also, in all fairness, without being arrogant, also 28% and 26.8% I would consider as a high margin. Which is not any guidance for this year, I just wanna say the margins are high. Just keep in mind, sometimes we have to repeat that maybe we are by far the highest margin business in our industry. That's what is meant with keep high margins. It doesn't have any reference to 28%-30%. Talking about 2023.
Okay. The first question from Ceder Ekblom from Morgan Stanley. Outlook for R&D spend, how should we look, how should we think about this translating into growth and share gain? How will this impact the % of products which are younger than five years old?
In terms of cost outlook, that's not the question, I guess. The R&D costs we expect to be relatively stable. The future, as you have seen also before in the past. The question was a different one, is how much does that turn into new products into sales? It's a significant share every year of new products contributing to sales growth. It's a significant part. New product defined about the last 4 years. I don't have yet the number, to be honest, from last year. We will calculate that. I will share that with you, as soon as we have the number, but it's a significant share. We need new products and innovations to constantly also grow and outperform the market.
Okay. The next one from Cedar Ekblom. How do we think about the drivers for free cash flow generation in full year 2023? Working capital, CapEx, financial costs and taxes? To the extent free cash flow cannot fund dividends and the buyback, would Geberit be willing to gear the balance sheet slightly to grow total cash returns?
The first question is extremely difficult, to be honest. Free cash flow forecasting is extremely difficult. Also last year we had, for example, a big impact from VAT payments, which you just don't know. It's also very difficult to forecast tax payments. I honestly, I don't know. I don't wanna make any forecast for free cash flow 2023. The second question depends on the market development. As I said before, we are ready to distribute more than the free cash flow, as we have shown last year. We have also the capacity in terms of balance sheet, but we have also the opportunity to a bit decelerate the share buyback program. It's basically the lever which we have. I can't give a clear statement to the second question. Depends on the market development. I mean, the share-
Right.
-development.
The next one from George Speake, BNP Paribas Exane. Could you give an indication of what % of the piping division is FlowFit? How has that changed over time?
Obviously growing substantially from 0 to still a small number. It's still a small number. I don't wanna share the number for competitive reasons, but I can share with you that we are clearly above what we have planned for. We are now in year number 3 of introduction. We are clearly above. We invest CHF 8 million into capacity, gives you maybe a reference in terms of sales volume. It is, I mentioned that already a couple of times, if it would be a pharma company, we would talk about a blockbuster, but we don't share that number.
Another one to piping. Many of the group's piping applications, including FlowFit, can be used in heating and cooling solutions as well as sanitary applications. Can you give us an indication of what the group's exposure is to heating solutions and the extent to which this could offset reduced demand for sanitary solutions?
I don't have the number in mind, to be honest. It's obviously only part of piping. I don't have the number in mind, so it's definitely double-digit percentage of piping, but I can't remember the number, to be honest. It's a smaller part. The larger part is sanitary water. The smaller part is heating, but I don't have the number in mind. Sorry.
Okay. Next one from George Speak. Relative to January, has wholesaler destocking happened faster or slower than you expected?
Difficult to say. As you know, we can't measure it. It's all qualitative. I would say rather not, but that's difficult to answer. We hear less and less, put it that way, that this way. We hear less and less from wholesaler that destocking is the topic. We hear there and there, now we have normalized, others not yet. The speed of destocking, maybe similar than before.
Okay, two questions from Yves Bromehead from Societe Generale. Can we extrapolate the Q4 personal expense costs as the norm for 2023 X inflation? Or do you still need to adjust your fixed cost base in light of another challenging volume environment in 2023?
We do not adjust our fixed cost base in terms of personnel. That's exactly what I mean, the strategic stability. In terms of personnel costs in the plants, we try to be flexible. That's the flexible part, for example, with temps. In terms of fixed costs, personnel in R&D and sales, we have no plans to adjust that.
The second one. Can you comment on your own inventory levels given the increase in 2022, and whether we should expect some impact of inventory reduction in early 2023 to get you back towards more normalized levels? How does this impact your pricing decision if demand is much lower than anticipated?
As I said before, one of the driver of the high inventory, don't forget that, is the inflation. That's one of the drivers which pushing up inventories. At the moment, we have a good inventory level. If volumes will come down, obviously, we would reduce that a bit, but I wouldn't put that too much effort into thinking about our net working capital inventory levels throughout the year. I don't think it's the big driver and the big question for this year.
Questions from Marta Bruska, from Berenberg. How did you assess the degree of possible market cannibalization of your existing shower toilet business by the launch of the self-installed shower toilet, which is probably order of magnitude cheaper?
I think that refers to question four. That's a misunderstanding. It's not to cannibalize. It's a marketing tool to push the existing shower toilet business. It's not a cannibalization, not at all. Matter of fact, only introduced in Switzerland so far.
Related to the same question, do you think that launching a do it yourself type of shower toilet could put your relationship with installers at risk?
Yes. That's the reason why we don't do it.
A question... Just a moment. A question from Pierre-Loup Etienne, from Barclays. On volumes, could you give some color on the latest trends? That was already done. On destocking, in particular, any particular differences by country? Some of the volume performance over 2020 and 2022 was driven by market share gains. Do you see significant changes in competitive dynamics this year?
Five questions there. Destocking, I think there are two countries from a geographical perspective where we have seen less destocking effects. One is Italy, driven by the fact that in Italy, the wholesaler landscape is much more fragmented. This means you have smaller wholesalers. Smaller wholesalers have less opportunities to play the stocking game, therefore we have seen less stock build-up and less destocking. The second country where the stocking effects were a little bit less pronounced is Switzerland, but that was straight enough because of the landscape that was driven by the lower price increases, because that's the other lever which gives you an incentive to build up stock and destock. These are the two countries I would mention in terms of geographical comparison, which have the most different behavior in terms of stocking and destocking.
A technical question: following the Swiss tax reform, what is your expectation for the effective tax rate in the next few years?
We expect for this year 16%-17% tax rate, and as of next year, 2024, 18%-19%, and that will prevail.
questions from Christoph Dolzal from HSBC: Can you please be more specific in which markets you specifically plan to gain market shares?
No, because it's everywhere. Well, otherwise we would not be there. No, seriously, we have plans. Obviously, initiatives vary country by country, product mix are different, but the goal is obviously to gain market share in all the countries.
Okay. next question from Ilya Gofshteyn from DWS.
Maybe I add some little comment. Obviously, the amount of market share gain, what we expect, that differs country by country. We have, as you might know, We distribute our world into 3 geographies. One is what we call the mature markets. These are the German-speaking countries, Benelux and Italy, Central Europe. There we have a strong market position. Obviously, the market share gains which we are aiming for are lower in these countries because of the high market share. The rest of Europe, that's another 30% of our business, what we call European expansion markets. The word says it, expansion means higher market share gains compared now to the mature markets. The third region, what we can call the emerging markets outside Europe, they're obviously even more market share gains because we are so much under-penetrated.
Okay. Further staff reductions or other restructuring measures in sight?
We don't have put in place any restructuring measures, not last year and also not planned for this year. That's the meaning of the principle of strategic stability.
Regarding R&D, given the strong investments in the past, is it a new run rate now?
It didn't change massively. As you have seen, it was slightly In other words, the last couple of years it was a little bit more, but we talk about small millions per... Number of millions per year. Really small. Driven by FlowFit, but that's really relatively small, and we plan to have more or less the same level of R&D spend going forward.
A question from Arnaud Lehmann, Bank of America. Could there be any rebates on the January price increases? Are you confident to improve margins in 2023 with positive price effects and more stable input costs?
I'm confident that we have been able to implement this around 1.5% net price sales effect as of January. I'm confident that we have achieved that.
Just a moment. Seems to be an acoustical problem with a statement from you. Did not hear why the debt level increased a bit. Could you please comment on this, please?
The debt level increased because we have launched some bonds. Maybe. We used the money for the share buyback, basically. We distributed more than free cash flow.
Again, I think acoustically a problem. Can you please confirm your comments on the slight decline in January and February? Is the same range of decline as the minus 7.2 experienced in Q4, or is it only a low single-digit decline?
I think I talked about that before. It was a slight decline. It was less severe than the 7.6% in Q4. -7.6% in Q4.
Again, from Cedar Ekblom. Considering the R&D spend has not increased significantly in last seven years, slide 10, and is likely lower in real terms, how confident can we be about innovation lifting growth over the medium term?
Very confident. Technically, it's also a little bit of currency effect, by the way, as well, but that doesn't matter.
A last one so far from Karim El-Khoury from Contrarian Capital London. Are you considering potential acquisitions to reach expand your brand portfolio or geographic reach?
Nothing changed in terms of M&A policy or strategy. We would not exclude smaller bolt-on acquisitions. There are no plans to do larger scale transformation acquisitions.
I am done.
That was fast. In the room? Oh, there's one. Arnold?
I read your SAP S/4HANA project was successfully rolled out in November. Any impact there on 2022 numbers which moves the needle in our model, and could we expect something for 2023?
Thank you for this great question. Because we changed our SAP system last November to S/4HANA, from Friday to Monday. The project worked perfectly. Everything worked Monday morning normally. No issues, no problems. Zero. No impact on numbers anywhere. I think, thank you for the question because sometimes we forget how important these things are. No, you all know, without SAP, nothing works anymore. Managing these kind of projects, you don't see that in the numbers, is absolutely essential for the success of a company, and we are very proud, to be honest, and I'm very proud of our IT organization being able to do that absolutely seamless. No impact. You don't have to think about it, which I think is great. We don't have to think about it, but it's a great achievement of the organization.
Maybe another question on your CO2 footprint reduction target, which is now also part of your strategic target since 2021, I think. Does this limit anything on your product portfolio? Meaning, thinking about ceramic portfolio, that you have to think that maybe you should not push too much of ceramic products because that would basically increase your CO2 footprint.
I think no. On contrary, I think this gives opportunities to us versus other ceramic players. Because we have the ability, the capability to invest into this lowering CO2 footprint of ceramics. It becomes more and more a topic. Ceramics will be the material also in the future of a bathroom. There are no signs at the horizon that there are competely alternative materials, so there will be a CO2 footprint. So I think it's rather an opportunity for us if we can position ourselves in terms of CO2 reducing with our products, and that's the reason why we have introduced this label. It's not a big lever.
This label for the WELL here is also to show to the customers we still have a footprint, maybe for many years in terms of CO2 emissions for ceramics. We are compensating that and we are constantly working on reducing it. I rather see it as an opportunity, to be honest, th an as a threat. This is it, I think. Thank you very much for the participation. As usual, you're invited, at least in the room, for a little lunch afterwards. Thank you.