Earnings Call: H2 2019

Mar 10, 2020

Good morning, ladies and gentlemen. Welcome to our Analyst Conference. I would also like to welcome those who are viewing this conference via webcast, which is the majority today, I guess. Together with Roland Iff, I'm pleased to present to you our full year 2019 results. Our presentation is structured as follows. 1st, I will give you an overview of 2019 and comment on the sales development. Roland Iff will then present the financial results. Thereafter, I will give you an update on the outlook for the building construction industry and the perspectives for Geberit. We will then summarize and take your questions. Let me start with our key financial results. Geberit achieved very good results in 2019. Sales were with CHF3.1 billion on previous year's level. In local currencies, sales increased by 3.4%. The EBITDA margin increased to 29.3 percent despite high wage inflation and extraordinary marketing costs. Net income went up by 3.3% compared to adjusted previous year's figures, corresponding to a margin of 21 percent of net sales. Earnings per share increased disproportionately by 4.4% to CHF 17.97 due to our share buyback program. Free cash flow increased again double digit by 10.7% despite the negative currency impact, reaching a margin of 20.9% of net sales. The Board of Directors proposes a dividend of CHF 11.30 per share. This corresponds to an increase of 4.6% compared to 2018, in line with the increase of earnings per share. Let me now continue with an overview of our sales and marketing activities in 2019. We continued to invest in the relationship with our customers. As an example, the slide shows our customer activities in our largest market, Germany, last year and how they fit into our push pull business model. In total, we conducted almost 70,000 individual customer visits or around 300 visits per day. The majority were visits to installers and planners with our technical pool, followed by wholesaler visits and visit of showrooms, architects, channel contractors and investors. More than 21,000 customers participated in more than 330 of our events. About 10,000 customers have been trained in one of our in house trainings in Germany. We also answered more than 270,000 calls and e mails from customers in our customer service center in Germany. This is an increase of 60% over the last 5 years and an indication for the bottleneck of qualified installers. Let me give you two examples of customer events we carried out last year. We organized so called Geberit Neuhaitenfest for 13,000 professional customers in Germany. The event focused on rebranding of Keramag to Geberit and new products. The event addressed investors, architects, planners, wholesalers and installers. Another example is to get rid at VITRA events with the objective to demonstrate our combined design and technical competence following our new in front of the wall slogan, Design Meets Function. The new integrated product series, Gerrit 1, and also the rebranding initiative were a key element of these VIP events. In total, we organized 5 exclusive events with more than 100 top key decision makers. These events are examples of how we systematically and continuously invested in marketing also year to further strengthen our customer relations and brand reputation. Total marketing expenditure reached CHF 118,000,000 in 2019, corresponding to 3.8 percent of net sales. We kept investing with a dedicated team in digital marketing to support our business model with digital tools and channels. In total, we invested in 20 19 CHF 26,000,000 in digital tools and digital channels, corresponding to 22% of our total marketing spend. Let me give you a few examples of our digital marketing activities last year. We relaunched our Geberit Pro app for on-site installation support. The app includes upgraded functionalities, additional content and uses artificial intelligence for automated identification of selected products. 2nd example is our SuperTube Dimensioning tool. This web based calculation tool allows the planning of our new space saving drainage system to support the penetration in high rise buildings. We continued our investments in building information modeling, in short BIM, which is continuously gaining importance in the construction industry. Our BIM product library contains now the entire behind the wall product assortment. Additionally, our new plug in for dedicated BIM software ensures real time connection to the Geberit product information system. Let me continue with 3 examples of digital activities for end consumers last year. We launched a digital and integrated end consumer campaign in the DACH markets. The B2C campaign is called Better Bathrooms, Better Lives and consists of online video banners, Google search and editorial content. The campaign is linked to the new integrated website. The enriched Geberit website is extended with inspirational and configuration tools to strengthen also our end consumer pool. The third example is the rollout of the B2C CRM system. This cloud based solution allows a systematic management of end consumer leads. Beside marketing, we also substantially invested into our innovation pipeline last year. R and D spend amounted to CHF 77,000,000 corresponding to 2.5% of net sales. We continue to leverage the combined technical know how behind and the ceramics know how in front of the wall. Driven by this enlarged innovation potential, we registered also in 2019 a high number of 29 new patents. 2019 was an exceptional year in terms of important new product introductions. In bathroom systems, we introduced our 1st integrated series, Geberit 1, combining know how behind and in front of the wall. In installation and flushing systems, we introduced the DuoFresh module for integrated odor extraction and hygienic flushing of WCs. In the product line of shower toilet, we launched the new AquaClean Zela, a mid level shower toilet with focus on design and hygiene. And finally, in the product area of piping systems, we introduced SuperTube, a flow optimized drainage fitting to safe space, especially in high rise buildings. Let me now comment on our capital expenditure in 2019. CapEx reached with CHF 167 1,000,000, a new record level, 3.1% above previous year. Increased investments in modernization and rationalization, which corresponds to 44% of CapEx, were mainly driven by improvement projects in our plants. 40% of investments were dedicated to capacity expansion, 16% to new products. Let me briefly highlight some of our key investment projects last year. In 2019, we expanded the capacity for installation frames in our site in Germany due to the accelerated growth of behind the wall systems driven by the Sanitec integration. At the same time, the degree of automation of the new production line was further increased. In total, we invested €1,400,000 in this new equipment. Another investment project is at our factory in Jona in Switzerland, where we built a new fully automated packing line for actuator plates, also driven by the excellent growth of concealed systems since the Sanitec acquisition. The new line is fully automated and is doubling our capacity. Start up production was in 2019, and the investment amounted to EUR 1,700,000. Beside large investment projects, many small to midsize improvement projects are an important pillar of our continuous improvement strategy. The graph shows the productivity improvement over the last 5 years in our metal and plastic plants. Since 2014, we improved productivity in average by 5.2% per year, last year by another 4.7%. These productivity gains are largely based on process improvements and still further automation. Let me now briefly comment on the development of our number of employees. Despite volume growth, we kept the number of employees on previous year's level around 11,600 per end of 2019. The increase of staff in SG and A was mainly driven by growth and digital initiatives and IT. This increase was overcompensated by a decrease in manufacturing driven by efficiency improvements. We also increased our number of apprentices to 264 per end of 2019 to increase our pool of qualified professionals in the future. 2019 was also, from an environmental perspective, a very successful year. We reduced our relative environmental impact by 6.9%. Also in absolute terms, we reduced our environmental impact. The absolute energy consumption went down by 3.5% despite higher volumes. Since the acquisition of Sanitec in 2015, we reduced the relative environmental impact by 28%. This corresponds roughly to the entire environmental impact of the Geberit Group before the acquisition of Sanitec. Let me say a few words specifically about CO2 emissions. The acquisition of Sonitek in 2015 enlarged our CO2 footprint roughly by the factor of 5 due to the energy intense production process of ceramics. We have been able to reduce the relative CO2 emissions by 26% since the integration. This proves our commitment to sustainability and that we deliver also in this dimension. Even in absolute terms, we reduced CO2 emissions by 25,000 tonnes since 2015. Let me give you a few examples how we were able to reduce CO2 emissions over the last years. We replaced old burners of tunnel kills used for manufacturing of ceramics by the newest burner technology. The new technology reduces energy consumption by more than 20% with a financial payback of the years. 2nd example is the intelligent use of waste heat at our plant in Volendorp in Germany. We use waste heat to preheat plastic granola for the injection molding process. This enables us to considerably reduce the energy consumption. In the context of our corporate and social responsibility activities, we again funded and carried out several social projects in 2019. We consciously sourced again products and services in the amount of CHF 8,000,000 from workshops for disabled persons and long term unemployed to support socially disadvantaged people. As part of our social engagement, Geberit apprentices went to Kamboja last year to renovate the sanitary facilities in several schools. And Geberit employees from the Nordics went to Nepal to support the construction of a water supply system in a village. After this overview, let me now comment on our sales development 2019 in more detail. Net sales, as already said, achieved a SEK 3,100,000,000 previous year's level. The growth in local currencies reached 3.4%, corresponding to a net sales increase of CHF 104,000,000. The unfavorable currency development fully compensated for this increase. The growth rates varied quarter by quarter in 2019. However, this quarterly volatility was mainly driven by the number of working days and base and onetime effects. The fundamental quarterly growth was relatively stable throughout the year. Let me now turn to the sales development per region. All global regions recorded a positive net sales growth in local currencies. Europe grew by 3.4%. Sales in America were up by 0.5%. Far East Pacific was up by 9% and Middle East Africa grew with 1.3%. Let me give you a few comments on the development in the different countries and sales regions. In Germany, net sales were up by 3.2%, negatively affected by the ongoing bottleneck of qualified installer capacity. In Eastern Europe, net sales were up by 2.9% in a mixed market environment with strong growth in insulation and flushing systems. Net sales in the Nordic region grew by 2.6%, with growth in all countries driven by strong growth in insulation and flushing and piping systems. Net sales in Switzerland grew with 3.9% above the market, with positive growth rates in all three product areas. Benelux net sales have outperformed the growing market with a net sales growth of 7.4% with strong growth rates in Belgium and the Netherlands. In Italy, net sales grew by 1.3%, negatively affected by a weak market environment and the phase out of the local ceramic brand as of 2020. Net sales in France decreased slightly by 0.4% with strong growth in Insulation and Flushing Systems, but a sales decline in Bathroom Systems, driven by the exit of a low margin business in ceramics and the phase out of the local ceramic brand as of 2020. In Austria, net sales outperformed the market with 5.2% with growth in all product areas. The UK recorded a net sales increase by 5.3% above market with strong growth in Piping Systems. And on the Iberian Peninsula, net sales grew by 4.9% with sales growth in Spain and also in Portugal. In Far East Pacific, net sales grew by 9% with double digit growth in China. In the Americas, net sales were slightly up by 0.5% in a weaker than expected environment for the institutional market. Net sales in the Middle East and Africa region were up by 1.3% with strong growth in South Africa and the net sales decline in the Gulf region hampered by a weak construction market in the region. I come now to the sales development per product area. Installation and Flushing Systems net sales increased by 4.5%, driven by a strong growth with behind the wall flushing systems. Piping Systems grew by 5.8 percent with strong growth in both product lines, supply piping and drainage piping systems. Bathroom Systems net sales were on previous year's level, negatively affected by a weak market environment in the Nordics, lower sales due to the phase out of selected local ceramic brands and the exit of low margin ceramics business in France. Roland Iff will now lead you through the financial results. Good morning, ladies and gentlemen. I start the result presentation with an overview of the key figures. For 2019, the group can again present very good results. As already mentioned, net sales increased in Swiss francs by 0.1% and in local currency by 3.4%. The EBITDA grew by 4.2% and reached CHF 904,000,000. The EBITDA margin could again be increased by 110 basis points to 29.3% despite the already high level. Compared to the adjusted previous year numbers, the EBIT grew by 1.7% and reached CHF757,000,000, resulting in an EBIT margin of 24.5 percent. This corresponds to an increase of 30 basis points. The reported EBIT grew by 6.9%. Whereas the strengthening of the Swiss francs did not impact the margin development, it had a significant impact on the EBIT growth. Excluding the negative translation effect, EBIT would have increased by 5.5% compared to the adjusted previous year number instead of just 1.7%. Also compared to the adjusted previous year numbers, net income increased by 3.3 percent to CHF647 1,000,000 and earnings per share increased by 4.4%. The free cash flow increased by 10.7 percent and reached CHF644,000,000 despite the negative currency effect. Coming to the individual cost elements. Cost of materials decreased by 3.7%, driven by lower raw material prices and a positive FX impact. The biggest impact on the purchasing prices resulted from plastic materials, but also metal prices declined. On average, raw material prices decreased by currency adjusted minus 5.1.5 percent. Personal expenses increased by 1.1% as positive currency effects partly compensated the negative effects. Again, higher average wage inflation of 2.9% after having experienced already 2.7% in 2018 had a negative impact. Depreciation increased by 21.3%, mainly due to the implementation of IFRS 16. As from 2019, depreciation expenses include also the depreciation of the so called right to use the capitalized mid- and long term lease payments related to our most important leasing contracts. As a compensation, the other operating expenses do not include the related leasing payments anymore. This elimination and also positive currency impacts overcompensated the moderate channel cost increase. As a result, the position was reduced by 1.5%. Out of all cost items, the only significant increase resulted in marketing expenses where we spent, as planned, additional CHF 10,000,000 related to the replacement of the German ceramic brand, Kredamag, Nystek Gevirt brand. Amortization decreased by 63.9% as 2018 included for the last time the amortization of the ceramic Sanitec production know how. The analysis of the EBITDA margin development shows the most important influencing factors. The volume and product mix effect led to a margin expansion of 80 basis points. Due to our price increase and lower raw material prices, the net price effect added 140 basis points to the EBITDA margin. This could not completely cover the negative impact from the cost development. Mainly due to the significant wage inflation and the higher marketing expenses, the margin was negatively impacted by 160 basis points. As in the previous years, the significant currency volatility did only have a minor impact of minus 10 basis points on the margin due to the effective natural hedge. The positive impact from the new accounting standard IFRS 16 on the EBITDA margin was 60 basis points. With 29.3%, the EBITDA margin is now slightly above the midpoint of our target corridor 28% to 30%. We have maintained our EBITDA margin within our target corridor for the last 4 years despite significant headwinds in some areas. Let me now comment the positions below the operating profit. The financial result improved. Lower financial expenses and lower currency losses had a positive impact. Positive one off effects impacted the tax rate, which is with 12.9%, twenty basis points lower than in the previous year. One positive effect is coming from the adoption of the changes to the corporate tax law in Switzerland. Deferred taxes had to be adapted to the new lower ordinary tax rate, valid as of 2020. From 2020 onwards, however, the new regulations will lead to higher tax payments as the negative effect from the EU requested elimination of special tax regimes will not be fully compensated by the lower ordinary tax rate and the new internationally accepted special tax regimes like, for example, Patent Box or Super R and D deduction. Compared to the previous year, adjusted numbers adjusted net income increased by 3.3% and earnings per share grew by 4.4%. The higher growth rate for EPS is the result of the currently ongoing share buyback program. For the 2nd year in a row, free cash flow increased double digit. Net cash flow from operating activities increased by 11 0.6%, mainly driven by a positive working capital development and lower cash tax payments. Also, payments out of restructuring provisions related to the ceramic site closures were significantly lower than in the previous year. In addition, net cash flow from operating activities was positively impacted by the IFRS 16 introduction as lease payments, which until last year were already deducted in the EBITDA, are now deducted further down in the free cash flow calculation. Despite higher investments in PP and E and despite a negative currency effect, the free cash flow increased by 10.7% to a record level of CHF644 1,000,000. This represents a free cash flow margin of 20.9% and a cash conversion ratio of 71%. From the free cash flow, about CHF 490,000,000 left the company, CHF 389,000,000 were distributed as dividends, CHF 47,000,000 were used to buy back shares under the 2nd line share buyback program and for CHF 61,000,000 we paid back debt. The cash balance consequently increased by CHF 146,000,000. Besides the cash balance, also the positions property, plant and equipment and the group pension obligation showed a significant increase. The increase in PP and E is the result of the capacity driven investments and the capitalization of the right to use assets related to IFRS 16 in the amount of CHF 68 1,000,000. Pension obligations increased as the future liabilities had to be discounted with an again lower interest rate. The goodwill and intangible asset position decreased mainly due to lower exchange rate. Total debt remained stable as the new IFRS 16 related lease liability item compensated the repayment of debt mentioned earlier. During 2019, we issued CHF 2 bonds in the total amount of CHF 250,000,000 and CHF 1 in the amount of CHF 150,000,000 matured. The additional funds raised were also used to reduce the drawdown under our revolving credit facility. The decrease of the net debt position is consequently the result of the higher cash balance. The balance sheet remains very solid. The equity ratio slightly increased to 51%, and net debt to EBITDA was with 0.5x, slightly lower than in the previous year. At the same time, we could increase the return on invested capital to 23.1 percent despite the negative impact resulting from the introduction of IFRS 16. Based on the good result and considering the very stable financial situation, the Board of Director proposes to the Annual General Meeting a dividend of CHF11.30 per share. This corresponds to an increase of 4.6 percent versus prior year. On that basis, CHF410,000,000 will be distributed. The payout ratio remains stable at about 63%. The annual general meeting will be held on April 1, 2020. Subject to the approval by the general meeting, dividend will be paid out on April 7, 2020. The Board of Directors further approved a new balance sheet policy. Going forward, we will accept a net debt cover ratio of maximum of 1.0x. However, today, we expect that debt will remain on current level, which means that net debt to EBITDA remains around 0.7x on a yearly average. The 0.5x number you have seen on the previous slide, That's always the year end number, which is a little bit lower than the yearly average. Our goal is to reduce the cash level and use the revolving credit facility more intensively to finance the yearly cash flow volatility. In this context, the Board of Director has approved the preparation of a new share buyback program in the amount of EUR 500,000,000 executed over 2 years. The program should start in the second or third quarter 2020 after the currently running program will be finished. Under the current program, we have bought back so far 764 1,551 shares for a total of €323,000,000 at the end of 2019. With this dividend proposal and with the share buyback programs, Geberit continues its stable and attractive distribution policy, which is applied since many years. I would like to finish my presentation with a brief review of the result the shareholder friendly policy delivered. Over the period 2015 to 2019, Geberit has generated about CHF2.7 billion free cash flow. This represents an average free cash flow margin of 19% and an average cash conversion ratio of 67%. From this accumulated free cash flow, the amount of CHF2.3 billion or 84% have been distributed back to the shareholders an attractive mix of dividend payments and share buybacks. These numbers confirm the ability of the Geberit Group to generate stable cash flows over a longer period and on a high level and reflect our shareholder friendly distribution policy. With this, I give the word back to Christian Boon. Thank you, Roland. Let me now comment on the outlook for the building industry. The geopolitical risk increased, creating more uncertainties in the global economy. On top, it is currently difficult to assess how the coronavirus will impact the global economy on the supply and on the demand side and if this impact will be temporarily or longer lasting. The market outlook is therefore very difficult, in particular for markets like China and Italy with currently high infection rates. Our outlook is therefore based on the following two assumptions. First, the coronavirus will not have a longer lasting negative impact on the economy overall. And secondly, the building construction industry is more resilient compared to other sectors. Let me now start with our outlook for Europe. Residential building permits in Europe started to decrease in 2019, which is the first decrease since 2013. However, the expected decrease in the newbuild segment is relative moderate. Furthermore, we expect a robust renovation sector, partially compensating for the weaker newbuild segment. Overall, we expect a rather stable building construction industry in Europe this year. Let me now comment on the individual company outlooks, again, based on the assumption that the coronavirus has no longer lasting impact on the economies in general. We remain confident about the construction demand in Germany, although the limited qualified installation capacity remains a bottleneck. In Switzerland, we expect a slightly declining market driven by a softer new residential segment. In the Nordic region, we expect at best a stagnating market supported by a modest growth in Norway and Denmark and negatively affected by a decline in Sweden and Finland. The construction markets in Eastern Europe remain to be mixed with positive markets like Poland and a dramatic environment in Russia and the challenging market in Turkey. We are positive for Benelux with a solid growth in Belgium and a flattish market in the Netherlands due to a stricter enforcement of environmental regulations. A market outlook for Italy is currently due to coronavirus not meaningful because of the uncertainties in the region. In France, we expect a stagnating market environment with a decline of the residential and newbuild segment. We remain positive for Austria, where the construction market should slightly grow. We expect in the UK a stabilization of the declining market environment in the last 2 years, and the building construction sector on the Iberian Peninsula is further recovering, although at a lower pace than in previous years. In North America, the most important market segments for Geberit, the institutional and commercial sector, are expected to decline slightly, mainly driven by the commercial sector. In the Middle East and Africa region, we expect overall a difficult market environment for the building industry. There is no real visibility and predictability in the Gulf region, driven by the political uncertainties and corresponding risks. We do not expect any upside in this region. We are also cautious for South Africa due to the economic uncertainties and decreasing building permits. And the market environment in Northern Africa and the Near East region remains to be mixed. Let me finalize our market outlook 2020 with Asia Pacific. The predictability for the Chinese construction market over the course of the year is very difficult due to the coronavirus. Therefore, we refrain from a full year outlook for China. Short term, of course, we expect a negative impact on our sales in China. The growth expectations for the building industry in India are limited due to the lack of liquidity. And in Australia, we expect the declining construction market and the picture in North and Southeast Asia remains to be mixed. Now I would like to give you an outlook on the current year at Geberit. I will start with our new product introductions this year. Our new bathroom series, Geberit 1, introduced last year, is the 1st bathroom series combining the know how behind the wall and the ceramics competence in front of the wall. This year, we are further completing the product range with a new bidet with height adjustment, easy to install and easy to clean features. Secondly, the Renova series, one of the most successful bathroom series in the basic segment, receives a design update. In the area of installation and flushing systems, we will launch a new range of actuator plates with new and modern design in terms of colors and materials. The new range is fully compatible with systems since 2002 to retrofit already installed systems in a bathroom. In line with the new actuator plates, we will introduce the new CleanLine 80, which is an upper market shower channel solution. The new Clean Line will have a highly elegant look and addresses the new design trends of metallic colors. In Piping Systems, we introduced a new pipe scraper for installers. The new pipe scraper enables a faster installation of drainage pipes. The time saving allows total time savings of around 2 to 3 hours for an installer in a typical multifamily house project. And finally, we introduced a new Pluvia fastening system, which provides an easier, safer and more stable installation of our roof drainage system. Let me now comment on some of our key investment projects this year. We will build a new manufacturing line for our noise insulation drainage pipes. CapEx amounts to €4,400,000 with a payback of 4 years. This investment is driven by the strong growth of noise insulating drainage pipes over the last years. Another important investment this year is the renewal of the production lines for stainless steel fittings for our metal supplied piping systems. We invest in total €10,000,000 in our plant in Longenfeld in Germany for these new manufacturing lines. Beside investments in our metal and plastic plants, we also invest into our ceramic plants with a focus on productivity and efficiency improvement. Let me give you a few examples. In our plant in Ukraine, we invest into fully automated production line with new machines along the entire manufacturing process. Total investments amount to CHF 3,000,000. In our ceramic plants in Poland and Finland, we invest CHF 5,000,000 each to further optimize several steps within the manufacturing process. Let me now give you an outlook on our marketing activities in 2020. A key activity this year will be the further simplification of our brand portfolio. We have successfully replaced Caramark in 2019 by the Geberit brand. We will now phase out 3 other ceramic brands this year in the Netherlands, in France and in Italy. The total onetime marketing costs for this rebranding will be again CHF 10,000,000. Another priority this year is the expansion of our digitalization efforts. Firstly, we will further strengthen our dedicated team for digital products. Secondly, we will extend our capacity for product data development and data customization as the requirements for product data is growing across all customer segments. And thirdly, we add further IT capacity in order to support our sales and marketing and product management initiatives. In total, we invest another CHF 15,000,000 per year, mainly for personnel and operating expenses. Let me finalize our outlook with a few words about the coronavirus. Currently, our business and operations are not materially impacted by the coronavirus. Our 2 manufacturing plants in China were down for 2 weeks and are running nearly at full capacity again. Both plants are mainly producing for the local market in China. We currently have a production interruption for our shower toilet model, Mira, due to a missing component from a sock supplier in China. Restart is expected mid March, 1 or 2 weeks, although not yet at full capacity. Apart from these 2 smaller temporary production stops, we currently do not have or see any major supply chain issues. All other sites and the supply chain is running at normal level. We have, of course, implemented several health and safety measures in line with the rules and recommendations of the local authorities. Furthermore, we implemented selected business contingency measures to safeguard our business. Due to the temporary production interruptions just mentioned before, we expect minor negative sales impact of less than CHF 10,000,000 in Q1 on a group level. Under the assumption that the coronavirus does not have a longer lasting negative impact on the economy, as outlined before, we do currently not expect a material impact on our business on a group level this year. Now I would like to conclude by summarizing our presentation. 2019 was again a very good year for Geberit. We achieved in a challenging market environment a convincing organic sales growth in local currencies. We further improved the profitability despite high wage inflation and extraordinary marketing costs and delivered very strong and further improved bottom line results. This was possible thanks to the various efficiency projects, high cost discipline and our pricing power. 2019 was also a very successful and exceptional year in terms of important new product introductions in all three product areas. And we continued to invest substantially into our asset base and the digitalization of our business model. And finally, we achieved again a double digit growth of free cash flow to a new record level. Let me summarize our outlook 2020. As said before, the uncertainties around the coronavirus make the market outlook difficult and challenging. However, the building construction industry might remain rather stable compared to other sectors. For raw material prices, we expect a lower level in Q1 2020 versus Q4 2019. Currently, a further outlook is not possible due to the high uncertainties. We will again face a strong wage inflation this year at a similar rate as what we have seen last year. Key operational priorities for Geberit in 2020 will be the further simplification of the brand portfolio secondly, further strengthening our digitalization efforts with dedicated initiatives and a focus on various efficiency projects and strict cost discipline to mitigate the wage inflation. The fundamentals of Geberit remain to be very solid also in this year. Let me recap our core fundamentals. A focused and stable strategy with strong execution capabilities, a decision maker oriented business model, a strong focus and commitment to innovation and sustainability, an efficiency focus with the ability to continuously invest, a functional and lean organization and finally, a strong down to earth company culture. Based on these fundamentals, we have delivered industry leading results over the last 4 years since the integration of Sanitec. The average net sales growth per year amounted to 4.1% organically and in local currencies. We have achieved an average EBITDA margin of 28.5 percent over the last 4 years and a ROIC of 22.4%. The average free cash flow margin amount to 19% over the last 4 years, and we have been able to register 139 new patents over this period. And finally, we have been able to reduce our relative CO2 emissions by 26% since the acquisition of Sanitec 4 years ago or integration 4 years ago. We are now at the end of our presentation. On this slide, you find the key dates for this year. Thank you for your attention, and we are now ready and happy to take your questions. Mr. Vicker? You have to push the green button. Okay. It seems to work. Thank you very much. Martin Flueckiger, Kepler Cheuvreux. Got three questions, and I'll go 1 at a time. First question is on selling price increases in 2020. Judging from your EBITDA margin bridge for 2019, you had a nice tailwind from raw material prices. And if I remember correctly, at the time, you had but also because of your expectation at the time of higher raw material prices. Now I realize volatility in commodity price is going to be high probably this year and just judging from the oil price moves we've seen very recently. But I think in the current environment, it's probably pretty unrealistic to assume an increase in raw material prices over the years. So can you confirm that selling your selling prices are going to be up by 1% as of April 1? That will be my first question. Short answer, yes. 2nd question is on your business in the U. K. Now in the first half of last year, we've seen pretty strong increase of about 10% organically, if I remember correctly. I was just wondering and that seemed to be, at least in my mind, a stocking effect taking place ahead of the planned Brexit at the time. Now post Brexit now, do you have any indications on inventory changes, stocking or destocking taking place among U. K. Wholesalers? And if yes, what is the impact on sales so far? We have seen seller stocking effects throughout the year 2019 in the U. K, driven by the Brexit decisions and delays. Currently, we do not see any specific stocking effects in the market in the U. K, driven by now the clarity on Brexit. So a normalization in terms of volatility compared to last year. So I take it also no destocking effects, right? So far, we have not seen. Okay. Then my final question would be on the phasing out of your 3 former Sanitec brands, if I remember correctly, France, Italy and the Netherlands. Have you seen any impact yet on your sales from this phasing out exercise? And if yes, by how much? And if no, when do you expect to see it? It? Yes. You have seen for 2 of the 3 brands a negative impact versus the end of the year. That was in France and in Italy, because these two brands are phased out as of the beginning this year. We have not yet seen anything in the Netherlands because they will be phased out in Q2. I can't quantify because you do not know exactly that it's driven by the inventory management of the wholesaler. So I can't I do not know and I can't give you a figure. And there's been no impact in February January, February so far either? No. Thanks. Mr. Hissler? Thank you. Martin Hissler, Zurcher Kantonalbank. My questions. First about can you say something about your production footprint or logistic challenges in Italy? I think it's one plant and how is this what is it producing for the whole group? That's the first question. And the second one, you achieved very high margins above 29 percent as you were mentioning. I was just wondering whether you have any initiatives to speed up growth a bit more, sacrificing a bit of margins? Or what's your thoughts about growth versus further margin improvements? We have 2 plants in Italy, 1 in Northern Italy in Villa Dose and the second one in Gaeta that's close to Neotls. Both production companies are running at normal level also today, and we do not see any implications currently on the measures taken yesterday by the government by Italy in Italy. So MIPEL are going to work normally. No implications on supply. Of course, we already moved safety stocks for especially the Northern plant outside of the region. We have taken the decision already 10 days ago or 2 weeks ago. But beside that, the production is running at normal level anyway. The biggest impact so far is on the sales company. We have around 60 people, sales employees on the street in Italy. They, of course, since yesterday, stay at home, home office and on very exceptional basis are visiting customers. On the demand side, because I would assume that is a follow-up questions, currently, we do not see any impact in Italy on the demand side. The only demand impact we have seen so far is in China, where sales, of course, were down massively in February and also in March. Your second question, yes, we are ready, and we want to invest margin into growth. I refer to the initiatives I mentioned before, the digitalization efforts in 3 areas where we invest another CHF 15,000,000 this year. That's exactly an answer to your question. Mr. Arnold? Christian Arnold, mine first. I have a question on your new balance sheet policy saying that you accept net debt to EBITDA ratio of around one time. Does that exclude larger M and A project? We do currently not plan any or do not have any plans for larger M and A projects. It's not on the agenda. So there's no connect between acquisition plans and the new balance sheet policy. The new balance sheet policy basically, we are taking favor of the low interest rates and the capacity and the strength of our balance sheet and the cash flow strength of our business. And basically, we are have put on paper more or less what we are doing anyway since 3, 4 years that we have a slight level of net debt. So it's more a confirmation of, let's say, our balance sheet policy, which we have already in place since the last couple of years, nothing to do with M and A. In the past, your share buyback program usually had a time of 3 years. Now you have 2 years. Is that a change? Or is it just because you are larger, generating more cash? We have at the moment, as you have seen, over €400,000,000 cash on the balance sheet, and that was that is more linked to this situation. We would like to bring down the cash used revolving credit facility more intensively to deal with the volatility of the cash flow during the year, also to keep the cash balance low and avoid negative interest payments? We have all, I think, and this Chinese hospital in mind, which was built up in 2 weeks' time. So modular building or prefactoring is are the keywords. I think you also are or have some activities in there, which are not that big so far. But I mean, Sika, for example, they are also talking about this trend of modular construction. And is that something where you are going to be more involved that you have more prefaptured larger installation systems? The short answer is yes, but selectively. We are already not in China, but in Europe. We are have some of our products, which are prefabricated for markets like Germany, which are going very well. We have also one plant in Austria, where we are manufacturing, selling prefabricated bathrooms entirely. So we have some. It's still, let's say, part of the business. And we're, of course, looking at that. And we're, of course, thinking about maybe expanding it, but it will not be the biggest lever in the coming years. So it will be still conventional we believe it will be conventional building process and prefabrication will not take over, let's say, But is it I mean, the size, is it 1% of all the sales? Smaller. Smaller? Small. It is small. It is small. But it's fast growing, to be fair. It's fast growing. It's disproportionately growing, of course, especially in Germany with the bottleneck of installers. That's, of course, one area where we see where we can support this bottleneck support or, let's say, overcome the bottleneck by delivering prefabricated solutions, partially prefabricated solutions to its dollars. Last question on inventory. I mean, you mentioned that you have built up some safety inventory due to the situation in Italy. Do you also see that at your customer side that wholesaler are actually ordering more, increasing their inventories? Difficult to say. We have not seen an impact on both ways, not a downturn of the order income, but also not an explosion. So it's quite difficult to say. It might be. We will I can give you an answer maybe in a couple of weeks. But over the last weeks, it's very difficult to assess. We have not seen special, neither down or up. Thank you. Mr. Rosenau? Thank you. Raimo Rosenau, Helveitge Bank. I think 10, 11 years ago, you achieved this new tax ruling with Germany, which has been renewed a few years ago, I think, which brought down your tax rate quite significantly. For how many years is this deal still sealed? And is there any risk looking forward that this could change at some stage in the future? The tax ruling, which Switzerland had together with Germany was last seen the first one from 2,009 to 2018 and has been renewed now for another 5 years, so until 2020 3. But that didn't really bring the tax rate down. It was just approving our transfer pricing policy, which we have in the group in the example, Switzerland, Germany. Is there a risk that the world can change in the tax area? If you look at all the initiatives which are going on, there is probably a risk, but there's nothing concrete at the moment. Yes. It didn't bring the tax rate down, of course, in 2018. But 10 years ago, when you introduced this new tax ruling, it brought the tax rate down, right? It was more reorganization, which influenced the tax rate. So what for the foreseeable future? At least next year, we will have a higher tax rate, but that's not linked to this. It's linked to the changes in Switzerland. What I've mentioned before, the tax regime changes and the lower tax rate, which we have the lower ordinary tax rate despite that we will pay about 1.5% to 2% more taxes in the group. So tax rate next year will be around 16% and not 13% anymore as we have had it this year. Okay. Thank you. And then something more general. How many plumbers are you trading these days a year? In the past, once it was 15,000, then 20, then how much is it now? More. I can't know the exact figure. Do you have the exact figure? How many? 5,000 in internal training centers. So, 85,000 in internal training centers. We have 29 training centers nowadays, 29 and 85,000 people are trained a year internally. That does not include external events or on-site events. So the number has increased significantly over the last 10 years, right? I guess so. I do not know the number, but I would say yes. Okay. Great. Thank you. Mr. Pomerlein? Dan Pomerlein from Vontobel. Could you talk a little bit about the launch of the Geberit 1 bathroom series last year? Did it meet your expectations? How was the uptake? What do you expect for 2020? And from when on could this bathroom series be accretive to your to the group margin? Thank you. It met our expectations in terms of customer reception. Customers were on the different steps of our channel very satisfied and with a couple of features. In terms of figures, it was not a material sales yet. We did not even expect. The toilet is going quite well. It's a bit with smaller product, and the wash business is really premium. So we are happy with the introduction last year. It will not have also this year, not yet have a material impact on our sales. It's the start of an innovation story. And one example, we are expanding now this year the range with the bidet. And you can expect further extensions over the coming years, which will have also more sales potential in terms of price points. Okay. Yes? Pierre Rousseau for Barclays. The first question on product introductions. 2019 has been quite rich and 2020 will be rich again. So I was wondering if you could able to understand the timing of how it translates into higher sales going forward, especially for the piping divisions, which has been doing well? And second question would be on your CO2 reduction efforts. I noticed the strong 7% decrease in CO2 emissions this year, presumably mainly in ceramics. So what's driving that? And potentially, with the inclusion of Switzerland in the European trading scheme, potentially, could trading in the U. S. Become a source of earnings for Geberit going forward? And the last question would be on circularity, again, specifically for the ceramics business. Do you have particular initiatives there in terms of designing the products for recyclability and in terms of take back programs? And do you see that as a potential growth platform in terms of service to your customers going forward? First question, in general, the introduction of new products until it turns into material sales takes years, a couple of years because you have to achieve and to talk to many customers along the channel. So it takes a couple of years. Your second question about CO2 emissions, I gave you a couple of examples how we have been able to reduce CO2 emissions. A main driver, of course, is the energy consumption for the manufacturing of ceramics. Where you need a lot of energies, you have to imagine a ceramics is burned for around 24 hours in an oven or a running oven, a Tunuk Helm, at more than 1,000 degrees, a lot of energy. That is the main or one of the main source, but not the only one. And the third question, I did not really get. Can you repeat that? Just a follow-up on CO2. With Switzerland being included in the European trading scheme for U. S. Going forward and given that you're probably doing better than the industry on average, could selling in the U. S. Become a source of earnings for Geberit going forward? We are not trading CO2 emissions. We are not buying or selling CO2 emissions. We are mainly focusing reducing our CO2 emissions, and we are not involved in any CO2 emissions buying or selling. Okay. And the last question was on circularity in your sustainability efforts. So do you see more service that you could offer to customers going forward? And how do you make sure that this is taken into account? I think our biggest contribution to the circle economy of products is that we make sure we have products is a very, very long lifetime because the longer the cycle, that's really well and that is the main thing. So we are producing products for 30, 50 years. That is the biggest contribution. Secondly, we have spare parts for some of our products for more than 25 years. So if you need a spare part for a product out of year 2000, you get a spare part. That is also increasing the long levity of our products. That is a contribution to circularity in a much further extent than thinking about what happens in the product in 30 years. And the third example is also this year with new product introduction, we always try to bring new innovations which are retrofittable to existing solutions. The new actuator plates, which we introduced, are retrofittable until 2002. So if you want to have a new actuator modern actuator plate, you don't have to take out your entire bathroom. We just replace it. So these are the 3 main drivers how we contribute to the circularity in terms of sustainability as well in our industry. Just one question on the next slide, Page 56 actually. Since a few years, you do transparently show the organic top line growth since many years. Now I think it was with the acquisition of Sunnitec that you did change your reporting from gross to net sales, right? And doing the math, the difference of the organic growth rates between gross and sales would be roughly 1%. Now having said that and looking at your long term top line guidance of 4% to 6%, this theoretically would, under the reporting of net sales, correspond to 3% to 5%, whereas you humbly kept the guidance unchanged at 4% to 6%. Now perhaps you have some ideas or would like to share some thoughts on that. Thank you very much for that very precise calculation, which I can confirm. So the 4% to 6%, the midterm guidance, which we kept, is more aspirational on a net sales level than what it was before. So your thoughts and your calculations are right. Yes? Okay. So implicitly, you do somehow expect an additional 1 percentage point growth. Otherwise, you would have changed your guidance, right? Yes. We disagree because we have a range of 4% to 6%. We never said 5%, of course, a range of 4% to 6%, depending how the markets are developing. We are now at the lower range over the last 4 years, 4.1%. Why are we at the lower range? 50% of our sales exposures are to markets which are not or already slightly growing. That is Germany is not growing as fast as before due to the badminton bottleneck, 30% of sales. Nordics is more or less stagnating, 10% of our sales. And also Switzerland, don't forget, in Switzerland, we had a boom 10 years until 2014. And Switzerland is running on a very high good level, but it's not really growing. And that is the reason why for the last 4 years, we have been within the guidance, but more on the lower end. And again, I repeat, the guidance which we have set 4 years ago is more aspirational than what we have before. Okay. Thanks. I think we from the webcast, there are some questions. We have some questions from the webcast. First of all, from Daniela Costa, Goldman Sachs. A few questions. Could you give us an update on whether you expect product launches besides Geberit ONE you did at the sanitary fair 1 year ago to contribute meaningfully to 2020 growth? Or if this is still only starting in 2021? Is the question referring to Geberit ONE only? No, overall, all the products. I think the general answer, as I said before, it always takes a couple of years when new product introduced have a material impact. For example, currently, a material impact on our sales growth is the new products we introduced 3, 4 years ago in terms of drainage piping systems, noise insulating drainage piping systems, that's what we see really and is driving the growth figure, for example, in Piping Systems of 5.8% last year. Okay. Next question from Daniela. 2 of SonneTech competitors are in merger talks. What is your take on industry consolidations? What is your M and A strategy going forward? M and A strategy, I answered already before, still the same, focus on organic profitable growth, no need and requirement to do any large scaled acquisition. Regarding the first part of the question, as you know, we do not comment on competitors, especially not if they are in any talks, and it's not yet clear if they will merge or not. Okay. Thank you. And the next question, what are the FX impacts on expected sales EBIT margin in 2020 if currency stay as of today for the rest of the year? We had an average euro rate of about 1.11 in the P and L in 2019. Today, the euro is more around €105,000,000 is the most important foreign currency. So you can calculate or derive a magnitude of the negative impact we could see in the P and L translation impact from that. And the last question. On your tax rate comment on 16% by next year, do you mean 2020 or 2021? 2020. Okay. Then a question from Alexander Kaufman. Is it reasonable to assume that Geberit will get stronger relative to its peers in the context of temporary economic slowdown as the company seems to continue to invest in R and D and marketing? I'm not sure if it's linked to the temporary slowdown or cycles. I think in general, yes, the answer is without being arrogant that we continuously try to be better than competitors. And that's what I've shown at the end of our presentation. If you look at the most important KPIs, I think we do. We do continuously deliver better than competition independently of cycles. Questions from Rolf Winkelmann, Deutsche Bank. Can you please tell us where you are with the integration of Sonitek? To be honest, we do not use the word integration anymore. That is done. It's now the combined business. It's one business. We are currently further improving it in the context, let's say, of typical Geberit behavior. We are not using the word integration anymore. Okay. And also from Rolf Winkelmann, are the full is the full range of Geberit products now available in the Nordics? I think you have yes, of course, all products which we sell in Nordics are available. But I guess the question is, if we are selling also Geberit branded ceramics, that might be the question coming from there. Yes, we have introduced this year also a certain part of the assortment in ceramic with the Geberit brand in the Nordics, but we stick to the strong local brands with the majority of the business. Okay. Two questions from Marta Brusca from Berenberg to digitalization. Could you please provide more details on your digitalization strategy? It would be helpful to get your thoughts on what you do consider to be some of the main pillars. What are the main challenges? How will your new initiatives impact Eberit's go to market strategy? What exactly do you plan to do with your product portfolio? What steps are you taking to assess how much you would like to digitize it? Would you consider to buy a more advanced player such as IP, for example? I try to take this around 10 questions to bring them down to maybe 2, 3 answers. First answer, our go to market model will not be changed or impacted by the digitalization. We believe that the go to market model in our industry is still the physical selling of products with distributors, installers and consumers, the majority. 2nd answer, where is the most important impact of the digitalization on Geberit? We have 3 areas. We have products. We have manufacturing, we have marketing and sales. Sales, I just mentioned, is not the dominant part in terms of digitalization online sales. The biggest impact still is, as we believe, marketing. That is basically the same business model as we are used to 30 years ago, but we are using digital tools to support our existing and not disruptively changing business model. That's number the most important of the 4. Then the second important is digital products. Applications digital applications, which are really value adding, not for the sake of digitalization, but really thinking about where could you have with our product portfolio really a benefit if you think about digitalization. And that's what we're currently doing. I do not want to talk more about that. You will see as of next year also some products coming out of that. The 4th area I mentioned is manufacturing. Manufacturing digitalization Industry 4.0. If I look at the last couple of years, last 3, 4 years, where we have gained the most improvements in manufacturing, it was not digitalization. It was still automation. It's still automation, which is a big driver. And last comment on the manufacturing part. We believe that the driver for digitalization in plants is much more driven by the equipment by the manufacturers, not by us as using the machines. So predictive maintenance, for example, that will be driven automatically. Summarizing, no disruptive impact, most important on marketing, a little bit less, but also important on products. That's where we are focusing. And all the initiatives I've talked about before are exactly targeted for these priorities. And the follow-up question on this. Also, how would you compare your approach to that of Lixil Group or Sarco Bar, which both include digitization as one of the pillars of their group strategy. For Geberit, they announced €15,000,000 of additional investments, looks like a side project. Is that also how you see it? I don't want to sound arrogant, but to be honest, we are very much focusing on our own strength. We do not look that much on others in that respect. Therefore, I do not want to comment any digitization efforts of other competitors or even customers, by the way. Therefore, we are convinced we are doing going to the right direction, and I will not comment on competitors or customers. The last question from Marta Brusca. Could you please remind us how many production sites you have acquired with Sonitek And how many of those are still in operation today? We'll take it 18. I think it was 18. I think we acquired 18. We closed 2 of them, the 2 sites in France, and that's basically it. We sold also. Sorry. And we sold thank you. And we sold 2 smaller sites. And we sold 2 smaller sites, sorry. Then three questions from Andre Kukhnin, Credit Suisse. Visavis your guidance for stable European end markets, can you please tell us how much did they grow in 2019? Which region? Europe. European end market. For our industry, I guess. Quite difficult to say. We do not have an exact figure. And actually, we do not calculate an exact figure because countries or our markets are so local, we always look country by country. So what we are looking at is, are we able in individual countries to outperform the markets? And I think for the majority of the markets in Europe, we have been able to achieve that also last year. We do not have a consolidated figure, which I could provide you on a European level. Digital investments from 2020, do you continue to expect EUR 15,000,000 additional expenditures? Correct. That is an ongoing spend now as of 2020, yes. That's it. In Switzerland already, quite a few AGMs have been postponed. What are your considerations about potentially postponing your AGM? We are not postponing it. We will have it on April 1. We have typically a little bit more than 1,000 people. We have now taken some measures to make sure that we are below 1,000 people. So we are confident that we can have a regular annual general meeting. For example, we have a lot of employees participating typically, and we invite them not to come. If the rules get shortened, what is your plan to do? I mean, certainly, you have some thought about that as well. We have different two things. 1 is that we are strictly adhering to the local recommendation and rules of health authorities in Switzerland, but also in other countries. On top of them, we have taken already a couple of measures, of course, of traveling. We have a travel ban for all the risk regions into the regions and out of the regions. We have already taken some decisions for events, large events, which are stricter than the 1,000 which we have in Switzerland. For example, all events above 100 need to be approved by Executive Board. At some locations, we already canceled all these events. And thirdly, we have taken specific measures for the plants and the logistics because that is the biggest risk from a business perspective, which we are fearing. We have taken some safety measures, for example, not only for the plant in Italy. We are increasing stock level, safety levels for A articles. We have some restrictions in the plants, especially in the major plants in Yonah and also in Volendorp, which is the largest site. So we have taken some measures and are ready to take further if it would increase. But I think if you allow me a general statement, it's also important not to overreact. Not to overreact, keep calm and clarity. And then day by day, we will see what happens. And I want to repeat that. I take the question as a chance to repeat. Currently, we do not see a material impact on our supply chain plant demand, except China. Thank you. Mr. Hissen? So I have 2 more questions. First, to fuel costs, being a ceramic producer, you have to purchase energy. Can you tell us how do you do that spot or forwards? And do you foresee tailwind for this year then? Our general purchasing policies that we are not hedging. We are taking the risk, let's say, the volatility. From time to time, we are not sticking 100% to that rule. If I remember correctly, for energy, we are currently not really we are not currently, we are really exposed to, let's say, the volatility also for energy. There was a second part in your question. Oh, that's it? Yes. But I have another question turning to Eastern Europe. You were mentioning the 3 countries, Poland positive, Russia flattish Turkey, negative. Can you give a bit more insight? How important is each of those countries for the region? Eastern Europe is 10% of sales in total. And Poland, Russia and Turkey are important, maybe in the most important 3 countries in that region. Yes. Mr. Hysler? Thanks. Martin Klotick, Kepler Cheuvreux. Just three follow ups, please. First one, coming back to your market activities in Germany in 2019, just checking the number of in house trainings last year and comparing them with 2018, for instance, but also looking at the number of attending, I guess those are in stores mostly, It seems to have declined by more than 10%. What's the main reason for this development? And what are the implications for your commercial potential in Germany going forward? That would be my first question. First answer, it's quite difficult to convince plumbers, installers in that market situation to come to Geberit and to join a meeting or an event at Geberit because they have a lot of work, as you know. So that's reason number 1 answer number 1. And the second part is that will not have a material impact on our sales short term. I would not try to do any correlations of these figures with sales figures. That would be a little bit too arbitrary. Okay. Thanks. And I guess the 2 other questions I have for the CFO. Firstly, on Slide 13, coming back to your EBITDA margin bridge. I was just wondering, those productivity improvements mentioned on Slide 13, I think they were up 4.7% in 2019. Can you put a number in terms of cost savings from those efficiency gains last year? We don't quantify that or we don't communicate it. Okay. Thanks. And then my final question, maybe same answer though. That other cost cluster you have in your EBITDA margin bridge, I think it was, what was it, minus 160 basis points for 2019. Can you provide an indication whether 2020 will be higher or lower than that? That's too early, obviously. But the only thing we said is that we are confronted in 20 20 with the same wage inflation more or less as we have seen it in 2019. And that's one of the most important drivers behind this 160 basis points negative. And we will have the €10,000,000 marketing again. That was another big item which was in there. There's one question for the webcast. Yes. I have a follow-up question from Andre Kukhnin to the end markets. Did your specific end markets grow in Germany, Switzerland and Nordics in 2019? I'm keen to assess how much of your 3.4% 2019 growth like for like was end markets driven? So any help on this would be appreciated. So qualitatively, Germany, slight growth Switzerland, stable, maybe even slight growth last year, a bit better than what we expected at the beginning. And Nordics, qualitatively stagnation last year. I think there are no further questions. Thank you for your attention. Normally, we would invite you to an Aperol. We make it a bit shorter. You can still have a drink, but we do not serve you a big lunch. We do that next year. The CFO is happy, save some crops. So thank you for your attention, and see you in a minute. Thanks.