Earnings Call: H2 2018

Mar 12, 2019

Good morning, ladies and gentlemen. Welcome to our Analysts Conference. I would also like to welcome those who are viewing this conference via webcast. Together with Roland Iff, I'm pleased to print to you our full year 2018 results. Our presentation is structured as follows. First, I will give you an overview of 2018 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 figures in 2018. The Geberit Group achieved good results in 2018. Sales increased by 5.9 percent to a record level of CHF3.1 billion. The increase in local currencies reached 3.1%. The EBITDA margin remained with 28.2% on previous year's level, despite substantial cost inflation from higher raw material prices and personnel tariffs. Adjusted net income increased by 3.7 percent to CHF626 1,000,000 corresponding to a margin of 20.3 percent of sales. Adjusted earnings per share increased disproportionately by 4.7% to CHF17.21 due to our share buyback program. Free cash flow increased by 22.2%, reaching a margin of 18.9 percent of sales. The Board of Directors proposes a dividend of CHF10.80 per share. This corresponds to an increase of 3.8% compared to 2018. And finally, we continued our currently running share buyback program as planned in 2018. Also in 2018, we continued to invest in 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 sanitary planners with our technical pool, followed by wholesaler visits and visits of showrooms, architects, channel contractors and also investors. More than 20,000 customers participated in more than 300 of our events. About 11,000 customers have been trained in one of our in house trainings in Germany. We also answered almost 266,000 calls and emails from customers in our customer service center. This is an increase of 50% versus 2012 and a clear indication for the lower qualification level of installers driven by the bottleneck of professionals in Germany. Let me give you two examples of customer events we carried out last year. We organized so called Deberit Sicherdabai events for 18,000 professional customers. The event focused on the fire and noise protection topics, drinking water hygiene and waste water hydraulics in the context of sanitary planning and the regulatory and normative environment. Another example is the blogger at aquacling space event as part of our showroom pool and social media activities. We organized 6 workshops with 40 bloggers to get them to know and experience our Geberit aquaclin products. Thereafter, these bloggers generated almost 500,000 followers through Geberit owned media and third party media or social media. The goal was obviously to increase the brand and category awareness of Geberit AquaClean shower toilets through these multipliers. These events are examples of how we systematically invested in marketing also last year to further strengthen our customer relations and brand reputation. Total marketing expenditures reached CHF 112,000,000 corresponding to 3.6% of sales. We invest with a dedicated digital team consistently and systematically in digital marketing activities to support and expand our business model, since we see the biggest impact of digitalization on our business in the area of marketing. In total, we invested last year CHF 25,000,000 only for digital tools and digital channels. Let me give you a few examples of our digital marketing activities last year. We continued our investments in building information modeling, in short BIM, which is rapidly gaining importance in the construction industry. We accelerated the buildup of a dedicated team responsible for completing and maintaining BIM data for the Geberit assortment and the various data formats. Almost all of the relevant Geberit assortment behind the wall is now available as BIM data. Beside BIM data models, the team also developed smart plug ins for the BIM software Autodesk. A second example is our new online catalog. It is now accessible on multiple devices and offers a much easier navigation and improved search functions. This new online catalog leads also to efficiency gains in marketing operations due to a single data source. Let me continue with 2 examples of digital activities for end consumers. First example is our new 3 d planning tool for end consumers in showrooms. The tool offers web based 3 d planning and configuration of bathrooms. It helps to generate end consumers' leads and creates customer data insights. The second end consumer example is our new B2C CRM system. The cloud based tool will be used to systematically manage end consumer leads. The new B2C CRM is an integrated system, which allows for targeted end consumer marketing campaigns. We launched the tool this year in the UK. Further rollout to other countries is planned as of this year. Beside marketing, we also substantially invested into our innovation pipeline last year. R and D spend amounted to CHF 78,000,000 and reached 2.5% of sales in 2018. We leveraged systematically the combined know how behind and in front of the wall after the acquisition of Sanitec. Driven by this enlarged innovation potential, we increased the number of patents continuously over the last past years and reached a new record level of 46 patents last year. We have again introduced several new products in 2018. In bathroom systems, we introduced a washbasin range called Varifarm, a comprehensive portfolio of countertop washbasins in different geometrical forms and in universal and timeless design. Another product introduction was the automated flushing system Rapid for supply piping systems to avoid hygiene risks. In the product area of piping systems, we introduced an energy saving valve to be put on the top of a drainage stack. This valve saves up to 50 liter of heating oil per year end drainage stack. In the product line of shower toilet, we launched Tuma Classic, an entry level shower toilet at end consumer price levels of around CHF 1500. This shower toilet is also controllable via an app on a smartphone. Let me now comment on our capital expenditure in 2018, which reached CHF 162,000,000, the highest level in Geberit's history and 1.9% above prior year. Increased investments in modernization and rationalization, which correspond to 43% of CapEx, were mainly driven by improvement projects in operations. 45% of investments were dedicated to capacity expansion. Investments in new products accounted for 12% of total investments. Let me highlight some of our key investment projects last year. Since 2017, we completely renew our production site for our metal supply piping systems in Longenfeld, Germany. We built 2 new buildings for production and administration. In total, we invested €35,000,000 into the infrastructure and to completion is planned for spring 2019. Another project is in Ozorkow in Poland, where we extended our factory to manufacture labor intense metal fittings, which were transferred from our site in Germany. The investment amounts to €9,000,000 and the payback is 3 years. Start of production in Poland is also planned for 2019. Another important project in 2018 was the capacity expansion of our factory in Volendorp due to strong growth of flushing systems. We built a new building and invested in new and more efficient plow molding machines and a new and further automated assembly line for concealed cisterns. The total investment amounted to €14,000,000 A 4th key investment was the capacity increase and efficiency improvement in our production site for installation systems in Liechtenstein, Eastern Germany. The capacity increase was driven by the strong growth of installation systems over the past years. We also built a new automated welding line for metal frames and further optimized our processes. Total investment amounted to €5,000,000 with a payback of 2 years. Beside these large investment projects, continuous small to mid sized improvement projects are an important pillar of our strategy. The graph shows, as a result, the productivity improvement over the last 5 years in our metal and plastic plants. Since 2014, we continuously improved productivity by 5% per year, last year by another 4.8%. These productivity gains are largely based on process improvement, ongoing and further automatization and flexibilization of the workforce. Beside productivity improvements in our metal and plastic plants, we also invested systematically into our ceramic plants. Let me give you a few examples of improvement projects in our ceramics plants last year. In Kolo, Poland, we invested in 2 new robotic glazing lines, which increased productivity by 18%. Furthermore, we significantly improved the working conditions by this investment. Total investment amounted to CHF 2,000,000. A second example was in our ceramics factory in Brumela in Sweden. We optimized the material flow of specific manufacturing steps and achieved a productivity increase of 25%. Investments amounted to CHF1 1,000,000. Thirdly, we increased production capacity in our lowest cost ceramics manufacturing plant in Ukraine by 20% and built a complete new logistics center. We also invested in new machinery and equipment to further improve efficiency in this low cost manufacturing site in Ukraine. Total investments amounted to CHF 10,000,000. Let me now comment on the development of our number of employees. We had 11,630 employees at the end of 2018. This corresponds to a decrease of roughly 80 FT feet feet feet feet feet feet feet feet feet feet feet feet feet Es or minus 0.7% compared to 20.70. This decrease is mainly driven by the reduction in production and the closure of the 2 ceramic plants in France. The largest increase was in sales and marketing with 85 FT feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet Es, driven by growth initiatives in international markets and our digital activities. The central digital team now consists of 45 full time equivalents. 2018 was also from an environmental perspective a good year. Despite higher production volumes, we reduced the total energy consumption by 4.6%. The environmental impact in relation to sales declined by 7.3% in 2018, and CO2 emissions in relation to sales declined by 7.5%, mainly driven by further energy efficiency measures in our ceramic plants. Since the acquisition of Sonitec in 2015, we reduced the relative environment impact of the combined companies by remarkable 22%. In the context of our social engagement, we again funded and carried out social projects and supported workshops for disabled persons in 2018. For example, Geberit apprentices went to Morocco to renovate the sanitary facilities in several schools in Marrakech. A new project was our skill sharing project. Geberit sales engineers trained and supported local trainers in Mozambique and supported local manufacturers of water filters in Nepal. Furthermore, Geberit sourced in 2018 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. Let me now comment on our sales development 2018 in more detail. Sales increased by CHF 172,000,000 or 5.9%. The growth rate in local currency reached 3.1%, as already mentioned, corresponding to a sales increase of CHF 90,000,000. A favorable currency development led to a sales increase of CHF 83,000,000 or 2.8%. The sales growth rate showed a different dynamic in the second versus the first half of the year. H1 with a growth of 4.3% was positively influenced by pre buying effects in Switzerland due to extraordinary price increases and strong growth of AquaClean due to specific marketing efforts. In H2, we saw an increased volatility of the building industry and the slowdown in selected markets, both effects led to a lower sales growth in H2 of 1.8%. Let me now turn to the sales development per region. All global regions recorded positive sales growth in local currencies. Europe grew by 2.8%, and sales in America were up 3.5%. Far East Pacific recorded a double digit growth of 13.9% and Middle East Africa grew by 1.4%. Let me now give you a few comments on the development in the different countries. In Germany, sales were up 3.1%, while the market growth was still limited by the bottleneck of qualified installers. Our above market sales growth was driven by our upselling strategy and new product introductions. The weaker market environment in Sweden and Norway led to a negative growth of minus 1.9% in the Nordics, driven by the ceramics business. However, our installation and flushing and piping business did further grow in the Nordics. In the Central and Eastern European region, sales were up by 9% with a market outperformance in all key markets. Installation and Flushing Systems grew double digit, driven by the synergies with the ceramics business. In Switzerland, sales grew by 1.5% in a stable market environment on a high level. Our growth was driven by our outstanding strategy and new product introductions. Benelux sales were up by 4.6% with positive sales growth and further market share gains in the Netherlands and in Belgium, despite already high market shares in both countries. In Italy, sales grew by 2.7% despite a deteriorating market environment since the second half of the year. Our above market growth was driven by a dedicated sales and marketing initiative. Sales in France went up by 1.6%, impacted by a continuous market slowdown in the course of the year. Installation systems grew with a high single digit, driven by synergies with the ceramics business. Sales in Austria increased by 1.8% after 2 very strong years with sales growth rates of 12% in 2016 and 9% in 2017. The UK recorded a sales decline of 1.7%, which was driven by a declining nonresidential sector and the disproportionate exposure of our sales to this market segment. On the Iberian Peninsula, the market recovery continued and we achieved a strong growth of 9.5%, driven by installation and flushing systems. In North America, sales were up by 3.5%, supported by a moderate improvement of the institutional market sector. Our above market growth was driven by the strong growth of electronic faucets and good performance with our installation system. If our specific sales grew by 13.9% with double digit growth rates in China and in India. Sales in the Middle East and Africa region were up by 1.4%, negatively affected by a stagnating market environment in South Africa and increased uncertainties in the Gulf region. I come now to the sales development product area. Installation and Flushing Systems increased by 4.9% to CHF 1,100,000,000 driven by strong volume growth of installation systems in the European expansion markets and further upselling in mature markets. Piping systems increased by 4.3% to CHF 928,000,000. This growth was driven by strong growth of new drainage piping systems introduced over the last years. Bathroom system sales were on previous year's level, negatively affected by weaker market environment in the Nordics and the closure of the 2 ceramic plants in France. Roland Iff will now lead you through the financial results. Thank you, Christian. Good morning, ladies and gentlemen. I start the presentation of the results with an overview of the key figures. For 2018, the group can again present good results. As already mentioned, sales increased in Swiss francs by 5.9 percent and in local currencies by 3.1%. The EBITDA reached CHF 868 million and grew by 12.4% compared to the reported and by 5.7% compared to the adjusted EBITDA 2017. With an EBITDA margin of 28.2%, the group achieved the very good prior year's results again. Adjusted EBIT reached CHF 744,000,000, resulting in an adjusted EBIT margin of 24.2 percent almost at prior year level. The reported EBIT grew by 13.8%. The significant differences between adjusted and non adjusted growth in the operating results is due to the significant one off charges recorded in 2017, which were mainly related to the closure of the 2 French production plants. In 2018, one off costs related to the Sanitec acquisition only had a negative impact on EBIT, net income and EPS. There were no one off integration or restructuring costs recorded on EBITDA level anymore. We therefore do not show an adjusted EBITDA for 2018. Further, adjusted net income increased by 3.7 percent to CHF626 1,000,000 and adjusted EPS increased 4.7%. The free cash flow finally increased by 22.2% and reached CHF 582 million. Coming to the individual cost elements. Cost of materials increased by 7.6 percent driven by volume, higher material prices with different development per material group and FX effects. Industrial Metals had the largest price increases with double digit movements for some materials. On average, raw material prices increased by currency adjusted 2.8%. Personal expenses declined by 0.4%, mainly due to the mentioned significant one off charges for the closure of the 2 French sites in 2017. In the like for like comparison, personnel expenses increased by 2.6%, which is less than our top line growth. The increase is driven by additions to our capacity and higher tariffs, which increased by 2.7% on average. On the other side, we now had a positive impact from the savings related to the already mentioned plant closures. Amortization increased by 23.8 percent driven by the amortization of the ceramic brands, which are phased out over the next years. The related yearly amortization amounts to CHF 8,000,000. With 2.8%, the other operating expenses also increased only moderately as 2017 includes 1 off charges also on this line item. However, also if these effects are eliminated, the cost increase was below our sales growth. Amortization included for the last time a $36,000,000 charge related to the ceramic manufacturing know how, a part of the good deal related to the Sanitec acquisition, which was amortized over 4 years. Having now also fully amortized this position, there will be no more extra charges related to the acquisition in 2019 and thereafter, and therefore, we will not show any adjustments in the P and L anymore. This means also we do not adjust for the extra marketing cost related to the brand change and the brand related amortization I just mentioned. I mentioned this specifically because in the last consensus we put together, I still saw adjustments or adjusted results for 2019 and the years after. So please check your models related to that. The analysis of the EBITDA margin development shows the most important factors influencing the margin in 2018. The volume and product mix effect led to a margin expansion of 40 basis points. With our price increases, we could slightly overcompensate the increase of the raw material prices. The net price effect, therefore, added 10 basis points to the EBITDA margin. The main negative driver was the increase of the other cost with an impact of minus 40 basis points, which results mainly from the increased labor tariffs. Due to the effective natural hedge, the currency development did have only a minor impact on the margins of minus 10 basis points. With an EBITDA margin of again 28.2%, we now have maintained the EBITDA margin within our target corridor for the last 3 years, despite significant raw material and salary inflation in the last 2 years. Let me now comment the positions below the operating profit. The financial result is weaker than in 2017. The one off costs related to the Eurobond tender, which we executed in Q4 and the negative FX result are the reason for this development. A positive effect is coming from the tax rate, which decreased by 80 basis points as prior year's rate was negatively influenced by the non tax effective charges for the site closures in France. Adjusted net income increased by 3.7% and adjusted EPS grew by 4.7%. The currently running share buyback program is the reason for the slightly stronger growth of adjusted EPS. Cash flows increased strongly, mainly driven by operating results. Net cash from operation activity increased even more with 16.7%. It increased even stronger than the operating results as cash payments for restructuring measures, the related costs were already recognized in prior years, were compensated by lower investments in net working capital and lower tax payments. As investments in PP and E were almost stable, the free cash flow even increased by 22.2% to a record level of CHF 582,000,000 This represents a free cash flow margin of 18.9% and a cash conversion ratio of 67%. From the free cash flow, a dividend of CHF381 1,000,000 was paid out, Debt in the amount of CHF45 1,000,000 was repaid and shares were bought back in the net amount of CHF185 1,000,000 under the share buyback program. In addition, we increased the treasury share position used for our ESOPs. Our cash balance therefore decreased by about CHF 130,000,000. Let me now comment on the balance sheet or the most important items in the balance sheet. On the asset side, net working capital and property plant of equipment showed an increase. Net working capital increased mainly due to the reduction of accounts payable. Accounts receivable and inventories remained at prior year level. The increase in PP and E is the result of the capacity driven investment projects presented before. In 2018, the development of the balance sheet positions was again also influenced by currency fluctuations. The goodwill and intangible asset position decreased due to lower year end exchange rates and due to the amortizations I mentioned before. The increase of the net debt position is mainly related to the currently running share buybacks. The balance sheet remains very solid. The equity ratio slightly increased to 49.8%. Also net debt increased slightly, but the ratio net debt to EBITDA remained stable at 0.6%. Based on the good last year results and considering the very stable financial situation, the Board of Directors proposes to the Annual General Meeting a dividend of CHF10.80 per share. This corresponds to an increase of 3.8% versus prior year, in line with the growth of the adjusted net income. On that basis, CHF393 1,000,000 will be distributed corresponding to a payout ratio of 62.7% based on adjusted net income. The payout ratio remains at prior year level. The Annual General Meeting will be held on April 3. Subject to the approval by the General Meeting, the dividend will be paid out on April 9. Furthermore, we will continue the currently active share buyback program, which we started in June 2017. On a second trading line, shares worth of a maximum of €450,000,000 shall be bought back. The program will be terminated in H1 2020. As at December 2018, we had already bought back 650,800 shares for a total of CHF 2 76,000,000. Depending on the share price development and the final buyback amount, we currently estimate that we will buy back between 2.5% and 3% of the share capital on this program. The shares will be canceled after the program has been terminated. With this dividend proposal and with the running share buyback program, 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 has delivered. Over the period 2014 to 2018, Geberit has generated about SEK2.6 billion free cash flow. This represents an average free cash flow margin of 90% at an average cash conversion ratio of 69%. From this accumulated free cash flow, the amount of $2,200,000,000 or 85% have been distributed back to shareholders via an attractive mix of dividend payments and share buybacks. These numbers confirm again the ability of the Geberit Group to generate stable cash flows on a high level and reflect our shareholder friendly distribution policy. With this, I give the word back to Christian Buhl. Thank you, Roland. Let me now comment on the outlook for the building industry, which does not substantially differ to our outlook we have given with our mid January publication. The building industry fundamentals remain positive. However, the uncertainty and volatility of the building industry has increased and make an outlook for 2019 challenging. Selected markets in Europe show signs of a slowdown driven by weaker new residential sector. The growth of residential building permits in Europe came to a halt in 2018, as shown on the chart. However, the lower growth dynamic of the new residential segment should be at least partially compensated by the more robust renovation segment. Hence, in summary, we expect more volatile and slightly lower growth rates of the building industry in 2019. Let me now comment on the individual company outlooks. We remain confident about the construction demand in Germany, although the limited qualified installation capacity might remain a bottleneck. In Switzerland, we expect a slight decline driven by a softer residential segment. In the Nordic region, we expect at best a stagnating market driven by a positive outlook for Denmark, a stagnating environment in Norway and Finland and the decline in Sweden. In Italy, we are more cautious due to political uncertainties. We foresee a stagnating market in France as the indicators sector have weakened. We expect overall a declining market environment in the UK, driven by the nonresidential sector due to the Brexit uncertainties. In Austria, we expect a positive construction market with a slight growth. We are also positive for Benelux, although the strong construction growth in the Netherlands since 2015 led to shortages of qualified installer capacity and consequently to a slower market growth. The outlook for the Eastern European markets remains mixed with a positive outlook for important markets like Poland. And finally, in Spain, we expect an ongoing recovery of the building construction sector. In North America, we foresee a moderate improvement of the institutional construction market, while both most relevant segments for Geberit, the healthcare and the educational sector should contribute to growth. In Far East Pacific, we see a mixed picture across the region. We expect a moderate increase of the residential construction market in China. We are positive for India and expect a decline in building construction market in Australia. Let me finalize our market outlook with the Middle East and Africa region. We are cautious for the Gulf due to liquidity issues and expect the stagnating building construction environment in South Africa. And we remain cautious and see a mixed picture for the Northern Africa and the Near East region. 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, is the 1st bathroom series combining the know how behind the wall and the ceramics competence in front of the wall. The new bathroom series offers multiple benefits for end consumers, but also for installers. End consumers benefit, for example, from space saving solutions, thanks to an in wall siphon for the washbasin or more hygiene due to a turbo flush integrated in the toilet. The benefits for installers are an easier, faster and safer installation, for example, due to a height adjustable WC or a complete new fixing systems for the toilet. The new series will be launched this year in Germany, Switzerland, Austria, Belgium and Luxembourg. In line with Geberit 1, we will also introduce a new DuoFresh module this year. DuoFresh is an odor extraction, which extracts bad odors directly out of the toilet and secondly, provides hygienic flushing water. The main benefits of this new DuoFresh solution are an automatic activation when the end consumer uses the toilet secondly, the compatibility with almost all actuator plate designs and thirdly, the connectivity to a smartphone via an app. Furthermore, the DuoFresh is now fully compatible with our standard WC elements and retrofitable back until 2,008. For the product line of shower toilets, we will introduce the new AquaClean Zela. The new Zela is positioned in the mid price level and focuses on hygiene and design, for example, with an atmospheric orientation light. Additionally, the new Sela will also be controllable via an app on a smartphone. The introduction of Sela marks now the end of the complete renewal of our shower toilet portfolio over the last 4 years. We now have a complete product range addressing all customer needs from functionality to design and also all price points from entry level up to premium level. Also in the mid price segment, we modernized and extended our existing bathroom series Smile. In addition to the modernization of the design, the series is also equipped with a modular furniture concept, allowing more freedom in the furniture configuration. The benefits for the installer are an easier fixing system of the toilet and the bidet. An important product introduction in piping systems this year are the new super tube fittings for drainage systems. Super tube fittings ensure an air column in the drainage stack. This allows for space saving in high rise buildings, since there is no need for a separate ventilation pipe and the slope of the horizontal pipes can be reduced. With SuperTube, the shaft size for drainage pipes can be reduced up to 20% and the thickness of a false ceiling reduced up to 40%. Let me now come to some of our key investment projects this year. We are currently in the progress to completely renew our production site for piping systems in Longenfeld, as already mentioned. After the completion of the buildings, we renew in 2019 the machinery and equipment. We will invest €70,000,000 into the new equipment. Due to the strong growth of drainage pipe systems, we will increase the capacity in our production plant for plastic pipes in Villa d'Orsa in Italy. At the same time, we will also further increase efficiency in the plant. In total, we invest €4,000,000 and expect a payback of 4 years. Let me now give you an outlook on our marketing activities in 2019. A key activity this year will be the simplification of our brand portfolio as already communicated last year. We will phase out 4 ceramic brands and replace them with the Geberit brand in the respective countries. The first brand phase out this year will be Keramak during the Q2. The other 3 ceramic brands will be phased out next year. The total one time marketing costs for the brand switches will be CHF 10,000,000 each in 2019 and in 2020. A second important marketing topic this year will be the further rollout of our digital tools along our digital road map. We will launch our new Geberit Pro app for installers with new functionalities, for example, with an automated product identification based on artificial intelligence or a chat function for installers. Furthermore, we will introduce new web based calculation tools for planners and also for installers, for example, for the calculation of sound insulation. These tools will also be available directly in our Geberit Po app, hence, on smartphones. We will also continue with our BIM efforts. We will launch a new BIM catalog for the Geberit product assortment with a real time connection to our product information system. This ensures that planners work not only with country and language specific BIM data, but also always with 100% up to date real time BIM data. And finally, we will roll out our new B2C CRM system in Germany, Switzerland, Austria and Belgium to enable the management of end consumer leads and improved digital marketing activities. Now I would like to conclude by summarizing our presentation. 2018 was a good year for Geberit. We achieved a solid organic sales growth in an increasingly challenging market environment since the second half of the year. We further improved the productivity, driven by the closure of 2 ceramic plants in France and various improvement projects. Thanks to the consequent price increases and high cost discipline, we managed to keep the profitability on record high level, despite strong headwinds from higher raw material prices and wage inflation. We again successfully introduced new products last year, and our innovation pipeline delivered a record level of new patents. This demonstrates the combined innovation potential from the Sanitec acquisition. We continue to invest substantially into the digitalization of our business model. And finally, free cash flow grew strongly to a new record level, which was fully distributed to shareholders via dividends and share buybacks. Let me now summarize our outlook for this year. Overall, we expect a still favorable but more challenging building industry environment this year due to increased uncertainties and the slowdown in selected markets. We expect raw material prices in the Q1 to be below Q4 2018. However, in Q2 2019, we expect again increasing raw material prices due to increased spot prices for industrial metals since the beginning of the year. A challenge this year will be the further increased wage inflation from tariff increases. Overall, we expect the wage inflation of around 3% for the group. Key operational priorities for Geberit in 2019 will be the further solidification and improvement of the combined business behind and in front of the wall, the introduction of new products in all three product areas the replacement of the Caramag brand by Geberit and finally, a strong focus on various efficiency projects and strict cost discipline to mitigate the wage inflation. Overall, we are confident to achieve also in 2019 good results since the fundamentals of Geberit remain to be very solid. The fundamentals of Geberit are a focused and stable strategy, a decision maker oriented business model, a strong focus and commitment to innovation, the ability and the will for continuous investments and finally, a strong down to earth company culture fitting to our customers. These fundamentals have delivered over the last 3 years industry leading financials, an average organic sales growth rate of 4.3 percent, a stable EBITDA margin above 28% despite significant cost inflation, a continuously improving ROIC to 22.6% and the free cash flow margin close to 20%, which was almost fully distributed to shareholders over the last 2 years. We are now at the end of our presentation. On this slide, you see our financial calendar with our key dates this year. Thank you for your attention. Roland Iff and myself are now ready to answer your questions. One question regarding the cost inflation. Historically, you provided the rule of thumb that you need organic top line growth of about 4% to keep your margin stable at a high level. Would you say that this rule of thumb is still valid? Or do you see now with the increasing cost inflation for tariffs, for logistics, that you actually need even a little bit of higher growth to keep your margins stable at a high level? Thank you. No, I would say we don't need a higher growth. That is still valid. Maybe even we have profitability. So it's not more challenging, maybe even a tick, not easier, but we are managing also at a lower growth to keep the margin. Reber Rosenau, Helvet, Deutsche Bank. I noticed 1 or 2 of your CapEx in 2018, which were dedicated to Sonitec plants, which showed quite a strong improvement of efficiencies, I think 25% or something in one plant. Now given that Sanitec was most likely not that well organized compared to Geberit in the last 15, 20 years. How much more is there to do actually in the existing Sunitec production plants to improve profitability, I. E, efficiencies even further? To avoid a misunderstanding, the 25% was not the productivity improvement of the entire plant. This was only the part we were looking at, that smaller part of the production that where we achieved the 25 percent productivity improvement, not the entire plan. But we have many of these, let's say, smaller projects, and there is still room for these projects also for the coming years to have many ideas to improve step by step the efficiency and productivity of the ceramic plants. But don't forget, we also improved productivity at the same time still at the classic Geberit plants as shown before. The 5% productivity improvement were classic Geberit plants. So it never ends to a certain extent. There is always room for improvement also for the ceramic plants. But it still is fair to assume that the catch up potential is a bit larger at the Sanitec universe, right? If you look at plants, yes. I'm not sure if you look at the figures if that would be true. If you look at the plans, yes. Figure wise, I wouldn't completely agree. Okay. Thank you. You're welcome. Questions from the webcast. Daniela Costa, Goldman Sachs. Can you help me understand why the seasonality Q3, Q4 margins was much smaller than it has been over past years? We had a better top line obviously than what we had in Q3. That helped. We were at 3% organic growth again. We had lower raw material prices for several quarters now. It was the first time that raw material prices went down quarter on quarter. It was good cost management. And the self that employee cost that salary expenses were a little bit higher in Q4 'seventeen as we had to accrue for more bonus there than we did in 2018. Those are the main reasons. Okay. Two more questions from Matthew Spurr. Your statement talks about concerted marketing of new products in 2019 and intense cultivation in underpenetrated territories. Are you highlighting incremental marketing efforts? Or this is normal development? Is this already captured in the extra marketing spend for Geberit ONE? So we do not have any extraordinary marketing costs except the brand switch for Keramak this year. So all the activities I've shown before are part of the, let's say, regular marketing budget. But within that budget, there is a clear shift, of course, to more digital activities also this year. But in total, the budget remains the same. Also, the marketing for the Geberit ONE series will be paid out of the classical marketing budget. Okay. Second question is also a digital topic. You have mentioned BIM a few times in your presentation. Can you elaborate whether you see BIM as disruptive for Geberit, a natural evolution or an opportunity? I'm very careful with the word disruptive, and I'm talking about the industry, not only about Geberit. Our industry is not extremely disruptive, but I believe that BIM has a very important significant impact on the industry over the coming years. And I believe that we, as Geberit, are very well positioned in that game. We are very well prepared. We, as I said before, built up dedicated resources for BIM. So over time, maybe disruptive, but not on a short period of time. Marta Brusca from Berenberg. Thank you for taking my question. I just wanted to clarify a few things. So first of all, on raw material prices, after you're right, after a declining environment in the first quarter of 2019, raw material prices are expected to increase again in the Q2. Do you mean it sequentially or year on year? Sequentially. Of course, that is mainly driven by the industrial metals, which went up since the beginning of the year. You might have seen nickel, zinc, copper, that is sequential. So Q2 versus Q1 2019, we expect increasing. And year on year? Actually, I don't know. That depends how much it increases in Q2, so I don't know. Okay. And then with regard to the Swiss francs, you also mentioned a comment a little bit negative about the fluctuations in the Swiss francs compared to other important currencies, which could affect sales and earnings. And I remember last year, you mentioned that you had not benefited from the positive than possibly Swiss franc development versus other currencies. So I was just wondering from why now you expect this to actually have an impact, negative one? And what would be the magnitude? I'm sorry, I didn't really understand the question. So the question is, in which order of magnitude you expect to see an impact from Swiss francs on your earnings? So in the last year, you mentioned you are fully naturally hedged. Has that changed? Okay. I think if I a structural there's a structural change this year compared to last year? Yes. No. So why do you expect then the impact from Swiss francs on your earnings? That depends on the That depends, of course, on the currency development. So that's only translation, no transactional impact. Okay. And then with regard to the white label trend in Germany we've seen, I was just wondering, is it possible to use your behind the wall toilet systems with a different flushing plates of a different brand? If I understand the question correctly, you're asking if our frame is compatible with other actuator plates. Exactly. There are other actuator plates which are compatible, not all of them, but partially less, not all of them. Okay. Thank you. And To be precise, very little are compatible. Do you have any control on that? Of course, we have control on the just the dimension is different. From any other player, they have just different dimensions, so they don't fit. But there are some smaller brands who are also having actuator plates fitting to our concealed system. Do you participate in private label? Do you deliver private label for any business? No. Okay. And finally, when will you planning to update your midterm guidance? I think it was given around the Sanitec acquisition in 2015, and it's a midterm guidance of around 5 years probably. So would that be later this year in 2019 or in 2020? We do currently not have any plans to update our midterm guidance. We stick to the one which we have formulated 3 years ago, and there are no plans to change it. Any other questions? Yes. Maybe with U. K, if I may have the last one. Which sector in the commercial you see us a week? So yesterday, there was just another company exposed to the commercial sector in the U. K, and they've seen a very positive development. So I was wondering which vertical are you exposed in commercial in the U. K. That is weakening? It's not especially to commercial. It's just the nonresidential sector in total where we have a disproportionate exposure in the U. K. Offices, for example. And there we see sorry, there we see a negative impact from the uncertainties around Brexit on the general on the nonresidential sector, not specifically to commercial or other sub segments. Nicole, can you give me some water? Yes. Christiane, MainFirst. A few questions. Digital marketing expenses. You mentioned 22% of the CHF 112,000,000 are digital. What does it mean for your market, for your business? I mean, especially in markets where the brand, Geberit, was not so well positioned, I believe it could offer some growth in markets like, yes, in Asia and other markets. Could you give us here a little bit more of a background thinking? Then on the brand out phasing, you mentioned €8,000,000 amortization, additional amortization. Is that done? Or do we have another €8,000,000 in 2019? And maybe could you give us a rough number about the new amortization level going forward? And maybe the third question I would have is on the treasury shares. I mean, you bought quite a lot of shares on top of the share buyback program. You mentioned the participation program. Still, I think it's a huge difference. Does anything changed in the participation program? Or are there other reasons behind that? I'll start with number 1 and number 23 will be answered by Roland. I would look at this digital expansion not that much from a regional perspective. It's obviously that we spend most of our marketing money also in Europe. I think it's more important to look at the customer groups we are targeting with our digital marketing activities. And there, this €25,000,000 I mentioned before, we invested last year into digital marketing activities that is, balancely distributed between B2B customers, but also B2C customers. For example, if you go to YouTube, you will find 20,000,000 downloads or views of Geberit movies. That is going to B2B because some of the installers are using YouTube as well, of course, but also end consumers. So it's more a question of customer targeting, not that much of a geographical question. But I agree, it helps, of course, especially in these, let's say, underpenetrated markets in terms of brand reputation, Eastern Europe, for example, to use these new social media tools to also support our brand awareness. And number 23, I would ask. Amortization, no, the €8,000,000 will remain for several years. So that's quite a substantial amount we have to amortize there. Then the level will be around CHF 19,000,000 going forward. If you take out from the CHF 55,200,000,000 which we have reported this year, this CHF 36,000,000 that's the level you should work with going forward. Then with treasury share, no, nothing changed on the programs. We were just at a very, very low level with the treasury shares we used to hedge the option programs. We want to be there around 70% coverage, and we just had to go up to that amount again. So next year will be on a more normal level again or this year will be on a more normal level. Martin Fluecky, Kepler Cheuvreux. Three questions, please. Firstly, coming back to the capacity constraints among installers in Germany. I saw your comments on the slide. I was just wondering whether you could give us a little bit more background on that. I remember or I seem to remember last year, you were talking about increasing salaries amongst the installers in the hubs like Munich, Cologne. I think Hamburg was also mentioned. What is the latest anecdotal, possibly even statistical evidence that you're seeing coming out of Germany? I'll go one at a time. There are no, let's say, breaking news in that area. The latest statistical figure which we have, which is always just an indication for this backlog, is that the order book of installers is still at 12 weeks. That's the same figure we also already communicated in January, which is again a slight increase compared to the previous year. Now the situation didn't change substantially. It's still a bottleneck and is still limiting the market growth. Okay. And salary increases, maybe number of trainees rising over proportionately. If I remember correctly, over the last few years, we have seen somewhat of an acceleration there. Yes. What we have seen is that this salary increase we already talked about last year, that is going on in these, let's say, hotspot areas. The installers are able to ask for higher salaries or payments for their installation work, which is actually also a good sign that shows that the normal economic behavior starts to play. And that should also, of course, attract also more people to work in that industry. And I've heard that is now anecdotal and anecdotally that also some younger people are now more attracted in some specific examples because salaries are going up. So it is going on, but it's not really resolving, let's say, the overall bottleneck from today until tomorrow. Okay. And my second question will be on your shower toilet business, AquaClean. I appreciate you sharing this, the news about your new market launch for the new SAILOR model. I was just wondering, looking from a top down perspective on the business, what do you see as your biggest challenges for shower toilets in 2019? And if I remember correctly, you used to guide for double digit growth in shower toilets in the past. Is that a perspective you maintain for this year? Yes. We keep our plans and our target to grow double digit for shower to toilet also in 20 19. I would say the biggest challenge now is maybe not only for 2019, already last year, we have massively broadened our offering in shower toilets. As I said before, we have now much more entry level solutions, we have mid level solutions and to bring that new product portfolio into our market. And as you know, our market is relatively conservative. It's a slow moving market. It takes time to educate the market about new shower toilet solutions, mid price, entry level price point, and that is one of the key focus topics also this year to educate the market about the enlarged product offering in shower toilets. Okay. And then my third question, and then I'll step back in line, is on Geberit ONE. What would you say are the main USPs, the main differentiating factors of this new bathroom series compared with competitive office? There are many. There are many smaller examples, so it's difficult to pick out one. Let's say for the end consumer, it's 2 topics. It is space saving and more hygiene. And for the installer, it's a faster and safer installation. Just one technical example, Geberit ONE toilet offers the opportunity for the installers to adjust the height of the toilet by 4 centimeters. That is a problem solver for him because on construction sites, nothing happens as you planned. And the toilet is a little bit too low, a little bit too high. So that is a benefit for installers because he has more flexibility. The same technical feature is also an opportunity, a benefit for the end consumer. Because imagine you become older, you want to have a little bit higher toilet seat, you can easily adjust that or relatively easily adjust the height. That's just one example. There are several others, but that's one example. One more question from the webcast from Manish Beria, Societe Generale. An add on question regarding treasury shares buyback. Will you have cash inflows when the options are exercised? And all did you mean that the share buybacks will be canceled only after the conclusion of this plan in 2020? So the share buyback, that doesn't have anything to do with the treasury shares I mentioned for the ESOP. ESOP. So the share buyback that we are running now for maximum of €450,000,000 runs out He's talking about the treasury share buyback? That one was extraordinary last year. So we will have normal more normal levels now going forward. And his question that are there any cash inflows when the options are exercised? Yes. Okay. And the cancellation aspect? That question, I didn't understand. Just let me will the after the closing of the buybacks, will be will the shares be canceled only after the conclusion of the whole plan in 2020? Yes. So most probably AGM 2021. Okay. And then the second question, can you please take us through how you think about margins next year? Where could be the raw material cost inflation and whether pricing will be able to offset it? And then do you see more efficiency gains in employee and other operating costs? I will not go through the detailed margins expectations this year, but maybe I repeat the key statements. First, we expect slightly higher inflation from personnel tariffs, slightly higher than last year. That's number 1. Number 2, we expect to be already in the Q1 slightly lower raw material prices, which go then quarter by quarter slightly up in Q1 slightly lower raw material prices going up than in Q2 slightly. H2, to be honest, very difficult to predict. Regarding the benefits, we will have price increases. As every year, we plan a price increase of around 1% as of the Q2. And secondly, we have many, as I said in my presentation, many efficiency improvement running this year to make sure that we can mitigate this personnel cost inflation, what we, by the way, did the last 2 years. Okay. The next question from Fabian Hecke, UBS. You are launching now Geberit ONE in several markets. How long does it normally take that plumbers are picking it up? Is there a time lag and effort to training plumbers on the new product? How receptive are plumbers on completely new products? First of all, I have to repeat that the Geberit ONE bathroom series is a premium bathroom series. It's really top, top end. So that will not be a mass market product because the price level is just in the premium. Secondly, in general, as I said before, the adaptation rate in our industry standard is slow. So it will take time until this new bathroom series is 1st in the showroom. That will be a showroom product, of course. You need to convince the end consumer at that price level. Then it will take time until installers know the product and the features. So it's not a fast product, which will come into the market and also with limited potential. Core of Geberit ONE is that it gives us the first time concrete examples of innovations, features, which we will continuously over the coming years use to bring that into lower series, into more mass market series. So final answer, don't overestimate the sales impact of that beautiful new bathroom series. It's the story. Another question to Geberit ONE from Denise Molina, Morningstar. Does Geberit ONE offer cost savings for the end consumer as a bundled product? Depends what you are looking for. If you're on a premium level and you have been on the base level, of course not. It's more expensive, of course. So cost savings is difficult to answer. I would say the answer is no. You have more features and you pay for these features. But maybe let me add just one topic to that question. Sorry, there is one cost saving argument which you can think about, space saving. Urbanization is an important trend in Europe, as you know. So space is becoming more expensive. So if you have smaller bathrooms or the opportunity to make bathroom, that has an economic value add for you as an end consumer. From that perspective, you could talk about, think about cost savings for an end consumer buying a bathroom series Geberit 1. Maybe that is a more precise answer. Sorry, that was Yes. Rolf Inkemann from Deutsche Bank Wealth Management. So I see that actually in Installation and Piping, you're growing close to 5% in sales. And bathroom is still a bit of a drag since you're growing close to 0 or a bit plus. Now I still understand that within Sanitec, you're still sense that you're replacing some Sanitec product with Geberit ONEs. So can we expect if you would normalize all this, can we expect that bathroom actually would also be in a position to actually grow closer to 5% than to 0? That will be the first question, but just normalizing the whole thing. And the second question is, when do you see the inflection point of this actually happening? First, let me comment again the two main reasons why we didn't see growth in Bathroom Systems last year. Reason number 1 was still the impact of the closure of the 2 ceramic plants in France. So we have not been able to deliver completely. And the second one is a weaker market environment in Nordics. As you might remember, Nordics is the most important market for the ceramics business, which we acquired from Sanitec. I don't want to give you a qualitative figure what we would expect from bathroom system, but of course, it's not 0%. So we believe that we can also grow with product category. And there is, as you mentioned, positive cannibalization effect to a certain extent because the wall hung technology, if you just look at the toilet, of course, it's less ceramics. It's more installation frames. So there is a certain positive cannibalization because it accelerate growth it accelerates growth of concealed cisterns with, by the way, also better margins. But of course, 0% is not our ambition to grow with the bathroom systems category. So by normalizing then 2018, bathrooms have been growing at closer to 3%, 4% than 0.7% or how do you need to understand that? To be honest, I couldn't give you a figure. We just don't know because we don't know exactly the effects from the closure side. Closures are not available to deliver. We don't know exactly the effects from the Nordic market. It's really slow, I can't give you a figure. And last one from my side. So from a standpoint of integration, where are you today with Sanitec? Are you still at 50%? Or in the meantime, you moved a bit up? No. I think as we already said, last year, we basically completed the integration. Integration in the sense of organization, key processes, people, that is done. But nevertheless, that's what I said at the end of my presentation, we still have to solidify that combined business. Innovations in terms of new products, Geberit ONE, is just a start now. The brand harmonization is still, you could call it, an integration task to harmonize now the brands which we acquired. Also from an IT perspective, we are not yet done. We still have a couple of ERP systems out there, which we are continuously placing. For example, we placed the ERP system in the Nordic markets at the beginning of this year. So from that perspective, it's not done. That takes some year. But the classical integration task, that is done already since the end of 2017. Joerg Schumacher, Baader IVR. Three questions, 2 on the outlook. The first one, when will you quantify your outlook for 2019? Will this be after the Q1? 2nd, I must have missed this in case I did, apologies. On the Switzerland wording, you changed from stable at best to slight decline. Can you elaborate on this, please? And the third one to Mr. Ilf, on the amortization guidance, if you could please again say what we can expect there? I missed that. Thank you. We will provide you with sales guidance as of H1 results, as usual, as in the previous years, not after Q1. With H1, we will provide guidance for sales and also margin for this year. And number 2, you're right, that's the only difference to our market outlook in January. We are a little bit tick more conservative for Switzerland. We expect a slightly declining market in Switzerland, mainly driven by a little bit weaker residential sector, also in line with some of the official market statistics, mainly driven by the new build in Switzerland. Vacancy rate are going up. They're on a record high level, still low compared to other countries, but they are going up. So we are a little bit a tick more conservative on Switzerland. Sorry, can you repeat the question? I didn't understand the last one. Your amortization guidance for 2019. What guidance? Amortization? Amortization. Sorry, sorry. It was around 19,000,000. And for 2019 and going forward? Yes, plusminus. Yes. Another question from Denise Molina, Morningstar. What portion of sales coming from shower toilets? And where do you expect to go? In other words, how big is the market for shower toilets relative to the total market? As you know, we do not disclose any sales figures for shower toilet, also not today. The ambition I mentioned before, we are growing double digit, and we plan to grow double digit in volume and value with shower toilet business. How big is the market? Still too small. We believe it could be much bigger, and we are working on that. Just going back on to Switzerland. You mentioned before you're a little bit more cautious, and you also said that overall, you increased prices by 1%. So is that also true in Switzerland? Can you also increase prices in Switzerland in the same magnitude? Short answer, yes. Yes. Okay. Then on the CapEx side, you if I recall correctly, you expect slightly higher CapEx for 2019. Is that correct? Around CHF 180,000,000. Thank you. There's one. Composition that you're envisaging for 2019. I was just wondering whether there's any indications to believe that Piping Systems, which I believe is lower margin compared to Installation and Flushing Systems, could be growing faster than the rest of the business or at least faster than Installation and Flushing Systems? That's my first follow-up. So you do not give any guidance on product the level of product areas in terms of outlook. Therefore, I can't give you an answer here. Okay. Then the next one is, did you say did I understand correctly that in Q4, raw material prices were down? So they were down versus Q3. Okay. But still up year on year. Still up year on year. Okay. And now Q1 is also expected to be down sequentially versus Q4? Correct. Okay. And then my final question is on net debt, yes? Net debt has been up somewhat in 2019. I realize share buyback has been a key driver of that. What's how much left is I haven't done the calculation yet. How much is left of that share buyback? And what do you think is going to be the impact on net debt by the end of 2019? Our goal is to keep net debt more or less stable. As I said, we have bought back CHF 270,000,000. We will in total a maximum of CHF 450,000,000. So that's the maximum we can buy back. We can also stop the program earlier. Okay. Thanks. There are some questions. Marta Brusca, thank you for taking my follow-up question. I was wondering if you have ever tried to measure what's your brand awareness among the end customer is. Yes, we did that. And very simply said, we have very high end consumer brand awareness in Switzerland and strong around Switzerland, and then it goes very fast down. What does it mean very strong? In Switzerland, it's about 85% added to brand awareness. And it goes down to very fast to more or less average? Can you speak about that? As I said before, around Switzerland, still good. Germany, for example, Austria still strong, and then it goes very fast now. Okay. Thank you. It seems that there are no further questions. So thank you for your interest. We wish you all a great day. You are invited afterwards for an apparel, Gipporah. We do it a 100,001 times. We do it with one touch. We do it without touching. We do it here. We do it there. We do it in between. We do it thick. We do it thin. We do it for Nora. We do it for Nora's grandchildren. We do it for Mozart. We do it for Max. We do it for Mario Botta. We do it for Charles Miller. We do it in blue. We do it in white. We do it in yellow. We do it in the center. We do it on the outskirts. We do it with experience.