Good morning, ladies and gentlemen. I welcome you to today's Sika Investor Conference. I thank you for your interest into our group, for your attendance, and for your support. I'd like to open with the agenda. Jan Jenisch, our CEO, will first talk about highlights of last year and the strategy and the outlook. We will hear the details on the results from Adrian Widmer, our CFO, I will then give you an update on the takeover attempt by Saint-Gobain. I'm sure you will have plenty of questions, which we are happy to answer afterwards. Let's go into medias res, I'd like to hand over to Jan.
Thank you, Paul, good afternoon to everyone. I'm, of course, even under the circumstances, very excited to be here with you today and talk about our really fantastic results 2014. I think you have already checked the numbers, it was an outstanding year. I think all our initiatives have fully worked. All the new factories we opened in the past three years delivered already, not only growth, but bottom line. The new subsidiaries we opened and, of course, all the new products we introduced in the market really shows amazing result. Our growth model is exceeding our strategic targets already quite significantly. Let's look a little bit in the details. Again, the sales growth, even for us, was surprisingly how the growth kept up also in the Q4.
In all regions contributed, we had really the excitement that all four regions not only grew in local currency but grew in Swiss franc, we have new record sales in all regions, including our automotive business. Our emerging market strategy continues to deliver results despite all these negative currency influences, all the little crisis we have in the Ukraine, in Russia, in Brazil, in other markets. We are nevertheless able to deliver here above 15% growth rates in these, for us, very important growth markets. I think when you look at the bottom line, we improved the gross margin further. As you have followed us, we have a strong focus on new products. We have a strong focus on finding the right pricing. We made significant improvements here three and a half years ago, this continued, also now gross margin increased significantly to 53%.
With this growth, with this gross margin improvement, our conservative cost management, we were once again able to over proportionally increase our profitability on the operating side, also on the net profit here, plus 21%, plus 28%. Also here, Q4 was very, very strong. For me, always more exciting than the numbers are the investments we put forward to secure our mid and long-term future in Sika. Here, maybe fair to say, we also had a record level of initiatives. You see our eight new factories. We talk about this in a little bit. Also, we had a record number of new subsidiaries. There are still countries with no Sika company left, we are more than happy to also go into these markets. You see here six new Sika subsidiaries. Sri Lanka, a very promising market for construction industry.
Also Albania, we have not been present in Bosnia. We are very proud that now also we have a Sika company there. As part of our Africa strategy, we opened already 3 new companies in Mozambique, Ivory Coast, and Nigeria. The innovation pipeline runs, I would say, maybe at a very high speed. As you have followed us, we made some changes the last years. We changed to the target market concept. We also have a new R&D organization in place with clear technology leaders, and I think we see results. We never had more innovations and new products for the market, and we talk about some examples later. As the first conclusion, Strategy 2018, I think is more than on track, is delivering results which are exceeding our targets. Let's look into some details about the markets.
I'm sure you will have many questions later. Overall, it's really astonishing how we can take off here in all regions. Maybe the most positive market is the U.S.A. with the shale gas boom. Also with the, again, strong confidence of the consumers and industrial players. We expect the U.S. to be in a very good growth trend, not only for 2014 or 2015. We believe this will be maybe for the next three, four, five years. We expect the U.S. to be a real growth driver for our business. You see the results. Everything else is also going very strongly. I'm sure we can cover this later. Here, our build-up of the emerging markets. Already in the third year in a row here, we have this high number of new factories. You can see from the increased penetration in markets like Brazil.
Brazil, six years ago, we had only one factory. Now we have seven factories. Really being a national player and not only a player in one of the major cities. In all regions in this promising economy. Same in Indonesia. We started, we were always having our Jakarta operation. Now we move to the second biggest city, Surabaya, also opened there a second plant to really make sure we cover all the potential of this fantastic market in Indonesia. India, same as China or Brazil. Also here, we have an accelerated rollout already with six factories. Serbia, we had a bit of luck. We had always a good company there with quite strong sales. Now we want to again go more into the volume areas, especially in mortars, and we have a new factory there. Singapore, another booming mega city where we have the second plant here.
Mexico also here, this penetration, where we not only have one factory. Already four in Mexico. When you look at the U.S., we have a new mortar plant in Atlanta we opened in July last year. Also for the admixture, we opened a new plant in Denver, Colorado. We want to now, the boom in the U.S., as you know, is not happening homogeneously. It happens in certain hot spots. East Coast, Florida, Texas, of course. Denver is strong. Also California is strong. Chicago is strong. We want to improve our footprint specifically in these areas. These already the first two initiatives. You will see we have plans to build more factories also in the U.S. in the coming months and years. We never opened six new subsidiaries in the Sika history.
Here, very high speed how our managers go forward. Especially exciting now to see Africa that we increase our footprint. We already have a strong footprint. We have factories in Morocco, Algeria, Tunis, Egypt. We have factories in Kenya, in Angola, factories in South Africa. Last month, we just bought a mortar plant in Mozambique. You can see we continue now with opening companies in Ivory Coast, Mozambique, and Nigeria. We believe this is another next growth market for us, Africa, and we make the investments right now. Acquisitions, we had three smaller acquisitions here. However, a very good mix regarding our target markets and regarding geography from Korea to Brazil to Switzerland, where we bought three very nice companies and use them now as a growth platform for our company. We never really talk much about technologies. We talk about markets.
We talk about innovation. Please allow me to give you some background on mortars. There were some discussions about mortars and some people believe we are not a real competitor in mortars. Why don't we look at the facts? The facts is mortar is our strongest growth driver in our Strategy 2018. In 2014 alone, we grew 31% in the mortar business. At the same time, the mortar is the highest margin business in Sika, providing already for 20% of our group profit. The speed is amazing. We opened 10 new mortar factories in the past two years. In addition, we bought six companies with another seven mortar factories. We really have quite a complete global footprint with 75 mortar factories in 49 countries. I think we must be among the strongest and most dynamic mortar companies globally, and we would like to continue this way.
You see our sales target for this year is already CHF 1 billion in sales. You see we are not alone in the market. You see the Sika product. You also see some competitor products where we constantly, of course, gain market share with our aggressive strategy. Let's move a little bit to innovation. I just want to briefly talk about three examples of innovation. First one is mortars. We have an exciting new product for tile adhesive. This tile adhesive enables to have with the same kilo amount to make 80% more tiles. Very simple. This product has a low density, so we can do with the same 20 or 25-kilo bag, we can make 80% more surface. Very exciting. At the same time, 50% of the ingredients are sustainable materials. This is a slag sand which comes from the iron production, is a leftover product.
We can replace cement with this slag sand from the iron factory. The other product we have in there is the pumice stone. It's a Bims in German. The pumice stone is basically from the old lava fields you have everywhere in Germany. This is an excellent filling material because it has such a low density, it swims on water. This we use in the product and our chemist made this product happening. Same performance as a normal tile adhesive, but 80% more outcome. You can imagine how exciting this is for the craftsman. He has less to carry. Usually, the tile manufacturer or tile layer, he has to climb up all the floors in the buildings, and now he has to take much less material. Very exciting product, very sustainable.
In the last year, we grew already 30% with this product, we will see another growth this year in the same dimension. Another innovation I want to share with you is in concrete. We always talked about how we work on the next generation of polymers to make concrete stronger, make it faster. This is a new polymer now for better, longer workability. Until now, our admixture for concrete has a maximum working time of two hours. From the concrete factory to the final application, you only have a window of two hours. You can imagine in today's traffic environment, especially in the mega-cities, but also these very complex infrastructure sites with long tunnels, high buildings, deep buildings, is not easy to manage within two hours. We have a new polymer group, which enables a working time of up to eight hours.
Very exciting. The product runs like hell. We introduced it last year. We sold already for more than CHF 30 million, this new polymer group. Very exciting. The last innovation I briefly touch is, of course, our SikaPower for structural bonding for the automotive industry. We talked about this already a lot. You know the big value, not only weld the new vehicle, but bond in addition for high structure, for high crash resistant, and also to combine different metals. From steel to high-performance steel, to aluminum, to magnesium. This is the right bonding technology for the future. We managed in 2014 to grow another 40% the sales in this product group. This was already after we grew 40% for 2013 and also in 2012. Also very exciting innovation, and I'm happy to talk more about this if you have more questions.
Brings me to the growth model, which I think is delivering excellent results. You see the numbers. We talk about the market penetration, how strong we are to partner with the architect, with the main contractor, with the civil engineer, how strong we are to roll out with all our factories, our people. We talk about the innovation. We have now over 800 chemists and technicians in our laboratories worldwide, I think we have accelerated innovation and the product rollout significantly. Emerging markets. It's amazing how our managers in the countries are able to not only invest in these new factories, but also to fill these new factories. That means winning new customers, taking market share from someone else, and then also operating these factories successfully. Acquisitions, you know bolt- on acquisitions.
Also our track record to not only integrate them, but to use them as a growth platform for the future. Then our strong company values with this loyal, long-term commitment of our employees and also our managers. When you see at the results, I think the growth model is delivering excellent results. When you look at the growth, this growth is in real CHF, not in local currency, you can see how we were even able to accelerate the growth rates in the recent years, I think achieving outstanding results. When you look at the operating profit, we were able improve the margins further, leverage the growth with under proportional cost increase, you see our convincing results, how over the last years, we were able to grow the operating profit more than 20% each of the years.
As you know, the net profit we increased even beyond this 20%. Very convincing results. Brings me to the outlook for 2015. We can all agree that our growth model is in excellent shape, delivering results. We also have for 2015, we have many growth initiatives. We want to build another seven to nine new factories in the growth markets. Our pipeline for new products to be introduced in the market is really full. We see from our side no reason why the success of our model will not continue. When you look at the markets, we see rather good markets outside of Europe. Europe might be a bit more difficult, but also here, we will be able to gain market shares. The markets outside of Europe, they look quite positive. We talked about the U.S.
Asia, we believe the market will grow. Latin America, despite the issues we have in Brazil or in Venezuela, we also believe we will have a volume growth. Appreciation of Swiss franc is a challenge for us. We have three big factories in Switzerland. Out of 160 factories, we have three which mainly produce for export, so we are also concerned, of course, with the Swiss franc. We take a little bit of positive approach. We have also managed the Swiss franc coming from 150 to 120, and management is confident we will manage also for this new appreciation of Swiss franc. Our people have a constant process to improve efficiencies in the factories and in the other functions. Here we see a challenge, but we will surely manage. On the other side, we get some request, the tailwind, you always request it from the raw materials.
We, of course, see it now. The crude oil came between $50 to $60 from over $100. After this time lag, we always discussed of four to five months, we now, of course, see significantly lower input costs. Overall, we would be very positive, but of course, we have the unknown outcome of the Saint-Gobain takeover attempt, and here I cannot honestly promise you anything or cannot talk about it. There was enough communication saying how the management has evaluated the business model proposed by Saint-Gobain and how we believe this does not work with our growth model. We talked about this. We still have the same opinion. We don't believe that such integration contracts on a local level will allow us to continue with the growth model of Sika.
This is still our stand. Management will fully support the board of directors and will, besides, of course, strong daily work, we will fully try to have a better solution for the future. This is my overview and some more insights on innovation and key developments. Now I'm happy to have Adrian talking more about our numbers.
Very good. Thank you, Jan. Ladies and gentlemen, good afternoon. After the highlights, I would now like to present to you the 2014 result. We had again achieved a record result in all areas, in sales, EBIT, margins, net profit, cash flow, and return on capital. I will all of these items address now specifically in the next minutes. Starting with the top line. Sales growth of 13% at constant currencies or 8.3% in Swiss francs terms to CHF 5.57 billion was very dynamic in 2014, very balanced, and significantly exceeding expectations. Organic growth with 7.3% was complemented by acquisition growth of 5.7%. Negative currency translation effects, which have been reducing in the second half, still had a negative effect of -4.7% for the whole year. Growth of Sika showed a very strong momentum throughout the year.
The first half year, with 18% growth in local currency, was supported by mild weather and quite a significant contribution from acquisitions, particularly the ones consummated in the second half year of 2013. Also in the second half of the year, growth was very strong, particularly also in the fourth quarter with 5.3% growth against a very tough benchmark of the fourth quarter 2013 with 17.8% growth. Very importantly, all regions contributed to the strong growth in 2014 but were exhibiting somewhat different drivers. If we look at EMEA, our largest region, quite a strong contribution from acquisitions with about 9.2%, but still an organic growth of more than 4%. Looking at North America, 7.9% growth, all organic. Here, a very good trend in the market. Construction projects which have been postponed for quite some time are now being built.
A very good trend, particularly also in combination with our expansion within the U.S. We're very positive going forward here as well. Region Asia Pacific and Latin America, again, strong double-digit growth with 12.9% and 16% respectively, although negatively influenced by the strong Swiss franc or a weakening local currency in the case of Asia Pacific with -6.1% and in Latin America, 13.5% impact. All regions contributed to the growth in Swiss francs, and Asia Pacific, for the first time, achieved more than CHF 1 billion in sales in that region. Looking at the margins, here this chart shows the material margin, the gross result on a trailing 12-month basis. Also, here we have been able to increase the margin by 60 basis points to 53%, up from 52.4% in 2013. Strong pricing power, new product introduction, and a continuous product portfolio optimization have been driving margin positively.
In addition, this particularly in the fourth quarter, you can see that there was a first positive effect from lower raw material prices. Also on the cost side, we made further improvements. Non-material costs, consisting of personnel costs, other operating expenses, and depreciation, grew under-proportionally from 42.2% of sales to 41.6% in terms of a ratio. Due to a further efficiency increase, personnel costs have grown under-proportionally. This in spite of a targeted growth in emerging markets, this in spite of acquisitions and a positive one-time effect in the last year. Other operating expenses have also developed below sales growth. This thanks to a disciplined cost management, leading to an EBIT improvement of 21%. Also below EBIT, net financial expenses have reduced by CHF 4 million or 9%.
This is on the one hand driven by lower interest cost, also lower hedging cost and lower negative impacts from valuation effects. This in spite of a very volatile currency environment in the last year. Also, the group tax rate has reduced significantly from 27.7% down to 25.3%. The reduction was, on the one hand, driven by the gradual introduction of an industrial franchise fee, replacing our royalty and management fee concept. On the other hand, by a positive country mix, thirdly, by the utilization of tax loss carryforwards. Moving to the balance sheet. The balance sheet of Sika has strengthened further with a very strong business growth. Balance sheet total only increased by 1.7% to CHF 4.82 billion. Due to the very strong cash generation, the balance sheet is now virtually debt-free. Net debt position at the end of the year was CHF 82.5 million.
As a result, return on capital employed also increased significantly to 23.3%, up from 21%. Net working capital. A disciplined net working capital remains a main focus, while working capital at the end of the year at CHF 992 million, or 17.8% of sales, was slightly higher than in the previous year. Working capital ratio at constant exchange rate further improved, as you can see on the lower part of the chart. This now for the fourth year in a row. Talking about cash flow. Operating free cash flow at CHF 417.5 million was again very strong. The second time in a row, more than CHF 400 million in cash generation in 2014. Driven by cash flow from operating activities, driven by higher profitability, reduced somewhat by a certain need for working capital.
Due to the lower acquisition spend of about CHF 68 million compared to CHF 414 million, free cash flow with CHF 350 million was very strong. Looking at the financing or refinancing side, the bond repayment in June of about CHF 300 million, the dividend, the further reduction in local financing led to a negative cash flow from financing activities of CHF 480 million. Due to the strong cash generation operationally, liquid funds or the cash position at the end of the year only reduced CHF 130 million compared to 2013 year-end. This brings me to the dividend proposal. The board of directors of Sika proposes to increase the dividend by 26% this year. This is namely a dividend of 72 Swiss francs for the bearer shares, up from CHF 57 of last year, and 12 Swiss francs for the registered shares. This up from 9.5 Swiss francs a share.
With this, I conclude my remarks and hand over to Paul Hälg, Chairman of the Board of Directors of Sika.
Thank you, Laurent. I would like to give you now an update on this takeover attempt by Saint-Gobain, also go through our reasons again why we do not support this idea. I hope we can contribute to a more fact-based discussion on this topic. Where do we stand currently? Schenker-Winkler Holding has launched three procedures. Two at the Kantonsgericht Zug. First one, request for extraordinary shareholder meeting, and the second one, the request to maintain their voting rights. A third one in front of the Swiss Takeover Board with two requests. One to confirm the validity of the opting-out clause, and a second one, again, a request to maintain Schenker-Winkler Holding's voting rights for the opting-in request of Ethos, which Ethos brought up for the general assembly.
All processes pending this decision, which we expect to happen in the course of March. I also want to remind you again here of the two requests, one of Ethos, one of the shareholder group around Bill Gates. Ethos request on vote on opting-in, including the request it should be only the public shareholders allowed to vote. The second from the shareholders group around Bill Gates to install a special audit and expert team to protect the interests of the public shareholders. That's the current situation. I'd like to go now again through the reasons why we oppose this transaction idea. You have the five reasons here listed. I'd like to make comments to each one of those, and to start with the highly unbalanced transaction.
As you can see from the slide, we're talking about 16% participation in capital with 52% voting right of SWH, where they get an 80% premium, where the public shareholders representing 84% of the capital and 48% of the voting rights got a hit of 29%. We obviously looked into the premium a lot and in detail. I've never seen such a premium in a takeover. If we discount the integration plans of Saint-Gobain plus combined with the growth rate of Sika to today's value, we from Sika side, we cannot see a business case in this premium. Saint-Gobain themselves, they talk about the seven-year payback, I think using a 7% WACC. In any case, it is difficult to believe that Sika can remain or keep a certain autonomy when Saint-Gobain has to defend towards their shareholders this 80% premium.
There's even a likelihood that there might be a plan B, which we do not know yet. This was the unbalanced takeover. The governance after takeover. Currently, the family always has put a high priority on a majority of independent board members. There were three representatives of the family against six representatives independent. This will change fundamentally. Saint-Gobain wants a majority of the board, including the chairman, and they need this in order to be able to consolidate the Sika numbers in their Saint-Gobain numbers. The public shareholders are represented with a minority in the new board, or will be, which makes it, to our judgment, impossible for independent board member to do a decent task and take the responsibility. This is also the reason why the independent board members have said they all would step down in case the transaction happens in the proposed way.
Also Mr. [Tammer], who was once brought up as a potential candidate from SWH, he came to the same conclusion that this task as a board member under these governance circumstances is not doable. The most important point is that Sika should be taken over by its main competitor. It's also a fundamental change. Currently, there is no conflict of interest between family and Sika. It was a very successful business model. We created over CHF 5 billion of shareholder value since 2011. This will change fundamentally. We will be taken over by our main competitor, and you've seen from the slides before, our main competitor in our main axis of growth strategy, we've decided several years back. It's not that we will be taken over at 100%, which would not be an issue and which also would obviously produce synergies, but only 16%.
There is one owner, or one controller, who owns 100% of one company, namely Weber, part of the conglomerate of Saint-Gobain, and by the way, the only company there will be synergies at all. 16% of Sika both being in competition. It's very clear that there will be a natural benefit or preference for the 100% owned entity instead of the 16% entity. This is one of the main concerns for the operational implementation of this transaction. You've seen the competition before. You see some more data on competition. In a competitive environment, being competitors, it's also not possible to produce the forecasted synergies. As you can imagine, in order to, at all the time, ensure that the interests of the public shareholders are protected, all transactions, all corporations would have to work at arm's length.
In order to be able to prove that, there would have to be, all the time, a lot of audits, expertises, fairness opinions, which creates a monster of administration and takes the focus away from markets into a lot of internal issues. We made two proposals to overcome this problem. One obviously would be 100% takeover of Sika, the most clean and clear one. There would be no competition. It's 100% ownership, so not an issue. We understand that this might be a bit difficult to finance, so we made a second proposal which follows the same logic, namely that Saint-Gobain would bring in their mortar business into Sika, could be a capital increase in Sika, or could be a combined cash payment and capital increase. We've started such a potential transaction.
It would be to the benefit of both companies, because in such a situation, the synergies could be produced. The combined unit or entity would even be the market leader by quite a bit in those products. Hence, there would also be a lot of growth synergies, not only cost synergies, growth synergies which cannot be produced as long as you are in competition and each know-how has to be protected separately, for instance. You might ask why their bigger mortar business into Sika and not vice versa, and the argument is very clear. Their company, Weber, is standalone and can be carved out quite easily, whereas in Sika, the mortar business is completely integrated in our business model and cannot be taken out of Sika.
Unfortunately, we did not get a positive response on that, not even a discussion of further options or details of such a proposal so far. Brings me to the next point, which is the shareholder privilege of the family, which was given to them in return for their commitment. As you all know, it is quite often the case that family-dominated companies have opting-out clauses and have voting right privileges through registered shares. That is also the case in Sika, was introduced in the 1990s after Sika has already, or the family has already proven close to 100 years of commitment to the company, has always assured the independence of the company. Also, which is very interesting, even the moment they had close to 100% of the registered shares still kept the limitation of transferability, the vinculum of 5% in the articles of association.
I mentioned before, we had a very successful cooperation with the family, created additional shareholder value of over CHF 5 billion to the benefit of all shareholders. This is changing a lot now. We do not think that through this proposed transaction, the commitment of the family is honored anymore. It is not in the interest of 84% of the capital of Sika, it is the board's task to protect the legitimate interests of the public shareholders. The instrument we have been given by the family is the 5% limitation of voting rights, which we have already announced we will implement. The success story of Sika will be at risk. Sika is not only the leader in its segment in terms of market, but also in terms of performance, and this model will be at risk.
The numbers you see here and you have seen before, they are a proof that Sika is not in need of a strategic owner. Sika can perform quite well, I would say even better or best, being an independent company. Again, performance of the shares and the creation of shareholder value over the past years have shown it. You see here in comparison, the Sika share development compared to the SMI and to the Saint-Gobain share performance. I don't think I have to do many more comments on this.
We are acting in the interest of the public shareholders and of Sika as a company, I show you here the content of the letter we got from this shareholder group around Bill Gates, Fidelity, Cascade, and Threadneedle, where they clearly express their concerns with this transaction and also the risk they see in the future for Sika and that they are not at all pleased by the decision of the family and Saint-Gobain. We could constantly increase support from the public shareholders, we have now just a bit over 50% of capital behind us. Capital who supports our action, at the same time also puts a duty on us to continue to fight for a better solution.
I want to take the opportunity to thank all of you who support us in this, and we are committed to do the best in the interest of all stakeholders, so that this idea gets to the best possible outcome. This concludes my comments on the intended takeover. I'm sure you have plenty of questions, and we are happy to answer. Please.
Martin Flueckiger from Kepler Cheuvreux. Good afternoon, gentlemen. Three questions, please. Firstly, coming back to this slide where you show the shareholder privileges for the Burkard family. I think it's slide 37. I'm just wondering how you intend or how Sika intends to prove the family's commitment to protect the interests of the public shareholders. Could you elaborate a little bit what kind of documents we're talking about here to prove this commitment by the Burkard family? That's question number one. Question number two would be on the raw material price development in the fourth quarter, and possibly also year-to-date. If you please, do you dare to give your best guess for the expected raw material price development for 2015 as well? That would be very nice. The third and last question for the time being would be on a trading update for Q1 2015.
Could you talk a little bit what kind of trends you're seeing, whether the dynamics are improving or decelerating? Just considering that we've had tremendous organic growth in Q1 2014, I'm just wondering whether you believe that you can actually generate growth against such a very tough comparison base in the prior year. Thank you very much.
I'll take your first question on commitment of the family. The company turned 100 years in 2010. This was when there were a lot of public statements, including television, where the commitment to the company was confirmed, and it goes to the latest one, which was in November in Bilanz. Urs Burkard again, made a statement on the commitment of the family towards the company, and this is what was published. Internal within the company, there were many more of those statements. When we talk about the Q1, we have a tough comparison. I think we had 23% growth last year. I'm quite happy to report we had a solid January and looks not so bad. Depends a little bit, of course, on the weather, but we are quite confident. Our people are all working, are fully committed, even under the more difficult circumstances, to deliver.
On the raw materials, Adrian, you want to?
On the raw materials going forward, as an absolute number, I cannot give you. We also have maybe to look back at 2009, 2010, where the situation was a little bit different, where also supply and demand was much strongly reducing. I do not expect the same amount of impact. We also have to balance this, of course, with pricing. It's still too premature to tell. In the fourth quarter, there was about a one percentage point impact vis-à-vis the last year. We're seeing some good impact here, how this is developing. It's too premature to tell.
More questions? Yeah, what's that?
Remo Rosen from Neue Helvetische Bank. About the proposed merger of the two mortar businesses, as you mentioned, i.e., the integration of Weber into Sika. You mentioned that that would now then be in combination the market leader by far. Would that even be possible from antitrust standpoint, if you look what Lafarge and Holcim have to do in order to get their deal through in Europe? I mean, is it even thinkable?
The antitrust issue is exactly the same, whether they take control, so the 52% voting rights in Sika, or whether it's 100% ownership. There would not be a change. Currently this is the cartel procedure is running, and that will give the answer to that question. There's no difference between 100% merger and the intended transaction.
Okay. You say that the antitrust authorities treat that absolutely the same?
The same. Yeah.
Okay. Thank you.
Dan Thomann from Infirst. Our job as analysts is always to identify some weaknesses, which is not easy, I admit, at Sika. One figure which came down last year was the operating cash flow because of an increase in net working capital. Is there a chance that we see a reversal of net working capital increase this year also because of lower raw material costs? Thank you.
If you look at 2013 there, we actually had an absolute reduction. That was one of the reason why the cash flow was so strong. We had a lower increase this year compared to sales. I think we will gradually improve going forward, but of course, it will be more and more difficult to do big steps. As I mentioned, this will remain an important focus of our doing as it's quite cash generative to have this under control also from a risk point of view, of course.
Okay. Thank you, Adrian. One second question, if I may. Net debt is at the lowest level for 10 years. What are your targets? How does your acquisition pipeline look like? Thank you.
I mean, the acquisition pipeline, as you know, since several years, we are constantly and progressively working on it. In terms of timing, you have seen this in 2014, this is not always predictable. In 2013, we did a number of also a bit larger deals. In 2014, it was three smaller ones. We have just announced a small one in Mozambique or in exclusive negotiations on another one and see to close about three to five deals this year. That's how it currently looks.
Okay, excellent. Thank you, Adrian.
Tobias Loskamp from HSBC. I have three questions. A follow-up, one on the acquisitions. Do you expect any more meaningful acquisitions this year, so any more sizable ones? That would be the first question. The second one is on the countries which are exporting oil, have you seen any deterioration in the business environment there over the last weeks and months? The third question is on the, if you would combine Weber and Sika's mortar business, do you have an estimate of what would be the combined market share?
If we talk about the markets, I think reduction oil price is for us a net gain. I think it's now maybe if some countries will stop or slow down some infrastructure or construction, this is possible. I think overall, with the lower input costs, I prefer the crude oil price at $20 the barrel we had 13 years ago. That is clear. I think from the market shares, we believe we have very good data on the markets. As you can see our numbers with mortars, we have been very successful in gaining market share and realizing high margins. We don't really want to give any public information here.
Okay. Maybe a final question on the tax rate. It's more boring maybe for us, it depends on the view. You said that was quite low in 2014. Is it something that is now on a sustainable basis, or is it something that will be in 2015 and 2016 or more on a slightly higher level again?
On the tax rate, I would see this as a sustainable tax rate between 25% and 26% also for this year.
Right. Excellent. Thank you.
Martin Huesler, Zürcher Kantonalbank. I have three questions. Maybe I'll ask them one by one. First, your margin guidance, you say you expect more or less a flattish trend in margins. We see that raw material prices came down. You will start with a higher gross profit margin, I would assume, for this year. What costs do you expect to increase in order that compensates this positive delta you have in gross profit to EBIT margin?
We had very intensive meetings with the management team over the last weeks regarding the Swiss franc appreciation and regarding the crude oil price. We, for the time being, we are strongly believing we can keep the strong margins also in 2015. Please allow me not to go too much in the details. We are quite confident that we will have another strong year also from the margin side.
Okay. Maybe
Maybe Adrian will say more.
Can you give an indication what is the transaction impact on your EBIT margin if the currencies would stay more or less at the level they are now?
Maybe I also take this one. No. I think for the Swiss franc impact for us, the Swiss franc, of course, is for our three big export factories is important, but the factory load is maybe of the same importance. We have a very fine-tuning how our managers are tuning pricing, cost, and volumes of the factories. It's not an easy equation, and we have shown, I think, in the last three years how well this can be done. We are quite confident that it will be successful again.
Okay. The second question, if I calculated correctly, in the fourth quarter, you had materially lower operating expenses if I compare it to a year ago and also to the third quarter. What was the main impact there that operating expenses came down by about CHF 20 million?
It's actually more to do with the previous year, where in the fourth quarter we had quite high ones. This was mostly related to acquisition-related cost.
No positive, I don't know, contribution from an extraordinary.
No.
No. The last question, referring to page 31, the ongoing court proceedings. Just to understand what is going to happen if whatever scenario takes place. Basically, the question is, if the Kantonsgericht Zug would, for example, state that Schenker-Winkler Holding will keep its voting rights, I was just wondering, how do you act on the general meetings? Can there be at all any decisions being made or are all decisions just temporary and maybe they reverse if you take your legal step one step further? Just to understand if, when the Kantonsgericht decides, will you make other legal steps to maybe reverse the decision?
Obviously, we only will decide and review the situation once we have the decision and understand the reasoning. We currently have no plans to postpone or move the ordinary general assembly, so it's planned for 14th of April. Obviously, whatever the court decides, shareholders have the right to appeal after the general assembly or even before, against the decision. That is still open, so it's not necessarily the final decision.
If, obviously, the decision is that it's 52% of the voting rights have to be applied, one of the requests is that three board members have to be voted out. Obviously, the three members will be voted out.
Thank you.
[Thorsten Bies] from UBS. To come back on the other OpEx question. If the 18% in Q4 hasn't got one-offs in there, that could be taken as a run rate for 2015, which I doubt is a fair assumption. It looks extremely low and wouldn't correlate at all with your EBIT margin guidance. That's the first question. The second question is on the GP margin in Q4, which I guess some people expected it to be higher. It has a 20-basis point sequential margin improvement. Given the decrease of the oil price, I guess some people expected to see a little bit more positive impact. The question here is, did you have any pricing impact in Q4, i.e., price decreases, which I doubt. Let's take it from there, please.
Maybe on the other operating expenses. One thing we have to clearly see if you compare the business to a few years ago, the fourth quarter is actually an average quarter. It's about 25% of sales of the whole year. It's not an exceptional quarter itself. This has very much changed since a few years ago. On the other operating expenses, this is not always a linear equation, one to one. There was no specific effects in there in Q4.
Okay.
Yes. On the crude oil price impact in Q4 or your pricing behavior in Q4, could you elaborate on that?
I think we discussed this a little bit before, that in Q4, the lower cost was coming in, but fully effective now January, February. We see the main effect is just coming now, beginning of the year. We are actually very happy. We check our pricing on a monthly basis in all countries, and we are quite happy with what the people are able to achieve.
Thanks. I just wasn't sure if there is a price effect. For 2014, is there any price increases? Can you say that on your selling prices and what do you target for 2015, please? On the Brazilian market, which is a huge market, obviously, and you obviously have a long-term view, opening up plants in a very difficult environment. You have had big success in Argentina with the same approach a few years back. Still, could you elaborate on the Brazilian market? Perhaps there has been changes, how you judge it going into 2014, please.
On the Brazilian market, I think we are excited. It's a big market and we have now seven factories. We have also strong business with the automotive manufacturers there. It's a promising market. 2014 was difficult here. I think we talked about this last year already. I was visiting already in January, and the people already knew this will be a difficult year. Late carnival, soccer championship, election in October, that's really how it came. They basically lost four to six weeks of working time based on these special events. I am quite optimistic that this year will not see such a downturn in the market. We'll stabilize and we'll grow again.
On the selling prices?
The selling price question?
Yeah. Any indication on the selling price change in 2014 and-
I think with the selling price, we always have to be a bit careful. We are not the company who generally increases the price list. It's not always possible. We're also depending on the local markets. What we are very good at is with all the innovations, and when you were hearing how much impact already these innovations make, also from a sales perspective, I'm very positive with the pricing.
Thanks. I meant the Colombian market, not Argentinian, of course. Just a last question on the possibility that Saint-Gobain gets through with what they plan and you as a management team step back, plus, I guess a big part of the more than 100 people that did write that letter. You could close to build a new, little, big, strong competitor. Would you, theoretically speaking, consider joining a competitor? Could you elaborate that?
Well, I think, when you look at our management, I'm 19 years now with the company. Group management is an average of 23 years with the company. Actually, our senior managers, so our country managers are over 17 years with Sika. You can imagine we are fully committed to this company. I have been talking to more than 200 managers and many employees over the last two months. We had round tables everywhere to answer the questions they have in these difficult times. No one is leaving Sika at the moment. They are fully committed. They are all asking and hoping for a solution, and this is what we are working on. Questions.
Patrick Ebenzeller, Baader Helvea. I want to come back to the Swiss franc question. You spoke about the transaction impact from your export factories, but the headquarters in Switzerland, and that's a big cost issue as well. Could you elaborate what impact that has, probably in a few CHF millions or in basis points on margins?
We don't really publish these numbers. Let me say, I think for a country sort of highly developed as Switzerland, with so many strong companies, I think it's an ongoing task to improve the efficiency on all levels, even in the finance department of [inaudible]. We have to constantly improve the efficiency. In our case, we have the advantage that we are a growing business, so we are not talking about the same base. Normally, we have a positive growth effect, and this is the challenge we always have. We managed the last years, we will always manage. I think for us, as a growing company, and with such a also strong commitment from our Swiss employees they made over the last years to improve efficiency, basically with the same people increasing the output, I don't think it's the time for drastic measures.
It's time for our ongoing improvement process, what we did the last years and what we also will do.
It basically was more a mathematical question than considering any kind of layoffs. I can imagine that it has a, not a big one, but a bit an impact on your margin because it's high costs, in Switzerland, high salary people, of course, are there mostly. That must have an impact.
You have to see our factories are highly automated in Switzerland, and they produce high-quality products. This is also our Swiss brand, our Swiss reputation, and these products we produce in Switzerland. I'm much more positive, and I think, again, the factory load is very decisive how we continue this year.
thanks for taking my question again. Sorry about that. Two questions, please. Coming back to your description of what you expect from the U.S. market, going forward over the next, I think you mentioned three to five years. Considering oil prices are where you mentioned between CHF 50 and CHF 60 currently, and the impact that's having on the oil and gas industry in the U.S., how come you're still so positive for the U.S.? That's point or question number one. The second question would be, coming back to your balance sheet, Mr. Widmer mentioned that you're virtually net debt free. I was wondering whether we're looking at a change in dividend policy over the next few years, whether you're thinking about raising the payout ratio. I suppose that would be a question for Mr. Hälg. Whether we're looking at a potential share buyback.
Your thoughts on that would be very welcome. Thanks.
I think the U.S. market is really exciting. I have been in the U.S. I think three times the last 12 months. Our people are very excited. We had this curve, especially for industrial investments, but also infrastructure investment, where the curve was on the button for maybe three or four years too long. Now finally, we started to see from May, June last year, a really movement in all these projects now coming up. We are extremely positive with the U.S. market. People are also positive, and I think fair to say that this is depending on the region. You have these hotspots in the U.S. market. Maybe, I don't know, Midwest maybe is a bit slower. You have the hotspots on the Upper East Coast. Florida is booming again. You have Colorado, of course, Texas, California, Chicago region.
You have really hotspots. We have a great plan since the beginning of last year, how we want to realize growth in the U.S., focusing on these growth segments geographically. This you also can see from our investments now, Atlanta, Denver. You will see a few more investments coming up, maybe quite shortly.
On the dividend, with all the uncertainty ahead, obviously, it's a bit difficult to do a prediction. When you go back in history, however, on the dividends of Sika, you will not find a year when we had to go down in absolute value compared to previous year in dividends. Currently, there is no reason for me to see why we should go lower than we have this year, in 2016. Assuming that we are still in control, there is no need to change this tradition. There is no share buyback program in discussion.
Sorry. Maybe I wasn't making myself clear. I assumed that you weren't going to go down with the dividend. I was thinking more of raising the payout ratio, whether that's an issue.
It's not a discussion right now. More questions?
Thanks. Just to add on the operating expenses, from all those legal discussions and expenses you have, did you see something? I don't think so in Q4. The other question is what should we expect as a special charge or cost in 2015? Perhaps just on the CapEx, seeing the many plants you open again, I guess the CapEx level should be the same in 2015 as 2014. Is this a good assumption? Thanks.
On the related expenses, this will not be a significant charge going forward. Of course, for the shareholders and to protect the business, this will be an insignificant amount compared to what is at stake.
CapEx, do you think the CapEx level stays similar, 2015?
Yeah. Capital expenditures will remain at the similar level. It was also the same year in 2014 as in 2013, around CHF 155 million or thereabouts.
Thanks.
More questions? Yeah.
You increased your return on capital employed target to 24% from 20% in your long-term incentive plan. Who came up with this idea? What motivated you to do this now? Thank you.
We have the ROCE target is a target in the long-term incentive plan, and when the nomination and the remuneration committee reviewed the performance and the development of the performance, we felt it's appropriate to increase the target to the 24%.
Okay, thank you.
Do you recommend to lower the target?
No, definitely not.
I appreciate it. More questions? Doesn't seem to be the case. I thank you for your interest in Sika, for your support, and if I understand correctly, there is a bite to eat and something to drink just outside. Also time for some more discussions. Thank you very much, and goodbye.