Okay. Good morning, everyone, and thanks for coming. I really wish you a successful but also a healthy new year. It's good to see you again. Sorry for putting already beginning of the year a pressure on you to rewrite your story, which you prepared last year. I think we had a quite exciting new year. Last year, [we fought about Saint-Gobain]. Our team was easy to work together on the news interpretation. It's very good to be here and have some really positive news. I would like to go a little bit over our transaction highlight. I like to explain who is Parex, what they do, and why we are so excited about the company. The rationale. Adrian will explain a little financial consideration, and then timeline, and then the summary.
If I take on the high part, on the highlights, we made a binding offer for Parex. It's a CVC partner. This is a leading manufacturer in mortars and has really a great experience, facade and in tile adhesive, as well as in waterproofing. A track record, which is really impressive over the years. I will show you some more details. A very strong position in distribution. As you know, we sell a lot direct. They sell a lot over distribution. That really will benefit. They're presented in 23 countries. In eight markets, they are really strong. The key benefit for us, it's a strategic fit with a lot of good overlaps no overlaps. Combined growth engine. Two companies really growing fast, and it will boost our position in the mortars very dramatically. I show that as well in details.
I think we have very strong brands now with Parex and complementary sales channels and the multiplier for our Sika's. They are active with the facades in 22 countries. We have 101. If we can roll out their concept in other countries, we have a great platform to grow. On the technology side, they're also very strong, so we can have that. Remarkable for a company, they were sold three or four times. They still have the same executive team since 10 years. They were sold three times to different, but the management always remains to the majority. This gives us a very strong feeling that we really have a good team. With this team, we worked now the last two or three months, and we saw all the general manager around the world. We saw the major general manager.
We're really working with experts. Expert means they understand the business. They are the people. Even I was always a little bit reluctant to look for sales targets from private equity. Here, I think we really have a great model and a great success story. The management is really on the right side. Financial parameters. As you know, the enterprise value is CHF 2.5, and we see synergies of around CHF 80 million-CHF 100 million. UBS and Citi is a bridge loan until we find out a solution with Adrian. Adrian will explain in details. If we see a multiple step transaction to the French law, we have to wait until we can sign the contract, until the French agrees to it, and then we can go step by step. We expect a closing around Q2 or Q3.
Why we are so excited about Parex? I think 8% of the sales channel goes through distribution. If you look at the sales, they do now CHF 1.2 billion in sales, and the EBITDA expected this year of around CHF 195. They have three major product range. One is tile setting, one is façade mortars, waterproofing solution. They have sales in Americas, 25%, and strong in Asia and EMEA, 33%. They have 74 plants in 23 countries, they have 13 R&D centers around the world. We gain 4,600 new employees, we are convinced they have a lot of talents in the group, we need talents to keep our growth rate. Exciting to have new colleagues. They have a very strong position in mortar solution, I will go a little bit more in details in that.
On the left side, you see the ceramic tiles with 40%, the façade outside, the waterproofing. They have a lot of nice brands around the world, Davco is for China. They have other brands from Lanko. They have very strong brands. The major position they have around the world is in eight countries. For us to control the working together, the integration is very nice because we can focus on countries we have strong position. I will explain later a little bit how this fits, you got a feeling how step four, we have to integrate and work together. Impressive track record. If you see, CVC bought the company in 2014, there was no gap between. They are very strong in sales, with 7.4% over the last years.
Also on the EBITDA, they always grew in a very nice over-proportion way over the five years. This is a great company. They also managed to be a strong player in that, very strong in growth and profitability. It's a company which well function, we are proud to have it. This is a little bit busy slide. If you look at the left side here, we have five major technologies where we have our platform on. One is the thermoplastic systems, where we have on the roofing system. We have the adhesive system, our adhesives, where we have also industry and construction. We have the admixture concrete system. We have the mortar business, we have the coating systems with epoxy. That's the five pillars of our platform where we produce.
We always add different customer groups where we can sell the five same technology. If you look now at Parex, they are purely mortar company. If we combine, we get then our five pillars. The mortar pillars really get then up to 23%, is one of our strongest pillar then. On the lower side, you see, for example, we are very weak or not so strong in facade. We are not really active there. Facades are outside. We are active more in inside and in the flooring. Parex, if you see, they have 34% on facade. We really go in a new application field, but with the same technology or similar technology. This gives us the great leverage. If you look then at the footprint, we have 23% on adhesive systems. The concrete system is 14%. Coating stays by 12%.
Mortar will be the strongest, then the thermoplastic system, third. A very nice, strong technology base which we can work on. As you remember now, in the last six, seven years, you always hear that we build a lot of factories, we push for mortars. In 2011, we have CHF 500 ,000, CHF 500 million. In 2018, we increased the mortar, 11%. This is one of the best margin range we have. It's tremendous. If you look, we built 11 acquisitions and have 12 factories on this mortar. You heard a lot about our mortar stories, I think that's really the key. It's one of the biggest market out there, where we have never been active in the last 80, 90 years.
We started in 2010 to really focus more, and now we are one of the global players together with Parex. I think this really gives us a strong foothold. We will be amongst the three biggest one, it's tremendous how great platform we can have here. If you look a little bit how we strengthen now the region, we add 70% more sales in Americas, certainly in EMEA. It really helps the mortar sales in Asia Pacific, where we rather have a weak position. Now we got a stronger position, but we have to understand that it's a huge market out there, very profitable market, it's just the question how we arrange ourself to get more market share and more profit. It's just a question how we do it. Together with Parex, we are now on a very strong position.
If you look at the footprint, what we additional did, we add now 29 new plants in Americas with additional 1,200 people. We add 20 new plants in EMEA with 1,300 new employees and 23 new plants in employees. If you remember, we always had the target to build 10- 11 factories during that. We really have now a footprint which also helps us in the supply chains, get more market share. We can produce our products on their plants, and they can produce their products on our plants. We will have a fantastic footprint around the world now with all these factories, and we are confident that this will help us a lot. Another great point which really supports Sika. If you look at the global market, which explain the global market is around CHF 70 billion in this construction market.
The market is divided, more or less 50% goes direct sales on the construction side, 50% is distribution. If you look at Sika, we traditionally always strong on the direct sales. Today, we have around 61%, 69%, 70% direct sales because that's our DNA over years. There we are really strong. Since years, you see we fight to get more shelf, to get more access to distribution. These old players, they're over years, it's hard to get access to distribution. We try step by step to push more shelves. You see, since years we are pushing. Now with Parex, they have 8% of their sales by distribution. For us, it's fantastic now. We have now shelf under their names. We can sell our products now to these channels, and we can sell their products now direct to this.
It will shift a little bit that together then we have 38%-40% on distribution and 60 direct. It's for us strong that we also have more part, more access to distribution. It's one of the great nice things. We have also technology difference. As you know, we're very strong in technology mortars, engineered mortars, and they are very strong in facade mortars, tile adhesive. Technology-wise, we really can combine their knowledge together with our knowledge, and we can go much farther in a discussion where we say we have a strong base for our technology. Also they are very complementary. For example, I would like to go now to three or four countries to see why we are so excited. For example, in France, they do around CHF 260 million, mainly focus on rendering and facade systems.
They have a very strong position in distribution channels with 90% of their sales goes to distribution. Sika themselves, they have also a strong business there, CHF 290 million. We are strong in sealing and bonding. We are strong in direct sales. We have also some territory, so in different ways. Together, we are combined CHF 550 million, but we don't sell on the same place, and we sell for different application. If we put together our knowledge together with their knowledge, and if we switch then their product range and sell our production to their channels, gives a huge leverage in France. Also they have very nice factories which we can leverage out, our transportation costs will reduce quite dramatically because we don't have to ship as before, because we have much more close wide circles. In France, we feel very comfortable.
We met the management. They are very strong, and they have a strong position over years. They are clear number one in facade and in tile setting in France. We are clear number one in engineered and also in flooring and this. Together, we are strong company now with CHF 550 million. Other example, China, one of the most exciting stories I ever have seen. We have around CHF 225 million business in China. The same setup like we have in France. Focus direct sales, technical mortars, industry flooring, sealing and bonding, where they have a very strong position in tile setting and waterproofing. What is really unique in China, Parex bought a company called Davco probably seven, eight years ago in 2006. That's all 12 years. They have a unique distribution system. They go B2C. They sell direct to the smaller guys.
They have 90,000 point of sales, and they have 3,000 independent distributors. They have so much strong brand, and they're very profitable, and they will build up their net. We have to see in China, this is all refurbishment. That's for the small guy refurbishment. If you see how they build their houses in China, how much refurbishment they need in future, that's the right setup. It's fantastic what they build. We are very happy to participate. We see they have 3,000 stores, only Davco products in it. We just add our products in that stores. We have excellent sealants. We have excellent polyurethanes. We have excellent epoxies. If we put it in that store and try to sell it over this distribution channels, it will be a great channels to sell.
We are so convinced that we can help to boost that sales also. With this 90,000 point of sales and 3,000 distributors, they want to build it up, and they can continue. Together, we have a strong position in China with CHF 500 million. Strong team. We met the team and strong organization, nice factories. For us, exciting story. That was probably one of the exciting story I saw in distribution. We have to challenge ourselves, why didn't we do it as well as they did in China? We have the opportunity to repeat that model now in whole Asia and in other countries. This model really delivers results. U.S. We are strong in the U.S. We have around CHF 995 million.
Same setup as in other countries, strong in waterproofing, strong in roofing, industrial floors, refurbishment, technical mortars. They have a nice company, CHF 125 million. They focus on facade mortars as well. You see, Sika is not on the facade, but you know that we invested a lot in building up factories in U.S. Now we get additional new factories where we can fill. We get a factory in Florida, in California, they have one in New York and one in New Mexico. We can fill that. We can use that for our mortars, for our technical mortars. On the other side, we can help them by our approach for specification selling to sell their facade system also direct now to job site that sell our distribution. Also there, very strong position. Yes, it's not easy to work together.
Small teams, they know what they do, it's then around CHF 1 billion in the U.S. Quite exciting in the U.S., and very convinced that this will be also a great story for us. Last one is Latin America. Same similar setup. We have CHF 590 million in Latin America. Same setup, strong in waterproofing, roofing, sealing and bonding. Parex have around CHF 180 million, very strong in Argentina and in Chile and in Brazil. Three countries, and with CHF 180 million, also well set. Together we will have the same advantage. They are on the facade and we are more in the technical mortars. They have several factories. We have several factories. We can have a shorter range and we can focus now on the distribution and additional sales. Together, we strengthen our position in Latin America as a clear leader with CHF 770 million.
We're by far now the strongest player in Latin America in this market. Okay, that's the overview of Parex. That's the overview how we see how we would work together. The integration we will discuss with the management, what is the best way, how we can do it. As I said before, this management is sincere in the company. They know the company, even they came from a private equity and they are experts and we had great meetings together. Convinced together we really can make a big step for the future of Sika. I hand over to Adrian.
Thank you, Paul. Yes, clearly a very exciting business, which is also very value enhancing for Sika and its investors. The transaction is valued at CHF 2.5 billion, as an enterprise value. Going forward, as has been alluded by Paul, we see great synergy potential in working together and growing this platform together. Annual synergies, in the range of CHF 80 million-CHF 100 million are expected once they are fully materialized. I will give a bit more detail on how and where these will come from. This CHF 2.5 billion does represent an 11.3x pro forma 2019 multiple pre-synergies. Once the full synergies are factored in, this multiple will come down to less than 8.5x 2019. The transaction will also be EPS accretive from the first full year post-closing, which will be in 2020.
On the financing side, we have secured and have a fully committed bridge facility by the two banks, UBS and Citi. Upon closing, we will also immediately repay the existing senior facilities Parex has in place. Looking forward and going forward, there will be a long-term funding over a combination of several instruments. We will, of course, continue to be committed to a strong investment grade rating and a prudent financial policy. We have seen the great benefits this combination will bring. The transaction will also further improve the growth and margin profile of Sika. If we look at 2017 numbers, our EBITDA in 2017, CHF [1.07 billion] on a standalone basis. Parex will add another CHF 180 million to this. Together with the run rate synergies, of course, once fully phased in, the EBITDA profile will increase by 25%.
Also the EBITDA margin in this combination will be higher than on a standalone basis. Talking about synergies, due to the high complementarity on the channel side but also on the product side, there is a very significant cross-selling potential, for example, as Paul has mentioned, selling our type of products, which we typically sell through distribution acrylics, PUs, epoxies, through the existing channel, really increasing the share of wallet there. Being able, for example, in China to really complement the range Parex is currently selling through their 90,000 outlets, but this is also true for other markets. Also in terms of complementary product on the facade side. Secondly, the Parex business can very strongly leverage our very good access, direct access to job sites. Then, of course, rolling out the range to all the other Sika companies.
Also on the cost side, we are expecting significant savings, particularly also in purchasing on the additive side, given the significant additional size this business will add. Secondly, you've seen the production footprint, significant impact on the optimization of production logistics, the routing, also which products are produced where, getting much closer to the customer. Very significant positive impact there as well. Then, of course, through operating leverage and increased efficiencies in support functions, we will derive positive effects going forward. As mentioned, run rate synergies are expected in the amount of CHF 80 million-CHF 100 million within four years post-closing. There will be one-time costs on the transaction and integration cost side. Partially, we have already incurred some transaction costs in 2018. Together, this will amount to an estimated CHF 70 million over the next three years.
Last but not least, there is also a benefit on the CapEx side due to the fact that we can avoid investments going forward. For example, in the U.S., let's say in Florida, where we had planned to build a plant. We don't need to do this now because there is now a very strong setup on the Parex side, and there is many other areas like this going forward. Maybe briefly talking about the timeline or the tentative timeline to closing. Here, as mentioned, this is a multi-step transaction. We have signed a put option agreement yesterday and will now entering the consultation process in France, which is a legal requirement, which is common practice. It is important to highlight that this is a consultation process and not an approval process.
It's a formal process, which will be done over the next few months until a formal SPA is being signed. In parallel, there will be a number of antitrust and regulatory approvals required. This will also start soon or some after this consultation process. Once all these approvals are received, we can then move to closing, which is expected sometime towards the end of Q2 or Q3. Of course here, the timeline is not quite set. Good. With this, I would hand back to Paul for a brief summary, and then we'll have ample time for Q&A.
Okay, thank you very much, Adrian. In a nutshell, what is our thinking is you saw that Sika could grow in the last years, every year, performed and performed, and also Parex in the last years performed. If you put these two powerhouses together, I think we just can move faster. I really believe that together here we really can get stronger. We have complementary in the product range as well as almost no overlaps in the sales channel. Huge potential there. We will be strongest player in construction chemical and industry adhesive, and we will exceed the sales of CHF 8 billion this year. It depends a little bit when we can close, but we are on the way to CHF 8.8 billion this year. We really build a very strong, solid Sika together with this acquisition.
We have now a footprint of 300 factories and in 100 countries. We are really clearly the first mover in all the emerging market with very strong position. We are very delighted to see how the emerging market deliver us and support us on the results. We have a very strong brands now from Sika, but also a very strong brand now from Parex, and a very broad product group now in the product range. We have now around 25,000 people which works for us and which we inspire. I think we will enhance the growth and profit margin and a strong cash generation, we will achieve that again. I think we are aware that the integration to work together is a little bit different than the normal thing we do. I think the biggest acquisition we did twice, where we have more than eight countries.
One was AkzoNobel with seven countries, one was Sarnafil, which also quite successful with around 13 countries. We know how to handle it. I think we are convinced we have strong teams in both companies, in all the countries. Eight are very important, the rest we can go. From that side, we feel good. We have great management. We know what to do. It's our business, and it's not as complex than a lot of people think. We are motivated. We also know that the Parex team is really motivated to join after a lot of private equity to join an industrial partner. From there, I guess, we will prove that this will be a great acquisition, and we have time to work on it. Okay, thank you very much for coming. Thanks for spending your time with us. If there is any questions, please.
Thank you. Good morning. Alessandro Foletti. I have a bundle of questions on the P&L of Parex. Can you give an indication of how high is the depreciation in percentage of sales and how high is CapEx as well? When I look at the personnel that they have, it seems to me that the sales per head is around 280,000. You are much higher than that, so there must be a difference in the cost structure between you and them. Can you explain this difference? I guess you're purchasing more, et cetera, but what does it mean also for the products and the value content? Should I be worried about the fact that they have so much people?
Good. On the depreciation and the CapEx side. If you look at the CapEx, it's actually slightly higher than in our case. I think it's another proof of quite regular investments that was done in the last few years. They built about 16 plants and also kept them very well up to speed. As I said, there will be a certain synergy on the CapEx side, given just the avoidance of CapEx going forward. Depreciation is a little bit lower than that. Of course, there will be an amortization impact then from the PPA, but it's broadly comparable to what we have. Maybe on the people side, of course, it's a somewhat different footprint also on the product mix. This does not necessarily mean that they're less productive.
It's really also particularly when you look at China, more people and lower sales per head, which is actually quite normal.
John Revill, Reuters. A couple of questions, if I may. Could you expand a little bit more on the motive for buying this company? Obviously, you outlined what a great company it is. In general terms, the acquisition is booming. Is it about going to be more of a consolidator in the construction chemicals industry, or is it about making Sika bigger so that you become less of a target from other people? You could talk about that a little bit more. Also on the mortars business, why is the mortars business particularly attractive to you guys? You did mention higher margins. Could you give some sort of numbers there? My final question is, this is, say, the biggest deal in Sika's history. Does this stop you making any other big deals? Thank you.
I have to say, I forgot already the first question. I think, why is mortars interesting for us? If you look at the construction side, mortars is always on the construction side. Our people are on the construction side. The investments to build mortar plant is on a very low level. It's not a huge investment, but we have a strong technology base. We learned in the last years that a lot of people makes a lot of money with mortars, and in 2011, we decided that it's a very nice field where we were not really focused on. Since 10 years, almost nine years, I think that's a big growth plan for us. Of course, we want to bring more value to the company.
Growth is a value, and of course, we need profitable growth, and this is one of the great opportunities we have. Now with Parex, seeing the great opportunity and combining force was just a beauty to buy it. With the market share and with the presentation, it's great. Second question, want to become a stronger company? Yes, we want to be a clear leader or even a better leader in the future with construction chemicals. I think leverage counts in this business. As long as we stick to our five or six, in the moment, five core competencies, we don't get distracted, we don't get a conglomerate. We get a focused construction chemicals company which sells adhesives.
As long as we stick to that rule, as long as we delegate our power to the countries, as long as we flexible and agile in the countries, it's good to grow fast. We would not buy any other business which would not fit in this footprint. We stick with the footprint. We want to grow as fast and as strong as possible. On that base, that we don't get deluded by, distracted by other technologies.
Okay. Does this stop you making any other big deals?
I'm glad I can finish this one now. Let's finish this one, make sure we can integrate, make sure we're doing the right job. The work starts just now. Right, Thomas, for you guys? I go on vacation now. They have to run it now. I think we do this one now, and we are aware it's a bigger thing than we did. It's the biggest thing we acquired. We are very clear in the management, in the extended management. We have to do a proper job. We know how to do it, but now we have to do the work. Therefore, I think that's a big plate now, and we make sure we cut it in piece, we put it and integrate it.
There will be a pause on big deals now then. Is that fair?
I think it's a pause there, yes.
Thank you. I have three questions. First, did you speak about this deal with your biggest shareholder, Saint-Gobain, which is a concurrent in the mortar business, too? Two other question. Adrian , you spoke about capital market instruments. Could you give some more details what you're thinking about, and what is the influence of the deal on the net debt situation of Sika?
I handle the first one. Of course, Saint-Gobain is a competitor. As you know, we meet them every day in the market, and we compete every day about the job site. Of course, we did not speak to him before the deal, but we informed him yesterday evening that we do the deal and that, of course, he's informed. I think they see that also as a great deal. They know their competition is now a little bit stronger, a little bit tougher out there. We informed them. Of course, out of reason, we cannot talk about competitive. They're very informed, but not informed before we signed.
Maybe on the financing instruments and the options. We have all the flexibility. We have a bridge in place now for one and a half years. We will really consider all the different options that are available. Possibly some equity instruments, but there is really a whole array of it. If you just talk about sort of the pro forma multiple upon then closing, it would be around three times debt to EBITDA, but with a very strong deleveraging profile. This is, of course, before any sort of takeout actions, which we will do over the next months.
Bernd Pomrehn from Vontobel. Two questions, if I may. Firstly, on the synergies, could you please split up about the synergies between revenues synergies and cost synergies? How will the split be about, and do I get it right that you don't expect major synergies from headcount reduction? Is that correct? The second question on the integration and transaction costs, how much did you already book in 2018, and how will be the split about of the transaction cost in 2019/20? Will there be anything 2021 as well? Thank you.
Okay. On the synergies. At this point, we're not commenting on the specific breakdown. Both the cost as well as the revenue synergy will be significant. You are right in saying that there will not be any synergy derived from major headcount reduction. This is also clear.
As you know, we want to do the same as we did always. We need that as a growth platform. We want to grow with this. We didn't buy a company to reduce cost. We did buy the company to accelerate our growth. Therefore, correct. There is no major plan, nothing actually there. We want to grow together. I think in purchasing, we will have quite some synergies. The rest, if I explained about cross-selling, about new product range. The majority of the synergy will come out of sales, yes. Also in purchasing, we expect quite some synergies. One of the expansion, I say, is the supply chain. The transportation cost should really get back because we are closer now to the customer and have more factories to get filled. This will also leverage if we have more volume in the factories. There will be some quite synergies.
On the integration and transaction cost side, of course, this is very dependent on the closing and the process. There was some amount, it's not fully determined in 2018. The larger part will be in 2019 on the transaction cost side.
Thank you. [Jan Degen] from Bloomberg. Investors seem to have reacted somewhat negatively initially. Why do you think that is? The second question, are you talking to BASF about buying their construction chemicals business?
That's a good question, why they react negatively. I think there are several reasons, but I don't want to speculate why they feel. Whatever they feel, I think we can convince over the future that this is still a great company. This is still a strong, growing company. I think we will one day get it back. I'm convinced there that it's not a long-term trend. It's probably just a hit we got. As we said before, construction, BASF, of course, we talk to all the potential out there. I think this is a great company. However, as I said before, we have to finish now this job, and I think that's our focus, and then we see what the future brings. It's not so that we're getting close to a deal with BASF. Relax there, everyone.
Martin Huesler, Zürcher Kantonalbank. I have two questions. First, you were mentioning PPA. Can you already be a bit more precise? How high will be goodwill? What will you have to depreciate in the future? Going along with that, will you change your steering measure to EBITDA, as you will have amortizations in your EBIT? That's the first question. The second one, maybe looking at your earnings guidance for 2018, which was a bit weaker than expected. Maybe a miss of about CHF 40 million-CHF 50 million EBIT. If you break this down a bit to raw material cost, maybe integration cost already here, FX effect. What are the major reasons why you didn't achieve the original targets?
On the breakdown, this is a bit premature to tell. I would expect, let's say, amortization coming from PPA probably around 3%-4% of sales initially. Of course, this ratio will then become lower. In terms of the steering measure, no, there is no intention to change this to EBITDA. We will remain with an EBIT guidance going forward. Maybe to what you called a shortfall, at least compared to your expectation. I think there is, and you've hit these three points clearly on, let's say, the margin. We have seen a continued pressure on the raw material side, which hasn't receded in a major way. There is an impact there. That's clearly one of the main reasons. Foreign exchange.
The translation has changed quite significantly compared to the first half-year, where we had a slight positive impact, which, of course, in the second half-year, particularly in the fourth quarter, has reversed. Yes, there is also some one-time costs, not only on the Saint-Gobain resolution, but now related to this transaction in the fourth quarter.
Good morning, gentlemen. Martin Flueckiger, Kepler Cheuvreux. Just coming back to that question. I realize you were talking about market expectations, but if I remember correctly, in December, the company was reiterating its double-digit profit guidance for both EBIT and net profits. To me, it looks like raw material price pressure that was well understood. I would presume by yourself, the same on FX. Is it fair to say that the key discrepancy, and I think we're talking about roughly 4- 5 percentage points in terms of profit growth discrepancy. Is the main difference here coming from the one-time costs, or is it still a combination of all of them?
It's a combination of all, it's particularly also on the raw material side.
Raw materials in December were tougher than you had expected originally?
That is correct, yes.
Okay, thanks. If I can just continue, since I've got the microphone with me. Talking about those sales and cost synergies, can you talk a little bit about the impact you expect on ROCE and how much the original dilution is going to be, and what kind of enhancement you expect medium to longer term?
Yes. Maybe again, on the return on capital, is a bit dependent on the time of closing. Yes, here there will be a dilution, which on the one hand, we have applied here the very same acquisition criteria as we always do. There is no difference. We are clearly seeing here a very significant synergy potential going forward as we have laid out. Of course, due to the, let's say, initial investment here, return on capital, we will see a dilution for the next few years. Initially, it will probably, in a combination, be rather around 20% or between 20% and 25%.
For the acquisition itself?
No, in a combination.
In a combination.
In a combination.
Okay. Comparing that to your EBITDA margin guidance, I think you were looking at 40 basis points improvement, yeah? Over what? Four or five years of integration period. What kind of improvement do you expect there? Or is it still going to be a dilution?
Yeah. Sorry.
Looking at your EBITDA margin guidance-
Yeah
you were talking about roughly 40 basis points improvement. ROC is not going to improve longer term. Is it still going to be diluted longer term?
Well, longer term, we will of course, get back to our average. Our criteria is within five, six years to be at the 20% Return on Capital on the acquisition itself. Being above that, there will continue to be a certain dilution going forward, but this will become a lot smaller.
Okay, thanks. Just talking about your mortars business specifically, I will step back in line after this question. Can you talk a little bit about how you expect your market share to improve or to increase by the transaction? It is quite significant, I suppose. If I remember Weber's sales correctly, you are going to exceed the size of Weber going forward. If you could talk about market share and possibly also how you think your mortars EBITDA margin or EBIT margin is going to develop over the next, let's say, three, four years. What kind of dilution you are expecting initially and how that is going to evolve after that.
On the market share, the mortar business is a very fragmented business globally. There, yes, we will, of course, increase our size. It will probably be around the same size as Saint-Gobain, but it is a very large application and technology globally. This will not significantly change the pattern there. On the improvement or the dilution, clearly with the synergies here, we will get back to, let's say, group average here on EBIT level within two years post, or two full years post-closing, and on EBITDA level earlier.
[Ilona Joensuu at Kedi]. One follow-up question on your future funding structure. You mentioned the possibility of some equity instruments, that could be a huge area. Could you please clarify if that would also include hard equity, or are you referring to hybrids and mandatory convertibles? Thank you.
Yeah, it could be both. Of course, it will be very measured. If you look at the metrics, there is not a lot that would be required here. Again, this will be looked at over the next few weeks and months, depending on, of course, also the markets and the optionality we have. There is no specific decision taken yet.
Coming back to the funding structure maybe, do you have a specific ratio in mind you target? Net debt to EBITDA, fund from operation to net debt, or how do you arrive, by what means do you arrive then at the ultimate funding structure? Markets obviously are one factor, but probably the other factor is also the credit rating. What are your thoughts there?
Yeah, we're committed to a strong credit rating, and that's really the driver to be able to maintain the optionality. Also, in terms of the risk profile, we were not going to overstretch this. Clearly not.
What's your definition of a strong investment grade rating? Other companies with a clearly lower rating use this term as well. It's quite undefined. I think out in the market, there is some perception that you have become a little bit more flexible to the downside as well. Is that correct?
Yeah. This would be a A- or BBB+.
You can imagine to get a hit by one notch or wouldn't exclude that by all means?
I wouldn't exclude this by all means, but clearly, it will have to be and continue to be solid, particularly also to maintain the optionality going forward.
In terms of currencies you use, it will probably also include euro funding?
That will very much depend on the structure itself, on the size of the ticket, but that's also one consideration, yes.
Okay. No clear definition yet. I assume you are in talks with rating agencies as well-
Yes
in order to get the final structure?
Yeah
Yeah. We also have pre-informed them. We're in contact, and this will be closely followed. This, of course, is also one consideration.
What is actually the conditionality on the other transactions? This other big word is still a little bit hovering around the three-digit word, BASF. This could also have an impact midterm, whatever, on your funding structure. Is this a consideration as well?
You refer now to the BASF Construction Chemicals business?
Yeah.
As Paul said, this is now our focus. We've just announced this today. There will be some time until closing, and this is the focus now, and I think everything else we'll take step by step.
Just to relax everybody a little bit. If you look at the BASF market, the market share in many, many countries together, we would have more than 60%, 80% in admixtures. It's clear from the beginning that a whole buy of BASF, we cannot do anyhow. Just, if you look at the market share. Relax, it's something where we look at, we learn from our competition, and then, I don't think that's even visible that we take over the BASF, because we just have too much market share.
Okay. Okay, thanks.
Thanks. Good morning. It's Patrick Rafaisz with UBS. Three questions, I'll take them one after the other. The first one is on the phasing of the synergies. Can you talk a bit how we should model that? Is it linear or back-end loaded, the CHF 80 million-CHF 100 million?
One element is, when we close, it's relatively linear going forward by and large, but also depending on the different elements.
A second question on the historical performance of Parex. Can you also give us the organic growth CAGR since 2011 without the bolt-on acquisition stated?
It's roughly, what you see in the deck here, is the reported figures. Organically, they have been around 6-ish%. The acquisition contribution was relatively small, and there was a slight negative effect overall. Very, very strong performance overall, and very, very similar to ourselves.
Okay, thanks. For the multiple, you used 11.3x. That seems to imply an acceleration of EBITDA growth for Parex in 2019. Is there anything we have to consider? Were there acquisitions made recently that would increase EBITDA more than the 9%?
There is. One element, of course, is a continued growth. The other one is also that leases will be treated differently, in 2019. This is both included on the debt side as well as on the EBITDA.
Understood, thanks. One last question, not related to Parex, but on 2019. Q4 was impacted by raw mats to a bigger extent than you expected and than we expected, as you just explained. Back when we met last, Paul, you were very optimistic about the start of 2019 with tailwinds from raw mats, and the oil price has come back down. Has this changed this assessment now with this Q4 in the bag, or is it just a delay and we're seeing a much bigger benefit now in Q1?
Clearly, it's still the same opinion as we had a couple weeks ago. It's a delay. We said several times raw material increase over the last months. A little bit unexpected drop in sales in the automotive. In Germany, it's clearly they reduced their production rate. I'm convinced they come back. On the raw material side and with our initiatives and the price increases, we still feel we go back to double-digit growth, over proportional growth in 2019. That's our clear commitment, and we work hard on it. Even if we missed it this year, there is another year coming, and I think today we gonna prove that we gonna deliver the same as we did in the last years.
Thanks.
Yeah.
Just two questions left. The first one is about Parex. You said they are both in refurbishment and new construction, I guess because it's 80% distribution, it's probably the same, 80% in refurbishment. If you can quantify on this number?
It's in also new construction. As you know, a lot of people go to distribution and buy the stuff there. That's what makes also new construction in distribution. It's very often that distribution is for the smaller job site. In many countries, like U.S. or like in France, if they do new construction, they also go to the distributor and buy the products, bring it to the job site and apply. I think they are both and probably also difficult. They didn't measure, they told me the number of 60 refurb and 40 new or 30 new. In this range.
It will not bring up your refurbishment portion of the Sika Group pro forma significantly, correct?
Slightly, not significantly, but slightly. Less than the distribution share itself, but it will increase as well.
Okay, thanks. Last question. I had a look at the history of Parex, which is quite funny, especially before the year 2000. In 2014, I didn't understand there was Materis involved together with CVC. Materis, I think, was a competitor in mortar. Now they are out of mortar, but I'm not sure. They still show up in all of the markets reports on mortar still today, even showing that they are bigger than you. Just clarifying, Materis, is that the mother?
Parex was part of the Materis Group, which was owned by Wendel at the time, together with Chryso and an illuminate business and the paint business. This was basically broken up and the pieces sold and the Parex business was sold to CVC.
Parex is, when there is a market report out on mortar, previously it was Materis then?
Was part of Materis, to our knowledge, there was no other mortar businesses within this Materis.
Okay. All right. Thanks.
Thank you. Just a quick follow-up. Can you just maybe quickly talk about how long this has been going on? When did you identify this asset and when did you start talking to them? Presumably this has been sort of all in the bag before Christmas. The other question is, not sure if you had addressed this already, are there any antitrust concerns from the Parex deal? You need to sell anything?
First step, no. There should be no antitrust in the mortar business. The market is huge, it's very diverse. From this side, not. As we said, we are in the industry since years and we know Parex or Materis since years. When CVC started to bring the company on the market, it's a couple months ago, and then we worked on it and we wanted to close it in beginning of the year. Normal procedure, couple of months work and then.
Thanks. For my follow-up, on pricing and raw material prices. If I remember correctly, you guys were looking at raw material price increase of around 6% for the full year-on-year. How much was it in the end? If you could talk a little bit about the Q4 raw material price evolution, that would be helpful. On the other side of the pricing equation, if I remember correctly, you were talking about 2.5% selling price increases overall for the year. Did you achieve that target or were there any discrepancies? Thanks.
On all the details, it's still very early. Let's say this is not finalized, of course, yet. As I said, the raw material price increase was actually a bit more than that. On the pricing side, we're very much on track.
Okay. Another question. Last one or Please, please.
Yes, thank you for the follow-up as well. One, maybe final one, more on P&L, if you can give an indication of what you expect for interest rate payments, that would be one. The second one is more for you, I guess, Mr. Schuler. How do you plan to lead the company then afterwards when it is in your organization? Who will manage what and who will report to whom and so on? What kind of management integration do you plan? Thanks.
Yes. On the interest rate side, again, long term, this will be dependent on the takeouts. Talking about the bridge, the current financing in place, it's significantly less than 1 percentage point on the full amount.
To the question, how we're going to lead the company, I think we clearly want to be decentralized. We clearly stick to the rule that the local GM and the local organization makes the local business. It's much too early to decide what is the best leverage. We know the company, but now to get the best leverage out of company, we have to sit together. We start now step by step, exchanging, find the right way. What is the best now for a combine? Then if you know what is the best, we then discuss how we organize our afterwards. The principle remains the same, fully authority and fully delegate the power to the front. In the market is the business, is a people business. That will remain the same.
How we structure afterwards, when we have the right set up to make more together, then we will show how we're going to set up.
Thank you. Just maybe a very follow-up point here. Does it mean that when you are looking into general managers of every country, let's take an example, by chance, France. If the best general manager is the Parex guy, you're ready to waive the Sika guy? Do I have to understand it correctly or will you keep a double head?
I think in big companies like where they make CHF 300 million, we don't have to probably put it together. That's not the reason that we put everything together. We can also have two companies working together without structure. We have that in several countries that we have one or two different sales organization, different companies. We don't want to make this internal stuff, who is to sell. We need, if we have two good general managers and we leave two good general managers, they do the job, they do the other job. We'll find out what is the best. In countries where we have one weak and one strong, and it's a smaller company, we take the best. That's the way. We also are a growing company, everybody in this company will have a next job.
Probably not as a general manager, we have many companies, we have a lot of things to do. Yes, probably there will be some change, there is not a structure now. We want to work together, I'm convinced that it's just exciting for a lot of employees to get a new opportunity from both sides. As I said, it's not target to reduce cost, it's the target to build better business. Okay. Thanks a lot for coming. I think exciting, also good to see you. We will work hard on the integration. We will work and stay together with the people, we work on our margin to make sure we're getting it back on track. I wish you a good start in the new year, thanks for coming. Thank you