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. And sorry for putting already at the beginning of the year a fresh on you to rewrite your story which you prepared last year.
So I think we had a quite exciting New Year. Last year, we fight about Songpa. So our team was easy to work together on the news interpretation. So it's very good to be here and have some really positive news. I would like to go a little bit over our transaction highlights.
And I'd like to explain who is Parex, what they do and why we are so excited about the company. Then the rationale. Then Adrian will explain a little financial consideration and then time line and then a 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 manufacturing in mortars and have 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. Then a very strong position in distribution. As you know, we sell a lot direct.
They sell a lot over distribution that really will benefit. And they presented in 23 countries. And in 8 markets, they are really strong. The key benefit for us, it's a strategic fit with a lot of good overlaps, no overlaps. Then combined, GrowEngine, 2 companies really growing fast, and it will boost our position in the mortars very dramatically.
I show that as well in details. And I think we have very strong brands now with Parex and complementary sales channels and the multiplier for our CCAS. And then they are active with the facades in 22 countries. We have 101. So if we can roll out their concept in other countries, we have a great platform to grow.
And on the technology side, they're also very strong, so we can have that. And remarkable for a company, they were sold 3 or 4 times. They still have the same executive team since 10 years. So there were sold 3 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.
And with this team, we worked now the last 2 or 3 months and we saw all the channel manager around the world. We saw the major channel manager. And we're really working with experts. And expert means they understand the business. They are the people.
Even I was always a little bit reluctant to look for sales target from private equity. Here, I think we really have a great model and a great success story. So the management is really on the right side. Financial parameters. As you know, we paid the enterprise value is €2,500,000,000 and we see synergies of around €80,000,000 to €100,000,000 And UBS and Citi is a bridge loan until we find out a solution with Adrian, then we'll 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 are agreed to it, and then we can go step by step. And then we expect a closing around Q2 or to 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 SEK1.2 billion in sales and then EBITDA expected to 0 for around €195,000,000 They have 3 major product range.
1 is tile setting, then one is facade mortars and then waterproofing technical solution. And they are have sales in United Americas, 25 percent and strong in Asia and EMEA, 33%. They have 74 plants in 23 countries, and they have 13 R and D centers around the world. And we gain 4,600 new employees, and we are convinced they have a lot of talent in their group, and we need talent to keep our grow rate. So exciting to have new colleagues.
They have a very strong position in motor solution, and I will go a little bit more in details in that. So on the left side, you see the ceramic tiles with 40%, the facade outside and the waterproofing. They have a lot of nice brands around the world and Dafko is for China. Then they have other brands from Lancore. They have very strong brands.
And the major position they have around the world is in 8 countries. So 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, how you got the feeling, how step forward we have to integrate and work together. Impressive track record. If you see, CVZ bought the company in 2014 and there was no get between.
They are very strong in sales with 7.4% over the last years. And also on the EBITDA, they always grew in a very nice over proportioned way over the 5 years. So this is a great company. They also managed to be a strong player in that and very strong in growth and profitability. So it's a company which well function, and we are proud to have it.
This is a little bit busy slide, but if you look at the left side here, we have 5 major technologies where we have our platform on. 1 is the thermo plastic systems where we have on the roofing system. Then we have the adhesive system, our adhesives where we have also industry and construction. Then we have the admixture concrete system. Then we have the mortar business.
And we have the coating systems with epoxyMT. That's the 5 pillars of our platform where we produce. And we always add different customer groups where we can sell the 5 same technology. If you look now at Parex, they are poorly mortar, poorly mortar company. So if we combine, we get then our 5 pillars.
The mortar pillars really get then up to 20 3 is one of our strongest pillar then. And on the lower side, you see, for example, we are very weak or not so strong in facade. We are not really active there. And facades are outside. We are active more in inside and in the flooring.
And Parex, if you see, they have 34% on facade. So we really go in a new application field, but with the same technology or similar technology. And this gives us the great leverage. So if you look then at the footprint, we have 23% on adhesive systems. The concrete system is then 14%, coating stays by 12%.
Morte will be the strongest than the thermoplastic systems cert. So a very nice strong technology base, which we can work on. And as you remember now, in the last 6, 7 years, you always hear that we build other factories, we push for mortars. And we in 2011, we have €500,000, €500,000,000 Now in 2018, we increased the mortar 18%, 11%. And this is one of the best margin range we have.
So it's the mess. And if you look, we build 11 acquisitions and have 12 factories on this mortar. So you heard a lot about our mortar stories. And 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 footprint. We will be amongst the 3 biggest one and it's tremendous how great platform we can have here. If you look a little bit how we strengthen now the region, I will be add 70% more sales in the Americas, 13% in EMEA.
And it really helps the mortgage sales in Asia Pacific, where we rather have a weak position. Now we got a stronger position, but we have to understand it's a huge market out there, very profitable market. And it's just the question how we arrange ourselves to get more market share and more profit. It's just a question how we do it. And together with Parex, we are now on a very, very strong position.
So if you look at the footprint, what we additional did, we add now 29 new plants in Americas with additional 1200 people. We add 20 new plants in EMEA, which are 1300 new employees and 23 new plants in employees. So if you remember, we always had the target to build 10 to 11 factories during that. So we really have now a footprint which also helps us to in the supply chains, get more market share. So we can produce our products on their planes and they can produce their products on our planes.
So 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. And another great point, which really supports Sitka. If you look at the global market, which explain, the global market is around €70,000,000,000 in this construction market. And the market is divided more or less 50% goes direct sales on the construction side and 50% is distribution. And if you look at Sika, we traditionally always strong on the direct sales.
So today, we have around 61%, 69%, 70% direct sales because that's our DNA over years. And there we are really strong. And since years, you see, we fight to get more shelves, to get more access to distribution, but these old players stay there over years. So it's hard to get access to distribution and we try step by step to push more shelves. And you see, since years, we are pushing.
And now with Parex, they have 8% of their sales by distribution. So it's for us, it's fantastic now. We have now shelf under their names. So we can sell our products now to these channels. And they, we can sell their products now direct to this.
So it will shift a little bit that in together then we have 38%, 40% on distribution and 60% direct. So it's for us strong that we also have more part, more access to distribution. It's one of the great nice things. And then we have also technology difference. As you know, we're very strong in technology mortise, engineered mortise, and they are very strong in facade mortise tile adhesive.
So technology wise, we really can combine the 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. So also they are very complementary. And for example, I would like to go now to 3 or 4 countries to see why we are so excited. For example, in France, they do around CHF260,000,000 mainly our focus on rendering and facade systems. They have a very strong position in the distribution channels with 90% of the sales goes to distribution.
Sika themselves, they have also a strong business there, CHF290,000,000 But we are strong in sealing and bonding. We are strong in direct sales. And we have also some narrative very so in different ways. So together, we are combined €550,000,000 but we don't sell on the same place and we sell for different application. So if we put together our knowledge together with Thornhill and if we switch then the product range and sell our product range to their channels, gives a huge leverage in France.
And also they have found very nice factories, which we can leverage out. So our transportation costs will reduce quite dramatically because we don't have to ship as before because we have much more close white circles. So 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 1 in facade and in the assetting in France. We are clear number 1 in engineered and also in flooring and this. So together, we are a strong company now with €550,000,000 Other example, China, one of the most exciting stories I ever have seen. We have around €225,000,000 business in China, the same setup like we have in France, focused direct sales, technical motors, industry flooring, ceiling and bunding, where they have a very strong position in tile setting and waterproofing. What is really unique in China, the Parex bought a company called Dafco probably 7, 8 years ago in 2006, a total of 12 years.
And they have a unique distribution system. They have they go B2C. They sell direct to the smaller guys. So they have 90,000 point of sales and they have 3,000 independent distributors. Now they have so much strong brand and they're very profitable and they will build up their net.
And now we have to see in China, this all refurbishment. That's for the small guy refurbishment. And 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. And we are very happy to participate.
Now you see they have 3,000 stores only DEFCO products in it. Now 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 these distribution channels, it will be a great, great channels to sell. And we are so convinced that we can help to boost that sales also. And with this 90,000 point of sales and 3,000 distributors and they want to build it up and they can continue. So together, we have a strong position in China with €500,000,000 Strong team. We met the team and strong organization, nice factories.
So for us, exciting story that was probably one of the exciting story I saw in distribution. And we have to challenge ourselves why didn't we do it as well as they did in China, but we have the opportunity to repeat that model now in whole Asia and in other countries. But this model really delivers results. Then U. S.
We are strong in the U. S. We have around €995,000,000 Same setup as in other countries, strong in waterproofing, strong in roofing, industrial force, refurbishment, technical motors. And they have a nice company, €125,000,000 They focus on facade mortise as well. But 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 feel that we can use that for our mortise, for our technical mortise.
And 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. And it's then around €1,000,000,000 in U.
S. So 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 €590,000,000 in Latin America. Same setup, strong in waterproofing, roofing, and ponding. And Parex have around €180,000,000 very strong in Argentina and in Chile and in Brazil. So 3 countries and with €180,000,000 also well said.
So together, we will have the same advantage. They are on the facade, and we are more in the technical motors. They have several factories. We have several factories. So we can have a shorter range, and we can focus now on the distribution and additional sales.
So together, we strengthened our position in Latin America as a clear leader with €770,000,000 We're by far now the strongest player in Latin America in this market. Okay. So 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.
But as I said before, this management is since years in the company. They know the company. Even they came from a private equity and they are experts. And we had great meetings together, so convinced together we really can make a big, big step for the future of Zika. So I hand over to Adrian.
Thank you, Paul. Yes, clearly, a very exciting business, which is also very value enhancing for SEEK and its investors. The transaction is valued at €2,500,000,000 as an enterprise value. And 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 €80,000,000 to €100,000,000 are expected once they are fully materialized.
I will give a bit more detail on how and where these will come from. This €2,500,000,000 does represent an 11.3x pro form a 2019 multiple pre synergies. Once the full synergies are factored in, this multiple will come down to less than 8.5x2019. The transaction will also be EPS accretive from the 1st 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 2 banks, UBS and Citi.
Upon closing, we will also immediately repay the existing senior facilities Parex has in place. And looking forward and going forward, there will be a long term funding over a combination of several instruments. And we will, of course, continue to be committed to a strong investment grade rating and a prudent financial policy. If and we have seen the great benefits this combination the transaction will also further improve the growth and margin profile of Sika. If we look at 2017 numbers, our EBITDA in €17,000,000,000, €17,000,000 On a stand alone basis, Parex will add another EUR 180,000,000 to this.
And together with the run rate synergies, of course, once fully phased in, the EBITDA profile will increase by 25%. And also, the EBITDA margin in this combination will be higher than on a stand alone 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 and then of course rolling out the range to the all the other Zika companies. But 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, and 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, so very significant positive impact there as well. And 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 €80,000,000 to €100,000,000 within 4 years post closing. There will be onetime costs on the transaction and integration cost side. Partially, we have already incurred some transaction costs in 20 18. But together, this will amount to an estimated CHF 70,000,000 over the next 3 years. And 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 ForEx side and there is many other areas like this going forward. Maybe briefly talking about the time line or the tentative time line 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 a common practice.
And it is important to highlight that this is a consultation process and not an approval process, but 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. And once all these approvals are received, we can then move to closing, which is expected sometime towards the end of Q2 or Q3. But of course, here, the time line 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 and A.
Okay. Thank you very much, Adrian. So in a nutshell, what is our thinking is, you saw that SIGCO could grow in the last years, every year performed and performed. And also Parex in the last years performed, performed. If you put these 2 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. So huge potential there. So we will be strongest player in construction chemical and industry adhesive, and we will exceed the sales of SEK 8,000,000,000 this year. It depends a little bit when we can close, But we're on the way to €8,800,000,000 this year, and we really build a very strong, solid 100 countries.
We are really clearly the 1st 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, very strong brand now from Zika, 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 expire. And I think we will enhance to grow on 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 8 countries. 1 was AkzoNobel with 7 countries. 1 was Sarna, which also quite successful with around 13 countries.
So we know how to handle it. I think we are convinced. We have strong teams in both companies in all the countries. 8 are very important. The rest we can go.
So 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.
So we are motivated. We also know that the Parex team is really motivated to join after a lot of private equity, and we have time to work on it. Okay. Thank you very much for coming. Thanks for spending your time with us.
And if there is any questions, please.
Thank you. Good morning. Alessandro Foletti, Octavian. I have a few a bundle of questions on the P and 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?
And then 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, etcetera. But what does it mean also for the products and the value content?
And should they be worried about the fact that they have so much people?
Good. On the depreciation and the CapEx side, if you look at CapEx, it's actually slightly higher than in our case. So I think it's another proof of quite regular investments that was done in the last few years. They built about 16 plants, also kept them very well up to speed. And 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. Now 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 Neville, Reuters. A couple of questions, if I may. Could you just expand a little bit more on the motive for buying this company? I mean, obviously, you outlined what a great company it is. But in general terms, the acquisition is pretty, I mean, is it about going to be more of a consolidator in the construction chemicals industry?
Or do you want is it about making Seeker bigger so that you become less of a target from other people? So you could talk about that a little bit more. And also on the mortars business, why is the mortars business particularly attractive to you guys? Is that got what you said mentioned higher margins. Could you give us some sort of numbers there?
And then my final question is, this is, say, the biggest deal in Seeker's history. Does this stop you making any other big deals? Thank you.
I have to say I forgot already the first question. No, I think why is mortgages interesting for us? If you look at the construction side, Morte is always on the construction side. Our people are on the construction side. The investments to build mortar plants is on a very low level.
It's not a huge investment, but we have a strong technology base. So we learned in the last years that a lot of people makes a lot of money with mortars. And in 2011, we decided that is a very nice field where we were not really focused on. So since 10 years, almost 9 years, I think that's a big growth plan for us. And of course, we want to bring more value to the company.
Grow 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 for us was just the beauty to buy it. And then with the market share and with the presentation, it's great. Want to become 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 Chemical. I think leverage counts in this business. As long as we stick to our 5 or 6 in the moment, 5 core competences, we don't get distracted. We don't get a conglomerate. We get a focused construction chemical company, which sells adhesive.
So as long as we stick to that rule, as long as we delegate our power to the company to the countries, as long as we're flexible and agile in the countries, it's good to grow fast. But we will not buy any of the business which would not fit in this footprint. So we stick with the footprint. We want to grow as fast and as strong as possible. But on that base, that we don't get diluted by distracted by other technologies.
Okay. And then does this stop you making any other big deals?
Oh, I'm glad I can finish this one now. So let's finish this one, make sure we can integrate, make sure we do now the right job. The work starts just now, right, Thomas, for you guys? I go in vacation now. They have to run me now.
No, I think it's we do this one now, and we are aware. It's a biggest 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. So therefore, I think that's a big play now, and we make sure we cut it in piece, we put it and integrate it.
So there will be a
pause on big deals now?
I think it's a pause there, yes.
Thank you. I'd like to I have 3 questions. First, did you speak about this deal with your biggest shareholder, Saint Gobain, which is a concurrent in the Mortar business too? And 2 other questions. Mr.
Wittener, 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 Zika?
Okay. I handle the first one. Of course, Sungabai is a competitor. As you know, We meet them every day in the market, and we compete every day about the job site. So of course, we did not speak to him before the deal, but we informed him yesterday evening that we do the deal and that, course, he's informed.
And 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. But we informed them that, of course, out of freeze, we cannot talk about competitive. So they were informed, but not informed before we signed.
Maybe on the financing instruments and the options. I mean, we have all the flexibility. We have a bridge in place now for 1.5 years. So 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 form a multiple upon then closing, it would be around 3x debt to EBITDA, but with a very strong deleveraging profile.
But this is, of course, any before any sort of takeout actions, which we will do over the next months.
Bernd Brumelind Vontobel. Two questions, if I may. Firstly, on the synergies. Could you please split up about the synergies between revenue 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? And then 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 costs than 20 19, '20?
Will there be anything 2021 as well? Okay.
On the synergies, at this point, we're not commenting on the specific breakdown. But both the cost as well as the revenue synergy will be significant. But you're right in saying that there will not be any synergy derived from major headcount reduction. This is possible. As you know, we want to
do same as we did always. We need that as a growth platform. We want to grow with this. So we didn't buy a company to reduce cost. We did buy the company to accelerate our growth.
And 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. And the rest, if I explained about cross selling, about new product range, So the majority of the synergy will come out of sales, yes. But also in purchasing, we expect quite some synergies.
And one of the expansions, I say, is the supply chain. The transportation costs should really get back because we are closer now to the customer and have more factories to get filled. And this will also leverage if we have more volume in the factories. So there will be some quiet synergies.
And 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, but a larger part will be in 2019 on the transaction cost side.
Jan de Hymn from Bloomberg. Investors seem to have reacted somewhat negatively initially. Why do you think that is? And the second question, are you talking to BASF about buying their Construction Chemicals business?
Well, 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 it's not 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. So I think we will one day get it back.
So I'm convinced there that it's not long term trend. It's probably just the hit we got, okay? As we said before, construction 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. But it's not so that we're getting close to a deal with BASF.
So relax there, everyone.
Martin Hislitzer, 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?
And coming or 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. And then the second one, maybe looking at your earnings guidance for 2018, which was a bit weaker than expected, maybe a miss of about €40,000,000 to €50,000,000 EBIT. If you break this down a bit to raw material costs, maybe integration costs already here, FX effect, what are the major reasons why you didn't achieve the original targets?
Okay. On the breakdown, this is a bit premature to tell. But I would expect, let's say, amortization coming from PPA probably around 3% to 4% of sales initially. Of course, this ratio will then become lower. In terms of steering measure, no, there is no intention to change this to EBITDA.
We will remain with an EBIT guidance going forward. Maybe to the 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. So there is an impact there.
That's clearly one of the main reasons. And then 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 Q4, has reversed. And yes, there is also some onetime costs, not only on the Saint Gobain Resolution, but now related to this transaction in the Q4.
Yes. Good morning, gentlemen. Martin Fluecky, 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 EBITDA and net profit. And so to me, it looks like raw material price pressure, that was well understood, I would presume, by yourself, same on FX. So is it fair to say that the key discrepancy, and I think we're talking about roughly 4 to 5 percentage points in terms of profit growth discrepancy, is that the is the main difference here coming from the onetime costs? Or is it still a combination of all of them?
It's a combination of all, and it's particularly also on the raw material side.
So raw materials in December were tougher than you had expected originally?
That is correct, yes.
Okay. Thanks. And if I can just continue since I've got the microphone with me. Yes, 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, this is a bit dependent on the time of closing. But 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. So there is no difference. Potential going forward as we have potential going forward as we have laid out.
But of course, due to the, let's say, initial investment here, return on capital, we'll see a dilution for the next few years. And initially, it will probably, in a combination, be rather around 20% or between 20% 25%. For the acquisition itself? No, in a combination. In a combination.
In a combination.
Okay. But comparing that to your EBITDA margin guidance, I think you were looking at 40 bps improvement here over, what, 4, 5 years of integration period. What kind of improvement do you expect there? Or is it still going to be a dilution?
Yes. This sorry, now I
Looking at your EBITDA margin guidance, you were talking about roughly 40 bps improvement. ROCE 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 5, 6 years to be at the 20% return on capital on the acquisition itself. So being above that, there will continue to be a certain dilution going forward, but this will become a lot smaller.
Okay. And just talking about your motors business specifically, and I'll 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's quite significant, I suppose. And if I remember Weber's sales correctly, you're going to exceed the size of Weber going forward.
So if you could talk about market share and possibly also how you think your motors EBITDA margin or EBIT margin is going to develop over the next, let's say, 3, 4 years? So what kind of dilution you're expecting initially and how that's going to evolve after that?
On the market share, I mean, the mortar business is a very, very fragmented business globally. So there yes, we will, of course, increase our size. It will probably be around the same size as Saint Gobain, but it's a very large application and then technology globally. So this will not significantly change the pattern there. On the improvement or the dilution, clearly, within with the synergies here, we will get back to, let's say, group average here on EBIT level within 2 years post or 2 full years post closing and on EBITDA level earlier.
Lorna Doenjoski at KB. One follow-up question on your funding future funding structure. You mentioned the possibility of some equity instruments and 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.
Yes. It could be both. And of course, it will be very measured. If you look at the metrics, there is not a lot that would be required here. But again, this will be looked at over the next few weeks months, depending on, of course, also the markets and the optionality we have.
So there is no sort of specific decision taken yet.
Coming back to the funding structure, maybe do you have a specific ratio in mind, your target net debt to EBITDA 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?
Yes. I mean, we're committed to a strong credit rating. That's really the driver to be able to maintain the optionality also in terms of the risk profile. I mean, we're not going to overstretch this clearly, clearly not.
What's your definition of a strong investment grade credit rating? I mean, other companies with a clearly lower rating use this term as well. It's quite undefied. And 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?
Yes. I mean, it is would be A- or BBB plus
So you can imagine to get the hit by 1 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. Okay.
And it will 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. So no clear definition yet? I assume you're in talks with rating agencies as well in order to get that final structure?
Yes. And we also have pre informed then. We're in contact and this will be closely followed. This, of course, is also one consideration.
What is actually the conditionality on other transactions? I mean, this other big word is still a little bit hovering around the 3 digit word BASF. This could also have an impact mid term of whatever on your funding structure. Is this a consideration as well or?
You refer now to the BASF Construction Chemicals business. 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 will take step by step.
But 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. So it's for clear from the beginning that a whole pie of BASF, we cannot do anyhow. So just if you look at the market share, so 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, UBS. Three questions. I'll take them of 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 €80,000,000 to €100,000,000?
Again, one element is when we close there, it's relatively linear going forward by and large, but also depending on the different elements.
And then 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, I mean, what
see in the deck here is the reported figures. I mean, organically, they have been around 6 ish percent. So the acquisition contribution was relatively small, and there was a slight FX negative effect overall. So very, very strong performance overall and very, very similar to ourselves.
Okay. And then for the multiple, you used 11.3%. 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 percent?
There is. One element, of course, is a continued growth. The other one is also that leases will be treated differently in 2019. So this is both included on the debt side as well as on the EBITDA.
Understood. And then 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 to 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 back?
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 of weeks ago. It's a delay. We said several times raw material increase over the last months. Then a little bit unexpected drop in sales in automotive. In Germany, it's clearly they reduced the production rate.
I'm convinced they come back. But 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 clear 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're going to prove that we're going to deliver the same as we did in the last years.
Yes. Yerev Jamiragua. Just two questions left. The first one is about Parex. Can you say they are both in refurbishment and new construction?
But I guess because it's 80% distribution, it's probably the same 80% in refurbishment
or 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. And that's what makes also new construction in distribution. It's not that it's very often that distribution is for the smaller job site, But 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 it. So I think it's they are both and probably also difficult. They didn't measure, but they told me the number of €60,000,000 refurb and €40,000,000 or €30,000,000 so in this range.
Okay. So it will not bring up your refurbishment portion of the Sika Group pro form a significantly, correct?
Slightly, 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. But in 2014, I didn't understand there was Moteris involved together with CVC.
And Materis, I think, was a competitor in Mater. Now they are out of Mater, but I'm not sure. But they still show up in all of the markets reports on market still today, even showing that they are bigger than you. So just clarifying, Materis, is that the mother of?
Parex was part of the Matteres Group, which was owned by Wendell at the time together with Crizo and an aluminate business and the paint business. And this was basically broken up and the piece is sold and the Parex business was sold to CVC.
So Parex is when there is a market that you bought out on mortar is previously was MaTeresa.
MaTeresa, but to our knowledge, there was no other mortar businesses within this MaTeresa.
Okay. Correct.
Thank you. Just a quick follow-up. Can you just maybe quickly talk about how long this has been going on? I mean, how 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. And the other question is, not sure if you had addressed this already, are there any antitrust concerns from the Parex deal? Do you need to sell anything?
First step, no. There should be no antitrust in the mortar business. So the market is huge. It's very diverse so from this side. Not as we said, we are in the industry is in Sears, and we know Parex or Martell is in Sears.
And when we start when CVC started to bring the company in 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. So normal procedure, couple months work and then.
Yes. Thanks for my follow-up. Just 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 year on year. How much was it in the end?
And if you could talk a little bit about the Q4 raw material price evolution, that will be helpful. And on the other side of the pricing equation, if I remember correctly, you were talking about 2.5% selling price increase overall for the year. Did you achieve that target? Or were there any discrepancies? Thanks.
I mean, on all the details, and it's still very early. So I there is no let's say, this is not finalized, of course, yet. And the as I said, the raw material price increase was actually a bit more than that. But on the pricing side, we are very much on track.
Okay. Another question, last one or Please, please.
Yes. Thank you for the follow-up, One maybe final one small on P and L. If you can give an indication of what you expect for interest rate payments, That will be one. And then the second one is more for you, I guess, Mr. Schule.
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. But talking about the bridge, the current financing in place, it's significantly less than 1 percentage point on the full amount.
And 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 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 combined.
And then if you know what is the best, we then discuss how we organize our afterwards. But the principle remains the same, fully authority and fully delegated power to the front in the market is the business is a people business that will remain the same. And how we structure afterwards when we have the right setup to make more together, then we will show how we're going to set up.
Just maybe a very follow-up point here. Does it mean that when you are looking at the 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?
No, I think in big companies like where they make €300,000,000 we don't have to probably put it together. That's not the reason that we do put everything together. We can also have 2 companies working together without structure. We have that in several countries that we have 1 or 2 different sales organization, different companies. So we don't want to make this internal stuff who is to sell.
So we need if we have 2 good channel managers and we leave 2 good channel managers, they do the job, they do the other job. So we will find out what is the best. But in countries where we have 1 weak and 1 strong and it's a smaller company, I'm we take the best. That's the way. So and we also are a growing company.
So everybody in this company will have an extra job, probably not as a general manager, but we have a lot many companies. We have a lot of things to do. So yes, probably there will be some change, but there is not the structure now. We want to work together. And I'm convinced that it's just exciting for a lot of employees to get a new opportunity from both sides.
So 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 see it together with the people, and we work on our margin to make sure we're getting it back on track. And I wish you a good start in the New Year, and thanks for coming. Thank you.