Geberit AG (GEBN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to our analyst conference here in the room and also at the webcast. As you can see, unfortunately, I'm alone today. Tobias Knechtle is unable to be with us today due to a death case in his family. And there are sometimes in life priorities, and that's clear now the priorities with his family and not the conference today. He's fine, all good. He's just not joining today. So I will present today on my own, and the presentation is structured as follows and as usual. First, I will start with an overview of 2022, and we'll then comment on the sales development and now also on the financial results. Thereafter, I will talk about the outlook for the year in terms of market, but also Geberit and then I'll finish with a summary. Let me start with our key figures. 2022 was a very challenging year for Geberit. However, we managed to deliver good results after the record year of 2021. Net sales grew in local currencies by 4.8%. EBITDA declined from the historical record high level in the previous year to CHF 909 million. The EBITDA margin reached 26.8%, mainly due to the unprecedented input cost inflation and delay effects in our industry to pass on prices. EPS increased by 4.7% in local currencies and reached CHF 20.48. We also achieved a significant reduction in relative CO2 emissions by minus 22%, thanks to our new CO2 strategy introduced last year here in this room. The strong cash generation and strong financial position allowed to distribute CHF 1 billion to shareholders in 2022, corresponding to 6% of the market capitalization per end of last year. The Board of Directors proposed a dividend of CHF 12.60 per share, which corresponds to an increase of CHF 0.10 per share. This confirms once again, our shareholder friendly and attractive distribution policy. The year 2022 was characterized by a very different dynamic in the first and the second half of the year leading to strongly fluctuating volumes in the course of the year. Sales volume reached new record levels in the first half due to the ongoing demand from the COVID-19 induced home improvement trend and the buildup of inventories at wholesalers, driven by the expected extraordinary price increases. This environment reversed in the second half of the year with wholesalers starting to destock their record high inventory levels and the COVID-19 induced home improvement trend came to an end. Furthermore, the energy crisis in Europe led to a temporary shift from sanitary to energy-related renovation activities in a selected number of European countries. A key driver for the volume volatility were the extraordinary sales price increases to compensate the historical search of raw material and energy prices. This unprecedented and unexpected volatility of volumes was a huge challenge for operations, requiring enormous flexibility in our plants and logistics centers. Let me therefore briefly comment on the unprecedented cost inflation seen last year and impact in Geberit as well. After raw material prices already rose significantly in 2021 due to the COVID-19 supply chain issues, raw material prices further increased last year after the outbreak of the war in Ukraine. Since then, we have seen only a slight relaxation with slightly declining raw material prices since May, as you can see on the chart on the top. In total, average raw material purchase prices in 2022 were currently adjusted 19% above full year 2021. As a consequence, raw material prices were at the end of last year, still more than 30% above the level of January 2021, so a little bit more than 2 years ago. Obviously, the impact of the war in Ukraine on our energy prices was even more pronounced. You see that on the chart below. After the trough in March, the peak was reached in late summer when the fear of energy shortages in Europe ahead of the winter started to emerge. Our energy prices -- average energy prices doubled in 2022 compared to 2021. The higher raw material and energy prices led in total to an additional cost of more than CHF 240 million. This is more than 30% of the previous year's profit. Thanks to our consequent price increases, we managed to fully compensate raw material prices as of Q3 and to overcompensate raw material and energy prices as of Q4 on EBITDA margin level, as we will see later on. Let me now go into a bit more detail about our various initiatives and business activities in 2022. I start with our customer activities as usual. We focused again on the B2B key decision makers for our business, which are mainly sanitary plumbers and planners, but also bathroom showrooms and retailers, architects, real estate investors and developers. In total, we conducted 461,000 individual customer contacts last year. Typically, that is a physical or a virtual meeting. 461,000 contacts corresponds to almost 2,000 high-quality customer contacts per day. We trained 67,000 customers in one of our training centers, which corresponds to an increase of around 80% versus pre-COVID level 2019. This increase was possible, thanks to newly introduced digital training formats. The number of participants at customer events doubled compared to 2019 and reached 75,000 participants last year across 4,000 events. One important topic was our new piping system flow fit for which we developed a dedicated event format, for example, in Germany with FlowFit on Tour and you see a picture from this event, bottom right. Let me now continue with some marketing examples or some examples of our marketing activities last year. We put again a strong focus on digital marketing tools and activities. In B2B, we concentrated on the further development and rollout of various established tools. For example, our plumber app for professionals providing support on construction sites. The usage of the app is continuously increasing with 750,000 active sessions only last year. We further rolled out our installation calculator, the so-called GIS/Duofix calculator in 4 countries. And we continued to further penetrate our plug-in for the Autodesk BIM software. This plug-in is now used by more than 8,000 professional sanitary planners working with BIM. In B2C, we developed a new lead generation tool, which we have piloted in Switzerland last year and further rolled out our wash place configurator and 3D bathroom planner in European and selective international markets. As part of our physical marketing activities, we rolled out our new exhibition concept house of Geberit last year. We will use this new fair format also at the upcoming global Sanitary Fair ISH in Frankfurt next week. In total, we spent last year CHF 99 million for marketing activities, which corresponds to 2.9% of net sales. This is slightly less than in 2021, mainly driven by the currency development and efficiency gains. We spent 27% of total marketing expenses for digital tools and digital channels. Let me now turn to the innovation and our new product introductions last year. In Piping Systems, we further rolled out our new supply piping system FlowFit in Italy, Belgium, Nordics, Croatia and Slovenia. In Installation & Flushing Systems, we introduced the new concealed cistern Alpha 8cm for the Indian market. In Bathroom Systems, we extended our Geberit ONE wash place offering allowing now for more than 2,000 different wash plays configurations. In our shower toilet business, we introduced the AquaClean Cama in Switzerland, which is the first self-installable shower toilet. Cama is used either as testing tool for end consumers or as a sales product to target the tenant market. Besides this new product introductions, we continued to invest into our innovation pipeline last year. In total, we invested CHF 72 million in R&D. This is slightly below last year's level, mainly due to development of FlowFit in the previous years, which was the largest R&D project in Geberit's history. We have consistently filed a high number of patents over the last years, largely driven by combined innovations behind and in front of the wall. On average, we have 35 new patents per year compared to an average of 20 patents before we acquired the ceramics business. Let me now comment on our CapEx in 2022. CapEx reached CHF 155 million, 8% below previous year. The decrease is mainly driven by the currency development and the delay of a few projects. Overall, 53% of investments were dedicated to modernization and rationalization and 38% to capacity increase. Investments in new products corresponded to 9% of CapEx last year. Let me now give you a couple of examples what we did with the money last year. In Pfullendorf, Germany, we have built a new assembly line for the new Flush valve 212. This assembly line is further optimized compared to the existing lines leading to an excellent payback of less than 1 year. In Ekenas, our ceramics plant in Finland, we invested into a new fully automated high-pressure casting cell for rim-free wall-hung toilets. These investments for capacity of 60,000 additional WCs amounted to CHF 4 million. In Carregado in Portugal and other ceramic plants, we have invested in further automating the glazing process. The new glazing robots will lead to better process control, resulting in an improved yield, better quality and a positive environment impact due to the less glaze consumption. The investment amounts to CHF 4.5 million spread across '21 to '23 with a payback for 3.4 years. As part of our continuous improvement strategy, many other midsized and smaller improvement projects focusing on automation and process improvements were implemented last year. These efforts led to a productivity improvement of 2% last year. This productivity improvement in an environment of extreme volatile and overall declining volume is an excellent achievement and the testimony for the quality of our operations organization, the strength of our processes and the strong relationships with our employees. This brings me to the development of our number of employees. The number of employees decreased slightly by 2.5%, mainly driven by regular fluctuations and the reduction of temporary employees in operations due to the aforementioned volume decline. Again, this demonstrates the operational flexibility in the plants and the logistics centers. In contrary to operations, the number of employees in R&D remained stable while we continue to invest into the sales organization with a buildup of 42 FTEs with the majority of these people outside of Europe for specific sales growth initiatives in various markets. Let me now comment on the sustainability achievements last year. We measure our total environmental impact according to the Swiss impact assessment method for ecological scarcity. This method takes into account all relevant environmental dimensions, for example, energy consumption, water consumption or waste. We have updated the calculation method with the latest set of data from the year 2021. For comparability reasons, we also updated the historical numbers since 2015. Last year, we decreased our environmental footprint in relation to net sales by over 21%. Also on absolute level, we achieved an impressive result. The absolute environmental impact went down by 17%. Compared to 2015, we managed to reduce our relative environmental footprint by 57%. The main drivers were the relative energy consumption, which we reduced by 45% and the relative water consumption, which we reduced by 46%. An important contribution to our environmental footprint is obviously CO2 emissions. Our new CO2 strategy, which we introduced last year delivered strong results. Our Scope 1 and 2 CO2 intensity meaning CO2 emissions relative to net sales declined by 22%. But also in absolute terms, we reduced CO2 emissions by impressive 18% only last year. Compared to 2014, we have been able to reduce the relative CO2 emissions now by 56%, which corresponds to a reduction of 11% per year. Main drivers were the usage of energy-saving technology in our ceramics plants, the sourcing of renewable energy and efficiency gains. Our strong sustainability performance has also been acknowledged and awarded by external experts. EcoVadis, the world's leading provider of business sustainability ratings awarded Geberit with a platinum ranking, its highest rating for the third consecutive year. This places Geberit among the top 1% of all companies rated by EcoVadis and as a leader in our industry. Second, the sixth external stakeholder panel held last year consisting of leading sustainability experts from academia and industry provided a very good feedback and testimony for our sustainability efforts and achievements, especially also for the new CO2 strategy. An important element for CO2 is also our contribution for Scope 3 reductions. Let me give you 2 examples how we contributed to reduction of Scope 3 last year. First, our drainage piping fittings, SuperTube & Solvent, saves space, but also pipes and therefore, material. Less material means less CO2 emissions. The SuperTube & Solvent products sold last year led to a significant reduction of 5,400 tonnes of CO2. The second example is packaging. We reduced the packaging for our hygiene flush product by 35% and replaced the rest with recyclable material. This led to a reduction of 85% of CO2 emissions per unit sold. Inclusion and social responsibility is also an important pillar of our sustainability strategy. We directly employ 230 full-time positions for employees with disabilities within the Geberit Group. Furthermore, we consciously source products and services from workshops, which employ disabled or socially disadvantaged people. In 2022, we purchased an amount of CHF 10 million and supported around 185 full-time workplaces for disabled and socially disadvantaged people. In total, we therefore provide around 400 full-time equivalent jobs for disadvantaged people, which corresponds to around 3.5% of our total workforce. Our strongest effort in terms of social responsibility last year was obviously our support of our 590 employees in Ukraine since the beginning of the war. We supported and offered accommodations for Geberit refugees and their families via our local organization in neighboring countries. At the peak, we directly supported around 100 refugees. We also guaranteed salaried payments, irrespective of business and production interruptions for all our 590 Ukrainian employees. We even made salary payments in advance. And we also provided additional financial support for selected employees and families in Ukraine. After this overview, let me now comment on the sales development in more detail. Net sales achieved with CHF 3.39 billion -- have achieved CHF 3.39 billion, which is 2% below previous year's level in Swiss francs. We lost CHF 234 million or minus 6.8% due to the unfavorable currency development. This is the strongest negative currency impact since 2015 when the Swiss National Bank has given up the minimum Swiss franc to euro rate of 120. In local currency, as already mentioned, net sales grew by 4.8%. The war in Ukraine led overall to a sales loss in Russia and Ukraine of around 1% of group net sales. Compared to 2019, the pre-COVID level, net sales grew by 22% last year in local currencies. Let me now comment on the development in the different countries and regions. We recorded currency-adjusted growth in all of our sub-reporting regions, respectively, countries. Germany, Austria and Benelux grew slightly -- with growth rates light between -- sorry, Germany, Austria and Benelux grew with growth rates between 1% and 4%, slightly below group average. Main reasons were the record-high results in the previous year, stronger destocking effects of wholesalers due to our strong market position in these countries. And thirdly, a shift from sanitary to heating-related renovation activities as of the second half of the year. Switzerland grew with 4.1%. This is a good result considering the currency-related lower price increases in Switzerland. Strong double-digit growth was accorded in Italy with plus 14% due to less stocking and destocking effects driven by the more fragmented wholesaler landscape. And secondly, still some catch-up effects from the COVID-19 lockdowns in 2020 in Italy, which was among the strongest in the European building construction industry. I continue with the European expansion markets. Net sales in Eastern Europe were up by 6%. This is a remarkable result considering that the war in Ukraine led to a loss of around 10% of sales in the region since we also stopped all sales activities in Russia since end of March last year. In the Nordic region, we grew by 5% with growth in all countries and double-digit growth in Finland. We recorded a growth of 4% in France with growth of all 3 product areas. And strong double-digit growth was recorded in U.K., Ireland with plus 14% and Iberia with plus 10%, with strong growth in all 3 product areas and a double-digit growth rate in shower toilets. Let me now comment on our net sales development outside Europe. Net sales in Far East/Pacific were up by 7%, substantially driven by strong growth in India and Southeast Asia, which was partially offset by a slight decline in China due to the lockdowns in Q2. In Americas, net sales were up by 3%, with strong growth in the first 3 quarters and a weaker Q4. Net sales in Middle East and Africa region increased by 21% despite the strong comparison with behind-the-wall flushing systems as a key driver for growth. Let me now comment on the sales development of the product area, again in local currencies. All 3 product areas grew in 2022. Installation & Flushing Systems net sales grew by 2%, Piping by 11% and Bathroom Systems by 2%. The strong development of Piping Systems versus the other 2 product areas was driven by the strongest price increases in Piping, a solid project business and a very good development of the new FlowFit supply Piping Systems. Bathroom Systems were affected by a stronger negative base effect from the home improvement trend compared to the other 2 product areas whereas installation of flushing systems were affected by the strongest destocking effect at wholesalers. I continue now with the financial results. EBITDA declined by 15% in Swiss francs and reached CHF 909 million. In local currency, EBITDA declined by 8%. EBIT declined by 16% and reached CHF 755 million, resulting in a net margin of 22.3%. Net income increased disproportionately by only 6.5% to CHF 706 million, thanks to a favorable onetime tax effect. EPS was supported by the accelerated share buyback in 2022 and thus decreased only by 4%. Free cash flow decreased by 31% and reached CHF 562 million. This decline was mainly driven by lower operating results and an increase in net working capital, which were only partially offset by lower investments. The ROIC decreased slightly to 26.5%, driven by the lower operating results. Looking now within the P&L, at the cost positions, there are 2 major impacting factors: first, the currency development, which had a favorable positive impact on OpEx and second, the massive already mentioned surge in raw material and energy prices. Cost of materials increased by 7.8%, driven by the inflation effects. Personnel expenses declined by 4.4%, depreciation by 4.3%. Amortization decreased stronger by almost 25%, mainly due to a base effect in the previous year related to an impairment charge caused by our brand harmonization strategy. Other OpEx increased by 8.7%. Main drivers were the surge in energy prices. They are recognized in other OpEx, higher freight prices and normalization of travel costs and conscious investments into digitalization. The full year EBITDA margin bridge shows the most important factors that influenced the margin last year. The volume and product mix effect led to a margin decline of 140 basis points. The net price effects were positive by 70 basis points as the sales price increases more than offset the continued increase of raw material prices. However, the surge of energy prices led to a negative impact of 150 basis points and increases in other cost categories resulted in a negative effect on the EBITDA margin of 160 basis points. Due to our strong natural currency hedge, there was only a small negative ForEx effect of minus 30 basis points on the EBITDA margin despite the strong before mentioned currency headwinds. In sum, the record high EBITDA margin of 30.9% in 2021 decreased to 26.8%, partially due to the fact that sales price adjustments can only be implemented with a delay in our industry, meaning it was not yet possible to compensate raw material and energy price inflation last year. While the full year EBITDA margin decreased significantly, the Q4 margin was only slightly below previous year's level. This slight decline was driven by a negative volume mix effect of 650 basis points due to the strong destocking of wholesalers in Q4. Net price effects were positive, increasing the EBITDA margin by 590 basis points now in Q4. For the first time in 2022, this net price effect was positive enough to also offset now the impact of the rising energy costs amounting to minus 60 basis points in Q4. Other costs, excluding energy, had a positive margin impact of plus 40 basis points, mainly due to lower marketing expenses in Q4. Lastly, adverse currency effects had a negative effect on the EBITDA margin of minus 60 basis points mitigated by the already mentioned strong natural hedge. The Q4 margin development shows that the sales price increases have now fully materialized. I'm now turning to the positions below the operating profit. The financial result decreased slightly, mainly driven by higher financial expenses due to higher. Debt with 4.7%, the tax rate decreased significantly due to a favorable onetime effect in relation to the Swiss corporate tax reform. As a consequence of the above, net income decreased disproportionately less compared to EBIT by only minus 6.5%. EPS with minus 4% decreased even less supported by the share buyback programs. However, and as already mentioned, in local currencies, EPS grew by 4.7%. Free cash flow decreased by 31% to CHF 562 million after the record high results in the previous year. Net cash flow from operating activities decreased by minus 26%. The net working capital increased in 2022 due to higher inventory levels and lower accounts payables. Income taxes paid decreased by CHF 50 million. The adverse development of net cash from operating activities was partially offset by lower purchases of PPE and intangible assets. The CHF 562 million free cash flow corresponds to a margin of 16.6% and an EBITDA conversion ratio of 62%. From the CHF 562 million free cash flow, CHF 1 billion were paid out, CHF 433 million were distributed as dividend, CHF 570 million were used to buyback shares under the second line. On the balance sheet, the cash position decreased by CHF 305 million due to the higher distribution to shareholders compared to free cash flow. The higher net working capital is mainly a result of lower accounts payables and higher inventory, as mentioned before. Deferred tax assets increased mainly due to the onetime effect in connection with the Swiss Corporate Tax reform. Total debt increased by CHF 246 million to a little bit more than CHF 1 billion as a result of the emissions of a new bond of CHF 150 million in March and 2 new bonds, a total of CHF 400 million in September, partly compensated by the bond repayment of CHF 300 million later on in October. The decreased cash balance and the increased debt position resulted in an increase of net debt by CHF 551 million to CHF 824 million. The balance sheet remains to be very solid with an equity ratio of 44% and a net debt-to-EBITDA ratio of 0.9. In the course of 2022, we bought back around 1,109,000 shares in the total amount of CHF 470 million. In June, we concluded the share buyback program running from 2020 to 2022, reaching the maximum volume of CHF 500 million. Immediately after, we started the new program, which will run now until 2024 and has a maximum volume of CHF 650 million. Let me now comment on the dividend. For 2022, the Board of Directors proposes a dividend of CHF 12.60, which is an increase of CHF 0.10. This is the 12th consecutive year with an increase in distribution per share. The payout ratio of 62% of the net income last year is in the middle of our 50% to 70% payout corridor. Since 2014, as shown on the chart, the distribution per share has increased by more than 50%. With the current dividend proposal and the ongoing share buyback program, Geberit continues its stable and attractive distribution policy, which has been applied for many years. Therefore, let me briefly comment on our shareholder distribution policy over the last 5 years. Since 2018, Geberit has generated about CHF 3.3 billion free cash flow. This corresponds to an average free cash flow margin of 21% of net sales, 21% of net sales. From this accumulated free cash flow, the amount of CHF 3.1 billion or 95% have been distributed back to shareholders via an attractive mix of dividend payments and share buybacks. In 2022 alone, we distributed, as mentioned, CHF 1 billion to shareholders, thanks to the accelerated share buyback. This corresponds to the 6% of Geberit market share -- market capitalization as per end of last year. I think these numbers confirm the ability of the Geberit Group to generate stable cash flows over a longer period and on a high level, also in terms of crisis and reflect our shareholder-friendly distribution policy. Let me now continue with an outlook on the building construction industry this year. Due to the ongoing geopolitical and macroeconomic uncertainties and risks, we expect overall a challenging environment for the building construction industry in 2023. Challenges, especially for the sanitary industry emerged from the significantly higher price levels and increased interest rate environment. Building permits in Europe started to weaken since the third quarter of last year. Secondly, from the potential pull forward effects driven by the COVID-19-induced home improvement trend over the last years. The third channel challenge comes from the shift from sanitary to heating solution mainly to heat pumps. However, keep in mind that this effect has also limitations due to the ongoing supply chain constraints for specific components for the heating segment and the fact that only a limited number of markets where we are operating are affected. Positive catalysts for the sanitary construction markets emerge from the fundamental need for renovation and for new housing in several European countries. For example, in Germany, with a market requirement of around 400,000 new residential units per year and the upcoming renovation cycle from the last big building boom in the 1990s. A second market catalyst is the structural trend to better sanitary standards, for example, in the context of the demographic change in many European countries. And outside Europe, we expect quite a positive market environment in several emerging markets, for example, in India or the Gulf region. With this market outlook, I come now to the Geberit outlook for this year. The overarching objective this year is to gain further market shares regardless of the prevailing market environment. In the context of the before-mentioned market challenges, we defined for Geberit 2 guiding principles for this year: First, strategic stability and second, operational flexibility. The purpose of these 2 principles is to manage the volume uncertainties in 2023 with a maximum of flexibility, but without harming the midterm potential of the company. This means that we continue to execute on our strategic agenda, for example, the execution of several sales growth initiatives or continued investments into R&D. Short-term volume challenges in H1 emerged from the still existing, however, significantly reduced excess stocks in the distribution channel. Also keep in mind that we faced in the first half of the year, a significant base effect from the record high volumes in the first half of last year when wholesalers built up their inventories. Net sales in January and February were currently just slightly below previous year's level. Regardless of the short-term volume challenges, we will again have a strong focus this year on new products. Let me start with our new wall-hung toilet called Acanto. A key feature of the new toilet bowl Acanto is to further improve flushing technology based on the Turbo Flush technology, which we introduced a couple of years ago. The unique asymmetrical toilet flush leads to a 10x better flushing performance versus what the norm requires. And it ensures a very quiet flushing as well. Furthermore, this new WC is very easy to clean since the design avoids any dirt traps. A key benefit for the plumber is an easier installation, reducing the installation time of 40% due to an integrated mountain bar. An important focus during the development of the new Acanto were manufacturing costs to address a broader market segment with a mid-level price point. To illustrate, the appeal of this new account, I will show you now 2 videos; the first one demonstrating the flushing performance, and the second one showing you the faster installation of this new toilet. Before I start to read you, the picture you see right now, these are 500 balls, which will be flushed with this toilet. The norm requires 50 balls. We do 10x more. [Presentation]

So if you're planning a new bathroom right now, I recommend this toilet or obviously a shower toilet. The second video will demonstrate the installation for the plumber. [Presentation]

A clear benefit for the plumber that will be one of the focus next week on our fair in Frankfurt to demonstrate the plumber that life is much easier if he chooses for the end consumer a toilet of Geberit. Other important new innovations this year. Another one is the new sanitary or flushing module Monolith Plus. The Monolith is a design-oriented WC flushing system and is especially suitable for renovations. The key features are the new lighting concept aligned with the Geberit ONE mirrors, better user experience since the Monolith Plus can be easily activated by touch or even via app. And thirdly, an important feature, an integrated hygiene flush to prevent stagnation in the water systems of your house, which is very useful, for example, for holiday homes. Another innovation this year is the new Flush valve type 208 for slim systems. This new Flush valve saves water, is easier to maintain and is made out of higher-quality material. To strengthen our important actuate assortment, we will introduce a new design-oriented actuator plate, the new Sigma70. This new plate has a minimalistic floating design and offers a wide range of colors and materials. In the area of shower solutions, we will roll out our new shower channel CleanLine50. The CleanLine50 comes in an especially slim design in the middle price segment. It is available in 2 very popular colors; stainless steel and black chrome. Colors are, in general, an important topic this year. An important trend are mud colors, which are requested more and more by architects, but also by end consumers. We're willing to use new mud colors options for a broad range of our bathroom products, for example, Geberit ONE, iCon, the Acanto you have just seen or the new toilet Sela -- the shower toilet Sela, sorry. To address the need for climate-neutral products, we will introduce a CO2 neutral label for mid- and upper ceramic series. For example, Geberit ONE, iCon, Smyle, Acanto. We will fully compensate all Scope 3 CO2 emissions for the ceramics with a high-quality certificate from Myclimate. Besides new product introductions, we will focus on several other levers and sales initiatives this year to gain further market shares regardless of the prevailing market environment. Let me give you 3 examples. First, we will continue to focus on new product innovations, which proved to be an important contributor for growth over the last years. For example, the WC flushing cistern, Alpha, for the markets outside Europe or FlowFit, which we will introduce in France and the U.K. this year. A second example is our focus this year on the full WC cistern to further penetrate the concealed cistern technology and to promote our best-in-class WC flushing performance, as you have just seen before. A third example of our initiatives this year is prefabrication. We will put a strong emphasis on our prefabrication business in the Gulf region to offer efficient solution, while at the same time addressing the bottleneck of qualified installers in these markets. Let me now continue with the Geberit outlook with our investment plans for 2023. Overall, we plan to invest around CHF 200 million, also driven by a few specific large investment projects this year. As already mentioned last year, we will expand our plant in Lichtenstein in Germany where we produce installation frames for concealed cisterns and prefabricated installation modules. In total, we will invest CHF 56 million with a payback of 3.3 years into additional buildings and new fully automated production lines. Completion is expected for 2024. In Pfullendorf, our plant focusing on the production of concealed cisterns, we expand the existing production hall to increase the efficiency for the production of our Filling valves, the Alpha cistern for the markets outside Europe and our new seat production. CapEx for the expansion will amount to EUR 23 million with a payback of 1.4 years and will be completed also in 2024. Due to the strong growth of the new Piping System, FlowFit, we started already last year to add further production capacity in our plant in Rapperswil in Switzerland. The whole FlowFit cistern is fully manufactured in Switzerland. CapEx for this capacity expansion amount to CHF 8 million with a payback of 4 years. In our plant in Langenfeld in Germany, we will invest into new machinery and equipment for our stainless steel fitting production. This will not only improve efficiency, flexibility and lead times but also the product quality due to an improved welding process. The investment amounts to EUR 6 million with a payback of 5.8 years. In our ceramics plant in Carregado in Portugal, we will invest into a new energy-efficient funnel kiln. The new kiln will replace 3 old kilns, resulting in an increased efficiency, thanks to lower energy consumption. The lower energy consumption also leads to substantial savings in CO2 emissions of around 3,500 tonnes per year. We have 150,000 tonnes as total footprint. We will invest in total CHF 8 million in 2023 and 2024 with a payback of 4.6 years. In our ceramic plant in Haldensleben, Germany, we will invest EUR 3 million to enable the plant to run with liquefied petroleum gas instead of natural gas. This investment is a risk mitigation measure to ensure business continuity in case of shortages of natural gas. In Pfullendorf, Germany, we have already started to substantially invest in building a new customer training center. With this new modern building, we will have a training center with 5000 square meters of space. This new facility will allow state-of-the-art training formats as well as exhibitions to best accommodate our customer needs. Overall, we will invest around CHF 33 million in this new customer training center. Completion is planned for the fourth quarter next year. Let me finish our outlook with an outlook for our raw material and energy prices. We expect raw material as well as energy prices in Q1 to be on Q4 level of last year. In terms of personnel expenses, we expect for the full year a wage inflation of around 5% to 6%. Due to the before mentioned overcompensation of raw material and energy prices in Q4 and the expected stable development of these 2 input prices in Q1, we do not plan a further increase of our net sales price level with regular price increase for April this year. Let me now close the presentation with a short summary. 2022 was a very challenging year for Geberit. Nevertheless, I think we managed to deliver good results with net sales above the record year 2021. Main challenges emerged from the unexpected sharp increase in inflation. The strong inflation focused us to adjust our prices accordingly leading to an environment of a unprecedented volatility in terms of volumes in the course of the year due to stocking and destocking effects in the distribution channel. Furthermore, the delay effect to pass on prices in our industry led to a substantial pressure on our margins. However, the plants managed to further improve productivity despite the severe volume challenges, a testimony of the quality of our operational setup. We also successfully introduced new products last year, especially to further rollout of new piping system, FlowFit. Despite a very challenging environment, we distributed CHF 1 billion to shareholders, the highest distribution in Geberit's history. Thanks to our strongly cash-generating business and our financial stability. Finally, the new CO2 strategy delivered convincing results with a substantial reduction of CO2 emissions. Let me briefly summarize our outlook. Overall, A challenging environment is expected for the building construction industry and especially for the sanitary industry driven by the significant higher price and interest rate levels, the pull-forward effect from the COVID-19 induced home improvement trend and the temporary shift from sanitary to an accumulated renovations in a selected number of European countries. Positive catalysts emerge from the fundamental demand for renovation and new housing in many European countries, but also the structural trend to higher sanitary standards and a positive outlook in several countries outside Europe. While raw material and energy prices seem to remain on a high level, at least for the first quarter, wage inflation will be significantly higher this year. Our target this year is again to gain further market shares regardless of the prevailing market environment. This is based on various initiatives as outlined before, for example, new product introductions and 2 guiding principles, strategic stability and operational flexibility. Short-term volume challenges in H1 emerged from the still existing, however, significantly reduced excess stocks in the channel and the base effect from the record high volumes in the first half of last year. I think Geberit is very well prepared to also master the uncertainties emerging from this environment as already demonstrated several times during the past. Our confidence is based on the fundamental need for our products; our, I think, proven strategy and resilient business model; our renovation and efficiency focus; and last but not least, our motivated and lean organization. Based on these fundamentals, we have delivered industry-leading results since the acquisition of the ceramics business 8 years ago with an annual currency adjusted organic net sales growth of 5.2%, an average EBITDA margin of 28.7%, an annual current adjusted EPS growth of 10.9%, an average free cash flow margin of 19.9%, an annual reduction of relative CO2 emissions of minus 11% and an industry-leading number of 35 new patents every year. Based on these fundamentals and results, we are convinced to continue to achieve our midterm targets of an average annual net sales growth in local currencies of 4% to 6% and an average EBITDA margin level between 28% and 30%. With this, I'm at the end of the presentation. On this slide, you see as usual, our financial calendar, and I'm now happy to take your questions.

Remo Rosenau, Helvetische Bank. Did I understand you correctly that you do not plan to implement a further price increase on top of the ordinary price increase in April or you don't plan to do any price increase in April.

It's a bit complicated. I understand the question. So first of all, we did an extraordinary price increase as of January, just to repeat that, in selected, with an effect of about 1.5% as of January. What we do now in April is we will have in select countries a price increase on the list level, a regular price increase, but we expect -- the rise is a small one, but we expect that, that will be given back with rebates and bonuses this year. So on a net sales level, we do not expect an impact of this price increase as of April.

So basically none.

So for the financial modeling, don't assume a price effect as of April. That's the key message. Technically, it's a bit complicated, but don't expect a price effect as of April.

Then the adjacent question to that, what is the spillover effect of the price increases you did already up to January and in Q3 and in Q4 going into Q1, Q2.

So the total price effect we expect this year, including the 1.5% in January and spillover is 6% to 7%. That's the number we already communicated in our first information in January. That didn't change. 6% to 7% that we expect for the full year.

Okay. Then my last question is you mentioned this volatility in the volumes. And many other companies told -- said the same that if you have a stable low volume, it's much easier than volatile volumes, i.e., that creates extra costs. I mean, could you kind of quantify what these fluctuations did on your P&L -- versus if the volumes had been stable, lower.

I can't give you a sharp answer to that. But I think what you can take maybe as a reference, our productivity improvement. The productivity improvement, obviously, is tempered by volatility. The more difficult it is to have productivity improve. And as I've shown you before, the increased productivity in the plants last year by still 2%, normally it's more 3.5%. So I would say this difference from 3.5% [ down turn ] to 2% might be driven by the volatility. But having said that, 2% productivity improvement, I think, is a huge achievement of our organization with this volatility. So that's the closest quantitative reference I think I could make, what the impact was on the results. But still a very good results, as I mentioned, a 2% productivity improvement. Mr. Arnold.

Christian Arnold, Stifel. Just on the pricing. So this 6% to 7% that includes no price decreases? You don't foresee price decreases at this point in time, excluding these rebates you just mentioned.

No, you're correct. It doesn't include any price decreases. You also not -- at the moment, to think about any price decreases.

Okay. Where would you -- I mean, potentially where would be the highest risk for price decreases in terms of markets or product lines?

I wouldn't have a clear opinion on this question, not from a regional perspective but also not from a product perspective. But we obviously are doing since a couple of weeks, months, we're always checking -- is the price point at the right level? While we are losing kind of volumes in terms of -- and there, that's more quality feedback, we believe we are fairly priced. Because if you take the last 2 years, that's the reason I have shown you the chart over the last 2 years, raw material prices are up 30%, 35%. Energy prices are still up something like 150%. Wage inflation plays now into row, comes maybe -- if you add last year and the last year before, 8%, 9%. Freight prices, we didn't talk about that and also up last year, by the way, by 3. So if you add that all up and then you look at our price increases, which were cumulative around 20% over these 2 years now [indiscernible], that's basically a fair balance or that compensates more or less. So from a financial perspective, I think it's fair. And as long as we don't see that we lose kind of market share, we will stick to these price levels.

Okay. Could you just remind me on the energy bill for '22 versus '21?

The '22 we had CHF 102 million in energy costs. That's 101% higher than the previous year, which was 56%. The 101% is currently adjusted. That's the reason why it doesn't match. So we have now last year 3.0% of net sales were energy costs.

Okay. And maybe last question for the time being. I mean you accelerated your share buyback program or strategy some years ago actually. And you were, at that time, you were telling us that you feel comfortable with a net debt-to-EBITDA ratio of 1x. And you are reaching this one time, I think 0.9 at the moment. Are you -- do you feel comfortable to -- I mean, have the same speed in the share buyback program going forward, maybe going above this onetime net debt to EBITDA? Or do you see here some limitations for share buyback programs?

I don't want to give an indication too much looking forward in terms of our share buyback program. But I'll give you an answer in terms of the net debt-to-EBITDA level, we are now in this comfortable [ wholesale ] of one, that could even be a bit higher to be honest. I think we could afford a little bit more. But obviously, we will look -- the opportunity must be good as well. Therefore, I wouldn't exclude that it goes up a bit more. We could consume that easily, I would say, our balance sheet as well.

It's Andre Kukhnin, Crédit Suisse. I want to start to talk about the market share gains that you cited during 2022. Could you give us an idea where you gain share geographically or maybe across the product lines?

I have to be honest, I'm bit struggling talking about market share last year because we had so many stocking effects. Therefore, I am a bit reluctant to answer too precisely this kind of question. I think it's more important to look at the 3-year period or 2-year period. And that's why I mentioned before, our sales last year were 22% above 2019 level. Obviously, there's a significant price effect in there as well. But if you take this number, you deduct it up pricing, we have clearly gained market share. For the last year, it's a bit difficult because you have this very stocking effects therefore I'm a bit reluctant to talk about 2022.

Can I extend that question to the last 2 years, then if you could talk about last 2 years, where there's market share gains were most pronounced?

Honestly, I would say more or less in all the countries. In terms of product categories, I've -- that's also very difficult because the tailwind of the market was different for the different product categories. Obviously bathroom system was more benefiting from COVID-19 than, for example, piping. On the other hand side, piping, we have seen with profit, which is above our expectations now in the third year starting now. There, I think we clearly gained market shares with profit. Therefore, in average, I don't have a number, by the way, I would say it's roughly also equally distributed.

And regarding the stocking and destocking effects during 2022, the destock in the second half, was it all related to the inventories that were built during first half and into that large price increase as of, I think, it was first of July? Or do you think there was inventory being carried into 2022 already at an excess level from '21? I'm just trying to understand for 2023 the restock, destock effect, is it neutral because you kind of build stocks during 2022 and then destocked? Or was there a net negative effect in 2022, that should be in 2023?

It's the second one. It started already late in the second half of 2021. Also less driven by the price increases, but more driven by the strong demand and the supply chain issues during COVID-19.

And last one, sorry for nitty gritty, but that BIM module that you mentioned for the Otodesk with 8,000 users, it's obviously where the construction industry is heading is to kind of Industry 4.0 or Building 4.0. Is there any way to assess what that yields for you? Is there a kind of average purchasing per user per annum that you can see there versus the non-BIM users or something like that, another KPI that we can track?

To be honest, no. We don't have -- I know what you mean. We don't have a kind of a KPI relating that to how much that turns into sales. We don't know. The reason is the planner landscape, is extremely fragmented. You don't have add it to your 4 planners in Switzerland, you have thousands and 10,000 in Europe. Therefore, it's too fragmented to have kind of this conversion rate. We don't know.

Stefanie Scholtysik, Mirabaud. I have a question on the first 2 months of trading this year. Can you give us some sense on how volumes developed in the first 2 months? Was it the same magnitude as you've seen in Q4?

So the sales, as I said before, were slightly -- sales were slightly below previous year, so a bit less worse than what we have seen in Q4, where we were down minus 7.6. The price effect, I don't know if you had the numbers, but the project, I would assume is roughly the same in January and February than what we have seen in Q4. So therefore, the volume decline is a bit less severe, obviously, than Q4.

An additional one on your share buybacks. Now you have like this 1 billion in distribution in terms of -- with share buybacks and dividends. would you expect that this is the new normal? Especially also given that you have already used most of you -- 650 million share back program in place. So actually, I've only left 360 million, would you then consider to increase the dividend substantially to -- get to this 1 billion distribution? Or was that just an exception?

Yes. So 1 billion -- to declare the 1 billion as the new norm for coming years, I think that is a bit too enthusiastic. I think that will not be the case. So we always try to find a balance of mix between dividend and share buyback. For the dividend, I think it's important for us to have a certain stability. Stability means for me, but also an increasing trend. That is the reason why we increased the dividend by CHF 0.10 this year to have a -- also a track record of increasing dividends. And the rest is then the kind of part where we can breathe depending a bit on the share price development and there, I can't make a clear guidance what we do. The current program runs and most of that will be finished in 2024. I would assume, but same to as Paribas, we will launch another one.

Alessandor Foletti, Octavian. I have 2 questions, if I may. On the mentioned shift of tonality to heating. Can you be a little bit more specific which countries are impacted? And also, what does it mean temporary if you can.

The first one is easier, the second one is more difficult. So number one, it's basically -- the main countries which are affected are Germany, Austria, Netherlands and Belgium. These are the most prominent countries at the moment, because of their gas dependency and also subsidies. Now these are the 4 main countries where we believe this effect is the strongest at the moment. The second one is difficult because it depends also how fast the heating industry is capable to deliver these heat pumps. And as you all know, I guess, it's a huge supply shortage at the moment. The second one is that they also struggle with the fact that there is a bottleneck of plumbers. So therefore, having a feeling, the only thing -- I know it's temporary, at a certain point, it will be over. And at a certain point, sorry for my simple language, you need to toilet again. It's a bit black and white now, but I just don't know exactly how long it is. And it's not that black and white. It's not that people are buying toilets at the moment. Does this effect, how is a temporary period?

And do you have an idea how -- what's the sort of the headwind.

No.

Right. So let's move to the next one. Just we don't speak much about these countries, the Nordics and also Eastern Europe, et cetera. So far, they have been very good for you. I was wondering if you can be specific on the outlook, particularly the Eastern Europe. I think the inflation there has been quite high. So I wonder.

Maybe I can comment on Geberit outlook better than on the market outlook to be honest, because I think that is quite difficult. On the Geberit, we have specific initiatives, for example, in Eastern Europe, but also Nordics a bit different to to grow and to outperform the market. One important initiative in both of these regions is basically still to promote our concealed cisterns. The Nordic market is still what we call so-called floor standing toilet market. It's still -- the large majority is floor-standing toilets with a visible cistern. Also, we are selling many floor standing toilets, converting this market more and more into a concealed cistern work, which is a more attractive sales level and important and more attractive margin though is one of the initiatives. Similar initiatives are running in Eastern Europe. That's one of the big levers in these countries. Another one, just to add maybe because you asked about Nordic, we introduced FlowFit last year in Nordics. Nordic is already from that point of view an advanced market that it is already a pressing market if it comes to supply piping systems. I said already advanced. And there, we are using FlowFit now to gain market shares against other repair systems.

Can I add another one on the ceramics business. A couple of years after you acquired Sanitec, I think you mentioned in this environment a couple of times that you have picked out 1 plant, I think, in Germany, where you wanted to sort of analyze scientifically the production process of ceramic to industrialize it on a much better level. I'm kind of interested to know what happened from that one, where you stand and we see also some investments now that you're doing? Can you give some indication what's going on there?

And typically for science, it's never finished. So we are still working on the scientification, but that will still an important initiative. We call it the scientification of ceramics manufacturing process. We have built up not only in this plant now we have also built up in the headquarter, a small little team to drive this process of this scientification. And it's an ongoing process. We are making progress. For example, the yield rate which you see coming out is improving more and more, but that will be a never-ending story. So there's still many years to go. But we are happy with the initiative. We think we did the right thing or we are doing the right things. And out of that, many investment projects are coming out. For example, the new tunnel kiln in Carregado is also one not only, but it's also one of the drivers was also kind of the scientification initiative. Maybe I jump briefly -- maybe to the -- maybe make first room. Mr. Flueckiger.

I've got two actually. And I'd like to come back to your trading update for January and February. Now the -- the volume decline. Is that -- do you think that's down to wholesaler destocking again? Or are these other effects? Is this underlying? I'm just trying to figure out what -- whether it's just noise or whether it's a new trend or force coming into play. That's my first question, and I'll go one at a time.

I think there are 2 drivers. One is the base effect now, that's what I mentioned before. We have now the strong base effect from last year. And the second one is -- the majority of the overstocks were stock per end of the year. There's still something left, and I think that's the second driver in January, February.

Okay. Great. And just on the profitability side. I realize you're not providing an EBITDA margin guidance for '23. But...

We didn't do that for 22 years.

And not until..

We never did that at this point in time.

Yes, exactly. But I'm just curious on -- in terms of your EBITDA margin bridge, what are the expected driver is going to be for the so-called other cost effects. I mean at the end of the day, I realize it's all -- it's -- a lot of it will depend on volumes and net pricing and so on. But -- one -- let's say, category of effects people like ourselves are having some difficulties in assessing -- is this other cost effect block. And I was just wondering whether you could provide us with some color on that, what to expect.

So the 2 important drivers also this year to think about the other costs and the impact on the EBITDA margin are energy prices, that's part of energy cost, of other costs and personnel costs. These, I guess, will be the 2 most important drivers. For the personnel cost, I gave you an indication of what we expect around 5% to 6% wage inflation. And energy cost, to be honest, I don't know. These are, I guess, the 2 major because the other part are not a large part, is marketing cost that I would assume is more stable, plus-minus. Therefore, the 2 big drivers in terms of variance this year for other costs will be personnel costs, wage inflation and energy prices.

Okay. I realize energy price is difficult to forecast, but let's just assume that they will be constant at the current -- at the current level. What does that imply for the year, do you know?

If you check -- I think they would be more as I said on -- previous year's level we have this graph because you look at the share at one of the last slides, the outlook of energy prices. There you see in red, our Energy Price Index 2022. And if you make now a straight line now from today where we are, what you expect for Q1, I didn't do the math, but I think that is maybe average, I don't know.

But that looks like they're going to be down.

I don't know actually.

That is Slide 51.

I don't know. Waiting place also or maybe. I don't know. Mr. Husler?

A question to the German market. According to a survey in the sanitary sector, it looks like that the mood in Germany is on a very low level if you compare it to heating and other sectors. I was just wondering whether you see something like this? If you talked to installers or to architects, that the mood is really that bad? Or what is different in reality than if you look at surveys such as those?

Honestly, I don't look too much into service, to be honest. But one element, what we hear also from our customers, and that's what he's referring to what I said before, if you talk about sanitary, that is more under pressure than heating for the reasons we talked about before. I think that is definitely one of the sources from these kind of surveys. Obviously, what you also hear is that this -- what we call home improvement trend, which has been over since the second half of last year. Obviously, that is also fillable for plumbers that they see certain renovations or bathroom topics, which have been started or initiated during COVID-19. That is still -- that is a way, so that's maybe a second choice. Maybe on the positive side, we still hear that the order books are quite well filled at the moment. It's not that they don't have anything to do, also, for example, as you're referring to Germany now, I think, Germany. I think also there, the order books are still quite okay. But nevertheless, as I said before, the building permits for new build came down for residential as of Q3 and also into November -- sorry, in October and November. That maybe is the third source or third reason for this more negative sentiment in this survey.

Maybe an add-on to that. There will be this very large fair in Germany, ISH. Usually, do you see kind of a huge demand after the fair and beforehand a bit of a reluctance?

No. The only thing that we see is huge cost. No that doesn't -- that's not that our industry is not working like that. Thats no. Obviously, investments, not costs, meaningful. Mr. Rafaisz?

Patrick Rafaisz from UBS. Maybe 3 more questions, one on innovation and the Cama system in AquaClean that you're rolling out. Obviously, price points significantly lower, right? Then for regular shower toilets makes sense, different the rest of the markets. I get that. But how big can that become versus the traditional shower toilet business? And is that in any way related to the double-digit growth in U.K. and Iberia you were referencing?

No, it's not. And then Cama is not a tool to generate sales, a little bit provocative. The primary target of Cama is to have a testing opportunity for end consumers. So the idea is not to sell that larger. We do that in Switzerland for specific reasons, because in Switzerland, we have, first of all, we have a higher penetration of shower toilets. People know better what it is. and you have jurisdiction that 50% of people are tenants, they're renting an apartment. And there, it's obviously very difficult to install a shower toilet because you're not allowed, basically, it's the owner. So it's not a sales article. It's a marketing tool. And therefore, I would not take that into consideration in terms of double-digit growth or a significant contribution. The idea is basically telling you in the room, every one of you, please test it for 4 weeks. You can by the way -- and you send it back. And hopefully, afterwards, you buy a shower toilet. That then contributes double-digit growth. Marketing tool, not a sales.

Okay. Understood. And then on the sustainability improvements and the charts you showed around the environmental impact and CO2 emissions, big improvements in 2022. We also showed the historical performance. And I think we talked about this in the past, but can you remind us for Geberit, excluding Sanitec, what kind of rates of improvements in terms of impact and CO2 have you achieved? Or was it also Sanitec?

Honestly, I don't know. I'm not even sure if we had on a CO2 level such a detailed reporting. What happened when we acquired Sanitec, our environmental footprint, also CO2 missions went up by a factor of 5 roughly. And I think your question is in the direction -- is that all coming now from Sanitec? I would say it's a disproportional part from Sanitec because 80% of the footprint is from ceramics. Therefore, I would say it's also a large part. But I don't have a reference number, to be honest, before it -- beforehand.

And then the last one, just circling back to the EBITDA bridge 2023. And I realize you won't give any quantification, but -- if you look at the bridges you've showed for the full year 2022 and for Q4, right? We get a sense of the magnitudes of the volume impact, maximum that we could see H1, assume nothing more in H2. We get a sense for pricing net of input costs, right? And then other costs can be up or down a bit. But I mean, there must be substantial tailwinds on the margin this year.

Just one comment to this comment. Personnel costs, 5% to 6% is part of other costs. And secondly, raw material prices still have, in the first quarter, a negative impact. Since again, coming back to Page 40, what was it? Thank you, 51. You will see that in the first quarter. I don't know what happens in the rest of the year. Raw material is still higher than previous year Q1.

So Q1 probably still a bit softer in terms of margins, right? Because the gross margin was already up in Q4, first time since Q4 2020? But EBITDA margin is still down, so probably a similar picture. And then we should see improvements then after that.

The problem of your common statement is you have to make an assumption about the volumes. And this is the challenge.

Okay.

Maybe from the -- just the [ indiscernible].

Just coming back to the volumes. I realize it's super difficult to make any reliable predictions at this point in time. But just big picture, do you see any change in dynamics or drivers between H1 and H2? Because we -- if we look at building permits, particularly Germany, right? And in the second half, they softened pretty significantly and particularly towards the end of the year. And if I remember correctly, I think at the last call, you said that the lead time was between 9 and 15, 18 months, something like that, depending on the product category. Now if we take the average of that, say, 12 to 15 months, it looks like H2 is going to be impacted the most by the building permit declines that we're seeing in some important markets. Would you say that's going to change the dynamics at the overall picture in terms of volume developments between H2 and H1 for '23? Because right now, we still have this destocking noise and some of the tough comps from last year. The comps will get much easier in the second half, right? Particularly in Q4. If I remember correctly, volumes were down 20% in Q4, and I think high single digit in Q3. So yes, just coming back, big picture, different dynamics in volumes for H2 versus H1.

So the only thing I know is the past, and the past is that we have a stronger basis, had much stronger base effect in the first half of the year than in the second half of the year. That's what I know for sure. All the rest is speculation.

I have an add-on question on the installers in Germany. Can you share with us what's the current backlog in terms of weeks?

Nothing new. That's again the same number as I've shared with you in January. It's at 16.7 weeks, if I remember correctly. That's the same, no new information. Yes, Mr. [indiscernible].

Just a -- maybe a curiosity, but I saw on the projects that you -- investment projects that you mentioned, and I appreciate the fact that you put down paybacks for every single one of them. But one you didn't write is the customer center. Still a CHF 33 million investment, but has no payback. I was wondering if you can tell me why and what's the difference and how to measure the payback on investments?

It's very simple because that's like the same problem with marketing. You never know exactly the payback. If anyone is able to calculate the payback of a marketing activity, I will be very happy. It's very difficult to say. It's obviously a very long-term investment. A reference which I take to the CHF 33 million we invested. If you look at the market capitalization of Geberit, what is it? CHF 18 billion? I don't know, CHF 16 billion, you know, CHF 7 billion. And when you look at the book value of Geberit, the difference, a large part of that is brand and customer relations. So it's an investment into this -- into these assets, all so to say. And that if you compare the CHF 33 million to this, whatever, CHF 40 million -- CHF 40 billion, sorry, value market, then it seems to be relatively low. That's the closest I can go with numbers, but you never can calculate the payback of a customer center of a marketing in general.

So maybe you can expand a little bit more there. So how many of these customer centers do you have? And how many do you think you need?

We have worldwide around 29, 30 customers, obviously, smaller ones. This one will be the biggest in Germany, it's the biggest market. It's significantly bigger than the one we have currently there. It's not only bigger, obviously, the standard is much better. The existing customer center, which we have in Pfullendorf is, I think, roughly from the 1990s, something like that. So it's relatively old as well. We'll be significantly bigger. It will be the biggest, obviously, in the group. Third, we have worldwide. So in all the companies where we are, where we have a certain significance in terms of grow -- size and also in our organization, we have basically a training center. Mr. Pomrehn.

Bernd Pomrehn from Vontobel. You achieved impressive efficiency gains in the last years really year-by-year. And obviously, we are a lot concerned about energy costs regarding especially U.S. ceramics business, do you think the low-hanging fruits have been picked? Or do you even believe that you could accelerate energy savings, energy efficiency motivated by the high energy prices in the next years?

I'm confident that we are able to continue to deliver productivity improvements. I don't think there -- we have had low-hanging fruits, which are gone now. Specifically to energy, I don't know, to be honest. But in general, I'm very confident that we are able to deliver also in the future coming back to the ceramic plans to what we talked about before the scientification of the manufacturing process. I'm confident that we will deliver. If it's always driven by energy, I don't know. That'll be -- maybe direct cost.

Do you have some energy still? Because we have a lot -- we have a lot of questions here, a long list of questions. So let's start First question from Matthias Pfeifenberger from Deutsche Bank in Germany. Which activities are planned to growth with higher momentum outside of Europe? Do you have strong brand recommendation? Is there a transformation process to get this recognition outside of Europe?

So one of the big initiatives outside Europe, not new, but an important one coming back to the Nordic example, by the way, is promoting the concealed system technology. That is an ongoing initiative out of Europe. We have developed this new Alpha system. I mentioned a couple of times now. This is a dedicated product -- compute system for the markets outside Europe. We didn't -- we don't sell that within Europe. But maybe more examples, specifically for this year. We launched a new initiative in North Southeast Asia, so headquartered in Singapore, where we promote, you might remember the new super tube system, which we have launched. It's a product, optimizing the hydraulics of high-rise towers. 3 or 4 years ago, we have now dedicated initiative in the region. We build our people, I think, 8 or 10 people dedicated to a couple of cities even in the region to promote this optimized drainage pipe system. That's just an example now for this year. Obviously, market by market, there are different ones, maybe other example is China. In China, retail is very important. Showrooms are very important. The large part of the market is driven by end consumers deciding for their bathroom, that we have a dedicated initiatives which is addressing the showroom presence in China. We are now in around 60 showrooms presence, dedicated average showrooms run and managed by customers in China, just as 2 specific examples this year.

Okay, then. Three questions from Daniela Costa from Goldman Sachs. Working capital seems to be at a much more elevated level than in prior years. And despite the uncertain volume situation in the industry in 2023, you talk about pushing new products strongly. Will this means -- we await WC levels are likely to stay above normal for longer?

Net working capital...

No, no, no. She was asking, will this mean WC levels are likely to stay above normal for longer because of the net working capital? That was my understanding of the question.

I think she means net working capital sales longer. Not the net, Okay. Sorry. Okay.

Otherwise, we have to reask her.

So maybe I briefly comment why net working capital went up over the last 12 months. Basically, it went up by -- because we increased inventories, but to be fair, inventories last year have been on a relatively low level. We still have these supply chain issues due to COVID, so raw material levels were relatively low. The second reason why net working capital went up, and then you mentioned -- went up. Was it's just inflation? Don't forget that, price increases obviously have also an impact on inventories. If we increase 20% the prices, they're also 20% higher. So in volume terms, it's not that much. And we also, in our furnace, build up some safety stocks for specific components at the moment in the inventories. I don't think that we will have a systematically higher net working capital in the future than compared to last 5, 7 years in terms of volume.

Okay. Second question regarding the buyback. You seem to have an accelerated buyback? How quickly can you complete it? Or do you consider increasing the cash amount distributed over 2 years?

No, we have -- as we said, we have defined that it's a maximum of CHF 650 million. We have defined the end date in June 2024. Might be that we are finished a bit earlier, could be. And as I said before, most probably we will than just launch a new one.

Okay. Then last one. When you say you intend to keep margins at the high level in 2023, is that consistent with your 28% to 30% EBITDA margin guide medium term or levels below that would be considered still high margin?

It's the second one. That's not a statement with regards to the 28% to 30%. But I would consider also in all fairness, without being arrogant, also 28 -- 26.8% I would consider as a high margin. which is not any guidance for this year. I just want to say the margins are high. Just keep in mind, sometimes we have to repeat that maybe we are, by far, the highest margin business in our industry. So that's what this meant with keep high margins. It doesn't have any reference to 28% to 30%, talking about 2023.

Okay. Then the first question from Cedar Ekblom from Morgan Stanley. Outlook for R&D spend, how should we look -- how should we think about this translating into growth and share gain? How will this impact the percentage of products, which are younger than 5 years old?

So in terms of cost outlook, that's not the question, I guess, the R&D cost we expect to be relatively stable also in the future as you have seen also before in the past. The question was a different one is how much does that turn into new products after into sales? It's a significant share every year of new products contributing to sales growth, which is a significant part, new product defined about the last 4 years. I don't have yet the number to be honest from last year. We will calculate that. I will share that with you as soon as we have the number, but it is a significant share. So we need new products and innovations to constantly also grow and outperform the market.

Okay. Then the next one from Cedar Ekblom. How do we think about the drivers for free cash flow generation in full year '23 working capital, CapEx, financial costs and taxes? And to the extent, free cash flow cannot fund dividends and the buyback would get rid -- be willing to gear the balance sheet slightly to growth total cash returns?

So the first question is extremely difficult, to be honest. Free cash flow forecasting is extremely difficult. Also last year, we had, for example, a big impact from VAT payments, which you still know. It's also a very difficult to forecast tax payment. So honestly, I don't know. I don't want to make any forecast for free cash flow in 2023. And the second question depends on the market development. As I said before, we are ready to distribute more than the free cash flow as we have shown last year. We have also the capacity in terms of balance sheet. But we have also the opportunity to decelerate the share buyback programs. It's basically the lever which we have. So I can't give a clear statement to the second question. It depends on the market development -- and I mean the share.

Then the next one from George Speak, BNP Paribas Exane. Could you give an indication of what percentage of the piping division is FlowFit? How has that changed over time?

Obviously, growing substantially from 0 to still a small number. It's still a small number. I don't want to share the number for competitive reasons, but I can share with you that we are clearly above what we have planned for. We are now year #3 of introduction. We are clearly above. We invest CHF 8 million into capacity, gives you maybe a reference in terms of sales volume. It is -- I mentioned that already a couple of times, if you would be a pharma company, we would talk about a blockbuster, but we don't share the number.

Okay. Another one to piping. Many of the group's piping applications, including FlowFit can be used in heating and cooling solutions as well as sanitary applications. Can you give us an indication of what the group's exposure is to heating solutions, and the extent to which this could offset reduced demand for sanitary solutions?

I don't have the number in mind to be honest. It's obviously only part of piping. I don't have the number in mind. So it's definitely double-digit percentage of piping, but I can't remember the number, to be honest. It's a smaller part. And the larger part is sanitary [ installer ]. The smaller part is heating, but I don't have the number in mind, sorry.

Okay. And next one from George Speak. Relative to January, has wholesaler destocking happened faster or slower than you expected?

Difficult to say. As you know, we can't measure it. It's all qualitative. I would say, rather not, but that's difficult to answer. It's -- we hear less and less put it that way -- this way. We hear less and less from wholesaler, that destocking is a topic. We hear, there and there. Now we have normalized orders not yet. The speed of destocking may be similar than before.

Okay. Then 2 questions from Yves Bromehead from Societe General. Can we extrapolate the Q4 personnel expense costs as the norm for 2023, ex inflation? Or do you still need to adjust your fixed cost base in light of another challenging volume environment in 2023?

We do not adjust our fixed cost base in terms of personnel. That's exactly what I mean in strategic stability. In terms of personnel costs in the plants, we try to be flexible. That's the flexible part. For example, with temps. But in terms of fixed costs, personnel thing in R&D and sales, we have no plans to adjust that.

Then the second one, can you comment on your own inventory levels, given the increase in '22? And whether we should expect some impact of inventory reduction in early '23 to get you back towards more normalized levels? And how does this impact your pricing decision if demand is much lower than anticipated?

As I said before, one of the drivers of the higher inventory, don't forget that is the inflation. That's one of the drivers, which pushes up inventories. At the moment, we have a good inventory level. If volumes will come down, obviously, we would reduce that a bit. But I wouldn't put that too much effort into thinking about our net working capital, inventory levels throughout the year. I don't think it's the big driver and the big question for this year.

Then questions from Marta Bruska from Berenberg. How did you assess the degree of possible market cannibalization of your existing shower/toilet business by the launch of the self-installed shower toilet, which is probably order of magnitude cheaper?

Again, I think that refers to the question 4, that's a misunderstanding. It's not to cannibalistic. It's a marketing tool to push the existing shower toilet business. It's not a cannibalization, not at all, by the fact we only introduced in Switzerland so far.

And related to the same question, do you think that launching a do-it-yourself type of shower toilet could put your relationship with installers at risk?

Yes. That's the reason why we don't do it.

Then a question -- just a moment. A question from Pierre Rousseau from Barclays. On volumes, could you give some color on the latest trends that was already done? And on destocking, in particular, any particular differences by country? Some of the volume performance over 2020 and 2022 was driven by market share gains. Do you see significant changes in competitive dynamics this year?

Five questions. Destocking, I think there are 2 companies from a [ share revenue ] perspective, where we have seen less stocking, destocking effects. One is Italy. Driven by the fact that in Italy, the wholesale landscape is much more fragmented. So this means you have smaller wholesalers. Smaller wholesalers have less opportunities to play the stocking game. Therefore, we have seen less stock buildup and less destocking. And the second country where the stocking effects were a little bit less pronounced is Switzerland. But that was straightened up because of the landscape that was driven by the law of price increases because that's the other lever, which gives you an incentive to build up stock and destock. So these are the 2 countries I would mention in terms of geographical comparison, which have the most different behavior in terms of stocking and destocking.

And then a technical question following the Swiss tax reform. What is your expectation for the effective tax rate in the next few years?

We expect for this year a 16% to 17% tax rate. And as of next year, 17 -- sorry, as of next year 2024, 18% to 19%, and that will prevail.

Then questions from Christoph Dolleschal from HSBC. Can you please be more specific in which markets you especially -- specifically plan to gain market shares?

No, because it's everywhere. Otherwise, we will not be there. Seriously we plan -- we have plans. Obviously, initiatives vary country by country, product mix are different, but the goal is obviously to gain market share in all the countries.

Okay. Then the next question from Illya Lebedynets from DBS.

Maybe I add some little color. Obviously, the amount of market share gain, what we expect that differs country by country. We have, as you might know, we have -- we distribute our world into 3 geographies. One is what we call the mature markets. These are the German-speaking countries, Benelux and Italy, Central Europe. Then, we have a strong market position. Obviously, the market share gains, which we are aiming for are lower in these countries because of the high market. The rest of Europe, that's another 30% of our business, what we call European expansion markets. The word says it, expansion means higher market share gains compared now to the mature markets. And the third region, what we can call the emerging markets outside Europe, there are obviously even more market share gains because we are so much on the penetrate.

Okay. Then Illya Lebedynets from DBS. Further staff reductions or other restructuring measures in sight?

We don't have put in place any restructuring measures, not last year and also not planned for this year. That's the meaning of the principal strategic stability.

And regarding R&D, given the strong investments in the past, is it the new run rate now?

It didn't change, [ thats because ] you have seen it just slightly -- in other words, the last couple of years, it was a little bit more but we talk about small, millions -- number of millions per year, really small, driven by FlowFit, but that's really relatively small and then we plan to have more or less the same level of R&D spend going forward.

Then a question from Arnaud Lehmann, Bank of America. Could there be any rebates on the January price increases? Are you confident to improve margins in 2023 with positive price effects and more stable input costs?

I'm confident that we have been able to implement this around 1.5% net price sales effect as of January. I'm confident that we have achieved that.

Just a moment. Seems to be an acoustical problem with a statement from you. I did not hear why the debt level increased a bit. Could you please comment on this, please?

The debt level increase because we have launched some bonds. Maybe -- and we used the money for the share buyback, basically, because we distributed more than free cash flow.

And again, I think acoustically a problem. Can you please confirm your comments on the slight decline in January and February is the same range of decline as the minus 7.2 experienced in Q4? Or is it only a low single-digit decline?

I think I talked about that before. It was a slight decline. It was less severe than the 7.6% in Q4, minus 7.6%.

Again, from Cedar Ekblom, considering the R&D spend has not increased significantly in the last 7 years, Slide 10, and is likely lower in real terms, how confident can we be about innovation lifting growth over the medium term?

Very confident. Technically, it's also a little bit of currency effect, by the way, as well, but problem.

Okay. And then the last one so far from Karim El Khoury from Contrarian Capital London. Are you considering potential acquisitions to reach expand your brand portfolio or geographic reach?

Nothing changed in terms of M&A policy or strategy. We will not exclude smaller bolt-on acquisitions, but there are no plans to do larger scale transformation acquisitions.

Then i am done.

That was fast. In the room? There's one. Arnold.

I read you -- SAP 4HANA project was successfully rolled out in November. Any impact there on '22 numbers, which moves the needle in our model? And could we expect something for '23?

Thank you for this great question because we changed our SAP system of November to S/4HANA from Friday to Monday. The project worked perfectly. Everything worked Monday morning normally. No issues, no problems. Zero. No impact on numbers anyway. And I think thank you for the question because sometimes you forget how important these things are. You know -- you all know, without SAP, nothing works anymore. Managing these kind of projects, we don't see that in the numbers. It's absolutely essential for the success of a company. And we are very proud to be honest, and I'm very proud of our IT organization, being able to do that absolutely seamless. So no impact. You don't have to think about it, which I think is great. We don't have to think about it, but it's a great achievement of the organization.

And then maybe another question on your CO2 footprint reduction target, which is now also part of your strategic target in '21, I think. Does this limit anything on your product portfolio, meaning thinking about ceramic portfolio that you have to think that maybe you should not push too much of ceramic products because that would basically increase your CO2 footprint?

I think, no. On contrary, I think this gives opportunities to us versus other ceramic players because we have the ability -- the capability to invest into this lowering CO2 footprint of ceramics, it becomes more and more a topic. Ceramics will be the material also in the future of a bathroom. There are no signs at the horizon that there are completely alternative materials. So there will be a CO2 footprint. So I think it's about an opportunity for us if we can position ourselves in terms of CO2 reducing with our products. And that's the reason why we have introduced this label. It's not a big lever. This label for the premium here is also to show to the customers -- we still have a footprint maybe for many years in terms of CO2 emissions for ceramics, but we are compensating that and we are constantly working on reducing it. I rather see it as an opportunity, to be honest, than as a threat. Okay, this is it, I think. Thank you very much for the participation. And as usual, you're invited at least in the room for a little lunch afterwards. Thank you.