Geberit AG

Good morning, ladies and gentlemen. I am the entity operator for this conference. Welcome to the Gaborit conference call on the half-year results 2020. Please note that for the duration of the presentation, all participants will be in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. This call must not be recorded for publication of broadcast. At this time, I would like to turn the conference over to Mr. Christian Buhl, CEO, accompanied by Mr. Roland Ich, CFO, and Mr. Roman Wiedler, Head of Corporate Communications and Investor Relations. Please go ahead.

Thank you for the introduction. Good morning, ladies and gentlemen, and welcome to our conference call on our Q2 results. The grid delivered very good results during the COVID-19 crisis in the second quarter. Let me start with the key statements. the APDA margin reached in the second quarter previous year's level despite a substantial decline in net sales of minus 16%. The resilience of the margin in the second quarter led to an increase of 70 base points of the APDA margin in the first half of the year and reached 31.5%. The APD's margin reached 26.3% almost previous year's level. The net income margin decreased slightly by 1% in the first half of the year to 21.4% due to an increased tax rate and a weaker financial result. Before we discuss the financial results of the first half of the year, let me briefly summarize our sales results which we already communicated on July 6th. Net sales in Swiss francs decreased in the first six months by minus 98%, driven by the COVID-19 crisis and a negative currency development. In local currencies, net sales decreased by 4.5% in the first half and by minus 10.7% in the second quarter. The negative COVID-19 impact on demand varied substantially by geography, depending on the degree of the local lockdown. In markets where construction sites were closed around 20% of our sales exposure, volumes declined substantially or in some cases even collapsed in the second quarter. These countries include Italy, France, Spain, the UK, India and South Africa. The remaining countries were also impacted by lower construction activity imposed by COVID-19 restrictions. which led to a sales decline in Q2, however, much less pronounced. Let me now comment on the operating and financial results in the first half of the year. APTA decreased under proportionally compared to net sales by minus 7.8% to 452 million Swiss francs. The APTA margin reached 31.5%. Despite the net base decrease of minus 10%, we were able to increase the APK margin by 70 basis points. The main drivers for this margin improvement were soft and targeted cost containment measures, a heightened, even further, increased flexibility in production and logistics to cope with the substantial decline in volume, lower armature prices, and increased sales prices. It is worth to mention that these results were achieved without restructuring, salary cuts or support from the public sector, for example through short-time work. The public support from short-time work was minimal, since we consciously decided to introduce short-time work only very selectively and for a very short period of time in France, UK and Italy, the countries which were most hit by the lockdown. The negative currency effect of minus 5.3% on net sales in the first half of the year had only a minor impact on the ABDA margin due to our strategy and our continued efforts to achieve a natural currency edge. AG decreased in the first six months by minus 10.5% to 386 million Swiss francs in line with net sales, leading to an EBIT margin of 26.3%, 25 points below previous year's level. The slightly weaker development of the EBIT margin versus the FDA margin was driven by higher depreciation costs from higher investments in previous years. Net income decreased by 13.9%, slightly disproportionally to EBIT, to 350 billion Swiss francs due to a higher tax rate driven by the new tax regime in Switzerland effective as of this year and the weaker financial results in 2012. Earnings per share decreased by minus 13.5% to 8.77 Swiss francs, positively affected by the share buyback program. In the first half of the year, 262,000 shares have been bought back under the program launched in June 2017 and an average share price of 406 Swiss francs. In total, 1,026,000 shares have been bought back since 2017 for a total consideration of 440 million Swiss francs. The share buyback program has been finished in April this year according to plan. Free cash flow decreased in the first half of the year by minus 32% to 174 million Swiss francs. This over-proportional decrease was driven by two factors. First, a negative base effect with an extraordinary strong free cash flow in the previous year when free cash flow increased by 35%. And second, an increase in network capital due to the strong data dynamic within Q2, starting with a substantial decline in April and a recovery towards the end of June. In order to leverage the low interest rate environment and the strong debt capacity of our balance sheet, we issued in April a standard Swiss franc bond in the amount of 300 million Swiss francs with a maturity of two and a half years and a coupon of 35 basis points. With this, Gabrit remains to be very solidified. By the end of June, we hold a cash position of 350 million Swiss francs and an unused revolving credit facility of 500 million Swiss francs. Let me now comment on our outlook for the remaining year. Let me start by saying that ongoing uncertainties around the COVID-19 crisis make an outlook still very difficult and uncertain. Accordingly, our outlook is subject to uncertainties and based on the assumption of no lockdowns or material business restrictions driven by the COVID-19 pandemic. Let me start with the current business performance. In July, safe to a slightly above previous year level, driven by stock rebuilding effects of wholesalers in countries which were severely hit by the lockdown, for example in Italy or in France. Under the adoption of no COVID-19 imposed lockdown or material business restrictions, we expect in the second half of the year further normalization of the building construction industry. However, delayed or stopped projects, especially in the non-residential segment, and the temporary closure of custom showrooms in the second quarter might have an increasingly negative impact on demand during the second half of the year. Under these assumptions, we expect curtly adjusted net sales in the second half of the year to be slightly below the second half of 2019, and an ABA margin for the full year slightly below 2019 level. The weaker outlook for the ABDA margin in the second half of the year compared to the margin increase we achieved in the first half of the year is driven by three factors. First, generally increasing costs again due to the normalization of the business after the sharp decline in Q2. For example, the marketing or the relief of the higher increase. Second, raw material prices, which started to increase again since June, and tougher comps from lower raw material prices in the second half of 2019. And thirdly, a higher wage inflation, since several tariffs increases this year become only effective as of the second half of the year. Let me close. Our introduction with a short summary. The last couple of months were marked by a historical business collapse in terms of speed and extent. However, it delivered very good results. First, our supply chain was not materially affected by the COVID-19-imposed restrictions, and the availability of our product assortment was ensured. The stability of our supply chain was largely driven by our strategy to pursue a high degree of vertical integration in manufacturing, decreasing the dependencies from suppliers, and our strategy to source and to manufacture locally, close to our customers in our end markets. Secondly, we were able to maintain our industry-leading profitability on previous year's level, He signed the unprecedented collapse in volume in the second quarter, and this without restructuring efforts or support for the public sector. Lower raw material prices helped, but were not the main driver. The main reasons for the strong profitability were a half and consequent crisis management based on short decision-making processes and the lean organizations. the continued investment in further automatization and process flexibility over the past years, and finally, the flexibility and the high commitment of our employees based on good and trustful relationships between employees and management. This unprecedented crisis reveals the fundamental strengths and resilience of our strategy, our business model, our stability, and our strong company culture. key assets during times of crisis. Thank you for your attention. We are now ready to answer your questions.

Ladies and gentlemen, we will now begin our question and answer session. If you have a question for our speakers, please dial 0 and 1 on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it is your turn to speak, you can dial 0 and 2 to cancel your question. If you are using speaker equipment today, please lift the handset before making your selection. One moment please for the first question. And the first question is from Andre Cogman, Credit Suisse, your line is now open, please go ahead.

Good morning. Thanks so much for taking my questions. I wanted first to follow up on your raw materials comment with stock prices increasing and obviously the comps that we see from last year. Do you expect G3 raw materials to be up, down or flat year on year or sequentially?

The second follow-up I had is on your comment on July sales development. Would you say you'd still be up year on year X, the restocking effect, if that's possible to quantify at all? I don't know. I can't answer that because I can't quantify the restocking effect.

Okay, fair enough. And the main question I have really is about emerging stronger on the other end. As you said, this is clearly a demonstration of resilience. And we see your R&D flat year on year. Your IT personnel is up year on year, as you say in the statement. Could you maybe talk a bit more about what is in the pipeline, what are you working on, what is there that we can expect from Gebert over the next 12 months in this kind of digital efforts and product introductions and how you'd expect that to influence the performance?

We did not make any compromises on our pipeline. Therefore, we are on track with new product introductions which will come to the market next year. But for obvious reasons, I do not want to go into detail about our innovations next year, but we will have important and significant innovations in all areas where we are active next year.

And if I may, anything kind of specific to post-COVID? Are you working on introducing new products to... to address the kind of touchless, frictionless trends that we see emerging. Is that something that you can also look forward to at the ICH?

Sorry, can you repeat the question? It was difficult to understand.

Sorry, I was asking specifically if you have products, new products in the pipeline that respond directly to post-COVID trends that we see emerging, which is more touchless operations, more frictionless buildings, And is that something that is also in the pipeline?

Not only in the pipeline, we have it actually already in the assortment. We have already today touchless products, for example, to washing toilets, but also in the area of faucets, electronic faucets. And we have seen a substantial increase in demand already over the last couple of weeks and months, driven by the COVID-19 crisis for these touchless products. And of course, also in the pipeline, we have further demand products coming in the area of top-set actuations.

Got it. Thank you very much.

The next question is from Martin Huesler.

Yes, good morning. I have a couple of questions. First of all, turning to slide number 10 on your presentation, I'm surprised by the strong positive effect of all the costs which was plus 0.7%. I think in the first quarter it was a minus of 0.2 or 0.5. What were the main drivers? You mentioned some on a high level, but maybe a bit more detail. And what should we expect for the second half of the year?

There are two main drivers. for did good development of all the call for number one the fact I'm holding a good and cost-containing measures for example in marketing for example in every situation some of them were to cheat because they were not able to travel for example and all the very conscious division which we took to adapt our organization very fast to the new market reality that is the first bucket and the second bucket is the flexibility many of our personnel in plants and logistics. We achieved a high flexibility driven by temporary workers, but also a flexibility of permanent staff in the plants. For example, by location planning or using the flexibility from flex time models, which we have in place in the plants, the logistics. In some of the plants, we even increased the flexibility during the crisis in alignment with the employee percentage.

okay thank you and maybe adding to that you were mentioning that in the second half you envisage wage inflation I was just wondering whether there is no room to renegotiate with employees because of the economic environment and the pressure on wage inflation shouldn't be that high in this state of environment?

I give you two answers. The first answer is no, there is no legal room, because that is negotiated by the tarifa bender with the company representatives. We do not have any influence. and by a certain coincidence this year made in Germany the tariff increases happening more in the second half of the year than in the first half of the year. My second answer is even if we would have the flexibility we would not start to regressionate our wages in the second half of the year if we have seen the results this organization and these employees delivered especially in the second quarter.

Okay, well understood. And the very final question, the amortization of immaterial assets was a bit higher than I was expecting in the second quarter. Any one-offs there, or is this now the run rate for the next couple of quarters?

No, there was a one-off of 4 million in that line item, linked to a small impairment.

Okay, thank you.

And the next question is from Charlie Finenbach, AWP. Your line is now open. Please go ahead.

Good morning, gentlemen, and thank you. Can you give us an idea of your expectations of the development of the demand in Germany and in Switzerland in the second half? And the second question, I have a corona situation. Nothing changed on the situation with the lack of capacity of installers in Germany. And last, is still planned a new share-back program to start it in Q3 or Q4, or you have other ideas yet? Thank you.

Regarding the demand in Switzerland and Germany, we are fundamentally talk to you for the second half of the year, for the humanity of the countries. However, as I said before, also in these countries we have seen that certain projects have been delayed or even postponed in the second quarter that might have more negative impact in the course of the second half of the year. The second question is around the bottleneck of installments in Germany. The bottleneck came down in April quite substantially. as we already talked about in July, and started now to increase. In July, the order backlog came back again. It's actually at 11.8 weeks, still somewhat below previous year's level, but substantially higher than during the lockdown in April and May. your third question around the share buyback program. We have announced that we will launch a third program. It is prepared. It is mandated to a bank, and it's expected that the bank will start the share buyback program in the course of the second year. Thank you. The second half of the year.

The second half of the year. This still means Q3 or Q4.

Exactly.

Okay, thanks.

The next question is from Van Tommering. Van Tommering, your line is now open. Please go ahead.

Yes, good morning, gentlemen. Three questions, if I may. Firstly, can you share a little bit of your view on some developing markets where you are active, like Middle East, South Africa, and India? Obviously a little bit more difficult usually to track for us. And secondly, can you quantify the additional IT costs for your digitization initiative in the first half? And then finally, CapEx was just slightly done in the first half year. Is this also your guidance for the full year? Thank you.

The development in the emerging current countries is still quite challenging. In India and South Africa, it's visible that it's much more difficult that these countries are coming back to a normal level. As I said before, in July we have seen quite good sales, again in Italy and also in France, for example, driven by restocking effects. South Africa and India are still striking much more. The second question, additional investments for the digitalization efforts this year is 15 million for the entire year, but I can't state it in the first half of the year, the second half of the year. I do not know the exact figure. And question number three, Roland, is always a little bit volatile. Between the quarters, the guidance for the full year is 160 million.

Okay, excellent. Thank you so much.

And the next question is from John Revell, Reuters. Your line is now open. Please go ahead.

Good morning, gentlemen. A couple of questions, if I may. You say the second half of the year is slightly below last year's level. Can you give us any kind of quantification on that and any kind of numbers on how much below you think it will be below last year's second half? That's my first question. And then the second one is, you are seeing some kind of recovery in markets I cannot quantify how much we believe that the sales level in the second half year will be below previous year's level.

and the second question also there it's difficult to give you a comfortable view but I think there's one observation which we have seen over the last month it might be that it's also the case for the second half of the year that in general weaker economies OBVIOUSLY WITH WEAKER HEALTH SYSTEMS ARE RECURRING MUCH MORE SLOWLY, MORE SLOWER THAN OTHER COUNTRIES. AS I GAVE FOR THE EXAMPLE, ITALY FRAUDS ARE COMING OUT RELATIVELY FAST. ON THE OTHER HAND INDIA, SOUTH AFRICA ARE STILL VERY MUCH STRUGGLING, THE U.K. SOMEWHAT IN THE MIDDLE.

And the next question is from Christian Arnold . Please go ahead.

Good morning, gentlemen. I have a follow-up question on the raw materials. In your introduction comments, you said that you expect some higher material prices in the second half, which is one reason why EBITDA margin is going down in the second half, according to your guidance. You then said that Q3 actually sequentially increasing, but year over year, we still have a positive impact. So that implies that in Q4, you expect quite a harsh increase in material prices year over year. I mean, is that correct? And could you give us here some more flavors in terms of which material prices you expect to increase quite substantially in Q4?

In terms of materials, we expect a stronger increase, especially from the industrial metals, because the spot prices for industrial metals, aluminum, copper, zinc, they are basically all back to the level of the beginning of the year. Obviously, we have not seen that yet in our purchasing prices, because there's a certain delay. But also on the plastic side, we have seen an increase in prices, not as severe as in the industrial metals side. And for Q4, we do not have a clear view of the Q4 raw material prices development, obviously. But don't forget that last year in Q4, raw material prices were already stable again versus Q3.

OK, thank you. Second question I have is on the personnel costs. Usually Q3 shows quite favorable pattern when it comes to personal costs versus sales. Do we expect a similar pattern, a normal pattern, or do we expect something completely different given the fact that you had, yeah, you asked for flexibility of your personnel in Q2?

I would expect a pattern which is not too different from what we have seen in the past. But what you said is correct. Some of the flexibility used in Q2 will probably harm us in Q3, so the positive effect we have from taking vacation might be a little bit lower this year than in the past. But it's very difficult to assess right now.

Thank you.

And the next question is from Alessandro Follettin. Octavian, your name is now open. Please go ahead.

Yes, good morning, gentlemen. Thank you for taking my question.

I have one, again, a follow-up on raw materials, and I'm sorry I have to go back to an issue related to the Q1.

I looked up all my notes and I didn't find the answer. I remember in Q1 you mentioned that there was a one-off in the raw materials And can you remind me what that was? And then, particularly, if this one-off remained a one-off, or if it continued in Q2? Just understand a little bit better that element. Thank you.

So you're right, we had a one-off effect on the raw material product in the first quarter that was made through by projects within production and logistics, growth harmonization, and growth improvement. It's a positive effect on the robotic product, which was only a Q1 one-time effect, so it's going to have an effect in the rest of the year.

All right. Thank you very much.

The next question is from Martin Flickinger, Kepler Chevroo. Your line is now open. Please go ahead.

Good morning, gentlemen. Thanks for taking my question. Just one, actually, because all the others have already been touched upon. I was just wondering what your impressions and observations particularly have been over the last couple of weeks with regards to wholesalers' order patterns and with the indication or the the guidance of showroom effects being expected for H2. I was just wondering what you've seen on the ground and whether it's more Q3 or more Q4 when you expect those showroom effects to take place and in which countries too. Thank you very much.

The most important behavior of wholesalers impacting our business at the moment is obviously restocking effects that we have seen already in June in the countries which were less affected, for example, Germany, but also Switzerland. And now, let's say, we delay in the countries which were really affected by the lockdown in Italy and France, as I mentioned before, with the good sales development in July. With regards to the impact of the showroom closures, that's quite difficult. We do not have a clear view, also not clear indications from wholesalers how big the impact could be and how fast or when it actually should come. But there's one agreement, or what we hear from the wholesaler is that it is a negative impact and not always be a positive impact. It's very difficult to quantify and very difficult to define the timing, or refine the timing of this effect.

OK, thanks.

And the next question is from ,, Morgan Stanley. Your line is now open. Please go ahead, ma'am.

Thank you very much, and good morning.

Could you please give a bit more details on the trade in receivables, please? We see a large increase. Is that purely due to timing or COVID sort of and recovery, or should I expect it to go back to normal level, or is that the new norm? Thank you.

No, that's not the new norm. It has to do with the seasonality within the second quarter. The recovery we have seen starting mid-May until the end of the quarter, you can see that in the EBTA, it's already in the results, but you don't see it in the free cash flow, i.e. it's still sitting in the accounts receivables.

Great, thank you. And the next question is from Frida Egblom, Northern Stanley. Your line is now open. Please go ahead.

Hi, gentlemen. Two follow-up questions from me. On the raw materials, can you give us a little bit of an indication of how important industrial metals versus your plastics raw materials are in terms of the mix? Is, you know, the industrial metals 20% of the mix, 30%? Maybe some broad guidance there would be helpful. And then just for my understanding, can you explain why showroom closures in Q2 can be an impact to wholesaler volumes in, say, the end of Q3 and into Q4? How does the order processing actually work? I would expect with the showrooms now open again, the wholesalers come back. Is this just a case of having a very long order book at wholesalers, so it takes time for this to falter through? That would be helpful. Thank you.

The raw material split is around 40% metal oriented, industrial metal oriented. 35% of our raw materials are plastics, commodity plastics and special plastics. And about 35% is obviously the rest, packaging, electronics, components, rubber parts, etc., furniture. To the showroom question, first it's important to mention that in many countries where we are operating, the showrooms are operated by wholesalers. That is true for Germany, Austria, Switzerland. And secondly, there's delays because you as an end consumer, you choose your product in a showroom and then you take some time until your project starts, maybe even the house building starts and then it's later on, the sanitary equipment is required and that leads to a timeline to actually ordering and then the wholesalers and delivering from the wholesalers.

Okay, that's helpful. Thanks very much.

ladies and gentlemen, as a reminder, if you would like to ask a question, please press 0 and 1 on your telephone keypad now. The next question is from Remo Wodermal, Hewitt Fisher Bank. The line is now open. Please go ahead.

Yes, thank you. During tough times, the market leaders should actually be able to gain market share probably more quickly than usual. Do you have any indications yet that this is actually happening right now, and also looking at the ceramics business in particular? First, I think it's a bit too early to talk about market share gains. It's a couple of months now. I feel quite comfortable that we are able to gain market share and I think we have some indication because some of our competitors have not been able to keep open their plans. There were some delivery issues in timing players but also in ceramic players and we did not have and we made use of that. So most probably that means that we are doing better at the moment than competitors. okay so this might also be you know a marginally positive impact in the second half of the year and next year I think the closure of plans of competition I would say no because these plans are open again but I think now it comes more into play that we did not restructure that we did not cut any R&D budgets that we did not reduce our sales force for example in Italy our sales force was never in short time work so I think these more longer term oriented measures during the crisis will now help for the rest of the year next year to emerge stronger than competitors from this crisis exactly great thank you welcome and we have a follow-up question from Alessandro Politti your line is now open again

Yes, sir. Thank you for taking a follow-up.

Maybe going already a little bit in the direction that Remo was talking about before, but if we forget a little bit about COVID, we have been speaking about that for six months now and looking into more normalization and so on. What kind of growth rates would you expect to envisage in the next or maybe intuitively expect in the next month and maybe next year because of course we also see building permits not growing so much anymore but then again you know economic activity will pick up so if you try a mental exercise to sort of normalize business what kind of organic expectations would you would you then envisage thank you you know there are too many

Well, it's too many assumptions in your question. I think it's still too early. Of course, if the economy normalizes, it has an impact on us as well. It's not too much uncertainty in this question. Obviously, I will not give you a positive figure. I think what we have on our label, we have, of course, different scenarios. We have different macro scenarios. whatever scenario will happen we will not change fundamentally our management position be it strategically be it operationally therefore we do not spend that much time on thinking about the different scenarios because we basically do anyway the same thing and that is much more important all right then we speak about it in the next quarter

and the next question is from Manish Periyam, Societe Generale. The line is now open. Please go ahead.

Hello, yes, good morning. Congratulations for a very good result. So my first question is on raw materials, so how much the raw material price declined in Q2 as well as in the first half. The second question is, I mean, there you said there is a time lag between the raw material price development and the impact on your profit and loss statements. So can you just highlight, I mean, what is the general time like between the raw material price development and the PNN impact? The third is I wanted to know, you said you did $160 million buyback in this quarter. So what was the average buyback price, I mean, for this buyback? And also wanted to understand, because you are going to do third buyback. program. So is there, is this just an opportunity like you just do, like if you have the cash flow and you do the buyback or you take a call on the share price, I mean, if the valuation is right to do the buyback. So what is the process behind, I mean, just the cash flow availability or also, I mean, and consideration that the company is cheap and things like that?

First question, raw materials in the first six months were down by 3.5% compared to the first half of the year 2019. If you compare the second quarter of this year with the first quarter, raw materials were down by 5% sequentially. Your second question was, can you repeat the question briefly?

So you say there is a lag between the raw material price development in the market and the P&L impact. So how much is the lag?

That is a very big mix within the raw material price zippers. And we have some of them that are relatively short-term because we are not hedging. So we have monthly contracts for other materials. It's quarterly, even all year. So we do not have an exact figure, a weighted average timeline figure I can't provide you. So it's something between one month until six months, selectively even yearly prices. And the third question about the share buyback The share buyback program, fundamentally, we want to have a mix of dividend payments, an attractive payout policy, and also, secondly, giving back the money via share buybacks to the shareholders. It's not driven by the actual share price. It's always a delegated mandate to the bank when we define its volume and the time frame. and no operational decisions. And I have to correct myself. Sorry, the minus 5.1% I mentioned before in terms of raw material prices was Q2 2020 versus Q2 2019. So the sequential effect this year Q2 2020 versus Q1 2020 was only minus 2.4%. I'm sorry. Okay, thank you.

The next question is from Fabrizio Catania, Big Day Asset Management. Your line is now open. Please go ahead.

Thank you. Good morning. Lots of questions on the short-term COVID impact this morning in the call. Maybe more on a long-term view. Can you comment a bit on the lasting effect of the COVID world from a product perspective where I think virtually All commercial bathrooms in Europe will need to be renovated due to distancing rules.

What are the feedback from the experts, from the developer, and from the architect, and what are you doing on the product side?

Thank you. We have already an assortment which fits, let's say, to the new COVID environment. As I said before, some examples, touchless products, hygiene product and obviously that is not only in COVID-19 an important element in our innovation portfolio and for our development guys just to give you an example also the new bathroom series which we introduced here together in one bathroom series basically is also addressing not only but also hygienic topics obviously shower toilets fundamentally address hygienic topics in terms of development of shower toilets, new products for shower toilets, of course. Therefore, I think we have good opportunities on the long run to benefit from the more demand for hygienic solutions in public bathrooms, but I would also think in private bathrooms during the COVID-19 crisis. but we did not have to invest tactically or short-term our innovation time plan because they are anyway one of the important areas for innovation even before COVID-19.

Okay, so you expect, I mean, one can expect a stronger demand on this, especially from the commercial side, I think, you know, to say you need

the state that you need in the bathroom.

I mean, all the shopping malls, they need to restructure their bathroom. We already see that. The growth, for example, we have an X-rated plate for WC flushing, which is electronically. I don't have the figure exactly in mind, but it's a high double-digit growth rate of this product, which is basically only going to commercial bathrooms, public bathrooms.

Thank you.

The next question is from Tobias Schulte, UBS. Your line is now open. Please go ahead, sir.

Good morning also from my side. Just a short question. Are there any potential defaults which you are maybe expecting or following which might have an impact on your business in regard of suppliers, wholesalers, let's say the whole bunch of end markets and suppliers which you are dependent on?

We have not seen any defaults, neither on the supply side nor on the customer side. And we also do not expect any defaults in the future.

Thanks, Jan. And we have a follow-up question from Andrei Kuzmin, Credit Suisse. Your line is now open again.

Good morning. Thank you very much for taking the follow-up. I just wanted to come back to the bathroom stores closure impact. Given what you said about Germany with the backlog extending for plumbers, would it be right to think that this is not an issue for Germany, the closure of bathroom stores?

I don't understand the question.

So in your outlook, you said that one of the concerning factors is this effect from bathroom stores being closed for a few weeks and hence depleting the backlog. given that the German plumber's backlog is now rising up again in nearly three months, I would like to think that the staff and stores closure impact is not going to be the case in Germany.

Yes, it might be, yes. I don't think we'll spend that much time thinking about this question, to be honest.

So which are the countries that we should worry about? in terms of this impact from bathrooms still being closed for a few weeks?

Well, there are no specific countries we are worrying. I think the most worrying, as you said, of course, before is, are there any material restrictions coming up again from this COVID-19 pandemic? That is worrying to a certain extent, but looking at different views of developments per country is not really helpful. It doesn't change our strategy, our operational positions. Therefore, that is not really relevant for us.

Got it, thank you. And if I may, just last one. Is this situation moving on the acquisition opportunities? Are you looking potentially at more companies?

No, to that extent, we do not change our strategy. Our strategy is that we are growing organically. We always look at both on acquisition possibilities. We have always a small list. But on the small list or the ideas, nothing changed due to COVID-19. which would now make an M&A transaction, a small one, more profitable.

Thank you very much for your time. You're welcome.

And the next question is from . Your line is now open again.

Yeah, thanks for taking my follow-up. Just going back to the raw material price quotes you gave a couple of minutes ago, Mr. Bull, I'm a little bit confused looking at my notes from the last conference call. If I remember correctly... at that time, back in July, you were saying that raw material prices had declined by 2.4% in Q1, and my understanding then was that this was a year-on-year development, Q1-20 versus Q1-19. So is that coincidence that you're talking about 2.4% again for Q2, or is that a misunderstanding? At the time, you were also mentioning that raw material prices had been down by 3.3% in the five months January through May. It looked like it was an acceleration of the decline in Q2, and now the numbers you were mentioning speak of a deceleration. What am I missing here? Thanks.

So it's a coincidence. These two figures are by coincidence the same. So I repeat, in the first quarter of 2020, compared to the first quarter of 2019 raw material prices were down 2.4% then in the second quarter raw material prices were down 5.1% versus Q2 2019 that adds up together to H1-3.5% versus H1-19 and by coincidence in the second quarter property prices are also sequentially 2.4% down versus 2.1%.

Makes a lot of sense. Thank you very much. You're welcome.

And there are no further questions at this point, so I hand back to the speaker for closing remarks.

Thank you for your participation. We wish you all a great day. Thank you. Bye-bye.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. Your neighbors can leave now.