Geberit AG

Good morning. I'm the Academy operator for this conference. Welcome to the current conference call on the third quarter results 2020. Please note that for the duration of the presentation, all participants will be in the 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 operator by pressing the star key 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 Giff, CFO, and Mr. Roman Fiedler, Head of Corporate Communications and Investor Relations. Please go ahead, sir.

Thank you for the introduction. Good morning, ladies and gentlemen, and welcome to our conference call on our Q3 results. Let me start with a preliminary remark. Our Q3 results are in a contradiction to the most recent developments in Europe over the last couple of days due to the fast-developing second wave. So please keep in mind we talk about Q3 results with this conference call. I will start with the third quarter figures and then comment on our nine-month development. Gerrit did a very good result in the third quarter with a very strong top line growth and an excellent profitability driven by catch-up effects after the lockdown in the second quarter. Net sales grew by 5.3% to 794 million interest rates. In local currencies, net sales grew by 8.5%. Almost all countries benefited from catch-up and stock-rebuilding effects due to the lockdown or other COVID-19-induced market restrictions during the second quarter. The degree of the catch-up effect varies country by country, driven by the severity and the length of the lockdown and the COVID-19-related business restrictions. Double digit growth rate in local currencies were achieved in Italy with a plus of 24%, in Austria with plus 13%, in Germany with plus 12%, in France with 11%. Single digit growth rates were recorded in Eastern Europe with a plus of 8%, Switzerland and Nigeria with plus 11%, Nordic and America with plus 6%, and the UK with a plus of 3%. The only European region with a state decline in CO3 was Benelux with minus 3% due to a very strong comparable from the previous year. States in Middle East Africa declined by minus 4% and in Far East the cities by minus 7%. Both regions suffered from countries still heavily affected from COVID-19 restrictions into CO3, e.g. India, Australia, or Singapore. The product areas have developed differently in the third quarter. Insulation and flushing systems grew by 10% and bathroom systems by plus 12% in the third quarter. Piping systems showed a much lower growth dynamic with plus 3% indicating into a weakening new build segment and produce business during the third quarter. Let me now comment on the operational and financial results in the third quarter. ADTA increased by 14% and the ADTA margin reached 33.2%, an increase of 250 basis points compared to Q3 2019. This margin expansion was driven by three main factors. First, the operating leverage from the strong volume growth. lower material prices, and third, still relatively low SG&A costs due to COVID-19 restrictions. For example, still very low crown costs or costs for physical marketing events. Net income increased in the third quarter by 11% to 189 million Swiss francs. Negative impacts by a higher tax rate compared to previous years. Earnings for shares reached 5.629, an increase of 12% versus previous year. Free cash flow increased in line with the operational results by 16% in the third quarter. I will now comment on our nine-month performance. Net sales in Swiss francs decreased in the first nine months by minus 5% to 2.3 billion Swiss francs due to substantially weakened foreign currencies. in local currencies, net sales reached with minus 0.4% almost previously at level despite the COVID-19 pandemic. The negative COVID-19 impact on demand varied substantially by geography, depending on the screen and the length of the local lockdown or the imposed business restrictions. In Marches, where construction sites were closed around 10% of our sales exposure, net sales declined in average by around 15% in the first nine months. These countries include France with a minus of 10%, Italy with minus 11%, Spain with minus 15%, the UK with minus of 22%, South Africa with a minus of 24%, and India with a minus of 29% in the first nine months of the year. The remaining countries, around 80% of AG exposure, were also impacted by lower construction activities during year 2. However, the losses were largely compensated again in year 3. These countries include Germany, with an AG growth of almost 6%, Austria with plus 5%, in Eastern Europe with 4%, Nordic and Switzerland with 3%, The benefit with minus 1% and the U.S. with minus 2% representing a slight sales decline. Let me now comment on the sales development for product area in the first five months, again in local currencies. Installation of washing systems reached previous year's levels and pricing systems declined by minus 1.6%. The only product area with a slight net sales growth was bathroom systems with a plus of 0.6%, driven by a strong growth of the shower-toilet savings. Let me now comment on the operational and financial results in the first nine months of the year. All results decreased due to the negative inflation effects from weaker currencies. However, in low currencies, All bottom line results from ABTA down to EPX increased for the previous year. The negative currency development had only a minor impact on the margin due to our continuous efforts to maintain a natural currency hedge. Let me now comment on the ABTA development. The ABTA margin reached 32.1% in the first 9 months. and we were able to increase the MEK margin by 130 basis points despite the net sales increase of minus 5%. The main drivers for this margin improvement were fast and targeted cost containment measures. Secondly, a heightened and further increased flexibility in production and logistics to cope with the substantial decline in demand during the second quarter and the strong rebound in the third quarter. Thirdly, lower material prices, and fourthly, increased sales prices. It is worth mentioning that these results were achieved without structuring, without any layoffs, without a salary cut for a single employee, or material support from the public, for example through short-term work. Yeti margin reached 27.1% AP-based parts of all previous systems. The weekly development of the EBIT margin versus the EBITDA margin was driven by higher depreciation expense from higher investments in the previous years. Net income reached 504.3%, corresponding to a net income margin of 22.3%, or 20 base points, globally this year. The lower net income margin was mainly driven by a higher tax rate, due to the new tax regime for corporates in Switzerland. Earning per share reached 14.5 francs of fixed, a decrease of minus 5.5% versus previous year, driven by the weaker currency. In the first nine months of the year, almost 270,000 shares have been bought back. Thereof, 262,000 shares at the average share price. under the program launched in June 2017. Under the new program, just launched recently in September, additional 8,000 shares were bought back. Free cash flow decreased in the first nine months of the year by minus 9% to 454 million BTC. This slide is a disproportionate decrease versus the operational cash flow but mainly driven by the strong comparables with a strong free cash flow growth of plus 20% in the previous year. The strong results further improved the cash position of GEBRIT. To end of December, we hold a cash position of around 600 million Swiss francs and an annual revolving cash facility of 500 million Swiss francs. Let me now comment on our outlook for the remaining years. The uncertainty around the COVID-19 crisis increased again, especially since the second pandemic wave has reached Europe. The situation with new restrictions across Europe is currently changing day by day. This makes an outlook highly uncertain and almost impossible. Please also keep in mind that we have a very low visibility with an order book of less than two weeks. Therefore, let me first comment on the latest business performance. After the strong business rebound and stock rebuilding effects of customers in Q3, demand slowed down significantly in October, with sales in October being slightly below previous year's levels. Based on the weaker October results and delayed or stopped projects, especially in the non-residential segment due to the COVID-19 crisis, because we expect a weaker Q4. For the full year, we expect Curtis Jobs' net sales to be slightly below previous year and the full year ATA margin above previous year's level. However, we expect the ATA margin in Q4 to be substantially below Q4 last year due to a negative operating leverage for volume climb, second, Higher personnel costs due to wage inflation and the easing of the hiring rate. Thirdly, increasing volunteer prices and tougher costs from lower volunteer prices in Q4. And fourthly, additional costs for the brand switch. Let me close our introduction with a short summary. The COVID-19 crisis led to an unprecedented business collapse in terms of speed and extent also at Gebrecht. The decline in the second quarter was followed by an almost equally strong catch-up in the third quarter. We believe Gebrecht has mastered this rollercoaster ride very well so far and delivered very strong results. for his results were a strong financial fundament combined with a stable strategy and a resilient business model. Second, a fast and prudent crisis management, avoiding overreactions. Third, the ability of our supply chain to cope with unseen business restrictions and extraordinary volatility in customer demand. And finally, our conscious decision not to reduce our presence with customers throughout the crisis. Finally, he achieves these strong results without harming our future position, without disrupting or changing our strategic agenda. In his unprecedented times of uncertainty, he found the right balance between short-term flexibility and long-term stability, which gives us confidence to emerge stronger from this crisis, which is obviously it will fall from over. This is the end of my introduction. Before I hand over to the Q&A, let me make a short remark on our presentation we just published this morning. There was a small misstate in the presentation on the ABTA bridge on page 13. Some figures were wrong. We uploaded a new version just half an hour ago with the right figures on the ABTA bridge on page 13. We are now ready

thank you we will now begin our question and answer session if you have a question for our speakers please dial 01 on your telephone 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's your turn to speak you can dial 02 to cancel your question is using speaker equipment today. Please lift the handset before making your selection. One moment, please, for the first question. We have one first question from Mr. Andrei Kukin from Credit Suisse. Your line is now open.

Good morning. Thanks so much for taking my questions. Can I start with clarification first on your remarks on the margin outlook for Q4? Did I hear that right, that the expect is down meaningfully?

Yes, the expect is substantially lower. Everything marching in Q4.

In terms of reasons you cited there, one that I picked up is the labor rate. I think our last quarter discussion was that you had some new rates kicking in from kind of middle of the year or something like that, but I didn't get impression that you had higher rates kicking in from 1st of October as well. Is that the case in what countries are we talking about here? It's still the case.

We expect somewhat higher wage inflation in the fourth quarter and mainly driven by Germany.

Great. Thank you. And on Q3, in terms of the top line performance and the bounce back that you cited, is it possible to give any quantification or even indication of how much was restocked and how much was kind of less holidays being taken on construction sites?

No, that is not possible to quantify.

Sorry. But do you think that covers the whole of 8.5% growth?

I also wanted to answer this question, otherwise I would be able to quantify it.

Fair enough, fair enough. And on October, being down slightly, can I just double check, how was the comp for October from last year?

We had a normal October last year, nothing special.

Okay, and the reason I'm asking is that some of your kind of lateral peers like Masco indicated no slowdown, and I think Fortune Brands as well, no slowdown until October from kind of strong end of the Q3. So just wondering if there's anything kind of specific there to you, or is this really the market performance that you've seen with cooling down in October?

As usual, we do not comment on competitors, especially not on a monthly basis, and obviously also not on competitors which have a completely different geographical place than we have.

Okay, so you see October slowdown is entirely underlying rather than anything, kind of timing or whatnot.

I just repeat that facing October, our slide is below October 2019.

Got it. Thank you for your time. Welcome.

Next question is from Dean Vermadeen from EXAIN BNP Paribas. Your line is now open.

Hi there. It's . Just a few questions. I guess on the pricing side, we've heard a lot of companies, not necessarily the sanitary industry, but elsewhere, essentially saying that the market is relatively tight with low inventories. and the outlook for pricing going into 2021 is looking incredibly positive. I just, you know, I think we understand that there's a bit of inflation coming back, but it's moving also in a very volatile environment. So could we maybe get a sense of what is your view in terms of that price-cost spread year term into Q4, but also how you think about your pricing negotiations in 2021? We increased

Price this year as planned by around 1% as of the second quarter. The next price change is planned regularly for Q2 next year. We have not yet decided, I would agree we want to increase prices, that is still too early, but we do not change at the moment our process, meaning that we plan to adjust, most probably increase prices in the second quarter of next year.

Okay, thank you. And just on the second question, I mean, a lot of countries are now announcing lockdown measures, which is really sad, but necessary. I just, I guess it's really hard to understand what that implies in terms of the opening or not of showroom centers and whether or not renovation work can be carried at people's home with a plumber and artisan. So I just wanted to understand, given that Germany is one of your major countries, and France has announced also their lockdown measures. What is your view and understanding so far as to what that can do to your industry?

Our view and understanding is the same as your view and understanding. Just reading the newspapers this morning, what was decided yesterday in Germany. I can't give you any flavor idea what we believe that would mean now short-term in Germany. It's by far too uncertain to make any predictions. So we are on the same page at the same level of information as you are currently. Sorry.

So you don't know if the short-term are going to be open or closed essentially?

As far as I understood from this morning, newspapers are not closed at the moment. But, you know, to make any predictions, I don't know what happens in five days. At the moment, I understand the showrooms are open as of today in Germany.

Okay, and just a last question on the free cash flow. Should we expect that to be slightly up on the full year basis versus 2019, given the first nine months, or is there a reversal in Q4?

We don't make any guidance on free cash flow, but this study is down now by the end of the first quarter. It has a lot to do that the good performance of Q3 has not yet been realized in the cash flow statement. That is coming in Q4. There is a certainty there.

Okay, great. Thank you so much, guys.

The next question is from Daniel Costa from Goldman Sachs. The line is now open.

hi good morning um i first wanted to ask um regarding sort of you mentioned the brand switching um costume q4 if you could um sort of remind us um sort of what was the guidance there and whether the brand um switches and um movements that you were planned are all done or if there's anything left on that front for 2021 and i and i think last year you had also mentioned it cost increases whether Do you end up doing that this year and that should be a reversal and a tailwind for next year? How should we think about those two things? Thank you.

The switch project and the brand permutation project went very well. We are a little bit delayed compared to the original plan due to the showroom closure. we originally planned to be finished by the end of September that will now launch into Q4 but for the entire year we are on track to be spent about 10 million marketing on this brand harmonization in the Netherlands, France and Italy the second question around our increased activities in the area of digitalization also this initiative has been unchanged we are spending around 15.15 million Swiss francs each year for further competences and also resources in this area and that is also running according to plan and both things are done so in 2031 we're not going to have increased costs from that I can't get to talk about digitalization we know that we are currently in the budgeting process so I don't know yet there but from the branch perspective we are done we do not have any further brand organization activities next year and also no additional costs for brand organization next year.

Okay, thank you very much.

You're welcome.

The next question is from Hugh Grant from Bank of America. Your line is now open.

Hi there. Thank you very much for taking my question. I've just got one specifically relating to bathroom systems and the outperformance here, having previously lagged. I wonder if you could just perhaps highlight the country specifically where you saw sort of the largest improvement here and perhaps just an outlook going forward into Q4 for bathroom systems specifically. Thank you.

Boston Systems developed across the country very well and the main driver is also similar across the countries is the shower toilet system the shower toilet system is developing very well this year mainly driven by new products which we introduced over the last couple of years I refrain from making any outlook for Boston Systems for Q4 I just speak to our guidance that they expect Q4 to be weaker than Q4 last year overall.

Great. Thank you very much.

Next question is from Martin Flippier from Kepler Triborough. Your line is now open.

Good morning, gentlemen. Thanks for taking my questions. I've actually got four, if I may, and I'll go one at a time. Just starting off with piping systems, can you elaborate a little bit on the key drivers there and what kind of market environment you're seeing, particularly if you saw any outstanding country performance within piping systems? That's my first question.

Piping systems underperform the other two product areas, basically in all countries. The main driver for this underperformance is, as I outlined in the introduction, a weaker performance of new builds, and it's also an indication that the business might become more difficult. Because, as you know, piping systems are installed quite early in the building construction process. For example, in Germany, where we recorded a growth of 12% in the third quarter, piping systems was on previous year's levels. So, also highlighting again the strong growth of passing systems in Germany. And this picture that piping is weaker than the other two product areas is basically the same across the country.

Okay, great. Thanks. And then my second question is just to come back on the shower toilet growth you were referring to, which was very strong. Could you provide a little bit more granularity in what we're talking about here? I guess we're talking double digits there, but, you know, we're talking about above 20%. that will be helpful and what you're expecting you know in terms of the volatility for Q4 and you know I remember two one two quarters ago you were talking about these temporary showroom closures in Q2 and that how that would impact Q3 and Q4 which we haven't seen for the dimension reasons but just a little bit more granularity on the growth in Q3 and outlook for Q4 and shout out it will be great thanks

The growth rate of Schauerfer is double-digit, and all the product categories are growing nicely. The premium level, the mid-level, and the entry level, driven by the new product introductions over the last couple of years. We do not see, for example, any tangibilization between the different price levels, often of this year. Regarding the showroom closures in spring, or during the lockdown in April and May, What we hear from customers is that the showroom closures have been patched up to a certain extent in the third quarter because the installer worked more, there was more workload, and these effects have been leveled out in the third quarter. We do not expect a negative impact anymore from showroom closures in spring for our fourth quarter. Of course, we can't quantify, that is not science, that is what we just hear from our customers.

Okay, fair enough. And then just on the Germany in solar order books, has there been a recent autumn survey or what's the latest number here? That would be great.

The latest number is that the order backlog came back to pre-COVID-19 levels. Actually, the order backlog of German dollars is at 12 weeks again. That is more or less on the level of autumn 2019.

12.0 weeks, yeah?

12.1 weeks, I think, to be exact.

Okay, great, thanks. And this is the final one. Sorry, raw material prices. Could you talk about the quarter on quarter and year over year growth rates you have seen overall on average for raw material prices and what you're expecting here for Q4?

Raw material prices for the first nine months are down 3.8% versus the first nine months 2019. And for the fourth quarter, we expect sequentially increasing raw material prices versus Q3 2020, mainly driven by metal-related raw material prices. Plastics expect more sideways developments in Q4 versus Q3. The metal price increases are basically driven by the observation that BOT prices for the inductive metals increased substantially over the last two to two and a half months. From aluminium, copper, nickel, zinc, all these BOT prices went up by around 5-10% over the last two months and that will have or might have an impact on our aromatherapy prices.

Okay, sorry, and the raw material price and evolution for Q3 was how much? In Q3 versus? Year on year.

Year on year, that was down around 4%. Great, thanks. You're welcome.

Next question is from Bernd Homren from Tobel. Your line is now open.

Yes, good morning gentlemen. Impressive results, no doubt. Could you try to quantify the one-time benefit from COVID-19 related low marketing and administration expenses in the third quarter or ask differently what are your sustainable cost savings at this line going forward?

Thank you.

thank you all defied the impact because some marketing activities have been shifted obviously to more online and digital activities but what is clear is this is not a sustainable effect if we would have been able to spend more marketing we would have done it but we have just been restricted therefore this low cost space area of Q3 is not sustainable, and as soon as we are able to do marketing again in normal terms, we will also again spend the money. Okay, very clear. Thank you, Christian.

The next question is from Manish Beria from Societe Generale. Your line is now open.

The first question is, are you still gaining market share? And what are the opportunities you have seen from this crisis? You have definitely told about the shower toilet doing well. So we should be linked, I mean, related to hygiene and things like that. This is the first question. The second one is like Germany. is up like 5.8% in the first 9 months it seems like there is no COVID impact I mean you are up 6% despite Germany doing well last year so just trying to see what drives this growth maybe there is like a lot of inventory build up here but if 6% is without inventory I mean then it's a great result I mean so just little bit of explanation more color on that and the third is in most probability I mean you are going to end up this year with more than 30% EBITDA margin and I see your guidance is like to reach like 28 to 30% so obviously you are going to give up that and the next year pricing does it comes I mean like you want don't want to take pricing high because you want to be within this range So how does the pricing decision will be decided or all this will be start building like you are comfortable with higher than 30% margins in the medium term. Thank you.

The first question about market shares. As you know, we are very cautious to talk about market shares quarter by quarter. But I think if you look at the first nine months of development, we have been able to gain market share versus competitors. Driven also by the fact that some competitors have delivery issues, some plans for close-downs, but also by the fact that we have been always with our customers. We did not reduce our presence with customers. So we believe the first nine months became market share. A little bit supported by what you call hygiene-related products. We have obviously hygiene-related products, touch-free products, these as a toilet, these faucets or urinals. We see a strong role for these products since the COVID-19 crisis. However, the share of sales of these products is very limited. It's really a low, not a material part of our business, though it has not a material impact on the top-line growth. The second question is around Germany. Also in Germany, we believe we are gaining market share, driven by the fact that we have seen deliberations with competitors, or even supply chain interruptions. But also, most probably in the third quarter, we believe we have seen some positive impacts from the VAT reduction in in Germany, the 3% BAT reduction, which might have been one of the reasons why in-source wall products have been growing so much faster in Germany in the third quarter, compared to tech products behind the wall. Third question, about ABD margin and pricing 2021. As I said before, we have not yet decided about Our price changes, most probably price increases next year. In general, we plan to have a certain stability also in terms of pricing, which would mean that we try to increase prices constantly at a certain constant rate. That is the version we have at the moment, but it's not finally decided.

and you are comfortable with more than 30% EBITDA margin even if you reach it I mean are you comfortable with that because the guidance was at 28 to 30

As I said before, the margin we have seen now in Q3 was very much driven by COVID-19 restrictions, which drove our SG&A costs down. This is not sustainable. If we are able to spend more marketing money again, we will spend more marketing again. So don't take the current margin level as the new norm or a sustainable basis.

Okay, thank you. Welcome.

The next question is from Christian Arnold from Mind First Bank. Your line is now open.

Good morning, gentlemen. On Germany, I mean, this 12.4% organic growth in Q3, I mean, that's just impressive, just fantastic. And you just mentioned before that you had some positive impact from the VATs or in the bathroom systems. But nevertheless, I mean... thinking of the limitation from the installer side. I mean, how is that possible, this 12.4% in Q3? Maybe if you can add here some more explanation.

So if you just look at the third quarter, the 12% also impacted in Germany by catch-up effects from Q2. We had also in Germany with Q2, obviously not as big as Italy or France or other countries but there was also in Germany an impact from the COVID-19 business restrictions on the construction activities so also there there was a catch-up effect that was also driving the 12% Q3. Besides the facts I just mentioned before VAT, um, deliberations from competitors.

Okay. I'm thinking that you mentioned before that typing systems were slagged in Germany in 2003. So that somewhat implies then for installation systems as well as bathroom systems that you have here some growth of 18 to 20% in 2003?

So I didn't understand. Can you acoustically understand?

Yes, I mean before in the call you were saying that the piping system business in Germany was flat in Q3. Did you see then from 15-20% growth in both bathroom systems as well as installation systems or have you had here differentiation between the other two?

No, you're correct. Both other product areas were strongly growing in the area you just mentioned. That's correct.

Okay. Then in October, when you were saying slightly down overall, any differentiation between countries or product areas? Or some outliers, so to say?

Yes, there is one. let's say observation is still piping system what we have seen in the third quarter is also visible in October piping system is systematically weaker than the other two product areas also in October okay and maybe on the personnel count going into through four I mean having now the situation we have

are you expecting I mean on the one side you have higher wages so you have a negative impact from this price inflation so to say on the other side probably many many people are going on holiday right any thoughts on that

So we have seen, especially this year in Q2, an extraordinary low position for personnel costs. And Q3 again was more in line with previous years, the vacation quarter, and Q4 will also be in terms of different to Q5. we were in line with three mid-years and in addition we said that we still have an increase in tariffs coming mainly out of Germany so that the exceptional border in 2020 Q2 were really in operations we could very well adjust our capacities to the demand but as now demand etc. was normalizing this effect is gone and we have a more normal pattern again

Okay, thank you. Last question on material prices. You mentioned before that you are expecting in the fourth quarter a sequential increase of material prices. So not saying year over year, does it mean that year over year you still have a tailwind from raw materials in Q4?

Yes, year over year we still expect to have a tailwind in Q4.

Okay.

thank you you're welcome the next question is from Patrick from UBS your line is now open thank you and good morning everyone I have two follow-ups please the first one is around your comments you already made on October and the catch-up session in Q2 and I'm just wondering, in that comment you made on October being slightly down, do you think there's still a bit of catch-up and restocking in there, and still overs from Q2, so that the underlying run rate would be even a bit lower, or was that pretty much all done in the second quarter? Again, we do not exactly know, but we believe that the inventory levels of wholesalers in general are on a normal level at the end of September. Okay, good, great, thank you. And the second question is around the EBTA bridge. And I know it's very early days, but looking into 2021, there's a lot of moving parts with the COVID savings, raw materials going up and down, et cetera. But just directionally, how should you think about the reversal effects next year? Obviously, you will end this year with a with a very solid margin, higher than last year. Do you think you can maintain this sort of level also next year, or should we assume that maybe it will be a bit more a challenging year with potentially marketing expenses, et cetera, coming back? I'm sorry, I'm not able to give you an answer to this question. We refrain from making any answer to 2021. The situation is so highly uncertain, volatile, just the last couple of days, so any statements you would make to any direction next year will not be professional. I'm sorry, I can't give you an answer.

Okay, understood. Thank you.

You're welcome.

The next question is from Remo Rosenau from Helvetische Bank. Your line is now open.

Yes, hi. Thank you for taking the question. We understood that Q4 will see lower margins, I mean significantly lower margins compared to the previous year, not to the first, but to the previous year. However, at the same time, you said in the press release that you see slightly lower sales for the full year and an EBITDA margin above previous year's level you didn't say slightly above and that is not a coincidence so if you say EBITDA margin above previous year's level for the full year it is not 10 or 20 basis points it must be a bit more that again in my calculation puts a certain limit to the significantly lower margin in Q4IE, i.e. it's rather 200 basis points than 400 basis points. Is that kind of a sensible thinking? Our margin guidance for the full year on ABTA levels, which we expect to be above previous year level means that we expect an ABTA margin which is higher than 29.3%. every figure above 29.3 and I do not want to go into more detail I'm sorry I'm just used that you are very precise in your wording there is a reason for it exactly we are precise everything above 29.3% is above ok

Fair enough.

Then a more general question. We didn't talk about innovation that much today. How is Gabrit 1 actually doing, you know, which you introduced some time ago? You know, is it making progress? Is the response positive? And then, adjacent to that, can we look forward to any other kind of groundbreaking innovations in 21 or 22, like the introduction of Gabrit 1, or, for example, the monolith pre-ball water tank at the time? Gerrit Mond, we are very happy with the development this year, especially with certain product categories within these new bathroom series. I would say they are all in all on our expectations, some product categories slightly higher, some a little bit lower, but as a series, it's going half the time. But still, as you know, it's not really contributing a material part of our group phase. But it's developing very nicely. Referring to other new product innovations, we will talk about that in January. We will give you a flavor about new innovations next year. But we will have again also next year a beautiful mix of very important, strategically important innovations and also again add-ons continuing evolutionary innovation. But I don't want to go into details at this moment in time.

Okay, great. Looking forward to that. Thank you.

You're welcome.

The next question is from Arno Lehmann from Bank of America. Your line is now open.

Thank you very much, and good morning, Dr. Mann. Two questions left on my side. Firstly, on your Q4 margin comment, I think you said you think Q4 EBDA margin should be down year on year.

Does that also apply to the growth margin, or is it mostly related to HG&A and possibly higher marketing costs?

That's my first question. My second question is on the UK. I appreciate it's not a very large market for you, but do you feel ready for Brexit in terms of sourcing, supply chain, or do you think there might be any disruption from next year? Thank you.

I already asked the question to the UK. We believe we are operationally ready for Brexit in the UK. At the moment, we do not see or expect any special effects like what we have seen last year or a couple of times already last year. We do not expect anything specific from that side. And honestly, I also believe that the COVID-19 crisis and all the restrictions or further development might have more impact than the Brexit. Very clear, thank you very much.

The next question is from Martin Hüssler from Zurich Kantonal Bank. The line is now open.

Yes, thank you. I have two questions left. First of all, an add-on to Germany. The topic was touched on capacity of installers, and actually you didn't really answer that. How was it possible that with limited installer capacities, the growth was so strong in the third quarter or also for the first nine months or is it that these capacity constraints kind of eased and which should also be then positive for the future that's the first question and the second question is on Switzerland can you just elaborate a bit also very good sales development in Switzerland is this I assume more refurbishment as well do you see there's some cooling effect out from the from the pandemic or lockdowns because I think you were rather more cautious at the beginning of the year for Switzerland

Referring to your first question, please keep in mind that we have in all countries, including Germany, rebuilding, in fact, with the invention of wholesalers. The wholesalers are rebuilding the invention also in Germany, so the 12% growth in the quarter doesn't mean 12% growth on the level of the installer. That is valid for all the countries. Secondly, we have heard from many installers in Nice that they did more work, also in Germany this summer, than in previous years, by overtime, by using their vacations. So there was a certain elasticity of the capacity in the summer. By the way, if you look to Italy, we had a growth of 24% in Q3. That was very much driven by the fact that in August, where normally nothing happens on construction sites in Italy, all over the world. And to a certain extent, the lower effects, we have seen that in Germany. So it's a combination of inventory effects as wholesalers and a short-term flexibility of capacity on an install level during summer. And the second question around Switzerland. In Switzerland, the renovation business is doing well. We still believe also that the new-build segment is doing well. The projects which were launched or which were running pre-COVID-19, they basically get completed. Maybe they have to innovate in the second quarter. Also there in Switzerland, we see some catch-up effects to the same reasons as I mentioned before in Germany, basically. But if you look at the first nine months, we are doing well also in Switzerland. We believe we have been able to gain market shares. Don't forget that a lot of our market outperformance in Switzerland in general is driven not by volume share gain, but by offsetting our product portfolio. So we see, for example, in Germany and in Switzerland, not a downselling effect due to COVID-19 crisis. or we do not see a negative effect, for example, important growth driver in Switzerland is doing very well, growing double digits in the first nine months.

Okay, thank you, and fair enough, your answer on Germany. I was If I refer to the first nine months, where your growth was about 6%, there I assume there wouldn't be much of a stocking-de-stocking effect for the whole period, and still the 6% looks quite impressive.

This is correct, and that's why I mentioned before that we feel confident that we are gaining market share in these first nine months. and secondly also driven by maybe the VAT effect in the third quarter which led to a strong growth of products in the third quarter because they are more related obviously to the VAT program which gives the incentives to end consumers to buy a new bathroom or to make the renovation.

Okay, thanks a lot.

You're welcome.

The next question is from Bernd Homren from Tobel. Your line is now open.

Yes, thank you for an add-on question regarding capex. Could you provide a quantitative update for your full year 20 capex guidance, and then maybe could you also talk a little bit qualitatively regarding investments and further improving your sustainability profile, for example, improving the environmental standards of the ceramics production Obviously you have a very strong cash position and there's probably a limited need for significant capacity additions. So you are in a position to increase spending on more sustainable production methods. Thank you. 2020, we expect to be around 150 million with strength, a tick less than what is expected in summer. We have also there some restrictions in COVID-19. to complete all the investment projects we have in mind. Regarding our sustainability investment, that is a constant effort. As you know, we are constantly investing also into a more sustainable SFA, especially in ceramics manufacturing. We have been doing very well over the last couple of years, also this year. We have reduced the CO2 emissions since the Suntec acquisition by 26% over the last four years. So that's, in average, around 7% decrease of CO2 emissions annually. And as I said, that is a constant effort. It's embedded in our strategy, in our investor projects, and we also expect a further reduction of CO2 emissions this year. That's maybe a good example where COVID-19 does not have a structural impact on GAP rate. The COVID-19 crisis did not change our agenda in terms of sustainable investment. Very, very good to hear. Thank you, Christian. You're welcome.

Next question is from Alessandro Folletti from Octavian. The line is now open.

Yes, good morning everyone. Thank you for taking my question. I have one left remaining regarding your midterm growth outlook. I think it's about 4%. In the last couple of years, organically speaking, you've been trending slightly below that. Can you give your thoughts about how you may be able to reach that if and when If you have an outlook, leaving for a moment the pandemic aside.

It's very difficult to comment or give an answer at the moment by putting it the pandemic aside. So, if we expect midterm that the pandemic is resolved, then we seek for a midterm target. Or in other words, the pandemic does not have an impact on our view, on our mid-term potential to grow the business without the pandemic obviously. We do not see that the pandemic has any structural impact on our potential to grow in the various markets. We do not see, we do not expect that there is structural impact if it comes to geographies or if it comes into product areas.

All right, thank you. And the driver to reach that, so to speak, to make the last step between the average of the parties to that, so to say, is it... Do you need a more normalization in Germany, for instance, on the installer base, or can you overcome that with your selling strategy, innovations, gaining market share, etc.?

We have reached, in average, a sales growth of 4% since the acquisition of SunnyTech. We have been at the lower end of this range of 4% to 6%. The main reason is that they have been at the lower end and not more in the middle of this range, was the geographical market region. As outlined very often already, the capacity bottlenecks in Germany, the weaker, structurally weaker markets in Nordics, but also the lower, much lower growth dynamics or even long growing growth dynamics in Switzerland. These are the main reasons why we have not been able to more in the mid-end. And COVID-19 does not change anything structurally, how we look at the business and what we see in terms of potential. Of course, if you put the pandemic aside, as you mentioned in your question.

Yes. Okay. Thank you. So, by inference, also, the Q3 reading doesn't change that overall picture?

The Q3 reading? So quarterly results does not have any impact on our thinking about discount charges.

The next question is from Ida Edbloom from Morgan's Dunley. The line is now open.

Thanks. I've got two questions. Firstly, can you please give us a little bit of guidance on your sales split via showrooms or direct to wholesalers? And then secondly, you give us some understanding on what percentage of your sales relate to new products now and potentially a target on that number where you see that evolving over the medium term and would it be fair to say that a rising percentage of new products in total sales is positive for the pricing dynamic thank you first of all

A fundamental answer, we are only selling to wholesalers. We are not selling to showrooms. So it's 100% wholesalers. For certain products, a showroom is then relevant for the thing making, but showrooms are not directly delivered by us. So we always say, wholesalers in some countries, showrooms are managed by wholesalers, but we call the differentiating stickers. And second one, we do not have a quantitative figure where we differentiate new products versus old products. The main reason is the introduction time of a new product in our industry is very long. We talk about two, three years about a new product. It's just a one-year new product, and the next thing we have the next new product. So we do not quantify what we look at, but we do not disclose, of course, the growth of this new product. And it's an important contributor over time, but we do not disclose any positive figures.

Okay, maybe I could ask a question on showrooms differently then. So, what percentage of your sales do you think the showroom is necessary in order to make the sales decision, even though you're then also selling to the wholesaler?

Obviously, it's only relevant for the bathroom system. Showrooms are not relevant, obviously, for piping systems, and they're almost... It's not important for installation and washing systems, because this business is basically behind the wall. A certain share of the bathroom systems, mainly driven by the end consumer market, so everyone who is privately deciding about his bathroom, this decision is made in the showroom, that's a part of the bathroom system, which are 30% of our business, partly of that is decided in the showroom. But as I said before, because we are not managing showrooms ourselves, we are not delivering directly to showrooms, we do not know exactly how much the share of the tissue making of the 30% bathroom set is made in a showroom.

Okay, thanks very much.

Our next question is from Pierre Rousseau from Barclays. Your line is now open.

Yes, good morning everyone. Thank you for taking my question. Could you first comment a little bit on your non-residential exposure? I heard there was some weakness in U-Build, so I was wondering if you could give some granularity there, and also what's the share of office, hospitality, and travel-related projects? I think that would be helpful. and the second question is on personal cost inflation in a normal year what would you expect to be the run rate going forward if we exclude potential COVID-19 disruptions again thank you

which generates about one-third of our business is the non-residential segment, as well as country by country, for the group, around one-third is exposed to non-residential. The more granular split between hotel and other sub-segments is very difficult because we are living in the wholesalers, we do finally not exactly know where these products are going, therefore it's very difficult and we do not have a quantitative indication how much this is. The second question about wage inflation. You know, a large part of the wage inflation which is affecting Germany is not decided by us, but by external parties, basically in Germany. We are dependent on the negotiations between employee representatives and company representatives. We just have to accept what the negotiation brings. In general, what we have seen over the last couple of years is that wage inflation has increased, especially in Germany, but also in Eastern European countries, which are important for us, which is Poland. What the COVID-19 crisis means now to the wage inflation next year, or maybe even afterwards, is very difficult to predict, and I don't feel myself in a position to make any prediction about that.

The next question is from Martha Busco from Bernberg. Your line is now open.

Hello, good morning. Thank you for taking my questions. I have a few follow-up. So with regard to growth in piping and the weaker new build project business, could you please let us know what is the split residential versus commercial or what is the share of the project business for piping specifically? You just mentioned one-third on the group level. I will have a few follow-ups after that, but let's take it one by one, please.

Sorry, can you rephrase the question?

Yes, you just said that one-third of your sales is generated from non-residential segment on the group level, and what is that for the piping, please?

We do not know. We do not know if there is might be slightly higher, but to be honest, we never made the exercise. Might be slightly higher, I would assume.

Okay, thank you. And with regard to Benelux, so you showed positive organic growth in local currencies for all countries you list in Europe except for Benelux, so minus 3.5 would happen there?

The main reason is, as I mentioned in my introduction, a base effect. We had a strong growth in Q3 last year of 19%, one nine in Benelux. That was the main driver by this year.

Thank you. And we've reduced the extra cost for rebranding. In total, for the full year, you said you are on track to spend 10 million. So how much of that was spent over the year to date, and is that a fair assumption to assume that in Q4 it will be a proportional spend, or is it more or less weighted than other quotas, please?

In Q4, there will be some expenditures, but you cannot even be distributed over the years. It's part of the marketing cost. That's why we said that Google has a little bit more marketing cost, but it's less than we spend in Q3. We don't keep the exact number.

Mm-hmm. Okay. Can I ask one more general? So why is this higher? So you mentioned that you have some delay between your EBITDA and then when it comes into the cash flow statement. So is that linked to the payment term that you have with the wholesalers and whether you give the volume rebates in the end of the year with Q4? If you can give us a little bit more details on how it works with the wholesalers, please.

Thank you. That's all. Thank you.

As a reminder, if you have a question for our speakers, please press 01 on your telephone keypad. If you haven't received further questions, I will hand you back over to the speakers.

Thank you all for your participation. We wish you a good and healthy rest of the week. Thank you and have a good day.

ladies and gentlemen thank you for your attendance this call has been concluded you may disconnect