Geberit AG

Good morning. I am the entity operator for this conference. Welcome to the Gaborit conference call on the third quarter results 2021. 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 the 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, a conference with Mr. Roland If, CFO, and Mr. Roman Ziegler, head of corporate communications and investment relations. Please go ahead.

Thank you for the introduction. Good morning, ladies and gentlemen, and welcome to our nine-month conference call. We will start with the third quarter key figures and then comment on the nine-month development and end with an outspoke for the rest of the year. Gerrit achieved variable results in Q3 despite the more challenging comparison phase with a strong top line growth and a lower profitability level due to strong headwinds from increased raw material prices. The last quarter in which we recorded a declining margin level was three years ago in Q3 2018, or in other words, Q3 this year was the first quarter with a declining APTA margin after 11 consecutive quarters with a continuously increasing margin level. Let me now first comment on our sales development in Q3 in more detail. Net sales increased by 8% to 855 million Swiss francs. In local currencies, net sales increased by 7% in Q3. The slowdown of growth versus H1 was driven by different base effects in the previous year with the lockdown in Q2 and catch-up effects in Q3, stock rebalancing of wholesalers this year and first signs of a weakening home improvement trend. Compared with Q3 2019 and without any base effects from the COVID-19 crisis, Next day the Q3 grew very strong in local currencies by plus 17% over the period of the last three years. In Europe, next day the local currencies increased by 6% with growth rates in almost all regions and countries. Double-digit growth rates were achieved in Venezuela with plus 29%, in Eastern Europe with plus 18%, and on the Iberian Peninsula with plus 14%. Single-digit growth rates were recorded in the Nordics with plus 6%, in Germany with plus 3%, and in Italy, UK, and France with plus 2%. In Austria and Switzerland, net sales reached previous year's levels in Q3. Outside Europe, net sales increased by 31% in Far East Pacific and declined slightly by minus 1% in America, respectively by minus 2% in Middle East Africa. The three product areas showed a different phase dynamic in the third quarter. Installation and flushing and piping systems grew with plus 12% respectively plus 8%. Bathroom systems net phase declined slightly by minus 1%. The weaker development of bathroom systems is driven by a negative phase effect from catch-up effects of the shower toilet business in Q3 last year after the temporary product interruption in Q2 and first time of a recently home improvement check. Let me turn now to the operating and financial results in Q3. The operating and financial results grew on all levels in Q3 despite substantial higher raw material prices.

APTA increased by 2% in Q3

to 268 million Swiss francs. The ABTA margin declined by 119 base points to 31.3%, mainly driven by the substantial increase of raw material prices and higher prices for energy and logistics. Positive drivers for the margin were positive volume and mixed effect from operating leverage and base price increase. The extraordinary price increase as of July led to an accelerated sales price increase effect of plus 2.8% in Q3, partially absorbing the raw material price increase. EBIT developed in line with EBITDA and increased by 2% to 231 million Swiss francs. Net income increased by 2% and EPS by 3% in the third quarter. Let me now continue with our nine-month development. Net sales in Swiss francs increased by 19% to 2.69 billion Swiss francs. In local currencies, the growth reached plus 17%. This exceptionally strong growth was driven by a base effect from the COVID-19 crisis hitting our business in Q2 last year. Secondly, a strong home improvement trend induced by the COVID-19 lockdown. And thirdly, inventory build-ups of wholesalers in the first half of the year. Compared to pre-crisis level of 2019, net sales grew by 17% in local currencies. This two-year comparison demonstrates the excellent performance we have achieved during the COVID-19 crisis. It's growth in an environment of significant supply chain challenges and disruptions was achieved thanks to our original supply chain setup, strong relationships with our suppliers, long-term capacity plan, strong and stable manufacturing and logistics processes, and finally, a high flexibility of our employees. Let me now comment on the 9-0 sales in more detail, again, in local currency The degree of local lockdowns last year varied substantially by country, leading to different base effects this year. In markets where construction sites were closed or heavily impacted in Q2 last year, we achieved correspondingly extraordinary strong growth rates this year. These countries include Italy, with plus 32%, UK, with plus 28%, Liberia and Venezuela, with plus 25%, and France, with plus 19%. In the remaining countries, the COVID-19 base effect was significantly less pronounced last year due to milder restrictions of construction activities. These countries delivered correspondingly lower, still very strong growth rates, namely in Benelux plus 18%, in Germany plus 11%, and in Switzerland and Nordics plus 9%. We achieved extraordinary growth rates of 27% in Austria and in Eastern Europe despite the limited COVID-19 base effect due to a more pronounced stimulus program in Austria and Forex-induced price increases in several Eastern European countries. Let me now turn to regions outside Europe. Net sales in Far East and the Pacific were up by 36% in the first nine months substantially driven by the positive base effect from the heavy lockdown in India last year and the strong performance in China. Net sales in Middle East Africa region increased by 32%. In North America, net sales increased by 8% due to strong growth of electronic fossils. Let me now comment on the state-developed product area, again in local currencies. All three product areas delivered strong growth rates in the first nine months. Inflation and flushing systems net sales grew by 20%, piping systems by 17%, and bathroom systems by 13%. I continue with the operating and financial results in the first nine months of the year. AVDA increased disproportionately compared to net sales by 23% to 894 radians of expense. compared to pre-crisis level in 29, the increase amounts to 22% over the last two years, demonstrating our strong operating cash flow generation during the COVID-19 crisis. The everyday margin reached 33.3% in nine months, 29, 20, 21, which is 120 basis points above previous year's level. The main reason for its margin improvement was the operating leverage from the extraordinary strong volume growth. This demonstrates the strength and high flexibility of our operation, being able to react to an unprecedented volatility in demand, starting with a sales collapse last year in Q2 and an unexpected extraordinary strong volume growth this year. The strongest negative impact on the margins came from the substantially increased raw material prices, since the beginning of this year. Also increased and further normalized marketing costs had a negative impact on the margins. Personnel costs increased mainly due to a base effect from the low level last year. The currency effect had no impact on the ABDA margin due to our natural currency edge. EBIT increased in the nine months by 27% to 777 million Swiss francs. The operating leverage led to an EBIT market increase of 180 basis points to 28.9%. Net income increased disproportionately by 30% to 653 million BF due to a lower tax rate driven by negative one-time effects in the previous year and a better financial result from less foreign exchange losses and lower financial expenses this year. earnings per share increased by 31% to 18.41, positively affected by the share buyback program. Compared to the pre-crisis level of 2019, EPS increased by 24% over the last two years, demonstrating the strong valuation of Giberit during the COVID-19 crisis. Free cash flow increased in the nine months by 35% to 613 million Swiss francs, mainly driven by the extraordinary strong cash flow from operating activities. We continued our share buyback program in the nine months of the year and bought back another 173,000 shares for 111 million Swiss francs. Let me now comment on the current status of the bill. In October, net sales were only slightly above previous year's levels. The current situation in our supply chain is challenging, but we managed to get the relevant raw materials, labor forces and logistics capacities to manufacture and deliver our product portfolio to our customers. Supply availability is only limited for a handful of products due to raw material shortages or labour bottlenecks. However, these limitations do not have any material impact on growth status. This brings me to our outlook. The unexpected strong economy and the still massive turbulence and unexpected friction in many supply chains have demonstrated how difficult and unpredictable an outlook in the current environment is. These uncertainties around the COVID-19 pandemic and its economic impacts, positive or negative, remain high. This unprecedented market environment, combined with the general very low visibility of our business, in the typical order of the level of two weeks makes an outlook very challenging. Also, the question when and how the COVID-19-induced home improvement trend might come to an end, or maybe even that to pull forward effects of renovation activity creates uncertainties. Under the assumption of no materially different business impact from the COVID-19 pandemic, we expect for the full year, therefore, a net sales growth in local currencies between 12% and 14% and an EBITDA margin between 30% and 31%. The main reasons for a weaker sales margin output for the last quarter versus the first nine months of the year are a strong comparison basis driven by the catch-up activities and the unusual high profitability level in Q4 last year. Secondly, the strongly increased energy and raw material price this year. Keep in mind that our P&L in Q4 will be hit by the strong raw material price increase of 18% year-on-year in Q3 due to usual delay effects in accounting. Sequentially, we expect in Q4 a somewhat softer raw material price increase of around 3% versus Q3 this year. This leads to an expected raw material price increase for the entire year of around 13%. To cope with the further increase in raw material prices, we decided to implement in selected countries and for selected product categories another extraordinary price increase during Q4. In total, we expect from the selected price increase in Q4 a positive price effect on group net sales of around 1.5% as of January. The second extraordinary increase together with the regular increase of 1.5% as of April this year and the first extraordinary increase of 2% as of July this year leads to a total sales price increase of 5% as of January 2022. With this total price increase of 5%, we will compensate the currently expected warm-up year price increase in 2021 of around 13%. Let me close our introduction with a short summary. GEGRIT achieved very strong results in the first nine months of 2021 despite strong headwinds and disruptions on the raw material market, energy and transport prices. Q3 was the first quarter with a decline in profitability after 11 quarters with an increasing margin here. The comparison of the results with pre-pricing level two years ago confirms our ability to deliver extraordinary results and gain market share in a challenging and tough environment, to maintain our market-leading productivity and efficiency despite the business volatility never seen before in our usually relatively stable industry, and finally, to create substantial cash flows and shareholder value in an exceptional economical environment. The results over the last month confirm us in our crisis management and the key decisions we took since the outbreak of the COVID-19 pandemic and give us confidence to continue to emerge stronger from this still prevailing unprecedented environment. 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 Yves Promet. It's from BNP Paribas. Your line is now open. Please go ahead.

Good morning. Thank you for taking my question. My first question is just on the price cost. Sorry, but can you just come back on the math that you did? You essentially are saying that you get to that 5% in January 2022. I guess on the cost side, could you confirm that when you show on the slide pack, slide 16, that you're cost inflation is up 18% versus Q3 2020. This is not the P&L effect, and there's about a three-month lag. Is that how we should think about it? And I guess related to that, as we go into 2022, I appreciate you don't necessarily want to give the guidance, but with that 5% price increase, would it imply that your price cost starts to flatten out in H2 2022? And could you do any further price increases later on in 2022 or is this assuming cost at those levels is this as good as it gets in terms of pricing at this stage?

Thank you for your question. Number one, the mass of the 5% price increase as of January 2022. We did a regular price increase this year as of April of 1.5%. We did a first extraordinary price increase as of July of 3.5% for two product areas only, installation and flushing systems and piping systems. This means on a group level, it has an effect on 2% as of July. And now we implement, as announced before, another selective price increase as of January of 1.5% with 1.5% impact on group. If you add that up, you come to the 5% price increase as of January. Your second question referring to our chart page 16 in our presentation showing the raw material price development. You are right, this is the raw material price index, how we buy, but there is a delay effect from these raw material prices on our P&L of typically two to three months. And the third question regarding pricing in 2022. We have not yet finally decided how we will treat the regular price increase as of April 2022. It depends obviously on the further development of the raw material prices, but we will react once we have a better understanding how we go into the year with the raw material prices at the level development at the beginning of the year. Thank you very much. You're welcome.

and a question from Daniela Costa. Your line is now open. Please go ahead.

Thank you very much.

First, one clarification question on the 5% and the RO-MAT increase together, because your RO-MATs to sales are about, last year they were about 26% of sales, so the 13% increase would be something like 3.4 percentage points of margin headwind, and you're upping prices altogether by 5%. So do you expect maybe towards the second half of next year to actually have a sizable tailwind from net pricing? And why wouldn't that happen? And then the second question, more broadly into the medium term, your 28% to 30% margin targets. You obviously have a very challenging year with the headwinds on raw materials, and you're likely to do above that.

what would take you down in the medium term to the 28 to 30 or is that just a very conservative medium term assessment thank you question number one the margin interest of a sales price increase of 5% is not 5% point it's limited it's only around 3.5% if you do the math you will find out it's only around 3.5% and that compensates exactly as you laid out the expected raw material price increase around 30% this year. Question number two, we do not intend to change our mid-term guidance for our ABDA margin of 28% to 30%. We expect that we will be above this corridor this year, very much driven by special effects. We will definitely, over time, come back to 28% to 30% because we want also to invest into the business. We have several activities. One example, digitalization. I know also last year, this year, one of our initiatives that we further invest into the business, one of the drivers why we expect to be mid-term again between 28% and 30%.

The next question is from Andrew Cookman, Credit Suisse. Your line is now open, Sam.

Good morning. Thank you very much for taking my questions. Can I start with one on the slowdown in the home improvement trend that you mentioned several times during your presentation? Could you share with us what indicators that you're monitoring that are pointing in this direction, or is it something that you're picking up directly from your sales organization? And could you give some color on that maybe geographically or in terms of order of magnitude?

There are two basic indications. One is our own test development. As you have seen, ASCOs have developed weaker than the other two product areas. That's one indication. And the second one is that we hear in the market from customers that they have less zone visits. I can't provide you a number, but the frequency of drones seems to come down. That's the second indication. why we believe it could be a start of a lower whole improvement trend that we have seen in Q3.

That's very helpful, thank you. And just kind of follow up to this, that four-point sequential slowdown that you saw in Q3 versus Q2, if we adjust for the base effect at the group level, how much of that in your estimate was kind of restocked in Q2 that wasn't the case in Q3 versus that underlying slowdown, or is it too early to talk about the underlying slowdown per se in Q3?

No, it's not too early, but it's unknown, because we do not know, as you know, the inventory effects of wholesalers. We don't have any quantification. Therefore, I can't give you a precise answer, and I will not be able to give you a precise answer at the beginning of the year. We just don't know.

Thank you. And lastly, on labor, is there anything we should look out for Q4 in terms of rates or kind of sequential development, or would you expect it to be following the usual seasonal pattern? And anything you would highlight for 2022 at this stage for labor?

In terms of labor wage inflation, that will be all different materials in Q4 than what we have seen in the first nine months. but for the next year that will be definitely one of the challenges we expect with the higher wage inflation as of next year.

Any indication of degree of how much? Not yet.

No, sorry, we are not able to provide any indication at this moment because as you know a large part of our personnel costs are negotiated between AG representatives and company representatives. These negotiations are still ongoing, therefore I can't provide you with any indicative figure. But it's clear that the wage inflation next year will be higher than what we have seen and expecting for the full year this year, which is around 1.5% this year. That's very helpful.

Thank you very much, Christian.

You're welcome.

The next question is from Yessin Chari on to your investments. Your line is now open. Please go ahead.

Yes, good morning and thank you very much for taking my question.

So I would ask two questions. When we look at your margin in 2022, I understand that you are expecting to offset the raw material concentration. But at the same time, energy concentration is a headwind. You just suggested that wage inflation is going to be a headwind. Does it mean that everything else being equal your margin in 2022 might be a little bit lower than the 30-31% guidance that you're giving for 2021. And then my second question is on the volume outlook.

We see in a lot of building material industry an issue related to labor shortages, which is impacting the logistics, which is impacting also the work sites completion.

Do you see any impact of labor shortages for your clients or for the overall market?

Thank you for the question. Number one, we don't provide any guidance for our margin 2022 at this point in time. As you know, we only provide margin guidance for the running year with our H1. results. Therefore, I don't want to go into details of your first question. Number two, I'm not sure if you were talking about labor force on construction sites and if these bottlenecks lead to delays or maybe stops of production activities, or if your question referred to gabbering, that we have heard of labor. Both for the logistics and for your logistics.

and your ability to deliver clients and for the ability of a construction site to operate. The two bottlenecks that we've seen in other building materials.

On our side, we do not have any material issues with labor shortages. With one little exception in the U.S., we are struggling to get people for our manufacturing plant and there we feel some impact of labor shortages but with no material impact on the group because the U.S. is relatively small for us. from customers or in the market, yes, it is a tight situation and we hear that certain projects are delayed from time to time, but I would estimate that until now it does not have any larger material impact on our group sales.

Thank you very much, Michael. You're welcome.

The next question is from Christian Kors, HSBC. Your line is now open. Please go ahead.

Good morning. Thank you very much for taking my question. I would like to ask if you could please update us on the status of the order backlog of German numbers and how that currently states. And secondly, just on the price increases, I think you said during this conference that you will raise prices on selected products and selected markets. I just wanted to ask if you can maybe elaborate a little bit on this.

if it's similar to the increase you did in July, like installation and flushing systems and piping systems, or is it different this time?

And last but not least, let me thank you very much, Roland, for the long-standing service, an excellent service to the investment community, and obviously I wish you the very best of luck for your personal future. Thank you very much. Thank you.

First, I completely agree with your third comment. and please come back to that at the end of this COVID call. The first question about the order backlog of installments in Germany. The latest number is that there is an order backlog of 13.9 weeks. Again, a new record level. It's around 15, 15% above pre-COVID level. And the second question is selective and it's only price increases as of January or which we implement in Q4. It's different to July because it's not across all geographies, collectively company by company, and it's also per category, product category different. So we try to leverage our position in the various markets versus competitors and optimize pricing positions. So it's a bit different to the July. price increase very geographically homogeneous price increase just selectively on your product categories and this time it's in both dimensions selected all right thank you very much and that is going to be from december 1st or That depends. Some of the countries are doing something in November. Others will be as of January. So that's why I said the impact overall will then be 1.5% as of January. It depends country by country. Sometimes even product differentiated.

Fantastic. Thank you very much.

You're welcome.

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

Thank you and good morning everyone. Two questions for me please.

The first one would be on Benelux and the ongoing strong momentum you see there.

Can you add a bit more color on what's driving this strong growth and how you think about the next quarter? And the second question is on the group level. Just piecing together what you've said so far and what you've published in the morning, it seems that, as you mentioned, October was still slightly up, but the guidance implies somewhere flattish Q4 in local currencies.

and maybe slightly down, slightly up.

So are you assuming that maybe with the base effect from the pre-dying in the UK and Russia last year, the German VAT reduction effect, that your local currency growth will turn negative in the next couple of months, November, December? Is that how we should think about Q4? Thank you. question of the one that's going to develop a little bit of the Q3 was made by a base effect. We had a relatively weak Q3 last year that was driven by our brand harmonization in the Netherlands. You might remember that we replaced the local ceramic brand last year in the Netherlands by Gibrate and had a negative impact last year, which led to a positive base effect this year. There's nothing other than this base effect in Benelux responsible for Q3. Therefore, we also expect for Q4 in Benelux nothing special. The second question, we are not negative with our expectations for Q4. but we are relatively broad in our range. And it could be negative, but it could be also positive. And the range is relatively broad for a very simple reason. As I said during my introduction, the uncertainties are still very high. If we would have thought at the beginning of the year that we didn't see such an economic development in all the states, then we would not have believed it. And I think we should, exactly in this situation, be a little bit more humble and not believe that we can predict the future, even if it's only short-term. The uncertainties are really high. Therefore, it could be negative. It could also be positive. Thank you.

Okay, thanks. Thank you.

The next question is from... The line is now open. Please go ahead.

Yes, good morning. Well, although Christian Kort already took up the subject, I still would like to add a few remarks for Roland. I hope the others will accept that. As it is, this is your last conference call and this conference after 17 years of serving as a CFO. So, as I already accompanied the IPO in 1999 and was also present when you were appointed as a CFO, I feel somewhat qualified to thank you, hopefully also in the name of many other investors and analysts, for your great work over the last 17 years as a CFO of Gabrit. I think you were able to build a strong trust with investors through a high level of reliability, all combined with this virtual position. And above all, you're a great guy with a great sense of humor, and that's the most important thing. In this sense, I would like to thank you once again for your excellent work as a role model in my eyes for CFOs and to extend my best wishes for your future with a bit more time for other things than just numbers. So, that's it. Thank you. Thank you, William.

Thank you. Thank you very much. I can't comment that or it can't be better from the first than what you did, Raymond. You're absolutely right in that. Also again, from my side, thank you. So no questions, Raymond Rosenau, please turn. Today, I trust that Roland will hand over a very good result at the end of the year.

Thank you.

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

Good morning, everybody. How far could the lack of magnesium have an influence on the building industry and therefore on Gibraltar in the coming months? And the second question would be, could you tell us about your expectations for 2022, not meant as an out-of-court guidance, but just in general.

Thank you. The magnesium topic is quite difficult to give you a precise answer. Obviously, you need magnesium for some metals. Some of these metals are going into building. I think the key point is we should be aware that the building industry has one challenge, that we all are component suppliers. And if there's one major component missing, that has an impact on the rest of the construction site, and that triggers a certain risk, be it magnesium or something else. Therefore, I think that is one of the risks and also what I said before, the reasons why it's highly uncertain how the business will develop because it can come up with something like magnesium or something else which might have an impact on a component or a couple of components of a building that will delay projects. Is magnesium really impacting at the end? I don't know, but there are considerable risks in general at the moment since supply chains are still highly disrupted. And that is also the answer to your second question. Even though I don't want to give an outlook for GEBRI in terms of sales and margin, I think it's also, again, in general, very difficult to give an outlook for the next year. Again, who would have thought just two months ago or three months ago that energy prices will explode over a couple of weeks, even days? No one knew. And therefore, I think the uncertainties are so high, and I'm not pessimistic. I think I'm just honest that I say I don't know what really will happen. Therefore, I can't give you a better answer than that to your second question.

Thank you very much.

The next question is from Martin Flückiger, Kepler Schleswig, your line is now open. Please go ahead.

Good morning, gentlemen, and thanks for taking my question. Same for me. All the best for the future. Just coming back to your question Christian your statement regarding selling price increases clarification question to start off did I understand correctly that the selling price impact on the Q3 EBITDA margin was plus 280 bps that's my first question then on the second question is regarding the net pricing impact that we've seen in Q3 which what was it again minus 130 bps I was just wondering what your view is on that number for Q4, whether you still think that it's going to be around 130 bits negative net pricing impact or whether we're going to see any deviations here because the year-over-year comparison for raw material prices in Q4 last year, of course, is somewhat different than it is for Q3. And then my third question would be on, again, referring to your EBITDA margin bridge for Q3, is this impact that you've recorded as, again, 130 bits negative from other cost effects. And my judgment is that this is sort of a bucket that contains many different impacts like personnel, like marketing, traveling, and so on. I was just wondering here what the main driver to that 130 bps was and whether you yourself were surprised that it was maybe a little bit lower than what you had anticipated. Thank you very much.

Question number one. The price increase, net sales price increase effect in Q3 was plus 2.8%. And this leads to a positive margin impact on the ABK, somewhat lower, of roughly two percentage points. Second question, demand pricing in Q4 will be substantially more negative than what we have seen in Q3, because raw material prices in Q3 went up by around 18%, and as I said before, there's a timing and delay effect of two to three months until this raw material price increase will hit the margins or the P&L in June 4. And the third question was the drivers for the negative effect of the ABTA margin from other costs in June 3. The two main drivers there were marketing costs, which is some of the normalized versus the unusual low level last year. And secondly, I mentioned it before, the strong energy price increases in June 3. Of course, they are not part of prices. They are part of other costs.

Great. Thanks.

The next question is from John . Your line is now open. Please go ahead.

Good morning, gentlemen. Thank you for taking my questions. A couple, if I may. You said, Sybil, that overall your price increases will then be about 5% more in January next year compared with January last year. But then obviously when you come to April, you have your normal price increases. Do you think your customers will accept further price increases on top of this 5% in January? So is there room to maneuver in April and possibly increase prices then or above if raw materials continue to increase? That's my first question. My second question is, in addition to raw material pricing increases, what other sort of things have you been doing to kind of overcome the raw material input cost inflation? I know productivity gains or what sort of things can you do to kind of overcome this pressure? Thank you.

First question, we did not yet decide about our regular price increase as of April next year. That will depend on the further raw material price development in the coming weeks. Therefore, I can't give you yet an answer to this question. And number two, what other levers do we have to mitigate this highly inflationary environment in terms of input costs? I would say that business as usual, what we do normally, continuously increasing our efficiency. For example, in our plans, in average per year, we increase our productivity by around 3.5%, by the way, also throughout this crisis. So this is continued efficiency gains in the various areas of the organization. What we do normally, that is, of course, also another answer to mitigate inflation of input costs. Thank you.

The next question is from .

Yes, good morning. Thank you for taking my question. I have one actually. I would like to go back to the midterm ABTA margin guidance. You say with time you will move back into that range, 28 to 30. If I take the midpoint, 29, it's about 4% below the current level. And this seems to me quite a big jump down. So I wonder, what should I look at in your numbers or any cross-line that will indicate me that this trend will really, that the current trend will really change and move towards that direction? What are the levers I should look at?

You should look into the seasonality of our FTA margins. That's number one. As you know, in the first nine months, we had systematically higher FTA margins than for the full year. Therefore, it's wrong to compare our nine-month FTA margin with our full-year return guidance. That's number one. That explains a large part of this focus. And secondly, as I said before, First of all, we see an impact of increasing raw material prices also short-term. And secondly, also the longer run, we have projects, for example, digitalization investment needs, for example, into IT capacity. We did it last year, also this year, where we have to invest to ensure that we achieve the top-line growth that comes along with our ambition and target to be mid-term in the range of 28 to 30%.

Thank you very much. Good morning, gentlemen. Two questions on my side. Firstly, more of a general market question. Property prices are moving higher everywhere in Europe, sometimes at double-digit rates relative to a year ago. I appreciate interest rates are still very low, but do you see a risk or are you already seeing a potential impact on consumer budgets for renovation? So they have to spend more to buy a house or to build a house. Therefore, when it comes to renovating the bathroom or building the bathroom, there is a smaller budget available for your products. That would be my first question. And secondly, on raw materials, We're seeing some materials still moving higher, some others starting to fade a little bit or coming back down. Can you give us an indication if you are seeing already some signs that some of the materials that you consume are stabilizing or if they continue to increase? Thank you very much.

The first question, I would say so far we do not see on a broad scale or very systematically a challenge that consumers stop their investment decisions because of increasing basically construction prices. But I believe it is one of the risks also for next year when all these price increases will hit more and more. Can consumer paying for his renovation or that this might lead to delays or even stop of certain projects? So far, I would not confirm that we have seen it on a broad scale. And the second question is the somewhat lower increase of raw material prices in Q4 versus the first nine months is driven by a certain stabilization of plastic raw materials on the high level, obviously, but there we see more or less stabilization at the moment. We expect it also for the next one, two months. contrary to industrial metals, the second part of our raw material, sorry, where we see still an increasing environment.

Thank you very much.

The next question is from the excellent Morgan Stanley. Please go ahead.

Thanks very much. Hi, Jane. I've got three questions. The first question, just a point of clarification. Did you say that your order book is only two weeks? Second question, could you please give us the realized raw material price increase in your Q3 numbers, both year-on-year and sequentially? I always thought your guidance was a P&L increase. impact but it seems that it's more a buying impact and actually the P&L impact is a bit delayed so the sort of color there on the realized price would be helpful and then just on a more medium term view you're guiding that we should still think about margins being 28 to 30 percent over the medium term and in that context if raw material price is corrected significantly would you be thinking about an extraordinary price decrease per se in other words reinvesting in your customer base, considering the importance of your distribution channel to the business going forward. Thank you.

Question number one, correct.

The typical order book is around two weeks in our business. Question number two, I'm not 100% sure if I understood it correctly. I think you were asking what was the impact on the margin of raw material prices into three. That was around 12.

Sorry, let me clarify. So you said that you had an 18% increase in raw materials year on year and you had a 6.7% sequential increase, but that's on raw material prices. But what's the actual P&L number?

It's a little bit less than the 18% because of the delay effect. It's roughly 12%. which was then impacting the P&L in Q3.

Perfect, thank you.

And the third question, obviously we are not thinking about decreasing prices in this environment. And also there, I can't give you a precise answer. We will obviously decide along the development. I think the important part is that over time, we intend that this is our strategy to compensate raw material price inflation. And we have done that also in the past. We even overcompensated. If you take the period 2016 up to 2020, the five-year period, the positive impact from sales price increases and environment with lower raw material prices was 450 basis points in these five years. So you see, we are also capable in an environment with all your material prices to keep our sales price levels. But obviously, it will be a decision case by case. And as you said, always also balancing our customer relations with the optimal price point.

Great. Thank you so much.

You're welcome.

The next question is from Emma Vavich. My name is Emma Vavich.

Thank you very much. Just one question on the energy practice. What is your exposure to natural gas as an energy source and can you hedge this cost in advance and how much can you hedge and how long in advance?

Our total energy cost in 2020 was 45 million Swiss francs and that is roughly 50% gas and 50% electricity. Basically, we are not hedging these costs, but there's a certain, let's say, natural hedge because we have timely contracts. And these contracts give us some hedge at the moment. For example, we didn't see the Q3 a very strong energy price increase because some of these contracts are still old and lower prices.

All right. Thank you very much.

You're welcome.

and the next question is for Martha Bruce-Brown, Barenbath. Your line is now open. Please go ahead.

Hello, good morning. Most of my questions have been answered already, but I have one flow-up with regard to the raw material price. Your guide for increase in Q4 versus Q3, to my understanding, was at 3%. And I was just wondering which exactly raw materials would be driving that increase. You mentioned metals, but I would like to it would be a little bit more precise which metals you are using in a significant amount would drive that increase to have one drop.

You're correct, 3% sequentially versus 2%. 3% is mainly driven by industrial metals.

Which of the metals?

I can't give you a specific one. Steel, it's quite hard to say which one are the biggest, but it's part of the example.

So you are buying the steel now that it's at higher prices than you were buying it in Q3?

Sorry, I couldn't hear it acoustically. Can you say again?

Sorry, so you're saying that you are still buying steel at the prices that are now higher than they were in Q3?

In Q4 you mean?

Yeah, well, now it's Q4, right?

Yes, it's correct.

Okay. And, okay, then I guess you can rationalize it like this to your customers when you ask for increased prices because you have to. I mean, I was just wondering, you know, because when I look at the raw material prices, no matter how they seem to, to me to becoming off the peak currently, still at high base, but still coming off the peak, so I was just wondering how you're going to rationalize your further price increases in Q4, but if you're still paying high prices, then maybe that works. Thank you, then.

Thank you. The next question is from Christian Arnold. Your line is now open. Please go ahead.

yes good morning gentlemen um also first a very warm thank you to you Roland for your outstanding support the last 15 years uh it was great to work and travel with you and so thank you and all the best for your future thank you then um yeah i have one two questions um on your extraordinary price increase uh in q4 i wonder When did you announce that to your customers? So thinking of potential pre-buying effects in Q3, if you have announced that already in Q3, or was it only in October?

I can't give you a sure answer because it depends country by country. Some of the companies we have already announced it. In others, we have not yet announced it. if your question is did we see any effects in Q3 pre-buying effects due to this price increase that of January of the 8th there I would say no no we didn't see any pre-buying effects in Q3 due to this second extraordinary price increase and related to that thinking of the inventory levels of your customers are they high are they low

Would you expect then on the back of these price increases some pre-order effect in Q4?

Very different question. As usual, we believe that the inventory level of wholesalers of annual Q3 are still relatively high, maybe not as high as what we have seen end of June when we did the first external price increase on a large part of the assortment. And therefore, it's also quite difficult to predict what the pre-order effects might be in Q4, maybe a little bit less pronounced than in July, because the metrics are already relatively high.

Okay. And then my second question would be, you were saying that you or your customer have observed higher, no, lower, showroom visit in Q3. I wonder, is that a sequential statement or a year-over-year statement? And I believe in Q3 you probably have people, especially this year, the random holidays, as they were not able to do so the last couple of years.

I believe it's both. It's sequentially, by normal technology, of course, but also compared to last year. Or in other words, it could also be that last year in Q3, due to the holding group and the showroom meeting we're ready I he because I remember you to show rooms were in many countries also close going to gradually and also on a year-on-year compares the base okay thank you welcome my question is from PR you know but he's your mom is mad and people thank you

Good morning, gentlemen. I'd like to come back on your market shares. Would you have an assessment of your current gains versus competition? Could you explain internally what the main drivers are and externally if competition is still impacted by supply chain disruptions? And perhaps more mid-term, how would you see your market share evolve if you think that the current level that you have is sustainable over time? Thank you.

First question about market share gains in the first nine months. We never comment market share gains quarterly or in nine months. We only do that on a yearly level. Therefore, I can't give you a precise answer, but we are pretty much convinced that we are currently gaining market shares, especially also last year throughout this crisis. What are the drivers? In one word, availability. Availability, not only in terms of products, as I said during my introduction, we do not have any material issues, disruptions in our supply chain we can deliver. But availability also in terms of customers. You might remember that we consciously decided last year that you don't need to do short-time work during the lockdowns to make sure that we stay with customers. We even increased our customer presence. So it's availability of people, availability of products, and maybe a third availability element is cash that we were also prepared and that we also invest throughout this crisis in various areas, for example, digitalization, and that also helped in this unprecedented environment. And the third question, sorry, going forward, do we expect further market share gain? Yes, this is part of our strategy. Our initiatives always target, of course, market share gain, differentiated, obviously, by regions, in regions where we have stronger positions, obviously, with less, and regions where we are underpenetrated, obviously, with a higher market share gain expectations but we didn't change our expectations in terms of market share gains driven by the COVID-19 crisis. We benefited during the crisis and maybe still now from larger market share gains, but once we are back to a normal world, we expect relatively normal market share gains, but we have seen also before the crisis.

okay thank you very clear and maybe just one small blow up you mentioned some elective shortages for some categories or some construction or building products do you have a more precise comment on the kind of product categories that are there it's less than a handful of products can give you one example it's electronic faucets in the US

where we have two challenges, issues. One is components, electronic components, which we need, obviously, for electronic faucets, but also a labor shortage in our three plants in the U.S. But as I said before, this one example has an impact on the U.S., obviously, but it's not material on group level because share of U.S. sales is only 3%.

And for the industry as a whole, do you have a view? What do you mean by the industry as a whole? For the construction industry as a whole, are there specific product categories that are really involved right now? I don't know.

We can only talk about the sanitary world.

Understood. Thank you.

And we have a follow-up from Yves Aumet, Exxon BNP Paribas.

Yes, hi, sorry, just a quick one. I just wanted to understand how much of your bathroom system, ceramic bowls, is actually outsourced? Do you have a percentage? And I guess related to that, I think that one of your competitors did see a bit of a faster growth in Q3, and we assume that there is some logistic issues in some harbors in Southern Europe that is limiting the ability to get access to some of your outsourced capacity.

So first answer, the share of outsourced ceramics is very low, not material, within our ceramics business. And secondly, as you know, it's about quality to common competitors, especially not on a quarterly basis. Thank you very much.

And there are currently no further questions, so I hand back to the speaker.

So, thank you for your participation and you already did it before what I wanted to do now. Very briefly, to say thank you to Roland. It's, I think, your 65th conference call and presentation. Thank you very much for a great work. It's really a legacy. It's an end of a year here at GIPRIT. It was not only professionally a great pleasure, also personally a great, great pleasure to work with you and we will have a couple of opportunities the next two months to say goodbye and to celebrate your 17 years. But it's the last time that we have the availability to talk to the investors and the analysts. Unfortunately, it's not a full year presentation because I would love to say now let's grab a glass of wine and say cheers to Roland. Unfortunately, it doesn't work. But maybe if you have time for the full year presentation next year and you want to join as a guest, we invite you. And we can do it physically. We invite you for a glass of wine if you're not somewhere on the globe traveling or whatever. So thank you very much. Thank you very much, Christian, for the kind words. It's been a great pleasure. also for me over the 17 years of CFO to prepare these quarterly, more than 60 quarterly presentations together with you, Albert, in the first days or first years, Roman and the team. Obviously, it has been a great pleasure also because most of the time you could present good numbers. It makes it a little bit easier. Thank you very much also to Venmo, Christian, Charlie, Martin for your kind words before. It has been a great pleasure to work together with all of you listening to the call, the analysts, investors. A very great collaboration, interesting collaboration. The feedbacks we received were always also very positive. and beneficial for us. So I wish all of you also all the best. Unfortunately, I will not be able to meet all of you during the upcoming roadshow. Some of you I will. Then we can take a goodbye personally. But for all the others already now, all the best for your future. It's been a pleasure working here, being in contact with you. Thank you very much. Thank you. We wish you all a great day and thank you for your participation.