Geberit AG

Good morning. I am the NTT operator for this conference. Welcome to the Gaborit conference call on the first quarter 2022. Please note that for the duration of the presentation, all participants will be in a 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 this conference call, they may signal an operator by pressing star and zero on their telephone. This call must not be recorded for publication of broadcast. At this time, I would like to turn the conference over to Mr. Christian Buhl, CEO, accompanied by Mr. Tobias Knechtle, CFO, and Roman Siedler, Head of Corporate Communications and Investor Relations. Please go ahead, sir.

Thank you for the introduction, and good morning, ladies and gentlemen, and welcome to our conference call on our Q1 result. Gabriela had a good start into the year. Let me start with the key statements for the first quarter. We achieved an extraordinary strong sales growth in local currencies of 30% despite a very strong comparison basis. Secondly, significant headwinds from the unfavorable currency development led to a strong negative net sales impact of minus 5.2%. Thirdly, the unprecedented surge of raw material and energy prices led to a reduced but still excellent APTA margin level of 30.9%. And finally, despite the margin decrease, we managed to grow all bottom line results in local currencies thanks to the strong top line. APTA, for example, increased by 2.5% or EPS by 3.7% in local currencies. Let me now comment on our next stage development in more detail. Net sales in Swiss francs increased by 7.8% to 980 million Swiss francs. The unfavorable currency development negatively affected net sales by 48 million Swiss francs, or minus 5.2%. In local currencies, group net sales increased by 13%. Half of this growth was driven by increased sales prices of 6.4%, in average across the portfolio and geographies. This price increase is somewhat stronger than expected due to favorable mixed effects. The strong volume growth was achieved despite an already strong previous year's level and was driven by a still strong building construction market with a still healthy home improvement trend, some forward buying effect due to sales price increases, and one additional working day. I come to the regional development. All figures refer to growth in local currencies. In Europe, net sales increased by 13% with growth in all sub-regions respectively countries. The war in Ukraine did not materially affect sales in Q1 since sales in Ukraine stopped only as of March and demand in all other Eastern European countries remained to be strong. In Middle East Africa, net sales increased by 15% with growth in all major countries. Net sales in Asia Pacific grew by 20%, driven by strong growth in India and North Southeast Asia. In America, net sales were up by 5%. Let me now comment on the sales development per product area. The strongest growth was recorded in piping systems with a net sales growth of plus 19% in local currencies. driven by a stronger price increase compared to the other two product areas and a very good development of the new flow fit piping system. Installation of flushing systems net sales grew by 14% and bathroom systems net sales grew by 6%. The lower growth of bathroom systems was driven by a stronger base effect from the strong Q1 2021 and smaller sales price increases in bathroom systems compared to the other two product areas. I will now comment on the operating and financial results. APTA in Swiss francs decreased by 3.7% to 303 million Swiss francs due to the substantial negative currency effect. Local currencies' APTR increased by 2.5%. The APTA margin decreased by 370 basis points versus the record high level in the previous year. and reached a still strong level of 30.9%. This is slightly below the pre-pandemic margin level of Q1 2019. Main negative margin drivers were an exceptional strong raw material price increase of 24% and an unprecedented energy price increase of 94%. An average wage inflation of 2.3% and lastly, the strong devaluation of several foreign currencies with a negative impact on the ABTA margin of 50 basis points. The positive drivers for the margin were safe price increases of 6.4% at the operating leverage from the strong volume growth. The EBIT margin decreased in line with the ABTA margin by 360 basis points and reached 26.8%. Net income in Swiss francs decreased by 5.3% to 220 million Swiss francs, driven by the negative currency effect. Earnings per share decreased disproportionately due to the share buyback program by minus 3.7% to 6 Swiss francs 29. In local currencies, EPS grew by 3.7%. The share buyback program has been accelerated in the first quarter with 341,000 shares bought back in the first three months for a total consideration of 207 million Swiss francs. In the preparation of refinancing of our 300 million Swiss franc bonds, which is due in October this year, we launched mid-March a new standard Swiss franc bond in the amount of 150 million Swiss francs with a maturity of 5.5 years and a coupon of 0.75%. Let me now comment on the current business environment. The demand for building construction is still strong, both for the residential and non-residential sector, but also for the new build and renovation segment. The trend to home improvement is somewhat weaker, but still healthy. Price inflation and increased interest rates had not a broad-based impact on demand so far. On the one hand, due to the general time lapse in our industry, and on the other hand, due to the substantial backlog of building projects. Our supply chains are intact, albeit the situation is extremely tense. Thanks to extraordinary efforts of our supply chain organization, we still manage to get the relevant raw materials and logistic capacities without major impact on the availability of our products. Overall, we achieved a good sales level in April with a mid Let me now briefly give you an update on the situation in Ukraine and Russia. Our business in Ukraine and Russia accounts for around 2% of group sales. Most of our 590 employees in Ukraine are at home or in the western part of the country. Only a few employees fled with their families abroad and were received by different organizations in other countries. several Ukrainian employees are drafted to the army or voluntarily supporting the civil defense. Our office in Kyiv and our plant 300 kilometers west of Kyiv are unharmed. Since the war activities have been shifted more to the eastern part of the country, the situation in Kyiv and in the area of our plant has calmed. Therefore, the local team decided to restart production in the plant again However, on a very low level and only as long as the safety of the employees is not at risk. In Russia, we suspended all business activities per end of March. However, we continue to pay the salaries of our 70 local employees. We have developed contingency plans for our ceramic plants in Germany and Poland in case of delivery interruptions of natural gas from Russia. The basic idea is to prepare these plants to switch to the alternative LPG gas. All other ceramic plants are not at risk since they operate in countries which are not dependent on Russian gas delivery. Let me now comment on our outlook. We live in a new world of realities where one crisis follows another, creating one challenge after another and unprecedented uncertainties and risks. The war in Ukraine increased geopolitical risk and further increased the already pre-existing supply chain issues and disruptions from COVID-19. Furthermore, the global fight against the COVID-19 pandemic is also not yet over, as the renewed outbreak and the massive lockdown in China have demonstrated. In the light of these developments, raw material and energy prices continue to surge to new historical price and deflation levels, pressure on wage inflation, and an increased interest rate. In this unprecedented environment of multiple and overlapping crisis, a serious and reliable outlook and forecast is not possible. However, despite these unknown environments, we have defined the following priorities for 2022. First, consequent pricing management to address the extraordinary raw material price inflation. In Q2, we expect a further acceleration of raw material prices. Overall, we expect raw material prices in Q2 to be around 10% higher than in Q1. This means that raw material prices in Q2 will be around 28% above the level of the previous year's second quarter. This is why we decided to implement another extraordinary price increase. We will increase sales prices in average across product areas and countries by 7.5% as of July this year. With this, we stick to our goal in pricing management to compensate raw material price inflation, not on a quarterly basis, but over time. The second priority this year are our newly introduced products with a strong focus on our new supply piping system, FlowFit, which we roll out to further countries this year. Thirdly, we will continue to execute various important capacity expansion and improvement projects along our strategic agenda, for example, in the area of digitalization. And finally, based on our strong balance sheet and strong past generation, we will launch a new and increased share buyback program compared to the existing one. The new program amounts to 650 million Swiss francs and will run over a period of maximum two years. It will be launched directly after the completion of the current program latest in Q3 this year. Let me close our introduction with a short summary and our key messages. GEBRIT achieved good results in the first quarter with an extraordinary strong top line growth, equally driven by price increases and volume growth. Despite massive headwinds from record high raw material and energy prices and record results in the previous year, we managed to grow on bottom line results in local currencies in Q1. Due to the acceleration of raw material price inflation, we will implement another extraordinary price increase in average of 7.5% as of July this year. Due to our strong balance sheet and our strong cash generation, also during times of crisis, we will launch a new and increased share buyback program, latest in Q3. The overall demand for the building construction industry remains strong in all relevant market segments based on a somewhat weaker but still healthy home improvement trend and a solid backlog of building projects. However, A longer-term outlook is very difficult due to the significant increased geopolitical risk and still ongoing uncertainties in relation to the COVID-19 pandemic and especially the increased supply chain risks. Nevertheless, Gerrit is very well prepared to also master key challenges and uncertainty emerging from the unprecedented environment as demonstrated already several times in the past. Our confidence is based on our resilient strategy and business model our price and power, our strong innovation capabilities, our continued efficient improvement, and finally, our long-term value creation focus and respective track record. Thank you for your attention. We are now ready to answer your questions.

Thank you. We will now begin our question and answer session. If you have a question for our speakers, please dial 0 and 1 on the 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's your turn to speak, you can dial 0 and 2 to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. We have a first question. It's from Yves Bromhild of Exxon BNP Paribas. The line is now open for you.

Good morning, gentlemen. Thank you for taking my question. I'll have two, if I may. The first one is on demand. I mean, once again, you're in the line trends have surprised positively versus your initial expectations, but you're sort of flagging pull forward of demand, first of all, but you're also flagging that April was up mid single digit, which given the pricing that you're putting through would imply volumes are now down year on year. So just wanting to understand here, what do you see? Is it inventories at the wholesale level? coming down anything here that could help us and how do you think about sort of the the outlook for volume if I could say in the near term but also in H2 do you expect any sort of demand destruction as part of the very strong price increases that you're putting through and my second question is could you just remind us you flagged the plus 7.5 in July is that sort of the July increase or it's the run rate in July If it's not the run rate, could you also give us the magnitude of the price increases that you've put through in April? Because you're saying that it's above the sort of run rate of 1.5 that you typically have. Thank you very much.

Thank you for the question. Number one, first, we have not seen a destocking effect of wholesalers in the first quarter. What could have happened post-pandemic? But we didn't observe that. Secondly, volumes are also good in April, as you mentioned rightly. Also driven, but we believe on the backlog of a couple of projects. Therefore, at the moment, we also see a positive environment still for volume. So the second question, the 7.5% is not the run rate. It's on top. It's an additional price increase as of July. So I briefly run you to the price increases which we have implemented this year. At the beginning of the year, we have implemented an extraordinary price increase of around 1.5%, followed by a regular price increase in April of around 2.5%, and now on top to 7.5% as of July.

Thank you, Christian. Sorry, but I was mentioning that actually in April, volumes were down. I think if you're up mid-single digit with pricing up, Already 6.4 in Q1. I would have thought that April volumes would be down. Am I correct or am I missing something?

No, you are correct. The volumes were more or less on previous year's level in April.

Okay. All right. Thank you very much.

The next question is by Daniela Costa of Goldman Sachs. The line is now open for you.

Hi, good morning. I have a couple of quick clarifications actually, two on this and then my other two questions. On the 7.5 that you just mentioned, for July, why would you announce this now? Is there a risk we have also, again, a lot of pre-buy? Just interested on the timing, that's one. Then on the April comment also just now, can you just repeat what exactly you said on volumes? Did you quantify it? Did you say it was mid-single digits? for the volume was it pricing or I'm not sure I've heard it correctly so that's the two clarifications and then just in terms of like my actual two questions personal costs they don't seem to move at all year on year we're hearing a lot about inflation can you talk to like what you're doing to to mitigate this and why these are not going up And the final thing, can you give again the level of inventories at distributors and sort of what you think about the sustainability versus prior cycles of where we are now? Thank you.

The first clarification question, the timing of the July price increase extraordinary was driven by the fact that we expect an acceleration of raw material prices in Q2. I refer to our presentation on page 7, where we provide you with an index chart, how our raw material prices are developing. And from this chart, you see that we expect an acceleration in Q2, and this is the main reason for the timing of our extraordinary prices as of July. I repeat the messages for April. Volumes were on previous year level. Sales were growing mid-single digits. And I finalized by part with the wholesaler question number one will be taken by Tobias. The inventory level of wholesalers are still on a record high level.

And as for personnel, we have slight increases. We managed to compensate any increases with efficiency gains, productivity gains, which were very high again in Q1. However, bear in mind that some of the tariffs increases of 2022 only come into effect as of April, like for example, in Switzerland. But even afterwards, the increases will be clearly underproportional to the other cost factors and to the same increases.

Sorry, how much is the tariff increase, did you say? 2.3% on average. And sorry, on the first question on July, I still didn't quite get it. If it's a 2Q forecast raw material price increase, why don't you put all the prices up already in April?

Sorry, can you repeat the question?

On the first question, on the July timing, I'm not sure I'm still quite clear on this, because if it's a 2Q forecasted raw material price increase that you want to cover for, why don't you already put all in once a price increase in April and give all this anticipation of three months?

Very simple, because we didn't know, first of all, how raw material prices will develop in the second quarter when we decided for the regular price increase as of April. And secondly, you have a normal delay in our industry of two to three months, how you implement price increases. That's a general industry standard. Got it.

Okay, thank you very much.

You're welcome. The next question is by Martin Hüssler, Züricher Kantonalbank. The line is now open for you.

Yes, good morning, and thank you for taking my questions. also about the price increases. Obviously you are the market leader in Europe and you are also kind of the flagship regarding prices. I was just wondering whether you see within your competitors similar behavior or are you the first one to announce price increases for July and does your market intelligence show that you Would you be willing actually to suffer some market trail losses in order to keep prices high but maybe lose a bit on volumes? Just a bit the strategy about volume versus prices, I guess.

I don't want to go into details about pricing development of our competitors. As you can imagine, I don't want to share this part of the market intelligence. you consider that as a very important proprietary knowledge on our side sorry for that but to your second part of the question overall our goal is to gain market shares also in times of crisis also in times of an inflationary environment if that is the sufficient answer to your question no it's not but that's okay and maybe the second question

you still refraining from giving an outlook for the full year and obviously uncertainties are high obviously but would it be too bold an assumption that you would reach in this year your ordinary sales bracket of 4 to 6 percent for the full year I mean you start you had a very great start I think now up to April double-digit I guess you have a strong pricing effect in the second half. On top of that, what kept you away from giving a sales indication in the range of four to six percent?

First of all, also in normal times, as you know, we don't provide a guidance for our top line at this point in time, very much driven by our general low visibility. And secondly, now in these extraordinary times, it's even offered to give any top-line guidance or margin guidance at this point in time. And I think, to be honest, we are right with being very careful with keeping forecasts. If anyone in this call would have expected a year ago that our raw material prices in Q2 this year will be 30% above last year, I think that demonstrates how uncertain the world is at the moment. And this is the reason why we don't want to provide any outlook, our guidance, top line, or also the margin for this year at this point in time.

Okay, thanks a lot.

The next question is by Anu Lehman of Bank of America. The line is now open for you.

Thank you very much. Good morning, gentlemen. Two questions on my side. Firstly, just following up on your comments in the introduction about Russian gas supply, could you indicate us Just on many plants, what is the share of production that is relying on Russian gas supply and anything you can do to switch to another supply? That's my first question. And secondly, just looking down at the details of Q1, I noticed that the operating cash flow and the free cash flow are down and the net debt is also slightly up, a bit more than I expected. Could you give us a bit of caller on these trends, please. Thank you.

I take question number one. Number two will be answered by Tobias. We have in total 10 ceramics plants. Four of them or two of them are in Germany and two are in Poland. And these four plants are relevant plants in terms of volume. What we do, we have developed plants, contingency plants to switch these plants in Poland and Germany to other gas, which is basically LPG gas, because they're currently running all natural gas, also delivered from Russia. And question number two is...

Yes, two questions again. Their first is on free cash flow, why is it down? First of all, it's a normal seasonality of free cash flow going down in Q1. Why is it lower than on the previous year? That has mostly to do with the net cash from operating activities And there are two factors. One is in real currency, the slight decrease of the ADTA. And the other one is higher net worth and capital stemming from accounts receivable, which comes from a low year-end figure, 2021 versus 2020. So it's mostly a timing effect in there. On net debt, which is higher than you expected, your second question. That, on the other side, is mostly driven by the acceleration of the share buyback program, which works on an algorithm and therefore has accelerated the buying.

Excellent. Thank you very much. You're welcome.

The next question is by Mr. Roy of Onfield Investment Research. The line is now open for you.

Yes, good morning. I just have a question. Have you seen any anecdotal evidence of a slowdown or of cancellation in construction projects because of very high cost inflation or because of building material shortage or supply chain disruption? I understand that the backlog is good, but do you see those backlogs being replenished right now? and do you see a risk for the second part of the year or for 2023?

We didn't hear any or didn't feel any impact of the price inflation on a broader base. Also, if you look into our volume for the first quarter, but of course, there are selective individual observations, projects which are a little bit delayed, maybe also a little bit questioned at the moment if it's too high in terms of pricing or not, but not on a broader base at the moment. Thank you very much.

The next question is by Seda Ekblom of Morgan Stanley. The line is now open for you.

thanks very much hi gentleman one question to follow up on the inventory point that you made is there any way that you can quantify the inventory level at your wholesalers you're saying it's at a record high level but I wonder if you could put some numbers around that maybe how much above what you would think a normal inventory level it is in percentage terms or in days of availability just to get a little bit of a sense on on what the risks to volumes could be if we do get a softer macro picture in the second half. Thank you.

I would love to give you an answer, but it's not possible because we can't quantify this stocking effect because we don't get any numbers, figures from wholesalers. So therefore, it's just a qualitative statement and I can't quantify it.

Okay, thank you.

The next question is by Remo Rosenau, Neue Helvetische Bank AG. The line is now open for you.

Yes, thank you. Good morning. Coming back once again to the price increase in July. So this is across the board, including ceramics, right? However, is it fair to assume that the price increase might be a bit lower than 7.5% in the ceramics product range and a bit higher in your traditional product range? That is my first question.

It is correct. It's a differentiated approach as the other pricing, which we lost in this year as well. And The price increases are typically higher in piping systems because the inflation has a bigger impact on piping systems, metals, for example, but also plastics, and it's somewhat lower in the bathroom systems.

Okay. And lower in ceramics as well than in the rest of your product range?

I don't want to go into too much detail. Also, again, due to competitive reasons, I'll give you a channel answer. In terms of pricing of ceramics, the energy, price increases obviously play also an important role.

Okay. Now, did you announce this price increase for July to everybody today, i.e. also for your customers, or did they know that already earlier?

We started it country by country. We started already end of March to communicate this extraordinary price increase, and throughout April, at this point in time, all markets and customers are informed about this extraordinary price increase.

Okay, I mean, given this unprecedented price increase in July, we should expect another pre-buying effect in the second quarter, right? However, in April, volumes were flat, so you didn't see a pre-buying effect really in April yet, but probably we will see one in May and June, right?

I understand your logic, but at the moment, that's... correct observation, and I follow your observation, but that's exactly the challenge at the moment because there's so many price increases. Inventory effect is quite hard anyway to quantify, but to get a feeling, and as I said before, inventory levels are already on a very high level when we announced this new extraordinary price increase, so there are also physical limitations of inventory, obviously. Therefore, it's hard to say how big will be the pre-buying effect of this strong extraordinary price increase at this time.

Okay, got it. Then a clarification. Did I hear that right that you bought back 341,000 shares in the first quarter? And could you also tell us the average price of these 341,000 shares?

We have it on the first page of the presentation.

All right.

Yeah. So we bought back 207 million. That's in Q1 after the presentation. And that's 341,000 shares.

Okay. 207 million. Very good.

Exactly.

And with that, we get to the average price. Okay. I saw it. Sorry that I missed that. Okay. Thank you very much. That's it from my side.

The next question is by John Revel Thompson Reuters. The line is now open for you.

Good morning, gentlemen. Thanks for taking my questions. Could you just give me a bit more clarification and a bit more detail on the Ukraine decision? Is it in Slavuta, the factory, and what does it make? And what was the thinking about restarting there? And also, the office in Kiev, is that reopening? That's my first question. Please.

The Kiev office is still closed, so the sales organizations work from home. And the The plant in La Vuta is a ceramic manufacturing plant. And the reason why the local management with the employees decided to restart production on a low level is basically that the situation has calmed down. Still not normal, obviously, but has calmed down a lot in this region and people really want to start to work again.

And also, could you just give us a bit more detail on the gas situation? You say you've removed four of your plants from Russian gas to another gas. What's the other gas that you're looking to switch to, and how long is this process going to take, do you think?

The other gas is LPG. This is liquid petroleum gas, and it's running on compressed natural gas. So this is the kind of thing. I don't want to go into details in terms of timing. Right, okay. Thanks very much. Okay, cheers. Thank you.

The next question is by Charlie Fernbach, AWP Finanznachrichten AG. The line is now open for you.

Good morning, gentlemen. How is the situation about the availability of materials? Does this have any impact on your production? That's my question. And one clarification question about these ceramic plants in Germany and Poland. Are you just considering to switch to gas or is this decision already taken? Thank you.

The first one, we are able to get raw materials to produce, so we don't have material supply chain issues, but the situation is very challenging. It's really a high operational workload at the moment to get materials, also logistic capacities, But at the end, we are able to use and we are able to keep up a good availability level of our products. And with regards to the plans in Germany and Poland, this is a plan. We did not yet switch. This is a plan if it materializes that there would be a shortage or a delivery stop of Russian gas.

Okay, thank you.

The next question is by Emrah Bazic, Bada Hevia. The line is now open for you.

Yes, hi, good morning. Thank you. Two to three questions. The first one being whether you could give some insight on the regional development, or actually more specifically, which countries developed better and which worse than maybe initially expected. Also, in which countries did you maybe see the highest construction demand? And then maybe the similarly of also regarding the development in the commercial or residential market. Did you see there any large deviations? And then I have a last qualification question.

With regard to the countries, we have been growing first quarters in all the countries or regions which we are looking at. I would say maybe the biggest positive surprise maybe was the strong growth in Eastern Europe. where we haven't seen any negative impact from the war in Ukraine on the neighboring countries like Poland, Czech Republic, etc. Resi and non-resi are going both well. You see that also if you look into our product areas, for example, the strong growth of piping is also an indication that the new build segment seems to be very strong at the moment. And then you had a third question.

Yes, exactly. The first one was just regarding what you mentioned in April, your mid-single-digit growth. Did you mean that in local currencies or in Swiss francs?

Always in local currencies. Obviously, we have a strong currency effect also in April. Yeah, great. Thanks.

The next question is by Alessandro Folletti, Octavian AG. The line is now open for you.

Yes, good morning. Thank you for taking my question. I have a question on the share buyback. You made 200 million in Q1. You're saying that you're completing the outstanding buyback. Let's call it another 100 million in Q2. Make 300. Then you start the the new one, another 300 plus the dividend, you're paying out this year probably 150% of free cash flow. Thereby, you are increasing your leverage. So I wonder why this magnitude and also why now?

So it is correct that the share buyback that was accelerated this year and the slightly increased new share buyback will temporarily increase leverage. However, we see that as a sign of confidence in our overall development and the strength of the balance sheet makes it very easy to do that. I think the increase of the share buyback is a conscious decision. The acceleration is algorithm-based. So that is largely a mechanical effect, and that's why I said also a temporary increase of the leverage is expected and is acceptable.

Okay. Okay, thank you.

The next question is by Martin Flückinger, Kevlar Chevrolet. The line is now open for you.

Good morning gentlemen, thanks. Looking at your main market in Germany, I recently saw that consumer sentiment is now lower than it was in March 2020, i.e. at the onset of the pandemic, and I was just wondering what your thoughts and expectations are for underlying demand going forward and if you could talk a little bit about any feedback you're getting from installers and particularly also their backlog an update here would be really helpful that's my first question The second question is with regards to showroom visits. I'm not just talking about Germany. Actually, I'd be interested across your main markets, the whole range of main markets in Europe. If you could talk a little bit about these showroom visits, the frequency and maybe some qualitative feedback you're getting from wholesalers on those visits. what people are thinking and maybe what that could imply for the second half. That's really my question. Thanks so much.

First question with regards to Germany and consumer sentiment in Germany. We have seen a good demand in Q1 also in Germany, especially also for bathroom systems. And this is not only true for Germany, this is true for the rest of Europe. If you look at our vacuum failed in Q1. We were up in terms of volume compared to Q1 last year, which means that this home improvement trend and also the sentiment at the moment seems to be still quite good. The order backlog of plumbers is at the same level. I don't have any new information. It's still 13.7 weeks. We don't have any new number or new information. Still the same information that we provided already with March. The second question with regards to showroom frequency, also there, same message as mid-March. We hear qualitatively some lower visits, a number of visits in showrooms compared to the, let's say, peak of the pandemic, but it's still a solid demand also in the showroom and qualitative feedback from our customers.

Thanks very much. You're welcome.

The next question is by Manich Beria, Societe Generale. The line is now open for you.

So yes, good morning. So if I read your price increases and try to calculate probably the pricing impact will be something like 10-11% for the full year 2022. And going by your raw material charts, it seems like if there is no further inflation in raw matter, that will increase by 25%. So if you see the math, I mean, the price impact is 350 million and the raw material impact price impact is 250 million. So you are getting a delta of a hundred million here. So, so I mean, I was of the impression that probably you want to just reach price cost neutral here, but, but you are trying to also gain something here. So is it just an anticipation that the raw mat will rise more from here? So, so, so what is the reason? I mean, you are doing pricing ahead of a raw material cost inflation right now.

The reason why we did the 10.5% as mentioned in my introduction is basically the accelerated raw material price increase what we expect for Q2. I refer again to page 7 in our short presentation. I can't give you an answer for the full year because that obviously depends on the raw material price development in the second half of the year. Therefore, I can't give you a precise answer with regards to the numbers and your calculations.

Okay, so I understand that part. And the wage cost, I mean, was down. Why? That's because of currency, right? I mean, and underlying it was still rising. The wage, wage, wage cost, personal cost.

So personal cost, yes, been rising, but perhaps it on the proportional and the other one as well. It's what you see is the currency effect largely as you said.

the third one the last one probably so if I see your volume development on a three year basis versus pre-COVID level so your volumes are up like 19% so that's on an annualized basis like 6.5% or something like that 6.5% volume growth each year so of course it is not normal I mean you were growing 3% now you are at 6.5% so what is your sense at some point do you see a negative volume development or I mean, it can just continue with a flat age to volume group still, I mean.

First, I agree with your numbers. And this is very much driven, I believe, also by the work we have done over the last two or three years, but also how we managed the COVID-19 crisis. And, of course, also driven by some tailwind from the markets, but also by, I think, a strong development in terms of market outperformance of our strategy, penetrating technologies in new markets, upselling our product portfolio, introducing new products. Midterm, however, we expect still a lower volume growth midterm. That is the reason why we also stick to our midterm growth guidance of 4% to 6%, which includes pricing, obviously, but a normal pricing in normal times. So midterm, we don't expect that the volume growth of 6%, 7% is sustainable.

OK, thank you so much. You're welcome.

The next question is by Christian Arnold of Stiefel Schweiz AG. The line is now open for you.

Yes, good morning, gentlemen. A couple of questions from my side. First, maybe again on the ceramic production. Am I right to assume that you have maybe or are pre-producing increasing your inventories in order to secure the availability of these products once the gas stoppage would occur?

Correct. We are producing as much as we can, obviously, in these plants, but demand is also good. but we are producing as much as we can in the plants in Germany and Poland.

And is that only true for ceramic, for these plants you just mentioned, or is it a general thing you are doing right now to increase your inventories to secure mobility?

Basically, the answer is no, because demand is so strong. We have a volume growth of around 6.5% in the first quarter, so everything that we manufactured was also sold, more or less. Therefore, inventory levels didn't really go up in the first quarter.

Okay. On the logistics, you also mentioned there that you were able to actually get all the materials you have. Now, thinking about your production site in Shanghai, there are I believe you mainly produce for the local market, but at least in the past you also produced some products or components for the global market, thinking about wolves. Is there any impact from the port situation in Shanghai that you don't get produced product out of Shanghai, out of China?

We have been impacted in our plant in Shanghai, this is correct, in April for about two or three weeks. not because of shutdown of our plant, but exactly what you mentioned, because of logistics issues. So in- and outbound logistics didn't work anymore for two, three weeks. This is the reason why we had also more or less no sales out from this plant. But as you mentioned correctly, it's only a plant for the local markets. Local means the regional markets in Asia. Nothing relevant for Europe. And the deliveries are starting to work again since last week. So now it's getting back to normal, but we had some issues in the China plant.

Okay. Then on shower toilets, did you go back to double-digit growth in this year? And could you remind me what the growth was last year?

We had a very strong double-digit growth last year, especially in the first quarter, supported by the home improvement trend. This is the main reason why in the first quarter shower toilet sales was on previous year's level. But this is also another indication why we believe that the home improvement still is still healthy. So we more or less sold the same amount of shower toilets in the first quarter this year compared to last year, which was strongly growing last year.

Okay, thank you. Last question maybe on the raw materials. Which raw materials are the most difficult to get? at the moment?

That's honestly a long list of raw materials. And also, you know, some smaller things like pallets, for example, for logistics. So it's really across the board and I can't highlight the specific one. And honestly, it changes also every week. Every week you have a new challenge to find this and that. And some materials which you never thought are really that much relevant, but at the end they are relevant. So it's a challenge across the board.

Thank you very much.

You're welcome. The next question is by Marta Bruska of Bernberg. The line is now open for you.

Yes, hello. Good morning. Thank you for taking my question. Actually, I have one on the left. So with regard to the currency effect on your EBITDA margins, You reported today 50 basis points. I remember very well the discussions from maybe a year or two ago when you were reporting you have a perfect hedge, regional hedge. So we don't have any currency effects. So before that, there were other years that you also showed some currency effects. I just wanted to check what is changing in the business of Gabrit that these currency effects appear and disappear periodically. Thank you.

Your observation is correct. Basically, nothing has changed. We still have, in normal times, a perfect natural hedge. However, there are certain smaller currencies which strongly devaluated in the first quarter, even though the sales proportion of these countries are small. It's like the Turkish lira, the Russian ruble, and it's also Ukraine. And that had that effect, which is unprecedented, but as well will not likely to repeat itself. So the big currencies, euros and dollars, the natural hedge is still and will remain perfect.

Okay, thank you.

The next question is by Chef Stotichik of Mirabeau Securities. The line is now open for you.

Yes, hello. I would be wondering what raw material is used to produce ceramics besides energy and how this raw material price was behaving. And then could you give us maybe an update on the situation of installers in Germany? Has the situation eased or is it still a bottleneck for you? And then maybe you could also give us an update on Geberit 1. How is this system being received by the market?

The major raw material for ceramics is clay and some minerals. However, the share of the cost of materials is low or relatively low compared to other products. The main driver is, especially in terms of inflation now, is energy, but also clay and minerals are We're going up, but not as much as energy. So therefore, the main driver for cost is energy in CRM. Question number two, the situation of German installers is unchanged. As I answered before, the order backlog or the order book of installers is still at 13.7 weeks. That is the same number and the same information as we had in mid-March. Integrate 1 is doing well. especially the WC. We are very happy with the development. It's going nicely and still not material from a group level, but it's going nicely and also supporting our marketing activities in the markets in communication with our plumbers to also demonstrate our strength in terms of technology within a ceramics. So we are very happy.

Okay, thanks a lot.

The next question is by Matthias Pfeifenberger, Deutsche Bank. The line is now open for you.

Good morning, Jens. Hello from Vienna. Two questions. Firstly, a lot of the questions are circling around when volumes would finally turn down. And you're still reporting flat volumes in April despite heavy pre-buyers to record wholesale inventories despite war times, despite people probably... doing a lot of holiday reservations these days and also maybe the focus shifting towards energy efficiency renovation. So my question is, are we or parts of the spectrum here underestimating the resilience and limited demand elasticity of premium RMI and also your scope of market share wins? And the second question is, On margins, your commentaries are suggesting obviously weaker, frequently weaker margins in the second quarter, at least potentially, given acceleration of the raw mats and the price increase only coming through from July. So how much weaker? I mean, could you provide some color? Is the old 28% to 30% margin corridor in reach in the second quarter? Thanks. Perfect.

First of all, we are addressing more or less, especially in Europe, all the market segments, not only the premium, because just driven by our market, for example, for installation flushing systems, we are a large part of the market. Therefore, it's not just driven by the premium. But I think you're right. The volumes which we have seen in the first quarter were strong. They are resilient still in April. And maybe that is a general observation. The building construction industry have always some delays. It's not a fast moving industry also in terms of demand, maybe also not in terms of price elasticity. And therefore, any effects in our industry are a little bit slower maybe than compared to other industries. And as I also mentioned, you have always a certain order backlog where you still have open orders of building projects, which obviously delays certain effects. This is the reason why we're also saying at the moment demand is still strong and we don't expect a collapse right now in terms of volume at the moment. Next question. Marching Q2. As you know, we don't provide any marching guidance for the full year. Therefore, we also provide any guidance for Q2. Just to highlight again, obviously, we will have that clear substantial negative impact from raw material prices the new extraordinary price increase will only kick in as of July. So therefore, it's obvious that we will have strong headwinds.

Okay.

Thanks a lot. The next question is by John Revell, Thomson Reuters. The line is now open for you.

Thank you. I just wanted to clarify a point on the gas, sorry, with the plant. Is that a contingency plan? If you say, is this a contingency plan if you have problems getting Russian gas or are you going to switch to LPG gas anyway? Sorry about that.

This is a contingency plan. We implement it if required.

Right, okay. And you'll change to LPG gas, yeah? To LPG, yes, correct. Thank you. Thank you.

Cheers, thank you. As a reminder, if you want to ask a question, please press 0 and 1.

It seems there is no further questions, so thank you for your attention and your questions. We wish you all a great day.

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