Geberit AG (GEBN) Earnings Call Transcript & Summary

Good morning. I am the [ entity ] operator for this conference. Welcome to the Geberit's Conference Call on the First Information 2021. [Operator Instructions] The conference is being recorded. [Operator Instructions] This call must not be recorded for publication or broadcast. At this time, I would like to turn the conference over to Mr. Christian Buhl, CEO; accompanied by Mr. Tobias Knechtle, CFO; and Mr. Roman Sidler, Head of Corporate Communications and Investor Relations. Please go ahead.

Thank you, [indiscernible]. Good morning, ladies and gentlemen. Welcome to Geberit's full year sales conference call. We will first comment on our fourth quarter sales figures then we review our full year sales performance, followed by our guidance for the financial results in 2021 and finish with an outlook for Geberit this year. I'll start with the fourth quarter. We recorded a strong and a better-than-expected quarter with net sales growth of plus 7.7% in local currency driven by a very strong November and December. Sales growth positively influenced by pull-forward effect due to the extraordinary price increases in Q4. And secondly buildups of [ statutory stocks ] of wholesalers and [indiscernible] also installers due to increase in shortages in the building material industry. Compared to Q4 2019 hence without any base effect form the COVID-19 crisis, net sales in Q4 grew very strong in local currency by plus 14% over the period of these 2 last 3 years. Let me now comment on the development in the various regions. In Europe, currency adjusted net sales increased by 8%. Double-digit growth was recorded in Iberia with plus 24%. In Eastern Europe, with plus 22%, and in Germany, with plus 14%. Single-digit growth rate was achieved in Italy with plus 7%, Nordics with plus 5%, Benelux with plus 4%, Switzerland with plus 2%, France with plus 2% and sales declined in Austria by minus 2%, and in the U.K. by minus 20%, due to the extraordinary strong growth in H1 and the base effect from the previous year. Outside Europe, we increased net sales in Far East/Pacific by 12% and by 8% in Middle East/Africa. Net sales of America was down by minus 2% due to labor and component shortages. The 3 product areas showed again a different sales dynamic in the fourth quarter. Installation & Flushing, and Piping Systems, grew currency adjusted with plus 12% rest of this is plus9%. Bathroom Systems only grew plus 1%. The weaker development of Bathroom Systems might be another indication of a weakening of improvement rate. We will now comment on the full year 2021 sales performance. Net sales in Swiss franc increased by 16% to CHF 3.46 billion, the highest sales level in Geberit's history. In local currency, the growth reached plus 14.7%. This is the strongest annual growth rate, at least since the IPO in 1999. Also compared to pre-crisis level of 2019, hence, without any base effect, net sales grew strongly by 16.4% in local currency. This 2-year comparison demonstrates the excellent performance we have achieved during COVID-19 crisis. This exceptional strong growth was driven by, firstly, a strong home improvement trend induced by the COVID-19 lockdowns. Secondly, inventory buildups of wholesalers due to the inflationary environment and the general fear of availability issues in the building and fuel industry. Thirdly, market share gains since the focus -- since the beginning of the COVID-19 crisis on maximally leveraging the extraordinary environment; and lastly, by our ability to ensure product availability in an environment of significant supply chain challenges and disruptions. Let me now comment on full year sales in more details again in local currencies. In our European markets, we achieved -- sorry, in our European material market, we achieved overall a double-digit growth of 14% despite our high market shares in this region. This is also an indication of the stock buildup effect of wholesalers in 2021. Strongest growth was recorded in Italy with plus 25%, positively affected by the base effect from the lockdown in the previous year. In Austria, we grew by 20% after an already strong previous year. In Benelux, we grew by 14%; in Germany, by 12%; and in Switzerland, by 8%. The growth rate in the remaining European expansion market reached plus 16%. Strongest growth was recorded in Eastern Europe with plus 25% due to several ForEx induced price Increases in several Eastern European countries. Iberia grew at plus 25%, driven by positive base effect due to the building construction lockdowns in the previous year. Net sales in France were up by 16%; in the U.K., by 13%; and in the Nordics, by plus 8%. Let me now turn to the region outside Europe. Net sales in Far East/Pacific were up by 29% in 2021, substantially driven by the positive base effect from the heavy lockdown in India in the previous year and the strong performance in China. Net sales in the Middle East and Africa region increased by 26%, despite a very difficult environment in South Africa last year. In North America, net sales increased by 5%. Let me now comment on the sales development per product areas, again in local currencies. All 3 product areas delivered strong growth rates in 2021. Installation & Flushing Systems, net sales grew by 18%; Piping Systems, by 15%; and Bathroom Systems, by 10%. The business development of Bathroom Systems versus the 2 other product areas is driven by stronger inventory effect in Installation & Flushing, and Piping Systems, and signs of a weakening home improvement trend in the second half of the year. Let me now comment on our guidance for our 2021 financial results. The EBITDA margin for the full year is expected to reach around previous year's level of 31%. This implies that the negative effects from substantially higher raw material prices, higher marketing and travel costs, and investments into digitalization in 202,1 were compensated by the positive effects from the operating leverage of the strong volume growth, and sales price increases. The expected stable profitability level in 2021, demonstrates the strength and the high flexibility of our operations, being able to react to an unprecedented volatility in demand, starting with the sales collapse in Q2 2020, following, followed by 1.5 years of an unexpected and historically strong growth period. The full year tax rate in 2021 should be around 15%, and CapEx is expected to be around CHF 170 million. Before I come to the current business, let me briefly update you on our share buyback program. We bought back 250,000 shares, last year. In total, we have bought back now 344,000 shares under the [ running ] program launched in September 2020. Let me now comment on the current status of the business. The biggest current challenge remains the supply chain and the raw material availability. We still manage to get the relevant raw materials, labor force, and logistic capacities, for the vast majority of our product portfolio. At the moment, the availability is only limited for a handful of products due to raw material shortages or selected labor bottlenecks without any material impact on our business. However, the situation remains very fragile, and raw material and component shortages might come up rapidly. This brings me to our outlook for this year. The unexpected strong economy, the strong demand in many industries and the ongoing massive turbulences, imbalances, and unexpected frictions in many supply chains leading to significant [ cost-push ] inflation have demonstrated how difficult and unpredictable an outlook in the current environments. The uncertainties around the COVID-19 pandemic, and an economic impact, positive or negative, remain to be very high on supply and on the demand side. On the demand side, we currently see 3 main questions impacting our business in 2020. First, when and how might the COVID-induced home improvement trend come to an end, and how big was the effect of pulling forward home renovation activities over the last 1.5 years. Secondly, whilst a significant price [ inflation ] and shortages of certain building material components lead to delays or even full stops of entire building projects. And thirdly, whilst wholesalers destock their inventories once the situation around the COVID-19 pandemic starts to normal. Due to the high uncertainties around these 3 questions, we refrain at the moment from providing an outlook for the building construction entities. Uncertainties also remain very high on the supply side with regards to raw material availability and raw material prices. Therefore, we also refrain from making an outlook for raw material markets. However, please be aware that we will face a significant negative base effect at margin headwind from the continuously increased raw material, energy, and logistics prices last year. Let me now comment on some of our key business priorities this year. Last year, marketing spend did still not reach pre-crisis level due to the COVID-19-induced restrictions. For this year, we budget for a normal pre-crisis marketing spend level again, which means an increase of around CHF 15 million in 2022 compared to 2021. The second priority this year will be the ongoing expansion of our digitalization efforts with dedicated digital initiatives in marketing and products, including the buildup of additional IT capacity. In total, we will increase our spending for digital activities by another CHF 15 million compared to last year. Let me close our introduction with a short summary. Geberit achieved in 2021 not only a new record level of sales, but also the strongest organic sales growth since our IPO in '99. Also compared to precrisis level in 2019, we achieved very strong results over the last 2 years in terms of unprecedented challenges, particularly in supply chain. These results are a testament to the resilience of our business model, and the decision, and the prudent crisis management, since the outbreak of the COVID-19 pandemic 2 years ago. Thank you for your attention. We are now ready to answer your questions.

[Operator Instructions]

Hello. Are there any questions? I guess so. But we can't hear any.

Hello.

Yes. Now we hear someone.

Hi this is Yves. I think there might be an issue with the operator. So I'll just go ahead. And if it's still the case, happy new year to all of you, if we can still say at this time in January. But just 2 questions on my side. I guess the first one is on inflation. I think from a raw mats perspective, I think your last comment in Q3 was that pricing would probably offset this raw material inflation. I understand it's quite volatile, but I guess there's a bit of a new elephant in the room with wage inflation kicking in. So I wanted to get your sense as to what is your expectation in terms of SG&A and salary inflation as we go into 2022? Is this going to be closer to the 4%, 5% or still around 2%, 3%? Any color on that would be appreciated. And my second question is just, I think it's very difficult from our perspective to understand how much of your growth was driven by those pull-forward effects. Could you comment on what is your best guess? And should we just assume that maybe in Germany, we can take the average growth rate for the other regions, and see the difference, and sort of make an assumption based on that versus sort of the rest of Europe? Any color on that would be appreciated.

Thank you for the questions. With regards to salary inflation in 2022, we expect a higher wage inflation this year compared to last year. We expect a minimum of 2.5% of wage inflation for 2022. With regards to the second question, a very difficult question. I expected it to be an easy question, but a very difficult answer. We don't have the recipe. We also do not know how exactly we could quantify this pull-forward effect. It was clear that we have seen in Q4 pull-forward effects, especially in the countries where we have increased extraordinary prices. But I'm very sorry, I also struggling to quantify this pull-forward effect, I can't help you there. Sorry.

Next question is from Martin Husler from Zurcher Kantonalbank.

My question, turning on Germany where you had an excellent final quarter even though the base in Q4 2020 was already very high. And actually, I think already there you mentioned some pull-forward effect. My question is, so can you give some reasons for this good development in Germany, and actually for the acceleration in dynamics in the fourth versus the third quarter? And the second question also to Germany. What's your view on the installers capabilities actually to go for further growth? Or do you see there that you have some utilization issues because installers are more or less fully booked out for the next couple of months.

Thank you for the questions. Number one, the strong development in Q4 in Germany, despite an already strong previous year quarter, was driven by extraordinary price increases, end of January in Germany. This is one of the examples I just referred to the previous question where we have seen strong pull-forward effects from the extraordinary price increase. The second question. In general, nothing has changed. The installers in Germany are highly booked. The current order book level is at 13.7 weeks. The challenge might be that there is a strong trend towards energy saving-related renovation works, which could mean that some of these installer capacity could shift more to the heating sector and that would lead to the fact that the sanitary side of this work might have more bottlenecks, maybe a little bit more than last year.

Okay. And then maybe just an add on, when you say price increase in January. I think in November, you said that the extraordinary price increases in the last quarter are not done all in January, but also some happened in November, December. But it looks like Germany was only in January. And can you maybe say something by how much was Germany also 1.5% in January? Or was it higher or lower?

I also -- don't want to go into detail how much we increase prices on a country level. But keep in mind, this 1.5% is the average then on group level. And in some countries, we did not at all increased prices. So therefore, it must be higher than 1.5% in Germany, but that -- don't want to go into detail.

The next question is from Andre Kukhnin, Crédit Suisse.

Can I double check on pricing first? In terms of the run rate that we enter with 2022 at, I think before we calculated 5%, I just wanted to double check that. And is that the level that we should think about for the year if you do the usual April 1.5% price increase and no others?

You're correct. The run rate as of January 2022 is the 5% number which you have in mind, it is correct. And for the rest of the year, I can't comment so far because it depends obviously on the price increase for the rest of the year.

Right. But am I right to think that if you do the usual annual price increase in April of -- I think you talked about 1 to 1.5, and I think it was around 1.5 last year and you need to do that to get to 5% for the year? Or would that be incremental?

Whatever we will do after the 5% where we are standing today, would be incremental.

Got it. And can I ask a couple of months if that's okay?

Sure.

And just on the broader thinking on the margin of 30% or 31% before you were quite resolute on 30% being the ceiling for various reasons. And now we're seeing 2 years above that level, and you have effectively increased prices to defended above that level. I just wanted to check if the thinking has changed at all, whether you're more kind of relaxed about having margins over 30% at EBITDA level?

No, nothing has changed with regards to our margin thinking. Maybe 2 comments around 30%, 31% EBITDA margin. We are expecting for last year, is still inflated to a certain extent by 2 reasons: one is, we are still go back to normal marketing expenses last year. As explained in my introduction, we expect another CHF 15 million additional marketing spend this year to come back to a precrisis marketing level. And the second one is, still last year, we benefited somehow from lower raw material prices. At the beginning of the year, raw material prices were still at a lower level. Of course, that changed dramatically throughout the year. But overall, in 2021, we are still benefiting from a certain spend to lower raw material prices.

It should bring us to the final question. I know you said on raw materials that you're refrain from giving an outlook. So without giving an outlook for spot prices, but taking the current spot prices as we are and rolling them out at these levels through 2022, what raw materials impact would you anticipate for 2022 full year, and for Q1, if possible?

So I understand the question correctly. Assuming that spot prices of raw materials would stay where they are at the moment for the rest of the year 2022, then we would have roughly 10% higher raw material prices in 2022 compared to the full year 2021.

And for Q1, if I may push you now.

Must be roughly -- I don't have the number. Exactly should be something like 20%, 25%, I would assume. We have shown in our presentation in our -- which we have put online on Page 4, you'd see our raw material price index have developed throughout the year 2021. There you can take the chart and make the calculations yourself basically.

The next question is from Arnaud Lehmann, Bank of America Merrill Lynch.

A couple of questions on my side, please. Firstly, could you comment on the fourth quarter, the performance? In the U.K., it was down, and in the Americas, it was stable, so underperforming the rest of the group. I would appreciate comment there. And just trying to come back on the Bathroom Systems [indiscernible] stable in the fourth quarter. And well, I guess the question is, is there a possibility that this division might come -- might be down in 2022, considering the prebuying and all the big renovation spend of 2021?

The development in Q4 in the U.K. was driven by 3 effects. One is a very strong first half of the year last year. So we have seen certain destocking effect on the one hand side. Secondly, we have a strong previous year quarter Q4 2020 was very strong, driven by some deliveries around Brexit. And the third element is smaller and operational element. We had also some challenges to bring in logistics before Christmas into the U.K. So there were also some delivery issues driven again by the changing Brexit rules after one year of implementation. In the U.S. development in Q4 was somewhat weaker, driven by shortages of components mainly, but also still a little bit on the labor side, where we are struggling to find [ 45 ] people. This is the reason why the development in Q4 in the U.S. was somehow subdued. The third question around Bathroom Systems and the outlook of 2022. We don't want to give an outlook on group level for 2022, especially also on product area level. But I think 1 of the 3 questions, which I mentioned before, is particularly important for Bathroom Systems development this year, the question around the home improvement trend, will might be come to an end? If yes, when? And if yes, have we seen pre-buying or, let's say, pull-forward effects last year. So I can't give you a better outlook on Bathroom Systems for this year.

The next question is from Remo Rosenau, Neue Helvetische Bank AG.

If I recall correctly, the last ordinary price increase last year in April was not including Sanitec. However, the extraordinary in July of, I think, 3.5% roughly was including Sanitec products as well. How was it with this extraordinary price increase in January now?

Sorry, Remo, I have to correct you. That's the other way around. So Bathroom Systems -- regular price increase last year in April was across the board, including ceramics, including Bathroom Systems. The extraordinary one, as of July, was only on installation processes in Piping Systems. This one was not on Bathroom Systems and ceramics.

Okay. Sorry, about the other way around at this time in January?

This is selectively across geographies. It is of selectively across product lines, even, and therefore, you -- it's not -- you could say, it's the same across the 3 product areas. However, it's even more differentiated, if you go one level lower, but we did also increase prices for ceramics in various countries.

Okay. So it's more geographically driven than product driven?

On a product area, that will be equally think about. But on the -- even product line level, is even more differentiated. But from a product area perspective, you can say how much units.

Okay. Great. Then I come back to the margin discussion. I mean a year ago, you clearly guided due to -- probably the same reasons as now that the margin level in 2021 is likely to be below 30%. Now we ended up at around 31%. You didn't make this strong case now in this conference call. I mean you still say, okay, CHF 50 million more digitalization, CHF 50 million more marketing expense. So -- okay, 31% will be probably tough part, but you didn't make the strong case like a year ago that it will be below 30%. What would you say on this observation?

I think you're trying to read too much into the lines, not be statistically different. No.

So you think it will be below 30%?

First of all, of course, we don't give any margin guidance at this point in time as you know. We just mentioned that we have still not yet reached normal marketing spend. What we planned for last year, yes, you're right. But we didn't manage to that because we still have more restrictions than what we expected at the beginning of last year. And the second one is, basically, according to our strategic plan, strategic plan to further roll out our digital initiatives. These are the 2 things we know. Total CHF 30 million additional spend this year. That's what we are talking about is all the rest, but so many on loans with regards to our margin this year coming back to the raw material discussion, coming back also to the wage inflation. Therefore, we will not make any statements about to be expect to be evolved or below 30% this year. So mid-term guidance, I gave to 30%. We speak to that we will provide in H1 guidance for this year.

Okay. Fair enough. Now if you can -- clear this correctly in the previous question that if raw material prices would remain at current levels, it would result in a still 10% higher average bill on the raw material side than in '21. Did I get that correct?

Yes. On price level, of course, the bill depend not on volumes, but the price level, the average raw material price level this year, assuming current stock prices would be 10% higher than the average price level, full year price level of 2021.

Okay. Great. And the last, just to clarify, very clearly. So in April, the ordinary price increase will happen as well.

Yes, it will happen as well. It's not yet clear what the magnitude will be because we have not yet finalize it in all the countries, the final number, so to say, therefore, I can't provide you on a group level at the moment with the guidance in terms of magnitude, but we will implement the regular price increases as well.

The next question is from Daniela Costa of Goldman Sachs.

I have three. I want to start with one regarding ONE Geberit. And I think you've mentioned sort of some of the merits of the product before, but I wanted to check in terms of like time to install for plumbers, how much you would categorize that like has a saving versus an equivalent normal product that is not Geberit ONE? Just thinking in terms of like plumber shortages and what you've said, if there's a clear incentive for actually plumbers to try to push the Geberit -- the Geberit ONE. So that's question number one. Question number 2, is coming back to your commentary on how distributor inventories are. Not asking you to quantify anything for necessarily for Q4 or any number, but just thinking about where -- how are inventories now for distributors? Are they above what you would have said, it was normal pre-COVID or below? So is it they have been restocking, as you say, in Q4 from a very low level? Or is it over and above what is normal? And then my third point is just a quick clarification. When you show your raw material index, do you include electricity prices in there? I know it's a relatively 2.5% of sales, but we are seeing really multiples of increase in electricity prices. Is that included sort of like in your assessment? Or how much -- how relevant could that be?

Excellent questions. Number one, Geberit ONE, the new Bathroom Systems leads to significant faster installation time. I can't quantify it exactly in percentages because it depends a bit on the product. W, WC versus [ washbasins ], but a significant reduction of installation time. If we install Geberit ONE versus [indiscernible] or other bathrooms use. Second question, the inventory levels not only at wholesale, but in the channel are at the moment very high. We have even heard more and more so at the end of the year that not only wholesalers have material stock, but also plumbers started to build up stocks, which is normally not the case. So I would say, for the entire channel, we have at the moment very high inventory level. This is the reason I also mentioned in the outlook 2022 that we see the risk of potential destocking of the channel after a hopefully normalization of our world, driven by the COVID-19 pandemic could also negatively affect our volumes this year. And the third question, in our raw material prices, the index showed in the presentation on Slide 4, energy prices are not included. This is purely raw material price index without electricity or combustibles or any energy cost.

A quick follow-up on that part. How long normally your electricity contracts extend? So thinking about the recent inflation you've seen?

Depends very much country to country [indiscernible] figure that is very country dependent. A couple of months, I would guess [indiscernible].

The next question is from Charlie Fehrenbach, awp Finanznachrichten AG.

How much are the activities that's [ COVID ] internal affected by the lack of employees due to corona or sicknesses or quarantine? And the second question may concerning with Mr. Knechtle, which is [ when come ] display characteristic. How much is the growth of 14.7% last year and of the 7.7% of Q4 is due to price effects?

The first question, we have been able to get overall enough labor to manufacture our product. There is one exception which I talked about through my introduction. We had some challenges in the U.S., in our 2 plants in the U.S. to get labor, but this is not material on the group level. The second question, price effects last year for the full year, out of the 14.7% growth in local currencies, the net price effect was 2.2%. And in the fourth quarter, the price increase -- the price effect was higher. It was 3.1% due to the extraordinary price increases, which we took as of mid of the year.

The next question is from Martin Flueckiger, Kepler Cheuvreux.

I have only one left, actually. And I was wondering whether you could provide a little bit of more granularity on your Bathroom Systems performance in Q4. And how much did you see -- or what kind of development you seen tends to showroom visits that would be very interesting? And also if you could differentiate a little bit between sales organic growth in shower toilet versus in the ceramics business.

Nothing specific to report on the showroom questions. We have not heard from our customers, which are running these showrooms. Any specific news despite the fact that they are also restricted due to COVID-19 as many retailers, obviously, but they are managing in general to serve end consumers and to present products to end consumers in showrooms. With regards to AquaClean. AquaClean developed well also in the fourth quarter, although we were not growing double digit. This was very much driven by a base effect, first of all, from the previous year's quarter, but also a very, very strong shower toilet development since the outbreak of the pandemic. Overall, in Bathroom Systems, we have seen very solid growth, in ceramics and in shower toilet across all 3, 4 quarters over the entire year.

Okay. But if you say that AquaClean developed well, but not -- didn't grow double digit organically, that would imply that ceramics were down organically and particularly, in terms of volumes in Q4? Or am I missing something?

No, this is not correct. Ceramics was also growing single digits, but we have some other small product layers. And don't forget, we have the Bathroom Systems, the U.S. business where we have [indiscernible]. Obviously, that is also part of Bathroom Systems. And this business was down in the fourth quarter in the U.S., as I mentioned before. But ceramics and Bathroom -- and shower toilet were up in Q4.

Okay. So you're basically only flat because in the U.S. otherwise you would have been up more.

Correct.

And the next question comes from Patrick Rafaisz with UBS.

Two questions remained. The first is a follow-up on pricing. And you talked quite a bit about this already. But I was just wondering from where you announced the extraordinary price increases in last year until now in January? Have you adjusted those price increases in the meantime? And in view of the raw mats prices, which are again up 4% quarter-over-quarter, how do you think about building in extraordinary price increase into your regular price increase in April?

The communication for the extraordinary price increases, which happened in the course of Q4 was down -- in the course of Q4 or maybe sometimes even a bit more, and there was a country specific. In some countries, the price increase is extraordinary one was implemented as of December. So communication was October, maybe November, in August, it was November, so communication was end of Q3. Other countries increased the price extraordinary as January. So the communication was more towards the end of last year.

Okay. And thinking about the April regular price increase. This is -- would you consider upping that above the normal 1% to 1.5%. So just to reflect what happened during Q4.

As I said before, we are currently not yet through across all countries. What we will do in the individual country, some of them is clear. Other is not yet clear. Therefore, I don't want to comment at this moment, how much we will do. We will do a regular price induce, but I don't want to comment yet on the order magnitude because it's not yet clear in all the countries.

Okay, understood. And then the second question is on digitalization spend. So we're increasing that by about CHF 50 million this year. I think that's pretty much in line with the original plan that you have here. Can you remind us on how long these -- this spending will continue? Or do you think this is now a recurring element of your SG&A? Or will we see a decline in digital spending in 2 to 3 years' time?

No, we can [indiscernible] the recurring expenses mainly for personnel, and in other OpEx, which will remain. So it's a recurring cost step-up of CHF 50 million.

And the next question comes from Christian Arnold of Stifel.

A couple of questions from my side. Maybe first on the material costs. In which currencies do you actually buying raw materials? Is this very much linked to your geographic exposure? Or do we have here some kind of exposure more to euro than to Swiss franc or U.S. dollar, whatever. And if you can elaborate a little bit on that.

We have -- the vast majority of our raw material is bought in euro, and it's slightly disproportional. So we have a higher share of raw materials, which we buy in euros compared to our share of sales in euro.

Okay. On labor, you didn't have issues last year to get labor with the exception of the U.S., as you mentioned. What's your expectation that next year? We hear from lots of companies that actually we do have problems to get enough labor, not only because of COVID, but in general. So how do you feel there?

At the moment, it's clearly -- this is COVID. It's not easy, of course, but also at the moment, if I talk to our plant managers, it is manageable, and we get the resources which we require. But I won't pay for very nice pitches, it's really challenging, but we haven't seen and we don't see at the moment any significant shortages from labor, which will have a material impact on our availability. I would rather say, the risk at the moment is in terms of raw material availability. They are higher because this situation seems to be more fragile every week and other raw material might pop up so you can go into a problem. I think this risk at least at the moment seems to be higher compared to late shortages.

Okay. On your margin guidance, 31%. If I calculate correctly, that would imply almost a 23% EBITDA margin for Q4, a level which we have not seen since 2016. So you were always clearly above that level. So thinking about your strong topline volume, you have also scale effect here. Is it fair to assume that the price risk is more on the upside, meaning above versus 1 then below 31%?

No, it's not -- it's around 31%. So [indiscernible]. You're right, the margin would implies a record low Q4 EBITDA margins, but keep in mind, we have also record high raw material price levels end of last year. So coming back to the chart, Slide 4 of our presentation, we are substantially higher in terms of raw material price level compared to the year '16, '17, '18.

Okay. Last question maybe. Outlook in terms of new products you're launching in '22. Maybe could you give us samples for the 3 most important product launches for this year?

We have, again, a couple of new products. We'll talk about that in more detail then in our full year conference, and it became easier and hopefully, if we can meet physically, we can also show you some critical example of these new products. But just in very short, we've been introducing all 3 product areas of new innovations. A very important one remains to be FlowFit the new Piping Systems, which we introduced last year, but only in a handful of countries. This year is a step two. We will further roll out really successful new piping systems into our companies that will be a very high priority still this year in terms of new product introductions. But as I said before, with full year, we will show you a couple of other products. Just another example, a new [indiscernible] system for the Indian market, which is very important in the emerging markets for our technology penetration will be introduced as of April, but more details in our full year presentation.

You remind me just where you have introduced FlowFit through already in '21? And yes, the [indiscernible] you may include this year?

We introduced lastly in the German-speaking countries and the Netherlands, we introduced this year in Italy, Belgium and some [indiscernible] countries. [ Starts launching ] will be 2022.

Great. And I just -- Yes, just to clarify, the price effect in '21, I didn't catch. It was 2.2%.

2.2%.

And the next question comes from Manish Beria of Societe Generale.

I'll ask the question one by one. My first question is on your EBITDA margin. So you always say, your margins are at a high level, but you'll appreciate the margins and your pricing are interlinked, I mean. This was the worst year in terms of raw material and things like that. Still you manage because of extraordinary price hike to maintain a margin of 31%. So this was an opportunity actually to get back to normal margin of 30% or something like that. But that [ didn't ] happen. So my question is, I mean, there has to be a strategy. There has to be something in discussion like where do you want to margin? I mean, also next year, you have an opportunity not to take extraordinary price hike that can bring down your margins. So just wanted to understand, I mean really you want to go back to 30% margin? Or you're fine with this level of margins?

So you are -- that's one piece in your logic. I talked before in terms of margin levels, which are inflated to a certain amount last year still by lower cost serves in marketing, and still relatively low cost in terms of raw material price. But there's obviously a second important lever last year, which increased margin dollar, which will let margin to be around 31%. This is the operating leverage from the volume growth. So we have seen an extraordinary historical volume growth, obviously, also supporting the margin last year.

Correct. Yes, I understand. The second one is, if I look at your fixed cost this year, I mean probably in 2021, probably it will be like 1 point -- not fixed cost, but OpEx cost CHF 1.4 billion. That's EBITDA -- gross profit minus EBITDA. So you are saying, this cost will rise this year by CHF 50 million because of marketing, CHF 50 million because of digital. And there is wage inflation that might be like CHF 20 million, CHF 30 million worth. So probably you are seeing the volumes in flat probably by CHF 50 million. Is this understanding correct?

It's correct that the two CHF 50 million I mentioned before for marketing and for the digitalization efforts are basically a buildup of fixed costs. This is correct.

Okay. The third question I will ask, but you will not answer that, I know that, but I will ask. So basically, will you be surprised despite getting -- so it's such a good growth because if I look at 2021 volume growth versus '19, it's 12.5%. So basically you're growing 6.5% or 6% each year in these last 2 years due to the COVID impact and things like that. That's much higher than the 3% volume you have done pre-COVID. It's of course, you are running at a much, much higher level. So will you be surprised in 2022, if you still get a positive volume growth? Or it is possible for you to get a positive volume growth despite the base?

So I think your assumption was right. We have an implicit statement about our outlook. I'm sorry. You know that.

And the next question comes from Marta Bruska at Berenberg.

So I would like to just clarify a little bit, a few comments that you made around the EBITDA margin as well as the Q4 EBITDA in particular. So I've heard you throw the call stating that you know you had a record high raw material prices, but your guidance is around 31% EBITDA. We can imply that the Q4 EBITDA margin was very heavily impacted by that. And at the same time, you said that 31% was achieved still thanks to the favorable last year that is changing. And you also said earlier this year that the price increases that you introduced for [ 3.1% ] for the second half of the year. Are going to compensate for the remote entirely. So I'm a little bit contributive all of that. So could you tell us please, what else [indiscernible] is impacted your margin this year in Q4. And then I have a follow up...

Can you rephrase the question? I didn't understand the question. What is your question?

So I think the question is that it seems quite contradictory what you've said throughout the call on the raw material prices impact on the margin, both changes positive and negative at times. And the price level of the price increases that are going to compensate for that. So with the Q4 margin expected to come a little bit lower this year, I think what else in [indiscernible] could be impacting it negatively?

I'm very sorry, still don't understanding. We didn't make any statement that positive effect from raw material prices. I think -- I don't understand the question, still sorry.

Well, you said that the level of the first 31% EBITDA margin is in flight this year because of the low marketing cost and still a raw material price in the [indiscernible].

I understand that. Now I get that. I referred to the beginning of the year, for example, the first quarter last year. We didn't have a material impact from increasing raw material prices. In other words, the first quarter -- in the first half of the year, we had a positive net price effect still from increased sales prices versus slightly increasing raw material prices. That's what I meant. You do have a positive...

Right. And then in the second half, you had a net price effect of [ 3.1% ] that was supposed to compensate for the increase in raw material prices entirely within it.

So it's also quality of [indiscernible] is very bad. I didn't get the last...

I'm sorry for that. So in the second half, you've made extraordinary price increases in order to compensate for raw material price effects, and you said that they will compensate entirely or do I get any number by growth?

No, this is correct -- this is wrong. We've said that all the price increases which we took since last year, the regular one in April, the extraordinary one as of July, and the second extraordinary one, which has now [indiscernible] as of January, this price increase compensates the full year raw material price increase, which was around [ 13% ] of 2021. This is what we've said.

Okay. And then with regards to your Bathroom Systems growth. So some of your peers, they reported 25% growth for the 9 months of this year. So even if they had a horrible, the last quarter, which I don't think so, it would still be very significantly above 11% that you reported for the Bathroom Systems. So I'm just -- and you are the leader in the [indiscernible] in Europe, which is probably the only segment that is actually growing fast in a sustainable basis in market. So wondering what could be the reason? And what is the price effect specifically on the Bathroom Systems, did you managed to increase the prices at overall?

Yes, we increased prices in Bathroom Systems as well as I explained already before with the regular price increase as of April. We did not increase the extraordinary one as of July, but we increased prices also in Bathroom Systems with the second extraordinary price increase during Q4. And with regard to competitors, as you know, it's not our style and policy to comment on competition. Therefore, I can't give you an answer there.

Yes. But this 10% difference, that's a lot. So I ask this differently. So what you attributed part of the slowdown in the last quarter to the fastest business that is part of this division. So can you give us a rough idea how [indiscernible] the U.S. in terms of [indiscernible].

Again, acoustically very bad, the last sentence.

The U.S. [indiscernible] business, how big is that in terms of revenue?

It's the vast majority of the business in the U.S. is CHF 100 million. The vast majority is [indiscernible] business.

Very helpful. And the very last one, if you can comment, please, on how many new lines have you introduced in the Bathroom Systems since you acquired the Sanitec? Is that still only the Geberit ONE? Or did you introduce a newer designs as well?

Since the acquisition, to be precisely, we introduced 2 new ceramic bathroom lines. One is [indiscernible], that was already before. Geberit ONE and the second one was Geberit ONE as you are saying it correctly, which we introduced back in 2019.

Some of your peers alluded to this in 2 Bathroom lines per year. Don't you think that's a little in over 5 years?

I refer to my answer before. We don't comment competitors.

And the next question comes from Cedar Ekblom at Morgan Stanley.

I've got some follow-up questions on pricing, please. Firstly, would it be fair to say that the intention to go for further extraordinary price increases is diminishing? And the reason I ask that is because you say that in some markets and some product lines you went for price increases and others you didn't. And we also see the momentum on that extraordinary price increase getting smaller quarter-on-quarter. So sort of a comment there would be helpful in terms of market reception to those price increases? And then I'd just like to walk through your comments on the pricing numbers just to understand the mechanics a little bit more. So you said, in the fourth quarter, you had 3.1% pricing at a group level. But then in a separate answer, you said that the exit rates on pricing was 5%. And that the extraordinary price increase that you went for in Q4 was 1.5%. So just to confirm, that 5% pricing is not across the portfolio in total. It's rather just on those specific product line segments, et cetera, that have actually seen all of the extraordinary price increases throughout 2021. And then is it fair to say that your April price increase could be lower than normal because of some of the extraordinary increases that have gone through over the last 12 months.

Your first question, the current sentiment around extraordinary price increase at the moment didn't change at the moment. We are not thinking about any extraordinary price increases we are seeing might be as regular price increase. And as I already said twice, it's not yet clear what will be the order of magnitude because some of the countries, the decision about the number is not yet taken. The extraordinary price increases, which we did in Q4 last year was selectively not driven by raw material development. It was just driven selectively mainly in geographies by technical reasons. We wanted to optimize price points in certain countries or in all the countries, obviously, which led to different extraordinary prices in [indiscernible] no extraordinary price increase, but [ digital system ] made technically not the raw material product. The second question, I want to [indiscernible] through the step up, you're making up 2 things. One is the step by step price increases, which we took over the last year. As of April, plus 1.5% regularly. As of July, plus 3.2% -- 3.5%, sorry. On 2 product areas, Installation & Flushing, and Piping Systems. The need on a group level may impact [indiscernible] plus 2%. And then the third one was the extraordinary price billion impact on group level of 1.5% as of January. If you add up these 3 numbers around 5%, end of January, obviously, the impact in Q4 versus Q4 2020 is not yet 5%. It is only 3.1%. Basically, 1.5% from April plus 2% from -- as of June.

And the next question comes from Andre Kukhnin at Crédit Suisse.

I just wanted to double check on the raw materials that you gave and the 10% for 2022. Should we be referencing that to your entire cost of materials of around CHF 1 billion? Or is that relevant to the pure raw material piece of that. Actually, I think it's about 1/3 of it.

So this refers only to our raw material costs, which we also show in the P&L as raw material costs. It's not including energy pricing. It's not including any logistic pricing. It's only raw materials.

Which you referenced as cost of materials in P&L, which was CHF 789 million in 2020.

I can't exactly remember the number in 2020, but it's the one we show there.

Sorry to label it, but just to make sure. And the second quick follow-up ahead was on the inventory buildup that you've mentioned, which countries would you say have been most affected by that? I think Germany, you've singled out, but are there any others?

Obviously, the countries where we have extraordinary price increases in Q4 there, the effect, I would assume, was bigger than be the others.

And I don't think you shared with us which countries there were, but maybe a couple of other examples.

I shared it. I think the only relevance which I shared before is Germany, where we did an extraordinary price increase as of January. But all the others, I think too much detail, it's not worth to go with these targets. This is not really relevant. It's more noise information.

Got it. That's very helpful. And just a final one. On the full forward of renovation that you mentioned on the back of COVID the trends of kind of staying at home. I know there's no answer for this probably, but just in terms of trying to think about it, have you looked into things like acceleration of a number of projects as opposed to value per project? And does that give you any insight into what sort of degree of pull forward we've seen because obviously a number of project acceleration would indicate a pull forward while value per project is maybe a different trend.

We don't have obviously any exact figures because this business is done between our customers, plumbers and to the end consumers. But we have some indications, and I think it's all. It's only improving trend led to more volume or number of projects, but we yet have also seen is an upselling trend, so also more value per project, which I think is also explainable with one element of home improvement and that you operate, basically, your backlog to more high end. For example, in [indiscernible], we have seen a strong growth in our premium plates that is our basic plates or second level plates, both is increasing number of projects, volumes and also valuable approach.

And we have not received further questions at this point. I will hand back to the speaker.

So thank you very much for your interest. We all wish you -- and I say and hear you then on our full year conference in mid-March. Thank you. Good bye.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.