Geberit AG (GEBN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Geberit Conference Call on the First Half Year Results 2023. I am Sandra, the Chorus Call Operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Christian Buhl, CEO. Please go ahead, sir.

A warm introduction, and good morning, ladies and gentlemen, and welcome to our Geberit Half Year Results Conference Call. First, let me apologize. We had some technical issues this morning and the delay with the sent-out of our press release, 20 minutes delay. I'm sorry for that. So let me start with our introductionary remarks. Despite an extraordinary difficult market environment, Geberit achieved convincing results in the first 6 months with a very challenging top line. However, a good development of the bottom line. Let me start with the key statements for the first half of the year. Our net sales declined in local currencies of minus 9% due to a very strong comparison base and a decline in building construction market in Europe. Secondly, strong headwinds of minus 5% on top line from unfavorable currency development. And thirdly, a substantial EBITDA margin increase by 270 basis points to an EBITDA margin of 31.7% due to our consequent pricing management, high operational flexibility and lower energy prices. The improved profitability led to a slight currency-adjusted growth of EBITDA, EBIT and EPS. EPS grew in local currencies by 2% despite the strong volume contraction. Let me begin our review with a few comments on the top line development in the first half of the year. Net sales in Swiss francs decreased by 14% to CHF 1.66 billion, negatively affected by strong currency effects. Negative currency effects led to a net sales loss of CHF 94 million or minus 5%. In local currencies, net sales decreased by 9%. This decline was caused by a volume contraction of around 20%, which was partially offset by sales price increases of around 11%. The strong volume contraction was caused by a base effect from the record high volumes in H1 2022 and destocking effects this year. Secondly, a decline in building construction market due to the building cost inflation and increased interest rates. And thirdly, a decline in demand for sanitary renovation due to pull-forward effects during COVID-19 and the shift from sanitary to heating-related renovations in selected European companies. Moving now to net sales growth per region. Again, all growth figures [ refer ] to growth in local currencies. Please note that as of this year, we consolidated the countries U.K/Ireland, France and the Iberian Peninsula newly under the region, Western Europe. The reason for this reporting consolidation was the alignment of our external reporting with internal reporting and growth strategy. Let me now turn to the companies. In Italy, net sales increased by 1%, supported by a still quite favorable margin environment. In Western Europe, net sales declined by minus 1%, with slightly decline in sales in France and sales growth in U.K. and the Iberian Peninsula. In Switzerland, net sales declined by minus 3% and in Benelux by minus 5%. Net sales in Nordics decreased by 9%, with decline in sales in all countries. Double-digit declines were recorded in Germany with minus 15% and Austria with minus 18%. Both countries are most affected by the shift from sanitary to heating effect affected by the subsidy programs for heat pumps. Eastern Europe recorded a decline of minus 27%, negatively affected by a strong base effect with sales last year being up double digit despite the war in Ukraine. Let me now turn to the regions outside Europe. In the Middle East and Africa region, net sales increased by 16%, driven by the Gulf region and Turkey. In America, net sales slightly increased by 1%. In Far East/Pacific, net sales slightly decreased by minus 1%, with strong results in India, offset by a single-digit decline in China. Let me now comment on the sales development per product area, again in local currencies. All 3 product areas declined with similar dynamics year-on-year. Installation and Flushing Systems by minus 11%, Bathroom Systems and Piping Systems each by minus 8%. Let me now give you some comments on the sales development in the second quarter. Net sales reached CHF 769 million in the second quarter. The unfavorable currency development affected net sales negatively by CHF 48 million or minus 5%. In local currencies, group net sales declined by minus 14%. This decline was caused by a volume decline of around minus 25%, partially offset by sales price increases of around 11%. This very strong volume contraction was caused by 3 main factors. First, a strong base effect. We reached in Q2 last year, historically high record volumes due to the stock buildup of wholesalers in expectation of the strong sales price increase of 7.5% as of July last year. Secondly, the general decline in building construction market and the additional challenges in the sanitary sector from the pull-forward effects during COVID-19 and the shift from sanitary to heating in selected European countries. Thirdly, some wholesalers were reducing their stock levels for sanitary products below normal levels due to the declining market environment and a strong demand for heating. In Europe, Net sales decreased by minus 16% in the second quarter. Outside Europe, net sales increased in Far East/Pacific by about 6% and plus 3% in America. In Middle East/Africa, net sales decreased by minus 4% due to a base effect and a strong [ project ] business in the first quarter of the year. I continue with the sales development, the product area in Q2, again, in local currencies. Installation & Flushing Systems declined by minus 16%, Piping Systems by minus 14% and Bathing Systems by minus 12%. I'll come back to the first half of the year with some comments on the operating and financial results in H1. The substantial negative currency effect led to a decline in operating results on all levels. However, in local currencies, EBITDA and EBIT were slightly up. I'll start with a discussion of the EBITDA development. EBITDA in Swiss francs decreased by minus 6% to CHF 526 million. Excluding negative currency effects, EBITDA increased by 1%, thanks to an increased profitability. The EBITDA margin increased by 270 basis points and reached 31.7% despite the strong volume contraction and the significant salary inflation. The main profitability driver were sales price increases of around 11% in the first half of the year. Lower energy prices, which were 28% below H1 2022 and onetime energy subsidies in Q1, contributed also to the margin improvement. The energy subsidies in Q1 delivered a positive onetime effect of around 0.5 percentage point on EBITDA margin level in the first half of the year. Strict cost discipline also supported the profitability in the first half of the year. Raw material prices were an average 1% higher than in H1 2022 and did, therefore, not have a material impact on margins. Main negative margin driver was the operating leverage from the strong volume contraction. However, the operational leverage was limited, thanks to a very high operational flexibility, particularly in the plants and logistics. Further, negative margin drivers were a wage inflation of around 5% and an adverse ForEx effect, which was mitigated by our strategy to continuously aim for a natural strong currency [ hedge ]. The EBIT margin increased in line with the positive development of the EBITDA margin by 220 basis points and reached 27.2%. In local currencies, EBIT increased by 1%. Net income in Swiss francs decreased in local currencies slightly by minus 1% to CHF 369 million due to higher financial expenses, driven by higher interest payments. Earnings per share increased in local currencies disproportionately by plus 2% and reached CHF 10.93, thanks to the accelerated share buyback last year. We consider a currency adjusted EPS growth of 2% to be a very strong result considering the strong volume contraction in the first half of the year. The share buyback program was continued this year with 247,000 shares bought back in the first 6 months for a total amount of CHF 123 million. CapEx increased by CHF 27 million to a new record level of CHF 81 million due to strategic plant investments and the construction of a new customer center in Germany. Free cash flow decreased only slightly by 3% to CHF 186 million despite the significant volume contraction and the substantially higher capital expenditures. Let me now comment on our outlook. We continue to expect the very challenging environment for the building construction industry this year with a declining new build market as well as a decline in the renovation market, driven by increased interest rates and significant building cost inflation. Building indicators in Europe started to weaken already since the third quarter last year with an accelerated decline this year. Additional and specific challenges for the sanitary industry emerged from the pull-forward effects from the COVID-19-induced home improvement trend and shift from sanitary to heating-related renovation activities in selected European countries. Positive catalysts for the sanitary construction industry emerged from the fundamental demand for renovation and new housing in several European countries. The structural trend towards higher sanitary standards and a quite positive market environment in several emerging markets, for example, in India or the Gulf Region. On the cost side, we expect for Q3 sequentially slightly lower raw material prices and stable energy prices compared to Q2 this year. In the context of the declining market environment, we defined for Geberit 2 guiding principles for this year, as already outlined in our previous communications this year. First, strategic stability and second, operational flexibility. The purpose of this principle is to manage the volume decline with a maximum of flexibility, but without harming the midterm potential of the business. The first principle means that we continue to execute on our strategic agenda, for example, the execution of several sales growth initiatives or continued investments in R&D and CapEx. The margin improvement in the first half of the year, considering the significant volume contraction of minus 20%, is a testimony for the second principle, our high operational flexibility, especially in the plants and logistics, and our strong cost discipline in this extraordinarily challenging market environment. The overarching objective remains to gain further market shares, regardless of the prevailing market environment. To do so, we will focus on several levers and initiatives. For example, our focus on new product introductions, which proved to be an important growth contributor over last years, for example, the new concealed WC flushing cistern alpha for the markets outside Europe or the piping system FlowFit, which we additionally introduced in France and the U.K. this year. A second example is our focus this year on the WC cistern to further penetrate the concealed cistern technology and to promote our new best-in-class WC flushing performance. A third example of our market share gain initiatives this year is prefabrication. We continue to put a strong emphasis on our prefabrication business in the DACH region to offer efficient solutions while at the same time, addressing the bottleneck of qualified installers. Let me continue with our full year guidance. In the light of the very difficult market environment, with not only declining volumes, but also unprecedented volatility volume, it is very hard to predict even the short-term future. Volume uncertainties emerge from macroeconomic and interest-related risks and unpredictable wholesale inventory strategies in this declining market environment. Political and regulatory discussions around the energy transition in Europe and corresponding subsidy programs, for example, in Germany, lead to further uncertainties for the sanitary construction market. Under the assumption of no material changes of this fragile environment for the building construction industry, we expect for the full year a mid-single-digit net size decline in local currencies and an EBITDA margin of around 29%. Please note that the full year top line guidance assumes a different dynamic for net sales in Q3 versus Q4. Net sales dynamics in Q3 are expected to be still weaker than in Q4 due to the continuously easing comparison base in the course of the second half of the year. Accordingly, net sales in July were still down by minus 10% in local currencies. Let me close my introduction with a short summary. Geberit delivered convincing results in H1 with a challenging top line but a good bottom line development. Despite a volume contraction of minus 20%, we managed to increase our margins and to grow EPS in local currencies by 2%. These results confirm our consequent pricing management based on our pricing power, our high operational flexibility and strong cost discipline as well as our execution capabilities in a declining market, for example, by introducing new products. For 2023, we continue to expect a very challenging environment with an overall declining building construction industry. However, Geberit is well prepared to also master the challenges emerging from this very difficult and declining market environment as already demonstrated several times during the past. Our confidence is based on our resilient strategy and business model, our strong and long-lasting customer relations, our industry-leading financial strength and our long-term focus and track record. Thank you for your attention. We are now ready to answer your questions.

Our first question comes from Daniela Costa from Goldman Sachs.

I have 3 questions, if possible. So the first one, in regards to your comment that wholesalers already have stock levels below normal. Can you comment maybe perhaps on how do they compare with like past trough levels at wholesalers and how much further down we could have things going in terms of destocking given, I guess, your volumes versus 2019 are still not that low? And then second point, regarding pricing, it sounds like you didn't do any price increase, unless I've misheard. What could sort of lead you now to up or decrease your prices, sort of what are the triggers that you would look for the next change? And then number three, I guess you haven't done a CMD at least in the last 10 years. Can you give us some color on why you're doing one now? What's going to be the main topics to watch out for?

Thank you for the question. First, a question to the wholesaler inventory levels. We have heard from a couple of wholesalers that they started to understock their sanitary inventory levels. How far down they went, I don't know. We can't quantify it or I can't give you an indication if that is the bottom or not. Question number two, around pricing. We are obviously looking at the raw material price development, which we expect to be slightly below in the third quarter versus Q2, but not substantially. Therefore, we also not consider any change in terms of pricing strategy at the moment, neither increasing or decreasing. So stable expectations at the moment. And the third question is the Capital Markets Day, which we will do in October. That was a decision we already made at the end of last year. We thought it's a good moment to gather all people together here in Jona to talk about the fundamentals, the long-term strategy of the business. So nothing to do with the short-term development of the last 1, 2 quarters.

The next question comes from Yves Bromehead from Societe Generale.

I'll have 2. My first one, I just wanted to come back on the pricing. I understand your strategy is right now to be on stable prices. But maybe can you comment on the competitive environment given the sheer degree of the volume pressure that you're seeing in -- especially in Germany and in the DACH region? My second question is on the stock levels. Actually, can you sort of put a figure on how much the destocking had an impact thus far this year. Are we talking about 1/3 of the volume decline? 10%? 50%? Any indication there would be really helpful.

Question number one, I hope you understand we are not commenting on competitors, especially on a competitors' pricing behavior. But what I can say is that we are obviously constantly observing the market, also understanding where our price level is versus competitors to make sure that we have the right price point and that we are not losing market shares. The second question is, unfortunately, I can't quantify how much the destocking effect was in the second quarter. As you know, we do not get any quantitative information about stock levels of wholesalers, it's just qualitative feedback. Therefore, unfortunately, we can't quantify the impact of this understocking in the second quarter. Sorry.

Maybe just on the first question on pricing. I understand you can't sort of talk about competitors, but about the industry environment. Is it fair to assume that competitive pressures are building under this scenario of very sharp volume pressure or not?

In general, the price discipline, I would say, is quite high in our industry, especially in the sanitary industry, on a very general level, maybe compared to other industries.

Okay. And even on the piping side?

Yes.

The next question comes from George Speak from BNP Paribas.

I'll take 2. So firstly, just on the shift from sanitary to heating solutions, how do you actually monitor that? Is that anecdotal comments from installers or just your own kind of feeling in the market? And I guess, how would you -- where do we sit in that journey? Are you seeing signs of stabilization in that swapping of consumer behavior? Any commentary there would be really helpful. And then the second question is just when I look back, the only other year that you guys had with negative currency adjusted sales growth was in 2009 after the GFC. So I just want to understand how does the health of your underlying markets compare to that? And how do you feel about the sanitary industry in your key markets as we look out over the next few years versus in 2009?

To the first question, obviously, we hear that from our wholesalers and also plumbers, obviously and also from the newspapers that there's a strong trend from sanitary to heat pumps. So that's not a big surprise that you'll hear it all around. So nothing specific there. To the second question, if you take our top line guidance for the full year, mid-single-digit decline, that's around the same decline, what we have seen in '08, '09. However, the volume decline this year will be more severe compared to the year 2009 because we still have a price -- positive price effect this year of around 6% to 7%, which we didn't have in '09. So from that perspective, the volume decline this year, we expect with our full year guidance to be weaker than in the year 2009.

Just quickly on the first question. So you're seeing stabilization in that switch from sanitary to heating or is it still an ongoing process?

It depends what you mean in terms of stabilization. Of course, the trend that people install heat pumps that remains, but we didn't see an acceleration, if that is your question of this trend.

The next question comes from Martin Hüsler from ZKB.

I have actually 2 questions. First of all, I saw that your marketing expenses are down by roughly 10% despite the ISH fair in H1. Can you maybe shed some light on what you really did on your marketing expenses? That's the first question.

[indiscernible] marketing expenses were down a little bit, less than 10%. One main driver is currency. Don't forget that we have also a currency effect on marketing. So I don't have the number, but I would assume at least more than 50% of this decline was driven by the currency development. And secondly, we have to -- we have been a bit more cautious on 1 or 2 activities because demand is not that strong at the moment, that was the rest of the decline, but nothing structural that we said it cut our marketing budget now substantially, nothing behind that.

Okay. And then the second question is rather a general one. But what does actually the volume decrease that you see at the moment mean for your utilization rate of the plants? And can you maybe give some more insight how you cope with such huge volume decreases?

First of all, we are not looking at the utilization in our plants. We don't even measure the utilization of our plants. But nevertheless, you're right, this is obviously a big, big challenge for the plant, the volume decline of 20%, and the big answer is flexibility. So we try to be as flexible in the plant as well as also the logistics by mainly with the workforce to adjust to the decline in volumes, be it by temps or by timely limited working contracts, but also with the permanent workforce to agree on additional flexibility in this environment. So that's the main lever, flexibility with the workforce in the plant.

Okay. And at what stage of volume decrease or, let's say, a structural lower volume expectation, would you need to undertake kind of restructuring measures?

I can't give you a precise answer because that is a plant-by-plant decision. We have a very [ decentral ] organization, so that is specifically by plant by plant issue, so I can't give you, and we don't have, by the way, overall, a number where we would know now we are at the limit. I think we still have some flexibility. But of course, the stronger volume decline, the longer it lasts, the more challenging it is, but we are not yet at the bottom at the moment, if that is an answer to your question.

The next question comes from Martin Flueckiger from Kepler Chevreux.

I've got 3 actually. And the first one is just a clarification question on pricing again. Did I understand you correctly that you're expecting selling prices to be roughly stable in Q3, only slightly below Q2. And given the increasingly challenging comps also on the pricing side, I was just wondering what that actually means for Q3, just to put an estimate on volume declines in July. Second question is on organic growth in shower toilets. If you could talk a little bit how you saw the shower toilet developing in Q2 and whether there were any changes in momentum, positive or negative versus Q1? That would be my second question. And then thirdly, turning to the renovation business in Germany in Q2 now I realize that Germany has, I think, an overproportionate exposure to the renovation construction market compared to the rest of the group. But just -- I think, according to the [ statistics ] renovation building permits are down around minus 10% or so year-to-date. But then again, not every renovation projects requires a building permit. So I was just wondering how you see the renovation business in Germany versus new build. That's it for me.

First question around pricing. We expect for the second half of the year still a positive pricing effect of around 2% for the second half of the year. But this is just the spillover effect, so to say, from the last 12 months, the 2 price increases, which we did last October and also as of April this year. When I said there are no changes of pricing strategy, we are not foreseeing at the moment to make any further price changes on a larger scale -- systematic scale for the entire portfolio. Second question around shower toilets. Shower toilet sales are down also in the first half of the year. We didn't see a specific dynamic between, different dynamic between Q1 and Q2. But keep in mind that we have had a very strong shower toilet business during COVID-19. So we are still substantially below the level of 2019. Third question around renovation in Germany. We also expect that the renovation market in Germany will decline this year, not only new build, especially the renovation market for sanitary will be down this year also in Germany.

Next question come from Patrick Rafaisz from UBS.

A follow-up on your comments on current rating in July and what you said about pricing. I mean, there was also a Q4, 2.5% price increase last year, right? So should I assume something like 5% still for Q3 and then no pricing contribution in Q4 from today's perspective, which would then imply sort of volumes down still 15% at the start of Q3? That's the first question. And the second one would be you've mentioned you've collapsed U.K., France, Iberian into Western Europe. Can you still give us some color whether the trends in these 3 subregions were materially different from each other in the second quarter or the first half of the year? And then the third question on the demand shift to heat pumps. You mentioned there was no acceleration now in the second quarter. But given the time line here, with this started somewhere middle of last year, I suppose, to be -- to really have an impact. So should we assume that as of the second half that demand shift effect is already built into the comparison base? Is that a fair assumption?

First question, July and price effect in the second half of the year. So we expect that the positive price effect of around 2% in the second half of the year will be stronger in Q3 versus Q4, but still in Q4, we should have a positive price effect. And in July, we don't have yet the numbers. I just commented on the net sales in local currencies before, minus 10%. I don't -- we don't have yet the price effect in July, but it was already considered a bit lower than in the first half of the year. Second question to the Western European region. Net sales in France were slightly down, not strong, but slightly down, and they were up in the U.K., Ireland region, but also in the Iberian Peninsula. And the third question, it's very hard to give you a precise answer because obviously, all the demand and also the supply for heat pumps, it depends not only on the demand side, it also depends on the supply side, also some still ongoing political discussions in some countries, change of subsidy programs. So there's our best estimate, which we have included in our full year top line guidance is that this trend from sanitary to heating will not materially change in the second half of the year compared to what we have seen now in the first half of the year.

The next question comes from Cedar Ekblom from Morgan Stanley.

Two questions, please. Firstly, on your guidance for a mid-single-digit decline in local currency growth. On my numbers, if we take your pricing guidance, it's implying a sequential improvement in volumes into the second half. Maybe my math is wrong, but that's where I'm getting to. I'd like to understand why we should see a sequential uptick in volumes considering building permit data, et cetera, remains very weak in your core markets? And then secondly, on the cash flow side of things, you had a small investment in inventory. I'd expected a small inflow due to much lower volumes. Could you talk about what's going on, on the inventory side of things? And if we need to expect some rightsizing of production in the second half to match weaker demand and what that might mean for margins?

Take the first question. Number 2 will be answered by Tobias Knechtle. You're right, our full year top line guidance implies a better volume dynamics in the second half of the year compared to the first half of the year, and that is mainly driven by the easier comps in the second half of the year, especially in the fourth quarter. In terms of volume level, Q4 last year was at a historical low for the known reasons. And this is the reason why we expect for the second half of the year, a better volume dynamics compared to the first half of the year. Number two, please, Tobias.

Thank you. Last year, we were still under minimum levels in -- when it comes to inventories. So safety stocks, we've been building that up. That's level #1 for the delta. The second one is that we have summer breaks, which we are expanding in the measures that Chris mentioned before in terms of flexibility in the factories, and that's the second reason why we have increased the stock levels.

Great. Just on the first question. Based on your minus 10% that you're seeing post the end of Q2, fair to say that we're not seeing a sequential pickup yet even if it might arrive in the fourth quarter?

Sorry. Can you repeat the question? We didn't understand.

So if I look at the comments that you made on your local currency growth being down 10% in July and August. On my math, I'm getting that, that implies no sequential pickup in volumes at the start of Q3 relative to Q2. So I'm just -- I just want to confirm that I understand in your guidance, you expect a sequential pickup, and that's fine, but you're not actually seeing it on the ground at the moment.

I didn't talk about August, I only talked about July. And July was minus 10%. And as I said in my introduction, we expect in the course of the second half of the year an improvement because the comps become easier month by month in the second half of the year. And I didn't talk about August, I don't have yet figures about August.

The next question comes from Christian Arnold from Stifel Schweiz.

First, again, on the demand shift from sanitary to heating. You're expecting no acceleration. That also means that we still see this trend in the same countries, right? So we talk about Germany, Austria and Benelux mainly. Is that correct?

Correct.

Okay. Second question would be on the flexibility. I mean, with minus 25% volume, having this margin that's quite impressive. Still, I wonder how long can you actually ask for this flexibility and to your [ work ]? I mean we have now 3 quarters, massive volume declines. I mean, how many quarters can you actually ask for flexibility? And when would that be actually, yes, not [ adjustable ] anymore?

I think I answered the second question already before. First of all, you're right. The longer it lasts, the more difficult it is. And we also see this operational flexibility as a great achievement in the first half of the year. However, I can't give you a precise answer. But as I said before, we still are not, we believe, at the bottom. There is still some room left for flexibility, although it's getting less and less. But also don't forget there is a natural fluctuation as well, which we can also use in the factories. And we have also -- some of our working [ contracts ] are limited working [ contracts ]. So there's a natural time limit. So these are also other levers, which continuously add a certain flexibility, so to say. But I can't give you a more precise answer, I'm very sorry.

Okay. Then my last question would be on the change of your regional reporting. You were mentioning that there were internal reporting and responsibility, you are kind of mirroring here. But you also mentioned the growth strategy. So what's the thought behind this growth strategy? Can you give us here some lights on color?

Yes, the reason is, as you know, we divide Europe basically from growth perspective into 2 regions. The mature market, these are the 6 and European countries, DACH, Benelux and in Italy. And the other rest of the region we call expansion markets. And we have already 2 consolidated regions there, the Nordics or Northern Europe, Eastern Europe, but the Western European countries, so Iberian Peninsula, U.K. and France, we didn't have consolidated, we have similar growth initiatives in these 3 countries. For example, growth initiatives for the concealed cistern, [ several levers ], marketing activities. And this is the reason why we consolidated these 3 countries into the so-called Western European region. We have now 3 region as expansion markets in Europe, Northern Europe, Western Europe and Eastern Europe.

The next question comes from Arnaud Lehmann from Bank of America.

Two questions on my side. I'll start with the first one. Regarding Bathroom Systems, my understanding is that it's a somewhat more fragmented industry than the other 2 divisions and also it consumes more energy. So I guess the question, with energy down and demand down, do you see some risk to pricing going forward for Bathroom Systems?

I wouldn't say that we have significant higher risk in terms of pricing in Bathroom Systems, although you are right, our position in Bathroom Systems is not as strong as, for example, in Installation and Flushing Systems, but I wouldn't say that we have significant higher risk in terms of pricing for Bathroom Systems.

Okay. And my second question is regarding the mix of sales. I appreciate your mostly selling in Europe, but Europe is very weak for you at the moment, but the other regions are much more resilient, Middle East, Asia, America, et cetera. Is there a way for you to, let's say, increase the amount of exports, products produced in Europe and exported outside of Europe to compensate for the local pressure?

The general answer is yes, of course, you want to grow and grow faster in these regions outside Europe than in Europe because we have much more potential. But I think it's not possible or it would not be possible on a short notice in the short term to increase investments and maybe then also growth rates in these countries because we are now in a phase of a decline in building construction market in Europe. Our growth strategy is also outside Europe are much more longer-term oriented and not on a short time frame. Therefore, we can't on a short notice change too much in that setup.

The next question comes from Remo Rosenau from Helvetische Bank.

You're obviously in constant contact with thousands of plumbers all over Europe. So how would you judge the mood of the plumbers, particularly in Germany, where the new housing market seems to be in a free fall right now, including the renovation sector. Are they generally not that much affected or worried because they just do more heating installations at the moment? Or are there some plumbers, which slow -- start to slowly worry about the future? So what is your feeling in -- with the discussions you have with plumbers all the time?

So I refer now to Germany where we have 50,000 plumbing companies, and the 50,000 plumbing companies means you have also a very broad range of sentiments and also now maybe even a bit bigger than normal. So you find more or less everything. But in general, I think I can confirm that in general, the overall demand is still okay for the plumbers because they have a strong demand for heat pumps or heating solutions. So therefore, that's quite okay. But there's one channel feedback, which you hear quite broadly is the very lengthy discussions and the uncertainties around especially regulation and subsidies with regards to this energy condition in Germany, that is really a challenge for plumbers and for the whole industry. But overall, demand situation, I would say, is still okay for plumbers at the moment.

Okay. Then you mentioned in your press release that you expect to come out of this, let's say, crisis in Europe or strong correction with stronger market share. That is what you basically always say. But do you actually see some smaller market players or competitors struggling with the strong volume declines in a manner that they even might go out of business, or is this just based on the fact or the expectations that they are cutting down on innovation, R&D, marketing, which will help you in the long run? Or are there really some ones which are truly struggling?

I obviously don't want to comment on individual competitors. But in general, we don't see any competitors or smaller competitors going out of the business. But what we see and hear is that competitors are taking corrective measures, restructuring, cost cutting, that's what we see more and more in -- also in our industry, but no one going out of the business.

Okay. And that's exactly what you will do less than the other?

Exactly, that's the reason why we have continued our investment plans. As we said in the introduction, we invested CHF 81 million in the first half of the year. That's, by far, the highest amount we ever invested in all of the year, if you go back 25 years. And that is a good testimony or proof that we continue to invest because the weather is bad at the moment, but the sun will come back again, and then we will be better positioned than ours.

The next question comes from Charlie Fehrenbach from AWP.

We've been talking about Germany already a bit about the declining building permits. You mentioned that the renovation business is also under pressure. Could you give us some more light what your expectations are there in Germany? Will this phase of weakness last longer, maybe into 2024, any idea?

So the building [ indicators ] in Germany are particularly weak, as you know, and you are right. And with regards to the new build segment, there, we have a certain delay of around 9 to 15 months from building permits until it hits our business. So therefore, you can make your calculation that might also last into next year. And the renovation is much more difficult to predict. As I said before, this year, we expect a declining environment in Germany. We don't know yet what the market will look like next year. I can't make a statement for the renovation sector next year.

The next question comes from Yassine Touahri On Field Investment Research.

So my first question would be on the volume outlook. I think, historically, in the previous conference call, you were suggesting that there was a 6 to 9 months' time lag between the deterioration or improvement in construction permits and yourself. Is it still the case? And my question is, we still see a lot of deterioration in the last few months in Germany, in Austria, in the Nordics, in permits. Does it mean that the second part of 2023 and the first half of 2024, could have not -- could reflect this as some deterioration in permits?

So I have to correct you that typical delay, as I just said before, between a building permit until it hits our business, our sales is at 9 to 15 months, not 6 to 9 months. But that is also including a certain -- uncertainty around inventory strategies of wholesalers because we don't know exactly how they react and also maybe plumbers in such a declining environment. So in average, we believe it's at 9 to 15 months. And the second question, I didn't really understand. Can you repeat?

The second question is that if we look at what happened in terms of housing permits and nonresidential permits in your key markets, like Germany, the Nordics, Austria, we see a clear sequential deterioration in the past 3 to 4 months. Does it mean that this big deterioration will be visible only in 2024, in your number?

I think that's what I answered before. Of course, that might have an impact on our business, but don't forget that we are not only in the new build business, obviously, the share of new build, depending county by county is maybe 35% to 40% of our business. But there's obviously a link to that, yes.

And the second question is on pricing. I was surprised your pricing was actually stronger than what I had in mind in the second quarter of 2023 at plus 11%. Did you increase prices a little bit sequentially in April? Or is it just a mix effect, which means that the pricing is still high?

No, we didn't do any changes as of April and also the price effect was pretty much in line with what we expected.

The next question comes from Alessandro Foletti from Octavian.

I have 2. One, I'm trying to figure out the underlying market trend, so to speak, you have mentioned that Q2 '23 is probably with this 25% volume decline is probably a bit of exceptional because you had a lot of prebuy last year and then you have also destocking this year. If we try to eliminate all that, can you -- do you have an idea how much the market is really down?

No, we don't. I don't have a sharp number. I can't provide you that. But what you can -- what I can say is that the volumes in the first half of the year, not on a quarterly basis, but the volumes in the first half year were roughly on the level of 2019, the first half of 2019. And then all the destocking effects started basically in 2021. So that is maybe a number which helps you.

Okay, okay. And your outlook into second half of '23, if we maintain the same sort of concept, is it an outlook of further weakening on this normal level or stable or maybe even improving?

I have not a number in mind. We didn't do that calculation specifically, but I would assume it's relatively stable. But I didn't do, we didn't do the math, to be honest, compared to 2019.

All right. And then my second question is maybe for the CFO. Can you give an indication on CapEx for the full year? And also, what do you expect on working capital for H2?

Sure, yes. We have a plan of around CHF 200 million for the full year.

That's for CapEx. And then what is your expectation for working capital maybe?

For the net working capital, I think it's no specific changes than in other. What you always have is, of course, the seasonality towards year-end as we're delivering less in Q4. We have lower accounts receivable, but that's a trend you would see in every year. No specific other dynamics expected.

Right. The question that I'm trying to figure out is really on your free cash flow for the full year. When I look at '21 and '22, we really had a very, very strong H2, but the H1 basis, I mean, it seems a little bit low this year. So are we going to have sort of normal free cash flow conversion in 2023 or maybe for whatever reason not?

So no, you should have a normal cash flow conversion with 2 additional remarks. Obviously, that network capital is, of course, affected by the volume and sales development. If we have less sales, we have less accounts receivable and same on the accounts payable, so the operational EBITDA impact on the net working capital. And the second point on the free cash flow is obviously the CapEx guidance we just get.

The next question comes from Christian Dolleschal from HSBC.

A quick follow-up on the midterm outlook or 2024 guidance that you're obviously not given yet. But we discussed about the building permits, also your business having a 9 to 15 months delay. So would you agree that 2024 from today's perspective, at least, looks difficult in order to get to the midterm target of 4% to 6% growth?

As usual, we do not talk at this moment in time about the next year. We will do that then in January with our first information 2023. And just to remind you, one of the reasons is we have a very low visibility in terms of our business, we [indiscernible] 2 weeks. Therefore, I don't want to talk too much or more in detail about 2024.

The next question comes from Emrah Basic from Baader.

I just have 2 quick ones. The first one is actually just a clarification question because I'm not sure I heard correctly. Before you mentioned, I think, twice that you are not yet at the bottom in terms of flexibility, were you referring to, like, do you still have room for improvement in terms of flexibility in case it gets -- it deteriorates even more in the end market?

That's what I meant, yes.

Okay. Perfect. Great. And the second one is a bit of another topic, but like the Carbon Border Adjustment Mechanism that is entering its tradition period now in October this year. Is this a topic for you? Because there's also some aluminum-related products, I think, included. And I'm not sure whether you import from the -- like from outside the EU or yes.

That is not a large topic for us. So we're not affected.

We have a follow-up question from Martin Hüsler from ZKB.

Yes, the short one. Maybe some words on the Swiss market, which hold up quite well. What was the volume trend here? And what are your expectations for the rest of the year?

Though the volume in H1 was also negative, but much less pronounced, obviously, than in other European countries. And for the outlook of the second half of the year, I don't want to give a quantitative guidance on a country level. But in general, for Switzerland, we are more positive compared to other countries like, for example, Germany or Austria.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Christian Buhl for any closing comments.

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