Geberit AG (GEBN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to our half year results conference call. Geberit achieved in a difficult market environment, convincing results in the first half of the year. Well, let me start with the 3 key statements for H1. First, a slight net sales growth in local currencies of 2% despite a decline in building construction market in Europe. Second, a stable profitability on very high level with an EBITDA margin of 31.6%. And thirdly, a significantly increased tax rate due to the new OECD minimum taxation law in Switzerland. Let me begin our review with a few comments on the top line in the first half of the year. Net sales decreased by 1% to CHF 1.64 billion, negatively affected by currency effects. Negative currency effects led to a net sales loss of CHF 52 million or minus 3%. In local currencies, net sales increased by 2%, of which 1% came from volume growth. The slight volume growth was driven by 2 factors which compensated for the declining end market demand: a positive base effect from destocking of wholesalers in the previous year, and secondly, selective restocking of wholesalers this year. However, stock levels at wholesalers were not yet back on normal levels end of H1. This brings me to the regional net sales development. All growth figures refer to growth in local currencies. In Eastern Europe, net sales increased by plus 11%, driven by a strong base effect. In Italy, net sales increased by 6%, supported by a still quite favorable market environment. In Germany, net sales increased by 2%, due to a strong base effect. Note that last year's H1 sales in Germany were down minus 15%. In Benelux, net sales increased by 1%. In Austria, Switzerland, net sales decreased slightly by minus 1%. In Western Europe, net sales declined by minus 3%, driven by France and the U.K. Net sales in Northern Europe decreased by minus 5%, negatively affected by the divestment of the Nordic shower business for end of last year. Let me now turn to the regions outside Europe. In the Middle East and Africa region, net sales increased by 9%, driven by the Gulf region. In Far East/Pacific, net sales increased by 6%, with strong growth in India and Australia, partially offset by a decline in China. In America, net sales slightly increased by 2%. Let me now comment on the sales development, the product area, again in local currencies. Installation and Flushing Systems and Piping Systems both increased by 3%. Bathroom Systems net sales were on previous year's level, due to less stocking effects versus the other 2 product areas and the divestment of the Nordic shower business for end of last year. Let me now give you some comments on the sales development in the second quarter. Net sales increased by 4% and reached CHF 801 million. The currency impact weakened versus the previous quarter and affected the top line negatively by CHF 9 million or minus 1%. And in local currencies, group net sales increased by 5%, all driven by volume. This volume expansion was caused by 3 factors: one, additional working days. Secondly, a strong base effect, we reached in Q2 last year historically low volumes. And thirdly, selective restocking of wholesalers this year. These positive factors overcompensated the declining end market demand in Q2. Let me turn to the regional development, again, in local currency. In Europe, net sales increased by 5% in the second quarter. Outside Europe, net sales increased in Middle East Africa by plus 21%, driven by a very strong growth in the Gulf and in Far East/Pacific by 5%, driven by the strong growth in India. Net sales in America declined by 2%. I continue with the sales development per product area in Q2, again, in local currencies. Installation and Flushing Systems and Piping Systems both increased by plus 7%, while Bathroom Systems increased by 1%. The weaker development of Bathroom Systems is driven by less stocking effects in Bathroom Systems, the disproportional high exposure of Bathroom Systems to the very weak Nordic markets, and the already mentioned divestment of the Nordic shower business for end of last year. I come back to the first half of the year with comments on the operating and financial results. The substantial negative currency effect led to declining operating results in Swiss francs on all levels. However, in local currencies, EBITDA, EBIT and EPS increased versus previous year. I'll start with the discussion of the EBITDA development. EBITDA in Swiss francs decreased by 2% to CHF 518 million. Excluding the negative currency effects, EBITDA increased by 3%. The EBITDA margin decreased marginally by 10 basis points and reached 31.6%, since the negative and positive margin drivers compensated each other. The main positive profitability driver was reduced direct material prices, which were on average, 7% lower than in H1 2023; made negative margin drivers were a wage inflation of around 5% and several dedicated growth initiatives, marketing efforts and additional expenditures for IT and digitization; and thirdly, also the currency effect, which lowered the margin by 50 basis points. EBIT and the EBIT margin development was in line with EBITDA and EBITDA margin. Net income in Swiss francs decreased slightly by 1% and reached CHF 350 million. This, compared to the operating result, this proportional decrease was driven by a significantly higher tax rate due to the new OECD minimum taxation law in Switzerland. Earnings per share reached CHF 10.57 and increased by 1% in local currencies, a better development versus net income due to the continued share buyback program. The share buyback program started in 2022 was completed in June this year, with 146,000 shares bought back in the first 6 months, for a total amount of CHF 76 million. In total and as planned, 1.267 million shares were bought back, for a total amount of CHF 600 million during the 2 years duration of the program. CapEx decreased by CHF 19 million or minus 23% to CHF 62 million due to the phaseout of investments into strategic plant expansions in H1. Free cash flow increased double-digit by plus 17% to CHF 217 million due to a better working capital development and lower CapEx. Let me now comment on our market outlook for the full year 2024. We expect an ongoing challenging environment, with an overall decline in building construction market this year. The increased building costs and interest rates over the last 2 years significantly dampened demand for building construction activities, especially in the new built sector. Building permits in Europe declined by minus 15% last year, mainly driven by the residential sectors, leading to a contraction of the Europe new built construction business this year. Building permits in Europe continued to decrease this year. However, with minus 5% in Q1 at a somewhat slower pace. We see the strongest decline of the new built sector in Northern Europe, Germany and Austria. Unlike to the new built sector, the renovation business, in which we generate around 60% of our sales, is more robust, mainly driven by the fundamental need for renovation in several European countries and no additional pressure from the shift from sanitary to heating solution as experienced last year. Despite the overall negative sentiment for the building construction industry, we experienced several positive catalysts for the sanitary construction markets this year. For example, the channel and structural trends to better sanitary standards and a strong demand in several markets outside Europe, for example, in India or the Gulf region. On the supply side, we expect from Q3, a sideway development of direct material prices compared to Q2. However, keep in mind that the benefit from lower direct material price compared to previous year will considerably weaken in the second half of this year versus the first half. And you can see on Page 8 of our PowerPoint presentation. The overarching objective this year remains for Geberit to gain further market shares in this declining market environment. We stick also in 2024 to our 2 guiding principles: strategic stability and operational flexibility. This means that we continue to execute on our strategic agenda as presented at the Capital Market Day last October, and that we will further invest into our business, into innovation and into efficiency. Important initiatives are, for example, our prefabrication strategy, our dedicated sales initiatives in the emerging markets or our specialization strategy in our ceramic plants. Another priority this year remains our shareholder-friendly distribution policy. Based on a healthy balance sheet and the good cash generation, we will launch a new share buyback program in Q3 2024, as already announced with our Q1 results. The new program amounts to a maximum of CHF 300 million and will run over a period of maximum 2 years. Let me continue now with our full year guidance. In the light of the difficult market environment, with declining volumes and our generally low visibility, it's hard to predict the short-term future. Specific volume uncertainties for Geberit emerged from the macroeconomic and interest-related uncertainties and especially the unknown and unpredictable wholesaler inventory strategy in this declining market environment. Under the assumption of no material changes of this fragile environment, for the building construction industry, we expect for the full year, net sales in local currencies at the previous year's level, and an EBITDA margin of around 29%. Net sales in July were like-for-like, slightly above previous year's level, driven by the low comparison base from still weak sales in July last year. Let me close our introduction with a short summary. Geberit delivered convincing results in H1. Despite a very difficult environment with declining underlying demand, currency adjusted net sales were slightly above previous year and margins reached previous year's high level. Earnings per share were currently adjusted slightly above previous year, despite this market environment and a significant higher tax rate driven by the new OECD minimum taxation. For the full year 2024, we continue to expect declining market environment. Specific margin challenge for H2 emerges from the less favorable base effect from falling direct material prices in the course of last year. However, Geberit is well prepared for these uncertainties emerging from this environment, as already demonstrated several times during the past. Our confidence is based on the fundamental need for our products, our resilient strategy and business model and our long-term focus and track record. Thank you for your attention. We are now ready to answer your questions.

[Operator Instructions] Our first question comes from Daniela Costa from Goldman Sachs.

I actually have 2. The first one, more shorter-term and the second one more medium term. But the first one regarding your organic sales growth guidance for flat for the year, that implies, I guess, negative for the second half when you just mentioned July slightly up. Is it just because across Q4 sort of tougher comparables or how do you think about like the restocking? Is it sort of you have no confidence on the restocking? You mentioned stimulus from rates, for example, in your release. So can you talk about sort of like the makeup of why it's negative in the second half to start with? And then I'll ask my second question.

There are 2 main reasons. One is that we will have a challenging fourth quarter, where the comps will become more challenging. Last year in Q4, we have had volume growth again. And the second one, as you mentioned, are the uncertainties around the inventories at wholesalers.

Okay. And then regarding just more longer-term, your pricing strategy historically used to be 1%, 2% up every year, regardless of what the makeup of inflation was, obviously, then we had a '22, '23 like exceptional situations. Now that we're back in a more normalized scenario, is there any reason why we think sort of in future years, you won't be back to the normal pricing strategy?

I agree that we are more back to normal waters in terms of inflation and pricing strategies. However, we have not yet taken any decision, if that is behind your question, what we will do with pricing 2025. But the environment in channel is much more normal than what we have experienced over the last 2 years.

The next question comes from Martin Husler from ZKB.

I have 3 questions actually. First of all, on your qualitative outlook for specific markets, I think you now include Austria, Austria as a weak country in terms of new construction. What is the reason there for Austria?

The main reason is that in the first quarter, where the decline of building permits has somewhat softened, that was not in Europe. This was not the case for Austria. In Austria, in the first quarter, the new building permits were down minus 18%. That's quite a significant number. That is the reason why we included also Austria is a list of most difficult markets in terms of new built.

Okay. And then the second question is looking at the gross profit margin, I was surprised that in the second quarter, actually, the gross profit margin was even a bit higher than in Q1, even though the direct material costs seem to trend it up. What's the reason there?

Can you -- sorry, can you repeat again the question?

Yes. So maybe I rephrase it. So I think in Q1 '24, the material cost in percentage of sales were a bit higher than in the second quarter. And this looks -- but if I look at the red line, where you show the material cost, it looks like those trended up?

Yes. Let's say the one is really the pricing and then there's always a slight delay until that materializes in the P&L. So that's basically the main reason for that. But it's marginal shift, it's marginal up and it's a marginal percentage down. So it's really, very small effects.

Okay. Okay. Then maybe last question. Can you give us the trends in shower toilets? And maybe this time, it's more interesting volumes and value because of the new, let's say, low-priced product that you introduced?

The development of shower toilets in the first half of the year is very good. We have a significant double-digit volume growth, especially since Q2, and that is only driven by the new product, Alba. And we are also growing double digits in value in the first half of the year, also driven obviously by Alba, which gives you a hint that we have not seen -- do not experience large cannibalization of this new entry-level shower toilet versus the existing product portfolio. So we are very happy, double-digit growth in volume and in value in the first half of the year.

The next question comes from Christian Arnold from Stifel Schweiz.

Just a follow-up on Alba. You haven't mentioned it actually anywhere, I think, not in the press release, not in the slides. So was it -- I mean, you were saying it's double-digit up, your shower toilet business, but it's still not that significant. Would we expect a more significant impact from Alba in the second half of this year? Yes, that will be my first question.

It depends what you mean with significant. Obviously, it's very significant for the shower toilet category. However, to be fair, this one single product, in terms of significance for group sales, that is, however, somewhat limited, not comparable, for example, with FlowFit. And that will also be the case in the second half of the year. But we are very happy that we are above budgeted -- above the numbers that we plan for. And also the quality feedback of customers now we installing the product is extremely positive. So therefore, we are really happy. But in terms of significance for group sales, it's still a low number. And that's the reason why we didn't mention it in any press release or PowerPoint presentation.

Okay. And you are not going to mention it?

Maybe we could.

Okay. Second question on restocking. Could you give us here a little bit more insight, which markets actually are benefiting most from the restocking at wholesales?

In geographically, typically the [indiscernible] wholesale was suffering last year, obviously, from destocking, that's predominantly Germany, Benelux countries, also in some Nordic countries where we have seen this destocking effect or to come from the other side of the list where we have seen less stocking effects, also less stock buildups, obviously, than this year, for example, in Italy, but also Switzerland, where we had lower of the -- less of destocking effect.

Okay. And the last question would be on your growth initiatives, which are, I think, taking place mainly in Asia Pacific, Middle East, Africa, if I'm not wrong. These areas actually also showed the above-average growth in Q2. Is this now already a result of your growth initiatives? Or are they just the markets which are better? Hence, the growth initiatives, the positive impact will come later?

No, I would say it's predominantly market and good work, which we've done so far with existing initiatives. The new initiatives, many people which we added this year in this region did not have yet a significant impact on topline, that takes a certain period of time.

So next years?

Well, hopefully.

The next question comes from Martin Flueckiger from Kepler Cheuvreux.

Just a couple of -- just 2, 3 questions from my side, please. First one is a clarification question. Do I understand you correctly that you -- Christian, that you were talking about volume growth of 1%? Was that for H1? Or was that for Q2? That would be my first question. Then the second question is, again, sorry, on inventory restocking by wholesalers. Just wondering what your impression was, now I realize that it's difficult to quantify and I guess, your assessment is your best guess at this point in time. But I was just wondering whether you're seeing improving momentum in Q2 versus Q1 on that front, whether anecdotal or empirical up to you. Then finally, on the selling price development. If I remember correctly, we had a delay effect in Q1 of around 1%. Was that also the case in Q2? Or did it weigh in towards 0%? That's it for me.

I'll start with the last question. So we have, you're right, the positive price effect of around 1% still in Q2 to some delay effects last year. There was no price effect anymore in the second quarter. So the whole 5% growth in local currency was driven by volume. This brings me to your first question, if I understood correctly, the volume growth in the first half of the year was around 1%, driven by the 5% plus in the second quarter and a volume decline of around minus 3% in the first quarter, if that was your question #1. And then the second question about the dynamics or the difference of market dynamics. What we hear from customers in Q1 versus Q2, I would say we didn't hear any significant changes in terms of the dynamics and also the -- quite a pessimistic market environment in Q2 versus Q1.

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

My first question is just a follow-up on pricing. Could you comment by division? Have you seen any divergence between the 3 divisions in terms of pricing trends? And my second question is more, let's say, medium term. In terms of the competitive environment, are you seeing any change in the market? I mean, you've got some restocking, but underlying demand is still quite weak. Are you seeing any new behavior on the pricing side? Or are you seeing any new on-trend in the market?

First question, no significant differences in terms of pricing among these 3 product areas, very similar pricing dynamics, nothing specific to mention. The second question, also there, quite a stable environment. If I understood the question correctly, quite a stable environment in terms of pricing, no signs of huge price changes in whatever direction and also no significant new market entries with, I guess, you would assume lower price points in the European market, nothing which is really significant which we should mention here.

The next question comes from Remo Rosenau from Helvetische Bank.

At the beginning, I think you mentioned that the inventories at wholesalers are not yet back on normal levels by midyear despite the restocking effect. Now my question is, how do you know that? I mean there are no sources because it's just coming from anecdotal evidence from talking to some of your wholesalers or where do you get this view from?

Exactly. It's a very simple question to a wholesaler, where are you with your inventory levels of Geberit products at the moment compared to normal levels, meaning 2019, 2020 before COVID, and then the answer is lower. That's exactly the source.

Okay. And is there some kind of quantification to that? I mean where we were -- when 100 is the normal level, and they went down with the supply chain crisis. They went to 120, then they went down to 80 or they're now at 90 or...

We obviously would love to know that. We -- from time to time, we even again, try to ask exactly these questions. We don't get an answer. We don't get an answer. That is clear. I also would not give the answer that would be a wholesale. This number -- this indication is one of the numbers, how a wholesaler is fighting against his competitors, the other wholesalers because that's obviously a very crucial number for a wholesaler, how he is managing the inventory, especially in this environment. So I would love to have the number. We don't have a number. What we have is a quality statement from several, not only one wholesaler, obviously, that we have restocked, but we are still not at the level what we have had pre, let's say, crisis, pre-COVID, 2019, beginning 2020.

Okay. And the last adjacent question that is, I mean, assuming that the stock levels will reach normal levels at some point again, could be in October, could be in December, who knows. But the market will not improve, the end market. Then there might again be a problem, right?

So let me take your question to answer on what happened in the first half of the year. We are convinced that the fundamental market demand for our products was down, but that was overcompensated by restocking. The second answer to your question, maybe the normal level is also changing in that dynamic. So what does it mean if a wholesaler talks about a normal level, if the expectation of the demand is lower. So the more challenging part might be then the second half of the year, what is normal in this environment.

Okay. And that is one of the reasons this complexity why you are somewhat cautious on the second half in terms of the organic growth? .

Combined with the tougher comps in the fourth quarter.

The next question comes from Patrick Rafaisz from UBS.

Also 3 questions from me. The first is a follow-up on your comments on the July trading, which was slightly up in local currencies. Is it fair to assume that from last year in Q3, July still saw sort of the last bits of that significant wholesale destocking that we witnessed in Q2? And that through August and September, these relative base effects will become smaller? Is that a fair assumption within the quarter?

Yes, that could be a cause -- I can't remember August and September now out of my head last year. But I remember, July last year, sales were down minus 10% in July 2023. And in Q3, had a minus 5%. So that -- I think you're right. As of August and September, it started to be better last year.

Okay. Great. And then just a detail, but could you maybe quantify the effect of the Nordic shower divestment in Bathroom Systems?

It had an effect in the Nordic region of around 2%. In Northern Europe, we had a decline of minus 5% in the first half of the year, including the divestments. If you exclude this effect, it would have been about minus 3%.

Okay. That's very clear. And then the last question, looking at the EBITDA bridge for the year. The margin in H1 was more or less flat. And you've talked about the elements within the H1 bridge. Now the guidance for 29%, of course, implies a lower margin in the second half. And if I look at these bridge elements, will both the price cost and call COGS or inflation be negative contributors? Or would you expect price cost or the gross margin to be flat and the bigger impact will be from higher OpEx inflation and growth investments?

The main reason for a more negative expectation for the margin development in the second half of the year are the direct material costs. If you look at our price index for direct materials on Page 8 of our PowerPoint presentation, you see that obviously a bit narrow in the assumption that direct materials prices stay stable up to the rest of the year. And this narrowing effect, that's the main driver why we are more negative for the margins in the second half of the year. Or in other words, if you look at the bridge, the net price effect will become much more under pressure, so to say, in the second half of the year compared to the first half of the year.

So the net pricing effect could become negative then in the second half?

I said more negative, more -- sorry, more on the product. I didn't say negative, it become definitely smaller. Have to quantify how small -- how much, but it will be smaller. That is the main reason why we are more negative for the margin in the second half of the year.

The next question comes from Harry Dow from Redburn, Atlantic.

Just I think 3 questions for me. Firstly, on the shower toilet, the new shower toilet Alba. I know you mentioned that in both value and volume sales were up. I just wondered, given the price difference, I think, to the midrange model, I think it's called the sale. What sort of reasons or functionality a consumer would have to sort of trade up to that sale, rather than sort of the Alba given just the price difference? And then secondly, just on more of the macro view, I was wondering if there's any evidence of weakening activity in Italy? I know that the government there has pulled back the super bonus scheme coming into this year? And then finally, just on the GBP 30 million of investment into operating costs, I wonder if you could give us an idea of how much of that was spent in the first half and how much is to come in the second half?

Question #1, around cannibalization of Alba, we see a little marginal cannibalization of the mid-level product, so-called Sela, as we haven't seen any cannibalization of the premium product, which is Mera. In Italy, the market is still quite positive, although the public subsidy program has been lowered, but it's still in effect. And at the moment, we see still quite a healthy market environment. It will be challenging, most probably what will happen next year. But at the moment, it looks be quite okay in terms of market dynamics in Italy, despite the lower or a little bit weaker subsidy program. And as of the GBP 30 million, we had very few in Q1 as said at that time. So it started in Q2, but the bulk of it is expected in H2. It's an accelerating trend in H2.

The next question comes from Christoph Dolleschal from HSBC.

Three quick ones from my side as well. First of all, the normal question that you always get is on the German plumber levels. Where are we in terms of weeks?

Guys, at the moment, at 12.9 weeks. The order backlog of German plumbers, which is 27% below the level of last year. So again, coming back to the question before, different feedback of fundamental end consumer demand in Q1, in Q2. If you look at this number in Germany, it hasn't -- there was no change. It's still quite difficult, not only driven by sanitary, to be honest, it has also a lot to do with heating, but the order backlog came down substantially for German plumbers.

Okay. Then the next one, on CapEx. CapEx, at least, I see was relatively low in H1 with CHF 62 million. And I think you guided for about CHF 200 million for the year. Is there a huge pickup in H2? Or are some of the investments being shifted?

No. There's no shift in CapEx. So we continue with the strategic stability. It's a pure phasing within the year. So no change to the guidance at that stage.

Okay. So it means we're going to be expecting around about CHF 140 million for H2, right?

Correct.

Okay. And last but not least, a bit more like longer-term because your strategy, as you've pointed out a few times, is about winning market share and basically positioning yourself in that direction. Do you already see that happening? Or is it too early to tell? So are we seeing that you're winning share against competition?

I think it's too early -- if you take just this year, 6 months to assess this question quite precisely. Qualitatively, we hear from there and there that we are doing better than competitors. We get it also, by the way, from wholesalers from time to time, but it's a bit too early to really make the bold statement to just gain market share, but we are pretty confident that it really happens.

When will you basically then see the evidence? At the end of the year? Sometime next year?

We typically look at -- the minimum is a year that we look at numbers and compare ourselves to other companies, that's at least a year, maybe in this environment will be more 2 years but not before the end of the year.

Our next question comes from Nitesh Agarwal from Citi.

I have 2 questions, please. So first one is basically on the renovation demand, can you please share what -- which are the top countries within Europe where you're seeing the strongest demand from the renovation business?

Well, that's a very tough question because we -- as you know, we don't have exact numbers how our business is going into these sectors, new build and renovation, with the go into wholesaler. They're going to plumbers and actually all these plumbers know if it is a renovation project or a new built project. So the only again, information we have is quite [ far as this ]. And there, I couldn't know -- I couldn't mention specific comp in terms of renovation where we see significant huge differences. That's much more, let's say, in parallel compared to new built where we have much more different dynamics [indiscernible].

Understood. And so my second question is basically on the material prices. You have mentioned that the prices -- material prices were down about 6% versus last year in the second quarter. Can you please give a little bit of detail in terms of where you saw the biggest drop and where, if any, you saw an increase in the prices versus last year in the second quarter?

It was basically in both areas, which we have the most exposure. One is that metal, direct materials related to metal, but also the direct materials related to plastics. In both of these most important categories, we have seen decreases compared to the previous year. It was a bit less on the semi-finished goods because there is the inflation of the value-adding function before, and obviously a more negative effect. So it's -- from a category perspective, relatively equally distributed. However, it's more on the raw material side and obviously less on the semi-finish product side.

The next question comes from Alessandro Foletti from Octavian.

Yes. Do you hear me?

Yes, we do.

Okay. Just one curiosity. You mentioned that you didn't take decision on 2025 prices yet. Is this normal because you only do it in the budgeting in September? Or is there something else behind it?

No, that's absolutely normal. We never took a decision of pricing for the next year already in August -- or beginning August. Just too early.

Okay. And the second question on the interest rates, which you've mentioned now for a couple of times in your press releases. Do you see any effect from that already? .

I didn't understand.

Interest rates.

Interest rates. Difficult to say. I would -- again, that's very far away, we have seen a dynamic effect -- very, very difficult to say, maybe more on the mood side, but not maybe most probably not on the read on the number side. At least we didn't get any feedback from the customers, for example, telling us we have now gained the project again because interest rates came down there. They're not yet enough, let's say, fact-based feedback to give you a clearance.

But do you normally would get it or...

The economics is clear. The lower interest rate, the higher incentives to build in.

Yes, sure. But this is the macro side. I'm talking about the discussions that you have with clients, et cetera. Would you normally hear really something from them or we will still remain a very qualitative discussion, if at all?

It's just qualitative. And the main customers we talk to, our plumbers and the wholesalers, they are also only indirect -- say the wholesale, also indirectly discussing with these people. Obviously, we have also discussion with direct with the investors where we try to presell our products. There, we didn't have now for the -- for a direct feedback or believe we go on now with that project which we stopped so far because interest rates were still too high.

Okay. My last question on the margin for H2. When I look at the implication from your guidance, it means that the year-over-year decline over H2 last year is pretty steep. And we are accustomed to have a lower margin in the second half of the year because of kind of weak Q4. But why is it that this year, we have a much bigger step down than last year, for example?

Again, as I said before, we had a benefit in the first half of the year of 7% lower direct material price, 7%. This number will be substantially lower in the second half of the year, substantially low. And you see that on graph on our Slide #8 in our PowerPoint presentation. And if this number is significantly lower, you have a significant impact on the margins at those [indiscernible].

[Operator Instructions] The next question comes from Axel Stasse from Morgan Stanley.

I have 2, if I may. The first one is on pricing for next year, sorry to come back to that. I just want to understand how you are deciding about the price increase. Is this a debate you have with the wholesalers at the beginning of the year? Or like -- I just want to understand how this works.

So the process is that we decide how we want to increase the prices, and the increase, obviously, least prices. And then that's, by the way, not very specific, that's an industry standard, and then you negotiate risky wholesalers individually rebates and bonuses, and that brings it into a net effect, which is obviously a little bit lower than what you have on the list price side. That's the normal process.

Okay, okay. Very clear. And then my second question was about working cap development going into the second half of the year given your top line guidance. Do you have a full year guidance that you can provide for us on the working capital for sales?

No, we're not making a full year guidance on working capital and free cash flow. But apart from working capital, the CapEx which we mentioned before, we do not expect any significant shift outside the usual seasonality that we have, which is obviously, as mentioned before quite pronounced.

We have a follow-up question from Martin Flueckiger from Kepler Cheuvreux.

It's actually quite a small one. Christian, if I remember correctly, at the beginning of your presentation, you were explaining the drivers for the volume growth. And I think you also mentioned working days. Just wondering what that quantitative impact was in terms of number of working days. Was it 1 or 2? Or what was it?

It was one working day more in Q2 versus Q2 last year. So that, in other words, it's about 2% or something like that.

Also the next question is a follow-up from Christian Arnold from Stifel Schweiz.

On the order of OpEx, this additional CHF 30 million you have this year. You mentioned that the bulk of this CHF 30 million actually will come in H2. But I think to remember that when it comes to marketing efforts or especially the anniversary event you had, but that actually took place most of it in Q2. So I thought a good part of this CHF 30 million actually occurred in H2. So maybe if you got maybe split up this CHF 30 million, what is growth initiatives, what is marketing efforts and what is IT digitalization projects, to give a little bit more flavor here?

So first of all, you underestimate our capacity to celebrate an entire year. So the anniversary costs are not just totally over, but I granted that the big part has been done. However, the rest of that, which are the growth initiatives in Asia and also the investments in digital and IT, that is, as I mentioned before, ramping up. And therefore, that's the reason why the bulk of that is in H2.

Okay. But would it be fair to assume that 1/3 is growth, 1/3 is marketing efforts, including anniversary, but maybe also Alba and 1/3 is IT digitalization?

We don't go away in that level of detail.

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

Thank you very much for your interest, your participation and your questions. I think that's it. We wish you all a great rest of a wonderful summer days here in Switzerland or abroad. Goodbye. Thank you.