Good morning. I am the entity operator for this conference. Welcome to the Geberit conference call on the first information 2021. Please note that for the duration of the presentation, all participants will be in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during this conference call, they may signal an operator by pressing star and zero on their telephone. 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 for the introduction. Good morning, ladies and gentlemen. Welcome to Geberit full year sales conference call. We will first comment on our fourth quarter sales figures, then 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 start with the fourth quarter. We recorded a strong and a better than expected quarter with net sales growth of +7.7% in local currencies, driven by a very strong November and December. Sales were positively influenced by pull-forward effects due to the extraordinary price increases in Q4, and secondly, a buildup of safety stocks of wholesalers and increasingly also installers due to increasing shortages in the building material industry.
Compared with Q4 of 2019, hence without any base effects from the COVID-19 crisis, net sales in Q4 grew very strong in local currencies by +14% over the period of these two last three years. Let me now comment on the development in the various regions in Q4. In Europe, currency adjusted net sales increased by 8%. Double-digit growth was recorded in Iberia with +24%, in Eastern Europe with +22%, and in Germany with +14%. Single-digit growth rate was achieved in Italy with +7%, Nordics with +5%, Benelux with +4%, Switzerland with +2%, France with +2%, and sales declined in Austria by -2% and in the U.K. by -20% due to the extraordinary strong growth in H1 and the base effect from the previous years.
Outside Europe, we increased net sales in Far East/Pacific by 12% and by 8% in Middle East/Africa. Net sales in America were down by -2% due to labor and component shortages. The three product areas showed again a different sales dynamic in the fourth quarter. Installation, flushing, and piping systems grew currency adjusted with +12%, respectively +9%. Bathroom Systems only with +1%. The weaker development of Bathroom Systems might be another indication of a weakening home improvement trend. We will now comment on the full year 2021 sales performance. Net sales in Swiss francs increased by 16% to CHF 3.46 billion, the highest sales level in Geberit's history. In local currencies, the growth reached +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 currencies. This two-year comparison demonstrates the excellent performance we have achieved during the 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 material industry. Thirdly, market share gains since we focused 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 mature markets, 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. The strongest growth was recorded in Italy with +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 markets reached +16%.
The strongest growth was recorded in Eastern Europe with +25% due to several forex-induced price increases in several Eastern European countries. Iberia grew with +25%, driven by positive base effects 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 +8%. Let me now turn to the regions 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 the 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 area, again, in local currencies. All three product areas delivered strong growth rates in 2021. Installation and Flushing Systems, net sales grew by 18%, Piping Systems by 15%, and Bathroom Systems by 10%. The different development of Bathroom Systems versus the two 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 investment into digitalization in 2021 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, followed by one and 1/2 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 material, 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 or 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 inflation, have demonstrated how difficult and unpredictable an outlook in the current environment is. The uncertainties around the COVID-19 pandemic and its economic impact, positive or negative, remain to be very high on the supply and on the demand side. On the demand side, we currently see three main questions impacting our business in 2020. First, when and how might the COVID-19-induced home improvement trend come to an end? And how big was the effect of putting forward home renovation activities over the last one and 1/2 years? Secondly, will the significant price inflation and shortages of certain building material components lead to delays or even full stops of entire building projects?
Thirdly, will wholesalers destock their inventories once the situation around the COVID-19 pandemic starts to normalize? Due to the high uncertainties around these three questions, we refrain at the moment from providing an outlook for the building construction industry this year. 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 and margin headwind from the continuously increased raw material, energy, and logistic 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 16 million compared to last year. Let me close our introduction with a short summary. Geberit achieved in 2021 not only a new record level on sales, but also the strongest organic sales growth since our IPO in 1999. Also, compared to pre-crisis level in 2019, we achieved very strong results over the last two years in times of unprecedented challenges, particularly in supply chains.
These results are a testament to the resilience of our business model and the decisions and the prudent crisis management since the outbreak of the COVID-19 pandemic two years ago. Thank you for your attention. We are now ready to answer your questions.
Thank you. We will now begin our question and answer session. If you have a question for our speakers, please dial zero one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it's your turn to speak, you can dial zero two to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question.
Hello. Are there any questions? I guess so, but we can't hear anyone.
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.
Okay. Yes. Perfect.
Good morning, gentlemen. If it's still the case, happy New Year to all of you, if we can still say it at this time in January. Just two 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. I wanted to get your sense as to what is your expectations in terms of SG&A and salary inflation as we go into 2022. Is this going to be closer to the 4% or 5% or still milder around the 2%-3%?
Any color on that would be appreciated. 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? 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 very much.
Thank you for the question. 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 respectively, 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 exponentially prices. But I'm very sorry, I'm also struggling to quantify this pull forward effect. I can't help you there. Sorry.
Thank you very much.
You're welcome.
The next question from Martin Hüsler, Zürcher Kantonalbank. Your line is now open.
Yes. Good morning. My question turning on Germany, where you had an excellent final quarter, even though the base in Q4 2020 was already very high. Actually, I think already there you mentioned some pull forward effects. My question is, so can you give some reason for this good development in Germany and actually for the acceleration in dynamics in the fourth versus the third quarter? 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 we have some utilization issues because installers are more or less fully booked out for the next couple of months?
Thank you for the question. Number one, the strong development in Q4 in Germany, despite an already strong previous quarter, was driven by extraordinary price increases as of January in Germany. This is one of the examples I just referred to in 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. 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. Can you maybe say something by how much was Germany also 1.5% in January? Or was it higher or lower?
I don't wanna go into details how much we increased 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 increase prices. Therefore, it must be higher than 1.5% in Germany, but I don't wanna go into details.
Okay, thank you.
The next question is from Andre Kukhnin, Credit Suisse. Your line is now open.
Yes, good morning. Thank you very much for taking my questions. Can I double-check on pricing first? In terms of the run rate that we enter 2022 at, I think before we calculated 5%, I just wanted to double-check that. 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 are correct. The run rate as of January 2022 is the 5% number which you have in mind. It is correct. For the rest of the year, I can't comment so far because it depends obviously on the price increases for the rest of the year.
Right. Am I right to think that if you do the usual annual price increase in April of, I think you talked about 1%-1.5%, and I think it was around 1.5% last year, then you need to do that to get the 5% for the year. Would that be incremental?
Whatever we would do after the 5% where we are standing today would be incremental.
Got it. Thank you.
You're welcome.
Thank you. Can I ask a couple more questions if that's okay?
Sure.
Thanks. 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, now we're seeing two years at above that level, and you have effectively increased prices to defend it 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 the EBITDA level.
No, nothing has changed with regards to our margin thinking. Maybe two comments. The around 30%-31% EBITDA margin we are expecting for last year is still inflated to a certain extent by two reasons. One is we are still not back to normal marketing expenses last year. As I explained in my introduction, we expect another CHF 50 million additional marketing spend this year to come back to a pre-crisis marketing level. The second one, still last year, we benefit 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. Overall, in 2021, we are still benefiting to a certain extent from lower raw material prices.
Thank you. Now, that should bring me to the final question. I know you said on raw materials that you refrain from giving an outlook. Without giving an outlook for spot prices, but taking the current spot prices as they 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?
If I understand the question correctly, assuming that spot prices for 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.
For Q1, if I may push you on that.
It 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, which we have put online on page four, you see, our raw material price index, how it developed throughout the year 2021. There you can take the chart and make the calculations yourself, basically.
Perfect. Thank you very much for your time.
You're welcome.
The next question is from Arnaud Lehmann, Bank of America Merrill Lynch. Your line is now open.
Thank you very much. Good morning, gentlemen. Couple of questions on my side, please. Firstly, could you comment on the fourth quarter 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. Just trying to come back on the Bathroom Systems, were it stable in the fourth quarter? Well, I guess the question is there a possibility that this division might be down in 2022 considering the pre-buying and all the big renovation spend of 2021? Thank you.
The development in Q4 in the U.K. was driven by three effects. One is a very strong first half of the year last year, so we have seen certain, let's say, destocking effects on one hand side. Secondly, we had a strong previous year quarter. Q4 2020 was very strong, driven by some deliveries around Brexit. The third element is smaller and operational element. We had also some challenges to bring in, logistics before Christmas into the U.K. 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 qualified 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 2022, we don't wanna give an outlook on group level for 2022, especially also not on product area level. I think one of the three questions which I mentioned before is particularly important for Bathroom Systems development this year, the question around the home improvement trend. Might it come to an end? If yes, when? And if yes, have we seen pre-buying of, let's say, full forward effects last year? I can't give you a better outlook on Bathroom Systems for this year.
That's very helpful. Thank you very much.
The next question is from Remo Rosenau, Helvetische Bank AG. Your line is now open.
Yes, thank you. 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. It's the other way around. The 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 and flushing systems and Piping Systems. This one was not on Bathroom Systems and ceramics.
Okay. It was the other way around. This time in January?
It's selectively across geographies, and it's also selectively across product lines even, and therefore it's not, you could say, it's the same across the three product areas. However, it's even more differentiated if you go one level lower. We did also increase prices for ceramics in various countries.
Okay. It's more geographically driven than product driven.
On a product area level, you can equally think about it, but on an even product line level, it's even more differentiated. From a product area perspective, you can say it's homogeneous.
Okay, great. I come back to the margin discussion. I mean, a year ago, you clearly guided, due to partly 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. Okay, 31% will be probably tough, but you didn't make the strong case like a year ago that it'll be below 30%. What would you say on this observation?
I think you're trying to read too much into the lines. Nothing specifically different. No.
You think it will be below 30%?
No. 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 do that because we still had more restrictions than what we expected at the beginning of last year. The second one is basically according to our strategic plan to further roll out our regional initiatives. These are the two things we know. Total CHF 30 million additional spend this year, that's what we are talking about. All the rest are so many unknowns 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 should we expect to be above or below 30% this year. Our midterm guidance, 28%-30%, we stick to that, and we will provide an H1 guidance for this year.
Okay, fair enough. Now, I think I gathered that 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 2021. Did I get that correct?
Yes, on price level. Of course, the bill depends also on volumes, but the price level, the average raw material price level this year, assuming the current stock prices, would be 10% higher than the average price level, full-year price level of 2021.
Okay, great. The last, just to clarify very clearly. 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 finalized 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 increase as of April.
Okay. Thank you very much.
You're welcome.
The next question is from Daniela Costa of Goldman Sachs. Your line is now open.
Hi, good morning. Happy New Year. Thanks for taking my questions. I have three. I want to start with one regarding Geberit. I think you've mentioned sort of some of the merits of the product before, but I wanted to check if 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 said, if there's a clear incentive for actually plumbers to try to push the Geberit ONE. That's question number one. Question number two is coming back to your commentary on how distributor inventories are.
Not asking you to quantify on 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? Is it they have been restocking, as you say in Q4 from a very low level, or is this over and above what is normal? 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 small 1.5% of sales, but we're seeing really multiples of increase in electricity prices. Is that included there, sort of like in your assessment, or how relevant could that be? Thank you.
Thank you for the questions. Number one, Geberit ONE, the new bathroom system leads to significant faster installation time. I can't quantify it exactly in percentages because it depends a bit on the product, WC versus washbasin. It is a significant reduction of installation time if you install Geberit ONE versus a regular other bathroom series. Second question, the inventory levels, not only at wholesalers, but in the channel, are at the moment very high. We have even heard more and more towards the end of the year that not only wholesalers have material on stock, but also plumbers started to build up stocks, which is normally not the case. I would say for the entire channel, we have at the moment very high inventory level.
This is the reason why 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. The third question on our raw material prices, the index shown in the presentation on slide four, energy prices are not included. It is purely raw material price index without electricity or combustibles or any energy costs.
Quick follow-up on that part. Thank you very much for the earlier answers. How long normally do your electricity contracts extend, so thinking about the recent inflation we've seen?
depends very much, country by country. I can't give you one figure that is very country dependent. A couple of months, I would guesstimate.
Thank you very much.
The next question is from Charlie Kenbach, AWP Finanznachrichten AG. Your line is now open.
Good morning, gentlemen. How much are the activities of Geberit in general affected by the lack of employees due to corona sicknesses or quarantine? The second question concerning the
which is welcome this
Product of the growth of 14.7% last year and of the 7.7% of Q4 is due to price effect. Thank you very much.
The first question, we have been able to get overall enough labor to manufacture our product. There is one exception, which I talked about during my introduction. We had some challenges in the U.S., in our two plants in the U.S. to get labor. This is not material on a group level. The second question, price effect last year for the full year out of the 14.7% growth in those currencies, the net price effect was 2.2%. In the fourth quarter, the price effect was higher. It was 3.1% due to the extraordinary price increases which we took as of middle of the year.
Thank you very much.
You're welcome.
The next question is from Martin Flueckiger, Kepler Cheuvreux. Your line is now open.
Yeah, morning, gentlemen. Thanks for taking my question. I have only one left, actually. I was wondering whether you could provide a little bit more granularity on your Bathroom Systems performance in Q4 and, you know, how much did you see or what kind of developments did you see in terms of showroom visits, that would be very interesting. Also if you could, you know, differentiate a little bit between sales or organic growth in shower toilets versus the other ceramics business. Thanks.
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, it developed well also in the fourth quarter, although it was not growing double digits. This was very much driven by a base effect, first of all, from the previous year's quarter, but also 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 toilets across all three, four quarters over the entire year.
Okay. You know, if you say that, AquaClean developed well but didn't grow double-digit organically, you know, that would imply that ceramics were down organically in particular in terms of volumes in Q4 or am I missing something?
No, this is not correct. Ceramics was up, also growing single-digit, but we have some other small product areas. Don't forget, we have in Bathroom Systems the U.S. business where we have the faucets business, obviously, that is also part of Bathroom Systems. This business was down in the fourth quarter in the U.S., as I mentioned before.
Oh.
Ceramics and Bathroom Systems and shower toilets were up significantly.
Okay. You were basically only flat because of the U.S. Otherwise, you would have been up more.
Correct.
Okay, thanks.
The next question comes from Patrick Rafaisz at UBS. Your line is now open.
Thank you. Good morning, everyone. Two questions remain. The first is a follow-up on pricing. And you talked quite a bit about this already, but I was just wondering from when you announced the extraordinary price increases last year until now in January, have you adjusted those price increases in the meantime? In view of the raw materials prices, which are again up 4% quarter-on-quarter, how do you think about building in an 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 done in the course of Q4 or maybe sometimes even a bit more. That was country specific. In some countries, the price increase, the extraordinary one, was implemented as of December, so communication was October, maybe November. In others, it was November, so communication was even end of Q3. Other countries increased the price extraordinary as January, so the communication was more towards the end of last year.
Okay. Thinking about the April regular price increase, would you consider upping that above the normal 1%-1.5% just to reflect what happened during Q4?
As I said before, we are currently not yet through across all countries with what we will do in the individual countries. Some of them it's clear, in others it's not yet clear. Therefore, I don't wanna comment at this moment how much we will do. We will do a regular price increase, but I can't or don't want to comment yet on the order of magnitude because it's not yet clear in all the countries.
Okay, understood. The second question is on digitalization spend. Increasing that by another CHF 50 million this year, I think that's pretty much in line with the original plan that you had here. Can you remind us on how long this spending will continue? Do you think this is now a recurring element of your P&L or will we see a decline in digital spending in two to three years' time?
No, it is a step up, but a recurring expense. It's mainly for personnel and another OpEX, which will remain. It's a recurring cost step up of CHF 15 million.
Okay. Very clear. Thank you very much.
Welcome.
The next question comes from Christian Arnold at Stifel. Please go ahead. Your line is now open.
Yes. Good morning, gentlemen. A couple of questions from my side. Maybe first on the material costs. In which currencies do you actually buy your 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? If you can elaborate a little bit on that.
The vast majority of our raw material is bought in euro, and it's slightly disproportional. We have a higher share of raw materials which we buy in euros compared to our share of sales in euro.
Okay. Thank you very much. On labor, you didn't have issues last year to get labor, with the exception of the U.S., you mentioned. What are your expectations for next year? We hear from lots of companies that actually they do have problems to get enough labor, not only because of COVID, but in general. How do you feel there?
At the moment, it's clearly this is COVID, not me, 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. I won't paint a very nice picture. It's really challenging, but we haven't seen, and we don't see at the moment any significant shortages from labor which would have a material impact on our availability. I would rather say the risks at the moment in terms of raw material availabilities, they are higher because this situation seems to be more fragile. Every week, another raw material might pop up where you can go into a problem. I think this risk, at least at the moment, seems to be higher compared to labor shortages.
Okay. Thank you. On your margin guide, it's 31%. If I calculate correctly, and that would imply almost a 23% EBITDA margin for Q4, a level which we have not seen since 2016. You were always clearly above that level. Thinking about your strong top-line volume, you have also scale effect here. Is it fair to assume that the surprise risk is more on the upside, meaning above 31 than below 31%?
No. It's not. It's around 31%. This is a symmetrical guidance. You're right. The margin it implies a record low Q4 EBITDA margin. Keep in mind, we have also record high raw material price levels end of last year. Coming back to the chart, slide four of our presentation, we are substantially higher in terms of raw material price level compared to the years 2016, 2017, 2018.
Okay. Last question, maybe, outlook in terms of new products you are launching in 2022. Maybe, could you give us examples for the three most important product launches for this year?
We have again, a couple of new products. We talk about that in more detail than in our full year conference. I think it will be easier and hopefully if we can meet physically, we can also show you some physical example of these new products. Just in very short, we will introduce in all three product areas, new innovations. A very important one remains to be FlowFit, the new piping system which we introduced last year, but only in a handful of countries. This year is step two. We will further roll out this really successful new piping system into other countries. That will be a very high priority still this year, in terms of new product introductions. As I said before, with full year, we will show you a couple of other products.
Just another example, a new coating system for the Indian market, which is very important in these emerging markets for our technology penetration, will be introduced as of April. More details then with our full year presentation.
Okay. Could you remind me just where you have introduced FlowFit already in 2021, and yeah, which countries you may do it this year?
We introduced it last in the German-speaking countries and the Netherlands. We're introducing this year in Italy, Belgium, and some Adriatic countries. First orders will be 2022.
Oh, great. Thank you. Just to clarify, the price effect in 2021, I didn't catch it, was two point.
Two.
Let's try it that way. 2.2.
2.2.
Thank you very much.
Welcome.
The next question comes from Manish Beria at Societe Generale. Please go ahead, your line is now open.
Hi, good morning. I'll ask the question one by one. My first question is on your EBITDA margins. You always says your margins are at a high level, but you will 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%. This was an opportunity actually, to get back to normal margin of 30% or something like that, but that didn't happen. My question is, I mean, there has to be a strategy. There has to be something, in discussion like where do you want your margin?
I mean, also next year you have an opportunity not to take extraordinary price hike that can bring down your margins. Just wanted to understand, I mean, really you want to go back to 20% margins or you are fine with this level of margins?
There's one piece missing in your logic. I talked before in terms of margin levels which are inflated to a certain amount last year still by lower cost levels in marketing and still relatively low costs in terms of raw material price. There's obviously a second important lever last year which left margins to be around 31%. This is the operating leverage from the volume growth. We have seen an extraordinary historical volume growth obviously also supporting the margins last year.
Correct. Yeah. I understand, yeah. The second one is if I look at your fixed cost this year, I mean probably in 2021, probably it will be like CHF 1.4 billion. Not fixed cost, but OpEX cost CHF 1.4 billion. That's EBITDA, gross profit minus EBITDA, no? 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 a wage inflation that might be like CHF 20 million-CHF 30 million worth. Probably you are seeing the volumes remain flat, probably this will rise by CHF 50 million. Is this understanding correct?
It's correct that the CHF 250 million I mentioned before for marketing and for the digitalization efforts are basically a build of a fixed cost. This is correct.
Okay. The third question I will ask, but you will not answer that, I know that. But let me ask. Basically, will you be surprised, despite getting such a good growth? Because if I look at 2021 volume growth versus 2019, it's 12.5%. Basically you are growing 6.5% or 6% each year in these last two years due to the COVID impact and things like that. That's much higher than the 3% volume you have done pre-COVID. Of course you are running at a much, much higher level. Will you be surprised in 2022 if you still get a positive volume growth or it is possible you to get a positive volume growth despite the base?
I think your assumption was right. We will not answer this question because it's going to have an implicit statement about our outlook. I'm sorry. We know that.
Sure. No problem. Yeah. Thanks.
You're welcome.
The next question comes from Marta Bruska at Berenberg. Please go ahead, your line is now open.
Good afternoon to everybody. I would like to just, you know, clarify a little bit of your comments that you made around the EBITDA margin as well as the Q4 EBITDA in particular. I heard you throughout the call stating that, you know, you had the record high raw material prices that your guidance of around 31% EBITDA would then imply that the Q4 EBITDA margin was very heavily impacted by that. At the same time, you said that 31% was achieved still thanks to very favorable raw mats last year that is changing. 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 this raw mats entirely.
I'm a little bit confused with all of that. Could you tell us please what else than the raw mat is impacting your margin this year in Q4? And then I have.
I'm really sorry. Can you rephrase the question? I didn't understand the question. Very sure. What is the question?
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 being positive and negative at times, and the price level of the price increases that are going to compensate for that. With the Q4 margin expected to come a little bit lower this year, I was asking what else than raw mats could be impacting it negatively.
I'm very sorry. Still not understanding. We didn't make any statement that positive effects from raw material prices. I don't understand the question still. Sorry.
Well, you said that the level of the 31% EBITDA margin is inflated this year because of the low marketing cost and still the raw material prices is
Ah.
still high.
I understand it then. Now I understand. Yeah. 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.
Yes.
The first quarter and 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.
Right.
We still had a positive.
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, wasn't it?
Sorry, the audio quality is very bad. I didn't get the last.
I'm sorry for that. In the second half, you made extraordinary price increases.
Yep.
In order to compensate for raw material price effects. You said that they will compensate entirely. Do I remember that wrong?
No, this is wrong. We 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 been passed as of January. This price increase compensates the full year raw material price increase, which was around 13% in 2021. This is what we said.
Okay, thank you. With regard to your Bathroom Systems growth, you know, some of your peers reported 25% growth for the nine months of this year. Even if they had a horrible last quarter, which I don't think so, it would still be very significantly above the 11% that you reported for the Bathroom Systems. I'm just, and you are the leader in the shower toilet in Europe, which is probably the only segment that is actually growing fast in a sustainable basis in this market, wondering what could be the reason and what is the price effect specifically on the Bathroom Systems. Did you manage to increase the prices at all?
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 with the extraordinary one as of July, but we increased prices also in Bathroom Systems with the second extraordinary price increase during Q4. With regards to competitors, as you know, it's not our style and policy to comment on competition, therefore I can't give an answer there.
Yeah, it's 10% difference. That's a lot. I ask this differently. You attributed part of the slowdown in the last quarter to the faucets business that is part of this division. Can you give us a rough idea how big are those faucets in the U.S. in terms of CHF millions of sales?
Again, acoustically very bad, the last sentence.
The U.S. faucet business, how big is that in terms of revenues, roughly?
It's the vast majority of the business in the U.S., which is CHF 100 million. The vast majority is faucet business.
Thank you. Very helpful. The very last one. If you can comment please on how many new lines have you introduced in the Bathroom Systems since you acquired Sanitec? Is that still only the Geberit one, or did you introduce any newer designs as well?
Since the acquisition, to be precise, we introduced two new ceramic bathroom lines. One is Acanto. That was already before Geberit ONE, and the second one was Geberit ONE, as you are saying correctly, which we introduced as of 2019.
You know, some of your peers are introducing two bathroom lines per year. Don't you think that's a little thin over five years?
I referred to my answer before. We don't comment on competitors.
I see. Okay. Thank you very much. It's very helpful. All the best. Goodbye.
You're welcome.
The next question comes from Cedar Ekblom at Morgan Stanley. Please go ahead. Your line is now open.
Thanks very much, gentlemen. 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? The reason I ask that is because you said that in some markets and some product lines, you went for price increases and others you didn't. We also see the momentum on that extraordinary price increase getting smaller quarter on quarter. A bit of a comment there would be helpful in terms of market reception to those price increases. Then I'd just like to walk through your comments on the pricing numbers, just to understand the mechanics a little bit more.
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 rate on pricing was 5% and that the extraordinary price increase that you went for in Q4 was 1.5%. Just to confirm, that 5% pricing is not across the portfolio in total. It's rather just on those specific product line segments, etc., 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? Thank you.
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 thinking about a regular price increase, and as I already said twice, it's not yet clear what will be the order of magnitude, because in 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 turned selectively, mainly in geographies by tactical reasons. We wanted to optimize price points in certain countries or in all the countries, obviously, which leads to different extraordinary price increases. In some countries, there's been no extraordinary price increases. This was driven by technical reasons, not raw material price development. The second question, I'll walk you through the setup again.
You're mixing up two things. One is the step-by-step price increases, which we took over last year. As of April, + 1.5% regularly. As of July, + 3.5%, sorry, on two product areas: installation systems, flushing systems, and Piping Systems. This means on a group level, the impact is only + 2%. The third one was the extraordinary price increase, the impact on group level of 1.5% as of January. If you add up these three numbers, you are at 5% as of January. Obviously, the impact in Q4 versus Q4 2020 is not yet 5%. This is only 3.1%. Basically, the 1.5% from April plus the 2% from as of July.
That's really helpful. Thank you very much.
The next question comes from Andre Kukhnin at Credit Suisse. Please go ahead. Your line is now open.
Oh, thank you very much for taking the follow-up. I just wanted to double-check on the answer 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, which I think is about one third of it.
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 reference as cost of materials on 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 here.
Okay. Thank you. Sorry to labor it, but just to make sure. The second quick follow-up I had was on the inventory build-up that you mentioned, which countries would you say have been most affected by that? I think Germany you've singled out, but are there any others?
Yeah, obviously the countries where we have extraordinary price increases in Q4. There, the effect, I would assume, was bigger than the others.
I don't think you shared with us which countries they were, but maybe a couple of other examples.
I shared.
that stand out.
Yeah. I think the only relevant, which I shared before, is Germany, where we did an extraordinary price increase as of January. All the others, I think too much detail is not worth to go into these countries. This is not really relevant. It's more noise information.
Got it. Thank you. That's very helpful. Just final one. On the pull forward of renovation that you mentioned on the back of COVID and 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 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 the number of projects 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 the end-to-end consumers. We have some indications, and I think it's both. This home improvement trend led to more volume or number of projects. What we have also seen is an upselling trend, so also more value per project, which I think is also explainable. Because one element of this home improvement trend is that you upgrade basically your bathroom to more high-end. For example, in actuator plates, we have seen a stronger growth in our premium plates than with our basic plates or second-level plates. It's both. It's increasing number of projects, volume, and also value per project.
Got it. Thank you very much for your time again.
You're welcome.
We have not received further questions at this point. I will hand back to the speakers.
Thank you very much for your interest. We all wish you a nice day and see you and hear you then at our full year conference in mid-March. Thank you. Bye-bye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.