Good morning. I am the entity operator for this conference. Welcome to the Geberit conference call on the third quarter results 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 the 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. Roland Iff, 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, and welcome to our nine-month conference call. We will start with the third quarter key figures and then comment on the nine-month development and end with an outlook for the rest of the year. Geberit achieved very good results in Q3, despite the more challenging comparison base with a strong top-line growth and a lower profitability level due to strong headwinds from increased raw material prices. The last quarter, in which we recorded a declining margin level, was three years ago in Q3 2018, or in other words, Q3 this year was the first quarter with a declining EBITDA margin after 11 consecutive quarters with a continuously increasing margin level. Let me now first comment on our sales development in Q3 in more detail.
Net sales increased by 8% to CHF 855 million. In local currencies, net sales increased by 7% in Q3. The slowdown of growth versus H1 was driven by different base effects in the previous year with the lockdown in Q2 and catch-up effects in Q3, stock rebalancing of wholesalers this year, and first signs of a weakening home improvement trend. Compared with Q3 2019, and without any base effects from the COVID-19 crisis, net sales in Q3 grew very strongly in local currencies by +17% over the period of the last three years. In Europe, net sales in local currencies increased by 6% with growth rates in almost all regions and countries.
Double-digit growth rates were achieved in Benelux with +29%, in Eastern Europe with +18%, and on the Iberian Peninsula with +14%. Single-digit growth rates were recorded in the Nordics with +6%, in Germany with +3%, and in Italy, U.K., and France with +2%. In Austria and Switzerland, net sales reached previous year's level in Q3. Outside Europe, net sales increased by 31% in Far East Pacific and declined slightly by -1% in America, respectively by -2% in Middle East Africa. The three product areas showed a different sales dynamic in the third quarter. Installation and Flushing Systems and Piping Systems grew with +12%, respectively +8%. Bathroom Systems net sales declined slightly by -1%.
The weaker development of bathroom systems is driven by a negative base effect from catch-up effect of the shower toilet business in Q3 last year after the temporary product interruption in Q2 and first signs of a weakening home improvement trend. Let me turn now to the operating and financial results of Q3. The operating and financial results grew on all levels in Q3 despite substantially higher raw material prices. EBITDA increased by 2% in Q3 to CHF 268 million. The EBITDA margin declined by 119 basis points to 31.3%, mainly driven by the substantial increase of raw material prices and higher prices for energy and logistics. Positive drivers for the margin were the positive volume and mix effect from operating leverage and sales price increase.
The extraordinary price increase as of July led to an accelerated sales price increase effect of +2.8% in Q3, partially absorbing the raw material price increase. EBIT developed in line with EBITDA and increased by 2% to CHF 231 million. Net income increased by 2% and EPS by 3% in the third quarter. Let me now continue with our nine-month development. Net sales in Swiss francs increased by 19% to CHF 2.69 billion. In local currencies, the growth reached +17%. This exceptionally strong growth was driven by a base effect from the COVID-19 crisis hitting our business in Q2 last year, secondly, a strong home improvement trend induced by the COVID-19 lockdown, and thirdly, inventory build-up of wholesalers in the first half of the year.
Compared to pre-crisis level of 2019, net sales grew by 17% in local currencies. This two-year comparison demonstrates the excellent performance we have achieved during the COVID-19 crisis. This growth in an environment of significant supply chain challenges and disruptions were achieved thanks to our regional supply chain setup. Strong relationships with our suppliers, long-term capacity plan, strong and stable manufacturing and logistic processes, and finally, a high flexibility of our employees. Let me now comment on the nine months sales in more detail, again, in local currency. The degree of local lockdowns last year varied substantially by country, leading to different base effects this year. In markets where construction sites were closed or heavily impacted in Q2 last year, we achieved correspondingly extraordinary strong growth rates this year.
These countries include Italy, with +32%, U.K. with +28%, the Iberian Peninsula with +25%, and France with +19%. In the remaining countries, the COVID-19 base effect was significantly less pronounced last year due to milder restrictions of construction activities. These countries delivered correspondingly lower, but still very strong growth rates, namely in Benelux, +18%, in Germany, +11%, and in Switzerland and Nordics, +9%. We achieved extraordinary growth rates of 27% in Austria and in Eastern Europe despite the limited COVID-19 base effect, due to a more pronounced stimulus program in Austria and Forex-induced price increases in several Eastern European countries. Let me now turn to the regions outside Europe.
Net sales in Far East Pacific were up by 36% in the first nine months, substantially driven by the positive base effect from the heavy lockdown in India last year and the strong performance in China. Net sales in Middle East and Africa region increased by 32%. In North America, net sales increased by 8% due to strong growth of electronic faucets. Let me now comment on the sales development per product area, again, in local currency. All three product areas delivered strong growth rates in the first nine months. Installation and Flushing Systems net sales grew by 20%, Piping Systems by 17%, and bathroom systems by 13%. I continue with the operating and financial results in the first nine months of the year. EBITDA increased disproportionately compared to net sales by 23% to CHF 894 million.
Compared to pre-crisis level in 2019, the increase amounts to 22% over these last two years, demonstrating our strong operating cash flow generation during the COVID-19 crisis. The EBITDA margin reached 33.3% in 9M 2021, which is 120 basis points above previous year's level. The main reason for this margin improvement was the operating leverage from the extraordinary strong volume growth. This demonstrates the strength and high flexibility of our operation being able to react to an unprecedented volatility in demand, starting with a sales collapse last year in Q2 and an unexpected, extraordinary strong volume growth this year. The strongest negative impact on the margin came from the substantially increased raw material prices since the beginning of this year. Increased and further normalized marketing costs had a negative impact on the margin this year.
Personnel costs increased mainly due to a base effect from the low level last year. The currency effect had no impact on the EBITDA margin due to our natural currency hedge. EBIT increased in the nine months by 27% to CHF 777 million. The operating leverage led to an EBIT margin increase of 180 basis points to 28.9%. Net income increased disproportionately to EBIT by 30% to CHF 653 million due to a lower tax rate driven by negative one-time effects in the previous year and a better financial result from less foreign exchange losses and lower financial expenses this year. Earnings per share increased by 31% to CHF 18.41, positively affected by the share buyback program.
Compared to the pre-crisis level of 2019, EPS increased by 24% over the last two years, demonstrating the strong value creation of Geberit during the COVID-19 crisis. Free cash flow increased in the nine months by 35% to CHF 613 million, mainly driven by the extraordinary strong cash flow from operating activities. We continued our share buyback program in the nine months of the year and bought back another 173,000 shares for CHF 111 million. Let me now comment on the current sales outlook. In October, net sales were only slightly above previous year's level. The current situation in our supply chain is challenging, but we managed to get the relevant raw materials, labor forces, and logistic capacity to manufacture and deliver our product portfolio to our customers.
Supply availability is only limited for a handful of products due to raw material shortages or labor bottlenecks. However, these limitations do not have any material impact on group sales. This brings me to our outlook. The unexpected strong economy and the still massive turbulences and unexpected friction in many supply chains has demonstrated how difficult and unpredictable an outlook in the current environment is. These uncertainties around COVID-19 pandemic and its economic impact, positive or negative, remain high. This unprecedented market environment, combined with the general very low visibility of our business in the typical order book level of two weeks, makes an outlook very challenging. Also, the question when and how the COVID-19-induced home improvement trend might come to an end or maybe even lead to pull-forward effects or reversal of renovation activity creates uncertainties.
Under the assumption of no materially different business impact from the COVID-19 pandemic, we expect for the full year, therefore, a net sales growth in local currencies between 12% and 14% and an EBITDA margin between 30% and 31%. The main reasons for the weaker sales and margin outlook for the last quarter versus the first nine months of the year are a stronger comparison base driven by the catch-up activities and the unusual high profitability level in Q4 last year. Secondly, the strongly increased energy and raw material prices this year. Keep in mind that our P&L in Q4 will be hit by the strong raw material price increase of 18% year-over-year in Q3 due to usual delay effects in accounting. Sequentially, we expect in Q4 a somewhat soft raw material price increase of around 3% versus Q3 this year.
This leads to an expected raw material price increase for the entire year of around 13%. To cope with the further increased raw material prices, we decided to implement in selected countries and for selected product categories, another extraordinary price increase during Q4. In total, we expect from this selective price increase in Q4 a positive price effect on group net sales of around 1.5% as of January. This second extraordinary increase, together with the regular increase of 1.5% as of April this year and the first extraordinary increase of 2% as of July this year, leads to a total sales price increase of 5% as of January 2022. With this total price increase of 5%, we will compensate the currently expected raw material price increase in 2021 of around 13%.
Let me close our introduction with a short summary. Geberit achieved very strong results in the first nine months of 2021, despite strong headwinds and disruptions on the raw material market, energy and transport prices. Q3 was the first quarter with a decline in profitability after eleven quarters with an increasing margin level. The comparison of the results with pre-crisis level two years ago confirms our ability to deliver extraordinary results and gain market share in a challenging and tough environment to maintain our market-leading productivity and efficiency, despite the business volatility never seen before in our usually relatively stable industry. Finally, to create substantial cash flows and shareholder value in an exceptional economic environment.
The results over the last months confirm us in our crisis management and the key decisions we took since the outbreak of the COVID-19 pandemic and give us confidence to continue to emerge stronger from the still prevailing unprecedented environment. Thank you for your attention. We are now ready to answer your questions.
Ladies and gentlemen, we will now begin our question and answer session. If you have a question for our speakers, please dial zero and 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 is your turn to speak, you can dial zero and two to cancel your question. If you are using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. The first question is from Yves Tommelet from BNP Paribas. Your line is now open. Please go ahead.
Good morning. Thank you for taking my question. My first question is just on the price cost. Sorry, but could you just come back on the math that you did? You essentially are saying that you get to that 5% in January 2022. I guess on the cost side, could you confirm that when you show on the slide pack, slide 16, that your cost inflation is up 18% versus Q3 2020, this is not the P&L effect, and there's about a three-month lag. Is that how we should think about it? I guess related to that, as we go into 2022, I appreciate you don't necessarily want to give the guidance, but with that 5% price increase, would it imply that your price cost starts to flatten out in H2 2022?
Could you do any further price increase later on in 2022 or is this assuming spot costs stay at those levels, is this as good as it gets in terms of pricing at this stage?
Thank you for your question. Number one, the math of the 5% price increase as of January 2022. We did a regular price increase this year as of April of 1.5%. We did a first extra, extraordinary price increase as of July of 3.5% for two product areas only, Installation and Flushing Systems and Piping Systems. This means on a group level, it had an effect on 2% as of July. Now we implement, as announced before, another selective price increase as of January of 1.5% with 1.5% impact on group. If you add it up, you come to the 5% price increase as of January. Your second question referring to our chart, page 16 in our presentation, showing the raw material price development. You are right.
It is the raw material price index, how we buy, but there is a delay effect from these raw material prices on our P&L of typically 2-3 months. The third question regarding pricing in 2022, we have not yet finally decided how we will treat the regular price increase as of April 2022. It depends, obviously on the further development of raw material prices, but we will react once we have a better understanding how we go into the year with the raw material prices, at the level development at the beginning of the year.
Thank you very much.
You're welcome.
The next question is from Daniela Costa, Goldman Sachs. Your line is now open. Please go ahead.
Thank you very much. First, a clarification question on the 5% and the raw materials increase together, because your raw materials to sales are about. Last year, they were about 26% of sales, so the 13% increase would be something like 3.4 percentage points of margin headwind, and you're upping prices altogether by 5%. Do you expect maybe towards the second half of next year to actually have a sizable tailwind from net pricing? And why wouldn't that happen? The second question, more broadly into the medium term, your 28%-30% margin targets. You obviously had a very challenging year with the headwinds on raw materials, and you still did. You're likely to do above that.
What would take you down in the medium term to the 28-30, or is that just a very conservative medium-term assessment? Thank you.
Question number one, the margin impact of a sales price increase of 5% is not 5 percentage points. It's limited. It's only around 3.5%. If you do the math, you will find out it's only around 3.5%, and that compensates exactly as you laid out the expected raw material price increase of around 13% this year. Question number two, we do not intend to change our midterm guidance for our EBITDA margin of 28%-30%. We expect that we will be above this corridor this year, very much driven by special effects. We will definitely over time come back to 28%-30% because we want also to invest into the business. We have several activities. One example, digitalization.
By the way, also last year and this year, one of our initiatives, that we further invest into the business, one of the drivers why we expect to be midterm again in 28%, between 28% and 30%.
The next question is from Andrey Kukhnin , Credit Suisse. Your line is now open, sir.
Good morning. Thank you very much for taking my questions. Can I start with one on the slowdown in the home improvement trend that you mentioned several times during your presentation? Could you share with us what indicators that you're monitoring that are pointing in this direction, or is this something that you're picking up directly from your sales organization? Could you give some color on that, maybe geographically or in terms of order of magnitude?
There are two basic indications. One is our own sales development. As you have seen, Bathroom Systems developed weaker than the other two product areas. That's one indication. The second one is that we hear in the market from customers that they have less showroom visits. I can't provide you a number, but that the frequency drop seems to come down. That is the second indication why we believe it could be a start of a lower home improvement trend that we have seen in Q3.
That's very helpful. Thank you. Just kind of follow up to this. That 4 points sequential slowdown that you saw in Q3 versus Q2, if we adjust for the base effect at the group level, how much of that, in your estimate, was kind of restock in Q2 that wasn't the case in Q3 versus that underlying slowdown? Or is it too early to talk about the underlying slowdown per se in Q3?
No, it's not too early, but it's unknown because we do not know, as you know, the inventory effects of wholesalers. We don't have any quantification. Therefore, I can't give you a precise answer, and I will not be able to give you a precise answer at the beginning of the year. We just don't know.
Thank you. Lastly, on labor, is there anything we should look out for Q4 in terms of rates or kind of sequential development, or would you expect it to be following the usual seasonal pattern? Anything you would highlight for 2022 at this stage for labor?
In terms of labor wage inflation, that will be materially different in Q4 than what we have seen in the first nine months. For the next year, that will be definitely one of the challenges we expect, significantly higher wage inflation as of next year.
Any indication of degree of how much wage inflation expect?
No, sorry. We are not able to provide any indication at this moment, because as you know, a large part of our personnel costs are negotiated between employee representatives and company representatives. These negotiations are still ongoing, therefore, I can't provide you with any indicative figure. It's clear that the wage inflation next year will be higher than what we have seen and expecting for the full year this year, which is around 1.5% this year.
It's very helpful. Thank you very much, Christian.
You're welcome.
The next question is from Yassine Touahri. Your line is now open. Please go ahead.
Yes, sir. Good morning, and thank you very much for taking my question. That's two question. When we look at your margin in 2022, I understand that you're expecting to offset the raw material cost inflation. But at the same time, energy cost inflation is a headwind. You just suggested that wage inflation is going to be a headwind. Does it mean that everything else being equal, your margin in 2022 might be a little bit lower than the 30%-31% guidance that you're giving for 2021? And then my second question is on the volume outlook.
We see in a lot of building materials industry an issue related to labor shortages, which is impacting the logistics, which is impacting also the work sites' completion. Do you see any impact of labor shortages for your clients or for the overall market on volume?
Thank you for the question. Number one, we don't provide any guidance for our margin in 2022 at this point in time. As you know, we only provide a margin guidance for the running year with our H1 results. Therefore, I don't wanna go into details of your first question. Number two, I'm not sure if you were talking about labor force on construction sites and if these bottlenecks will lead to delays or maybe stops of production activities, or if your question referred to Geberit, that we have.
Yeah, both. For your logistics and your ability to deliver clients and for the ability of a construction site to operate. I think there are the two bottlenecks that we've seen in the building material industry.
On our side, we do not have any material issues with labor shortages. With one little exception in the U.S., we are strongly looking at people for our manufacturing plant, and there we feel some impact of labor shortages, but with no material impact on the group because the U.S. is relatively small for us. For customers or in the market, yes, it is a tight situation, and we hear that certain projects are delayed from time to time, but I would guesstimate that until now it does not have any larger material impact on our group sales.
Thank you very much. Thank you.
You're welcome.
The next question is from Christoph Dolleschal, HSBC. Your line is now open. Please go ahead.
Good morning. Thank you very much for taking my question. I would like to ask if you could please update us on the status of the order backlog of German plumbers and how that currently stands. Secondly, just on the price increases, I think you said during this conference that you will raise prices on selected products and selected markets. I just wanted to ask if you could maybe elaborate a little bit on this, if it's similar to the increase you did in July, like Installation and Flushing Systems and Piping Systems, or is it different this time? Last but not least, let me thank you very much, Roland Iff, for the long-standing service, an excellent service to the investment community, and obviously I wish you the very best of luck for your personal future. Thank you very much.
Thank you. First, I completely agree with your third comment and we'll come back to that at the end of this conference call. The first question about the order backlog of installers in Germany, the latest number is that there is an order backlog of 13.9 weeks. Again, a new record level. It's around 15% above pre-COVID level. The second question is selective external price increases as of January or which we implement in Q4 is different to July because it's not across all geographies. It's selectively country by country, and it's also as per category, product category different.
We try to leverage our position in the various markets versus competitors and optimize pricing position. It's a bit different to the July price increase where we did geographically a homogeneous price increase as opposed to selective on our product categories, and this time it's in both dimensions, selective.
All right. Thank you very much. That is going to be from December first or?
That depends. Some of the countries are doing something in November, others will be as of January. That's why I said the impact all will overall will then 1.5% as of January. Depends country by country, sometimes even a product, differentiated.
Fantastic. Thank you very much.
You're welcome.
The next question is from Patrick Rafaisz, UBS. Your line is now open. Please go ahead, sir.
Thank you and good morning, everyone. Two questions from me, please. The first one would be on Benelux and the ongoing strong momentum you're seeing there. Can you add a bit more color on what's driving this strong growth and how you think about the next quarter? The second question is on the group level. Just piecing together what you've said so far and what you published in the morning. It seems that, you know, as you mentioned, October was still slightly up. The guidance implies somewhere flattish Q4 in local currencies and maybe slightly down, slightly up.
Are you assuming that maybe with the base effects from the pre-buying in the UK and Russia last year, the German VAT reduction effect, that your local currency growth will then turn negative in the next couple of months, November, December? Is that how we should think about Q4? Thank you.
Question number one, the strong development of Benelux in Q3 was mainly driven by a base effect. We had a relatively weak Q3 last year that was driven by our brand harmonization in the Netherlands. You might remember that we replaced the local ceramic brand last year in the Netherlands by Geberit, and had a negative impact last year, which led to a positive base effect this year. There's nothing, other than the base effect in Benelux responsible for Q3. Therefore, we also expect for Q4 in Benelux nothing special. The second question, we are not negative with our expectations for Q4, but we are relatively broad in our range, and it could be negative, but it could be also positive. The range is relatively broad for a very simple reason. As I said during my introduction, the uncertainties are still very high.
If we would have thought at the beginning of the year that we will see such an economic development and also system, we would not have believed it. I think we should in exactly this situation be a little bit more humble and not believe that we can predict the future, even if it's only short term. The uncertainties are really high. Therefore, it could be negative, it could also be positive, Q4.
Okay. Thank you.
The next question is from Remo Rosenau, Helvetische Bank. Your line is now open, please go ahead.
Yes, good morning. Well, although Christoph Dolleschal already took up the subject, I still would like to add a few remarks for Roland Iff. I hope the others will accept that. As it is your last conference call, annual conference after 17 years serving as a CFO. I already accompanied the IPO in 1999 and was also present when you were appointed as a CFO, I feel somewhat qualified to thank you, hopefully also in the name of many other investors and analysts for your great work over the last 17 years as a CFO of Geberit. I think you were able to build a strong trust with investors through a high level of reliability, all combined with the old Swiss virtue of precision.
Above all, you're a great guy with a great sense of humor, and that's the most important thing. In this sense, I would like to thank you once again for your excellent work as a role model in my eyes for CFOs and to extend my best wishes for your future with a bit more time for other things than just numbers. That's it. Thank you.
Thank you, Remo. Thank you very much. Again, I can't comment on that, it can't be better worded than what you did, Remo. You're absolutely right in that. Also, again, from my side, thank you. No questions, Remo Rosenau, this time.
I trust that Roland will hand over a very good result at the end of the year.
Thank you.
All right, the next question is from Charlene Seidenzahl, AWP Finanznachrichten. Your line is now open. Please go ahead.
Good morning, everybody. How far could the lack of magnesium have an influence on the building industry and therefore on Geberit in the coming months? Second question would be, could you tell us about your expectation for 2022? Not meant as an outlook or a guidance, but just in general. Also from my side, Herr Iff, all the best for the future. Thank you.
Yes. The magnesium topic is quite difficult to give you a precise answer. Obviously, you need magnesium for some metals. Some of these metals are going into building. I think the key point is we should be aware that the building industry has one challenge, that we all are component suppliers. If there's one major component missing, that has an impact on the rest of the construction site, and that triggers certain risks, be it magnesium or something else. Therefore, I think that is one of the risks and also what I said before, the reason why it's highly uncertain how the business will develop, because it can come up with something like magnesium or something else, which might have an impact on a component or a couple of components of a building that will delay projects.
If it's magnesium really impacting at the end, I don't know. There are considerable risks in general at the moment since supply chains are still highly disrupted. That is also the answer to your second question, even though I don't want to give an outlook for Geberit in terms of sales or margin, I think it's also, again, in general, very difficult to give an outlook for the next year. Again, who would have thought just two months ago or three months ago that energy prices really explode over a couple of weeks, even days? No one knew. Therefore, I think the uncertainties are so high, and I'm not pessimistic. I think I'm just honest that I say I don't know what really will happen, and therefore, I can't give you a better answer than that to your second question.
Thank you very much.
The next question is from Martin Flückiger, Kepler Cheuvreux. Your line is now open. Please go ahead.
Yeah, morning, gentlemen, and thanks for taking my questions. Same from me, Roland, all the best for the future. Just coming back to your, Christian, your statement regarding selling price increases. Just clarification question to start off. Did I understand correctly that the selling price impact on the Q3 EBITDA margin was plus 280 basis points? That's my first question. Then the second question is regarding the net pricing impact that we've seen in Q3, which, what was it again? I think -130 basis points. I was just wondering what your view is on that number for Q4, whether you still think that it's gonna be around 130 basis points negative net pricing impact or whether we're gonna see any deviations here.
Because the year-over-year comparison for raw material prices in Q4 last year, of course, is somewhat different than it is for Q3. Then my third question would be on, again, referring to your EBITDA margin bridge for Q3. Is this impact that you've recorded as, again, 130 bps negative from other cost effects? My judgment is that this is sort of a bucket that contains many different impacts like personnel, like marketing, traveling, and so on. I was just wondering here what the main driver for that 130 bps was and whether you yourself were surprised that it was maybe a little bit lower than what you had anticipated. Thank you very much.
Question number one, the price increase, net sales price increase effect in Q3 was +2.8%. This lead to a positive margin impact on the EBITDA, somewhat lower, of roughly 2 percentage points. Second question, the net price effect in Q4 will be substantially more negative than what we have seen in Q3. Of course, raw material prices in Q3 went up by around 18%. As I said before, there's a timing and delay effect of 2-3 months until this raw material price increase will hit the margins or the P&L in Q4. The third question was the drivers for the negative effect on the EBITDA margin from other costs in Q3. The two main drivers there were marketing costs, which is somewhat normalized versus the unusual low level last year.
Secondly, I mentioned it before, the strong energy price increases in Q3. Because they are not part of raw material prices, they are part of other costs.
Great. Thanks.
The next question is from John Revill from Sanford C. Bernstein. Your line is now open. Please go ahead.
Good morning, gentlemen. Thank you for taking my questions. A couple if I may. You said, Christian Buhl, that overall, your price increases will be about 5% more in January next year compared with January last year. Obviously when it come to April and you have your normal price increases, do you think your customers will accept further price increases on top of this 5% in January? Is there room to maneuver in April and possibly increase prices then or above if raw materials continue to increase? That's my first question. My second question is, in addition to pricing increases, what other sort of things have you been doing to kind of overcome the raw material input cost inflation?
I know productivity gains or what sort of things can you do to kind of overcome this pressure? Thank you.
First question, we did not yet decide about our regular price increase as of April next year. That will depend on the further raw material price development in the coming weeks. Therefore, I can't give you yet an answer to this question. Number two, what other levers do we have to mitigate this highly inflationary environment in terms of input costs? I would say that's business as usual, what we do normally, continuously increasing our efficiency. For example, in our plants, in average per year, we increase our productivity by around 3.5%, by the way, also throughout this crisis. This is continued efficiency gains in the various areas of the organization, what we do normally, that is of course, also another answer to mitigate inflation of input costs.
Thank you.
The next question is from Alessandro Foletti of Octavian AG. Your line is now open. Please go ahead, sir.
Yes, good morning. Thank you for taking my question. I have one, actually. I would like to go back to the midterm EBITDA margin guidance. You say, with time you will move back into that range, 28%-30%. If I take the midpoint, 29%, it's about 4% below the current level. This seems to me quite a big jump down. I wonder what should I look at in your numbers or any cost line that will indicate me that the current trend will really change and move towards that direction. What are the levers I should look at?
You should look into the seasonality of our EBITDA margin. That's number one. As you know, in the first 9 months, we had systematically higher EBITDA margins than for the full year. Therefore, it's wrong to compare our nine-month EBITDA margin with our full year midterm guidance. That's number one. That explains a large part of this focus then. Secondly, as I said before, first of all, we will see an impact of increasing raw material prices also short term. Secondly, also the longer run, we have projects, for example, digitalization, investment needs, for example, into IT capacity we did last year or this year, where we have to invest to ensure that we achieve the top line growth and that comes along with our ambition and target to be midterm in the range of 28%-30%.
Thank you.
The next question is from Arnaud Lehmann, Bank of America. Your line is now open. Please go ahead.
Thank you very much. Good morning, gentlemen. Two questions on my side. Firstly, more of a general market question. Property prices are moving higher everywhere in Europe, sometimes at double-digit rates relative to a year ago. I appreciate that interest rates are still very low, but do you see a risk or are you already seeing a potential impact on consumer budgets for renovation? They have to spend more to buy a house or to build a house. Therefore, when it comes to renovating the bathroom or building the bathroom, there is a smaller budget available for your products. That would be my first question. Secondly, on raw materials, we're seeing some materials still moving higher, some others starting to fade a little bit or coming back down.
Can you give us an indication if you are seeing already some sign that some of the materials that you consume are stabilizing, or if they continue to increase? Thank you very much.
The first question, I would say so far, we do not see on a broad scale or very systematically a challenge that consumers stop their investment decisions because of increasing building construction prices. I believe it is one of the risks also for next year, when all these price increases will hit more and more the end consumer paying for his renovation or also new build, that it might lead to delays or even stop of certain projects. So far, I would not confirm that we have seen it on a broad scale. The second question is, the somewhat lower increase of raw material prices in Q4 versus the first nine months is driven by a certain stabilization of plastic raw materials on a high level, obviously, but there we see more or less stabilization at the moment.
We expect it also for the next one, two months. Contrary to industrial metals, the second part of our input, raw material, of our raw material, sorry, where we see still an increasing environment.
Thank you very much.
You're welcome.
The next question is from Cedar Ekblom, Morgan Stanley. Please go ahead.
Thanks very much. Hi, gentlemen. I've got three questions. The first question, just a point of clarification. Did you say that your order book is only two weeks? Second question, could you please give us the realized raw material price increase in your Q3 numbers, both year-over-year and sequentially? I always thought that your guidance was a P&L impact, but it seems that it's more a buying impact, and actually the P&L impact is a bit delayed. So a bit of color there on the realized price would be helpful. Just on a more medium term view, you're guiding that we still think about margins being 28%-30% over the medium term.
In that context, if raw material prices corrected significantly, would you be thinking about an extraordinary price decrease per se, in other words, reinvesting in your customer base, considering the importance of your distribution channel to the business going forward? Thank you.
Question number one, correct. The typical order book is around two weeks in our business. Question number two, I'm not 100% sure if I understood it correctly. I think you were asking what was the impact on the margin of raw material prices in Q3. That was around twelve-
Sorry. Just, let me clarify. You said that you had an 18%-
Yeah.
Increase in raw materials year-on-year
Yeah.
you had a 6.7% sequential increase, but that's on raw material prices. What's the actual P&L number?
It's a little bit less than the 18%. Because of the delay effect, it's roughly 12%, which was then an impact in the P&L in Q3.
Perfect. Thank you.
The third question, obviously we are not thinking about increasing prices in this environment. Also there, I can't give you a precise answer. We will obviously decide along the development. I think the important part is that over time, we intend that this is our strategy to compensate the raw material price inflation. We have done that also in the past, we even overcompensated. If you take the period 2016 until 2020, the five-year period, the positive impact from sales price increases and environment with lower raw material prices was 450 basis points in these five years. You see, we are also capable in an environment with all raw material prices to keep our sales price levels.
Obviously it will be a decision case by case, and as you said, always also balancing our customer relations with the optimal price point.
Great. Thank you so much.
You're welcome.
The next question is from Emma Burdett, Barclays. Your line is now open. Please go ahead.
Thank you very much. Just one question on the energy costs. Approximately, what is your exposure to natural gas as an energy source? Do you hedge this cost in advance? If so, how much do you hedge, and how long in advance?
Our total energy cost in 2020 was CHF 45 million, and that is roughly 50% gas and 50% electricity. Basically, we are not hedging these costs, but there's a certain, let's say, natural hedge because we have timely contracts. These contracts give us some hedge at the moment. For example, we didn't feel in Q3 a very strong energy price increase because some of these contracts were still holding lower prices.
All right. Thank you very much.
You're welcome.
The next question is from Marco Bitsch , Berenberg. Your line is now open. Please go ahead.
Hello, good morning. Most of my questions have been answered already, but I have one follow-up with regard to the raw material price. Prices were increased in Q4 versus Q3, to my understanding that was 3%. I was just wondering which exactly raw materials will be driving that increase. You mentioned metals, but I would like you to be a little bit more precise which metals you are using in a significant amount would drive that increase, please. I have one follow-up.
You're correct, 3% sequentially versus Q3 what we expect mainly driven by industrial metals.
Which of the metals?
I can't give you specific ones. Steel. It's quite hard to say which one are the biggest, but steel is part of the example.
You are buying the steel now that it's at higher prices that you were buying it in Q3?
Sorry, I couldn't hear it acoustically. Could you say again?
Sorry. You, you're saying that you are still buying steel at the prices that are now higher than they were in Q3?
In Q4, you mean?
Yeah. Well, now it's Q4, right?
Now. Okay. Yeah. Yes, it's correct.
I guess you can rationalize it like this to your customers or when you ask for increased prices, because you have to. I mean, I was just wondering, you know, because when I look at the raw material prices in the metals, they seem to me to be coming off the peak, currently still at high base, but still coming off the peak. I was just wondering how you were going to rationalize your further price increases in Q4. If you're telling me you are still paying high prices, then maybe that works. Thank you then. Have a good day. Thank you.
The next question is from Christian Arnold, Stifel. Your line is now open. Please go ahead.
Yes. Good morning, gentlemen. Also first, a very warm thank you to you, Roland, for your outstanding support the last 15 years. It was great to work and travel with you. Thank you and all the best for your future.
Thank you very much.
Yeah, I have one, two questions. On your extraordinary price increase in Q4, I wonder when did you announce that to your customers? Thinking of potential pre-buying effects in Q3, if you have announced that already in Q3, or was it only in October?
I can't give you a short answer because it depends, country by country. In some of the countries, we have already announced it. In others, we have not yet announced it. If your question is, did we see any effects in Q3, pre-buying effects due to this price increase as of January or the impact that's coming? There, I would say, well, no, we didn't see any pre-buying effects in Q3 driven by the second extraordinary price increase.
Okay. Related to that, thinking of the inventory levels of your customers, are they high? Are they low? Would you expect then on the back of these price increases, some pre-order effect in Q4?
Very difficult question. As usual, we believe that the inventory level of wholesalers as of end of Q3 are still relatively high, maybe not as high as what we have seen end of June, when we did the first extraordinary price increase on a large part of the assortment. Therefore, it's also quite difficult to predict what the pre-order effects might be in Q4, maybe a little bit less pronounced than in July because the inventories are already relatively high.
Okay. My second question would be, you were saying that you or your customer have observed lower showroom visits in Q3. I wonder, is that a sequential statement or a year over year statement? As I believe in Q3, you probably have people, especially this year, they did the random holidays as they were not able to do so, the last couple of years.
I believe it's both. It is sequentially, driven by normal seasonality, of course, but also compared to last year, or in other words, it could also be that last year in Q3, due to the home improvement trend, the showroom visits were relatively high because as you might remember, actually, too, showrooms were in many countries also closed. It's sequentially and also on a year-on-year comparison basis.
Okay. Thank you.
You're welcome.
The next question is from Pierre Rousseau. Your line is now open. Please go ahead.
Thank you. Good morning, gentlemen. I'd like to come back on your market shares. Would you have an assessment of your current gains versus competition? Could you explain, you know, internally what the main drivers are, and externally, if competition is still impacted by different kind of supply chain disruptions? And perhaps more midterm, how would you see your market share evolve? Do you think that the current level that you have is sustainable over time? Thank you.
First question about market share gains in the first nine months. We never comment market share gains quarterly or nine months. We only do that on a yearly level. Therefore, I can't give you a precise answer. We are pretty much convinced that we are currently gaining market shares, especially also last year throughout this crisis. What are the drivers? In one word, availability. Availability not only in terms of products. As I said during my introduction, we do not have any material issues, disruptions in our supply chain. We can deliver. Availability also in terms of customers. You might remember that we consciously decided last year that we don't need to do short time work during the lockdowns to make sure that we stay with customers. We even increased our customer presence.
It's availability of people, availability of products, and maybe a third availability element is cash, that we were also prepared, and that we also invest throughout this crisis in various areas, for example, digitalization, and that also helped in this unprecedented environment. The third question, sorry, going forward, do we expect further market share gain? Yes, this is part of our strategy. Our initiatives always target, of course, the market share gain, differentiated obviously by regions. In regions where we have stronger positions, obviously a bit less. In regions where we are under penetrated, obviously with a higher market share gain expectations. We didn't change our expectations in terms of market share gains, driven by the COVID-19 crisis. We benefited during the crisis, maybe still now, from larger market share gains.
Once we are back to a normal world, we expect relatively normal market share gains, what we have seen also before the crisis.
Okay. Thank you. Very clear. Maybe just one small follow-up. You mentioned some selective shortages for some categories or some construction or building products. Do you have a more precise comment on the kind of product categories that are affected?
It's less than a handful of products. I can give you one example. It's electronic faucets in the U.S., where we have two challenges, issues. One is components, electronic components, which we need obviously for electronic faucets. Also a labor shortage in our three plants in the U.S. As I said before, this one example has an impact on the U.S. obviously, but it's not material on group level because share of U.S. sales is only 3%.
Understood. For the industry as a whole, do you have a view?
What do you mean by the industry as a whole?
For the construction industry as a whole, are there specific product categories that are really short right now?
I don't know.
That could.
I only can talk about the sanitary world.
Understood. Thank you.
We have a follow-up from Yves Cornut, Exane BNP Paribas. Your line is clear.
Yes. Hi. Sorry, just a quick one. I just wanted to understand how much of your bathroom system ceramic bowls is actually outsourced. Do you have a percentage? I guess related to that, I think that one of your competitor did see a bit of a faster growth in Q3. Should we assume that there is some logistics issues in some harbors in Southern Europe that is limiting the ability to get access to some of your outsourced capacity?
First, the share of outsourced ceramics is very low, not material within our ceramics business. Secondly, as you know, it's not our policy to comment on competitors, especially not on a quarterly basis.
Thank you very much.
There are currently no further questions, so I hand back to the speaker.
Thank you for your participation. You already did it before what I wanted to do now. Very briefly, to say thank you to Roland. It's, I think, your 65th conference call and presentation. Thank you very much for a great work. It's really a legacy. It's the end of an era here at Geberit. It was not only professionally a great pleasure, also personally a great pleasure to work with you. We will have a couple of opportunities the next two months to say goodbye and to celebrate your 17 years. It's the last time that we have the availability to talk to the investors and the analysts. Unfortunately, it's not a full year presentation because I would love to say now, let's grab a glass of wine and say cheers to Roland. Unfortunately, it doesn't work.
Maybe if you have time for the full year presentation next year, and if you want to join as a guest, we invite you, and we can do it physically. We invite you for a glass of wine if you're not somewhere on the globe, traveling or whatever. Thank you very much. Thank you very much, Christian, for the kind words. It has been a great pleasure also for me over the 17 years as CFO to prepare these quarterly presentations, more than 60 quarterly presentations together with you, and Albert in the first days or first years, Roland and the team. Obviously, it has been a great pleasure also because most of the time we could present good numbers. It makes it a little bit easier. Thank you very much also to Remo Rosenau, Christian, Charlie, Martin, for your kind words said before.
It has been a great pleasure to work together with all of you listening to the call, all the analysts, investors. A great collaboration, interesting collaboration. The feedbacks we received were always also very beneficial for us. I wish all of you also all the best. Unfortunately, I will not be able to meet all of you up during the upcoming roadshow. Some of you I will, then we can say goodbye personally, but for all the others already now, all the best for your future. It's been a pleasure working here, being in contact with you. Thank you very much. Thank you, Roland. With this, we wish you all a great day, and thank you for your participation.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.