Good morning. I am the conference operator for the conference. Welcome to the Geberit conference call on Q1 results, 2021. Please note that for the duration of the presentation, all participants will be in a 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 your 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 conference call on our Q1 results. Geberit had a exceptional Q1 with extraordinary strong sales growth and a record profitability level. Net sales grew by 13% in local currency, the strongest quarter growth rate since more than 10 years. Profitability reached new record levels with an EBITDA margin of 34.6%, which is 200 basis points above last year's already excellent result. As a consequence of the strong top line and further improved profitability, net income increased by 27% and EPS by 28% in Q1 . Let me now comment on our net sales development a bit more in detail. Net sales in CHF increased by 14.0% to CHF 910 million. In local currencies, group net sales increased by 13.0%.
Main driver for the exceptional growth across all regions were, first, a strong home improvement trend induced by the COVID-19 lockdowns. Second, eventually built up in the distribution channel due to increasing price levels and increasing challenges with regards to product availability, also in the building construction sector. Thirdly, a first base effect from the COVID-19 hitting our business in China in Q1 last year and the remaining markets as of mid-March last year. Compared to the first quarter of 2019, two years ago, net sales in Q1 grew by 14.3% in local currencies. This two-year comparison with the pre-crisis level of 2019 demonstrates the strong market share gains we achieved during the COVID-19 crisis. Let me now briefly comment on the regional development of the first quarter this year. In Europe, net sales increased by 12% in local currencies, with growth in all sub-regions respective countries.
In Middle East, Africa, net sales increased by 14%, with growth in all major countries. Net sales in Asia-Pacific grew by 41%, driven by a base effect in China, but also strong fundamental growth in the region. In America, net sales were up by 7%, driven by the strong demand for electric faucets. Let me now comment on the sales development by product area. The strongest growth was recorded in Bathroom Systems, with net sales growth of 17% in local currencies. Since Bathroom Systems is benefiting most from the home improvement trend and a base effect from a supply chain issue for the shower toilet Mera in the previous year. Installation and Flushing Systems net sales grew by 13%. Piping Systems grew with 9% under proportionally due to an ongoing weaker new build and project business. I will now comment on the operating and financial results.
EBITDA increased disproportionately by 21% to CHF 315 million due to a strong margin expansion of 200 basis points versus Q1 2020. Main drivers for this margin expansion were the operating leverage from the strong volume growth, increased sales prices, a still limited impact from the strongly increasing raw material prices since the beginning of the year, due to the still relatively high comparison level in the previous year quarters. Lastly, COVID-19 related cost savings, mainly due to less travel costs. The strong operating leverage demonstrates the high flexibility of our operations and our capabilities to maintain a very high efficiency level, also in an environment of extraordinary growth. The currency development had a minor negative impact on the EBITDA margin of 30 basis points, mainly driven by the strong devaluation of the Russian RUB and the Turkish TRY.
EBIT increased in CHF by 24% to CHF 276 million. The EBIT margin reached 30.4%, 240 basis points above Q1 2020. Net income increased by 27% disproportionally to CHF 233 million, thanks to better financial results. Earnings per share increased also disproportionately by 28% to CHF 60.53 due to the positive impact of the share buyback program. Let me now comment briefly on the current business environment. Construction sites are in most countries open, up, and running. Showrooms, however, are restricted in their operations in most countries due to local shutdown measures. Recently, most affected were our operations in India, where the national lockdown led to a temporary closure of our local plant for one week. However, this will not have any impact on group sales since the plant is very small and only manufacturing for the local market.
Let me now comment on our outlook for the coming months. Due to the ongoing uncertainties around the COVID-19 pandemic, also due to the general very low visibility of our business, we refrain from giving a market outlook at this point in time. For example, it is very difficult to predict when and how the current strong home improvement trend will come to an end once the lockdown measures are lifted and consumers start to spend their savings for other consumption opportunities again. For raw materials, however, we expect a further strong price increase of 4% - 5% in Q2 potentially versus Q1, driven by increasing metal and plastic prices. Driven by the strong raw material price increases, we decided to implement an extraordinary price increase as of H2.
We will increase the prices for the two product areas most affected by the recent raw material surge, which are Installation and Flushing Systems and Piping Systems. In average, we will increase prices by around 3.5% across these two product areas, which cover around 60% of our sales and business. Please note that we do not intend to compensate the entire raw material price increase with this extraordinary price increase, since we benefited last year as of Q2 from substantially decreasing raw material prices. In other words, we will absorb some of the raw material price increases in favor of our customer relations and will accept a certain negative margin impact. Let me close my introduction with a short summary. Geberit achieved exceptional and record results in the first quarter after having delivered already strong results in H2 2020.
These results confirm our ability to deliver extraordinary results in times of crisis, to gain market share, and to maintain our market-leading productivity and profitability also in times of high volatility and high uncertainty. These results confirm us also in our crisis management and our quick decisions taken one year ago and give us confidence to continue to emerge stronger from this unprecedented crisis and environment. Thank you for your attention. We are now ready to answer your questions.
Dear ladies and gentlemen, we will now begin our question and answer session. One moment please for the first question. And the first question received from Ismo Mäkiranta of BNP Paribas. Your line is now open, sir. Please go ahead.
Good morning, gentlemen. Thank you for taking my question. My first one is on demand. Clearly here we can see that you're running well ahead of the 2019 level, and I appreciate that the home improvement trend is very difficult to predict. I guess my question is more on the pipe segment where when I listen to the tone that you use, it still seems like it causes concern as you come out of the first year of COVID. The data still suggests it's growing quite nicely here. Can you maybe give us more granularity as to what you're seeing in this product category and how we should think about this going forward, given this probably has a bit more visibility on the outlook? That would be my first question.
I don't know what's going to be limited in terms of questions from here, but I'll ask a second one if I can. Just on the incremental OpEx, I think you had expected some increase in marketing and digital expenses. Did this already occur in Q1 or is it going to be more Q2, Q4 weighted? Thank you very much.
Piping business is going a bit weaker than the other two product areas, which we believe is driven by a weaker new build business and also a weaker project business driven by the COVID-19 crisis that has started to emerge already in the second half of last year and continues in the first quarter this year with a disproportionate or somewhat lower growth of piping systems. With regards to marketing expenses in the first quarter, they were slightly below the first quarter of last year. That was very much driven by extraordinary costs, which we had last year for our brand harmonization exercise. Excluding this one-time effect, we have been able to spend the normal marketing budget as planned on pre-crisis level.
For example, we spent a dedicated campaign support the home improvement trend, extraordinary marketing budget that we have been able to spend a normal pre-crisis marketing level in the first quarter.
Thank you very much.
You're welcome.
The next question received is from Yassine Touahri of On Field Investment Research. Your line is now open. Please go ahead.
Yes, good morning. I have a question on pricing. Could you give us the price increase that you registered in Q1 2021 out of your 13% like-for-like growth? Based on the potential price increase that you have announced, I assume, from April, in terms of price increase, are you budgeting for Q2 2021 and for the full year? That will be my first question. My second question is on the margin pressure. Would you expect some gross margin pressure as soon as Q2 2021? Is it going to be a little bit later?
First question regarding pricing, there are two price increases this year. The first one is the regular one as planned, which we implemented as of April, 1% to around 1.5% as usual. The second one, what I mentioned before, will be effective as of H2, is an extraordinary price increase of around 3.5%, covering around 60% of our business. That leads to your second question. These price increases will not cover the currently seen and expected raw material price increase. We have also provided a chart in our presentation on slide number seven, showing what we expect in terms of raw material price pressure in first and the second quarter. These will not fully compensate, therefore, we expect a negative impact from price increase in the second quarter in terms of sales prices versus raw material prices.
On Q1 , is it fair to assume that the price increase was like 1% in Q1 of 2021?
Q1 was around 1%-1.5%.
Thank you very much.
Next question is from Arnaud Lehmann of Bank of America. Your line is now open. Please go ahead.
Thank you very much. Good morning, gentlemen. Firstly, just a follow-up on the cost inflation side to make sure I understand properly. The 1.5% regular price increase in April, that is covering the cost inflation which we have seen in the last few months, but then more recently, you have seen an incremental negative trend on the cost side, and that's why you're announcing this H2 price increase for 50% of the business. The incremental cost inflation, that was more recent. That's my first question. My second question, just coming back on your strong sales in the Bathroom Systems, but at the same time you mentioned that there are still some restrictions in terms of the showroom. How do we understand the fact that some of the showrooms are still closed and still you manage to get very good sales in Bathroom Systems? Thank you.
First, in Q1 , we still had a positive effect from base price increases versus raw material price effect. The price increase, which we implemented beginning of April, the regular one, was independent of the raw material price development. Raw material prices started or remained to increase heavily now starting into Q2 , we decided to implement this extraordinary price increase. I repeat again, it's not a mathematical exercise where we exactly want to compensate with price increases the current raw material price inflation. It's just to compensate part of the strongly increasing raw material price environment. The second question regarding Bathroom Systems.
We do not believe that the current restrictions of showrooms will have a material impact on our bathrooms business because the showrooms were mostly affected also last year in spring, and then as of autumn, and obviously we have been able to generate strong growth. We believe that this effect of restrictions in the showrooms has rather a limited effect on our business. That's, for example, one of the surprises one year ago, we believed that will have a major impact. It didn't seem to be very much the case.
Thank you very much.
Welcome.
The next question is from Martin Flüeckiger of Kepler Cheuvreux. Your line is now open. Please go ahead.
Morning, gentlemen. Thanks for taking my questions. I've got two, and then I'll go back in line. First one is on the raw material price impact that you're expecting. I realize how difficult it is to predict raw material prices. I was just wondering since we're already almost half into Q2, could you provide us with a rough estimate or guesstimate, if you like, on the expected net pricing impact on the EBITDA margin in Q2? That would be my first question. The second one is regarding the development of the home improvement trend. I guess most people, including myself, were kind of surprised by the strength of this trend. Just wondering, what are you seeing in terms? I guess you're doing consumer surveys or you're reading a lot of consumer surveys.
What are you reading in terms of this competing trend, and associated with it, the home improvement and renovation trend that you are seeing? How dependent is that really on the fact that people aren't going on holiday currently and might return to going on vacation in H2 and definitely into next year? What are you seeing there? Basically what I am trying to get at is home improvement going to remain with us beyond the lockdowns that we are currently seeing? Thanks.
The first question I can't answer correctly. I can repeat that raw material prices we expect to increase at 4%-5% in Q2 versus Q1. I mentioned our base pricing figures before, you just have to do the math and then you see the impact on Geberit markets. Second question about the home improvement trend. We do not do consumer surveys, not our plan, to be honest. What we see is a strong obvious demand for bathroom-related products. For example, shower toilets, which we believe is very much driven by a strong demand from end consumers spending their money in their house. We hear that from many customers, that seems to be the case. What will happen in the future? I don't know. I'm not an economist. I'm selling toilets.
I don't know exactly what end consumers will do once they have their savings ready to spend for other opportunities. My best guess would be once you're able to travel again, for example, you will spend your money for travel again. That is our best guess at the moment that that will lead again to a stop or, let's say, a reduction or stop of this home improvement trend. Maybe it has even the impact that we will see that there was a kind of a pull forward of certain elements that could have an impact. That's all crystal ball. We do not know. What we have done, recently, and I mentioned it before, since the beginning of the year, we try to benefit as much as possible from this home improvement trend.
We are running a dedicated marketing initiative, very much a digital initiative, where we are focusing on end consumers to improve, upgrade their bathrooms, which I had mentioned before. That was part also our marketing budget and what we spent for the first quarter. Once the lockdowns are over, what people and consumers will do, actually, we are not the experts.
Okay, thanks.
The next question is from Martin Hüsler of Zürcher Kantonalbank. The line is now open. Please go ahead.
Good morning. Two questions. Maybe about pre-buying in Q1 due to the price increases you announced for April. Can you give there an indication or maybe the underlying trend in April? Was it still same positive-ish as in the first quarter? That's the first question.
April was obviously very strong because of the base effect. Keep in mind, last year, April was down minus 30%, minus 29%, to be precise. We had a strong April. If you exclude the base effect, we still had a good April, but not as good as what we have seen in the first quarter.
Okay, thank you. The next question, I appreciate that you gave some indication for Europe countries, that all countries were growing. I was a bit more interested in the countries that didn't have such a huge impact last year in, let's say, March, COVID-related, so i.e., Germany and Switzerland. I assume that those two countries clearly were below average growth compared to the overall growth in Europe. Is this a fair assumption?
I don't want to go into details on country level. That's the reason why we are not presenting them. I can tell you again that both countries, Germany and Switzerland, developed well. We had a nice growth also in Q1 .
Okay, thank you.
You're welcome.
The next one is from Charlie Berenbaum of AWP Finanznachrichten AG. Your line is now open. Please go ahead.
Good morning, gentlemen. First question concerns the margin. You said the raw material prices will have a significant negative impact. Do we have to expect a lower margin in Q2 compared to Q1 this year, this 34.6%? Will the margin be lower than also than Q2 2020, this 30.1%? My second question is, you said the trend for home improvement is difficult to predict how long it lasts, but can you say at least if it's still in place for the moment? The third, kind of an outstanding question, you said your price increases in H2, the extraordinary, will it be 3.5% on average or 5%? I got the 5% the first time. Maybe I'm wrong.
I heard the number three, 3.5%.
Three and a half. Okay, yeah.
The average is not covering the entire business. It's only covering the two product areas, Installation and Flushing Systems and Piping Systems. Roughly 60% of the business. That brings me to your first question. We will not give a guidance for the EBITDA margin in the second quarter. What I said is, that the raw material prices increase in the second quarter will be stronger than what we are able to compensate with sales price increases in the second quarter. Which means that there will be a negative pricing impact from sales prices and raw materials on the EBITDA margin. The second question was around the home improvement trend is currently persisting. At the moment it is still strong.
Thank you very much.
You're welcome.
Next question here is Matthias. Please go ahead.
Yes. Good morning, gents. Just one question from my side. You mentioned previously that basically, EBITDA margins will revert to the usual corridor, like 28%-30%. We have been at 31% now, very strong margins in Q1 and obviously a very controlled margin impact in the second half with potential offset from the home improvement trends continuing for longer than you would expect. Is it a fair assumption that it's not going to fall back below 30% for the full year?
We will provide, as usual, an EBITDA margin guidance for the full year with our H1 results, not at this point in time.
Mm-hmm. Okay.
You're welcome.
The next one is Patrick Reitz of UBS Europe. The line is now open. Please go ahead.
Thank you. Good morning, everyone. Two questions for me, please. The first is on the EBITDA for this year. You already talked about OpEx being back to pre-crisis levels. You also mentioned additional digital investments for the year, around CHF 15 million. I'm just wondering if we are on track for that number, if that's still the correct figure we should assume for the full year, whether that already started in Q1. The second question is a follow-up on an earlier question around potential pull forward demand, not necessarily because of your regular price increases, but with the extraordinary price increases from the second half. Would you anticipate any pull forward demand here to occur in the second quarter before these price increases take effect? Thank you.
First question, still the same. We plan to spend around CHF 15 million, one, five, for digitalization efforts. Nothing has changed there, on track. Also in terms of marketing expenses, we still plan, and we have achieved, as we said before, in the first quarter, a normal pre-crisis marketing spending. We forecast also again for the full year, additional marketing expenses of CHF 25 million, excluding the one-time effect from the brand harmonization last year. The second question was around
Pull forward in Q4.
Yes, pull forward demand in the second quarter.
Yes. That's what we expect. Most probably there will be a pull forward effect, in Q2 due to the extraordinary price increase as of H2. Yes.
Okay, thank you.
You're welcome.
Before we take the next question, just a reminder, if you would like to ask a question, please press zero one on your telephone keypad. The next question is from Andre Kukhnin of Credit Suisse. Your line is now open. Go ahead.
Good morning. Thank you very much for taking my question. I'll just do one at a time. Firstly, on raw materials, thank you for clarification for Q2 . At the current spot rate, do you expect a further increase in H2 , so Q3 versus Q2? Or will Q2 be the full impact already?
Mr. Kukhnin, the same answer as in every call. I don't know. If I would know where the raw material prices go in the second half of the year, I would not put that on the table. I just don't know. We are not hedging as you know. We have very short-term contracts. We do not know. It doesn't matter if we don't.
This was not a question about where the spot prices will go. It's more about at the current spot prices, given the lead times that you have from passing that to P&L. Will Q2 see the full impact or is this still kind of a follow on, because we've seen obviously some of the spot prices trended up during Q1?
I would assume that we will see continuously raising prices in our P&L throughout the year because we have this lag in our P&L.
Got it. The lag is six months? Something like that?
That depends on the raw material prices. I would say maybe even a little bit less.
Fair enough. Great, thank you. On the marketing expenses, again, thank you for all the details you provided so far. I wanted to understand a bit better how this will play out, later in the year when, assuming we begin to travel again, this kind of ramp up to the pre-COVID level already without travel. When the travel kicks in, is the plan to then have a kind of a structurally higher marketing spend, or will you then be swapping out the current virtual digital activities, for real customer interactions and managing that overall marketing spend to be at that CHF 12 plus to CHF 15 million specific to digital?
The level we expect to be quite stable throughout the year, the mix will change. At the moment, obviously, or in the first quarter, it was a higher share of digital marketing. As soon as restrictions are lifted, we are able to hold again physical events, that will shift back to more physical activities. In total, the amount should stay rather stable.
Great. Thank you. I tried it before, you said you can't, but may I just check, in case anything changed, but quantifying the restock or quantifying the stocking up effect in Q1, is that possible at all?
No, that's not possible, sorry.
Okay. The final one, last call, in answer to a question on acquisitions, you mentioned potential for bolt-ons, sort of nothing transformational. I just wanted to check if anything developed in that area in terms of acquisitions, given obviously the demand trends have firmed up a bit and maybe some vendors are more willing to come forward now.
Nothing changed, in this area, neither. Nothing on the screen at the moment.
Thank you very much.
You're welcome.
The next one is from Christian Arnold of DZ Bank. Your line now open. Please go ahead.
Yes. Good morning, gentlemen. I have a question on your production capacities. Assuming now that the demand will stay on this very high level, sales of CHF 900 million plus also in the next quarters, do you have enough production capacities to handle that? When would you see additional capacities to be installed?
We do have enough capacity for this volume we are selling at the moment, but we are continuously expanding our capacity. For example, and we talked about that with our full year results in March, we expand a lot of our plants in Germany, in Lichtenstein, where we are manufacturing installation frames. We are also expanding capacity, meaning building and equipment, in Pfullendorf, our main production plant. That is a continuous process, and we always plan also spare capacity. Therefore, we feel comfortable with our current capacity and our plans and investments to be able to manufacture the current volume demanded from customers.
Okay. Do you face any shortage of your suppliers? Do you have any problems of the materials you need?
It's a very challenging situation. It's tight for many raw materials, but we are happy that we are able to get the material, sometimes a bit delayed, but all in all, not a material impact. I think that has also to do with the fact that we treat our suppliers very much in a partnership way. I think that pays off right now, but it is a very tight and challenging situation. We are able to manufacture, we get the raw materials, and we are able to deliver the assortment to the customers.
Okay, thank you. Just clarification, the 3.5% price increase, that will be July 1st?
That will have an impact as of July, correct. Yes.
Okay. My last question would be, back in March, you presented your sales and marketing activities have increased customer presence. For example, customer training were up 40%, mainly on the back of your digital initiatives. I wonder if you could give us here some thought how it looked like in Q1, it will look like in Q2, if you see, again, some kind of this massive increase of customer training. Thinking about your Geberit Innovation Days, how does it compare to the year before, your contact to your customers? Yes.
I don't have the exact figures in front of me, but I feel and I hear that is going very well. For example, the Geberit Innovation Days, which we have rolled out and organized in more than 20 countries, was quite a success in terms of number of participants, in terms of feedback from customers. From that perspective, we believe we are doing very well over the first quarter, but I don't have the exact figures now right at hand, to be honest.
Okay. Thank you very much.
You're welcome.
The next one is from Martin Flue ckiger, Kepler Cheuvreux . Your line is open. Please go ahead.
Yeah, thanks for taking my follow-up. Actually, I've got three. Two of them are clarification questions on what you said earlier on. When you talk about the 3.5% extraordinary price increases for 60% of the business, does that imply 2.1% to the group? That would be my first question. My second clarification question is on the marketing expenses that, if I understood you correctly, you were saying, Christian, that they will be up by CHF 25 million in 2021, excluding the impact from brand harmonization last year. Now, if I remember correctly, brand harmonization incremental spend was CHF 10 million in 2020. Are we talking about a net increase of CHF 15 million for 2021 for marketing expenses? That's my second question. The third one is if you could provide us with an update on the latest survey on installer hotspots in Germany. Thank you so much.
First question, correct, 50% of 3.5% is around 2.1%. Correct. Number two, actually not 100% correct. We spent last year CHF 7 million for the brand harmonization. Originally, we planned for CHF 10 million, actually we spent only CHF 7 million. Your marketing bridge is minus CHF 7 million, from last year, plus CHF 25 million, what we expect to spend this year for regular market. The third question, the latest survey in Germany, and what we have is that the order backlog of course increased substantially. It's now at 14.5 weeks, a new record level. A substantial increase, also confirming the strong home improvement trend going on in Germany.
Thank you very much.
You're welcome.
Next question is from Manish Deuria of Societe Generale. Your line is now open. Please go ahead.
Again, also on the pricing. You said extraordinary price hike, 2.1%. Also 1% is the normal hike. We should build something like 3% price impact for the full year. Is this the correct way to look at it?
No. For the full year, we have the 1.5%. The 3.5% is for 60% of the assortment, which is around 2%, 2.1% on a group base level, but only as of H2. It's not a full year impact, obviously, if it's only as of H2.
Okay. I understand. I don't have any more questions.
Thank you.
The next one is from Pierre Assul of Park Place. Your line is now open. Please go ahead.
Good morning, gentlemen. It's been a few months now that we have extra support for building energy renovation in countries like France, the U.K., Italy. I was wondering if you could update us with your thoughts on the E.U. Renovation Wave. How would that impact your outside mid-term? Do you still think it could be free competition for your product categories? Any thoughts would be welcome. Thank you.
I think that the most important trend we talk about quite a lot now is this home improvement trend, which is obviously typically renovation in the residential sector. In general, just as part of the COVID-19 situation reducing, this home improvement trend there is in many countries still a high demand for renovation. For example, in Germany, there are a high number of apartments which need to be renovated. That is an ongoing need for renovation in many European countries. We have disproportionate exposure to renovation, therefore, we are very positioned to benefit from this renovation demand.
Understood. Thank you. That was my only question.
You're welcome.
Ladies and gentlemen, as a final reminder, if you would like to ask a question, please press zero one on your phone keypad. Next one is from Lothar Lubinetzki of Octavian. The line is now open. Please go ahead.
Yes, good morning. It's very much a follow-up question on the last one. What I would like to do is walk a little bit away from this quarterly view to hear more about your longer term expectation and especially about the renovation needs. I remember that after the German Reunification, there was a big spike in new build activities for almost 10 years. That must, I guess, have an impact on your medium to term demand in renovation, especially in Germany. Do you have any numbers to what was done 30 years ago and what you could expect, let's say, in the next five to 10 years to come?
You're right. The peak in terms of new build in Germany was in the mid-1990s, as a result of the reunification. I don't have the number exactly now in my mind, the number of new build apartments was significantly higher in the 1990s than what we see still today. I don't have the figures in mind at the moment. You're also right that this peak in new build of 1990s should lead to a Renovation Wave, maybe 20, 30 years later. Maybe it has already started. We should benefit, or the market should benefit from this renovation demand also in the coming years in Germany.
When I look at your business, lately, it was very much home improvement trends. New build is also quite a strong driver. If the new build slows down, could that be more than compensated by a pickup in renovation activities?
That's difficult to say. We have about 60% of our business exposed to renovation and 40% to new build. Obviously, if the positive trend in renovation is compensating the negative, maybe more negative trend in new build, depends on the development of the two sectors, which we don't know exactly. Don't forget, we do not have clear figures on that because we do not know when we're selling products, is this product going into the new build activity or in a renovation activity. We are selling to wholesalers. We actually have only estimates or even guesstimates about the segment, and it becomes more difficult to talk about growth rates of these two different segments. I can't precisely answer. I just can confirm we have a distal regional exposure with our product assortment for the renovations sector versus new build.
That is structurally because we have many products which are kind of focusing on renovation solutions rather than on new build solutions.
All right. Thank you very much.
You're welcome.
The next one is from Cedar Ekblom, Morgan Stanley. Your lines are open. Please go ahead.
Thanks very much. A few questions from me. First one is back to the point on capacity. Rather than the production capacity, can you talk about what you're seeing in terms of your installer network? In the past, you had flagged low skills or bottlenecks in the installer network as a potential handbrake to further revenue growth. I'm just surprised, considering how strong the growth has been in the first quarter, that you haven't mentioned that part of the capacity discussion. Then another point on margins. In the first quarter, your gross margins were lower year-on-year, and your EBITDA margins rose. I just wanted to understand if we should think about a higher weighting of things like labor costs, particularly over Q3 to Q4. I'm sorry, Q3 to Q4. I don't remember you talking about permanent cost savings post-COVID. Thank you.
Number one, there is still a bottleneck of installers, of qualified installers in many countries. I mentioned before the number in Germany. Our growth is very much driven by two factors. Number one is market share gains. I think our conscious decision last year to reduce our customer presence, having our people maybe not in the field, but digitally connected to our customers, paid off now. We have also been able to manufacture and to keep our availability on a high level last year. That is one element. The second one is, in Germany, one of our main drivers is our upselling strategy. Selling higher value-added products, for example, shower toilets, is a very good and important example, contributing substantially to growth in Germany. It doesn't take probably more installation capacity or installation time to install a shower toilet, for example.
This upselling strategy is absolutely essential to deliver growth in an environment where we have still capacity limitations for qualified installers. The second question I would ask Roland to answer.
Yes, your observation is correct. The gross margin was slightly down, but nevertheless, there was still a positive impact on the EBITDA line out of pricing. The 30 basis points we are showing in our margin bridge. The push on the EBITDA margin comes from our operating leverage due to the high volumes. We do not expect that we will have significant changes in the personnel expenses. You remember we mentioned various times last year, we did not restructure, so there will not be significant changes in the personnel line. We had some salary increases this year in Q1 by 1.3%. We expect something around 1.5% for the rest of the year, but no significant cost savings related to COVID, for example.
Great. Thank you very much.
You're welcome.
The next question is from Marta Costa of Berenberg. Line is open. Please go ahead.
Hello, good morning. I was wondering, Roland, do you have any data at all that would explore a little bit the relationship between what percentage of end customers that decide for energy-related renovation that would also renovate the sanitary part of their home? Rather, we should think of these two investment types as competing investment opportunities, please.
No, I'm sorry. We don't have such kind of end consumer data. We don't know.
What do you expect?
Obviously, there are two effects from that. One is the positive one, that if someone, the end consumer, is renovating his house, his apartment due to energy-saving measures, it has a positive effect also for our business. Because most probably you also renovate the bathroom, or maybe you even renovate your piping system. On the other hand side, that is the negative part, since our products are not really contributing to energy saving, it might be also the case that these efforts are going more in obviously energy-saving elements of a building, insulation, for example, windows, heating, obviously. That could have a negative impact, especially in markets where the installer, that's in Switzerland the case, in Germany the case, is doing heating and sanitary. That could then shift capacities of these installers to heating and not let's say to a bathroom.
That's a negative effect. Therefore, all in all, we believe that the guesstimate that these renovation efforts driven by energy saving has more or less a neutral impact on our business.
Okay, thank you.
You're welcome.
The next one is from Martin Hüsler of Zürcher Kantonalbank . Your line is open. Please go ahead.
Thank you. Two follow-ups, please. I remember that on the annual conference, you were quite cautious for the sector, hotels, retail, obviously. I was just wondering, what trends do you see in the markets? Does this cautiousness materialize, or do you see already signs of improvement here? That's the first question.
That's a very difficult question. Again, we don't have any exact figures, data, to give you a sharp answer. Again, an indication, piping is still going weak in any other two product areas might be an indication that these segments are suffering. As I said before, that's maybe middle to large projects which are suffering more or they're more exposed to piping, which is typically correlated to hotels or these, let's say, COVID-19 suffering segments like the retail sector or shopping centers, hotels, restaurants. Therefore, I believe that is materializing. To what extent is quite difficult. As we said in the full year conference, we estimate that around 20% of our total business is exposed to these COVID-19 related suffering segments that you mentioned before.
Okay. Thank you. The second question is on your workforce that increased by roughly 200 people since the beginning of the year. I was just a bit wondering whether this is investment in sales force or if those are now digitizations people. Maybe you can give us some more light.
It's mainly driven by additional people and also temps in the operations, in the plants, to produce the volume, and to a lower extent, also by an increase in SG&A people, for example, for our digitalization initiatives.
Okay, thank you.
Welcome.
The last question for today is of Martin Flückiger.
The line is open. Please go ahead.
Yes, thanks. Thank you. My final question. Steve, it's a follow-up again, and correct me if I'm wrong, but if I understood you correctly, you were saying that the extraordinary selling price increase of around 2.1% in H2 would still lead to an overall increase in pricing for the whole year 2021 of around 1.5%. At the risk of appearing a little bit pedantic, are we not rather talking about 1.5%-2% than maybe 1.5% or 1%-1.5%? Of course, it has very little impact on the growth, but there will be a significant impact on the margin, and hence my follow-up question. Thanks.
I think that's a misunderstanding. Let's do the math again. 3.5% as of July for 80% of the segment means about 2.1% for the group as of H2. Since H2 is half a year, you divide by two and you're around 1% on the annual price increase impact of the extraordinary price increase implemented as of July.
Oh, okay. Got it. Thank you very much.
You're welcome.
As we receive no further questions, I hand back to the speaker for closing remarks.
Thank you very much for your attention. We wish you all a great day.
Dear ladies and gentlemen, thank you for your attendance. At this time, you may disconnect.