Earnings Call: Q3 2020

Oct 29, 2020

Good morning. I'm the Akkadine operator for this conference. Welcome to the corporate conference call on the 3rd quarter results 2020. 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. At this time, I would like to turn the conference over to Mr. Christian Bull, CEO, accompanied by Mr. Roland Iff, CFO and Mr. Roman Siegler, Head of Corporate Communications and Investor Relations. Please go ahead, sir. Thank you for the introduction. Good morning, ladies and gentlemen, and welcome to our conference call on our Q3 results. Let me start with a preliminary remark. Our Q3 results are in a consolidation to the most recent development in Europe over the last couple of days due to the fast developing second wave. So please keep in mind we talk about Q3 results with this conference call. I will start with the 3rd quarter figures and then comment on our 9 months development. Geberit delivered very good results in the Q3 with a very strong top line growth and an excellent profitability driven by catch up effects after the lockdown in the Q2. Net sales grew by 5.3% to CHF794 1,000,000. In local currencies, net sales grew by 8.5%. Almost all countries benefited from catch up and stock rebuilding effects due to the lockdown or other COVID-nineteen induced market restrictions during the Q2. The degree of the catch up effect varies company by country, driven by the severity and the length of the lockdown and the COVID-nineteen related business metrics. Double digit growth rates in local currencies were achieved in Italy with a plus of 24%, in Austria with plus 13%, in Germany with plus 12% and France with 11%. Single digital upgrades were recorded in Eastern Europe with a plus of 8% Switzerland and Algeria with plus 7%, Northeast and America with plus 6% and the U. K. With a plus of 3%. The only European region with a safe decline in Q3 was Benelux, which is minus 3%, due to a very strong comparable from the previous year. Sales in Middle East Africa declined by minus 4% and in Far East Pacific by minus 7%. Both regions suffered from countries still heavily affected from COVID-nineteen restrictions into Q3, e. G. India, Australia or Singapore. The product areas have developed differently in the Q3. Inflation and Closhing Systems grew by 10% and Bathroom Systems by plus 12% in the 3rd quarter. Piping Systems showed a much lower growth dynamic with plus 3%, indicating into a weakening newbuild segment and project business during the Q3. Let me now comment on the operational and financial results in the 3rd quarter. EBITDA increased by 14% and the EBITDA margin reached 33.2%, an increase of 2 50 basis points compared to Q3 2019. This margin expansion was driven by 3 main factors: 1st, the operating leverage from the strong volume growth second, lower material prices and third, still relative low SG and A costs due to COVID-nineteen restrictions. For example, still very low crown costs or costs for physical marketing events. Net income increased in the 3rd quarter by 11% to CHF189 million, net of net of the impact by a higher tax rate compared to previous year. Earnings per share reached R55.29, dollars an increase of 12% versus previous year. Free cash flow increased in line with the operational results by 16% in the Q3. I will now comment on our 9 month performance. Net sales in Swiss francs decreased the 1st 9 months by minus 5 percent to CHF2.3 billion due to substantially weakened foreign currency. In local currencies, net sales reached with minus 0.4%, almost previously at level despite the COVID-nineteen crisis. The negative COVID-nineteen impact on demand varies substantially by geography depending on the degree and the length of the local lockdown or the imposed business restrictions. In markets where consumption sites were closed around 10% of our sales exposure, net sales declined in average by around 9% to 15% in the 1st 9 months. These countries include France with a minus of 10%, Italy with minus 11%, Spain with minus 15%, the U. K. With minus 22% South Africa with a minus of 24% and India with a minus of 29% in the first line of this year. The remaining companies, around 80% of our case exposure, were also impacted by lower construction activities during Q2. However, the losses were largely compensated again in Q3. These countries include Germany with an NCS growth of almost 6% Austria with plus 5% in Eastern Europe with 4% Nordics and Switzerland with 3% the Banelux with minus 1% and the U. S. With minus 2%, representing a slight sales decline. Let me now comment on the sales development per product area in the first 9 months, again in local currencies. Installation and Flushing Systems reached previous year's level, and Plumbing Systems declined by minus 1.6%. The only product area with a slight net sales growth was bathroom systems with a plus of 0.6%, driven by strong growth of the shower toilet business. Let me now comment on the operational and financial results in the 1st 9 months of the year. All results decreased due to the negative translation effect from weaker currencies. However, in local currencies, all bottom line results from EBITDA down to EPS increased for the previous year. The negative currency development had also a minor impact on the margin due to our continued efforts to maintain a natural currency hedge. Let me now comment on the EBITDA development. The EBITDA margin reached 32.1% in the 1st 9 months of the year. Hence, we were able to increase the EBITDA margin by 130 basis points despite a net sales decrease of minus 5. The main drivers for this margin improvement were fast and targeted cost containment measures secondly, a high and further increased flexibility in production and logistics to cope with the substantial decline in demand during the Q2 and the strong rebound in the 3rd quarter thirdly, lower material prices and fourthly, increased sales price. It is worth to mention that these results were achieved without restructuring, without any layoffs, without a salary cost for a single employee or material support from a topic, for example, through short term work. The EBIT margin reached 27.1%, 80 basis points above previous year. Weakly development of the EBIT margin versus EBITDA margin was driven by higher depreciation expense from higher investments in the previous year. Net income reached CHF 504 1,000,000, corresponding to a net income margin of 22.3 percent or 20 basis points globally this year. The lower net income margin was mainly driven by the higher tax rate due to the new tax regime for corporates in Switzerland. Earnings per share reached CHF14 of FISC, a decrease of minus 5.5% versus previous year, driven by weaker currencies. In the 1st 9 months of the year, almost 170,000 shares have been bought back, thereof, 262,000 shares at the average share price of CHF406 under the program launched in June 2017. Under the new program, just launched recently in September, additional 8,000 shares were bought back. Free cash flow decreased in the 1st time months of the year by 99% to CHF454 1,000,000. This led to a big proportional decrease versus the operational cash flow, but mainly driven by the strong comparable with a strong free cash flow growth of +20 percent in the previous year. The strong results further improved the cash position of Geberit. For end of December, we hold a cash position of around CHF600 1,000,000 and an unused revolving credit facility of CHF 500 million. Let me now comment on our outlook for the remaining years. The uncertainties around the COVID-nineteen crisis increased again, especially since the second pandemic wave has reached Europe. The situation with new restrictions across Europe is currently changing day by day. This makes an outlook highly uncertain and almost impossible. Please also keep in mind that we have a very low visibility with an order book of less than 2 weeks. Therefore, let me first comment on the latest business performance. After the strong business rebound and stock rebuilding effect of customers in Q3, demand slowed down significantly in October with sales in October being slightly below previous year's level. Based on the weaker October results and delayed or stopped projects, especially in the nonresidential segment due to the COVID-nineteen crisis, we currently expect a weaker Q4. For the full year, we expect Curtiss adjusted net sales to be slightly below previous year and the full year EBITDA margin above previous year's Q4 to be substantially below Q4 last year due to a negative operating leverage for volume decline second, higher personnel costs due to wage inflation and the easing of the hiring freeze thirdly, increasing raw material prices and tougher comps from lower raw material prices in Q4 and fourthly, additional costs for the brand switch. Let me close our introduction with a short summary. The COVID-nineteen crisis led to an unprecedented business collapse in terms of fees and expense also at Geberit. The decline in the second quarter was followed by an almost equally strong catch up in the Q3. We believe Geberit has mastered this roller coaster ride very well so far and delivered very strong results. The main reasons for these results were a strong financial fundament combined with a stable strategy and a resilient business model second, a fast improvement crisis management, avoiding overreactions 3rd, the ability of our supply chain to cope with unseen business restrictions and extraordinary volatility in customer demand and finally, our conscious decision not to reduce our presence with customers throughout the crisis. Finally, we achieved strong results without harming our future position, without a drug churn or changing our strategic agenda. In these unprecedented times of uncertainty, we found the right balance between short term flexibility and long term stability, which gives us confidence to emerge stronger from this crisis, which is obviously still far from over. This is the end of my introduction. Before I hand over to the Q and A, let me make a short remark on our presentation we just published this morning. There was a small mistake in the presentation on the EBITDA ratio on Page 13. Some feel it were wrong. We uploaded a new version just half an hour ago with the right figures on the EBITDA bridge on Page 13. 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 1 on the telephone We have one first question from Mr. Andre Kukin from Credit Suisse. Your line is now open. Good morning. Thanks so much for taking my questions. Can I start with clarification first on your remarks on the margin outlook for Q4? Did I hear that right that you expect it down meaningfully? Yes. We expect as a franchise lower, EBIT margin in Q4. Okay. And just in terms of reasons you cited there, one that I picked up is the labor rates. I think our last quarter discussion was that you had some new rates kicking in from kind of middle of the year or something like that, but I didn't get impression that you had kind of higher rates kicking in from 1st October as well. Is that the case? And what countries are we talking about here? It's still the case. We expect our higher wage inflation in the Q4 and mainly driven by Germany. Great. Thank you. And on Q3, in terms of the top line performance and that bounce back that you cited, Is it possible to give any quantification or even indication of how much was restock and how much was kind of less holidays being taken on construction sites? No, that is not possible to quantify. Sorry. But do you think that covers the whole of 8.5% growth or it. Fair enough. And on October being down slightly, can I just double check how was the comp for October from last year? We had a normal October last year, nothing special. Okay. And the reason I'm asking is that some of your kind of lateral peers like Moscow indicated no slowdown. And I think Fortune Brands as well, no slowdown until October from kind of strong end of the Q3. So just wondering if there's anything kind of specific there to you or is this really the market performance that you're seeing this cooling down in October? As usual, we do not comment on competitors, especially not on a monthly basis and obviously also on a competitive business, which have a completely different geographical split than we have. Okay. So you see October slowdown as entirely underlying rather than anything kind of timing or why not? I'll just repeat that, days in October are slightly below October 2019. Got it. Thank you for your time. Welcome. Next question is from Dean Varmadin from Exane BNP Paribas. Your line is now open. Hi there. It's Ivo Bromade for example. Just a few questions. I guess on the pricing side, we've heard a lot of companies, not necessarily in the sanitary industry, but elsewhere, essentially saying that the market is relatively tight with low inventories and the outlook for pricing going into 2021 is looking incredibly positive. I just I think we understand a bit of inflation coming back, but it's moving also in a very volatile environment. So could we maybe get a sense of what is your view in terms of that price cost spread year term into Q4, but also how you think about your pricing negotiations in 2021? We increased price this year as planned by around 1% as of the Q2. The next price change is planned regularly for Q2 next year. We have not yet decided I would agree we want to increase prices, but it's still too early. But, we do not change at the moment our process, meaning that we plan to adjust most probably increase prices in the Q2 of next year. Okay. Thank you. And just on the second question, I mean, a lot of countries are now announcing lockdown measures, which is really sad, but necessary. I just I guess it's really hard to understand what that implies in terms of the opening or not of showroom centers and whether or not renovation work can be carried at people's home with a plumber in Argentina. So I just wanted to understand, given that Germany is one of your major country and France has announced also their lockdown measures, What is your view and understanding so far as to what that can do to your kind of industry? Our view and understanding is the same as your view and understanding. Just reading the newspapers this morning was decided yesterday in Germany. I can't give you any flavor idea what we believe that would mean now short term in Germany. It's by far too uncertain to make any prediction. So, we are at the same page at the same level of information as you are currently. Sorry? So you don't know if the shows are already open or closed essentially? As far as I understood from this morning, newspapers are not closed at the moment. But, if you make any predictions, I don't know what happened in 5 states. At the moment, I understand the showrooms are open as of today in Germany. Okay. And just a last question for free cash flow. Should we expect that to be slightly up on the full year basis versus 2019 given the 3rd time months? Or is there a reversal in Q4? We don't make any guidance on free cash flow, but that it is down now by the end of the Q1 and has a lot to do that the good performance of Q3 has not yet been materialized in the cash flow statement. That is coming in Q4 then. There's a certain delay there. The next question is from Danielle Costa from Goldman Sachs. Your line is now open. Hi, good morning. I first wanted to ask regarding sort of, you mentioned the brand switching costs in Q4. If you could sort of remind us sort of what was the guidance there and whether the brand switches and movements that you were planned are all done or if there's anything left on that front for 2021. And I think last year you had also mentioned IT cost increases, whether you ended up doing that this year and that should be a reversal and a tailwind for next year. How should we think about those 2 things? Thank you. The British project, the brand fermentation project went very well. We are a little bit delayed compared to the original plans due to the showroom closures. So, we originally planned to be finished by the end of September that will now launch into Q4. But for the entire year, we are on track. We spent about $10,000,000 marketing on this brand harmonization in the Netherlands, France and Italy. The second question around our increased activities in the area of digitalization. Although this initiative has been unchanged, we are spending around CHF15 million this year for further competences and also resources in this area, and that is also running according to plan. And both things are done. So in 2021, we're not going to have increased costs from that? I can't get to talk about digitalization. We know that we are currently in the budgeting process, so I don't know yet there. But from the brand perspective, we are done. We do not have any further brand organization activities next year and also no additional cost from brand organization next year. The Next question is from Dean Grant from Bank of America. Your line is now open. I've just got one specifically relating to bathroom systems and the outperformance there having previously lagged. I wonder if you could just perhaps highlight the country specifically where you saw sort of the largest improvement here and perhaps just an outlook going forward into Q4 for Basel Systems specifically? Thank you. Bathroom systems developed across the country very well. And the main driver is also similar across the country is the shower toilet business. The shower toilet business is developing very well this year, mainly driven by new products, which we introduced over the last couple of years. I refrain from making any outlook for parcel business for Q4. I just speak to our guidance that we expect Q4 to be weaker than Q4 last year overall. Next question is from Martin Flueckler from Kepler Cheuvreux. Your line is now open. Yes, good morning, gentlemen. Thanks for taking my questions. I've actually got 4, if I may, and I'll go one at a time. Just starting off with Piping Systems, can you elaborate a little bit on the key drivers there and what kind of market environment you're seeing? And particularly, if you saw any outstanding country performance within Piping Systems? That's my first question. Piping Systems underperformed the other two product areas basically in all countries. The main driver for this underperformance in, as I outlined in the introduction, a weaker performance of newbuilds, and it's also an indication that the business might become more difficult. Because as you know, piping systems are installed quite early in the building construction process. For example, in Germany, where we recorded a growth of 12% in the Q3, piping systems was on previous year level. So, also highlighting again the strong growth of passive systems in Germany. And this picture that pricing is weaker than the other two product areas is basically the same across the country. Okay, great. And then my second question is just to come back on the shower toilets growth you're referring to, which was very strong. Could you provide a little bit more granularity on what we're talking about here? I guess we're talking double digit. We're talking about above 20%, that will be helpful. And what you're expecting in terms of the volatility for Q4. And I remember 2 1, 2 quarters ago, you were talking about these temporary showroom closures in Q2 and how that would impact Q3 and Q4, which we haven't seen for the dimensional reasons. But just a little bit more granularity on the growth in Q3 and outlook for Q4 in shower toilets will be great. The growth rate of shower toilets is double digit. And all the product categories are growing nicely, the premium level, the mid level and the entry level, driven by the new product introductions over the last couple of years. We do not see, for example, any cannibalization between the different price levels, often of this year. Regarding the showroom closures in spring or through the lockdown in April May, what we hear from customers is that the showroom closures have been catched up to a certain extent in the Q3 because installer works more, there were more workload, and these effects have been leveled out in the Q3. We do not expect the negative end impact anymore from showroom closures in spring for our Q4. Of course, we can't quantify that is not science, that is what we just hear from our customers. Okay. Fair enough. And then just on the Germany installers order books, has there been a recent autumn survey? Or what's the latest number here? That would be great. The latest number is that the order backlog came back to pre COVID-nineteen levels. Actually, the order backlog of turbine dollars is at 12 weeks again. That is more or less on the level of autumn 2019. 12.0 weeks, yes? 12.1 weeks, I think, to be exact. Okay, great. And then just a final one, sorry, raw material prices. Could you talk about the quarter on quarter and year over year growth rates you have seen overall on average for raw material prices and what you're expecting here for Q4? Raw and gear prices for the 1st 9 months are down 3.8% versus the 1st 9 months 2019. And for the Q4, we expect sequentially increasing raw material prices versus Q3 2020, mainly driven by metal related raw material prices. Plastics, we expect more sideways development in Q4 versus Q3. The metal price increases are basically driven by the observation that pulp prices for the industrial metals increased substantially over the last 2, 2.5 months. From aluminum, copper, nickel thing, all these spot prices went up by around 5% to percent, 10% over the last 2 months. And that will have or might have an impact on our raw material prices. Okay. Sorry. And the raw material price evolution for Q3 was how much? In Q3 versus? Year on year. Year on year, that was down around 4%. Next question is from Bernd Pomrehn from Cobrehn. Your line is now open. Yes, good morning gentlemen. Impressive results, no doubt. Could you try to quantify the one time benefit from COVID-nineteen related low marketing and administration expenses in the Q3? Or ask differently, what are your sustainable cost savings at this line going forward? Thank you. We cannot really scientifically quantify the impact because some marketing activities have been shifted obviously to more online and digital activities. But what is clear is this is not a sustainable effect. If we would have been able to spend more marketing, we would have done it, but we have just been restricted. Therefore, this low cost base, especially in the SG and A area of Q3 is not sustainable. As soon as we are able to do marketing again in normal terms, we will also again spend the money. The next question is from Manish Beria from Societe Generale. Your line is now open. The first question is, are you still gaining market share? And what are the opportunities you have seen from this crisis? You have definitely told about the tower toilet doing well. So we should be linked, I mean, related to hygiene and things like that is the first question. The second one is like Germany is up like 5.8% in the 1st 9 months. It seems like there is no COVID impact. I mean, you're up 6% despite Germany doing well last year. So just trying to see what drives this growth. Maybe there is like a lot of inventory buildup here, but if 6% is without inventory, I mean, then it's a great result, I mean. So that will give you an explanation, more color on that. And the third is, in most probability, I mean, you are going to end up this year with more than 30% EBITDA margin. And I see your guidance is like to reach by 20% to 30%. So obviously, you are going to give up that. And the next year pricing, does it come, I mean, like you want don't want to take pricing high because you want to be within this range. So how does the pricing decision will be decided? Or we should start building like you are comfortable with higher than 30% margins in the medium term? Thank you. The first question about market share. As you know, we are very cautious to talk about market share quarter by quarter. But I think if you look at the 1st 9 months development, we have been able to gain market share versus competitors, driven also by the fact that some competitors have delivery issues, some plans for closeouts, but also by the fact that we have seen all that with our customers. We did not reuse our presence as customers. So, we believe the 1st time off, we gained market share. This is supported by what you call hygiene related products. We have obviously hygiene related products, touch free products, these are the toilets, these are faucets or rhino. We see a strong growth for these products since the COVID-nineteen crisis. However, the share of sales of this product is very limited. It's been a low, not a material part of our business, though it has not a material impact on the top line growth. The second question around Germany. Also, in Germany, we believe we are gaining market share, driven by the fact that we have seen delivery issues with competitors or even supply chain interruptions. But also, most probably in the Q3, we believe we have seen some positive impact from the VAT reduction in Germany, the 3% VAT reduction, which might have been one of the reasons why installed wall products have been growing so much faster in Germany in the Q3 compared to technical products behind the wall. 3rd question about EBITDA margin and price in 2021. As I said before, we have not yet decided about our price changes, most probably price increases next year. In general, we plan to have a certain stimulus also in terms of pricing, which would mean that we try to increase prices constantly at a certain constant rate. That is the working hypothesis at the moment, but it's not finally decided. And you are comfortable with more than 30% EBITDA margin even if you reach it? I mean, are you comfortable with that because the guidance was actually 8% to 30%? As I said before, the margin we have seen now in Q3 was very much driven by COVID-nineteen restrictions, which drove our SG and A costs down. This is not sustainable. If we are able to spend more marketing money again, we will spend more marketing again. So, don't take the current margin level as the new norm or a sustainable basis. The next question is from Christian Arnold from MainFirst Bank. Your line is now open. Yes. Good morning, gentlemen. On Germany, I mean, this 12.4% organic growth in Q3, I mean, that's just impressive, just fantastic. And you just mentioned before that you had some positive impact from the VATs or in the bathroom systems. But nevertheless, I mean, thinking of the limitations from the installer side, I mean how is that possible, the 12.4% in Q3? Maybe if you can add here some more explanation? So, if you just look at the Q3, the 12% is also impacted in Germany by cash off effect from Q2. We had also in Germany with Q2, obviously, not as big as Italy or France or other countries, but there was also in Germany an impact from the COVID-nineteen business restriction on the construction activity. So also there, there was a catch up effect that was also driving the 12% stream. Design effects I just mentioned before, the AC delivery issues from competitors. Okay. Now thinking that, I mean, you mentioned before that piping systems were flat in Germany in Q3. So that's somewhat implied then for installation systems as well as bathroom systems such that you have here some growth of 15% to 20% in Q3. So I didn't understand. Can you hypothetically understand? Yes. I mean before in the call, you were saying that the piping system business in Germany was flat in Q3. Did you see then from 15%, 20% growth in both bathroom systems as well as installation systems? Or have we had here differentiation between the other 2? No, you're correct. Both other product areas were strongly growing in the areas you just mentioned. That's correct. Okay. Then in October, when you were saying slightly down overall, Any differentiation between countries or product area? Or some outliers, so to say? Yes, there is one. Let's say, observation is still piping system. What we have seen in the 3rd quarter is also visible in October. Piping system is systematically weaker than the other two product areas, also in October. Okay. And maybe on the personnel comp, going into Q4, I mean, having now the situation you have, are you expecting I mean, on the one side, you have higher wages. So you have a negative impact from this price inflation, so to say, on the first line. On the other side, probably many, many people are going on holiday, right? Any thoughts on that? We have seen, especially this year in Q2, a extraordinary low position for personnel cost. And Q3, again, was more in line with previous years. The vacation quarter and Q4 will also be, in terms of difference to Q3, more in line with previous years. And in addition, we said that we still have an increase in tariffs coming mainly out of Germany. So the exceptional quarter in 2020 was Q2, where really in operations, we could very well adjust our capacity to the demand. But as now demand, etcetera, was normalizing, this effect is gone and we have a more normal pattern again. Last question on material prices. You mentioned before that you are expecting in the 4th quarter a sequential increase of material prices. Is. So not saying year over year, does it mean that year over year you still have tailwinds from raw materials in Q4? Yes. Year over year, we still expect to have a tailwind in Q4. Okay. Thank you. You're welcome. The next question is from Patrick Baillis from UBS. Your line is now open. Thank you and good morning everyone. I have 2 follow ups please. The first one is around your comments you already made on October and the catch up sets in Q2. I'm just wondering in that comment you made on October being slightly down, do you think there is still a bit of catch up and restocking in there and spillovers from Q2 so that the underlying run rate will be even a bit lower? Or was that pretty much all done in the Q2? Again, we do not exactly know, but we believe that inventory levels of wholesale is in general about a normal level at the end of September. Okay, good. Great. Thank you. And the second question is around the EBITDA bridge. And I know it's very early days, but looking into 2021, there's a lot of moving parts with COVID savings, raw materials going up and down, etcetera. But just directionally, how should we think about the reversal effect next year? Obviously, you will end this year with a very solid margin higher than last year. Do you think you can maintain this sort of level also next year? Or should we assume that maybe it will be a bit more a challenging year with potentially marketing expenses, etcetera, coming back? I'm sorry, I'm not able to give you an answer to this question. We refrain from making any answer to 2021. The situation is so highly uncertain, volatile just the last couple of days. So any statements we would make to any direction next year will not be professional. I'm sorry, I can't give you an answer. You're welcome. The next question is from Raimo Rosenow from Helvetischer Bank. Your line is now open. Yes, hi. Thank you for taking the question. We understood that Q4 will see lower margins, I mean significantly lower margins compared to the previous year, not to the Q3 of the previous year. However, at the same time, you said at in the press release that you see slightly lower sales for the full year and an EBITDA margin above previous year's level. You didn't say slightly above, and that is not a coincidence. So if you say EBITDA margin above previous year's level for the full year, it is not 10 or 20 basis points, it must be a bit more. That again, in my calculation, puts certain limits to the significantly lower margin in Q4. I mean, it's not 200 basis points than 400 basis points. Is that kind of a sensible thinking? Our margin guidance for the full year on EBITDA level, which we expect to be above previous year level means that we expect an EBITDA margin, which is higher than 29.3%. That's the guidance, every figure above 29.3. Percent. And I can't do not want to go into more detail on which level could be. I'm sorry, Mr. Rodenal. I'm just used that you are very precise in your wording. So it's not physics. There is a reason for it. Exactly. And we have precise everything above 20.29.3% is above. Okay. Fair enough. Then a more general question. And we didn't talk about innovation that much today. How is Geberit ONE actually doing, which you introduced some time ago? Is it making progress? Is the response positive? And then adjacent to that, can we look forward to any other kind of groundbreaking innovations in 'twenty one or 'twenty two like the introduction of Geberit 1 or, for example the Monolithic Prevalvot tank at the time? Geberit Monthly are very happy with the development this year, especially with certain product categories within these new bathroom series. I would say they are all in all on our expectations, some product categories slightly higher, some a little bit lower. But as a series, it's going as planned. But still, as you know, it's not really contributing a material part to our group sales, but it's developing very nicely. Referring to other new product innovations, we will talk about that in January. We will give you a flavor about new innovations next year. But we will have, again, also next year, a beautiful mix of very important, strategically important innovations and also again add ons continuing evolutionary innovation. But I don't want to go into details at this moment in time. The next question is from Arnaud Lehmann from Bank of America. Your line is now open. Thank you very much and good morning, Doctor. Lehmann. Two questions left on my side. Firstly, on your Q4 margin comment, I think you said you think Q4 EBITDA margin should be down year on year. Does that also apply to the gross margin? Or is it mostly related to SG and A and possibly higher marketing costs? That's my first question. My second question is on the UK. I appreciate it's not a very large market for you. But do you feel ready for Brexit in terms of sourcing, supply chain? Or do you think there might be any disruption from next year? I answered the question to the UK. We believe we are operationally ready for Brexit in the UK. At the moment, we do not see or expect any special effects like what we have seen last year or couple of times already last year. We do not expect anything specific from that side. And honestly, I also believe that the COVID-nineteen crisis and all the restrictions or further development might seem more, might have more impact than the Brexit change, change in the Brexit. And regarding the CO2 margin, I ask Colin to add. That means, as we are still expecting year on year lower roundtable price for Q4, it's not linked to the gross margin. It's more linked to the operating leverage as we are seeing sales below prior year, it's linked to the, and higher personnel expenses. Those are the main drivers. But the main drivers, the operating leverage. Average. The next question is from Martin Husler from Telstra Kantonalbank. I have two questions left. First of all, an add on to Germany. The topic was touched on capacity of installers. And actually, you didn't really answer that. How was it possible that with limited installer capacities, the growth was so strong in the Q3 or also for the 1st 9 months? Or is it that this capacity constraints kind of eased and which should also be then positive for the future? That's the first question. And the second question is on Switzerland. Can you just elaborate a bit there also very good sales development in Switzerland? Is this, I assume, more refurbishment as well? Do you see there some cooling effect out from the pandemic or lockdowns? Referring to your first question, 15 months that we had in all Referring to your first question, we see in mind that we had in all countries, including Germany, rebuilding effects of the inventories of wholesaler. So wholesaler were rebuilding the dimensions also in Germany. So the 12% growth in the quarter doesn't mean 12% growth on the level of the installers. That is valid for all the companies. Secondly, we have heard from many installers in need that they did more work also in Germany this summer than in previous year summers by, over time, by using their vacation. So there was a certain elasticity of the capacity in the summer. By the way, if you look to Italy, we had the growth of 24% in Q3. That was very much driven by the fact that in August, where normally nothing happens on construction sites in Italy, installers' properties still worsened this year. And to insert this lower effect, we have seen that in Germany. So it's a combination of inventory effects at wholesaler and a short term flexibility of capacity on an installed level during the summer. And to your second question around Switzerland. In Switzerland, the renovation business is doing well. We still believe also that the newbuild segment is doing well. The projects which were launched or which were running pre COVID-nineteen, they basically get completed. Maybe they have seen a little bit delayed in the Q2. Also there in Switzerland, we see some catch up effect to the same reasons, as I mentioned before, in Germany, basically. But if you look at the 1st 9 months, we are doing well also in Switzerland. We believe we have been able to gain market share. Don't forget that a lot of our market outperformance in Switzerland in general is driven not by volume share gain but by outstanding our product portfolio. So we see, for example, in term and in Switzerland, not a downselling effect due to COVID-nineteen prices. Or we do not see a negative effect, for example, on shower toilets, open shower toilets, important growth driver in Switzerland, doing very well, growing double digit in the 1st 9 months. Okay. And fair enough, your answer on Germany. If I refer to the 1st 9 months where your growth was about 6%, there I assume there wouldn't be much of a stocking, destocking effect for the whole period. And still, the 6% looks quite impressive. This is correct. And that's why I mentioned it more that we feel confident that we are gaining market share in the 1st 9 months. And secondly, also driven by maybe the VAT effect in the Q3, which led to a strong growth in front of our products in the Q3 because they are more related obviously to the VAT program, which gives the incentive to end consumers to buy a new bathroom or to make the renovation. You're welcome. The next question is from Bernd Humberin from Tobel. Your line is now open. Yes. Thank you for an add on question regarding CapEx. Could you provide a quantitative update for your full year 2020 CapEx guidance? And then maybe could you also talk a little bit qualitatively regarding and further improving your sustainability profile, for example, improving the environmental standards of your ceramics production? Obviously, you have a very strong cash position and there's probably a limited need for significant capacity additions. So you are in a position to increase spending on more sustainable production methods? In 2020, we expect to be around €150,000,000 with strength, a tick less than what we expected in summer. We have also there some restrictions from COVID-nineteen. We are not able to complete all the investment projects that we have in mind. Regarding our sustainability investment, that is a constant effort. As you know, we are constantly investing also into a more sustainable SFA, especially in ceramic manufacturing. We have been doing very well over the last couple of years, also this year. We have reduced the CO2 emissions since the Sanitec acquisition by 26% over the last 4 years. So that's, in average around 7% decrease of CO2 emissions annually. And as I said, that is a constant effort. It's embedded in our strategy, in our investor project. And we also expect a further reduction of CO2 emissions this year. That's maybe a good example where COVID-nineteen does not have a structural impact on Geberit. The COVID-nineteen crisis did not change our agenda in terms of sustainable investments. You're welcome. Next question is from Alessandro Foletti from Octavian. Your line is now open. Yes, good morning, everyone. Thank you for taking my question. I have one left remaining regarding your midterm growth outlook. I think it's about 4%. In the last couple of years, organically speaking, you've been trending slightly below that. Can you give your thoughts about how you may be able to reach that if and when, if you have an outlook, leaving for a moment the pandemic aside? It's very difficult to comment or give an answer at the moment by putting the pandemic aside. So if we expect midterm that the pandemic is resolved, then we stick to our midterm targets. Or in other words, the pandemic does not have an impact on our view, on our midterm potential to grow the business without the pandemic, obviously. We do not see that the pandemic has any structural impact on our potential to grow in the various markets. We do not see, do not expect that there's structural impact when it comes to geographies or when it comes to product areas. And the driver to reach that, so to speak, makes the last step between the average of the past year to that total 4%. Is it, do you need a more normalization in Germany, for instance, on the installer base? Or can you overcome that with your selling strategy, innovations, gaining market share, etcetera? We have reached in average sales growth of 4% since the acquisition of Sanitec. We have been at the lower end of this range of 4% to 6%. The main reason that we have been at the lower end, but not more in the mid of this range, was the geographical market region. As outlined very often already, the capacity bottlenecks in Germany, the weaker structurally weaker markets in Nordics, but also the lower much lower growth dynamic or even long growing growth dynamic in Switzerland. These are the main reasons why we have not been able to monitor with that. And COVID-nineteen does not change anything structurally, how we look at the business and what we see in terms of potential. Of course, if you put the preliminary side, as you mentioned in your question. Yes. Okay. Thank you. So that means by insurance also the Q3 reading doesn't change that overall picture? The Q3 reading, The quarterly results does not have any impact on our thinking about these countries. The next question is from Ida Ekbloom from Morgan Stanley. Your line is now open. Thanks. I've got two questions. Firstly, can you please give us a little bit of guidance on your sales split via showrooms or direct to whole sailors? And then secondly, can you give us some understanding on what percentage of your sales relate to new products now and potentially a target on that number where you see that evolving over the medium term? Would it be fair to say that a rising percentage of new products in total sales is positive for the pricing dynamic? 1st of all, a fundamental answer, we are only selling to wholesalers. We are not selling to showrooms. So it's 100% wholesalers. Certain products, a showroom is then relevant for decision making, but showrooms are not directly delivered by us. So we're always saying wholesalers in some countries, overalls are managed by wholesalers, but you can't differentiate the ticket. And second one, we do not have a quantitative figure where we differentiate new products versus old products. The main reason is the introduction, timing of new products in our industry is very long. We talked about 2, 3 years about the new product. It's not a 1 year new product, and the next year we have the next new product. So we do not quantify what we look at, but we do not disclose, of course, the growth of these new products. And it's an important contributor over time, but we do not disclose any positive figures. Okay. Maybe I could ask a question on showrooms differently then. So what percentage of your sales do you think the showroom is necessary in order to make the sales decision even though you're then ultimately selling to the wholesaler? Obviously, it's only relevant for the bathroom system. Showrooms are not relevant obviously for piping systems. And they are almost not important for installation and motion systems because this business is basically tied to all, a certain share of the bathroom systems, mainly driven by the end consumer market. So everyone who is privately deciding about these bathroom decisions made in the showroom, that's a part of the bathroom system, which are 30% of our business, part of sales is decided in the showroom. But as I said before, because we are not managing showrooms ourselves, but we're delivering directly to showrooms, We do not know exactly how much this share of decision making of the 30% 1000 is made in a showroom. Our next question is from Pierre Rousseau from Barclays. Your line is now open. Yes, good morning everyone. Thank you for taking my question. Could you first comment a little bit on your non residential exposure? I heard there was some weakness in newbuilds, so I was wondering if you could give some granularity there. And also what's the share of office, hospitality and travel related projects? I think that would be helpful. And the second question is on customer cost inflation. In a normal year, what would you expect to be the run rate going forward if we exclude potential COVID-nineteen disruptions again? Thank you. We generate about onethree of our business is the non residential segment that varies, country by country, for the group around onethree is exposed to nonresidential. The more granular space between hotel and other sub segments is very difficult because we are delivering to wholesalers. We do finally not exactly know where these products are going. Therefore, it's very difficult and we do not have a quantitative indication about this. The second question about wage inflation, a large part of the wage inflation, which is affecting the average is not designed by us, but driven by external parties. Basically in Germany, we are dependent on the negotiations between employee representatives and company representatives, we just have to expand what the negotiation brings. In general, what we have seen over the last couple of years is that wage inflation has increased, especially in Germany, but also in Eastern European countries, which are important for us, which is Poland. What the COVID-nineteen crisis means now to the wage inflation next year or maybe only after is very difficult to predict, and I don't feel myself in a position to make any prediction about that. Was the question answered, please? Thank you, Patrick. The next question is from Martha Buscull from Berenberg. Your line is now open. Hello, good morning. Thank you for taking my questions. I have a few follow-up. So with regards to growth in Piping and the weaker newbuilds project business, could you please let us know what is discrete residential versus commercial? Or what is the share of the project business for piping specifically? You just mentioned 1 third on the group level. I will have a few follow ups after that, but you take it 1 by 1, please. Sorry, can you rephrase the question? I did not understand. Yes. You just said that onethree of your sales is generated from nonresidential segment on the group level. And what is that for the piping, please? We do not know. We do not know if there is, might be slightly higher. But to be honest, we never made the exercise, might be slightly higher, I would assume. Okay. And with regard to Benelux, so you showed positive organic growth in local currencies for all countries you list in Europe except for Benelux. So minus 3.5 would happen there? The main reason is, as I mentioned in my introduction, a base effect, we had a strong growth in Q3 last year of 19% 1.9% in better looks. That was the main driver, but we have seen decrease this year. And with regard to the extra cost for rebranding, in total, for the full year, you said you are on track to spend €10,000,000 So how much of that was spent already year to date? And is that a fair assumption to assume that in Q4, it would be a proportional spend? Or is more or less weighted than other quarters, please? In Q4, there will be some expenses, but you cannot even be distributed over the years. It's part of the marketing cost. That's why we said that we will have a little bit more marketing cost, But it's not it's less than we spend in Q3. And we don't keep the exact number. Okay. Can I ask one more general? So why is this higher? So you mentioned that you have some delay between your EBITDA and then when it comes into the, with the cash flow statement. So is that linked to the payment terms that you have with the wholesalers and whether you give the volume rebates in the end of the year with Q4, if you can give us a little bit more details on how it works with the whole sales team? No, that is just yes, it's mainly things for the payment terms, but it depends always what the seasonality in the quarter was. We had very good sales also in September. And that just leads into the fact that the free cash flow represents the good results of the last days of the last month in the quarter, only in Q4, not yet as of the end of September. So nothing unusual. We haven't received further questions. I will hand you back over to the speakers. So thank you all for your participation. We wish you in a highly uncertain time, a good and obviously healthy rest of the week. Thank you. Have a good day. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.