Earnings Call: H1 2019

Aug 15, 2019

Good morning. I am the Akerdeen operator for this conference. Welcome to the Geberit Conference Call on the Half Year Results twenty nineteen. 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 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 Siedler, Head of Corporate Communications and Investor Relations. Please go ahead. Thank you for the introduction. Good morning, ladies and gentlemen, and welcome to our Geberit's interim results conference call. Geberit's achieved good results in the first half of the year twenty nineteen with a good top line growth and the further improved profitability despite the challenging business and currency environment. In the 1st 6 months, sales in Swiss francs achieved with CHF1.6 3,000,000,000 at previous year's level. Sales in local currencies grew by 3.1%. The operating cash flow grew by 3.3 percent to CHF501 1,000,000 corresponding to an EBITDA margin of 30.80 percent and an increase of 100 basis points. Operating profit increased adjusted by 1.7% to CHF431 1,000,000. This corresponded to an EBIT margin of 26.5%, an improvement of 50 basis points. Earnings per share increased adjusted by 2.4% and reached CHF 10.40. Free cash flow increased by 35 percent to CHF257 1,000,000. While the margins improved in the first half of the year, the weak euro negatively impacted the financial results due to a negative translation effect, particularly in the second quarter. Due to the weaker euro, sales in Swiss francs decreased by 1.3% to €797,000,000 in the 2nd quarter. In local currencies, sales increased by 2.6% in Q2, negatively impacted by 1 working day less. Let me now comment in more details of the sales development of the first half year. The group's first half year sales amounted to CHF 1 point 6 3,000,000,000, a minor decrease of 0.2% in Swiss francs. The unfavorable currency development led to a sales decrease of CHF54 1,000,000 or minus 3.3 percent versus previous year. Sales in local currency increased by 3.1%. Let me now comment on sales growth per region always in local currency. Sales in Europe increased by 3.2% with positive growth rates in almost all markets. In Germany, sales increased by 4.9% with strong sales in installation and flossing systems and in time exiting. In Switzerland, sales grew by 2.0% despite the strong previous year's period. In the Nordic region, sales increased by 1.5% with strong growth in insulation and flushing systems. Eastern European sales achieved previous year's levels despite a double digit sales decrease in Russia and in Turkey. In Italy, sales declined in a weaker market environment and due to a strong comparison by 1.2%. Sales in Benelux grew by 5.2% with strong growth in all three product areas. France recorded a sales increase of 0.9% with strong growth in installation and flushing systems, but sales declined in Bathroom Systems since the exited low margin business in ceramics. In Austria, a sales growth of 5.3% was booked with growth in all product areas. Sales in the UK increased by 10.6%. And the Iberia Peninsula grew by 6.6% with a double digit growth rate in Portugal. In North America, sales were flat with good growth in installation business. In foreign specific, sales increased by 11.5% with strong growth in China. Sales in the Middle East and Africa regions were down by minus 4%, driven by a strong decrease in the Gulf region. Let me now comment on the data development to our product area, again in local currencies. Installation Flushing Systems increased by 4.6% with strong growth with behind the wall flushing systems. Piping Systems grew by 6.7% with strong growth in both product lines, supply piping and drainage piping systems. Bathroom Systems sales decreased by 1.7%, driven by a weak market environment in the Nordics, a strong comparison from strong sales for shower toilets in the first half of twenty eighteen, weak sales from Keramak due to the brand phase out and the exit of low margin business in France. And now, let me update you on the financial results. Geberit's EBITDA reached CHF501 1,000,000 corresponding to an increase in CHF of 3.3% versus the first half twenty eighteen. The EBITDA margin reached 30.8 percent, 100 basis points above H1 twenty eighteen. Roughly half of this improvement was driven by the new accounting standard IFRS 16. The remaining operational margin improvement was achieved despite a weaker environment, limited top line growth, the highest tariff increases since many years and ordinary marketing expenses for the brand harmonization. The main drivers for the operating margin improvement were firstly, increased sales prices in a challenging market environment secondly, a positive product mix due to upselling of our product portfolio thirdly, efficiency improvements combined with strong cost control and cost discipline and fourthly, slightly lower raw material prices. The currency fluctuation had almost no influence on the operating margin due to our continued efforts to maintain a strong natural currency hedge. Operating profit achieved CHF431 1,000,000, 50 basis points above the adjusted H1 twenty 50 basis points above the adjusted H1 2018 level. Due to a higher tax rate, net income increased under proportionally by 0.9% compared to the adjusted previous year level to CHF 365,000,000 Earnings per share grew by 2.4% to CHF 10.14 versus the adjusted previous year's number. Free cash flow increased significantly by 35%, driven by a positive development of the net working capital. We further continued our share buyback program and have now repurchased in total 702,000 shares for ZAR296,000,000 per end of Q2 this year. Let me now comment on our market outlook for 2019. Our view has not changed significantly since our publication of Q1 results in May this year. The uncertainty and volatility of the building industry remain and selected markets are slowing down, driven by weaker new residential sector. In Europe, we expect overall a favorable but mixed construction market environment. We remain confident about the construction amount in Germany, although the limited qualified installation capacity might remain a bottleneck. In Switzerland, we expect on a high level a slightly declining construction market. In the Nordic region, we expect at best a stagnating market driven by a positive outlook for Denmark, a slight growth in Norway, a stagnation in Finland and a decline in fee. In Italy and France, we expect overall a stagnating market environment driven by the decline in newbuild segment, compensated by a more robust renovation sector. We expect overall a declining market environment in the UK driven by the non residential sector due to the Brexit uncertainties. In Austria, we expect a positive construction market with a slight growth. We are positive for Benelux, although the strong construction growth in the Netherlands over the last years led to shortages of qualified installer capacity. The outlook for the Eastern European markets remains mixed with a weak environment in markets like Russia or Turkey. And finally, on the Iberia Peninsula, we expect an ongoing recovery of the building structure. In Asia Pacific, we see a mixed picture across the region. We expect a moderate increase of the residential construction market in China. We are positive for India and expect a decline in building construction market in Australia. Let me finalize our market outlook for 2019 with the Middle East and Africa region. We expect overall a weak market environment in the Gulf and the stagnating while building construction market in South Africa. We remain cautious and foresee a mid picture for the Northern Africa and the Near East region. And now a few words about the raw material price environment. The raw material markets remain uncertain and volatile due to the increased uncertainties about the global economy. After increased raw material prices in the second quarter, we expect now a mixed picture in the 3rd quarter with overall stable raw material prices compared to the Q2 this year. And finally, let me briefly update you on the Geberit outlook 2019. We expect for the full year a sales growth in local currencies between 3% and 4% and an EBITDA margin between 28% 29%. CapEx should reach around CHF180 1,000,000. This is the end of our introduction. We are now ready to answer your questions. Hello? So would you like to start the Q and A now? Yes, please. Okay. Ladies and gentlemen, we will now begin the question and answer session. The first question is from Andre Kukhnin of Credit Suisse. Your line is now open. Please go ahead. Good morning. Thank you very much for taking my questions. I'll go one at the time, please. Firstly, on your growth guidance of 3% to 4%, you've delivered 3% in H1 and obviously, days effect was negative in there. Can I ask whether you're seeing kind of improvement of momentum anywhere in the business and hence that guidance of 3% to 4% or is it just purely mechanically taking 3% in H1 should get a bit better in H2 given the days? We do not expect in the second half of the year structural acceleration or change of the market environment. It's basically driven by the more favorable year on year comparables in the second half of the year and we have also one working day more in the second half of the year. That is the reason for the 3% to 4% sales growth guidance for the full year. Right. Yes, certainly clear on no expectation of end market structural pickup, but is there anything within kind of Geberit own actions that you're seeing that maybe is gathering pace? We saw quite a few new products introduced at Ice Age, for example. No, no structural acceleration in the markets and no structural changes in the second half of the year for Geberit internally, purely technical. Very clear. Thank you. Can I also just double check on Germany? The growth of 4.9% was on a higher comp from last year. Is there anything for us to be aware of in that growth in H1 2019 that you delivered in what seems to be a flat market? I think our colleagues in Germany did a very good job on the various initiatives which are running there. Our upselling initiative or activities are going very well, upselling to higher end products, which are especially easier and faster to install. We have also a lot of success with new products, which we introduced in Germany, for example, drainage pipes, which introduced an important new system in 20 16 and we see a nice growth here. And we had also a little bit more encouraged price increase this year in Germany, increased prices a bit more compared to the last 2 years. Very helpful. Thank you. And can I also check on the ceramics business exit? Is this new to the 2 sites that you closed? Or is that still a full on effect from that? No, that is completely independent of the site closure in France. That's simply due by the fact that we have a part of the ceramics business in France with very low and unacceptable margins, and it was a conscious decision to exit that business, nothing to do with the site closure. And could you give us some idea of the size of that business? No, I can't because it was with a dedicated customer. Therefore, I can't disclose you any figures. Right. And that was specifically in Q2? In the first half of the year. Okay, great. Thank you. And finally, just on the other cost effects line on the profit bridge. When I look at what you give in H1 versus what you gave in Q1, the implication for Q2 is that it stepped up by more than EUR 6,000,000. So just wanted to firstly ask if my math is kind of agrees with yours. And if it does, then I think one item that we had in there was the Caramag rebrand cost that was supposed to step up. But I thought we were talking about EUR 10,000,000 for the whole remainder of the year there. So just wanted to check if there's any front loading of that in the second quarter. No. We have said that we spent CHF 10,000,000 marking expenses during the entire year as of Q2, and roughly 1 third of that was now spent in the Q2 as planned. Okay. So the rest of the step up is wage rates ticking up? Exactly. We had also in the previous year, we had a positive one time effect in the Q2. In Q2 2018, also little impact on the margin development for this year. Got it. Thank you very much. You're welcome. The next question is from Daniela Costa, Goldman Sachs. Your line is now open. Please go ahead. Hi. Good morning. Thanks for taking my question. So the first question, just wanted to follow-up on the new product launches on Gebri 1. When do you expect to start to see sort of the contributions from that into growth? I guess you have commented previously on your 4% to 6% medium term target includes a bit of sort of innovation led growth, but when will this step kick in? And then the 2 other ones more a bit more technical. So I wanted to check on the tax rate, given I think there were the results of the Swiss referendum in May and you had in prior quarters commented on that your sort of use on the tax rate would depend on that sort of where do you stand for the future based on that? And the third one on IFRS 16 impact, I think was a bit higher in 2Q than it had been in 1Q. Where do you stand for the full year? Thank you. I'll start with the first question. The first impact on sales from the new Basel series, Abert 1, which we launched this year, it will be earliest as of next year. We do not expect any substantial sales this year, earliest next year. For the tax rate in IFRS 16, I asked Oladiv to answer the question. Yes. The midyear rate is higher than last year. That doesn't have anything to do with the referendum in Switzerland. That's mainly because of positive one off effects in 2018 in H1 and some mix effects. The referendum, yes, was passed in Switzerland. And we also know now that the tax rate in the Canton of St. Gallen where we are paying taxes is going down. However, not all the implementation details are known yet. So we still believe that we might pay a little bit higher taxes than in 2020 going forward. The guidance is around 16% versus around 15% for this year. We had a minor positive impact now mid year because we could release some deferred tax assets in the sorry, deferred tax liabilities in our P and L. But it has a minor effect, not material. For IFRS 16, the impact for the full year will be around 0.5%, 4 point percent. So no significant change compared to what we have seen in H1. And the difference between Q1 and Q2 is just non volatility driven by FX and other items. Thank you. The next question is from Martin Hoechler, Zurcher Kantonalbank. Your line is now open. Please go ahead. Yes, good morning. I have two questions. First, maybe to the strengthening of the Swiss francs. Do you foresee any changes in your pricing strategy in Switzerland? You have to adjust your prices there? Or doesn't it have any impact at this stage? Of course, we are closely observing the situation and the current development. At this moment in time, we do not foresee or plan any extraordinary price changes due to the currencies in Switzerland. Okay. And then the other question is about your guidance or outlook. You talked about or we talked about the 3% to 4% in sales growth. If I assume you would achieve 3% and then I look at your margin band that you gave with 28% to 29%. I think the lower end of this band is quite pessimistic then. Assuming that raw materials stay more or less where they are and you have some scale effect due to the volumes. What's the biggest risk for you that the lowest lower end of the band might seem to be realistic? That is the raw material price development in the Q4. Our outlook for the raw material price is only for Q3. We have a very low visibility. And as I said before, high volatility also in the raw material market. You might have seen that some prices like nickel went up massively. Nickel went up the spot price by 30% in the last 3 months. Nickel is now up 55 sorry, 45% up year to date. So there is a risk in the 4th quarter about raw material prices. And keep in mind, last year in the Q4, raw material prices also went down already. So that is the biggest risk for our margin guidance this year. Okay. Thank you. You're welcome. The next The next question is from Matthew Spur, Exane BNP Paribas. Just a couple from me. You say how the price raw materials developed in Q2 versus Q1? Obviously, you can see the year on year, but just wondered sequentially whether you can give us some guidance on what happened. Yes. The royalty prices in the 2nd quarter went up compared to the Q1. And the pricing was the same as prices went up in the start of the year and so it's the same price effect year on year but and the same sequentially, yes? Sorry, can you repeat the question? Sorry. And your pricing was basically the same year on year Q2 as it was in Q1? We increased prices, as you noted, for the Q2. The price increase the sales price increase this year was somewhat higher than what we planned for. Finally, we achieved more sales price increase in 1%, 1.5%, a little bit more than what we initially planned. All right. And then kind of your thoughts on Germany. You said the market is healthy. How worried are you? Obviously, the manufacturing sector, big part of the economy is looking in trouble. You've also got we had noises in the quarter about rent freezes coming in Berlin. What are your overall thoughts on just the do you think German housing market is going to be resilient to these sort of headwinds? We believe still the biggest challenge from a market perspective for our markets is the question of the capacity of installers, of qualified installers, but not that much the demand. There is still a strong demand in the market for building construction. There is also an inventory level for tasks which have to be fulfilled. There is a renovation need. So we are not that really worried that much worried about demand, although the channel economy in Germany obviously seems to slow down, especially the exports. All right. Thank you. You're welcome. The next question is from Martin Fluttinger, Kepler Cheuvreux. Your line is now open. Please go ahead. Yes, thanks for taking my questions. Martin Fluttinger, Kepler Cheuvreux. First one and I'll go one at a time. Coming back to the issue of Germany and the problem you just mentioned about the lack of qualified installers. Could you talk a little bit about any dynamics that you have seen with respect to this issue? And particularly, I'm to learn what kind of order book levels in weeks for installers you saw in Q1 and Q2. I think the last number you provided was by the end of last year. And also, if you could talk a little bit about your own training programs for installers in Germany, how that's going? That would be my first set of questions. There is no fundamental change in Germany regarding the situation of the capacity of polyethylene installers. You're referring to the statistics of the order book levels. The latest figure is that the order book level in Germany is even slightly increased to 13 weeks around 13 weeks currently. So there is no relief from that side. Regarding to our trainings, we are still very happy that we are able to attract many installers despite the bottleneck to our trainings. So we do not see a lower demand. On the contrary, we see even higher demand for support services, speed training or via our sales force to support these customers, which is, of course, one of the elements of this bottleneck of qualified installers. The people are there, but qualification levels are lower. So the need for support and service is increasing, and we are focusing on that, and we see that also in our numbers. Perfect. Thanks. And just to clarify that those 13 weeks you just mentioned for order books among installers, is that a Q1 or Q2 survey? That is a summer survey, the latest summer survey. Okay, perfect. Thanks. And then on the second question is on the bathroom business. Can you talk a little bit about your organic growth in the shower toilets business, AquaClean in Q2? And maybe also elaborate on more on the reasons for the decline of the ceramics business. Was that just Nordics driven or what was that? Shower toilet was growing in the first half of the year, but only single digit due to the fact that we had a very strong first half of the year last year for shower toilets, driven by some dedicated marketing initiatives. In general, bathroom systems, as I said, during my introduction, there were basically 4 levers influencing the business in the first half of the year. 1 was the strong comparison for shower toilets. The second one was the weak market environment in the Nordics. And as you know, the Nordics is the most important market for our ceramics business. Then we had also a week sales from Keramab due to the phase out of the brand in the Q2. And we had the effect, which I mentioned before in France, where we decided to exit long margin business also for ceramics in the French market. Perfect. Thanks. And then a final question is on your EBITDA development in Q2 and also the guidance for 2019. Doing I'm trying to do the math on Q2 profit bridge. Your volumemix effect has dropped quite significantly or is less positive, I should say, looking at Q1. It was up 100 bps. And I think for the H1, it was 70 bps. So probably around 40 bps for Q2. What is the main reasons for that? And with regards to your EBITDA margin guidance for 2019, have you seen have there been any recent unexpected developments that have impacted that range of 28% to 29%? Question number 1. As I said before, we have somewhat stronger price increase this year or in the second quarter than in the previous periods. As I said before, we increased prices more than 1.5% across the group. That means that also the volume effect, of course, is a little bit lower and towards the stronger price increase. Your second question, we have not seen any extraordinary short term effects, which had an impact on our EBITDA margin guidance for this year. Thank you very much. The next question is from Bernd Pomrehn, von Drobel. Your line is now open. Please go ahead. Yes, good morning, gentlemen. Two questions, if I may. Firstly, you mentioned Turkey. How important is Turkey about? How big is Turkey about for you within Eastern Europe? That's the first question. And then the second question is on the brand harmonization program. How is it progressing? Is it everything going according to plan? And was there any impact or will there be any impact this year on your cash flow, inventory management, etcetera? Turkey has within the region, of course, a substantial impact, especially if the sales decrease is double digit. So for that region, it is important on a group level, of course, it's not that much material. But for the region, it's an important To your second question about the phase out of the brand. All in all, it is running according to plan, which means that we have stopped at the end of Q2 to produce and to deliver any Keramak branded products. So you don't get any Keramak products anymore from Geberit. It's all Geberit branded. What we have seen is, although that some of the wholesalers and we have heard from wholesalers used that Caravelc brand switch to lower and to clean up their inventory levels. So they have lowered their inventory level with all Caramag products and used this opportunity to clean up, so to say, their inventory. That's what we have also seen in the Q2. And as of now, the main focus is to refurbish the remaining showrooms. As you know, we have to refurbish many, many showrooms in Germany from our customers with the Geberit product that takes time and that is also the effort now towards the end of the year. Okay, excellent. Thank you, Christian. Welcome. The next question is from Fabian Hecke, UBS. Your line is now open. Please go ahead. Thank you very much. A few questions. The first one on the U. K. That was surprisingly up plus 10.6%. I think in Q1, you said you had quite a pre Brexit benefit with customers refilling inventories. Can you tell us a bit how gross distribution was in Q1 and Q2? Or was there any kind of reversal impacting Q2 at all? And do you see nonresidential, which is nearly all of your business being down? Do you already see that visible in your numbers? We had a K, meaning Q1 was very strong and then we have seen the reverse of the UK, meaning Q1 was very strong and then we have seen the reverse effect in Q2. Overall, the 10%, 11% growth in the first half of the year has also been seen in the context of the relatively weak comps from the previous year. Previous year, we were minus 80%. So that was also driven by ED comps entire first half of the year. Okay. Thank you. Then on Piping, there was also unusually strong. It's plus 6.7%. You mentioned the introduction of the new drainage pipes and also Piping Systems strong. But I mean, structurally, the piping business is growing clearly below the insulation systems. How long do you think will this effect of driven by the new products last? Will it last through H2? Will it last into 2020 before at some point, I mean, we can assume it will also normalize rather down to low single digit? Or what's your view on that? I can't quantify you a quantify quite outlook for the piping system. I can't talk about the new products, which we believe they still have a large potential in the geographies where we have introduced them. So there is definitely not yet the full potential. How long it lasts in terms of structural growth rate, difficult to say. It's important that we are growing above the market with type of systems, and I'm confident that we do that for the near and midterm future. Okay. Thank you. Then my last question is on bathroom systems. Do you see I mean, with Villeroy also warning on the ceramics market in bathrooms in Europe for this year, and we know there is overcapacity in the market. And I don't know if everyone is so disciplined as you are in taking out capacity, shutting down some plants. So overcapacity is expected to persist. And with now declining volumes and increasing competition, do you see anything moving on the pricing front in an adverse direction? No. No structural, systematic differences in terms of pricing in bathroom systems compared to the other two product areas. I couldn't confirm or support your hypothesis. Okay. Okay, thank you. These were my questions. Thank you. The next question is from Jorg Schumacher, Baader Helvea. Your line is now open. Please go ahead. Yes, good morning. In fact, most of my questions have already been answered. I just have 2 follow ups. And the first one, I did not understand acoustically in the beginning, the marketing costs of €10,000,000 Is it correct you spent onethree so far in the second quarter? Let's go one at a time. That is correct. Okay. And then the second one, on a more structural trend, the trend to multi housing where we can assume that prices matter more. Do you see here a trend that is not beneficial to Geberit? Or is it what's your view on that? No, we do not see that. And maybe a good example is Germany in the first half of the year. As you know, multifamily buildings in Germany are growing quite fast, faster than single family, and we have increased the growth rate of 4.9%. So I can't confirm your hypothesis. Great. Thank you very much. The next question is from Priya Mooji, Jefferies. Your line is now open. Please go ahead. Morning. It's Priya Mooji from Jefferies. I've got three questions. The first one is just a follow-up on the UK. Obviously, you said Q1 saw restocking, Q2 was weaker. I just wondered as we go into another Brexit deadline, is Q3 likely to be strong in the U. K. Again because there could be potentially restocking occurring again? That's my first question. Could be. But to be honest, I'm very hesitant to make any forecast for the U. K. And stocking effect, quite difficult to say, could very well be that something similar would happen. So far, I can say we don't see it. Okay, fine. The second one is just on raw materials. You said that Q3 raw materials will be will have stabilized versus Q2. I just wondered what if they do stay flat versus Q2, is that still higher year on year, I. E. Q3 2019 versus Q3 2018? No. Q3 2018 sorry, Q3 2019 will be below Q3 2018, but stable versus Q2 2019 because the aroma declines came down quite significantly in the Q1. Okay. Cool. And the final question is just on Caramag. It sounds as though the impact from sales is more to do with the distributors starting to clean up their inventory. Is the phasing out of that brand potentially making you lose sales on a fundamental basis, I. E, people aren't switching over to the new GeVret branded product, any signs of that? No, we do not have any signs and also do not expect that you see a mid long term structural change or lower sales due to the brand change. On contrary, I would assume mid long term that is to support our sales and that is one of the reasons. But once short term or during that transition phase, we have now seen that we are impacted by what you said before, a lower inventory level or the cleanup of the inventories of wholesalers. But structurally, mid term, we do not expect to have any do not have any signs that there is a structural shift away from the rebranded products. Okay. Thank you. You're welcome. Next question is from Christian Arnott, MainFirst. Your line is now open. Please go ahead. Yes. Good morning, gentlemen. 2, three questions from my side. First on France, there you had organic growth rate of 0.9%. Could you give us information about if we take out this extraordinary effect from the phasing out of the low margin business in the ceramics, what that growth would have been in France? The second question would be on the business day. You mentioned you will have one business day more in the second half. Will that be in Q3 or in Q4? And the third question on the material prices. I mean there's uncertainty about your Q4 or the Q4 development. But if things stays like it is today with higher nickel prices, But everything else, yes, stays the same. What does it mean on a year over year basis for Q4 material prices? Thank you. I'll start with question number 1. Unfortunately, I can't give you a guidance how much the sales growth would have been without exiting that low margin business that will give you then a quantitative indication how big the business also add comp give you that number, sorry. Question 2, the working day effect. One working day more in the second half of the year will come from the Q3. So in the Q3, we have one working day more. Q4 is then equal in terms of working days compared to the previous year. Question number 3, if raw material prices would stay at the level where they are now And now, for example, the nickel spot price increase is not yet in the prices, of course, but assuming our purchasing prices would stay stable also in the Q4, then we would have all in all for the full year lower volunteer prices than in 2018. But I want to repeat, in certain design, we do not know what happens in the Q4. Thank you. You're welcome. The next question is from Alessandro Foletti of Davian. Your line is now open. Please go ahead. Yes. Good morning, gentlemen. Thank you for taking my question. I'd like to come back again on this margin guidance, excuse me for that. When I make the marks and I look at Q1 margin of 31 percent more than 31%, Q2 30% and then I roll forward towards your guidance. If I take the bottom range of your guidance, we come out in Q4 towards 21% maybe, maybe even a tick below that. So my question is 2 fold. Is my math wrong, number 1? Number 2, why is that? I mean, we all know that Q4 is weak, but normally you end up, I don't know, 23%, sometimes a tick below that, but often 23.5%. 21 in Q4 seems really very low. So, first of all, important to note that we have a seasonality in the margin. As you know, Q4 margins are typically lower. The simple math, if you look at the margin improvement on EBITDA level in the 2nd quarter, around 30 basis points. If you extrapolate that margin improvement for the second half of the year and you make the simple math, you are within our margin guidance. And secondly, as I said before, we have also more headwinds from raw materials in the Q4 of this year. Because raw material prices started to decrease last year in Q4. All right. So there is basically really nothing else than raw material prices? I'm sorry, I didn't understand the question. There is in terms uncertainty, there is really nothing else than raw material prices. Yes, there is an and on top there is an uncertainty around raw around raw material prices in Q4. Okay. Good. We have a follow-up question from Andre Kukhnin, Credit Suisse. Your line is now open. Please go ahead. Yes. Hello again. Thanks very much for taking the follow ups. I just slightly kind of technical stuff, but I hope you bear with me here. I was just trying to run the maths of on the bridge component for volume and product mix effects on the margin and trying to kind of from that and your pricing comments figure out what sort of drop through rates you're seeing on your price and sorry, on your volume and mix growth specifically. And it seems to suggest that it's kind of around 67%, which is very high. Could you comment on that and where you see it? Or is it really that high because you're mixing up, as you mentioned a couple of times? Sorry about that. I can't comment these details and then how detailed math within the volume for the mix effect, I can't comment on that, sorry. But just conceptually, if we're thinking about kind of you generating EUR 10,000,000 extra of revenue from purely volume and mix, what would you expect that to result in kind of EBITDA increase? I never made that example. I have to think through it, sorry. Okay. Fair enough. Sorry. And then secondly, just so you've effectively confirmed that there was Keramag destock in Germany in Q2, right? And any kind of degree of magnitude? I mean, we're talking about kind of tens of 1,000,000 there or higher? Actually, I think we don't even know. Of course, we don't even know that it's more or less a figure customer by customer. But it has what we heard from our customers, it has an impact, but I can't even if I would, I can't quantify. We do not have a figure. And they normally hold, what, around 30 days of inventory. Is that fair? Or is it much kind of faster moving? That varies, very much customer by customer, but I would say it's more at the lower end. That's at the lower end. Okay, great. And then finally, on sorry, another one on raw materials. I know it's kind of probably the 7th one now. But in terms of your outlook for Q3, when you talk about stable versus Q2, Can I interpret that as a kind of similar ratio of cost of materials to sales that we should expect for Q3 as you saw in Q2, which I think was 28.2? Percent? No. If we talk about raw material prices, as you know, we talk about the prices which we are paying. That is not directly linked, correlated to the raw material cost in percent of sales because you have other inventory effects in there. So that is not a one to one correlation. Okay. Okay. And is there any way you could give us an indication for that cost of materials to sales ratio evolution? I mean, do you expect that to be up or down in Q3 versus Q2? No, we do not. As you know, the only area where we are guiding is on the raw material prices, but not on the cost of materials in terms of percentage of measured sales. Got it. And apart from nickel, was there anything else that's gone up? Because we were quite surprised to see it up. I mean, it looks like most of commodity plastics have all kind of gone down during the quarter. That's correct. As I said in the introduction, we expect more of the mixed picture. Nickel is certainly one of the example on the yard side, but also on the technical plastic side, we see slightly increasing environment. But you're right, for example, for commodity plastics, we expect slightly lower prices in Q3. But all in all, it's a stable picture. Very clear. Thank you very much for taking the slightly unusual follow-up. I appreciate it. You're welcome. And the next question is from Martin Husler, Zurcher Kantonalbank. Your line is now open. Please go ahead. I have two follow ups. First of all, we heard from a different building supplier that there was a very weak June due to working day effects, but then a very strong July, so very strong start of the H2. Can you confirm this for Geberit as well? I can confirm the June. It was a weak June that was very much driven by substantial less working days. That is correct. Can it pick up in July? Nothing special in July. We have nothing seen special in July. And then the other question is about Italy. Did I read it correctly that you are a bit more positive on Italy in your outlook because before you said environment is somehow cautious and now you see a stagnating environment? No, I would not say. Maybe the difference is we have a little bit more confirmation that we have more clarity that we expect a stagnating market this year that was not that clear maybe a quarter ago. That's the reason why we were more cautious. But from a qualitative way, no different view. We expect a stagnating market in Italy. Okay. Thank you. Welcome. There are currently no further questions. Okay. Seems there are no more further questions. Thank you for your participation. We wish you all a great day and thank you. Goodbye. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.