Earnings Call: H1 2018

Aug 14, 2018

Good morning. I am the Akkadine operator for this conference. Welcome to the Geberit Conference Call on the Half Year Results 2018. Please note that for the duration of the presentation, all participants will be in a listen only mode This call must not be recorded for publication or not. At this time, I would like to turn the conference over to Mr. Christian Bull, CEO, accompanied by Mr. Roland Iff, CFO and Mr. Roland Sittler, Head of Corporate Communications and Investor Relations. Please go ahead, sir. Thank you for the introduction. Good morning, ladies and gentlemen, and welcome to Geberit's interim results conference call. Geberit achieved very good results in the first half of the year twenty eighteen. In the 1st 6 months, sales increased by 11% to CHF 1,630,000,000. Adjusted by currency effect, the growth in local currency was 4.3%. The operating cash flow grew by 11.6 percent to CHF485 1,000,000 corresponding to an EBITDA margin of 29.8%. Adjusted net income increased by 13.1% to CHF362 1,000,000 corresponding to an adjusted net income margin of 22.2 percent. And finally, adjusted earnings per share reached CHF9.90, an increase of 13.9%. In the Q2, sales increased by 10.3 percent to CHF807 1,000,000. The increase in local currencies in Q2 reached 3.9%. Let me now comment in more details on the sales development of the first half year. The group's first half year net sales amounted to CHF1.63 billion, an increase of 11% in Swiss francs. This growth was supported by a favorable currency development, which led to a sales increase of CHF98 1,000,000 or 6.7% versus previous year. The sales growth rate in local currencies reached 4.3%. Let me now comment on sales growth per region, always in local currencies. All 4 global regions achieved a positive sales growth. Sales in Europe increased by 3.7% with positive growth rates in almost all markets. In Germany, sales increased by 3.8% with strong sales in piping systems. In Switzerland, sales grew by 5.2%, supported by 2 extraordinary price increases, 1 in April and another one in July to compensate for the weaker Swiss francs. Sales decreased in the Nordic region by 1.5%, driven by weaker markets in Sweden and Norway. In the Central and Eastern European region, sales were up by 10.7% with double digit growth in installation and flushing systems. In Italy, sales grew by 6.8% with sales growth in all three product areas. Sales in Benelux grew by 5.2% with a very strong growth in the Netherlands. France recorded a sales increase of 0.8% with strong sales growth in installation and flushing systems. In Austria, a sales growth of 2.7% was booked with strong growth in bathroom systems. Sales in UK decreased by 8.4% impacted by the uncertainties around Brexit. And the Iberian Peninsula grew by 9.5% with double digit growth rate in Portugal. In North America, sales were up by 3.6% with strong growth of installation and flushing systems for the residential market. In Far East Pacific, sales were up by 20.5% with double digit growth in all key regions. Sales in the Middle East and Africa region were up by 9.5% with double digit growth in the Gulf region. Let me now comment on the sales development per product area, again in local currencies. Installation and Flushing Systems increased by 5.1%, piping systems by 5.2% and Basel Systems by 2.6%. And now let me update you on the financial results. Due to the completion of the major task of the Sanofi integration, we will not report any longer one off costs corresponding to adjustments on EBITDA level. We will only report adjusted figures on EBIT, net income level and for earnings per share due to the last year of amortization costs for intangibles in 2018. Geberit's EBITDA reached CHF485 1,000,000 corresponding to an increase of 11.6% versus the adjusted EBITDA of the first half twenty seventeen. The EBITDA margin as a percentage of sales reached 29.8%, twenty basis points above H1 2017. The EBITDA margin was negatively affected mainly by 2 factors, substantially higher raw material prices and higher personnel tariff costs. These negative effects on the EBITDA margin have been overcompensated by the following 4 levers. 1st, higher sales prices fully compensating the higher raw material prices leading to a 0 net price effect. 2nd, the operating leverage from volume growth. 3rd, the full benefit from the site closure in France. And finally, also continued efficiency improvements. The substantial currency fluctuation did only have a slight negative impact on the operating margin due to our nearly perfect natural currency hedge. The adjusted operating profit increased by 11.5 percent to CHF423 1,000,000 corresponding to an adjusted EBIT margin of 26%. Adjusted net income increased by 13.1 percent to CHF362 1,000,000 and adjusted earnings per share grew slightly disproportionately by 13.9% to CHF 9.90. One off costs related to the amortization of intangibles in relation to the Sanitec acquisition amounted to CHF 18,000,000 on EBIT and CHF 15,000,000 on net income level. Driven by strong results, the group balance sheet has further strengthened. The equity ratio reached 45.9% versus 44.4% per end of H1 2017. We further continued our share buyback program and repurchased in total 380,000 shares for CHF166 1,000,000 per end of June 2018. Let me now comment on our market outlook for 2018. Our view has not changed significantly since our publication of Q1 results in May this year. In Europe, we expect overall a favorable but mixed construction market environment. Meanwhile, individual markets will continue to develop differently. We remain confident about the construction demand in Germany, although the limited qualified installation capacity might remain a bottleneck for growth. In Switzerland, we expect a stable market running on high level. In the Nordic region, we expect a mixed and overall stagnating environment. While we are positive for the building construction industry in Denmark and Finland, we expect a stagnation in Sweden and Norway. In Italy, we foresee an improving market environment. We are positive for France, although the indicators for the residential construction have weakened. Despite the robust residential market in the UK, we expect overall a declining market environment in the UK due to a weak non residential sector. In Austria, we expect again a growing construction market, but at a slower pace compared to last year. We are positive for Benelux, although the recovery in the Netherlands leads to shortages of qualified installation capacity. The outlook for the Eastern European market remains mixed with a positive outlook for markets like Poland and the stabilization of the market in Russia. And finally, in Spain, we expect an ongoing recovery of the building construction sector. In North America, we foresee a moderate improvement of the institutional construction market, while both relevant segments for Geberit, the Healthcare and the Educational sector should contribute to growth. The residential construction sector should also do well and further grow in 2018. In Far East Pacific, we see a mixed picture across the region. We expect the moderate increase of the residential construction market in China. In India, we are more cautious for the residential construction sector due to the new regulation and policies introduced last year. In Australia, we expect overall a stagnating building construction market. Let me finalize our market outlook 2018 with the Middle East and Africa region. We expect an improving construction market in the Gulf and a stagnating building construction environment in South Africa. And we remain cautious for the North Africa and Near East region with a major picture. And now a few words about the raw material price environment. In general, uncertainties in raw material markets have further increased and make an outlook very challenging. Nevertheless, we expect raw material prices in the 3rd quarter to be above the Q2 this year and also to exceed the prior year level in the second half of the year. And finally, let me briefly update you on the Geberit outlook for 2018. We expect for the full year a sales growth in local currency of around 4% and an EBITDA margin on previous year's level. CapEx should reach around CHF170 1,000,000. Please keep in mind that we face for the remaining year cost pressure from higher tariffs and no benefit from the site closure in France anymore in the Q4. This is the end of our introduction. We are now ready to answer your questions. Thank you. We will now begin our question and answer session. First question is from Andre Kukhnin, Credit Suisse. Your line is now open, sir. Yes, good morning. Thanks very much for taking my questions. Can I start with Switzerland first? Just to double check, you said you increased prices there twice in April and then in July as well. Did I get that right? And if so, could you confirm the size of the July increase? I think April was 3 from memory. It's correct. We increased prices in Switzerland twice this year, in April beginning of April and also in July. We increased prices in July a second time on selected products to compensate for the currency development. All in all, the impact of the price increase in July in Switzerland was around 1%. Great. Thank you. And just how should we think about this sort of pre buy post pre buy effect? We saw very rapid growth at the end of 2017 as a pre buy. I guess in Q in H1, you've seen more pre buy in Q1 than kind of post pre buy effect, but then pre buy ahead of the next increase. Is there anything we should be aware of for second half from these gyrations of pre buy, post pre buy effects? Or do you think second half is more or less kind of clean of those? No. We have already seen an impact of the second price increase as of July in Switzerland, leading to weak sales in July and also beginning of August in Switzerland. So there was a prebuying effect in June due to the second price increase in Switzerland. Okay. That's clear. Thank you. And on the German plumbers, you indicated with Q1 results that maybe potentially things get less tight. And then you've delivered 3.8% growth in H1. Now in your statement, the language is kind of I think if we try to really dissect it turns a little bit more negative again. But then on the call, you used the same sort of might. I guess, are you indicating anything for the second half in terms of change of run rate for your German business? And was there anything in that 3.8% in H1 that is abnormal? If you look at the statistics of the bottleneck issue in Germany, nothing has changed. We still have the same statistics as we have also talked about in the Q1 call. The order backlog level is still at a high level, and we don't have any new statistics. But as we already said with Q1, it might be that we see an improvement at the horizon. Coming to our sales development of 3.8% in the first half year, we are very satisfied with that growth rate, which is very much driven on our value strategy by upselling our product portfolio, very much driven also by new product introductions, for example, the new drainage piping system, which we introduced over the last years, but also in the shower drainage area where we introduced new solutions where we are doing very well. And thirdly, also in our shower toilet business, we have performed very well in the first half of the year in Germany, also supporting the growth rate of 3.8%. Very helpful. Thank you. And can I just move on raw materials? We've seen the obviously improvement in trend in the first half to neutral versus 90 basis points negative in H2 2018 2017. In terms of the combination of price increases taking place during H1 and obviously, the additional price increase in Switzerland versus, as you indicated, raw materials continuing to grind higher sequentially. What is your view on the likely outcome for second half? Another neutral effect? Or do you think it can be different? I'm very cautious to make a statement about our expectation for the second half in terms of raw material price development because the uncertainties have further increased due to the various protection measures and countermeasures around the globe. Therefore, the only outlook we have and we believe we are relatively sound is that we believe in the Q3, we will see still increasing raw material prices compared to the Q2. I don't think I can make an outlook for the second half of the year. That's fair. But do you think in terms of the pace of increase year on year in H2 versus what you've seen in H1, do you think that pace can be higher or about the same? I referred to that one as said before. I can't make a statement for the entire second half of the year, just for Q3. All right. Thank you. I thought I'd try. Can I just check last thing? We're thinking ahead on the rebranding exercise in Germany and other European countries. Obviously, Caramag is the key one. Is there any further detail you could give us on this in terms of maybe the time line? Is this going to be on the turn of the year or tuned more towards kind of March trade fairs in 2019? And also, have you got any maybe preliminary estimate on what this exercise will actually cost and how you will treat that in your financials? There's nothing new to report on. We are preparing now this brand switch, which starts next year in Germany. The planning activities are running according to plan. So we are preparing now that brand switch. And part of the preparation is also to estimate potential additional marketing costs next year. But I can't provide you yet already now any quantitative figures, but we expect that we will have somewhat higher marketing costs next year. We will give you a quantitative indication once we have it on our table. Got it. Thanks very much, Christian. Appreciate it. You're welcome. Next question is from Tommy Fadembach, ABP. Your line is now open, sir. Maybe Charlie Vennbach, AWP. Good morning. Good morning. Could you maybe give us some of your no, sorry, How was your starting Q3? You mentioned the Switzerland already July August, you may can say something to the start in Q3 in general. And second question is the guidance for the EBITDA margin. Previous year's level is meant, I guess, 28.2 percent and not the 26.5 percent of the adjusted non adjusted figures from the year before? And third question, very short, trade you are calling from USA still doesn't bother you, don't see any negative effects still, I guess? Thanks. Question number 1. July was negatively affected by the prebuying in Switzerland in June, as I explained before, that was a negative effect in July. Secondly, for clarification, the EBITDA margin level previous year was the 28.2 percent you mentioned, so you are correct. The adjusted EBITDA margin last year, 28.2 percent and the guide for EBITDA margin on that level around that level this year. And the third question, the trade disputes do not have any negative direct impact on us. The most important impact, I think, is the increased uncertainty about the outlook of raw material markets and also raw material prices, which makes it very challenging to forecast any raw material price development. Thank you very much. You're welcome. Next question is from Martin Flueckinger, Kepler Cheuvreux. Your line is now open, sir. Yes, good morning. Thanks for taking my questions. Starting off with the shower toilet business. Can you talk a little bit about how that business, AquaClean, performed in Q2. And looking at bathroom systems, it was up 2.6%, if I remember correctly. Does that mean if assuming that you had again double digit growth, does that mean that the rest of that Bathroom Systems business was negative in H1? And were there any differences in Q2? That would be my first question. Then the second question is on the raw material prices. Now looking at your EBITDA margin bridge, it looks like selling price increases exactly offset the impact the negative impact from higher raw material prices. Can you elaborate a little bit how much selling prices were up in H1 and Q2? And also talking about raw material prices again, how much raw material prices were up on average in Q2? That's my second question. Then the third question is, okay, you've already answered that about order backlog in Germany. But then the third question finally is, do you have an update on the development of those products combining behind and in front of the wall capabilities? I remember at the Q1 conference call, you declined to comment on that. Has anything changed there? Or are you still waiting for further tangible news? Question number 1, development of the bathroom systems and the shower toilet. The shower toilet business has developed very nicely in the first half of the year, also in the second quarter according to our expectations. The other product lines have had a lower growth rate, especially the ceramics business was growing but not as strong as, for example, the shower toilets. And that was also the case in the Q2. Question number 2, raw materials and selling prices. You're right. It's now the 3rd quarter in a row where we have been able to completely compensate the increased raw material prices with our sales price increases. Also in the second quarter or in the first half of the year, we have been able to increase sales prices of around 1% and the raw material prices in the first half of the year went up by 2.7%. And the combination of these two figures bring you to the result that we had a net zero net price effect in the first half of the year. Question number 3, about the combined products. There is no update. We are on track with the development of these combined innovations, which we will bring to the market as of next year. But as I said already with Q1, we will only talk about these new products as of next year. So I can't give you a further or more update on that topic here. Okay. Thanks. You're welcome. Next question is from Dennis Dingellmeier, Goldman Sachs. Your line is now open, sir. Hi, good morning. It's actually Daniela here. Thanks for taking the question. I wanted to ask about, I mean, 3 questions basically. I mean, the first one just in terms of sort of your capital allocation strategy after I mean, now that you've sort of very successfully integrated Sanitec, what is the next stage for and you've done also quite a lot of increases in capacity in Europe in terms of CapEx. How do you plan to allocate capital going forward? What are the priorities? And the second question tied to this is how shall we think about sort of your emerging market exposure? You're still very concentrated in Europe. How attractive do you the opportunity in emerging markets? And how do you want to play that over the next few years? And the third question, I wanted to follow-up on shower toilets. How relevant is that in your business at the moment? Just a rough guide. Are we talking single digit percentage of sales? Is it more than that now? And what trends have you seen there in terms of pricing, given several of your competitors have launched products there? That would be very helpful. Thank you. Question number 1, the priority of capital allocation. Priority number 1 is to support our organic growth with our capital expenditures is priority number 1. Priority number 2 is then to pay out more or less the remaining part of the money to the shareholders via dividends, 50% to 70%. We still stick to that payout policy, but also combined with our now running share buyback program. We do not have any aspiration for an organic growth, which would require substantial capital. Question 2 around the emerging markets. We still stick to our strategy of organic growth in these markets. We want to grow organically to build up selectively in selective regions with a selective part of our growth portfolio acquisition and have the aspiration to grow in the emerging markets by double digits, which we are also able to achieve over the last couple of quarters if you look at our recent figures. Question number 3, relevance of shower toilets. I'm sorry, we still can't disclose the figures. As you know, we do not talk about the share of sales of shower toilets due to competitive reasons. Your question around price points, it is true that competitors, but also we have introduced new products on lower price levels. And the latest products, which we introduced this year, so called Puma Classic, is at an enterprise level for an end user of CHF 1500. I can't talk already about this latest introduction because it's just in the market since April, but I can give you a flavor about the product which we introduced last year in the medium price point that is called the Tumor Comfort. Price point is about CHF 2,400, CHF 2,500. That is doing very well, and we do not see cannibalization of our premium product at the top price point. Thank you. You're welcome. Next question is from Alessandro Folletti, Octavian AG. Your line is Just a few questions maybe for the CFO. I noticed that in the report, you didn't mention IFRS 16. I was wondering if you're going to introduce that and if there are any impacts to be expected. Then on the working capital seasonality, second question, how do you expect the movements in the second half year? And I was wondering if there are differences now with Sanitec as compared to Geberit before, if you can mention that? And maybe last question from my side, also for the CFO. Can you give a guidance in number for the amortization starting in 2019 considering the additional expenses for the brands that you're phasing out and the fact that what you've mentioned, Mr. Bull, that you're stopping the amortization of intangibles for Sanite? Thank you. Starting with the IFRS 16 impact, as we have disclosed in the annual report, we will add about SEK 100,000,000 around SEK 100,000,000 to our balance sheet as the so called right to use, and it will have an impact then also on the EBITDA margin as part of the cost we move below the EBITDA will have a non significant impact positive impact then on the EBITDA margin. Working capital seasonality, no special impact this year. We will have the same seasonality as we have it in the previous year. That means working capital will go down towards the end of the year. At the year end, we usually have the lowest level of working capital due to our seasonality, which we have in the business. This did also not change with the acquisition of Sanitec. What we will have also in 2019, probably also 'eighteen, 'nineteen and probably a little bit also 2020, our payout out of the restructuring reserves which we made, but also that should not be material anymore in 2019 2020. And then at the last question, guidance regarding amortization. Before we started this amortization related to the branding project, we had about SEK 10,000,000 after taking out the purchase accounting linked amortization, the Sanitec purchase accounting linked amortization. So SEK 10,000,000 out of, let's say, the normal business. And you have to add the SEK 8,000,000 related to the brand amortization to that, so around SEK 18,000,000 going forward. Thank you very much. Next question is from Bernd Romren, Bank Von Tobel AG. Your line is now open, sir. Yes, good morning, gentlemen. Three questions, if I may. Firstly, it seems that in the Q2, the negative margin effect from cost increases was less pronounced than in the first quarter. So in the EBITDA margin bridge, you disclosed for the Q1 a negative other cost effect of 60 basis points now for the first half, just 40 basis points. So it seems actually that the margin pressure here has eased. Could you elaborate on this positive development? What were the drivers here? Then secondly, cash flow development was very strong due to an improved inventory management. Was this only due to the household keeping question. Tax rate in the first half was again below your guidance for the full year. Do you stick to your full year tax rate guidance? Or would you like to adjust it? Thank you. Question number 1, the other cost effect in Q2 versus Q1, that's just regular seasonal volatility, nothing special to consider there. So question number 2 and 3, I ask Walandiv to answer. The tax rate, we stick to our guidance, we had around 14%. We had some positive one offs in the first half, which will not repeat in the second half. And then in terms of cash flow and working capital development, this is also just normal business volatility, so nothing special there. And also nothing changed specifically related with the related to the Sanitec acquisition. Okay, excellent. Thank you. Thank you. Next question is from John Jon Revel, Reuters here. Just a couple of questions, please. I didn't quite catch the payout ratio, was it 50% to 70%, just wanted to clarify that of net profit, first of all? And then my second question is, with your outlook for Europe, you said the recovery should continue, which is the same as the Q1. But I was wondering, are you more positive now than you were at the Q1 or less or exactly the same basically? That's my second question. And then thirdly, Italy, you mentioned about easing in the market environment in Italy and there's quite a lot of macroeconomic concern about Italy at the moment. Could you give us a bit of more of a commentary on what you're seeing there? Do you expect any much more of a downturn there? And in what kind of aspects? And the final thing is Turkey. Do you have much of a business in Turkey? And do you expect to see much of a downturn there from sort of the macro problems? Thank you. Question number 1 is correct. Percent. It's 50% to 70% of net income. That is correct. Thank you. Thank you. Question number 2, Europe. The overall picture did not change since Q1. So you're right there, Araceli. And question number 3, in Italy, we are doing extraordinary well in Italy with our sales last year and this year, and I would say that is not really reflecting the construction market and definitely not reflecting the macroeconomic environment. That is very much driven by an internal initiative which we launched 2 years ago in the south of Italy to better address potential or customers with higher potentials, and we are delivering on that initiative very nicely. So that's very much Geberit driven and not macro or market driven, what you see in the figures of Geberit here. And Turkey, we have sales in Turkey, but they're very low. They're not material from a group perspective. So whatever happens in the Turkish construction market, that will all have an impact on group sales. Of course, from a local perspective, we are now facing pricing issues because of the devaluation of the local currency. And of course, we will think about price increases locally to save our margins. But that all in all did not have a material impact on the group because it's too small. Okay. And then so the general Italian market, do you expect like a further deterioration in this sort of general market and not so much affecting you guys, but for the market overall in Italy as a result of some sort of government concerns about the economy there? For the construction market this year, we are not that negative. We expect still a slight improvement for this year, but I don't know what will happen next year. That's right. That's for Italy, yes? Yes. Only Italy, you're talking about Italy. Thank you. You're welcome. Next question is from Marty Huser, Kantonalbank. Your line is open, sir. Thank you. And it's Tyrone, Cantonalbank. I have 3 add on questions. First of all, to Germany. Did you say that the growth of the 3.8% was also due to kind of relief in the installer capacity situation or not? And if yes, does this mean that Germany could accelerate further in the course of the year? That's the first question. Then the second question, you said shower toilet is running according to your plans. I'm just double checking if this means double digit increase in volume and or value. And the last question about your price increase in Switzerland linked to the euro Swiss francs, of course, since I'd say since May, the euro Swiss francs changed a bit. And so we have rather for the rest of the year a similar rate as the year before. I was just wondering what would what is the impact of that? Would you probably need to decrease prices when the Swiss franc strengthens further again? Question number 1, how much of the growth of 3.8% in Germany was driven to a potential release of the bottleneck that's extremely difficult to answer. Actually, do not know. That's what I said already with Q1. We feel a bit on the soft factors that it's releasing a bit, and I would assume that part of the growth, a small part, was also driven now by a certain release. The major part of that growth, nevertheless was coming from our initiatives and our strategy as I outlined before by upselling our product portfolio by new product introductions. I can't quantify it. Question number 2, you're right. Our plan in shower toilet is still double digit growth in value and in volume, and we achieved the target also the first half of the year. Question number 3. Indeed, the currency changed substantially again over the last couple of weeks after we introduced or even shortly before we even introduced that second price increase. For the moment, we do not plan any countermeasures, for example, decreasing prices because the volatility is just too high. We will now observe, of course, the currency development, and we will see where it goes. And depending on the further development of the euro to the Swiss francs, we will then maybe reconsider some pricing decisions. But for the moment, we stick to these 2 extraordinary price increases this year and we need a little bit more time to consider what happens with the currency development. Thank you. We got a follow-up question from John Newell, Voyages. Your line is now open, sir. Yes. Just a follow-up, if I may. Just in your outlook, you mentioned that you're looking at sort of 4% sort of currency adjusted growth for the full year, And that's compared with 3.5% last year. I wonder how much of that is actually volume? Or is it largely down to pricing as well basically? I was wondering what's the volume breakdown there? Basically, does that mean you're slightly more optimistic? Thank you. The 4% full year growth expectation is, of course, volume and pricing, both together. Yes. But how many I mean, is it the increase of 3.5% last year, that rate though, is that a larger proportion of that is going to be pricing this time around? Or is it still sort of kind of same ratio? In general, we have more or less the same price increase implemented this year as last year. The only thing we did on top is the 2 price increases in Switzerland. But since Switzerland is only 10% of our sales, that additional impact is also relatively limited on a group level. So we have a slightly higher price increase this year due to the extraordinary aircraft increase in Switzerland versus last year, but it's not material compared to last year. Okay. So somewhere is volume and somewhere is pricing then this time around? Yes. Next question is from Andre Kukhnin, Credit Suisse. Your line is open, sir. Yes, hello again. Thanks very much for taking the follow-up questions. Can I just run through a couple of geographies just to make sure we're not missing any underlying trends? Firstly, on France, you had quite a meaningful slowdown there in H1. Could you give us some color on what drove that? Was that all residential, as you mentioned, and some of your construction related peers have mentioned? Or was there anything else in there that is unusual or nonrecurring? Our sales in France in the first half year have been impacted by still by the effect of the site closures last year because we lost during that very complex closure process some project last year due to the uncertainty about delivery capabilities, and that led now to also a weaker sales development this year. Is there any way you could quantify that? Is it sort of half of that drop or? I can't quantify it. That is that's just not possible, but it had an impact. Okay. That's clear. And UK, I guess, a similar question. We did anticipate a slowdown, but the pace is probably a little bit on the high side than we expected. Is this the run rate kind of of the markets of the segments that you're seeing there? Is there anything kind of Geberit specific happening in there? Yes. The Geberit specific part is that we have a disproportional exposure to the nonresidential sector, which is weaker than the residential sector. And that, I think, you should take into consideration. Typically, the majority of our sales are exposed to residential. And in the U. K, it's the other way around. And especially the nonresidential sector, which is suffering most in the UK due to the uncertainties around Brexit. Yes. That's fair. You have mentioned that before. And just on the last region, on Nordics, that has kind of seemed to be sort of the downturn seems to be moderating compared to where you were, I think, implied in Q4. Are we kind of at the run rate now consistent with what the lead indicators for new construction were telling us a while ago? Or do you think we have more of the slowdown in front of us? Difficult to answer. What we have seen and what we already communicated with Q1 and also confirmed now with H1 is that the 2 markets in Sweden and Norway have become weaker. If you look, for example, at the residential building permits in Norway, they started to climb as of Q4 last year by minus 10%, continued by minus 17% in the Q1 this year. In Sweden, it was even worse. Residential building permits in the Q4 last year were down 22% and another 38% in the Q1 this year. That is a clear weakening of the market. Right. So realistically, we should expect that run rate to get worse before stabilization unless there is anything company specific that you undertake there? As usual, I don't give guidance on account your regional level. I just could make my comments on the market development expectation. That's fair. And just a very last one on the other cost effects segment on the profit bridge of minus 40 basis points. Could you run us through what is in there? And again, the usual question of is this recurring, nonrecurring, what we should be aware of there from H1? What you have in there is mainly the negative impact is coming mainly from the higher tariffs. So that is explaining that most of the negative impact, the seasonality, but then there's always some seasonality between the quarters. We had some, like, let's say, negative one offs in Q1 and a positive one off in Q2. That's why the numbers differ between the quarter. In there is everything you have in the P and L above the EBITDA except raw material and personnel except raw material, sorry. If I may add one comment. The other cost effect is that negative as usual because in there is also the positive effect of the site closure in France. Right. Yes. Okay. I know the 2 positive versus negative one offs, they broadly offset each other? Or are they on balance one way or the other? Yes, broadly, yes. Offsetting, okay. Got it. Thank you very much to both of you. Thank you. We got a follow-up question from Alessandro Foletti. Your line is now open, sir. Yes. Thank you for taking my follow-up. Just on your EBITDA adjusted EBITDA margin guidance. Now the first half, you were up about 40 basis points over last year on that number. Now you're guiding at the same level as last year. It means obviously pure arithmetic, the second part of the year has to be lower. Then I hear the conference call, overall, you look to me relatively optimistic, price increases and so on. I was wondering if you can tell me which costs do you expect to be over proportionally higher in the second half of the year? Is it on the gross margin that you see a weakening? Or is other cost or is simply your guidance to conservative? Thank you for the question. First, I have to correct you. In the first half of the year, the EBITDA margin was only up 20 basis points, not the 40 basis points from 29.6% that was the adjusted EBITDA margin in the first half of twenty seventeen to 29.8% this year, the first half of the year. So only 20 basis points up. Why is the full year guidance sorry? Okay. Thank you, but I revised my model or check. It's only 20 basis points. So why is it still a bit more conservative than in the first half of the year? Two reasons. First, we are facing higher tariff increases in the second half of the year, so more cost pressure from personnel costs. And secondly, as I already mentioned, the benefit from the site closure in France, which we have full in our books in the first half of the year, we only have half an impact in the second half of the year because we started to capture that benefit already as of Q4 last year. So we do not have an additional benefit from the site closure in the Q4 this year. And that is the reason, the second reason why overall, and we expect an EBITDA margin on PVC level. You're welcome. Next question we received is from Beria Menich, Societe Generale. Your line is now open, sir. Yes. Hi, good morning there. So I have two questions. The first is on you said about the raw material cost volatility in the second half. So I was just wondering if there is an adverse raw material price movement versus the expectation. Will we open for more price hike in the second half? Just to ask in indirect way, maybe if you want to keep your gross margin 10 basis points in the first half from the currency. So, 10 basis points in the first half from the currency. So can you just quantify what was this number for the 2nd quarter? And also wanted to understand, I mean, generally, you always benefited when euro was appreciating in terms of ForEx margin impact. But now in the last quarter, you said about natural hedge and things like that. But here, we are seeing, I mean, negative impact. So what's driving that? First question about raw material prices and potential reactions on the price side. We do not plan any special price increases in the second half of the year. So nothing is planned there, also not driven by the high raw material price volatility. The currency impact, I refer to Yes. We had a slightly a slight negative currency impact in the second quarter on our margin, around 20 basis points, because this natural hedge is very effective, but only under the assumption that the Swiss franc moves in the same way against all currencies, and that's never really the case. So also, if we have a very effective natural hedge, you always have some movement in the EBITDA margin, but they are not really relevant. Okay. Maybe also maybe if I add one more question. This is on the personnel cost as a percentage of revenue. So if I look at the first half, I mean, the personnel cost declined by 90 basis points. This is after taking out all the exceptional that was there in the last quarter or the last half. So can you expect, I mean, the similar level of personal cost decline as a percentage of revenue in the second half? Or it will be slightly less because you are talking about in the Q4, there will not be benefit from the plant closure? So if you take out the onetime effect, the major effects, the onetime effect last year in the personnel costs due to site closure in frances of CHF 39,000,000 on the personnel cost line. If you take that out, we had an increase of personnel costs, which was mainly driven by the exchange rate, that's one driver, and secondly, driven by capacity or personnel headcount increase and the tariff increase of around 2.5%. No, if you take out, I mean, the personnel the exceptional cost in the personnel cost in the last year, I mean, if you do the personnel cost as a percentage of revenue, it still declined 90 basis points in this first half. So my question is, I mean, will you see the similar impact in the second half, like 90 basis point declining in the second half? Not really because we have as I said before, we expect higher or more pressure from tariff increases in the second half of the year. And the reason is that some of the tariff increases have been only implemented as of the second quarter, for example, in Switzerland, which was stronger than last year. So we do not expect the same effect for the full year. You're welcome. Okay. Thank you. Thank you. It seems that there are no further questions. Thank you for the participation, and we wish you all a great day. Thank you. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.