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Geberit AG
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Ladies and gentlemen, welcome to the Geberit Conference Call on the First Quarter Results 2023. I am Sandra, the Chorus Call operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Christian Buhl, CEO. Please go ahead, sir.
Thank you for the introduction, and good morning, ladies and gentlemen. Welcome to our conference call on our Q1 results. Geberit delivered convincing results in the first quarter with a challenging topline but a strong bottom-line development. Let me start with the key statements for the first quarter.
A net sales decline in local currencies of 4% due to a very strong comparison basis. Secondly, strong headwinds of minus 5% from the unfavorable currency development. And thirdly, a substantial EBITDA margin increase of 220 basis points to an EBITDA margin of 33.1% due to our consequent pricing management. The improved profitability led to currency-adjusted growth of all bottom-line results despite significantly decline in volumes. EBIT and net income grew in local currencies by 5% and EPS, even by 9%, thanks to the accelerated share buyback last year. Let me now comment on our net sales development in more detail.
Net sales in Swiss francs declined by minus 9% to CHF 893 million. The unfavorable currency development affected net sales negatively by CHF 46 million or minus 5%. In local currencies, group net sales declined by minus 4%. This decline was caused by a volume decline of around 16%, which was partially offset by sales price increases of around plus 12%. The significant volume contraction was caused by a base effect of the very high volumes in Q1 2022, driven by the stock buildup at wholesalers last year; a challenging sanitary renovation market due to pull-forward effects during COVID-19; and the shift from sanitary to heating in selected European countries.
And thirdly, the remaining destocking of wholesalers. We assume that all excess stocks in the channels have now been destocked. I come to the regional development. All growth figures refer to growth in local currencies.
In Europe, net sales declined by minus 6% with positive growth in Italy, Benelux, France, U.K. and Iberia. Approximately 1% of sales decline in Europe was driven by the exit from the Russian market after the invasion in Ukraine last year. In Middle East Africa, the strong growth of 2022 continues with net sales increasing by 37%, driven by the Gulf region and Turkey. Net sales in Asia Pacific declined by minus 8% driven by China and the challenging market environment in Australia. In America, net sales were down by minus 1%.
Let me now comment on the sales development per product area. All 3 product areas declined year-over-year. Installation & Flushing business are minus 6%; Bathroom Systems demand 5%; and Piping Systems by minus 2%.
The better relative performance of Piping Systems versus the other 2 product areas was driven by stronger price increases and the further successful rollout of the Piping System FlowFit. I will now comment on the operating and financial results.
The operating results decreased due to the substantial negative currency effect. However, in local currencies, all operating results grew versus the previous year. I'll start with a discussion of the EBITDA development. EBITDA in Swiss franc decreased by minus 3% to CHF 296 million. In local currencies, EBITDA increased by plus 4%. The EBITDA margin increased by 220 basis points and reached 33.1% despite the strong double-digit volume contraction and cost inflation compared to the previous year's period.
With this, we managed to turn around the negative margin trend of the last couple of quarters triggered by the unprecedented cost inflation. The main positive margin drivers were sales price increasing. Lower energy prices which were 21% below Q1 2022 and a onetime energy subsidy contributed also to the margin improvement.
The energy subsidies delivered a positive onetime effect of around 1% margin on EBITDA level. Negative margin drivers were the operating leverage from declining volumes; raw material prices still being 6% above previous year's period; a wage inflation of 5.0%; and a slight adverse ForEx effect, which was mitigated by our strong natural currency hedge.
The EBIT margin increased in line with the EBITDA margin also by 220 basis points and reached 29.0%. Net income in Swiss francs decreased by 2% to CHF 215 million, driven by the negative currency effect. In local currencies, net income increased by 5%. Earnings per share increased disproportionately due to the accelerated share buyback last year and reached CHF 6.36. This corresponds to an EPS growth of 9% in local currencies. The share buyback program was continued with 126,000 shares bought back in the first 3 months for a total amount of CHF 63 million.
Let me now comment on our outlook which does not differ significantly from our outlook given at our full year analyst conference in March. We expect overall a very challenging environment for the building construction industry this year.
Challenges for the sanitary industry emerged from a slowdown in building construction activities in the light of increased interest rates and cost inflation. Building indicated in Europe started weakened since the third quarter of last year. Secondly, pull-forward effects from the COVID-19 induced home improvement. And thirdly, temporary shifts from sanitary to heating-related renovation activities in selected European countries.
Positive catalysts for the sanitary construction industry emerged from the fundamental demand for renovation and new housing in several European countries, the structural trend towards higher sanitary standards and a quite positive market environment in several emerging markets, for example, in India or the Gulf region.
On the cost side, we expect for Q2 sequentially stable raw materials and lower energy prices compared to Q1. In the context of the aforementioned market challenges, we defined for Geberit 2 guiding principles for this year: strategic stability and operational flexibility.
The purpose of this principle is to manage the volume uncertainties in 2023 with a maximum of flexibility that are now harming the midterm potential of the company. This means that we continue to execute on our strategic agenda, for example, the execution of several sales growth initiatives or continued investments in R&D. The positive margin development in the first quarter, despite the significant volume decline was a testimony for our operational flexibility, especially in the plant and logistics and now it further increased cost discipline.
Short-term volume challenges continue in Q2, due to the significant base effect from the record-high volumes in the second quarter of last year when wholesalers build up their inventories before the extraordinary strong price increase as of July last year. Net sales in April were currency-adjusted down accordingly at a somewhat worse rate than in Q1. The overarching objective this year remains to gain further market share regardless of the prevailing market environment.
To do so, we will focus on several levers and initiatives, for example, our focus on new product introductions, which proved to be an important contributor to growth over the last years. For example, the new concede WC Flushing System Alpha, for the market outside Europe or a Piping System FlowFit, which we introduced in France and the U.K.
A second example is our focus this year on the full WC System to further penetrate the concealed system technology and to promote our new best-in-class WC Flushing performance. A third example of our market share gain initiatives this year is prefabrication. We will put a strong emphasis on our prefabrication business in the DACH region to offer efficient solutions while at the same time addressing the bottleneck of qualified installers.
Let me close my introduction with a short summary and our key messages. Geberit delivered convincing results in Q1 with a challenging topline but a strong bottom-line development. Despite a significant double-digit volume contraction, we managed to grow all currency-adjusted bottom-line results. EPS, for example, grew in local currencies by 9%. These results confirm our consequent pricing management based on our pricing power, our operational flexibility and our execution capabilities, for example, by introducing new products.
For 2023, we expect again a challenging market environment. However, Geberit is well prepared to also market the uncertainties emerging from this environment has already demonstrated several times during the past. Our confidence is based on the fundamental need for our products. Our resilient strategy and business model and our long-term focus and track record. Thank you for your attention. We are now ready to answer your question.
The first question comes from Daniela Costa from Goldman Sachs.
I have 3 questions, if possible. One is just a clarification. Did I hear you commenting on sort of April trends? I might have -- I missed sort of what you said there regarding volumes into Q2. So if you can comment on that. Second thing, pricing from here. I think at Q1, you said do not account for the April price increase. But can you give us sort of like the carryover that we should consider and whether there's been any extra price increases done?
And then the third one, just on the onetime subsidy. Is that completely done? Or are you still receiving subsidies in any countries? Can you maybe clarify where this came from and how the mechanics work if you -- if it continues or if you have to reverse it?
Thank you for your questions. Number one, net sales in April were currency-adjusted down at a somewhat worse rate than what we have seen in Q1. Question number two, pricing, nothing new. We do not plan any pricing actions at the moment. Therefore, we still expect for the full year price impact of around 6% to 7%.
And question number 3 on energy, that concerns onetime subsidies in -- related to last year, and therefore, we consider that as a one-off, and we do not expect any material subsidies this year.
Who was that?
Tobias.
Where did you came from?
It was mostly Poland and Italy.
We will take the next question from Yves Bromehead from Societe General.
I'll have 2, if I may. Just coming back to the April trends, can you be a bit more specific in terms of the country? Is there any -- can you flag any sort of worsening trends that are more specific to any region or product area? That would be great.
And my second question, just circling back to your product area growth in the Piping Segment, which has been outperforming for quite some time now. You flagged that it was essentially due to price increases in FlowFit. Can you give us any color as to if there's any other drivers? And if the pricing should normalize as the input costs are also here, seemingly normalizing and even coming down year-on-year at the minute. So any color on that would be great.
Question number one, the development in the month April with regards to geographies was similar than what we have seen in Q1. Question number two, the price increases, which were stronger at Piping Systems compared to the other 2 product areas that will vanish obviously, over time, and that will fade out throughout the year is different.
The next question comes from George Speak from BNP Paribas.
I'll take 2. So firstly, just on volumes. Do you mind just commenting whether relative to your expectations at the full year, things are progressing better or worse than you expected? And then just on the geographic mix. Clearly, some of the non-European geographies are performing very well, particularly I think you called out the Gulf and Turkey. Do you expect that to continue? And then how is that impacting your investment decisions going forward? Should we expect these to be a bigger contribution in the overall mix of sales?
Question number one, the volume development in the first quarter was in the range of our expectations. Question number two, short term, we believe the strong development in the Middle East Africa region, driven by the Gulf region and also Turkey will continue. And we also continue to invest into these 2 regions according to our sales initiatives which we have implemented in this specific region.
The next question comes from Arnaud Lehmann from Bank of America.
Just one question on my side, please. On the pricing side, you said you're not planning any more pricing action which means a normal price increase, I guess. But the price increases last year were driven by energy and raw materials, raw materials and energy are now down or stable to some extent.
Are you confident that you can maintain pricing as the year progresses, especially in the context of the lower demand?
The short answer is yes, a little bit more clarification. The raw material prices, which we are facing are not coming down. They are more or less staying on this very high level. So, for example, in the first quarter, raw material prices were even slightly up compared to Q4 sequentially. So raw material prices are not coming down. Energy prices are coming down, I agree. But obviously, energy prices have a much lower impact on our P&L because energy is only -- was only about 3% of our net sales for the full year 2022.
The next question comes from Matthias Pfeifenberger from DB.
Just an inquiry in -- on what you see in the underlying level in terms of weaker permit data. I think what we've seen in your core markets like Germany and the DACH region, but also Eastern Europe, it's quite decelerating month by month. Is that already reflected in your statement on weaker sales dynamics in April versus Q1? Or is that more an H2 issue, I guess, with the caveat that your visibility is low?
I assume you are referring to mainly building permits in Europe, which are down since Q3. That does not have yet an impact on our April sales because as you know, there is delay effect from a building permit of around 9 to maybe 15, 18 months until we are hit by the building permit development. So April was not yet driven by the decline in building permits in Europe as of the end of last year.
The next question comes from Martin Flueckiger from Kepler Cheuvreux.
I've got 2 left. Actually, the first one, can you just help us a little bit with the math here. Am I right in assuming that the 21% decline in energy prices accounted for a positive effect in the other cost effects category of around 60 basis points? That would be my first question.
And then the second one, I appreciate your explanations with regards to the timing effects from building permits. So -- and -- but at the same time, you're saying that the destocking wave in the -- among wholesalers in Q1 was completed.
So, at the same time, also, when we look at your exposure to mature markets like Germany, for instance, and others, it looks like you should be -- your sales volume should be a little bit more resilient given that you're weighted so heavily towards renovation. So, my question to you is, is it just -- is it not just new construction? Is it also renovation that are dampening your volume output or you sold volumes?
Question number one. The impact of lower energy prices in the first quarter, energy prices were around over 21% below Q1 2022, and the impact on the EBITDA margin was around 30 basis points, not 60. Question number 2. The impact in the first quarter on volumes from the market was basically what we said a little bit destocking, but it was predominantly driven by the base effect, obviously, from the first quarter last year.
The newbuild market, we don't think had a big impact on the first quarter. But as we laid out in our introduction, a softer renovation market, due to the fact that we have seen pull-forward effects during COVID-19 and also due to the fact that we have selected European countries, a trend from sanitary to heating. But we don't think that the newbuild market has been heavily impacted so far in the first quarter in our markets.
The next question comes from Yassine Touahri from On Field Investment Research.
A couple of questions. First, on renovation, we see a lot of headline on the banking crisis and interest rate increase with some real estate investment trust struggling with cash flow because of a higher interest rates and higher cost of running buildings.
Do you see a risk on renovation for nonresidential buildings in the context where the building owner are impacted by interest rates and higher construction costs? That would be my first question.
First, I believe the risk as you call it, are higher for the residential sector than for the nonresidential sector. We believe that at the moment, the residential market is more challenged than the nonresidential sector. And as I said in our introduction, obviously, the higher interest rates and the inflation of building costs have a negative impact on the building construction industry in general, for newbuild, but also for larger renovation projects.
And then if you look at my second question will be more about your strategy. Do you see an opportunity of this downturn volume to streamline your operation or to make some investments that some of your peers kind of do in digitalization or automation and increase your midterm competitive advantage?
So we don't see any need to streamline our operations. If you achieve an EBITDA margin of 33%, I think we can state that we are rather efficient without being arrogant. So there's no need for streamline. The main priority in operations is flexibility, making sure that we can hope with this high volume volatility, strong decline contraction in Q4 and also in Q1, this is the main focus in operations and not streamlining or any other restructuring activities.
And maybe very last question on the net debt. Your net debt increased by a couple of hundred million. Is it only seasonality? Or is there any other specific effect?
The main reason is indeed seasonality, the main driver for that net working capital, which always in Q1, massively increases as Q4 is a low quarter with low sales and therefore, lower net working capital.
The next question comes from Remo Rosenau from Helvetische Bank.
You mentioned that raw material prices were still up even sequentially in Q1 despite the weaker euro. You talked about Swiss francs here, right?
That is the first question. So because you mostly buy US, I suppose, so there was a positive effect on the ForEx, but still higher sequentially, even in Swiss francs. And then going forward, I mean, the real hike then came last year as of Q2 and Q3. So if we stay at these levels now, did I understand you correctly that the effect in the second quarter would then turning to a positive territory?
Question number one, you are wrong. When I talk about raw material prices, I always talk about current chase of the raw material prices. Also the raw material price index, which we provide in our presentation on the last slide, you do current chase of raw material price impact. So in local currency, raw material prices were slightly above Q4 in the first quarter, only slightly. But you're right, we have in Swiss francs, obviously, a benefit then from the lower or negative currency development.
The second question is, what would happen if raw material prices stay where they are at the moment, if they stay where they are at the moment, in the second quarter, that's what we expect. Then the raw material prices will be slightly below Q2 last year, currency-adjusted. And assuming that would still go on for the rest of the year in Q3 and Q4 as well, but we don't know. Then the raw material price level in the full year 2023 would be on the level of 2022, always currency-adjusted.
The next question comes from Marta Bruska from Berenberg.
So I was wondering whether you could tell us a little bit more about your social and governance within your ESG strategy?
So basically, I was wondering this onetime effect, positive 1% margin increase in EBITDA level or EBITDA level coming from the energy subsidies from plants where you were clearly not struggling to stay [ solvent ] due to the energy cost and the [ comment ], as you know, is taking quite a lot of Ukrainian refugees. And perhaps the subsidies were a little bit more perhaps aimed to manage this difficult times. So I was just wondering how does this fit within general approach to broader sustainability, please?
Question number one about our ESG. ESG strategy. We have a comprehensive ESG and channel sustainability strategy. By the way, a very intensive reporting on that, more than one on the pages. We have a strategy based on 12 modules for E, S and G, we are focusing on various of these modules.
A very important element is also this year the CO2 strategy, which we have implemented last year but I think it will be now too comprehensive to give you a detailed overview about our ESG.
Yes, I'm sorry. But I guess asking about the social.
Also there, we have different activities. For example, we have set our self-set targets. In terms of inclusion, we have around 3.5% of inclusive employees in our organization, internally or externally with suppliers, and we have set a target of around 5% inclusion in the coming years, just as one example, but there are various other measures which we have implemented. Your second question was very difficult to understand acoustically. Could you repeat your second question? Sorry.
It was just one question, how taking the subsidies is fitting within your social capacity, but perhaps we can take this offline as another opportunity.
The next question comes from Stefanie Scholtysik from Mirabaud Securities.
I would like to know -- or could you give us some color about the shift from sanitary to heating solution? Has the shift accelerated in Q1 and where do you think are we heading to in Q2, Q3? Is this slowly coming to an end? Or where do we stand there? And maybe a second one also on the installers in Germany, where are we currently in terms of backlog? And the third one, could you give us some color about the German construction market overall? Where do we stand there? In what state are we currently in?
The first question is hard to quantify. We can't quantify how big the impact is from a shift from sanitary to heating. With regards to the dynamics, I would assume that this dynamic was the same in Q1 as we have seen in Q4 because basically, this shift is limited by the capacity of the heat pump suppliers, which is the big driver at the moment, and this capacity limit is, I think, also the limit in terms of dynamics. Therefore, I think it hasn't been worse in the first quarter than what we have seen in Q4 last year. But it also -- we continue. That is clear that will not be over in Q2 or Q3, that will continue in the near-term future.
The second question with regards to backlog of German installers. The latest statistics is a new record-high level of 20.1 weeks of order backlog of German plumbers, very much driven by heating and not that much by sanitary.
And the third question with regards to the channel environment in the German construction market. I think Germany reflects what I said for Europe, at the beginning. It is driven by the fact of this shift from sanitary into heating. It is also more and more driven by declining building indicators. We talked about that before. Building permits are down in Germany for residential mainly since the third quarter last year. So it's more or less what I said in channel for you apply specifically also for the German construction market.
Next question comes from Cedar Ekblom from Morgan Stanley.
I've got a few questions. The first one is a bit of a more medium-term question. Considering the comments you make about the demand on installer time linked to heating and how that is likely a long-term structural shift? How do you think about positioning your business, your product in order to continue to attract that installer to your business relative to, say, a heat pump product over the medium term?
Do we need to think about more marketing expenses? Do we need to think about more discounts on the list price? And basically, how do we think about this relative to the margin over the more medium term? And then 2 more shorter-term questions. Should we be thinking about any sort of cost cutting or optimization for the business over the rest of the year, considering volumes are still pretty weak, and you flagging risks to the outlook linked to German permit data, et cetera?
And then can you just talk a little bit more about working capital? I appreciate the comments you make about seasonality and how it goes up at the beginning of the year that you've had a sales decline year-on-year, and yet you've had a working capital increase year-on-year even taking into account that seasonality. Is there something else going on there? Are we sort of seeing production ahead of sales? Are we seeing inventory buildup on the raw material side? Just a little bit of color to understand. That would be helpful.
First question, how do we tackle the structural that this trend from sanitary to heating? I would say, there are 2 main levers. One is, obviously, that we try to visit and to support these plumbers who are a little bit less affected by this trend to heating. We still have, for example, Germany, 50,000 companies, as you know, plumbers, plumbing companies and there, we have always different companies in terms of their focus. So we try to focus on a little bit more on the ones which are still focusing more on sanitary to heating. That's one.
And the second one is that we have, especially since this year, even a stronger focus on prefabrication to ensure that we can support this bottleneck of installation capacity for heating and sanitary with prefabricated solutions. We do not foresee to increase our marketing spend with regards to these trends from sanitary to heating.
The second question about cost cut in short term, no, we do not have any plans to cut costs despite the volume challenges. The keyword, again, is flexibility. And I think we have proven in the first quarter, also in the fourth quarter last year that we are very flexible. This is the important focus, not cost cutting. However, we have increased our cost discipline, of course, also since the beginning of this year in various areas, but this is not a cost-cutting plan.
As far as the working capital is concerned, we have a business-related reduction of the core working capital, both accounts receivable and the accounts payable and we have a slight increase in need on the inventories which is due for various reasons, both raw material and finished product on certain areas. One big driver, which is always a bit quite into via key payments, which also contributed negatively to the net working capital in Q1, but has no structural impact. So all in all, it is a slight temporary increase on the inventory, business-related issues and then coincidences on the cutoff period with special payments like [ BT ].
The next question comes from Charlie Fehrenbach from awp.
Can you tell us something about your expectations for your main markets, Germany and Switzerland in the light of the declining building permits for the coming quarters of midterm?
Yes. Germany is -- will be more challenging than Switzerland because as we said several times, building permits are coming down in Germany. That is not as much the case in Switzerland. Switzerland seems to be more stable, also from a construction market perspective. So we are more positive for Switzerland and for Germany at the moment.
The next question comes from Alessandro Foletti from Octavian.
Just on the pricing, you had 12% in Q1. You're guiding for 6% to 7% for the full year. So it means in the next quarters, the pricing effect on a year-over-year basis will obviously be lower. But I was wondering if it's the decline that you should expect is somewhat leaner or more a step change because you mentioned the extraordinary price increases in July. So I was wondering if we should expect something like a high Q1, high Q2 and then
low Q3, low Q4? Or from here, we go down linear?
No, you're right, there will be more step change as of the second half of the year because we did the biggest increase last year with July, it was around 7.5%. So this kind of base effect and obviously brings down the price effect substantially in the second half compared to the first half of this year.
The next question comes from Andre Kukhnin from Credit Suisse.
I just wanted to start with digging in a bit more into this cadence of Q1 and what you said in April. Could you help us quantifying or giving some idea of how big that destock effect was in Q1 and whether there was anything else of one-off nature during Q1, like days effects? I think some companies cited a positive days effect in Q1.
No, I can't help you because we can't quantify the destocking effect. The biggest driver in the first quarter for the volume decline compared to Q4, however, was the base effect. And in Q4 of last year, the biggest effect was the destocking effect. That is our feeling.
Right. And was there anything else of kind of one-off like days effect or...
No specific one-off effects. But as I said in the introduction, a more difficult sanitary renovation market in the first quarter due to the trends we have spoken about before.
And so April organic growth run rate is below the 4.2% that you see in Q1 despite Q1 being affected by destock. Is that the right interpretation, right readout as you said?
Correct. And keep in mind that the base effect in the second quarter will be even stronger than in the first quarter because the second quarter last year was the strongest volume driven by this just before mentioned, strong extraordinary price increase as of July of 7.5% pulling forward, obviously, demand or wholesaler stocking demand into the second quarter last year.
Yes, that's very clear. If I may, just a couple of really quick ones. On labor inflation, you cited 5.0%. Is that the run rate for the year? Or should we think about something different?
So we expect for the year still a little bit a higher rate of 5% to 6%.
Great. And last one. Did I hear you right that you said half of the decline in Europe was due to Russia exit? And therefore, that comes out soon.
So the impact of the exit of the Russian market impacted the sales with around 1% in the first quarter.
The next question comes from Christoph Dolleschal from HSBC.
Quick follow-ups, if I may. The first one is on price reductions. Did I understand correctly that they are ruled out for now? The second one is on your overall volume outlook for 2023. You're saying price plus 6% to 7%. FX is probably 4%. The market is looking at flat sales, which ultimately means around about 8% to 10% volume decline. Are you -- is that also your assumption?
And then the last one on your margin outlook because I mean, Q1 obviously had a very, very strong margin despite the volume decline. Do you think you can basically carry that on, even if we take out the, let's say, the one-off of the subsidies, we are still at like 32%? Is that repeatable?
Question number one, we do not foresee at the moment any significant price reduction. So nothing is planned at the moment due to the fact, as I said before, that raw material prices are still relatively sticky on a very high level. Question number 2 and 3, both referred to an outlook for our sales and margin in 2023. And as you know, we do not provide at this point in time any outlook for our sales and margin development. We will do that early with H1 in August this year. So therefore, I cannot give you an answer to these 2 questions.
The next question comes from Peter Testa, One Investments.
Can I just ask a bit on the flexibility benefit that you're getting? And maybe if you could give some understanding of what you've seen in terms of labor productivity and nonlabor productivity in Q1 and help understand the steps you feel you can take for the balance of the year? And the second question I have is just on the share buyback. Do you think you'd be -- would be continued at roughly the same sort of pace in Q2 or any other plans on share buyback?
An important part of the flexibility is in labor, labor in the plants, in the logistics. We have started on this flexibility topic already in the second half of last year, latest in the fourth quarter to increase flexibility, for example, also in specific agreements with labor units plant by plant. This is one of the big contributor why we have been able to react flexible in the first quarter on the volume decline. Question number 2 will be [indiscernible].
For now, we don't expect the continuation of the share buyback roughly at the same rate than on the first quarter.
Okay. And sorry, just to follow up on the flexibility. When you think about those labor agreements, typically, they have a kind of hours bank nature to them quite often in the Central Europe, and I was wondering if that's what's being used or to what extent you think this will be available through the year as a result of your agreements?
Can you repeat? It is difficult to understand acoustically the question. Can you repeat?
Yes. Okay. And just a question to understand whether -- just to make sure I understand on the flexibility and the benefit, quite often in Central Europe, these are sort of hours bank-related agreements.
I was wondering if you feel that's what you're using typically? Or whether you find there's other mechanisms as to make this flexibility available throughout the year?
No, that's exactly what I'm referring to. That we have the hourly flexibility in terms of working hours that people work more or even less than they normally agreed, and that's where we work on flexibility. That's one of the major levers. Secondly, I did talk about that before. Obviously, in general, we tried to work with temporary workers as well. That's another lever.
But if it comes to fixed employees, it's mainly about the working hours per week, which we tried to handle in agreement with the employees as flexible as possible and we increased this flexibility in this environment.
The next question comes from Christian Arnold from Stifel Schweiz.
Clarification here. Christian, you mentioned before that Q2 faces the highest volume comps. So I'm not -- yes. Can you maybe quantify Q2 '22? I mean we had an organic growth rate of 9.6%. And I saw these -- we would have had a price impact of 7%. That means the volume impact of 2.5%. Is that the figures I should think of for the base for Q2?
I don't have any other numbers in mind anymore, to be honest. But keep in mind also Q2 last year was a growth rate based on a very strong Q2 2021 because the second quarter 2021 was already a strong quarter, where we were benefiting from the COVID-19 home improvement trend.
Okay. And then maybe -- I mean, you mentioned that April saw a worsening organic growth rate versus Q1. Back in March, you said January, February was better than Q4. So this worsening you have seen in April has -- have you seen that already in March? Or was March in the same attitude as January, February?
No, March was already weaker than January or February. But again, it's difficult to talk about what is the base effect and what is not base effect. If it is the base effect, is also stronger in March this year because we didn't do a net price sales increase this year, as you know. But we did one last year as of April. So we had a strong March 2022 due to the first pull-forward effect of a price increase of around 2.5% as of April last year. Also higher than normal, not as strong as July than last year. So therefore, March was not unexpected, a little bit weaker than January and February this year.
We have a follow-up question for George Speak from BNP Paribas.
Sorry, just one clarification. So you made some comments that large developers are under pressure due to rates and cost inflation. Do you mind just letting us know what your exposure is to those large-scale renovations that are done by developers compared to the smaller single-family kind of more private renovation?
So in general, the -- so what we call project business where you have large projects, be it new builds or be it large renovation projects. That's the smaller part of our business. A large part of our business, residential or nonresidential, is typically to small projects, daily business. So it's a small part of our business is project-related.
Okay. And presumably, just one final question. So presumably, you didn't see as much pull forward on the project side and renovate the last couple of years. That was more in the non-project side?
No, what we have seen in projects, especially in our nonresidential project, it was during COVID-19, that was very weak. And we have seen some catch-up activities for nonresidential projects after COVID-19. That was maybe the most important, not structural, but systematic dynamic over the last 2 to 3 years.
The next question comes from Bernd Pomrehn from Vontobel.
In the past, you always stated that it is difficult for you to assess the inventory level at the wholesalers. This morning, you wrote that you are confident that the destocking has come to an end that it is completed, what exactly gives you this confidence?
Discussions and feedback from wholesalers. Obviously, we're talking to them and we are listening to them. And they tell us that the inventory levels for our assortment for sanitary product has come to a normal level again since now end of Q1, beginning of Q2. The quality of the feedback from wholesalers.
We have a follow-up question from Martin Flueckiger from Kepler Cheuvreux.
Yes. From my perspective, the biggest surprise was your other cost effects category in the EBITDA margin bridge. And I realize that it's a bucket for all sorts of various drivers. But I was just wondering whether you could give us a little bit of help here on how to think about the margin driver category going forward for the full year. I realize you're not giving a full year EBITDA margin guidance, but just on these cost developments that are in this bucket, what should we expect for a net number in 2023?
So let us go briefly again through the other cost effect in the EBITDA margin bridge. The 3 main drivers while we had a positive effect was number one, we had lower energy prices that had an impact of 30 basis points. That was your question before. Number two, this onetime effect from energy subsidies has an impact of around 1 percentage point. So that's a strong one.
And the third one was a negative one was the wage inflation of around 5% in the first quarter, which was a negative effect. Other effects like, for example, marketing expenses or administrative expense to travel were pretty much on previous year's level, so they didn't have a strong impact on this other cost bucket in the first quarter.
The next question is a follow-up from Mr. Remo Rosenau from Helvetische.
When you mentioned that due to your discussions with wholesalers, you think that the inventory levels are now on a normal level. Might there be a risk that given the outlook, which is not that great, specifically in Germany, that wholesalers might even go to a below-average inventory the next few months?
Yes, it could be. This could be a possible scenario. We don't have any indications or any feedback on that, but that could be a scenario. I agree with you.
It seems there are no further questions. So thank you for your participation, and we wish you all a great day. Thank you.