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Geberit AG
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Good morning. I am [indiscernible], operator for this conference. Welcome to the Geberit Conference Call on the Third Quarter Results 2021. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Christian Buhl, CEO; [indiscernible] Roland Iff, CFO; and Mr. Roman Sidler, Head of Corporate Communications and Investor Relations. Please go ahead.
Thank you for the introduction. Good morning, ladies and gentlemen, and welcome to our 9 months conference call. We will start with the third quarter key figures and then comment on the 9-month development and end with an outlook for the rest of the year. Geberit achieved very good results in Q3 despite a more challenging comparison base with a strong top line growth and the lower profitability levels due to strong headwinds from increased raw material prices. The last quarter in which we recorded a decline in margin level of 3 years ago in Q3 2018. Or in other words, Q3 this year was the first quarter with a declining EBITDA margin after 11 consecutive quarters with continuously increasing margin level. Let me now first comment on our sales development in Q3 in more detail. Net sales increased by 8% to CHF 855 million. In local currencies, net sales increased by 7% in Q3. The slowdown of growth versus H1 was driven by different base effects in the previous year with the lockdown in Q2 and catch-up effects in Q3, stock rebalancing of wholesalers this year and first signs of a weakening home improvement trend. Compared with Q3 2019 and without any base effects from the COVID-19 prices, net sales in Q3 grew very strong in [ order ] purchase by plus 17% over the period of the last [ three ] years. In Europe, net sales in local currencies increased by 6%, with growth rates in almost all regions and countries. Double-digit growth rates were achieved in Benelux with plus 29%, in Eastern Europe with plus 18% and on the Iberian Peninsula with plus 14%. Single-digit growth rates were recorded in the Nordics with plus 6%, in Germany with plus 3% and in Italy, U.K. and France with plus 2%. In Austria and Switzerland, net sales reached previous year level in Q3. Outside Europe, net sales increased by 31% in Far East/Pacific and declined slightly by minus 1% in America, respectively, by minus 2% in Middle East/Africa. The three product areas showed a different sales dynamic in the third quarter. Installation & Flushing and Piping Systems grew with plus 12%, respectively, plus 8%. Bathroom Systems net sales declined slightly by minus 1%. The weaker development of Bathroom Systems is driven by a negative base effect from catch-up effects of the shower toilet business in Q3 last year after the temporary product interruption in Q2 and first time of a weakening home improvement trend. Let me turn now to the operating and financial results issued. The operating and financial results grew on all levels in Q3 despite substantial higher raw material prices. EBITDA increased by 2% in Q3 to CHF [ 268 ] million. The EBITDA margin declined by 119 basis points to 31.3%, mainly driven by the substantial increase of raw material prices and higher prices for energy and logistics. Positive drivers for the margin were positive volume and mix effect from operating leverage, and sales price increase. The extraordinary price increase as of July led to an accelerated sales price increase effect of plus 2.8% in Q3, partially absorbing the raw material price increase. EBIT developed in line with EBITDA and increased by 2% to CHF 231 million. Net income increased by 2% and EPS by 3% in the third quarter. Let me now continue with our 9-month development. Net sales in Swiss francs increased by 19% to CHF 2.69 billion. In local currencies, the growth reached plus 17%. This exceptionally strong growth was driven by a base effect from the COVID-19 crisis hitting our business in Q2 last year; secondly, a strong home improvement trend induced by the COVID-19 lockdown; and thirdly, inventory buildups of wholesalers in the first half of the year. Compared to precrisis level of 2019, net sales grew by 17% in local currencies. This 2-year comparison demonstrates the excellent performance we have achieved during the COVID-19 crisis. This growth in an environment of significant supply chain challenges and disruptions was achieved thanks to our regional supply chain setup, strong relationships with our suppliers, long-term capacity plan, strong and stable manufacturing and logistic processes. And finally, a high flexibility of our employees. Let me now comment on the 9-month sales in more detail, again, in local currencies. The degree of local lockdowns last year varied substantial by country, leading to different base effects this year. In markets where construction sites were closed or heavily impacted in Q2 last year, we achieved correspondingly extraordinary strong growth rates this year. These countries include Italy, with plus 32%; U.K. with plus 28%; the Iberian Peninsula with plus 25%; and France with plus 19%. In the remaining countries, the COVID-19 base effect was significantly less pronounced last year due to minor restrictions of construction activities. These countries delivered correspondingly lower, but still very strong growth rates namely in Benelux, plus 18%; in Germany, plus 11%; and in Switzerland and Nordics, plus 9%. We achieved extraordinary growth rate of 27% in Austria and in Eastern Europe, despite the limited COVID-19 base effect due to a more pronounced stimulus program in Austria and ForEx induced price increases in several Eastern European countries. Let me now turn to the regions outside Europe. Net sales in Far East/Pacific were up by 36% in the first 9 months, substantially driven by the positive base effects from the heavy lockdown in India last year and the strong performance in China. Net sales in Middle East/Africa region increased by 32%. In North America, net sales increased by 80% due to strong growth of electronic faucets. Let me now comment on the sales development in product areas, again, in local currencies. All three product areas delivered strong growth rates in the first 9 months. Installation & Flushing Systems net sales grew by 20%; Piping Systems by 17%; and Bathroom Systems by 13%. I continue with the operating and financial results in the first 9 months of the year. EBITDA increased disproportionately compared to net sales by 23% to CHF 894 million compared to precrisis level in 2019, the increase amounts to 22% over these last 2 years, demonstrating our strong operating cash flow generation during the COVID-19 crisis. The EBITDA margin reached 33.3% in 9 months 2021, which is 120 basis points above previous year level. The main reason for this margin improvement was the operating leverage from the extraordinary strong volume growth. This demonstrates the strength and high flexibility of our operations, being able to react to an unprecedented volatility in demand starting with the sales collapse last year in Q2 and an unexpected extraordinary strong volume growth this year. The strongest negative impact on the margin came from the substantially increased raw material prices since the beginning of this year. Also increased and further normalized marketing costs had a negative impact on the margins. Personnel costs increased mainly due to a base effect from the low level last year. The currency effect had no impact on the EBITDA margin due to our natural currency hedge. EBIT increased in the 9 months by 27% to CHF 777 million. The operating leverage led to an EBIT margin increase of 180 basis points to 28.9%. Net income increased disproportionately to EBIT by 30% to CHF 653 million due to a lower tax rate driven by negative onetime effects in the previous year and a better financial result from less foreign exchange losses and lower financial expenses this year. Earnings per share increased by 31% to CHF 18.41 positively affected by the share buyback program. Compared to the precrisis level of 2019, EPS increased by 24% over the last 2 years, demonstrating the strong value creation of Geberit during the COVID-19 crisis. Free cash flow increased in the 9 months by 35% to CHF 613 million, mainly driven by the extraordinary strong cash flow from operating activities. We continued our share buyback program in the 9 months of the year and bought back another 173,000 shares for CHF 111 million. Let me now comment on the current sales of the Geberit. In October, net sales were only slightly above previous year's level. The current situation in our supply chain is challenging, but we managed to get the relevant raw materials, labor forces and logistic capacities to manufacture and deliver our product portfolio to our customers. Supply availability is only limited for a handful of products due to raw material shortages or labor bottlenecks. However, these limitations do not have any material impact on group's savings. This brings me to our outlook. The unexpected strong economy and the still massive turbulences and unexpected friction in many supply chains has demonstrated how difficult and unpredictable an outlook in the current environment is. These uncertainties around the COVID-19 pandemic and its economic impact, positive or negative, remains high. This unprecedented market environment, combined with the general very low visibility of our business with a typical order book level of 2 weeks makes an outlook very challenging. Also the question when and how the COVID-19 induced home improvement trend might come to an end or maybe even less to pull forward effects of renovation activities creates uncertainties. On the assumption of no materially different business impact from the COVID-19 pandemic, we expect for the full year, therefore, a net sales growth in local currencies between 12% and 14%, and an EBITDA margin between 30% and 31%. The main reasons for weaker sales and margin outlook for the last quarter versus the first 9 months of the year are a strong comparison base, driven by the catch-up activities and the unusual high profitability level in Q4 last year. Secondly, the strongly increased energy and raw material prices this year. Keep in mind that our P&L in Q4 will be hit by the strong raw material price increase of 18% year-on-year in Q3 due to usual delay effects in accounting. Sequentially, we expect in Q4 a somewhat soft raw material price increase of around 3% versus Q3 this year. This leads to an expected raw material price increase for the entire year of around 13%. To cope with the further increased raw material prices, we decided to implement in selected countries and for selected product categories, another extraordinary price increase during Q4. In total, we expect from this selective price increase in Q4 and positive price effect on group net sales of around 1.5% as of January. This second extraordinary increase, together with the regular increase of 1.5% as of April this year, and the first extraordinary increase of 2% as of July this year leads to a total sales price increase of 5% as of January 2022. With this total price increase of 5%, we will compensate the currently expected raw material price increase in '21 of around 13%. Let me close our introduction with a short summary. Geberit achieved very strong results in the first 9 months of 2021, despite strong headwinds and disruptions on the raw material market, energy and transport prices. Q3 was the first quarter with a decline in profitability after 11 quarters with an increasing margin gap. The comparison of the results with precrisis level 2 years ago confirms our ability to deliver extraordinary results and gain market share in a challenging and tough environment to maintain our market-leading productivity and efficiency, despite the business volatility never seen before in our usually relatively stable industry and finally, to create substantial cash flows and shareholder value in an exceptional economical environment. The results over the last months confirm us in our crisis management and the key decisions we took since the outbreak of the COVID-19 pandemic and gives us confidence to continue to emerge stronger from the still prevailing unprecedented environments. Thank you for your attention. We are now ready to answer your question.
[Operator Instructions] And the first question is from is Yves Bromehead, Exane BNP Paribas.
My first question is just on the price cost, sorry, but could you just come back on the math that you did. You essentially are saying that you get to about 5% in January 2022. I guess on the cost side, could you confirm that when you show on the slide pack, Slide 16, that your cost inflation is up 18% versus Q3 2020 this is not the P&L effect, and there's about a 3-month's lag. Is that how we should think about it? And I guess related to that, as we go into 2022, I appreciate you don't necessarily want to give a guidance, but with that 5% price increase, would it imply that your price cost starts to flatten out in H2 2022? And could you do any further price increase later on in 2022? Or is this assuming spot costs stay at those levels? Is this as good as it gets in terms of pricing at this stage?
Thank you for your question. Number one, the math of the 5% price increase as of January 2022. We did a regular price increase this year as of April of 1.5%. We did a first extraordinary price increase as of July of 3.5% for 2 product areas only Installation & Flushing Systems and Piping Systems. This means on a group level, it has an effect of 2% as of July. And now we implement, as announced before, another selective price increase at the January of 1.5% -- with 1.5% impact on group. If you add it up, you come to the 5% price increase as of January. Your second question refers to our chart, Page 16 in our presentation showing the raw material price development. You are right. This is the raw material price index, how we buy, but there is a delay effect from these raw material prices on our P&L of typically 2 to 3 months. And the third question regarding pricing in 2022. We have not yet finally decided how we will treat the regular price increase as of April 2022. It depends, obviously, on the further development of the raw material prices but we will react once we have a better understanding how we go into the year with the [ promise to meet the ] raw material prices at the level development at the beginning of the year.
The next question is from Daniela Costa, Goldman Sachs.
First one, clarification question on the 5% and the raw material increase together because Euro [ maps ] to sales are about -- last year, they were about 26% of sales. So the 13% increase would be something like 3.4 percentage points of margin headwind, and you're upping prices altogether by 5%. So do you expect maybe towards the second half of next year to actually have a sizable tailwind from net pricing? And why wouldn't that happen? And then the second question, more broadly into the medium term, your 28% to 30% margin targets. Obviously, a very challenging year with the headwinds on raw materials and you still did -- you are likely to do above that. What would take you down in the medium term to the 28% to 30%? Or is that just a very conservative medium-term assessment?
Question number one, the margin impact of sales price increase of 5% is up 5 percentage points. It's limited. It's only around 3.5%. If you do the math, you will find out it's only around 3.5%. And that compensates exactly as you laid out, the expected raw material price increase around 30% this year. Question number two, we do not intend to change our midterm guidance for our EBITDA margin of 28% to 30%. We expect that it will be above this corridor this year, very much driven by special effects. We will definitely, over time, come back to 28% to 30% because we want also to invest into the business. We have several activities. One example, digitalization. By the way also last year and this year, one of our initiatives that we further invest into the business, one of the drivers why we expect to be midterm again in 28% -- between 28% to 30%.
The next question is from Andre Kukhnin, Credit Suisse.
Can I start with one on the slowdown in home improvement trend that you mentioned several times during the presentation. Could you share with us what indicators that you're monitoring that are pointing in this direction? Or is this something that you're picking up directly from your sales organization? And could you give some color on that, maybe geographically or in terms of order of magnitude?
There are 2 basic indications. One is our own test development that we have seen Bathroom Systems develop weaker than the other 2 product areas. That's one indication. And the second one is that we hear in the market from customers that they have less showroom visits. And I can't provide you a number, but the frequency [indiscernible] seems to come down. That is the second indication why we believe it could be a start of lower home improvement trend that we have seen in Q3.
That's very helpful. And just kind of a follow-up to this, [ about 4 ] points sequential slowdown that you saw in Q3 versus Q2, if we adjust for the base effect at the group level. How much of that in your estimate was kind of restock in Q2 that wasn't the case in Q3 versus that underlying slowdown? Or is it too early to talk about the underlying slowdown, let's say, in Q3.
No, it's not too early, but it's unknown because we do not know as you know, the inventory effects of wholesalers. We don't have any quantification. Therefore, I can't give you a precise answer. And I will not be able to give you a precise answer at the beginning of the year, we just don't know.
And lastly, on labor, is there anything we should look out for Q4 in terms of rates or kind of sequential development? Or would you expect it to be following the usual seasonal pattern. And anything you would highlight for 2022 at this stage for labor?
In terms of labor wage situation, that will be not different -- materially different in Q4 than what we have seen in the first 9 months. But for the next year that there will be definitely one of the challenges we expect significantly higher wage inflation as of next year.
An indication of the degree of how much [indiscernible]?
No, sorry, we are not able to provide you any indication at this moment because, as you know, a large part of our personnel costs are negotiated between [indiscernible] representatives and company representative. These negotiations are still ongoing, therefore, I can't provide you with any indicative figure. But it's clear that the wage inflation next year will be higher than what we have seen and expecting for the full year this year, which is around 1.5% this year.
The next question is from Yassine Touahri, On Field Investment.
I have 2 questions. When we look at your margin in 2022, I understand that you're expecting to offset the raw material cost inflation. But at the same time, the energy cost inflation is a headwind. You just admitted that wage inflation is going to be a headwind. Does it mean that everything else being equal, your margin in 2022 might be a little bit lower than the 30%, 31% guidance that you're giving for 2021? And then my second question is on the volume outlook. We see on a lot of building materials [ honestly ] an issue related to labor shortages, which is impacting the logistics, which is impacting the work sites completion. Do you see any impact of labor shortages for your clients for the overall market on volume?
Thank you for the question. Number one, we don't provide any guidance for our margin 2022 at this point in time, as you know we only provide a margin guidance for the running year with our H1 results. Therefore, I don't want us to go into details of your first question. Number 2, I'm not sure if you were talking about labor force on construction sites and if these bottlenecks lead to delays or maybe stops production activities or is your question referred to Geberit that we have shortage [indiscernible].
Yes, both for the logistics -- for your logistics and your ability [indiscernible] your clients and for the ability of a construction site to operate. I think there are the 2 bottlenecks that we've seen and other building [indiscernible] .
On our side, we do not have any material issues with labor shortages, with one big exception in the U.S., we are struggling to get people for our manufacturing plant. And there, we feel some impact of labor shortages but with no material impact on the group because the U.S. is relatively small for us. From customers or in the market, yes, it is a tight situation. And we hear that certain projects are delayed from time to time. But I would guesstimate that until now, it does not have any large material impact on our group sales.
The next question is from Christian Korth, HSBC.
I would like to ask if you could please update us on the status of the order backlog of German [ plumbers ] and how that currently states? And secondly, just on the price increases. I think you said during this conference that you will raise prices on selected products and in selected markets. I just wanted to ask if you can maybe elaborate a little bit on this. If it's similar to the increase you did in July, like Installation & Flushing Systems and Piping Systems or is it different this time. And last but not least, let me thank you very much for the long-standing service, an excellent service to the investment community. And obviously, I wish you the very best of luck for your personal future. Thank you very much.
Thank you. First, I completely agree with your third comment, and come back to that [indiscernible] of this conference call. The first question about the order backlog of installers in Germany, the latest number is that there is an order backlog of 13.9 weeks. Again, a new record level. It's around 15% above pre-COVID level. And the second question, the selective [ extraordinary ] price increases as of January, or which we implemented in Q4 is different to July because it's not across all geographies, it's selectively company by company. And it's also as per category -- product category is different. So we try to leverage our position in the various markets versus competitors and optimize pricing position. So it's a bit different to the July price increase varied each geographically, homogeneous price increase was selectively on new product categories. At this time, it's in both dimensions and selective.
And that is going to be from December 1 or?
That depends. Some few countries are doing some in November. Others will be as of January. So that's why I said the impact overall, will by then 1.5% as of January. It depends how [indiscernible] sometimes even product differentiated.
The next question is from Patrick Rafaisz, UBS.
Two questions for me, please. The first one would be on Benelux and the ongoing strong momentum you're seeing there. Can you add a bit more color on what's driving this strong growth and how you think about the next quarter? And the second question is on the group level. Just piecing together what you've said so far and what you've published in the morning, it seems that you -- as you mentioned, October was still slightly up but the guidance implies somewhere flattish Q4 in local currencies. It maybe slightly down, slightly up. So are you assuming that maybe with the base effects from the prebuying in the U.K. and Russia last year, the German VAT reduction effect that your local currency growth will then turn negative in the next couple of months, November, December? Is that how we should think about Q4?
Question number one, the strong development of Benelux in Q3 was mainly driven by a base effect. We had a relatively weak Q3 last year that was driven by our brand harmonization in the Netherlands. You might remember that we replaced the local ceramic brand last year in the Netherlands by Geberit. It had a negative impact last year, which led to a positive base effect this year. That's something other that is base effect in Benelux, responsible for Q3. Therefore, we also expect for Q4, if I look [indiscernible]. The second question, we are not negative with our expectations for Q4, but we are relatively broad in our range, and it could be negative, but it could be also positive. The range is relatively broad for a very simple reason. As I said during my introduction, the uncertainties are still very high. If we would have stopped at the beginning of the year, that we did see such economic development and also sales development [indiscernible], we would not have believed it. And I think we should except [indiscernible] situation be a little bit more humble and not believe that we can predict the future, even if it's only short term, the uncertainties are really high. Therefore, it could be negative, it could also be positive in Q4.
The next question is from Remo Rosenau, [indiscernible].
Also, Christian Korth already took up the subject. I still would like to add a few remarks for Roland. I hope the others will accept that. As it is your last conference call and this conference after 17 years as serving as a CFO. So as I already accomplished the IPO in 1999, l was also present when you were appointed as a CFO, I feel somewhat qualified to thank you, hopefully, also in the name of many other investors and analysts for your great work over the last 17 years, 17 years as a CEO. I think you were able to build a strong trust with investors through a high level of reliability, all combined with the old Swiss virtuous decision. And above all, you're a great guy with a great sense of humor, and that's the most important thing. So in this sense, I would like to thank you, once again, for your excellent work as a role model in my eyes for CFOs and to extend my best wishes for your future. A little bit more time for other things than just numbers. So that's it. Thank you.
Thank you, Remo.
Again, I can't comment that it can't be better [indiscernible], Remo. You're absolutely right with that. Also again from my side, thank you. So no questions Remo Rosenau this time?
Not today. I trust that Roland will hand over very [indiscernible] at the end of the year.
Thank you.
The next question is from Charlie Fehrenbach, AWP.
How far could the lack of magnesium have an influence on the building industry and therefore, on Geberit in the coming months? And second question would be, could you tell us about your expectations for 2022, not meant as an outlook or guidance, but just in general? [Foreign Language]
The magnesium topic is quite difficult to give you a precise answer. Obviously, you need magnesium for some metals, some of these metals are going into building. I think the key point is, we should be aware that the building industry has one challenge that we all are component suppliers. And if there is one major component missing that has an impact on the rest of the construction side and that attributes certain risk be it magnesium or something else. And therefore, that -- I think that is one of the risks and also what I said before, the reason why it's highly uncertain how the business will develop because it can come up something like magnesium or something else, which might have an impact upon a component or a couple of components of a building that will delay projects. If it's magnesium impacting at the end, I don't know, but there are considerable risks in channels at the moment since supply chains are still highly disrupted. And that is also the answer to your second question, even though I don't want to give an outlook for Geberit in terms of sales or margin, I think it's also, again, in general, very difficult to give an outlook for the next year. Again, who would have thought just 2 months ago or 3 months ago that energy prices will explode over a couple of weeks, even days, no one knew. And therefore, I think the uncertainties are so high and I'm not pessimistic. I think I'm just honest that I say, I don't know what really will happen. Therefore, I can't give you a better answer than that to your second question.
The next question is from Martin Flueckiger, Kepler Cheuvreux.
Same for me, Roland, all the best for the future. Just coming back to your -- Christian, your statement regarding sudden price increases, as a clarification questions to start off. Did I understand correctly that the selling price impact on the Q3 EBITDA margin was plus 280 bps, and that's my first question. Then on the -- second question is regarding the net pricing impact that we have seen in Q3, which -- what was it again, I think, minus 130 bps. I was just wondering what your view is on that number for Q4, whether you still think that it's going to be around 130 bps negative to net pricing impact or whether we're going to see any deviations here because the year-over-year comparison for raw material prices in Q4 last year, of course, is somewhat different [indiscernible] for Q3.And then my third question would be on -- again, referring to your EBITDA margin bridge for Q3. Is this impact that you've recorded as, again, 130 bps negative from other cost effects. And my judgment is that this is sort of a bucket that contains many different impacts like personnel, like marketing, traveling and so on. Just wondering here what the main driver of that 130 bps was, and whether you yourself were surprised that it was maybe a little bit lower than what you had anticipated.
Question number one. The price increase, net sales price increase effect in Q3 was plus 2.8%. And this leads to a positive margin impact on the EBITDA somewhat lower of roughly 2 percentage points. Second question, the net prices in Q4 will be substantially more negative than what we have seen in Q3 because raw material prices in Q3 was up by around 18%. And as I said before, there is a timing and delay effect of 2 to 3 months until this raw material price increase will hit the margins or the P&L in Q4. And the third question was the drivers for the negative effect of the EBITDA margin from other costs in Q3. The 2 main drivers there were marketing costs, which is some of normalized versus the unusual low level last year. And secondly, I mentioned it before, the strong energy price increases in Q3 because they are not part of raw material prices. They are part of other costs.
Our next question is from John Revill, Thomson Reuters
A couple, if I may. You said [indiscernible] overall, your price increases will then will be about 5% more in January next year compared with January last year. But then also to April, your normal price increases, do you think your customers will accept further price increases on top of this 5% in January. So definitely is there room to maneuver in April and possibly increased prices then or above if raw materials continue to increase? That's my first question. My second question is, in addition to raw material price increase -- sorry, in addition to pricing increases. What other sort of things that you've been doing to kind of overcome the raw material input cost inflation? I don't know, productivity gains or what sort of things can you do to kind of overcome this pressure?
First question, we did not yet decide about our annual price increase as of April next year. That will depend on the further raw material price development in the coming weeks. Therefore, I can't give you yet an answer to this question. Number two, what other levers do we have to mitigate this highly inflationary environment in terms of input costs? I would say that business as usual, what we do normally, continuously increasing our efficiency. For example, in our plants, in average per year, we increased our productivity by around 3.5%. By the way, also throughout this crisis. So this is continuous efficiency gains in the various areas of the organization. What we do normally that is, of course, also another answer to mitigate inflation of input costs.
The next question is from Alessandro Foletti, Octavian AG.
I have one, actually, I would like to go back to the midterm EBITDA margin guidance. You say with time you will move back into that range, 28% to 30%. If I take the midpoint, 29%, it's about 4% below the current level. And this seems to be quite a big jump down. So I wonder what should I look at in your numbers or any cost line that will indicate me that this trend will really -- the current trend will really change and move towards that direction. What are the levers I should look at?
You should look into the seasonality of our EBITDA margin. That's number one. As you know, in the first 9 months, we have significantly higher EBITDA margin than for the full year. Therefore, it's wrong to compare our 9-month EBITDA margin with our full year mid-term guidance. That's number one, that explains a large part of this focus. And secondly, as I said before, first of all, will we see an impact of increase in raw material prices also short term. And secondly, also the longer run we have projects, for example, digitalization, investment needs, for example, into IT capacity we did last year, also this year, while where we have to invest to ensure that we achieve the top line growth as that comes along with our ambition of target to be midterm in the range of 28% to 30%.
The next question is from Arnaud Lehmann, Bank of America.
Two questions on my side. Firstly, more of a general market question. Property prices are moving higher everywhere in Europe, sometimes at double-digit rates relative to a year ago. I appreciate interest rates are still very low. But do you see a risk? Or are you already seeing a potential impact on consumer budgets for renovation, so they have to spend more to buy a house or to build a house. Therefore, when it comes to renovating the bathroom or building the bathroom, there is a smaller budget available for your products? That would be my first question. Secondly, on raw materials. We're seeing some material still moving higher, some others starting to fade a little bit or coming back down. Can you give us an indication if you are seeing already some signs that some of the materials that you consume are stabilizing or if they continue to increase?
The first question, I would say, so far, we do not see on a broad scale, a very systematically, a challenge that consumers stop their investment decisions because of increasing basic consumption prices. But I believe this is one of the risks also for next year. When all these price increases will hit more and more the end consumer paying for his renovation or also new build that this might lead to delays or even stop of certain projects. So far, I would not confirm that we have seen it on a broad scale. And the second question is the somewhat lower increase of raw material prices in Q4 versus the first 9 months is driven by a certain stabilization of plastic raw materials. On a high level, obviously, but there we see more or less stabilization at the moment. We expect it also for the next 1, 2 months. Contrary to industrial metals, the second part of our input raw material -- our raw material, sorry, where we see still an increasing environment.
The next question is from [indiscernible], Morgan Stanley.
I've got 3 questions. The first question, just a point of clarification. Did you say that your order book is only 2 weeks. Second question, could you please give us the realized raw material price increase in your Q3 numbers, both year-on-year and sequentially. I always thought that your guidance was a P&L impact, but it seems that it's more a buying impact and actually the P&L impact is a bit delayed. So the sort of color there on the realized price would be helpful. And then just on a more medium-term view, you're guiding that we should still think about margins being 28% to 30% over the medium term. In that context, if raw material prices corrected significantly, would you be thinking about an extraordinary price decrease, per se? In other words, reinvesting in your customer base, considering the importance of your distribution channel to the business going forward.
Question #1, correct. The order book -- the typical order book is around 2 weeks in our business. Question #2, I'm not 100% sure if I understood it correctly, I think you were asking what was the impact on the margin of raw material prices in Q3. That was around...
Sorry, Let me clarify. So you said that you had an 18% increase in raw materials year-on-year, and you had a 6.7% sequential increase, but that's on raw material prices, but what's the actual P&L number?
It's a little bit less than the 18% because of the delay effect, it's roughly 12%, which was then an impact in the P&L in Q3.And the second question -- sorry, the third question, obviously, we are not thinking about decreasing prices in this environment. And also there, I can't give you a precise answer. We will obviously decide along the development. I think the important part is that over time, we intend to fix our strategy to compensate raw material price inflation. And we have done that also in the past, we even overcompensated. If you take the period 2016 until 2020, the 5-year period, the positive impact from sales price increases and environment with lower raw material prices was 450 basis points in these 5 years. So you see we are also capable in an environment with all the raw material prices to keep our sales price levels. But obviously, it will be a decision case by case. And as you said, always also balancing our customer relations with the optimum price point.
The next question is from Emrah Basic, Baader-Helvea.
Just one question on the energy prices. What is your -- approximate what is your exposure to natural gas as an energy source? And do you hedge this cost in the [ brand ]? A mix of how much do you hedge and how long in a [ brand ]?
Our total energy costs in 2020 was CHF 45 million and that is roughly 50% gas and 50% electricity. Basically, we are not current -- hedging these costs but there's a certain -- but we naturally hedge because we have tied the contracts. These contracts give us some hedge at the moment. For example, we didn't feel in Q3 a very strong energy price increase because some of these contracts are still old at lower prices.
And the next question is from Marta Bruska, Berenberg.
Most of my questions have been answered already, but I have one follow-up with regard to the raw material price. You guide for increase in Q4 versus Q3 to my understanding was 3%. And I was just wondering which exactly raw materials will be driving that increase? And you mentioned metals, but I would like you to be little bit more precise, which metals? And are you thinking a significant amount would drive that increase, please? And I have one follow up.
You're correct, 3% sequentially versus Q3, was what we expect mainly driven by industrial metals.
Which of the metals?
I can't give you a specific ones, steel. It's quite hard to say which ones are the biggest, but it is part of the example.
So you are buying the steel still now that it's at higher prices that you were buying in Q3?
So I couldn't hear it acoustically. Can you say again?
Sorry. So you're saying that you are still buying steel at the prices that are now higher than they were in Q3.
In Q4, you mean?
Yes, well, now it's Q4, right? So...
Yes. Yes, it's correct.
Okay. And okay. Then you -- I guess, you can rationalize it like this to your customers when you ask for increased prices because you have to. I mean I was just wondering because when I look at the raw material prices, [indiscernible] to coming -- becoming of the pick currently still at high base, but coming off the peak or I was just wondering how are you going to rationalize your further price increases in Q4, but if you are [indiscernible] you are still paying high prices then maybe that works.
The next question is from Christian Arnold, Stifel.
Also first, a very warm thank you to you, Roland, for your outstanding support, the last 15 years. It was great to work and travel with you. So thank you, and all the best for your future.
Thank you.
Yes, I have 2 questions. On your extraordinary price increase in Q4, I wonder when did you announce that to your customers. So thinking of potential pre-buying effects in Q3, if you have announced that already in Q3? Or was it only in October?
I can't give you a short answer because it depends country by country. And some of the countries we have already announced it. In others, we have not yet announced it. If your question is, did we see any effect in Q3, prebuying effects due to this price increase as of January, the impact that's something that I would say, no [indiscernible] we didn't see any pre-buy effect in Q3, driven by this second extraordinary price increase.
And related to that, thinking of the inventory levels of your customers, are they high, are they low? Would you expect then on the back of these price increases some -- the order effect in Q4?
Very difficult question. As usual, we believe that inventory level of wholesalers at the end of Q3 are still relatively high, maybe not as high as what we have seen end of June, when we did the first extraordinary price increase on a large part of the assortment. Therefore, it's also quite difficult to predict what the preorder effect might be in Q4, maybe a little bit less pronounced than in July because the inventories are already relatively high.
Okay. And then my second question would be, you were saying that you or your customers have observed higher -- no, lower showroom visits in Q3. I wonder, is that a sequential statement or a year-over-year statement? And I believe in Q3, you probably have people -- especially this year the rent on holidays as they were not able to do so the last couple of years.
I believe it's both. It's sequentially driven by normal seasonality, of course, but also compared to last year or in other words, it could also be that last year Q3 due to the home improvement trend, the showroom visits were relatively high because as you might remember in Q2 showrooms were in many countries also closed. So it's sequentially and also on a year-on-year comparison basis.
The next question is from Pierre Rousseau, Barclays.
I'd like to come back on your market share. Would you have an assessment of your current gains versus competition? Could you explain internally what the main drivers are? And externally, if competition is still impacted by recent kind of supply chain disruptions. And perhaps more midterm, how would you see your market share evolve? Do you think that the current level that you have is sustainable over time?
First question of market share gains in the first 9 months. We never comment on market share gains quarterly or 9 months. We only do that on an yearly level. Therefore, I can't give you a precise answer. But we are pretty much convinced that we are currently gaining market shares, especially also last year throughout this crisis. What are the drivers? In one word, availability. Availability not only in terms of products, as I said during my introduction, we do not have any material issues, disruptions in our supply chain, we can deliver. But availability also in terms of customers. You might remember that we consciously cited last year that we don't introduce short-time work through the lockdowns to make sure that we stay with customers, we should increase our customer presence. So its availability of people, availability of products and maybe a third availability of cash that we are also prepared and that we also invest throughout this crisis in various areas, for example, digitalization, and that also helped in this unprecedented environment. And the third question, sorry, going forward, do we expect further market share gains? Yes, this is part of our strategy. Our initiatives always target, of course, the market share gain, differentiated obviously by regions. In regions where we have stronger position, obviously a bit less and the regions where we are under-penetrated, obviously, with the higher market share gain expectations. But we didn't change our expectations in terms of market share gains driven by the COVID-19 crisis. We benefited during the crisis, maybe still now from larger market share gains. But once we affect to a normal world, we expect relative normal market share gains that we have seen also before the crisis.
Very clear. And maybe just one small follow up. You mentioned some selective shortages for some categories or some construction or building products. Do you have a more precise comment on the kind of products that are [indiscernible]?
It's less there a handful of products. I can give you one example, it's an electronic faucet in the U.S. where we have 2 challenges, issues. One is components, electronic components, which we need, obviously, for electronic faucets, but also a labor shortage in our 3 plants in the U.S. But as I said before, this one example has an impact on the U.S., obviously, but it's not material on group level because share of U.S. sales is only 3%.
Understood. And for the industry as a whole, do you have a view?
What do you mean by the industry as a whole?
For the construction industry as a whole, are there specific product categories that are really short right now?
I don't know. I only can talk about the sanitary growth.
And we have a follow-up from Yves Bromehead, Exane BNP Paribas.
Sorry, just a quick one. I just wanted to understand how much of your Bathroom Systems of ceramic balls is actually outsourced. Do you have a percentage? And I guess related to that, I think that one of your competitors did see a bit of a faster growth in Q3. Can we assume that there is some logistic issues in some harbors in Southern Europe that is limiting the ability to get access to some of your outsourced capacity?
So first answer, the share of outsourced ceramics is very low, no material within our ceramics business. And secondly, as you know, we got our policy to comment competitors, especially not on a quarterly basis.
And there are currently no further questions. So I hand back to the speaker.
So thank you for your participation as you already did it before what I wanted to do now, very briefly to say thank you to Roland. I think it's your 66th conference call and the presentation. Thank you very much for a great work. It's really a legacy. It's an end of an era here at Geberit. It was not only professionally a great pleasure, also personally a great, great pleasure to work with you. [indiscernible] have a couple of opportunities the next -- in 2 months to say goodbye and to celebrate your 17 years. But it's a lot of time that we have the availability to talk to the investors and the analysts. Unfortunately, it's not a full year presentation. Of course, I would love to say now, let's grab a glass of wine and say cheers to all, unfortunately, it doesn't work. But maybe if you have time for the full year presentation next year and if you want to join as a guest, we invite you -- and we can do it physically, we invite you for a glass of wine if you are not somewhere on the globe traveling or whatever. So thank you very much.
Thank you very much, Christian, for the kind words. It has been a great pleasure also for me over the 17 years as CFO to prepare these quarterly -- more than 60 quarterly presentations together with you [indiscernible] first days or first years, Roman and the team. Obviously, it has been a great pleasure also because most of the time we could present good numbers, it makes it a little bit easier. Thank you very much also to the Roman, Christian, Charlie, Martin, for your kind words before. It has been a great pleasure to work together with all of you listening to the call with the analysts, investors, a very great collaboration, interesting collaboration. The feedback we received were always also very beneficial for us. So I wish all of you also all the best. Unfortunately, I will not be able to meet all of you during the upcoming roadshow. Some of you I will. There we can say a face goodbye personally. But for all the others already now all the best for your future. It has been a pleasure working here in contact with you. Thank you very much.
Thank you, Roland. We wish you all a great day, and thank you for your participation.
Ladies and gentlemen, thank you for your attendance. This call has been completed. You may disconnect.