Geberit AG

SIX:GEBN

Earnings Call Analysis

Robust Q3 Performance Amid Challenges

In the third quarter of the year, Geberit demonstrated impressive financial health despite ongoing market difficulties. Net sales reached CHF 762 million, showing a 6% increase in local currencies, although currency fluctuations led to a CHF 10 million decline due to negative currency effects. This growth was primarily driven by volume increases across products, with Installation & Flushing Systems leading the way with a 12% rise in sales.

Regional Insights and Growth Areas

Geberit's regional sales performance varied. Europe saw a 5% increase, bolstered by robust growth in Eastern Europe (10%) and Italy (6%). However, Switzerland remained stagnant, with sales unchanged year-over-year. In contrast, the Middle East and Africa recorded a staggering 45% increase in sales, primarily attributed to growth in the Gulf region, while the American market achieved a 6% rise. Overall, the Far East/Pacific region declined by 2%, influenced by a contraction in China.

Strong Bottom-Line Results

All significant metrics showed positive growth. Adjusted EBITDA increased by 8%, with an EBITDA margin of 31.0%, representing a 40 basis points improvement. The earnings per share (EPS), adjusted for currency changes, climbed 8% to CHF 4.55, supported by a share buyback program that saw 18,000 shares repurchased for CHF 10 million. However, net income faced a growth challenge of 7% due to a higher tax rate influenced by the OECD's new minimum taxation law in Switzerland.

Nine-Month Review and Solid Foundations

In the first nine months, Geberit’s net sales remained stable at CHF 2.4 billion, affected by negative currency impacts totaling CHF 62 million. Yet, local currency net sales grew by 3%, buoyed by various factors, including the strong performance of new products like FlowFit and Alba. Notably, Alba showed substantial double-digit growth in the shower toilets category in both the third quarter and the nine-month period.

Outlook for the Future

Looking ahead, Geberit expects a challenging environment in the building construction sector, forecasting a net sales growth of 1% to 2% for the full year, and an EBITDA margin to hover around 29.5%. They anticipate capital expenditures (CapEx) between CHF 170 million and CHF 180 million, with an acknowledgment of declining trends in building permits particularly affecting the new build sector in Europe, which has seen a decline of 15% over the previous year.

Strategic Adaptation Under Pressure

The company plans to maintain strategic stability and operational flexibility amidst these challenging conditions. They intend to continue their focus on investing in innovation, sales initiatives, especially in emerging markets, and improving efficiency. Notably, they will carry forward marketing efforts to strengthen market presence despite anticipated EBITDA declines in the final quarter.

Navigating Market Trends and Pricing Strategies

Geberit has highlighted the shift in customer demand towards renovation projects, which account for approximately 60% of their sales. The company's pricing strategy will adjust to the inflationary pressures expected in 2025, alongside anticipated wage inflation of around 5%. The management remains cautiously optimistic about maintaining robust profit margins in spite of these external pressures.

Cautious Yet Positive Longer-Term View

While the near-term outlook appears cautious because of the ongoing construction sector challenges, Geberit aims to leverage its resilient strategy, innovation trajectory, and efficient operational model to navigate these complexities. Should growth opportunities arise, particularly market recoveries or increased demand for renovation solutions, the company stands prepared to enhance its investments to drive long-term sustainability.

Earnings Call Transcript 2024-Q3

[Christian Buhl, executive]

Good morning, ladies and gentlemen. Welcome to Geberit's 9 month results conference call.

We will start with the third quarter figures then comment on the 9-month development and finish as usual with an outlook. Geberit delivered strong top and bottom line results in Q3 despite continued challenging market conditions. Net sales grew in local currencies by 6%. EBITDA margin increased by 40 basis points despite the substantial wage inflation and less tailwind from lower direct material prices in Q3. EPS grew currency adjusted by 8% despite the significantly higher tax rate.

Let me now give you some comments on the sales development in the third quarter. Net sales increased by 5% and reached CHF 762 million. The currency impact affected the topline negatively by CHF 10 million or minus 1%. Hence, in local currencies, group net sales increased by 6%, all driven by volume. Volumes benefited from a base effect due to wholesaler destocking in the previous year and one additional working day. However, also a strong business performance contributed to the strong topline development in Q3. It is worth to note that wholesaler stocking effects did not materially influence volumes in Q3.

Let me turn to the regional development in the third quarter, again, in local currencies. In Europe, net sales increased by 5%. Significant growth was recorded in all regions, except for Switzerland, which was stable year-over-year and Northern Europe. Excluding the effect of the divestment of the Nordic shower business per end of last year, also Northern Europe was stable year-over-year. Outside Europe, net sales increased in Middle East Africa by 45%, driven by the continued very strong growth in the Gulf region and in America by plus 6%. Net sales in Far East/Pacific declined by 2%, driven by the market contraction in China, partially offset by growth in rest of Asia. I continue with the sales development per product area in Q3, again, in local currencies. Installation & Flushing Systems increased by 12%. Piping Systems by 1% while Bathroom Systems increased by 6%. Installation & Flushing Systems benefited from the strong destocking effect in the previous year. The relatively weaker development of Piping Systems was driven by a less favorable base effect and its higher exposure to the declining newbuild sector.

Let me now turn to the operating and financial results in Q3. We managed to grow all bottom line results from EBITDA down to EPS, both in local currencies and in Swiss francs. EBITDA grew by 8% in local currencies, and the EBITDA margin reached 31.0%. This represents a margin increase of 40 basis points with the positive operating leverage and lower direct material prices outweighing the effect of a strong wage inflation.

EBIT and the EBIT margin developed slightly more positive than the EBITDA and EBIT margin due to a lower depreciation this year. Net income increased in local currency with plus 7% and at a slightly lower rate due to a significantly higher tax rate due to the new OECD minimum taxation launch Switzerland. Net income margin reached 19.7%. Earnings per share reached CHF 4.55 and grew by 8% in local currencies, supported by share buybacks. We launched in September the new share buyback program as planned. We bought back 18,000 shares for a total amount of CHF 10 million until end of Q3.

Let me continue with a review of our net sales development in the first 9 months of the year. Net sales were stable at CHF 2.4 billion since the net sales growth in local currencies was compensated by negative currency effects. The negative currency effects led to a net sales loss of CHF 62 million or minus 3%. In local currencies, net sales increased by 3%, supported by a minor price effect at the beginning of the year. The volume growth of around 3% was mainly driven by 3 factors which compensated the declining end market demand. First, a positive base effect from destocking of wholesalers last year; second, selective restocking of wholesale in the first half of this year; And thirdly, strong sales with new products such as FlowFit, the new supply piping system, Mapress Therm and the new shower toilet, Alba. The sales development of Alba is above expectations and led to a strong double-digit volume growth at a double-digit sales growth for shower toilets in Europe.

This brings me to the regional net sales development in the first 9 months. Again, all figures refer to growth in local currencies. In Eastern Europe, net sales increased by 10%, supported by a strong base effect. In Italy, net sales increased by 6% in a still quite favorable market environment. In Benelux, net sales increased by 4%, driven by growth in the Netherlands. In Germany, net sales increased by 3% supported by a strong base effect. Note that last year's 9 months sales in Germany were down minus 13%. In Austria and Switzerland, net sales were stable year-over-year. In Western Europe, net sales declined by minus 1%, driven by sales declines in France and the U.K. Net sales in Northern Europe decreased by minus 4%, negatively affected by the divestment of the Nordic shower business per end of last year, with a negative effect of 2% on net sales.

Let me now turn to the regions outside Europe. In the Middle East/Africa region, net sales increased by 19%, driven by the Gulf region. In America, net sales increased by 3%. In Far Pacific, net sales increased also by plus 3% with strong growth in India and Australia, partially offset by the market decline in China.

Let me now comment on the sales development by the product area, again in local currencies. Installation & Flushing Systems grew 5%, and Piping Systems and Bathroom Systems both increased by 2%. Please note that installation of Flushing Systems benefited more from stocking effects of wholesalers compared to the other 2 product areas. Furthermore, Bathroom Systems were negatively affected by the already mentioned divestment of the Nordic shower business to the end of last year.

I continue with the operating and financial results in the first 9 months. Despite the significant negative currency effect, EBITDA and EBIT increased also in Swiss francs. In local currencies, not only EBITDA and EBIT but also net income and EPS grew versus the previous year. EBITDA in Swiss francs increased by 1% to CHF 754 million. Excluding negative currency effects, EBITDA increased by 5%. The EBITDA margin increased slightly by 10 basis points and reached 31.4%. The 6% lower direct material prices and the operating leverage from the volume growth compensated the following 3 main negative margin drivers. First, a wage inflation of around 5%; second, several dedicated growth initiatives, marketing efforts and additional expenditures for IT and digitization; and thirdly, a negative currency effect of 40 basis points.

EBIT grew in local currency slightly better than EBITDA by 6% to CHF 643 million corresponding to an EBIT margin of 26.8%. Net income increased in local currencies slightly by 1% and reached CHF 501 million. This compared to the operating results, lower increase was driven by a significantly higher tax rate of 19.5% due to the new OECD minimum taxation law in Switzerland.

Earnings per share reached CHF 15.13 and increased by 3% in local currencies, a better development versus net income due to the share buyback programs. In total, 164,000 shares were bought back in the first 9 months for a total amount of CHF 86 million under the old and the new share buyback program. CapEx decreased by CHF 25 million or minus 19% to CHF 103 million due to the phaseout of some large strategic plant expansions. Free cash flow increased slightly by 1% to CHF 426 million. The strong operational performance and lower CapEx were compensated by a less favorable net working capital.

Let me now comment on our outlook for the rest of the year. Overall, the building construction market is declining this year, especially driven by the new build sector. Building permits in Europe declined by 15% last year, mainly driven by the residential sector leading to a contraction of the European newbuild construction business this year. Building permits in Europe continued to decrease in the first half of this year, however, with minus 3% at a substantially lower pace. The strongest decline of the new build sector is recorded in Austria, Northern Europe and Germany. Unlike the new build sector, the renovation business, in which we generate around 60% of our sales, is more robust, mainly driven by the fundamental need for renovation in several European countries and no additional pressure from the shift from sanitary to heating solutions as experienced last year.

Despite the overall decline of the European building construction industry this year, the turnaround in interest rates in Europe and the structural trend towards higher sanitary standards should positively stimulate demand. Furthermore, we see a continuously strong demand in several markets outside Europe, for example, in India or the Gulf region. On the cost side, we expect in Q4 slightly lower direct material prices compared to Q3. However, keep in mind that the benefit from lower direct material prices compared to the previous year will continue to weaken in Q4, as you can see on Page 14 of our PowerPoint presentation.

The top and bottom line results of the first 9 months confirm that we are able to strengthen our market position also in a declining market environment. This achievement is based on our two guiding principles this year, strategic stability and operational flexibility. This means that we continue to execute on our strategic agenda as presented at the Capital Markets Day last year and that we will further invest into our businesses, into innovation and also into efficiency. Important initiatives are, for example, dedicated sales initiatives in emerging markets or our specialization strategy in our ceramic plants.

Under the assumption of no material change of this challenging market environment, we expect for the full year a net sales growth in local currencies of 1% to 2%, an EBITDA margin of around 29.5% and CapEx between CHF 170 million and CHF 180 million. Please note that net sales in October were like-for-like slightly below previous year's level. Please also keep in mind that net sales in Q4 last year were up 8% and that Q4 this year has one working day less than last year.

Let me close our introduction with a short summary. Geberit delivered strong results in Q3, both on the top and the bottom line. Despite a very difficult market environment with declining underlying demand, net sales grew and operating margins exceeded the previous year's high level. Earnings per share grew despite a significant higher tax rate driven by the new OECD minimum taxation. For the full year 2024, we continue to expect an overall declining market. However, some building construction indicators in Europe started to bottom out. The specific margin challenge for Q4 emerges from the less favorable base effect from falling direct material prices in the course of last year. However, Geberit is well prepared for the challenging environment as 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.

Before we start the Q&A session a short administrative information. We communicated a wrong date for our first information on the full year sales development 2024. This publication date will take place on Thursday, January 16 and not on Friday, January 17 as communicated until today. The calendar on our home page will be adjusted accordingly.

We are now ready to answer your questions.

[Operator]

[Operator Instructions] Our first question comes from Daniela Costa from Goldman Sachs.

[Daniela Costa, analyst]

I have a more longer-term one and then a shorter term one and I will ask them at a time. But first, I guess, sort of like looking at what you're saying now, you had very strong volume development, but there's no restocking at the wholesalers yet. The permits are still negative and about, I guess, the turn has interest rates decrease. You haven't done extra pricing this year. The raw materials are still a positive. It sounds like it's a fairly depressed backdrop and you're already doing quite close to the top end of your margin range of the 28% to 30% or 29.5%. So when we look through next year, the bar seems pretty low to get to the top end or above the top end. You always said you don't want to go above 30% margins. If you hit that scenario that things recover, what would you reinvest on to prevent you from going materially above the top end? So what's the plan there?

[Christian Buhl, executive]

First, as you know, we don't want to give any margin guidance for next year 2025. But I take your question from a longer-term perspective. On a long-term perspective, nothing has changed with the results of the last quarter, the last 9 months, we still stick to our 28% to 30% if we would have potential to be above 30% structurally or by a certain volume growth, we would invest that most probably in topics like sales and marketing or sales initiatives, for example, outside Europe, similar to what we did or started this year, these are the main areas where we would invest additional margin potential,, structurally margin potential midterm.

[Daniela Costa, analyst]

And just actually to follow up on that in the past you have been slightly above that for -- I think it was '21, '22, you were above that. How long -- how much tolerance of being above that do you have until you start to significantly reinvest?

[Christian Buhl, executive]

In all fairness these 2 years where we have been above 30% that was boosted by COVID, by a very strong demand of COVID, which was clear that that will not be sustainable. Therefore, we didn't have to think that much about bringing down the margins, so to say. That was done by nature because volumes came down.

[Daniela Costa, analyst]

Okay. And then on the shorter-term point, can you walk us through on the working capital exactly sort of what were the adverse developments? And are they temporary? Is that something that we should expect to revert short term? What caused the free cash flow to be down year-on-year?

[Tobias Knechtle, executive]

Absolutely. So the two reasons for that in the third quarter. One is the accounts receivable were higher on one side because of the higher sales that we had year-on-year. But then as well, if I look purely at the cash flow side as well, some year-on-year effect so the declination of that. The inventory declined in Q3, but less than previous year. So here again, that effect, and that was due to higher safety stock that we decided to keep. Accounts payable and other net working capital had only minor effects.

[Daniela Costa, analyst]

And those are things that you expect to reverse?

[Tobias Knechtle, executive]

On the accounts receivable, the year-on-year effect that's clearly waning out. The rest, there's no structural change in the accounts receivable in the day sales outstanding. So there, it will really evolve simply with the volume development or the sales development better said. And on the inventory, the inventory stock, that's a temporary effect.

[Operator]

The next question comes from Martin Flueckiger from Kepler Cheuvreux.

[Martin Flueckiger, analyst]

I've got three, and I'll go one at a time. I read in your press release this morning that underlying demand patterns in end markets were still negative. Just wondering, does that refer to the first half or the 9-month period overall, but not Q3 specifically? Has there been a change in Q3 in underlying demand patterns in end markets, i.e., apart from wholesalers, not doing any restocking, is it really down to end customers, i.e., private households buying more of your equipment and products? That would be my first question.

[Christian Buhl, executive]

So the statement refers to the first 9 months that we have had a declining market environment in terms of end customer demand. The difference between H1 and Q3 was not material from our point of view, also Q3 end market demand was declining across Europe.

[Martin Flueckiger, analyst]

Okay. That's helpful. And so I guess that's still just a consequence of negative building permit growth?

[Christian Buhl, executive]

Yes. I think the main driver is new build, obviously, the new build sector, and that is very much driven by the residential -- sorry, the residential sector as well and the development of last year, indicating a decline this year, that's also what we hear in the market.

[Martin Flueckiger, analyst]

Okay. That's helpful. And then Germany was quite positive, if I remember correctly, 6%, something like that. I was just wondering what the key drivers were there? And what you're hearing in terms of customer sentiment? Yes, that would be helpful.

[Christian Buhl, executive]

I think what I just said is also true for Germany, talk about the end market that fits also to Germany. Our numbers are driven by, I would say, 3 drivers. One is the base effect. We have had a very bad first 9 months last year, as I mentioned before, with minus 13%. But on the other hand, also a very strong business performance. That's the second driver of our organization in Germany, driven by, number three, a very successful development of new products. Also in Germany, I mentioned in the introduction FlowFit which is continue to do very well. The new supply piping system Mapress Therm and also Alba, they are all contributing to the development in Germany.

[Martin Flueckiger, analyst]

Okay. So I guess, in other words, you're saying you're gaining market share in Germany?

[Christian Buhl, executive]

As you know, we only talk about market shares only for 1 year, but it indicates very much to the fact that we might most probably have gained market share in the full year 2024.

[Martin Flueckiger, analyst]

Okay. That's clear. And then just a clarification question since you already -- since you mentioned it again, Alba. Did I understand correctly, you recorded double-digit sales growth in shower toilets as a result of a strong performance of Alba in the third quarter or in the 9-month period?

[Christian Buhl, executive]

In the 9-month period and in the third quarter.

[Martin Flueckiger, analyst]

Double-digit sales growth for shower, toilets overall?

[Christian Buhl, executive]

Correct, driven by Alba but also driven by growth of the premium segment, Mera is growing and a slight cannibalization of the mid-level product, Sela, and all in all, sales growth double digit and a significant double-digit volume growth.

[Operator]

The next question comes from Martin Hüsler from ZKB.

[Martin Huesler, analyst]

I have two questions. First of all, maybe on Switzerland, where I think it was the only market that hasn't really significantly improved in Q3, probably a base effect. But can you shed some more light there? Because I would have expected that Alba would be a rather stronger contributor for Switzerland. That's the first question.

[Christian Buhl, executive]

The main reason for the flat development which is indeed the base effect that I just mentioned, Switzerland was down minus 10% in Q3 last year. substantially. That is the main driver. Alba is also doing very well in Switzerland, but it's also not that much outstanding compared to other markets because with that price point, obviously, we have also opened new market segments outside Switzerland where the category is less known, but the price plays a very important role.

[Martin Huesler, analyst]

Okay. And then the second question, alluding to this 30 million extra OpEx for the full year, I was just wondering what we should expect for the last quarter? Is it like sequentially similar to what we saw in the third quarter? Or is it higher for the last quarter?

[Tobias Knechtle, executive]

I would say, sequentially similar. Yes, sequentially similar.

[Operator]

The next question comes from Arnaud Lehmann from Bank of America.

[Arnaud Lehmann, analyst]

Sorry, just to come back on the Q3, please. Was there any calendar day support? And was there any remaining pricing effect or restocking support? I guess is my first question.

[Christian Buhl, executive]

I'm not sure if I 100% understood your question, but the working day question about Q3, we had one working day more. We did not have, that was the second question, material stocking effect of wholesalers. And there was a third element in your question. Pricing was around 0.

[Arnaud Lehmann, analyst]

Okay. That's very clear. My second question is around wage inflation. Do you expect further wage inflation into 2025? Are you starting to negotiate that with your employees?

[Christian Buhl, executive]

So the general answer is, yes, we expect wage inflation in 2025. However, we do not know yet how much it will be. We are not negotiating directly in the large countries, typically, that is negotiated by the unions with representatives of companies of the industry. So we just have to accept the result. And we do not have yet the results, but we expect in general, still, I would say, significant wage inflation next year.

[Arnaud Lehmann, analyst]

And my last one, if I may, on the SG&A cost. Obviously, you had a few one-off effects including the anniversary and some investment in your OpEx. Would you expect a decline in SG&A cost in 2025 compared to 2024?

[Tobias Knechtle, executive]

Think there's quite a lot of the CHF 30 million, which stays basically the market effect, et cetera. then there's general inflation there as well, if I think of IT license costs, et cetera. So no. And then as said, we continue to invest heavily as well in the market where we see potential. So no, overall, we would not see a decline. But beyond that, it's too early to give a further indication.

[Operator]

The next question comes from Yassine Touahri from On Field Investment Research.

[Yassine Touahri, analyst]

Yes. Just a couple of questions on your comments about October being slightly down, what does it mean? Is it like low single digit down, mid-single digit down? And also, I think you mentioned that there is one working day less. Was this working day impact in October? Or will it impact another month? I'm just trying to understand the level of organic decline in volume that you see in October. That would be my first question.

[Christian Buhl, executive]

So slightly below previous year's level means slightly below previous year's level. And the working day, which is missing is a full working day, which is missing in December, but it's a full working day.

[Yassine Touahri, analyst]

And then another question, when I look at your guidance, the mid-range of your guidance, it suggests an EBITDA decline of more than 10% in the fourth quarter when you've delivered growth in the past 2 quarters. What is driving that? Is that -- is it because you're expecting a decline in volume? Is it because you're expecting some gross margin pressure because of the base effect? Would be great if I could understand a little bit more like this double-digit EBITDA decline that you're implying in the Q4 2024.

[Christian Buhl, executive]

Very sorry for this inconvenience. We had some connection problem here. Very sorry for that. So I take up your question before. You asked the question what is about the margin in the fourth quarter. There are two main drivers for the negative margin expectations in Q4. Number one is the lower tailwind from raw material prices. In the first 9 months, we had a positive effect, minus 6% price effect on the direct material prices that comes down significantly. And the second reason is that we expect volume decline in the fourth quarter with the operating leverage. These are the two main reasons.

[Yassine Touahri, analyst]

And then another question maybe on the development of raw material. We start to see some metal prices picking up a little bit, copper and other metals. Could you see an end of the cost inflation of the raw material tailwind next year? And have you started to think about a price increase for 2025?

[Christian Buhl, executive]

So for next year, I don't know what will happen with our raw material prices, since we are not hedging these raw material prices. We only have a few for the next quarter. And as we said in the introduction, we expect slightly lower direct material prices in Q4 also driven by the metal side. In terms of pricing, sales pricing next year, we will talk about that in January, not yet now.

[Operator]

The next question comes from Remo Rosenau from Helvetische Bank.

[Remo Rosenau, analyst]

Why are you actually so sure about that there was no restocking effect in the third quarter? I mean, usually, you never gave very specific quantitative figures about that. You said, well, there was a positive, there was a negative effect. But you never knew how big it was. Now you seem to be pretty sure that there was none, i.e., 0. Is that because you can track it down to just the new products which have grown so fast? Or I mean, why are you so sure now this time?

[Christian Buhl, executive]

The reason is the same as before we have the same source. We talk to wholesalers. And what happened in Q3 is the number of wholesalers who told us, yes, we increased or decreased or changed stock level but significantly, significantly lower than in the quarters before. We have one or two examples where a wholesaler said, yes, a little bit built up stocks. That's the reason why we said we believe that there is no material stocking effect. So it's, again, the same source, it's a qualitative source, but which has a number in terms of how many wholesalers also, by the way, by complex, give us an indication that has come down massively. This is the reason why we believe that there was no material stocking effect on our sales side in the third quarter.

[Remo Rosenau, analyst]

Okay. Good. Fair enough. Then about the building permit issue, you lined out that they were down once again in 2024. Obviously, there is a significant time lag from building permits to execution of new housing and particularly in Germany. This would indicate that new housing volumes in Europe and particularly again in Germany, might still be negative in '25, at least in H1, would you agree on that view?

[Christian Buhl, executive]

I agree on the view that building permits have a time lag in our business typically to -- from 9 to 15, 18 months, I agree on that. And I also agree that especially Germany, building permits are still down. So in the first half of the year, building permits in Germany were still down minus 11%, much less severe than the year before, but it's still minus 11. If you look at the residential sector in Germany, building permits in the first half of the year are still down minus 25%, again, less severe than in H1 last year, which was minus 34%.

However, there are other markets, which are more on the positive side, which turned into green in terms of building permits, for example, Netherlands, also in Switzerland, some countries in Eastern Europe. So all in all, the building permits started to flatten out in Europe. But Germany specifically, is still down in the first half of the year.

[Remo Rosenau, analyst]

Okay. And is at least the execution time lag, has it decreased in Germany now because in the boom times, you had the [indiscernible] issue. Does it now, is it faster from permits to execution, or is it still quite a long time?

[Christian Buhl, executive]

No, honestly, I don't think so. Again, more on anecdotal evidence in general, it goes rather longer than shorter. But that's a general problem because of regulation, which is increasing, not only in Germany but all the countries. Therefore, we don't have any indication that the lead time to the building permit and sales at Geberit is shortening, for example, in Germany, no.

[Operator]

The next question comes from Harry Dow from Redburn Atlantic.

[Harry Dow, analyst]

I think I got three questions, if possible. Firstly, when you talk to wholesalers, I wonder if you got a sense of how much higher inventories are year-on-year just to get a sense of how sort of -- how much the easy comp effect, if you want to call it that from destocking last year has benefited volumes this year.

And then secondly, on the impact from volumes, obviously, the growth was robust in the third quarter, but also the drop-through from the volumes seems very good as well. I wonder if there's a particular reason why the volume leverage seems very high in the third quarter? And I know there's product mix built within, I think, the volume effect in the bridge. So I don't think there's any particular effect from product mix on the margin as well?

And then thirdly, just on the expansion outside of Europe, obviously, that's bringing solid like-for-like growth. I wondered if you could comment on the margins in those regions where the margin is higher or lower in those growth regions outside of Europe?

[Christian Buhl, executive]

So I start with the last one. The margins outside Europe are slightly lower than in Europe. However, obviously, the growth which we're expecting, especially in the markets, which are going very well at the moment, like, for example, the Gulf region or India, we expect economy of scales, obviously because basically, we are leveraging the sales force in these countries.

Second question, operating leverage, nothing structurally changed in the third quarter or in the first 9 months compared to the first 6 months, sorry, in terms of operating leverage.

And the first question, obviously, I didn't really understand. Can you repeat that again, please?

[Harry Dow, analyst]

It was just around sort of wholesale inventory levels. I know it's very difficult to -- when you talk about -- when you talk to wholesalers, whether the inventories that they have today, what -- where they are versus where they were a year ago, i.e., to maybe get an idea from our side what the kind of year-on-year easy comparison base effect from destocking last year.

[Christian Buhl, executive]

So compared to a year ago, the wholesaler stock levels are higher compared to a year ago, but there was no effect in Q3, that already happened in the first half.

[Operator]

The next question comes from Christian Arnold from Stifel Schweiz.

[Christian Arnold, analyst]

Germany. I mean this plus 6.8%, here, you clearly outperformed the market. And I wonder what has changed Q3 versus H1? I mean I know there was a positive base effect, but the base effect was actually less positive in Q3 versus H1, but you increased your sales performance or growth from 1.7% in the first half to the 6.8%. So I wonder, yes, have you seen some change in Germany in Q3 versus H1?

[Christian Buhl, executive]

No. I think also in Germany, although with the big market, looking to the quarterly numbers, it's a bit dangerous because you always have a little bit of effect between quarters. I rather would look at the 9-month figure, and there I would agree with your statement that we are doing very well internally. 3% plus in this environment, although there is some stocking, although we have a base effect is a very strong result. And I think it's a good testimony that the way how we are navigating through this crisis, especially in Germany over the last 2 years is paying off. We are befitting from these two principal. Strategic stability, which is, for example, in a sales organization, absolutely important. We did not decrease any sales efforts over the last 2 years. We are visible, we are present with customers, we are there in a very difficult market environment. And secondly, on top, we have a beautiful basket of new products, which we can bring to the market with benefits for customers. So it is I think a combination of the right way how we navigate through that environment, especially in Germany, with a strong innovative product portfolio.

[Christian Arnold, analyst]

Okay. Then on the volume and product mix effect in Q3, this plus 1.8% you show here on the bridge. I mean, is it fair to assume the larger part of that comes from the volume and a smaller part comes from product mix? So thinking about installation system outperforming the other two, think about Germany outperforming the other two where you probably also have above-average margins. So is it fair to assume to see that, yes, the volume effect is more dominant than the product mix effect?

[Christian Buhl, executive]

Your assumption is correct.

[Operator]

We have a follow-up question from Martin Flueckiger from Kepler Cheuvreux.

[Martin Flueckiger, analyst]

The share buyback program, which was launched, if I remember correctly, in September, could you tell us -- and I know you've provided an overall figure, but the old share buyback program is finished. So I was just wondering whether you could give us a net figure for the new program as of the date of launch, that would be helpful.

[Tobias Knechtle, executive]

So we started in early September. We bought back just about 18,000 shares that were CHF 10 million in September.

[Operator]

The next question comes from Christoph Dolleschal from HSBC.

[Christoph Dolleschal, analyst]

Sorry to be late a bit, but another follow-up on the wholesale inventories, probably a qualitative statement from your side because you said that you speak to them quite a lot. Would you say that they're currently stating that they're back to normal inventory levels? Or are we still below normal levels because they want to go for some safety cushions? That would be the first one.

[Christian Buhl, executive]

It depends on the question what you define as normal. If normal is what has been before COVID 2019, then it's clearly below. But maybe it is normal in the context of the current market environment. But it's below 2019.

[Christoph Dolleschal, analyst]

So to speak new normal levels, right?

[Christian Buhl, executive]

It is difficult declining market environment, it could be, I don't know. It could be that that is kind of the level which wholesalers think is the right level to have at the moment with a digital market.

[Christoph Dolleschal, analyst]

Then the next one would be on the plumber lead times in Germany that you always give. Where are we there currently?

[Christian Buhl, executive]

Nothing changed compared to our H1 communication, still the last number we have is 12.9 weeks. Which is significantly lower than the previous year, where we have been at 17.7 weeks. But the same information as we already had in H1.

[Christoph Dolleschal, analyst]

Okay. And last but not least, probably a bit of reflection on the Nordics region because that one was with Germany, one of the most problematic regions, say, in the last year or so and that also has now recovered. How much is your Nordic shower business benefiting? I mean I see that without basically clearing that out, it leaves us also 2%, 3% down year-on-year in the third quarter. So what is your thoughts on the Nordic region? How are we looking there?

[Christian Buhl, executive]

So for the markets, a little bit similar as for Germany, a declining environment. Keep in mind, building permits in Nordics were down minus 23% last year. Also, there is a similar picture in the first half of the year a deceleration but still declining in the first half of the year, building permits in the Nordic region were down minus 12%. So sequentially less worse environment. Looking at our numbers, which are negatively affected by around 2% of the divestment, we are very satisfied because in that declining environment, again, I think we're doing quite well.

[Operator]

The next question comes from Axel Stasse from Morgan Stanley.

[Axel Stasse, analyst]

I have two, if I may. The first one is about the like-for-like sales guidance that you provided. And I think you said that it was under the assumption that the construction market remains unchanged versus the third quarter. And I know you have said that you have less working day, like one less working day in Q4. But is it fair to assume that this guidance can be easily reached, especially if we see, for example, Germany continue to sequentially improve in terms of the residential permits?

[Christian Buhl, executive]

So the guidance -- topline guidance is based on 3 observations. Number 1 is, as we said before, October is down slightly like-for-like compared to previous year. Secondly, the base effect, don't forget that November and December last year was very strong. All in all, the quarter was plus 8%. And the third one, you already mentioned is the working day effect, technical effect. This is the reason why we expect the decline in the fourth quarter.

[Axel Stasse, analyst]

Okay. Okay. And then last one, sorry to come back to that, but some of your peers have suggested that pricing remain subdued next year. Is it fair, however, that Geberit should remain in terms of pricing resiliency to remain quite strong given the potential volume recovery that you can see next year, but also the inflation in OpEx that you have mentioned earlier. And perhaps even some raw material prices going up as well? Or are there other elements in the equation that I'm missing?

[Christian Buhl, executive]

The main elements in the equation are on the cost side, obviously, the inflation on the cost side, be it wage inflation, be it where the raw materials might go, the general inflation, as Tobias mentioned before, that's one part of the equation. And the other one is, of course, customer relation. To understand where we will be positioned versus customers and that's in the light of competition. So these are the main elements of the equation, how we define our pricing strategy, yearly pricing strategy in general and that we will also apply now for the next year.

[Axel Stasse, analyst]

And can you please -- sorry, to follow up here. Can you please tell us when you will have these discussions with the wholesalers? Is this at the end of the year or early next year?

[Christian Buhl, executive]

It's towards the end of the year. It's towards the end of the year. So what we always do, we do list prices obviously. And then with list prices, then you start to negotiate bonuses and rebates with individual wholesalers and then that brings you obviously then to a net price effect. And that's what we are talking about in the capital market communication.

[Operator]

The next question comes from Charlie Fehrenbach from AWP.

[Charlie Fehrenbach, analyst]

Can you may tell us something about your expectations, at least for the beginning of 2025 in January and not meant as a financial guidance, of course.

[Christian Buhl, executive]

No, as you know, Fehrenbach, we are very disciplined in terms of our market outlook, which we will provide on 16th of January now with our first info. Then we also talked about the beginning of next year. We just talk about 2024 at the moment.

[Operator]

The next question is also a follow-up from Martin Hüsler from ZKB.

[Martin Huesler, analyst]

Sorry, just a very small question about the depreciation where you mentioned that in Q3, it was lower and actually in H1, it was above last year. What was the driver there? And what should we expect for the full year?

[Tobias Knechtle, executive]

So it's mostly a base effect. We had last year a one-off depreciation of some assets, which we mentioned in Q3 last year. That's the main reason. Otherwise, if you look at the absolute figure quarter-by-quarter, that is relatively stable. So no special effect this year on the depreciation.

[Operator]

There are no further questions. Back over to you for any closing remarks.

[Christian Buhl, executive]

Thank you for your participation. And again, sorry for the inconvenience with the interruption. We wish you all a great day, and thank you very much. Goodbye.