Geberit AG (OTCPK:GBERY) Q2 2022 Earnings Conference Call August 18, 2022 3:00 AM ET
Company Participants
Christian Buhl – CEO
Conference Call Participants
Xiaolu Zheng – Credit Suisse
Yves Bromehead – Exane BNP Paribas
Arnaud Lehmann – Bank of America
Christian Arnold – Stifel Schweiz
Cedar Ekblom – Morgan Stanley
Patrick Rafaisz – UBS
Yassine Touahri – On Field Research
Manish Beria – Société Générale
Christoph Dolleschal – HSBC
Martin Flueckiger – Kepler Cheuvreux
Alessandro Foletti – Octavian
Daniela Costa – Goldman Sachs
Matthew Donen – Morningstar
Operator
Ladies and gentlemen, welcome to the Geberit First Half Year Results 2022 Conference Call. I am Sandra, the Chorus Call operator. The conference must not be recorded for publication or broadcast.
At this time, it’s my pleasure to hand over to Christian Buhl, CEO. Please go ahead, sir.
Christian Buhl
Thank you for the introduction, and good morning, ladies and gentlemen, and welcome to Geberit half year results conference call.
Geberit achieved good results in the first six months of 2022, and especially considering the strong comparison basis with the record high results of last year. Let me start with a few key statements for the first half of the year. We achieved again a strong double-digit net sales growth in local currencies of 11%. Secondly, the unfavorable currency development led to a negative effect of around 6% on top and bottom line.
And thirdly, the unprecedented increase of raw material and energy prices led to a temporary pressure on operating margins since sales price increases can only be passed on with a certain delay in the sanitary industry.
Let me begin, I will review with a few comments on the top line development in the first half of the year. Net sales in Swiss francs increased by 5.5% to CHF1.93 billion, negatively affected by strong currency effects. In local currencies, net sales increased by 11.3%.
This means that compared to the pre-COVID level in 2019, net sales grew by 30% in local currencies over the last three years. 60% of the 11.3% top line growth in the first half of the year was driven by the sales price increase.
The remaining volume growth of 4.5% was achieved despite the strong comparison and a weakening home improvement trend. The demand in the first half was driven by still healthy activities in the building construction sector and some forward buying effects due to the extraordinary sales price increase implemented as of July.
Moving now to net sales growth per region, again, in local currency, and start with Europe. All European markets delivered strong growth rates with an overall net sales growth of 11%. Double-digit growth rates were achieved in Eastern Europe, which got 26% despite the collapse of the business in Ukraine and the suspension of the business in Russia.
Geberit Peninsula achieved a growth of 25%, Italy 19% Benelux plus 15% to U.K. 14% and France plus 11%. Single-digit growth rate was achieved in the Nordics with plus 9% in Austria with 8%, Germany with 7%; and in Switzerland with plus 5%.
Let me now turn to the regions outside Europe. Net sales in the Middle East and Africa region increased by 22% with growth in all major countries and regions. Net sales in Far East/Pacific were up by plus 6%, negatively affected by the lockdown in China in the second quarter. And in America, net sales grew by 5%.
Let me now comment on the sales development per product area, again in local currency. The strongest growth was recorded in Piping Systems with a net sales growth of plus 15%, driven by a stronger price increase compared to the other two product areas and the very good development of the new FlowFit supply piping system. Installation & Flushing Systems net sales grew by 13%, and Bathroom Systems were up by 6%.
The lower growth of Bathroom Systems was driven by smaller sales price increases compared to the other two product areas and the weakening home improvement trend. Let me now give you some comments on the sales development in the second quarter, again in local currencies.
Net sales increased by 9.6%. Thereof, around 7% was driven by price increase. The remaining volume growth of around 2.5% was positively influenced by pre-buying effects from the extraordinary price increase of 7.5% as of July this year. The sales decline in Far East/Pacific by minus 5% was driven by the lockdown and shutdown of our plant in Shanghai, which produces for the local markets in Far East/Pacific.
The product areas showed similar growth dynamics in the second quarter as in the first quarter. Piping Systems and installation and Flushing Systems grew double digit by 12%, respectively, 11% and Bathroom Systems grew by 6% in the second quarter. Let me now comment on the operating and financial results in the first half of the year. EBITDA in Swiss francs decreased by minus 10% to CHF561 million. Excluding negative currency effects, EBITDA decreased by minus 5%. EBITDA margin reached 29.0%.
The margin decline of 520 basis points compared to the previous year is mainly driven by the COVID-19-induced record high margin levels in the previous year’s period and the unprecedented input cost inflation. Raw material prices were currently adjusted, up by 25%. Energy prices literally exploded currency adjusted by 104% and transport prices were up by 13% in the first six months. The sales price increases in the first half of the year did not yet fully compensate for this input cost inflation since there’s a general time delay to pass on price increases in the sanitary industry due to the multilevel distribution channel.
The multilevel distribution structure caused a time lag in the passing on of prices since downstream customers, distributors and sanitary installers need sufficient time to adjust their prices versus their respective customers. In other words, this inflationary margin pressure is temporary.
We intend to fully compensate raw material and energy price inflation with sales price increases during the second half of the year. Other, however, less pronounced negative margin drivers in the second half – in the first half of the year were a wage inflation of 2.7%. The normalization of marketing and travel costs after COVID-19 and planned investments in digitalization as presented in our full year analyst conference this year.
The year-on-year margin pressure increased in Q2 to minus 670 basis points from minus 370 basis points in Q1. The drivers for the weaker year-on-year margin dynamics in Q2 versus Q1 were, firstly, the lower volume growth in Q2, leading to lower operating leverage.
Secondly, a shift of marketing and travel expenses from Q1 to Q2 due to a COVID-19-driven shift of fares and physical customer activities from Q1 to Q2 this year. This led to CHF10 million higher cost of marketing and travel in Q2 compared to Q1.
The third reason for the increased margin presence was the acceleration of energy price and wage inflation. Energy price inflation accelerated from 94% year-on-year in Q1 to 143% year-on-year in Q2. And the accelerated wage inflation from 2.3% in Q1 to 3% wage inflation in Q2.
The margin decreased in the second quarter should not be seen as sustainable due to the before mentioned temporary effects of delayed impact of sales price increases. After the discussion of the EBITDA margin, let me now comment on the other operating results in the first half of the year. EBIT decreased in local currencies, in line with EBITDA by minus 5%, reaching an EBIT margin of 25%.
Net income decreased in local currencies, also in line with EBIT by minus 6%. Earnings per share decreased less in local currencies by minus 4% to CHF11.56 due to the accelerated share buyback program.
In total, we bought back 506,000 shares in the first half of the year for an amount of CHF294 million. Free cash flow decreased by 42% to CHF191 million, mainly driven by the lower operating cash flow and negative net working capital effects. Capital expenditures were at previous year’s level. Let me now comment on the current business environment. Current building construction activities in Europe are healthy due to ongoing projects and open order backlogs, both in the residential and nonresidential sector.
However, the COVID-19 induced trend to home improvement weakened and seems to fade out with lower activities again in customer showrooms compared to the last two years. Sales in July were below previous year negatively impacted by prebuying in June due to the extraordinary price increase as of July. Let me now briefly give you an update on the situation in Ukraine and Russia and our dependency on Russian gas deliveries.
Our Duravit plant in Ukraine is producing almost a normal level again. However, demand in Ukraine is still very low. Overall, gas consumption is mainly driven by our 10 ceramic manufacturing plants, thereof only the two plants in Germany and the smaller one in Italy, depend and only partly depend on Russian gas. Therefore, less than 10% of our entire gas consumption depends on Russian natural gas deliveries. An internal task force developed several contingency measures in case of a delivery stop or a significant reduction from Russia. For example, the shift of products to other plants, or the switch to liquefied petroleum gas in LPG instead of using natural gas.
Let me now comment on our outlook for the rest of the year. The ongoing year-based geopolitical risks and the continuing uncertainties regarding the COVID-19 pandemic make an outlook obviously, very difficult. Macroeconomic risks have increased due to record high inflation and higher interest rates. Furthermore, the uncertainty of possible destocking of inventory levels in the distribution channel in the light of a potential economic downturn has increased. The situation in the supply chain remains challenging with regards to availability.
However, several raw material prices started to decline. Overall, we expect raw material purchasing prices for Geberit to develop sideways in the third quarter on the very high level of the second quarter this year.
However, the sequential sideway development implied that year-on-year raw material prices in Q3 are still between 15% and 20% above the level of Q3 last year. Online raw material prices, energy purchase prices are expected to sequentially increase in Q3 compared to Q2 this year.
Despite the increased uncertainties and risks, we will continue to stick to our priorities defined for 2022. First priority remains a consequent pricing management to address the unprecedented raw material and energy price inflation, which led to a temporary inflationary margin pressure in H1. After the sales price increase of 7.5% in July, we will again increase sales prices per end of Q3 in selected countries for selected products due to the further increasing energy prices.
The total sales price effect on group level is expected to be around 2% with an impact as of Q4 this year. With this, we stick to our goal in pricing management to compensate raw material and energy price inflation, not on a quarterly basis, but over time, due to the before mentioned delay of passing on sales prices in the sanitary industry.
A second priority this year remains our newly introduced products, especially the further rollout of the new supply piping system FlowFit, and the execution of various improvement projects along our strategic agenda, for example, in the area of digitalization.
And finally, based on our strong balance sheet and strong cash generation, we continued to execute our share buyback program. The new program in the amount of CHF650 million has immediately after the completion of the old program at the end of Q2 started and will run over a period of maximum two years.
With these priorities and under the assumption of no material changes of the geopolitical macroeconomic and build construction environment, we expect for the full year in local currencies, a high single-digit net sales growth and an EBITDA margin of around 28%.
This full year margin guidance implies much lower margin pressure in the second half of the year due to the impact of sales price increases. In other words, we are confident that Q2 marks the bottom end of the margin development in this highly inflationary environment, assuming, of course, no new surge of raw material prices.
Let me close our introduction with a short summary. Geberit achieved good results in the first half of the year, with a strong top line growth driven by volume and price increases. Record high raw material and energy price increase not yet fully compensated by sales price increases, led to a temporary inflationary margin pressure in H1.
Due to the implemented and upcoming price increases affecting during the second half of the year, we expect to compensate raw material and energy prices per end of the year. Of course, under the before mentioned assumption that these prices do not start to increase again as of Q4.
Due to our strong balance sheet and our strong cash generation, we accelerated our share buyback activities and will continue to do so. The current level of activity in the European building construction industry is still healthy due to ongoing projects and order backlogs. However, geopolitical risks remain high and macroeconomic risks have increased. Also uncertainties regarding a potential destocking of the high inventory levels of wholesalers have increased.
Nevertheless, Geberit is very well prepared to also master these challenges and uncertainties emerging from this unprecedented environment, as already demonstrated several times during the past. Our confidence is based on our resilient strategy and our resilient business model. Our innovation capabilities and strong customer relations, our pricing power, our financial strength with an industry-leading profitability and finally, our long-term value creation focus and track record.
Before we start the Q&A session, allow me to address one topic upfront. We are aware that the average market expectation did not anticipate the weakening operating margin dynamics in Q2. The key drivers for the EBITDA margin gap between consensus and actuals are: first, the before mentioned shift of marketing and travel expenses from Q1 to Q2, CHF10 million.
Secondly, the acceleration of energy prices and wage inflation in Q2 versus Q1, and thirdly, the assumption of a too fast impact of sales price increases. However, as I said before, we consider the operating margin compression in Q2, to a large extent, as temporary. We are confident that operating margins will improve again and of H2.
Thank you for your attention. We are now ready to answer your questions.
Question-and-Answer Session
Operator
The first question comes from Xiaolu Zheng from Credit Suisse. Please go ahead.
Xiaolu Zheng
Good morning. This is Zheng from Credit Suisse. And thank you for taking my questions. I would like to ask about the pricing actions. Could you please quantify the incremental size of the extraordinary price increase in October? And when is going to be announced to distributors, if hasn’t been done already? And also, can I just clarify whether I understand correctly that the 2% you mentioned is the total price action what’s ruining to P&L at group level by Q4 this year? Thank you.
Christian Buhl
You’re right. The total effect of this selective price increase as of Q4 is 2% on group level. Obviously, the individual price increases of product level comes to a level or higher. These price increases have been already communicated to the market.
Xiaolu Zheng
And how much is the price increase to be implemented in October?
Christian Buhl
These are the 2%, maybe it’s a misunderstanding. As of October, we increased prices with an effect of 2% on group level.
Xiaolu Zheng
Right. Understood. Can I touch a bit more on the pull-forward demand. Would you be able to give us an idea of the size of inventory buildup at wholesalers? And given you mentioned the risk of destocking has increased. I’d like to understand how much do you incorporate the destocking effect into your estimates?
Christian Buhl
We don’t have exact figures about the inventory level wholesalers. But we are pretty sure that the inventory levels at the end of Q2 has been at a record high level, also driven by our extraordinary price increase as of July. This also led to a sales decline in July, obviously, also volume decline.
Xiaolu Zheng
Right, got it. Thank you very much.
Operator
The next question comes from Yves Bromehead from Exane BNP Paribas. Please go ahead.
Yves Bromehead
Good morning, gentlemen. Thank you for answering my questions. Just coming back maybe on the last question regarding demand and the inventory risk. Can you maybe give us a view as to which countries you are seeing more risk? And especially with regards to your comments to the – or as to the month of July, where you mentioned year-on-year sales were down. Are there any specific regions where you’re seeing more acute pressure of this sort of end of the renovation spread that we’ve seen?
Christian Buhl
No, it’s across – it’s across the board because we implement similar price increases in all the countries as of July.
Yves Bromehead
Okay. Second question, thanks for the color between the Q1 and Q2 sort of impact of all the aspects of the bridge between marketing, energy and wage. If we were to sort of roll out to Q3 and even in Q4, can you maybe give us your view, especially on the wage inflation, which ones, I think you said from 2% in Q1 to 3% in Q2? Do you expect further pressure to build throughout the rest of the year as well?
Christian Buhl
We expect for the entire year a wage inflation of around 3%. We have had a wage inflation of 2.7% in the first half of the year. So in other words, we expect a slight acceleration of wage inflation in the second half of the year compared to H1 or also Q2.
Yves Bromehead
Okay. And maybe lastly, just maybe more of a medium to longer-term question. Based on your recent sort of marketing and branding strategy where you’ve implemented the Geberit brand in your ceramic dividends. Can you maybe give us some color as to the effectiveness of that? Are you already seeing some market share gains? Are you seeing some stronger trends on the volume side on the back of that strategy. Can you give us any color on that?
Christian Buhl
This is a very difficult question or an easy question, but it’s a very difficult answer because it’s very hard to quantify what is the top line effect from this brand harmonization. From a quality perspective, I can give you a feedback. We believe it was positive. We didn’t gain massive market share. I would say that will be exaggerated. But first of all, we made sure that we didn’t lose sales and market share and the feedback from customers, the quality of the feedback is very positive. So from that perspective, I think overall, it was positive to have, but we don’t have a quantitative number for whatsoever market share, top line improvement, thanks to the brand harmonization.
Yves Bromehead
All right. Thank you. That’s it for me. Thank you. Bye.
Operator
The next question comes from Arnaud Lehmann from Bank of America. Please go ahead.
Arnaud Lehmann
Thank you very much. Good morning, gentlemen. Just coming back on the divisions. I think you mentioned some innovation. I believe it was in the piping system that boosted the sales in the second quarter, do you mind coming back on that, please? And just making sure I heard correctly around the trend in July, you said that volumes were declining, did you give the order of magnitude of the decline? Thank you very much.
Christian Buhl
Of course there’s a new supply piping system introduced last year 2021, in a selected number of countries. And this year, we rolled it out to another couple of countries and also there, the acceptance of the system is very strong. And also in the countries where we introduced the product last year, we still – we see a very good and strong demand this year. Overall, we are above budget and planned with this newly introduced piping system. And the second question was around – sorry, for July.
Christian Buhl
Thank you. Sales were below previous year in July since we have also a strong price effect in July. We have increased prices by another 7%, volumes were declining more, obviously, than the sales decline.
Arnaud Lehmann
Thank you very much.
Operator
The next question comes from Christian Arnold from Stifel Schweiz. Please go ahead.
Christian Arnold
Good morning, gentlemen. I have a question about your EBITDA margin bridge you’re showing on Slide 14, for Q2. You’re pointing out this very strong order cost – other cost effect of minus 4.4% on your margins, explained by energy costs that, of course, it’s very clear wage inflation. And if I look now at your personnel expenses, in relation to sales. It actually had – it came down from 22.3% to 21.4%. So in Swiss franc terms, I believe it would have been a positive impact on margins. You are telling us here now this negative impact from wage inflation. So how do I read that here in this bridge?
Christian Buhl
Maybe to misunderstand is the negative impact, what I was talking about in the introduction, I was just comparing the year-on-year development from Q2 and Q1. And since we have had a strong wage inflation in the second quarter around 3% versus the first quarter, where the wage inflation was only 2.3% that has a negative effect in terms of year-on-year margin development. That’s what my statement.
Christian Arnold
Okay. We’re asking differently, this negative impact other cost affects you are mentioning is also from this 4.4%, one part is wage inflation. So that somehow would then exclude the positive FX effects, which are then shift it over to the currency effect, it have to be that way?
Christian Buhl
Is core. The 4.4% is excluding the currency effect.
Christian Arnold
Okay. Okay. On personnel expenses, which are obviously positive.
Christian Buhl
Correct.
Christian Arnold
And on the material cost, probably the currency effect was also positive.
Christian Buhl
Correct.
Christian Arnold
So where does the negative currency effect come from? You are stating here minus..
Christian Buhl
As you know, we have a pretty good balancing of the currencies. It’s still the shift in the euro and the second effect is the Turkish lira, which continue to devaluate and had a slight negative impact.
Christian Arnold
Okay. And second question I have is on the plants exposed to Russian gas. You are mentioning today that there are two plants in Germany and a smaller one in Italy. If I recall correctly, with Q1 reporting, you were talking about two plants in Germany and two plants in Poland. So have you already shifted your gas supply in Poland to other sources?
Christian Buhl
Less but was not us, but it was a country in Poland, which has decided to start to implement to get independent of the Russian gas per end of the year. So Poland is currently building a pipeline to get gas from Norway, which makes them independent from the Russian gas per end of the year. And furthermore, they have also a relatively high inventory levels at the moment, has about 99% gas inventories.
Therefore, we consider the risk at the end of the year that our two plants in Poland are affected by supply shortage or a stop of Russian gas that’s relatively low. This is the reason why we are not looking at them again and the Italian plant, we didn’t mentioned in Q1 because it’s just a smaller plant, but it’s also depending to a certain small part on Russian gas.
Christian Arnold
Okay. There’s no decision made so far that you are going to change your German plants to LPG?
Christian Buhl
No, yes, not yet. It’s still a plan, it’s still in the drawer but we have taken some other mitigation measures, which we have started to implement to ensure that we lower the risk. With regards to LPG, we have not yet implemented this switch because it’s also costly.
Christian Arnold
Could you give us a guidance about how much it would cost?
Christian Buhl
No, we don’t want to do that. Sorry.
Christian Arnold
Thank you very much.
Christian Buhl
Welcome.
Operator
The next question comes from the Cedar Ekblom from Morgan Stanley. Please go ahead.
Cedar Ekblom
Thanks very much. A couple of questions from me. First of all, on your energy costs, you’ve quantified for us your expected increase in raw materials and energy for Q3? Could you give us a similar guide on the energy cost component? Could you talk a little bit about what those contingency plans are that you’re actually putting in place for your German assets at the moment?
And then just a final question on understanding your comments around the second half margin development. So I think with July sales being down year-on-year and probably double-digit pricing impact, from the beginning of July. Your volumes are probably down double digit as well. And I would just like to understand how significant negative volume impact at the beginning of H2 and the impact from an operating leverage perspective, square off with your comments that you think you’re EBITDA margin trough in the second quarter? Thank you.
Christian Buhl
Question number one. Unfortunately, we can’t quantify, can’t give you guidance what energy prices will do in the third quarter because these prices are highly volatile, sometimes even daily prices. We are not – we have only a hedge of around 20%, even maybe a little bit less than Q3. Therefore, we can’t and I can’t give you a guidance in terms of positive increase of energy prices in Q3 versus Q2.
The contingency plan in Germany, I just talked about that before in terms of switching to LPG is 1, another one is switching products to other plants, which are not impendent on Russian gas or a third example is also thinking about smoothing production plans in a week to make sure that we have a lower gas consumption or less peak gas consumption. These are a couple of examples what we are doing in Germany.
With regards to the volume in H2 and July, as I said before, volumes were declining in July, more obviously than sales because you are right, we had a strong positive effect of sales. All in all, for the second half of the year, our full year guidance implies that we expect volumes in the second half of the year to be slightly down, driven by on the one hand side, the weakening home improvement trend or fading out home improvement trend and secondly, also addressing the risk of certain destocking effects from wholesalers.
Cedar Ekblom
So then if I can just follow up, the comments around the second quarter margin being the trough, you’re going to have negative operating leverage in the second half. You’re going to have maybe flat raw materials but higher energy costs. What are we needing to think about in terms of incremental price increases beyond that 2% in order for the H1 margin or the Q2 margin to be the low. And if my moving parts don’t make sense. I just don’t understand what I’m missing there in terms of Q2 is being the low?
Christian Buhl
I think what is missing – is the pricing effect you’re underestimating the sales price effect. If you add on all the extraordinary price increases, which we did, and by the way, we did now four extra price increases this year or including Q4, we will have implemented four price increases this year. We also increased prices Q3 last year and H1 last year also the positive impact. So the impact of all these sales price increases in the second half of the year should be around 12% and this is deposit driven.
Cedar Ekblom
Okay. Thank you very much.
Operator
The next question come from Patrick Rafaisz from UBS. Please go ahead.
Patrick Rafaisz
Yes. Thanks, and good morning, everyone. And apologies for sticking around on this topic. But thinking about the EBITDA bridge for the second half, right, using the chart you saw for the first half. Your guidance obviously implies a flat margin of around 27% year-on-year in H2. Now I assume that the other cost effects will still be negative, right? You won’t get a benefit from volume and mix that might even be negative as well in the second half.
So your net price effects have to be significantly positive. So you will be overcompensating, which means the gross margin should show a nice year-on-year improvement in the second half? Does that make sense?
Christian Buhl
The logic makes sense with one additional assumption. We don’t know yet raw materials in Q4. But let’s assume raw material prices in Q4 stayed stable on the level of Q3 and Q2. Then we have a relatively limited impact on raw material prices still a bit, obviously, in H2 coming now from Q3, but we will have a strong top line effect because, as I said before, price increases in the second half of the year should be around 12% effect. Let me briefly repeat how we increased prices this year.
At the beginning of the year, we increased prices always in average across the group by around 1.5%. As of April, we increased by another 2.5%. So we are at 4. Then we added 7.5% as of July, 11.5%. And then we added another two in Q4. And then you have to deduct the base effects from price included last year.
All in all, if you do the math, this is a price effect expected to be around 12%. So your logic is right under the assumption that raw material prices stay stable in Q4 versus Q3.
Patrick Rafaisz
And with a bit of upside, should raw material prices decline?
Christian Buhl
That is whatever your view is. I just utter the assumption.
Patrick Rafaisz
Okay. Okay. Perfect. And then also just to be perfectly clear on the implied growth guidance, right? So high single digit means something like mid-single digits growth in H2 with local currencies, 12% price. So a mid-single-digit decline in volume, that will – can’t be stocking, right, and maybe softening trends. Now where exactly on a country level, do you see the negative volumes to come from, right? If I look at the H1 split. It seems that America Far East and maybe Switzerland were already negative on volumes, but the rest was still pretty solid. So yes, where do you expect the biggest deteriorations in the second half?
Christian Buhl
I think it will – we expect more across the board because I said before one element of this expectation effect in all the theory– the expectation of certain destocking. And since stock levels are at a very high level, in all the countries, we expect that it will be also affected by all the countries across the counties. Therefore – sorry Therefore, no specific countries where we believe that we will see a more significant volume decline.
Patrick Rafaisz
And would you say that’s mostly Q3 effect then? Or could that last also into Q4?
Christian Buhl
I don’t know to be honest. I don’t know.
Patrick Rafaisz
Okay. Thank you for the clarification.
Operator
The next question comes from Yassine Touahri from On Field Research. Please go ahead.
Yassine Touahri
Good morning, gentlemen. My question would be on the outlook for improvement. When I look at Geberit as a group, it looks like your volume are approximately 20% above 2019 because you had a big wave of home improvement during the COVID. And when I look at the most recent permits on renovation, for example, in Germany, I see double-digit decline in permits. So my question is, could we see the renovation in your countries going back to the 2019 level or is it too specific?
Christian Buhl
First of all, you’re right. The volume growth of was around 20% during COVID-19. Or in other words, we were growing by around 6%, 7% year-on-year with volumes. And we always said we don’t believe that this – we said that this number will not be sustainable. We believe that on the midterm, we will go again back to a normal volume growth, obviously, not year-on-year, which is maybe around 3%, 3.5%.
And there’s no reason why we should believe midterm that this should not be the case. Obviously, that doesn’t say what can happen year-by-year, for example, by destocking effect or also a weaker consumer sentiment. But we don’t believe that is also the reason why we never changed our midterm guidance in terms of top line development, that needed the COVID-19 situation nor the uncertainties and risks we are facing right now has an impact, a negative impact on our midterm outlook in terms of top line growth, volume and price.
Yassine Touahri
And is there any way for you to assess out of this 20%, what was related to the pandemic or is it too hard to distinguish?
Christian Buhl
That’s what I said before. I think normal times, we are growing typically 4% in volume, it was more six. And the difference was driven by COVID-19, some markets, a tailwind, but also I think the management – how we managed COVID-19, a combination of stronger market tailwind and market outperformance, which was also stronger throughout the COVID-19 period.
Yassine Touahri
And could you see your market underperformance as your competitors face less supplier disruption if demand is coming down?
Christian Buhl
Sorry, I didn’t understand. Can you repeat the question?
Yassine Touahri
Could you – could this market outperformance reverse in the coming years if some of your competitors are facing less constraint in terms of logistics and supply?
Christian Buhl
No, I don’t think so. And especially if you look into the history of Geberit, the bigger the crisis, the bigger the problems, the big was our outperformance Therefore, if we are maybe now ahead of us in a more uncertain role, I would rather contradict that we have more opportunities to outperform more than in normal years.
Yassine Touahri
Thank you very much for your answer.
Operator
The next question comes from Manish Beria from Société Générale. Please go ahead.
Manish Beria
So yes, hi there. So I have two questions. The first one is on – like I was looking at Home Depot comments like that is mainly in the U.S. So they say there is wealth impact on the home improvement trend, I mean, because the home prices has risen through much, and that’s motivating people to continue to do home improvement. So do you have some statistics like how much price increases that happened in Europe, the price appreciation of real estate, the houses. And that is causing here also, I mean, some wealth impact, and that’s why the home improvement trend continues to remain very strong. So this is my first question.
The second one, going by the phasing out of pricing. I mean, how we have done the pricing it seems, I mean, like next year, the pricing impact could be in the vicinity of 3%, 4% and the raw material will be flat next year or maybe even down next year if it remains at the spot – so you will have huge price cost already there. So my question is, will you also do a regular price hike even if the raw material stays here or the next year?
Christian Buhl
The first question, I’m not absolutely sure if I understand – understood your question, but around the home improvement trend, maybe I’ll repeat what I said before. What we are seeing is a weakening of the home improvement trend. We see that in our numbers. For example, Bathroom Systems is growing bit slower than the other two product areas. But we also hear from our customers running showrooms in Europe that the traffic of end users in the showrooms has clearly come down now compared to the COVID-19 period.
And in terms of price inflation there, I think that was part of the question. If there is any impact that is very hard to answer as a parts supplier. We are only supplying one part to a bathroom or even a smaller part to a house. And I believe that the price elasticity question is more coming from an end consumer for the entire project and not that much from a single toilet.
And there, I don’t know exactly where this price that has fitted years. We have heard now that there and there, some projects are delay – delayed, the good prices or maybe postponed stopped because prices went up, obviously, quite significantly, but we haven’t heard that on a broad scale basis so far.
Manish Beria
So my question was mainly not on the price elasticity, but like home improvement trends are more dependent, the end consumers see the housing prices rise, I mean, if there is a lot of appreciation, let’s say, the house price is CHF100,000, it had increased so much. So they think they have become wealthier and then they try to more renovation and invest more in the homes and things like that. This was the comment by Home Depot in the U.S. So my question is, in Europe, are you seeing, I mean, this wealth impact, I mean, wealth impact affecting the home improvement trend. So that’s keeping the home improvement at a very high level, I mean, are you already seeing that also in Europe like in the..
Christian Buhl
I understand the logic. But honestly, I can’t confirm that now with specific observation definitely not on a broad scale, but I understand the logic.
Manish Beria
Okay. And the second question on the pricing. I mean, it seems like it will be like 3%, 4% next year already. So do you do more price hike, the regular price 1%, 2%, also in April next year. because the raw material, it seems like will be down next year or at best will be like flat if it’s still at the spot?
Christian Buhl
It’s too early to talk about our pricing activity next year, especially in this highly uncertain environment. But you are right, from a technical perspective, there will be a spillover effect from the price increase this year also into next year. But what we really do, we don’t know yet when we start that then in due time.
Manish Beria
But do you want to restore your gross margins back to 70% or plus 70%?
Christian Buhl
No. That’s what I said. We – our goal is to fully compensate raw material and energy price inflation with price increases.
Manish Beria
Okay. And what was the energy cost last year or also in the Q3 to 2021, the energy cost bill for Geberit?
Christian Buhl
The energy cost last year, full year 2021 was CHF56 million or 1.6% of net sales. In the first half of the year, energy costs were 2.6% of net sales.
Manish Beria
Okay. Thank you.
Christian Buhl
Welcome.
Operator
The next question comes from the Christoph Dolleschal from HSBC. Please go ahead.
Christoph Dolleschal
Yes, thanks very much. One question again on your raw materials. On Page 9, you kind of provide us with the raw material price index. Could you elaborate what the components are because if I look at your raw materials that you normally use for the plastics and the metals and ceramics. I would have already expected prices to come down in May, but you were up in May. So could you – can you shed some more light on that? And also, do you have or do you buy forwards or what are your strategies there?
Christian Buhl
So 40% of our raw materials are linked to metals and industrial metals 25% of this basket is driven by plastics, commodity plastics like polyethylene, but also special plastics like ASA, ABS, et cetera. And 35% is the rest that the raw material for ceramic, packaging, electronics and so on. We are not hedging.
We are also not buying forward to a large extent, we have with certain raw materials, we have quarterly context, half year context, but a large part is also on a quarterly basis. But don’t forget, we are not only buying raw materials. We have also a substantial share with in semifinished, sometimes in finished goods. So it’s not all raw materials that leads also, of course, to certain delay effects.
Christoph Dolleschal
Okay. Thank you.
Operator
The next question comes from Martin Flueckiger from Kepler Cheuvreux. Please go ahead.
Martin Flueckiger
Yes, morning gentlemen. Thanks for taking my questions. Like to come back on the pricing issue, particularly that number 12% that you mentioned earlier on. Just to clarify here, are you talking about 12% in terms of pricing contribution to organic growth? Are you talking about 12%, i.e., 1,200 basis points in terms of EBITDA margin contribution or – what was that again? Was that for the second half or for the full year? Please clarify.
Christian Buhl
No, that’s a price increase. So 100 price index and then the price goes up to 112 is not the margin impact. The margin impact is obviously lower.
Martin Flueckiger
Right. That’s about 70%. So that’s the margin impact for EBITDA margin, it would be around, I don’t know, 8.5 percentage points, 850 basis points, something like that. Is that correct?
Christian Buhl
Yes, that was probably what is correct.
Martin Flueckiger
Okay. And that’s for H2 or for the full year? Sorry, please remind me.
Christian Buhl
One H2, 12% is H2. We have now had a price effect of around 7% in the first half of the year. That means, in other words, we expect for the full year a top line sales price effect as find before, of around 9%.
Martin Flueckiger
Okay. That’s helpful. And then my second question is on your shower toilet business in Bathroom Systems. Could you give us an update and maybe also remind us about the Q1 performance – sales performance and also whether there’s been any change in demand dynamics for shower toilets in Q2, whether it’s still double-digit.
Christian Buhl
So we had a growth in the first half of the year of shower toilets, single-digit growth, any Q1 to Q2, but the difference in Q1 was only on previous year level. In Q2, we were growing a bit stronger, but that was very much driven by a base effect. You might remember that we had Q1 last year, very strong growth due to COVID-19. But we considered this single-digit growth of shower toilets in the first half of the year as very strong because we have had now two years of extraordinary strong growth in shower toilets, driven by the tailwind of COVID-19.
And that’s what I said before. That’s the reason why we still believe especially at the beginning of the year, home improvement trend was quite intact because we are selling on this very high level of the previous year in slightly higher shower toilet, that’s volume, obviously, in terms of value that’s even more important the average price point, as you know, is much higher than the regular toilets.
Martin Flueckiger
Okay. So the single-digit growth indication is in volume terms, not in value terms?
Christian Buhl
Correct.
Martin Flueckiger
Okay. That’s helpful. And I seem to remember that in the past, you were referring to shower toilets being slightly below group average in terms of margins. because of the higher marketing expenditures at the time. Now that your portfolio is more complete and probably more established in the market, you may not require as much marketing spend. So I was just wondering, have shared toilet margins started to exceed group average levels or are there no changes yet.
Christian Buhl
To be precise, the gross margin of shower toilets is on a group level now. So on a very nice group level, also driven by efficiency gains over the last couple of years, volume growth. Obviously, if you include marketing and you have a kind of a kind of an EBIT margin level there is still lower because marketing expenditure is still relatively high compared to sales.
Martin Flueckiger
Perfect. Thanks.
Operator
The next question comes from Alessandro Foletti from Octavian. Please go ahead.
Alessandro Foletti
Good morning. Just a question on the geographic split, please. When I take the sort of estimated price effect in H1. There are still some countries that are doing better than others with respect to volumes. In particular, I was interested in Germany, Nordics region, maybe also Austria. Can you comment on that? Because I found that surprising what you said about the volumes that is really across the board?
Christian Buhl
Maybe I don’t understand your question, but we have seen volume growth more or less across the board, but there are two effects which make a county comparison at the moment a bit difficult. One is we still are confronted with volatile base effects coming out of the COVID-19 period with some countries, as you might remember, have been affected heavily by COVID-19 like Italy, for example, to U.K., others much less like Switzerland, it was Germany. So the base effect is still influencing these growth numbers. And secondly, also our price increases, which were not everywhere always the exact for example, Switzerland, our price increase was much lower compared to group average, driven by the ForEx development.
Alessandro Foletti
Yes. Okay. And maybe a second question on 2023, I know it might be a bit difficult for you, but there are some companies in Germany, a big house builders saying really warning – badly about potential decline of even double digits in the market and so on. What do you make of that? If that really comes into fruition, let’s say.
Christian Buhl
Again, we always try to focus more – on market share, gain topics than on the market development itself because you can’t change the market. But obviously, we will also take into account the environment for next year. And for next year, whatever will come, there will be two important guiding principles for Geberit. First is stable strategy, continue to work on our strategic agenda but also number two, operational flexibility to be flexible as much as possible with regards to market volatility.
Alessandro Foletti
All right. So you basically – what you’re telling me is, at the moment, you’re not seeing anything yet? You don’t exclude decline? And then, okay, if it happens, you will fight against it as always.
Christian Buhl
As you know, our visibility is very low. We have a low visibility. Of course, we are talking to customers. At the moment, it’s still healthy. We still hear from order backlogs.
We still hear from a lot of activities, the order backlog of installers in Germany is at a record high level of 17.9 weeks. So it’s even an increase of 20% compared to last summer.
So short term, there’s not work. We are not kind of nervous, not at all. And what happens next year, that’s what I said before, we will focus on our strength, how can we gain market shares. The market, we can’t change, but we will address that with a maximum of flexibility on operational level, but always thinking about the stability on a strategic level.
Alessandro Foletti
All right. Thank you.
Operator
The next question comes from Ivan Zhang from Goldman Sachs. Please go ahead.
Daniela Costa
Hi, good morning. This is actually Daniela on for Ivan. Can you hear me?
Christian Buhl
Yes.
Daniela Costa
Sorry, we had a few issues and got disconnected. So apologies, if some of this has been asked. I have four questions very quick, I think. First, in terms of like the pricing, can you comment on whether competition has been doing similar price moves in your view? Just thinking about competitive dynamics there? And have you implemented them as tariffs or as you call it extraordinary? And do you have to reverse them if raw materials fall substantially?
Number two, plumber backlogs, I think you talked extensively on wholesalers in the past, you have commented on plumbers have summer backlog started to show these weakening signs? And number three, actually, can you comment? When did we last had a wholesale inventory level similar to where they are now just for us to have – even if you can’t comment on numbers. reference period maybe to look at on how the industry dynamics play out?
Christian Buhl
Question number one. I don’t want to go on too much details here. But all in all, we believe competition is in line with our price increases or vice versa. Would we reverse these price increases that is a very speculative and hypothetical question, I can’t answer that depends obviously on the extent of a potential raw material price decline. So I don’t want to give any answer here because it’s just too speculative.
Number three, lumber backlog. It even increased the – I just mentioned before that the current order backlog of plumbers in Germany went up by more than 20% year-on-year to 17.9 weeks an absolute new record level. So the backlog is still very high in Germany. And I guess that’s also a reference for a couple of other countries. And question number four, what is the key word, give me again key word. Inventory level – at least until I as in Geberit, I include now also my three years in Germany. So let’s say, for the last 10, 12 years, I can’t remember that I had the feeling that inventory levels were as high as they have been right now.
Daniela Costa
Understood. Thank you for the answers.
Operator
The next question comes from Matthew Donen from Morningstar. Please go ahead.
Matthew Donen
Good morning. Thank you taking my questions. Two from me. One, you mentioned all the price increases you’ve made in the past 12 months. Can you comment a bit on whether you’re seeing any market share gains or losses during the inflationary environment given some of the unprecedented price increases that have been made recently?
Christian Buhl
We believe that over the last 12, 24 months, we have gained market share. Coming back to the number before we grew by 30% over three years in sales, around 20% in volume over the last three years. We do not believe that the market has been growing by 20% in volume over this period. That includes also the last 12 months. Therefore, we believe we have gained market share, also in this high inflationary environment.
Matthew Donen
And then second one from me. Do you anticipate any prebuying effect for the October price increase that we now given that wholesalers inventory levels are on very high levels.
Christian Buhl
Difficult to answer. Again, a little speculation. That should be done in September, obviously, difficult to say because you mention levels are very high. We have seen now declining volumes in July might be that this, you are kind of prebuying. On the other side, the price effect is not that strong, the 2% on the group level. So it’s hard to say.
Matthew Donen
Okay. Appreciate that. Thank you.
Operator
We have a follow-up question from Martin Flueckiger from Kepler Cheuvreux. Please go ahead.
Martin Flueckiger
Yes, thanks for taking my follow-up. Just coming back to the plumber backlog question from Daniela and your reply towards it. Now I don’t have a membership with SHK in Germany. But from what I’ve been able to gather from the press is that the record high plumber backlogs in Germany are particularly driven by HVAC by demand for HVAC, and only secondarily by demand for sanitary equipment. I was just wondering whether you have a little bit more granularity on that because my understanding is that these order backlogs combine both order books for HVAC and sanitary and so it would be interesting to know to learn what the situation for your industry is instead of HVAC?
Christian Buhl
We don’t have more granular information than the 7.9 weeks. It’s across all the demand or other product categories for a plumber. So we don’t have the numbers for HVAC or for other subcategories.
Martin Flueckiger
Okay. Thanks.
Operator
Gentlemen, so far, there are no more questions from the phone.
Christian Buhl
So thank you for your participation. We wish you all a great day. Goodbye.
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