Ladies and gentlemen, welcome to the Geberit conference call on the Third Quarter Results 2022 Conference Call. I'm Sasha, the Chorus Call operator. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Christian Buhl, CEO. Please go ahead. Thank you for the introduction, and good morning, ladies and gentlemen, and welcome to Geberit's Nine-Month Conference Call. We will start with the third quarter key figures, then comment on the nine-month development, then finish with an outlook for the rest of the year. Let me start with our key messages for the third quarter. The third quarter was marked by strong sales price increases to mitigate the unprecedented cost inflation. Second, a substantial volume decline in Europe due to an anticipated, however unexpected, strong destocking at wholesalers. Third, a strong volume growth outside Europe. Fourth, an unexpected explosion of energy prices. And fifth, a strong negative currency effect, substantially impacting all lines of the P&L. Let me now come to the review of the top line development in the third quarter in more detail. Net sales decreased by 7% and reached CHF 791 million. The unfavorable currency development led to a substantial negative currency effect of CHF 78 million or -9%, the strongest negative currency effect since 2015. Therefore, in local currencies, net sales increased by 2%, driven by price increases of around 10% and a volume decline of -8%. The volume decline was driven by Europe due to first and most importantly, an anticipated, however, stronger than expected destocking at wholesalers after the extraordinary strong price increase as of July. Second, a base effect from the COVID-19 induced trend to home improvement in the previous year. Third, a shift from sanitary to heating solution in several European countries, triggered by the energy crisis, encouraging building owners to exchange their fossil-driven heating systems with alternatives, for example, heat pumps. Strong positive volume drivers in Europe were several new product introductions. For example, the new supply piping system FlowFit, which grows also this year faster than expected. Outside Europe, we recorded strong volume growth in many countries. Net sales in the Middle East, Africa region grew in the third quarter extraordinarily with +49% in local currencies, driven by strong double-digit growth in the Gulf region, Israel and Northern Africa. Net sales in Asia Pacific grew by 10%, with strong double-digit growth in all major regions except China, where sales were slightly below previous year level due to the lockdowns and the weakened Building Construction industry. In America, net sales grew by 7%. The three product areas showed a different sales dynamic in the third quarter. The strongest growth was recorded in piping systems with a +10% due to a solid project business, the new piping system FlowFit and strong price increase. Bathroom Systems net sales increased by 2%, negatively affected by a base effect from the COVID-19 induced home improvement trend last year. A decline of -5% was recorded in installation and flushing system, as this product area was most affected by destocking effects at wholesalers. Let me now turn to the operating and financial results in Q3. EBITDA in Swiss francs reached CHF 206 million, negatively affected by the aforementioned substantial unfavorable currency effect. In local currencies, EBITDA decreased by 40% and EBITDA margin stood at 26.1%. The margin decline of 520 basis points was driven by three main reasons. First, the operating leverage from the unexpected destocking driven volume decline, which reduced the EBITDA margin by approximately 2 percentage points. Second, the unexpected explosion of energy prices, which were up by +69% in Q3 compared to Q2. This led to an average energy price level in Q3, which was 184% above Q3 last year and hampered the EBITDA margin in Q3 by 260 basis points. Third reason was the raw material price level still being 16% above previous year's Q3 period, despite the small sequential decrease quarter-over-quarter. The fourth reason for the margin decline was a further accelerated wage inflation to 3.1%, the normalization of cost levels after the COVID-19 driven low levels last year and planned investments in digitization. To mitigate the input cost inflation, we increased sales prices as of Q3 for the fourth time this year. With a total sales price increase effect of 10% in Q3, we managed to almost fully compensate for the still record high raw material prices and the unexpected, literally exploding energy prices in Q3. After this discussion of the EBITDA margin in Q3, let me now comment on the other operating results Q3. EBIT stood at CHF 170 million, with an EBIT margin of 21.5%. Net income decreased in line with EBIT to CHF 139 million, leading to a net income margin of 17.6%. Earnings per share reached 4.05 CHF, and developed better than net income due to the accelerated share buyback program. In total, we bought back 331,000 shares for a total amount of CHF 154 million in the third quarter. This corresponds to a buyback of around 1% of all outstanding shares in just one quarter. Let me now continue with our nine-month development. Net sales in Swiss francs increased by 1% to CHF 2.72 billion, impacted by a substantial negative currency effect. The negative currency impact amounted to CHF 184 million, or minus 7% of net sales. Hence, in local currencies, net sales increased by 8%, driven by a positive sales price impact of 8% and a stable volume development. Compared to 2019, net sales are up 26%. This year's volumes were affected by an extraordinarily strong comparison basis with record high volumes last year. Compared to 2019, again, the volumes are still up 14%. The main volume drivers this year were, first, several successful new product introduction. For example, the already mentioned piping system FlowFit or our new concealed system Alpha. Second, a positive development in several European countries, for example, in Switzerland, Italy, or Eastern Europe. Third, a strong performance in many emerging markets outside Europe. Fourth, the aforementioned shift from sanitary to heating solution in several European countries. Also, based on the strong price increases, all European markets delivered positive sales growth rates in local currencies in the first nine months. Double-digit growth rates were achieved in Italy with +17%, Iberian Peninsula with +15%, Eastern Europe with +14%, despite the collapse of the business in Ukraine and the suspension of the business in Russia since March this year, and U.K., Ireland with +13%. Single-digit growth was achieved in Switzerland with +7%, in Germany, France, and the Nordic region with +6%, and Austria and Benelux with +4%. Let me now turn to the regions outside of Europe for the first nine months of the year. Net sales in the Middle East and Africa region increased by 29% with growth in all major countries and regions. Net sales in Far East Pacific were up by 7%, negatively affected by the lockdown in China. However, many other countries delivered strong double-digit growth rates, for example, India. In America, net sales were up by 6%. Let me now comment on the sales development per product area in the first nine months, again, in local currency. The strongest growth was recorded in Piping Systems with a net sales growth of +14%, driven by a solid project business, a stronger price increase compared to the other two product areas, and the very good development of the new FlowFit piping system. Installation and Flushing Systems net sales grew by 7%, and Bathroom Systems net sales grew by 4%. The lower growth of Bathroom Systems was driven by smaller sales price increases compared to the other two product areas and the base effect from the home improvement trend in the previous year. Let me now comment on the operating and financial results in the first nine months of the year. EBITDA in Swiss francs decreased to CHF 767 million. Thereof, CHF 60 million were lost by the unfavorable currency effect. Excluding this unfavorable effect, EBITDA decreased by -8%. EBITDA margin reached 28.1%, a decline of 520 basis points versus last year. This margin decline was mainly driven by two factors. First, a record and historical high-margin level of 33.3% in the previous year's period. Second, the unprecedented input cost inflation. Let me elaborate in more detail on this unprecedented inflation effect in the first nine months of the year. Raw material prices increased, currency adjusted, by 21% and energy prices by 131%. In absolute terms, this means that we had to bear additional costs of around CHF 210 million, only because of raw material and energy price inflation. These CHF 210 million correspond, ceteris paribus, to a margin loss on EBITDA level of around 8 percentage points. This input cost inflation has not been fully compensated in the first half of the year, due to the general time delay to pass on price increases in the Sanitary industry. However, as already mentioned before, we almost fully compensated the raw material and energy price inflation in the third quarter and expect to overcompensate these two inflation drivers in Q4. Under the assumption of no further turmoil on the raw material and energy markets, of course. In other words, we consider the extent of the margin decrease in the first nine months not as sustainable due to the just before mentioned delay effects of sales price increases. Other, however less pronounced, negative margin drivers in the first nine months were a wage inflation of 2.8%, higher than in the recent past, the normalization of marketing and travel costs after COVID-19, and planned investment in digitalization as presented in our full year analyst conference this year. However, it is important to notice that the EBITDA margin is, with 28%, still on a very high level, outperforming the average industry level. After this discussion of the EBITDA margin, let me now comment on the other operating and financial results in the first nine months of the year. EBIT decreased in local currency by -9%. The EBIT margin reached 24%. Net income decreased in local currencies in line with EBIT by -10%. Earnings per share decreased in local currencies disproportionately by -7% and reached 50.62 CHF due to the accelerated share buyback program. In total, we bought back 837,000 shares for a total amount of CHF 448 million. This means that we distributed, together with the dividend payment in spring this year, CHF 881 million to shareholders in the first nine months of the year. This corresponds to around 6% of the current market capitalization of Geberit. Free cash flow decreased in the first nine months by -33% to CHF 412 million, mainly driven by the significant negative currency effect, 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. I start with the gas situation and the risk of gas shortages at Geberit, which is mainly driven by our two ceramic plants in Germany. The risk of gas shortage this winter has somewhat eased due to the high stock level of gas in Germany and the relatively warm autumn so far. Nevertheless, we took several contingency measures to mitigate potential gas shortages in Germany. For example, the buildup of our inventories or the upgrade of the larger of the two plants to LPG gas. Let me now comment on our outlook for the full year. The ongoing geopolitical risks, the ongoing uncertainties around COVID-19, and the increased macroeconomic risk, not least driven by the energy crisis in Europe, make an outlook, also short term, obviously extremely challenging. However, short term, we expect further destocking in our distribution channel due to the improving supply chains. The overall availability of raw materials has improved, which leads to decreasing spot prices for selected raw materials. Therefore, we expect raw material purchasing prices for Geberit in Q4 to be slightly lower compared to Q3. However, purchasing prices remain on a record high level of around 10%-12% above the level of Q4 last year. With regards to energy prices, we expect at the moment lower levels in Q4 compared to Q3, but of course, energy price forecasts are highly speculative in this environment, as we have seen in Q3. Despite the increased risks and uncertainties until the end of the year, we will continue to stick to our priorities defined for 2022 and our long-term strategy execution. First priority remains the consequent pricing management to address the unprecedented input cost inflation. After four price increases this year, we will again increase sales prices as of beginning of next year in selected countries to also mitigate wage inflation. The total sales price effect on group level is expected to be around 1.5% as of Q1 2023. A second priority remain 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. Finally, based on our strong balance sheet and strong cash generation, we continue in this market environment with our accelerated share buyback program. In the light of the soft top-line growth and softer operating margins in the third quarter, mainly driven by the unexpected magnitude of destocking of wholesalers and the very strong increase of energy prices, we expect for the full year a mid- to high-single-digit net sales growth in local currencies and an EBITDA margin of around 27%. This is a prudent guidance in an environment of high macroeconomic uncertainties. The two main reasons why we expect a full year EBITDA margin slightly below our midterm target range of 28%-30% are the unexpected strong destocking and energy price increase in H2, and the before mentioned channel delays to pass on price increases in our industry. Let me close our introduction with a short summary. Geberit achieved good results in the first nine months with a strong net sales growth in local currency. After a volume growth in the first half of the year, we have seen a substantial volume decline in Q3 due to a higher destocking than anticipated. Record high material and energy prices led to an unprecedented inflationary margin pressure. Despite the unexpected energy price surge in Q3, we managed with several price increases to almost fully compensate the raw material and energy price inflation in Q3, confirming our pricing power. We reached with an EBITDA margin of 28.1% the first nine months, a still very strong and clearly industry-leading margin level. To mitigate wage inflation, we will further increase prices in selected geographies as of Q1 next year. We accelerated our share buyback program based on our strong financial position and the strong cash generation of our business also in difficult times. Together with our regular dividend payments this year, we distributed CHF 881 million, around 6% of our current market cap in the course of the first nine months, showing our confidence in our ability to generate further high margins and strong cash flows. The geopolitical risks remain high, and the economic outlook has worsened. Nevertheless, Geberit is very well prepared to also master the challenges and uncertainties emerging from this environment, as already demonstrated several times during the past. Our confidence is based on the fundamental demand for Sanitary products, our resilient strategy and business model, our innovation capabilities and strong customer relations, our pricing power, our excellence in operations, our financial strength with an industry-leading profitability, and finally, our long-term value creation focus and strong track record. Based on these fundamentals, we are convinced to continue to achieve our midterm targets of an average annual net sales growth in local currencies of 4%-6% and an average EBITDA margin level between 28%-30%. Before we start the Q&A session, allow me to address two topics upfront. First, we are aware that the market expectation was higher with regards to the top and bottom line in Q3. The two main reasons for this gap were the stronger than expected destocking at wholesalers and the explosion of energy prices in Q3, which surprised everybody. Second, please keep in mind that the visibility in our business is very low with an order book of less than two weeks. Due to the high uncertainties and this low visibility, we refrain from answering questions about the market outlook 2023. Thank you for your attention. We are now ready to answer your questions. The first question comes from Daniela Costa from Goldman Sachs. Please go ahead. Hi. Good morning. Thank you for taking my questions. I have three things, relatively quick. First, on a commentary in terms of wholesalers, inventories. I think earlier in the year, you said they were very high, compared to past. Can you give us some indication of, like, how many weeks or months are they now, where they have dropped in the past, just to get a sense of, like, this destocking that has started, how much further it can still go? The second question, just on the price increases, wanted to clarify if I've heard this correctly, that you're gonna do a 1.5% increase in 1Q 2023 in January. What's the full carryover that goes into next year from all the price increases that you've done, including the October one? Third, on the buyback, it sounds like you've recently invested on capacity on marketing on IT. Given the current environment and that you have already done these investments, could we expect a further acceleration on the pace of buybacks in the coming months? Thank you. Thank you for your question. Number one, we don't have any quantitative information about the inventory levels at wholesalers, but the destocking in the third quarter obviously led to substantially lower inventory levels at the wholesalers. We do not believe that we are back to a normal inventory level at wholesalers. Second question, you're right. We increased prices in selective countries as of January this year. On average, the total impact on group level is 1.5%. We have, you're right, a spillover effect from the other four price increases, which we have done so far this year. Question number three will be answered by Tobias. Thank you. We retain with an accelerated share buyback, but at this stage, we refrain from quantifying an increase or a slight slowdown. Understood. Thank you. The next question comes from Andrey Kukhnin from Credit Suisse. Please go ahead. Good morning. Thank you very much for taking my questions. I really want to dig into the pricing dynamics just to make sure we have all the numbers right. Can I first check that, of the price increase, as of first of July of 7.5%, that only partially materialized in the first quarter, right? I think we were calculating the total impact from kind of all the price increases you've done with that seven and a half would have been 11.8% for the third quarter, and it came in at 9.6%. I want to check if that math is right. Secondly, whether that 2.2 points that didn't come in Q3, is that now coming in Q4? With regards to price increases in Q3. First, a general remark. Pricing is not an exact science, so I will be careful with too many digits, single-digit numbers. It's always around. But you're right. The technically expected price increase in Q3 should have been a bit higher than the 10% that we have achieved. That was just driven technically by some deliveries or larger than expected deliveries in July and August, still on the lower price levels from Q2, because this 7.5% price increase as of Q3 was of an extraordinarily high magnitude. We had higher volume still delivered on lower price levels from Q2. That led to technically a little bit lower price effect as of Q3, but that will wash out over time. Okay, that's great. That's helpful. From the first of October, you implemented a 2% price increase. Is that right? This is correct. Again, that's a selective price increase country by country. It's higher, but the impact overall is around 2% on group level. Great. Then the one that you mentioned for the beginning of next year, is that sort of from first of January, we should think about the first of January 2023 and magnitude of 1.5% at group level? Correct. Okay, I'll go back and add all of these up. If I may just on energy, do you buy energy at spot? What kind of contract length on average do you have so that we can kinda track where you are versus spot prices and how that may evolve going forward? That depends on country level and also on site level. On average, we have at the moment, still 20% of our energy price hedged to term contracts and 80% is exposed to spot prices, also in Q4. Very helpful. Thank you very much. The next question is from Matthias Pfeifenberger from Deutsche Bank. Please go ahead. Yes, good morning, Christian. Thanks for taking my questions. Really, no offense. It's just what do you take as a takeaway from this set of results? It was obviously below market expectations, but also I think below your expectations. Two points specifically on the pricing. Where's the balance of kind of cutting your customers some slack and then being surprised by sudden changes in input costs, i.e., could you have implemented the 2% October price increase earlier, like at beginning of the month? Or can you explain how the lag works, how really tough it is to increase prices that frequently? Can you price out a little bit more? I mean, you undercut your long-term margin guidance. Clearly not what you had in mind, I guess, at the beginning of the year. Secondly, energy is only 1%, I think, of the cost, so it wouldn't be as much costly to hedge power, for instance. Will you contemplate that when prices normalize? Thanks. That was a basket of questions. I think number one, I try to answer. First of all, the general delay which we have in our industry to pass on price increases is driven by the fact that we are selling to distributors, which are selling to plumbers, then the plumbers are selling to you as an end consumer. We need to give time to our customers on a distribution level, on a installation plumbing level, to increase their prices. This is the reason why we have not been able, for example, to implement the price increase as of Q4 earlier because of the energy prices which exploded unexpectedly in Q3. The second part, I think, of your first question was what is our take from the Q3 results. As I said during our introduction, we anticipated a destocking. It was clear that we will see a destocking due to this historical high price increase as of July. However, we underestimate the magnitude of this destocking. If you allow me to comment on that, it's not only negative, this destocking, it's also kind of a positive, because that means we are moving more to normalization. We get more transparency again about real market demand, and we have also less uncertainties and risk in terms of our volumes. It's not only negative, the destocking. We have been kind of surprised, you could say, about the magnitude and the speed in the third quarter. The second question was around energy and energy hedging. We are not massively hedging energy. We have had a higher hedge last year. Some of them were not valid anymore this year. We still have 20%. What will happen once we are back to a normal environment for energy prices, if we would change our strategy, with not material hedging, prices? We will see. We have not yet made this decision. Obviously, that depends also on the level. I can't give you here a clear answer at the moment. Okay. Thank you, fair enough. The next question is from Arnaud Lehmann from Bank of America. Please go ahead. Thank you very much. Good morning, gentlemen. Two questions on my side, please. Firstly, could you give us an indication of volume trends in October? Are they consistent with the kind of mid-single-digit decline that I suspect you get in the later part of Q3? So -5%-6%, is that a reasonable assumption for Q4? And secondly, a more, let's say, strategic question. I think you mentioned a couple of times the shift in demand from sanitary to heating solutions due to the energy crisis. And that may be heat pump more popular in the short term than Sanitary products. Is it an area that you're looking at? Because this could be more than a short-term trend, this could be something that lasts a few years. Would you consider acquisitions in heating solutions? Thank you very much. The first question, the sales development in October. Sales in October were slightly below previous year and in line with our full year top line guidance. Second question, the shift from sanitary to heating. No, it doesn't trigger any strategic discussions or maybe shift at Geberit to move into this sector. This is too far away from our core business, so that doesn't trigger any strategic considerations to shift, for example, our business more to heating solutions. That's a clear no. Very clear. Thank you so much. The next question comes from Martin Hüsler from ZKB. Please go ahead. Yes, good morning. Thank you for taking my question. First of all, how do you measure or the effect of the destocking of the wholesalers? Is it just talking to them? How do you measure the underlying demand, let's say, of the installers? What do you see there, inventory level of the installers? Did this also come down? That's the first question. The short answer is clear. We are not able to measure inventory levels of wholesalers, and also obviously not on a plumber level. The only one we have is some qualitative feedback from more or less individual selective feedback discussions with customers. We don't have a systematic way and no KPI or quantitative measure to measure the inventory level of wholesalers. This is not possible. Okay. When you look at the installer side, what are their inventory levels? Even worse, obviously, because they're more far away from us. We are not selling to installers. In general, plumbers don't have really high inventory levels. The inventory in our distribution channel, in our value chain, is managed by the distributor, by the wholesaler. That is one of his core value adds, to manage inventory levels. The plumber typically does not have a high inventory level, especially not a small one. Yeah. Sorry, I was wrong in my formulation. If you look at the German plumbers, what's the order that you see there, the order situation? How many weeks? That hasn't changed since our H1 results. Still the same number. We don't have new numbers. That 17.9 weeks, which is a record high level, which is the current order backlog of plumbers in Germany. Okay. Thank you. My second question would be, if I look at the sequential development of personnel cost, it came down a bit more than I was expecting. Is there something special apart from like a seasonal effect? Do you already implemented cost-cutting measures on personnel? No. We have not implemented any special cost-cutting with personnel, so it's really the seasonal patterns and the normal flexibility that we have with the personnel. Mm-hmm. Usually in Q4, the seasonal pattern would. The costs would move up a bit again. Is this correct? It's flat, I would say. What is correct is that it moves up in as much as we closing the plants over Christmas, and therefore the ratio actually goes up. Yes, there you're correct. Okay. Thank you. Let me be precise. No change year-on-year. The same effect as you would see every year. Mm-hmm. Right. Okay. The next question from Cedar Ekblom from Morgan Stanley. Please go ahead. Thanks very much. Hi, gentlemen. Couple of questions and follow-ups. Could you give us some color on the run rate of volumes over July, August, September, October? The reason why I ask is to understand firstly how far we are through the destocking process, and then also just with reference to a comment that you made that you see sales in October, below the previous year. I would expect that the pricing contribution in October should be higher than it was in the third quarter. I'm just trying to understand what that means for your volume development. Does that mean that your volumes are weaker in October than they were in the third quarter, considering you had positive currency top line growth or constant currency top line growth in the third quarter? That's the first question. The second question is, in terms of your cost of materials, how much is energy and how much is other raw materials? We can try and understand the blended, sequential in your increase in your overall cost of materials into the fourth quarter. Third question is on the Pipe business. How much of that business is exposed to sanitary versus heating markets? I'm just trying to understand if there is potential for you to benefit from some of the investments around heat pump adoption in Europe, considering that might require some investment in underfloor heating, and how much of your Pipe business is exposed to that. Then just on the last point on pricing, if I look at your commentary, you're saying the price increases haven't fully come through, and there's two ways we could interpret that you're going to secure the price increases, but with a delay or that your price increases are actually not sticking. I would tend to lean towards the second option because your volumes are significantly negative. Could you explain to me why I'm wrong and why you actually think all of your pricing will come through, but just with a delay? Thank you. Quite a number of questions. I hope we can remember all of them. We started the first one. I can remind you. Don't worry. Thank you. The volume where, if I started the first one, I think coming then to the volume in October, so we had obviously still a positive volume development in Q2, also in the course of Q2, a very good volume, also at the end of Q2. The negative volume development of -8% in Q3. In October, sales were only slightly below previous year. A little bit stronger price increase impact than in Q3 means volume were most probably a bit less negative than in Q3. The second question about energy and cost of material will take Tobias. Thank you. Yeah. Energy and not in raw materials. Raw material line is purely the raw material. Energy, which is shown with maintenance and supply, was last year around CHF 50 million. We provided the increase for this year. Question number three was around the exposure of our Piping business towards heating solutions, for example, heat pumps. Yes, there is a certain business or a certain share of our Piping business which is exposed to heating because that is one of the applications that you transport obviously warm water, heating water in a building, and also in connection with the heating pump, there is a certain demand for pipes. But however, the larger part of our business within piping is towards sanitary, just a smaller part towards heating. The fourth question was about the price increase impact. Well, the question. Sorry. Yeah. Should we interpret the fact that the Q3 pricing was a bit lower than the? Yeah. Price hike that you communicated? Yeah, I know. I remember the question. Yes. You have two hypotheses. Number one is it's just a time delay, and number two is we have not been able to implement price increases. We believe clearly it's number one. The volume decline in Q3 was driven by destocking, not by kind of a price sensitivity. The reason is, as I explained before, the price increase as of July, the 7.5%, was a historical high price increase. We had a historical high order book end of June, still at the lower price levels. The volume which was still delivered in July, even in August, from the high order book on our side, with lower prices, price level Q2, was somewhat higher than normal. This is the reason why we have not seen the full impact so far, in Q3, just at around 10% and not maybe 11.5. It's a time delay effect. It's not a sensitivity argument that volumes are coming down because we are not able to implement price increases. Okay. Sorry, I just didn't understand the one answer on volume. Sorry, in the third quarter, your volumes were down 8%. Yes. To understand correctly, you're saying your volumes are down less in October. Sorry, explain? Down less than 8%. More. They are more. Sorry. Maybe I was mistaken. Sorry. Yes. The price increase is stronger in October, or the price effect is stronger in October, so the volume decline is stronger than in Q3, slightly, in October most probably. Yes. Yeah. Okay. That's really helpful. Thank you so much. The next question comes from Martin Flueckiger from Kepler Cheuvreux. Please go ahead. Yeah. Morning, gentlemen. Thanks for taking my question. Just to clarify on that, I'm a little bit puzzled now myself. The volume trends when you originally said slightly below previous year, and in line with full year guidance. Now was that an absolute or a relative statement? You know, because we had -8% volume decline in Q3. Are you saying it's worse than the -8% in Q3, or are you saying it's better than the -8% in Q3? Let me repeat, Martin. Net sales in October were slightly below previous year. The price effect, most probably, we don't know yet, was stronger, more positive than in Q3. Okay. Volumes were worse than -8% as of Q3. We don't have yet the numbers, but that's what we estimate. This is in line, and maybe I have to repeat, that this is in line with our full year guidance for the top line. Okay, got it. Volume's a little bit worse than the -8% in Q3 for October. Okay. If I may add one remark. Sure. I think it is very highly uncertain environment, and I think we have seen it also in Q3, the unexpected magnitude of this destocking. I would not put too much emphasis on monthly numbers. Sure. Okay. Got it. As regards the price increase statement that you've made for 1.5% as of Q1, or January 1, 2023, I think you guys were also mentioning the spillover effect from the other four price increases. Now, you know, I realize that we can do a lot of math ourselves, but, you know, it's getting pretty complex these days, to be honest. Just wondering, you know, what kind of total price increase for next year are we looking at? 'Cause I was already looking at around 5%-6% increase, based on the price increases, the full price increases that you had announced so far, you know, Should I think of around 7% now or what kind of magnitude are we looking at? I'll take my last question after this one. In all fairness, we also do our math at the moment. I don't have the number in mind at the moment, so I can't give you the short answer. Therefore, I wanna reframe or give you an answer, but it's technically calculated. You can calculate it. I have it not in mind at the moment. Don't forget, it's still not clear what happens with obviously other price developments now last year. It's not yet clear what we do with our regular price increase, which we do typically as of Q2. We have not yet decided what we will do, and it all depends obviously on the raw material development as well. I'm sorry I can't give you the short number we're at the moment. Okay. Not even for Q1? Because, No one has a concept in mind at the moment. Okay. My final question is on the installers assessment of consumer's preference with regards to HVAC over sanitary products. Now, you know, based on what I've seen from the German Sanitary industry association, the 17.9 weeks that you've talked about earlier on is quite a bit of a difference when you look at HVAC installations as opposed to sanitary ones. Just curious here. At least that was the summer survey that I'd seen. I'm just curious, are we still looking at a clearly higher HVAC order book level for installers here? You know, I'm just wondering whether that trend is going to continue in Q4 and potentially, you know, even into H1 next year or even beyond that. Just trying to get a little bit of color on that, if I could, please? First for Q4, I agree. I think there is still, there's still a shift from or a demand for heating solutions, especially in Germany. By the way, it's only a number of countries in Europe. It's not everywhere. For example, in Switzerland, this is not a big topic because we have already a high share of, for example, heat pump solution. It's typically Germany a topic, in Austria, but it's not across Europe. This might or will definitely be a case also in the fourth quarter. I don't know about next year. Again, don't overestimate this shift here because you still need a bathroom, you still need a bathroom renovation. It's not that that vanishes completely. There is a certain temporary shift to this topic, but I would not overestimate it. I don't know what happens next year. Okay, thanks. The next question comes from Yassine Touahri from On Field Investment Research. Please go ahead. Yes, good morning. A couple of question on my side. I think, you did very well, in the past couple of years in an environment where you had supply chain, disruption, and you probably gained a little bit of market share versus your competitor that were not as organized as you are. Do you see a reversal of those, market share gain in an environment where, supply chain constraints are, easing? That would be my first question. Then a second question. When we look at the long-term growth prospect of your company, do you feel that there might be an opportunity for you to make an acquisition or to invest into more products related to energy efficiency and to heating to capture the long-term growth in this sub-segment in the context where Europe want to become carbon neutral? The first question, we believe that we have gained a disproportional market share over the period of the last two years, especially with the tailwind from COVID-19 and the way how we managed the COVID-19 crisis. At the moment, we believe that we are more back to a normal market share game. We don't think that we are disproportionately gaining market shares at the moment. The second question, if I understood correctly, if we are thinking about strategic moves into more energy-oriented solutions, the answer here is, as I said before already, it's no, we don't shift or change our strategic agenda due to the current environment of the energy crisis in Europe. We stick to water management. This is our core business. Also there you have a very important sustainability dimension. Don't forget that we are contributing substantially to water saving in buildings in Europe and outside Europe. We stick to our core competence, water management, and we don't shift that to more energy efficiency-oriented solutions due to the current energy crisis. Thank you very much. The next questions come from Patrick Rafaisz from UBS. Please go ahead. Sir, your line is open. Yes. Good morning. Thanks for taking my three questions. Maybe first on the destocking cycle. I'm just curious about regional differences. Would you say just looking at the Q3 local currency net sales developments, that's a good indicator for how far advanced we are in the destocking, i.e., Switzerland, nothing yet, Italy, nothing yet, U.K., nothing yet, but on the, you know, ongoing in Germany and maybe France, Iberia. Does that make sense? That's the first question. There is a regional difference in terms of destocking. For example, in Switzerland, we have seen much less destocking in the third quarter, just driven by the fact that the inventory level at wholesale was not as high because we had lower price increases in Switzerland. That's by the way good indication how we see that the price increase mainly triggered the destocking effect, not the demand. The Switzerland destocking effect in the third quarter was smaller because the buildup of stock was lower due to lower price increases. The same is in Italy for a different reason. In Italy, we have seen also strong third quarter, less destocking, but that is driven by a structural reason. The wholesaler market structure in Italy is much more fragmented than in other countries. There was less of stock buildup in Italy or in other words, less destocking than in the third quarter. U.K. was a bit different case. U.K. is just a base case. A base effect reason. We had a very relatively weak Q3 in the previous year. That was the main reason for the U.K. that we had a double-digit growth. Thank you. That's helpful color. Now, staying on that topic, what your updated guidance implies for the fourth quarter. It is a very wide range on potential local currency growth outcomes, and I agree with you, -8%, 9%, 10% is still within that range. But you seem to be much more confident on the margin, right? Which should be somewhere in line with Q4 last year. Does that make sense? Your confidence level is much higher profitability than it is on the volume outcome for the year, given the uncertainty in the channel. It depends how you define the word around. Therefore, I would not completely agree with you. That depends just on the word what is around. We just didn't give you a range, but around 27%. Okay, good. Then the last question on cash flow. Q3 was the first quarter now this year where free cash flow was down sort of in line with EBITDA, right? Even though you may have still built up some safety stocks in ceramics due to potential energy situations, it seems that the working capital build did not continue on a broad scale, right? What's your view for the exit quarter for Q4? Will we see a disproportionately better performance now for free cash flow, given that the channel build has stopped and probably your safety stocks are at a sufficient level as well now internally? At this stage, the largest effect, definitely I would say it's over. We're still continuing with a moderate buildup of safety stock due to the uncertainties in the supply chain and on the energy side. Indeed at that stage, and mind you, that is always, especially with the other elements of the net working capital, a bit difficult to forecast. We do not expect major shifts which would be outside the normal seasonal fluctuations. Okay. Okay, that's helpful. Thank you very much. The next question is from Emre Bazic, from Safra Sarasin. Please go ahead. Hi, good morning. I have three questions. Maybe I'll go one by one. First one, what were the main growth drivers in your international regions? Or what product segments grew the best in each region? Basically all product areas developed similarly strong. However, we have the strongest product area outside Europe in Installation and Flushing Systems for various reasons. That's just the biggest one. We have a disproportionate share of Installation and Flushing Systems in that region, and therefore, this was the biggest contributor. Also the other smaller parts in these areas grew very nicely in the third quarter. Okay, thank you very much. The second one, how much did FlowFit actually grow approximately? Approximately what percentage of sales are you hoping to get from FlowFit in around five years? The first number doesn't make sense because we just introduced FlowFit last year. I know. There's no base, so that doesn't make sense. We don't communicate numbers, but FlowFit has had a substantial contribution already this year to sales growth of Piping Systems as an indication. Okay. Great. Then my last one, a bit more granular. When looking at the operating cash flow in the first nine months versus the first nine months of last year, could you elaborate a bit on the main driver of the decline of around CHF 200 million for these nine months, given that net income decreased by around CHF 110 million and net working capital increased by around CHF 40 million? Where's the rest? Yeah, sure. Again, you said CHF 200 million. In brief, by far the largest part obviously is the lower operating result, the EBITDA decrease. We also had negative development of net working capital. It's really the delta view that you need to apply on the net working capital. Net working capital in probable development was driven by accounts receivable, and there's the same comment as we had in the last quarter. It's a lower value that we had at the year-end of 2021 compared with the year-end of 2020, and that's by far the largest negative contributor in the net working capital. A much smaller effect came from accounts payable. Again Okay. Most of that, to be precise again, is really driven by the unfavorable start at year-end and not by a general increase whatsoever on the net working capital. If you look at the balance sheet figures, you wouldn't see big changes from year-on-year figures. Yeah, exactly. That's why there's no big change. We're looking at nine months 2021 and nine months 2022, the operating pressure is still down to 100. That's why I was wondering. You need to take the starting point, end of December, and that explains actually and the largest contributor for that is accounts receivable. All right. Thanks a lot. Thanks. The next question comes from Marta Bruska from Berenberg. Please go ahead. Hi, good morning. I have two questions, please. I will take them one by one. I was just wondering, you mentioned several times on the call that you consider the EBITDA margin of around 28% to be at a very good level, clearly industry-leading. Why do you increase extraordinary prices again as of Q1, given that raw materials have weakened again? You already mentioned that the Q4 should be sequentially better than Q3, and particularly into the weakening demand environment. Does this incentivize your customers to switch to cheaper brands and perhaps you risk market share loss in volume terms? The reason, first of all, it's not a price increase broadly across countries. It's a very selective price increase in a number of countries as of Q1. The main reason is the extraordinary high wage inflation, which we have to expect for next year in a couple of countries. That's the main driver. You're right, because in the end, we are expecting slightly lower raw material prices. In Q4, also, energy prices should hopefully come down in Q4. The main reasons here, selectively due to the selectively very high wage inflation that we expect next year. Yeah, that I understood, but this wage inflation is unlikely to provide the same level of magnitude of the pressure on your margins as the raw materials and the energy cost taken together, right? Sorry, I didn't understand. Can you repeat? Yes. This, I understood, that it's driven by your expected wage inflation. However, given your personnel costs, I would just not imagine this to provide the same level of pressure on your margin as the raw materials and the energy costs combined did so far in the third quarter. You're right. Don't forget that, you know, we've seen a stabilization on the raw material and energy, but year-over-year they're still slightly up, so that doesn't put into question the increases we have so far. We see second round effects on the wages, like Christian just said, and that's why we decided selectively to increase the prices. All right. My second question is with regard to the your energy strategy for purchasing the energy. It seems quite odd, to be honest, that the two ceramics plants in Germany, you know, wiped out more than 2% of your EBITDA margin. I do understand the spike in energy costs, but it's a bit surprising to find out that you don't hedge 80% of your energy costs given, you know, that these plants are. It's known that they are very energy-intensive. We cover a couple of other companies with this level of energy intensity, and they typically have an agreement with the local energy providers. I was just wondering, you know, sort of again, what caused you to choose this strategy? You know, when would we expect to see some easing from your LPG installation in Germany where this is going online? Maybe there's a misunderstanding. The two plants in Germany we were talking about, we just talked about that because of gas supply shortages. These two plants are consuming energy, but they are a small proportion of the entire energy consumption which we have. Half of our energy exposure or consumption is electricity-driven, and the other half is gas-driven, and part of this half are the two plants in Germany. It's a smaller part is driven by the energy, by the gas consumption of the two ceramic plants in Germany. The hedging strategy has nothing to do with the two plants in Germany specifically. The decision that we are not hedging energy prices or not massively hedging energy prices, that was taken a couple of years ago, and we benefited for many, many years substantially by this strategy because energy prices, obviously, as you know, came down massively over the last 5, 10 years. At the moment, obviously, we only have still 20% hedged. Now we are paying, that's true, and we will see what we will do after this energy crisis in terms of strategy. Overall, we benefited also over years from lower energy prices. Thank you. That was helpful. When the LPG is going online? That will be in the course of next year. All right. Thank you very much. That's very helpful. The next question from Christian Arnold from Stifel, please go ahead. Yes. Good morning, gentlemen. Two areas from my side I want to discuss. First again, destocking effect. You were mentioning very high stock levels mid-year. Then this negative impact from the high prices so that we had destocking effect in Q3. I want to understand now in terms of stocking levels from a very high level you said still above average now and to a normal level. Are we halfway through? What are your assumptions here? Honestly, I can't give you a precise answer. I would love to be able to give you a precise answer, but I can't. What is clear is we are lower in terms of inventory level at wholesale, at wholesalers compared to the record high level end of June. I think that is clear. What is also clear, we hear from wholesalers, we are not yet back to normal. Where we are exactly in between, honestly, I don't know. Okay. Linking these destocking effects to this very high price increase you implemented last summer would somehow imply that the destocking effect should be lower going forward given your lower price increases, right? I don't wanna speculate, to be honest with you, because I don't have enough information and facts and figures. That's speculation. I can't tell you anything about that. Okay. Maybe comparing the destocking effect to the heating sanitary effect. Is it fair to say that the destocking effect was much larger than the sanitary heating effect? That I would say yes. That seems to be very clear, yeah. It is mainly the destocking effect and the switch from sanitary heating was definitely lower. There we are pretty sure. Okay. Then looking at the development of Germany, which was, I mean, rather, yeah, positive, still in Q3, and I'm also thinking that the heating impact could be probably most importantly be in Germany. Do we have to fear that this heating impact will become bigger the next quarters? The next quarters, I don't know. I think it will remain for Q4, specifically for Germany, what we have seen for Q3 in terms of magnitude of this effect. For the quarters, I don't know, but for Q4 I would agree, will remain. Okay. The heating effect, I mean that's mainly Germany, that's mainly Austria, maybe a couple of other European companies, but it's definitely not Switzerland, it's definitely not international. I agree. It's not Nordics, it's not Switzerland. It's the most important ones are Germany, Austria, maybe also include Netherlands and Belgium. These are the four main countries where I would say we see a certain effect from this temporary shift to heating solution. Thank you very much. The next questions come from Alessandro Foletti from Octavian. Please go ahead. Yes, good morning. Thank you for taking my questions. Just a few follow-ups, please. This heating effect, does that also imply a competition on the workers? I mean, are these the same installers working for sanitary as well as heating? If they run after heat pumps, they cannot make sanitary or are these two different group of people? No, it's the same, typically the same plumber. It's a double effect you could say. From an end consumer perspective, you shift somewhat a little bit maybe to heating, but also from the installation level, plumbers, they shift a little bit more at the moment, for example, in Germany to heating solution instead of sanitary. It's typically the same plumber doing both. Okay. The second question is on the EBITDA margin. You mentioned that the current level is not sustainable. I understand that, as you telling us it's lower than normal. Are the price increases enough to bring you back into the range, into the target range, or do you need more, i.e., if you have volume declines, it will be more difficult for you to go back into the range. As you have seen and as you have also provided in our presentation, which is online, you see that we have been able to almost fully compensate energy and raw material prices with our sales price increases in the third quarter. However, in the first half of the year, we have not been able because of the delay effect of these price increases, and this is the main reason why we expect that the EBITDA margin is below 28% this year. In other words, if we have the full impact of the price increases to those variables, we expect that should help to bring us back to the 28%. Okay. Not a meaningful operating leverage in this sense? No. Okay. Thank you. The next question comes from Remo Rosenau from Helvetische Bank. Please go ahead. Yes, thank you. You train around 80,000 kilometers a year, so you not only get qualitative feedback from your wholesalers in order to judge the destocking effect, but also constant quality feedback from your many thousand plumbers who are much nearer to the market. So what kind of quality feedbacks are you actually getting from them about the actual development of the underlying market, in the sanitary market at the moment? I mean, is it only, you know, a switch a bit from to heating or is it also the underlying demand getting softer if you listen to your plumbers? Listening to our plumbers at the moment, one feedback is exactly what you said, is that they are doing a bit more heating in some of the countries, and as mentioned before, due to the trend to heat pumps. In general, if you listen, they still have a lot of work, they still have high order books also in terms of sanitary. They are not at the moment seeing a deterioration of their business. Not at all. Maybe don't forget, these are small companies. An average company in Germany has seven employees. If you talk with these companies, what is your expectation for the business? They're not doing business planning, you know, for next year. They don't have numbers. They see their order books. They have a lot of work. That's what they say at the moment. We still have a lot of work. They are not doing forecasting or kind of macro-analysis, not at all. At the moment, it is good environment still in most of the countries. Yeah. I mean, I understand that the order books are very high. I mean, that's the case everywhere. Mm-hmm. Even talking to these guys, I mean, you also hear, "Yeah, but I don't get many new orders, actually." I mean, what about that? To be honest, I can't give you here a clear answer because we are not collecting that in a systematic way. It's more a mood discussion, you know. The general mood is at the moment good. Obviously, if I would try to summarize their feedback, sort of feedback, that has increased. That is clear, because they also read newspapers. They're also understanding the prices are going up, that we have an energy issue in many countries in Europe. That's the uncertainty. As the normal uncertainty which you also observe, I would say, on the street, that has also increased. Okay, fair enough. Thank you. The next question is from Stefanie Scholtysik from Mirabaud Securities. Please go ahead. Yes, good morning. I have three questions around your product. You mentioned the FlowFit, which is a great success. I mean, can you share with us in which countries you have rolled it out so far and which will be the next? And do you see any cannibalization of other products? And is the EBITDA margin comparable to other products you already have? FlowFit was introduced last year in the German-speaking countries and Netherlands last year. This year we further rolled it out to Italy, Belgium, Nordics, and some Adriatic countries. It's not cannibalizing our existing Piping Systems. In total, we are growing thanks to FlowFit. It's not substantially cannibalizing the other system. In terms of margins, we don't have an EBITDA margin on product level, but the gross margin at the moment is still somewhat lower than group average, but that has to do with volume and scale effects. Once we are reaching higher volumes, we expect also group average margin level with FlowFit. Okay. Thank you. Then on the AquaClean, you didn't mention anything on it. It is more a consumer-related product, if you want. How is demand behaving for those products in the current inflationary environment? For AquaClean, in the first nine months, sales are, and volumes are on previous years' level, so no growth. Keep in mind, we have had a very strong growth over the last two, three years also, driven by the tailwind from COVID-19. Compared to 2019, we are still have been growing with a CAGR, with a substantial double-digit CAGR over the last two years. We are selling. In other words, demand this year is on the very high level of last year. Okay, good to hear. Any comments on Geberit ONE? How is this product line doing? We are very happy with Geberit ONE. It's really growing, and we are doing better year by year. However, that's not the same as for FlowFit. It's one product. It's basically one or two SKUs. The contribution in terms of absolute contribution is much, much smaller, but it's a nicely growing product. Okay, great. Thanks a lot. The next question is from Manish Beria from Societe Generale. Please go ahead. Hi, good morning. I will take my questions one by one. First is a clarification. You said October sales is slightly down YoY. I just want to understand, it's in local currency or in CHF, slightly down sales in October? Everything we are talking about is in local currencies. In local currency. Okay, that makes sense. The second question is on the raw material. If you look at the spot prices, it's already coming down. What is your estimate if you do the calculation that how much raw material prices will fall next year if this spot rate prevails, and also on the energy cost, and what is the energy cost here, so what will be the impact next year in terms of price in the energy price increase or decrease now next year? Maybe it is increased energy price. As I said during our introduction, I don't wanna speculate about the next year, especially not about raw material and energy prices, so I can't give you an answer for next year. Sorry. Mm-hmm. Okay. No problem. Then this plumber order book is very high, so I think you mentioned something like 17-18 weeks. So do you think, I mean, next year some of the weakness of the consumer demand could be mitigated by eating away the plumbers' order book? I mean, maybe the consumer demand is lower, but plumber keeps on eating up their order book, and that's the reason you don't see much volume decline next year. That these kind of trends can play out still? Yeah. Again, the same answer I questioned before. At that stage, we do not speculate on 2023. Mm-hmm. Okay. No, it's fine. Yeah. Thank you. Welcome. We have a follow-up question from Laurent Favre from Exane BNP Paribas. Please go ahead. Hello, gentlemen. Happy to hear you. Just one question on the lag effect because I've been spotting that housing permits in Germany are very weak recently. To what extent and with which lag can it be seen to have consequences on your sales? Is it about a six months lag? What would you pick as a guesstimate? The typical time lag between building permits and impact on our sales depends on the product area. It's around between 9 months and maybe 15-18 months. Typically, pipes are affected earlier due to the production process and Bathroom Systems typically have the longest lag effects from building permits to a sales impact in our industry. I've got an additional question because there are talks about first of all non-residential outlook for 2023. Some people are thinking that there is a support from reindustrialization and people getting wary of too long supply chain, so reshoring some part of the industry in Europe, while the mortgage rates are obviously very negative. What would be your take? Do you see a support from reindustrialization? Do you see some orders or some inquiries regarding huge plants being built in Europe? What's your take? As you know, two-thirds of our business is residential. If I can understand your question correctly, that affects the non-residential and a small part of this non-residential is linked to maybe supply chains, logistics centers, and so that's a relatively small business for us. Whatever the impact is of reshoring or manufacturers are building plants more in Europe, that has a minor effect on our business because we are, as I said, predominantly residential and even within non-residential, large part of this is Commercial businesses, Hotel business or State Hospitals, and a smaller part in Industrial plants. Okay. Thank you so much, Christian. You're welcome. See you. There are no more questions at this time. I think it's it. Thank you very much for your questions. We wish you all a great day. Thank you.