Geberit AG

Good morning, I am the Arcadin operator for this conference. Welcome to the Gaborit conference call. Please note that for the duration of the presentation, all participants will be in silent mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on the telephone. This call must not be recorded for publication of broadcast. At this time, I would like to turn the conference over to Mr. Kirsten Ruhl, CEO, accompanied by Mr. Roland If, CFO, and Mr. Roman Siedler, head of corporate communications and investor relations. Please go ahead.

Thank you for the introduction. Good morning, ladies and gentlemen. Welcome to this conference call. The coronavirus pandemic led to an unprecedented global economic crisis and changed business realities over the last three weeks at a speed never seen before. The objective of this communication outside of our regular financial calendar is to inform you directly and promptly about the current situation at GIBRID. We want to ensure that the capital markets are informed simultaneously and equally about the current situation and the impact of the COVID-19 crisis on our business. We will cover the following three topics in this call. First, the net sales development in Q1. Secondly, a status update on the COVID-19 impact on Geberit. And thirdly, our priorities going forward. Let me start with our net sales figures. Geberit had a solid first quarter with a net sales growth of 1.5% in local currency. The COVID-19 crisis had a negative impact in the first quarter in two dimensions. First, a production interruption of our plants in China and the shower toilet model Mera. And second, a substantial sales decline in March in a selected number of countries where the COVID-19 imposed restrictions led to a shutdown of construction sites. In Swiss francs, net sales decreased by 3.9% to 798 million Swiss francs due to substantially weaker foreign currencies. Let me turn to the regions. Net sales in Europe increased by 2.7% in local currencies, and in America by 0.8%. In Middle East Africa, net sales decreased by 15.3%, driven by weak sales in South Africa and Israel. In Asia Pacific, net sales decreased by 21.6%, driven by very weak sales in China in the first quarter. Turning now to the product areas. In the first quarter, installation and flushing systems net sales grew by 2.2% and piping systems by 2.3%, both in local currencies. Bathroom systems net sales were on previous year's level, negatively affected by the production interruption of the shower-toilet model Meerax. Let me now comment on the current status of the COVID-19 impact on GEBRIT and our business. I start with the current market situation. The main driver for the demand of GEBRIT products is the activity level of building construction sites. In the majority of countries in which we are active, building construction sites are still open. In a few countries, However, building construction sites are largely shut down or closed, either by local authorities or due to discontinued operations of other construction companies. The countries where today building construction sites are largely closed are Italy, France, UK, Spain, Austria, and outside Europe, also India, and South Africa. These countries represent around 25% of our sales exposure. Customer showrooms for sanitary products are largely closed in all countries, in line with the public shutdown of the retail sector. Let me continue with the current situation at Everett. Since mid-March, the COVID-19 crisis has a negative impact on our demand. Overall, order entry in March was down by a low double-digit percentage. This decline was mainly driven by a substantial decrease of demand in the before-mentioned list of shutdown countries since mid-March. The remaining countries also recorded a decline in demand, although much less pronounced. driven by a lower activity level of the building construction industry imposed by COVID-19 restrictions. Let me now comment on the status of our supply chain. We produce mainly in Europe for our European markets and source most of our raw materials and components from European sources. Furthermore, our plans and our logistics are highly automated. Our supply chain, despite the COVID-19 restrictions, is still intact and runs on normal levels. So far, we have access to all important key materials and components. The two plants in China are up and running again. At the moment, three smaller sites are shut down. the ceramic plants in Italy and France, and the plant in India. However, none of these three plants is material in terms of volume, and we have sufficient stock for the coming weeks. Currently, the biggest short-term risk for the supply chain are supply shortages from component suppliers, for example from Italy, and a forced shutdown of a material plant at Geberit. Geberit is financially very strong and healthy. We have a very strong balance sheet with a strong cash position of 300 million Swiss francs and an unused revolving credit facility of 500 million Swiss francs per end of March. The current share buyback program is not impacted by the actual situation and has been further executed according to plan. 261,000 shares in the amount of 106 million Swiss francs have been bought back in Q1. There is a minor part of the current program left. The program will be terminated in Q2 as planned. The dividend in the amount of 400 million Swiss francs, which will be paid out tomorrow, has not been changed due to the COVID-19 crisis. The payout ratio is in line with previous years. Let me now comment on our priorities going forward. We reviewed over the last three weeks the impact, the risks, and the opportunities emerging from the COVID-19 crisis and came to the following conclusions. First, there is no need to change our strategic agenda or operational priorities. We will continue to think long term, to invest and to execute on our strategic and operational initiatives. We also do not see a need for restructuring. We rather prefer to invest some of our margin into the business to emerge stronger from this crisis and to leverage the opportunities as a strong and financially very healthy player in times of market disruptions and turbulence. Of course, we will and already started to take measures to adapt our daily activities approach to the current market realities. This means that we will stop or delay activities or projects which are not feasible, not necessary or not meaningful in the current environment. And we will manage underutilization due to temporary demand shortages or forced site closures. However, we will not make any compromise on our fundamentals or take any measures which would harm our position or future potential, for example, by reducing our R&D efforts and budgets. In this context, we defined the following four operational priorities in this extraordinary situation. First, the safety of our employees. Second, the support and management of our customers. Third, business continuity management to ensure the availability of our products. And finally, an increased focus on liquidity in times of high uncertainty. To maintain our strong balance sheet and to strengthen our mid-term liquidity, we will issue a standard Swiss franc bond in the amount of 150 million Swiss francs or more with a maturity of around two years. The final terms will be subject to market conditions. This will allow us to leverage the currently still attractive financing conditions, to free up RCF capacity for our networking capital management, and to prepare the refinancing of the Eurobond, which is due next year. We refrain in the current situation from providing an outlook for the building and construction industry and raw material markets due to the high level of uncertainty and the lack of visibility. Let me close my introduction with a short summary. Geberit achieved a solid net sales growth in the first quarter, negatively impacted by the COVID-19 crisis in March. Gerrit is not immune against the economic crisis emerging from the COVID-19 pandemic. We will see an impact on our 2020 results, although the severity is still unclear. Gerrit is a highly efficient organization with highly automated plans and logistics producing in Europe for Europe. With a strong balance sheet and industry-leading margins, which allow us not only to navigate through this period of disruptions and turbulences, but also to emerge stronger from this unprecedented economic crisis. Thank you for your attention. We are now ready to answer your questions.

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