Geberit AG

Good morning. I'm the Academy operator for this conference. Welcome to the current conference call on the third quarter results 2020. Please note that for the duration of the presentation, all participants will be in the listen-only 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 operator by pressing the star key and zero on their telephone. This call must not be recorded for publication of broadcast. At this time, I would like to turn the conference over to Mr. Christian Buhl, CEO, accompanied by Mr. Roland Giff, CFO, and Mr. Roman Fiedler, Head of Corporate Communications and Investor Relations. Please go ahead, sir.

Thank you for the introduction. Good morning, ladies and gentlemen, and welcome to our conference call on our Q3 results. Let me start with a preliminary remark. Our Q3 results are in a contradiction to the most recent developments in Europe over the last couple of days due to the fast-developing second wave. So please keep in mind we talk about Q3 results with this conference call. I will start with the third quarter figures and then comment on our nine-month development. Gerrit did a very good result in the third quarter with a very strong top line growth and an excellent profitability driven by catch-up effects after the lockdown in the second quarter. Net sales grew by 5.3% to 794 million interest rates. In local currencies, net sales grew by 8.5%. Almost all countries benefited from catch-up and stock-rebuilding effects due to the lockdown or other COVID-19-induced market restrictions during the second quarter. The degree of the catch-up effect varies country by country, driven by the severity and the length of the lockdown and the COVID-19-related business restrictions. Double digit growth rate in local currencies were achieved in Italy with a plus of 24%, in Austria with plus 13%, in Germany with plus 12%, in France with 11%. Single digit growth rates were recorded in Eastern Europe with a plus of 8%, Switzerland and Nigeria with plus 11%, Nordic and America with plus 6%, and the UK with a plus of 3%. The only European region with a state decline in CO3 was Benelux with minus 3% due to a very strong comparable from the previous year. States in Middle East Africa declined by minus 4% and in Far East the cities by minus 7%. Both regions suffered from countries still heavily affected from COVID-19 restrictions into CO3, e.g. India, Australia, or Singapore. The product areas have developed differently in the third quarter. Insulation and flushing systems grew by 10% and bathroom systems by plus 12% in the third quarter. Piping systems showed a much lower growth dynamic with plus 3% indicating into a weakening new build segment and produce business during the third quarter. Let me now comment on the operational and financial results in the third quarter. ADTA increased by 14% and the ADTA margin reached 33.2%, an increase of 250 basis points compared to Q3 2019. This margin expansion was driven by three main factors. First, the operating leverage from the strong volume growth. lower material prices, and third, still relatively low SG&A costs due to COVID-19 restrictions. For example, still very low crown costs or costs for physical marketing events. Net income increased in the third quarter by 11% to 189 million Swiss francs. Negative impacts by a higher tax rate compared to previous years. Earnings for shares reached 5.629, an increase of 12% versus previous year. Free cash flow increased in line with the operational results by 16% in the third quarter. I will now comment on our nine-month performance. Net sales in Swiss francs decreased in the first nine months by minus 5% to 2.3 billion Swiss francs due to substantially weakened foreign currencies. in local currencies, net sales reached with minus 0.4% almost previously at level despite the COVID-19 pandemic. The negative COVID-19 impact on demand varied substantially by geography, depending on the screen and the length of the local lockdown or the imposed business restrictions. In Marches, where construction sites were closed around 10% of our sales exposure, net sales declined in average by around 15% in the first nine months. These countries include France with a minus of 10%, Italy with minus 11%, Spain with minus 15%, the UK with minus of 22%, South Africa with a minus of 24%, and India with a minus of 29% in the first nine months of the year. The remaining countries, around 80% of AG exposure, were also impacted by lower construction activities during year 2. However, the losses were largely compensated again in year 3. These countries include Germany, with an AG growth of almost 6%, Austria with plus 5%, in Eastern Europe with 4%, Nordic and Switzerland with 3%, The benefit with minus 1% and the U.S. with minus 2% representing a slight sales decline. Let me now comment on the sales development for product area in the first five months, again in local currencies. Installation of washing systems reached previous year's levels and pricing systems declined by minus 1.6%. The only product area with a slight net sales growth was bathroom systems with a plus of 0.6%, driven by a strong growth of the shower-toilet savings. Let me now comment on the operational and financial results in the first nine months of the year. All results decreased due to the negative inflation effects from weaker currencies. However, in low currencies, All bottom line results from ABTA down to EPX increased for the previous year. The negative currency development had only a minor impact on the margin due to our continuous efforts to maintain a natural currency hedge. Let me now comment on the ABTA development. The ABTA margin reached 32.1% in the first 9 months. and we were able to increase the MEK margin by 130 basis points despite the net sales increase of minus 5%. The main drivers for this margin improvement were fast and targeted cost containment measures. Secondly, a heightened and further increased flexibility in production and logistics to cope with the substantial decline in demand during the second quarter and the strong rebound in the third quarter. Thirdly, lower material prices, and fourthly, increased sales prices. It is worth mentioning that these results were achieved without structuring, without any layoffs, without a salary cut for a single employee, or material support from the public, for example through short-term work. Yeti margin reached 27.1% AP-based parts of all previous systems. The weekly development of the EBIT margin versus the EBITDA margin was driven by higher depreciation expense from higher investments in the previous years. Net income reached 504.3%, corresponding to a net income margin of 22.3%, or 20 base points, globally this year. The lower net income margin was mainly driven by a higher tax rate, due to the new tax regime for corporates in Switzerland. Earning per share reached 14.5 francs of fixed, a decrease of minus 5.5% versus previous year, driven by the weaker currency. In the first nine months of the year, almost 270,000 shares have been bought back. Thereof, 262,000 shares at the average share price. under the program launched in June 2017. Under the new program, just launched recently in September, additional 8,000 shares were bought back. Free cash flow decreased in the first nine months of the year by minus 9% to 454 million BTC. This slide is a disproportionate decrease versus the operational cash flow but mainly driven by the strong comparables with a strong free cash flow growth of plus 20% in the previous year. The strong results further improved the cash position of GEBRIT. To end of December, we hold a cash position of around 600 million Swiss francs and an annual revolving cash facility of 500 million Swiss francs. Let me now comment on our outlook for the remaining years. The uncertainty around the COVID-19 crisis increased again, especially since the second pandemic wave has reached Europe. The situation with new restrictions across Europe is currently changing day by day. This makes an outlook highly uncertain and almost impossible. Please also keep in mind that we have a very low visibility with an order book of less than two weeks. Therefore, let me first comment on the latest business performance. After the strong business rebound and stock rebuilding effects of customers in Q3, demand slowed down significantly in October, with sales in October being slightly below previous year's levels. Based on the weaker October results and delayed or stopped projects, especially in the non-residential segment due to the COVID-19 crisis, because we expect a weaker Q4. For the full year, we expect Curtis Jobs' net sales to be slightly below previous year and the full year ATA margin above previous year's level. However, we expect the ATA margin in Q4 to be substantially below Q4 last year due to a negative operating leverage for volume climb, second, Higher personnel costs due to wage inflation and the easing of the hiring rate. Thirdly, increasing volunteer prices and tougher costs from lower volunteer prices in Q4. And fourthly, additional costs for the brand switch. Let me close our introduction with a short summary. The COVID-19 crisis led to an unprecedented business collapse in terms of speed and extent also at Gebrecht. The decline in the second quarter was followed by an almost equally strong catch-up in the third quarter. We believe Gebrecht has mastered this rollercoaster ride very well so far and delivered very strong results. for his results were a strong financial fundament combined with a stable strategy and a resilient business model. Second, a fast and prudent crisis management, avoiding overreactions. Third, the ability of our supply chain to cope with unseen business restrictions and extraordinary volatility in customer demand. And finally, our conscious decision not to reduce our presence with customers throughout the crisis. Finally, he achieves these strong results without harming our future position, without disrupting or changing our strategic agenda. In his unprecedented times of uncertainty, he found the right balance between short-term flexibility and long-term stability, which gives us confidence to emerge stronger from this crisis, which is obviously it will fall from over. This is the end of my introduction. Before I hand over to the Q&A, let me make a short remark on our presentation we just published this morning. There was a small misstate in the presentation on the ABTA bridge on page 13. Some figures were wrong. We uploaded a new version just half an hour ago with the right figures on the ABTA bridge on page 13. We are now ready

thank you we will now begin our question and answer session if you have a question for our speakers please dial 01 on your telephone now to enter the queue once your name has been announced you can ask a question if you find your question is answered before it's your turn to speak you can dial 02 to cancel your question is using speaker equipment today. Please lift the handset before making your selection. One moment, please, for the first question. We have one first question from Mr. Andrei Kukin from Credit Suisse. Your line is now open.