Geberit AG

Good morning. I am the NTT operator for this conference. Welcome to the Gaborit conference call on the first quarter 2022. Please note that for the duration of the presentation, all participants will be in a 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 this conference call, they may signal an operator by pressing star 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. Tobias Knechtle, CFO, and Roman Siedler, Head of Corporate Communications and Investor Relations. Please go ahead, sir.

Thank you for the introduction, and good morning, ladies and gentlemen, and welcome to our conference call on our Q1 result. Gabriela had a good start into the year. Let me start with the key statements for the first quarter. We achieved an extraordinary strong sales growth in local currencies of 30% despite a very strong comparison basis. Secondly, significant headwinds from the unfavorable currency development led to a strong negative net sales impact of minus 5.2%. Thirdly, the unprecedented surge of raw material and energy prices led to a reduced but still excellent APTA margin level of 30.9%. And finally, despite the margin decrease, we managed to grow all bottom line results in local currencies thanks to the strong top line. APTA, for example, increased by 2.5% or EPS by 3.7% in local currencies. Let me now comment on our next stage development in more detail. Net sales in Swiss francs increased by 7.8% to 980 million Swiss francs. The unfavorable currency development negatively affected net sales by 48 million Swiss francs, or minus 5.2%. In local currencies, group net sales increased by 13%. Half of this growth was driven by increased sales prices of 6.4%, in average across the portfolio and geographies. This price increase is somewhat stronger than expected due to favorable mixed effects. The strong volume growth was achieved despite an already strong previous year's level and was driven by a still strong building construction market with a still healthy home improvement trend, some forward buying effect due to sales price increases, and one additional working day. I come to the regional development. All figures refer to growth in local currencies. In Europe, net sales increased by 13% with growth in all sub-regions respectively countries. The war in Ukraine did not materially affect sales in Q1 since sales in Ukraine stopped only as of March and demand in all other Eastern European countries remained to be strong. In Middle East Africa, net sales increased by 15% with growth in all major countries. Net sales in Asia Pacific grew by 20%, driven by strong growth in India and North Southeast Asia. In America, net sales were up by 5%. Let me now comment on the sales development per product area. The strongest growth was recorded in piping systems with a net sales growth of plus 19% in local currencies. driven by a stronger price increase compared to the other two product areas and a very good development of the new flow fit piping system. Installation of flushing systems net sales grew by 14% and bathroom systems net sales grew by 6%. The lower growth of bathroom systems was driven by a stronger base effect from the strong Q1 2021 and smaller sales price increases in bathroom systems compared to the other two product areas. I will now comment on the operating and financial results. APTA in Swiss francs decreased by 3.7% to 303 million Swiss francs due to the substantial negative currency effect. Local currencies' APTR increased by 2.5%. The APTA margin decreased by 370 basis points versus the record high level in the previous year. and reached a still strong level of 30.9%. This is slightly below the pre-pandemic margin level of Q1 2019. Main negative margin drivers were an exceptional strong raw material price increase of 24% and an unprecedented energy price increase of 94%. An average wage inflation of 2.3% and lastly, the strong devaluation of several foreign currencies with a negative impact on the ABTA margin of 50 basis points. The positive drivers for the margin were safe price increases of 6.4% at the operating leverage from the strong volume growth. The EBIT margin decreased in line with the ABTA margin by 360 basis points and reached 26.8%. Net income in Swiss francs decreased by 5.3% to 220 million Swiss francs, driven by the negative currency effect. Earnings per share decreased disproportionately due to the share buyback program by minus 3.7% to 6 Swiss francs 29. In local currencies, EPS grew by 3.7%. The share buyback program has been accelerated in the first quarter with 341,000 shares bought back in the first three months for a total consideration of 207 million Swiss francs. In the preparation of refinancing of our 300 million Swiss franc bonds, which is due in October this year, we launched mid-March a new standard Swiss franc bond in the amount of 150 million Swiss francs with a maturity of 5.5 years and a coupon of 0.75%. Let me now comment on the current business environment. The demand for building construction is still strong, both for the residential and non-residential sector, but also for the new build and renovation segment. The trend to home improvement is somewhat weaker, but still healthy. Price inflation and increased interest rates had not a broad-based impact on demand so far. On the one hand, due to the general time lapse in our industry, and on the other hand, due to the substantial backlog of building projects. Our supply chains are intact, albeit the situation is extremely tense. Thanks to extraordinary efforts of our supply chain organization, we still manage to get the relevant raw materials and logistic capacities without major impact on the availability of our products. Overall, we achieved a good sales level in April with a mid Let me now briefly give you an update on the situation in Ukraine and Russia. Our business in Ukraine and Russia accounts for around 2% of group sales. Most of our 590 employees in Ukraine are at home or in the western part of the country. Only a few employees fled with their families abroad and were received by different organizations in other countries. several Ukrainian employees are drafted to the army or voluntarily supporting the civil defense. Our office in Kyiv and our plant 300 kilometers west of Kyiv are unharmed. Since the war activities have been shifted more to the eastern part of the country, the situation in Kyiv and in the area of our plant has calmed. Therefore, the local team decided to restart production in the plant again However, on a very low level and only as long as the safety of the employees is not at risk. In Russia, we suspended all business activities per end of March. However, we continue to pay the salaries of our 70 local employees. We have developed contingency plans for our ceramic plants in Germany and Poland in case of delivery interruptions of natural gas from Russia. The basic idea is to prepare these plants to switch to the alternative LPG gas. All other ceramic plants are not at risk since they operate in countries which are not dependent on Russian gas delivery. Let me now comment on our outlook. We live in a new world of realities where one crisis follows another, creating one challenge after another and unprecedented uncertainties and risks. The war in Ukraine increased geopolitical risk and further increased the already pre-existing supply chain issues and disruptions from COVID-19. Furthermore, the global fight against the COVID-19 pandemic is also not yet over, as the renewed outbreak and the massive lockdown in China have demonstrated. In the light of these developments, raw material and energy prices continue to surge to new historical price and deflation levels, pressure on wage inflation, and an increased interest rate. In this unprecedented environment of multiple and overlapping crisis, a serious and reliable outlook and forecast is not possible. However, despite these unknown environments, we have defined the following priorities for 2022. First, consequent pricing management to address the extraordinary raw material price inflation. In Q2, we expect a further acceleration of raw material prices. Overall, we expect raw material prices in Q2 to be around 10% higher than in Q1. This means that raw material prices in Q2 will be around 28% above the level of the previous year's second quarter. This is why we decided to implement another extraordinary price increase. We will increase sales prices in average across product areas and countries by 7.5% as of July this year. With this, we stick to our goal in pricing management to compensate raw material price inflation, not on a quarterly basis, but over time. The second priority this year are our newly introduced products with a strong focus on our new supply piping system, FlowFit, which we roll out to further countries this year. Thirdly, we will continue to execute various important capacity expansion and improvement projects along our strategic agenda, for example, in the area of digitalization. And finally, based on our strong balance sheet and strong past generation, we will launch a new and increased share buyback program compared to the existing one. The new program amounts to 650 million Swiss francs and will run over a period of maximum two years. It will be launched directly after the completion of the current program latest in Q3 this year. Let me close our introduction with a short summary and our key messages. GEBRIT achieved good results in the first quarter with an extraordinary strong top line growth, equally driven by price increases and volume growth. Despite massive headwinds from record high raw material and energy prices and record results in the previous year, we managed to grow on bottom line results in local currencies in Q1. Due to the acceleration of raw material price inflation, we will implement another extraordinary price increase in average of 7.5% as of July this year. Due to our strong balance sheet and our strong cash generation, also during times of crisis, we will launch a new and increased share buyback program, latest in Q3. The overall demand for the building construction industry remains strong in all relevant market segments based on a somewhat weaker but still healthy home improvement trend and a solid backlog of building projects. However, A longer-term outlook is very difficult due to the significant increased geopolitical risk and still ongoing uncertainties in relation to the COVID-19 pandemic and especially the increased supply chain risks. Nevertheless, Gerrit is very well prepared to also master key challenges and uncertainty emerging from the unprecedented environment as demonstrated already several times in the past. Our confidence is based on our resilient strategy and business model our price and power, our strong innovation capabilities, our continued efficient improvement, and finally, our long-term value creation focus and respective track record. Thank you for your attention. We are now ready to answer your questions.

Thank you. We will now begin our question and answer session. If you have a question for our speakers, please dial 0 and 1 on the telephone keypad 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 0 and 2 to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. We have a first question. It's from Yves Bromhild of Exxon BNP Paribas. The line is now open for you.