Geberit AG

Good morning ladies and gentlemen and welcome to our conference call on our Q1 results. GetRitz delivered in a continuous difficult market environment good results. Let me start with the key statements for the first quarter. First, the unfavorable currency development impacted the entire P&L negatively. Second, net sales reached in local currencies almost previous year's levels. Thirdly, operational margins remained stable on a very high level. And fourthly, the tax rate increased significantly, mainly due to the new OECD minimum taxation law in Switzerland. Let me now comment on our net sales development in more detail. Net sales in Swiss francs declined by minus 6% to 837 million Swiss francs. The unfavorable currency development affected net sales negatively by 43 million Swiss francs, or minus 5%. Hence, group net sales declined in local currencies by minus 1%. This decline was caused by a volume decline of around 2%, which was partially offset by a positive sales price effect of around 1%. The small positive price effect was driven by carry-over effects from slightly delayed price increases at the beginning of last year. The volumes were slightly below previous year's level. Adjusted by the one missing working day, volumes have been on previous year level in the first quarter. The volumes were driven by three factors. A positive base effect from destocking of wholesalers in the previous year, secondly, a declining end-market demand, and thirdly, selective restocking of wholesalers this year. However, stock levels at wholesalers were not yet back on normal levels end of Q1. We come now to the regional development. All growth figures refer to growth in local currencies. In Europe, net sales declined by minus 2%. Net sales declined in all sub-regions and countries except in Italy and Eastern Europe, where a slight growth was achieved. In Middle East Africa, net sales increased only by 1% due to a very strong Q1 and Q4 in the previous year. Net sales in the Pacific increased by 7% despite the sales decline in China. And in America, net sales increased by 6%. Let me now comment on the sales development per product area. All three product areas showed a similar sales dynamic. Installation and flushing systems and bathroom system sales declined by minus 1% and piping systems by minus 2%. I will now comment on the operating and financial results. The operating results decreased due to the substantial negative currency effect. However, in local currencies, operational results reached previous year's level. I'll start with the discussion of the ABTA developer. ABTA in Swiss francs decreased by minus 7% to 275 million Swiss francs. In local currencies, ABTA reached previous year's level. The ABTA margin decreased by 30 base points and reached with 32.8% and excellent levels. The margin decrease was driven by the negative currency development. In local currencies, EBITDA margins slightly increased by 30 basis points, thanks to lower direct material prices. Direct material prices were in Q1 9% below the Q1 level last year. However, sequentially prices in Q1 were only 2% below Q4 2023. Despite the significantly lower direct material prices, we kept our sales prices stable, confirming our pricing power. Main negative margin drivers in Q1 were a wage inflation of around 5% and several dedicated growth initiatives marketing efforts and additional expenditures for IT and digitalization. EBIT and EBIT margin decreased in line with the EBITDA and EBITDA margin. Net income in Swiss francs decreased by minus 11% to 190 million Swiss francs. In local currencies, the decrease was minus 5%. This decrease was mainly driven by a higher tax rate due to the new OECD minimum taxation law in Switzerland. EUR per share reached 5 CHF 73 and declined by 4% in local currency, slightly better versus net income due to the continued share buyback program. Excluding the negative currency effect and the new OECD minimum taxation law in Switzerland, EPS would have been almost on previous year's level. The share buyback program was continued with 99,000 shares bought back in the first three months for a total amount of 51 million Swiss francs. Let me now comment on our outlook, which does not differ significantly from our outlook given at our full year analyst conference in March. We expect a very challenging environment with an overall decline in building construction market this year. The increased building costs and interest rates over the last two years significantly dampened demand for building construction activities, especially in the new-build sector. Building permits in Europe declined by around 15% in the full year 2023, mainly driven by the residential sector, leading to a contraction of the European new-build construction business this year. The strongest decline of the new-build sector is expected in Northern Europe and Germany. The most robust new-build sector should be seen in Switzerland due to lower inflation and lower interest rates. Unlike the new-build sector, we expect the renovation business, in which we generate around 60% of our sales, to be more robust, maintained by the fundamental need for renovation in several European countries, and no additional pressure from the shift from sanitary to heating solutions as experienced last year. Despite the overall negative sentiment for the building construction industry, we expect several positive catalysts for the sanitary construction markets. For example, the general and structural trend to better sanitary standards and the strong demand in several markets outside Europe, for example in India or the Gulf region. We also expect challenges with regards to direct material prices. First, we expect sequentially increasing prices in Q2 versus Q1. Secondly, direct material prices peaked last year in March. Since then, material prices were continuously falling. In other words, Our margins will benefit less and less in the coming quarters from a positive base effect from high material prices in the previous year, as you can see on slide 6 of our PowerPoint presentation. This brings me to the GBRIT priority this year. The overarching objective this year remains to gain further market shares regardless of the declining market environment. We stick also in 2024 to our two guiding principles, strategic stability and operational flexibility. The purpose of these principles remain to manage the volume uncertainties in 2024 with a maximum of flexibility, but without harming the mid-term potential of the business. This means that we continue to execute on our strategic agenda as presented at our Capital Market Day last October, and that we will further invest into our businesses, into innovation and into efficiency. Furthermore, we will increase our expenditures for dedicated sales initiatives in emerging markets, for marketing efforts in the context of the launch of our new shower toilet Alba and our 150th anniversary this year, and for investments in IT and digitalization. In total, we will increase operational expenditures with these initiatives by 30 million Swiss francs in 2024, further ramping up as of Q2. Before we close the introduction with a short summary, let me briefly comment on the sales development in April. Net sales in April were line for line slightly above previous year's level, driven by restocking effects from wholesalers. Another priority this year remains our shareholder-friendly distribution policy. Based on a healthy balance sheet and a good cash generation, we will launch a new share buyback program this year. The new program amounts to a maximum of 300 million Swiss francs and will run over a period of a maximum of two years. It will be launched after the completion of the current program in Q3 this year. Let me close our introduction with a short summary and our key messages. Geberit delivered good results in Q1. Despite a very difficult environment with weak demand, currency-adjusted net sales and margins reached previous year's levels, supported by restocking of wholesalers and easy comps for direct material prices due to still peak levels of direct material prices in Q1 last year. Earnings per share reached also previous year's level, excluding the effects from the strong negative currencies and the new OECD minimum taxation law in Switzerland. For 2024, we continue to expect a declining market environment. A specific challenge emerges from the fading positive base effect for the margins due to the falling direct material prices in the course of last year. However, Gerrit is well prepared for the uncertainties emerging from this environment, as already demonstrated several times during the past. Our confidence remains based on the fundamental need for our products, our resilient strategy and business model, and our long-term focus and track record. Thank you for your attention. We are now ready to answer your questions.

We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press star and 1 on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use only handsets while asking a question. Anyone who has a question or a comment may press star and 1 at this time. The first question from the phone comes from Arno Lehmann, Bank of America. Please go ahead, sir.

Thank you very much. Good morning, gentlemen, and thank you for the introduction. A couple of questions on my side. Firstly, on the $30 million increase in cost that you mentioned for the anniversary and the investment in sales, etc., can you give us an indication of the phasing through the year? I think you mentioned that Q2 2020. will be higher than Q1 and then what we would expect into the second half. And secondly, we have seen a rebound in the cost of some industrial metals and also of natural gas. Does that create a bit of risk to your margins going forward? Or would you consider a new pricing, please, to offset the cost inflation? Thank you.