Geberit AG

Thank you for the introduction and good morning, ladies and gentlemen. Welcome to our full year sales conference call. We will first comment on our fourth quarter sales figures, then review our full year sales performance, followed by our guidance for the operational and financial results in 2024, and then finish with the outlook for this year. Let me start by giving you some comments on the sales development in the last quarter. Net sales declined by 1% and reached 685 million Swiss francs. The unfavorable currency development affected net sales negatively by 40 million Swiss francs, or minus 2%. In local currencies, group net sales grew by 1%, entirely driven by volume growth. The continued volume growth in the fourth quarter is a further testament of our strong business performance last year, where most building construction markets were in sharp decline. Let me now comment on the sales development in local currencies of the regions and countries in the fourth quarter. In Europe, net sales increased by 1%, driven by growth in Central Europe, with Italy growing 6%, Benelux 5%, Germany 3%, Switzerland 1%, and Austria being stable year over year. Eastern Europe declined by 1% after strong growth in Q4 of 2023 of 33%. Northern Europe decreased by 4%, negatively affected by the divestment of the Nordic shower business per end of 2023, with a negative effect of minus 2% on net sales. Western Europe decreased by minus 7%, driven by declines in France and the UK. Outside Europe, net sales increased in Middle East Africa by 10%, despite an already very strong growth in the previous year quarter of 41%. And in America by 2%, also despite a strong previous year quarter. In Far East Pacific, net sales decreased by minus 9% due to weak sales in China, partially offset by India. I continue with the sales development per product area in Q4, again in local currencies. Installation and flushing systems grew by 4%, while piping systems and bathroom systems both decreased by minus 1%. The relatively weaker development of piping systems is driven by its higher exposure to the new-build sector. whereas bathroom systems was negatively affected by the divestment of the Nordic shower business per end of 2023. We will now comment on the full year 2024 sales performance. Net sales in Swiss francs were stable at 3.1 billion Swiss francs, negatively affected by strong currency effects. Negative currency effects led to a net sales loss of 76 million Swiss francs, or minus 2.5%. In local currencies, net sales increased by 2.5%, almost entirely driven by volume growth. We consider this volume growth as very strong, since the building construction market experienced a significant downturn last year. The three main reasons for our volume growth are, first, selective restocking of wholesalers and respective base effects in H1, Secondly, we have further expanded our market position by maintaining our sales and marketing efforts since mid-2022, when the building construction markets began to decline. The third volume driver were strong sales with new products such as Flowfit, the new supply piping system Mapres Therm and the new shower toilet Alba. Moving now to the net sales growth per region. Again, all growth figures refer to growth in local currencies. In Eastern Europe, net sales increased by 7% supported by a base effect. In Italy, net sales increased by 6% in a favorable market environment. In Benelux, net sales increased by 4%, driven by growth in the Netherlands. In Germany, Net sales increased by 3% despite the strongly declining market. Our growth in Germany was supported by a base effect, but also driven by relentless sales and marketing efforts and the introduction of new products. In Austria and Switzerland, net sales were stable year over year. In Western Europe, net sales declined by minus 3%. driven by sales declines in France and the UK. Net sales in Northern Europe decreased by minus 4%, negatively affected by the divestment of the Nordic shower business per end of 2023, with a negative effect of 2% on net sales. Let me now turn to the regions outside Europe. In the Middle East and Africa region, net sales increased by 17%, driven by the Gulf region. In America, net sales increased by 3%, and in the Far East Pacific, net sales were stable with strong growth in India, offset by the market decline in China. Let me now comment on the sales development per product area, again in local currencies. Installation flushing systems grew by 5%, while piping systems and bathroom systems both increased by 1%. Insulation and flossing systems benefited more from stocking effects of wholesalers compared to the other two product areas. Furthermore, the relatively weaker development of piping systems can be explained by its higher exposure to the weak new-build sector, whereas bathroom systems was negatively affected by the already mentioned divestment of the north shower business per end of 2023. Let me now comment on our guidance for our 2024 operational and financial results. The ABTA margin for the full year is expected to be slightly below previous year. The full year tax rate 2024 should be between 19 and 20 percent and capex is expected to be around 180 million Swiss francs. Before I come to the outlook for the year, Let me briefly update you on our share buyback program. In total, we bought back 230,000 shares for a total amount of 121 million Swiss francs last year. This means that we distributed, together with the dividend payment, 540 million Swiss francs to shareholders in 2024. This corresponds to around 18% of net sales last year. Let me now comment on our market outlook for 2025. After the significant decline of the building construction industry since mid-2022, we expect overall demand to stabilize in the course of 2025. In Europe, building permits almost stabilized in the first nine months of last year with a slight decrease of minus one percent. However, In our key markets, Germany, the Nordic countries and Austria, building permits still fell double-digit, overall by minus 12% in the first nine months of last year. Due to this geographical exposure, the new construction market relevant to Geprit is expected to continue to decline in 2025, however, at a much lower rate than last year. Unlike the new-build sector, we expect a stable to slightly positive development for the renovation market, which accounts for around 60% of our business. Since several market indicators, for example real estate transactions, show first signs of a stabilization or even a slight recovery. Let me now turn to the regions outside Europe where we expect a mixed picture for the building and construction industry in 2025. We expect in several markets, for example in India or the Gulf region, a strong demand. other markets, for example China, will be in a decline, mainly driven by the residential sector. After this market outlook, let me now come to the Gaborit outlook and our priorities this year. Regardless of the market environment, we will continue to execute on various strategic initiatives this year, such as further expansion of our piping business with the new products Flowfit, Maples Therm and Supertube. The shower toilet business with a focus on the entry-level model Alba launched last year. And as a third example, our specialization strategy of our ceramic plants. Furthermore, we will also again increase our expenditures this year for dedicated sales initiatives in emerging markets and for investments in IT and digitalization. In total, we will increase operational expenses for these initiatives by 20 million Swiss francs in 2025. In terms of pricing, we decided to implement a regular sales price increase of around 1% as of Q2 this year. With regards to our two largest P&L cost positions, We expect a wage inflation of around 4% this year and stable direct material prices in Q1 compared to Q4 last year. Let me finish our dev rate outlook with two important adjustments of our operations footprint. As part of our continuous improvement strategy, we decided in 2023 to specialize our ceramics manufacturing network. The Ceramic Specialization Initiative pursues the goal to specialize each ceramic plant to specific products or product families according to specialized competences and know-how, following the manufacturing principle of one product, one plant. This approach will not only improve efficiency, but also improve product quality, product availability, and the sustainability footprint of our ceramics manufacturing network. In the light of this specialization strategy, we decided to close our site in Wesel per end of 2026. Wesel is the smaller of our two ceramics plants in Germany. Around 300 employees in the plant will be affected by the closure. There are three specific reasons for the plant closure of Wesel. the current competences and expertise of the plant will become less relevant over time in the context of the specialization strategy. Second, the infrastructure is old and restricted in terms of growth potential. And third, the network specialization and further process optimizations enable the absorption of the sub-critical size of waste. The product portfolio is not affected by the closure. The products currently manufactured in Wiesel will be transferred to other existing ceramic plants, including the second ceramic plant in Germany. Total closure and transfer costs are estimated to around 40 million Euro, 25 million as one-time expenses and 50 million for write-offs. As a financial benefit, we expect annual savings of around €10 million as of 2027. A second major initiative in operations is the establishment of a new additional site for distribution logistics. As part of our long-term capacity planning, but also in the light of risk mitigation, we have decided to build a second distribution center beside our currently existing main logistics center in Fullendorf. For this purpose, we have secured a suitable plot of land in Ebenbüren in northern Germany to build a new greenfield logistics center. We will initiate the planning phase this year and plan to ramp up operation of the new center as of 2029 or 2030. Let me close our introduction with a short summary. 2024 marked a further strong sharp decline of the building construction market. Despite the significant market contraction, we managed to grow our volumes and to keep our margins on a high and industry-leading level. These results confirm that we are successfully navigating through the significant market decline of the European building construction sector since mid-2022 and that our two guiding principles during this downturn operational flexibility and strategic stability are paying off. For 2025 we expect overall demand to stabilize in the course of the year. Regardless of the market environment we will continue to execute on our strategic initiatives on top and bottom line to further strengthen Gabriels' market position. Our confidence is based on the fundamental need for our products, our resilient strategy and business model, and our long-term focus and track records. 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 the touch-tone telephone. you will hear a tone to confirm that you have entered a queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested with only answers while asking a question. Anyone with a question may press star and one at this time. Our first question comes from Daniela Costa from Goldman Sachs. Please go ahead.

Hi, good morning. Happy New Year. I have three questions, if possible. Two are very quick, but the main question is regarding the footprint actions you're doing in ceramics. I think in past analyst meetings, you had targeted a productivity improvement in ceramics of 3%, I think, between 23% and 28%. How much of that is this one action? And Is there other things to follow for further structural improvements in ceramics? That's my main question. The other two are quick clarifications. When you say pricing has off Q2, do you mean the normal April price increase? And then the third question is regarding, you mentioned restocking at wholesalers in the first half. You don't mention second half. Has it stopped? What have you seen there? Thank you.