Geberit AG

Good morning ladies and gentlemen and welcome to Gebrecht's nine-month results conference call. We will start with the third quarter figures and then comment on the nine-month development and we'll finish as usual with an outlook. Gebrecht delivered strong top and bottom line results in Q3. First, net sales grew in local currencies by 5.4% despite a continued challenging market environment. Excluding one-time costs for the closure of the ceramics plant in Wesel, we kept operating margins stable. And third, despite these one-time costs, EPS grew currently adjusted by 6.4%. Let me now give you some comments on the phase development in the third quarter in more detail. Net sales increased in Swiss francs by 2.7% and reached 783 million Swiss francs. The currency impact affected the top line negatively by 21 million Swiss francs, or minus 2.7%. Local currencies grew net sales increased by 5.4%, supported by a positive price effect of around 1%. Let me turn to the regional developments in the third quarter, again in local currencies. In Europe, we achieved a sales growth of 6%, certified significant growth in almost all European markets, and a strong development of new products. Italy was the only major European market which recorded a sales decline last quarter due to the softening new build demand. In Middle East Africa, net sales increased by 16% in Q3, driven by strong growth in Turkey and Greece. America recorded a small sales decline of minus 2% due to wholesaler inventory rebalancing of the tariff-related price adjustments in H1. Net sales in the Far East Pacific declined by minus 80%, driven by the market contraction in China. partially offset by growth in India. Continuing with the sales development per product area in Q3, again in local currency. Installation and flushing systems increased by 8%, while piping systems and bathroom systems both increased by 4%. Installation and flushing systems benefited from the second rollout wave of the new Duopix installation system. Let me now turn to the operating and financial results in Q3. We managed to grow all bottom line results from ABTA down to EPS, both in local currencies and in Swiss francs. ABTR grew by 5.3% in local currencies and the ABTR margin reached 30.6%. This represents a margin decrease of minus 40 basis points driven by one-time costs of €4 million related to the vehicle plant closure booked in Q3. Excluding closure costs, the everyday margin would have increased slightly by 10 basis points. Net income increased in local currencies by 6.1%. Net income margin reached 19.9%. Earnings per share reached 4 Swiss francs 73 and grew in local currencies by 6.4% despite the before mentioned closure process. Let me now continue with a review of our net sales development in the first nine months of the year. Net sales grew in Swiss francs by 2% and reached 2.4 billion Swiss francs. The negative currency effect led to a net sales loss of 58 million Swiss francs, or minus 2.4%. In local currencies, net sales increased by 4.4%. This growth was substantially driven by the continued strong development of new products, such as the supply piping system FROFIT, MAPRES TERM, and the shower-toilet ALVA. This brings me to the regional net sales development in the first nine months. Again, our growth figures refer to growth in local currencies. I start with the review in Europe, where we achieved a sales growth of 4%, clearly above the market's development. In Austria, net sales increased by 10%, thanks to growth of our new products. In Benelux, net sales increased by 6%, with growth in both countries, Belgium and Netherlands. In Eastern Europe, net sales increased by 6%, supported by strong growth in the Adriatic region and Hungary. In Germany, net sales increased also by 6%, significantly better than the market. Net sales in Northern Europe increased by 2% with growth in all Nordic countries. In Italy, net sales increased by 1% in a softening new-build market. In Switzerland, net sales were stable year over year, negatively affected by selective price adjustments due to the strengthening of the Swiss franc over the last years. In Western Europe, net sales declined by 1%, driven by a market decline in France, which was only partially offset by strong growth in Iberia. Let me now turn to the regions outside of Europe. In the Middle East and Africa region, net sales increased in the first nine months by 22%, driven by Turkey, Greece and South Africa. In America, net sales increased by 6% due to the strong US faucet business. In Far East Pacific, net sales decreased by 6% with strong growth in India, only partially offsetting the market decline in China. Let me now comment on the phase development of the product area, again in local currencies. Installation and flushing systems and bathroom systems both increased by 5%, while piping systems grew by 3%. The lower relative growth of piping systems was driven by the higher exposure to the new-build sector. and continue with the operating and financial results in the first nine months. Current effects, as well as one-time costs related to the closure of the Wesel plant, negatively impacted the operating results on all levels. We booked €22 million one-time costs for the site closure in the first nine months, which splits into €16 million as OPEX and €6 million as depreciation. APTR in Swiss francs remains stable at 753 million Swiss francs. Excluding negative currency effects, APTR increased by 3.1%. The APT margin reached 30.8%, decreasing by 60 basis points, which can entirely be attributed to the previously mentioned extraordinary costs of 60 million euros related to the closure of the ceramic site in Ville. Excluding this one-time effect, the ABDA margin in Swiss francs would have reached 31.4%, identical to previous year's level. The positive operating leverage and slight negative price effect on the ABDA margin were offset by three factors. First, a wage inflation of around 4%, second, 15% higher energy prices, and third, investments in several dedicated growth initiatives in emerging markets, and additional expenditures for IT and digitalization. EBIT margin reached 25.9%, a decrease of 98 points, also almost entirely driven by the planned closure costs of €22 million. Excluding these one-time charges, the EBIT margin would have reached 26.7%, only 10 basis points below previous year. Net income in local currencies increased by 2.7% and reached 494 million Swiss francs, which resulted in a net income margin of 20.2%. Earnings per share reached 15.6.01, an increase of 3.2% to local currencies. If also one-time costs are excluded, EPS would have increased by 6.7% in the first nine months versus last year. CapEx decreased by 10 million or minus 10% to 93 million Swiss francs due to varying project timings. Free cash flow increased by 8.4% for 462 million CHF due to the timing of tax payments and capex. Let me now comment on our market outlook for the full year 2025, which does not significantly differ from our outlook given at our H1 results communication in August this year. We expect for the full year 2025 a slight decline in new-build activity, as building permits continue to decline slightly in the first half of 2025 by minus 3%. This decline is offset by a positive renovation segment this year, which contributes around 60% to government sales, as indicated by several indicators, for example, increased real estate transactions. In sum, we continue to expect building construction demand in Europe to have stabilized in 2025. Outside Europe, we expect a mixed picture for the building construction industry. Strong demand is seen in several markets, for example in India and the Gulf region. In China, on the other hand, we expect a continuation of the market decline due to the challenging residential sector. On the supply side, We expect a sideways development of direct material prices for Q4 compared to Q3. Let me now briefly comment on the gabardine priorities for the rest of the year. We will continue to have a strong focus on new products. For example, the new Duofix installation system, but also important new products introduced over the last years, like the already mentioned Flowfit, Makrit Therm and the Schauer Torrid Alpha. Other important initiatives this year include dedicated sales activities outside Europe, for example in India, and increased OPEX in the area of IT and digitalization, for example for AI initiatives and digital marketing efforts. Let me continue with our full year guidance. Due to the better than expected growth in Q3, we increased our top line guidance We expect for the full year now a net sales growth in local currencies of around 4.5%. Net sales in October were above previous year's level and in line with this full year top-line guidance. For the APK margin, we continue to expect a level of around 29%. This guidance includes 18 million euro site closure costs, There are 16 million euros already booked in the first time month and another 2 million euros expected to be booked in Q4. This brings me to the update on the closure of the site in Wesel for end of 2026. We have signed an agreement with the employee representatives on the social plan. The total plan closure costs in the amount of 25 million euros are unchanged consisting of €18 million for operating expenses and €7 million for depreciation. Compared to the planned closure cost estimated communicated in August, the timing of the OPEX had changed slightly, with the total OPEX amount now booked already this year. As a result, we only expect a minor P&L impact of €1 million depreciation related to the planned closure next year. Let me close our introduction with a short summary. Gabrit delivered strong results in the first nine months, both on the top and bottom line. With a currently just top line growth of 4.4%, we achieved a significant market outperformance in the first nine months. Operating margins remained stable despite headwinds from a still sticky wage inflation and investments into objects for various strategic and operational initiatives. Earnings per share grew by 6.7%, excluding negative currency effects and planned closure costs. We consider this operationally driven EPS growth as a very strong result in this still challenging market environment. For the full year 2025, the overall market demand in Europe should stabilize and the picture overseas remains to be mixed. AG is well prepared to continue its market outperformance in this environment, as already demonstrated since mid-2022, when the construction markets collapsed in Europe. Our confidence is 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 the 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 disable the loudspeaker mode while asking a question. Anyone who has a question may press star and 1 at this time. Our first question comes from Elodie Rall from JP Morgan. Please go ahead.

Hi, good morning. Thanks for taking my questions. So my first question is around the estimated market share that you've delivered versus your underlying market. So I think it's around 3%, 2.5% like outperformance. So can you come back on that, give us color by geography, what are the main drivers, how much of that is coming from new products? Second, you have delivered 1% price increase more or less this year. So can you give us a hint about how you're thinking about price increases next year? And then lastly, on Eastern Europe, growth accelerated a lot, it seems, in Q3 at around 15%. And it was 2% in H1. So I was wondering what's driving that and how sustainable this is. Thank you.