Geberit AG

Good morning, ladies and gentlemen, and welcome to Gebrit's half-year results conference call. Gebrit achieved very strong results in the first half of the year. Let me start with the three key statements for H1. First, a net sales growth of 6% in local currencies, primarily driven by strong volume growth. Second, stable operating margins. And third... Strong EPS growth of 8% in Swiss francs and 11% in local currencies, supported by accelerated share buybacks. Let me begin our review with a few comments on the top line in the first half of the year. Net sales increased by 3% to 1.71 billion Swiss francs, negatively affected by strong currency effects. Negative currency effects? led to a net sales loss of 53 million Swiss francs, or minus 3%. In local currencies, net sales increased by 6%, driven by an improved market environment in Europe and strong demand for our products across markets and all three product areas. The top-line growth was primarily driven by volumes, with a growth rate of around 4.5%, Increased sales prices contributed around 1.5% to top-line growth. This brings me to the regional net sales development in Europe. All growth figures refer to growth in local currencies. All main countries and reporting regions, except Western Europe, delivered strong growth rates in the first six months. In Eastern Europe, net sales grew by 12%, with particularly strong growth in the Adriatic region and Poland. In Switzerland, net sales increased by 10%, supported by a base effect and strong market demand. Net sales in Italy increased by 7% despite a softening market. In Benelux, net sales grew by 7% with strong growth in Belgium and the Netherlands. In the Nordic countries, net sales grew 6% in an improved market environment. In Austria, net sales grew by 6% despite a very strong comparison base with a growth of 10% already last year. Net sales in Germany increased by 4%, also despite a strong comparison base. Over the last three years, We achieved a cumulative sales growth of 12% in Germany despite the significantly declined market. The only region in Europe that experienced a decline in H1 was Western Europe with double-digit growth in Iberia which was only partially offset by market-driven declines in France and the UK. Let me now turn to the regions outside Europe. In the Middle East-Africa region, net sales increased strongly by 19% despite the war in Iran. Net sales in the Far East-Pacific grew by 6%, with double-digit growth in India and Australia partially offset by the continued but fading market decline in China. In America, net sales declined by minus 5% due to the base effect from the extraordinary growth last year after the tariff announcements. Let me now comment on the sales development per product area, again in local currencies. Installation and flushing systems grew by 7%, piping systems by 6%, while bathroom systems increased by 5%. All three product areas benefited from strong growth with established and new products. Let's turn to the sales development in the second quarter. Net sales in Swiss francs increased by 7% and reached 838 million Swiss francs. The negative currency effect decelerated versus the first quarter. but still affected the top line negatively by 17 million Swiss francs or minus 2% in Q2. In local currencies, group net sales increased by 9%, driven by a volume effect of around 7.5% and a sales price effect of around 1.5%. With a growth rate of 9%, we achieved the strongest quarterly growth rate since the COVID-related boom four years ago. Furthermore, Q2 was the ninth consecutive quarter with currency-adjusted growth. Over the last nine quarters, we achieved an average net sales growth rate of 5%, almost fully driven by high volumes, and despite the market decline during this period. Let me turn to the regional development, again in local currencies for Q2. In Europe, net sales increased by 8%, driven by a generally improved market environment compared to last year, and strong demand for newly introduced but also established products. Outside Europe, net sales increased in Middle East Africa by 24%, driven by strong growth in Turkey and significant double-digit growth in the Gulf region, despite the war in Iran. Net sales in the Far East Pacific grew by 13% with double digit growth in India and Australia, offsetting a decline in China. Net sales in America declined by minus 6% due to the already mentioned PERIS-related base effect in the previous year. I continue with the sales development per product area in Q2, again in local currencies. Installation and flushing systems grew by 10%, piping systems by 9%, while bathroom systems increased by 7%. All three product areas benefited from strong growth with new products. Piping systems benefited selectively from pre-buying before the extraordinary price increase for plastic pipe systems in June. I return to the first half of the year, with some comments on the operating and financial results in H1. All operating and financial results grew, even in Swiss francs, and even when adjusting for the one-time costs in the previous year. I start with the discussion of the ABDA development. ABDA increased in Swiss francs by 3% and in local currencies by 7%. The EBITDA margin reached 30.9% exactly previous year's level. Excluding the one-time effect in the previous year, the EBITDA margin decreased by 60 basis points, driven by increased direct material prices of around 3% due to the conflict in the Middle East, a wage inflation of 2.4%, and dedicated investments in marketing, IT, and AI. We managed to almost fully offset these negative margin drivers with the following levers. First, our efficient and flexible production network coping with the strong volume growth while at the same time keeping costs under control, especially in Q2. Second, a positive sales price effect of around 1.5% and thirdly, further efficiency gains in production and Logistics. Thanks to our long-term oriented natural currency hedging strategy, the significant currency losses had no material impact on operating margins. EBIT grew disproportionately by 4% in Swiss francs and by 8% in local currencies. The EBIT margin increased by 30 base points and reached 26.3%. Net income also grew disproportionately by 7% in Swiss francs and 10% in local currencies due to an improved financial result. The net income margin increased by 100 base points and reached 21.3%. Earnings per share increased by 8% and reached 11 Swiss francs 09. In local currencies, EPS increased even double digit by 11%, disproportionately higher than net income thanks to the accelerated share buyback program. The share buyback program launched in September 2024 was completed ahead of schedule in early June. Under this program, a total of 560,000 shares were repurchased for a total amount of 300 million Swiss francs. We launched a new share buyback program directly thereafter. The new program with a maximum volume of 300 million Swiss francs runs for a period of maximum two years. In total, under the completed and the newly launched share buyback program, we repurchased in the first half of 2026 393,000 shares for a total amount of 206 million Swiss francs. This brings me to a few comments on capex and free cash flow in the first half of the year. Capex increased by 10 million, or 18%, to 64 million Swiss francs, driven by higher investments in logistics and R&D. Free cash flow decreased by minus 12% to 217 million Swiss francs due to the timing of tax payments in the previous year and the higher capex. Let me now comment on our market outlook for the full year 2026. Geopolitical risks and the associated macroeconomic uncertainties remain high. This makes it difficult to provide an outlook for the macroeconomic environment. However, The current geopolitical environment and the crisis in the Middle East in particular had so far no material negative impact on demand in the building construction industry and our business. For example, we did not see signs of a weakening renovation sector in Europe. And even in the Gulf region, where we experienced some logistical constraints after the outbreak of the war in Iran, our business grew significantly by double digits in Q2. Therefore, we continue to expect a slight growth of the European building construction industry in the course of 2026. However, no broad recovery yet. In the new build sector, we see positive momentum emerging as indicated by the ongoing turnaround of building permits, which grew in Europe by 5% in the second half of last year and by 8% in Q1 this year. In particular, the residential building permits in Germany are recovering with a growth rate of 16% over the last 12 months. In the renovation sector, which accounts for 60% of our business, we expect for Europe the positive dynamics to continue. Outside Europe, we foresee a mixed picture for the building construction industry. Some markets continue to see good demand, for example in India. Other markets will continue to decline, for example China, due to the collapse of the new-build sector. However, at a slower pace than in previous years. On the supply side, we expect for Q3 overall stable price levels with a sequentially sideways development of direct material prices compared to Q2. Let me now briefly comment on the GEBRIT priorities this year. We will continue to have a strong focus on new products. For example, the new shower solution launched in April, but also important new products introduced over the last years. For example, the DuoFix, FlowFit, Maltress Therm, and the shower toilet Alba. Other important initiatives this year include new marketing initiatives and further efforts in the area of IT, digitalization, and AI. In total, we are increasing our operational expenditures for these initiatives by 20 million Swiss francs this year. Let's continue with our full year guidance. Under the assumption of no material changes to the current market environment, we expect for the full year a net sales growth in local currencies between 5 and 6%, and an APCA margin around previous year's level. Given the extraordinary price increase as of June, the sales price effect in H2 will increase relative to the first six months. Therefore, we expect for the full year a sales price effect of around 2.5%. Next day in July, were like for like above previous year's level and grew in line with the full-year top-line guidance. For CapEx, we expect around 200 million Swiss francs this year. Let me close our introduction with a short summary. Gendry delivered very strong results in the first half of 2026, with a net sales growth in local currencies of 6%. This was the strongest first half of the year since the COVID-related boom four years ago. The war in Iran and the current geopolitical tensions did not affect our business, apart from the impact on raw material and energy prices, of course. However, we kept life-for-life operating margins almost stable, despite the raw material price having, as of Q2, and increased OPEX for various strategic and operational initiatives. As a result, earnings per share grew strongly by 8% in Swiss francs and 11% in local currencies. For 2026, we continue to expect slight growth of the building construction industry in Europe and the mixed environment overseas. Furthermore, and irrespective of the market environment and geopolitical and macroeconomic uncertainties, We will continue to invest in sales and marketing initiatives, in innovation, in efficiency and also in capacity to further strengthen our market position in and outside Europe in the short and in the long term. 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 one on the telephone. You will hear a tone to confirm that you've entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to disable the loudspeaker mode while asking a question. Anyone who has a question or a comment may press star and one at this time. Our first question comes from Daniela Costa from Goldman Sachs. Please, go ahead.

Hi, good morning. Thanks for taking my questions. I'll ask two quick ones. But first one, maybe just trying to get a little bit more color into your confidence on Europe going forward. If you could comment a little bit, you know, tie a little bit those comments versus, I guess, what's implied in your second half for organic sales growth is weaker than what you've delivered so far despite pricing changes. Slightly picking up, so maybe if you can help us tie the confidence versus what you got for the second half. And the second question, just quickly, where are inventories at the dealers at the moment versus what normalized rates are?