Geberit AG (GBERY) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Geberit's 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 2025 and finish as usual with the outlook for this year. Let me start by giving you some comments on the sales development in the last quarter. Net sales increased by 4.4% and reached CHF 715 million in Q4 last year. The unfavorable currency development affected net sales negatively by CHF 14 million or minus 2%. In local currencies, group net sales grew by 6.4%, driven by volume growth of around 5.5% and the sales price effect of around 1%. The strong growth in the last quarter was driven by growth in almost all markets and strong support from new products. Q4 was also a bit better than expected due to strong year-end sales driven by disproportional purchases from wholesalers in December to achieve better bonus levels. Let me now comment on the sales development in the fourth quarter in more detail. I start with the regional overview. We recorded strong growth in Central Europe with Benelux up 11%, Germany up 5% and Switzerland, Italy and Austria each up 3%. Net sales in Northern Europe increased by 8% and in Western Europe by 4%. Both regions benefited from a weak quarter in the previous year. Eastern Europe was the only region in Europe that recorded a small sales decline of minus 1% in Q4 due to a very strong growth in Q3 of plus 15%. Outside Europe, net sales increased in Middle East/Africa by 36%, driven by a strong projects business, especially in the Gulf region, in Far East/Pacific by 17% with strong sales in India and North Southeast Asia, for example, in Vietnam, offsetting the decline in China. In America, net sales declined by 2%, negatively affected by the U.S. government shutdown. I continue with the sales development per product area in Q4, again in local currencies. Bathroom Systems grew by 10%, Installation & Flushing Systems by 8%, while Piping Systems grew by 2%. The lower relative growth of Piping Systems was driven by the higher exposure to the new build sector. We will now comment on the full year 2025 sales performance. Net sales in Swiss francs increased by 2.5% to CHF 3.2 billion, negatively affected by strong currency effects. Negative currency effects led to a net sales loss of CHF 72 million or minus 2.3%. In local currencies, net sales increased by 4.8%, almost fully driven by volumes as well as a slight positive sales price effect. With an organic and currency-adjusted growth rate of 4.8%, we significantly outperformed the market development. The main reasons for our market share gain last year were, firstly, our undiminished market presence and sales efforts since mid-2022 when the European building construction industry started to collapse. Secondly, strong sales with newly introduced products such as FlowFit, Mapress Therm and the shower toilet Alba despite the unfavorable market environment. And thirdly, the success of dedicated sales initiatives and investments outside Europe, for example, in India, Vietnam or in the Middle East region. Moving now to net sales growth per region. Again, all growth figures refer to growth in local currencies. I'll start with the review in Europe, where we achieved a sales growth of 4%. In Austria, net sales increased significantly by 8%, thanks to strong growth of our new products. In Benelux, net sales increased by 7% with growth in both countries, Belgium and Netherlands. In Germany, net sales increased by 6%, significantly better than the market. In Eastern Europe, net sales increased by 4%, supported by strong growth in the Adriatic region. Net sales in Northern Europe increased by 3% with growth in all Nordic markets. In Italy, net sales were up by 2% in a softening new build market. In Switzerland, net sales increased by 1%, negatively affected by selective price adjustments due to the strengthening of the Swiss franc over the last years. In Western Europe, net sales were flat with strong growth in Iberia, offsetting the market decline in France. Let me now turn to the regions outside Europe. We recorded very strong growth of plus 25% in Middle East/Africa with strong growth across the whole region. In America, net sales increased by 4% due to the strong U.S. Faucet business. In Far East/Pacific, net sales decreased slightly by minus 1% with strong growth in India and Vietnam, only partially offsetting the market decline in China. Let me now comment on the sales development by product area, again in local currencies. Bathroom Systems grew in the full year by 6%, Installation & Flushing Systems by 5% and Piping Systems by 3%. The slightly lower relative growth of Piping Systems was driven by the higher exposure to the new build market, which was still declining last year. Let me now comment on our guidance for our 2025 operational and financial results. The EBITDA margin for the full year is expected to be slightly below 29.5%. The increased EBITDA margin guidance versus our Q3 communication was mainly driven by the slightly better-than-expected sales development in Q4. The EBITDA margin guidance includes site closure costs of EUR 18 million for the ceramic plant closure in Wesel, all booked in 2025. The full year closure costs are unchanged from our Q3 communication beginning of November last year. The full tax rate 2025 should be around 19% and CapEx is expected at around CHF 180 million. Let me now comment on our market outlook for 2026. After the significant decline of the European building construction industry since mid-2022, the market stabilized last year. In the course of this year, we expect a slight market growth. However, no broad demand recovery yet. In Europe, overall, building permits were flat in the first 9 months of last year since the still slightly declining nonresidential building permits were fully offset by an increase of residential building permits. This indicates a stabilization of the new build activities in 2026 after the strong decline over the last 3 years. In the renovation sector, which accounts for around 60% of our business, we expect a positive environment as indicated by several market indicators, for example, increasing real estate transactions. Let me now turn to the regions outside Europe, where we expect a mixed picture for the building construction industry in 2026. We expect an ongoing strong demand in several markets, for example, in India or the Gulf region. Other markets will continue to decline, for example, China, due to the collapse of the new build sector in China. After this market outlook, let me now come to the Geberit outlook and our priorities this year. In the light of the slightly improving market environment, our overarching objective remains to further strengthen our market position in 2026 with several strategic initiatives. For example, with the introduction of new products in all 3 product areas this year or the ongoing focus on important new products successfully introduced in recent years, like the already mentioned Piping Systems, FlowFit and Mapress Therm and the shower toilet AquaClean or Duofix installation element, which we launched last year. Two other important initiatives this year include further investments in IT, digitalization and artificial intelligence. And secondly, a new dedicated marketing initiative targeting end consumers, architects and interior designers. In total, we will increase operational expenses for these IT and marketing initiatives by CHF 20 million in 2026. A major initiative in operations this year will be the start of the expansion and renewal of our logistics capacities with 2 main projects. The first project consists of the construction of a new greenfield logistics center in Ibbenbüren, Northern Germany, as already announced last year. The purpose is to increase capacity and to mitigate risks from our existing main logistics center in Pfullendorf. The second project comprises of a new distribution center in Bromölla, Sweden to consolidate and modernize our logistics activities for our Ceramics business in the Nordic region. Both of these large projects are currently in the final planning phase. Construction starts are both planned in the second half of this year with the objective to ramp up operations in Sweden as of 2028 and in Germany as of 2029. Total CapEx for both new logistics centers are currently estimated to be around EUR 250 million and will incur over the next 4 to 5 years. These 2 major logistics investments will lead to higher CapEx this year of around CHF 230 million. With this, I come to our pricing this year. In terms of pricing, we will implement a regular sales price increase of around 1% as of Q2 this year. With regards to our 2 largest P&L cost positions, we expect a wage inflation of around 3% this year and a slightly increased direct material prices in Q1 compared to Q4 last year due to the recent increase of several metal prices, for example, copper. Let me close our introduction with a short summary. With a currency adjusted top line growth of 4.8%, we achieved again a strong growth and market outperformance last year. These results confirm that we are successfully navigating through the significant market decline of the European building construction sector over the past 3.5 years and that our 2 guiding principles during this downturn, strategic stability and operational flexibility are paying off. Our market share gains are driven by our undiminished market presence and sales efforts, new product introductions and dedicated sales initiatives outside Europe. For 2026, we expect overall demand to slightly improve. However, no broad market recovery yet. We will continue to invest this year in several sales and marketing initiatives, in innovation, efficiency and also in capacity to further strengthen our market position in and outside Europe. Thank you for your attention. We are now ready to answer your questions.

[Operator Instructions] Our first question comes from Daniela Costa from Goldman Sachs.

I have 3 but very quick follow-ups on things that you've normally -- or 2 of them on things that you normally commented out on prior quarters. But maybe I'll start one by one. On the -- can you comment a bit on inventories at distributors? What have you seen lately?

Yes. The inventories at the end of the year are a little bit higher than usual because as we said in our introduction, that wholesalers had a bit disproportionate purchases in December to achieve better bonus levels. So they're slightly higher than what they would have been normally.

And sometimes you comment on how the quarter is starting. I know it's very few working days so far, but do you have any very preliminary January daily sales views?

We only have 7 or 8 working days of this quarter. So that's really too early to comment on the quarter.

Okay. And then just on the pricing itself, you said 1%. How normally, like how dynamically can you think about this until you get to, I think, is normally the April point? Because I understand sort of you're still seeing year-on-year a tailwind from raw materials, but there's been some quite big spikes in the beginning of this year. How is it like a pricing list for the 1% they have gone through? Or do you still have flexibility to do more than that by then if the raw material situation continues to spike?

Yes, indeed, we've seen some price or cost increase on the direct material side. And as usual, we'll communicate the price increases later on with the full year.

So the 1% is not a firm number, a number you can still move?

Sorry, that was a misunderstanding. You talked about the 1% sales price increase, that's a firm number that has been implemented that is now executed. So there will no change about this 1%, if this was your question.

Yes. So if raw materials spike in the next month or 2 until the price increase take impact, you will not pass that through?

Correct. At the moment, we do not expect that raw material prices are going up so heavily that this would require an extraordinary price increase.

The next question comes from Anna Schumacher from BNP Paribas.

It's Anna Schumacher on for Paul Roger. My 2 questions are, firstly, you sound quite cautious on a European recovery despite better permit data. Is this you being conservative? Or is there something in the market that you're seeing which holds you back? And secondly, is there a reason to think local currency sales growth will decelerate versus H2 '25 this year? And is the Q4 exit rate a good indication of what to expect going forward?

Thank you for your questions. It's quite hard to understand. I didn't understand question number 2. Maybe you can repeat it. But the answer to question number one about our outlook for Europe this year. This is not a conservative outlook. This is an outlook which is based on indicators which we have, meaning the building permits, which have only stabilized last year, a certain positive environment for renovation, that's the reason why we expect only a slight growth of demand for Europe this year and no broad recovery. And question number two, sorry, we didn't understand. Can you repeat it?

Yes. So like are there any reasons to think that local currency sales growth will decelerate versus H2 '25 this year? Basically, like is the exit rate of 2025 should we think of that being the same in '26 or a bit lower?

Understood. So in terms of our guidance for our own sales figures in local currencies, we only give an outlook for that with our H1 figures. But of course, we also aim this year for market share gains.

The next question comes from Elodie Rall from JPMorgan.

I'll limit to 2. First of all, a follow-up on what you've said already in terms of cost expectations for Q1 and the 1% price increase that you are pushing from Q2, if I understood correctly. Does that mean that we should expect some margin compression in Q1 and then potentially stable margin for the full year post the price increase? So that's my first question. And my second question is with regard to the competitive pressure that you might be seeing in the market and the market share gains that you've seen as the end market recovers. Do you see like any competitors that have dialed back capacity potentially restoring it?

Thank you for your question, Elodie. And as usual, we don't give indication on the profitability. So no guidance there, but we give you the various elements with which you can update your model. So here, no further comment from our side. The second question with regards to competitors. We believe we have benefited from some weak competitors over the last 3.5 years when the market declined, also maybe driven by the fact that some competitors have pulled back some of their efforts in marketing and sales. Most probably, if the market becomes better and improves, we would also expect that some of these competitors are gaining back a bit their efforts. And I wouldn't call that an increasing competitive pressure, but I would expect that in a better market environment, also the activities of competitors will increase.

The next question comes from Martin Hüsler from ZKB.

Maybe first a question on some countries or regions with remarkable developments in Q4. Maybe starting with Benelux with 11.3%. Is this kind of a broad recovery that you see there, which should also to continue next year or this year?

Main reason why we had such strong growth in Q4 in Benelux was driven by the Netherlands and 2 reasons. One was also there, we had disproportionate purchases from wholesalers to achieve better bonus levels. And secondly, there were some specific sales campaigns running in the Netherlands in Q4. So I would not take the Q4 number as a predictor going forward for structural growth in the region.

And the second question of the first overall question maybe to Western Europe, which is France, U.K., also quite an improvement against the 9 months or Q3, 4.2%. Can you break this down to France and U.K.?

Yes. All of the 3 countries, Iberia is also in there. All 3 of these countries or regions were positive in Q4. However, keep in mind that Q4 in the previous year was quite weak, especially in France and also U.K. So there was also a certain base effect, which helped in Q4 2025.

And then my last question at that point is maybe a qualitative assessment on Germany. I remember that last spring, there was a rather positive sentiment driven by new government, some programs there also at the ISH. My question is now, what is your assessment today of the sentiment? If you talk to customers, wholesalers, installers, still positive or kind of a disillusion after maybe some political setbacks there?

That's a very difficult question to answer. First, what we see in the market in terms of numbers and sales, we haven't seen a big impact of this infrastructure program yet in our sales numbers and projects. On the sentiment for the soft area, I wouldn't say a disappointment, but I would say that the expectations were maybe slightly higher than what people expected 9 months or 10 months ago.

The next question comes from Arnaud Lehmann from Bank of America.

I have a couple of questions, please. Firstly, on your raw materials. Could you confirm that typically industrial metals are about 40%, and then you have about 25% related to plastic?

It's correct.

And the second question is in terms of Q4 trends, it looks like there was a bit of a deceleration in Eastern Europe. On the other hand, it looks like there was a bit of an acceleration in Western and Northern Europe. If you could please give us a bit of color on those?

I would say all of these 3 regions were affected by base effects. Eastern Europe was negatively affected by a very strong Q3. In Q3, we were growing 15%. That impacted obviously also Q4 because some of the Eastern European countries are project related, for example, Adriatic, and we had just strong project business in Q3, which led to a weaker Q4. And as previously mentioned, in Western and Northern Europe, both, however, were benefiting from weak previous year's quarters. In Western Europe, Q4 2024 was minus 7%. And in Northern, it was minus 4%. So that was the main reason why there was certain acceleration in Q4 2025 in these 2 regions.

The next question comes from Chase Coughlan from Lanschot Kempen.

I have 2, and I'll take them one by one, please. Just to clarify on your point about the disproportionate ordering from wholesalers in Q4, does that imply that we should see a normalization in Q1 and potentially less orders there? Or how should I look at that?

I don't want to speculate about January. But as I said previously, that the inventory levels are a little bit higher end of last year than what they would have been in normal times because of this slightly disproportional purchases from wholesalers to get better bonus levels.

Okay. And then regarding the investments in digitalization and AI, can you give a bit more details on sort of where exactly these are going? Should these have cost synergies? Or is this more on a revenue synergy kind of standpoint? Or just any more color there, please?