Geberit AG (GEBN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Geberit's Half Year Results Conference Call. Geberit achieved very strong results in the first half of the year. Let me start with the 3 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 CHF 1.71 billion, negatively affected by strong currency effects. Negative currency effects led to a net sales loss of CHF 53 million 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 3 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 6 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 3 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 U.K. 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 far East Pacific grew by 6% with double-digit growth in India and Australia, partially offset by the continued, but fading market declines 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 & Flushing Systems grew by 7%, Piping Systems by 6%, while Bathroom Systems increased by 5%. All 3 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 CHF 838 million. The negative currency effect decelerated versus the first quarter, but still affected the top line negatively by CHF 17 million 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 4 years ago. Furthermore, Q2 was the ninth consecutive quarter with currency-adjusted growth. Over the last 9 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 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 tariff-related base effect in the previous year. I continue with the sales development per product area in Q2, again, in local currencies. Installation & Flushing Systems grew by 10%, Piping Systems by 9%, while Bathroom Systems increased by 7%. All 3 product areas benefited from strong growth with new products. Piping Systems benefited selectively from prebuying 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 onetime costs in the previous year. I'll start with the discussion of the EBITDA development. EBITDA 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 onetime effects 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 basis 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 basis points and reached 21.3%. Earnings per share increased by 8% and reached CHF 11.09. In local currencies, EPS increased even double digits 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 CHF 300 million. We launched a new share buyback program directly thereafter. The new program with a maximum volume of CHF 300 million runs for a period of maximum 2 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 CHF 206 million. This brings me to a few comments on CapEx and free cash flow in the first half of the year. CapEx increased by CHF 10 million or 18% to CHF 64 million, driven by higher investments in logistics and R&D. Free cash flow decreased by minus 12% to CHF 217 million 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. The renovation sector, which accounts for 60% of our business, we expect for Europe the positive dynamic 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 sideway development of direct material prices compared to Q2. Let me now briefly comment on the Geberit 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, Mapress Therm the shower toilet, Alba. Other important initiatives this year include new marketing initiatives and further efforts in the area of IT, digitization and AI. In total, we are investing -- we are increasing our operational expenditures for these initiatives by CHF 20 million 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 EBITDA 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 6 months. Therefore, we expect for the full year a sales price effect of around 2.5%. Net sales 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 CHF 200 million this year. Let me close our introduction with a short summary. Geberit 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 4 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 like-for-like operating margins almost stable despite the raw material price headwinds 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 a mixed environment overseas. Furthermore, 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.

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

I'll ask 2 quick ones. The 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 -- 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 slightly picking up. So maybe if you can help us tie the confidence versus sort of what you guide for the second half? And the second question, just quickly, where are inventories at the dealers at the moment versus what sort of normalized rates are?

To the first question, we expect, as we said in our introduction, a slightly improved market environment also in the second half of this year in Europe. With regards to our volume expectation for the second half of the year, we expect a deceleration, which is mainly driven by a base effect. You might remember that we had a strong volume growth last year in the second half of the year. Our volumes grew about 5%, driven by 2 special effects. We had a new product introduced, the Duofix last year in the second half and also a strong December. That's the reason why we expect a certain deceleration of volume growth in H2 versus H1 this year. Second question around the wholesale inventory levels. We believe that they are more or less on normal level, maybe with one exception for plastic pipes, which are basic drainage pipes where we have increased prices much stronger than for other products. And there, we think there was a certain prebuying effect and therefore, also most probably slightly higher inventory levels than normal. But the rest of the assortment, the large part, we don't think that we have higher inventory levels at the moment at wholesalers.

The next question comes from Elodie Rall from JPMorgan.

So my first question is on the strong volume development in Q2. I was wondering if you can give us a little bit of insight on whether you've seen some prebuying helping in that strong volume growth. And second, the guidance that you gave us on margin, it does assume costs stay at this current level, I imagine. But what gives you the confidence that you can achieve this margin guidance? What's in there? If costs rise again, how much ability do you have to raise pricing on time to offset this cost inflation? I mean, we have in mind that in 2022, you were caught by surprise on H2 for the rise in raw materials. So I was wondering what kind of confidence you have on this one?

I'll start with question number one. Question number 2 will be answered by Tobias. So the volume growth of 9% in Q2 was only very limited impacted by prebuying. We only have seen a prebuying effect for the really plastic-related -- fully plastic-related materials. That's what I said before. That's basically for drainage pipes. Drainage pipes, they are 100% out of plastic. There we increased prices by high single digits, even double digits. This triggered some pull forward. But for many other areas, we didn't increase prices at all. For example, metal pipe systems with the exception of carbon steel, we didn't increase prices at all. Or for ceramics, for example, we increased prices in June only by 2%. So very low that didn't trigger any prebuying effect. So very limited, driven by basically plastic drainage pipes.

And when it comes to the margin, I mean, clearly, the extraordinary price increase we did as of June will fully kick in, in H2, and that gives us the confidence that we will achieve the margin that we set out. Currently, these price increases that have been defined do fully compensate the raw material increases we've seen. And therefore, at that stage, we do not see the need for further price increases.

The next question comes from Martin Husler from ZKB.

So my first question is about -- can you share some details on the shower toilet business within Bathroom Systems in terms of volume and value development in H1?

Shower toilet business continues to do very well. We have very nice double-digit growth in value and in volumes in the first half of the year. Obviously, still a big driver is Alba, which is also still growing significantly double digit. Growth rates are coming down, but still significantly double digit. And still the same as last year, the other products are not cannibalized, even are growing as well. So the top product, Mera is also growing double digit in the first half of the year.

Okay. And then the second question, sorry about a bit nitty-gritty, but in May, if I remember correctly, you said you had a sales growth mid-single digit. Now for the full quarter, it was plus 9%. So what happened actually to the last couple of months? Did you see an acceleration in June? Obviously, yes. But what is the reason according to your estimates?

Yes, we got an acceleration in May and June, you're right, obviously. But no specific observations. The market is improving, that's what we said. We are doing very well with many of our products, not only new products, also established products and a little bit of prebuying, as I said before, for the drainage pipe systems that obviously helped as well. But yes, nothing specific. I would not look too much into monthly numbers. There's also some volatility in the monthly numbers, as you know.

Yes, I fully agree. But just maybe, did you see a similar pattern also for Germany in the last couple of months?

To be honest, I don't have the numbers for Germany month by month now in my head. I can't give you the precise answer. I don't know exactly the monthly numbers in Germany in the second quarter.

The next question comes from Cedar Ekblom from Morgan Stanley.

I just want to probe a little bit more on your messaging around the raw material cost outlook, flat into the third quarter. If we look at how some of the spot raw materials have developed, the exit rates, at least at the end of the second quarter, I would think would suggest, particularly with the lag, a bit of a headwind on the material margin into the third quarter. Has anything changed in terms of how you've been buying raw materials? Are you sitting on any inventory that's sort of softening some of that inflationary risk into the third quarter? I appreciate that, obviously, the outlook of the spot market might be different. But just interesting to hear your comments around why you don't see sequential headwinds on raw material costs into the third quarter.

No, we didn't change anything of strategy or setup with regards to raw material buying, no changes there. Of course, we have -- if you go into the raw material basket, you have different development in Q3. For example, for plastic, we expect even slightly lower prices after the strong increase in the second quarter. On the other side, we expect metals to go up a bit. But altogether, our purchasing department has calculated, expecting a sideway development, but no structural changes in terms of buying strategy or timing or contracts, no changes.

The next question comes from Martin Flueckiger from Kepler Cheuvreux.

I've got 3, and I'll take one at a time. The first one is on your remarks in the press release regarding building permit growth in Europe, which obviously is driving the new build construction sector. Now the thing is, mortgage volume growth across Europe has been pretty tame compared to building permit growth. And I think if I'm not mistaken, and correct me if I'm wrong, I think mortgage volume growth in Germany was even flattish, maybe just marginally up so far year-to-date. So I was just wondering how you -- how you explain that discrepancy and the likely impact on your business going forward. That's my first question. I'll come back for the second one.

Indeed, I mean, there's a correlation. What I think is key is there's simply a time lag as well between the building permits and the mortgage phase. So what we've seen in the permit growth, we expect them as well to be reflected at some point in time if they really start with the work to see on the mortgage development.

Okay. So clearly, you expect mortgage volumes to follow building permit growth at some point, yes, depending, I guess, what the mortgage rates are going to be.

As you know, Martin, we are not doing any forecast on macroeconomic numbers. We don't have any view where mortgages are going. We are focusing on our business.

Okay. Second question relates to the, I think, your Christian statement regarding efficiency gains in production in Q2 having a positive impact on the EBITDA margin. I was just wondering whether you could quantify that, please.

We could quantify it, but we don't want to quantify it, to be very honest. And I don't have the number exactly in mind, but we have a number, but I don't have it in mind. We do that on a full year basis, and we also share that with you in the full year conference always as you know.

Okay. And then third one, and I'll go back in line is, could you provide us with an update on the installers order backlog in Germany and what you're seeing there in terms of industry sentiment in -- across the installer sector?

The installer backlog in Germany in Q2 this year went up to 11.9 weeks. That's slightly higher than in the previous year's period, about 5%. So also that is an indication that the market in Germany is doing well and is not struggling.

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

My first question is on the margin guidance. Just to clarify, when you say your margin broadly in line with last year, you're referring to the 29.4% because I think there was like 60 basis point one-off effect from a plant closure last year. So you're referring to the published margins, not the restated margin.

Yes, that is correct.

My second question is on your innovation pipeline. Obviously, you've been talking a lot about Alba shower toilets, the FlowFit systems. I mean these are new, but they've been around at least a couple of years, a bit more than that, I think, for FlowFit. Are they still driving incremental growth? And separately, do you have any plans to launch another blockbuster innovation in the coming months?

Two times, yes. So the first question, they are still contributing substantially to growth in FlowFit, introduced now more than 4 years. Alba, as I said before as well. So they are all still contributing to growth. And the second question is also, yes, of course, we are thinking about new blockbusters. Don't forget that we launched last year the new Duofix 4, it's called. It's a very important product. It's a large part of our business. It was not a complete new innovation, but it was a very important upgrade. And this is a relative recent innovation. So we are continuously updating or also working on so-called blockbusters. But obviously, for obvious reasons, I don't want to go into details what is in our pipeline.

Makes a lot of sense. And just a clarification. Finance costs are down quite a lot in the second quarter. Was there any one-offs?

Sorry, if there was anything else, I mean, that's due to FX losses in the previous year. That's the main reason for the difference year-on-year.

The next question comes from Patrick Rafaisz from UBS.

Three questions from me, please. Two clarifications. First one would be on the July comment where you said like-for-like in line with the full year guidance. Does that mean on track or in line within the range? I realize it's a similar order of magnitude, but just trying to understand because if pricing is now 3.5% more or less, that will mean volumes would be then somewhere around 2%, 2.5%. Is that a correct assumption for July?

No. So in line means that we took the actual numbers from July into consideration when we formulated our guidance of 5% to 6%.

Okay. And can you make a comment on the growth rate then in July?

I could, but I don't want.

Okay. Good. Moving on...

It doesn't make sense. We have now our full year guidance, so it doesn't make sense.

Okay. It's just -- usually, you would have provided a comment on the first month of the new quarter.

If we don't have a full year guidance yet. Only if we don't have a full year guidance.

Okay. Then wage increases because personnel costs were down in H1. I remember, right, that there was an FX element in there that helps. Would you say that for the -- on a full year basis, wage inflation is still running at a 3% more or less rate. Is that correct?

Yes, absolutely. We still expect that. Q2 was indeed quite lower when it comes to wage inflation, what was expected. And the reason was because last year, in Q2, there were large one-off payments and that decreases, obviously, then the rate for this year. But that was known and was taken into consideration when we formulated the roughly 3% wage increase for the full year.

Okay. Understood. And then the last one would be on pricing. Just 2 clarifications here also. The first would be, can you just confirm that there's no significant surcharges in -- except for what you already announced on copper in the pricing for H2? And the second one on pricing is assuming nothing changes, input costs stay where they are, would you consider to do a pricing holiday again in '27 because of the extraordinary price increases from this year? Or is there actually a chance that maybe you give back some of these prices if raw materials decline?

Understood. Let me briefly repeat what we did in terms of pricing this year. So we did a regular price increase of around 1% as of April. We also did as of April, an extraordinary price increase for copper piping systems, but that's a very small part of the business, so not too much impact. Then we did the extraordinary price increase as of June for plastic and energy-related products only, with an impact of around 2% on group level. And from now on, we do not expect, as Tobias said before, at the moment, further price increases because raw material prices are expected to develop sideways. And with regards to 2027, it's too early to give you an indication. We are currently not yet clear what we will do for 2027. So I can't give you an answer on the price in 2027 yet.

The next question comes from Chase Coughlan from Lanschot Kempen.

I just have 2. Firstly, going back to pricing. So you've obviously said you expect your sort of 2% to 2.5% on a full year basis. Could you comment on where you see this relative to, let's say, the price increases from competitors? Are they matching this? Or are they going a little bit above? Do you have any more color on that?