Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Geberit AG (GBERF, Financial) achieved a slight net sales growth in local currencies of 2% despite a challenging market environment.
- The company maintained a stable profitability with an EBITDA margin of 31.6%.
- Net sales in Eastern Europe increased by 11%, driven by a strong base effect.
- Free cash flow increased by 17% to CHF217 million due to better working capital development and lower CapEx.
- The share buyback program was completed successfully, with 1.267 million shares bought back for a total amount of CHF600 million.
Negative Points
- Net sales decreased by 1% to CHF1.64 billion, negatively affected by currency effects.
- The new OECD minimum taxation law in Switzerland significantly increased the tax rate.
- Net sales in Northern Europe decreased by 5%, impacted by the divestment of the Nordic shower business.
- The EBITDA margin decreased marginally by 10 basis points due to wage inflation and additional expenditures for IT and digitization.
- The company expects a challenging market environment for the full year 2024, with declining building construction market volumes.
Q & A Highlights
Q: Regarding your organic sales growth guidance for flat for the year, that implies negative for the second half. When you just mentioned July slightly up, is it just because of Q4 tougher comparables? How do you think about restocking?
A: There are two main reasons. One is that we will have a challenging fourth quarter where the comps will become more challenging. Last year Q4, we had volume growth again. The second reason is the uncertainties around the measures such as wholesalers.
Q: Your pricing strategy historically used to be 1%-2% up every year, regardless of inflation. Now that we're back in a more normalized scenario, will you return to the normal pricing strategy?
A: We are more back to normal waters in terms of inflation and pricing strategies. However, we have not yet taken any decision on pricing for 2025. The environment in general is much more normal than what we have experienced over the last two years.
Q: On your qualitative outlook for specific markets, you now include Austria as a weak country in terms of new construction. What is the reason for Austria?
A: In the first quarter, the decline of building permits softened in Europe, but not in Austria. In Austria, new building permits were down minus 18% in the first quarter, which is significant. That is why we included Austria in the list of most difficult markets in terms of newbuild.
Q: Looking at the gross profit margin, I was surprised that in the second quarter, the gross profit margin was higher than in Q1, even though direct material costs seemed to trend up. What's the reason?
A: The main reason is the pricing and the slight delay on sale that materializes in the P&L. It's a marginal shift, with a slight increase in pricing and a marginal decrease in percentage terms. It's a very small effect.
Q: Can you give us the trends in shower toilets, particularly volumes and value, given the new low-priced product you introduced?
A: The development of shower toilets in the first half of the year is very good. We have had significant double-digit volume growth, especially since Q2, driven by the new product, Alba. We are also growing double-digit in value in the first half of the year, indicating minimal cannibalization of the existing product portfolio.
Q: Could you give us more insight into which markets are benefiting most from the restocking at wholesale?
A: Predominantly Germany, Benelux countries, and some Nordic countries, which suffered from destocking last year, are benefiting from restocking this year. Italy and Switzerland had lower destocking effects and thus less restocking.
Q: Are the above-average growth rates in Asia Pacific, Middle East, and Africa already a result of your growth initiatives, or are these markets just better?
A: The growth is predominantly market-driven and due to the good work done so far with existing initiatives. The new initiatives, mainly people added this year in these regions, have not yet had a significant impact on the top line.
Q: Did I understand correctly that the volume growth of 1% was for H1 or Q2?
A: The volume growth in the first half of the year was around 1%, driven by the 5% increase in the second quarter and a volume decline of around minus 3% in the first quarter.
Q: Are you seeing any changes in the competitive environment, such as misbehavior on pricing or new entrants in the market?
A: The environment is quite stable in terms of pricing, with no signs of significant price changes or new market entries with lower price points in the European market.
Q: You mentioned that inventories at wholesalers are not yet back to normal levels by mid-year despite the restocking effect. How do you know that?
A: This information comes from direct questions to wholesalers about their inventory levels compared to normal levels before COVID. The qualitative feedback from several wholesalers indicates that inventory levels are still lower than pre-crisis levels.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
