Outlook 2024

Declining building construction industry in a continued difficult environment

Due to the challenging macroeconomic conditions and the ongoing geopolitical risks, the building construction industry is expected to decline overall in the current year.

In the past two years, increased construction costs and interest rates have significantly dampened demand in the European building construction industry – especially in the new building sector. Driven by the weak development in residential construction, the number of building permits in Europe decreased by around 20% in the first nine months of 2023, leading to a corresponding decline in new building activities in 2024. The most pronounced decline is expected in Northern Europe and Germany. Conversely, new building activities in Switzerland are expected to develop more positively due to the lower inflation and lower interest rates. In contrast, a more robust development is expected in the global renovations business, which accounts for around 60% of Geberit sales. This is primarily due to the following reasons:

• a fundamental need for renovations in several European countries, and
• no additional pressure caused by the shift in demand from sanitary to heating solutions, as seen in the previous year.

Despite the negative overall forecasts for the European building construction industry in 2024, the expected reduction in interest rates during the course of the year and the structural trend towards higher sanitary standards should positively stimulate demand.

In the markets outside Europe in which Geberit is active, a mixed picture is expected for this year, with strong demand in India, the Gulf Region and Egypt, for example, and with a decline in China and Australia.

Currencies and cost inflation

Fluctuations in the Swiss franc compared to other important currencies used by the Geberit Group will continue to affect sales and earnings. Gains and losses result mainly from the translation of local results into Swiss francs (translation effects). However, currency fluctuations generally have no significant impact on operating margins due to high natural currency hedging. Natural currency hedging entails making sure that costs in the various currencies are incurred in the same proportion in which sales are generated. With regard to the impact of foreign currency effects, please refer to the information and the sensitivity analysis in the Management of currency risks section.

In terms of costs, raw material prices relevant to Geberit are expected to be slightly lower in the first quarter of 2024 compared to the fourth quarter of 2023, while wage inflation for 2024 is expected to be 5% to 6%. Moreover, Management is planning additional spending totalling CHF 30 million in 2024 on growth initiatives outside Europe, on specific marketing activities (launch of new Alba shower toilet, 150th anniversary of Geberit), and on digitalisation projects.

Geberit

Regardless of the challenging market environment, the objective for 2024 remains to gain further market shares. This should be achieved by the two guiding principles of 1) strategic stability and 2) operational flexibility. The objective is to overcome the challenges caused by the uncertain volume development without harming the medium-term potential. As part of strategic stability and despite the declining market environment, various strategic growth initiatives and investment projects – for example, in selected growth markets outside Europe – will be continued or newly launched as planned in 2024. In line with the Geberit strategy, these measures shall be accompanied by efforts to continuously optimise business processes in order to be able to achieve continued high margins and a strong free cashflow also in 2024. Based on the strong foundation already built up over the past decades, the sustainability performance should continue to improve.

Both the Board of Directors and the Group Executive Board are convinced that the Geberit Group is very well equipped and positioned to meet current and upcoming opportunities and challenges. This assessment is based on the stable and long-term strategy, the proven business model with strong customer relationships and the industry-leading financial stability. Experienced and highly motivated employees, a number of promising growth initiatives, the products that have been launched in recent years and the promising development pipeline, a lean and customer-oriented organisation, an established cooperation based on trust with the market partners in both commerce and trade, and the Group’s continued very solid financial foundation are vital to its future success.