Outlook 2023

Ongoing uncertainties

As a result of the ongoing geopolitical uncertainties and macroeconomic risks, it is very difficult to provide an outlook. All in all, a challenging environment is expected for the construction industry in 2023. The specific challenges for the sanitary industry result from the following:

• Potential aftereffects of pull-forward effects from the COVID-19-induced home improvement trend of recent years.
• Record-breaking inflation and higher interest rates.
• The temporary shift from sanitary to heating solutions – primarily heat pumps – in some European countries.

Positive influencing factors for the sanitary industry are as follows:

• The fundamental demand for renovations and new buildings in residential construction in various European markets, for example Germany.
• The structural trend towards higher sanitary standards.
• The positive market environment in several countries outside Europe, such as India or the Gulf Region, for example.

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 develop sideways in the first quarter of 2023 at the very high level seen in the fourth quarter of 2022, while wage inflation for 2023 as a whole is expected to be 5% to 6%. Due to the high volatility and uncertainties, a statement on the development of energy prices is dispensed with here.

Geberit

Given the extremely challenging market environment, Management has defined two guiding principles for 2023 – namely strategic stability and operational flexibility. The objective here is to overcome the uncertainties related to volume development without affecting Geberit’s potential in the medium term. Short-term challenges in relation to volumes are primarily the result of the still remaining – but significantly reduced – excess inventories in warehouses at wholesalers. Regardless of the prevailing market environment, the primary objective in the coming year is again to perform strongly in all markets and, as in previous years, to gain further market shares. To this end, significant contributions will be made by new products introduced in recent years, the focus on markets in which Geberit products or technologies are still under-represented, and the further expansion of the shower toilet business. 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 2023. 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. The possibilities offered as a result of combining technical know-how in sanitary technology “behind the wall” and design expertise “in front of the wall” will continue to be firmly seized. In 2023, a focal point will again be the continued implementation of the digitalisation strategy. Experienced and highly motivated employees, a number of promising products that have been launched in recent years and product ideas for the more distant future, a lean and market-oriented organisation, an established cooperation based on trust with the market partners in both commerce and trade, and the Group’s continued solid financial foundation are vital to its future success.

Despite the significant uncertainties, Management’s high level of confidence in the strong constitution of the Geberit Group is reflected in the very high distributions to shareholders in 2022, which totalled approximately CHF 1 billion and equated to a good 6% of Geberit’s market capitalisation as of 31 December 2022. Management is convinced that it can continue to achieve its medium-term targets of average annual net sales growth in local currencies of 4% to 6% and an average EBITDA margin of 28% to 30% in future.