Editorial
Dear shareholders,
An extremely difficult year is behind us. Volumes were significantly lower due to the declining building construction industry in Europe and the high volume level in the prior year. Furthermore, the sanitary industry in some countries was negatively impacted by the shift in demand from sanitary to heating solutions. However, the global and regional supply chains eased somewhat in the reporting year. There was good availability of raw materials and components, and the delivery times were much shorter than in the previous year. Despite the very difficult market environment, operating margins were significantly higher compared to the previous year. This was primarily due to the high level of operational flexibility, especially in the plants and logistics, the significant fall in energy prices, and consistent price management. As a result, it was also possible to absorb most of the impacts of the Swiss franc, which was significantly stronger compared to most currencies. All in all, this is reference to our structural and financial strength as well as the resilience of our business model. This enabled us to further consolidate our position as leading supplier of sanitary products and gain market shares.
Decline in sales due to very high levels in previous year and declining building construction industry
In 2023, the Geberit Group’s net sales fell by 9.1% to CHF 3,084 million. This decrease was strongly influenced by negative currency effects of CHF 147 million as a result of the Swiss franc, which was significantly stronger compared to most other currencies. In local currencies, this resulted in a decline of 4.8%. Price increases of around 8% had a positive impact on the development. Volumes were significantly lower due to the declining building construction industry in Europe and the high prior-year level. Furthermore, the sanitary industry in some countries was negatively impacted by the shift in demand from sanitary to heating solutions.
Operational flexibility and cost discipline lead to significant increases in operating margins
Despite the very difficult market environment with significantly lower volumes and considerable wage inflation, we were able to increase our profitability. This strong performance was made possible primarily by the high level of operational flexibility, especially in the plants and logistics, the fall in raw material and energy prices, and consistent price management.
In Swiss francs, all results were heavily impacted by the negative currency development. In total, operating cashflow (EBITDA) increased by 1.4% to CHF 921 million. After currency adjustments, this corresponded to an increase of 7.8%. The EBITDA margin increased significantly by 310 basis points to 29.9% compared to the same period in the previous year. Mainly due to a positive one-off tax effect in the previous year and a more negative financial result compared with the previous year, net income declined by 12.6% to CHF 617 million (currency-adjusted -6.3%), corresponding to a return on net sales of 20.0% (previous year 20.8%). Earnings per share fell by 10.2% to CHF 18.39 (previous year CHF 20.48). However, due to the positive effects of the share buyback programme the decrease was less than proportional compared to the development of net income. Currency-adjusted, this resulted in a decrease of 3.7%.
Free cashflow increased significantly by 11.3% to CHF 625 million. This was due to higher operating cashflow and a positive year-on-year development in net working capital. In contrast, the significantly higher investment volume had a negative impact. The free cashflow margin reached 20.3% (previous year 16.6%).
Significantly higher investments
In 2023, investments in property, plant and equipment and intangible assets amounted to CHF 197 million – CHF 42 million or 27.1% more than in the previous year. As a percentage of net sales, the investment ratio was 6.4% (previous year 4.6%). The significantly higher investments compared to the previous year were attributable to strategic plant expansions as well as the construction of a new customer centre in Germany. As part of the strategic stability, all important, larger investment projects were carried out as planned.
Diverse face-to-face and digital marketing and sales activities
The most important part of the diverse market cultivation activities is carried out by our employees in field service at the various local sales companies. They are in daily contact with wholesalers, plumbers, sanitary engineers, architects and investors. In an extraordinarily difficult market environment with a declining building construction industry, they intensified customer contacts compared to the previous year. They increasingly used the possibilities offered by hybrid sales, where personal contact is combined with digital resources such as video calls or video conferences.
In the reporting year, we were able to provide around 60,000 professionals with face-to-face training on products, tools, software tools and installation skills at the 30 Geberit Information Centres in Europe and overseas. At the same time, counter days and local and digital events were organised in numerous markets – often together with wholesalers – to inform craftsmen about new products. More than 61,000 customers took part in such events. Web-based seminars and training courses now occupy a firm and important place in Geberit’s training offer. 18,000 people took part in the past year.
Geberit know-how for drinking water supply, roof and building drainage and for the construction of sanitary facilities is implemented in numerous major projects. The durable, space-saving and installation-friendly systems offer significant advantages in planning and design for the responsible parties and craftsmen. Advantages also include expert technical support on topics including sound insulation, fire protection, statics and hygiene. Manufacturers of prefabricated bathrooms or prefabricated buildings are becoming increasingly important in individual markets, particularly due to the skills shortage. This is because industrial prefabrication allows for uncomplicated installation, faster work processes and higher economic efficiency. Our customers in the prefabrication industry are looked after by a specialist sales team. Additionally, the prefabrication industry is supplied with specific product solutions in order to further simplify and accelerate the prefabrication process. We have also been active in industrial prefabrication for years and produce prefabricated frame constructions for sanitary installations and completely furnished prefabricated bathrooms for new buildings and renovations at our sites in Lichtenstein (DE) and Matrei (AT).
Our professional customers are offered support in their daily work that meets their needs as much as possible with digital tools. Fourteen applications are now available for assisting in the planning and calculation of sanitary installations or in the commissioning and maintenance of devices. In the reporting year, the focus was on further enhancing the profile of these applications and launching them in additional Geberit markets. Our end users can find inspiration for their bathroom design in six applications, such as the Washplace Configurator, 3D bathroom planner or virtual showrooms for actuator plates. In 2023, there were concerted efforts towards making these tools available in additional markets. The different tools are now in use in 38 markets.
New products for our markets worldwide
In 2023, we once again expanded our product range, launching numerous new products on the market. On the new Acanto WC with TurboFlush, the geometry of the inner bowl has been redesigned and hydraulically optimised. This leads to a more efficient flushing out that significantly exceeds the prescribed standards and thus also ultimately leads to water savings. The new CleanLine50 shower channel impresses with its slim design and requires over 50% less material in production compared to its predecessor. Moreover, further bathroom products for end users and a wide range of technical products for the trade were introduced.
In order to protect our know-how, we applied for 25 patents in the reporting year – and a total of 159 patents over the past five years.
Strategic stability despite significant volume decline
The global and regional supply chains eased somewhat in the reporting year. There was good availability of raw materials and components, and the delivery times were much shorter than in the previous year. Customers were supplied with the entire product range at the usual high level.
However, the significant volume decline in the reporting year meant that our plants and logistics network were faced with some major challenges. Despite this, we were able to maintain productivity in both areas at a very high level. This was again achieved through numerous measures and projects that optimised production processes and the use of energy and materials and increased efficiency. This was also achieved through a high degree of operational flexibility, in particular by adjusting the capacity of temporary and fixed-term employees, and through natural fluctuation.
In ceramic production, the implementation of a specialisation strategy initiated in the previous year was continued. At the same time, the further automation of individual production processes was promoted. In the plants where plastic and metal are processed, numerous investment projects were continued with strategic stability in mind to build up the capacities needed in the medium and long term in good time and to further improve the efficiency of the processes.
Environmental performance significantly improved again – substantial reduction in CO2 emissions
The absolute environmental impact of the Geberit Group decreased in 2023 by a further 17.6%. Currency-adjusted net sales fell by 4.8% in the same period. As a result, we were able to decrease the environmental impact in relation to currency-adjusted net sales (eco-efficiency) by 13.4%. Since the integration of the energy-intensive ceramics production in 2015, eco-efficiency has improved by 62.6%. As regards the long-term target, which is based on an average improvement of 5% per year, we therefore remain very well on course.
We also significantly exceeded our medium-term goal of reducing relative CO2 emissions by 5% per year in the reporting year. In relation to currency-adjusted net sales, CO2 emissions decreased by 15.6%. Compared to the previous year, absolute CO2 emissions fell by 19.6% to 121,014 tonnes and have therefore been reduced significantly more than volumes. This reduction is due to targeted operating measures and the continuous increase in the share of electricity from renewable energy sources, plus a decline in production volumes. Since the acquisition of the energy-intensive ceramics production in 2015, we have succeeded in reducing CO2 emissions in relation to currency-adjusted net sales (CO2 intensity) by 63.2%.
Again honoured with EcoVadis award
We have once again been recognised for our sustainability management by EcoVadis. Gold is the second-highest rating awarded following the annual evaluation. Geberit thus finds itself in the top five percent of rated companies. EcoVadis is one of the world’s largest providers of business sustainability ratings and has created a global network of over 100,000 companies in around 180 countries. The comprehensive analysis takes into account 21 criteria in the areas Environment, Labor & Human Rights, Ethics and Sustainable Procurement, and contributes towards ensuring transparency in sustainability performance of the companies. The Gold rating shows both customers and suppliers that we have a comprehensive, systematic sustainability management in place.
ESG governance
The value- and future-oriented corporate governance strengthens the resilience of our business model and thus the long-term value creation of Geberit. A sustainability-oriented business management philosophy was defined as one of the strategic success factors of the company. This includes the long-term planning of investment projects taking an internal CO2 reference price into consideration, checking whether the defined measures have achieved their targets, and integrating the CO2 reduction target as one of five equally weighted criteria in the calculation of the bonus for management and some of the employees.
All positions involved in the sustainability strategy and its implementation, with the corresponding tasks and responsibilities, are clearly defined; ultimate responsibility lies with the Board of Directors (see also ESG governance).
Targeted expansion of sustainability reporting
Geberit reports comprehensively on the subject of sustainability. Since 2006, a sustainability performance report has been presented annually in accordance with the guidelines of the Global Reporting Initiative (GRI). Sustainability reporting now also meets the requirements regarding non-financial reporting in the revised Swiss Code of Obligations (CO Art. 964a ff.). The corresponding reporting on climate, social and employee matters, adherence to human rights and fighting corruption has been integrated into existing reporting, which has been developed according to the GRI Standards over the course of many years. The climate reporting which is mandatory from 2024 onwards, is already covered today in Geberit's TCFD report.
Focus on water consumption
Careful, sparing use of water as a valuable resource is one of our core areas of focus. The consistent focus on reducing water consumption both in production and in the product use phase is our greatest lever for contributing to sustainable development.
In the reporting year, water consumption in production totalled 850,178 m3 (previous year 908,407 m3). In comparison with 2015, the year of the integration of the ceramics business, water consumption fell by 27.4%. Geberit consistently applies measures to successively reduce water consumption. In particular, this includes measures such as reusing water in laboratories and the production process. At around 80%, ceramic production accounts for the biggest share of water consumption; in this area, water consumption fell by 5% compared to the previous year and savings of 31% have been achieved since 2015.
With eco-design, we also check and improve the products with regard to water consumption. Our innovative sanitary products help to systematically optimise water consumption in buildings. Rimless ceramic appliances, optimised TurboFlush technology and water-saving taps, urinals and flush valves help customers handle water sparingly. According to a model calculation, water consumption for toilet flushing, for example, has decreased since 1952 by around 80% from 70 litres to 14 litres per person per day thanks to several innovations such as the flush-stop cisterns and Geberit dual flush.
The optimisation of water efficiency continues to be of the highest importance to us. The new WC system launched in the reporting year is a perfect example of this: if the Acanto WC ceramic appliance – equipped with the latest TurboFlush flush technology – is combined with the water-saving flush valve 212 and the dual flush actuator plate, the required flush volume is reduced to 2.6 litres for the partial flush and 4 litres for the full flush. Due to the optimally coordinated components, the flush performance is up to ten times higher than the requirements of international standards.
Circular economy and longevity
The aim of the circular economy is to operate an economic cycle in the most resource and environmentally friendly way possible. The greatest lever here is the service life of a product. The longer a product can be used, the lower the resource input per use. One of Geberit’s key contributions to the circular economy is therefore to achieve the longest possible product life due to high-quality materials and strict quality requirements. Our products typically have a service life spanning several decades. The service life often exceeds 50 years, for example in the case of plastic drainage pipes. An important contribution to the longevity of Geberit products and systems is that a significant proportion of the product range also has a spare parts availability of 25 years. In the reporting year, we increased the spare parts availability for all mechanical components on concealed cisterns from 25 to 50 years. Furthermore, many of our products can be cleaned, maintained and repaired easily. The fact that new products and innovations are backwards-compatible – for example in the case of actuator plates – is also an important contribution to a longer service life of a previously installed product.
Information Technology (IT)
At Geberit, we are continually working to increase and further develop our IT security. This includes taking defensive measures against cyberthreats as well as detecting and dealing with any cyberattacks efficiently. Extensive measures have been established in the interests of business continuity. In terms of organisation, an IT security committee headed up by the CFO takes care of all relevant aspects of IT security. Our IT systems undergo a comprehensive and detailed security check – including the ongoing assessment of newly emerging risks – involving the input of external specialists on a regular basis. The latest checks confirmed a good level of security. All in all, we are thus comparable to industrial companies of a similar size and complexity.
The current operational focus in IT is on increasing efficiency and creating added value for the customers. Examples of increased efficiency include using artificial intelligence to answer customer enquiries in Germany, the AI-based payment workflow, the new EWM logistics solution based on SAP S/4 HANA, and equipping the first factory with a Manufacturing Executive System (MES). Examples of added value for customers include the new online catalogue and the first version of the system for identifying compatible products (product relationship management, PRM). Moreover, we also started an initiative for the improved use of AI within the various functions at the end of 2023.
Continued attractive distribution policy
The Geberit share price started the trading year 2023 at CHF 435.50. In the first half of the year in particular, the share price partially recovered from the significant valuation adjustment in the previous year. The share price then recorded a significantly stronger increase than the Swiss Market Index (SMI) in the final two months of the reporting year and closed at CHF 539.00, corresponding to an increase of 23.8% across the year 2023. In the same period, the SMI posted gains of 3.8%. Viewed over the past five years, the Geberit share posted an annual average increase of 7.1% (SMI +5.7%). Since going public (IPO) in 1999, the average annual increase was +11.7% (SMI +1.9%). The Geberit Group’s market capitalisation reached CHF 19.0 billion at the end of 2023. As in previous years, we will maintain the attractive distribution policy. Therefore, we will propose to the General Meeting an increase in the dividend of 0.8% to CHF 12.70. The payout ratio of 70.1% of net income is just above the 50% to 70% corridor defined by the Board of Directors.
In 2023, we distributed CHF 424 million to shareholders as part of the dividend payment. As part of the share buyback programme launched on 20 June 2022, a total of 493,150 shares were acquired at a sum of CHF 238 million in the reporting year. As a result, we distributed CHF 662 million, or 106% of the free cashflow, to shareholders as part of the dividend payment and the share buyback programme in the reporting year, which equates to 3.5% of Geberit’s market capitalisation as of 31 December 2023. Over the last five years, around CHF 3.2 billion has been paid back to shareholders in the form of distributions or share buybacks, which corresponds to 96.6% of the free cashflow in this period.
Sincere gratitude
Our customers again deserve special thanks for their trust and constructive collaboration. Taking into account the very challenging environment, we owe the good results in the reporting year to the high degree of motivation, commitment and flexibility of our employees. We wish to express our thanks and appreciation to them. Last but not least, we also wish to express our gratitude to you, esteemed shareholders, for your continued trust in our company.
Outlook for the year 2024
Due to the challenging macroeconomic conditions and the ongoing geopolitical risks, we expect the building construction industry 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. We expect the most pronounced decline 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, we expect a more robust development 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, we expect a mixed picture for this year, with strong demand in India, the Gulf Region and Egypt, for example, and with a decline in China and Australia.
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 our future success.
Yours sincerely,
Albert M. Baehny
Chairman of the Board of Directors
Christian Buhl
CEO