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Negative impact of foreign currencies smaller than in previous year

Although the foreign currency effects for the Group, triggered by the strength of the Swiss franc against all the main currencies, declined sharply in the reporting year, they still had a seriously negative impact on the income statement. Seen overall, foreign currency effects reduced sales by around CHF 30 million, with the strongest impact measured from the euro. In 2012, Geberit generated 68% of its sales in the eurozone, 5% in US dollars and 3% in British pounds. Accumulated currency effects cut sales by 1.4%. Operating profit (EBIT) contracted by around CHF 8 million as a result of the strong Swiss franc.

Additional negative effects were warded off with an efficient natural hedging strategy. This entailed making sure that costs are incurred in the same proportion in the currencies in which sales are generated. This hedging strategy was almost completely successful for the euro and US dollar in particular, but the higher costs in Swiss francs compared to sales in Swiss francs led to slight deviations. Consequently, the currency losses resulted primarily from translation effects and only to a small degree from transaction effects.

In terms of a sensitivity analysis, the following changes can be assumed if the Swiss franc should be 10% weaker or 10% stronger:

  -  Sales: +/-7% to +/-9%
  -  EBIT: +/-9% to +/-11%
  -  EBIT margin:     approximately +/- 0.5 percentage points

For more information on the management of currency risks, please refer to the  Financial Statements of the Geberit Group, Notes to the Consolidated Financial Statements, 4. Risk Assessment and Management, Management of Currency Risks and the  Financial Statements of the Geberit Group, Notes to the Consolidated Financial Statements, 16. Derivative Financial Instruments.

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Results improved – profitability maintained at high level

Thanks to its healthy sales growth, the Geberit Group managed in the 2012 financial year to improve its results in a challenging environment in spite of substantial additional investments in organic growth.

Operating cashflow (EBITDA) rose by 2.0% year-on-year to CHF 542.4 million. At 24.8%, the EBITDA margin was slightly below the previous year (25.1%) but still stood at the upper end of the medium-term target range. Over the last decade, average EBITDA growth of 6.3% was better than the corresponding increase in sales of 5.6%. Operating profit (EBIT) improved by 2.9% to CHF 462.3 million, and the EBIT margin was 21.1% (previous year 21.2%). Net income increased by 2.2% to CHF 392.3 million, with a return on sales of 17.9% (previous year 18.1%). Earnings per share rose by 4.8% to CHF 10.29.

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Operating expenses only slightly higher

Customer bonuses and cash discounts increased by 5.2% to CHF 268.2 million or from 12.0% to 12.3% of total sales, primarily as a result of sales growth.

In 2012, total operating expenses advanced by 2.7% to CHF 1,457.3 million or to 66.6% of total sales (previous year 66.8%). As in previous years, operating expenses benefited from positive foreign currency effects, thereby compensating for some of the decline in sales caused by negative currency trends. Strict cost management, continued process optimization and the insourcing of shower toilet production to the new plant in Rapperswil-Jona (CH) also contributed to the reduction. In historical terms, raw materials prices remain very high although the situation stabilized somewhat in the reporting period, with industrial metals actually easing slightly. The substantial reduction in sales prices for the Swiss market introduced at the end of 2011 in reaction to the strong Swiss franc had a negative impact. The cost of materials as a percentage of sales dropped from 27.7% in the previous year to 27.0%. The absolute cost of materials rose slightly by 0.5% to CHF 590.7 million. Personnel expenses increased by 6.4% to CHF 463.5 million or 21.2% of sales, compared to 20.5% in the previous year. This is explained by the rise in staff numbers in the wake of ongoing organic growth initiatives, the new jobs that were created to handle the in-house production of the shower toilet and capacity increases at the production plants, as well as salary increases. Depreciation contracted by 3.4% to CHF 74.3 million because special writedowns burdened the result in the previous year. Amortization of intangible assets fell from CHF 5.9 million to CHF 5.8 million. Other operating expenses grew by 3.5% to CHF 323.0 million year-on-year due to newly intensified marketing activities, the effects of organic growth initiatives, and higher costs for energy, indirect materials, freight and customs triggered by the growth in volumes.

At CHF -7.2 million, the financial result is similar to the previous year. As interest rates dropped even lower in the reporting year, financial expenses were up year-on-year (valuation loss on marketable securities) but were compensated by smaller currency losses. The tax expense increased by CHF 4.9 million to CHF 62.8 million, resulting in a tax rate of 13.8% (previous year 13.1%).

Increase in free cashflow

The upturn in operating cashflow (EBITDA) led to an increase in net cashflow of 1.9% to CHF 504.1 million. Free cashflow grew by 1.3% to CHF 391.0 million. The lower growth posted in comparison to net cashflow resulted from the sales-driven rise in net working capital, which was only compensated in part through lower investments in property, plant and equipment. Free cashflow was largely used to pay distributions of CHF 241.7 million to shareholders and to repurchase shares totaling CHF 197.6 million as part of the share buyback program that was completed at the end of 2012.

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