Positive impact of foreign currencies

For the first time in in a long time, the strength of the recovering euro against the Swiss franc had a positive impact on the in­come statement in 2013. The total currency gains contained in sales amounted to around CHF 25 million. In 2013, Geberit generated 69% of its sales in the eurozone, 5% in US dollars and 3% in British pounds. Accumulated currency effects in­creased sales by 1.1%. As a result of the currency trend, the operating profit (EBIT) was positively impacted by approximately CHF 2 million.

In general, the effects of currency fluctuations are warded off as far as possible with an efficient natural hedging strategy. This entails making sure that costs are incurred in the same proportion in the currencies in which sales are generated. This hedging strategy has been almost completely successful for the euro and US dollar, but the higher costs in Swiss francs compared to sales in Swiss francs have led to slight deviations. Consequently, only minor currency gains or losses result 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:

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.

Increase in results exceeds sales growth

Thanks to healthy sales growth and efficient cost control, results were up on the previous year’s values in a challenging environ­ment in spite of once again continued, substantial investments in organic growth.

Operating cashflow (EBITDA) rose by 10.5% to CHF 592.8 million. At 25.9%, the EBITDA margin was significantly higher than the previous year (24.5%) and also above the medium-term target range. Over the last decade, average EBITDA growth of 6.0% was better than the corresponding increase in sales of 5.0%. Operating profit (EBIT) rose by 11.9% to CHF 510.7 million, and the EBIT margin reached 22.3% (previous year 20.9%). Net income increased by 12.5% to CHF 435.8 million, which led to a return on sales of 19.0% (previous year 17.7%). As a percentage of sales, net income thus reached its highest value since going public in 1999. Earnings per share rose by 14.1% to CHF 11.59 – also as a result of a lower number of shares issued.

Costs under control

Customer bonuses and cash discounts increased by 8.8% to CHF 291.7 million or from 12.3% to 12.7% of total sales, primarily as a result of sales growth.

In 2013, total operating expenses advanced by 1.8% to CHF 1,489.2 million or to 65.0% of total sales (previous year 66.9%). Foreign currency effects no longer had any significant influence on the operating results. Increased maintenance expenses, freight costs and personnel expenses had a negative impact. In contrast, the slight decrease in material prices com­pared to the previous year had a positive effect on the results.

The cost of materials increased slightly by 1.1% to CHF 597.2 million and dropped from 27.0% of sales in the previous year to 26.1%. The effects felt in the first four months of the year resulting from insourcing the shower toilet business, price increases and slightly lower material prices all contributed to this development. In historical terms, purchase prices remained very high although the situation stabilized somewhat in 2013, with industrial metals actually easing. Personnel expenses increased by 1.3% to CHF 475.4 million or 20.7% of sales (previous year 21.5%). This is explained on one hand by the rise in staff numbers due to the – to some extent temporary – adjustment of capacities in the production plants, the start of operation at the new plant in India and continued development in various emerging markets. On the other hand, salary increases and greater expenditure on the further training and development of employees also played a part in the increase. While depreciation increased by 3.1% to CHF 76.6 million, amortization of intangible assets fell by 5.2% to CHF 5.5 million. Other operating expenses grew by 3.6% to CHF 334.5 million due to the effects of continued organic growth and higher costs for maintenance and freight triggered by the growth in volumes.

The improved financial result compared to the previous year (up by CHF 1.7 million to CHF -5.5 million) was due to lower interest payments made possible by debt re­pay­ments as per end of 2012 – partially compensated by currency losses. The tax expense increased by CHF 7.6 million to CHF 69.4 million, re­sulting in a tax rate of 13.7% (previous year 13.8%).

Increase in free cashflow

The marked upturn in operating cashflow (EBITDA) led to an increase in net cashflow of 8.8% to CHF 548.7 million. Free cashflow grew by 13.6% to CHF 444.3 million. The higher growth posted in comparison to net cashflow resulted from the positive effects of the change in net working capital, which was com­pen­sated in part through higher investments in property, plant and equipment. Free cashflow was largely used to pay distributions of CHF 248.2 million to shareholders.