Negative impact of foreign currencies

On the whole, the income statement was negatively affected in the reporting year due to the renewed weakening of the euro against the Swiss franc. The currency losses contained in sales amounted to CHF 34 million. In 2014, Geberit generated 68% of its sales in the eurozone, 5% in US dollars and 4% in British pounds. Accumulated currency effects reduced sales by 1.5%. As a result of the currency trend, the operating profit (EBIT) was negatively impacted by approximately CHF 10 million. However, the corresponding effect on the EBIT margin was just -0.1 percentage points.

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 in the various currency areas are incurred in the same proportion in which sales are generated. This hedging strategy has been almost completely successful for the euro and US dollar, but slight deviations have arisen from the Swiss franc, the British pound and the Nordic and Eastern European currencies. 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 than all other currencies:

  -  Sales: +/-8% to +/-10%
  -  EBIT: +/-9% to +/-11%
  -  EBIT margin:     approximately +/-0.5 percentage points

Please refer to the  events after the reporting date

The currency situation within the Geberit Group will be reassessed following the integration of Sanitec’s activities. It will then be possible to introduce any additional measures.

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 Risks of the Geberit Group, Notes to the Consolidated Financial Statements, 16. Derivative Financial Instruments.

Profitability reaches all-time high

Thanks to healthy sales growth, a positive net price effect and efficient cost control, results were up on the previous year and reached all-time highs in a challenging environment in spite of once again substantial investments in organic growth.

Operating cashflow (EBITDA) rose by 10.8% to CHF 657.1 million. At 27.3%, the EBITDA margin was significantly higher than the previous year (25.9%) and also above the medium-term target range. Over the last decade, average EBITDA growth of 3.8% was better than the corresponding increase in sales of 2.3%. Operating profit (EBIT) rose by 13.0% to CHF 576.9 million, and the EBIT margin reached 24.0% (previous year 22.3%). Net income increased by 14.4% to CHF 498.6 million, which led to a return on sales of 20.7% (previous year 19.0%). As both in percentage of sales and in absolute terms, net income thus reached its highest value since going public in 1999. Earnings per share rose by 14.6% to CHF 13.28. The share buyback program, which was launched at the end of April and is currently suspended, did not yet have any significant impact on this key figure.

Operating expenses under control

Customer bonuses and cash discounts increased by 8.1% to CHF 315.3 million or from 12.7% to 13.1% of total sales, primarily as a result of the positive sales growth.

In 2014, total operating expenses advanced by 1.5% to CHF 1,512.2 million or to 62.9% of total sales (previous year 65.0%). Foreign currency effects had no significant influence on the operating results, see  negative foreign currency effect.

The cost of materials increased slightly by 1.2% to CHF 604.2 million but dropped from 26.1% of sales in the previous year to 25.1%. A slight decrease in material prices contributed to this development. A slight easing compared with the previous year was recorded above all for plastics and to a lesser extent also for industrial metals. Personnel expenses increased by 1.8% to CHF 483.9 million or 20.1% of sales (previous year 20.7%). This is explained by – largely tariff-related – salary increases and a rise in staff numbers, see  Business and financial review, employees. While depreciation increased by 0.5% to CHF 77.0 million, amortization of intangible assets fell by 41.8% to CHF 3.2 million due to the discontinuation of amortization from the Mapress acquisition carried out in 2004. Other operating expenses grew by 2.8% to CHF 343.9 million. While freight costs owing to the growth in volumes and administrative costs rose slightly, marketing expenses remained at the previous year’s level. Also included in other operating expenses were consulting expenses for the Sanitec acquisition amounting to around CHF 3 million.

The financial result came to CHF -1.7 million. The improvement by CHF 3.8 million was due to the absence of currency losses compared with the previous year. The tax expense increased by CHF 7.2 million to CHF 76.6 million, resulting in a tax rate of 13.3% (previous year 13.7%).

Increase in free cashflow

The marked upturn in operating cashflow (EBITDA) led to an increase in net cashflow of 10.9% to CHF 608.3 million. Free cashflow grew by 3.6% to CHF 460.4 million. The lower growth posted in comparison to net cashflow resulted from the negative effects of the change in net working capital and higher investments in property, plant and equipment. Free cashflow was largely used to pay distributions of CHF 282.0 million to shareholders and to repurchase shares totaling CHF 37.4 million.