The year 2013 has marked a turning point in the economic recovery of major developed countries. The United States has been creating jobs over the past two years. As the country leverages lower shale gas energy costs, it stands poised for a new stage of growth starting 2014. Likewise, Japan has regained its competitiveness and is growing thanks to the stimulus of “Abenomics”. In the euro zone, rising debt levels in at-risk countries have been gradually contained and, more importantly, are being managed with increasingly lower interest rates that have come as investors show greater confidence in the progress of European Central Bank reforms.
Emerging countries have continued to grow, but have been impacted by the now-ending expansionary policy of the U.S. Federal Reserve, which has caused capital to flow back into the United States, thus slowing growth in these countries and causing their currencies’ devaluation.
The methodology used to analyze proximity to markets and design the Group’s strategy according to our global capabilities has proven very effective to ensure a quick industrial response to business needs.
Additionally, we have already begun to see the results of the shift in design policy, which aims to keep our product offering always up-to-date and attractive to millions of buyers. In keeping with this goal, we have identified market opportunities that can be exploited with a clever redesign to avoid the cost of new industrial developments and significantly speed up our time to market.
At the same time, we remain convinced that porcelain sanitary ware is, and will remain, the centerpiece of the bathroom. Porcelain is practically irreplaceable in most cases thanks to its well-known properties of total asepsis, durability and feel. Every day more and more buyers appreciate the natural origin of porcelain combined with the application of innovative solutions such as SaphirKeramik technology, enabling highly stylized designs, or Rimless solutions that make cleaning the toilet significantly easier.
According to the majority of indicators, the Roca Group’s performance in 2013 has been good overall, considering the still uncertain economic environment in most markets. We continue to gain efficiency and have returned to profitability, as seen in our EBITDA and net income growth, now virtually free from the effect of the industrial map reconfiguration in Spain. However, the sales and EBITDA figures have been uniquely affected by the exchange rate. In 2013 we reached a turnover of 1,572 million euros (which would have been 92 million higher when calculated at 2012 exchange rates). Likewise, the EBIDTA in euros suffered a negative impact of more than 16 million euros. Without this exchange rate variation, the remarkable effort made in promoting our commercial activity as well as in optimizing production processes and streamlining structural costs would have been even more evident. In fact, EBITDA reached 216 million euros, accounting for almost 14% of turnover, and our net income showed no losses, standing at 53 million euros.
As we are the leading manufacturer in mainland Asia, Brazil and Russia provide us with the opportunity of leveraging economies of scale and improve production processes, thus making steady gains in efficiency.
This year we have managed to significantly increase our gross margin. Among the top 16 markets of the Group in 2013 (85% of business), 13 have improved this indicator compared to 2012 and 12 already have a gross margin of 30%.
It is true that the fragility of emerging countries was mentioned as a concern in the second half of last year. Suddenly, there were issues such as the potential impact of a slowdown in the Chinese economy on countries such as Brazil, Argentina and Russia, which supply raw materials. We have again witnessed the lack of institutional consolidation in some countries, which can jeopardize the market economy and the need for central banks to become independent from political power.
These concerns are being raised, even though growth forecasts are improving in most developed countries. Year-end trends are expected to be reversed, and in 2014 the U.S.A is expected to grow by 3%, Japan by 2% and the euro zone by 1.2%. Naturally, the BRICs will grow more, but noticeably slower than in previous years, which means that the gap is closing.
The second half of this report clearly shows that the Roca Group does not depend solely on emerging countries. Rather, our geographical location is reasonably balanced, with a leading position in Europe that will continue to strengthen. By recovering profitability, we can allocate a portion of our investments to grow in markets which show stability and opportunities for growth.
In fact, we are more agile when creating a value proposition despite the challenges we are faced with. These challenges may include new market trends due to lifestyle changes in the various societies where we are present, an opportunity with a large international client, or choosing the right moment and ideal way to invest in what we consider to be a market of interest, such as Australia or Scandinavia, for example.
The common denominator for all these efforts — and many others mentioned later in this report — is the drive and ingenuity which managers and teams show in identifying business opportunities.
Thanks for driving this Roca Group project forward with the help of all our shareholders, and keep it up!