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.
In 2013 we have continued to make progress in implementing our competitive model which will enable us to operate on a global scale
Despite this climate, we have continued to make progress in implementing our competitive model which will enable us to operate on a global scale. This reasoning enables us to maximize our capabilities and geographical position, applying them to more processes and functional areas. This year we have carried out several supply rationalization projects (brand and product) to optimize our position in different areas and markets, including the Balkans and South Asia.
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.
The Roca Group offers “Everything in Bathrooms” virtually “Everywhere in the World. To achieve this, we continue to incorporate not only products but also new materials in our offering
We can also see the progress made in expanding product families and solutions for bathrooms — faucets, furniture, accessories, etc. — to which we apply design, technology and an industrial logic on a global level. As mentioned previously, the Roca Group offers “Everything in Bathrooms” virtually “Everywhere in the World.” To achieve this, we continue to incorporate not only products but also new materials in our offering, as is the case with the Bathtech Solid Surface, a solid synthetic surface that provides great versatility when designing bathroom spaces.
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.
According to the majority of indicators, the Roca Group’s performance in 2013 has been good overall. We continue to gain efficiency and have returned to profitability
Despite the local improvement in profitability, the exchange rate adversely impacted our consolidated results because our accounts are kept in euros. In emerging countries, where results were the most affected, the Group has a significant industrial structure which works with local suppliers. This means that local costs apply for both labor and materials.
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.
Our commitment remains strong because it is focused on the long term. The Group’s strategy is to continue investing in production plants to meet both current and future demand.
Although a possible slowdown in growth in some of the major economies could pose some short-term difficulties in terms of development, our commitment remains strong because it is focused on the long term. The Group’s strategy is to continue investing in production plants to meet both current and future demand. As a privately-held family business, our goal is to combine short-term profitability with medium- to long-term value, always in keeping with the solvency levels we wish to maintain.
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.
We know ourselves better as a Group and we communicate better internally. We are quicker at creating a value proposition when faced by challenges
Our overall assessment is that the year shows that we are now increasingly able to adapt to the changing environment because we know how to survive in a world of globality and uncertainty. We know ourselves better as a Group and we communicate better internally. Although changes may imply an access barrier for some, for us they can represent an opportunity.
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!