The 2017 financial year has been clearly satisfactory, despite the various issues we encountered throughout the year.
Last year, the Group invoiced 1,799 million euros, which represented an increase of 5.4% over the previous year and the highest level in the Group’s history, beating the record of 2007. This outcome was the result of good performance in both mature and emerging markets. An analysis of our main markets shows that the euro zone reached its budget forecast driven by growth in Spanish operations, which reflects the vigorous recovery of its economy, Brazil is showing signs of recovery, Russia and China are growing strongly, and both Switzerland and India remain steady.
Despite the adverse impact of currency exchange rates and the decline in the tile business, profitability continues to rise through increased sales and improved gross profit margin. In fact, gross profit increased 31 million, surpassing the 2016 figure. EBITDA reached 242 million, meeting the budget forecast and improving solvency indicators.
This fast-changing world requires that we focus on anticipating and acting, if we wish to be part of the present and the future.
Additionally, structural costs were increased by 28 million euros to meet the needs of an unusual year, most notably for our centenary celebration, the ISH trade fair, new product series launches, advertising investments in the Spanish market and other policies designed to strengthen our relationship with distributors and considered a necessary stimulus for future growth.
Key investments in 2017 were made in new projects in Russia (sanitaryware and acrylic bathtubs) and India (plastic tanks and bath fixtures) and in concluding expansion projects begun the previous year in Croatia (sanitaryware), Portugal (faucets), Poland (sanitaryware) and Indonesia (construction of a new sanitaryware plant), all of them intended to expand our production capacity to handle sales growth in the respective markets and surrounding areas. Apart from these investments, we have made a number of other investments – whether ordinary, refurbishment, cost reduction, environmental, safety or others – to develop our production centers and adapt them to stringent regulations in safety, environmental protection and efficient use of resources.
For a company with a clearly industrial mission, the challenge becomes even more vital in these times of uncertainty and complexity. Around the globe, the economy has still not recovered a respectable pace of growth and, in contrast, there are new perils, such as protectionism, which hinder international trade and foster instability. As in recent years, growth forecasts for the world economy are better for 2018 although we are concerned that in the end, world GDP will also show, in an analogous manner, lower growth. What seems certain is that this fast-changing world requires that we focus on anticipating and acting, if we wish to be part of the present and the future.
In 2008, when we felt the full impact of the devastating financial recession, the challenge for many companies was just to survive. In our case, there was a need to take palliative measures first and then shock measures, in the expectation that both the world and Spanish economy—on which we depended heavily—would improve. Few were able to predict how strong and how long the recession would be. Year after year, we saw that the short-term situation was not improving.
However, during the decade of the recession, we were able to balance our geographical position and maintain an equilibrium between future and mature markets:
As a result of these efforts, the Group is now in a much more balanced position between geographical areas. Group sales in foreign markets have been 1,471 million euros, representing a 4.4% increase over the previous year. Excluding the effect of exchange rates when consolidating our operations in euros, business turnover in foreign markets showed a growth in real terms of 5.6%. Although in recent years the Group has been adversely impacted in the euro conversion of sales figures from subsidiaries operating in non-euro currencies, actual growth rates of our operations are clearly higher year after year, which further confirms the success of the international expansion undertaken by the Group.
Although geographic balance was a relevant measure, it was also undoubtedly necessary. In fact, once our major expansion phase (1999-2008) was abruptly concluded, it became crucial to define an organizational model that would make us competitive and put us back on the path to growth and profitability. It was clear that the recession was not a short detour, but rather a paradigm shift that took place for a wide variety of reasons (financial, demographic, geopolitical, technological, environmental, etc.).
It became necessary to choose between the dilemma of managing a Group of aggregate businesses or integrating ourselves to operate with global logic. We chose the second option which, although tougher to implement, is proving to form a truly competitive foundation for the fluctuating conditions of these bumpy times.
After completing a number of acquisitions, it became time to build a company able to compete in the midst of imperfect globalization. To achieve this, we laid out three strategic lines, which we have discussed on other occasions:
This is a unique, company-driven organizational model, designed to meet our specific needs, that is achieving increasingly improved performance, even though there is still much ground to cover in its development and growth.
Firmly anchored on our ethical values and principles, our model allows for sustained growth, as well as adaptation to social and economic ups and downs and to the uncertainty of this digital era of globalization.
Operating under these premises, the operating profit of the Group in 2017 was 121 million euros whereas the net consolidated profit for the year attributed to the Group reflects a profit of 83 million euros. Thus, after discounting the extraordinary items in the past year, growth over 2016 would be 9 million euros, representing an improvement of 12%. These data confirm the validity of our model to ensure both sustained and profitable growth.
We will be part of the future if we are able to share the benefits we provide to the entire value chain, as we did when proposing a celebration of our centenary last year. We saw a unique opportunity to welcome our stakeholders, escaping from the routine of our strictly professional relations. It was an occasion to set ourselves apart, remembering the distinctive nature of our business model, which is based on stability, independence from speculative investments, a commitment to the long term and the creation of value shared with our customers and the societies where we do business.
The centenary program strategy proved to be the right one and to have practical outcomes: enhancement of our reputation, strengthening of our business relations and homage paid to preceding generations.
The centenary program was full, intense and certainly a success, as it met the goals we had set. Even though our commemoration required a major investment—most particularly, a 20% increase in promotion and advertising—the effort was well worth it. The strategy proved to be the right one and to have practical outcomes: enhancement of our reputation, strengthening of our business relations and homage paid to preceding generations.
Last, we would like to make special mention of the artwork used in this annual report. On this occasion, we proposed using the artistic skill of Xavier Mariscal, a world-renowned designer who became famous during the 1992 Olympic Games, which was an enormous boost that helped situate our beautiful city of Barcelona on the world scene.
Roca shares the Mediterranean, cosmopolitan, friendly, open, optimistic and hard-working spirit of Barcelona, the land of our birth, and the location from where we continue to grow internationally.
We believe that the mascot designed by Mariscal combines those values in his particular version of the traditional rubber duck seen in children's baths worldwide. This inimitable creation is meant to stay with us, as it helps convey the message of confidence, honesty and optimism that we have been communicating for more than 100 years.