In 2018 we witnessed growth in almost all markets, both emerging and developed, and all business lines—bath products, faucets and ceramic tile. Consolidated total turnover, however, was eroded by the largest negative exchange rate impact we have ever seen (-6.6%). Consequently, consolidated sales recorded in Spain stood at 1,775 million euros, 1.3% lower than the previous year. If the 2017 exchange rate had remained stable, turnover would have hit 1,894 million euros, comfortably surpassing our most conservative targets.

Last year, the world economy again grew less than in 2017, falling below expectations in most areas of the world, with the notable exception of the United States, whose economic policy affected (for different reasons and in different proportions) almost every other country, including major economic powers, as further explained in this report.

We are maintaining good solvency ratios that allow us to continue making progress in driving important projects for present and future growth.

Thanks to a significant reduction in structural costs (-3.6%), EBITDA managed to stand at 243 million euros, a slight increase over last year. Net income increased 15% (95 million), thus maintaining good solvency ratios that allow us to continue making progress with important projects to ensure present and future growth.

Indeed, 2018 was a year of significant progress in strategic projects that require major efforts now, in order to have a significant positive impact in coming years. Some of these key efforts include:

  • Commitment to Indonesia—industrial investment and partnership agreement with local retailers to accelerate time-to-market.
  • Furniture manufacturing plant in Spain, leveraging our growth in the furniture category and our acquired expertise.
  • New plastic injection plant in Brazil, applying best practices at our plant in India.
  • Faucet assembly plant in Argentina to maximize our performance as a local manufacturer in a large market averse to imports, fostering significant growth in the faucet category and implementing the management system platform that is yielding great results.
  • Sanitaryware plant in Russia. Project for building new facilities that will increase supply capacity to meet current and future demand. In Russia, as in Argentina and many other countries, our local manufacturer acquisition policy puts us ahead of the curve in markets averse to imports.
  • Commitment to Mexico and USA— progress made in the merger of companies acquired in 2016 in Monterrey. New plant in Puebla and acquisition of the faucet distributor Metalflu in order to accelerate capillary penetration in this strategic region. First products sold in the US through our ceramic tile sales network.
  • New plant in Egypt, which in a first phase will help us double our manufacturing capacity through a low-cost center to meet the country’s and the Group’s demand. The new facility will also manufacture faucets.
  • Remodeling of large factories. Total floor space has been increased for new manufacturing uses in Jundiaí (Brazil), and the land value of the plots in Gavà-Viladecans and Alcalá de Henares has been enhanced thanks to agreements with local communities sharing the zoning project.
  • Rapid penetration in open, high-margin markets (Scandinavia, Australia, etc.), through acquisitions of commercial companies. These mid-volume markets where labor costs are high can be supplied from more efficient manufacturing locations (Czech Republic, Portugal, Turkey, Malaysia, China, etc.). The absorption of demand translates into reduced idle manufacturing capacity.
  • Commitment to the kitchen channel in Spain—comprehensive offering for the kitchen, leveraging our market share and brand prestige. Initially provided through a partnership with a specialized, high-quality manufacturer. Partnerships with specialist providers allow us to increase our supply by incorporating other product categories, opening new channels and gaining expertise.

2018 was a year of significant progress in strategic projects that should have a significant positive impact in coming years.

These initiatives—and other earlier efforts—reflect the strategy adopted when we began to emerge from the crisis in the early 2010s, namely to restructure the Group in order to fully integrate as a single organization operating worldwide with the same mindset. This new management model (and consequently organizational model) aimed to overcome the aggregate business management approach that resulted from a very rapid international expansion (1999-2007), which was abruptly interrupted by the strong economic crisis that began in 2008.

A more agile and integrated organization has allowed us to capture synergies systematically, simplify processes and reduce the number of SKUs. We have also been able to expand supply, reduce fixed assets, accelerate time-to-market, improve our negotiating position with suppliers, forge beneficial alliances, deploy our expertise throughout the business to address the challenge of participating in all sales channels, grow in other categories (furniture, faucets, etc.) and launch into related sectors (kitchen channel, for example), concentrate resources to provide more value to brands, etc. Thanks to these and a wide range of comprehensive measures, we stand poised to compete and grow in still troubled times.

We live at the dawn of the so-called “era of digitalization,” a technological revolution which, by its very nature, will rapidly spread around the world leading to sudden changes that drastically affect people’s way of life. This revolution will most certainly alter the economic balance, at the very least, on a global scale.

Controlling a disruptive technological revolution is historically the trigger of most disputes between powers. Digitalization has already demonstrated its ability to transform societies and economies worldwide and in almost all areas, including energy, entertainment, transport, communications, trade, banking, security, health and many other industries. This has always been the case, but perhaps this time China—a state that manages a capitalist economy with meticulous planning and control—has surprised everyone by establishing itself in just a few years as an economic, demographic, technological and military superpower. The West, led by the US, seemed convinced that its role after World War II was to maintain a desirable global status quo underpinned by the guarantee of international agreements and supervisory bodies. This arrangement has ensured prosperity and welfare for the citizens of the West until recently, possibly to the detriment of developing countries.

However, the situation has changed. Globalization, like a system of interconnected pipes transferring wealth, is more like a zero-sum game than the optimistic view so widespread until little over a decade ago. Today, millions of citizens in Western societies feel they have lost out due to globalization, expressing this by exercising a right not enjoyed everywhere: the exercise of universal suffrage in demand for ever-more radical solutions. Fueled by discontent, radicalization is spreading to all regions of the world, from rich European countries to emerging countries resorting to authoritarian leaderships. Even the US is perplexing the world with an international policy defined by conflict with Mexico, China and Iran among others, reminding many of the Cold War days.

The Roca Group continues to create real wealth and prosperity, gaining market share, growing sales and becoming an active part of communities and society at large.

It is therefore not surprising that the general climate of uncertainty has been prolonged. As a result of these tensions, we are witnessing major changes in the framework of international agreements, an alarming surge of protectionism, very aggressive monetary policies, the collapse of international trade and a stagnation of the world economy.

We are simultaneously witnessing an extreme and increasing competition resulting in heavy pressure on the market by manufacturers around the world triggering a drop in prices, the rise of disruptive sales channels like DIY and electronic trading platforms, the concentration of retail power which has led to true global giants with tremendous bargaining power, barriers to free trade and, especially, the use of monetary policy as a weapon wielded by major economic regions resulting in an extremely negative impact on companies like ours whose consolidated accounts are expressed in euros.

Thanks to our shareholders’ support to management, the Roca Group continues to create real wealth and prosperity constantly everywhere we work, gaining market share, growing sales and becoming an active part of communities and society at large in a spirit of respect and collaboration. True to our business philosophy, we continue to promote a strategy of counterbalanced international expansion by consolidating our positions in the various markets. We are also faithful to our industrial calling. In 2018, 80% of our investment budget was allocated strictly to industrial and product manufacturing investments to meet demand, expand our offering and improve our efficiency in the supply chain.

As we have often said, the secret to the success of our model is our family business DNA. Entrepreneurship and financial independence allow us to reconcile short-term growth and profitability with a longer-term vision. Consequently, we persist in our mission to leave a better company to future generations.