Market Trends: Ceramic Tile Manufacturers See Improved Performance
Italy and Spain continue to succeed in the tile industry, but other countries are struggling.
A recent report entitled “Financial Statement Analysis of World Ceramic Tile Manufacturers,” produced by the Acimac research department, contains economic and financial data for the three-year period from 2011-2013. The report covers 288 companies operating in 41 countries, including 89 in Italy, 70 in Spain, 33 in other EU countries, 15 in non-EU European countries (with a prevalence of nine Russian companies), 70 in Asia and 11 in the rest of the world (Egypt, Mexico, Tunisia, Argentina and Venezuela). In addition to analyzing the performance of individual companies, the study examines the average results of the regional groupings, including Italy, Spain, other EU countries, non-EU Europe and the rest of the world.
The Italian tile industry is performing strongly, with large export volumes and a steady increase in selling prices as a result of a shift toward high added-value products. One of the key findings of the 2013 analysis and of the three-year averages is the Italian ceramic industry’s growth in investments in capital goods and production equipment. This is reflected in the increase in the ratio of assets per employee (about €360,000, or ~ $402,512), which is among the highest of all tile producer countries) and in the industry’s leading position in terms of production efficiency. Its added-value margin (the ratio between added value and turnover) rose to 30.1% in 2013 and is the highest in the world, confirming an efficient use of production resources. The overall financial structure is also satisfactory, with an increase in equity ratio over the three-year period.
By contrast, labor costs need to be kept under control as they contribute significantly to the squeezing of margins: unit labor costs (ULCs) are almost 3% higher than the figure for Spain and 1% higher than the European average, while EBITDA margin (7.5-8%) is still below the world average, in spite of an improvement in 2013. However, the capacity of Italian companies to generate value is demonstrated by the fact that the average added value per employee (more than €72,000, or about $81,000) is the highest in the world.
The Spanish tile industry has also shown a strong overall performance. The growth in turnover (largely due to the adoption of more aggressive price policies with a view to increasing sales volumes) and rationalization of production costs are leading to an increase in added value.
The industry has seen growth in EBITDA (almost 10%), ROE (return on equity) and ROI (return on investment). Despite a small increase in leverage (to 2.97), the Spanish tile industry displays a good level of financial stability and strong short-term solvency.
The outlook is less positive for the 37 companies operating in other EU countries, following a fall in profitability over the three-year period (2011-2013). Added value has dropped by almost a percentage point per year due to the higher average incidence of labor costs, which has also resulted in a fall in EBITDA, and production costs. However, the financial structure of these companies is improving in spite of a condition of undercapitalization.
The group of non-EU European companies is also experiencing a slowdown in economic and financial performance, with ROE, ROI, and ROS all worsening compared to 2012. These results generally reflect an inefficient management of structural and production factors. On the upside, EBITDA remained slightly higher than the European average over the two-year period from 2012-2013, largely due to the low incidence of labor costs and the 33% decrease in the average cost of employees.
Due to their exceptional advantage in terms of low labor costs, Asian producers enjoy a good level of production efficiency in spite of their position in low-price and low-quality product segments. With one of the lowest ULCs in the world (10.4%), the added value ratio stands at 27% and EBITDA 13.2%. Net profits are also excellent, amounting to 5% of turnover.
The cluster analysis conducted in the Acimac study reveals the characteristics of the best performers, a group of 26 companies (10 in the EU, including six in Italy, five in non-EU Europe, 10 in Asia and one in Africa) with ROI higher than 15%. These companies follow two contrasting business models. The first is based on production processes that make intensive use of low-cost labor (prevalently in Asia and non-EU Europe) with medium- to low-end product ranges sold mainly on the domestic market and operating in cost leadership conditions. The second is the model followed by Italian and some European companies, which focuses on differentiation, a limited workforce, large investments and high levels of productivity, resulting in a comparable ULC to that of Asian competitors.
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