Confindustria Ceramica

Decorazione in terzo fuocoby Alfredo Ballarini27   Ottobre   2017

Third firing sees drop in revenue and profits

The third firing sector, observed through a representative homogeneous sample of 29 companies over a period of three years, saw sales further decreasing by 5.42% in 2015, turnover falling from 110.02€ to 104.06€ million. At the same time EBITDA also decreased, its impact on produced value falling from 9.50% in 2014 to 6.96% in 2015. Enjoyment of third party assets, i.e. leased assets, account for a 5.41% of produced value. If companies had these assets as part of their investments, they could benefit from a 5.41% higher operating profit, at least before amortization, and would have higher cash flow. Having said that, we observe that a fall in profits is greatly linked to a drop in value added and an increase in other operating expenses, despite reduced labour costs. Value added continues to drop (from 34.88% in 2014 to 32.21% in 2015) on a trend that does not seem ready to reverse, highlighting slow sales.

Amortisation has increased to 5.93% and also in absolute value, while EBIT considerably drops to 0.85% on produced value. Financial expenses, despite having decreased from the previous fiscal year, are still high, absorbing 2.07% of value of production; as we observe every year, greater capitalization could withhold higher cash flow before tax, equaling 7.48% of produced value, between lower rents and lower financial charges. Finally, extraordinary costs and charges for about 1% of produced value bring the profit and loss account of the analysed sector down to a decisively negative - 2.48%. Heavy financial costs are caused by a solid net financial position, i.e. active debts or debts upon which interests are payable net of liquidity, which on the other hand decreases from 56.3% to 47.6% as to sales. Such percentage indicates the constant difficulty companies have in self funding. The cause may be traced back to several factors such as slim cash flow and a negatively unbalanced financial cycle. According to statistics and forecasts on profitability, EBITDA is expected to rise over 8.2% of value of production, confiding in a bounced reaction, although the main concern is the constant decrease in value added which does not set a positive outlook on statistics.

Switching to a graphical analysis of data, carried out through the new WI-FROM.exe app elaborated by us to automatically analyse in just one minute any year end financial statement previously filed in Italy, we can quickly trace a series of pictures from which drawing further elements of judgement. The chart illustrating the financial structure performance enables a better evaluation of the efficiency and stability of assets and liabilities. It highlights how sales of the examined sector (represented by the triangle on the right) are about half of invested assets (the rectangular area on the left); therefore the financial efficiency of the sector is reduced to about 0.5, meaning that earnings are more or less half investments. The matter is not without importance: starting from the assumption that businesses are first and foremost a form of investment from which some profit is expected, income results obtained are halved if compared to invested capital. Net financial debts, shown in the oval area, account for approximately 50% of sales, but far less if compared to property and assets, which are represented by the entire rectangular area. The industry's net working capital is slightly in the red, i.e. the green rectangle on the right is lower than the green rectangle on the left, indicating a slight unbalance in debt deadlines (medium and long-term debts have shorter deadlines than medium and long-term investments). The scenario emerging from the chart “What does it pay? meaning Is there financial stability?" with a "cake" divided into a red area (64%) that represents the group of factors to improve, and a green one (36%) which on the other hand highlights what has been achieved, shows a situation that needs monitoring and improving. The final chart “How does it economically work?” shows a less suffering “cake” with the red area indicating the factors to improve at around 27 ~ 32%, and the green one (the positive things accomplished) extending for 68%.

Ideally summarizing the industry's economic and financial features through a unified rating process, examined through the S&P index but according to the author's personal methods, we would have, according to simplified calculations, a decreased BB- rating.