Confindustria Ceramica

colorifici - colore - smalti - inchiostriby Alfredo Ballarini15   Febbraio   2018

Ceramic inks get to re-write the balance sheet

Let's analyse the industry of dye manufacturers for ceramics, currently represented by a large sample of 21 homogeneous companies. In 2015 and 2016 sales increased by a +4.84%, after a previous  -1.57% drop. Turnover rose from €362.9 to €380.6 million. EBITDA also increased, though not as much as in 2014, settling at 6.02% of produced value, from €18.7 to €23.2 million.  Three are the reasons lying behind this:  1) a slight decrease in labour cost absolute value which is all the more felt when considered in percentages, thanks to the above examined rise in sales; 2) a slight recovery of value added, both in percentages and in absolute value; 3) "Other income and revenue" increasing more than "Other operating expenses". After the slowdown of the two previous years, the situation is now back to normal, and we hope that it will remain balanced over the next few years. Amortisation has risen both in absolute value and in percentages, while provisions have remained unvaried, so that EBIT (1.27% of produced value) is higher than last year, but still far from the record it hit two years ago, which was twice as much. Good news also from financial expenses, since revenues have finally exceeded financial charges, enabling  "Current Result" to jump from 0.80% to 4.13% of produced value. Extraordinary items are not really significant and tax rise is rather restraint so that dye manufacturing profit and loss account closes with a +3.14%; not bad at all - although operations management are only partly responsible for it.

Switching to a graphical analysis of data, carried out through the new WI-FROM.exe app elaborated by the Ballarini Studio 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 further elements of judgement can be drown.

The financial trend chart enables to best assess financial efficiency and the industry's balance sheet:
1)    In the industry of dye manufacturers, sales (the height of the triangle placed on the right) are lower than invested capital (which corresponds to the height of the whole coloured area positioned on the left): the financial efficiency of the sector remains below 1.
2)    Net financial debts, represented by the oval figure, have reduced their impact on turnover, falling from almost 52% in the previous fiscal year to 36.8%: the oval is slightly higher than a third of the sales' triangle.
3)    Net Working Capital of the dye manufacturers industry is basically zero, i.e. the edge of the green rectangle on the right (which happens when such rectangle exceeds the one on the left), is almost nonexistent, in fact slightly negative. This means that long-term financial resources (green rectangle on the right) are around the same value as long-term investments (green rectangle on the left).
4)    Current liabilities, which derive from the difference between the two red rectangles, are numerically negative because short-term funds (red rectangle on the right) are higher than liquidity (red rectangular on the left)
5)    Finally, the net operating working capital, identified by the difference between the blue rectangle on the left and the one on the right, which is nothing more than the financial need created, through operations, by stock and by credits (blue + orange rectangle on the left), net of delay in payments granted to suppliers (blue rectangle on the right). As it clearly emerges, the Net operating working capital has mostly been covered by short-term financial debts (red triangle on the right).
The situation is balanced but there is room for improvement as short term financial debts entail interest costs or capital commitment, and could partly be replaced by longer term financing, especially in order to strengthen one's own defenses as to possible financial tensions linked to possible credit losses or production inefficiencies. This result could also be obtained by acting on the financial cycle, which currently considers 132 days sales outstanding  from customers against 86 days payable outstanding to suppliers.

The charts "How does it economically work?" and "How does it pay? meaning "Is there financial stability?", still created through  WI-FROM.exe application and addressing those who either lack experience or time for reading figures, both show a "cake" with a red area, mirroring the factors to improve, and a green one, underlining all positive things that have been met. What emerges at a glance is that despite over half of the cake being positively green, considerable further work is required, both financially and economically, in order to improve the situation and further reduce the red area. In particular, on the financial bank, the net working capital structure needs improving, while on the economic side the focus is on value added and greater efficiency of invested capitals, as highlighted in the two charts on the right sides of the cakes.
Finally, forecasts on profitability: indicators show that there is a high chance (68%) that Ebitda will settle between 4.9% and 7.2% . That means two things: 1) unless effective management is implemented, the profit range won't be satisfactory; 2) and within such a low profit range, even the smallest shift in Ebitda impact may lead to great repercussions in the final profit and loss account.  Finally, summarizing the industry's economic and financial features through a unified rating process, examined through the S&P index but subjectively elaborated, the rating would still be a slightly improved A+.