by Alfredo Ballarini29   Ottobre   2014

Falling turnover, steady profitability

The ceramic tile third firing industry has been observed through a representative sample of 35 companies, even handed distributed along the three years considered. The survey has showed a decrease for the year 2012 of 8.34% in sales, with a turnover going from €141.7 million to €129.9 million. Nevertheless EBITDA has remained almost stable at around 7.9% of the produced value. This positive feature is mainly due to a reduction in the cost of labour that, decreasing since 2010, has compensated the loss of added value. Yet it must be noticed that the turnover has fallen sharply, causing a loss of added value, a signal of a possible structural weakness of the sector as far as marketing is concerned. A small industrial sector with a limited market has two options: either it is able to coordinate itself enhancing its features or it is doomed to competitiveness breaking it up. As it always happens, the greater the needs, the more willing we are to sacrifice value. Labour as well as rental costs erode most of the generated surplus value, with rentals adding up to 5% of the produced value, a percentage normally considered a good final goal for a company. After a further 5% of amortization, EBIT sets steady at nearly 3% thus continuing a negative trend started in 2010 which is further absorbed by net financial charges leaving extraordinary charges alone the task to give a final positive result.

The burden of financial costs can easily be explained by observing the Net Financial Position, that is financial debts causing payable interests, net of cash. The NFP accounts for a 50% on turnover; although it is slightly increasing, this percentage shows a chronic difficulty in financing the company through self-generated means. This is mainly due to what mentioned above on the added value trend; unless companies review their strategy no improvement seems to lie ahead.
The financial cycle clearly shows that collection and payment schedule is unbalanced, with collection delayed compared to payments made. Some cash flow is still being produced helping towards more stable relationships with lenders.
Forecasts on profitability put EBIDA at an 8% rate although there are indeed a few chances that it could drop. On the other hand it is hardly possible that EBITDA should increase on produced value.

Summarizing the field’s economic and financial scenario through a unified rating process we would have (by simplified calculation) a Standard & Poor’s BB+ rating.