Decline in profitability of Italian tiles

Dec 09, 2002

Decline in profitability of Italian tiles9 December 2002 - According to the balance sheet analyses and forecasts conducted by Assopiastrelle in cooperation with Prometeia, Banca Popolare dell'Emilia-Romagna and Giorgio Olivieri & Associati, 2002 has been another difficult year for the Italian ceramic tile industry with a 0.4% fall in sales and a 2.5% drop in produced quantities. Company profitability has also fallen significantly, with the larger companies experiencing a 4% drop in ROE. The figures were unveiled today by chairman of Assopiastrelle (Italian tile manufacturers' association) Sergio Sassi and the director responsible for the Study Centre, Gianpietro Mondini, during a conference entitled "The Italian ceramic tile industry: market prospects and international competition". According to Assopiastrelle, the preliminary figures for this year are far from reassuring. The sector's total sales have fallen to 617.5 million square metres as a combined result of a 2.5% drop in the Italian domestic market (now 174.5 million square metres) and a small growth in exports (+0.5%) to 443 million square metres. During the year, companies cut back production in an attempt to reduce warehouse stock and as a result output amounted to 622 million square metres (-2.5%).

The profitability of the Italian companies' accounts has been affected by the shift towards a product mix with a higher selling price, achieved through a higher than proportionate increase in production costs. This has triggered a fall in characteristic operating margins, which together with a worsening of financial expenses has led to a fall in net profitability. In companies with turnovers in excess of 40 million euro, ROE has fallen to 2.1% against 6.4% in fiscal 2000; in smaller companies, ROE is now negative compared to the 0.4% of 2000.
During 2002, the most dynamic market areas were North America (+9.2%), the Far East and Australia (+3.2%). The greatest difficulties were experienced in the contestable markets of the EU (-3.1%), where overall consumption fell, largely due to economic difficulties in the German market.

In-focus section: The world ceramic market
Forecasts for 2003 and 2004
Comments by Sergio Sassi
Sassi1.jpgThe world ceramic marketThe world ceramic market

During 2002, a total of 4.68 billion square metres of ceramic tiles were consumed worldwide. According to the Osservatorio Previsionale Prometeia Assopiastrelle (analysis and forecasting centre), growth amounted to 3.3% due to a 4.7% expansion in contestable markets and a small increase (1.3%) in markets open to international competition. This latter figure had never before fallen below 3% and constitutes the lowest growth rate recorded during the past 15 years.
Assopiastrelle consequently believes that the slowdown in the world economy has finally begun to impact the ceramic tile sector, a segment has always showed a higher than average performance.Forecasts for 2003 and 2004Forecasts for 2003 and 2004

The first signs of a recovery in the world ceramic tile market are expected in 2003 with an increase in consumption of 5.2%. According to Prometeia-Assopiastrelle, this increase will essentially be concentrated in non-contestable markets (+6.1%). The growth in contestable markets will instead be smaller (+3.8%) with peaks in Central and Eastern Europe (+7.6%) and North America (+4.9%), although the rate of expansion in these areas is falling off sharply.
According to Assopiastrelle, "It is important to bear in mind that these forecasts do not take account of the anticipated development in economic activities of new countries entering the EU, as has happened in the past. One of the elements of uncertainty is the growing number of competitors in the contestable market arena, making competition increasingly fierce from one year to the next."

In 2004, consumption is expected to increase by a further 6.4% with good performances both in contestable markets (6.6%) and in non-contestable markets (+6.1%). In the latter in particular, major growth is expected in Central and Eastern Europe (+9.9%).The opinion of Sergio SassiThe opinion of Sergio Sassi

"More infrastructures, investments in research and development and valorisation of Italian products" is Assopiastrelle chairman Sergio Sassi's formula for improving the world competitiveness of Italian ceramic tiles. Speaking this morning at the presentation of the sector surveys promoted by the association, Mr Sassi outlined a difficult situation for Italian companies. "The figures", he said, "tell us that there has been zero growth in recent years with considerable uncertainty hanging over company balance sheets. As the Italian President Mr Ciampi said a few days ago, the country is experiencing a generalised decline in competitiveness and solutions must be found."
The ceramic industry is particularly affected by the longstanding lack of infrastructures in the Sassuolo area, aggravated by the deficit in public investments in research and development. The fact that ceramic sector companies have been making investments of 7-10% of turnover in recent years means that company resources are falling.
Mr Sassi added: "We are interested in the proposal made by the Confindustria (Confederation of Italian Industry) director Diana Bracco for a specific tax to finance research in traditional sectors such as tiles". The last ingredient in Sassi's formula for success is valorisation of Italian products through initiatives such as the "Life in I style" project launched by Assopiastrelle.