Bathroom Newsletter November 07 International Market Strategy Topics Croatia Croatian INKER to Invest 4.0 Million to Boost Production Capacity Egypt LECICO Egypt S.A.E. Announced 3rd Quarter Results Egypt Egyptian SHEENI Posts Zero Adjusted Profit FY 2006 Germany VILLEROY & BOCH: An Interim Report Hungary RAVAK Hungary Sees 2007 Sales rising 25% to HUF 2 Billion India PARRYWARE Plans to Invest Rs200 Crore in Expansion Poland CERSANIT Aims to Lift Sales to 3 Billion Zlotys in 5 Years Romania ROMANCERAM Reports Losses Romania ROMSTAL to Invest in a New Production Centre UAE ARTE CASA Opens Largest Showroom in Abu Dhabi UK Environment Minister gives Thumbs Up to Label Scheme UK Big Increase in Larger Showers USA MASCO Reports Results for the Third Quarter 2007 Monthly Special Austria The Austrian Bathroom Products Market International strategic market research and consultancy on building product and related markets
Croatia: Croatian INKER to Invest 4.0 Million to Boost Production Capacity Croatian ceramics and porcelain producer INKER is investing 4.0 million ($5.6 million) in 2007 to increase its production capacity, CEO Ljerka Cerc announced recently. The company invested 2.5 million ($3.5 million) in 2006 for the same purpose, Cerc added. The investment in 2007 should result in increasing the annual output to 500,000 sanitary ceramics items. The company's annual output stood at 400,000 such items before becoming part of the Spanish ROCA sanitary ware group in May 2006. Another new measure announced by Cerc was that INKER plans to have a more aggressive presence on the market in the Adriatic Sea region with the aim of reaching a leading position, as the focus will be on the markets of the former Yugoslav countries, as well as Hungary and Albania. The move should result in increasing the company's market share from current 20% to over 50% in the regional market. In Croatia, INKER holds 55% of the sanitary equipment market. As earlier reported, ROCA plans to invest in the production capacity of INKER, located in Zapresic, northern Croatia, in order to secure the development of new products and design, as well as to boost product quality. Inker posted a net profit of 3.16 million Croatian kuna ($600,000/ 431,000) in the first half of 2007. Source: Balkans Business Digest 2
Egypt: LECICO Egypt S.A.E. Announced 3rd Quarter Results LECICO Egypt announced consolidated results for the third quarter of 2007. Revenue for the quarter was up 40% year-on-year at LE 257.2 million driven by increased tile sales and the consolidation of SARREGUEMINES. Operating profit (EBIT) was up 12% at LE 40.4 million (margin down 4.0 percentage points to 15.7%). The drop in EBIT margins reflects the consolidation of SARREGUEMINES and the impact of energy price increases in Egypt. Net profit was up 13% at LE 27.8 million (net margin down 2.7 percentage points to 10.8%). For the first nine months, LECICO reported revenue of LE 728.2 million, up 38%. EBIT was up 16% to LE 115.7 million (margin down 3 percentage points to 15.9%). Net profit was up 28% to LE 78.7 million (margin down 0.8 percentage points to 10.8%). LECICO Egypt Chairman and CEO, Gilbert Gargour, commented: 'I am pleased to report record highs in sales and gross profits in the quarter, with good growth in net profits despite continued investments to expand our production capacity and market footprint. However, the need to continue improving efficiency has become more important as our Khorshid site, approximately 60% of our production, is subject to substantial energy price increases being applied against large users. We believe we are the only sanitary ware or tile manufacturer subject to these increases. We do not think that this was the intent of the legislator and we are seeking clarification to allow us to take actions to try and avoid or mitigate what would be undue discrimination. I am sure through improving efficiency and increasing average prices, we will minimise the impact of any cost increases. Overall, I am confident that our staff will continue to meet the challenge and I expect to keep on delivering growth for the rest of this year and into 2008.' Elie Baroudi, LECICO Egypt MD, added, 'I am pleased with our results for the quarter. Our programme to improve yields and efficiency has delivered real gains in 2007. Our expansion plans continue on schedule and capital expenditure is starting to come down. With LECICO operating at full capacity, our immediate challenge is to service customers well across our markets. We also have interesting opportunities with new customers and markets to begin delivering on once our current expansions are up and running. Our overall position looks positive for the coming year, but I expect cost inflation and a drop in outsourcing volumes will mean slower growth than in 2007. Nonetheless, we will continue to deliver solid and sustainable growth in 2008.' About LECICO LECICO is a leading producer of export-quality sanitary ware in the Middle East and one of the largest tile producers in Egypt and Lebanon, with over 45 years of experience in the industry and decades of experience as an exporter to developed markets. LECICO benefits from significant cost advantages in labour, energy and investment costs resulting from its economies of scale and location in Egypt and Lebanon. LECICO's marketing strategy is to use its cost advantages to target the mass market with high quality pieces at competitive prices. LECICO exports over half its sanitary ware production and has a significant presence in the United Kingdom and other European markets. Most of the company's exports are under the LECICO brand, although it also produces for other European brands. LECICO has a strategic relationship with SANITEC, a leading producer of sanitary ware in Europe, and benefits from this relationship through information sharing, extensive knowledge transfer programmes and significant outsourcing contracts for SANITEC's brands. 3
Source: AFX CNF Egypt: Egyptian SHEENI Posts Zero Adjusted Profit FY 2006 The Egyptian company for ceramic and porcelain products (SHEENI) posted on October 16, 2007 its adjusted financials for the fiscal year of 2006/2007, ended June 30, 2007, showing a zero profit against a net loss of 46.5 million Egyptian pounds ($8.4 million/ 5.9 million) for the previous fiscal year. In the first nine months of 2006/07, the company managed to decrease its net loss to 3.7 million pounds ($667,400/ 469,400) from 14.9 million pounds ($2.7 million/ 1.9 million) in the period from 2005/2006. SHEENI (www.sheeni-egypt.com) was established in 1955 and produces fine porcelain for household use, hard porcelain for hotels and restaurants and sanitary ware. Source: Middle East Business Digest 4
Germany: VILLEROY & BOCH: An Interim Report At 711.1 million, consolidated sales at the VILLEROY & BOCH Group were 0.8% higher than the figure reported for the previous year. Adjusted for the disposal of Tiles, there was a 6% year-on-year growth in sales. The proportion of foreign sales rose again and amounted to 75.5% in the reporting period (previous year: 71.1%). The VILLEROY & BOCH Group's order book stood at 75.3 million as at 30 September 2007 compared to 51.2 million (adjusted for the tile segment) at the beginning of the financial year. The largest share by far belongs to the Bathroom and Wellness Division with 68.4%. The Tableware Division accounted for 31.6%. Earnings before tax for the first nine months of 2007 amounted to 13.6 million. This resulted in a 7.5 million or 123% year-on-year rise in profit. The profit in the previous year was hit by restructuring costs of around 6 million. Bathroom and Wellness: Profits affected by extraordinary expenses The Bathroom and Wellness Division increased its sales in the first nine months of 2007 by a total of 8.9% on the previous year, to 396.5 million. The double-digit growth of the first half year slowed down in the course of the 3rd quarter. Excluding the Mexican sanitary ware factories acquired in 2006, the rise in sales over the first nine months of 2007 was 2.4% compared to 3.4% for the first half. The partially strong growth, both in the traditional as well as in new export markets, continued, but is set against a bathroom business in Germany that has noticeably weakened as a result of the thirdquarter downturn for the industry. By contract, developments worth mentioning in the different regions are the ongoing disproportionately high rates of increase for ceramics in the Benelux countries, Switzerland, Austria and Italy, and across all product areas, the continued growth in the former Soviet Union, occasionally well into double figures. Developments in the domestic Hungarian and Romanian markets, dominated by their own production facilities, and in the Far East with growth rates close to the 20% mark, have also held up. It was mainly extraordinary expenses amounting to 3.3 million for safety measures in the bathtub segment that lowered the division's profit from 19.1 million in the previous year to 15.2 million. Outlook for financial year 2007 Operations in the first nine months of the financial year ran well, as expected. Sales of approx. 940 million, as budgeted, continue to be forecast for financial year 2007 following the sale of V&B Fliesen GmbH on 30 June 2007. Improved cost structures and good utilisation of capacity will significantly raise net income in the Tableware Division over that of the previous year. By contrast, extraordinary expenditure related to measures to improve safety in the bathtub segment will have a negative impact on operating earnings in the Bathroom and Wellness Division. Overall, the results achieved by the operating divisions in 5
2007 should match those of the previous year. Withdrawal of V&B Fliesen GmbH and the tile trading companies in Merzig and Wadgassen sold on 1 July 2007 from consolidation is expected to have a negative effect on net income of around 15 million. Payment of the purchase price of around 16 million will have a positive effect on VILLEROY & BOCH's cash flow. Source: www.villeroy-boch.com Hungary: RAVAK Hungary Sees 2007 Sales rising 25% to HUF 2 Billion The Hungarian unit of Czech bathtub and shower enclosure manufacturer RAVAK expects to close 2007 with revenue of HUF 2 billion, up from HUF 1.6 billion in 2006, RAVAK Hungary managing director Laszlo Vajanyi announced recently. RAVAK Hungary generates about 9% of the consolidated turnover of its parent company, Mr Vajanyi said. RAVAK Hungary completed the first, HUF 1.1 billion phase of a commercial-warehouse-sales centre in Budapest this year. The second stage, to be completed in 2008, will cost HUF 1.5 billion. RAVAK will let out part of the centre and will use the remainder to store its products. (HUF 100 = EUR 0.3989) Source: Hungarian News Agency India: PARRYWARE Plans to Invest Rs200 Crore in Expansion PARRYWARE ROCA Private Limited of Chennai proposes to promote the ROCA brand of premium sanitary ware products, taps and tiles. It will invest Rs200 crore in the next 3 to 4 years in setting up new facilities and upgrading the existing ones, marketing, introducing new products and adding capacity. The production capacity is expected to go up from 4 million pieces to six million per annum by 2009. The company is aiming at a growth of 25% per annum over the next two years. It has entered into agreements with developers to exploit the construction boom and will launch its new range of accessories and furniture for bathrooms. It will also increase the number of showrooms from the existing 24 to 46 in the next 6 months and to 70 by 2008-2009. Source: India Business Insight 6
Poland: CERSANIT Aims to Lift Sales to 3 Billion Zlotys in 5 Years The chief executive of Polish tile maker CERSANIT said he expects group sales to reach 3 billion zlotys in five years, while maintaining the net profit margin at around 19%. The Group closed 2006 with sales of 760.3 million zlotys and net profit of 146.2 million zlotys. 'In five years we count on our sales reaching 3 billion zlotys, if we include sales of tiles and bathroom ware,' Miroslaw Jedrzejczak told a news conference. 'We are now operating at a net profit margin of 19% and we will do everything to keep it this way,' he added. CERSANIT is the controlling shareholder in Poland's largest tile maker OPOCZNO. OPOCZNO said earlier today it has signed a letter of intent to sell its production arm to CERSANIT for 290 million zlotys. OPOCZNO expects its sales to reach 1 billion zlotys in 3-4 years after closing the deal with CERSANIT, with net profit margin reaching 5-6%. Source: AFX UK Focus Romania: ROMANCERAM Reports Losses The Romanian ceramic sanitary ware producer ROMANCERAM announced losses of RON 2.7 million in the first six months of 2007, after which income decreased by 12% to RON 19.2 million. The company's turnover decreased between January and June 2007 by 2%. The performance of ROMANCERAM was affected by the intention of the company to concentrate only on the highest quality products, as well as costs regarding interest rates. Since October 2006, the Romanian company has belonged 77.85% to the Polish manufacturer CERSANIT. Source: www.zf.ro Romania: ROMSTAL to Invest in a New Production Centre ROMSTAL Group, one of the leading players in the Romanian sanitary ware market, will invest 30 million in a new VALROM production centre located in Topoloveni, in the Arges county. The new VALROM factory which will specialise in the production of tubes and fittings from thermoplastic materials, will open at the beginning of 2009. Investment will be spread over three years with the factory becoming fully operational in 2012. The company intends to double the production capacity of the VALROM and VALPLAST companies within the next two or three years. Source: www.zf.ro 7
UAE: ARTE CASA Opens Largest Showroom in Abu Dhabi ARTE CASA is owned by the leading local corporate management company, HS Group, and specialises in the world's finest sanitary ware, faucets, bathroom accessories, hot tubs, spas; whirlpools, tiles, mosaic and antique marbles. 'Feel the difference' is the company slogan and the majority of ARTE CASA's clients are private villa owners, hotels and other up market real estate projects which expect quality products and excellent customer service. The company supplies luxury products, often on an exclusive basis, from the world's most reputable brands such as JACCUZI, PAINI, ALTHEA, MARNIER and VIROSTONE to name a few. Hamed Bin Suhail Al Ketbe, Chairman of HS Group, said at the event: "Abu Dhabi, and the UAE, is developing at a rapid pace and the real estate sector is leading the way up the development path. ARTE CASA provides premium products aimed at meeting the requirements of real estate developers, villa owners, tenants of commercial and residential towers and anyone else requiring sanitary ware and bathroom accessories. We have taken a major step in the development of the company by opening this, the largest showroom of its kind in the capital." Source: The Middle East and North Africa Business Report 8
UK: Environment Minister gives Thumbs Up to Label Scheme The Water Efficient Product Labelling Scheme launched by the Bathroom Manufacturers Association (BMA) continues to receive impressive accolades from key stakeholders. Commenting on the Scheme, the new Minister of State for the Environment Phil Woolas says: I am delighted by the BMA's initiative. It is very important that customers are aware of the ways to save water. Labelling on energy efficient products already informs customer choices on products such as fridges and freezers. This recent announcement by the BMA is a very welcome development, which will begin to extend customer choice not only for householders but for developers and installers. It will also help more generally to raise awareness about the importance of treating water as a valuable resource.' The BMA launched its Water Efficient Product Labelling Scheme earlier this year in response to the DCLG/Defra 'Water Efficiency in New Buildings Consultation Document', which was released in December 2006 indicating that the Government wants to reduce water consumption per person per day from 150 litres to 120 litres. The Scheme is voluntary and open to all companies that manufacture or sell water efficient products in the UK provided they meet the Scheme's criteria. Initially, the Scheme covers WC suites, independent flushing cisterns, taps and combination tap assemblies, shower controls and baths. It is envisaged that once established, the Scheme could be extended to cover other products and components that encourage the efficient use of water. The Scheme aims to help both trade and consumers easily identify water efficient products that when installed and used correctly use less water. The Scheme website at http://www.water-efficiencylabel.org.uk provides a plethora of information supporting the Scheme, including the criteria for qualification, database of more than 200 registered products, practical water saving tips and hints and all registration documentation. Source: The KBZINE 9
UK: Big Increase in Larger Showers BRG Consult Newsletter Recent statistics from IDEAL BATHROOMS - the national distributor of branded bathroom products - have revealed a surge in the large showers sector of the market. Over the last year they have seen an increase in large shower sales of over 400%. IDEAL BATHROOMS Managing Director, Martin Carroll attributes this to a trend in the top-end market towards improving the showering experience with more space and high spec showering systems, in many cases replacing one of the baths in the home. According to Carroll: "Corner baths, once the bathroom 'must have', are no longer fashionable and many are being replaced by larger showers because the space is already available for a larger enclosure without rearranging the configuration of the bathroom. Walk-ins are also a significant part of this growth, including facilities for the elderly and disabled." Source: The KBZINE USA: MASCO Reports Results for the Third Quarter 2007 MASCO Corporation's net sales from continuing operations declined 7%, with North American sales down by 11% and international sales up by 13%. In local currencies, International sales increased 5% compared with the third quarter of 2006. Key retailer sales from continuing operations decreased 1% in the 2007 third quarter compared with an increase of 2% in the 2007 second quarter and a decline of 2% in the 2007 first quarter. International sales were strong, particularly for plumbing products, due to stronger European economies, market share gains and the favourable effect of currency translation. Sales changes by segment in the third quarter of 2007 versus the third quarter of 2006 were: - Cabinets and Related Products sales declined 11% - Plumbing Products sales increased 4% - Installation and Other Services sales declined 15% - Decorative Architectural Products sales increased 2% - Other Speciality Products sales declined 13%. Net income in the third quarter of 2007 was $205 million compared to net income of $252 million in the third quarter of 2006. Source: The KBZINE 10
Monthly Special: The Austrian Bathroom Products Market Background information The territory of the Austrian Republic extends 294 km north to south and 573 km east to west. With a surface area covering 83,859 km2, Austria is slightly smaller than Portugal or Hungary. With a resident population of 8.2 million inhabitants in 2006 and a population density of 98 inhabitants per km 2, Austria may not be regarded as a densely populated country in comparison with other European countries. Thanks to its strategic position right in the centre of Europe, and due to historical reasons, Austria makes the link between western Europe and central and eastern Europe. Austria has common borders with Germany, Switzerland, Liechtenstein, Italy, Slovenia, Hungary, Slovakia and the Czech Republic. Administratively, Austria is divided into 9 administrative regions (Bundeslander). In 2006, the Austrian economy performed well with an above EU average GDP growth of 3.4%, the highest growth rate since 2000. According to the OECD, growth is likely to gradually slow down to around 3.2% during the course of 2007 which is believed to have some negative effects on sales of bathroom products. This is however likely to be partly offset by growing private consumption expected in 2007 and particularly in 2008. Construction trends in 2006 Overall, new housing construction developed positively with a 5% growth. This was mainly driven by positive economic developments in Austria as well as growing personal incomes resulting in the population having greater purchasing power. For 2007 and 2008, the growth rates are however forecast to be 3.5% and 2.5% respectively. It is estimated that 42,500 new dwellings were completed in 2006, 36.5% of which were dwellings in 1-2 family houses and 63.5% in blocks of flats. A further increase in housing completions is forecast in 2007 (43,000 dwellings). Austrian specific According to a pan-european study, Austria is the country in Europe where people spend the largest amount of money on equipping and furnishing their bathrooms. According to the industry, one of the reasons is that the bathroom industry as a whole, in co-operation with wholesalers and installers, has done its best from the very beginning to promote bathroom products and turn the bathroom into a room to live in. Austria is also the country with the highest number of showrooms (Badausstellungen) per capita. For sanitary products alone, there are about 800 showrooms in Austria, and many installers have their own showroom. Overall Bathroom Products Markets Overall, the Austrian bathroom products market grew by an estimated 1.4% in volume terms to reach a total of 2.3 million pieces. In terms of value, on the other hand, the increase was slightly lower at some 1.15% ( 184.4 million compared to 182.3 million in 2005). 11
All product groups recorded sales growth in 2006, although the major drivers came from sales of baths and shower wall products, growing by 3% and 2% respectively. At the other end of the spectrum were hydrotherapy products and ceramic sanitary ware with only marginal growth of less than 1%. In the baths market, there was a sudden resurgence of steel baths, but there are signs that this was only a temporary development and synthetic baths are most likely to be the main driver in the future. Sales of steel shower trays on the other hand declined and only marginal growth is forecast for the next five years. If you wish to receive more information on the developments in the Austria bathroom products market in 2006, please email brg@brgconsult.com or call +44 1227 766 810. Source: BRG CONSULT 12