Raw materials: faster-moving stock in Italy

This article broadly compares the figures in the sector in Italy and Spain with the same degree of update for 2023, taking data from the latest Top Tiles Italy & World 2024 and Top Tiles Spain 2024 studies. 

The Income Statement of Italian Enterprises
The Italian sample consists of 47 enterprises. These financial statements show a substantial consolidation of sales, slightly below the value for the previous year: 2676 million, compared to 2687 million in 2022. The items in the vertical income statement show a similar consolidation of EBITDA, considered as a percentage of production value. This first result has been obtained with an increase in added value, which, however, was neutralised by higher employee remuneration. The incidence of EBITDA on the value produced decreased from 11.73% to 11.69%, while added value increased from 23.06% to 24.35%.  A similar trend to EBITDA, but with a slightly more significant decrease, due to higher depreciation and amortisation, can be observed in the EBIT margin. The share of financial income, which contributes almost 3.5% to the result, remained high and actually increased, but only a few larger companies contributed to this. This bright picture was dulled by write-downs, which practically doubled from 32 to 79 million, thus eroding net profit in the income statement, which still closed well, although down from 8.66% to 7.38%, again with respect to the value produced. 

The income statement of Spanish companies
In Spain, there was a change in the situation, starting with turnover. The sample considered in this analysis, consisting of 17 companies active in the ceramic materials business, is more than one-third smaller in size than the Italian sample, with a turnover of approximately 676 million, and sales were down sharply from the previous year, by 9.9%.  The next items of the vertical income statement show a trend similar to that observed in Italy, with an increase in added value, but here, unlike in the Italian companies, only the relative incidence of revenues increased, while the absolute value decreased. Thus, personnel costs increased and EBITDA reached a very similar percentage incidence to the previous year: 8.65% versus 8.97%. Depreciation and amortisation increased to a small extent, and the incidence of EBIT on revenue fell by about half a percentage point.  In contrast to the situation for Italian companies, financial income fell by 8 percentage points in last year's analysis (we mentioned that there was probably a significant extraordinary component unlikely to be repeated). After this, however, no devaluation was evident. In the end, the profit closing the income statement more than halved, from a splendid 14.29% of the value produced to 6.8%, about 0.6% less than the value recorded by Italian companies. 

Comparison of the financial situation in Italy and Spain 
Both sectors made material investments, in Italy for about 4.7% of the turnover, and in Spain for 3.92% (shown in the light blue rectangle between the two sections of the pie charts on the sector sheets).  The financial position, illustrated in the lower pie charts, shows net debt (the red part) only for Italian companies, but the percentage on turnover decreased there from 12.8% to 4.1%, and thus is of minimal relevance. Another figure that shows the strength of a company's financial base is capitalisation. Both sectors demonstrate a stable financial structure, but this time Spain, with its almost 78% of equity (visible in the upper part of liabilities in the sector sheet) on total assets far exceeds Italy, with a nonetheless excellent 51.5%. Both samples of companies show a negative aggregate financial cycle (bottom right of the sector sheet), in the sense that on average, amounts are collected from customers only after payments have been made to suppliers, and we know that this misalignment tends to cause a decrease in liquidity or, failing that, an increase in financial debt. The lag between collection from customers and payment to suppliers is 29 days for Italian companies and 43 days for Spanish companies. In addition, Italian companies turn stock around eight times a year compared to four times for Spanish companies. Free cash flow from operations increased in Italy from 8.75% to 14.44% in relation to revenues, while in Spain it fell from 16.95% to 8.18% (fourth to last row at the bottom of the sector sheet).  
If we then look at the graph showing financial structure, on page 4 of the PDF of the complete report for the two divisions, we can see that both are very sound: in Italy, equity of about €152 is required to invoice €100, the figure for Spain is about €137 for every 100 invoiced.  It is clear that the less capital required to invoice, the better the return on capital. In addition to this, the two main differences that immediately appear evident from the rectangular graph illustrating financial structure are, for Spain, a greater incidence of equity (first green rectangle on the right) and a greater incidence of stock (orange rectangle on the left band).  

Stock market multipliers
In this analysis, we also calculated the value of equity and the value of the business formed by the aggregate considered. This allows us to show multiples similar to those used for companies listed on stock exchanges. One of the most commonly used indicators in share transactions is the multiplier that relates Enterprise Value to EBITDA, usually indicated as EV/EBITDA. If we read the second page of the two reports that complete the analyses of the two sectors considered here, we can see that this multiplier has very similar values in the two aggregates, x 11.8 for Italy and x 12.6 for Spain. That is, on the basis of the financial statement values, and as yet unconfirmed, of course, if we apply the valuation formulas used in our annual Top Tiles study, it appears that the companies considered here could, on average, start, in a sale/purchase negotiation, from a value of around 11~12 times their EBITDA. The situation would obviously differ for each company, but this average figure may serve as at least a point of reference to start reasoning and negotiations. If we were well versed in the subject and wanted to delve a little deeper into the analysis from which the multiple highlighted above derives, we could note, on the last page of the reports, that the aggregate operating value of the two divisions, i.e. the value deriving from the quality of the operating results and not from the assets held, is undoubtedly better in Italy, where it accounts for 32% of the value of investments, while in Spain it accounts for just 19.6% of the value of investments (line beginning with number 2 divided by line beginning with number 1).

Raing Analysis
Let us conclude by ideally summarising the economic and financial characteristics of the two industrial sectors in two rating values assessed using the S&P scale, but with calculations we have simplified: here, the two sectors are both at the highest level of reliability, evidenced by the AAA+ acronym of our pseudo S&P rating (visible by scanning the QR code at the bottom right of the sector sheets). There is certainly no real reliability risk in these sectors viewed as a whole, as if they were a single company. Clearly, this situation does not, a priori, absolve all the individual component companies, for which the degree of risk always remains to be determined, just as it is difficult to detect individual out-of-tune voices during the performance of a choir without examining them one by one.