ROY CERAMICS SE: INTENDED RELOCATION OF PRODUCTION FACILITIES AFFECTS Q3 FINANCIAL RESULTS
As a result of the disposal of its two principal and operating subsidiaries in China to White Horse Holdings Limited, revenues in Q3 2015 were down to 9.7 million Euros (Q3 2014: 28.2 million Euros). In the first nine months 2015 revenues of ROY Ceramics decreased slightly by 4.5 per cent from 74.0 million Euros to 70.7 million Euros. With regard to ROY’s two product segments, the segment “Ceramics Products” accounted with revenues of 28.1 million Euros (9M 2014: 42.6 million Euros) for 39.8 per cent of total revenues. Revenues in the second segment “Non-ceramics accessories” increased significantly by 35.3 per cent to 42.6 million Euros (9M 2014: 31.5 million Euros) representing 60.2 per cent (9M 2014: 42.5 per cent) of total revenues. The very positive development in the “Non-ceramics accessories” segment reflects ROY’s strategy to shift the focus from lower margin core ceramics products to more value added non-ceramics accessories such as intelligent toilet seats with advanced automated features.
Gross profit went down by 45.7 per cent to 15.8 million Euros from January to September 2015 (9M 2014: 29.2 million Euros) representing a gross profit margin of 22.4 per cent (9M 2014: 39.4 per cent). Besides the sale of the operating subsidiaries, toughening market conditions in the PRC, which necessitated ROY to provide discounts on prices, caused the decrease in gross profit and gross profit margin. Due to the loss on disposal of subsidiaries amounting to 12.1 million Euros and the closure of the Beijing factory in the third quarter 2015, also EBIT dropped to -9.8 million Euros (9M 2014: 16.3 million Euros). Adjusted for the negative extraordinary effect of the disposal of the two operating subsidiaries, ROY’s EBIT reached 2.3 million Euros in the first nine months 2015.
Relocation of the production from China to USA
The sale of the two Chinese subsidiaries at a purchase price of USD 80.0 million which took place in October 2015 lays the foundation for the relocation of the production of ROY Ceramics from China to the USA. The buyer, White Horse Holdings Limited, has to pay the purchase price until 30 June 2016. The bulk of the payment from White Horse is expected already by 31 December 2015.
The new state-of-the-art production site will likely be relocated to Houston, Texas, because of energy, transportation, raw materials, climate, labour cost, and tax advantages. In order to sustain the production during the transition period whilst the new factory in the USA is being built, arrangements with a reputable ceramics factory in Thailand have been made to have access to OEM ceramics products manufactured according to ROY’s production and design know-how. Non-ceramics accessories will continue to be produced by ROY’s existing suppliers in Italy and China.
Adjusted full-year outlook
The planned relocation of the production will likely adversely affect ROY’s business in China in the fourth quarter of 2015: As a consequence, ROY Ceramics had to adjust downwards the full-year outlook for operating profits given in the half-year report. The Management does not expect further revenues in the fourth quarter 2015 until such time as the OEM facility in Thailand is operational. Furthermore, EBIT for Q4 might be adversely affected by the cost of moving plant and machinery from Beijing to Thailand and the USA. Thus, a net loss is expected for Q4, which is mainly driven by operational overhead costs. The ROY Group will proceed with the next step of its restructuring process when the first tranche of the funds has been received from White Horse Holdings Limited, which is expected by the end of December 2015.
About ROY Ceramics SE
ROY Ceramics is one of the 10 leading players in the Chinese sanitary ware market. The Group develops, designs, produces and markets high-end quality ceramics sanitary ware bathroom amenities and accessories. Roy Ceramics leverages on German technology and offers product quality unrivalled amongst domestic manufacturers in the PRC. The ROY brand is targeted in particular to luxury hotels, high quality houses, official and commercial buildings, property developers, retail outlets, architects and design houses. ROY Ceramics sells its products via a well-selected distribution network of self-owned flagship showrooms, franchised outlets and distributors.