Case Roca

CASE GROUP A

International Strategy

Francisco Alcalde

Pedro Amador

Augusto Dнaz-Leante

Javier Echenique Executive MBA ESADE

Jose Luis Martнnez Feb-2003

Mar Santana Rollбn

Index Content

1 Corporate Strategy 3

2 Financial condition 3

3 Interest competitors 5

4 Core competences 6

5 Next steps 9

6 Vision, Mission, Objectives, Strategy (sanitary ware market) 11

7 Exhibits 13

1 Corporate Strategy

Althoug the three competitors (Roca, Sanitec, American Standard ) present a common goal in their strategies, there are some differences in their scope. In the case of Roca they have always been much more concerned about setting up new production abroad and purchasing already existing companies under the same brand ROCA.

On the other hand, Sanitec strategy has much to do with acquisitions and not setting up new production factories abroad. Sanitec is not a brand. It accumulates a series of leading brands that are mostly local and is continuosly working towards a more integrated organisation, taking advantages of the local differences and sinergies among complementary brands.

American Standard has made its own way through multiple mergers but keeping its brand-name products and paying special attention to a set of values provided to every employee through the world.

2 Financial condition

We have studied the consolidated financial statements of the three companies, comprising the balance sheets as of December 31, 2001 and the related statements of income and changes in financial position and equity. We have limited our analysis to the year referred in order to respect the scope of this case.

Financial highlights Helsinki Group Sanitec Group American

Standard Roca

Return on assets (ROA) -0,2% 5,8% 0,0% 9,9%

Return on equity (ROE) -18,0% 10,7% 0,0% 14,4%

Roca

Roca is the company which shows better financial position, as revelas the analysis of the different ratios shown on the graphic (exhibit 1). The solidity of its financial structure is supported by two factors:

- The high proportion of its equity (603 MM Ђ) which represents the 57% over total balance sheet and allows the company to self-finance the investment in Fixed Assets. It also remarkable to say that almost 84% of this volume comes from retained earnings from previous years, which confer the company a high degree of autonomy from its shareholders.

- Its low debt ratio (0,7) among the lowest of its sector and with a balanced proportion between short-term debt and revolving facilities, such as creditors liabilities.

These two factors have been crucial in order to undertake the expansion strategy without eroding neither the margins nor the financial solidity of the firm.

The different ratios show the CompanyÒ's operating performance remarkably higher than its two competitors; not only in terms of margins but also in terms of solvency and liquidity (cash-flows).

American Standard

American Standard presents the worst financial condition of the three of them. Mainly due to the high levels of debt, which the company has incurred in order to finance its international expansion and the recent restructuring program that also included asset impairment charges.

Related to their international expansion, some acquisitions arose a goodwill of 929 MM USA$, whose amortization has eroded the margins as can be seen in the Profit and Loss account of the company; strictly speaking, the goodwill should diminish the equity of the firm. Talking about debt, the most recent information tells us that American Standard would have refinanced several credit facilities and entered into new revolving credits agreements.

It should be stressed that American Standard has managed to recover the losses in 2.000 and earn the highest profit of the three competitors in 2.001, driven primarily by strong volume sold and the advantages of lower-cost sourcing from expanded facilities

in Mexico. This fact and the new rules on USA Financial Accounting Standards (related to Goodwill and Other Intangible Assets that will no longer be amortized) will result in higher earnings and provide enough funds to reduce the recurent debt of the firm.

Sanitec

Sanitec Group has been recently acquired by BC Partners and was delisted on 1st November 2001. Talking about its economic performance, despite the slower markets the profitability improved but at the same time, recent acqusitions have contributed to increase the net indebtedness of the firm during 2.001.

On April 2001, former investors of Sanitec sold their shares to Pool Acquistion Helsinki Oy, a company owned by BC PartnersÒ' investment funds. BC Partners advised funds are among the leading European private equity investors. Furthermore, Pool Acquisition made a public offer to all shareholders of Sanitec to acquire the entire outstanding share capital for EUR 14.60 per share. This represented a premium of 49% over the weighted average trading price of Sanitec. The merger became effective on 31 March 2002.

The acquisition has weakened the financial condition of the Group, increasing its level of debt as result of the credit facilities arranged to buy or redeem the shares from the former investors. On the other hand, the merger has caused a negative short-term impact on the earnings. To