Roca 2005

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Memoria Anual 2005

Annual Report 2005

01 Presentation 4

02 Most significant data 8

Turnover 10

Results 12

Shareholders’ equity 12

03 Key facts 14

04 Corporate policies 22

Brand value 23

Environment 24

Innovation and design 26

Human resources 28

Technology, a key competitive factor 30

05 Annual accounts 32

Consolidated profit and loss account for the financial year 33

Consolidated balance sheet at 31 December 34

06 Throughout the world 36

00 Contents

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01 PresentationIn previous financial years, we had already stated through communiqués, declarations and

in the annual report itself, that the Group had designed a strategic plan for the medium

term. The years that have followed the last major transaction of 1999 –the acquisition of

Keramik Laufen– have been characterised by fundamentally organic growth, and by a deter-

mined policy of investment in production, innovation and design, sales networks, etc., in

all cases carried out using the company’s own resources. All of this was considered part of

a preparatory phase for what was to come. We were aware that in order to grow and com-

pete, consolidating our position in key markets and organising the Group domestically

would both be necessary.

2005 has been a financial year of major significance for the Roca Group, so much so that

we believe that it needs to be interpreted on two levels. In the first place, the review of the

year in terms of the operational behaviour of the business, and secondly, the analysis of the

future consequences of selling the heating division and the shareholdings in the air condi-

tioning business for the future of the Group.

In 2005, Roca continued to grow with a net turnover of 1,169 million euros and, even more

significantly, the biggest increase occurred in the sanitary ware sector (9.1% over 2004).

EBITDA remains in line with previous financial years, at 306 million euros, while operating

profits reveal percentages of sustained profitability.

As far as markets are concerned, it is worth noting the excellent progress of sales in virtually

all regions, especially China, Russia, Brazil, Argentina, Turkey and the European Union.

As for investment, true to its corporate policy, the Roca Corporation has reinvested profits

and performed exceptionally well. In 2005, 187 million euros were allocated to moderni-

sing facilities and increasing industrial capacity. This figure is twice that of the previous

year and is the biggest investment in the company’s history.

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We spoke at the beginning of an important year and, without doubt, this has been a year of

major achievements. With the sale of the heating and air conditioning businesses, we believe

that we are able to say that Roca Corporación Empresarial has gone from participating in

something it does well to concentrating on what it knows how to do best.

Most global economic analysts and indicators reiterate that globalisation is not only a reality

with effects that can be measured, but also a growing and irreversible process. In the last quar-

ter of a century, political stability, technological development, communications and low salary

costs have given rise to the emergence of highly competitive industrial powers that have made

world trade more dynamic and have revolutionised markets, particularly in more developed

countries, given that they are the principal importers. In the last decade, other countries have

successfully started to produce competitively, although we agree with the view that with the

entry of Russia, Brazil, China and India, we are witnessing a change in the model. As well as

intervening strongly with their huge production capacity, they are adding to the global economy

huge markets that are experiencing rapid growth. In fact, the success of their economies pro-

vides employment to tens of millions of people who have progressively seen their incomes rise

and who have now become consumers of goods and services that were not previously deman-

ded. In spite of the rise in petrol prices –largely due to the increase in the demand of these

new powers– year after year the macroeconomic figures speak for themselves and no one would

dare predict a change in this trend.

The emerging markets are seen as a great opportunity, which has led to major industrial groups

making sure they are present and advantageously positioned in such markets for the future.

However, the paradox is that in an increasingly more open economy we also find, in practice,

In 2005, 187 million euros were allocated to modernising

facilities and increasing industrial capacity.

This figure is twice that of the previous year and is the biggest

investment in the company’s history.

certain barriers to entry. In many cases, participating successfully in the global economy –that

great opportunity– requires an increasingly larger critical mass in order to meet the challen-

ges of systematic innovation and competitiveness successfully. For some time now, in many

sectors we have been witnessing mergers and acquisitions on an almost daily basis. Our sec-

tor is no exception.

The competitive strategy of the Roca Corporation involves concentrating maximum potential

into a single force, which in turn has two dimensions: the international aspect and leadership

in the sanitary ware business. Specialisation will take us to another level. As experts, we have

attained the position of leader and as such, we are pioneers and have developed our own

know-how, which allows us to take on projects with ambition and confidence.

The Group’s prestige, the results of its dependability, enterprising spirit and management

capacity, is now recognised in many areas of the world. This has allowed us to sign favoura-

ble distribution agreements in new markets, be the preferred choice of final customers and

professional experts, establish alliances with strategic partners and maintain institutional rela-

tionships of trust, given our role as employment creators and wealth generators.

As we progress, our business model must constantly be able to adapt to new, varied and chan-

ging scenarios. The international logic of the business and the key role played by the Group

also demands a major accumulation of talent, or intellectual capital. We have demonstrated

that we are able to manage structural change efficiently; we must now incorporate a new skill

in the organisation: the ability to change continuously.

We are convinced that the Group’s future lies in its ability to manage the sum of its energies,

talent and resources in a dynamic way. Therefore, the strategic decisions taken during 2005

have given the Roca Corporation a different profile, which we believe to be better.

Today we are more solvent, we have adopted a clear strategy and we are developing an extraor-

dinary team. We are aware that major growth opportunities remain both in markets with great

potential –India, Brazil, Russia and China– and in other regions of strategic interest where we

intend to improve our position –Eastern Europe, the Balkans and Turkey. Whether through new

acquisitions or through agreements with strategic partners (joint ventures), we must be able to

take advantage of these opportunities. In 2006, as a leading global operator and with the sup-

port of our shareholders, we are ready to continue taking on highly ambitious projects.

Roca Corporación Empresarial, S.A.

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02 Most significant dataThe Group financial data for 2005 were influenced by the sale of the heating and air conditio-

ning businesses. In spite of the impact this has had on turnover and cash flow, the Group has

once again managed to exceed the turnover of the previous financial year.

The most relevant data from the 2005 financial year are:

Consolidated turnover rose to 1,669 million euros, 0.3% up over the previous financial year.

Consolidated EBITDA –which reflects operating profit prior to financial results, corporate taxes,

depreciation and amortisation– totalled 306 million euros.

Consolidated cash flow was 302 million euros, eight million euros more than in the 2004

financial year.

The consolidated net profit –after taxes– totalled 188 million euros.

The Group’s capital and reserves increased by 203 million euros compared to the previous year,

totalling 1,166 million euros at the end of the 2005 financial year.

Investments in tangible fixed assets totalled 187 million euros, the highest investment in the

Group’s history, a figure almost twice the levels of the two preceding years. Such strong growth

was due to investment in new plants (Russia and China) and the enlargement and improvement

of existing ones (Czech Republic, Poland, China, Brazil and Portugal).

TOTAL TURNOVER 2001-2005

02.1 Turnover

Group turnover totalled 1,669 million euros, which represents a slight increase of 0.3% over

the previous year and establishes a new historic record. This figure was achieved despite the

sale of the heating business (July 2005) and the air conditioning business (December 2005),

which contributed a total turnover of 172 million euros (129 in Spain) during this financial

year. In 2004, turnover for both businesses totalled 279 million euros (204 in Spain).

If we eliminate the heating and air conditioning businesses from the consolidated turnover for

2004 and 2005, the turnover for the business in which the Group remains active (sanitary

ware and ceramic tiles) grew by 8.1% compared to 2004. This increase is mainly due to a

strong construction market in Spain and to growth in external activity, particularly in the bath-

room business, and in the Russian, Czech, Turkish, Argentinean, Brazilian and Chinese mar-

kets and, to a lesser degree, those of other European countries.

Rising values in various currencies compared to the euro, in particular the Brazilian real, the

Czech crown and the Polish zloty, have contributed to an increase of 1.6% in the Group’s tur-

nover. In recent years, the Group has suffered a negative impact from converting the turnover

figures for subsidiaries that operate in other currencies into euros, particularly in 2004 (-1.1%)

and in 2003 (-3.7%).

2001 2002 2003 2004 2005

Spain 748 782 793 847 812

Foreign markets 846 820 771 817 857

Total 1,594 1,602 1,564 1,664 1,669

(in millions of euros)

Sales in the Spanish market fell by 4.1% during 2005, a drop caused entirely by the sale of the

heating and air conditioning businesses. In the businesses in which the Group remains active

(sanitary ware and ceramic tiles), sales increased in the Spanish market during 2005 by 6.3%,

a figure similar to the 7% recorded in the previous year.

Sales in foreign markets grew by 4.9% during 2005. In the businesses in which the Group remains

active (sanitary ware and ceramic tiles), sales outside of Spain during 2005 increased by 9.7%, a

much higher increase than that achieved during the previous year, which was 6.4%.

SHARE BY REGIONS IN 2005 (SANITARY WARE+TILES)

Europe: 78.4%

Asia & Pacific: 4.6%Africa: 1.7%

America: 15.3%

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02.2 Results

2003 2004 2005

Net sales 1,564 1,664 1,669

EBITDA 278 308 306

Cash flow 262 294 302

Net profit 97 125 188

(in millions of euros)

During 2005, EBITDA rose to 306 million euros, which represents 18.3% of net sales, levels simi-

lar to those of the previous year.

Cash flow totalled 302 million euros, which represents a growth of 2.5% compared to the previous

year and accounts for 18.1% of net sales.

The consolidated profit and loss account for the financial year reflects some extraordinary results,

totalling 110 million euros compared to the 2 million euro figure for 2004. This increase is basically

due to the result of selling the heating and air conditioning businesses.

Net profit rose to 188 million euros and its increase over the previous year is essentially explained by

the extraordinary result referred to in the previous paragraph, less the corresponding corporate tax.

02.3 Shareholders’ equity

2003 2004 2005

Shareholders’ equity 850 963 1,166

Net debt 23 114 301

(in millions of euros)

The net financial situation reflects the balances of temporary financial investments, banks and

savings institutions, net of short and long term financial debt.

The sale of the heating and air conditioning businesses have placed the Group in an excellent finan-

cial situation to take on strategic growth plans that focus on the businesses related to sanitary ware.

All of this has been possible thanks to the continued policy of reinvesting the profits obtained, eit-

her in enlargements and improvements to existing facilities, or growth projects through joint ven-

tures or acquisitions of other companies.

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TOTAL TURNOVER 2003-2005

EVOLUTION. 2003-2005

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03 Key factsy

In 2005, Roca presented its new visual corporate identity, which

modernises its image throughout the world. The design manages to

convey the current dynamism of the Group and its leading position

in design and technology, without relinquishing the past heritage of

the brand. Visually, these concepts are expressed in the underlining

of the logo, which combines a flexible, dynamic element with a firm,

consolidated one. This new visual image replaces the historic logo

that had identified Roca for more than 80 years and had become a

sanitary ware symbol around the world. The Group has invested nine

million euros in the implementation of the logo in the 80-plus mar-

kets where it is present.

03.1 Roca modernises its logo

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03.2 The Norway series, at the forefront of design in ceramic tiles

With the presentation of the Norway ceramic wood series, Roca Cerámica has placed itself at the

cutting edge of trends in the sector, which point towards minimalism, the combination of mate-

rials and the development of more stylised designs. This series is presented as an efficient

option for taking the aesthetic of wood into humid and high-transit environments, where it is not

possible to adopt natural solutions. Its extensive chromatic diversity also permits combinations

with metal and stone, something not possible until now. The Norway series was one of the stars

at the Roca Cerámica stand at the CERSAIE trade fair held in Bologna (Italy), the most impor-

tant for the sector on an international scale.

03.3 Second Roca production centre in China

In order to handle the growing demand experienced in the Asian market, Roca has opened a

second production centre in China. This production plant is located in the city of Suzhou, near

Shanghai, and includes a cast-iron bathtub plant and an acrylic bathtub plant. The facilities also

include a logistics centre, converted into a distribution base for the Group’s products in the eas-

tern region of China. The official opening of the new production plant was attended by the

Minister for Industry, Tourism and Trade of the Spanish government, José Montilla, who com-

mented in his speech that Roca had managed to consolidate its position as a “fine-quality

brand” in China.

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03.4 Palomba Collection, a top winner

Just a few weeks following its launch, the new series of washbasins, the Laufen Palomba

Collection, received two prestigious design awards: the Design Plus Prize and the Red Dot

Award. Designed by the team made up of Roberto and Ludovico Palomba, this collection seeks

a contrast between geometric forms and organic lines.

03.5 Record investment in production

As part of the strategic plan to focus on its sanitary ware business, in 2005 the Group inves-

ted 187 million euros, principally in projects to refurbish its plants throughout the world and

in the opening of new production plants. Highlighted among these was the inauguration of

the Group’s new vitreous china sanitary ware production plant in Tosno (Russia).

Furthermore, operations got underway at the facilities in China and production capacity was

increased at the vitreous china sanitary ware production plants in Gliwice (Poland) and

Recife (Brazil), and the steel bathtub production plant in Cortes (Navarre, Spain). In addi-

tion to this, a tap assembly unit was installed in Settat (Morocco) as was an automated vitre-

ous china production unit in Alcalá de Henares (Madrid, Spain).

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03.6 Roca Cerámica, committed to environmental excellence

The European Community has recognised the ecological awareness and envi-

ronmental commitment of Roca Cerámica with the ECOLABEL award. This

certification, which is voluntary, is granted in accordance with stringent cri-

teria and assures the consumer that the product will have a minimal impact

on the environment throughout its life cycle. Roca Cerámica also launched

its new website (www.rocatile.com), which contains a constantly updated

catalogue of the brand’s series and includes specific sections for industry

professionals.

03.7 Frontalis, a full line of sanitary ware bearingthe Moneo signature

Roca and the architects Belén and Rafael Moneo presented the new Frontalis

series, made up of elements that blend into the intimate setting of the bathroom

through a continuation of lines inspired by the natural flow of water. This idea is

adapted to all sanitary ware elements: washbasins, bathtub, toilet, bidet, shower

tray, taps and vitreous china fittings. The Frontalis series was launched at the

Mies van der Rohe pavilion in Barcelona, where the elements of the series blen-

ded in with architectural surroundings.

03.8 Roca supports the Expo Zaragoza 2008 commitment to water and sustainable development

Roca has signed a collaboration agreement with the International Exhibition of

Zaragoza 2008, through which the Group will become one of the main sponsors

of this international event. Roca has particular regard for Expo Zaragoza’s com-

mitment to water and sustainable development, concepts which will underpin the

development of the project. In addition to its cooperation in publicising the Expo

2008 event around the world, Roca will also equip all the bathrooms in the exhi-

bition buildings with taps, sanitary fittings and other items that uses the latest

water-saving technology.

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03.9 Laufen launches the Form range

“Less is more” was one of the principles of the Bauhaus school, with which it

expressed a liking for functionality and an absence of ornamentation. Laufen

applies this concept to the world of sanitary ware with the new Form range, deve-

loped in collaboration with the German studio, Phoenix Design, which proposes

an open and harmonious space as an invitation to relax. The Swiss brand, part of

the Roca Group since 1999, has invested a total of 1.7 million euros this year in

the design and development of new products.

03.10 “At last Laufen”: Laufen is launched in Spain

The top-of-the-range Laufen sanitary ware collections have arrived to Spain

through Roca. Based on the offerings of the world’s most prestigious designers,

Laufen presents an exclusive sanitary ware concept, in which each item is trea-

ted as a work of art. At the time of its launch in Spain, Laufen marketed three

unique collections: Il Bagno Alessi, a Mediterranean line based on rounded lines

and designed by Stefano Giovannoni (Alessi studio), MyLife, which seeks well-

ness through simple and comfortable objects, and Living, made up of four com-

pletely different styles (Well, Country, Loft and Style). Laufen’s vitreous china

sanitary ware products are complemented in Spain by the Roca tap ranges Silver

Crown, Touch and Moai.

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03.11 Madrid: the new bathroom experience in Casa Decor

Roca presented two unique visions of the bathroom in its participation at the Casa Decor 2005

events held in Madrid and Barcelona. Under the title Roca Mon Amour, Roca and the interior

designer Pepe Leal exhibited in Madrid a space inspired by the world of cinema in which the

bathroom becomes the focal point of the home, with areas for personal care, rest and body wors-

hip. The Feel Good! proposal, presented in Barcelona by Roca and the interior designer Fernando

Salas, opted for the bathroom as a place for relaxation, using a combination of elements from

the new Frontalis series with Roca Cerámica's Norway flooring and coverings.

03.12 Showroom openings

In recent years, the Roca Group has undertaken major investments in opening showrooms, which

allow the creation of unique environments using the Group’s product lines. During 2005, the

possibilities of these locations have been fully utilised to display the latest innovations launched

onto the market. The Group has showrooms in the four continents where it is present, the most

noteworthy being the road show in Switzerland and the new showrooms in Beijing and

Guangzhou (China), Austria (Sky Gallery), Prague and Casablanca (Morocco), the latter with a

surface area of 700 m2, located in the central Al Massira boulevard. What is more, Roca Bulgaria

has acquired the historic Magazin Sofia building, located in the downtown area of the Bulgarian

capital, in order to house a showroom with training and design centres.

03.13 Consolidation of global leadership

In the first few months of 2006, the Roca Group announced a series of acquisitions that have

strengthened its global leadership in the sanitary ware business. The Roca Corporation has

reached an agreement to acquire two production plants in Croatia and Romania, in order to

meet the demand of Eastern European countries. It has also acquired a 100% shareholding

in the Johnson Suisse Group, the leader in vitreous china sanitary ware in Malaysia, and 50%

in the Indian company Parryware.

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04 Corporate policies04.1 Brand value

The Roca Corporation’s consolidation as leader in the sanitary ware business has further contri-

buted to consideration and awareness of the role played by the Roca brand and the importance

of the values it transmits to its various audiences.

Roca is present in, and sometimes a key figure of, the everyday lives of millions of citizens all

over the world: from Group employees and collaborators to experts, opinion leaders, partners, dis-

tributors and final consumers. The Roca brand is a common reference and a meeting point for

all of them, and, as such, also an efficient means of conveying ideas and proposals of value.

During this period of extraordinary growth, the Group continues to take on the responsibility of

managing the values it represents in different social, cultural and financial settings.

Based on the expertise accumulated over many years, it has managed to perfect a practical and

flexible system of managing the Group’s corporate image. The aim is to facilitate the perception

of the tangible benefits of the product and, increasingly, to enrich the intangible elements that

make Roca the preferred brand within its sector.

Millions of families use Roca products because they are synonymous with reliability. In some

cases, they allow consumers to access a better quality of life and prosperity, in others, they are

a symbol of distinction and status. At the same time, the Roca brand stands for progress, well-

ness, innovation, design and awareness.

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04.2 Environment

During the 1960s, Roca was a pioneer in reducing water tank capacity and in the pre-

sentation of tap products that regulated energy consumption. These initial actions,

which arose before the threat of climatic change, have in recent years become efforts

that are vital to prevent compromising the environmental resources of today’s society

and that of future generations. As a leader in the sanitary ware sector, the Roca Group

assumes its responsibility and has made water saving an inseparable part of its busi-

ness practice.

The desire to conserve the environment is present in the everyday activities of the

Group’s production plants, on the basis of the strictest possible sustainable develop-

ment criteria. The demanding standards of the global management model applied by

the Group throughout the world also allow it to go well beyond the requirements

demanded by the legislation in each country. For example, in production plants it uses

energy-saving measures such as transforming residual heat into electricity or using

recycled materials in the manufacture of cast-iron products.

However, the Group’s commitment goes beyond this and even includes encouraging

responsible consumption among consumers, based on various aspects. On the one

hand, the development of products that provide maximum water and energy savings in

their everyday use. This involves subtle and simple solutions, such as the inclusion of

consumption limiters, smaller-capacity water tanks or the unique applications in the

innovative Wellness line, in which durable and recyclable materials are used.

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On the other hand, the Group has taken the initiative by promoting water saving through

campaigns targeting consumers and through its involvement in events of the calibre of

Expo Zaragoza 2008. An exclusive sponsor within its sector, Roca will publicise the prin-

ciples of sustainability being proposed by the international exhibition and remind consu-

mers that in many countries sensible management of water resources, together with the

spreading of hygienic habits, can save thousands of lives every year.

Awards such as the European ECOLABEL certification, obtained by Roca Cerámica in

2005, recognise the excellent work the Group continues to undertake in the field of envi-

ronmental protection. In spite of the progress made in this area, the Group’s willingness

to innovate obliges it to review the actions carried out in its production processes on a

continual basis and to continue working towards incorporating the culture of water and

energy savings in the everyday habits of its customers.

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04.3 Innovation and design

The world of design is currently experiencing its own particular revolution, influenced

by consumer demand for functionality, technology and respect for the environment.

To these concepts we must also add, within the bathroom environment, the increased

tendency to consider the bathroom as a private location where tranquillity and well-

ness are of primary importance.

Along with a desire to identify and cater to the preferences of consumers, the Roca

Group also considers it necessary to offer versatile products in keeping with the habits

of the different markets in which it operates. The company has met this challenge by

restructuring its design department and creating the new Roca Design Center, based

in Gavá (Barcelona), which became operative during the 2005 financial year.

This initiative includes the creation of an Innovation Lab, dedicated to multicul-

tural and multidisciplinary research on design trends in various spheres, in order

to apply them to new generations of Group products. The Roca Design Center also

coordinates the search for the most prestigious technology suppliers throughout

the world, in order to integrate technology into its new projects in a transparent,

efficient and subtle manner.

Simultaneous work in the fields of taps, vitreous china, furniture, bathtubs and well-

ness products (hydrosauna, hydromassage, etc.) makes it possible to offer a series of

products with an integrated design and to present unique environments. With this in

mind, the Group collaborates with prestigious architects and interior designers throug-

hout the world, who contribute with their own vision and enrich the work of the com-

pany’s design centres.

Major investment in the new Roca Design Center, whose workforce continues to grow

steadily, began in 2005 with the acquisition of 3D printers and state-of-the-art machi-

ning facilities. The renewal of technological resources speeds up the development of

new products and meets the logistic requirements of all the Group’s brands.

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04.4 Human resources

The Group’s rapid expansion and the strategic decisions taken during 2005 have had a major

impact on the management of human resources. It marks the end of an intense year in which

two objectives have been tackled: on the one hand, helping to accelerate the processes of chan-

ge, and on the other, maintaining and extending the corporate culture and coherence of its

human resources policy.

The programme of acquisitions and investments throughout the world –as far as HR is concer-

ned– makes it necessary to manage efficiently, taking both qualitative and quantitative aspects

into account. Thus, whenever the Group acquires a company in another country, its mission con-

sists of incorporating professionals from different social and cultural backgrounds, with diverse

work habits and business cultures, into the organisation. Furthermore, we try to carry out inte-

gration processes in a gradual manner; however, on occasions we have to incorporate major con-

tingents of collaborators in companies, whose collective agreements and organisations systems

have to adapt in a very short period of time.

For the sake of efficiency, the management of human resources adopts a pragmatic approach.

The Group has a dynamic improvement model based on respect and maintaining whatever works

well, changing only what is necessary, while at the same time identifying processes that are

managed optimally in the various units, businesses or regions, and incorporating these into the

collective pool of knowledge.

Although it adheres to totally international management logic, human resources policy depends

to a great extent on the local environment as far as legislation, uses and customs are concerned.

In fact, Roca Corporation is a company of major industrial capacity that manufactures in the

local environment of the markets in which it sells. Over 40 production plants distributed throug-

hout the world bear testimony to the reality of local operators. The proportion of collaborators

assigned to production (plants) is higher than that of employees carrying out sales and mana-

gement tasks. The involvement of Roca usually improves actual working conditions, particularly

in manufacturing, through the incorporation of state-of-the-art technology and more efficient,

more ergonomic systems.

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Thanks to a solid corporate culture we have succeeded in maintaining coherence in an ever-

changing environment. What is known as the Roca “work style” is an idea that expresses the

desire for a modern team, which is able to remain up-to-date and adapt, and which is quick to

detect problems and come up with solutions. In order to achieve this, dialogue with all Group

employees is necessary in order to know their concerns, aspirations and needs. This constant

exchange of ideas allows us to develop training programmes that focus on specific needs and

remains fundamental to the development of the Group’s human and intellectual capital.

Among other actions, we have developed a training tool aimed at the managerial level of pro-

duction centres in order to focus employees on the same objective: continual improvement,

based on shared knowledge. This training and motivational programme is currently undertaken

in 10 of the Group’s work locations: Galatea, in Santa Margarida i els Monjos (Barcelona); Vasco

de Gamma, in Leiria (Portugal); Hespérides, in Alcalá de Guadaira (Seville); Penyagolosa, in Vall

d’Uixó (Castellón); Pigmalión, in Gavá (Barcelona); Orippo, in Dos Hermanas (Seville); Lusitania,

in Anadia (Portugal); Kronos, in Campo Largo (Brazil); Nereu, in Sao Mateus do Sul (Brazil) and

La Caravane in Settat (Morocco).

With the same intention, outdoor training sessions have been organised for the employees of

various Group centres. This open air training is a novel alternative to purely academic training

and can increase motivation and promote leadership attitudes.

The desire to share knowledge also led to the first Vitreous China Manufacturing Meeting, held

in Barcelona, which analysed the results of tours made by a group of experts from our organisa-

tion to 24 vitreous china sanitary ware production plants of the Group, in order to analyse the

best practices of each plant. This event was attended by 61 participants from the senior mana-

gement levels at the various plants involved.

The number of employees participating in Roca’s in-house training programmes continues to rise

year after year: in 2005, almost 12,000 employees received more than 120,000 hours of trai-

ning. These programmes cover aspects relating to human and technical resources, sales, admi-

nistration, language courses, health and safety at work and risk prevention. During this financial

year, it is worth noting that close to 8,000 employees received training at plants on the American

continent, a perfect example of the Group’s desire to establish a common work system throug-

hout the world, with quality standards that meet the most demanding expectations on all levels.

The renewed outlook proposed by the Group involves counting on the trust of all its employees,

who must feel a fundamental part of the company’s progress. Each one of them is responsible

for one or various processes and is the executor –to a greater or lesser degree– of a shared know-

ledge that makes the Group competitive and different. During a period of exceptional growth, we

have to be aware of the challenge to remain an organisation with its own corporate culture. We

continue to being committed to efficiency and the creation of value, which has been the funda-

mental identifying characteristic of Roca and has to remain so in the future.

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04.5 Technology, a key competitive factor

During the 2005 financial year, the Roca Group has taken decisive steps towards the appli-

cation of technology to various stages of the production process. At present, the ambitious

plan to open new production plants, and to enlarge and improve existing ones, can only be

approached from a perspective of innovative excellence. The aim is to develop more pre-

cise work systems that provide a response to the immediate demands the market imposes,

while maintaining the high quality that has put the Group in a leading position in the sani-

tary ware business.

In recent years, the commitment to invest 2% of turnover in R+D+i has made it possible

to maintain maximum autonomy, expressed in the development and perfecting of in-house

technological solutions. In 2005, this autonomy had to be approached from two perspec-

tives: the progressive automation of production lines and identification of the best proces-

ses through collaboration with all Group production plants.

In the first place, investment in state-of-the-art technology has automated processes to

levels difficult to imagine only a few years ago. The best example is the automation of the

casting of toilets at the Group’s production plants in Spain and Portugal, or the facilities

at Wilhelmsburg (Austria) for pressure-casting large items. Such advances have made it

possible to increase productivity, guarantee uniform quality in all items and improve the

working conditions of employees.

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Applying the most appropriate and technologically advanced methods has allowed us to dou-

ble production capacity in the plants of Gliwice (Poland) and Anadia (Portugal). The new Group

plants in Tosno (Russia) and Suzhou (China) are based on top-notch technological specifica-

tions, making them the most advanced production plants in the world for vitreous china sani-

tary ware, and the manufacture of acrylic and cast-iron bathtubs respectively.

On the other hand, we have implemented a research programme of the best practices in

the Group’s various vitreous china sanitary ware production plants, which has enabled us

to share knowledge and reflect upon the most efficient work systems. The result is the cre-

ation of a Technology Department, designed to continue perfecting the integral process of

developing and producing new products, with a mission to keep Roca at the cutting edge

of industrial and technological capacity.

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05 Annual accountsINCOME (EXPENSES) 2005 2004NET SALES 1,669,162 1,663,527

Purchase of materials, trade goods and services (661,138) (685,250)

Personnel costs (355,444) (348,304)

Depreciation (87,638) (84,177)

Other operating expenses (370,884) (335,119)

OPERATING PROFIT 194,058 210,677

FINANCIAL RESULTS (2,698) (12,553)

Amortisation of goodwill on consolidation (17,105) (20,783)

Share of profits in companies consolidated by the equity method 2,096 4,772

RESULTS BEFORE EXTRAORDINARY ITEMS 176,351 182,113

EXTRAORDINARY RESULTS 109,661 2,498

CONSOLIDATED PROFITS BEFORE TAXES 286,012 184,611

Income tax (98,207) (59,166)

CONSOLIDATED RESULT FOR THE FINANCIAL YEAR 187,805 125,445

Minority interests (5) 217

NET PROFIT ATTRIBUTABLE TO GROUP 187,810 125,228

(in thousands of euros)

05.1 Consolidated profit and loss account for the financial year

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05.2 Consolidated balance sheet at 31 December

ASSETS 2005 2004

FIXED ASSETS

Start-up costs 528 928

Intangible fixed assets 17,127 14,416

Tangible fixed assets 601,149 500,350

Financial fixed assets 29,484 28,717

TOTAL FIXED ASSETS 648,288 544,411

GOODWILL ON CONSOLIDATION 19,821 36,893

DEFERRED EXPENSES 3,514 24

CURRENT ASSETS

Stock on hand 270,057 284,182

Accounts receivable 390,976 470,761

Short-term financial investments 337,269 264,504

Liquid funds and marketable securities 19,128 46,284

Prepaid expenses 2,907 1,700

TOTAL CURRENT ASSETS 1,020,337 1,067,431

TOTAL ASSETS 1,691,960 1,648,759

(in thousands of euros)

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LIABILITIES 2005 2004

SHAREHOLDERS’ EQUITY

Share capital 155,530 155,530

Share premium 409,564 409,564

Reserves 436,466 329,675

Conversion differences (11,987) (47,918)

Net profit for the period 187,810 125,228

Prepaid dividend (10,987) (8,790)

TOTAL SHAREHOLDERS’ EQUITY 1,166,396 963,289

MINORITY INTERESTS 647 1,272

DEFERRED INCOME 5,579 7,951

LONG-TERM PROVISIONS 44,068 34,096

LONG-TERM LIABILITIES

Long-term bank debt 7,409 83,867

Other long-term liabilities 18,578 16,962

TOTAL LONG-TERM LIABILITIES 25,987 100,829

CURRENT LIABILITIES

Short-term bank debt 48,142 113,254

Trade accounts payable 254,864 324,607

Other payables and short-term provisions 144,908 102,298

Accrued expenses 1,369 1,163

TOTAL CURRENT LIABILITIES 449,283 541,322

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 1,691,960 1,648,759

(in thousands of euros)

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06 Throughout the worldThe vision and support of shareholders, the financial solvency and the know-how, both industrial

and commercial, which the Group continues to accumulate opens the way to many possibilities

throughout the world. The model of international management, with which the different cultural

and social realities have offered such excellent results, allows us to guide future strategic move-

ments towards consolidating the specific weight of Roca in emerging economies and in markets

with a higher potential for growth. In the so-called BRIC countries (Brazil, Russia, India and

China), the Group is already operative and continues to grow with notable success. The challenge

is to continue managing the growth in the local environment without losing sight of the whole.

The Group model is based on global planning with a practical application in local markets. This

system of coordinated management allows all Group units to benefit from the highest standards

of technological capacity, respect for the environment and work quality. The organisation has

been designed to favour the exchange of knowledge in order to identify the best practices and

maintain a level of excellence in all major processes.

Much of the success of this model, beyond industrial management, lies in the coherence and

extension of corporate culture, seen as the ability to make a relevant and credible message reach

all kinds of audiences. Roca has managed to convey loyalty and trust to its partners and distri-

butors; to its employees, the capacity to progress and future opportunities; to industry experts,

leading products, both in terms of design and technology; and to consumers, wellness and qua-

lity of life. Throughout the world, the Roca brand continues to enhance its image as a sound

business endeavour with strong leadership before institutions and opinion leaders, which con-

tributes added value and facilitates the operations of the company.

Roca can proudly affirm that its name is a reference for progress and value, in numerous lan-

guages and for millions of citizens throughout the world.

List of companies

LOCATION COMPANY

Argentina Buenos Aires Roca Argentina, S.A.

Austria Wilhelmsburg Laufen Austria AG

Brazil Campo Largo-Paraná Incepa Revestimentos Cerâmicos Ltda.

Sao Paulo Roca Brasil Ltda.

Bulgaria Kaspichan Roca Bulgaria AD

China Shanghai Roca Sanitaryware Trading Co, Ltd.

Foshan Roca Sanitaryware (Foshan), Ltd.

Suzhou Roca Sanitaryware (Suzhou) Co, Ltd.

Czech Republic Prague Laufen CZ, s.r.o.

France Paris Roca S.A.R.L.

Germany Staudt Roca GMBH Laufen GmbH

Greece Athens Roca Hellas, A.E.E.

Hong Kong Hong Kong Laufen Asia Ltd.

Italy Milan Roca S.R.L.

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39

Morocco Settat Roca Maroc, S.A.

Netherlands Eindhoven Laufen Benelux B.V.

Poland Gliwice ZWS Silesia, Sp. z.o.o.

Roca Polska, Sp. z.o.o.

Gryfice Pool-Spa Sp. z.o.o.

Portugal Leiria Roca Cerãmica e Comércio, S.A.

Anadia Sanitana, S.A.

Cantanhede Roca Torneiras, Lda.

Agueda BLB – Indústrias Metalúrgicas, S.A.

Russian Federation Tosno ooo Roca Santekhnika

Spain Barcelona Roca Corporación Empresarial, S.A.

Switzerland Laufen Keramik Holding AG

Keramik Holding AG

Turkey Çan-Çanakkale Kalevit Roca Saniter Seramik Sanayi, A.S.

United Kingdom Birmingham Roca, Ltd.

U.S.A. East Sparta, Ohio Roca Tiles-USA

June 2006

Avda. Diagonal 513

08029 Barcelona, Spain

Tel. (+34) 93 366 12 00

[email protected]