The components industry in Spain grew
alongside the automotive industry, and from the beginning, it was developed by non-Spanish
companies. Whilst Spain was a protected market, the established assembly operations –
Renault, Peugeot, Citroën and Fiat – encouraged their own suppliers to set up plants
there in order to supply locally made components. Since the freeing of the market, more
manufacturers have come in and they too have encouraged their suppliers to invest heavily
in the Spanish industry. Politically they wanted suppliers in Spain so that they could
increase the local content proportion, but the economic advantages of close proximity and
low labour costs were just as important. An established supplier producing components of a
guaranteed quality could export these to other European plants operated by the assembler.
The industry is now going through a time of
change on Spain, just as it is elsewhere. The same trends that are affecting the world
industry are affecting the Spanish industry. When Spain began to attract the international
components industry it had, by European standards, very low labour costs. Now those costs
are much closer to the European norm and, since 1990, Spain has had to accept competition
from Eastern Europe as a choice for investment in new manufacturing facilities. It is
still a relatively cheap location compared with Germany or France, but it no longer has
the clear advantage that it could once boast about.
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In order to assess the performance of the
components industry in Spain, the published accounts of 150 companies have been aggregated
and performance ratios calculated. It cannot claim to be a complete picture of the
industry, because published accounts do not always give a true picture of international
subsidiaries. Also, many of the private groups are not included, but it is probably the
most complete analysis that has been made.
Operating profit margins, the profit made
on standard operations, are very poor, though they do seem to be improving. The improved
margins are due solely to efforts to cut costs because prices paid for components have
fallen consistently over the period. This is not just temporary, prices will continue to
fall and the component manufacturers will need to reduce their costs per unit of output on
a continuing basis. The final profit margin after other income and financial expenses have
been taken into account is even worse than operating profits, with negative figures from
1993 to 1995 and only a negligible profit in 1996. Provisional figures for 1997 indicate
that the industry might be slipping into a loss again.
The asset utilisation ratio, which is
calculated by dividing total sales by total assets shows how well the industry uses its
assets. This is low for a capital intensive industry, but it has improved consistently
over the period under review, indicating that the industry is using its assets more
productively.
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By GlobalData| Table 1 Spain – components industry performance ratios |
|||||
| 1993 | 1994 | 1995 | 1996 | 1997 | |
| Operating profit margin % | -5.30 | 0.07 | 1.80 | 3.00 | 1.80 |
| Profit before tax margin % | -11.10 | -1.20 | -0.20 | 1.30 | -1.20 |
| Asset utilisation | 1.10 | 1.20 | 1.40 | 1.60 | 1.70 |
| Return on total assets % | -6.00 | 0.09 | 2.60 | 4.70 | + |
| Stock turnover (days) | 36.00 | 30.00 | 33.00 | 27.00 | na |
| Collection period (days) | 10.00 | 12.00 | 11.00 | 14.00 | na |
| Credit period (days) | 64.00 | 69.00 | 65.00 | 64.00 | na |
| Gearing % | na | 187.00 | 108.00 | 83.00 | na |
| Source: 150 company accounts |
(analysis: |
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Return on total assets, or ROTA, is an
overall measure of how well the assets are being used to generate operating profits and is
derived by dividing operating profits by total assets. This too is poor for an industry
(by comparison the tyre industry has a ROTA of about 7 per cent), but again it has
improved significantly from the very poor position in 1993 and 1994.Stock turnover is a
key figure for the components industry as it is an area where many of the productivity
improvement programmes have been focused and where such management concepts as JIT, TQM
and re-engineering are put into effect. JIT delivery of stocks, lower levels of rework and
more efficient manufacturing layouts should all contribute to a reduction in the amount of
stock held in proportion to sales. The record of the Spanish industry over this period is
reasonably good. Although stock turnover has not gone down every year, the general
downward trend is clear.
The collection period and the creditor
period, both measured in days, are a further indication of an industry’s efficiency, but
in this case it is financial efficiency. The collection period measures how long it takes
the component manufacturers to collect their money from their customers, the OEMs. In
general they are paid very promptly, but the period does seem to be getting longer. The
other side of the coin is the credit period, how long it takes the manufacturers to pay
their own suppliers. Here there seems to be no change; they take well over two months on
average to pay. The financial structure of the industry is important, as it shows how
soundly based it is. However, as many of the companies in the calculation are subsidiaries
of much larger international firms, they do not necessarily have to abide by conventional
guidelines. The gearing ratio examines the amount of debt a company has in relation to the
amount of capital it has provided by its shareholders. This ratio has come down
significantly over the period, and the industry appears to be quite low in gearing. This
could be deceptive, however, as some of the debt burden could be assumed by parent
companies outside Spain.
The interest cover measures the number of
times a company’s profit can pay the interest charge on money borrowed. A figure of less
than 1 shows that the company is unable to cover the interest from the current year’s
profits. Banks would normally prefer to see this ratio comfortably above 2. On this
criterion the industry would seem to be in a very difficult position, but again, because
so many of the companies are subsidiaries of larger international groups, the debt
payments are usually guaranteed by the parent company.
Overall the financial picture of the
industry in Spain shown by these figures is not encouraging. The industry is profitable,
but only just, and it would not demonstrate an attractive prospect to an outside investor.
However, it is becoming more efficient in its operations and the way it uses its assets.
Unfortunately, because of the nature of the automotive industry, it cannot rest on its
laurels; it will have to continue becoming more efficient.
