Luis Hernández (Grespania): “The problem is not the demand, but the rise in energy costs”

Luis Hernández denounces the escalation of energy prices and regrets that his group, which paid 30 million euros a year for electricity and gas, now pays 80.

The founder and president of Grespania analyzes the challenges, opportunities and threats of both the sector and his company, whose ceramic products are currently marketed in almost every country in the world.

To what extent does the rise in energy rates affect you?

It is tremendous. The price of natural gas has multiplied by six. Electric power has undergone a very similar evolution: it has multiplied its price by more than five. And this incidence in companies of our group such as Euroatomizado, which is more intensive in energy consumption, is greater. A year ago, our group could pay for energy about 30 million euros a year. If this trend continues, this can turn into an annual expense of 80 million.

Does this rise in prices threaten the stability of the sector?

For smaller companies that are in a delicate situation, this is going to be a major financial blow. It cannot be manufactured at this time at these prices. If this situation continues for a long time, the ceramic sector will be seriously threatened. There are going to be ceramic manufacturing companies that are doomed to drastic reductions in activity.

Solutions will have to be found then, what decisions can be expected from the Government?

I don’t think the government will be able to find any solution. It has already been seen that the attempts it has made to lower the price of electricity have been useless. Part of the problem – it must be recognized – is international. Another part has been unpredictability in recent times in terms of supply of energy sources. There has been a grossly misguided policy on the part of the European Union in terms of supplying natural gas. That has led us to this critical situation.

And so…

I believe that the market, as far as possible, will adjust to the situation by raising prices or by reducing production, which are always accompanied by regulatory records or contract cancellations.

And are the costs passed?

No. Apart from the brutal impact on costs, there is the impossibility for the sale prices of our products to continue that increase because, due to the signed contracts, there is a lag between the incidence of the cost and the recovery via prices.

However, and although it seems paradoxical, the sector takes off …

Yes. The problem that the sector is experiencing today is not a problem of demand, it is a problem of production costs. After the pandemic there was a strong recovery in sales and when the energy crisis hit, the sector was manufacturing at full capacity. Sales were growing 30%.

And how are Grespania’s numbers doing this year?

There is a contradiction, which supposes that the group is growing in the order of 35% in turnover and that, on the other hand, this is not accompanied by a growth in profitability due to the incidence of energy costs. The consequence is that, despite the 35% growth, we are practically going to repeat the EBITDA of 2020.

They grow in turnover compared to 2020, also compared to 2019?

As a group, we expect to close this year with a turnover of around 270 million. In 2019 it was almost 240 million. In other words, we have growth compared to 2019 and much stronger compared to 2020, in which our companies reduced production due to the pandemic and invoiced about 209 million.

And how does the rising cost of international maritime transport affect them?

The Spanish sector exports by ship to many parts of the world, but it also exports by truck to the European Union, which together is our main customer. Due to the type of quality with which we manufacture in Grespania, we have a greater incidence in Europe than the rest of the sector, but we export all over the world. There is almost no country where we are not exporting, but it is true that maritime transport has become very expensive and that this increase varies from one area to another. For example, there are destinations like the US where the cost of shipping a container has multiplied by five.

And that slows the business, of course.

There are customers who stop their purchases or delay them waiting for the freight to go down. And the incidence of freight on imports has also been important. We import raw materials from Turkey, Romania, Ukraine, etc. We import many tons of clay, feldspars, … and there the price of freight in some origins has doubled. I estimate that we have suffered around a 30% increase in the cost of importing raw materials.

What percentage of its production does Grespania export and what are its main markets today?

Grespania exports 75% of its production. Due to our type of product, which is of high quality and design, we focus more on countries with advanced economies -EU, USA and Canada-, although this does not mean that we are strong exporters in some Asian, African and South American countries.

Any geographic area of ​​special strategic interest?

What we propose is to intensify the activity in the countries where we already are. We see much more potential to grow, through proper marketing, in countries of the European Union, Japan, Korea, the United States and Canada. That is where we want to dig deeper.

The sector has undergone a process of concentration in recent years and Grespania has carried out some operations, do you now have any movement in your portfolio?

We have starred in them, but at the moment we do not see it. We trust more in internal growth and in the diversification of activities than in the acquisition of other companies that do the same as us. We are interested in diversifying in the market that we know; which does not have to be in ceramic products. Our field is the renovation of the house or the construction and, especially, everything that is coatings.

You have been creating or absorbing companies that are dedicated to the production of pasta, ceramic glazes, sheets …

Yes, but we are not looking for one hundred percent vertical integration. The companies that we have in the field of atomized powder or enamel are companies in which we as clients represent little. We acquired 75% of Euroatomizado, where we had been since its foundation with a much smaller proportion, and we also consolidated a majority in Esmaltes, where we were also shareholders, but minority.

What is Grespania doing to reduce its environmental impact?

In energy efficiency, there is a lot to do, but ceramic is dependent on natural gas as an energy source. You can reduce consumption, implement techniques such as cogeneration – we have 30 megawatts – and you can install photovoltaic energy, as we are going to do on the roof of several plants, but there is no alternative energy source to natural gas for ceramics.

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