Torremocha del Jarama. España

Consolidated net revenues are equal to revenues, excluding taxes, on sales of the Group’s products and services, as well as transportation costs and customs duties that are invoiced to customers, net of rebates, discounts, returns and intragroup sales.

The countries and regions where the Group operates have different demand trends, primarily as a result of local economic conditions, which affect the renovation and construction markets. The choice of flooring solutions in each market is influenced by local lifestyles, end-user tastes, climate and the condition of existing flooring, among other factors.

The Group estimates that the large majority of its revenues for the financial years under review were generated by renovation projects. The construction of new housing and commercial buildings represented a small percentage of revenues during this period.

Organic revenue growth—growth due to increases in sales volumes and prices, excluding the effects of changes in scope of consolidation and exchange rates—depends mainly on the following factors:

• The Group’s competitive advantage in its principal markets, which in turn depends primarily on its ability to offer a wide range of residential products that satisfy consumer trends and tastes in each country; its offer of commercial products that comply with the specifications of renovation projects and applicable regulatory standards; maintaining close relationships with customers, such as distributors and DIY stores and specifiers, such as architects and installers; the quality of the Group’s products and services; and the competitiveness of its prices.

• The growth potential and structure of each of the Group’s markets. For example, demand in the Russian residential market and in other CIS countries results from the large volume of residential flooring in need of renovation, as well as a consumer preference for vinyl flooring due to its durability and lower cost. In the European Union, demand for the Group’s products is mostly concentrated within the northern countries (Scandinavia, Germany and the United Kingdom), with consumers in the southern countries tending to prefer ceramic floors. In addition, in North America and Europe, public spending policies have a significant impact on the commercial flooring market in public hospitals, schools and universities, as well as on the Sports Surfaces market.

• The Group’s product promotion strategy in each market. In certain markets, the Group concentrates its sales efforts on products with high added-value and strong margins, while in other markets it may pursue a volume-maximizing strategy in order to gain or retain market share.

• Economic conditions more generally, as buyers tend to carry out renovation and construction projects during periods of economic growth.

9.1.2.2 Cost of Sales

The Group’s cost of sales is composed primarily of variable costs, due to the large effect of the cost of raw materials, and, to a lesser extent, transportation and logistics costs. The primary components of cost of sales include the following:

• Raw materials used in the Group’s manufacturing processes. The Group primarily uses PVC and plasticizers, the cost of which is related in part to the price of crude oil.

Wood is another raw material that the Group uses. In 2013, approximately 45% of the Group’s raw material expenses related to PVC (approximately 34% for PVC paste and approximately 11% for PVC suspension), 25% related to plasticizers, 13% related to wood, 8% related to fiberglass, 3% related to packaging and 5% related to other raw materials. For a discussion of recent trends in the prices of raw materials used by the Group, see Section 6.1.8, “Raw Materials and Suppliers”.

• Labor costs, consisting principally of salaries and benefits of production personnel.

These costs vary depending on the number of employees and average level of salaries and benefits. In order to control labor costs, the Group uses temporary workers in certain factories to handle the seasonality of certain of its activities. Excluding the acquisition of Tandus, which has a slightly different cost structure from the rest of the Group, labor costs remained stable as a percentage of net sales between 2012 and 2013.

• Transportation and logistics costs, which depend on fuel prices and the Group’s operational efficiency (including, for example, its ability to ship products in fully loaded trucks, the location of production sites and their distance from the points of delivery to final customers).

• Other costs, including energy costs such as electricity and gas, maintenance costs associated with the Group’s various factories and depreciation and amortization of production and logistics assets.

Purchases of raw materials and similar products, labor costs and transportation and logistics costs represented 61.4%, 14.1% and 9.9%, respectively, of the Group’s 2013 cost of sales.

Five years ago the Group launched its WCM program, whose main objectives are the following:

• reinforcing quality and customer service;

• reducing work-related accidents and the impact of the Group’s operations on the environment; and

• improving the productivity and performance of the Group’s production sites.

The success of this program depends on systematically applying best practices at the Group’s 30 production sites, actively managing purchases (particularly PVC and plasticizer purchases) and optimizing the Group’s raw material supply chain. The Group believes that this program has enabled it to achieve a cross-fertilization strategy and realize cumulative savings of €165 million over the 2010-2013 period (more than 2% of cost of sales each year).

9.1.2.3 Selling, General and Administrative Expenses

Selling expenses include compensation of the Group’s sales force, advertising and marketing costs and the cost of providing samples to customers and decision-makers such as architects and installation companies. The level of selling expenses is tied in part to the number of product or collection launches, which require specific sales efforts.

General and administrative expenses include administrative personnel costs at the Central and division levels, which are managed through a decentralized model. Expenses relating to the management of information systems as well as amortization and depreciation of related investments are also included in administrative expenses.

9.1.2.4 Research and Development Expenses

Innovation is critical to the Group’s success, ensuring product quality, compliance with regulatory standards and reduced environmental impact. The Group seeks to maintain the highest

level of excellence while controlling Research and Development costs, which are small as compared with other operational expenses. These costs include compensation of Research and Development personnel as well as amortization and depreciation of patent-related expenses.

Research and Development expenses represented 1.0% of consolidated net revenues in 2013, only a small portion of these costs remaining capitalized on the Group’s balance sheet.

9.1.2.5 Net Finance Costs

Net finance costs include interest expense due on borrowings, interest income on investments of cash balances, discounting charges relating to retirement commitments, and gains and losses on financial and hedging instruments, to the extent recognized in the Group’s income statement.

9.1.2.6 Income Tax Expense

Income tax expense includes corporate income taxes payable by the Group’s entities, as well as withholding taxes on dividends paid (in particular, dividends paid by the Group’s Russian and Serbian entities), as well as changes in the deferred tax assets on the Group’s balance sheet.