Cheap ceramic tile imports from China and the slump in the building of new homes watered down the financial performance of listed tile and sanitaryware manufacturer Ceramic Industries in the six months to January.
Diluted headline earnings a share improved almost 2 percent to 495.7c from 486.5c despite group revenue dropping by 1 percent to R771.9m.
Operating profit fell 16.3 percent to R96.6m, compared with the previous corresponding period. The operating profit from tiles dropped 25.4 percent to R90.9m, but the sanitaryware division reversed its loss of R6.4m previously to a profit of R5.7m.
The interim dividend of 140c a share in the previous corresponding period was maintained.
Nick Booth, the chief executive, said yesterday the group’s financial performance was in line with its forecasts, adding no meaningful economic recovery had occurred in the building and construction industry.
Booth said the slow rate of new building projects continued and there was little improvement in the subdued renovations market, which the group relied on when the building cycle was down.
Booth said there was more consumption of sanitaryware when the building cycle was performing better and its Betta plant was only operating at 60 percent capacity, which meant it did not get the benefits of economies of scale.
He said the industry experienced an influx of imported product from a range of countries, particularly China, targeted at the low-priced entry-level segment of the market.
Although the group had maintained tile volumes, its margins were reduced because of the competitive market environment. Booth stressed the group was determined to maintain its market share. He added that its view was that as a South African company it must compete in the tough times and that it had done so without any retrenchments, thereby kept expertise in the country.
“The medium- to long-term view for the company is that if we are able to compete in the tough times, we are well positioned for the good times.”
Booth said the company had a number of “projects in wings” to address the cost increases, including producing slightly thinner tiles to reduce the cost of energy and considering changing formulas on glazes to reduce its dependence on industrial chemicals.
Coronation Fund Managers analyst Alistair Lea said the results were mixed because it was a weak performance by the tile division and a good recovery from the sanitaryware.
Lea said the tile division was a lot bigger than the sanitaryware division, so it was a disappointing overall result although the market did not think so because Ceramic’s share price was stable.
However, Lea said it was another impressive cash flow result from the group.
Shares shed 0.15 percent to R137.30 on the JSE yesterday. - Roy Cokayne