Ceramic to remain profitable in spite of bad global outlook
March 11, 2009
By Tom Robbins
Tile and sanitaryware maker Ceramic Industries had a "bleak" economic outlook, but nevertheless expected to remain profitable "over the next year or two", Nick Booth, the chief executive, said on tuesday.
Booth announced that net profit in the first half to January 2008 was down 18.3 percent to R65 million, as sales volumes fell.
He said Ceramic's biggest rivals in Spain, Italy and China had slashed tile production. About 75 percent had been turned off in Spain and 60 percent in Italy. This had prevented a glut, but was not enough to prevent supply exceeding demand.
Ceramic said that in spite of weaker demand the firm was well-positioned to continue enjoying the relative benefit of import substitution as South African retailers switched to locally made tiles, while the rand remained weak.
Ceramic had trimmed stock after previously being caught overstocked and "got the debtors book under control", Booth said. "We don't expect to shoot the lights out but will stay sound."
The company maintained its dividend policy but cut the rand amount of the payment in line with its lower earnings.
South African sanitaryware market volume fell by 20-30-30 percent as not only consumers but also the government had stayed away from spending on low-cost housing, said Booth.
Since the ANC's Polokwane conference in December 2007 housing officials had been wary to commit to spending, preferring to wait and see "who the new boss is".
Booth did not question the ANC government's long-term commitment to maintain low-cost housing delivery, noting that spending on infrastructure was now part of a stimulus package to counter falling economic growth. He expected spending to resume after the April 22 election.
Housing Minister Lindiwe Sisulu had done "a wonderful" job and Booth hoped she would continue in her post.
Despite the fall in the sanitaryware market Ceramic volume sales dropped by less at 13.7 percent, indicating that the company had more than held its own.
Tile volumes were down 2.8 percent to 17.2 million square metres but tile production was down by more as the manufacturer sold out of stores after being previously caught overstocked.
At its biggest factory, Pegasus, one in four kilns was mothballed and production had dropped 13.6 percent to 6.1 million square metres. Sales volumes declined by only 6.2 percent as it sold out of stockpiles.
With tile supply exceeding demand the firm struggled to fully pass on higher input costs to customers. Tile revenue was up 6.3 percent to R610 million.
Group revenue increased 2.8 percent to R721 million.
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