Tuesday, 10 March 2009 02:00

Ceramic Industries earnings down 18.3%

Ceramic Industries reported an 18.3% decline in headline earnings per share to 376.1 cents for the six months ended January from 460.2 cents a year ago.

Construction IndustrySouth African tile and sanitary ware manufacturer Ceramic Industries (CRM) on Tuesday reported an 18.3% decline in headline earnings per share to 376.1 cents for the six months ended January from 460.2 cents a year ago.

An interim dividend of 110 cents per share was declared.

Revenue was 2.8% higher at R720.8 million, while operating profit was 17.6% lower at R92.8 million.

The group said the trading environment remained difficult for the period, in line with expectations, as demand slowed and consumers continued to rein in discretionary spending.

Although government continued its water, sanitation and housing infrastructure projects, there were indications of reduced activity ahead of the national elections to be held in April. As a result, demand for tiles and sanitary ware declined year on year.

International tile and sanitaryware factories have cut back on production capacity in reaction to the global economic slowdown.

While this lowered the risks associated with a global oversupply of tiles and sanitaryware, inventory levels across the industry are high, placing additional pressure on pricing in the local market and limiting Ceramic Industries' ability to recoup increased input costs.

The group said while the South African tile factories delivered a solid performance given the current environment, margins were negatively affected as cost pressure persisted and efficiencies were reduced by lower volumes.

The slowdown in government infrastructure spend had a more pronounced affect on the sanitaryware division which produced disappointing results.

The group's overall performance was also affected by a poor performance from the Australian factory, Centaurus.

Tile revenue improved by 6.3% to R609.8 million, but tile sales volumes declined by 2.8% in line with reduced demand.

The group, however, successfully increased overall selling prices by 5.3%. Reported sanitaryware revenue of R111 million was down 12.7%, reflecting the adverse market conditions.

Cash flow from operations declined by 26.7% to R136.5 million in line with lower profitability.

Looking ahead, Ceramic Industries said although interest rates are expected to continue easing in the second half of the financial year, discretionary spending will remain under pressure with subdued demand in the new housing market.

In addition, the group anticipates that the slower activity levels in the government's infrastructure and housing and sanitation programmes will persist for at least the next six months.

Although the demand for tiles has slowed, the group has demonstrated its ability to manufacture fashionable tiles and improve service levels and is positioned to continue benefitting from import substitution with a high quality and competitively priced offering.

The focus remains on optimising internal efficiencies at the lower current production levels to dampen the effects of ongoing cost inflation, it said.

The factories in the group's sanitaryware division are starting to overcome their internal challenges, although there remains much to be achieved. Betta and Sphinx will continue to focus on improving internal efficiencies to ensure their competitiveness.

Based on current market demand levels, the bath factory remains a challenge. In order to utilise excess production capacity, the division has also developed a new strategy to accelerate exports to Europe and the United Kingdom.

Ceramic Industries has invested over R450 million of internally generated funds in additional production capacity over the last few years. No additional investments will be made in the immediate future, and the group is well positioned to take advantage of any increase in consumer demand.

Although the outlook remains uncertain, Ceramic Industries' well-established factories, its strong balance sheet and broad customer base should enable it to continue generating acceptable results, it concluded.

Source: I-Net Bridge

 

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