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

 

Monday, 26 May 2008 02:00

Building industry heads for slowdown

ACTIVITY in the building industry is expected to slow significantly this year as residential and nonresidential property developers feel the strain of higher interest rates, inflation and electricity problems.

Construction IndustryInterest rates have gone up 4,5 percentage points since June 2006, pushing household debt costs to 11% of disposable income. This curbed consumer spending and halted a seven year rally in property prices.

With more interest rate hikes expected this year as the Reserve Bank battles to rein in inflation, analysts say the building industry is expected to weaken even further.

The sector has been experiencing a downturn since late last year, but the slowdown is said to be quite significant in the residential property development market.

Statistics SA figures released last week show building plans passed for the private sector in the first quarter were 1,7% down on the previous first quarter’s.

At the same time, residential building plans passed (half the total) fell 8,9% in a trend stemming from higher interest rates and lower property prices.

Wayne Basson, an industry analyst at international credit insurer Coface, said building plans passed for new houses levelled towards the end of last year, and were declining. This suggested a turn for the worse in building activity this year.

About 5%-8% fewer houses were expected to be built this year as developers felt the pinch of higher interest rates and building materials costs. The cost of materials such as cement and bricks rose as manufacturers tried to keep up with rising producer price inflation, which stood at 11,8% in March.

Cement sales, a key building indicator, peaked, and the growth rate fell sharply.

“It is anticipated that the number of residential buildings completed this year will decline 5%-8%. Even nonresidential building plans passed have declined, despite this sector expecting to show an upturn,” Basson said.

FNB industry analyst John Loos believes that the completions decline will be even higher than that.

“I believe that we may have a decline in completions in excess of 20% for 2008 in SA as a whole, which implies a significant further deterioration in the level of residential building activity,” said Loos.

He said electricity supply problems were also restricting the pace of new developments in some cases.

“On top of all of this, the global economic slowdown adds to prospects for slower economic growth, and thus job creation and residential demand in 2008,” he said.

Growth in the lower end of the housing market was, however, expected to remain robust as the government continued to spend substantially in a bid to reduce the housing backlog among the poor.

 

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