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[September 2009]
Ceramic Industries Ltd Reports on Full Year
South Africa’s major industrial group Ceramic Industries Ltd has reported preliminary financial results for the year ended 31 July 2009. Commenting on the operating environment, it said that the South African tile and sanitaryware markets experienced severe pressure over the reporting period as consumers curtailed spend and public sector programmes were delayed. Negative consumer sentiment and reduced consumer discretionary spend caused by the sustained economic downturn served to curb new build and renovations in the domestic market. It added that as yet the positive impact of successive interest rate cuts had not filtered through.
Difficult trading conditions led to a decrease in production volumes and thus increased unit costs and margin pressure in a competitive environment. The group succeeded in gaining modest market share in both the tile and sanitaryware sectors. Despite this, group revenue decreased by 2% to R1.4402 billion (2008: R1.4696 billion) as a result of declining demand. Revenue from tiles declined by 0.4% to R1.2183 billion (2008: R1.2227 billion).
An average selling price increase of 8% partially offset the impact of reduced sales volumes, which decreased 8% from 36.3 million m2 to 33.4 million m2. Sanitaryware revenue declined by 10% to R221.9 million (2008: R246.9 million), whilst sales volumes of sanitaryware and baths declined 15% from 1.437 million pieces to 1.224 million pieces. Average prices increased by 6%.
Group operating profit declined by 18% to R206.6 million (2008: R251.3 million). Operating profit from tiles decreased 19% from R237.1 million to R193.1 million, while the operating profit from the sanitaryware division was reduced by 6% to R13.4 million (2008: R14.2 million).
Given constrained demand and high opening stock levels, capacity utilisation across the group’s factories was reduced on average by approximately 20%. Tile production declined by 7.5 million m2 (19%), while sanitaryware production decreased by 290,000 pieces (19%). This trend, exacerbated by increased input costs, had a negative impact on profit margins.
Operating profit was further affected by a R49.3 million once-off non-cash IFRS 2 charge resulting from the conclusion of the group’s black economic empowerment (BEE) equity ownership transaction. Operating profit after the BEE expense declined by 37% to R157.2 million (2008: R251.3 million).
Commenting on prospects for the future, Ceramic Industries said that the timing of a meaningful economic recovery was uncertain and that the group believed that trading conditions would remain challenging over the next year. The increased market share should allow for an improvement in production volumes in the coming year. This in turn should have a positive impact on unit costs and thus a potential to improve margins. The group’s balance sheet is strong, with no further capital expenditure planned for expansion in the foreseeable future.
Cash flow and inventory management are evident in the results and will remain a priority. Ceramic Industries has identified areas for improvement and opportunity. Management’s commitment to capitalising on these, together with the sound state of the business, positions the group well to manage prevailing conditions and capture opportunities as the economy recovers.
ENDS