Italtile, manufacturer, importer and distributor of tiles, home finishing products and bathware that reported a 15% slide in interim headline earnings a share, is in a good financial position to ride out the building cycle, CEO Lance Foxcroft said yesterday.
This followed a 2% slip in system-wide turnover to R6.1 billion. Trading profit was down 17% to R1.1bn. Net cash, however, increased 76% to R1.5bn. The dividend was lowered 16% to 27 cents a share. The number of stores was the same as last year, at 214.
The group, which also has six online web stores, is vertically integrated and is supported by manufacturers, import operations and a property portfolio.
He said they expected that the building cycle would improve only once interest rates started to fall, which the group hoped would begin in the second half.
In the past six months, trading conditions were challenging. The global market for ceramic tiles was weak in many countries due to macro-economic factors, after strong growth in the post-pandemic years.
South African demand was impacted by low economic growth, with high unemployment and indebtedness, rising living costs and lower incomes in real terms.
In the building and construction sector, homeowners’ investment sentiment and spend was constrained by high interest rates and higher input cost inflation, which impacted on affordability of products, installations and new build projects.
“It is imperative that we grow volumes and optimise capacity utilisation to improve efficiencies and drive up profitability. Margin pressure is likely to intensify with increased manufacturing competition, which will reduce the ability to recover higher costs through price increases,” he said.
Margin management, improvements in productivity, particularly at the Ceramics division, and cost leadership, would remain priorities, said Foxcroft.
Competition had been intense in the past six months. Big-box retailers were rolling out stores while the number of independent stores trading in ceramic tiles grew.
In the manufacturing segment, tile producers in Zambia and Zimbabwe expanded capacity.
Excess global capacity, weak demand and lower shipping costs resulted in high levels of competitively priced imported product.
The scheduled opening of a new manufacturer in Mozambique would lead to further competition.
The group was working with a government and industry committee to seek solutions to the likelihood of no more industrial gas being available in Gauteng from Mozambique, from the middle of 2026.
He said that at this stage, it looked as if imported gas piped from the port of Maputo might be a solution, as other new sources of gas would probably take too long to develop.
The group management’s focus in the second half was to improve the execution of the sales strategy in the retail division, and remedy the shortcomings in the manufacturing division, while extracting benefits of recently commissioned large-scale capex projects, as well as efficiency improvements.
The retail stores were financially sound and the retail operation’s results were credible, falling 3% overall in the interim period, said Foxcroft.
He said they had seen declining demand from higher net income customers, while demand at TopT had picked up well at the end of the interim period, which he believed should continue.
In the past six months, the Ceramic operation’s cost base and profitability were severely affected due to softer consumer demand, and over-stocked position of many wholesalers, and increased competitive pressures.
Ceramic contributes significantly to group profits, and its 32% decline in profits had a sizeable impact on the results of the group.
BUSINESS REPORT