Johannesburg - Building materials group Ceramic Industries expects full-year earnings to be down 15% to 20% as it won't be able to regain ground lost in the first half of the year owing to the economic slowdown, its CEO Nick Booth says.
His comments followed the release of the group's interim results to end-December on Tuesday. Revenue grew 2.8% to R720.8m, while operating profit fell 17.6% to R92.8m and profit for the period declined 19.1% to R64.2m. Headline earnings per share were down 18.3% to 376.1c, while basic earnings per share dropped 18.2% to 375.5c.
"Our full-year performance will be in line with our half-year results. I think earnings will be down between 15% to 20%, reason being I don't think we will recover from this downturn in the next six months," Ceramic CEO Nick Booth told Fin24.com.
Despite tile revenue improving by 6.3% to R609.8m, sales volumes declined by 2.8%, in line with reduced demand. Ceramic increased overall selling prices by 5.3%.
"If we drop prices we should move more volumes, but because of what's happening in the global economy this is not the case," said Booth.
The group manufactures tiles under the Samca brand and makes Betta sanitaryware.
Reported sanitaryware revenue of R111m represented a 12.7% decline, reflecting the adverse market conditions. Booth said: "There has been a big slowdown in tile ware [demand], which has fallen about 20%, and because sanitaryware is more dependent on new build [the building of new houses] so that has seen a 30% slowdown."
The company said in its results announcement that "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 expects slower activity levels in the government's infrastructure, housing and sanitation programmes to persist for at least six months.
"It's going to get worse. If you see what's happening in Europe, there is a massive slowdown in demand. I think during the boom times it was probably too high."
International tile and sanitaryware factories, especially in Italy, Spain and China, have cut back on production capacity in reaction to the global economic slowdown.
No jobs lost
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, it said.
Booth feels that what is happening in Europe will effectively happen in South Africa: "There will be a lag into SA."
"I think there will be more of a slowdown, like a further 10% to 15% in the general residential building and construction sector," he said.
"My feeling is that things will only start to turn in 2011. I think the government infrastructure roll-out into the housing sector will start. Right now a lot of their infrastructure spend is going into big projects for the World Cup, but after they get over that hangover, they'll move more of their spending into the housing sector.
"I think it will also take about two to three years to sort out the world economy, which is why I think 2011 will be the year things start to get better," said Booth.
But even though tough times have led to many job losses across industries, Booth said this was not the case at Ceramic.
"There have been no formal lay-offs; we did increase our temp workers but once their contract was over we never employed them full-time. In terms of our permanent staff, there have been no lay-offs. We are keeping our skills that we have built over the last five to seven years."
An interim dividend of 110c was declared, maintaining the group's dividend cover of 3.5 times.
Shortly after Tuesday noon on the JSE, Ceramic's share price was 7 339 cents, down 1.2% from Monday's close. At the same time, the JSE's all-share index was trading 1.82% higher at 18 483.18 points.
- Fin24.com