Ceramic cat Vases
SA's Biggest Manufacturer Of Wall And Flooring Tiles, Ceramic Industries, Is Delaying Its Decision To invest R500 Million Into A New Tile Factory Until It Can Convert Its Old Order Mining Rights To New Order Rights.
SA's biggest maker of wall and flooring tiles, Ceramic Industries, is delaying its call to invest R500 million into a new tile factory till it can convert its old order mining rights to new order rights.This manufacturer has export in some Europe's nations like Bosnia and Herzegovina,mostly ceramic tiles or in Bosnian keramicke plocice.
The mining rights are for clay, an essential raw material in the construction of tiles, but by itself, a debatable commodity that generates small interest among miners. The company applied to convert the rights in 2008.
Without a secured supply of an essential raw material the company can't commit to an investment of that scale, announces BOSS Nick Booth.
Ceramic Industries reported lower than predicted profitability in its results to July. Higher electricity and gas costs, climbing costs of commodities like zirconium and borax which are used in the production of glazes, and competition from inexpensive imports were cited as reasons for the poor earnings.
Group revenue reduced 3,4% to R1,5 billion from R1,6 bn. in the year under review. But net profits dropped 23% to R192 million from R250m last year. Headline earnings per share dropped 30,6% to 785,3c from 1 131,3c per share.
Making tiles is an energy intensive business, and the spiraling cost of electricity, and more particularly gas, is making itself felt. "The energy cost per unit (m) has risen from R1,50 20 months back, to R3,60 currently." The cost of commodities used in the making of tile and ceramic glazes rose by twenty percent to 25 percent in the past year.
But other costs, such as upkeep and labour, came in at less than inflation. The company is in negotiations with unions regarding salary increases. The cut off point is October and Booth is optimistic that deadlock can be avoided. Though results were down overall, there were pockets of success within the group, which operates four tile factories, a sanitaryware factory and a bath factory in SA ; and a glazed porcelain factory in Australia.
Maybe most surprising was the factory that competes most with low-cost Chinese imports fared the absolute best. Pegasus, which produces tiles that sell in the R40m price bracket increased both production and sales volume, growing turnover by 4%. "We run a particularly competitive operation," asserts Booth. "Our factories are world class and we may be able to vie with the Chinese."
The year saw the company invest R130 million on gear upgrades and leading edge technology. "This is typically on high definition printers for our glazes. We intend to roll the technology into all our factories," Booth announces.
Exports to Africa grew by twenty p.c. in the past year, also helping to drive revenue in the Pegasus business. "We are exporting to all our neighbors, with good growth coming from Mozambique and Zimbab- we ; as well as further out in Angola and the DRC. This side of the business is so promising that the company is digging into the likelihood of building a factory in one of its export markets."
It was in the higher levels that Ceramic suffered the result of Chinese imports. Vitro, the factory that produces upmarket flooring tiles (upwards of R60m)
"We produce tiles made from red clay the type sometimes mined in SA. But the trend is towards white based porcelain tiles. These are imported and are becoming more and more popular. There is no technical difference, and once tiles are colored and glaz- ed, there is no tangible difference eit- her. The difference is perception.
In other divisions the company scored 1 or 2 own-goals. Samca, which produces floor tiles (R50m to R80m) fought with management changes and inefficiency. And while management had its eye off the ball so did product designers who did not keep up with trends, resulting in a loss of sales. The company had to drop its prices to win back market share.
The toilet business has been turned around, with sales volumes growing everywhere. "We lost market share and let go of our costs a bit. Costs are now in order and we have passed on the savings in order to win back market share."
To keep a tighter rein on the busi- ness, the management structure was reorganised. Booth employed the group's 2 most experienced chiefs, Lance Foxcroft and Pieter de Lange, to head up the sanitary ware and tile divisions respectively. With the daily operations now in good hands, he is actually now more able to concentrate on enterprise-wide strategy and business development.
The Australian business had a hard year, reporting production down by 26,5% and sales down by 25 percent and hardly breaking even. While the economy was slow and imports high, the majority of the Problems came down to production and commissioning issues at the factory. "We are close to a turn-around in this business. And as the sole tile manufacturer in Au- stralia we'll have a competitive advantage. We just need to be a little sharper."
Booth is positive about the coming year, and about manufacturing in SA in general. "Any maker of heavy stuff should operate in the market in which they sell the product."
He has worries about the capability of makers to create new jobs in SA but believes the business will remain practicable th- rough continued investment in capital structure. "The challenges we are facing today are different to those of a decade gone but nothing is insurmountable."
As is obvious from the one 500c special dividend announc- ed earlier this year, Ceramic is a cash generative company. Money reserves reduced to R217,7 million from R435,7 million and Ceramic's net asset price per share declined by 10,5% to seven 081c (2010 : seven 912c) as a result of the R304m special dividend narrated in May as reported tagza.com.
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