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Italtile profit dips slightly amid increased rivalry in sector

26th August 2024

By: Marleny Arnoldi

Deputy Editor Online

     

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JSE-listed tile manufacturer Italtile says its financial results for the year ended June 30 were impacted on by a significant change in the structure of the competitive landscape, with numerous new competitors having emerged.

The group posted a drop in trading profit from R2.3-billion in the prior financial year to R2.1-billion in the reporting year, while earnings a share decreased from 132.6c apiece in the prior year to 122.1c apiece in the year under review.

Italtile was nonetheless able to declare a total dividend a share of 127c for the year, including a special dividend of 78c apiece, compared with a total dividend of 53c having been declared in the prior financial year.

The group’s net asset value per share (NAVPS) totalled 707.5c in the year under review, marking an improvement on its net NAVPS of 641.8c in the prior year.

Italtile has 208 stores across South Africa and R1.8-billion of net cash on hand as of June 30.

Commenting on the latest set of results, CEO Lance Foxcroft said the increased competition challenge was aggravated by weak consumer demand, leading to oversupply in the market, but the group was focused on improving its competitive position and retaining its industry leadership status.

He added that the Southern African Development Community manufacturers were resorting to predatory pricing in South Africa in a bid to penetrate the market, which had intensified rivalry among retailers competing for market share in a sector where prices had persistently declined in the reporting year.

This deflationary pricing has had a severe impact on margins across the industry. Foxcroft deems it likely that this margin pressure will result in consolidation among companies and rationalisation of capacity in the market.

Another key risk for the company has been uncertainty of natural gas supply from mid-2026 as Sasol suspends supply of natural gas to customers; however, Sasol has since announced that supply will be extended to June 2027.

While this extension is welcome, Italtile says about 70% of its Ceramic business’ total energy requirements are supplied by piped natural gas and therefore securing sustainable supply of viably priced energy remains a key priority for the company.

In the event that viably priced natural gas is not available, Italtile will consider investing in and converting one production line to use coal-based synthetic gas for heating and firing and to test this technology in its process.

Meanwhile, the company continues to execute an operational excellence strategy and capitalise on opportunities in the business. It believes that modest growth in the retail division is attainable, while its manufacturing operation Ezee Tile will continue to improve profitability.

The highly competitive environment will, however, continue to be challenging for the Ceramic business.

Italtile plans to open five new TopT stores as the brand’s national footprint and sales volumes expand. It is also in the process of improving the CTM brand to perform better in the highly competitive mass-middle market.

Despite some of the challenging market conditions, Foxcroft is confident the South African housing market remains favourable with a growing culture of young people wanting to own and refurbish homes.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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