JSE-listed tile manufacturer Italtile has reported a 0.6% year-on-year increase in revenue to R11.3-billion for the financial year ended June 30, while trading profit decreased by 10.4% year-on-year to R1.8-billion, owing to subdued demand, rising input costs and aggressive competition.

Basic earnings per share (EPS) decreased by 10% to 113.1c a share and basic headline earnings per share (HEPS) decreased by 9.4% to 113.4c a share.

However, Italtile continued to generate strong cash flow and kept cash balances resilient despite R201-million in share buybacks and higher capital expenditure during the year, as well as R1.8-billion in dividend payments.

The company declared a total ordinary dividend of 45c a share for the year. Owing to its strong cash generation and cash reserves exceeding operational requirements, it also declared a special dividend of 25c a share.

Operating costs for the financial year under review increased by 1.2% to R2-billion and efficiency gains and productivity improvements were insufficient to offset all underlying cost increases.

During the year under review, the company focused on working capital management. It also improved stock turns and reduced consolidated inventory by 2.9% to R1.2-billion.

The company also did substantial work to optimise product mix and range, it says.

Further, capital expenditure for the year was R443-million, up from R234-million in the prior financial year, with investment targeting enhancements to the retail property portfolio and factory upgrade projects to enhance production capacity in the tile manufacturing business.

“Italtile delivered a stable performance across most business units, with revenue, margins and profits broadly maintained despite a very challenging operating environment,” says Italtile CEO Brandon Wood.

Its ceramic industries business unit was the exception, which placed pressure on the group's results. Intense competition in tile manufacturing persisted, as global and regional overcapacity continued to drive overstocking and dumping in South Africa, he adds.

Ceramic's sales decreased by 1.1% in a competitive market. Margins remained under pressure, both from deflationary pricing and strong growth in energy-related costs.

The tile adhesive industry likewise saw growth in producers offering inferior, low-priced products. Its tile adhesive company Ezee Tile's revenue was stable, with a modest 0.5% increase. Margins and profitability were affected by rising demand for entry-level products.

In its retail division, revenue reported by CTM, Italtile Retail and TopT increased by 0.4% to R7.7-billion.

Retail margins increased by 0.5% owing to stronger retail execution, including improved purchasing and range construction for imported products, exchange rate benefits and implementation of price-laddering across its product range.

Sales in the integrated import supply chain businesses declined by 6.4%. However, exchange rate gains and improved buying delivered margin improvements that more than offset the decline.

Further, Italtile's webstores performed well, with increased traffic and sales that were underpinned by improved, innovative digital content and a personalised sales experience.

Additionally, its AI projects are expected to strengthen Italtile's competitiveness in customer service, logistics and inventory management, says Wood.

Italtile also welcomes the provisional antidumping duties on ceramic and porcelain wall and floor tiles, introduced by the International Trade Administration Commission of South Africa in July.

“The duties should bring relief, once imported stock already in the country has worked through the market. The risk of circumvention remains a factor that should be closely monitored. We will continue to engage with the authorities to find a lasting solution to the dumping challenge,” he says.

Meanwhile, Italtile remains confident in the long-term attractiveness of its sector through the cycle. Although the current macroenvironment does not support rapid topline growth, the company remains focused on the factors within its control, namely maintaining lean, efficient, cost-competitive and flexible operations.

“We will continue to focus on improving yields, increasing productivity, reducing waste and costs, providing an exceptional customer experience and competing sustainably,” says Wood.