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SA's Largest Producer Of Wall And Floor Tiling, 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.

SA's biggest producer of wall and flooring tiles, Ceramic Industries, is delaying its call to invest R500 million into a new tile factory until it can convert its old order mining rights to new order rights.This manufacturer has export in some Europe's states like Bosnia and Herzegovina,mostly ceramic tiles or in Bosnian keramicke plocice.

The mining rights are for clay, a vital raw material in the creation of tiles, but by itself, a questionable commodity that generates small interest among miners. The company applied to convert the rights in 2008.

Without a secured supply of a necessary raw material the company cannot commit to an investment of that scale, claims CEO Nick Booth.

Ceramic Industries reported lower than expected profitability in its results to July. Higher electricity and gas costs, rising 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 revenues.

Group revenue decreased 3,4% to R1,5 billion from R1,6 bn. in the year under review. But operating profits fell 23% to R192 million from R250m last year. Headline takings per share dropped 30,6% to 785,3c from one 131,3c per share.

Making tiles is an energy radical business, and the spiraling cost of electricity, and more especially gas, is making itself felt. "The energy cost per unit (m) has risen from R1,50 twenty months back, to R3,60 currently." The cost of commodities employed in the making of tile and ceramic glazes rose by twenty percent to twenty five percent in the past year.

But other costs, such as maintenance and labour, came in at less than inflation. The company is in talks with unions referring to income increases. The deadline is October and Booth is hopeful that deadlock can be evaded. Though results were down overall, there were pockets of success in 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 cheap Chinese imports fared the very 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 very competitive operation," claims Booth. "Our factories are top flight and we may be able to compete with the Chinese."

The year saw the company invest R130 million on clobber upgrades and leading edge technology. "This is typically on hi-def printers for our glazes. We intend to roll the technology into all of our factories," Booth claims.

Exports to Africa grew by 20% 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 the company is digging into the possibility of building a factory in one of its export markets."

It was in the upper echelons that Ceramic suffered the consequence of Chinese imports. Vitro, the factory that produces upmarket flooring tiles (over R60m)

"We produce tiles made of red clay the type typically mined in SA. But the trend is toward white based porcelain tiles. These are imported and are increasing in popularity. There is no technical difference, and once tiles are coloured and glaz- ed, there's no identifiable difference eit- her. The difference is perception.

In other divisions the company scored a few own-goals. Samca, which produces floor tiling (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 stay abreast of trends, leading to a loss of sales. The company had to drop its costs to get back market share.

The toilet business has been turned around, with sales volumes growing everywhere. "We lost share of the market and let go of our costs a bit. Costs are now under control and we have passed on the savings to win back market share."

To keep a tighter rein on the busi- ness, the management structure was reorganised. Booth utilized the group's two most experienced bosses, Lance Foxcroft and Pieter de Lange, to head up the sanitary ware and tile divisions respectively. With the daily operations now in safe hands, he is now more able to target enterprise-wide technique and business development.

The Australian business had a difficult year, reporting production down by 26,5% and sales down by twenty five percent and hardly breaking even. While the economy was slow and imports high, the majority of the issues came down to production and commissioning Problems at the factory. "We are close to a turn-around in this business. And as the only tile manufacturer in Au- stralia we're going to have a competitive advantage. We simply have to be a little sharper."

Booth is clear about the year ahead, and about producing in SA generally. "Any producer of heavy stuff should operate in the market in which they sell the product."

He has worries about the ability of makers to make new jobs in SA but believes the business will remain workable th- coarse continued investment in capital infrastructure. "The challenges we are facing today are dissimilar to those of 10 years back but nothing is insurmountable."

As is evident from the 1 500c special dividend announc- ed earlier in the year, Ceramic is a money generative company. Money reserves decreased to R217,7 million from R435,7 million and Ceramic's net asset price per share fell 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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