Italtile says though it is seeing the early signs of green shoots, the sustainability of the trend of improvement in demand and spend has yet to be proved.
Releasing a voluntary sales update for the five months ended November, the franchisee, retailer and manufacturer of tiles and bathroom ware said the first half of the review period was characterised by subdued consumer confidence and spend in the building and construction sector.
However, this changed in the latter part of the period as consumer sentiment and confidence improved with the positive transition to the government of national unity, while disposable income increased as a result of two interest rate cuts, generally lower inflation levels and funds released through the two-pot system to retirement funds.
“However, the economic stimulus afforded by these developments will take time to filter through and significantly improve demand and spend,” Italtile said on Monday.
It added that the long-standing building cycle downturn has “substantial ground to recover”.
The group said system-wide retail turnover reported by its brands, CTM, Italtile Retail and TopT, rose by 2.2% compared with the prior period.
The integrated import supply chain businesses also grew sales, aligned with the stronger sales achieved by the retail division, as well as the benefits of enhanced inventory management.
Combined manufacturing sales reported by Ceramic Industries and Ezee Tile Adhesive Manufacturers to both group and third- party customers declined by 1.6% compared with the previous period’s decline of 5.9%.
While capacity utilisation improved at Ceramic Industries, positively impacting on the cost base, margins remain under pressure in light of predatory pricing in the market, it added.
The group added that in the tile manufacturing segment, there had been no easing in the fundamental structural over-capacity in the industry. Consequently, competition in both the retail and manufacturing segments remained intense, as the vast imbalance between excess tile supply and weak consumer demand persist.
In the light of increased retail competition and the overstocked position of many retailers, wholesalers and manufacturers in the industry, deflationary pricing and margin pressure remained key features.
Management was cautiously optimistic that the retail division would continue to benefit from improved consumer sentiment and increased disposable income. However, the structural changes in the tile manufacturing landscape would remain challenging for Ceramic Industries' tile operations, affecting its ability to optimise capacity utilisation and grow profitability, it said.
Management’s focus would remain on the growth drivers within its control and influence, it said.
It said it planned to release interim results on March 3.
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