For an example of the costly impact of load shedding on business, look no further than leading tile manufacturer and retailer Italtile, which has had to tackle the energy crisis on virtually every front.
Chief financial officer Brandon Wood said at the release of the interim results yesterday in a telephone interview, that they faced multiple challenges in the six months to December 31, many of them relating to the energy crisis.
The group’s own 80 retail outlets had to buy generators which added to costs, with two locations exploring operating on battery power off the grid. Investments in solar are ongoing. The group’s total store network had increased by three stores to 214.
The manufacturing operations, which make up 40% of group profit, was impacted by load shedding and infrastructure problems, such as with the volatile electricity grid.
Their manufacturing business had curtailment agreements with Eskom that were supposed to limit the impact of load shedding, but the protection of these agreements diminished during higher stages of load shedding.
Meanwhile, Italtile is exploring wheeling agreements with potential suppliers of renewable power, notably solar power.
The group is also awaiting the outcome of the National Energy Regulator of South Africa’s (Nersa) decision on the gas price, which Italtile believes would be favourable for manufacturers once the outcome is known, and might allow the group to proceed with its own project to generate power from gas.
The hunt is also on for additional gas supplies after 2025, and already some limited quantities are being supplied by Renergen. Biogas opportunities are also being explored.
Wood said another impact they had not yet quantified is that its stores are “destination stores”, and are suffering from traffic congestion due to traffic issues caused by load shedding, such as many traffic lights not working.
Also, consumers already struggling to make ends meet are having to allocate more of their discretionary income to pay higher electricity costs or for alternative energy equipment, rather than perhaps re-tile their bathrooms, said Wood.
Manufacturing operations also have also had to deal with significant price inflation, most notably from the cost of energy and imported raw materials. There are also operational efficiency problems in manufacturing, aside from having to operate below capacity.
Amid all of these challenges, the group has had to contend with the normalisation of the “post-Covid boom” in home renovations, and the increased competition arising from new entrants to the market during the boom.
The generally adverse economic, social and political environment have also seen consumers defer or scale down on renovation and new build projects.
Wood said while they are “a little disappointed” at the interim results, they were achieved in a “very tough environment”.
Italtile is reporting a 3% increase in turnover to R6.2 billion, trading profit is down 8% to R1.4bn and headline earnings per share fell 6% to 79.2%. The interim dividend was lowered by the same percentage to 32 cents.
Looking ahead, Wood said many of the challenges such as those experienced in the manufacturing division are within their control.
In addition, the balance sheet remains healthy and cash generation is strong – net cash was up 51% to R800 million by the end of the interim period.
The group did not provide specific guidance on the future because of the uncertainty in the global and local markets, together with elevated inflation and likely intensifying load shedding for the rest of the year.
BUSINESS REPORT