| Wed 15 Aug 2007, 9:00 | | ITE - Italtile - Reviewed Group results for the ye |
|
ITE
ITE
ITE - Italtile - Reviewed Group results for the year ended 30 June 2007
ITALTILE LIMITED
(ITALTILE)
Incorporated in the Republic of South Africa
Share code: ITE
ISIN: ZAE000003679
Reg. No. 1955/000558/06
Vat. No. 4570231607
Preliminary Profit Announcement
Reviewed Group results for the year ended 30 June 2007
System-wide turnover analysis
for the year ended 30 June 2007
(Rand millions unless otherwise stated) 30 June 30 June
%
increase 2007 2006
Group and franchised turnover
- By Group-owned stores (reviewed) 1 477 1 285
- By franchise-owned stores 1 101 968
(unaudited)
TOTAL 14 2 578 2 253
Abridged Group income statementsfor the year ended 30 June 2007
(Rand millions unless otherwise stated)
Reviewed Audited
% year to year to
increase 30 June 30 June
2007 2006
Trading profit before depreciation 427 363
Depreciation (34) (21)
Loss on sale of property, plant and - (4)
equipment
Trading profit 16 393 338
Investment income 17 16
Profit before interest paid 410 354
Interest paid (2) (2)
Profit before taxation 16 408 352
Taxation (131) (111)
Profit for the year 15 277 241
Attributable to:
Equity holders of the parent 270 233
Minority interests 7 8
15 277 241
Number of shares in issue (000`s) 18 121 18 095
Earnings per share (cents) 16 1 490 1 290
Headline earnings per share (cents) 14 1 490 1 312
Diluted earnings per share (cents) 16 1 476 1 271
Diluted headline earnings per share 14 1 477 1 296
(cents)
Dividends per share (cents) 16 500 430
RECONCILIATION OF HEADLINE EARNINGS
Earnings attributable to ordinary 270 233
shareholders
Loss on sale of property, plant and - 4
equipment
Headline earnings 270 237
RECONCILIATION OF SHARES IN ISSUE
Total number of shares issued (000`s) 18 677 18 677
Share Incentive Trust shares (000`s) 556 582
Shares in issue to external parties 18 121 18 095
(000`s)
Segmental reporting for the year ended 30 June 2007
(Rand million unless otherwise stated)
Supply &
Re- Fran- Proper- support
tail chising ties services Group
Reviewed year to
June 2007
Revenue* 1 272 87 115 226 1 700
Segment results 175 78 91 49 393
Audited year to
June 2006
Revenue* 1 064 79 91 244 1 486
Segment results 146 71 80 41 338
*Revenue includes turnover, rentals and royalties
Abridged Group balance sheets for the year ended 30 June 2007
(Rand millions unless otherwise stated)
Reviewed Audited
year to year to
30 June 30 June
2007 2006
ASSETS
Non-current assets 771 549
Fixed assets 753 537
Other long-term assets 11 9
Intangible assets 4 -
Deferred tax 3 3
Current assets 573 567
Inventories 224 150
Trade and other receivables 91 74
Cash and cash equivalents 258 343
Total assets 1 344 1 116
EQUITY AND LIABILITIES
Capital and reserves 976 794
Stated capital 27 27
Non-distributable reserve 28 17
Treasury shares (54) (48)
Retained profit 943 768
Minority interest 32 30
Long-term liabilities 11 10
Current liabilities 357 312
Trade and other payables 334 289
Taxation 23 23
1 344 1 116
Net asset value per share (cents) 5 386 4 388
Statement of changes in equity for the year ended 30 June 2007
(Rand million unless otherwise stated)
Non-
Distri- Trea- Mi- Re-
Stated butable sury nority tained
Group capital reserve shares interest profit Total
Balance at 27 13 (55) 29 649 663
30 June 2005
Net profit for the 8 233 241
year
Dividends paid (3) (114) (117)
Currency 3 3
translation
difference
Share-based 1 1
payment expense
Unallocated shares 10 10
in share trust
Accumulated (3) (3)
surplus in share
trust
Purchase of (4) (4)
additional share
in subsidiary
Balance at 27 17 (48) 30 768 794
30 June 2006
Net profit for the 7 270 277
year
Dividends paid (4) (95) (99)
Currency 10 10
translation
difference
Share-based 1 1
payment expense
Unallocated shares (6) (6)
in share trust
Accumulated
surplus in share
trust
Share capital 1 1
increase
Purchase of (2) (2)
additional share
in subsidiary
27 28 (54) 32 943 976
Cash flow statement for the year ended 30 June 2007
(Rand million unless otherwise stated)
Reviewed Audited
year to year to
30 June 30 June
2007 2006
Cash flow from operating activities before 428 364
working capital changes
Working capital changes (45) 22
Financing, dividend and taxation (215) (219)
Cash flow from operating activities 168 167
Cash flow from investing activities (255) (121)
Cash flow from financing activities 2 (4)
Net movement in cash and cash equivalents (85) 42
Cash and cash equivalents at beginning of period 343 301
Cash and cash equivalents at end of period 258 343
Notes
for the year ended 30 June 2007
- There are no material contingent liabilities or assets at 30 June 2007
- Capital commitments at 30 June 2007 Rm
Contracted 23
Authorised, not contracted 138
161
In terms of the Articles of Association, the company`s borrowing facilities are
unlimited.
COMMENTARY
RESULTS
Italtile increased turnover by 14% to R2,578 billion for the year ended 30 June
2007. The benefits of an ongoing focus on containing growth in overheads and
maintaining margins in a highly competitive environment contributed to pretax
profit of R408 million, representing an increase of 16% over the prior year.
The Group continues to explore mechanisms to enhance internal efficiencies,
which supported the increase in operating margins to 15,2% in the year ended 30
June 2007 (2006: 15,0%). These included more efficient store design, improved
handling and storage of stock and further consolidation of the supply chain.
These initiatives served to counter lower margin pressures which would have
resulted from a slant in the product mix towards traditionally lower margin
bathware and entry level products.
The level of growth achieved by the Group in the year under review, given the
economic climate and prevailing construction boom, is considered by the Board to
have been less than optimal.
Key to the Group reclaiming its historical growth trend in both turnover and
trading profit will be:
The promotion of entrepreneurship within all components of the organisation.
Each business unit must be run with a small business mentality attuned to its
particular market needs.
Ensuring that the in-store offering has the fashionable stock required by
customers in an environment which is conducive to customer buying decisions to
differentiate the Group from its competition.
Optimal alignment of the Group`s integrated supply chain with the Group`s growth
objectives. Efficient management of product within the supply chain, despite
rapid growth, is essential.
Renewed focus on the major product category which is tiles, while consolidating
the gains made to date in bathware.
The Group reported headline earnings per share of 1 490 cents for the year ended
30 June 2007, from 1 312 cents in the previous year, reflecting an increase of
14%.
Inventory increased to R224 million as at 30 June 2007
(2006: R150 million), mainly as a result of the Group`s investment in a broader
products range and the temporary conversion of franchise stores into owned
stores.
Italtile`s cash generated from operating activities before working capital
changes increased by 17,6% to R428 million (2006: R364 million). Due to the
increase in inventory, cash generated from operations remained constant at R168
million (2006: R167 million). The bulk of the cash was utilised for further
investments of R187 million into the property portfolio during the year, in
support of future growth. Cash reserves of R258 million were reported for the
year (2006: R343 million).
TRADING ENVIRONMENT
Strong economic growth in South Africa, with associated increase in per capita
income, has resulted in greater demand for the Group`s product, especially at
the entry level where affordability is a key consideration.
The proliferation of new entrants into the market, supported by unsurpassed
demand for tiles and bathware, has led to price cutting. In a market
characterised by a wide selection of suppliers and an increasingly well informed
consumer base, product reliability and in-store service have gained significance
in the buying decision.
The group continues to invest in upgrading its existing stores and extending its
product offering to provide an improved retail experience to its customers.
AFRICAN OPERATIONS
During the year, the Group opened two new CTM stores in South Africa, increasing
its network to 68 in the country with a further 13 stores across Africa in
Botswana, Lesotho, Namibia, Swaziland, Tanzania, Uganda and Kenya. The Italtile
brand, which services the premium tile and bathware market trades from eight
stores situated in Gauteng, the Western Cape, Durban, Port Elizabeth and
Nelspruit.
ITALTILE
While the Italtile brand made progress in increasing the average selling price
of tiles and its premium bathware range was entrenched, the brand did not
achieve satisfactory growth. The Group did however make headway in shifting the
brand into the super premium environment targeted at the emerging upper class.
To this end, the services of an Italian designer were procured to fully align
the showrooms with the upmarket brand offering. It remains a priority for
Italtile to drive its transition into the upper end of the market and entrench
its position as a pre-eminent supplier of tiles and bathware, which is viewed as
a long-term sustainable growth strategy. We are on track with our plans in this
regard.
CTM
The Group will continue with its ongoing evaluation of the suitability of store
location relative to other retail activity. During the year four CTM stores were
relocated to more favourable sites to allow a larger trading area and an
improved retail experience. The relocation of further stores to more suitable
sites will continue.
Delays in obtaining regulatory approval for development, coupled with the rapid
escalation in development and land prices, has retarded the Group`s store roll-
out given its requirement for prime sites and superior returns.
Increasing representation in the coastal areas remains a high priority for
Italtile. During the year, together with a joint venture partner, the Group
successfully secured a significant property in the Western Cape with development
planned during the next financial year.
The Group made progress towards its imperative of extending its retail network
into traditionally black residential areas with the launch of new CTM stores in
Tembisa and Phuthaditjhaba, and relocation of the Roodepoort store to
Dobsonville, Soweto, all of which are trading profitably. Increased
representation into black areas remains a priority for the coming year.
Italtile views the sub equatorial African market as an extension of the South
African market. The Group`s direct involvement in what were previously
franchised businesses will allow greater access to resources and greater levels
of regional co-operation.
The "CTM Easy Style" card test launched in the first half of the year proved a
viable enhancement to CTM`s offering. It strengthens the Group`s value
proposition to first-time buyers, offering them the ability to purchase a better
basket of affordable products through extended payment terms. Aggressive
marketing was avoided until the Group was confident of meeting customer
expectations. The Group is confident that active promotion of the card will
improve its market coverage.
INTERNATIONAL OPERATIONS
Italtile`s Australian operation, with its eight retail outlets in Queensland and
New South Wales made a small contribution to Group profits. Following the less
buoyant real estate market in New South Wales, consumer demand has softened in
our industry resulting in the market being oversupplied and weakening retail
prices. The operation is expected to continue to make a nominal contribution to
Group profits.
PROPERTY PORTFOLIO
During the year, the Group continued to invest heavily in its property
portfolio, which increased, in carrying value, by R187 million to R688 million.
This was brought about mainly due to construction of new buildings and upgrades
to existing sites, the benefit of which will be felt in the short to medium
term. Densification of urban areas where the Group is already well represented
necessitated the provision of additional trading space to existing stores in
order to cater for product range extensions and greater customer traffic.
Similar levels of property investments are anticipated during the 2008 financial
year. Although store upgrades will continue, the focus will move to investing
for the future through acquiring sites for future store development.
The Group`s property portfolio continued to deliver returns in the year under
review, which were in line with those of its trading operations.
BLACK ECONOMIC EMPOWERMENT
The Group finalised a BEE transaction to sell 10,7% of the Group`s ordinary
share capital to a BEE consortium which includes Italtile`s black staff.
Implementation of the BEE transaction is subject to section 38 (2A) of the
Companies Act coming into effect. The BEE transaction fulfils an important
component of Italtile`s BEE strategy which was initiated with enterprise
development and the introduction of black-owned franchises, following which the
Group met all its employment equity targets. With the achievement of these key
elements of broad-based BEE, the Group is now well positioned to access segments
of the market from which it was previously precluded.
EVENTS SUBSEQUENT TO THE BALANCE SHEET DATES
A special resolution was approved by the requisite majority on 12 July 2007 to
give effect to a 44:1 sub-division of Italtile`s share capital to enhance the
tradeability of the shares in issue. At the date of this announcement, the
special resolution had not yet been registered by the relevant government
agency. Accordingly, all the share-related information in this announcement
makes reference to the actual numbers of shares in issue prior to the approved
subdivision of shares.
PROSPECTS
Group initiatives to enhance sales growth and take advantage of buoyant market
conditions bodes well for the year ahead. Italtile will continue to focus on its
core competencies, with the intent that its store network will remain largely
franchised. While upgrading the existing retail footprint creates the platform
for growth, it is our view that our new footprint will enhance the shopping
experience for residential finishes and affirm our leadership position in this
sector. The Group will continue to actively secure suitable sites which meet
both its investment and retail criteria in order to roll out new stores.
Interest rates in South Africa are at risk of further increases in the short
term, however the Group`s activities are geared to benefit in both rising and
decreasing interest rate environments. Buoyant consumer demand is not expected
to change materially in the year ahead, with the recently launched National
Credit Act having minimal impact on the Group which remains a largely cash-based
retailer.
The Group will maintain its focus on rolling out the strategy to enhance its
retail store network in line with changes in consumer behaviour.
Consolidating the benefits of the broader product range, introducing further
operational efficiencies and enhancing the general shopping experience for its
customers remain high priorities for the year ahead.
The Board expects the Group to exceed the current level of earnings growth in
the coming financial year.
BASIS OF PREPARATION
The preliminary profit announcement has been prepared in accordance with
International Financial Reporting Standards (IFRS) and is prepared on the
historical-cost basis, adjusted for the fair value of certain assets and
liabilities.
DIVIDEND
The Board has declared a final ordinary dividend of 270 cents per share, which,
together with the interim ordinary dividend of 230 cents, produces a total
ordinary dividend declared for the year of 500 cents (2006: 430 cents), an
improvement of 16,3%.
DIVIDEND ANNOUNCEMENT
The Board has declared a final ordinary dividend (number 81) of 270 cents per
share to all shareholders recorded in the books of Italtile Limited. The last
day to trade cum the dividend will be Friday, 31 August 2007. The shares of
Italtile Limited will commence trading ex dividend from the commencement of
business on Monday, 3 September 2007 and the record date will be Friday, 7
September 2007. Payment will be made on Monday, 10 September 2007. Share
certificates may not be rematerialised or dematerialised between Monday, 3
September 2007 and Friday, 7 September 2007, both days inclusive.
For and on behalf of the Board
G P E Ravazzotti P D Swatton
Chief Executive Officer Chief Financial Officer
The results have been reviewed by Ernst & Young and their opinion is available
on request from the company secretary at the company`s registered office or own
address.
7 August 2007
Registered Office:
The Italtile Building, cnr William Nicol Drive and Peter Place, Bryanston
(PO Box 1689, Randburg 2125)
Transfer Secretaries:
Computershare Investor Services 2004 (Pty) Limited
70 Marshall Street,
Johannesburg 2001
(PO Box 61051, Marshalltown 2107)
Directors:
G A M Ravazzotti (Chairman),
G P E Ravazzotti (Chief Executive Officer),
P D Swatton** (Chief Financial Officer),
J Couzis*, S I Gama, D H Rabin
(Non-executive Directors)
(*Greek **British)
Refer to Italtile`s corporate website: www.italtile.com
Date: 15/08/2007 09:00:01 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
