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CRM
CRM
CRM - Ceramic Industries Limited - Unaudited interim results for the six months
ended 31 January 2008
CERAMIC INDUSTRIES LIMITED
(Reg No 1982/008520/06)
Incorporated in the Republic of South Africa
("Ceramic Industries" or "the Group")
Share code: CRM ISIN: ZAE000008538
Unaudited interim results for the six months ended 31 January 2008
Commentary
Operating environment
Ceramic Industries encountered difficult trading conditions during the six
months ended 31 January 2008.Consumer spending was negatively impacted by
interest rate hikes as well as increasing inflation. As a result, the Group
experienced lower demand for its products and demand shifted towards Ceramic
Industries` more commoditised products, which carry lower margins. The Group
benefited from its ongoing efforts to produce fashionable products with higher
selling prices but was unable to fully recover substantial increases in energy,
packaging and other oil related costs.
These circumstances were exacerbated by the power interruptions in December 2007
and January 2008 which resulted in increased scrap rates, decreased yields and
lower plant efficiencies.
Financial results
Revenue increased by 6,6% to R701,0 million (2007: R657,3 million). Revenue from
tiles increased by 9,8% with reported revenue of R573,9 million (2007: R522,5
million). The Group achieved record tile sales of 17,7 million m2 (2007: 16.9
million m2). Sanitaryware revenue declined by 5,7% to R127,1 million (2007:
R134,8 million). Sales volumes of Ceramic Industries sanitaryware pieces
declined from 0,690 million pieces to 0,653 million pieces largely as a result
of the 50% reduction in capacity at the Betta factory during January 2008 caused
by power failures. The contribution from the bath factories which sold 75 000
baths (2007: 79 000) was disappointing due to problems experienced in bedding
down the new technology at the Aquarius factory.
Operating profit showed a decrease of 18,7% to R112,7 million (2007: R138,5
million) as the Group absorbed significant increases in costs plus the waste and
inefficiencies inflicted by the power outages during December 2007 and January
2008.
Headline earnings declined by 19,0% to R79,2 million (2007: R97,8 million) with
reported headline earnings per share of 460,2 cents (2007: 565,4 cents), a
decrease of 18,6%.
Segmental information
Six months Six months
ended ended
31 January 31 January Change
2008 2007 %
Revenue (R million)
Tiles 573,9 522,5 9,8
Sanitaryware 127,1 134,8 (5,7)
Sales volumes (millions)
Tiles (m2) 17,7 16,9 4,7
Sanitaryware (pieces) 0,728 0,769 (5,3)
Operating profits (R
millions)
Tiles 100,7 106,6 (5,5)
Sanitaryware 12,0 32,0 (62,5)
Cash flow from operations improved by 5,9% to R144,6 million (2007: R136,5
million). Ongoing capital expenditure relating mainly to the upgrade of the
Betta Sanitaryware factory and the expansion of the Pegasus and Centaurus
factories resulted in the Group`s cash balances decreasing by R49,6 million to
R145,5 million (2007: R236,6 million).
The increase of R36 million in inventories was largely due to stock holdings at
the new Aquarius factory and the additional production capacity which was
brought on board at Centaurus. Trade receivables and payables were also impacted
by the expansion of the Pegasus and Centaurus factories.
The net asset value per share increased by 15,9% to 6 183 cents from 5 337
cents.
Manufacturing operations - tile division
Pegasus
The Pegasus factory is a globally competitive red-bodied tile plant with a
capacity of 18,0 million m2 per annum and its high quality product competes head
on with Chinese imports. Although Pegasus achieved a 24% increase in production
to 6,9 million m2, the plant did not operate at full capacity due to slowing
demand from the contractor market. Power outages also reduced production in the
last two months of the period and as a result, the anticipated efficiencies did
not materialise. Costs increases, which were exacerbated by an increase in oil
related costs, were not recouped as Pegasus pursued higher market share to
maximise its increased production capacity.
Vitro
Vitro produces full-bodied glazed, extruded punched tiles for the up-market
domestic and contract sectors. Despite decreased production due to the
unscheduled shutdown of a kiln on its unglazed tile line and power outages in
the last two months, the factory continued to perform well. It maintained its
focus on high quality, fashionable products. The introduction of new designs and
an increase of 5% improved the average selling price, which partially offset the
higher costs associated with lower volumes.
Samca Floor Tiles
Samca Floor Tiles manufactures pressed glazed floor tiles and remains the sole
local producer of 50 cm x 50 cm tiles. Notwithstanding the challenges impacting
all Group factories, Samca Floor Tiles` performance improved in line with
expectations, enhancing efficiencies which partially offset higher input costs.
Although output decreased marginally from 3,5 million m2 to 3,3 million m2, as a
result of power outages, the factory`s larger tile formats continue to find
favour in the market, supporting higher average selling prices.
Samca Wall Tiles
The Samca Wall Tiles factory produces pressed glazed wall tiles. Although
production increased from 3,2 million m2 to 3,3 million m2, sales declined by
6,6% due to a slowdown in demand for wall tiles, particularly in ranges
developed for the residential contractor market. Uptake for the sought after
25cm x 40 cm wall tile ranges continued, supporting a 9,3% increase in selling
prices which partially offset the higher input costs.
Centaurus - Australia
With the successful commissioning of the second kiln at Centaurus, production
increased to 2,1 million m2 (2007: 1,5 million m2) of premium quality glazed
porcelain floor tiles. Continued acceptance of the factory`s ranges was
evidenced by a 13,0% increase in sales volume with good uptake of the new 40 cm
x 40 cm tile format. Average selling prices increased marginally. Centaurus is
expected to produce at full capacity for the remainder of the financial year as
it continues to capture market share.
Manufacturing operations - sanitaryware division
Betta
Betta manufactures a broad range of vitreous china sanitaryware. Notwithstanding
the loss of production due to power interruptions in December 2007 and January
2008, Betta delivered a stable performance. There was a 13% increase in costs,
8,5% of which was the result of power outages during January 2008. With
persistent competitive pressures from Chinese imports, Betta absorbed higher
input costs to protect market share, resulting in lower margins. The R100
million expansion programme, scheduled for completion in July 2008 will equip
Betta to be more competitive in the South African market and to expand its
export market.
Aquarius
Aquarius is an automated, high-volume, low-cost production facility with an
annual capacity of 200 000 acrylic baths. Commissioned in July 2007, the factory
has taken longer than initially anticipated to bed down. Production, at 52 000
pieces, fell short of expectation, resulting in losses for the period. With
increased management focus and initiatives to replicate Group practices and
processes which have been successfully implemented at other factories, the Group
is confident that Aquarius will meet its performance targets.
Sphinx
Sphinx manufactures free standing and customised acrylic baths. Losses were
incurred at Sphinx as a result of the disruptions caused by the reorganisation
of the acrylic bathroomware division. However, the focus on customised products
has attracted interest from a number of new clients in the local market and the
factory`s export relationships continue to develop. Following its restructuring
to service the low volume, high fashion segment of the market, Sphinx is now
positioned to reduce losses made in the first six months of the year and is
expected to return to profitability in the next financial year.
Prospects
Demand in the local environment is expected to remain under pressure, especially
in the new housing and residential contractor markets, with the renovations
market remaining steady as the economic environment continues to tighten.
However, the government`s infrastructure and housing programmes are likely to
sustain demand, albeit in the lower margin commoditised products.
Ceramic Industries has engaged constructively with Eskom to ensure predictable
power supply at all its manufacturing facilities, thus minimising the impact of
power interruptions. The stable power supply during February 2008 enabled the
plants to resume operations at planned capacity. Backlogs in customer deliveries
resulting from lower production during the January 2008 power outages are being
cleared.
Despite a disappointing performance for the first six months of the year the
balance sheet remains strong and the Board would like to reassure shareholders
that the company is in a sound state. Significant investments have been made in
the factories which are all well placed to deliver the targets that have been
set.
The operating performance for the second half of the year will depend largely on
the stability of the power supply to support ongoing production at capacity, as
well as consumer demand for ceramic tiles and sanitaryware and acrylic
bathroomware.
Dividend
The Board has decided to maintain the dividend cover of 3,5 times and has
declared an interim dividend (number 36) of 130 cents (2007: 140 cents).
On behalf of the Board
G A M Ravazzotti N Booth
Chairman Chief Executive Officer
11 March 2008
Dividend announcement
The Board has declared an interim dividend (number 36) of 130 cents per share to
all shareholders recorded in the books of Ceramic Industries at the close of
business on Friday, 11 April 2008. The last day to trade cum dividend in order
to participate in the dividend will be Friday, 4 April 2008. The shares will
commence trading ex dividend from the commencement of business on Monday, 7
April 2008 and the record date will be Friday, 11 April 2008. The dividend will
be paid on Monday, 14 April 2008. Share certificates may not be rematerialised
or dematerialised between Monday, 7 April 2008 and Friday, 11 April 2008, both
days inclusive.
By order of the Board
E.J.Willis
Secretary
11 March 2008
Basis of preparation and accounting policies
The condensed consolidated interim financial results for the six months ended 31
January 2008 have been prepared in compliance with the Listings Requirements of
the JSE Limited, International Financial Reporting Standards (IFRS)and IAS 34 as
published by the International Accounting Standards Board and the South African
Companies Act, 1973, as amended.
The accounting policies applied in the presentation of the interim financial
results are consistent with those applied for the year ended 31 July 2007.
Condensed group income statement
for the period ended 31 January
Six months Six months Year
ended ended ended
31 January 31 January 31 July
2008 2007 2007
Change Unaudited Unaudited Audited
% R000`s R000`s R000`s
Revenue 6,6 700 955 657 298 1 375 448
Tiles 9,8 573 873 522 476 1 107 005
Sanitaryware (5,7) 127 082 134 822 268 443
Operating profit (7,9) 170 815 185 455 399 611
before
depreciation
Depreciation 24,0 (58 154) (46 913) (103 688)
Operating profit (18,7) 112 661 138 542 295 923
Tiles (5,5) 100 687 106 557 233 776
Sanitaryware (62,6) 11 974 31 985 62 147
Finance income 33,4 7 326 5 490 25 784
Finance expenses (12,3) (350) (399) (12 280)
Profit before (16,7) 119 637 143 633 309 427
taxation
Taxation (11,9) (40 317) (45 755) (92 464)
Profit for the (19,0) 79 320 97 878 216 963
period
Attributable to:
Minority 205,0 287 140 639
shareholders
Ordinary (19,1) 79 033 97 738 216 324
shareholders of
the Group
Weighted average 17 210 17 296 17 285
number of shares
in issue (000`s)
Basic earnings (18,7) 459,2 565,1 1 251,5
per share (cents)
Headline earnings (18,6) 460,2 565,4 1 250,0
per share (cents)
Dividend per (7,1) 130,0 140,0 340,0
share (cents)
Reconciliation of
headline earnings
Profit 79 033 97 738 216 324
attributable to
ordinary
shareholders of
the Group
Loss/(profit) on 164 55 (522)
disposal of plant
and equipment
Impairment of - - 255
investment in
subsidiary
Headline earnings (19,0) 79 197 97 793 216 057
Condensed group balance sheet
at 31 January
31 January 31 January 31 July
2008 2007 2007
Unaudited Unaudited Audited
R000`s R000`s R000`s
ASSETS
Non-current assets 865 571 669 837 815 580
Property, plant and 857 605 666 912 808 456
equipment
Goodwill 4 520 991 4 520
Deferred taxation assets 3 446 734 2 204
Payment in advance - 1 200 400
Current assets 481 793 480 371 564 018
Inventories 106 099 69 966 96 473
Trade and other 230 241 173 842 272 446
receivables
Cash and cash equivalents 145 453 236 563 195 099
Total assets 1 347 364 1 150 208 1 379 598
EQUITY AND LIABILITIES
Equity 1 064 175 923 119 1 011 553
Share capital 64 962 64 962 64 962
Shares held by share (111 426) (86 971) (105 034)
trust
Share awards reserve 5 067 4 573 5 014
Reserves 74 691 48 573 73 089
Retained earnings 1 024 061 883 280 967 401
Ordinary shareholders` 1 057 355 914 417 1 005 432
interest
Minority shareholders` 6 820 8 702 6 121
interest
Non-current liabilities 79 195 73 241 75 588
Shareholders` loans 10 132 17 297 9 918
Deferred taxation 59 271 50 204 56 543
liabilities
Borrowings 9 792 5 740 9 127
Current liabilities 203 994 153 848 292 457
Trade and other payables 169 184 94 685 243 311
and provisions
Income taxation payable 34 636 59 010 48 983
Shareholders for 174 153 163
dividends
Total equity and 1 347 364 1 150 208 1 379 598
liabilities
Condensed group cash flow statement
for the period ended 31 January
Six months Six months Year
ended ended ended
31 January 31 January 31 July
2008 2007 2007
Unaudited Unaudited Audited
R000`s R000`s R000`s
Operating activities
Operating profit adjusted 186 121 188 095 409 247
for non-cash items
Changes in working capital (41 548) (51 638) (28 123)
Cash generated from 144 573 136 457 381 124
operations
Finance income 7 326 5 490 25 784
Finance expenses (350) (399) (12 280)
Dividends paid (34 425) (31 150) (55 384)
Taxation paid (56 557) (44 594) (100 574)
60 567 65 804 238 670
Investing activities (103 547) (71 059) (269 670)
Property, plant and (103 547) (71 059) (255 008)
equipment (net)
Acquisition of additional - - (14 662)
investment in subsidiary
Financing activities (6 666) (905) (16 624)
Cash outflow from share (7 545) (2 160) (20 798)
trust dealings
Borrowings raised/(repaid) 665 (93) 3 294
Shareholders` loans raised 214 1 348 880
Net movement in cash and (49 646) (6 160) (47 624)
cash equivalents
Cash and cash equivalents at 195 099 242 723 242 723
beginning of period
Cash and cash equivalents at 145 453 236 563 195 099
end of period
Condensed statement of changes in equity
for the period ended 31 January
31 January 31 January 31 July
2008 2007 2007
Unaudited Unaudited Audited
R000`s R000`s R000`s
Balance at beginning of year 1 011 553 876 821 846 246
Net additional shares (6 967) (2 160) (20 223)
acquired by share trust
Share awards reserve 1 206 790 2 235
Share awards delivered (578) 429 (575)
Profit attributable to 79 033 97 738 216 324
ordinary shareholders of the
Group
Movement in foreign currency 13 665 10 557 24 852
translation reserve
Movement in minority 699 679 (1 902)
shareholders
Transfer to dividend reserve (22 373) (24 215) (58 680)
Dividend reserve 22 373 24 215 58 680
Net dividend paid (34 436) (31 160) (55 404)
Balance at end of period 1 064 175 953 694 1 011 553
Directors: G A M Ravazzotti (Chairman),
N Booth (Chief Executive Officer), S D Jagoe, E M Mafuna,
N S Nematswerani, N D Orleyn, L E V Ravazzotti, K M Schultz, G Zannoni (Italian)
Company secretary: E J Willis
Registered office: Farm 2 Old Potchefstroom Road, Vereeniging,
PO Box 2247, Vereeniging, 1930
Transfer secretaries: Computershare Investor Services
(Pty) Limited, 70 Marshall Street, Johannesburg 2001,
PO Box 61051, Marshalltown 2107
Date: 11/03/2008 07:04:47 Produced by the JSE SENS Department.
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