| Tue 9 Sep 2008, 7:05 | | CRM - Ceramic Industries Limited - Reviewed preliminary financial results |
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CRM
CRM
CRM - Ceramic Industries Limited - Reviewed preliminary financial results
for the year ended 31 July 2008
CERAMIC INDUSTRIES LIMITED
(Registration number 1982/008520/06)
Incorporated in the Republic of South Africa
("Ceramic" or "the Group")
Share code: CRM
ISIN: ZAE000008538
Reviewed Preliminary Financial Results for the year ended 31 July 2008
CONDENSED GROUP INCOME STATEMENT
for the year ended 31 July
2008 2007
% (Reviewed) (Reviewed)
Change R000`s R000`s
Revenue 6,8 1 469 638 1 375 448
Tiles 10,5 1 222 716 1 107 005
Sanitaryware (8,0) 246 922 268 443
Operating profit before (10,2) 358 985 399 611
depreciation
Depreciation 3,9 (107 713) (103 688)
Operating profit (15,1) 251 272 295 923
Tiles 1,4 237 064 233 776
Sanitaryware (77,1) 14 208 62 147
Finance income (3,2) 13 764 14 219
Finance expenses 54,8 (1 107) (715)
Profit before taxation (14,7) 263 929 309 427
Taxation (11,5) (81 853) (92 464)
Profit for the year (16,1) 182 076 216 963
Attributable to:
Minority shareholders (19,7) 513 639
Ordinary shareholders of the (16,1) 181 563 216 324
Group
Weighted average number of 17 206 17 285
shares in issue (000`s)
Basic earnings per share (cents) (15,7) 1 055,2 1 251,5
Dividend per share (cents) (14,7) 290,0 340,0
RECONCILIATION OF HEADLINE EARNINGS
for the year ended 31 July
2008 2007
% (Reviewed) (Reviewed)
Change R000`s R000`s
Profit attributable to ordinary 181 563 216 324
shareholders of the Group
Loss/(profit) on disposal of 140 (522)
property, plant and equipment
Impairment of investment in - 255
subsidiary
Headline earnings (15,9) 181 703 216 057
Headline earnings per share (15,5) 1 056,0 1 250,0
(cents)
CONDENSED GROUP BALANCE SHEET
at 31 July
2008 2007
(Reviewed) (Reviewed)
R000`s R000`s
ASSETS
Non-current assets 943 408 815 580
Property, plant and equipment 935 051 808 456
Goodwill 4 520 4 520
Deferred taxation assets 3 837 2 204
Payment in advance - 400
Current assets 541 038 564 018
Inventories 164 747 96 473
Trade and other receivables 250 029 272 446
Cash and cash equivalents 126 262 195 099
Total assets 1 484 446 1 379 598
EQUITY AND LIABILITIES
Equity 1 162 781 1 011 553
Share capital 64 962 64 962
Shares held by share trust (111 629) (105 034)
Share awards reserve 6 139 5 014
Reserves 96 680 73 089
Retained earnings 1 099 076 967 401
Ordinary shareholders` interest 1 155 228 1 005 432
Minority shareholders` interest 7 553 6 121
Non-current liabilities 87 758 75 588
Shareholders` loans 10 354 9 918
Deferred taxation liabilities 59 955 56 543
Borrowings 17 449 9 127
Current liabilities 233 907 292 457
Trade and other payables and provisions 199 372 243 311
Income taxation payable 34 356 48 983
Shareholders for dividend 179 163
Total equity and liabilities 1 484 446 1 379 598
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
for the year ended 31 July
2008 2007
(Reviewed) (Reviewed)
R000`s R000`s
Balance at beginning of year 1 011 553 846 246
Net additional shares acquired by share (6 595) (20 223)
trust
Share awards reserve 2 413 2 235
Share awards delivered (1 288) (575)
Profit attributable to ordinary shareholders 181 563 216 324
of the Group
Movement in foreign currency translation 30 503 24 852
reserve
Movement in minority shareholders 1 432 (1 902)
Transfer to dividend reserve (49 888) (58 680)
Dividend reserve 49 888 58 680
Net dividend paid (56 800) (55 404)
Balance at end of year 1 162 781 1 011 553
CONDENSED GROUP CASH FLOW STATEMENT
for the year ended 31 July
2008 2007
(Reviewed) (Reviewed)
R000`s R000`s
Operating activities
Profit before taxation adjusted for non-cash 365 041 409 247
items
Changes in working capital (89 796) (28 123)
Cash generated from operations 275 245 381 124
Finance income 13 764 14 219
Finance expenses (1 107) (715)
Dividends paid (56 784) (55 384)
Taxation paid (99 918) (100 574)
131 200 238 670
Investing activities (200 912) (269 670)
Property, plant and equipment (net) (200 912) (255 008)
Acquisition of additional investment in - (14 662)
subsidiary
Financing activities 875 (16 624)
Cash outflow from share trust dealings (7 883) (20 798)
Borrowings raised 8 322 3 294
Shareholders` loans raised 436 880
Net movement in cash and cash equivalents (68 837) (47 624)
Cash and cash equivalents at beginning of 195 099 242 723
year
Cash and cash equivalents at end of year 126 262 195 099
COMMENTARY
OPERATING ENVIRONMENT
South Africa has proven not to be immune from the difficult conditions in the
global economy brought on by the sub-prime crisis in the United States and
inflationary pressures caused by increasing commodity prices. The South African
Reserve Bank has increased interest rates and this, coupled with higher food and
energy prices, has put pressure on consumers` discretionary expenditures.
The direct impact of the power crisis in South Africa, the effects of which were
limited to the period from December 2007 to February 2008, reduced capacity and
increased costs for the Group, as reported in our interim financial results. Gas
and fuel prices, which increased by over 30% during the year, placed upward
pressure on operating costs in our energy intensive factories and across our
supply chain. This pressure on costs, combined with negative consumer sentiment,
created difficult trading conditions for Ceramic, with reduced demand for both
tiles and sanitaryware.
MANUFACTURING OPERATIONS - TILE DIVISION
Pegasus
The Pegasus factory is a globally competitive high volume, red-bodied tile plant
with a capacity of 18,0 million m2 per annum. Its high quality product competes
head-on with Chinese imports. The factory achieved a 12,4% increase in
production to 14,6 million m2. Although the factory was not operated at full
capacity because of lower demand, moderate increases in selling prices were
achieved, reflecting the market`s support of its product. Efficiencies were lost
due to Pegasus not running at full capacity, which had an impact on margins, but
the factory remains well positioned and has the potential to deliver strong
returns once demand recovers.
Vitro
Vitro, which produces full-bodied glazed, extruded punched tiles for the up-
market domestic and contract sectors, performed well. Production of 5,4 million
m2 was marginally lower than the previous year due to a planned shutdown for a
rebuild of the NCI-line kiln. The factory was unable to fully recover higher
input costs, despite a 6,0% increase in selling prices. Sales decreased by 0,5
million m2, reflecting the downturn in the contractor and renovation market.
Samca Floor Tiles
Samca Floor Tiles manufactures pressed glazed floor tiles and focuses on
producing larger tile formats. Benefiting from its intensive maintenance
programme in 2007, the factory performed well in the 2008 financial year, with
production increasing by 6,0% to 6,9 million m2 and good control of costs. Sales
volumes decreased, reflecting market conditions, and moderate price increases
helped offset higher costs.
Samca Wall Tiles
The Samca Wall Tiles factory, which produces pressed glazed wall tiles,
performed efficiently during 2008 and maintained its production of 6,8 million
m2. However, the factory was hard hit by higher input costs that it was unable
to recoup. Sales volumes declined by 0,5 million m2 as demand slowed
particularly in the housing property development market.
Centaurus - Australia
Centaurus produces glazed porcelain floor tiles in three size formats targeted
at sophisticated consumers. Production showed a 50,0% increase to 5,0 million m2
due to the successful commissioning of the second kiln. Centaurus has a market
share below 15% in Australia, and the challenge will be to increase this share
to realise the benefits of the installed capacity.
MANUFACTURING OPERATIONS - SANITARYWARE DIVISION
Betta
Betta, which manufactures a broad range of vitreous china sanitaryware,
maintained production at 1,4 million pieces in 2008 despite the power outages
suffered by the factory. Factory margins were affected by higher input costs
including energy, clay, glaze and packaging. Demand patterns shifted during the
year, with a lower demand for models designed for the housing development market
being experienced, and total sales volume decreased by 100 000 pieces. The
factory did, however, benefit from Sphinx`s export relationships, forging new
channels outside South Africa.
The expansion programme originally scheduled for completion in July 2008 will
only be completed in October 2008. Betta will therefore, only benefit from
increased volumes for a portion of the new financial year.
Aquarius
Aquarius is an automated, high-volume, low-cost acrylic bath production
facility. The Group underestimated the difficulties of commissioning the new
technology and the factory delivered a disappointing result, compounded by
inefficiencies and high waste levels. The factory operated at a significant loss
for the year.
Action has been taken to stem the losses at the factory, while protecting the
Group`s substantial investment. A decision has been taken to temporarily
reconsolidate the Group`s bath production facilities at Sphinx, while upskilling
the workforce and reconfiguring Aquarius to manufacture the Group`s entire
bathware range. It is the management`s current intention to recommence
production at Aquarius within six months.
The Board is confident that the factory can deliver solid returns in the long
term.
Sphinx
Sphinx manufactures free-standing and customised acrylic baths. The factory
continued to encounter disruptions due to the reorganisation of the acrylic
bathroomware division in the second half of the year, reporting a loss for the
full year.
FINANCIAL RESULTS
Revenue increased by 6,8% to R1 469,6 million (2007: R1 375,4 million)
underpinned by a 10,5% increase in tile revenue to R1 222,7 million (2007: R1
107,0 million). Increased capacity at the Group`s Pegasus and Centaurus
factories facilitated increased tile sales of 36,2 million m2 (2007: 35,1
million m2), despite muted consumer demand. Sanitaryware revenue declined by
8,0% to R246,9 million (2007: R268,4 million) as sales of sanitaryware pieces
declined by 8,3% to 1 437 million pieces (2007: 1 568 million pieces).
Operating profit showed a decrease of 15,1% to R251,3 million (2007: R295,9
million). Operating profit from tiles increased by 1,4% to R237,1 million (2007:
R233,8 million) as rampant fuel increases impacted all major input costs.
Although the tile factories continued to improve efficiencies, these could not
overcome the impact of higher costs and the Group continued to absorb cost
increases to defend its market share. Operating profit from sanitaryware
declined by 77,1% to R14,2 million (2007: R62,1 million) as the Group`s
sanitaryware factories lost efficiencies while production was reconfigured and
new technology rolled out. Higher input costs also reduced margins.
Headline earnings declined by 15,9% to R181,7 million (2007: R216,1 million),
with a 15,5% reduction in reported headline earnings per share to 1 056,0 cents
(2007: 1 250,0 cents).
SEGMENTAL INFORMATION
Year ended Year ended Change
31 July 2008 31 July 2007 %
Revenue (R million)
Tiles 1 222,7 1 107,0 10,5
Sanitaryware 246,9 268,4 (8,0)
Sales volumes (millions)
Tiles (m2) 36,2 35,1 3,1
Sanitaryware (pieces) 1 437 1 568 (8,3)
Operating profits (R
millions)
Tiles 237,1 233,8 1,4
Sanitaryware 14,2 62,1 (77,1)
Cash flow from operations, declined by 27,8% to R275,2 million (2007: R381,1
million) as a result of lower profitability and higher inventories, which
increased by R68,3 million, mainly as a result of slowing demand in the second
six months and the additional production from the expansions at Pegasus and
Centaurus. Cash and cash equivalents decreased to R126,3 million (2007: R195,1
million), after investments to increase production capacity and the increase in
inventory levels.
The net asset value per share increased by 15,5% to 6 758 cents from 5 852
cents.
BLACK ECONOMIC EMPOWERMENT
During the year, Ceramic reached agreement with all the parties involved in its
Black Economic Empowerment transactions. The Group`s two major initiatives
comprise:
- the empowerment of the Group`s clay quarries, with majority ownership passing
to the Group`s employees and
- the issue of 2 029 283 Ceramic ordinary shares to Peotona Group Holdings
(Proprietary) Limited, Aka Capital (Proprietary) Limited, a Public Benefit Trust
and a Staff Trust.
A circular to shareholders regarding the above transactions will be sent to all
shareholders for their approval at the Annual General Meeting of the Company.
PROSPECTS
Pressure on discretionary income is expected to persist, at least for the
remainder of the calendar year. As such, the Group anticipates demand in the new
housing and residential contractor markets will remain subdued. However,
heightened activity levels in the government`s infrastructure and housing and
sanitation programmes is anticipated to create support for volumes, albeit in
the lower margin commoditised products.
A large volume of competitively priced tiles and sanitaryware was imported into
South Africa before the recent weakness in the rand which will continue to place
some pressure on prices in the short term. However, inflationary pressures are
having an impact on the global tile and sanitaryware producers, and we are
seeing evidence of price increases in imports. The Group remains well positioned
to compete head-on with imports with a quality offering at competitive prices.
The Group will continue to focus on enhancing internal efficiencies to
counteract the impact of cost inflation.
The Group`s tile factories have stable management teams, in-depth understanding
of their market niches and enhanced production capacity. The Board is confident
that these factories have the resilience to withstand the current downturn,
especially with their increased focus on fashionability for both floor and wall
tile ranges.
After a very disappointing performance by the sanitaryware division the Group is
dedicating resources to ensure a sound footing for the future. The investment in
Betta`s increased capacity will come on-stream in November 2008, contributing to
higher volumes from the beginning of 2009. The Group`s bathware factories will
continue to be under the spotlight, to ensure that these are reconfigured to
meet the long term return standards required by the Group.
Notwithstanding the current slowdown in the global economy, the Group has, over
the last two years, invested in excess of R450 million (from internally
generated funds) in additional production capacity. No additional investments
will be required in the immediate future and the Group is well positioned to
take immediate advantage of any upturn in the economy.
Ceramic has the resources to weather the prevailing economic environment, with
its solid balance sheet and its stable and loyal customer base.
DIVIDEND
The Board has decided to maintain the dividend cover of 3,5 times and has
declared a final dividend (number 37) of 160 cents which, together with the
interim dividend of 130 cents produces a total dividend of 290 cents per share
(2007: 340 cents per share).
On behalf of the Board
G A M Ravazzotti N Booth
Chairman Chief Executive Officer
9 September 2008
DIVIDEND ANNOUNCEMENT
The Board has declared a final dividend (number 37) of 160 cents per share to
all shareholders recorded in the books of Ceramic Industries Limited at the
close of business on Friday, 10 October 2008. The last day to trade cum dividend
in order to participate in the dividend will be Friday, 3 October 2008. The
shares will commence trading ex dividend from the commencement of business on
Monday, 6 October 2008 and the record date will be Friday, 10 October 2008. The
dividend will be paid on Monday, 13 October 2008. Share certificates may not be
rematerialised or dematerialised between Monday, 6 October 2008 and Friday, 10
October 2008, both days inclusive.
On behalf of the Board
E J Willis
Secretary
9 September 2008
REVIEW OF EXTERNAL AUDITORS
The condensed consolidated financial statements for the year ended 31 July 2008
have been reviewed by our auditors, KPMG Inc.
Their unmodified review report is available for inspection at the registered
office of Ceramic Industries Limited.
ACCOUNTING POLICIES
The annual financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as well as the South
African Companies Act and are consistent with the accounting policies applied in
the previous financial year.
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
Registered office: Farm 2, Old Potchefstroom Road, Vereeniging.
PO Box 2247, Vereeniging, 1930
Transfer secretaries: Computershare Investor Services (Pty) Limited,
70 Marshall Street, Johannesburg, 2001PO Box 61051, Marshalltown, 2107
Sponsor: Barnard Jacobs Mellet Corporate Finance (Pty) Limited.
Date: 09/09/2008 07:05:02 Produced by the JSE SENS Department.
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