| Tue 10 Mar 2009, 7:05 | | CRM - Ceramic Industries Limited - Unaudited interim results for the six months |
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CRM
CRM
CRM - Ceramic Industries Limited - Unaudited interim results for the six months
ended 31 January 2009
CERAMIC INDUSTRIES LIMITED
(Registration number 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 2009
Condensed Group income statement
Six months Six months Year
ended ended ended
31 January 31 January 31 July
2009 2008 2008
Change Unaudited Unaudited Audited
% R000`s R000`s R000`s
Revenue 2,8 720 811 700 955 1 469 638
Tiles 6,3 609 775 573 873 1 222 716
Sanitaryware (12,6) 111 036 127 082 246 922
Operating profit before (14,7) 145 783 170 815 358 985
depreciation
Depreciation (8,9) (52 971) (58 154) (107 713)
Operating profit (17,6) 92 812 112 661 251 272
Tiles (12,7) 87 908 100 687 237 064
Sanitaryware (59,0) 4 904 11 974 14 208
Finance income (29,0) 5 201 7 326 13 764
Finance expenses 905,4 (3 519) (350) (1 107)
Profit before taxation (21,0) 94 494 119 637 263 929
Taxation (24,9) (30 293) (40 317) (81 853)
Profit for the period (19,1) 64 201 79 320 182 076
Attributable to:
Minority shareholders (381) 287 513
Ordinary shareholders (18,3) 64 582 79 033 181 563
of the Group
Weighted average number 17 201 17 210 17 206
of shares in issue
(000`s)
Basic earnings per (18,2) 375,5 459,2 1 055,2
share (cents)
Dividend per share (15,4) 110,0 130,0 290,0
(cents)
Reconciliation of
headline earnings
Profit attributable to 64 582 79 033 181 563
ordinary shareholders
of the Group
Loss on disposal of 115 164 140
plant and equipment
Headline earnings (18,3) 64 697 79 197 181 703
Headline earnings per (18,3) 376,1 460,2 1 056,0
share (cents)
Condensed Group balance sheet
31 January 31 January 31 July
2009 2008 2008
Unaudited Unaudited Audited
R000`s R000`s R000`s
ASSETS
Non-current assets 928 861 865 571 943 408
Property, plant and 917 631 857 605 935 051
equipment
Goodwill 4 520 4 520 4 520
Deferred taxation assets 6 710 3 446 3 837
Current assets 472 825 481 793 541 038
Inventories 124 287 106 099 164 747
Trade and other receivables 242 124 230 241 250 029
Unlisted investments 6 005 - -
Income taxation receivable 6 567 - -
Cash and cash equivalents 93 842 145 453 126 262
Total assets 1 401 686 1 347 364 1 484 446
EQUITY AND LIABILITIES
Equity 1 180 391 1 064 175 1 162 781
Share capital 64 962 64 962 64 962
Shares held by share trust (112 110) (111 426) (111 629)
Share awards reserve 7 176 5 067 6 139
Reserves 68 960 74 691 96 680
Retained earnings 1 144 737 1 024 061 1 099 076
Ordinary shareholders` 1 173 725 1 057 355 1 155 228
interest
Minority shareholders` 6 666 6 820 7 553
interest
Non-current liabilities 78 452 79 195 87 758
Shareholders` loans 10 134 10 132 10 354
Deferred taxation 61 817 59 271 59 955
liabilities
Borrowings 6 501 9 792 17 449
Current liabilities 142 843 203 994 233 907
Trade and other payables and 142 653 169 184 199 372
provisions
Income taxation payable - 34 636 34 356
Shareholders for dividends 190 174 179
Total equity and liabilities 1 401 686 1 347 364 1 484 446
Condensed Group cash flow statement
Six months Six months Year
ended ended ended
31 January 31 January 31 July
2009 2008 2008
Unaudited Unaudited Audited
R000`s R000`s R000`s
Operating activities
Operating profit adjusted 136 504 186 121 365 041
for non-cash items
Changes in working capital (8 354) (41 548) (89 796)
Cash generated from 128 150 144 573 275 245
operations
Finance income 5 201 7 326 13 764
Finance expenses (3 519) (350) (1 107)
Dividends paid (27 514) (34 425) (56 784)
Taxation paid (69 871) (56 557) (99 918)
32 447 60 567 131 200
Investing activities (53 218) (103 547) (200 912)
Acquisition of shares in (6 005) - -
unlisted investments
Cost relating to the BEE (1 960) - -
transaction
Property, plant and (45 253) (103 547) (200 912)
equipment (net)
Financing activities (11 649) (6 666) 875
Cash outflow from share (481) (7 545) (7 883)
trust dealings
Borrowings (repaid)/raised (10 948) 665 8 322
Shareholders` loans (220) 214 436
(repaid)/raised
Net movement in cash and (32 420) (49 646) (68 837)
cash equivalents
Cash and cash equivalents at 126 262 195 099 195 099
the beginning of the period
Cash and cash equivalents at 93 842 145 453 126 262
the end of the period
Condensed statement of changes in equity
Six months Six months Year
to to to
31 January 31 January 31 July
2009 2008 2008
Unaudited Unaudited Audited
R000`s R000`s R000`s
Balance at the beginning of 1 162 781 1 011 553 1 011 553
the period
Net additional shares (481) (6 967) (6 595)
acquired by share trust
Share awards reserve 1 037 1 206 2 413
Share awards delivered - (578) (1 288)
Profit attributable to 64 582 79 033 181 563
ordinary shareholders of the
Group
Cost relating to the BEE (1 960) - -
transaction
Movement in foreign currency (17 156) 13 665 30 503
translation reserve
Movement in minority (887) 699 1 432
shareholders
Transfer to dividend reserve (18 921) (22 373) (49 888)
Dividend reserve 18 921 22 373 49 888
Net dividend paid (27 525) (34 436) (56 800)
Balance at the end of the 1 180 391 1 064 175 1 162 781
period
Commentary
Operating environment
The trading environment remained difficult for the six months ended 31 January
2009, in line with expectations, as demand slowed and consumers continued to
rein in discretionary spending. Although government continued its water,
sanitation and housing infrastructure projects, there are indications of reduced
activity ahead of the national elections to be held in April 2009. As a result
of the above, demand for tiles and sanitaryware declined year on year.
International tile and sanitaryware factories, especially in Italy, Spain and
China, have cut back on production capacity in reaction to the global economic
slowdown. While this lowered the risks associated with a global oversupply of
tiles and sanitaryware, inventory levels across the industry are high, placing
additional pressure on pricing in the local market and limiting Ceramic
Industries` ability to recoup increased input costs.
Financial results
While the South African tile factories delivered a solid performance given the
current environment, margins were negatively affected as cost pressure persisted
and efficiencies were reduced by lower volumes. The slowdown in government
infrastructure spend had a more pronounced affect on the sanitaryware division
which produced disappointing results. The Group`s overall performance was also
affected by a poor performance from the Australian factory, Centaurus.
Revenue increased by 2,8% to R720,8 million (2008: R701,0 million) as the Group
gained market share in tiles and maintained market share in sanitaryware in a
declining market. Tile revenue improved by 6,3% to R609,8 million (2008: R573,9
million). Tile sales volumes declined by 2,8% in line with reduced demand, the
Group, however, successfully increased overall selling prices by 5,3%. Reported
sanitaryware revenue of R111,0 million (2008: R127,1 million), represents a
decrease of 12,7%, reflecting the adverse market conditions.
The loss of efficiencies associated with lower production led to a 17,6% decline
in operating profit to R92,8 million (2008: R112,7 million). While operating
profit from tiles reduced by 12,7% to R87,9 million (2008: R100,7 million),
sanitaryware`s contribution to operating profit came down by 59,0% to R4,9
million (2008: R12,0 million).
Headline earnings decreased by 18,3% to R64,7 million (2008: R79,2 million) with
a commensurate change in reported headline earnings per share to 376,1 cents
(2008: 460,2 cents).
Segmental information
Six months Six months
to to
31 January 31 January Change
2009 2008 %
Revenue (R million)
Tiles 609,8 573,9 6,3
Sanitaryware 111,0 127,1 (12,6)
Sales volumes (millions)
Tiles (m2) 17,2 17,7 (2,8)
Sanitaryware (pieces) 0,63 0,73 (13,7)
Operating profits (R millions)
Tiles 87,9 100,7 (12,7)
Sanitaryware 4,9 12,0 (59,0)
Inventories decreased to R124,3 million compared to R164,7 million six months
previously as the Group filled customer orders from stockpiles accumulated when
demand slowed unexpectedly in the previous financial year.
Cash flow from operations declined by 26,7% to R136,5 million (2008: R186,1
million), in line with lower profitability. Cash and cash equivalents decreased
to R93,8 million (2008: R126,3 million), after investments to complete the
upgrades at Pegasus, Betta and Centaurus.
Net finance income for 2008 included a one-off R10 million foreign exchange gain
on the sale of asset swaps which were purchased to offset the Group`s exposure
to foreign capital creditors. This, together with foreign exchange losses
incurred in the current period as a result of the weakening of the Rand, are the
reasons for the reduction in net finance income in 2009.
The effective 32% tax rate for the current period is due to the inclusion of STC
in the tax charge of R30,3 million.
The net asset value per share increased by 11,0% to 6 862 cents from 6 183
cents.
Manufacturing operations - tile division
Pegasus
The Pegasus factory produces matt and shiny glazed pressed floor tiles in two
size formats for indoor use, targeted at the contractor and DIY market. It is a
high-volume factory with a capacity of 17,0 million m2 per annum. Although
production declined by 13,6% to 6,1 million m2, sales volumes decreased by only
6,2% as the factory sold out of stock. In line with the lower demand for tiles,
one of Pegasus` four kilns was switched off. Lower production negatively
affected efficiencies and the improvement in average selling prices was not
sufficient to counteract higher input costs.
Vitro
Vitro, which produces glazed and unglazed extruded punched tiles for the up-
market domestic and contract sectors, continued to deliver a solid performance
against the challenging operating backdrop. Production was stable at 2,5 million
m2, but sales increased by 10,2% as the factory reduced its stock holdings from
the previous financial year. Ongoing improvements in the factory, including new
selection equipment on the recently refurbished NCI-line and kiln upgrades, have
positioned Vitro to continue making an improved contribution to the Group.
Samca Floor Tiles
Samca Floor Tiles manufactures pressed glazed floor tiles and has the capability
of producing tiles up to 50 cm by 50 cm. The factory took advantage of slower
demand to undertake extensive refurbishment, including the rebuild of one of its
kilns. This, together with an extended shut down during December, led to a 19,8%
drop in production volumes for the six months although sales volumes were less
affected. During the past two years, Samca Floor Tiles has increasingly focused
its production on larger tile formats.
Samca Wall Tiles
Samca Wall Tiles produces pressed glazed wall tiles for indoor use targeted
mainly at the lower and middle segments of the market. The factory reported
stable revenues and profit, despite a marked decrease in production volume of
22,6% due to a major kiln overhaul during the period. Sales volumes declined
only marginally. The decreased production volumes generated higher unit costs,
which were mitigated by a 5,7% increase in selling prices.
Centaurus - Australia
Centaurus produces glazed porcelain floor tiles in four size formats.
The strength of the Australian dollar and global credit crisis resulted in
difficult trading conditions and the factory reported a small loss for the
six months. In order to mitigate the impact of slower demand, the recently
commissioned second kiln was closed in order to reduce stock levels.
Production for the period was down by 22,6%. Centaurus continued to increase
its market share, delivering an 8,0% increase in sales volumes despite reduced
demand. The more recent weakening of the Australian dollar has reduced demand
for imported tiles in favour of the Centaurus product offering.
Manufacturing operations - sanitaryware division
Betta
Betta is a high volume, low cost producer of glazed porcelain sanitaryware
with a maximum production capacity of 1,8 million pieces per year. Although
production was stable at 618 000 pieces for the six months, sales volumes
suffered from subdued demand in line with the slowdown in domestic housing
and public sector projects.
The challenges associated with the expansion programme, which was
recently completed, were more complex than initially estimated and these
were exacerbated by the downturn in the market. The anticipated economies of
scale have not materialised but Betta has made progress in reducing costs.
The closure of one production line is expected to continue for the remainder
of the calendar year or until demand increases.
Sphinx
Sphinx manufactures free-standing and customised acrylic baths. The decision
to consolidate the Group`s bath production facilities to Sphinx in 2008 proved
correct. The focus on upskilling the workforce is progressing well. Units costs
have started to trend down, while the average selling price improved by 4,0%.
Aquarius
Aquarius is an automated, high-volume, low-cost acrylic bath production
facility. The factory remained closed during the period. The factory is
being re-engineered with a view to starting up again in the last quarter
of the financial year.
Black Economic Empowerment
At a General Meeting held on 11 December 2008, shareholders approved all the
ordinary and special resolutions relating to the conclusion of a broad-based
black economic empowerment (BBBEE) equity ownership transaction, as detailed
in the circular to shareholders dated 19 November 2008. The Group`s two major
BBBEE initiatives comprise the empowerment of the Group`s clay quarries, with
majority ownership passing to the Group`s employees and the issue of 10% of
Ceramic Industries ordinary shares to strategic black shareholders and the
Group`s employees.
As certain suspensive conditions for the BEE transaction were unfulfilled at
the end of January there was no impact of the transaction on the reported
results to January 2009. The outstanding suspensive conditions will be
fulfilled before the current financial year end and operating profit for the
year ending 31 July 2009 will be impacted by a once off non-cash charge of
approximately R52,3 million as detailed in the circular to shareholders
dated 19 November 2008.
Prospects
Although interest rates are expected to continue easing in the second
half of the financial year, discretionary spending will remain under
pressure with subdued demand in the new housing market. In addition, the
Group anticipates that the slower activity levels in the government`s
infrastructure and housing and sanitation programmes will persist for at
least the next six months. Although the demand for tiles has slowed, the
Group has demonstrated its ability to manufacture fashionable tiles and
improve service levels and is positioned to continue benefitting from import
substitution with a high quality and competitively priced offering. The focus
remains on optimising internal efficiencies at the lower current production
levels to dampen the effects of ongoing cost inflation.
The factories in the Group`s sanitaryware division are starting to
overcome their internal challenges, although there remains much to be
achieved. Betta and Sphinx will continue to focus on improving internal
efficiencies to ensure their competitiveness. Based on current market demand
levels, the bath factory remains a challenge. In order to utilise excess
production capacity, the division has also developed a new strategy to
accelerate exports to Europe and the United Kingdom.
The Group has invested over R450 million of internally generated funds in
additional production capacity over the last few years. No additional
investments will be made in the immediate future, and the Group is well
positioned to take advantage of any increase in consumer demand.
Although the outlook remains uncertain, Ceramic Industries` well-established
factories, its strong balance sheet and broad customer base should enable the
Group to continue generating acceptable results.
Dividend
The Board has decided to maintain the dividend cover of 3,5 times and has
declared an interim dividend (number 38) of 110 cents.
On behalf of the Board
G A M Ravazzotti N Booth
Chairman Chief Executive Officer
10 March 2009
Dividend announcement
The Board has declared an interim dividend (number 38) of 110 cents per
share to all shareholders recorded in the books of Ceramic Industries at the
close of business on Friday, 17 April 2009. The last day to trade cum dividend
in order to participate in the dividend will be Wednesday, 8 April 2009. The
shares will commence trading ex dividend from the commencement of business on
Thursday, 9 April 2009 and the record date will be Friday, 17 April 2009. The
dividend will be paid on Monday, 20 April 2009. Share certificates may not be
rematerialised or dematerialised between Thursday, 9 April 2009 and Friday, 17
April 2009, both days inclusive.
By order of the Board
EJ Willis
Secretary
10 March 2009
Basis of preparation
The accounting policies applied are in accordance with International
Financial Reporting Standards and these unaudited interim results have been
prepared and presented in accordance with International Accounting Standard
34. The accounting policies and methods of computations are consistent
with those adopted in the financial year ended 31 July 2008.
These interim results have not been reviewed or reported on by the
Company`s external auditors.
Directors: G A M Ravazzotti (Chairman), N Booth (Chief Executive Officer),
D R Alston (Chief Financial 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 2001, PO Box 61051, Marshalltown 2107
Date: 10/03/2009 07:05:06 Produced by the JSE SENS Department.
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