| Mon 7 Sep 2009, 7:05 | | CRM - Ceramic Industries - Reviewed Preliminary Financial Results for the year |
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CRM
CRM
CRM - Ceramic Industries - Reviewed Preliminary Financial Results for the year
ended 31 July 2009
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 2009
Commentary
Operating environment
The South African tile and sanitaryware markets experienced severe pressure
over the reporting period as consumers curtailed spend and public sector
programmes were delayed. Negative consumer sentiment and reduced consumer
discretionary spend caused by the sustained economic downturn served to curb
new build and renovations in the domestic market. As yet the positive impact
of successive interest rate cuts has not filtered through.
Difficult trading conditions led to a decrease in production volumes and thus
increased unit costs and margin pressure in a competitive environment.
Financial results
The Group succeeded in gaining modest market share in both the tile and
sanitaryware sectors. Despite this, Group revenue decreased by 2% to R1 440,2
million (2008: R1 469,6 million) as a result of declining demand.
Revenue from tiles declined by 0,4% to R1 218,3 million (2008: R1 222,7
million).
An average selling price increase of 8% partially offset the impact of reduced
sales volumes, which decreased 8% from 36,3 million m2 to 33,4 million m2.
Sanitaryware revenue declined by 10% to R221,9 million (2008: R246,9 million),
whilst sales volumes of sanitaryware and baths declined 15% from 1 437 000
pieces to 1 224 000 pieces. Average prices increased by 6%.
Group operating profit declined by 18% to R206,6 million (2008: R251,3
million). Operating profit from tiles decreased 19% from R237,1 million to
R193,1 million, while the operating profit from the sanitaryware division was
reduced by 6% to R13,4 million (2008: R14,2 million).
Given constrained demand and high opening stock levels, capacity utilisation
across the Group`s factories was reduced on average by approximately 20%. Tile
production declined by 7,5 million m2 (19%), while sanitaryware production
decreased by 290 000 pieces (19%). This trend, exacerbated by increased input
costs, had a negative impact on profit margins.
Operating profit was further affected by a R49,3 million once-off non-cash
IFRS 2 charge resulting from the conclusion of the Group`s black economic
empowerment (BEE) equity ownership transaction. Operating profit after the BEE
expense declined by 37% to R157,2 million (2008: R251,3 million). This item is
discussed in greater detail below.
Excluding the once-off charge of R49,3 million relating to the BEE
transaction, headline earnings decreased 23% from R181,7 million to R140,2
million, with a corresponding decline in headline earnings per share to 815,5
cents per share from 1 056,0 cents per share. It should be noted that the
actual number of shares in issue at 31 July 2009 is 20,293 million. After
adjusting for the shares held by the BEE partners (2,029 million shares) and
the weighted average number of shares held by the share incentive trust (1,066
million shares), the weighted average number of shares at 31 July 2009 is
17,198 million.
Inventories declined by 28% to R119,2 million. The 23% improvement in cash and
cash equivalents from R126,3 million to R155,0 million reflects this reduction
in inventories.
The net asset value per share increased by 6% to 7 135 cents from 6 758 cents.
Manufacturing operations - tile division
Pegasus
Pegasus produces large format high quality glazed pressed tiles for the DIY
and contract market. The product is price competitive with Chinese and
Brazilian imports and has broad market appeal due to the quality of the
products.
Pegasus delivered a solid operational performance, hampered only by
constrained consumer demand. The factory shut down one of its kilns and is
operating at 75% of full capacity of 17,0 million m2. In line with this,
production volumes declined by 15% to 12,3 million m2. However, sales volumes
of 12,7 million m2 exceeded production, as inventories were reduced. The
fourth kiln was restarted at the beginning of September 2009.
The new crushing and water purification plants at Pegasus are nearing
completion. This will further efforts to promote long-term sustainable
development in the area surrounding the factory in keeping with the Group`s
environmental protection policy.
Vitro
Vitro, which manufactures glazed and unglazed extruded punched tiles for the
up-market domestic and contract sectors, delivered creditable results.
The factory has succeeded in establishing a niche position in the market.
Demand for Vitro`s unique natural stone look-alike range is strong, evidenced
by the increase in sales from 5,2 million m2 in the prior year to 5,4 million
m2. Whilst production volumes decreased 2%, the balance of demand was met from
stock holding.
During the review period the factory underwent a kiln rebuild and extension to
the driers on one of the lines. This extension will cater for increased demand
for large format 40 cm x 40 cm floor tiles.
Samca Floor Tiles
This factory produces predominantly large format fashionable pressed glazed
floor tiles.
Production volumes declined by 23%, whilst sales volumes decreased by 13%, met
by sales out of stock holding. One of three kilns was shut down for the second
half of the financial year and was restarted at the beginning of August 2009.
Samca Wall Tiles
Samca Wall Tiles manufactures pressed glazed wall tiles for both the commodity
and fashion markets.
Production declined 29% from 6,8 million m2 to 4,8 million m2. Sales dropped
13% to 5,4 million m2. Two of three kilns were shut down in November and
December and one kiln has remained off for the balance of the year. Under-
utilisation of capacity has negatively impacted this factory`s financial
performance. Notwithstanding this testing environment, Samca Wall Tiles has
significantly reduced stock holding and maintained cost controls. The factory
has also successfully introduced a new fashionable 30 cm x 55 cm format.
Centaurus - Australia
Centaurus produces high quality glazed porcelain floor tiles in four size
formats, which are well accepted in the Australian market.
In order to reduce stock levels Centaurus operated only one of its two kilns
for nine months of the review period. The second kiln has been back in
production since the beginning of August 2009.
The factory succeeded in breaking even for the financial year with turnover
flat on the prior year.
Manufacturing operations - sanitaryware division
Betta
Betta, which is a high volume manufacturer of glazed porcelain sanitaryware,
delivered a poor performance in difficult conditions.
It is estimated that the sanitaryware market has declined some 40% over the
reporting period as a result of intense economic pressure on consumers, and
the delay in implementation of public sector projects.
Due to subdued demand, one of Betta`s three kilns has been closed for the
duration of the year under review. The factory produced 1 149 990 pieces in
comparison with 1 358 888 pieces in the prior year. Sales volumes reduced 12%
from 1 289 202 to 1 133 067 pieces.
Economies of scale which should have been derived from the recently completed
expansion programme have not been achieved due to the low production volumes.
Sphinx and Aquarius
Both Sphinx and Aquarius manufacture free standing and custom-made acrylic
baths. The Group`s bath factories performed poorly due to operational
shortcomings.
During the first nine months of the review period bath production was
conducted at the Sphinx factory, which has now ceased production. In the final
three months, the operations were consolidated and transferred to the new,
automated Aquarius factory in Krugersdorp. This process involved
rationalisation and the introduction of new technology and retraining of
staff. The move severely affected results in the short term, but should prove
beneficial in time.
Combined production for Sphinx and Aquarius declined 50% from 154 824 pieces
to 76 804 pieces. Sales decreased 38% from 147 735 pieces to 91 099 pieces.
These businesses will be the subject of intensive management review in the
forthcoming period.
Black economic empowerment
At a General Meeting held on 11 December 2008, shareholders approved the
conclusion of a BEE equity ownership transaction.
One component of that transaction comprised the issue of 10% of Ceramic`s
ordinary shares to strategic shareholders and Group employees. Suspensive
conditions for this transaction were fulfilled during the review period, and
consequently operating profit for the year was impacted by a once-off non-cash
IFRS 2 charge of R49,3 million.
The second component of the Group`s BEE initiatives comprises the empowerment
of Ceramic`s clay quarries, with majority ownership passing to the Group`s
employees. This initiative has received shareholder approval but is still
awaiting final approval from the Department of Mineral Resources. It is
anticipated that this suspensive condition will be fulfilled within the next
six months, and as such, the impact of the transaction will be reflected in
the reported results ended 31 January 2010. It is anticipated that operating
profit will be impacted by a further once-off non-cash charge of approximately
R8 million.
Prospects
The timing of a meaningful economic recovery is uncertain and the Group
believes that trading conditions will remain challenging over the next year.
The increased market share should allow for an improvement in production
volumes in the coming year. This in turn should have a positive impact on unit
costs and thus a potential to improve margins.
The Group`s balance sheet is strong, with no further capital expenditure
planned for expansion in the foreseeable future.
Cash flow and inventory management are evident in the results and will remain
a priority.
Ceramic Industries has identified areas for improvement and opportunity.
Management`s commitment to capitalising on these, together with the sound
state of the business, positions the Group well to manage prevailing
conditions and capture opportunities as the economy recovers.
Dividend
The Board has declared a final dividend (number 39) of 100 cents, which
together with the interim dividend of 110 cents, produces a total dividend of
210 cents per share (2008: 290 cents per share).
On behalf of the Board
G A M Ravazzotti N Booth
Chairman Chief Executive Officer
7 September 2009
Dividend announcement
The Board has declared a final dividend (number 39) of 100 cents per share to
all shareholders recorded in the books of Ceramic at the close of business on
Friday, 23 October 2009. The last day to trade cum dividend in order to
participate in the dividend will be Friday, 16 October 2009. The shares will
commence trading ex dividend from the commencement of business on Monday, 19
October 2009 and the record date will be Friday, 23 October 2009. The
dividend will be paid on Monday, 26 October 2009. Share certificates may not
be rematerialised or dematerialised between Monday, 19 October 2009 and
Friday, 23 October 2009, both days inclusive.
On behalf of the Board
E J Willis
Secretary
7 September 2009
Review of external auditors
The condensed consolidated financial statements for the year ended 31 July
2009 have been reviewed by the Group`s auditors, KPMG Inc.
Their unmodified review report is available at the registered office of
Ceramic.
Basis of preparation
The accounting policies applied are in accordance with International Financial
Reporting Standards and these reviewed preliminary financial 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.
Condensed Group income statement
for the year ended 31 July
2009 2008
% (Reviewed) (Audited)
Change R000`s R000`s
Revenue (2,0) 1 440 199 1 469 638
Tiles (0,4) 1 218 277 1 222 716
Sanitaryware (10,1) 221 922 246 922
Operating profit before (14,4) 307 285 358 985
depreciation
Depreciation (6,5) (100 734) (107 713)
Operating profit before share- (17,8) 206 551 251 272
based payment cost
Tiles (18,5) 193 126 237 064
Sanitaryware (5,5) 13 425 14 208
Share-based payment cost of (49 343) -
transaction with BEE partners
Operating profit after share- (37,4) 157 208 251 272
based payment cost
Finance income (28,3) 9 863 13 764
Finance expenses 649,8 (8 300) (1 107)
Profit before taxation (39,8) 158 771 263 929
Taxation (16,8) (68 080) (81 853)
Profit for the year (50,2) 90 691 182 076
Attributable to:
Minority shareholders (107,4) (38) 513
Ordinary shareholders of the (50,0) 90 729 181 563
Group
Weighted average number of 17 198 17 206
shares in issue (000`s)
Basic earnings per share (50,0) 527,6 1 055,2
(cents)
Dividend per share (cents) (27,6) 210,0 290,0
Condensed Group balance sheet
at 31 July
2009 2008
(Reviewed) (Audited)
R000`s R000`s
ASSETS
Non-current assets 921 325 943 408
Property, plant and equipment 910 749 935 051
Goodwill 4 520 4 520
Unlisted investment 5 682 -
Deferred taxation assets 374 3 837
Current assets 518 761 541 038
Inventories 119 247 164 747
Trade and other receivables 244 504 250 029
Cash and cash equivalents 155 010 126 262
Total assets 1 440 086 1 484 446
EQUITY AND LIABILITIES
Equity 1 227 149 1 162 781
Share capital 64 816 64 962
Shares held by share trust (112 110) (111 629)
Share-based payment reserve 47 235 -
Share awards reserve 7 959 6 139
Reserves 61 093 96 680
Retained earnings 1 151 666 1 099 076
Ordinary shareholders` interest 1 220 659 1 155 228
Minority shareholders` interest 6 490 7 553
Non-current liabilities 72 328 87 758
Shareholders` loans 9 736 10 354
Deferred taxation liabilities 60 660 59 955
Borrowings 1 932 17 449
Current liabilities 140 609 233 907
Trade and other payables and provisions 135 825 199 372
Income taxation payable 3 247 34 356
Shareholders for dividend 1 537 179
Total equity and liabilities 1 440 086 1 484 446
Reconciliation of headline earnings
for the year ended 31 July
2009 2008
% (Reviewed) (Audited)
Change R000`s R000`s
Profit attributable to ordinary 90 729 181 563
shareholders of the Group
Loss on disposal of property, 177 140
plant and equipment
Headline earnings (50,0) 90 906 181 703
Headline earnings per share (49,9) 528,6 1 056,0
(cents)
Condensed Group statement of changes in equity
for the year ended 31 July
2009 2008
(Reviewed) (Audited)
R000`s R000`s
Balance at beginning of year 1 162 781 1 011 553
Net additional shares acquired by share (481) (6 595)
trust
Share-based payment cost of transaction 49 343 -
with BEE partners
Costs incurred in respect of BEE (2 108) -
transaction
Additional shares issued 8 -
Share buy back (154) -
Share awards reserve 1 820 2 413
Share awards delivered - (1 288)
Profit attributable to ordinary 90 729 181 563
shareholders of the Group
Movement in foreign currency translation (25 053) 30 503
reserve
Movement in minority shareholders` (1 063) 1 432
interest
Transfer to dividend reserve (38 139) (49 888)
Dividend reserve 38 139 49 888
Net dividend paid (48 673) (56 800)
Balance at end of year 1 227 149 1 162 781
Condensed Group cash flow statement
for the year ended 31 July
2009 2008
(Reviewed) (Audited)
R000`s R000`s
Operating activities
Profit before taxation adjusted for non- 299 899 365 041
cash items
Changes in working capital (12 522) (89 796)
Cash generated from operations 287 377 275 245
Finance income 9 863 13 764
Finance expenses (8 300) (1 107)
Dividends paid (47 315) (56 784)
Taxation paid (92 075) (99 918)
149 550 131 200
Investing activities (101 932) (200 912)
Property, plant and equipment (net) (96 250) (200 912)
Investment in unlisted investment (5 682) -
Financing activities (18 870) 875
Costs incurred in respect of BEE (2 108) -
transaction
Additional shares issued 8 -
Share buy back (154) -
Cash outflow from share trust dealings (481) (7 883)
Borrowings (repaid)/raised (15 517) 8 322
Shareholders` loans (repaid)/raised (618) 436
Net movement in cash and cash equivalents 28 748 (68 837)
Cash and cash equivalents at beginning of 126 262 195 099
year
Cash and cash equivalents at end of year 155 010 126 262
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
Sponsor: Barnard Jacobs Mellet Corporate Finance (Pty) Limited
Date: 07/09/2009 07:05:07 Produced by the JSE SENS Department.
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