| Thu 19 Aug 2010, 7:30 | | ITE - Italtile Limited - Preliminary profit announcement and reviewed group |
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ITE - Italtile Limited - Preliminary profit announcement and reviewed group
results for the year ended 30 June 2010
ITALTILE LIMITED
SHARE CODE: ITE ISIN: ZAE000099123
REGISTRATION NUMBER: 1955/000558/06 Incorporated in the Republic of South
Africa ("Italtile" or "the Group")
PRELIMINARY PROFIT ANNOUNCEMENT AND REVIEWED GROUP RESULTS FOR THE YEAR ENDED 30
JUNE 2010
Commentary
Results Trading conditions remained difficult in the year under review, and
whilst the latter months of the period indicated that the country was slowly
emerging from recession, economic recovery was restrained and consumers`
response measured.
The Group has reported a 7% growth in system-wide turnover to R2,75 billion
(2009: R2,57 billion). Since no new mainstream stores were opened in the
reporting period and price inflation was restricted to 1%, this growth is
attributable to improvements in the quality of the business resulting from
efficiencies implemented at store level and in the supply chain.
Reported trading profit increased by 8% to R389 million (2009: R361 million).
Group operating margin remained constant.
Inventory management at store level and in the supply chain remained a key
priority. Stock-turn across the brands continued to improve in line with the
trend of the past two years. Management is satisfied that current inventories of
R232 million will support the Group`s trading activities in the forthcoming
period.
Cash reserves increased from R667 million to R711 million in the review period,
and will be used to fund future expansion.
The tangible net asset value per share has decreased by 5% to 161 cents (2009:
169 cents).
Trading environment The aggressively competitive environment featured further
rationalisation of industry peers, a reduction in the number of contractors in
the lower end of the market, and continued stagnation in construction activity
in the niche premium end segment.
In this context, the Group benefited from its resilient business model and
diverse customer base which enables it to take advantage of both the renovation
and new build markets as those sectors enter alternate cycles. Whilst the new
build sector declined during the review period, the Group capitalised on the
small improvement experienced in the renovations market.
Italtile`s 40 year legacy and high profile brands served it well in the
uncertain economic climate where customers sought reliable, trustworthy
suppliers.
Operational review The three fundamentals underpinning the Group`s strategy to
own its customers are: an unwavering focus on customer service, an
unrivalled in-store shopping experience and dynamism in enhancing in-house
efficiencies. Accordingly, improvements were aimed at the calibre of staff and
store operators, the quality of merchandise and range and the Group`s overall
value offering.
Italtile Trading conditions in this brand`s market segment remained
challenging. While the renovations sector started to show modest signs of
recovery in the second half of the year, new build projects in the previously
buoyant affluent end of the market stagnated. In this environment, no new
stores were added to the existing network of seven, however, Italtile succeeded
in growing market share as a result of inroads made into the projects sector
and upper end of the middle income market. The rationalisation of competitors
also assisted the brand in extending its lead in its niche segment.
In the year under review, management`s focus was on enhancing store layouts and
product range, particularly in the bath shop component of the business.
In a first-to-market coup, Italtile has introduced the `Earth` range,
internationally accredited environmentally-friendly tiles, which are set to
revolutionise the industry. Manufactured using cutting edge digital ink jet
printer technology, the product is indistinguishable from natural stone,
affording manufacturers greater flexibility in terms of product and volumes
and providing the end user with an aesthetically superior, ecologically
sustainable product.
Italtile`s Cape Town store will be relocated in the last quarter of 2010, and
two new stores are planned for 2011 in Boksburg and Windhoek.
CTM Retail trends demonstrate that faced with reduced discretionary spend,
consumers gravitate to well known, respected brands that offer value. CTM`s
reputable, high profile value proposition was perfectly positioned to
capitalise on that trend. In-house brand building campaigns communicating style
and value also afforded CTM strategic advantage over its competitors.
The onerous economic environment continued to restrict growth in the new
build sector, favouring the renovations market. CTM`s appeal for small builders
and the DIY market benefited strongly from this trend.
Robust growth continued to be experienced in the entry level and rural markets,
with steady growth achieved in the middle income segments. The inland regions
outpaced the coastal areas. Despite extremely competitive trading conditions,
the brand succeeded in growing market share.
Top T Top T is the Group`s embryonic no frills value brand, offering "tiles,
taps, toilets and tubs at factory prices," as well as a limited hardware range.
The network comprises eleven stores situated in small outlying markets
and under-serviced rural areas. While three new stores were opened during the
year, they did not contribute to the Group`s operating profit. Management is of
the opinion that the brand offers growth potential over the long term but until
the business model has been optimally developed, expansion will be conservative.
Supply Chain Pivotal to the Group`s vertically integrated supply chain model
are the International Tap Distributors ("ITD") and Cedar Point businesses. The
former supplies taps and accessories, whilst the latter distributes laminated
boards, cabinets, tools and decor.
Improvements in internal efficiencies, service and enhanced range management
enabled these divisions to grow revenue and gain market share in the reporting
period.
Additional growth opportunities for ITD and Cedar Point will be leveraged off
CTM`s brand building campaigns and promotions which are scheduled throughout
the year.
Africa The Group has 14 CTM stores in the sub-equatorial region. Trading
conditions in neighbouring Namibia and Botswana were difficult given the
recessionary environment linked to the South African economy. The Group`s
strategy in terms of expansion into Africa is conservative, based on building
existing relationships to entrench the brand`s presence and extend the
network. Opportunities to establish New Master Franchise licenses are being
evaluated
in Zambia and Malawi. A new store is currently under construction in Nairobi,
Kenya and should commence trading in mid 2011.
Australia Notwithstanding difficult trading conditions, the Group`s CTM
Australia operation grew revenue, making a sound contribution to Group profits.
It is anticipated that this performance is sustainable, and consequently, the
planned strategy is to expand the existing nine store network to 15 stores
by the end of June 2013, pending availability of suitable properties.
Property portfolio The strategic advantage of supporting the Group`s brands
with high profile destination sites ensures that this portfolio contains high
quality investments that deliver a rate of return in line with the Group`s
trading operations. The property portfolio has an estimated market value of
R1,3 billion (2009: R1,1 billion).
At present, construction costs favour the development of new sites, and the
Group is currently erecting new properties in Cape Town, Mossel Bay, Newcastle,
Secunda and Gabarone.
Directorate Mr Gary Morolo resigned his position as non-executive director
of Italtile with effect from 12 May 2010. The Board thanks him for his valued
contribution.
Prospects Difficult trading conditions are expected to remain a challenge in
the year ahead. Intensified competition is anticipated and greater innovation
will be required to continue growing the Group`s market share. Management`s
priorities will be to leverage further efficiencies, and continue to improve the
Group`s service offering and in-store shopping experience.
The Group`s business is healthy and its brands are well positioned to capitalise
on growth opportunities as the economy improves.
Basis of preparation of accounting policies The Preliminary Profit
Announcement has been prepared in accordance with the framework concepts and the
measurement and recognition requirements of International Financial Reporting
Standards and the AC 500 standards, and contains the information required by
International Accounting Standard 34, Interim Financial Reporting. The results
have been prepared on the historical cost basis, adjusted for the fair value of
certain assets and liabilities. Intra-group transaction analysis has been
introduced in the segmental report in order to improve disclosure and make the
report more meaningful.
Ordinary dividend The Group has maintained its cover of three times. The Board
has declared a final dividend of 5 cents per share (2009: 5 cents), which
together with the ordinary dividend of 6 cents, produces a total ordinary
dividend declared for the year of 11 cents (2009: 11 cents).
Ordinary dividend announcement The Board has declared a final dividend
(number 88) of 5 cents per share to all shareholders recorded in the books of
Italtile Limited. The last day to trade cum the dividend will be Friday, 3
September 2010. The shares of Italtile will commence trading
ex dividend from the commencement of business on Monday, 6 September 2010 and
the record date will be Friday, 10 September 2010. Payments will be made on
Monday, 13 September 2010. Share certificates may not be rematerialised or
dematerialised between Monday, 6 September 2010 and Friday, 10 September 2010,
both days inclusive.
Special cash dividend A special cash dividend of 60 cents per ordinary share
was declared in the interim announcement of 18 February 2010.
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 unqualified review
opinion is available on request from the company secretary at the company`s
registered office.
Johannesburg 18 August 2010
SYSTEM-WIDE TURNOVER ANALYSIS
for the year ended 30 June 2010
Reviewed Audited
year to year to
% 30 June 30 June
(Rand millions unless otherwise stated) increase 2010 2009
Group and franchised turnover
- By Group-owned stores 1 354 1 303
- By franchise-owned stores (unaudited) 1 396 1 268
TOTAL 7 2 750 2 571
ABRIDGED GROUP STATEMENTS OF COMPREHENSIVE INCOME
for the year ended 30 June 2010
Reviewed Audited
year to year to
% 30 June 30 June
(Rand millions unless otherwise stated) increase 2010 2009
Trading profit before depreciation 429 403
Depreciation (39) (41)
Loss on sale of property, plant and (1) (1)
equipment
Trading profit 8 389 361
Investment income 42 48
Profit before interest paid 431 409
Interest paid (27) (40)
Profit before taxation 10 404 369
Taxation (123) (109)
Profit for the year 8 281 260
Other comprehensive income:
Currency translation difference 2 (12)
Total comprehensive income for the year 14 283 248
Attributable to:
Owners of the parent 275 245
Non-controlling interests 8 3
14 283 248
Number of shares in issue (000`s)* 921 041 795 984
Earnings per share (cents) 2 33,0 32,3
Headline earnings per share (cents) 2 33,1 32,4
Diluted earnings per share (cents) 2 32,9 32,3
Diluted headline earnings per share 2 33,0 32,4
(cents)
Adjusted headline earnings per share 6 29,8 28,1
(cents)note 2
Dividends per share (cents) 11,0 11,0
RECONCILIATION OF HEADLINE EARNINGS
Earnings attributable to ordinary 271 257
shareholders
Loss on sale of property, plant and 1 1
equipment
Headline earnings 272 258
*RECONCILIATION OF SHARES IN ISSUE
Total number of shares issued (000`s) 1 033 332 909 800
Share Incentive Trust shares (000`s) 24 291 25 816
BEE treasury shares (000`s) 88 000 88 000
Shares in issue to external parties 921 041 795 984
(000`s)
SEGMENTAL REPORTING
for the year ended 30 June 2010
(Rand millions Retail Fran- Proper- Supply Inter Group
unless otherwise chising ties and group
stated) support trans-
services actions
Reviewed year to
June 2010
Turnover 1 111 - - 549 (306) 1 354
Gross margin 423 - - 76 - 499
Other income* 11 166 146 94 (157) 260
Overheads (364) (84) (31) (48) 157 (370)
Trading profit 70 82 115 122 - 389
Audited year to
June 2009
Turnover 1 067 - - 495 (259) 1 303
Gross margin 402 - - 63 - 465
Other income* 10 154 138 103 (148) 257
Overheads (364) (72) (29) (44) 148 (361)
Trading profit 48 82 109 122 - 361
*Other income includes franchise fees, rentals, royalties and rebates received.
ABRIDGED GROUP STATEMENTS OF FINANCIAL POSITION
as at 30 June 2010
Reviewed Audited
year to year to
30 June 30 June
(Rand millions unless otherwise stated) 2010 2009
ASSETS
Non-current assets 989 937
Property, plant and equipment 952 914
Other long-term assets 27 16
Goodwill 6 6
Deferred tax 4 1
Current assets 1 072 994
Inventories 232 191
Trade and other receivables 110 136
Cash and cash equivalents 711 667
Taxation 19 -
Total assets 2 061 1 931
EQUITY AND LIABILITIES
Capital and reserves 1 483 1 346
Stated capital 818 417
Non-distributable reserve 53 78
Treasury shares (470) (473)
Retained profit 1 021 1 284
Outside shareholders` interest 61 40
Long-term liabilities 342 341
Current liabilities 236 244
Trade and other payables 236 238
Taxation - 6
2 061 1 931
Net asset value per share (cents) 161 169
Adjusted net asset value per share (cents)note 2 161 146
STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2010
(Rand millions unless Non-
distri-
otherwise stated) Stated butable Treasury Retained
Group capital reserve shares profit
Balance at 30 June 2008 417 80 (473) 1 134
Total comprehensive
income for the period (12) 257
Dividends paid (107)
Unallocated shares in
share trust 2
Accumulated surplus in
share trust (2)
Disposal of interest in 10
subsidiary
Balance at 30 June 2009 417 78 (473) 1 284
Total comprehensive
income for the period 2 273
Dividends paid (566)
Share issue in lieu of
dividend 401
Share option costs 3
Transfer of share option (30) 30
reserve
Unallocated shares in
share Trust 3
Disposal of interest in
subsidiary
Balance at 30 June 2010 818 53 (470) 1 021
STATEMENT OF CHANGES IN EQUITY (CONTINUED)
for the year ended 30 June 2010
(Rand millions unless Non-
otherwise stated) controlling Total
Group Total interests equity
Balance at 30 June 2008 1 158 25 1 183
Total comprehensive
income for the period 245 3 248
Dividends paid (107) (4) (111)
Unallocated shares in
share trust 2 2
Accumulated surplus in
share trust (2) (2)
Disposal of interest in 10 16 26
subsidiary
Balance at 30 June 2009 1 306 40 1 346
Total comprehensive
income for the period 275 8 283
Dividends paid (566) (3) (569)
Share issue in lieu of
dividend 401 401
Share option costs 3 3
Transfer of share option - -
reserve
Unallocated shares in
share Trust 3 3
Disposal of interest in 16 16
subsidiary
Balance at 30 June 2010 1 422 61 1 483
CASH FLOW STATEMENT
for the year ended 30 June 2010
Reviewed Audited
year to year to
30 June 30 June
(Rand millions unless otherwise stated) 2010 2009
Cash flow from operating activities (283) 228
Cash flow from investing activities (72) (71)
Cash flow from financing activities 399 229
Net movement in cash and cash equivalents 44 386
Cash and cash equivalents at beginning of year 667 281
Cash and cash equivalents at end of year 711 667
NOTES
1. Commitments and contingencies
There are no material contingent liabilities or assets at 30
June 2010
- Capital commitments at 30 June 2010 Rm
- Contracted 77
- Authorised, not contracted 63
140
2. Share issue in lieu of dividend
As announced on 31 March 2010, as a consequence of the special
dividend declaration on 18 February 2010, 123 532 370 shares
were issued in lieu of dividend at the option of shareholders.
This has impacted on the comparability of certain figures, in
particular earnings per share and net asset value per share. As
a result, adjusted headline earnings and net asset value per
share figures have been presented for comparative purposes
(assuming the share issue in lieu of dividend took place at the
beginning of the 2009 financial year).
3. Changes in accounting policies
The accounting policies adopted and methods of computation are
consistent with those of the previous financial year except for
the adoption of new and amended IFRS and IFRIC interpretations
which became effective during the current financial year. The
application of these standards and interpretations did not have
a significant impact on the Group`s reported results and cash
flows for the year ended 30 June 2010 and the financial
position at 30 June 2010. The following standards will however
have an impact on disclosures presented in the annual financial
statements for the year ended 30 June 2010:
- IFRS 8, Operating Segments; and IAS 1 Revised, Presentation
of Financial Statements.
In terms of the Articles of Association, the company`s borrowing facilities are
unlimited.
STORE NETWORK
at 30 June 2010
2010 2009
Region Franchise Other Total Franchise Other Total
South Africa
Italtile 2 5 7 2 5 7
CTM 40 23 63 40 23 63
Top T 3 8 11 4 4 8
Africa (excluding 12 2 14 12 2 14
South Africa)
Australia - 9 9 - 9 9
Total 57 47 104 58 43 101
REGISTERED OFFICE: The Italtile Building, cnr William Nicol Drive and Peter
Place, Bryanston (PO Box 1689, Randburg 2125)
TRANSFER SECRETARIES: Computershare Investor Services (Pty) Limited,
70 Marshall Street, Johannesburg 2001 (PO Box 61051, Marshalltown 2107)
Executive directors: G A M Ravazzotti (Chairman), ?G P E Ravazzotti (Chief
Executive Officer),? P D Swatton* (Chief Financial Officer).
NON-EXECUTIVE DIRECTORS: S M Du Toit, S I Gama, A Zannoni**
(*British **Italian)
COMPANY SECRETARY: E J Willis
Sponsor: BJM Corporate Finance (Pty) Limited
Refer to Italtile`s corporate website:www.italtile.com
Date: 19/08/2010 07:30:01 Produced by the JSE SENS Department.
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