| Tue 7 Sep 2010, 7:06 | | 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 2010
CERAMIC INDUSTRIES LIMITED
Reviewed Preliminary Financial Results
for the year ended 31 July 2010
Registration number 1982/008520/06
(Incorporated in the Republic of South Africa)
("Ceramic" or "the Group")
Share code: CRM
ISIN: ZAE000008538
COMMENTARY
Operating environment
Market conditions in the tile and sanitaryware segments of the building industry
remained depressed during the year under review. Whilst a marginal improvement
in the renovations market was evident in the latter months of the period,
positively impacting tile sales, the sanitaryware market continued to be
adversely affected as a result of the decline in new build projects in the
private and government sectors.
Financial results
The Group has delivered good results in difficult trading conditions. Central to
this achievement is the solid performance produced by Ceramic`s tile factories
both locally and in Australia. Without exception each of the plants succeeded in
improving operational efficiencies and average selling prices, positively
impacting on margins. In addition, management`s priority objective of better
matching production planning and product mix with market demand continued to
grow sales.
In contrast, the sanitaryware division under-performed management`s
expectations. In a declining market, it proved difficult to extract economies of
scale and whilst Betta delivered an improved performance to contribute to Group
profits, Aquarius remains the subject of remedial action.
The Group succeeded in gaining market share from imports in both the tile and
sanitaryware markets through Ceramic`s ability to offer fashionable product in
smaller quantities at shorter lead times, and provide credit facilities.
Group revenue, comprising combined tile and sanitaryware revenue, increased
11,2% from R1 440,2 million to R1 601,2 million.
Revenue from tiles improved 13,1% from R1 218,3 million to R1 378,0 million.
Average selling prices increased by 5% in the reporting period. Tile sales
volumes across the Group grew 8,4% from 33,372 million mSquared to 36,166
million mSquared. Tile production increased 18,2% from 31,240 million mSquared
to 36,933 million mSquared.
While revenue from Ceramic`s sanitaryware factories, Betta and Aquarius, only
increased marginally by 0,6% from R221,9 million to R223,2 million, this was an
improvement on the 10% decline in the prior comparative period. Production
volumes of sanitaryware decreased 3,2% from 1 226 794 pieces to 1 187 239 pieces
as a result of industrial action and reduced market demand. Sales volumes
declined 6,0% from 1 224 166 pieces to 1 150 890 pieces.
Group operating profit increased 21,1% from R206,6 million to R250,1 million.
Profit from tiles improved 29,5% from R193,1 million to R250,1 million, while
the sanitaryware division made only a nominal profit due to under-utilisation of
capacity and continued operational inefficiencies.
The effective tax rate was reduced to 27,9% during the review period as a result
of the final SIP tax allowance benefit granted on the Pegasus project.
Finance income increased from R9,9 million to R20,8 million due to increased
interest earnings on positive cash balances in the current year. Finance
expenses reduced from R8,3 million to R311 000 resulting from the absence of
foreign exchange losses experienced in the prior year.
Headline earnings per share ("HEPS") increased 114,0% from 528,6 cents to 1
131,3 cents per share, while basic earnings per share ("EPS") increased 114,2%
from 527,6 cents to 1 130,1 cents per share. This increase must however be
viewed in the context of the impact of a once-off non-cash IFRS2 charge of R49,3
million relating to the share based payment cost of the Group`s Black Economic
Empowerment transaction on HEPS and EPS in the previous financial year.
Excluding the effect of this charge, the Group`s adjusted HEPS and EPS would
have been 38,7% higher than the previous period.
Inventories reduced from R119,2 million to R110,8 million and trade and other
receivables reduced from R244,5 million to R218,0 million as a result of prudent
working capital management.
Cash reserves increased from R155,0 million to R435,7 million. This increase is
a function of limited capital expenditure during the reporting period as well as
improved debtors` days and inventory levels. The Group`s strong balance sheet is
also a reflection of the cash generative nature of the business.
Ceramic`s net asset value per share increased 10,9% to 7 912 cents (2009: 7 135
cents).
Manufacturing operations - tile division
Pegasus
This factory produces large format high quality glazed pressed tiles which have
widespread appeal for the DIY and contract market. The fashionable, cost
effective ranges produced compete successfully against Brazilian and Chinese
imports.
Pegasus delivered another strong performance based on improved cost control and
enhanced operational efficiencies. In addition, range innovation facilitated an
increase in the average selling price of product. During the review period,
Pegasus increased capacity utilisation from 75% in the prior comparable period
to 94%. Year-on-year production volumes increased 22% from 12,25 million
mSquared to 14,91 million mSquared, while sales volumes grew 13% from 12,73
million mSquared to
14,34 million mSquared.
Pegasus` new water purification and crushing plants are now fully commissioned.
In addition to improving efficiencies in the factory, this technology will
advance the Group`s environmental protection policy by promoting long term
sustainability in the area surrounding the factory.
Vitro
Vitro manufactures full bodied glazed and unglazed extruded punched tiles for
the up-market domestic and contract sectors.
During the reporting period, two new driers were installed, increasing
production capacity by a further 13%. As a result of shutdowns effected to
install this new equipment, production and sales volumes declined, marginally,
from 5,30 million mSquared to 5,26 million mSquared and 5,44 million mSquared to
5,27 million mSquared respectively. Notwithstanding production interruptions,
Vitro contained costs and achieved improved average selling prices due to the
continued introduction of new, appealing ranges.
In recent years, Vitro has achieved considerable success with its natural stone
look-alike ranges, building a niche position in the market. The factory is
hoping to extend its competitive advantage with the conversion of its current
tile format to a Slimtech format. These new tiles are larger, and stronger,
despite being thinner. The new format delivers a range of benefits including
reduced production and distribution costs, and affords ease of installation.
Furthermore the thinner tiles reduce the factory`s carbon footprint by 15% to
20%. Customer response to this innovation has been favourable.
Samca Floor Tiles
This factory produces predominantly large format fashionable press glazed floor
tiles. In line with growing consumer demand for 50 cm x 50 cm format tiles,
Samca will continue to develop and expand this range.
Notwithstanding a two month strike in the first half of the year, the plant
succeeded in reducing production costs and maintaining production levels at
approximately 5,3 million mSquared. Sales volumes declined marginally from 5.60
million mSquared to 5,44 million mSquared, partially offset by an increase in
average selling prices.
Samca Wall Tiles
Samca Wall Tiles manufactures pressed, glazed tiles for the commodity and
fashion markets, and is the only wall tile factory in the country.
Despite being impacted by industrial action over a two month period, this
factory delivered a sound performance to improve efficiencies and margins. Range
rationalisation and enhanced product innovation assisted in achieving increased
average selling prices. Production volumes increased 23% from 4,84 million
mSquared to 5,96 million mSquared. Sales volumes improved 9% from 5,35 million
mSquared to 5,81 million mSquared.
Centaurus - Australia
This factory is the only volume tile manufacturer in Australia, and produces
glazed porcelain floor tiles in a range of size formats.
Management`s focus on customer service and better balancing of production and
demand, has continued to deliver good results, and the turnaround reported on in
the first half of the year has continued. Competitive pricing and support for
domestically manufactured products has also enabled Centaurus to gain a strong
foothold against imported product.
The second six months of the review period were slower than the first half due
to the withdrawal of the state building subsidy in Queensland, however this was
partially offset by market share gains made in New South Wales.
In a creditable performance, production volumes increased 56% from
3,50 million mSquared to 5,47 million mSquared, while sales volumes grew 25%
from 4,25 million mSquared to 5,31 million mSquared. Although average selling
prices remained constant, increased capacity utilisation and improved
efficiencies enabled Centaurus to reduce production costs.
Manufacturing operations - sanitaryware division
Betta
This factory is a high volume, low cost manufacturer of glazed porcelain
sanitaryware.
Betta experienced a difficult year featuring continued depressed market
conditions. The absence of new build projects in both the residential and public
sector segments continued to stifle growth in the industry, while industrial
action experienced at the factory over the November 2009 to January 2010 period
was severely disruptive, hampering production and sales. Production volumes
declined by 5% from 1 149 990 pieces to 1 093 604 pieces, while sales volumes
decreased 7% from 1 133 067 pieces to 1 057 281 pieces.
Betta has under-performed management`s expectations over the past 18 months.
Consequently the factory was subjected to rigorous review and restructuring
during the reporting period. A range of improvements have been achieved
including better matching of production with demand, and improved service
delivery. These efficiencies enabled the business to reverse its previous loss
to contribute a modest profit.
Given constrained local demand, opportunities to export product into Africa and
Europe are being explored.
Betta is currently operating at 60% of capacity utilisation and management is
satisfied that the restructured business is better positioned to capitalise on
growth opportunities as the economy improves.
Aquarius
This factory manufactures free standing and custom made acrylic baths and shower
trays for the local and export market.
Aquarius operates in a highly competitive, low margin sector. In addition,
market demand has continued to decline in the absence of new build projects. In
the light of its disappointing performance over the past few years, management
implemented a range of remedial actions in the business. Important operational
efficiencies have been achieved in improving costs, yields and product quality,
while inventories have been reduced. Improved production planning has also
assisted sales growth. As a result, Aquarius reduced its loss against the prior
period.
Production volumes increased 22% from 76 804 pieces to 93 635 pieces. Sales
volumes grew 3% from 91 099 pieces to 93 609 pieces.
Aquarius is currently utilising only 50% of its capacity. In order to optimise
on operational improvements, management`s challenge in the forthcoming period
will be to regain market share and build critical mass in terms of volume in
order to extract economies of scale.
Black economic empowerment ("BEE")
At a General Meeting held on 11 December 2008, shareholders approved the
conclusion of a BEE equity ownership transaction. The remaining component of
that transaction, comprising the empowerment of Ceramic`s clay quarries with
majority ownership passing to the Group`s employees, has received shareholder
approval, but still requires final approval from the Department of Mineral
Resources. Shareholders will be advised once this suspensive condition has been
fulfilled. It is anticipated that the impact of this transaction on operating
profit will be a once-off non-cash IFRS2 charge of approximately R8 million.
Prospects
It is anticipated that trading conditions in the building industry will remain
subdued. Whilst the tile segment of the sector will benefit from incremental
improvements in the renovations market, there is no sign of a turnaround in the
new build segment which drives the sanitaryware market. Management is of the
opinion that meaningful economic recovery is unlikely to occur until the latter
half of 2011.
The Group will be investing R60 million on the latest print technology, High
Definition Inkjet (HDI). This technology is set to revolutionise the global tile
industry through enhancing the quality of graphics and by affording greater
efficiencies in the production process. The HDI technology has been implemented
in Centaurus and will be commissioned at the Samca Wall Tile factory in October
2010. Once successfully bedded down, HDI will be rolled out to the other
factories between December 2010 and July 2011.
The Group is also currently undertaking a feasibility study to determine the
viability of commissioning another volume based tile plant specialising in large
format floor tiles with broad market appeal. Key factors which will determine
this decision are the Group`s eligibility to qualify for the Government`s tax
incentive for Industrial Policy Projects and ability to acquire mining licenses
to secure new clay deposits to support Ceramic`s substantial investment in plant
and machinery.
Ceramic`s tile factories performed well in difficult conditions. Management`s
challenge will be to ensure that the Group continues to leverage efficiencies
and to grow market share through producing value-for-money high quality
fashionable products which meet market demand.
Re-engineering of operations in the Group`s sanitaryware factories has resulted
in improved performances, although neither factory is delivering in line with
potential. Betta and Aquarius will remain the subject of ongoing development in
order to address the current challenges.
Dividend
The Board has declared a final dividend (number 41) of 160 cents, which together
with the interim dividend of 140 cents, produces a total dividend of 300 cents
per share (2009: 210 cents per share).
On behalf of the Board
G A M Ravazzotti N Booth
Chairman Chief Executive Officer
4 September 2010
Dividend announcement
The Board has declared a final dividend (number 41) of 160 cents per share to
all shareholders recorded in the books of Ceramic Industries Limited at the
close of business on Friday 8 October 2010. The last day to trade cum dividend
in order to participate in the dividend will be Friday, 1 October 2010. The
shares will commence trading ex dividend from the commencement of business on
Monday, 4 October 2010 and the record date will be Friday, 8 October 2010.
The dividend will be paid on Monday, 11 October 2010. Share certificates may not
be rematerialised or dematerialised between Monday, 4 October 2010 and Friday, 8
October 2010, both days inclusive.
On behalf of the Board
E J Willis
Secretary
4 September 2010
Statement of compliance
The reviewed preliminary condensed consolidated results for the year have been
prepared in accordance with the framework concepts and the measurement
requirements of International Financial Reporting Standards, the presentation
and disclosure requirements of IAS 34: Interim Financial Reporting, and the JSE
Listings Requirements and in the manner required by the South African Companies
Act, 1973. The accounting policies applied in preparation of the reviewed
preliminary condensed consolidated financial statements are consistent with
those applied in the group`s annual financial statements for the year ended 31
July 2009, which comply with International Financial Reporting Standards.
Auditor`s independent review
These preliminary condensed consolidated financial results for the year have
been reviewed by the company`s auditors, KPMG Inc., in terms of International
Standards on Review Engagements 2410. The scope of the review was to enable the
auditors to report that nothing had come to their attention that caused them to
believe that the accompanying condensed consolidated interim financial
statements are not presented, in all material respects, in accordance with IAS
34 - Interim Financial Reporting and the South African Companies Act. Their
unmodified review report on the condensed consolidated interim financial
statements is available for inspection at the registered office of the company.
Condensed consolidated statement of comprehensive income
year ended 31 July
2010 2009
% Reviewed Audited
Change R000`s R000`s
Revenue 11,2 1 601 187 1 440 199
Tiles 13,1 1 378 013 1 218 277
Sanitaryware 0,6 223 174 221 922
Operating profit before depreciation 22,0 375 021 307 285
Depreciation 24,0 (124 874) (100 734)
Operating profit before share-based 21,1 250 147 206 551
payment cost
Tiles 29,5 250 079 193 126
Sanitaryware (99,5) 68 13 425
Share-based payment cost of - (49 343)
transaction with BEE partners
Operating profit after share-based 59,1 250 147 157 208
payment cost
Finance income 110,9 20 803 9 863
Finance expenses (96,3) (311) (8 300)
Profit before taxation 70,5 270 639 158 771
Taxation 10,8 (75 456) (68 080)
Profit for the year 115,2 195 183 90 691
Other comprehensive income
Foreign currency translation 12 316 (26 078)
differences for foreign operations
Total comprehensive income for the 207 499 64 613
year
Profit attributable to:
Ordinary shareholders of the Group 113,4 193 657 90 729
Non-controlling interest 1 526 (38)
Total comprehensive income
attributable to:
Ordinary shareholders of the Group 205 356 65 676
Non-controlling interest 2 143 (1 063)
Earnings per share
Basic earnings per share (cents) 114,2 1 130,1 527,6
Diluted earnings per share (cents) 106,6 1 085,4 525,3
Dividend per share (cents) 42,9 300,0 210,0
Reconciliation of headline earnings
Profit attributable to ordinary 193 657 90 729
shareholders of the Group
Loss on disposal of plant and 205 177
equipment
Headline earnings 113,3 193 862 90 906
Headline earnings per share (cents) 114,0 1 131,3 528,6
Diluted headline earnings per share 106,4 1 086,5 526,4
(cents)
Condensed consolidated statement of financial position
at 31 July
2010 2009
Reviewed Audited
R000`s R000`s
ASSETS
Non-current assets 855 584 921 325
Property, plant and equipment 845 560 910 749
Goodwill 4 520 4 520
Unlisted investment 5 504 5 682
Deferred taxation assets - 374
Current assets 767 433 518 761
Inventories 110 800 119 247
Trade and other receivables 218 011 244 504
Income taxation receivable 2 874 -
Cash and cash equivalents 435 748 155 010
Total assets 1 623 017 1 440 086
EQUITY AND LIABILITIES
Equity 1 355 799 1 227 149
Share capital 64 816 64 816
Shares held by share trust (145 316) (112 110)
Share-based payment reserve 47 212 47 235
Share awards reserve 8 483 7 959
Reserves 83 425 61 093
Retained earnings 1 288 547 1 151 666
Ordinary shareholders` interest 1 347 167 1 220 659
Non-controlling interest 8 632 6 490
Non-current liabilities 78 787 72 328
Shareholders` loans 9 561 9 736
Deferred taxation liabilities 69 226 60 660
Borrowings - 1 932
Current liabilities 188 431 140 609
Trade and other payables and provisions 188 218 135 825
Income taxation payable - 3 247
Shareholders for dividend 213 1 537
Total equity and liabilities 1 623 017 1 440 086
Condensed consolidated statement of changes in equity
year ended 31 July
2010 2009
Reviewed Audited
R000`s R000`s
Balance at beginning of year 1 227 149 1 162 781
Net additional shares acquired by share - (481)
trust
Share-based payment cost of transaction with - 49 343
BEE partners
Costs incurred in respect of BEE transaction (23) (2 108)
Additional shares issued - 8
Share buy back (33 206) (154)
Share awards reserve 524 1 820
Profit attributable to ordinary shareholders 193 657 90 729
of the Group
Movement in foreign currency translation 11 699 (25 053)
reserve
Movement in minority shareholders 2 143 (1 063)
Transfer to dividend reserve (56 777) (38 139)
Dividend reserve 56 777 38 139
Net dividend paid (46 144) (48 673)
Balance at end of year 1 355 799 1 227 149
Condensed consolidated statement of cash flows
year ended 31 July
2010 2009
Reviewed Audited
R000`s R000`s
Operating activities
Operating profit adjusted for non-cash items 382 849 299 899
Changes in working capital 87 333 (12 522)
Cash generated from operations 470 182 287 377
Finance income 20 803 9 863
Finance expenses (311) (8 300)
Dividends paid (47 467) (47 315)
Taxation paid (74 064) (92 075)
369 143 149 550
Investing activities (53 069) (101 932)
Decrease/(increase) of share in unlisted 178 (5 682)
investments
Property, plant and equipment (net) (53 247) (96 250)
Financing activities (35 336) (18 870)
Costs incurred in respect of BEE transaction (23) (2 108)
Additional shares issued - 8
Share buy back (33 206) (154)
Cash outflow from share trust dealings - (481)
Borrowings repaid (1 932) (15 517)
Shareholders` loans repaid (175) (618)
Net movement in cash and cash equivalents 280 738 28 748
Cash and cash equivalents at beginning of 155 010 126 262
year
Cash and cash equivalents at end of year 435 748 155 010
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
www.ceramic.co.za
Date: 07/09/2010 07:06:01 Produced by the JSE SENS Department.
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