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ITE - Italtile Limited - System wide turnover analysis for the period ended 31
December 2010
Italtile Limited
Reviewed Group results for the six months ended 31 December 2010
Share code: ITE ISIN: ZAE000099123
Reg. no.: 1955/000558/06
Incorporated in the Republic of South Africa
("Italtile" or "the Group")
System wide turnover analysis
For the period ended 31 December 2010
(Rand millions unless otherwise stated)
Reviewed Reviewed Audited
six months six months year
to to to
% 31 December 31 December 30 June
increase 2010 2009 2010
Group and franchised
turnover
- By Group owned 771 692 1 354
stores
-
By franchise owned 814 744 1 396
stores (unaudited)
Total 10 1 585 1 436 2 750
Abridged Group statements of comprehensive income
For the period ended 31 December 2010
(Rand millions unless otherwise stated)
Reviewed Reviewed Audited
six months six months year
to to to
% 31 December 31 December 30 June
increase 2010 2009 2010
Turnover 771 692 1 354
Cost of sales (486) (431) (784)
Gross profit 9 285 261 570
Other operating 146 140 187
income
Operating expenses (203) (199) (367)
Profit/(loss) on 3 - (1)
sale of property,
plant and equipment
Trading profit 14 231 202 389
Finance revenue 19 20 42
Finance cost (12) (14) (27)
Profit before 14 238 208 404
taxation
Taxation (66) (59) (123)
Profit after 15 172 149 281
taxation
Income from 4 - -
associates Note 3
Profit for the 18 176 149 281
period
Other comprehensive
income:
Currency translation 1 - 2
difference
Total comprehensive 19 177 149 283
income for the
period
Total comprehensive
income attributable
to:
- Equity 166 143 275
shareholders
- Non-controlling 11 6 8
interests
19 177 149 283
Profit attributable
to:
- Equity 165 143 273
shareholders
- Non-controlling 11 6 8
interests
18 176 149 281
Earnings per share
(all figures in
cents):
- Earnings per - 17,9 17,9 33,0
share
- Headline earnings (2) 17,6 17,9 33,1
per share
- Diluted earnings - 17,9 17,9 32,9
per share
- Diluted headline (2) 17,5 17,9 33,0
earnings per share
- Adjusted headline 13 17,6 15,5 29,8
earnings per share
note 2
- Dividends per - 6,0 6,0 11,0
share
Reconciliation of
headline earnings:
- Profit 165 143 273
attributable to
equity shareholders
- (Profit)/loss on (3) - 1
sale of property,
plant and equipment
Headline earnings 13 162 143 274
Reconciliation of
shares in issue (all
figures in
millions):
- Total number of 1 033 910 1 033
shares issued
- Share Incentive 26 24 24
Trust shares
- BEE treasury 88 88 88
shares
Shares in issue to 15 919 798 921
external parties
Abridged Group statements of financial position
As at 31 December 2010
(Rand millions unless otherwise stated)
Reviewed Reviewed Audited
six months six months year
to to to
31 December 31 December 30 June
2010 2009 2010
ASSETS
Non-current assets 1 026 964 991
Property, plant and equipment 984 937 952
Investments Note 3 12 8 9
Long-term assets 18 11 18
Goodwill 6 6 6
Deferred taxation 6 2 6
Current assets 1 180 1 102 1 072
Inventories 228 173 232
Trade and other receivables 128 121 110
Cash and cash equivalents 820 808 711
Taxation receivable 4 - 19
Total assets 2 206 2 066 2 063
EQUITY AND LIABILITIES
Share capital and reserves 1 603 1 455 1 483
Stated capital 818 417 818
Non-distributable reserves 50 48 50
Treasury shares (478) (470) (470)
Share option reserve 5 30 3
Retained earnings 1 140 1 384 1 021
Non-controlling interests 68 46 61
Non-current liabilities 46 343 344
Interest bearing loans 43 341 342
Deferred taxation 3 2 2
Current liabilities 557 268 236
Trade and other payables 218 221 202
Provisions 39 30 34
Interest bearing loans 300 - -
Taxation - 17 -
TOTAL EQUITY AND LIABILITIES 2 206 2 066 2 063
Net asset value per share (cents) 174 182 161
Adjusted net asset value per 174 158 161
share (cents) Note 2
Abridged Group cash flow statement
For the period ended 31 December 2010
(Rand millions unless otherwise stated)
Reviewed Reviewed Audited
six months six months year
to to to
31 December 31 December 30 June
2010 2009 2010
Cash flow from operating 166 184 (283)
activities
Cash flow from investing (50) (45) (72)
activities
Cash flow from financing (7) 2 399
activities
Net movement in cash and cash 109 141 44
equivalents for the period
Cash and cash equivalents at the 711 667 667
beginning of the period
Cash and cash equivalents at the 820 808 711
end of the period
Group statement of changes in equity
For the period ended 31 December 2010
(Rand millions unless otherwise stated)
Non-
distri- Share
Stated butable Treasury option
capital reserve shares reserve
Balance at
30 June 2009 417 48 (473) 30
Total comprehensive income for 2
the period
Dividends paid
Share issue in lieu of dividend 401
Share option costs 3
Transfer of share option reserve (30)
Unallocated shares in Share Trust 3
Arising on acquisition of
interest in subsidiaries
Balance at
30 June 2010 818 50 (470) 3
Total comprehensive income for
the period
Dividends paid
Purchase of shares
by Share Trust (8)
Share option costs 2
Balance at
31 December 2010 818 50 (478) 5
Group statement of changes in equity (continued)
For the period ended 31 December 2010
(Rand millions unless otherwise stated)
Non-
control-
Retained ling Total
earnings Total interest equity
Balance at
30 June 2009 1 284 1 306 40 1 346
Total comprehensive income for 273 275 8 283
the period
Dividends paid (566) (566) (3) (569)
Share issue in lieu of dividend 401 401
Share option costs 3 3
Transfer of share option reserve 30 - -
Unallocated shares in Share 3 3
Trust
Arising on acquisition of - 16 16
interest in subsidiaries
Balance at
30 June 2010 1 021 1 422 61 1 483
Total comprehensive income for 165 165 11 176
the period
Dividends paid (46) (46) (4) (50)
Purchase of shares
by Share Trust (8) (8)
Share option costs 2 2
Balance at
31 December 2010 1 140 1 525 68 1 603
Segmental report
For the period ended 31 December 2010
(Rand millions unless otherwise stated)
Retail Franchising Properties
Reviewed period
to December 2010
Turnover 623 - -
Gross margin 237 - -
Other income * 10 94 88
Overheads (198) (10) (18)
Trading profit 49 84 70
Reviewed period
to December 2009
Turnover 593 - -
Gross margin 225 - -
Other income* 6 90 79
Overheads (189) (7) (15)
Trading profit 42 83 64
*Other income includes franchise fees, rentals, royalties and rebates received,
as well as profit or loss on disposal of property, plant and equipment.
Segmental report
For the period ended 31 December 2010 (continued)
(Rand millions unless otherwise stated)
Supply and
support Inter group
services transactions Group
Reviewed period
to December 2010
Turnover 350 (202) 771
Gross margin 48 - 285
Other income * 51 (94) 149
Overheads (71) 94 (203)
Trading profit 28 - 231
Reviewed period
to December 2009
Turnover 229 (130) 692
Gross margin 36 - 261
Other income* 46 (81) 140
Overheads (69) 81 (199)
Trading profit 13 - 202
*Other income includes franchise fees, rentals, royalties and rebates received,
as well as profit or loss on disposal of property, plant and equipment.
Notes
1. Commitments and contingencies
There are no material contingent assets or liabilities at
31 December 2010.
Capital commitments at 31 December 2010: R`m
- Contracted 29
- Authorised, not contracted 90
Total 119
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. Associate accounting
During the current period, the Group began accounting for an existing investment
in Eezetile, a national manufacturer of adhesive, grout and related products, in
accordance with the equity accounting requirements of IAS 28, Investments in
associates.
4. Changes in accounting policy
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
six months ended 31 December 2010 and the financial position at 31 December
2010.
Store network
at 31 December 2010
2010
Region Franchise Other Total
South Africa
- Italtile 1 6 7
- CTM 44 21 65
- TopT 5 8 13
Rest of Africa 11 3 14
Australia - 8 8
61 46 107
Store network (continued)
at 31 December 2010
2009
Region Franchise Other Total
South Africa
- Italtile 2 5 7
- CTM 43 21 64
- TopT 2 6 8
Rest of Africa 11 3 14
Australia - 9 9
58 44 102
Commentary
Results
Trading conditions in the building and construction industry remained severe,
featuring a sluggish recovery compared with other sectors of the economy. In
this context, the Group`s results are primarily a reflection of improvements in
the business.
Italtile Limited has reported a 10,0% increase in system-wide turnover to R1,59
billion (2009: R1,44 billion) for the six months ended 31 December 2010. Group-
owned stores grew revenue 11,4% to R771 million (2009: R692 million), while
franchised stores improved turnover 9,4% to R814 million (2009: R744 million).
Real organic growth, excluding new store turnover contribution of 1,0% and price
deflation of 0,1%, equates to 8,9%.
Reported trading profit rose 14% to R231 million (2009: R202 million), primarily
as a result of operating cost containment and improved contribution to
profitability by the Group`s supply chain partners, as well as R3 million profit
on disposal of property, plant and equipment. The Group`s operating margin
remained firm as a result of intensive cost control and improved supply chain
and in-store efficiencies.
Adjusted headline earnings per share increased 13% to 17,6 cents (2009: 15,5
cents).
Enhanced product mix and rigorous stock management in the supply chain and at
store level resulted in a further decrease in inventories to R228 million from
R232 million at 30 June 2010.
Despite capital expenditure of R63 million on properties and IT infrastructure,
cash reserves grew to R820 million (June 2009: R711 million), reflecting the
Group`s strong cash-generative ability.
The adjusted net asset value per share improved 10,0% to 174 cents (2009: 158
cents).
Trading environment
The industry remained under intense pressure during the review period,
constrained by limited new build activity and subdued growth in the renovations
market. The strengthened Rand afforded short-term advantage to opportunistic
importers, resulting in an influx of imported product from a range of countries,
and more significantly, a proliferation of very low-priced entry-level tiles, a
trend last experienced three years ago. The average selling price of imported
product declined by 10%, exerting price pressure on the value-for-money segment
of the market specifically.
Operational review
Significant investment in fine-tuning the business model and the introduction of
operating innovations over the past two years have started to yield the
anticipated benefits. The restructuring of the Italtile brand, investment in
people and processes at CTM, and developing the Top T trading format has ensured
that the brands are positioned for growth as the economy improves. Continued
focus on efficiencies and synergies will enhance the Group`s standing as the
market leader in its industry.
Italtile
The premium-end of the market remained stagnant, with little development taking
place in the R2 million-plus housing market. Despite this, Italtile delivered a
strong growth performance and succeeded in gaining market share amongst its
traditional affluent customer base, as well as making further inroads into the
fledgling projects market.
The brand continues to enjoy a gratifying response to its environmentally
friendly strategies and products, evidenced by Italtile`s Earth range,
(porcelain tiles indistinguishable from natural stone and internationally
accredited for their environmentally sensitive features) which has captivated
the local market. Furthering the goal to lead the industry in providing
aesthetically superior ecologically sustainable products, Italtile has
introduced an environmentally conscious range of sanitaryware, Cotto,
manufactured in Thailand. Cotto demonstrates impressive `green` credentials
through the entire product cycle, from manufacture to consumption, and is
expected to attain strong market share in South Africa.
CTM
Trading conditions remained difficult, featuring an abundance of imported
product, with fierce competition at entry-level price points particularly
evident. Notwithstanding this trend, CTM succeeded in retaining its market share
based on its resilient business model and strong brand presence. Favourable
customer response to in-house brand building campaigns continues to grow, with
brands such as Kilimanjaro and Tivoli Taps becoming established household names.
The decline in import prices at retail level were offset by the increase in
sales at CTM of higher value products. This phenomenon is mainly due to the
continued absence of small project contractors who traditionally drive the
commodity-priced segment of the market.
Top T
A further five stores were opened during the review period, bringing to 13 the
total network. Located in previously under-serviced rural areas, these stores
have been well received, affording the Group access to a new market segment
amongst emerging entry-level consumers. The enlarged store network has had the
benefit of enabling management to understand and fine-tune the trading model and
improve the brand`s buying power. Consistent buoyant growth is anticipated for
Top T and further stores will be rolled out in future.
Supply chain
The Group`s partners are pivotal to the integrated supply chain model, and Cedar
Point and International Tap Distributors made a significant contribution to the
improved profitability of the business. Enhanced buying practices and better
range management generated improved efficiencies and service, and promoted
increased sales into the Group`s stores.
Rest of Africa
The Group is represented by 14 CTM stores in seven African countries. Turnover
growth in these territories was negligible, with the East African operations
particularly hampered by poor economic conditions. Opportunities to expand the
Group`s network into Africa are reviewed on a continual basis, within the
context of logistical and infrastructural constraints and the availability of
suitable partners.
Australia
The downturn in the Australian economy remained evident during the reporting
period, curtailing consumer spend, notably in the building and construction
sector. As a result, the Group`s stores failed to achieve management`s
expectations for the business during this period under review. The adverse
trading conditions are anticipated to prevail over the next six months,
exacerbated by the disruptive impact of recent inclement weather.
Notwithstanding this environment, the Group remains resolute in its intention to
expand the store network to 15 stores by 2013, pending availability of suitable
sites.
The operation is currently represented by eight CTM stores in New South Wales
and Queensland.
Property investment
The Group`s African and Australian property portfolio comprises high profile
destination sites strategically selected to support the retail brands. These
quality investments deliver returns in line with the trading operations.
Favourable construction costs have enabled the Group to develop a number of
properties during the period, and the continued decline in commercial property
prices will afford improved opportunities to acquire new key sites in the short
term.
The portfolio has an estimated current market value of R1,3 billion (2009: R1,1
billion).
Prospects
Improving the in-store shopping experience is a major driver for the Group.
Constant re-evaluation of the retail trading format is key to capitalising on
growth opportunities and consequently the focus on range, service, systems and
supplier relationships will continue to be re-examined and enhanced. Innovation
and training will underpin this strategy.
It is anticipated that growth in the global economy will remain subdued over the
short to medium term. In South Africa the building and construction industry
particularly will be subject to continued pressure. Notwithstanding this
environment, the Group is satisfied that growth at current levels can be
maintained in the forthcoming six months.
Death of chief executive officer, Italtile colleagues, and business partners
On 09 February 2011, the Board announced with great sadness the untimely death
of Mr Gianpaolo Ravazzotti, Chief Executive Officer of the Group, and eight of
his colleagues and business partners, namely Ms Gia Celori (Italtile Ltd), Ms
Marilize Compion (Italtile Ltd), Mr Sava Di Bella (Prima Bella Bathroom
Accessories), Mr Simon Hirschberg (Grainwave Pty Ltd), Mr Jody Jansen van
Rensburg (CTM Alberton), Ms Aletsia Krause (Italtile Ltd), Ms Bronwyn Parsons
(Pilot, Italtile Ltd), and Ms Alison van Staden (Co-pilot).
Gianpaolo and his colleagues tragically passed away in an aeroplane accident on
Tuesday, 08 February 2011 in the Robberg area near Plettenberg Bay. A full
investigation is underway to determine the cause of the crash.
Tribute
Gianpaolo joined Italtile in 2000, was appointed to the Board in 2004 and
assumed the position of CEO in 2006. He was highly regarded as an innovative and
insightful leader and during his tenure achieved a range of important successes
for the Group. He enjoyed the highest esteem amongst all his colleagues and
peers in the business and the industry. He will be sadly missed by his family
and friends, his fellow Board members and colleagues.
On behalf of the Board, Chief Financial Officer, Mr Peter Swatton said, "We
express our heartfelt condolences to the Chairman of the Group, Mr Gianni
Ravazzotti, his wife Annabel and their daughters, and Gianpaolo`s wife, Vanessa
and their children, as well as the families of all of our deceased colleagues.
Each and every one of those who passed away in this accident was an important
part of the broader Italtile family and played a valuable role in the business.
Their camaraderie and contribution will be missed. As colleagues and friends we
offer our deepest sympathies to their families."
Basis of preparation of accounting policies
The reviewed interim financial results 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.
Dividend
The Group has maintained its dividend cover of three times. The Board has
declared an interim dividend of 6 cents per share (2009: 6 cents).
Dividend announcement
The Board has declared an interim dividend (number 89) of 6 cents per ordinary
share to all shareholders recorded in the books of Italtile Limited. The last
day to trade cum dividend in order to participate in the dividend will be
Thursday, 17 March 2011. The shares will commence trading ex dividend from the
commencement of business on Friday, 18 March 2011 and the record date will be
Friday, 25 March 2011. The dividend will be paid on Monday, 28 March 2011. Share
certificates may not be rematerialised or dematerialised between Thursday, 17
March 2011 and Friday, 25 March 2011, both days inclusive.
For and on behalf of the board
G A M Ravazzotti P D Swatton
Executive Chairman Chief Financial Officer
12 February 2011
The results have been reviewed by Ernst & Young Inc. and their unqualified
review opinion is available on request from the company secretary at the
company`s registered office.
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)
Directors: G A M Ravazzotti (Executive Chairman),
*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: BDO Corporate Finance
Date: 17/02/2011 07:30:01 Produced by the JSE SENS Department.
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