| Tue 8 Mar 2011, 7:05 | | CRM - Ceramic Industries - Unaudited interim results for the six months ended 31 |
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CRM
CRM
CRM - Ceramic Industries - Unaudited interim results for the six months ended 31
January 2011
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 2011
Condensed consolidated statement of comprehensive income
Six months Six months Year
ended ended ended
31 January 31 January 31 July
2011 2010 2010
Change Unaudited Unaudited Audited
% R000`s R000`s R000`s
Revenue (1,0) 771 892 779 976 1 601 187
Tiles (3,3) 650 165 672 440 1 378 013
Sanitaryware 13,2 121 727 107 536 223 174
Operating profit (9,2) 161 301 177 671 375 021
before depreciation
Depreciation 4,0 (64 722) (62 235) (124 874)
Operating profit (16,3) 96 579 115 436 250 147
Tiles (25,4) 90 867 121 837 250 079
Sanitaryware 5 712 (6 401) 68
Finance income 50,0 12 953 8 634 20 803
Finance expenses (12,5) (7) (8) (311)
Income from 6 154 - -
associated companies
Profit before (6,8) 115 679 124 062 270 639
taxation
Taxation (24,9) (27 366) (36 424) (75 456)
Profit for the period 0,8 88 313 87 638 195 183
Other comprehensive
income
Foreign currency 19 254 19 157 12 316
translation
differences for
foreign operations
Total comprehensive 107 567 106 795 207 499
income for the period
Profit attributable
to:
Ordinary shareholders 1,8 88 288 86 707 193 657
of the Group
Non-controlling 25 931 1 526
interest
Total comprehensive
income attributable
to:
Ordinary shareholders 106 869 105 014 205 357
of the Group
Non-controlling 698 1 781 2 142
interest
Earnings per share
Basic earnings per 3,7 522,7 504,3 1 130,1
share (cents)
Diluted earnings per 2,1 496,4 486,0 1 085,4
share (cents)
Dividend per share - 140,0 140,0 300,0
(cents)
Reconciliation of
headline earnings
Profit attributable 88 288 86 707 193 657
to ordinary
shareholders of the
Group
(Profit)/loss on (127) 78 205
disposal of plant and
equipment
Headline earnings 1,6 88 161 86 785 193 862
Headline earnings per 3,4 522,0 504,7 1 131,3
share (cents)
Diluted headline 1,9 495,7 486,5 1 086,5
earnings per share
(cents)
Condensed consolidated statement of financial position
31 January 31 January 31 July
2011 2010 2010
Unaudited Unaudited Audited
R000`s R000`s R000`s
ASSETS
Non-current assets 877 934 887 622 855 584
Property, plant and 863 558 876 955 845 560
equipment
Goodwill 4 520 4 520 4 520
Investment in associate 9 856 5 704 5 504
Deferred taxation - 443 -
assets
Current assets 771 822 636 396 767 433
Inventories 84 518 87 513 110 800
Trade and other 191 168 207 775 218 011
receivables
Income taxation 2 635 11 952 2 874
receivable
Cash and cash 493 501 329 156 435 748
equivalents
Total assets 1 649 756 1 524 018 1 623 017
EQUITY AND LIABILITIES
Equity 1 426 450 1 314 649 1 355 799
Share capital 64 816 64 816 64 816
Shares held by share (146 720) (112 110) (145 316)
trust
Share-based payment 47 212 47 212 47 212
reserve
Share awards reserve 8 812 7 913 8 483
Reserves 98 208 87 087 83 426
Retained earnings 1 346 772 1 211 460 1 288 546
Ordinary shareholders` 1 419 100 1 306 378 1 347 167
interest
Non-controlling 7 350 8 271 8 632
interest
Non-current liabilities 77 245 81 579 78 787
Shareholders` loans 9 326 9 638 9 561
Deferred taxation 67 919 71 941 69 226
liabilities
Current liabilities 146 061 127 790 188 431
Trade and other 145 844 127 586 188 218
payables and provisions
Shareholders for 217 204 213
dividends
Total equity and 1 649 756 1 524 018 1 623 017
liabilities
Condensed consolidated statement of cash flows
Six months Six months Year
ended ended ended
31 January 31 January 31 July
2011 2010 2010
Unaudited Unaudited Audited
R000`s R000`s R000`s
Operating activities
Operating profit adjusted 173 787 191 387 382 850
for non-cash items
Changes in working capital 10 750 60 224 87 333
Cash generated from 184 537 251 611 470 183
operations
Finance income 12 953 8 634 20 803
Finance expenses (7) (8) (311)
Dividends paid (30 277) (20 559) (47 468)
Taxation paid (32 971) (47 531) (74 064)
141 119 192 147 369 143
Investing activities (71 263) (15 948) (53 069)
(Increase)/decrease in (4 352) (22) 178
share of investment in
associate
Property, plant and (66 911) (15 926) (53 247)
equipment (net)
Financing activities (5 219) (2 053) (35 336)
Costs incurred in respect - (23) (23)
of BEE transaction
Share buy back (1 404) - (33 206)
Premium on acquisition of (3 580) - -
non-controlling interest
Borrowings repaid - (1 932) (1 932)
Shareholders` loans repaid (235) (98) (175)
Net movement in cash and 57 753 174 146 280 738
cash equivalents
Cash and cash equivalents 435 748 155 010 155 010
at beginning of period
Cash and cash equivalents 493 501 329 156 435 748
at end of period
Condensed consolidated statement of changes in equity
Six months Six months Year
to to to
31 January 31 January 31 July
2011 2010 2010
Unaudited Unaudited Audited
R000`s R000`s R000`s
Balance at beginning of 1 355 799 1 227 149 1 227 149
period
Costs incurred in - (23) (23)
respect of BEE
transaction
Share buy back (1 404) - (33 206)
Share awards reserve 329 (46) 524
Premium on acquisition (3 580) - -
of non-controlling
interest
Profit attributable to 88 288 86 707 193 657
ordinary shareholders of
the Group
Movement in foreign 18 581 18 307 11 700
currency translation
reserve
Movement in minority (1 282) 1 781 2 142
shareholders
Transfer to dividend (26 482) (26 913) (56 777)
reserve
Dividend reserve 26 482 26 913 56 777
Net dividend paid (30 281) (19 226) (46 144)
Balance at end of period 1 426 450 1 314 649 1 355 799
Commentary
Operating environment
As forecast in the previous reporting period no meaningful economic recovery
occurred in the building and construction industry in the six months under
review. The slow rate of new build projects in the private and public sector
continued, whilst little improvement was experienced in the subdued renovations
market.
The strength of the Rand and Australian Dollar, combined with reduced shipping
costs, provided favourable conditions for opportunistic importers in the Group`s
markets in South Africa and Australia. During the reporting period, the South
African tile market particularly experienced an influx of imported product from
a range of countries, targeted specifically at the low-priced entry-level
segment of the market.
Financial results
Group revenue, comprising combined tile and sanitaryware revenue, decreased 1%
to R771,9 million (2010: R780,0 million).
Tile revenue declined 3,3% to R650,2 million (2010: R672,4 million). As a result
of the competitive environment, the tile division was unable to achieve any
meaningful increase in average selling prices during the review period. Tile
sales across the Group reduced to 17,2 million mSquared from 17,7 million
mSquared, primarily due to the decline in sales experienced in Australia, which
decreased 32,4% to 1,9 million mSquared from 2,8 million mSquared. In line with
reduced demand, tile production across the Group`s factories declined 3% to 16,5
million mSquared (2010: 17,0 million mSquared).
Combined revenue from the Group`s sanitaryware factories, Betta and Aquarius,
improved 13,2% to R121,7 million (2010: R107,5 million). Combined production
volumes improved to 594 838 pieces (2010: 500 621 pieces), while sales volumes
increased to 621 531 pieces (2010: 553 290 pieces).
The Group`s operating expenses increased across the board. Power costs
(including gas and electricity) which together comprise 20% of the Group`s total
input costs increased over 20%. In addition, significant price increases were
experienced in glazes, transport and packaging. This, coupled with competition
from imports, eroded the Group`s margins.
Group operating profit declined 16,3% to R96,6 million (2010: R115,4 million).
Operating profit from tiles decreased 25,4% to R90,9 million from R121,8
million. The sanitaryware division reversed its loss of R6,4 million in the
prior comparative period to deliver a profit of R5,7 million, reflecting the
success of remedial interventions at Betta and Aquarius over the past 18 months.
The effective tax rate reduced to 23,7% from 29,4% in 2010 due to the
recognition of a previously unrecognised deferred tax asset (off-set by existing
deferred tax liabilities), an increase in dividend income and the reporting of
after tax income from an associated company.
Headline earnings increased 1,6% to R88,2 million (2010: R86,8 million), with a
corresponding increase in headline earnings per share to 522,0 cents (2010:
504,7 cents).
During the review period the Group spent R70 million on various capital
projects. The single biggest expense was an amount of R17 million incurred on
High Definition Inkjet (HDI) print technology. This investment comprises part of
a R60 million project to enhance the quality of design graphics and afford
greater efficiencies in the production process.
The Group`s cash reserves increased to R493,5 million from R435,7 million,
attributable to the cash generative nature of the business, increased investment
income and reduced receivables.
Ceramic`s net asset value per share increased 10,5% to 8 446 cents (2010: 7 646
cents).
Manufacturing operations - tile division
Pegasus
Pegasus produces large format glazed pressed tiles for the DIY and contract
market. The high-quality cost-effective range competes favourably against
Chinese imports.
Production volumes increased to 6,9 million mSquared from 6,7 million mSquared,
while sales volumes grew 7,5% to 7,3 million mSquared from 6,8 million mSquared.
This factory`s strong performance in the context of large volumes of imported
entry-level Chinese product is a reflection of its well established position as
the leading value for money manufacturer in the price sensitive segment of the
market. While sales volumes improved, Pegasus sacrificed margins to ensure it
retained its share of the market. The factory operated at full capacity for the
period.
Vitro
This factory manufactures full bodied glazed and unglazed extruded punched tiles
for the up-market domestic and contract sectors.
Vitro delivered a solid performance for the review period. Production volumes
increased marginally to 2,6 million mSquared from 2,5 million mSquared, whilst
sales volumes remained constant at 2,6 million mSquared. The factory`s
reputation for innovative product development has been enhanced with the
successful introduction of its range of Slimtech tiles. The new format tiles,
despite being larger and thinner than the previous range, are stronger and
afford ease of installation. In addition to lowering production and distribution
costs, this technology reduces the factory`s carbon footprint by 15% to 20%.
Vitro operated at full capacity throughout the period.
Samca Floor Tiles
Samca Floor Tiles produces predominantly large format fashionable pressed glazed
floor tiles.
The factory increased production volumes to 2,5 million mSquared from 2,4
million mSquared, while sales volumes improved to 2,7 million mSquared from 2,6
million mSquared.
Whilst Samca Floor Tiles succeeded in growing sales volumes, the factory faced
intense competition from cheap imported polished porcelain. Consequently average
selling prices were held steady, curbing margin growth.
Management is currently implementing production innovations to reduce unit
costs. The benefits should filter through over the forthcoming six months.
The factory operated at 85% of capacity over the review period.
Samca Wall Tiles
This factory manufactures pressed, glazed tiles for both the contract and
fashion markets, and is the only factory in the country that manufactures wall
tiles.
While production volumes increased to 2,7 million mSquared from 2,6 million
mSquared, sales volumes declined to 2,7 million mSquared from 2,8 million
mSquared, predominantly due to failure to adequately meet market demand for wall
and floor combination ranges.
Printing on all large format product ranges at Samca Wall has been converted to
HDI technology. The usage of HDI is still in its infancy in the factory but
management is confident that significant benefits will be derived in the future.
Centaurus - Australia
Centaurus is the only tile manufacturer in Australia and produces high quality
glazed porcelain floor tiles in various size formats for the sophisticated
market.
During the review period, production volumes reduced 36,5% to 1,8 million
mSquared from 2,8 million mSquared. Sales volumes declined to 1,9 million
mSquared from 2,8 million mSquared.
Centaurus delivered a disappointing performance in a challenging economic
environment. In addition to aggressive competition from imported product, sales
in the Queensland area were hampered by the withdrawal of state subsidies which
had previously fuelled growth in the housing market.
The implementation of HDI printing technology created high levels of market
expectation, which the factory failed to adequately meet as a result of its
inability to fully utilise the process, resulting in loss of sales. Technical
difficulties experienced in the implementation phase further impeded production,
hampering the factory`s performance.
This factory`s potential has been demonstrated in the prior two reporting
periods, and management is confident that Centaurus is well positioned to once
again deliver in line with expectations.
Manufacturing operations - sanitaryware division
Betta
Betta is a high volume low cost producer of glazed porcelain sanitaryware.
Production volumes increased to 544 954 pieces from 447 791 pieces in the
previous period. Sales volumes increased to 567 904 pieces from 500 810 pieces.
In the context of subdued consumer demand and capacity utilisation of 60%,
Betta`s improved performance is attributable to the rigorous restructuring of
operations implemented over the past 18 months. Notable production and logistics
efficiencies were achieved in the review period, and enhanced range innovation
assisted Betta to gain market share.
No price increases were implemented during the six months, but margin erosion
was offset by increased sales of higher value box suites.
Aquarius
Aquarius manufactures acrylic baths and shower trays for the local and export
market.
Production volumes at Aquarius were reduced to 49 884 pieces from 52 830 pieces
in a deliberate strategy to reduce inventories and improve the range. Sales
volumes increased to 53 627 pieces (2010: 52 480 pieces).
The strengthened management team and intensive efforts to reduce costs and
improve efficiencies have had some success, but further on-going interventions
will be implemented in the future.
Aquarius operates in a fiercely competitive, price sensitive environment. In
this context, high levels of profitability are unlikely, however the benefit to
Ceramic Industries lies in its strategic value of supporting the Group`s goal to
offer a complete solution to customers.
Manufacturing operations - associated companies
In 2009 the Group announced that it had acquired a minority interest of
approximately 20% in a group of companies that manufacture the Ezee Tile range
of tile adhesives.
This investment is strategic as it gives the Group an input into the cost of
tile adhesives to ensure that the laid cost of tiles remains competitive with
other floor coverings.
During the review period the Group accounted for its R6 million share of the
income generated by that investment.
Investment
During the reporting period, the Group acquired the mining rights to clay
reserves in the Eastern Cape. The acquisition consideration was R6,2 million,
funded out of cash resources.
Black economic empowerment (BEE)
As previously advised, approval from the Department of Mineral Resources for the
empowerment of the Group`s clay quarries has not yet been received. This is the
final component of the BEE equity ownership transaction approved by shareholders
on 11 December 2008.
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
No short-term economic improvement in the industry is anticipated, and
management expects current difficult trading conditions to prevail over the next
six months.
The relative strength of the ZAR and AUD will continue to facilitate competition
from imported product. Consequently, Ceramic Industries will prioritise improved
cost efficiencies and range innovation to ensure it retains and grows market
share.
Whilst an improved performance was delivered by the sanitaryware division,
further remedial intervention will be required to enable this business to
achieve its full potential.
The Group`s strong cash reserves afford Ceramic Industries the opportunity to
pursue commissioning of its proposed volume-based large format floor tile
factory based in Gauteng. Government approvals are currently awaited in this
regard. In addition, the Group is investigating the possibility of investing in
a greenfields tile manufacturing plant in Africa. Shareholders will be advised
of progress in this regard in due course.
Board of directors
During the six month period, Mr S D Jagoe was appointed as lead independent
director.
Dividend
The Board has maintained the dividend cover of 3,5 times and declared an interim
dividend (number 42) of 140 cents (2010: 140 cents per share).
On behalf of the Board
G A M Ravazzotti N Booth
Chairman Chief Executive Officer
6 March 2011
Dividend announcement
The Board has declared an interim dividend (number 42) of 140 cents per ordinary
share for the six months ended 31 January 2011 to all shareholders recorded in
the books of Ceramic Industries Limited at the close of business on Friday, 15
April 2011. The last day to trade cum dividend in order to participate in the
dividend will be Friday, 8 April 2011. The shares will commence trading ex
dividend from the commencement of business on Monday, 11 April 2011 and the
record date will be Friday, 15 April 2011. The dividend will be paid on Monday,
18 April 2011. Share certificates may not be rematerialised or dematerialised
between Monday, 11 April 2011 and Friday, 15 April 2011, both days inclusive.
By order of the Board
E J Willis
Secretary
6 March 2011
Basis of preparation
The unaudited interim financial results for the period are prepared in
accordance with IAS 34 - Interim Financial Reporting and the AC 500 series
issued by the Accounting Practices Board, and comply with the Listings
Requirements of the JSE Limited and the South African Companies Act, 1973.
The accounting policies applied in these unaudited interim financial statements
have been prepared in accordance with the International Financial Reporting
Standards and are consistent in all material respects with those applied in the
preparation of the Group`s annual financial statements for the previous year
ended 31 July 2010. The following standard had an impact for the half year-ended
31 January 2011.
- IAS28 Investments in associates - The Group has adopted IAS 28 and began
accounting for the results of its investment in the Ezee Tile group of companies
which manufactures tile adhesive, grout and other related products in six
centres in South Arica.
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 (Italian)
Company Secretary: E J Willis
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.
8 March 2011
Date: 08/03/2011 07:05:01 Produced by the JSE SENS Department.
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