| Tue 30 Aug 2011, 7:05 | | 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 2011
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 2011
System-wide turnover analysis
for the year ended 30 June 2011
Reviewed Audited
year to year to
(Rand millions unless otherwise % 30 June 30 June
stated) increase 2011 2010
Group and franchised turnover
- By Group-owned stores and entities 1 521 1 354
- By franchise-owned stores 1 500 1 396
(unaudited)
Total 10 3 021 2 750
Abridged Group statements of comprehensive income
for the year ended 30 June 2011
Reviewed Audited
year to year to
(Rand millions unless otherwise % 30 June 30 June
stated) increase 2011 2010
Turnover 1 521 1 354
Cost of sales (895) (784)
Gross profit 10 626 570
Other operating income 206 187
Operating expenses (386) (367)
Profit/(loss) on sale of property, 2 (1)
plant and equipment
Operating profit 15 448 389
Financial revenue 37 42
Financial cost (24) (27)
Profit before taxation 14 461 404
Taxation (130) (123)
Profit after taxation 17 331 281
Income from associates3 8 -
Profit for the year 20 339 281
Other comprehensive income
Currency translation difference 7 2
Total comprehensive income for the 22 346 283
year
Total comprehensive income
attributable to:
- Equity shareholders 328 275
- Non-controlling interests 18 8
22 346 283
Profit attributable to:
- Equity shareholders 321 273
- Non-controlling interests 18 8
20 339 281
Earnings per share: (all figures in
cents)
- Earnings per share 6 34,9 33,0
- Headline earnings per share 5 34,6 33,1
- Diluted earnings per share 6 34,8 32,9
- Diluted headline earnings per 5 34,5 33,0
share
-
Adjusted headline earnings per 16 34,6 29,8
share2
- Dividends per share 9 12,0 11,0
Abridged Group statements of financial position
as at 30 June 2011
Reviewed Audited
year to year to
30 June 30 June
(Rand millions unless otherwise stated) 2011 2010
ASSETS
Non-current assets 1 070 991
Property, plant and equipment 1 006 952
Investments3 26 9
Long-term assets 24 18
Goodwill 6 6
Deferred taxation 8 6
Current assets 1 226 1 075
Inventories 241 232
Trade and other receivables 135 110
Cash and cash equivalents 839 711
Taxation receivable 11 22
TOTAL ASSETS 2 296 2 066
EQUITY AND LIABILITIES
Share capital and reserves 1 707 1 483
Stated capital 818 818
Non-distributable reserves 51 50
Treasury shares (478) (470)
Share option reserve 5 3
Retained earnings 1 241 1 021
Non-controlling interests 70 61
Non-current liabilities 327 344
Interest bearing loans 321 342
Deferred taxation 6 2
Current liabilities 262 239
Trade and other payables 217 202
Provisions 31 34
Interest bearing loans 10 -
Taxation payable 4 3
TOTAL EQUITY AND LIABILITIES 2 296 2 066
Net asset value per share (cents) 186 161
Group statement of changes in equity
for the year ended 30 June 2011
Non-distri-
(Rand millions unless Stated butable Treasury
otherwise stated) capital reserves shares
Balance at
30 June 2009 417 48 (473)
Total compre-hensive income for 2
the year
Dividends paid
Share issue in lieu of dividend 401
Share incentive costs
Transfer of share
option reserve
Unallocated shares
in Share Trust 3
Arising on acquisi-tion of
interest in subsidiaries
Balance at
30 June 2010 818 50 (470)
Total compre-hensive income for 7
the year
Dividends paid
Purchase of shares by Share Trust (8)
Revaluation of aircraft (6)
Transactions with non-controlling
interests
Share incentive costs
Settlement of share incentive
costs
Balance at 30 June 2011 818 51 (478)
Group statement of changes in equity (continued)
for the year ended 30 June 2011
Share
(Rand millions unless option Retained
otherwise stated) reserve earnings Total
Balance at
30 June 2009 30 1 284 1 306
Total compre-hensive income for the 273 275
year
Dividends paid (566) (566)
Share issue in lieu of dividend 401
Share incentive costs 3 3
Transfer of share
option reserve (30) 30 -
Unallocated shares
in Share Trust 3
Arising on acquisi-tion of interest -
in subsidiaries
Balance at
30 June 2010 3 1 021 1 422
Total compre-hensive income for the 321 328
year
Dividends paid (101) (101)
Purchase of shares by Share Trust (8)
Revaluation of aircraft (6)
Transactions with non-controlling -
interests
Share incentive costs 11 11
Settlement of share incentive costs (9) (9)
Balance at
30 June 2011 5 1 241 1 637
Group statement of changes in equity (continued)
for the year ended 30 June 2011
Non-
(Rand millions unless controlling Total
otherwise stated) interest equity
Balance at
30 June 2009 40 1 346
Total compre-hensive income for the year 8 283
Dividends paid (3) (569)
Share issue in lieu of dividend 401
Share incentive costs 3
Transfer of share
option reserve -
Unallocated shares
in Share Trust 3
Arising on acquisi-tion of interest in 16 16
subsidiaries
Balance at
30 June 2010 61 1 483
Total compre-hensive income for the year 18 346
Dividends paid (8) (109)
Purchase of shares by Share Trust (8)
Revaluation of aircraft (6)
Transactions with non-controlling interests (1) (1)
Share incentive costs 11
Settlement of share incentive costs (9)
Balance at
30 June 2011 70 1 707
Segmental report
for the year ended 30 June 2011
(Rand millions unless otherwise Fran- Proper-
stated) Retail chising ties
Reviewed year to June 2011
Turnover 1 190 - -
Gross margin 452 - -
Other income* 15 174 160
Overheads (390) (87) (33)
Trading profit 77 87 127
Audited year to June 2010
Turnover 1 111 - -
Gross margin 423 - -
Other income* 11 166 146
Overheads (364) (84) (31)
Trading profit 70 82 115
*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 (continued)
for the year ended 30 June 2011
Supply Inter
and group
(Rand millions unless otherwise support trans-
stated) services actions Group
Reviewed year to June 2011
Turnover 684 (353) 1 521
Gross margin 88 - 540
Other income* 108 (171) 286
Overheads (39) 171 (378)
Trading profit 157 - 448
Audited year to June 2010
Turnover 549 (306) 1 354
Gross margin 76 - 499
Other income* 94 (157) 260
Overheads (48) 157 (370)
Trading profit 122 - 389
*Other income includes franchise fees, rentals, royalties and rebates
received, as well as profit or loss on disposal of property, plant and
equipment.
Abridged Group cash flow statement
for the year ended 30 June 2011
Reviewed Audited
year to year to
30 June 30 June
(Rand millions unless otherwise stated) 2011 2010
Cash flow from operating activities 254 (283)
Cash flow from investing activities (107) (72)
Cash flow from financing activities (19) 399
Net movement in cash and cash equivalents for 128 44
the year
Cash and cash equivalents at beginning of the 711 667
year
Cash and cash equivalents at the end of the 839 711
year
Notes
1. Commitments and contingencies
There are no material contingent assets or liabilities at 30 June 2011.
Capital commitments at 30 June 2011 Rm
- Contracted 27
- Authorised, not contracted 83
Total 110
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. As a
result, adjusted headline earnings per share has been presented for
comparative purposes (assuming the share issue in lieu of dividend took place
at the beginning of the 2010 financial year).
3. Associate accounting
During the year, the Group began accounting for an existing investment in
Ezee Tile, a national manufacturer of adhesive, grout and related products,
in accordance with the equity accounting requirements of IAS 28, Investments
in associates. Management is of the opinion that significant influence over
the operations of Ezee Tile was attained during the year, triggering the
requirement to apply equity accounting for such.
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 year ended 30 June 2011 and the financial
position at 30 June 2011.
5. Earnings per share
Shares in issue: (all figures in millions)
Reviewed Audited
year to year to
30 June 30 June
2011 2010
- Total number of shares issued 1 033 1 033
- Shares held by Share Incentive Trust 26 24
- BEE treasury shares 88 88
Shares in issue to external parties 919 921
Reconciliation of headline earnings: (Rand
millions)
- Profit attributable to equity shareholders 320 273
- (Profit)/loss on sale of property, plant (2) 1
and equipment
Headline earnings 318 274
Share numbers used for earnings per share
calculations: (all figures in millions)
- Weighted average number of shares 920 828
- Diluted weighted average number of shares 922 830
- Adjusted weighted average number of shares 920 921
Store network
at 30 June 2011
2011
Region Franchise Other Total
South Africa
- Italtile 1 6 7
- CTM 41 23 64
- TopT 6 7 13
Rest of Africa 11 3 14
Australia - 8 8
Total 59 47 106
Store network (continued)
at 30 June 2011
2010
Region Franchise Other Total
South Africa
- Italtile 2 5 7
- CTM 40 23 63
- TopT 3 8 11
Rest of Africa 12 2 14
Australia - 9 9
Total 57 47 104
Commentary
Results
The Group`s trading environment remained sluggish during the year under
review, featuring similar subdued market characteristics to those experienced
over the previous two years. The new build market continued to be restrained,
whilst the renovation segment fared only slightly better with homeowners
favouring investment in home improvements over the uncertainty of new
property acquisitions.
Despite these conditions, the Group reported a pleasing performance, a
reflection of ongoing efforts to improve the quality of the business. Like-on-
like system-wide turnover increased 10% to R3.02 billion (2010: R2,75
billion) with growth achieved across each of the Group`s retail brands,
Italtile, CTM and TopT. With a net increase of two stores during the review
period, growth was largely organic and attributable to enhanced efficiencies
in the Group and supply chain, as well as a gain in market share.
Reported trading profit grew 15% to R448 million (2010: R389 million). In the
current competitive environment the Group restricted average selling price
increases across the offering and passed on cost savings derived from the
strong Rand to its consumers. This strategy had the effect of containing
margins at previous levels.
With continued intensive inventory management, product balance improved
further and stock holding levels at R241 million, remained in line with the
prior year.
Notwithstanding capital expenditure of R135 million, cash reserves increased
to R839 million, an 18% improvement on the prior year (2010: R711 million)
reflecting the Group`s strong cash generating ability. The healthy balance
sheet will be used to fund future expansion.
The Group`s net asset value per share increased by 16% to 186 cents (2010:
161 cents).
Trading environment
Competition intensified in the industry, featuring aggressive trading and
price-cutting, and further consolidation was experienced amongst industry
peers.
Despite this environment, the Group is confident that the industry continues
to present growth opportunities for innovative businesses. Research indicates
that per capita consumption of tiles and sanitaryware in South Africa is
still in its infancy compared to global counterparts. Likewise, the business
model affords the Group continued growth potential via expansion of its
offering in the established markets in which CTM and Italtile trade, and
through providing first-time access to product in previously under-serviced
areas in TopT`s market.
Operational review
In order for Italtile to maintain its leadership position in the local market
the Group is committed to attaining the status of a world class low-cost
retailer recognised by the twin imperatives of profitability and customer
satisfaction.
Italtile
Italtile is the leading fashion retailer of exclusive ranges of ceramic
tiles, bathware and related products, servicing the premium segment of the
market.
The business`s success in gaining market share is reflected by the double
digit growth recorded for the year. Important inroads were made in both the
upper end of the middle market not serviced by CTM, and the commercial
projects sector. Strong growth was reported in the bathroom ware category and
the brand also entrenched its niche role as the leading supplier of
environmentally conscious new-technology products, including the eco-friendly
Earth range and water-wise bathroom ware from Laufen and Cotto.
Notwithstanding aggressive competition and fragmentation of the market
resulting from the influx of imports, Italtile delivered sustained margins.
During the review period Italtile opened its New Generation store in
Northgate Estate in Cape Town. A further store is scheduled for opening in
Boksburg in the last quarter of this calendar year.
CTM
CTM is the country`s biggest specialist tile and bathroom retailer, targeting
the middle income segment of the market. The brand holds strong appeal for
DIY customers and small builders.
Several marked trends developed during the year under review, including
increasingly aggressive competition from small and independent industry
participants as they fought for survival; a heightened awareness of and
demand for fashionable product in the rural areas; and an influx of imported
product facilitated by the strong Rand, which created a vigorous market for
polished and glazed porcelain tiles across the consumer income spectrum. The
Group`s status as one of the leading buyers of tiles globally and its long-
standing supplier relationships enabled CTM to take advantage of the
opportunities offered by this development.
In the context of limited discretionary spend, CTM`s high profile reputable
value proposition stood the business in good stead. The brand benefitted from
continued strong growth in rural and outlying markets. On a regional basis,
Gauteng delivered robust sales in contrast with the coastal provinces which
continued to lag the inland markets.
CTM`s in-house brand campaigns featuring the Tivoli and Amalfi tap ranges,
Kilimanjaro extruded tiles and ELF laminate flooring range continued to gain
momentum, with ELF in particular making strong inroads into new markets.
A R10,6 million investment was made in hand-held point of sales technology
during the year, aimed at increasing the speed and quality of service to
customers, thereby enhancing the shopping experience and promoting sales
growth. The roll out to the store network should be completed by December
2011.
During the reporting period CTM opened its New Generation store in Northgate
Estate in the Western Cape. New store openings are planned for Nairobi and
Northriding in the new financial year.
Top T
Strategically positioned below CTM, TopT is the Group`s fledgling, entry-
level brand, targeting the under-serviced rural areas and smaller outlying
markets.
Management`s strategy to enter the market cautiously during the brand`s
infancy proved correct, with TopT delivering a satisfying performance.
Organic growth improved 25% and the business made a nominal contribution to
Group profits for the first time since its launch in 2007. Despite being a
value-driven offering, margins increased slightly due to improved operating
efficiencies. Bedding down reliable relationships with the supply chain has
also proved beneficial for the business. An expanded range, opportunistic
product offering and localised, highly specific marketing campaigns targeted
at price-sensitive customers succeeded in raising awareness of the brand and
enabled TopT to gain market share.
Two outlying stores were closed during the year and two new stores were
opened in Newcastle and Jane Furse, consolidating the operation on a regional
basis, and bringing the total network to 13 stores. TopT`s roll-out strategy
will remain conservative in the short term, based on building a solid
presence on a region-by-region basis. The long term vision is to utilise this
brand as the Group`s vehicle to penetrate the African market on a significant
scale.
Support services
A core component of the Group`s business model is its vertically integrated
supply chain. Each of these businesses succeeded in growing revenue and
gaining market share during the year. This achievement was primarily due to
improvements in internal efficiencies, customer service and enhanced range
management, complemented by the Group`s in-house brand building promotions.
International Tap Distributors (ITD), an importer and distributor of taps and
accessories grew sales and improved net profitability. Enhanced inventory
management resulted in a reduction in stockholding by 44%. Cedar Point, an
importer and distributor of tiling tools, laminated boards, cabinets and
accessories delivered an increase in turnover and concomitant improvement in
net profit. Noteworthy growth was achieved in the laminate flooring division,
with sales increasing 60% against the prior year.
The Group`s Distribution Centre, the single largest importer of polished and
glazed porcelain tiles in South Africa, sources imported tiles for the CTM
network. During the review period, product was sourced from China, Spain and
Italy. This business grew turnover for the year, reflecting the robust
progress made in cornering the polished porcelain market and to a slightly
lesser extent, the glazed porcelain segment.
Rest of Africa
The Group is represented by 14 CTM stores in the sub-equatorial region. The
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 expand into the region are reviewed on a regular
basis, within the context of logistical and infrastructural constraints and
the availability of suitable partners.
Australia
Adverse trading conditions prevailed during the year under review, with
consumer confidence at very low levels and construction activity across the
sectors constrained. High interest rates, the proposed implementation of the
onerous Carbon Tax in 2012, and the increase in utilities costs by some 20%
all served to curtail investment by consumers. In response to this
environment aggressive price-cutting amongst industry participants was
evident, creating further volatility in the market. Average selling prices
reduced by more than 30%. In this context, the operation`s sales and margins
declined against the prior comparative period.
Economic activity in Queensland was dramatically impacted by the devastation
caused by Cyclone Yasi In January 2011, and whilst settlement of claims and
funding disbursements have been protracted, a degree of relief is expected
once reconstruction work commences in flood damaged areas of the state.
CTM Australia is currently represented by eight stores in New South Wales and
Queensland.
Property portfolio
The Group`s Property portfolio underpins the retail operations by ensuring
that stores are optimally located on high profile destination sites. Valued
at in excess of R1,3 billion, the portfolio delivered returns in line with
the Group`s trading operations. Cash reserves are healthy and afford
expeditious investment if opportunities are presented. Capex of R88 million
was employed on alterations and extensions of existing properties during the
reporting period.
All new properties and renovations to existing sites are structured according
to low energy consumption prerequisites in keeping with the Group`s Green
agenda and comprehensive sustainability programme.
Directorate
With effect from 30 June 2011, the Board announced that it had appointed Mr
Sybrand Gerhardus Pretorius as a Non-Executive Director and member of the
Audit and Risk Committee and Mr Pierre Langenhoven as an Executive Director.
Mr Pretorius is a well-known and respected businessman in South Africa with
extensive experience. Mr Langenhoven joined the Italtile Group in 1990 in
Johannesburg and has been the Managing Director of Italtile`s Australia
operation since 2002. The Board welcomes these gentlemen and looks forward to
their valuable contribution in the future.
Prospects
The retail environment in South Africa will continue to face challenges
presented by subdued trading conditions. The resultant constraints, together
with new consumer spending behaviour and the likely advent of international
players in the local market will serve to shape the future of the industry in
this country. The period ahead will be focused on achieving the Group`s goal
to be a world class low-cost retailer. Every effort will be directed to
refining the business model to achieve an optimal balance of profitability
and customer satisfaction.
Management is satisfied that the Group is well positioned to take advantage
of this changing landscape. In addition to its strong cash generating
ability, Italtile`s proven business model is underpinned by sound
fundamentals including an established supply chain, a strong market
reputation, powerful technology and talented people. Equally important, our
commitment to innovating and adapting to meet challenges and opportunities
will prove vital in achieving the Group`s ambitious growth targets.
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 as
issued by the Accounting Practices Board or its successor, and contains the
information required by International Accounting Standard 34: Interim
Financial Reporting.
Dividend
The Group has maintained its cover of three times. The Board has declared a
final dividend of 6 cents per share (2010: 5 cents), which together with the
interim dividend of 6 cents, produces a total dividend declared for the year
of 12 cents (2010: 11 cents) an increase of 9%.
Dividend announcement
The Board has declared a final dividend (number 90) of 6 cents per share to
all shareholders recorded in the books of Italtile Limited at the close of
business on Friday, 23 September 2011. The last day to trade cum the dividend
will be Friday, 16 September 2011. The shares of Italtile will commence
trading ex dividend from the commencement of business on Monday, 19 September
2011 and the record date will be Friday, 23 September 2011. Payments will be
made on Monday, 26 September 2011. Share certificates may not be
rematerialised or dematerialised between Monday, 19 September 2011 and
Friday, 23 September 2011, both days inclusive.
For and on behalf of the Board
G A M Ravazzotti P D Swatton
Executive Chairman Chief Financial Officer
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.
Johannesburg
29 August 2011
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 (Executive Chairman), ?
P D Swatton* (Chief Financial Officer), P Langenhoven
Non-executive directors:
S M Du Toit, S I Gama, S G Pretorius, A Zannoni**
(*British **Italian)
Company secretary:
E J Willis
Sponsor: BDO Corporate Finance
Refer to Italtile`s corporate website: www.italtile.com
Date: 30/08/2011 07:05:01 Produced by the JSE SENS Department.
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