| Thu 8 Sep 2011, 7:05 | | CRM - Ceramic Industries Limited - Reviewed Preliminary Financial Results for |
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CRM
CRM
CRM - Ceramic Industries Limited - Reviewed Preliminary Financial Results for
the year ended 31 July 2011
Ceramic Industries Limited
Registration number 1982/008520/06
(Incorporated in the Republic of South Africa)
("Ceramic" or "the Group")
Share code: CRM
ISIN: ZAE000008538
Reviewed Preliminary Financial Results for the year ended
31 July 2011
Commentary
Operating environment
Weak demand, exacerbated by the influx of cheap imported product made possible
by the strong local currency, led to an under-utilisation of the Group`s
factories and put pressure on unit costs. In addition, above-CPI increases in
energy and glaze expenses were not able to be recovered through price increases,
which had a negative impact on sales and margins.
Financial results
Group revenue decreased 3,4% to R1 547,2 million from R1 601,2 million in the
year under review.
Revenue from tiles declined 5,7% to R1 299,6 million from R1 378,0 million, with
sales volumes across the Group decreasing 4,3% to 34,59 million mSquared from
36,17 million mSquared. Tile production fell 5,1% to 35,05 million mSquared from
36,93 million mSquared.
The Group`s sanitaryware division reported an improved performance. While
neither Betta nor Aquarius delivered results in line with their full potential,
the improvement is reward for on-going management attention.
Revenue from the sanitaryware division grew 11,0% to R247,6 from R223,2 million
in the prior year. Production volumes of sanitaryware increased 13,1% to 1 343
347 pieces from 1 187 239 pieces, matched by the same percentage growth in sales
volumes to 1 301 722 pieces from 1 150 890 pieces.
Group operating profit decreased 23,3% to R191,8 million from R250,1 million.
Profit from tiles declined 30,3% to R174,2 million from R250,1 million, while
the sanitaryware division increased its profit to R17,6 million from R68 000 in
the prior year.
The effective tax rate increased to 39,5% from 27,9% in the comparable period as
a result of the STC charge on the R304 million special dividend declared during
the year. Of the R87,1 million tax payable, R30,4 million comprised the STC
component on the special dividend.
Finance income increased to R22,5 million from R20,8 million due to increased
interest earned in the current year. Finance expenses rose to R1,5 million from
R311 000 as a result of foreign exchange losses.
Headline earnings per share declined 30,6% to 785,3 cents from 1 131,3 cents per
share, while basic earnings per share decreased 30,3% to 788,0 cents from 1
130,1 cents per share.
Inventories increased to R118,2 million from R110,8 million. Inventory was
managed through the temporary shut-down of at least one kiln in each of the
Group`s tile factories other than Pegasus.
During the review period, capital expenditure of R130 million was incurred on
equipment upgrades and new technology in the factories. The primary expenditure
related to the high definition inkjet printer technology that was introduced in
the Samca Wall factory and is scheduled for commissioning in the Pegasus and
Vitro factories in the near future.
Cash reserves decreased to R217,7 million from R435,7 million and Ceramic`s net
asset value per share declined 10,5% to 7 081 cents (2010: 7 912 cents) as a
result of the R304 million special dividend paid in the reporting period. The
Group`s balance sheet remains strong.
Manufacturing operations
The board believes that, notwithstanding the Group`s disappointing results, the
fundamentals underpinning the business remain sound: the Group is cash
generative, has cash reserves, and each of its factories is in a good state of
repair with the newer factories, Pegasus and Centaurus, employing state of the
art technology. Ongoing efforts were made during the review period to improve
efficiencies given the reduced capacity utilisation, and attention was paid to
improving the Group`s product range and striving to match production planning
with market demand.
A significant development in the reporting period was the re-organisation of the
management structure. The Group`s two most experienced managers were deployed to
head up the tile and sanitaryware divisions respectively, affording the Chief
Executive Officer greater opportunity to manage enterprise-wide strategy and
business development. In addition, this change will strengthen management
capacity and create new opportunities for the Group`s other managers.
Tile division
Pegasus
The low cost glazed pressed tiles which this factory produces have widespread
appeal for the DIY and contract market. Pegasus` ranges compete successfully
against Chinese imports.
During the review period Pegasus operated at 95% of capacity, and was the only
tile factory in the Group which succeeded in increasing production and sales
volumes and growing turnover. The operation improved year-on-year production
volumes to 14,95 million mSquared from 14,91 million mSquared, while sales
volumes grew 3,9% to 14,90 million mSquared from 14,34 million mSquared; both of
these achievements are new records for the factory. Whilst sales revenue rose by
R21 million against the prior year, increased input costs eroded margins.
Vitro
This factory manufactures full bodied unglazed and glazed extruded punched tiles
for the up-market domestic and contract sectors.
Vitro delivered a consistently solid production performance. However, failure to
respond expeditiously to intensified competition from Chinese imports impacted
negatively on sales volumes. While year-on-year production increased to 5,40
million mSquared from 5,26 million mSquared, sales volumes dropped to 5,09
million mSquared from 5,27 million mSquared, reducing sales revenue by R4
million.
In order to reduce stock levels, production volumes were reduced by 40% in the
last two months of the financial year putting pressure on unit costs and
margins.
Samca Floor Tiles
The reporting period was a turbulent one for the Samca Floor Tile factory, which
produces pressed glazed floor tiles.
Staff changes resulted in short-term inefficiencies whilst staff were re-trained
and up-skilled. In addition, the product range failed to provide a distinctive
value proposition, resulting in a loss of sales. Average selling prices were
reduced to regain market share which, together with substantially increased
input costs, resulted in a decline in margins.
Production levels remained consistent with the prior year at 5,3 million
mSquared, while sales volumes declined to 5,21 million mSquared from 5,44
million mSquared.
This factory is currently producing a range of high quality thinner tiles which,
in addition to being stronger, easier to install and environmentally friendly,
will reduce costs and improve price competitiveness in the forthcoming period.
Samca Wall Tiles
This operation is the only wall tile factory in the country, and manufactures
pressed, glazed tiles for the commodity and fashion markets.
The period under review proved very challenging for this factory. The
introduction of new technology and equipment, and severe difficulties
experienced with the quality of raw materials resulted in a substantial amount
of down-time. Production volumes declined 10,4% to 5,33 million mSquared from
5,95 million mSquared while sales volumes decreased 6% to 5,45 million mSquared
from 5,81 million mSquared. The lower production levels increased unit costs and
eroded margins.
Management is satisfied that action undertaken during the reporting period will
enhance operating efficiencies. The installation of inkjet printers and
automated selection equipment together with measures taken to control the
quality of clay inputs should improve product quality.
Centaurus - Australia
This factory produces glazed porcelain floor tiles in a range of size formats
and is the only volume tile manufacturer in Australia.
Trading conditions remained difficult, with the Australian tile market
contracting by 17% year-on-year.
Centaurus failed to meet management`s expectations, delivering a disappointing
performance featuring poor production and sales volumes and a significantly
lower margin. Production decreased by 26,5% to 4,02 million mSquared from 5,47
million mSquared, while sales volumes declined 25,6% to 3,95 million mSquared
from 5,31 million mSquared. The factory operated at break-even, at only 65% of
its capacity in the review period.
Failure to resolve product development issues and adequately match production
planning and product mix with market demand were central to these results.
Bedding-down of the inkjet technology has been substantially more difficult than
anticipated and expectations created in the marketplace have not been met,
resulting in a loss of sales. The inability of the factory to deliver a
consistent supply of high quality product resulted in a loss of market share to
opportunistic importers of low-priced Asian product.
Management is confident that the investment in inkjet technology is sound and
will afford the factory a strategic advantage in the long term, reinforced by
customers seeking to support Australian manufactured products. In this regard
significant time has been dedicated to ensuring customers remain committed to
the factory through the implementation phase of the inkjet technology.
Sanitaryware division
Despite the reduction in market size and the proliferation of imported product,
the Group`s sanitaryware factories succeeded in improving profitability for the
year.
Betta
This factory is a high volume, low cost manufacturer of glazed porcelain
sanitaryware.
Production volumes increased by 13,8% to 1 244 695 pieces from 1 093 604 pieces,
while sales volumes improved 13,4% to 1 199 289 pieces from 1 057 281 pieces.
Both revenue and profitability improved, while margins doubled. This achievement
was derived from better product mix (including greater volumes of higher margin
box suites) and improved logistics, inventory management and customer service.
Approximately 20% of this factory`s production is exported to African countries,
which offers good growth potential for Betta`s products.
Aquarius
This factory manufactures drop-in and free standing acrylic baths for the local
and export market.
Efficiencies implemented at Aquarius had a positive impact on turnover and
served to reduce losses in the reporting period. Production costs and scrap
levels declined, while production yields improved. A change in product sales mix
enabled the factory to realise a modest increase in average selling prices.
Production volumes increased 5,4% to 98 652 pieces from 93 635 pieces. Sales
volumes grew 9,4% to 102 433 pieces from 93 609 pieces. Aquarius reduced its
loss of R8 million in 2010 to R3 million in the review period and, despite this
loss, is cash generative.
InvestmentDuring the year under review the Group increased its shareholding in
Ezee Tile, a manufacturer of adhesives, grout and related products. The R10
million additional investment gives the Group significant influence over the
Ezee Tile group of companies.
Prospects
There are no indications that the economy in general or the building and
construction industry in particular will experience any material recovery in the
next 12 months. Prevailing global economic uncertainty continues to weigh on
public and private sector investment decisions.
In South Africa, there is no immediate evidence of the roll out of government
programmes that will stimulate the new build segment. In Australia, the Group`s
trading environment will also remain difficult due to high interest rates and
the impact of environmental policies, including a proposed carbon tax, on the
cost of utilities.
The local currencies in both South Africa and Australia are expected to remain
strong and this will see the continuation of the existing highly competitive
environment.
The Group is 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. It was noted that key factors determining the
decision to proceed were qualification for the Government`s tax incentive for
Industrial Policy Projects and the Group`s ability to acquire mining licenses to
secure new clay deposits to support Ceramic`s investment. Whilst the Department
of Trade and Industry has approved the tax incentives for the proposed project,
no progress has been made regarding either prospecting licences or mining
licences and as a result the project has been put on hold.
Management`s priorities in the period ahead will remain on leveraging
efficiencies in an environment of reduced demand and retaining and growing
market share by ensuring the Group`s product range continues to compete
successfully against imported products.
Special dividend
On 17 May 2011, the Board declared a special dividend of 1 500 cents per Ceramic
ordinary share to all shareholders of the Group. The reason for the special
dividend, which should be treated by shareholders as a payment out of profit,
was to return surplus cash to shareholders.
Black Economic Empowerment
Treasury shares
During the review period the Group`s Black Economic Empowerment ("BEE")
shareholders, namely, Aka Ceramic Holdings (Proprietary) Limited, Peotona
Ceramics (Proprietary) Limited, the Ceramic BEE Staff Empowerment Trust No. 2
and the Ceramic Foundation agreed to utilise a fixed percentage of the special
dividend (referred to above) to acquire treasury shares from Ceramic`s wholly
owned subsidiary company, National Ceramic Industries South Africa (Proprietary)
Limited. Approximately 60% of the Group`s treasury shares were acquired by the
BEE shareholders through this transaction. This transaction enhanced Ceramic`s
BEE credentials.
Empowerment transaction
The remaining component of the BEE equity ownership transaction approved at a
General Meeting on 11 December 2008, 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. The impact of this transaction on operating
profit will be a once-off non-cash IFRS 2 charge of approximately R8 million.
Shareholders will be advised once this suspensive condition has been fulfilled.
Ordinary dividend
The Board has declared a final dividend (number 43) of 160 cents, which together
with the interim dividend of 140 cents, maintains the total dividend at 300
cents per share.
On behalf of the Board
G A M Ravazzotti
Chairman
N Booth
Chief Executive Officer
6 September 2011
Dividend announcement
The Board has declared a final dividend (number 43) of 160 cents per share to
all shareholders recorded in the books of Ceramic Industries Limited at the
close of business on Friday, 7 October 2011. The last day to trade cum dividend
in order to participate in the dividend will be Friday, 30 September 2011. The
shares will commence trading ex dividend from the commencement of business on
Monday, 3 October 2011 and the record date will be Friday, 7 October 2011. The
dividend will be paid on Monday, 10 October 2011. Share certificates may not be
rematerialised or dematerialised between Monday, 3 October 2011 and Friday, 7
October 2011, both days inclusive.
On behalf of the Board
E J Willis
Secretary
6 September 2011
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 AC500 Series as
issued by the Accounting Practices Board and the presentation and disclosure
requirements of IAS 34: Interim Financial Reporting, the JSE Listings
Requirements and in the manner required by the South African Companies Act,
2008, as amended. 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 2010, 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 Group`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
2011 2010
% Reviewed Audited
Change R000`s R000`s
Revenue (3,4) 1 547 249 1 601 187
Tiles (5,7) 1 299 617 1 378 013
Sanitaryware 11,0 247 632 223 174
Operating profit before (12,7) 327 221 375 021
depreciation
Depreciation 8,4 (135 374) (124 874)
Operating profit (23,3) 191 847 250 147
Tiles (30,3) 174 248 250 079
Sanitaryware 17 599 68
Finance income 8,3 22 535 20 803
Finance expenses 387,5 (1 516) (311)
Income from associated - 7 500 -
companies
Profit before taxation (18,6) 220 366 270 639
Taxation 15,5 (87 139) (75 456)
Profit for the year (31,7) 133 227 195 183
Other comprehensive income
Foreign currency translation 28 694 12 316
differences for foreign
operations
Total comprehensive income for 161 921 207 499
the year
Profit attributable to:
Ordinary shareholders of the (31,2) 133 204 193 657
Group
Non-controlling interest 23 1 526
Total comprehensive income
attributable to:
Ordinary shareholders of the 162 936 205 356
Group
Non-controlling interest (1 015) 2 143
Earnings per share
Basic earnings per share (30,3) 788,0 1 130,1
(cents)
Diluted earnings per share (29,9) 761,3 1 085,4
(cents)
Dividend per share (cents) - 1 800,0 300,0
Reconciliation of headline
earnings
Profit attributable to ordinary 133 204 193 657
shareholders of the Group
(Profit)/loss on disposal of (461) 205
plant and equipment
Headline earnings (31,5) 132 743 193 862
Headline earnings per share (30,6) 785,3 1 131,3
(cents)
Diluted headline earnings per (30,2) 758,6 1 086,5
share (cents)
Condensed consolidated statement of financial position
at 31 July
2011 2010
Reviewed Audited
R000`s R000`s
ASSETS
Non-current assets 887 577 855 584
Property, plant and equipment 861 418 845 560
Goodwill 4 520 4 520
Investment in associated company 21 399 5 504
Deferred taxation assets 240 -
Current assets 560 487 767 433
Inventories 118 248 110 800
Trade and other receivables 224 089 218 011
Income taxation receivable 438 2 874
Cash and cash equivalents 217 712 435 748
Total assets 1 448 064 1 623 017
EQUITY AND LIABILITIES
Equity 1 198 085 1 355 799
Share capital 64 816 64 816
Treasury shares (122 861) (145 316)
Share-based payment reserve 47 212 47 212
Share awards reserve 12 451 8 483
Reserves 111 153 83 425
Retained earnings 1 077 697 1 288 547
Ordinary shareholders` interest 1 190 468 1 347 167
Non-controlling interest 7 617 8 632
Non-current liabilities 76 242 78 787
Shareholders` loans 9 231 9 561
Deferred taxation liabilities 67 011 69 226
Current liabilities 173 737 188 431
Trade and other payables and provisions 173 402 188 218
Shareholders for dividends 335 213
Total equity and liabilities 1 448 064 1 623 017
Condensed consolidated statement of changes in equity
year ended 31 July
2011 2010
Reviewed Audited
R000`s R000`s
Balance at beginning of year 1 355 799 1 227 149
Costs incurred in respect of BEE - (23)
transaction
Premium on acquisition of non- (3 580) -
controlling interest
Share buy back (1 897) (33 206)
Treasury shares sold to BEE partners 24 352 -
Share awards reserve 3 968 524
Profit attributable to ordinary 133 204 193 657
shareholders of the Group
Movement in foreign currency translation 27 751 11 699
reserve
Movement in non-controlling interest (1 015) 2 143
Transfer to dividend reserve (340 473) (56 777)
Dividend reserve 340 473 56 777
Net dividend paid (340 497) (46 144)
Balance at end of year 1 198 085 1 355 799
Condensed consolidated statement of cash flows
year ended 31 July
2011 2010
Reviewed Audited
R000`s R000`s
Operating activities
Operating profit adjusted for non-cash 344 569 382 849
items
Changes in working capital (28 342) 87 333
Cash generated from operations 316 227 470 182
Finance income 22 535 20 803
Finance expenses (1 516) (311)
Dividends paid (340 375) (47 467)
Taxation paid (92 922) (74 064)
(96 051) 369 143
Investing activities (138 549) (53 069)
(Increase)/decrease of share in (10 832) 178
investment in associated company
Property, plant and equipment (net) (127 717) (53 247)
Financing activities 16 564 (35 336)
Costs incurred in respect of BEE - (23)
transaction
Additional shareholding acquired in NCI (5 561) -
Australia
Share buy back (1 897) (33 206)
Treasury shares sold to BEE partners 24 352 -
Borrowings repaid - (1 932)
Shareholders` loans repaid ( 330) ( 175)
Net movement in cash and cash (218 036) 280 738
equivalents
Cash and cash equivalents at beginning 435 748 155 010
of year
Cash and cash equivalents at end of year 217 712 435 748
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
Company secretary: E J Willis
Registered office: Farm 2, Old Potchefstroom Road, Vereeniging.
PO Box 2247, Vereeniging, 1930
Transfer secretaries: Computershare Investor Services (Proprietary) Limited, 70
Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Sponsor: One Capital
Date: 08/09/2011 07:05:01 Produced by the JSE SENS Department.
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