| Wed 15 Feb 2012, 7:05 | | ITE - Italtile - Reviewed Group results for the six months ended 31 December |
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ITE
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ITE - Italtile - Reviewed Group results for the six months ended 31 December
2011
Italtile Limited
Share code: ITE ISIN: ZAE000099123 Reg. no.: 1955/000558/06
Incorporated in the Republic of South Africa
("Italtile" or "the Group")
Reviewed Group results for the six months ended 31 December 2011
Commentary
Overview for the six months ended 31 December 2011
Italtile Limited has delivered another consecutive set of solid results,
attributable to continued improvements made in the business and the strong
equity which the Group`s brands enjoy amongst consumers. These results are
also a reflection of growth opportunities which exist in the market for
discerning retailers. The Group gained market share across its brand
portfolio, comprising Italtile Retail, CTM and TopT.
Key to the Group`s growth was:
- An improved product matrix and rationalised ranges across the brands which
proved beneficial in delivering enhanced customer service.
- A 24% increase in sales in the bathware component of the Group`s business,
consistent with management`s stated strategy to grow this segment`s
contribution in line with revenue contribution from tiles.
- The measured tactic to ensure that stores were abundantly stocked to meet
customers` expectations of range and product availability. The Group`s
strong balance sheet supported this initiative and achieved a significant
competitive advantage for the business in a market place featuring
fragmentation and inconsistency of supply.
- Prudent stock management, which ensured that despite an increase in
inventories to R269 million (2010: R228 million), the improved product
balance afforded a better stock turn.
- A deliberate strategy to entrench Italtile`s position as the price and
range leader in the market, by absorbing input cost increases, and adopting
an aggressive pricing strategy, wherever possible passing savings onto
consumers. During the period, domestic demand in China softened resulting in
a large supply of well-priced product available for import. The Group
increased its stock volumes and range substantially based on strong demand
from price-sensitive consumers seeking diversity from local product.
- Rigorous cost containment and improved in-store and supply chain
efficiencies which ensured that margin pressure was restricted, reflecting a
nominal decline of 1% in total margins across the Group.
- Continued success in pioneering new product categories and ranges.
Notably, imported tile sales grew by 38% against the prior comparative
period whilst local tile sales increased only 3%. This is a function of
importing product to meet demand for large format glazed porcelain patterned
tiles which are not manufactured in this country.
Financial highlights
- Like-on-like system-wide turnover increased 16% to R1,84 billion (2010:
R1,59 billion)
- Revenue from Group-owned stores grew 23% to R946 million (2010: R771
million), while franchised stores increased turnover by 10% to R898 million
(2010: R814 million)
- Real organic growth equates to 15% given price inflation of 1% and no net
increase in the total store number
- Reported trading profit grew 17% to R271 million (2010: R231 million)
- Basic earnings per share and headline earnings per share increased 21% and
22% respectively to 21,7 cents per share and 21,4 cents per share
- Capital expenditure of R106 million (2010: R63 million) was incurred,
predominantly related to the property portfolio
- The Group`s strong cash generating ability is reflected in the increase in
reserves to R904 million (2010: R820 million)
- Net asset value per share increased by 18% to 205 cents (2010: 174 cents).
Trading environment
Trading conditions remained subdued in the building and construction
industry in general and the new build sector in particular. Typical to a
downturn in the economy, the renovations market remained relatively stable,
as consumers sought to strengthen their assets by investing in existing
properties. Financial institutions` lending criteria remained onerous and
consumers` improved management of limited disposable income was evident in
the increase in cash purchases relative to credit card payments.
The Rand lost some 19% of its value in the period, however, Italtile`s large-
scale buying power afforded the business an important advantage in securing
well-priced product from all of its markets.
Operational review
Italtile Retail
Italtile Retail is represented by eight stores nationwide, all of them Group-
owned. This brand services the upper-middle to premium-end of the market and
is recognised as the leading fashion retailer of exclusive ranges of
porcelain and ceramic tiles, bathware and related products. During the
period one new store was opened in Boksburg, Gauteng. This New Generation
store, built according to best practice green principles, is the brand`s
flagship offering and provides the benchmark for future stores.
This division continued to successfully broaden its retail customer base in
line with its `exclusive, yet inclusive` ethos, and also made further
inroads into the commercial projects sector.
Strong growth was once again delivered in the bathware segment of the
business and the brand further entrenched its niche role as the leading
supplier of environmentally conscious new-technology products.
CTM
This brand targets the middle income market and is the country`s biggest
specialist tile and bathroom retailer. CTM is represented by 64 stores
nationwide, 41 of which are franchised. The balance, which service the
larger urban markets are Group-owned.
CTM delivered a pleasing performance in a fiercely competitive environment,
growing sales by 14% and containing costs. As forecast by management, the
price war continued in the porcelain and ceramic tile arena, and extended
into the laminate floor segment. In order to entrench its low price high
value offering, the division supported an aggressive price position,
absorbing cost increases and reducing average tile prices by 1%.
During the reporting period CTM`s in-house brand building campaign centred
on the Tivoli tap range, which contributed to a significant increase in this
division`s brassware sales.
The ongoing aim to improve the shopping experience by enhancing in-store
efficiencies was advanced with the further roll-out of mobile point-of-sales
technology and the implementation of comprehensive automated replenishment
systems which assisted in optimising stock levels, reducing administration
processes and affording customers improved service.
TopT
This entry-level brand is represented by 13 stores, situated predominantly
in previously under-serviced emerging market areas. Demand continued to grow
for TopT`s offering which includes a range of floor coverings, sanitary
ware, brassware and paint, and the brand succeeded in gaining further market
share.
Key to this improved performance was the brand`s enhanced, flexible product
range, proximity to and strong association with the communities in which it
trades (reinforced by localised advertising campaigns), and favourable
supply chain relationships.
TopT`s business model will continue to evolve as opportunities present
themselves and roll-out of the network will proceed cautiously in line with
demand.
Support services
Central to robust sales growth attained in the Group`s bathware business
component was the pivotal role played by supply chain partners,
International Tap Distributors (ITD) and Cedar Point, in improving their
product ranges and service.
The Group`s Distribution Centre imported aggressively during the review
period in order to ensure consistent supply and favourable pricing of new
ranges of product not available locally. Total Rand sales to the Group
increased by 38%. Imported tile sales volumes through the store network grew
to almost 2,3 million mSquared, an improvement of 23%.
Rest of Africa
The Group is represented by 15 CTM stores in seven African countries. A
further store is scheduled to open in Nairobi in March 2012.
Strong demand for the Group`s products is evident in East Africa, but
opportunities to grow this business continue to be hampered by logistical
and infrastructural constraints.
Australia
The Australian operation consists of eight CTM stores located in Queensland
and New South Wales, and comprises only a small component of the Group`s
total business.
Trading conditions remained challenging in this market. Negligible economic
growth, limited government investment in the sector and continued high
levels of personal debt prevailed, impacting negatively on the building and
construction industry. In addition, the strength of the Australian dollar
favoured imports, intensifying competition in the market. In this
environment the Group`s operation fell short of management`s expectations.
Whilst investment in real estate was made during the reporting period,
management is cognisant that the expressed intention to increase the store
network to 15 by 2013 will be difficult to achieve in the current economic
climate.
Property portfolio
Italtile`s property portfolio has an estimated current market value in
excess of R1,3 billion, comprising high profile destination sites
strategically selected to underpin the Group`s retail brands. The portfolio
delivered returns in line with the trading operations.
During the reporting period, investment of R71 million was made in acquiring
properties in both South Africa and Australia, while capital expenditure of
R17,6 million was incurred on alterations and extensions of existing
properties. Cash reserves remain strong, affording a flexible investment
strategy should opportunities arise.
Prospects
Despite indications that the economic environment is likely to remain
restrained over the forthcoming six months, the Group is satisfied that
growth is sustainable. This outlook is based on management`s conviction that
the market continues to afford expansion opportunities to determined
retailers.
Key focus will remain on improving the in-store shopping experience through
enhanced innovation and service, intensified cost containment and inventory
and range management.
Basis of preparation
The reviewed interim financial results have been prepared in accordance with
and containing the information required by IAS 34: Interim Financial
Reporting as well as the AC 500 Standards, and have been prepared under the
supervision of the Chief Financial Officer, Mr P D Swatton CA(SA).
Dividend
The Group has maintained its dividend cover of three times. The Board has
declared an interim dividend of 7,0 cents per share (2010: 6,0 cents), a 17%
increase.
Dividend announcement
The Board has declared an interim dividend (number 91) of 7,0 cents per
ordinary share to all shareholders recorded in the books of Italtile
Limited. The implementation of new legislation in respect of dividends tax
will be effective from 01 April 2012. In this regard and in order to
maximise Secondary Tax on Companies` (STC) credits prior to the
implementation of this legislation, the cash dividend timetable is
structured as follows: the last day to trade cum dividend in order to
participate in the dividend will be Thursday, 15 March 2012. The shares will
commence trading ex dividend from the commencement of business on Friday, 16
March 2012 and the record date will be Friday, 23 March 2012. The dividend
will be paid on Monday, 26 March 2012. Share certificates may not be
rematerialised or dematerialised between Thursday, 15 March 2012 and Friday,
23 March 2012, both days inclusive.
For and on behalf of the board
G A M Ravazzotti P D Swatton
Executive Chairman Chief Financial Officer
14 February 2012
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.
System wide turnover analysis
For the period ended 31 December 2011
(Rand millions unless otherwise stated)
Reviewed Reviewed
six six Audited
months to months to year to
% 31 December 31 December 30 June
increase 2011 2010 2011
Group and franchised
turnover
- By Group owned stores 946 771 1 521
and entities
-By franchise owned 898 814 1 500
stores (unaudited)
Total 16 1 844 1 585 3 021
Abridged Group statements of comprehensive income
For the period ended 31 December 2011
(Rand millions unless otherwise stated)
Reviewed Reviewed
six six Audited
months to months to year to
% 31 31 December 30 June
December
increase 2011 2010 2011
Turnover 946 771 1 521
Cost of sales (615) (486) (895)
Gross profit 16 331 285 626
Other operating income 162 146 206
Operating expenses (224) (203) (386)
Profit on sale of 2 3 2
property, plant and
equipment
Trading profit 17 271 231 448
Financial revenue 24 19 37
Financial cost (12) (12) (24)
Income from associates 4 4 8
Profit before taxation 19 287 242 469
Taxation (77) (66) (130)
Profit for the period 19 210 176 339
Other comprehensive
income:
Currency translation 21 1 7
difference
Aircraft revaluation - - (6)
Total comprehensive 31 231 177 340
income for the period
Profit attributable to:
- Equity shareholders 199 165 321
- Non-controlling 11 11 18
interests
19 210 176 339
Total comprehensive
income attributable to:
- Equity shareholders 220 166 322
- Non-controlling 11 11 18
interests
31 231 177 340
Earnings per share:
- Earnings per share 21 21,7 17,9 34,9
(cents)
- Headline earnings per 22 21,4 17,6 34,6
share (cents)
- Diluted earnings per 21 21,6 17,9 34,8
share (cents)
- Diluted headline
earnings per
share (cents) 22 21,3 17,5 34,5
- Dividends per share 17 7,0 6,0 12,0
(cents)
Abridged Group statements of financial position
As at 31 December 2011
(Rand millions unless otherwise stated)
Reviewed Reviewed
six six Audited
months to months to year to
31 December 31 December 30 June
2011 2010 2011
ASSETS
Non-current assets 1 180 1 026 1 070
Property, plant and equipment 1 110 984 1 006
Investments 4 4 4
Investments in associates 26 8 22
Long-term assets 24 18 24
Goodwill 6 6 6
Deferred taxation 10 6 8
Current assets 1 325 1 180 1 226
Inventories 269 228 241
Trade and other receivables 139 128 135
Cash and cash equivalents 904 820 839
Taxation receivable 13 4 11
Total assets 2 505 2 206 2 296
EQUITY AND LIABILITIES
Share capital and reserves 1 883 1 603 1 707
Stated capital 818 818 818
Non-distributable reserves 72 50 51
Treasury shares (478) (478) (478)
Share option reserve 7 5 5
Retained earnings 1 385 1 140 1 241
Non-controlling interests 79 68 70
Non-current liabilities 320 46 327
Interest bearing loans 313 43 321
Deferred taxation 7 3 6
Current liabilities 302 557 262
Trade and other payables 238 218 217
Provisions 36 39 31
Interest bearing loans 22 300 10
Taxation 6 - 4
TOTAL EQUITY AND LIABILITIES 2 505 2 206 2 296
Net asset value per share (cents) 205 174 186
Abridged Group cash flow statement
For the period ended 31 December 2011
(Rand millions unless otherwise stated)
Reviewed Reviewed
Six six Audited
months to months to year to
31 December 31 December 30 June
2011 2010 2011
Cash flow from operating 164 166 254
activities
Cash flow from investing (99) (50) (107)
activities
Cash flow from financing - (7) (19)
activities
Net movement in cash and cash
equivalents
for the period 65 109 128
Cash and cash equivalents at the
beginning
of the period 839 711 711
Cash and cash equivalents at the 904 820 839
end of the period
Group statement of changes in equity
For the period ended 31 December 2011
(Rand millions unless otherwise stated)
Non-
distri- Share
Stated butable Treasury option
capital reserve shares reserve
Balance at 30 June 2010 818 50 (470) 3
Total comprehensive
income for the period 1
Dividends paid
Purchase of shares by
Share Trust (8)
Transactions with non-controlling
interests
Share incentive costs 11
Settlement of share
incentive costs (9)
Balance at 30 June 2011 818 51 (478) 5
Total comprehensive income for 21
the period
Dividends paid
Transactions with non-controlling
interests
Share incentive costs 2
Balance at
31 December 2011 818 72 (478) 7
Group statement of changes in equity (continued)
For the period ended 31 December 2011
(Rand millions unless otherwise stated)
Non-
control-
Retained ling Total
earnings Total interest equity
Balance at 30 June 2010 1 021 1 422 61 1 483
Total comprehensive
income for the period 321 322 18 340
Dividends paid (101) (101) (8) (109)
Purchase of shares by
Share Trust (8) (8)
Transactions with non-controlling - (1) (1)
interests
Share incentive costs 11 11
Settlement of share
incentive costs (9) (9)
Balance at 30 June 2011 1 241 1 637 70 1 707
Total comprehensive income for 199 220 11 231
the period
Dividends paid (55) (55) (4) (59)
Transactions with non-controlling - 2 2
interests
Share incentive costs 2 2
Balance at
31 December 2011 1 385 1 804 79 1 883
Segmental report
For the period ended 31 December 2011
(Rand millions unless otherwise stated)
Retail Franchising Properties
Reviewed period
to December 2011
Turnover 741 - -
Gross margin 273 - -
Other income* 10 110 103
Operating expenses (228) (10) (21)
Trading profit 55 100 82
Reviewed period
to December 2010
Turnover 623 - -
Gross margin 237 - -
Other income* 10 94 88
Operating expenses (198) (10) (18)
Trading profit 49 84 70
*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 period ended 31 December 2011
(Rand millions unless otherwise stated)
Supply
and
support Inter group
services transactions Group
Reviewed period
to December 2011
Turnover 456 (251) 946
Gross margin 58 - 331
Other income* 60 (119) 164
Operating expenses (84) 119 (224)
Trading profit 34 - 271
Reviewed period
to December 2010
Turnover 350 (202) 771
Gross margin 48 - 285
Other income* 51 (94) 149
Operating expenses (71) 94 (203)
Trading profit 28 - 231
*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 2011.
Capital commitments at 31 December 2011: R`m
- Contracted 26
- Authorised, not contracted 55
Total 81
2. Changes in accounting policy
The accounting policies and methods of computation used in the preparation
of the reviewed interim financial results are in terms of International
Financial Reporting Standards and 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 2011 and the financial position at 31 December
2011.
Reviewed Reviewed
six six Audited
months to months to year to
31 December 31 December 30 June
3. Earnings per share 2011 2010 2011
Reconciliation of shares in issue
(all figures in millions):
- Total number of shares issued 1 033 1 033 1 033
- Share Incentive Trust shares 26 26 26
- BEE treasury shares 88 88 88
Shares in issue to external 919 919 919
parties
Share numbers used for earnings
per share calculations (all
figures in millions):
- Weighted average number of 919 921 920
shares
- Diluted weighted average number 922 923 922
of shares
Reconciliation of headline
earnings
(Rand millions):
- Profit attributable to equity 199 165 320
shareholders
- Profit on sale of property, (2) (3) (2)
plant and equipment
Headline earnings 197 162 318
Store network
At 31 December 2011
2011
Region Franchise Other Total
South Africa
- Italtile - 8 8
- CTM 41 23 64
- TopT 8 5 13
Rest of Africa 12 3 15
Australia - 8 8
61 47 108
Store network (continued)
At 31 December 2011
2010
Region Franchise Other Total
South Africa
- Italtile 1 6 7
- CTM 44 21 65
- TopT 5 8 13
Rest of Africa 12 3 15
Australia - 8 8
62 46 108
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), 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
Date: 15/02/2012 07:05:44 Produced by the JSE SENS Department.
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