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ITALTILE LIMITED - UNAUDITED GROUP RESULTS FOR THE SIX MONTHS ENDED
31 DECEMBER 2003
ITALTILE LIMITED
(ITALTILE)
Incorporated in the Republic of South Africa
JSE Share code: ITE
ISIN: ZAE000003679
Reg. no. 1955/000558/06
Interim Profit Announcement
Unaudited Group Results for the six months ended 31 December 2003
COMMENTARY
RESULTS
Italtile Limited, comprising national branded retail chains, CTM, servicing the
value-for-money market, and Italtile, catering for the premium-end market, is
South Africa"s leading retailer of ceramic tiles, sanitaryware, bathroom
accessories and other related products. The group is one of the major purchasers
of tiles globally.
For the six months ended 31 December 2003, turnover for the group was R775
million, an improvement of 7% (2002: R725 million), on the back of volume growth
of 12% in ceramic tiles and 25% in taps, sanitaryware and related products. In
response to the strong local currency which gave rise to increased competition,
management employed an aggressive campaign to maintain and grow market share by
implementing a meaningful reduction in average selling prices, the benefit of
which was passed on to consumers. This tactic was fostered by the company"s
leverage to source and buy superior quality product at competitive prices.
In line with market expectations, trading profit improved 20% to R93,8 million
(2002: R78,1 million), while headline earnings per share increased 22% to 355
cents (2002: 291 cents). This strong performance in the light of the deflation-
linked decline in turnover is a reflection of the group"s resilience and
strategic focus on margins, cash management and inventory.
TRADING ENVIRONMENT
The period under review featured volatility in the global ceramic tile market.
As a result of US$ weakness, the American market retreated substantially,
creating a short term oversupply of product in Europe. Traditional suppliers to
that market, including Turkey and Brazil, were pressured to establish new
markets and in many cases restricted or froze price increases in the immediate
term. This global trend has had significant ramifications for the South African
market, where the strengthening of the local currency to unanticipated levels
has promoted the entry of a multitude of new players and significantly reduced
selling prices. Given the short term instability of this environment and long
term issues of quality and reputation, the group elected to maintain strategic
links with its tried-and-tested established suppliers at the expense of
opportunistic relationships.
Management is satisfied that growth in tile consumption is sustainable for
several reasons, including South Africa"s comparatively low per capita
consumption, the current mini-boom in the residential market, strong DIY growth
potential, and the development of emerging markets based on improved consumer
education, and accessibility and affordability of the product.
In anticipation of low to flat inflation, the group reduced stock levels
dramatically. This had the spin-off of ensuring greater flexibility and
responsiveness to consumer demand, improved store control and enhanced cash
reserves. The company exited the period with cash and cash equivalents of R159
million and optimal stock levels. Future group expansion will be funded via
these cash reserves.
Despite the testing trading conditions, the group maintained its leadership in
the ceramic tile market and was successful in progressing its strategy of
forging inroads into the high growth potential tap and sanitaryware market. In
line with efforts to afford consumers an enhanced shopping experience, existing
stores have been and will continue to be upgraded and new stores will be
designed to include a dedicated bathroom division to enhance the tile offering.
PROPERTY PORTFOLIO
A further R40 million was invested in the company"s property portfolio in South
Africa and Australia, bringing the value of this asset to some R281 million.
Group policy to operate owned- and franchised stores out of purpose built
company owned premises situated in prominent, prime locations appropriate to
target markets continues to enhance trading performance and will thus remain a
core investment strategy.
AFRICAN OPERATIONS
Italtile and CTM
Market conditions proved more challenging than anticipated and the solid
performances delivered by both the CTM and Italtile divisions are a reflection
of prudent management control and the strength of the brands.
The consolidation of Italtile"s presence in strategically targeted major urban
areas has firmly positioned the division as a destination retailer catering to
the niche premium-end market.
In addition to leadership in its traditional DIY value-for-money market, CTM is
enjoying increasing dominance in the entry-level market, where there is a dearth
of sustainable competition. Notable success is being achieved with the
introduction of customised product baskets for the RDP housing sector. The group
forecasts solid growth potential in this segment and is currently considering
opening customised stores in high density, traditional black markets.
Implementation will be determined by success in sourcing suitable franchise
partners.
CTM extended its footprint into the sub-Saharan region with the opening of a
store in Kampala, Uganda. The brand"s reach outside of South Africa extends to
Botswana, Namibia, Swaziland, Lesotho, Malawi, Tanzania and Zambia. Management
is exploring the opportunity of entering Kenya, a market with high growth
potential. Notwithstanding logistical constraints, the group is confident that
the region affords important expansion opportunities.
INTERNATIONAL OPERATIONS
Represented by nine CTM stores across Queensland, New South Wales and Victoria,
the group"s Australian operation contributed 10% of turnover. While the business
grew in Australian terms, adverse currency conditions reversed any gains made.
Management is satisfied with this operation"s performance and has identified and
invested in potential sites for future expansion.
The group"s Italian operation delivered a solid performance and continues to
make a useful contribution to group turnover.
PROSPECTS
Sustained rand strength will continue to foster the proliferation of new
entrants and short-term oversupply of imported product. This competitive
environment, exacerbated by the current deflationary trend will result in
consolidation in the industry and impact operating tactics in the medium term.
Conditions are expected to remain testing over the forthcoming six to 12 months
and management"s focus will be on building on its proven strategy of maintaining
optimal stock levels, a strong cash position and leveraging the group"s price
competitiveness. It is anticipated that these trading conditions may be
alleviated to some extent by an improvement in consumer spending as the impact
of interest rate cuts filters through. The group expects to maintain current
growth levels.
ACCOUNTING POLICIES
The financial information has been presented in accordance with South African
Statements of Generally Accepted Accounting Practice. The accounting policies
applied are consistent with those of the prior reporting period.
Dividend
The Board has declared an interim dividend of 70 cents, an improvement of 40%
(2002: 50 cents). The Group will maintain its dividend cover at approximately
five times.
DIVIDEND ANNOUNCEMENT
The directors have declared an interim dividend (number 75) of 70 cents per
share to all shareholders recorded in the books of Italtile Limited. The last
day to trade CUM the dividend in order to participate in the dividend will be
Friday, 27 February 2004. The shares of Italtile Limited will commence trading
EX dividend from the commencement of business on Monday, 1 March 2004 and the
record date will be Friday, 5 March 2004. Payment will be made on Monday, 8
March 2004. Share certificates may not be dematerialised or rematerialised
between Monday, 1 March 2004 and Friday, 5 March 2004, both days inclusive.
ABRIDGED GROUP INCOME STATEMENTS
(Rand 000"s unless otherwise stated)
Unaudited Unaudited Audited
six months to six months to year to
% 31 December 31 December 30 June
Increase 2003 2002 2003
TURNOVER
- By group-owned stores 391 006 407 324 749 150
- By franchise-owned
stores 383 747 317 389 608 779
TOTAL 6,9 774 753 724 713 1 357 929
Trading profit before
depreciation 99 538 84 568 189 393
Depreciation (5 654) (6 396) (17 017)
Impairment of fixed assets - - (6
189)
Trading profit 20,1 93 884 78 172 166 187
Net investment income 4 325 2 117 5 606
Profit/(Loss) on sale
of property, plant
and equipment 45 - (612)
Share incentive trust
reversal - - 2 700
Profit before
taxation 22,4 98 254 80 289 173 881
Taxation (29 848) (25 475) (53 935)
Profit after
taxation 24,8 68 406 54 814 119 946
Outside shareholders"
interest (2 136) (1 293) (2 336)
Earnings attributable
to ordinary
shareholders 23,8 66 270 53 521 117 610
Weighted average
number of shares
in issue (000"s) 18 677 18 396 18 536
Earnings per share
(cents) 22,0 354,8 290,9 634,5
Headline earnings
per share (cents) 21,9 354,6 290,9 656,5
Dividends declared
per share (cents) 40,0 70,0 50,0 130,0
RECONCILIATION OF
HEADLINE EARNINGS
Earnings attributable
to ordinary
shareholders 66 270 53 521 117 610
Impairment of property,
plant and equipment - - 6 189
Share incentive trust
reversal - - (2 700)
(Profit)/Loss on sale of
property, plant and
equipment (45) - 612
Headline earnings 23,7 66 225 53 521 121 711
CASH FLOW STATEMENTS
(Rand 000"s unless
otherwise stated)
Unaudited Unaudited Audited
six months to six months to year to
31 December 31 December 30 June
2003 2002 2003
Cash flow from operating
activities 51 674 41 223 125 410
Cash flow from investing
activities (49 879) (37 935) (67 038)
Cash flow from financing
activities 4 7 716 7 395
Net movement in cash and
cash equivalents 1 799 11 004 65 767
Cash and cash equivalents
at beginning of period 157 545 91 778 91 778
Cash and cash equivalents
at end of period 159 344 102 782 157 545
SEGMENTAL REPORTING
(Rand 000"s unless otherwise stated)
for the period ended 31 December 2003
Retail Franchising Properties Corporate Group
Period to
December 2003
Revenue 391 006 383 747 - - 774 753
Segment
results 28 766 34 051 21 150 9 917 93 884
Period to
December 2002
Revenue 407 324 317 389 - - 724 713
Segment
results 28 204 28 095 16 794 5 079 78 172
ABRIDGED GROUP BALANCE SHEETS
(Rand 000"s unless otherwise stated)
Unaudited Unaudited Audited
six months to six months to year to
31 December 31 December 30 June
2003 2002 2003
ASSETS
Non-current assets 347 812 288 627 302 788
Fixed assets 299 886 251 042 259 740
Other long-term assets 47 926 37 585 43 048
Current assets 323 711 290 202 327 327
Inventories 82 909 117 272 99 892
Trade and other receivables 81 458 70 148 69 890
Cash and cash equivalents 159 344 102 782 157 545
Total assets 671 523 578 829 630 115
EQUITY AND LIABILITIES
Capital and reserves 478 413 370 242 426 931
Stated capital 27 175 27 175 27 175
Non-distributable reserve 7 213 5 120 7 059
Retained profit 444 025 337 947 392 697
Outside shareholders"
interest 13 740 9 950 10 774
Non-current liabilities 12 949 10 542 12 947
Deferred tax 534 1 403 535
Long-term liabilities 9 472 6 194 9 469
Provision for warranties 2 943 2 945 2 943
Current liabilities 166 421 188 095 179 463
Trade and other payables 128 368 176 863 160 889
Taxation 38 053 11 232 18 574
671 523 578 829 630 115
Net asset value per share
(cents) 2 635 2 067 2 361
STATEMENT OF CHANGES IN EQUITY
(Rand 000"s unless otherwise stated)
for the period ended 31 December 2003
Stated Translation Retained
Group capital reserve profit Total
Balance at
30 June 2002 18 457 11 168 296 328 325 953
New share issues 8 718 8 718
Net profit for
the year 117 610 117 610
Dividends paid (21 241) (21 241)
Currency
translation
difference (4 109) (4 109)
Balance at
30 June 2003 27 175 7 059 392 697 426 931
Net profit for
the period 66 270 66 270
Dividends paid (14 942) (14 942)
Currency
translation
difference 154 154
Balance at
31 December 2003 27 175 7 213 444 025 478 413
Notes
- There are no contingent liabilities or assets at 31 December 2003.
- Capital commitments at 31 December 2003 Rm
Contracted 7 843
Authorised but not contracted 20 300
28 143
For and on behalf of the Board
G A M Ravazzotti P D Swatton
Executive Chairman Chief Financial Officer
9 February 2004
Registered Office:
The Italtile Centre,
cnr Peter Place and William Nicol Drive,
Bryanston
(PO Box 1689, Randburg 2125)
Transfer Secretaries:
Computershare Limited,
70 Marshall Street,
Johannesburg 2001
(PO Box 61051, Marshalltown 2107)
Sponsors:
Nedbank Corporate
Directors:
G A M Ravazzotti (Chairman), P D Swatton**, J Couzis*, G Cousins,
D H Rabin
*Greek **British
Refer to Italtile"s corporate website: www.italtile.com
