| Wed 4 Aug 2004, 8:27 | | GROUP RESULTS FOR THE YEAR ENDED 30 JUNE 2004 |
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ITALTILE LIMITED/ - REVIEWED GROUP RESULTS FOR THE YEAR ENDED 30 JUNE 2004
ITALTILE LIMITED
(ITALTILE)
Share code: ITE
ISIN: ZAE000003679
Reg. no. 1955/000558/06
Incorporated in the Republic of South Africa
Preliminary Profit Announcement
Reviewed Group Results for the year ended 30 June 2004
Commentary
RESULTS
Italtile Limited, represented by leading national branded chains, CTM and
Italtile, is South Africa`s foremost retailer of ceramic tiles, bathware and
related products. The group`s offering caters for the full spectrum of consumer
demand, ranging from the entry-level and DIY markets, to the niche, premium-end
sector.
In its thirteenth consecutive year of real earnings improvement, the group has
delivered a rewarding set of results, ahead of market forecasts. Total turnover
improved 15,5% to R1,57 billion (2003: R1,36 billion), while trading profit grew
29% to R213,7 million (2003: R165,6 million). Headline earnings increased 24% to
R151 million (2003: R122 million).
Contrary to conventional trading patterns, performance in the second six months
of the review year outstripped that of the first, which traditionally
encompasses the greatest amount of promotional activity. The group`s strategy to
maintain and grow market share through a meaningful reduction in average selling
prices continues.
The upsurge in trading activity is a reflection of sustained consumer
confidence, the anticipation that interest rates would remain low, the continued
strong residential property boom, and the exponential growth of the renovation
market as new property prices escalated.
A significant growth driver was the strong performance delivered by the group`s
empowered franchises, which now contribute more than 15% to turnover. The
company`s strategic imperative to increase black ownership comprises two
elements: the need to transform the group to more accurately reflect the
demographics of the country, and the opportunity to enhance market penetration
by enjoying improved, informed insight into the markets it serves.
While inroads have been made into emerging markets in key urban areas and to
some extent RDP housing, traditional high density mass markets have not as yet
been tapped, and afford obvious growth potential. The role of the group`s black
partners cannot be underestimated in this regard.
TRADING ENVIRONMENT
The impact of buoyant consumer sentiment on industry performance was offset to
some degree by significant product oversupply in the international ceramic tile
market, which continued to exercise a dramatic impact locally in the form of the
proliferation of new entrants and cheap imports, exerting downward pressure on
prices.
Exacerbating this volatility is a shortage of available shipping capacity and an
upward pressure on prices especially for heavy goods of low unit value.
These factors have vindicated the group`s policy to continue to support local
tried-and-tested suppliers as opposed to developing short-term opportunistic
relationships. The long-term reliability of supply, and consistency of quality
and price has, and will continue, to prove worthwhile for the group.
AFRICAN OPERATIONS
Italtile and CTM
In a market characterised by increased levels of competition and deflationary
price pressures, the improved level of profitability delivered by both CTM and
Italtile is a tribute to the strength of the group`s brands, the resilience of
the business model, and the ability to innovate. Leveraging its position as one
of the world`s major purchasers of tiles, the group`s price competitiveness
ensured that the company entrenched its leadership status in the country.
The period under review featured ongoing improvements to both CTM and Italtile,
with the former undergoing departmentalisation of its stores to include clearly
defined tile and bathware sections, while the Italtile showrooms continued to be
upgraded with improved finishes to elevate the level of sophistication of the
offering. Pleasing gains in market share in the bathware market in both trading
divisions have been achieved in the current year.
The group`s store network, both franchised and group owned, comprises 64 CTM
stores and 8 Italtile outlets.
In line with group strategy no new stores were opened during the current year.
The group`s strong results were achieved from its existing store base validating
management`s view that the market for tiles and bathware has significant,
sustained growth potential. In support of this view, the group will expand many
of its existing sites to enlarge each stores` footprint and enhance the shopping
experience for consumers. Success in this regard has already been achieved at
certain key node stores. In some instances stores will be transferred closer to
their apposite markets.
Management has undertaken to ensure that by the end of 2005, all remaining group
owned stores will be franchised, either outright, or in joint ventures. The
group recognises the positive impact entrepreneurship and empowerment,
characteristic of owner-driven businesses, have on performance.
During the year, the group acquired a controlling interest in International Tap
Distributors, a dedicated tap importer and distributor. This investment is key
to supporting the group`s penetration into the bathware market.
Initial performance has been positive with the company already contributing to
group profits. It is anticipated that this business will become an important
component of the group`s activities in the future. This investment was funded
through own resources.
AFRICA
Expansion of the group`s presence in the African market remains a key strategic
imperative, and investment in resources to promote further growth in the region
has been made. Management is however realistic that whilst the CTM model is
suited to the territories and demand for the product is significant, the
potential for rapid expansion is constrained by infrastructural and logistical
challenges. The brand is represented in Botswana, Namibia, Swaziland, Lesotho,
Malawi, Uganda, Tanzania and Zambia, with further opportunities being explored.
INTERNATIONAL OPERATIONS
Further to the half year report, the first of three new stores commenced trading
in New South Wales during July. A further two stores, situated in Queensland and
New South Wales, are scheduled for opening during the fourth quarter of 2004.
This will complement the existing nine stores in Australia.
The latest store epitomises an evolved trading formula which has seen the
modification of the traditional warehouse concept to include a customer-friendly
showroom facility. This enhancement will result in the model being rolled out
into all existing stores and further new stores. Following on from successful
implementation in the South African market, the group plans to extend its basket
of products to include sanitaryware and taps.
A strong local currency will continue to restrict this operation`s contribution
to turnover and profits to below 10%, but management is satisfied that sustained
growth in Australian dollar terms is achievable.
PROPERTY PORTFOLIO
Continued investment in the company`s property portfolio remains a core
strategy, with a further R69 million invested this year, bringing the carrying
value of the South African and Australian property portfolios to some R309
million.
The group believes that the shopping experience is enhanced by placing its
trading outlets in purpose built premises situated in prominent, prime locations
adjacent to target markets, and is a key component of its retail strategy. The
returns achieved on this portfolio are in line with the contribution from the
group`s trading operations.
DIRECTORATE
On 8th April 2004, Siyabonga Gama was appointed to the Board as an independent
Non Executive Director. Mr Gama is the Chief Executive Officer of the National
Ports Authority of South Africa and Chairman of the Port Management Association
of Eastern and Southern Africa. The Directors welcome Mr Gama and look forward
to their association with him.
PROSPECTS
Sustained Rand strength will continue to foster new entrants into the market
with a resultant short term over-supply of imported product. The competitive
landscape will thus be characterised by deflationary price pressures for the
foreseeable future.
The group will continue to focus its energies on maintaining price
competitiveness, a low overhead base, a strong cash position and optimal working
capital levels. Current growth levels are expected to be maintained.
ACCOUNTING POLICIES
The financial information has been presented in accordance with South African
Statements of Generally Accepted Accounting Practice.
The accounting policies are consistent in all material respects with those
applied in the previous year except for the consolidation of the Share Incentive
Trust.
SHARE INCENTIVE TRUST
In order to conform with the requirements of the JSE Securities Exchange South
Africa, the Group now consolidates its Share Incentive Trust. The major effect
of this change is to decrease the number of shares in issue by 1031000 shares
(2003: 932 000). The relevant prior year figures have been restated. Had the
shares held by the Share Incentive Trust been included in the earnings per share
and headline earnings per share calculations, the former would have amounted to
807,4 cents (2003: 634,5 cents) and the latter 809,0 cents (2003: 656,6 cents).
DIVIDEND
The Board has declared a final ordinary dividend of 90 cents per share, which
together with the interim ordinary dividend of 70cents produces a total ordinary
dividend declared for the year of 160 cents (2003: 130 cents), an improvement of
23%.
Italtile remains a strong cash generator. Management is satisfied that current
cash resources coupled with projected net cash inflows are in excess of
operating requirements and planned capital expenditure. As a result, an
additional special dividend of 140 cents per share will be paid to shareholders.
Management is of the view that surplus cash holdings are counterproductive to
operational efficiencies. Special dividends will be considered in the future
should the need arise.
DIVIDEND ANNOUNCEMENT
The directors have declared a final ordinary dividend (number 76) of 90 cents
per share and a special dividend of 140 cents per share to all shareholders
recorded in the books of Italtile Limited.
The last day to trade CUM the dividend will be Friday, 20th August 2004. The
shares of Italtile Limited will commence trading EX dividend from the
commencement of business on Monday, 23rd August 2004 and the record date will be
Friday, 27th August 2004. Payment will be made on Monday, 30th August 2004.
Share certificates may not be dematerialised or rematerialised between Monday,
23rd August 2004 and Friday, 27th August 2004, both days inclusive.
For and on behalf of the Board
G A M Ravazzotti
Executive Chairman
P D Swatton
Chief Financial Officer
4th August 2004
These results have been reviewed by Ernst &Young and their review opinion is
available on request from the company secretary at the company`s registered
office.
Turnover analysis
(Rand 000`s unless otherwise stated)
For the year ended 30 June 2004
Year to Year to %
30 June 2004 30 June 2003 Increase
GROUP AND FRANCHISED TURNOVER
- By group owned stores 799 892 749 150
- By franchise owned stores 768 687 608 779
TOTAL 1 568 579 1 357 929 15,5
Abridged group income statements
(Rand 000`s unless otherwise stated)
For the year ended 30 June 2004
Reviewed Audited
year to year to %
30 June 2004 30 June 2003 Increase
GROUP TURNOVER 799 892 749 150
Profit from operating
activities before
depreciation 229 293 189 393
Depreciation (15 395) (17 017)
Impairment of property,
plant and equipment (6 189)
Loss on sale of property,
plant and equipment (241) (612)
Profit from trading
activities 213 657 165 575 29,0
Interest received 6 814 5 093
Dividends received 2 877 2 243
Share Incentive Trust reversal 2 700
Goodwill amortised (64)
Interest paid (1 482) (1 730)
Profit before taxation 221 802 173 881 27,6
Taxation (66 888) (53 935) 24,0
Profit after taxation 154 914 119 946 29,2
Outside shareholders`
interest (4 119) (2 336)
Earnings attributable to
ordinary shareholders 150 795 117 610 28,2
Number of shares in
issue (000`s) 17 646 17 604
Earnings per share (cents) 854,6 668,1 27,9
Headline earnings per
share (cents) 856,3 691,4 23,9
Ordinary dividends declared
per share (cents) 160,0 130,0 23,1
Special dividend declared
per share (cents) 140,0 -
RECONCILIATION OF
HEADLINE EARNINGS
Earnings attributable
to ordinary shareholders 150 795 117 610
Loss on sale of property,
plant and equipment 241 612
Impairment of property,
plant and equipment 6 189
Share Incentive Trust
reversal (2 700)
Goodwill amortised 64
Headline earnings 151 100 121 711 24,1
RECONCILIATION OF
SHARES IN ISSUE
Total number of shares
issued (000`s) 18 677 18 536
Share Incentive Trust
shares (000`s) (1 031) (932)
Shares in issue (000`s) 17 646 17 604
Abridged group balance sheets
(Rand 000`s unless otherwise stated)
Reviewed Audited
year to year to
30 June 2004 30 June 2003
ASSETS
Non-current assets 329 686 265 324
Property, plant and equipment 324 204 259 740
Other long-term assets 5 482 5 584
Current assets 425 413 327 343
Inventories 134 179 99 892
Trade and other receivables 68 382 69 896
Cash and cash equivalents 222 852 157 555
Total assets 755 099 592 667
EQUITY AND LIABILITIES
Capital and reserves 499 673 389 459
Stated capital 27 175 27 175
Non-distributable reserve 717 7 059
Treasury shares (46 032) (38 207)
Retained profit 517 813 393 432
Outside shareholders` interest 14 663 10 774
Non-current liabilities 8 674 10 004
Deferred tax 444 535
Long-term liabilities 8 230 9 469
Current liabilities 232 089 182 430
Trade and other payables 211 022 163 832
Taxation 21 067 18 598
755 099 592 667
Net asset value per share (cents) 2 915 2 274
Segmental reporting
(Rand 000`s unless otherwise stated)
For the year ended 30 June 2004
Franchising
and
Retail properties Other Group
Reviewed year to June 2004
Revenue 801 177 96 434 36 759 934 370
Segment results 89 485 112 353 11 819 213 657
Audited year to June 2003
Revenue 751 311 77 668 29 432 858 411
Segment results 66 411 88 152 11 012 165 575
Cash flow statements
(Rand 000`s unless otherwise stated)
For the year ended 30 June 2004
Reviewed Audited
year to year to
30 June 2004 30 June 2003
Cash flow from operating activities 154 812 126 366
Cash flow from investing activities (88 047) (67 984)
Cash flow from financing activities (1 468) 7 395
Net movement in cash and cash
equivalents 65 297 65 777
Cash and cash equivalents at
beginning of period 157 555 91 778
Cash and cash equivalents at
end of period 222 852 157 555
Statements of changes in equity
(Rand 000`s unless otherwise stated)
For the year ended 30 June 2004
Stated Translation Treasury Retained
Group capital reserve shares profit Total
Balance at
June 2002
as reported 18 457 11 168 296 328 325 953
Change in
accounting policy
- Unallocated
shares in share
trust (13 139) (13 139)
- Accumulated
deficit in share
trust (9 690) (9 690)
Balance at
June 2002
restated 18 457 11 168 (22 829) 296 328 303 124
New share issues 8 718 8 718
Net profit for
the period 117 610 117 610
Dividends paid (20 506) (20 506)
Currency
translation
difference (4 109) (4 109)
Change in
accounting policy
- Unallocated
shares in share
trust (15 555) (15 555)
- Accumulated
surplus in share
trust 177 177
Balance at 3
0 June 2003
restated 27 175 7 059 (38 207) 393 432 389 459
Net profit for
the period 150 795 150 795
Dividends paid (26 414) (26 414)
Currency
translation
difference (6 342) (6 342)
Change in
accounting policy
- Unallocated
shares in share
trust (8 050) (8 050)
- Accumulated
surplus in share
trust 225 225
Balance at
30 June 2004 27 175 717 (46 032) 517 813 499 673
Notes:
- There are no material contingent liabilities or assets at 30 June 2004.
- Capital commitments at 30 June 2004 R`000
Contracted 21 394
Authorised, not contracted 51 530
72 924
- In terms of the Articles of Association, the company`s borrowing facilities
are unlimited.
Registered Office: The Italtile Building, cnr William Nicol Drive and Peter
Place, Bryanston (PO Box 1689, Randburg 2125)
Transfer Secretaries: Computershare Investor Services 2004 (Pty) Ltd, 70
Marshall Street, Johannesburg 2001 (PO Box 61051, Marshalltown 2107)
Directors: G A M Ravazzotti (Chairman), P D Swatton**, J Couzis*, G F Cousins, D
H Rabin, S I Gama *Greek ** British
Date: 04/08/2004 07:00:30 AM Produced by the JSE SENS Department
