| Wed 8 Sep 2004, 8:40 | | RESULTS for the year ended 31 July 2004 |
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CERAMIC - REVIEWED PRELIMINARY FINANCIAL RESULTS for the year ended 31 July 2004
CERAMIC INDUSTRIES LIMITED
(Reg. No. 1982/008520/06)
Incorporated in the Republic of South Africa
Share code: CRM
ISIN: ZAE000008538
(`Ceramic`)
REVIEWED PRELIMINARY FINANCIAL RESULTS for the year ended 31 July 2004
COMMENTARY
FINANCIAL RESULTS
After a difficult first six months, substantial effort was made to reduce costs
and improve quality and productivity. These efforts resulted in an improved
second half although further work remains to be done. Group revenue for the year
ended 31 July 2004 increased 21% to R758,4 million (2003: R625,8 million), and
operating profit rose 9,4% to R184,2 million (2003: R168,3 million).
The commissioning of the Pegasus plant and consequent 26% increase in
depreciation from R56,2 million to R71,0 million impacted negatively on
operating profit, which was further reduced by start-up losses of R6million
incurred by the Group`s Australian subsidiary.
Segmental information is as follows:
2004 2003 Increase
Revenue (R`million)
Tiles 629,5 531,6 18,4%
Sanitaryware 128,9 94,2 36,8%
Sales volumes (millions)
Tiles (m2) 23,2 18,2 27,4%
Sanitaryware (pieces) 1,1 0,86 27,9%
Operating profit (R`million)
Tiles 147,1 138,2 6,5%
Sanitaryware 37,0 30,2 22,8%
Tile production reached 13,2 million m2 in the second half of the financial
year, arising from improved productivity and efficiencies. Capacity utilisation
has reached 92% in the Group`s South African divisions.
Headline earnings grew 1,5% for the full year to R130,9 million (2003: R129,0
million), which resulted in a 1,6% growth in headline earnings per share to
754,0 cents (2003: 742,0 cents).
The lower tax rate enjoyed by the Group last year was the result of the tax
incentive extended to the Group for Pegasus by the Department of Trade and
Industry as part of its Strategic Investment Programme. The tax rate has now
returned to the standard rate of 30%.
The Group`s balance sheet remains strong. Inventory increased over the prior
year as a result of production at the Australian plant. Net cash balances
reduced to R78,3 million (2003: R107,1 million) as a result of capital
expenditure of R133 million to complete the Australian plant and R28 million on
technology upgrades in South Africa. This capital expenditure programme has
improved the Group`s competitive position, with increased volumes and yields at
all plants.
TRADING ENVIRONMENT
Reductions in interest rates have resulted in high demand for property and a
buoyant building industry. Continued strength in the Rand allowed for the price
competitive imports of tiles. However, the worldwide constraint in shipping
capacity impacted the regular delivery of imported product to South Africa. The
Group received strong support from its traditional customer base and was able,
through further price reductions of 5% on average, to maintain its market share
with strong volume growth. The roll out of low cost housing has benefited Betta
Sanitaryware`s drive into the high volume market; this is likely to continue for
the coming year.
MANUFACTURING OPERATIONS
PEGASUS
Pegasus, which produces high volume, value-for-money glazed pressed tiles,
delivered a solid performance by producing 7,8 million m2, which is above design
capacity of 7,5 million m2 per annum. This achievement was the result of
experience gained in operating the plant.
Pegasus is positioned to maintain the Group`s cost competitiveness against low
priced imports, and this factory is the focal point of the Group`s drive to
penetrate emerging markets.
VITRO
Vitro succeeded in overcoming the operational and technical difficulties it had
experienced for some time, and while performance is still not in line with
management expectations, the plant made a positive contribution in the second
half of the year.
With continued improvements in efficiencies and further enhancement of the
product range, management is satisfied that a solid base has been established
from which to grow.
SAMCA 1
The reinstatement of full production capacity at Samca 1 over the past six
months delivered improved results, driving up production of quality floor tiles
and reducing unit costs. As the plant is still not operating at maximum output,
further cost reduction may be realised. Management will continue to focus on
costs, productivity and quality, and to this end, the Board has approved a
further R8 million investment in technology, scheduled for commissioning in
December.
SAMCA 2
The second six months of the reporting period witnessed a strong improvement in
productivity and cost reduction at Samca 2, assisted by the restart of the third
production line at the plant. Whilst product from China presented significant
competition, the Group was successful in growing market share of wall tiles. In
line with market demand, production will be maintained at capacity of 7,0
million m2 per annum.
BETTA SANITARYWARE
This plant, which manufactures a range of glazed porcelain sanitaryware,
improved volumes and yields during the year and achieved management`s target of
producing 1,1 million pieces for the year. The plant is currently running at
full capacity and the Board has approved capital expenditure of R33 million to
expand Betta`s capacity by some 40%. The expansion, which will be completed
early in 2005, will enable the Group to increase supply to the high volume,
entry-level sector of the market, where strong demand was experienced in the
year under review. The new project will be funded from the Group`s own cash
resources.
The drive to introduce new ranges will continue to be a key thrust of Betta`s
expansion strategy.
FOREIGN INVESTMENT
NCI Australia commenced operation in April 2004, some four months later than
originally planned. The plant has reached 80% of its design capacity, and the
product quality is high. Sales have been slower than anticipated and this,
together with the later than scheduled start-up, resulted in an operating loss
of R6million. Management`s immediate focus will be on developing relationships
with customers and adapting to local trading conditions.
The next six months are expected to be difficult but it is anticipated that the
factory will be operating profitably by the end of the next financial year.
The Board remains confident that this investment will provide important growth
opportunities for the Group, based on the strong expansion potential of the
Australian market, the positive response to the product, the plant`s prime
location, excellent work culture within the company, and good clay supplies.
PROSPECTS
Local market conditions should remain buoyant, and the improvements implemented
in the second six months of this year should continue to positively influence
results over the forthcoming year. The Group is budgeting for a real increase in
earnings.
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 to Generally Accepted Accounting Practice, the Group now
consolidates its Share Incentive Trust. The major effect of this change is to
decrease the weighted average number of shares in issue by 902000 (2003: 873
000). The relevant prior year figures have been restated.
The Group`s policy is to purchase shares in the market to cover its obligation
to employees in terms of the Share Incentive Scheme. The Board is of the opinion
that the results of the Group are more accurately reflected by including the
shares held by the Share Incentive Trust in the earnings per share and headline
earnings per share calculations. On this basis, earnings per share would have
amounted to 716,8 cents (2003: 712,2 cents) and headline earnings per share
716,8 cents (2003: 706,5 cents).
DIVIDEND
The Board has declared a final dividend of 88 cents, which together with the
interim dividend of 47 cents, produces a total dividend of 135 cents (2003: 120
cents) - an increase of 12,5%.
On behalf of the Board
GAM Ravazzotti N Booth
Chairman Chief Executive Officer
DIVIDEND ANNOUNCEMENT
The Board has declared a final dividend (number 29) of 88 cents per share to all
shareholders recorded in the books of Ceramic Industries Limited. The last day
to trade CUM the dividend in order to participate in the dividend will be Friday
15 October 2004. The shares of Ceramic Industries Limited will commence trading
EX the dividend from the commencement of business on Monday 18 October 2004 and
the record date will be Friday 22 October 2004. The dividend will be paid on
Monday 25 October 2004. Share certificates may not be rematerialised or
dematerialised between Monday 18 October 2004 and Friday 22 October 2004, both
days inclusive.
By order of the Board
E. J. Willis
Secretary 8 September 2004
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
There have been no changes in accounting policies during the year ended 31 July
2004. The reviewed results have been prepared in accordance with the South
African Statements of Generally Accepted Accounting Practice. The results have
been reviewed by KPMG Inc. Chartered Accountants (SA), the auditors of Ceramic
Industries Limited, and their review opinion is available for inspection at
Ceramic Industries Limited`s registered office.
CONDENSED GROUP BALANCE SHEET
at 31 July
2004 2003
Reviewed Audited
R000`s R000`s
Assets
Non-current assets 564 739 489 393
Property, plant and equipment 556 328 468 961
Deferred taxation asset 3 211 13 632
Payment in advance 5 200 6 800
Current assets 255 438 243 057
Inventories 51 801 35 741
Trade and other receivables 125 329 100 197
Cash and cash equivalents 78 308 107 119
Total assets 820 177 732 450
EQUITIES AND LIABILITIES
Capital and reserves 588 383 502 845
Share capital 64 962 64 962
Shares held by share trust (37 286) (27 610)
Reserves 1 038 13 361
Retained earnings 559 669 452 132
Minority shareholders` interest 148 161
Non-current liabilities 59 507 38 794
Shareholders` loans 16 975 -
Deferred taxation liability 19 359 14 718
Borrowings 23 173 24 076
Current liabilities 172 139 190 650
Trade creditors, other payables
and provisions 166 651 164 218
Income taxation payable 5 381 26 333
Shareholders for dividend 107 99
Total equity and liabilities 820 177 732 450
CONDENSED GROUP INCOME STATEMENT
for the year ended 31 July
2004 2003
% Reviewed Audited
Change R000`s R000`s
Revenue 21,2 758 388 625 819
Tiles 18,4 629 465 531 578
Sanitaryware 36,8 128 923 94 241
Operating profit before
depreciation 13,7 255 212 224 545
Depreciation 26,3 (71 050) (56 235)
Operating profit 9,4 184 162 168 310
Tiles 6,5 147 140 138 154
Sanitaryware 22,8 37 022 30 156
Investment income 43,6 978 681
Minority shareholders` interest (3) 28
Profit before taxation 9,5 185 137 169 019
Taxation 39,2 (54 225) (38 945)
Net income attributable to
ordinary shareholders 0,6 130 912 130 074
Weighted average number
of shares in issue (000`s) 17 361 17 390
Basic earnings per share
(cents) 0,8 754,1 748,0
Headline earnings per
share (cents) 1,6 754,0 742,0
Dividends per share (cents) 12,5 135,0 120,0
Reconciliation of headline
earnings
Net income attributable to
ordinary shareholders 130 912 130 074
Impairment of plant and
equipment - 2 376
Negative goodwill - (3 328)
Profit on disposal of plant
and equipment (11) (89)
Headline earnings 130 901 129 033
CONDENSED GROUP CASH FLOW STATEMENT
for the year ended 31 July
2004 2003
Reviewed Audited
R000`s R000`s
Operating activities
Profit before taxation adjusted
for non-cash items 244 523 220 496
Changes in working capital (38 508) (10 923)
Cash generated from operations 206 015 209 573
Investment income 978 681
Dividends paid (20 850) (19 830)
Taxation paid (58 303) (59 914)
127 840 130 510
Investing activities (170 472) (250 528)
To expand operations (160 796) (246 116)
Cash outflow from share trust dealings (9 676) (4 412)
Financing activities 13 821 24 076
Borrowings (repaid)/raised (903) 24 076
Shareholders` loans raised 14 724 -
Net decrease in cash and cash equivalents (28 811) (95 942)
Cash and cash equivalents at beginning
of year 107 119 203 061
Cash and cash equivalents at end of year 78 308 107 119
CONDENSED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 July
2004 2003
Reviewed Audited
R000`s R000`s
Balance as previously reported - 426 831
Shares held by share trust - (23 198)
Retained earnings in share trust - 2 563
Restated balance at beginning of year 502 845 406 196
Net additional shares acquired by
share trust (9 676) (4 412)
Net income attributable to ordinary
shareholders 130 912 130 074
Movement in foreign currency translation
reserve (14 840) (9 178)
Transfer to dividend reserve (23 375) (20 868)
Transfer from dividend reserve 23 375 20 868
Dividends paid (20 858) (19 835)
Balance at end of year 588 383 502 845
Directors: G.A.M. Ravazzotti (Chairman), N. Booth (Chief Executive Officer),
S.D. Jagoe, E.M. Mafuna, K.M. Schultz, P.D. Wickens (British), G. Zannoni
(Italian) Company secretary: E. J. Willis
Registered office: 33 Sarel Baard Crescent, Gateway Industrial Park,
Rooihuiskraal Ext. 25, Centurion, PO Box 1369, Rivonia 2128
Transfer secretaries: Computershare Investor Services 2004 (Pty) Ltd, 70
Marshall Street, Johannesburg 2001, PO Box 61051, Marshalltown 2107
Date: 08/09/2004 07:00:14 AM
Produced by the JSE SENS Department
