| Wed 9 Feb 2005, 7:56 | | ITALTILE - INTERIM PROFIT ANNOUNCEMENT |
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ITALTILE - INTERIM PROFIT ANNOUNCEMENT
UNAUDITED GROUP RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2004
Italtile Limited
(Incorporated in the Republic of South Africa)
Share code: ITE
ISIN: ZAE000003679
Reg. no. 1955/000558/06
(ITALTILE)
Commentary
Results
Represented by sector-leading brands, CTM and Italtile, Italtile Limited remains
South Africa`s principal retailer of ceramic tiles, bathware and related
products, trading through a national network of 72 stores.
With the significant growth of its bathware component, supported by the
acquisition of specialist tap importer and distributor, International Tap
Distributors, the group`s traditional profile has evolved from a niche tile
retailer to a specialist home-enhancement fashion retailer, whose offering
includes a suite of tiling and bathware products catering to consumers across
the spectrum from entry-level to premium end. This enhanced offering has
impacted results favourably, by broadening the group`s target market and
promoting margin growth.
Complementing increased market share, favourable trading conditions and brand
dominance enabled the group to deliver a strong set of results for the six
months ended 31 December 2004. Group and franchise turnover improved 29% to R997
million (2003: R775 million), while trading profit increased 28% to R120,2
million (2003: R93,9 million). Headline earnings per share grew 24% to 463,9
cents (2003: 374,3 cents).
The effective tax rate increased to 31,3% as a result of STC applied in the
review period on the special dividend declared in August 2004 relating to the
prior reporting period.
The group remains ungeared with the exception of an R8 million property bond
facility in Australia.
TRADING ENVIRONMENT
The buoyant retail environment experienced during the reporting period continues
to benefit the industry. Stable interest rates and positive consumer confidence
have translated into a sustained, flourishing new residence and DIY renovation
market.
The period under review presented the initial signs of a trend to consolidation
in the industry, which will likely result in a more structured marketplace.
Constrained shipping capacity has resulted in limited and erratic supply of
imported product, placing limitations on the small participants.
Imported product continued to impact the local market, particularly in the
middle to upper price range. The lower end of the market was to some extent
cushioned from this impact by the competitive role of local suppliers and
shipping constraints on high mass low value goods.
The group`s doctrine of nurturing its long-standing relationships with
traditional suppliers was rewarded with reliable, sustained supplies of
competitively priced, sound quality product.
AFRICAN OPERATIONS
Both CTM and Italtile delivered improved profitability derived predominantly
from volume growth, and whilst an average basket price increase of 3% was
implemented, the company has been able to maintain certain price points dating
back to 1991.
Pursuant to its conviction that the local market affords significant growth
opportunities in existing markets, the group did not open any new stores, but
did increase the footprint of certain stores, particularly in the Gauteng
region.
The group`s strategic focus on positioning itself as a one-stop destination
retailer, offering comprehensive tile and bathware packages in both its
divisions, proved very successful. Consumers have readily accepted the group`s
enhanced offering which incorporates presentation of a complete lifestyle and
fashion concept.
The group has acquired controlling interests in International Tap Distributors
and Earlyworks, distributors of taps and tiling tools respectively. By
integrating these businesses into the group`s supply chain, both CTM and
Italtile are guaranteed of a consistent, high quality supply of product. A
significant degree of the improved performance can be attributed to this
development. Increasing alignment in the industry will promote important
opportunities for these businesses, which are expected to continue to yield
solid returns for the group.
Improved access and exposure to bath- and sanitaryware products is giving rise
to an increasingly discerning South African consumer, demanding quality,
fashionable merchandise. Whilst CTM`s core philosophy remains value for money,
the brand has cast off its dated perception of a cash and carry warehouse
providing low cost product catering predominantly for the entry-level market.
Viewed by its target audience as an aspirational brand, CTM offers a good
quality product at competitive prices, thereby capitalising on the opportunity
to grow its customers through the brand across the spectrum. With the
introduction of lifestyle design displays, the division is seen to be offering
an upgraded shopping experience affording fashion advice rather than simply a
commodity retailer.
With increased disposable income enjoyed by a broader segment of the population
and enhanced acceptance of the product by new markets, the group is planning to
invest directly in communities which it has not formerly served.
Recognising that growth lies in the emerging black market, management is
currently refining initiatives to support entry into the RDP level housing
sector.
A short term shortage of sanitaryware exists in the local market, however
management is satisfied that the group is better positioned than most to contend
with the challenges this poses.
The values of empowerment and entrepreneurship are the key drivers of successful
franchises and given the strong performance track record of the group`s
franchise network, management has committed to converting all remaining group-
owned stores into joint ventures or franchises by the end of 2005. The process
of attracting suitable partners is currently underway. Aggressive pursuit of
performance underpins the group`s business model, and management invests in
mentoring and skills transfer and provides financial assistance to facilitate
and enhance this performance.
The group is represented through 15 CTM stores in Botswana, Namibia, Swaziland,
Lesotho, Malawi, Uganda, Tanzania and Zambia.
Rapid expansion remains constrained by infrastructural and logistical obstacles.
The group, intent on capitalising upon the acceptance of CTM and strong demand
for its product, will begin making direct investments in fixed property. This
will provide franchisees with enhanced trading platforms, thus facilitating
sustainable, long term performance.
INTERNATIONAL OPERATIONS
The group`s complement of stores in Australia has now risen to 11, with two new
outlets having been opened during the fourth quarter of 2004 in New South Wales.
The new stores, replete with a wider product offering, have enjoyed a positive
response from customers. Where appropriate, the balance of the group`s stores
will be modified to meet the same specifications.
Whilst the operation continues to make a modest contribution to group profits, a
significantly improved performance is not anticipated for another two to three
years.
PROPERTY PORTFOLIO
The company continues to derive a competitive advantage from ongoing investments
made in its property portfolio, a strategy aimed at supporting the group`s
profile as a destination retailer offering an enhanced shopping experience.
The focus during the review period includes investment in the heart of prime
real estate in several key areas for future development, as well as the
provision of additional trading space for stores situated in the larger
catchment areas.
During the period under review R50 million was invested in land and buildings
bringing the carrying value of the combined South African and Australian
property portfolio to some R359 million. The negative cash flow resulting from
this investment is a short term aberration and continued investment in this
portfolio will remain a core strategy based on the strong returns delivered.
DIRECTORATE
In accordance with sound corporate governance, the function of Chairman and
Chief Executive Officer within Italtile was formally separated with the
appointment of Mr Derek Rabin as Non-Executive Chairman in December 2004. Mr
Gianni Ravazzotti, founder of the group, had held both positions since June
2001. Mr Ravazzotti will retain the role of Chief Executive Officer.
Mr Rabin has been associated with the company for 34 years and was appointed as
a Non-Executive Director in 1990. He is an attorney admitted to practice in the
High Courts of Lesotho and the Republic of South Africa and is a well known
corporate and legal advisor. He has served on the boards of a range of listed
companies and his contribution in his new role is welcomed.
In addition, two executive directors were appointed to the board during the
review period, namely Mr Christian Trumpelmann, Chief Operating Offcer for CTM
and Mr Gian-Paolo Ravazzotti, Chief Operating Officer for Italtile.
PROSPECTS
It is anticipated that the retail trading environment will remain positive in
the short term. Consumer confidence buoyed by positive sentiment and stable
interest rates will continue to drive the new residential and renovation
markets.
Management`s customary strategic focus on optimal cash flow and inventory
management will remain paramount. By leveraging its price competitive position
as a major global tile purchaser, continuing to invest in its brands, and
aggressively promoting the bathware component of the business, the group expects
to expand market share and maintain growth.
ACCOUNTING POLICY
This report has been prepared in accordance with the same principles as
contained in AC127 - Interim Financial reporting. The principles adopted herein
are consistent, in all material respects, with those applied in the most
recently published Annual Financial Statements and comply with the requirements
of Statements of South African Generally Accepted Accounting Practice.
DIVIDEND
An interim dividend of 110 cents has been declared, an improvement of 57% (2003:
70 cents). Following the declaration of the special dividend in August 2004, the
Board has taken a strategic decision to reduce its cover from 5 times to 4
times. This decision is based on the group`s current cash position and its
strong ability to generate cash. Management is satisfied that it has adequate
cash resources to fund future activities.
DIVIDEND ANNOUNCEMENT
The directors have declared an interim dividend (number 77) of 110 cents per
share to all shareholders recorded in the books of Italtile Limited. The last
day to trade `cum` the dividend will be Friday, 25 February 2005. The shares of
Italtile Limited will commence trading `ex` dividend from the commencement of
business on Monday, 28 February 2005 and the record date will be Friday, 4 March
2005. Payment will be made on Monday, 7 March 2005. Share certificates may not
be rematerialised or dematerialised between Monday, 28 February 2005 and Friday,
4 March 2005, both days inclusive.
For and on behalf of the Board
G A M Ravazzotti P D Swatton
Chief Executive Officer Chief Financial Officer 9 February 2005
Turnover analysis (Rand 000`s unless otherwise stated)
For the six months ended 31 December 2004
Unaudited Unaudited
six months to six months to Audited year
% 31 December 31 December to 30 June
Increase 2004 2003 2004
GROUP AND
FRANCHISED
TURNOVER
- By group-owned
and joint ventured
stores 522 296 391 006 799 892
- By franchise-
owned stores 474 546 383 747 751 998
TOTAL 28,7 996 842 774 753 1 551 890
Abridged group income statements
(Rand 000`s unless otherwise stated)
For the six months ended 31 December 2004
Unaudited Unaudited
six months to six months to Audited year
% 31 December 31 December to 30 June
Increase 2004 2003 2004
Trading profit
before depreciation 130 505 99 572 229 052
Depreciation (10 308) (5 654) (15 395)
Trading profit 28,0 120 197 93 918 213 657
Net investment
income 5 522 4 350 8 209
Goodwill amortised (64)
Profit before
taxation 27,9 125 719 98 268 221 802
Taxation (39 472) (29 848) (66 888)
Profit after
taxation 26,1 86 247 68 420 154 914
Outside shareholders`
interest (3 290) (2 136) (4 119)
Earnings attributable
to ordinary
shareholders 25,2 82 957 66 284 150 795
Number of shares
in issue (000`s) 17 860 17 691 17 646
Earnings per share
(cents) 24,0 464,5 374,7 854,6
Headline earnings
per share (cents) 23,9 463,9 374,3 856,3
Ordinary dividend
per share (cents) 110,0 70,0 160,0
Special dividend
per share (cents) 140,0
RECONCILIATION OF
HEADLINE EARNINGS
Earnings attributable
to ordinary
shareholders 82 957 66 270 150 795
(Profit)/loss on
sale of fixed
assets (110) (45) 241
Goodwill amortised 64
Headline earnings 25,1 82 847 66 225 151 100
RECONCILIATION OF
SHARES IN ISSUE
Total number of
shares issued 18 677 18 677 18 677
Share Incentive
Trust shares 817 986 1 031
Shares in issue to
external parties 17 860 17 691 17 646
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
2004 2003 2004
ASSETS
Non-current assets 384 517 305 417 329 686
Fixed assets 379 086 299 886 324 204
Other long-term assets 5 431 5 531 5 482
Current assets 424 989 325 198 425 413
Inventories 127 854 82 909 134 179
Trade and other receivables 76 366 82 248 68 382
Cash and cash equivalents 220 769 160 041 222 852
Total assets 809 506 630 615 755 099
EQUITY AND LIABILITIES
Capital and reserves 546 096 437 487 499 673
Stated capital 27 175 27 175 27 175
Non-distributable reserve 1 887 7 213 717
Treasury shares (42 944) (42 434) (46 032)
Retained profit 559 978 445 533 517 813
Outside shareholders`
interest 26 237 13 740 14 663
Non-current liabilities 8 830 10 006 8 674
Deferred tax 425 534 444
Long-term liabilities 8 405 9 472 8 230
Current liabilities 228 343 169 382 232 089
Trade and other payables 176 220 131 314 211 022
Taxation 52 123 38 068 21 067
809 506 630 615 755 099
Net asset value per share
(cents) 3 205 2 551 2 915
Segmental reporting (Rand 000`s unless otherwise stated)
For the six months ended 31 December 2004
Franchising
and Inter
Retail properties Other group Group
Unaudited period
to December 2004
Revenue* 617 271 100 651 28 826 (146 782) 599 966
Segment results 40 090 69 644 10 463 120 197
Unaudited period
to December 2003
Revenue* 428 146 79 622 26 896 (88 996) 445 668
Segment results 28 766 55 201 9 951 93 918
*Revenue defined as inclusive of turnover rental and royalties.
Cash flow statements (Rand 000`s unless otherwise stated)
For the six months ended 31 December 2004
Unaudited Unaudited Audited
six months to six months to year to
31 December 31 December 30 June
2004 2003 2004
Cash flow from operating
activities 49 339 52 361 154 812
Cash flow from investing
activities (59 881) (49 879) (88 047)
Cash flow from financing
activities 8 459 4 (1 468)
Net movement in cash and
cash equivalents (2 083) 2 486 65 297
Cash and cash equivalents
at beginning of period 222 852 157 555 157 555
Cash and cash equivalents
at end of period 220 769 160 041 222 852
Statements of changes in equity (Rand 000`s unless otherwise stated)
For the six months ended 31 December 2004
Stated Translation Treasury Retained
Group capital reserve shares profit Total
Balance at
30 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)
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
Net profit for
the period 82 957 82 957
Dividends paid (40 792) (40 792)
Currency
translation
difference 1 170 1 170
Unallocated
shares in
share trust 5 258 5 258
Accumulated
deficit in
share trust (2 170) (2 170)
Balance at
31 December 2004 27 175 1 887 (42 944) 559 978 546 096
Notes:
- There are no material contingent liabilities or assets at 31 December 2004.
- Capital commitments at 31 December 2004 R`000
Contracted 18 658
Authorised, not contracted 32 631
51 289
- 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) Limited, 70
Marshall Street, Johannesburg 2001 (PO Box 61051, Marshalltown 2107)
Directors: D H Rabin (Chairman), G A M Ravazzotti (Chief Executive Officer), P D
Swatton** (Chief Financial Officer), J Couzis*, G F Cousins, S I Gama, C
Trumpelmann, G P Ravazzotti (*Greek ** British)
