| Wed 9 Mar 2005, 9:21 | | Interim Results For The Six Months Ended 31 Janua |
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Ceramic Industries Limited - Interim Results For The Six Months Ended 31 January
2005
Ceramic Industries Limited
(Reg. No. 1982/008520/06)
Incorporated in the Republic of South Africa
(`Ceramic`)
Share code: CRM
ISIN: ZAE000008538
INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 JANUARY 2005
COMMENTARY
FINANCIAL RESULTS
Ceramic Industries is South Africa`s largest manufacturer of ceramic tiles and
vitreous china sanitaryware. By volume, the Group supplies approximately 55% and
50% of total market requirement for tiles and sanitaryware respectively.
The restarting of the third kiln at Samca 2 and management`s focus on improving
productivity raised capacity utilisation to 95%, resulting in an increase in the
company`s South African tile production from 10,3 million m2 to 12,5 million m2.
This volume increase was fully absorbed by robust demand for ceramic products.
Rand strength favouring cheap imports was partially offset by shipping
constraints on low value high volume commodities such as tiles, providing some
protection for local entry-level ranges. Consumers remained price sensitive, and
with increased exposure and access to ceramic products, are becoming more
discerning, demanding a wider variety of quality, fashionable product. The local
trading environment remained positive.
The Group continued to receive support from its traditional customer base, and
also succeeded in maintaining market share based on leverage achieved from
product availability and competitive pricing. Growth opportunities continue in
the entry-level housing sector, and product ranges developed to service this
market were well received.
Group revenue for the six months increased 29,7% to R452,1 million (2004: R348,7
million), while operating income improved 40,3% to R107,9 million (2004: R76,9
million).
The Group maintained prices of existing products at year-old levels. Development
of new fashionable products enabled a slight improvement in average selling
prices.
The increase in capacity utilisation and a continued focus on costs drove
operating efficiencies, facilitating an improvement in margins.
Segmental information
Six months Six months
to to
31 January 31 January Increase
2005 2004 %
Revenue (R million)
Tiles 391,2 291,3 34,3
Sanitaryware 60,9 57,4 6,1
Sales volumes (millions)
Tiles (m2) 14,1 10,8 30,6
Sanitaryware (pieces) 0,55 0,51 7,8
Operating income (R million)
Tiles 88,0 61,4 43,4
Sanitaryware 19,9 15,6 27,9
Headline earnings rose to R72,5 million (2004: R55,4 million), equating to a
32,0% rise in headline earnings per share of 420,0 cents (2004: 318,2 cents).
If the share trust was not consolidated the headline earnings per share, based
on the total number of shares in issue, would have increased 31,2% to 397,4
cents (2004: 302,8 cents).
The Group`s balance sheet was strengthened during the review period, with cash
reserves increasing to R104 million resulting from an improved trading
performance.
Inventory levels in the Australian operation are high relative to the South
African operation, based on the start-up status of the plant. Improved
penetration into the market should reduce inventory to more acceptable levels
over the medium term.
MANUFACTURING OPERATIONS
Pegasus
Pegasus, which spearheads the Group`s penetration into new, emerging markets
operated above design capacity of 7,5 million m2, and based on current
performance, will produce 8 million m2 for the full year.
The plant produces high volume, value-for-money glazed pressed tiles developed
to maintain the Group`s cost competitive edge. In line with growing demand, the
product range is continuously reviewed to provide greater diversity to meet
market requirements.
Vitro
Based on improved understanding and utilisation of the plant`s technology,
production was increased from 1,5 million m2 to 2,3 million m2 for the period.
Whilst production met expectations, greater effort will be made in terms of
marketing this niche product. Improved consumer exposure to this distinctive
range should impact sales favourably.
Samca 1
Samca 1 increased production from 2,9 million m2 to 3,1 million m2. Despite this
improvement, volume growth and cost reductions did not fully meet management`s
targets. Supplier delays in Italy have caused the late implementation of the
planned new technology aimed at improving quality and productivity in the
glazing, selection and packaging departments. Initially scheduled for
commissioning in December 2004, it is anticipated that installation will take
place during the next two months and will be operational by the end of April
2005.
Samca 2
Benefits of the restart of Samca 2`s third production line were manifest during
the review period, enabling the plant to operate at full capacity of 7,5 million
m2 per annum. Volumes improved from 2,4 million m2 to 3,2 million m2, without an
increase in staff complement. This improvement in productivity and related cost
reductions were in line with expectations, and entrenched the plant`s
competitive advantage against imports.
Whilst a substantial amount of work has been completed on remodelling the range,
products will continue to be redeveloped to meet current fashion demands.
Betta Sanitaryware
The objectives set for Betta for the six month period were achieved, resulting
in reduced costs and improved margins. This division, which manufactures a range
of glazed porcelain sanitaryware, operated at full capacity for the period,
increasing production from 486 000 pieces to 548 000 pieces. The product mix was
improved by introducing a small number of modern designs, without compromising
entry-level production volumes.
The planned R33 million capex expansion is well underway and will be completed
on target in early April. Promoted by government`s roll out of water and
sanitation infrastructure, and the sustained growth in the building industry, an
environment has developed which features demand currently outstripping
production. The 40% capacity enhancement, which this technology will generate,
will thus be readily absorbed by the burgeoning demand.
Over the forthcoming six months, a key strategy at Betta will be the
implementation of a programme to convert the full casting process to the latest
high-pressure technology.
Australia
In future this factory will be branded as Centaurus. Progress has been made in
achieving this plant`s stated objectives of adapting to local trading conditions
and fostering relationships with customers to facilitate penetration into the
market. A number of local agents have been appointed to represent the company in
the marketplace and the benefits associated with the plant`s heightened profile
are starting to flow through.
The factory is performing at yield levels of over 90% first grade and the glazed
porcelain floor tile, which is unique in the Group, has gained wide acceptance
in the market. Costs of production are, however, not in line with expectations
and are presently being evaluated to ensure a future reduction.
In line with management`s forecasts, the R5 million operating loss did not
exceed that of the prior period. Based on the Group`s investment rationale of
strong expansion potential of the Australian market, positive response to the
product, the plant`s prime location and good raw material supplies, we remain
satisfied that this is a sound investment.
PROSPECTS
Management anticipates that demand for ceramic products will continue to grow
while South African market conditions remain comparable to those experienced in
the reporting period.
Focus will remain on entrenching and advancing progress made in terms of
operating efficiencies and cost management.
It is anticipated that the Centaurus operation (Australia) will break-even by
the end of the financial year.
CONTINGENT LIABILITY
In the annual report for 2004 it was reported in note 28 to the annual financial
statements that the South African Revenue Services (SARS) had questioned the
grounds on which the Department of Trade and Industry (DTI) had grantred a
taxation holiday amounting to R38 million in respect of the four-year period 31
July 1998 to 31 July 2001.
The Board of Directors is pleased to inform shareholders that the DTI, after
concluding its investigation into the above matter, has decided to stand by its
original decision approving the taxation incentive under S37H of the Income Tax
Act. The DTI, which has the decision making authority under this section of the
Income Tax Act, will inform SARS of its decision.
ACCOUNTING POLICIES
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 South African Statements of Generally Accepted Accounting Practice.
The comparative figures for January 2004 have been restated to take into account
the effect of the share trust, which is consolidated in the Group results.
DIVIDEND
The Board has declared an interim dividend (number 30) of 70 cents (2004: 47
cents), an increase of 48,9%.
On behalf of the Board
G.A.M. Ravazzotti
Charman
N. Booth
Chief Executive Officer
DIVIDEND ANNOUNCEMENT
The Board has declared an interim dividend (number 30) of 70 cents per share to
all shareholders recorded in the books of Ceramic Industries Limited at the
close of business on Friday, 22 April 2005. The last day to trade `cum` the
dividend in order to participate in the dividend will be Friday, 15 April 2005.
The shares of Ceramic Industries Limited will commence trading `ex` the dividend
from the commencement of business on Monday, 18 April 2005 and the record date
will be Friday, 22 April 2005. The dividend will be paid on Monday, 25 April
2005. Share certificates may not be rematerialised or dematerialised between
Monday, 18 April 2005 and Friday, 22 April 2005, both days inclusive.
By order of the Board
E. J. Willis
Secretary
9 March 2005
Condensed group balance sheet
31 January 31 January 31 July
2005 2004 2004
Unaudited Unaudited Audited
R000`s R000`s R000`s
ASSETS
Non-current assets 563 427 593 230 564 739
Property, plant and equipment 559 027 577 027 556 328
Deferred taxation asset - 10 203 3 211
Payment in advance 4 400 6 000 5 200
Current assets 284 049 207 461 255 438
Inventories 51 754 27 793 51 801
Trade and other receivables 128 199 102 289 125 329
Cash and cash equivalents 104 096 77 379 78 308
Total assets 847 476 800 691 820 177
EQUITY AND LIABILITIES
Capital and reserves 640 223 553 465 588 383
Share capital 64 962 64 962 64 962
Shares held by share trust (49 882) (29 387) (37 286)
Reserves 5 727 10 391 1 038
Retained earnings 619 416 507 499 559 669
Minority shareholders` interest 155 167 148
Non-current liabilities 64 014 29 695 59 507
Shareholders` loans 18 338 - 16 975
Deferred taxation liability 21 191 16 526 19 359
Borrowings 24 485 13 169 23 173
Current liabilities 143 084 217 364 172 139
Trade and other payables and
provisions 131 726 213 787 166 651
Taxation payable 11 245 3 473 5 381
Shareholders for dividends 113 104 107
Total equity and liabilities 847 476 800 691 820 177
Condensed group income statement
6 months 6 months Year
ended ended ended
31 January 31 January 31 July
2005 2004 2004
% Unaudited Unaudited Audited
Change R000`s R000`s R000`s
Revenue 29,7 452 138 348 663 758 388
Tiles 34,3 391 248 291 279 629 465
Sanitaryware 6,1 60 890 57 384 128 923
Operating income before
depreciation 36,9 152 900 111 720 255 212
Depreciation 29,3 (44 983) (34 785) (71 050)
Operating income 40,3 107 917 76 935 184 162
Tiles 43,4 88 006 61 366 147 140
Sanitaryware 27,9 19 911 15 569 37 022
Investment income 22,9 1 067 868 978
Minority shareholders`
interest - (2) (6) (3)
Income before taxation 40,1 108 982 77 797 185 137
Taxation 62,5 (36 450) (22 426) (54 225)
Net income attributable to
ordinary shareholders 31,0 72 532 55 371 130 912
Weighted average number
of shares in issue (000`s) 17 279 17 382 17 361
Basic earnings per
share (cents) 31,8 419,8 318,6 754,1
Headline earnings per
share (cents) 32,0 420,0 318,2 754,0
Dividend per
share (cents) 48,9 70,0 47,0 135,0
Reconciliation of
headline earnings
Net income attributable
to ordinary shareholders 72 532 55 371 130 912
Loss/(profit) on disposal
of plant and equipment 42 (69) (11)
Headline earnings 72 574 55 302 130 901
Condensed group cash flow statement
6 months 6 months Year
ended ended ended
31 January 31 January 31 July
2005 2004 2004
Unaudited Unaudited Audited
R000`s R000`s R000`s
Operating activities
Income before taxation adjusted
for non-cash items 153 738 118 596 244 523
Changes in working capital (37 748) 53 788 (38 508)
Cash generated from operations 115 990 172 384 206 015
Investment income 1 067 232 978
Dividends paid (15 206) (12 691) (20 850)
Taxation paid (25 543) (38 413) (58 303)
76 308 121 512 127 840
Investing activities (53 195) (140 345) (170 472)
To expand operations (40 599) (138 568) (160 796)
Cash outflow from share trust
dealings (12 596) (1 777) (9 676)
Financing activities 2 675 (10 907) 13 821
Borrowings raised/(repaid) 1 312 (10 907) (903)
Shareholders` loans raised 1 363 - 14 724
Net movement in cash and cash
equivalents 25 788 (29 740) (28 811)
Cash and cash equivalents at
beginning of period 78 308 107 119 107 119
Cash and cash equivalents at
end of period 104 096 77 379 78 308
Condensed statement of changes in equity
31 January 31 January 31 July
2005 2004 2004
Unaudited Unaudited Audited
R000`s R000`s R000`s
Balance as previously reported 588 383 526 899 -
Shares held by share trust - (27 610) -
Retained earnings in share trust - 3 556 -
Restated balance at beginning
of period 588 383 502 845 502 845
Net additional shares acquired
by share trust (12 596) (1 777) (9 676)
Net income attributable to
ordinary shareholders 72 532 55 371 130 912
Movement in foreign currency
translation reserve 7 116 9 723 (14 840)
Transfer to dividend reserve (12 784) (8 584) (23 375)
Transfer from dividend reserve 12 784 8 584 23 375
Net dividend paid (15 212) (12 697) (20 858)
Balance at end of period 640 223 553 465 588 383
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) Limited, 70
Marshall Street, Johannesburg 2001, PO Box 61051, Marshalltown 2107
Date: 09/03/2005 07:00:25 AM
Produced by the JSE SENS Department
