| Tue 13 Sep 2005, 7:45 | | Ceramic - Reviewed Preliminary Financial Results f |
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Ceramic - Reviewed Preliminary Financial Results for the year ended 31 July 2005
Ceramic Industries Limited
(Reg. No. 1982/008520/06)
Incorporated in the Republic of South Africa
(`Ceramic` or `the Group`)
Share code: CRM
ISIN: ZAE000008538
Reviewed Preliminary Financial Results for the year ended 31 July 2005
Commentary
Financial results
Ceramic Industries delivered improved results for the year ended 31 July 2005,
which were achieved through a continued focus on costs, efficiencies, product
quality and product fashionability.
Group revenue increased 26% to R954,3 million (2004: R758,4 million), while
operating income improved 30% to R238,6 million (2004: R184,2 million). Headline
earnings rose from R130,9 million to R166,5 million, which translated to growth
in headline earnings per share of 28% to 964,5 cents from 754,0 cents in the
comparative period.
Notwithstanding ongoing capital expenditure on technology and plant upgrades and
the purchase of additional shares in the Share Trust, net cash balances
increased to R191,9 million from R78,3 million in the previous year.
The Group has achieved record production volumes and sales for the year under
review. Tile production in South Africa increased from 23,5 million m2 to 26,4
million m2, while sanitaryware production grew from 1,074 million pieces to
1,201 million pieces, entrenching Ceramic Industries as the leading manufacturer
of ceramic tiles and vitreous china sanitaryware in South Africa.
Trading environment
Buoyant trading conditions, promoted by low interest rates, growth of the
economically influential middle class and widespread consumer confidence
continued to drive growth of the new residential and renovation markets.
Government`s roll-out of its entry-level housing, and water and sanitation
programmes further stimulated demand for ceramic product, which resulted in a
shortage in the local market. Constrained shipping capacity impacted imports,
which continued to offset the effect of the strong Rand, but nevertheless the
trading environment remained extremely competitive.
With greater exposure to and acceptance of ceramic tiles as an aspirational
commodity, consumers are increasingly demanding in their desire for cost-
effective, high-quality, fashionable product. The Group is mindful of its
challenge to meet and exceed consumer expectations and fulfil its role as the
preferred low-cost manufacturer and supplier of quality tiles and sanitaryware.
Manufacturing operations - Tile division
Pegasus
Based on robust demand for this operation`s value-for-money glazed pressed
tiles, attempts were made to drive volumes above the plant`s design capacity of
7,5 million m2.
Whilst production targets were met quality standards were compromised and unit
cost targets were not achieved. Given the sustained demand for Pegasus` product
and the key role this operation plays in supplying the emerging market while
competing with low cost imports, the Group will invest R15 million to boost
capacity and enable consistently high-quality tiles to be produced.
Vitro
This plant did well to outperform expectations, producing record volumes for the
period under review. The NCI range is playing an increasingly strong role in
supplying the contract market. Extruded tiles manufactured by the plant competed
favourably with imports from Brazil. A marketing campaign provided wider
exposure of this product to its target market and assisted in driving record
sales.
Samca 1
The Group`s flagship operation, Samca 1, produced its highest volumes in recent
years and achieved record product sales. The plant`s pressed glazed floor tiles
are of a consistently high quality and compete favourably with premium end
product from China. A new range of larger size tiles was introduced during the
year, which has been well received by the market.
Samca 2
This plant, which manufactures pressed glazed wall tiles, continued to support
the Group`s cost-competitive stance against imported Chinese wall tiles.
The product range is the subject of ongoing redevelopment to meet evolving
consumer demand for fashionable product. Improved flexibility was achieved with
shorter production runs, and focus on efficiencies and costs enabled the Group
to hold prices and to deliver a larger range of wall tiles.
Centaurus - Australia
Centaurus, which commenced operation in April 2004, traded profitably for the
last quarter of the financial year.
A loss of R5 million at the interim period increased marginally to a full year
loss of R6 million.
Sales remain slower than anticipated and the Group made a strategic decision to
support the operation by absorbing excess capacity. Glazed porcelain floor tiles
were imported to South Africa on a marginal cost basis and the superior quality
of this product resulted in immediate success in the local market.
In order to keep unit production costs as low as possible it is essential that
the factory runs at its design capacity. All surplus production will be absorbed
by the South African operations until such time as the Australian market is
sufficiently developed to support production.
Manufacturing operations - Sanitaryware division
Betta
This operation maintained its track record of increasing annual production,
which reduced unit costs and improved margins.
Capital of R37 million was invested to increase Betta`s capacity by some 40%.
The equipment was installed ahead of schedule and on budget. Around three
quarters of the capacity increase has been achieved, and the balance will be
brought on stream during the 2006 financial year.
Betta manufactures a complete range of vitreous china sanitaryware with the
largest volumes produced for the entry-level market. No price increases were
implemented during the review period, but the operation benefited from the trend
of increasingly discerning consumers to purchase higher value items.
The South African market continues to experience a strong demand for
sanitaryware and enhanced production volumes will be readily. Management will
continue to evaluate the introduction of new ranges.
Sphinx
In June 2005, the Group reported that it had, subject to Competition Commission
approval, contracted to acquire a 50% interest in the business of Sphinx
Bathroomware (Pty) Ltd (Sphinx).
Sphinx, a privately owned company, is the leading manufacturer of premium
acrylic bathroomware in South Africa, producing baths, spas and shower trays.
The business enjoys a local market share of approximately 50%, supplying product
to South Africa`s leading sanitaryware retailers.
The partnership affords Ceramic access to a segment of the sanitaryware market
where the Group is not represented and which is complementary to Betta.
Shortly after the conclusion of the transaction, the manufacturing plant was
destroyed by fire. However, given the strategic value that Sphinx adds to
Ceramic`s business, it is planned to construct a new plant using state-of-the-
art technology to enhance the product offering. Reduced production continues to
be conducted on the existing site.
Black economic empowerment
The board has approved the formation of a company to hold all new-order mining
rights (once converted from old order rights) and all new prospecting and mining
rights. This company will be majority owned by the Group`s employees, who will
have the right to convert their shareholding in this company into shares in
Ceramic Industries in the future.
The Group has noted the Draft Amended Codes of Good Practice on Broad-Based
Black Economic Empowerment published by the Department of Trade and Industry and
continues to support transformation within Ceramic Industries.
Good progress in particular has been made in achieving employment equity targets
and the Group continues to actively recruit and develop internal black
candidates for management positions.
Prospects
The Board is satisfied that benchmarks and plans are in place that will continue
to challenge management in its efforts to ensure that the Group remains globally
competitive.
With regard to the tile division, Centaurus is now positioned to contribute to
the Group`s earnings in the year ahead, and renewed focus on Pegasus should
result in this plant again making a valuable contribution.
In the sanitaryware division, additional capacity installed at Betta
Sanitaryware will further enhance this operation`s contribution to Group
profits.
The Board is of the opinion that trading conditions will remain positive in the
short term, which, together with improvements realised from planned
developments, should again result in real growth in earnings for the forthcoming
year.
Board of directors
Ms. LEV Ravazzotti was appointed to the Board of Directors of Ceramic Industries
Ltd, on 8 September 2005.
Ms. LEV Ravazzotti is a non-executive director nominated by Rallen (Pty) Ltd and
is thus not independent.
A majority of the non-executive directors are independent.
Accounting policies
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. In the next financial year the company will be presenting
its annual financial statements in accordance with International Financial
Reporting Standards.
Share Incentive Trust
The Group continues to consolidate its Share Incentive Trust. The major effect
of this procedure is to decrease the weighted average number of shares in issue
by 1 003 314 (2004: 902 000).
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 910,0 cents (2004: 716,8 cents) and headline earnings per share to
911,5 cents (2004: 716,8 cents).
Dividend
The Board has declared a final dividend of 150 cents, which, together with the
interim dividend of 70 cents, produces a total dividend of 220 cents (2004: 135
cents), an increase of 63,0%. The increased dividend follows the Board`s
decision to reduce dividend cover from 5 times to 4 times.
As the group has accumulated cash reserves in excess of its operational
requirements the Board has decided to pay a special dividend of 250 cents.
By order of the Board
G A M Ravazzotti N Booth
Chairman Chief Executive Officer
Dividend announcement
The Board has declared a final dividend (no 31) of 150 cents per ordinary share
and a special dividend (1) of 250 cents per share to all shareholders recorded
in the books of Ceramic Industries Limited at the close of business on Friday,
21 October 2005. The last day to trade cum dividend in order to participate in
the dividend will be Friday, 14 October 2005. The shares will commence trading
ex dividend from the commencement of business on Monday, 17 October 2005 and the
record date will be Friday, 21 October 2005. The dividend will be paid on
Monday, 24 October 2005. Share certificates may not be rematerialised or
dematerialised between Monday, 17 October 2005 and Friday, 21 October 2005, both
days inclusive.
By order of the Board
E J Willis
Secretary
8 September 2005
Notes to the condensed financial statements
There have been no changes in accounting policies during the year ended 31 July
2005. 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 opinion is available for inspection at Ceramic
Industries Limited`s registered office.
Directors: G A M Ravazzotti (Chairman), N Booth (Chief Executive Officer), S D
Jagoe, E M Mafuna, L E V Ravazzotti, 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
Condensed group income statement
for the year ended 31 July
2005 2004
% Reviewed Audited
change R000s R000s
Revenue 25,8 954 262 758 388
Tiles 27,6 803 217 629 465
Sanitaryware 17,2 151 045 128 923
Operating income before depreciation 29,2 329 816 255 212
Depreciation 28,4 (91 263) (71 050)
Operating income 29,5 238 553 184 162
Tiles 29,1 190 011 147 140
Sanitaryware 31,1 48 542 37 022
Net investment income 135,7 2 305 978
Income before taxation 30,1 240 858 185 140
Taxation 37,7 (74 653) (54 225)
Income after taxation 27,0 166 205 130 915
Minority shareholders` interest 66,7 (5) (3)
Net income attributable to ordinary
shareholders 27,0 166 200 130 912
Weighted average number of shares
in issue (000s) 17 260 17 361
Basic earnings per share (cents) 27,7 962,9 754,1
Headline earnings per share (cents) 27,9 964,5 754,0
Dividends per share (cents) 63,0 220,0 135,0
Special dividend per share (cents) 250,0 -
Reconciliation of headline earnings
Net income attributable to ordinary
shareholders 166 200 130 912
Loss/(profit) on disposal of plant
and equipment 269 (11)
Headline earnings 27,2 166 469 130 901
Condensed group balance sheet
at 31 July
2005 2004
Reviewed Audited
R000s R000s
Assets
Non-current assets 575 411 564 739
Property, plant and equipment 571 039 556 328
Deferred taxation asset 772 3 211
Payment in advance 3 600 5 200
Current assets 421 949 255 438
Inventories 75 152 51 801
Trade and other receivables 154 909 125 329
Cash and cash equivalents 191 888 78 308
Total assets 997 360 820 177
Equities and liabilities
Capital and reserves 718 175 588 383
Share capital 64 962 64 962
Shares held by share trust (66 187) (37 286)
Reserves 74 323 1 038
Retained earnings 645 077 559 669
Minority shareholders` interest 162 148
Non-current liabilities 76 606 59 507
Shareholders` loans 23 559 16 975
Deferred taxation liability 34 065 19 359
Borrowings 18 982 23 173
Current liabilities 202 417 172 139
Trade creditors, other payables
and provisions 162 987 148 014
Income taxation payable 39 311 24 018
Shareholders for dividend 119 107
Total equity and liabilities 997 360 820 177
Condensed group cash flow statement
for the year ended 31 July
2005 2004
Reviewed Audited
R000s R000s
Operating activities
Income before taxation adjusted for
non-cash items 330 470 244 523
Changes in working capital (38 183) (57 145)
Cash generated from operations 292 287 187 378
Net investment income 2 305 978
Dividends paid (27 324) (20 850)
Taxation paid (45 831) (39 666)
221 437 127 840
Investing activities (110 250) (170 472)
To expand operations (81 349) (160 796)
Cash outflow from share trust dealings (28 901) (9 676)
Financing activities 2 393 13 821
Borrowings repaid (4 191) (903)
Shareholders` loans raised 6 584 14 724
Net increase/(decrease) in cash and
cash equivalents 113 580 (28 811)
Cash and cash equivalents at beginning
of year 78 308 107 119
Cash and cash equivalents at end of year 191 888 78 308
Condensed statement of changes in equity
for the year ended 31 July
2005 2004
Reviewed Audited
R000s R000s
Balance at beginning of year 588 383 502 845
Net additional shares acquired by
share trust (28 901) (9 676)
Net income attributable to ordinary
shareholders 166 200 130 912
Movement in foreign currency translation
reserve 19 829 (14 840)
Transfer to dividend reserve (80 792) (23 375)
Transfer from dividend reserve 80 792 23 375
Net dividends paid (27 336) (20 858)
Balance at end of year 718 175 588 383
Date: 13/09/2005 07:05:14 AM
