| Wed 8 Feb 2006, 7:30 | | Italtile Limited - Interim Profit Announcement |
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Italtile Limited - Interim Profit Announcement
ITALTILE LIMITED
Incorporated in the Republic of South Africa
Share code: ITE
ISIN: ZAE000003679
Reg. no. 1955/000558/06
(Italtile)
INTERIM PROFIT ANNOUNCEMENT
Unaudited group results for the six months ended 31 December 2005
COMMENTARY
RESULTS
Trading in a competitive industry, Italtile Limited has delivered acceptable
results for the six months ended 31 December 2005.
The group is represented by high profile brands, CTM and Italtile, and trades
through a network of 99 stores in Southern Africa and Australia. Having
accomplished its strategic evolution from niche tile merchant to specialist home
enhancement fashion retailer, the group can lay claim to being the major multi-
faceted retailer of both tile and bathware in South Africa. The brands cater for
consumer aspirations across the spectrum, with CTM specialising in affordable,
value for money and volume business requirements, whilst Italtile offers an
exclusive, niche range of predominantly high value imported product to the
premium end patron.
System wide turnover for the group improved 20% to R1,19 billion (2004: R997
million). Group-owned stores (including joint-ventured franchises) contributed
R657 million (2004: R522 million), while franchised stores delivered income of
R535 million (2004: R475 million) on which the group earns royalty income. This
increase in turnover is particularly significant insofar as only one new store
was opened during the review period, and average price increases were sub-
inflationary.
Trading profit rose 27% to R153 million (2004: R120 million). Headline earnings
per share improved 20% to 558,5 cents (2004: 466,8 cents), adversely affected by
the reduction in the group"s Treasury Shares by means of Share Incentive Scheme
participants exercising a significant number of options during the reporting
period, and the increased effective tax rate of 33,8%, resulting from Secondary
Tax on Company applied in the review period on the special dividend declared in
August 2005.
Buoyant consumer spending experienced over the period benefited the group.
Contributing strongly to the group"s improved performance was the evident trend
by consumers to buy-up as the range of available products is enhanced and
becomes more accessible. Noteworthy growth in the group"s bathware business also
positively impacted results.
Ongoing investment in brands and responsiveness to increasingly cost conscious
and discerning consumer needs remained a key focus during the review period. The
group"s programme of rolling store upgrades aimed at satisfying consumer
expectations continues to be implemented across the network in response to the
global trend which identifies aspirational suppliers as destination retailers
offering an enhanced consumer experience.
Competition experienced in the industry at present is anticipated to continue,
and management will be investing in further enhancing the group"s offering.
Continued attention will be paid to promoting the group"s ethos of mentorship
and entrepreneurship. Key to the group"s philosophy is empowerment of
individuals throughout the organisation, and this will be manifested through
intensified training and recruitment of premium calibre staff and franchisees.
TRADING ENVIRONMENT
The new residential and renovation markets remained vigorous, the former driven
by the massive growth in first-time property owners. Management is satisfied
that the group is also well positioned to capitalise on a price deflationary
market, when consumers renovate in favour of buying properties. The current
surge in first-time homes will in due course also provide a renovation market.
Entrenched globally and locally as the wall and floor covering of choice, the
ceramic tile industry continues to enjoy sustained growth. This trend, aided by
low barriers to entry in South Africa, witnessed a significant increase in the
number of new entrants, creating a highly competitive trading environment.
Symptomatic of a buoyant industry was the evolution and proliferation of
individual operators into small multi-branch businesses.
Shipping capacity improved over the period, although local suppliers have done
well to meet demand created by import shortages. The strong local currency
continues to favour imports, with China remaining the primary international
supplier in this arena.
AFRICAN OPERATIONS
Italtile and CTM
The group is represented by eight Italtile stores in South Africa, 66 CTM stores
in South Africa and a further 16 CTM stores situated in Botswana, Namibia,
Swaziland, Lesotho, Malawi, Uganda, Tanzania and Zambia.
Several key developments contributed to the solid performance of both divisions.
Significant inroads were made into markets with the continued extension of the
group"s offering in bathware and related products, following the groups
integration back into its supply chain.
Complementing this development was the implementation in October 2005 of a R25
million logistics system aimed at enhancing just-in-time deliveries and
restricting costs.
Management is of the opinion that the group"s competitive edge will be sharpened
by improving logistics and accessibility of the right product at the right
price.
Results to date have been rewarding. The system will be extended to other
suppliers in the group"s chain, spearheading the group"s ambition to achieve and
exceed cost- and best-practice benchmarks.
Its long-standing reputation as a major global purchaser enables the group to
leverage its position to secure price competitive advantages for consumers.
The CTM brand enjoys widespread appeal amongst its target audience, including
the emerging middle class. Furthering the group"s strategy to improve access to
the product a store will be opened in an exclusively black residential area in
February 2006. The franchise will be a joint venture with a local businessman,
and early indications regarding prospects are positive. It is anticipated that a
further six stores will be opened by the end of the current calendar year in
other predominantly black markets.
The group has introduced a range of laminated flooring in a select number of CTM
stores based in Gauteng, which will be rolled out nationwide in due course.
Response to this value-added offering has been positive, and supports the logic
to complement the group"s existing home enhancement solutions. The product line
may in time become a significant contributor to turnover.
Whilst demand for the group"s product in sub-Saharan Africa is robust, expansion
has traditionally been impeded by logistical and infrastructural deficiencies.
In response to this, the group will be opening a central bulk storage and
distribution warehouse in east Africa, similar to the group"s existing facility
in Durban. The rationale is based on reducing inland transport costs and
improving availability of product in order to support trading platforms of local
franchises. It is anticipated that the centre will be opened in conjunction with
a new franchised store, scheduled for June 2006.
INTERNATIONAL OPERATIONS
The group"s Australian operation currently comprises nine stores across three
states. During the review period three stores were closed in line with the
group"s ongoing strategy to adapt the trading formula to comprise only new
generation stores offering an extended product range and customer-friendly
showroom facilities. The positive response to these stores has vindicated this
strategy and an additional new generation store will be opened in the
forthcoming period.
Whilst the operation made a nominal contribution to profit, it is anticipated
that the prevailing trading environment will continue to restrict growth of this
business.
PROPERTY PORTFOLIO
Pursuant to the group"s strategic policy, a further R52 million was invested in
the combined South African and Australian property portfolio during the review
period, bringing the carrying value to R463 million. Continued investment will
be made based on the dual validation of the strong returns achieved, which are
in line with the group"s trading operations, and the competitive advantage
derived by franchises located on prime sites, aligned to the group"s positioning
as a destination retailer.
BLACK ECONOMIC EMPOWERMENT
The group has made sound progress with regard to its Black Economic Empowerment
initiatives and should be in a position to provide further detail on the
structure of the planned empowerment partnership before the end of the current
financial year.
PROSPECTS
Stable interest rates, fiscal stimulation of the economy and positive retail
sentiment will continue to drive growth of the industry, whilst simultaneously
promoting intense competition between suppliers.
Cognisant of this, and of increasingly sophisticated consumer demand, management
is mindful of the need to add value to the retail experience. Entrenching and
growing market share will be dependent on aggressive pursuit of that goal.
Enhancements in logistics, product range, service and price will remain focus
areas in the forthcoming period. In line with the group"s ethos of mentorship to
promote entrepreneurship, significant investment will be made in attracting,
nurturing and retaining high calibre personnel.
The Board is satisfied that the current earnings growth trend will be maintained
over the forthcoming six months.
DIVIDEND
An interim dividend of 140 cents per share has been declared, an improvement of
27,3% (2004: 110 cents).
DIVIDEND ANNOUNCEMENT
The Board has declared an interim dividend (number 79) 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 Thursday, 23 February 2006. The shares of
Italtile Limited will commence trading ex dividend from the commencement of
business on Friday, 24 February 2006 and the record date will be Friday, 3 March
2006. Payment will be made on Monday, 6 March 2006. Share certificates may not
be rematerialised or dematerialised between Friday, 24 February 2006 and Friday,
3 March 2006, both days inclusive.
For and on behalf of the Board
G A M Ravazzotti P D Swatton
Chief Executive Officer Chief Financial Officer 8 February 2006
BASIS OF PREPARATION
In terms of the listing requirements of the JSE Limited, the Group is required
to prepare its consolidated financial statements in accordance with
International Financial Reporting Standards ("IFRS") as from 1st July 2005.
The interim results have been prepared in accordance with IFRS and IAS34 -
Interim Financial Reporting. Previously the Group reported in terms of South
African Statements of Generally Accepted Accounting Practice.
The opening balance sheets at 1 July 2004 and 1 July 2005 have been restated
accordingly. The comparative income statement for the six months to December
2004 and the balance sheet at that date have also been restated. The effect of
the transition from South African Statements of Generally Accepted Accounting
Practice to IFRS on the group"s financial position, financial performance and
cash flows are summarised below.
As IFRS are implemented internationally, evolving practices with regard to the
interpretation and application of standards under IFRS could impact future
reported results and disclosure.
IFRS2 - SHARE BASED PAYMENTS
The group has elected not to apply the provisions of IFRS 2 to share options
granted before 7th November 2002. The fair value of share options granted after
that date has been charged against income over the relevant option vesting
periods adjusted for expected levels of vesting.
IAS16 - PROPERTY, PLANT AND EQUIPMENT
The useful lives and residual values of the group"s major assets have been
reassessed and where applicable the depreciation charge has been adjusted.
IFRS IMPACT ON PROFIT FOR THE YEAR
(Rand 000"s unless otherwise stated)
Six months to Year to
31 December 30 June
2004 2005
As previously reported 86 247 197 027
Effect of IAS16 and IFRS2 526 844
86 773 197 871
IFRS IMPACT ON SHAREHOLDERS" EQUITY
30 June 31 December 30 June
2004 2004 2005
As previously reported 499 673 546 096 631 962
Effect of IAS16 and IFRS2 1 056 2 089 2 838
Reallocation of minority interest 14 663 26 237 29 333
515 392 574 422 664 133
SYSTEM WIDE TURNOVER ANALYSIS
For the period ended 31 December 2005
(Rand 000"s unless otherwise stated)
Unaudited Unaudited Audited
six months six months year
to to to
31 December 31 December 30 June
% Increase 2005 2004 2005
GROUP AND FRANCHISED
TURNOVER
- By group-owned stores 657 443 522 296 1 036 678
- By franchise-owned
stores (unaudited) 535 194 474 546 921 830
Total 20 1 192 637 996 842 1 958 508
ABRIDGED GROUP INCOME STATEMENTS
For the period ended 31 December 2005
(Rand 000"s unless otherwise stated)
Unaudited Unaudited Unaudited
six months six months year
to to to
31 December 31 December 30 June
% Increase 2005 2004 2005
Trading profit before
depreciation 162 406 130 505 294 682
Depreciation (9 072) (9 782) (19 346)
Trading profit 27 153 334 120 723 275 336
Investment income 6 897 5 976 12 047
Profit before interest
paid 26 160 231 126 699 287 383
Interest paid (377) (454) (1 249)
Profit before taxation 27 159 854 126 245 286 134
Taxation (54 049) (39 472) (88 263)
Profit for the year 22 105 805 86 773 197 871
Attributable to:
Equity holders of
the parent 100 718 83 483 191 486
Minority interests 5 087 3 290 6 385
105 805 86 773 197 871
Number of shares in
issue (000"s) 18 101 17 860 17 771
Earnings per share
(cents) 19 556,4 467,4 1 077,5
Headline earnings per
share (cents) 20 558,5 466,8 1 073,9
Diluted earnings per
share (cents) 19 550,3 460,9 1 031,1
Dividends per share
(cents) 140,0 110,0 340,0
Special dividend 600,0
RECONCILIATION OF
HEADLINE EARNINGS
Earnings attributable to
ordinary shareholders 100 718 83 483 191 486
(Profit)/Loss on sale
of property, plant and
equipment 383 (110) (646)
Headline earnings 101 101 83 373 190 840
RECONCILIATION OF
SHARES IN ISSUE
Total number of shares
issued 18 677 18 677 18 677
Share Incentive Trust
shares 577 817 906
Shares in issue to
external parties 18 100 17 860 17 771
ABRIDGED GROUP BALANCE SHEETS
at 31 December 2005
(Rand 000"s unless otherwise stated)
Unaudited Unaudited Unaudited
six months six months year
to to to
31 December 31 December 30 June
2005 2004 2005
ASSETS
Non-current assets 499 424 385 214 444 516
Property, plant and equipment 488 230 379 783 433 355
Other long-term assets 8 448 5 431 8 499
Deferred tax 2 746 2 662
Current assets 503 780 424 989 519 589
Inventories 142 187 127 854 153 563
Trade and other receivables 75 359 76 366 65 453
Cash and cash equivalents 286 234 220 769 300 573
Total assets 1 003 204 810 203 964 105
EQUITY AND LIABILITIES
Capital and reserves 678 731 574 422 664 133
Stated capital 27 175 27 175 27 175
Treasury shares (46 800) (42 944) (54 581)
Translation reserve 4 171 1 887 11 345
Share option reserve 2 095 1 392 1 823
Retained profit 660 984 560 675 649 038
Minority interest 31 106 26 237 29 333
Non-current liabilities 8 803 8 830 9 677
Deferred tax 425
Long-term liabilities 8 803 8 405 9 677
Current liabilities 315 670 226 951 290 295
Trade and other payables 255 310 174 828 262 935
Taxation 60 360 52 123 27 360
1 003 204 810 203 964 105
Net asset value per share (cents) 3 750 3 216 3 737
CASH FLOW STATEMENT
For the period ended 31 December 2005
(Rand 000"s unless otherwise stated)
Unaudited Unaudited Unaudited
six months six months year
to to to
31 December 31 December 30 June
2005 2004 2005
Cash flow from operating
activities 43 733 49 865 206 091
Cash flow from investing
activities (53 884) (60 407) (138 101)
Cash flow from financing
activities (4 188) 8 459 9 731
Net movement in cash and cash
equivalents (14 339) (2 083) 77 721
Cash and cash equivalents at
beginning of period 300 573 222 852 222 852
Cash and cash equivalents at
end of period 286 234 220 769 300 573
STATEMENT OF CHANGES IN EQUITY
For the period ended 31 December 2005
Non-dis-
R000"s Stated tributable Treasury
Group Capital reserves shares
Balance at 30 June 2004 restated 27 175 1 602 (46 032)
Net profit for the period
Dividends paid
Currency translation difference 10 628
Unallocated shares in share trust (6 559)
Accumulated surplus in share
trust (1 990)
Share option costs 938
Subsidiary share capital increase
Balance at 30 June 2005 27 175 13 168 (54 581)
Net profit for the period
Dividends paid
Currency translation difference (7 174)
Unallocated shares in share trust 10 921
Accumulated surplus in share
trust (3 140)
Share option costs 272
Dividends of subsidiaries
27 175 6 266 (46 800)
STATEMENT OF CHANGES IN EQUITY
For the period ended 31 December 2005
R000"s Minority Retained
Group interest profit Total
Balance at 30 June 2004 restated 14 663 517 984 515 392
Net profit for the period 6 385 191 486 197 871
Dividends paid (60 432) (60 432)
Currency translation difference 10 628
Unallocated shares in share trust (6 559)
Accumulated surplus in share
trust (1 990)
Share option costs 938
Subsidiary share capital increase 8 285 8 285
Balance at 30 June 2005 29 333 649 038 664 133
Net profit for the period 5 087 100 718 105 805
Dividends paid (88 772) (88 772)
Currency translation difference (7 174)
Unallocated shares in share trust 10 921
Accumulated surplus in share trust (3 140)
Share option costs 272
Dividends of subsidiaries (3 314) (3 314)
31 106 660 984 678 731
SEGMENTAL REPORTING
For the period ended 30 June 2005
(Rand 000"s unless otherwise stated)
Retail Franchising Properties
Unaudited year to December 2005
Revenue 558 765 66 948 52 145
Segment results 39 241 63 613 43 550
Unaudited year to December 2004
Revenue 457 056 56 704 43 586
Segment results 27 590 53 481 34 190
SEGMENTAL REPORTING
For the period ended 30 June 2005
(Rand 000"s unless otherwise stated)
Supply and
support Inter
services group Group
Unaudited period to December 2005
Revenue 274 713 (207 719) 744 852
Segment results 6 930 - 153 334
Unaudited period to December 2004
Revenue 189 403 (146 781) 599 968
Segment results 5 462 - 120 723
NOTES:
- There are no material contingent liabilities or assets at 31 December 2005
- Capital commitments at 31 December 2005 R000"s
Contracted 23 144
Authorised, not contracted 53 300
76 777
- 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*, S I Gama, C Trumpelmann, G P
Ravazzotti (*Greek ** British)
Refer to Italtile"s corporate website: www.italtile.com
Date: 08/02/2006 07:30:22 AM Produced by the JSE SENS Department
