| Wed 8 Mar 2006, 7:30 | | Ceramic - Interim Results for the six months ended |
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CRM
CRM
Ceramic - Interim Results for the six months ended 31 January 2006
CERAMIC INDUSTRIES LIMITED
(Reg No 1982/008520/06)
Incorporated in the Republic of South Africa
("Ceramic" or "the Group")
Share code: CRM & ISIN: ZAE000008538
Interim Results for the six months ended 31 January 2006
COMMENTARY
FINANCIAL RESULTS
Ceramic Industries, South Africa"s leading manufacturer of ceramic tiles and
vitreous china sanitaryware, has reported improved volumes and sales for the six
months ending 31 January 2006. This improvement was achieved without any price
increases, because continued strength of the Rand encouraged competitively
priced imports. Margins were, however, eroded by significantly increased energy
costs (which increased by R15 million) compared to the same period ended 31
January 2005.
Revenue increased 20% to R541,8 million (2005: R452,1 million) while operating
income improved 13% to R124,2 million (2005: R109,9 million). Headline earnings
per share grew 16% to 497,6 cents up from 430,4 cents. The effective tax rate
increased due to STC on special and ordinary dividends paid.
If the share trust was not consolidated the headline earnings per share, based
on the total number of shares in issue, would have been 471,0 cents (2005: 407,2
cents).
SEGMENTAL INFORMATION
Six months to Six months to
31 January 31 January %
2006 2005 Increase
Revenue (R million)
Tiles 454,7 391,2 16,2
Sanitaryware 87,1 60,9 43,0
Sales volumes (millions)
Tiles (m2) 15,9 14,1 12,8
Sanitaryware (pieces) 0,638 0,555 15,0
Operating income (millions)
Tiles 99,6 89,6 11,2
Sanitaryware 24,6 20,3 21,3
TRADING ENVIRONMENT
South African consumer demand in the tile and sanitaryware sectors remains
strong, featuring continued growth in the emerging middle-class market. The
sustained expansion of both the new residential and renovation markets drove
performance, which was further stimulated by the incremental roll-out of
Government"s entry-level housing, water and sanitation programmes.
Management"s positive long-term outlook for the tile and sanitaryware sectors is
borne out by key statistics: in South Africa consumers currently purchase 44
million m2 of tiles per annum, of which Ceramic Industries (excluding the
Australian operation) produces 29 million m2. Local and international
manufacturers supply the balance. Sanitaryware consumption is 2,2 million pieces
per annum, of which the Group produces 1,45 million pieces. The annual per
capita tile consumption in South Africa is 1 m2, compared with 3 m2 in Brazil, a
country of similar economic and demographic profile to South Africa.
Whilst the Group maintained its market share of 55% of both the tile and
sanitaryware sectors, management"s challenge is to continue to improve this
position in the competitive trading environment experienced at present.
Consumers remain price sensitive and are increasingly discerning in their
demands for fashionable, quality product.
MANUFACTURING OPERATIONS - TILE DIVISION
PEGASUS
Pegasus spearheads the Group"s penetration into the emerging market and reported
record production volumes and sales for the review period. Production rates
continued to improve and the plant was running at full capacity by the end of
the period to achieve volumes of 4,31 million m2 (2005: 3,83 million m2). The
plant"s value-for-money glazed pressed tiles continue to compete favourably with
low-cost imports and enjoy strong demand from an expanding customer base.
Further upgrades of the existing two lines will be completed by mid-March 2006
to boost production throughput.
The Board has approved a project to double the plant"s capacity to 18 million m2
per annum, at a cost of R140 million. The expansion will include two kilns, four
presses and the introduction of sophisticated selection equipment aimed at
improving the plant"s quality competitiveness.
VITRO
Vitro, which manufactures extruded tiles, delivered another notable performance,
in line with expectations. Improved utilisation of technology resulted in
production volumes increasing to 2,64 million m2. (2005: 2,34 million m2) and
delivered consistent quality. The introduction of new and innovative lines to
the range, including slate and natural stone vitrified tiles, has met with
favourable consumer response.
SAMCA 1
Although improved volumes and sales were recorded for the review period, Samca 1
is still not delivering to its full potential. Production volumes of pressed
glazed floor tiles increased to 3,33 million m2 (2005: 3,08 million m2). The
review period witnessed a major upgrade of much of the plant"s equipment to
ensure the longer-term performance of the plant.
Samca 1 will continue to develop larger dimension tiles (50 cm x 50 cm) to meet
consumer demand for these sizes.
SAMCA 2
Now operating at full capacity, Samca 2 delivered a marginal improvement in
volumes over the prior comparative period. Sales volumes were, however, boosted
by the reduction of stock holdings, as demand remained strong for pressed glazed
wall tiles. Despite some demand in the commodity market, wall tiles continue to
be sensitive to fashion trends; consequently ongoing refinement of the range is
fundamental to ensure that the product holds its own against imported products
and other wall coverings.
CENTAURUS - AUSTRALIA
The Australian operation traded profitably for the first four months of the
reporting period. An extended shutdown during December and January however had a
negative impact and the operation broke even for the six-month period.
The plant, which manufactures premium quality glazed porcelain floor tiles, is
running at full capacity. A project to increase capacity at minimal capital cost
is being implemented in order to reduce unit costs. Whilst every effort is being
made to expedite penetration of the Australian market, the Group will continue
to absorb surplus product in South Africa, given the local demand for floor
tiles. Quality and prices of products compare favourably with European-made
products and therefore the potential for Centaurus"s product in Australia
remains significant.
Confidence is high, however, that once a strong customer base within the
wholesaler network has been forged, the upside for the operation is
considerable.
MANUFACTURING OPERATIONS - SANITARYWARE DIVISION
BETTA SANITARYWARE
Betta produces a comprehensive range of vitreous china sanitaryware.
Following a period of adjustment whilst increased production capacity was
brought on stream, the plant is now running in line with forecasts. Production
volumes increased to 0,64 million pieces (2005: 0,56 million pieces) as a result
of the increased capacity.
Demand for sanitaryware, which continues to grow, outstrips local production and
will continue to do so as the market expands. The product range will remain
subject to evaluation and enhancement as consumers adopt the trend of buying
higher-value items.
A recent benchmarking exercise has confirmed the plant"s position as a world-
class manufacturer. Ceramic Industries is cognisant of the challenge to retain
and enhance that standing.
SPHINX BATHROOMWARE (PTY) LIMITED
The Group reported in July 2005 that, subject to Competition Commission
approval, a 50% interest in the business of Sphinx Bathroomware (Pty) Limited
("Sphinx") had been acquired. Sphinx is the leading manufacturer of premium
acrylic bathware in South Africa, producing baths, spas and shower trays.
After delays in the submission of the application to the Competition Commission,
inter alia because of the fire experienced at the factory, approval for the
transaction was received late in February 2006.
A new factory is expected to be commissioned in 2007.
PROSPECTS
In addition to the scheduled expansion programme to be undertaken at Pegasus,
the Board has also approved in principle the construction of a new floor tile
factory with an initial production capacity of 3 million m2, manufacturing high-
fashion product to complement the existing range. Capital investment of R140
million has been budgeted. The factory should commence production in 2009. All
expansions will be funded from internally generated cash flows.
Government"s economic policies should continue to generate economic growth and
the Board remains committed to maintaining market share in the growing tile and
sanitaryware markets in South Africa. Both Pegasus and Betta are well positioned
to maximise opportunities offered in their respective sectors by catering for
the entry-level mass market.
Management will continue to focus on increasing volumes and improving
productivity to improve each operation"s performance. Input cost increases have
caused suppliers globally to increase prices; this will enable Ceramic
Industries Limited to recover some of the additional energy costs incurred and
thus improve margins. Given continued positive conditions, the Group should
again deliver real growth in earnings for the full year.
DIVIDEND
The Board has declared an interim dividend (number 32) of 90 cents per share
(2005: 70 cents), an increase of 28,6%.
On behalf of the Board
GAM Ravazzotti N Booth
Chairman Chief Executive Officer
DIVIDEND ANNOUNCEMENT
The Board has declared an interim dividend (no 32) of 90 cents per ordinary
share to all shareholders recorded in the books of Ceramic Industries Limited at
the close of business on Friday, 21 April 2006. The last day to trade cum
dividend in order to participate in the dividend will be Wednesday, 12 April
2006. The shares will commence trading ex dividend from the commencement of
business on Thursday, 13 April 2006 and the record date will be Friday, 21 April
2006. The dividend will be paid on Monday, 24 April 2006. Share certificates may
not be rematerialised or dematerialised between Thursday, 13 April 2006 and
Friday, 21 April 2006, both days inclusive.
By order of the Board
E J Willis
Secretary 8 March 2006
BASIS OF PREPARATION
The Group has adopted International Financial Reporting Standards (IFRS) for the
year ending 31 July 2006. These interim results have been prepared and presented
in accordance with IFRS and IAS 34 - Interim financial reporting.
The financial statements for the year ending 31 July 2006 will be the Group"s
first consolidated IFRS-compliant financial statements and hence IFRS 1, first
time adoption of IFRS, has been applied in preparing this interim report.
The opening balance sheets at 1 August 2004 and 1 August 2005 have been
restated. As the auditors have not yet audited the IFRS adjustments, the figures
for the 12 months ended 31 July 2005 are reported as "unaudited". The
comparative income statement for the six months to 31 January 2005 and the
balance sheet at that date have also been restated.
The effect of the transition from SA GAAP to IFRS on the Group"s financial
position, financial performance and cash flows is summarised below.
IFRS2 - SHARE-BASED PAYMENTS
The future value of share options granted to employees is recognised as an
employee expense with a corresponding increase in equity. The fair value is
measured at grant date and expended over the period during which the employee
becomes unconditionally entitled to the shares.
The Group has elected not to apply the provisions of IFRS to share options
granted before 7 November 2002.
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 INCOME
6 months ended Year ended
31 January 2005 31 July 2005
Unaudited Unaudited
R000s R000s
Attributable income as
previously reported 72 532 166 200
Effect of IFRS2 and IAS16 1 822 3 768
74 354 169 968
IFRS IMPACT ON SHAREHOLDERS" EQUITY
1 August 2004 31 January 2005 31 July 2005
Shareholders" equity as
previously reported 588 383 640 223 718 175
Effect of IFRS2 and IAS16 22 456 24 642 26 952
610 839 664 865 745 127
CONDENSED GROUP INCOME STATEMENT
6 months 6 months Year
ended ended ended
31 January 31 January 31 July
2006 2005 2005
% Unaudited Unaudited Unaudited
change R000s R000s R000s
Revenue 19,8 541 792 452 138 954 262
Tiles 16,2 454 690 391 248 803 217
Sanitaryware 43,0 87 102 60 890 151 045
Operating income before
depreciation 11,4 169 009 151 740 325 612
Depreciation 6,9 (44 789) (41 881) (84 103)
Operating income 13,1 124 220 109 859 241 509
Tiles 11,2 99 637 89 590 192 365
Sanitaryware 21,3 24 583 20 269 49 144
Net investment income 183,2 3 022 1 067 2 305
Income before taxation 14,7 127 242 110 926 243 814
Taxation 23,4 (45 144) (36 570) (73 841)
Net income for the
period 10,4 82 098 74 356 169 973
Attributable to:
Minority shareholders (1 640) 2 5
Ordinary shareholders
of the Group 12,6 83 738 74 354 169 968
Weighted average number
of shares in issue
(000s) 17 285 17 279 17 260
Basic earnings per share
(cents) 12,6 484,5 430,3 984,8
Headline earnings per
share (cents) 15,6 497,6 430,4 991,3
Dividend per share
(cents) 28,6 90,0 70,0 220
Special dividend per
share (cents) - - 250
Reconciliation of
headline earnings
Net income attributable
to ordinary shareholders 83 738 74 354 169 968
Loss on disposal of
plant and equipment 35 13 1 128
Loss on disposal of
subsidiary 2 245 - -
Headline earnings 15,7 86 018 74 367 171 096
CONDENSED GROUP BALANCE SHEET
31 January 31 January 31 July
2006 2005 2005
Unaudited Unaudited Unaudited
R000s R000s R000s
Assets
Non-current assets 559 825 598 133 613 549
Property, plant and equipment 556 174 593 733 609 001
Deferred taxation asset 851 - 948
Payment in advance 2 800 4 400 3 600
Current assets 402 926 284 049 421 949
Inventories 52 420 51 754 75 152
Trade and other receivables 152 130 128 199 154 909
Short-term loans 14 150 - -
Cash and cash equivalents 184 226 104 096 191 888
Total assets 962 751 882 182 1 035 498
Equity and liabilities
Capital and reserves 742 523 664 865 745 127
Share capital 65 045 64 962 64 962
Shares held by share trust (65 917) (49 882) (66 187)
Share awards reserve 1 847 1 039 1 403
Reserves 2 740 5 727 74 323
Retained earnings 738 808 643 019 670 626
Minority shareholders" interest 6 593 155 162
Non-current liabilities 66 103 74 078 87 792
Shareholders" loans 12 730 18 338 23 559
Deferred taxation liability 45 103 31 255 45 251
Borrowings 8 270 24 485 18 982
Current liabilities 147 532 143 084 202 417
Trade and other payables and
provisions 119 202 108 867 162 987
Income taxation payable 28 185 34 104 39 311
Shareholders for dividend 145 113 119
Total equity and liabilities 962 751 882 182 1 035 498
CONDENSED GROUP CASH FLOW STATEMENT
6 months 6 months Year
ended ended ended
31 January 31 January 31 July
2006 2005 2005
Unaudited Unaudited Unaudited
R000s R000s R000s
Operating activities
Income before taxation adjusted
for non-cash items 174 561 153 738 330 470
Changes in working capital (15 787) (60 607) (38 183)
Cash generated from operations 158 774 93 131 292 287
Investment income 3 022 1 067 2 305
Dividends paid (69 250) (15 206) (27 324)
Taxation paid (51 661) (2 684) (45 831)
40 885 76 308 221 437
Investing activities (36 429) (53 195) (110 250)
To expand operations (23 457) (40 599) (81 349)
Short-term loan (7 500) - -
Cash balance disposed of on sale
of subsidiary (5 742) - -
Cash inflow/(outflow) from share
trust dealings 270 (12 596) (28 901)
Financing activities (12 118) 2 675 2 393
Borrowings (repaid)/raised (1 289) 1 312 (4 191)
Shareholders" loans
(repaid)/raised (10 829) 1 363 6 584
Net movement in cash and cash
equivalents (7 662) 25 788 113 580
Cash and cash equivalents at
beginning of period 191 888 78 308 78 308
Cash and cash equivalents at
end of period 184 226 104 096 191 888
CONDENSED STATEMENT OF CHANGES IN EQUITY
31 January 31 January 31 July
2006 2005 2005
Unaudited Unaudited Unaudited
R000s R000s R000s
Balance at beginning of year 745 127 610 839 610 839
Net additional shares sold/
(acquired) by share trust 270 (12 596) (28 901)
Share awards reserve 527 364 728
Net income attributable to
ordinary shareholders 83 738 74 354 169 968
Movement in foreign currency
translation reserve (17 863) 7 116 19 829
Transfer to dividend reserve (15 557) (12 784) (80 792)
Dividend reserve 15 557 12 784 80 792
Net dividend paid (69 276) (15 212) (27 336)
Balance at end of period 742 523 664 865 745 127
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
Date: 08/03/2006 07:30:10 AM Produced by the JSE SENS Department
