| Tue 12 Sep 2006, 7:15 | | Ceramic - Reviewed Preliminary Financial Results F |
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CRM
CRM
Ceramic - Reviewed Preliminary Financial Results For The Year Ended 31 July 2006
and dividend announcement
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 2006
COMMENTARY
FINANCIAL RESULTS
Ceramic Industries, South Africa"s leading manufacturer of ceramic tiles and
vitreous china sanitaryware, has reported record production and sales volumes
for the year ended 31 July 2006, with revenue increasing 13,7% to R1085,2
million (2005: R954,3 million), exceeding the R1 billion milestone.
Despite strong sales and improved efficiencies in the factories, margins were
eroded by increased input costs, largely impacted by the rise in energy costs
and raw material prices. Gas costs rose 33%, whilst transport and packaging
costs increased 16% and 15% respectively over the previous financial year.
Operating profit grew 8,1% to R261,8 million from R242,3 million. Headline
earnings rose 9,2% to R186,8 million from R171,1 million, whilst headline
earnings per share grew 9,0% to 1 080,7 cents (2005: 991,3 cents). Earnings
per share are more accurately reflected by not consolidating the share trust
and, on this basis, the headline earnings per share grew 9,2% to 1 022,8 cents
(2005: 936,8 cents).
The Group"s net cash balance increased to R242,7 million (2005: R191,9 million),
after investing R117 million in technology and plant upgrades.
SEGMENTAL INFORMATION
Year to Year to
31 July 31 July Increase
2006 2005 %
Revenue (R million) 1 085,2 954,3 13,7
Tiles - South Africa 809,2 731,5 10,6
- Australia 105,3 71,8 46,7
Sanitaryware 170,7 151,0 13,0
Sales volumes (millions)
Tiles (m2) - South Africa 28,1 26,8 4,9
- Australia 3,3 2,5 32,0
Sanitaryware (pieces) 1,3 1,2 8,3
Operating profit (millions) 261,8 242,3 8,0
Tiles - South Africa 203,7 198,6 2,6
- Australia 3,2 (5,4) 159,3
Sanitaryware 54,9 49,1 11,8
TRADING ENVIRONMENT
Trading conditions for the year featured increased competition from
predominantly Chinese imports, the proliferation of new independent tile
retailers and increasingly price-sensitive consumers.
Ceramic Industries is well positioned to grow market share. The Group has
improved its responsiveness to consumer demands and has a good understanding of
and proximity to markets, which affords an advantage over imported products. The
recent weakening of the Rand has made the Group"s factories globally cost
competitive with a Dollar cost per unit manufactured, which compares favourably
with an international benchmark.
MANUFACTURING OPERATIONS - TILE DIVISION
PEGASUS
The Group"s low-cost mass producer of glazed pressed floor tiles improved output
despite several planned shutdowns to implement plant upgrades. Production
increased from 8,2 million m2 to 8,7 million m2 for the year.
Continued investment in technology at Pegasus enabled the plant to produce a new
high-quality, fashionable range, which holds wider appeal. The product mix
caters for entry-level through to emerging middle-class demands and has
positioned this operation to compete effectively with imported product in this
rapidly growing sector of the market.
The present capacity of 9,0 million m2 will be doubled in a R140 million
expansion programme to further reduce costs and take advantage of the growth
anticipated in the Pegasus target market. The first phase will commence with the
commissioning of a third kiln in October 2006, which will increase capacity to
13,5 million m2. The second phase, which will increase total capacity to 18,0
million m2, will be commissioned in June 2007.
VITRO
Vitro produces full-bodied glazed, extruded, punched tiles for the domestic and
contract sectors. Continued consolidation of progress achieved over the past 18
months enabled the plant to deliver a performance in line with potential. The
review period witnessed an improvement in production volumes to 5,5 million m2
(2005: 4,9 million m2). Cost containment and success of new ranges drove sales
volumes.
Improved quality to world-class standards and enhanced demand for Vitro"s new
ranges should provide opportunity to increase prices.
SAMCA 1
The Group"s pressed glazed floor tile plant delivered a disappointing
performance in terms of cost and production efficiencies. Whilst production
volumes increased to 6,7 million m2 from 6,5 million m2 in the prior year, the
factory failed to manage cost increases.
The operation has subsequently been comprehensively reviewed and management is
satisfied that the introduction of further production and performance measures
will achieve desired progress.
Samca 1 is the sole South African plant to produce a 50 cm x 50 cm tile. The
strong acceptance of this product will allow management the opportunity to
further grow the range.
SAMCA 2
This plant, which produced 6,8 million m2 of pressed glazed wall tiles,
delivered improved efficiencies despite prevailing cost increases.
Product development initiatives were instrumental in driving the operation"s
performance, and management has continued to improve market research and align
product development with market demand. Samca 2 will promote new product
development and remain flexible with regard to production runs to generate
continued demand for fashionable product.
Capital will be invested to automate and enhance the plant"s selection area in
order to improve product quality.
Centaurus - Australia
The Group"s Australian plant, which manufactures glazed porcelain tiles,
delivered consistently high-quality product and improved yields during the
review period. Production volumes increased from 2,5 million m2 to 3,3 million
m2. Improved market penetration, reflected by wider acceptance of new ranges,
was achieved.
The plant traded profitably and contributed R3 million to Group income.
Management is confident that this positive trading trend is sustainable, based
on Centaurus"s superior product and a share of less than 10% of the Australian
market. A second kiln will be installed by July 2007 at a cost of approximately
R70 million. This will further enhance the plant"s ability to realise cost and
production efficiencies.
MANUFACTURING OPERATIONS - SANITARYWARE DIVISION
BETTA SANITARYWARE
The period under review witnessed a distinct shift in consumer demand, resulting
primarily from the introduction of and exposure to diverse ranges of imported
product from China.
Increasingly sophisticated consumers no longer view sanitaryware as a price-
driven commodity, demanding instead greater varieties of exclusive, fashionable
product. In accommodating this trend, retail chains have indicated a preference
for private label, individual ranges.
Betta"s response to this trend was not sufficiently expeditious and, as a
result, sales of the existing range were reduced. This is reflected in sales
volumes, which did not keep pace with production volumes of 1,37 million pieces
per annum (2005: 1,20 million pieces).
Management will focus on developing new ranges and models to meet evolving
market trends.
SPHINX BATHROOMWARE (PTY) LIMITED
The Group has acquired the remaining 50% of the share capital of Sphinx
Bathroomware (Pty) Ltd ("Sphinx"), which manufactures premium acrylic bathware.
The Sphinx factory has not yet fully recovered from the fire reported on at the
half year, but despite not operating at full capacity, traded at slightly below
breakeven for the five-month period for which it formed part of the Group.
Once fully restored, the existing facility, situated in Springs, will continue
to produce up-market baths and spa baths.
In order for Sphinx to gain market leadership a new factory capable of producing
low-cost, high-volume products will be built. The factory, which will be
globally competitive, will be built on the Betta site. Production is scheduled
to commence in June 2007.
Relocation of administration and service centre
The Group"s administration and service centre has been relocated to Vereeniging
in September 2006, adjacent to the Vitro and Pegasus factories.
PROSPECTS
Despite signs of a slowdown in the rate of growth of the housing market, demand
for tiles and sanitaryware remains strong. Whilst interest rates may impact new
residential sales, the renovation market combined with growth in the emerging
market should provide upside potential for the Group.
Management is of the opinion that underperforming areas have been identified
within the Group"s operations and remedial action has been implemented, which
should have an immediate impact on performance.
In addition, expansion plans at Pegasus and Sphinx and re-engineering of the
Samca 1 operation will create opportunities to increase market share. The
sanitaryware sector also provides solid prospects in both the local and
international markets, and previous investment in this component of the Group"s
business is expected to deliver good returns.
In the year ahead management"s strategic imperatives will centre on enhanced
efficiencies, restoring margins to previous levels and growing market share.
Trading conditions should remain positive and real earnings growth is forecast.
DIVIDEND
The Board has declared a final dividend of 180 cents, which together with the
interim dividend of 90 cents, produces a total dividend of 270 cents per share
(2005: 220 cents), an increase of 22,7%.
On behalf of the Board
G A M Ravazzotti N Booth
Chairman Chief Executive Officer
DIVIDEND ANNOUNCEMENT
The Board has declared a final dividend (no 33) of 180 cents per ordinary share
to all shareholders recorded in the books of Ceramic Industries Limited at the
close of business on Friday, 20 October 2006. The last day to trade CUM
dividend in order to participate in the dividend will be Friday, 13 October
2006. The shares will commence trading EX dividend from the commencement of
business on Monday, 16 October 2006 and the record date will be Friday, 20
October 2006. The dividend will be paid on Monday, 23 October 2006. Share
certificates may not be rematerialised or dematerialised between Monday, 16
October 2006 and Friday, 20 October 2006, both days inclusive.
By order of the Board
E J Willis
Secretary
7 September 2006
BASIS OF PREPARATION
The Group has adopted International Financial Reporting Standards (IFRS) for the
year ended 31 July 2006.
The balance sheet and income statement at 31 July 2005 have 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.
The preliminary results have been reviewed by KPMG Inc. whose unqualified
opinion is available for inspection at the Group"s registered office.
IFRS2 - SHARE-BASED PAYMENTS
The fair 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 and accumulated
depreciation have been adjusted.
IFRS AND IAS16 IMPACT ON PROFIT
Year ended
31 July
2005
(IFRS Restated)
(Reviewed)
R000
Attributable profit as previously stated 166 200
Effect of IFRS2 and IAS16 3 768
169 968
IFRS AND IAS16 IMPACT ON SHAREHOLDERS" EQUITY
1 August 31 July
2004 2005
Shareholders" equity as previously reported 588 383 718 337
Effect of IFRS2 and IAS16 22 456 26 952
610 839 745 289
CONDENSED GROUP INCOME STATEMENT
For the year ended 31 July
2006 2005
(IFRS) (IFRS Restated)
% (Reviewed) (Reviewed)
change R000"s R000"s
Revenue 13,7 1 085 180 954 262
Tiles 13,9 914 504 803 217
Sanitaryware 13,0 170 676 151 045
Operating profit before
depreciation 8,3 353 320 326 382
Depreciation 8,8 (91 504) (84 103)
Operating profit 8,0 261 816 242 279
Tiles 7,1 206 883 193 135
Sanitaryware 11,8 54 933 49 144
Financial income 253,6 21 939 6 204
Finance expenses 123,7 (10 446) (4 669)
Profit before taxation 12,1 273 309 243 814
Taxation 20,0 (88 590) (73 841)
Net profit after taxation 8,7 184 719 169 973
Share of loss in joint venture - (225) -
Net profit for the year 8,5 184 494 169 973
Attributable to:
Minority shareholders - (1 255) 5
Ordinary shareholders of the
group 9,3 185 749 169 968
Weighted average number
of shares in issue (000"s) 17 285 17 260
Basic earnings per share (cents) 9,1 1 074,6 984,8
Headline earnings per share
(cents) 9,0 1 080,7 991,3
Dividend per share (cents) 22,7 270,0 220,0
Special dividend per share
(cents) - 250,0
Reconciliation of headline earnings
Net profit attributable to
ordinary shareholders 185 749 169 968
Foreign gain - liquidation of
subsidiary (31) -
Foreign loss - conversion of loan
to share capital 2 821 -
Loss on disposal of subsidiary 2 245 -
(Profit)/loss on disposal of
property, plant and equipment (3 986) 1 128
Headline earnings 9,2 186 798 171 096
CONDENSED GROUP BALANCE SHEET
At 31 July
2006 2005
(IFRS) (IFRS Restated)
(Reviewed) (Reviewed)
R000"s R000"s
ASSETS
Non-current assets 634 272 613 549
Property, plant and equipment 630 494 609 001
Goodwill 991 -
Deferred taxation assets 787 948
Payment in advance 2 000 3 600
Current assets 519 300 421 949
Inventories 90 415 75 152
Trade and other receivables 186 162 154 909
Cash and cash equivalents 242 723 191 888
Total assets 1 153 572 1 035 498
EQUITY AND LIABILITIES
Capital and reserves 846 246 745 289
Share capital 65 045 64 962
Shares held by share trust (84 811) (66 187)
Share awards reserve 3 271 1 403
Reserves 44 961 74 323
Retained earnings 809 757 670 626
Ordinary shareholders" interest 838 223 745 127
Minority shareholders" interest 8 023 162
Non-current liabilities 71 700 87 792
Shareholders" loans 16 628 23 559
Deferred taxation liabilities 49 239 45 251
Borrowings 5 833 18 982
Current liabilities 235 626 202 417
Trade and other payables and provisions 179 092 162 987
Income taxation payable 56 391 39 311
Shareholders for dividend 143 119
Total equity and liabilities 1 153 572 1 035 498
CONDENSED GROUP CASH FLOW STATEMENT
For the year ended 31 July
2006 2005
(IFRS) (IFRS Restated)
(Reviewed) (Reviewed)
R000"s R000"s
Operating activities
Profit before taxation adjusted for
non-cash items 370 420 331 240
Changes in working capital (26 848) (38 183)
Cash generated from operations 343 572 293 057
Financial income 21 939 6 204
Finance expenses (10 446) (4 669)
Dividends paid (84 856) (27 324)
Taxation paid (63 922) (45 831)
Cash flow from operating activities 206 287 221 437
Investing activities (144 725) (110 250)
Property, plant and equipment
to expand operations (106 176) (81 349)
Net cash proceeds on disposal of
subsidiary 689 -
Net cash paid to acquire subsidiary (20 614) -
Cash outflow from share trust dealings (18 624) (28 901)
Financing activities (10 727) 2 393
Borrowings repaid (4 303) (4 191)
Shareholders" loans (raised)/ repaid (6 424) 6 584
Net movement in cash and cash
equivalents 50 835 113 580
Cash and cash equivalents at beginning
of year 191 888 78 308
Cash and cash equivalents at end of
year 242 723 191 888
CONDENSED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 July
2006 2005
(IFRS) (IFRS Restated)
(Reviewed) (Reviewed)
R000"s R000"s
Balance at beginning of year 745 289 610 839
Net additional shares acquired by
share trust (18 624) (28 901)
Share awards reserve 1 868 728
Share awards delivered 83 -
Net profit attributable to ordinary
shareholders 185 749 169 968
Movement in foreign currency
translation reserve 8 900 19 829
Movement in minority shareholders 7 861 162
Transfer to dividend reserve (46 618) (80 792)
Dividend reserve 46 618 80 792
Net dividend paid (84 880) (27 336)
Balance at end of year 846 246 745 289
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)
Registered office: Farm 2, Old Potchefstroom Road, Vereeniging
PO Box 1369, Rivonia, 2128
Transfer secretaries: Computershare Investor Services 2004 (Pty) Limited, 70
Marshall Street, Johannesburg, 2001 PO Box 61051, Marshalltown, 2107
www.ceramic.co.za
Date: 12/09/2006 07:15:11 AM Produced by the JSE SENS Department
