| Mon 12 Mar 2007, 7:29 | | CRM - Ceramic - Interim results for the six months |
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CRM
CRM
CRM - Ceramic - Interim results for the six months ended 31 January 2007
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 2007
CONDENSED GROUP INCOME STATEMENT
6 months 6 months Year
ended ended ended
31 January 31 January 31 July
2007 2006 2006
% Unaudited Unaudited Audited
change R000`s R000`s R000`s
Revenue 21,3 657 298 541 792 1 085 180
Tiles 14,9 522 476 454 690 914 504
Sanitaryware 54,8 134 822 87 102 170 676
Operating profit 11,5 185 455 166 275 353 320
before
depreciation
Depreciation 4,7 (46 913) (44 789) (91 504)
Operating profit 14,0 138 542 121 486 261 816
Tiles 8,7 106 557 98 069 206 883
Sanitaryware 36,6 31 985 23 417 54 933
Financial income (17,1) 5 490 6 619 21 939
Finance expenses (53,7) (399) (862) (10 446)
Profit before 12,9 143 633 127 243 273 309
taxation
Taxation 1,4 (45 755) (45 145) (88 590)
Profit after 97 878 82 098 184 719
taxation
Share of loss in - - (225)
joint venture
Profit for the 19,2 97 878 82 098 184 494
period
Attributable to:
Minority 140 (1 640) (1 255)
shareholders
Ordinary 16,7 97 738 83 738 185 749
shareholders of
the Group
Weighted average 17 296 17 285 17 285
number of shares
in issue (000`s)
Basic earnings 16,6 565,1 484,5 1 074,6
per share
(cents)
Headline 13,6 565,4 497,6 1 080,7
earnings per
share (cents)
Dividend per 55,6 140,0 90,0 270,0
share (cents)
Reconciliation
of headline
earnings
Profit 97 738 83 738 185 749
attributable to
ordinary
shareholders
Loss/(profit) on 55 35 (3 986)
disposal of
plant and
equipment
Foreign gain - - - (31)
liquidation of
subsidiary
Foreign loss - - - 2 821
conversion of
loan to share
capital
Loss on disposal - 2 245 2 245
of subsidiary
Headline 13,7 97 793 86 018 186 798
earnings
CONDENSED GROUP BALANCE SHEET
31 January 31 January 31 July
2007 2006 2006
Unaudited Unaudited Audited
R000`s R000`s R000`s
ASSETS
Non-current assets 669 837 559 825 634 272
Property, plant and 666 912 556 174 630 494
equipment
Goodwill 991 - 991
Deferred taxation assets 734 851 787
Payment in advance 1 200 2 800 2 000
Current assets 480 371 402 926 519 300
Inventories 69 966 52 420 90 415
Trade and other 173 842 166 280 186 162
receivables
Cash and cash equivalents 236 563 184 226 242 723
Total assets 1 150 208 962 751 1 153 572
EQUITY AND LIABILITIES
Equity 923 119 749 116 846 246
Share capital 64 962 64 962 64 962
Shares held by share trust (86 971) (65 834) (84 811)
Share awards reserve 4 573 1 847 3 354
Reserves 48 573 2 740 44 961
Retained earnings 883 280 738 808 809 757
Ordinary shareholders` 914 417 742 523 838 223
interest
Minority shareholders` 8 702 6 593 8 023
interest
Non-current liabilities 73 241 66 103 71 700
Shareholders` loans 17 297 12 730 16 628
Deferred taxation 50 204 45 103 49 239
liabilities
Borrowings 5 740 8 270 5 833
Current liabilities 153 848 147 532 235 626
Trade and other payables 94 685 119 202 179 092
and provisions
Income taxation payable 59 010 28 185 56 391
Shareholders for dividends 153 145 143
Total equity and 1 150 208 962 751 1 153 572
liabilities
CONDENSED GROUP CASH FLOW STATEMENT
6 months 6 months Year
ended ended ended
31 January 31 January 31 July
2007 2006 2006
Unaudited Unaudited Audited
R000`s R000`s R000`s
Operating activities
Operating profit adjusted 188 095 171 826 360 924
for non-cash items
Changes in working capital (51 638) (15 787) (21 264)
Cash generated from 136 457 156 039 339 660
operations
Financial income 5 490 6 619 21 905
Finance expenses (399) (862) (10 440)
Dividends paid (31 150) (69 250) (84 856)
Taxation paid (44 594) (51 661) (68 233)
65 804 40 885 198 036
Investing activities (71 059) (36 699) (124 281)
Property, plant and (71 059) (23 457) (99 960)
equipment to expand
operations
Short-term loan - (7 500) -
Net cash proceeds on - (5 742) 1 568
disposal of subsidiary
Net cash paid to acquire - - (25 889)
subsidiary
Financing activities (905) (11 848) (22 920)
Cash (outflow)/inflow from (2 160) 270 (18 624)
share trust dealings
Borrowings repaid (93) (1 289) (4 303)
Shareholders` loans 1 348 (10 829) 7
raised/(repaid)
Net movement in cash and (6 160) (7 662) 50 835
cash equivalents
Cash and cash equivalents 242 723 191 888 191 888
at beginning of period
Cash and cash equivalents 236 563 184 226 242 723
at end of period
CONDENSED STATEMENT OF CHANGES IN EQUITY
31 January 31 January 31 July
2007 2006 2006
Unaudited Unaudited Audited
R000`s R000`s R000`s
Balance at beginning of 846 246 745 289 745 289
year
Net additional shares (2 160) 270 (18 624)
(acquired)/sold by share
trust
Share awards reserve 790 527 1 868
Share awards delivered 429 83
Profit attributable to 97 738 83 738 185 749
ordinary shareholders
Movement in foreign 10 557 (17 863) 8 900
currency translation
reserve
Movement in minority 679 6 431 7 861
shareholders
Transfer to dividend (24 215) (15 557) (46 618)
reserve
Dividend reserve 24 215 15 557 46 618
Net dividend paid (31 160) (69 276) (84 880)
Balance at end of period 923 119 749 116 846 246
COMMENTARY
The building materials sector continues to experience strong growth. The new
residential and renovation markets are buoyed by consumer sentiment favouring
investment in property. The growth of the middle class and the implementation
of Government`s housing, water and sanitation programmes are important
drivers of this industry.
Ceramic Industries holds market shares of 55% by volume in both the tile and
sanitaryware sectors.
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 six months ended 31 January 2007. Revenue increased 21,3% to R657,3
million (2006: R541,8 million), driven by increased production capacity and
sustained, strong consumer demand.
Notwithstanding improved turnover, margins were negatively impacted by
continued high input costs and the constraint on price increases due to the
competitive local retail market and influx of low-cost imports. Ceramic
Industries increased the average selling price of tiles by 5%.
Betta Sanitaryware performed well and the results of the sanitaryware
division were boosted by the inclusion of Sphinx, for the first time, in the
six months to 31 January 2007.
Operating profit grew 14,0% to R138,5 million (2006: R121,5 million).
Headline earnings rose 13,7% to R97,8 million from R86,0 million and headline
earnings per share improved 13,6% to 565,4 cents (2006: 497,6 cents).
If the share trust was not consolidated the headline earnings per share,
based on the total number of shares in issue, would have been 535,5 cents
(2006: 471,0 cents).
The taxation charge for the six months ended 31 January 2006 was inflated by
an amount of R5,7 million, being the STC on the special dividend of R2,50 per
share declared in September 2005.
The Group`s net cash balance at the end of the period was R236,6 million
(2006: R184,2 million) after an investment of R71,1 million in technology and
plant upgrades.
Segmental information
Six months Six months
to to
31 January 31 January Increase
2007 2006 %
Revenue (R million)
Tiles 522,5 454,7 14,9
Sanitaryware 134,8 87,1 54,8
Sales volumes (millions)
Tiles (m2) 16,9 15,9 8,4
Sanitaryware (pieces) 0,753 0,638 18,0
Operating profit
(millions)
Tiles 106,6 98,1 8,7
Sanitaryware 32,0 24,4 36,6
Manufacturing operations - tile division
Pegasus
Pegasus is the Group`s low-cost, high-volume manufacturer of pressed glazed
floor tiles. Record production and sales volumes were achieved largely due to
the commissioning of a third kiln in October 2006, which will increase annual
capacity from 9,2 million m2 to 13,9 million m2. Production for the six
months increased from 4,3 million m2 to 5,5 million m2, despite a one-month
delay in commissioning the new kiln and an initial bedding-down phase
experienced in the operation. Significant improvements were achieved towards
the end of the period, which augurs well for further improvements in the
second half of the year.
Modern technology employed at Pegasus enables the plant to produce an optimal
product mix, which caters for entry level through to middle market demand and
competes with product imported from Brazil and China.
The second phase of the operation`s R140 million capex investment will be
completed in June 2007 with the commissioning of a fourth kiln and will
result in total capacity of 18,0 million m2 p.a.
Vitro
This plant, which produces full bodied glazed, extruded punched tiles for the
up-market domestic and contract sectors achieved both production and sales
targets. The factory is currently operating at full capacity. Improved
efficiencies ensured sustained product stability and quality, whilst cost
controls improved margins. Output increased marginally from 2,64 million m2
to 2,69 million m2.
Samca 1
Samca 1 manufactures pressed glazed floor tiles and is the sole local
supplier of 50 cm x 50 cm tiles, an increasingly popular range.
Stringent performance and production measures were implemented at this
operation following a disappointing six months ended 31 July 2006. Management
is pleased to report that as a result of corrective action following a review
of operations, the plant achieved its targeted volumes and yields. Management
believes that this performance can be maintained.
Samca 1 increased production volumes to 3,46 million m2 from 3,33 million m2
in the prior year.
Samca 2
This plant, which produces pressed glazed wall tiles, experienced a marginal
decline in production and sales volumes as a result of aging selection
equipment. A voluntary shutdown was undertaken during December 2006 to
upgrade this equipment. Based on experience from the other factories the
upgrade will improve product quality and facilitate enhanced performance of
the factory.
Centaurus - Australia
The Group`s Australian operation manufactures premium quality glazed
porcelain floor tiles. Production volumes increased from 1,44 million m2 to
1,52 million m2 for the review period and improved penetration was achieved
in the home market, ending the plant`s reliance on the South African
operation to absorb surplus capacity. In addition to improved sales in
Australia, Centaurus has created demand in the South African market for its
sought-after range and will continue to manufacture product for specific
customers in the middle to upper end market segments.
Centaurus traded profitably to make a modest contribution to Group income
compared with a break-even situation in the prior comparative period. Despite
this improvement, management is of the opinion that the operation did not
deliver to full potential, and intensified focus on performance measures will
be implemented.
Further cost and production efficiencies will be realised with the
commissioning of a second kiln in July 2007.
Manufacturing operations - sanitaryware division
Betta
Employing world-class technology, this plant manufactures an extensive range
of vitreous china sanitaryware. Betta performed well to overcome a
disappointing comparative six months in which sales lagged production.
Improved responsiveness to an increasingly sophisticated market resulted in
the introduction of new models and private label ranges, which met with wide
approval and grew sales in line with targets. Production volumes increased by
3,7% for the review period.
Growing demand for the Group`s sanitaryware products continues to outstrip
supply. This situation is based on sustained growth of the housing market and
growing numbers of first-time homeowners, boosted by government`s sanitation,
water and infrastructure programmes. The market is highly competitive with a
large volume of imported product in the market.
Shareholders were advised in December 2006 that the Board had approved the
commissioning of an expansion programme of Betta`s existing facilities in
order to meet market demand. Capital of R70 million has been allocated and
will be utilised for new equipment. Following a review of the project the
Board has allocated an additional R20 million to improve the infrastructure
on this site. The programme will be funded through the Group`s cash reserves.
The planned expansion will increase Betta`s capacity from 1,4 million pieces
per annum to approximately 2 million pieces per annum. The expansion
programme will commence at the end of the first quarter of 2007 and the
additional capacity is forecast to be brought on stream by January 2008.
This upgrade will improve efficiencies in the plant, whilst creating a
platform for local growth in the short term, and enhance export capacity over
the longer term.
Sphinx
Sphinx manufactures acrylic bathware.
Following a fire in 2006 that significantly restricted production capacity,
the plant performed well to deliver a contribution to trading profit.
A new volume-based, low-cost production facility, sited adjacent to the Betta
plant in Krugersdorp, is currently being constructed at a budgeted cost of
R35 million. Commissioning is scheduled for June 2007 at which time the
existing Springs factory will become a niche manufacturer of custom-made
bathware.
Directorate
The Board of Ceramic Industries regrets to advise that Professor Peter D
Wickens (OBE), an independent non-executive director of the company, died
suddenly on 22 January 2007. Professor Wickens made a considerable
contribution to the Group over the past 10 years and his wise counsel will be
missed.
Prospects
Despite interest rate increases the building materials sector remains strong.
The Group`s confidence in the prospects for the industry is manifest in the
proposed investments at Betta, the construction of a new Sphinx plant as well
as the installation of additional capacity at Pegasus. The Group is also
continuing with investigations into a new floor tile factory which is
expected to be commissioned in 2009.
The Group is well positioned for further growth. The challenge for the Group
is to continually improve responsiveness to demands for affordable, high
quality, fashionable product. This challenge will become increasingly
important in a retail environment, which features the proliferation of new
independent retailers reliant on an abundance of lesser quality imported
products.
Whilst progress has been achieved in re-engineering underperforming areas in
the Group`s operations, management believes that continued focus on enhanced
efficiencies and cost control will deliver further gains. The buoyant trading
environment offers opportunities to extend the Group`s market leadership in
the tile and sanitaryware sectors and every effort will be made to optimise
performance.
It is anticipated that trading conditions should remain favourable and real
earnings growth is forecast for the full year.
Post-balance sheet event
In February 2007 the Group increased its shareholding in Centaurus by
acquiring the 5% shareholding formerly held by our Australian partners, the
Teakmill ABH Partnership, for an amount of AUD 2,6 million. The intention is
to use these shares in an incentive scheme for the management of Centaurus.
Dividend
The Group remains cash generative and accordingly the Board has resolved to
maintain the dividend cover at four times.
The Board has declared an interim dividend (number 34) of 140 cents (2006: 90
cents), an increase of 55,6%.
On behalf of the Board
G A M Ravazzotti N Booth
Chairman Chief Executive Officer
Dividend announcement
The Board has declared an interim dividend (number 34) of 140 cents per share
to all shareholders recorded in the books of Ceramic Industries Limited at
the close of business on Friday, 20 April 2007. The last day to trade cum
dividend in order to participate in the dividend will be Friday, 13 April
2007. The shares will commence trading ex dividend from the commencement of
business on Monday, 16 April 2007 and the record date will be Friday, 20
April 2007. The dividend will be paid on Monday, 23 April 2007. Share
certificates may not be rematerialised or dematerialised between Monday, 16
April 2007 and Friday, 20 April 2007, both days inclusive.
By order of the Board
E J Willis
Secretary
8 March 2007
Basis of preparation
The Group adopted International Financial Reporting Standards (IFRS) for the
year ended 31 July 2006. These interim results have been prepared and
presented in accordance with IFRS and IAS 34 - Interim financial reporting.
The accounting policies applied in these interim statements are consistent
with those applied in the preparation of the Group`s annual financial
statements for the year ended 31 July 2006.
Directors: G A M Ravazzotti (Chairman), N Booth (Chief Executive Officer), S
D Jagoe, E M Mafuna, L E V Ravazzotti, K M Schultz, G Zannoni (Italian)
Company secretary:
E J Willis
Registered office: Farm 2 Old Potchefstroom Road, Vereeniging,
PO Box 1369, Rivonia 2128
Transfer secretaries:
Computershare Investor Services 2004 (Pty) Ltd,
70 Marshall Street, Johannesburg 2001, PO Box 61051,
Marshalltown 2107
Date: 12/03/2007 07:29:55 Produced by the JSE SENS Department.
