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ITALTILE - Preliminary Profit Announcement Group Results for the year ended 30
June 2003
ITALTILE LIMITED
Reg. no. 1955/000558/06
(ITALTILE)
Share code: ITE
ISIN: ZAE000003679
Commentary
Italtile Limited has delivered its twelfth consecutive year of real earnings
improvement. The group trades through two national branded retail chains, CTM,
servicing the value-for-money market, and Italtile, which caters for the premium
end market. The company is South Africa"s leading retailer of ceramic tiles,
sanitaryware, bathroom accessories and other related products, and is one of the
major purchasers of tiles globally.
For the year ended 30 June 2003, turnover for the group was R1,36 billion, an
improvement of 25% (2002: R1,09 billion). The contribution derived from group-
owned stores increased to R749 million, up 21% (2002: R620 million), while
turnover from franchises grew 30% to R609 million (2002: R470 million). Trading
profit improved 29% to R166 million (2002: R129 million) in line with
expectations, and headline earnings per share increased 27% to 657 cents (2002:
518 cents).
Turnover growth was derived almost exclusively from existing operations. This
validates management"s belief that sustained growth in tile consumption is a
certainty in South Africa. In line with global trends, expansion is predicated
on increasing recognition of the product as the most durable, hygienic and cost-
effective wall and floor covering.
Whilst the latter half of the review period proved less satisfactory than the
first half, it is management"s view that conditions will improve as the positive
effect of interest rate cuts on consumer spending begin to filter through.
Notwithstanding the testing environment, the group was successful in entrenching
its leadership in the ceramic tile market and pursuing the strategy of extending
its sphere of operation to include the tap and sanitaryware market.
Traditionally perceived as a specialist tile retailer, growing consumer demand
for improved convenience influenced the company to expand its product range
under one roof, and boost its offerings of tap and sanitaryware products.
Consumer response has been extremely positive, and consequently, all new stores
will be modelled to include a dedicated bathroom division - in effect offering a
shop-within-a-shop concept.
The group"s operations which include full franchises, joint ventures and
empowered franchises all have as key tenets entrepreneurship and empowerment and
display the benefits associated with owner-driven businesses, backed by high
quality company systems and support structures. Given the success of the joint
venture model over this period, a further four group-owned Italtile stores and
ten group-owned CTM stores were converted to this format. The company has
reduced the number of stores it owns to 11, in line with the goal to entrench
its role as a franchisor first and foremost.
In light of the challenging environment, stock management comprised a critical
strategic thrust. The group recognises that ceramic tiles, as fashion items, are
fast-moving consumer goods, and stockholding needs to be managed accordingly.
Effective management ensures a variety of benefits, including a fresher range
and improved offering to the consumer, reduced breakage and wastage, and
improved store control.
Improved stock management has contributed to the group"s growth in cash and cash
equivalents, which stand in the balance sheet at R158 million. These reserves
will be used to fund future expansion both locally and internationally.
Property portfolio
Group-owned and franchised stores operate out of purpose built company-owned
premises situated in highly visible, prime locations appropriate to the targeted
market segment. A further R34 million was invested in property during the
current year bringing the value of the property portfolio to R246 million. As
this portfolio enhances trading performance, the group will continue to invest
in property on an ongoing basis.
African operations
Both the CTM and Italtile divisions reported satisfactory turnover and profit
achievements within their respective niche markets. The company trades out of a
total of 85 stores in Africa.
Italtile
The strategy of consolidating Italtile"s presence in major urban areas in order
to best present a comprehensive product range in a single location is complete.
The Italtile brand is now represented through eight stores situated country-
wide.
Despite having fewer stores in its portfolio, the Italtile division maintained
its prior year turnover levels, whilst improving profitability on the back of
reduced overheads.
Italtile will continue to deliver uncompromising quality in the premium end of
the market.
CTM
CTM continues to enjoy strong brand recognition in both the developed and
developing markets. The division is represented through seven company-owned
stores, 53 franchised stores, 10 joint venture stores and seven empowered
franchises.
CTM grew turnover by 31% in the current year having made inroads into the tap
and sanitaryware markets. Margins remained firm with no real growth in
overheads.
CTM"s practice of bringing competitively priced product within arms" reach of
the mass market is proving effective in the sub-Saharan region. Outside of South
Africa the company currently has franchised operations in Botswana, Namibia,
Swaziland, Lesotho, Malawi and Tanzania. The brand"s reach was extended with the
opening of a further store in both Malawi and Tanzania, and the successful
opening of the first store in Zambia. It is anticipated that CTM will have a
presence in Uganda within the coming year. The group is confident that enormous
growth opportunities exist in these and other African countries.
International operations
Italtile"s Australian operation, comprising nine CTM stores across Queensland,
New South Wales and Victoria, delivered a 27% growth in turnover and a
satisfying increase in profits for the full year. Key to this trend has been the
adaptation of the CTM trading formula to meet Australian consumer requirements.
A programme of further store expansion will commence towards the end of the
forthcoming financial year.
While the Australian operation currently contributes around 10% of group
turnover, it is expected to become an increasingly important contributor to the
group"s performance.
The Italian operation delivered consistently, and continues to make a useful
contribution to group turnover.
Issue of shares
The group issued 366 541 shares at 2 400 cents each to the company"s share
incentive trust on 18 November 2002 in order to eliminate the exposure on the
loan owed by the trust to the group. Accordingly, the abridged group income
statement reflects the reversal of the impairment to the asset of R2,7 million
as an exceptional item.
Prospects
It is anticipated that trading conditions in the South African market will be
buoyed by further interest rate cuts leading to enhanced consumer spending.
Expansion will largely be governed by sourcing suitable franchisees and joint
venture partners for the various markets.
The group"s management is satisfied that its focus on core business will
continue to deliver growth in earnings.
Accounting policies
The financial information has been presented in accordance with South African
Statements of Generally Accepted Accounting Practice. The accounting policies
applied are consistent with those of the prior reporting period, with the
exception of the adoption of AC133 "Financial Instruments Recognition and
Measurement", which did not have a material impact on the results.
Dividend
The Board has declared a final dividend of 80 cents, which together with the
interim dividend of 50 cents produces a total dividend of 130 cents (2002: 100
cents), an improvement of 30%.
Dividend announcement
The directors have declared a final dividend (number 74) of 80 cents per share
to all shareholders recorded in the books of Italtile Limited. The last day to
trade CUM the dividend in order to participate in the dividend will be Friday,
22 August 2003. The shares of Italtile Limited will commence trading EX dividend
from the commencement of business on Monday, 25 August 2003 and the record date
will be Friday, 29 August 2003. Payment will be made on Monday, 1 September
2003. Share certificates may not be dematerialised or rematerialised between
Monday, 25 August 2003 and Friday, 29 August 2003, both days inclusive.
For and on behalf of the Board
G A M Ravazzotti P D Swatton
Executive Chairman Chief Financial Officer
6 August 2003
Abridged group income statements
(Rand 000"s unless otherwise stated)
For the year ended 30 June 2003
Reviewed Audited
year to year to %
30 June 2003 30 June 2002 Increase
TURNOVER
- By group-owned stores 749 150 619 812
- By franchise-owned stores 608 779 469 797
TOTAL 1 357 929 1 089 609 24,6
Trading profit before
depreciation 189 393 140 841
Depreciation (17 017) (11 586)
Impairment of fixed assets (6 189) -
Trading profit 166 187 129 255 28,6
Interest received 5 093 3 129 62,8
Dividends received 2 243 572 292,1
Loss on sale of fixed assets (612) -
Share incentive trust
reversal 2 700 -
Interest paid (1 730) -
Profit before taxation 173 881 132 956 30,8
Taxation (53 935) (36 565) 47,5
Profit after taxation 119 946 96 391 24,4
Outside shareholders"
interest (2 336) (1 476)
Earnings attributable to
ordinary shareholders 117 610 94 915 23,9
Number of shares in
issue (000"s) 18 536 18 311
Earnings per share (cents) 634,5 518,3 22,4
Headline earnings per
share (cents) 656,6 518,3 26,7
Dividends per share (cents) 130,0 100,0 30,0
RECONCILIATION OF HEADLINE EARNINGS
Earnings attributable to
ordinary shareholders 117 610 94 915
Loss on sale of fixed
assets 612 -
Impairment of fixed assets 6 189 -
Share incentive trust
reversal (2 700) -
Headline earnings 121 711 94 915
Cash flow statement
(Rand 000"s unless otherwise stated)
Reviewed Audited
year to year to
30 June 2003 30 June 2002
Cash flow from operating activities 124 514 97 322
Cash flow from investing activities (69 648) (62 335)
Cash flow from financing activities 10 901 10 131
Net movement in cash and cash
equivalents 65 767 45 118
Cash and cash equivalents at
beginning of period 91 778 46 660
Cash and cash equivalents at
end of period 157 545 91 778
Abridged group balance sheets
(Rand 000"s unless otherwise stated)
Reviewed Audited
year to year to
30 June 2003 30 June 2002
ASSETS
Non-current assets 302 788 256 959
Fixed assets 259 740 232 008
Other long-term assets 43 048 24 951
Current assets 327 327 300 853
Inventories 99 892 144 131
Trade and other receivables 69 890 64 944
Cash and cash equivalents 157 545 91 778
Total assets 630 115 557 812
EQUITY AND LIABILITIES
Capital and reserves 426 931 325 953
Stated capital 27 175 18 457
Non-distributable reserve 7 059 11 168
Retained profit 392 697 296 328
Outside shareholders" interest 10 774 8 529
Non-current liabilities 12 947 15 140
Deferred tax 535 1 403
Long-term liabilities 9 469 10 792
Provision for warranties 2 943 2 945
Current liabilities 179 463 208 190
Trade and other payables 160 889 187 750
Taxation 18 574 20 440
630 115 557 812
Net asset value per share (cents) 2 361 1 828
Statement of changes in equity
(Rand 000"s unless otherwise stated)
For the year ended 30 June 2003
Trans- Stated
lation Retained
Group capital reserve profit Total
Balance at 30 June 2001 18 457 1 436 213 622 233 515
Net profit for the year 94 915 94 915
Dividends paid (12 209) (12 209)
Currency translation
difference 9 732 9 732
Balance at 30 June 2002 18 457 11 168 296 328 325 953
New share issues 8 718 8 718
Net profit for the period 117 610 117 610
Dividends paid (21 241) (21 241)
Currency translation
difference (4 109) (4 109)
Balance at 30 June 2003 27 175 7 059 392 697 426 931
Segmental reporting
(Rand 000"s unless otherwise stated)
For the year ended 30 June 2003
Franchising
and
Retail properties Other Group
Reviewed year to June 2003
Revenue 749 150 132 764 881 914
Segment results 66 411 88 152 11 624 166 187
Audited year to June 2002
Revenue 619 812 95 626 715 438
Segment results 52 897 66 645 9 713 129 255
Notes to the abridged annual financial statements
- There have been no changes in accounting policies during the year ended 30
June 2003, apart from the adoption of AC133.
- The reviewed results have been prepared in accordance with South African
Statements of Generally Accepted Accounting Practice.
- There are no contingent liabilities or assets at 30 June 2003.
- The results have been reviewed by Italtile"s auditors,
Ernst & Young Registered Accountants and Auditors, Chartered Accountants SA, and
their review opinion is available for inspection at Italtile"s registered
office.
Registered Office: The Italtile Centre, cnr Peter Place and William Nicol Drive,
Bryanston (P O Box 1689, Randburg 2125)
Transfer Secretaries: Computershare Limited, Edura, 70 Marshall Street,
Johannesburg 2001 (P O Box 61051, Marshalltown 2107)
Directors: G A M Ravazzotti (Chairman), P D Swatton**, J Couzis*,
G Cousins, D H Rabin *Greek ** British
Refer to Italtile"s corporate website: www.italtile.com
Date: 06/08/2003 09:30:18 AM Supplied by www.sharenet.co.za
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