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Italtile - Reviewed group results for the year ended 30 June 2005
Italtile Limited
("Italtile" or "the Group")
Share code: ITE
ISIN: ZAE000003679
Reg. no.: 1955/000558/06
Incorporated in the Republic of South Africa
PRELIMINARY PROFIT ANNOUNCEMENT
Reviewed Group Results for the year ended 30 June 2005
COMMENTARY
RESULTS
Italtile Limited, South Africa"s pre-eminent retailer of ceramic tiles, bathware
and related products, is represented by category leading brands, CTM and
Italtile. The group"s comprehensive product offering has broad consumer appeal,
ranging from entry level and DIY markets to the niche, premium-end sector. The
company trades through a network of 101 stores in Southern Africa and Australia.
Favoured by the buoyant trading environment, the group delivered strong results
in line with market expectations.
In its fourteenth consecutive year of real earnings improvement, total system
wide turnover improved 25% to R1,96 billion (2004: R1,57 billion), while trading
profit increased 28% to R274,5 million (2004: R213,7 million). Headline earnings
grew 26% to R190,0 million (2004: R151,1 million).
In the prior reporting period, the group outlined its strategic intent to hone
competitive advantage by upgrading its product and service offering to
consumers. Allied to this was the imperative to evolve the group"s profile from
niche tile merchant to specialist home-enhancement fashion retailer, offering a
comprehensive suite of both tiling and bathware products and an enhanced
shopping experience. These results are a reflection of the group"s success in
achieving that ambition, as growth was simultaneously driven by increased
volumes out of existing stores, and the emerging trend by consumers as they
graduate across the group"s product offering to buy a wider range of higher
priced commodities. No price increases were implemented during the review period
and no new stores were opened.
Contributing to the growth of the bathware component of the business was the
integration of recent acquisitions, International Tap Distributors and
Earlyworks, distributors of taps and tiling tools respectively. The group is
confident that this sector affords encouraging growth opportunities.
The company"s strategic imperative to increase black ownership of the business
continued to reap rewards. The group"s empowered franchises delivered a strong
performance, attributable to the franchisees" understanding of and affinity for
the communities which they serve. The group"s empowered partners will continue
to play an integral role in penetrating major growth markets afforded by the
emerging middle class.
TRADING ENVIRONMENT
Retail trading conditions remained extremely positive, facilitating the
sustained growth surge of the new residential and renovation sectors. In
response to this favorable climate and in the face of low barriers to entry, a
host of opportunistic entrants have emerged, including competitors from non-
traditional sectors such as hardware retailers and allied industry players.
Restrained shipping capacity continued to impact regular delivery of high mass
low value commodities, while the sanitaryware shortage persisted unabated. The
group was fortunate to benefit from its symbiotic relationships with traditional
long-standing suppliers, which ensured consistency of quality and price, and
certainty of supply.
AFRICAN OPERATIONS
Italtile and CTM
The aggressively competitive trading environment demands that the group
continuously re-energise its operations to retain its category leadership
position. Focus on core competencies must be complemented by the pursuit of
innovation and responsiveness to ensure continued appeal to existing and new
consumers. Management forecasts sustained growth potential of the tile and
bathware markets, but recognises that in order to capitalise on growing demand
for the product the group"s challenge will be to further enhance its product and
service offering.
Tile consumption trends in South Africa indicate that the product is now well
entrenched as the preferred wall and floor cladding. With this as a given,
retailers are being challenged to provide a value added service to increasingly
cost conscious and discerning customers.
In this regard the group has elected to complement its ongoing programme of
store upgrades and cost competitive policy with the introduction of a highly
sophisticated computer warehousing system which will underpin and augment the
franchise model. Some R25 million has been invested in a cutting-edge logistics
system designed to improve distribution systems by eliminating logistics-related
costs and inefficiencies and facilitating just-in-time deliveries.
Implementation of the program is scheduled for September 2005. It is anticipated
that in due course, this system will be extended to a wide range of suppliers,
thereby enhancing the group"s strategy of backwardly integrating its supply
chain.
The group"s store-wide network comprises 81 CTM stores and eight Italtile
stores. Management is on target to meet its stated commitment of converting its
remaining three group owned stores to franchises by the end of 2005, which
decision is based on the proven track record of franchised businesses.
The group is represented through 16 CTM outlets in Botswana, Namibia, Swaziland,
Lesotho, Malawi, Uganda, Tanzania and Zambia.
A new site has been acquired in Kenya, with the store scheduled for opening by
the end of 2005.
Further expansion in Africa is currently constrained by logistical and
infrastructural obstacles. Given the brand"s strong acceptance and the
suitability of the model, management recognises that in order to capitalise on
the robust demand for the product, the group will need to make strategic
investments in fixed property, and where appropriate, facilitate distribution,
aimed at improving trading platforms and promoting performance of local
franchises.
INTERNATIONAL OPERATIONS
The company has a total complement of 12 stores in Australia, situated in
Queensland, New South Wales and Victoria.
The current recessionary trading environment experienced in Australia continued
to impact the group"s operations in that country, although the three recently
opened new-generation stores delivered improved performances, illustrating
acceptance by consumers of the extended product range and customer-friendly
showroom facilities.
It is anticipated that the prevailing adverse conditions will continue to
restrict the contribution from this operation, with no major improvement
anticipated in the short term.
PROPERTY PORTFOLIO
A further R100 million was invested in property during the review period,
bringing the carrying value of the combined South African and Australian
portfolios to some R400 million. Continued investment in property remains a core
tactical strategy based on the strong returns derived, which are in line with
the group"s trading operations. In addition, a significant competitive advantage
is afforded the franchises by ensuring that trading outlets are situated in
prominent, prime locations, which support the group"s positioning as a
destination retailer offering an enhanced retail experience.
Management is cognisant that increasingly the emerging middle class will be a
substantial contributor to the success of the business. Hence investment will be
made in desirable locations which are accessible and conveniently situated for
these consumers.
BLACK ECONOMIC EMPOWERMENT
Good progress has been made in terms of the group"s internal component of Black
Economic Empowerment ("BEE"). As evidence of its commitment to transformation
the group has stipulated that a future condition of franchise will be the
incorporation of a BEE element in all contracts. This applies to all new
franchisees and existing franchise agreements when they become eligible for
renewal.
The group is also currently exploring opportunities to invest in property in
communities it traditionally has not served, as well as investigating a credit
model for consumers which will reduce barriers to purchase.
With regard to the introduction of a BEE shareholder for the group, the Board
has been mandated to urgently pursue appropriate black empowerment partnership
opportunities.
PROSPECTS
It is anticipated that growth in the new residential and renovation markets will
continue to be buoyed by the favourable trading environment. Stable interest
rates, consumer confidence and the significant economic impact of the emerging
middle class will continue to drive the expansion of this industry. Equally,
these conducive conditions will continue to spawn new competitors and the group
recognises that it will need to be vigilant against complacency to ensure it
retains its leadership status in this highly competitive market.
Traditional focus on cash flow management, inventory and leveraging purchasing
power will be complemented by enhanced levels of service, further investment in
group brands and aggressive pursuit of market share.
It is anticipated that growth will be achieved across the group"s businesses,
with an increasingly enhanced contribution derived from the bathware component.
ACCOUNTING POLICY
This report has been prepared using the same principles as contained in
accounting statement AC127 - Interim Financial Reporting. The principles adopted
herein are consistent, in all material respects, with those applied in the most
recently published annual financial statements, and comply with the requirements
of South African Statements of Generally Accepted Accounting Practice. In the
next financial year the company will be presenting its annual financial
statements in accordance with International Financial Reporting Standards.
DIVIDEND
The board has declared a final ordinary dividend of 160 cents per share, which
together with the interim ordinary dividend of 110 cents per share produces a
total ordinary dividend of 270 cents declared for the year (2004: 160 cents), an
improvement of 69%. The increased dividend is a reflection of the board"s
decision, taken after the interim period, to reduce dividend cover from 5 times
to 4 times.
The group remains a strong cash generator and continues to accumulate cash
reserves in excess of operational requirements. As a consequence a special
dividend of 330 cents per share will be paid to shareholders.
Further special dividends will be considered in the future should the need
arise.
DIVIDEND ANNOUNCEMENT
The directors have declared a final ordinary dividend (number 78) of 160 cents
per share and a special dividend (number 2) of 330 cents per share to all
shareholders recorded in the books of Italtile Limited. The last day to trade
CUM the dividend will be Friday, 2 September 2005. The shares of Italtile
Limited will commence trading EX dividend from the commencement of business on
Monday, 5 September 2005 and the record date will be Friday, 9 September 2005.
Payment will be made on Monday, 12 September 2005. Share certificates may not be
dematerialised or rematerialised between Monday, 5 September 2005 and Friday, 9
September 2005, both days inclusive.
For and on behalf of the Board
G A M Ravazzotti P D Swatton
Chief Executive Officer Chief Financial Officer
15 August 2005
These results have been reviewed by Ernst & Young and their review opinion is
available on request from the company secretary at the company"s registered
office.
ABRIDGED GROUP INCOME STATEMENT (Rand 000"s unless otherwise stated)
For the year ended 30 June 2005
Reviewed Audited
year to year to
% Increase 30 June 2005 30 June 2004
Trading profit
before depreciation 294 036 229 293
Depreciation (20 190) (15 395)
Profit/(Loss) on sale
of fixed assets 646 (241)
Trading profit 28 274 492 213 657
Interest received 7 017 6 814
Dividends received 5 030 2 877
Goodwill amortised (64)
Interest paid (1 249) (1 482)
Profit before taxation 29 285 290 221 802
Taxation (88 263) (66 888)
Profit after taxation 27 197 027 154 914
Outside shareholders"
interest (6 385) (4 119)
Earnings attributable to
ordinary shareholders 26 190 642 150 795
Number of shares in
issue (000"s) 17 771 17 646
Earnings per share
(cents) 26 1 072,8 854,6
Headline earnings
per share (cents) 25 1 069,1 856,3
Dividends per
share (cents) 270,0 160,0
Special dividend 330,0 140,0
RECONCILIATION OF
HEADLINE EARNINGS
Earnings attributable
to ordinary shareholders 190 642 150 795
(Profit)/Loss on sale
of fixed assets (646) 241
Goodwill amortised 64
Headline earnings 189 996 151 100
RECONCILIATION OF SHARES IN ISSUE
Total number of shares issued 18 677 18 677
Share Incentive Trust shares 906 1 031
Shares in issue to external parties 17 771 17 646
SYSTEM WIDE TURNOVER (Rand 000"s unless otherwise stated)
For the year ended 30 June 2005
% Increase 30 June 2005 30 June 2004
Group and franchise turnover
- By group owned stores 1 036 678 799 892
- By franchise owned stores 921 830 768 687
TOTAL 25 1 958 508 1 568 579
ABRIDGED GROUP BALANCE SHEET (Rand 000"s unless otherwise stated)
As at 30 June 2005
Reviewed Audited
year to year to
30 June 2005 30 June 2004
ASSETS
Non-current assets 443 501 329 686
Fixed assets 432 340 324 204
Other long-term assets 8 499 5 482
Deferred tax 2 662 -
Current assets 519 589 425 413
Inventories 153 563 134 179
Trade and other receivables 65 453 68 382
Cash and cash equivalents 300 573 222 852
Total assets 963 090 755 099
EQUITY AND LIABILITIES
Capital and reserves 631 962 499 673
Stated capital 27 175 27 175
Non-distributable reserve 11 345 717
Treasury shares (54 581) (46 032)
Retained profit 648 023 517 813
Outside shareholders" interest 29 333 14 663
Non-current liabilities 9 677 8 674
Deferred tax - 444
Long-term liabilities 9 677 8 230
Current liabilities 292 118 232 089
Trade and other payables 264 758 211 022
Taxation 27 360 21 067
963 090 755 099
Net Asset Value per share (cents) 3 721 2 915
SEGMENTAL REPORTING (Rand 000"s unless otherwise stated)
For the year ended 30 June 2005
Supply and
Fran- Proper- Support Inter
Retail chising ties Services Group Group
Reviewed
year to
June 2005
Revenue 909 145 111 174 84 039 381 179 (290 051) 1 195 486
Segment
results 57 353 56 891 64 473 95 775 - 274 492
Audited
year to
June 2004
Revenue* 710 533 94 124 67 315 286 901 (224 502) 934 371
Segment
results* 44 617 44 859 49 830 74 351 - 213 657
*Restated due to the definition of segments in the current year.
CASH FLOW STATEMENT (Rand 000"s unless otherwise stated)
For the year ended 30 June 2005
Reviewed Audited
year to year to
30 June 2005 30 June 2004
Cash flow from operating activities 205 247 154 812
Cash flow from investing activities (137 257) (88 047)
Cash flow from financing activities 9 731 (1 468)
Net movement in cash and
cash equivalents 77 721 65 297
Cash and cash equivalents at
beginning of period 222 852 157 555
Cash and cash equivalents
at end of period 300 573 222 852
STATEMENT OF CHANGES IN EQUITY (Rand 000"s unless otherwise stated)
For the year ended 30 June 2005
Stated Translation Treasury Retained
Group capital reserve shares profit Total
Balance at
30 June 2003
restated 27 175 7 059 (38 207) 393 432 389 459
Net profit for
the period 150 795 150 795
Dividends paid (26 414) (26 414)
Currency translation
difference (6 342) (6 342)
Unallocated shares
in share trust (8 050) (8 050)
Accumulated surplus
in share trust 225 225
Balance at
30 June 2004 27 175 717 (46 032) 517 813 499 673
Net profit for
the period 190 642 190 642
Dividends paid (60 432) (60 432)
Currency translation
difference 10 628 10 628
Unallocated shares
in share trust (6 559) (6 559)
Accumulated deficit
in share trust (1 990) (1 990)
Balance at
30 June 2005 27 175 11 345 (54 581) 648 023 631 962
Notes:
- There are no material contingent liabilities or assets at
30 June 2005.
- Capital commitments at 30 June 2005 R"000
Contracted 29 452
Authorised, not contracted 44 520
73 972
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, Edura,
70 Marshall Street, Johannesburg 2001 (PO Box 61051,
Marshalltown 2107)
Directors: D H Rabin (Chairman), G A M Ravazzotti (CEO),
P D Swatton** (CFO), J Couzis*, G F Cousins, S I Gama,
C Trumpelmann, G P E Ravazzotti *Greek ** British
Refer to Italtile"s corporate website: www.italtile.com
Date: 15/08/2005 07:06:17 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
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