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ITE - Italtile - Unaudited group results: six months ended 31 December 2006
ITALTILE LIMITED
(ITALTILE)
Share code: ITE
ISIN: ZAE000003679
Reg. no.: 1955/000558/06
Incorporated in the Republic of South Africa
Interim Profit Announcement
Unaudited group results for the six months ended 31 December 2006
COMMENTARY
RESULTS
Italtile Limited has reported satisfactory results for the six months ended 31
December 2006, facilitated by the positive trading environment experienced by
the building materials sector.
The group is the leading multifaceted retailer of tiles and bathware in South
Africa, represented by brands CTM and Italtile, which cater across the market
spectrum from cash and carry to premium end.
Consumers continued to embrace the philosophy that the acquisition and
improvement of homes remains a prudent asset investment, which served as a
strong growth driver for the sector and diminished the impact of interest rate
increases.
System wide turnover rose 11% to R1,324 billion (2005: R1,192 billion) out of
the existing store network. This improvement is a commendable achievement given
the deflationary price environment and absence of new store openings. Revenue
from group owned stores (including joint venture franchises) increased 14% to
R747 million (2005: R657 million). The contribution from franchised stores grew
8% to R577 million (2005: R535 million). The relative revenue contributions are
a reflection of migration of stores between portfolios rather than actual
performance.
Trading profit for the period improved 21% to R185 million (2005: R153 million).
Earnings per share increased 25% to 694 cents (2005: 556 cents), while headline
earnings per share grew 24% to 694 cents (2005: 559 cents).
Inventory increased from R142 million to R192 million over the comparable prior
period as a result of migration of franchised stores to joint venture stores,
and product range extension, which includes the introduction of wooden laminated
flooring and the expansion of the bathware product offering beyond taps to
include bathroom accessories. Sound working capital management and the strong
cash generative ability of the business is reflected by cash reserves of R295
million (2005: R286 million).
Contributing to improved group profitability were the benefits realised from
investment in the group`s supply chain. Reduced reliance on third-party vendors
and enhanced efficiencies proved significant and further gains should be
achieved over time.
Whilst the group is the market leader in both the tile and bathware sectors,
particularly impressive sales and market share growth were achieved by the
bathware component of the business relative to the tile division. This improved
performance is attributable to the extended product range introduced, and the
positive response by the target audience to the "under one roof" formula.
TRADING ENVIRONMENT
The extremely low barriers to entry in this industry combined with strong
consumer demand continue to foster proliferation of new entrants and promote
healthy competition. Robust growth was experienced in both the new residential
and renovation markets and further sustained growth is forecast.
Current Rand strength favours imported product and increasingly discerning and
cost-conscious consumers dictate that retailers source innovative suppliers. In
this regard, China has become a progressively more dominant supplier of product
in the industry. Local manufacturers have made good progress in terms of product
quality and fashionability and the group continues to benefit from strong
relationships with long-standing suppliers.
Consolidation of the supply chain will remain a feature as larger retail groups
seek to broaden their offering.
AFRICAN OPERATIONS
Italtile and CTM
Italtile Limited currently trades out of 66 CTM stores in South Africa and a
further 16 CTM stores located across Africa in Botswana, Lesotho, Malawi,
Namibia, Swaziland, Tanzania, Uganda and Zambia. The Italtile brand is
represented by eight stores countrywide.
The group remains dominant in the inland markets and has prioritised growth in
the coastal regions. Whilst trading opportunities in the Western Cape are
enticing, the dearth of acceptable commercial sites continues to hamper the
group`s network expansion plans.
Improved access to formal housing by greater numbers of first time consumers
impacted positively on the entry level segment of the business; consequently,
plans are in place to open CTM stores in Soweto during 2007. Stores trading in
exclusively black residential areas such as Botshabelo, Thembisa and
Phuthaditjhaba have provided the group with invaluable experience and will
assist in developing a blueprint for further growth in similar markets.
In addition to new store openings, four existing stores will be relocated to
better sites.
In the first phase of a comprehensive strategy for expansion into southern
Africa the group entered into a majority partnership with a local entrepreneur
in a new generation store in Kenya. This investment will provide a strong
platform for growth for the minority partner and ensure that the business
operates in line with group benchmarks. In view of the positive trading
opportunities in Kenya, one new store will be opened in Mombassa and Nairobi
respectively during the current calendar year.
Of particular significance during the review period was the investment in
property of R103 million - a greater single investment than at any other time in
the company`s history. Key to this investment is the strategy to significantly
enhance trading square metreage per store. The enlarged store footprint equates
to an additional 30 000 m2. To date the roll-out of an Emporium store model
affording a broader one-stop-shop offering has been well received by the target
market, and the mega-store concept is anticipated to find favour and grow that
audience. The Property Portfolio paragraph below discusses this topic in further
detail.
Introduction of Credit Model
Italtile Limited has traditionally operated as a cash retailer. However, in
August 2006 the group entered into a financial services agreement with Edgars
Consolidated Stores (Edcon), whereby CTM offers a private label credit option
for customers, branded the "CTM Easy Style" card. The entire credit process is
funded, managed and administered by Edcon, eliminating any risk for the group.
The rationale for the departure from a cash-only model is based on recognition
that a vast segment of CTM`s target market has no formal access to financing.
Key to this credit model is a responsible lending philosophy which provides
customers with a means of accessing finite funding via a formal process. Two
credit term options are extended, namely six and nine months. Management is
satisfied that the model is structured in a way that removes the burden of risk
for the company and the burden of onerous interest rates for consumers. This
initial four-month trial period has witnessed a very positive take-up of the
offering, as a result of which the project has been approved by the group for
permanent status.
Performance imperatives for the period ahead will focus on ensuring that the
group once more distinguishes itself in its core competencies. Areas of
underperformance have been identified and every effort will be made to re-
engineer operations to deliver in line with management expectations. Competitive
advantage will be gained from improvements in quality and price of product and
enhancing distribution of and access to product. Management intends to raise the
benchmarks relating to innovation, responsiveness and exceptional service
levels, which will be achieved through upskilling and ongoing recruitment of
superior calibre store operators.
Further fine-tuning of the group`s world class logistics system and backward
integration of the supply chain will continue to strengthen the group`s market
leadership.
A new communications campaign is currently in production aimed at supporting the
brands and entrenching the goodwill enjoyed from consumers.
INTERNATIONAL OPERATIONS
The Australian operation, which comprises eight stores in Queensland and New
South Wales, made a modest contribution to group profits. The new generation
store formula which combines an extensive product range with upmarket showroom
facilities is currently being tested in the market. However, in the prevailing
environment, prospects for the operation remain conservative.
PROPERTY PORTFOLIO
The group`s combined South African and Australian property portfolio increased
by 26,3% to R585 million (2005: R463 million). As discussed under African
Operations, significant investment of R103 million in this portfolio during the
review period is evidence of the group`s confidence in the sector and economy,
and an indication of the success of the strategic imperative to support its
brands with the acquisition of high profile prime sites which attract consumers
and position the group as a destination retailer.
The returns from this portfolio are in line with the group`s trading operations.
BLACK ECONOMIC EMPOWERMENT
In the Preliminary Profit Announcement the group indicated that it hoped to be
in a position to announce the substance of its planned Black Economic
Empowerment initiative before the end of 2006. Significant progress has been
made in terms of identification of partners and funding structures, and whilst
certain formalities still require resolution, the group plans to announce
conclusion of the transaction before the end of the current financial year. The
market will be apprised of progress in this regard in due course.
PROSPECTS
The group`s commitment to and confidence in the industry is evidenced by the
substantial investment in the property portfolio. Management is satisfied that
the market has sizeable growth potential and will endeavour to optimally
position the group to capitalise on those opportunities.
Further interest rate increases are not expected to have a significant impact on
the group`s business given the prevailing consumer mindset which supports
investment in property. In addition, exponential growth of numbers of new
homeowners entering the housing market augurs well for sustained expansion of
the industry.
Whilst results delivered are in line with sector peers, management is of the
opinion that the business has the capability to dramatically improve that
performance. The group is mindful that as a mature business and established
player it must remain innovative and energetic to entrench its dominant
position.
Earnings growth at current levels will be maintained for the forthcoming period.
BASIS OF PREPARATION
The interim financial statements have been prepared in accordance with the
Listing Requirements of the JSE Limited, the South African Companies Act, 1973
and International Financial Reporting Standards (IAS34 - Interim Financial
Reporting). The accounting policies applied have been consistent with those of
the previous year ended 30 June 2006.
DIVIDEND
Dividend cover of 3 times is based on the group`s strong cash generating ability
and the need to position the group favourably to implement its proposed Black
Economic Empowerment transaction.
Consequently the Board has declared an interim dividend of 230 cents per share
(2005: 140 cents), an improvement of 64%.
DIVIDEND ANNOUNCEMENT
The Board has declared an interim dividend (number 81) of 230 cents per share to
all shareholders recorded in the books of Italtile Limited. The last day to
trade cum the dividend will be Friday, 23 February 2007. The shares of Italtile
Limited will commence trading ex dividend from the commencement of business on
Monday, 26 February 2007 and the record date will be Friday, 2 March 2007.
Payment will be made on Monday, 5 March 2007.
Share certificates may not be rematerialised or dematerialised between Monday,
26 February 2007 and Friday, 2 March 2007, both days inclusive.
For and on behalf of the Board
G P E Ravazzotti P D Swatton
Chief Executive Officer Chief Financial Officer
7 February 2007
SYSTEM WIDE TURNOVER ANALYSIS
For the period ended 31 December 2006 (Rand million unless otherwise stated)
Unaudited Unaudited Audited
six months to six months to year to
% 31 December 31 December 30 June
Increase 2006 2005 2006
Group and
franchised
turnover
- By group- 747 657 1 285
owned stores
- By franchise- 577 535 968
owned stores
Total 11 1 324 1 192 2 253
SEGMENTAL REPORTING
For the period ended 31 December 2006 (Rand million unless otherwise stated)
Supply
and
Fran- support Inter
Retail chising Properties services Group Group
Unaudited
year to
December
2006
Revenue* 624 73 59 340 (284) 812
Segment 46 71 50 18 185
results
Unaudited
year to
December
2005
Revenue* 545 67 52 262 (208) 718
Segment 39 64 43 7 153
results
*Revenue includes turnover, rentals and royalties
NOTES
- There are no material contingent liabilities or assets at 31 December
2006
- Capital commitments at 31 December 2006 (Rand million unless otherwise
stated)
Contracted 61
Authorised, not contracted 32
93
- In terms of the Articles of Association, the company`s borrowing
facilities are unlimited.
ABRIDGED GROUP INCOME STATEMENTS
For the period ended 31 December 2006
(Rand million unless otherwise stated)
Unaudited Unaudited Audited
six months to six months to year to
31 December 31 December 30 June
% Increase 2006 2005 2006
Trading profit 195 162 363
before
depreciation
Depreciation (10) (9) (21)
Loss on sale
of property,
plant
and equipment - - (4)
Trading profit 21 185 153 338
Net investment 8 7 17
income
Profit before 193 160 355
interest paid
Interest paid (1) - (3)
Profit before 20 192 160 352
taxation
Taxation (61) (54) (111)
Profit for the 24 131 106 241
year
Attributable
to:
Equity holders 126 101 233
of the parent
Minority 5 5 8
interests
131 106 241
Weighted 18 148 18 100 18 095
number of
shares in
issue (000`s)
Earnings per 25 694 556 1 290
share (cents)
Headline 24 694 559 1 312
earnings per
share (cents)
Diluted 26 692 550 1 271
earnings per
share (cents)
Diluted 25 692 552 1 293
headline
earnings per
share (cents)
Dividends per 230 140 430
share (cents)
RECONCILIATION
OF HEADLINE
EARNINGS
Earnings
attributable
to
ordinary 126 101 233
shareholders
Loss on sale - - 4
of property,
plant and
equipment
Headline 126 101 237
earnings
RECONCILIATION
OF SHARES IN
ISSUE
Total number 18 677 18 677 18 677
of shares
issued (000`s)
Share 529 577 582
Incentive
Trust shares
(000`s)
Weighted
shares in
issue to
external
parties 18 148 18 100 18 095
(000`s)
ABRIDGED GROUP BALANCE SHEETS
At 31 December 2006
(Rand million unless otherwise stated)
Unaudited Unaudited Audited
six months to six months to year to
31 December 31 December 30 June
2006 2005 2006
ASSETS
Non-current assets 655 499 549
Property, plant and 643 488 537
equipment
Other Long-term assets 9 8 9
Deferred tax 3 3 3
Current assets 578 504 567
Inventories 192 142 150
Trade and other 91 76 74
receivables
Cash and cash equivalents 295 286 343
Total assets 1 233 1 003 1 117
EQUITY AND LIABILITIES
Capital and reserves 874 678 794
Stated Capital 27 27 27
Non-distributable reserve 21 6 17
Treasury shares (45) (47) (48)
Retained earnings 842 661 768
Outside shareholders` 29 31 30
interest
Long-term liabilities 11 9 10
Current liabilities 348 316 312
Trade and other payables 282 256 289
Taxation 66 60 23
1 233 1 003 1 116
Net Asset Value per share 4 816 3 746 4 388
(cents)
CASH FLOW STATEMENT
For the period ended 31 December 2006
(Rand million unless otherwise stated)
Unaudited Unaudited Audited
six months to six months to year to
31 December 31 December 30 June
2006 2005 2006
Cash flow from operating 69 44 167
activities
Cash flow from investing (114) (55) (121)
activities
Cash flow from financing (3) (4) (4)
activities
Net movement in cash and (48) (15) 42
cash equivalents
Cash and cash equivalents 343 301 301
at beginning of period
Cash and cash equivalents 295 286 343
at end of period
STATEMENT OF CHANGES IN EQUITY
For the period ended 31 December 2006
(Rand million unless otherwise stated)
Non-
distri-
R000`s Stated butable Treasury Retained Minority
Group capital reserve shares earnings interest Total
Balance at 27 13 (55) 649 29 663
30 June
2005 -
restated
Profit for 233 8 241
the year
Dividends (114) (3) (117)
paid
Equity 1 1
share
options
Currency 3 3
translation
difference
Allocated 10 10
shares in
share trust
Accumulated (3) (3)
surplus in
share trust
Purchase of
additional
share in
subsidiary (4) (4)
Balance at 27 17 (48) 768 30 794
30 June
2006
Net profit 126 5 131
for the
period
Dividends (52) (4) (56)
paid
Currency 4 4
translation
difference
Allocated 3 3
shares in
share trust
Purchase of
additional
share in
subsidiary (2) (2)
27 21 (45) 842 29 874
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
70 Marshall Street, Johannesburg 2001 (PO Box 61051, Marshalltown 2107)
Directors: G A M Ravazzotti (Group Executive Chairman), G P E Ravazzotti
(Chief Executive Officer), P D Swatton** (Chief Financial Officer), J
Couzis*, S I Gama, D H Rabin
(*Greek ** British)
Refer to Italtile`s corporate website: www.italtile.com
Date: 07/02/2007 08:00:01 Supplied by www.sharenet.co.za
Produced by the JSE SENS Department.
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