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Reviewed preliminary financial results for the year ended 31 July 2012
Ceramic Industries Limited
Registration number 1982/008520/06
(Incorporated in the Republic of South Africa)
("Ceramic Industries" or "the Group")
Share code: CRM
ISIN: ZAE000008538
Reviewed preliminary financial results for the year ended 31 July 2012
Condensed consolidated statement of comprehensive income
Year ended Year ended
31 July 2012 31 July 2011
% Reviewed Audited
Change R000's R000's
Revenue 6,6 1 648 621 1 547 249
Tiles 3,9 1 350 238 1 299 617
Sanitaryware 20,5 298 383 247 632
Operating profit before depreciation (16,5) 273 271 327 221
Depreciation 7,0 (144 902) (135 374)
Operating profit (33,1) 128 369 191 847
Tiles (39,4) 105 579 174 248
Sanitaryware 29,5 22 790 17 599
Finance income 37,0 30 880 22 535
Finance expenses (99,6) (6) (1 516)
Income from associated companies (52,9) 3 532 7 500
Profit before taxation (26,1) 162 775 220 366
Taxation (42,4) (50 203) (87 139)
Profit for the year (15,5) 112 572 133 227
Other comprehensive income
Foreign currency translation differences for foreign operations 30 083 28 694
Total comprehensive income for the year 142 655 161 921
Profit attributable to:
Ordinary shareholders of the Group (14,2) 114 255 133 204
Non-controlling interest (1 683) 23
Total comprehensive income attributable to:
Ordinary shareholders of the Group (12,1) 143 187 162 936
Non-controlling interest (532) (1 015)
Earnings per share
Basic earnings per share (cents) (15,1) 668,9 788,0
Diluted earnings per share (cents) (15,0) 647,3 761,3
Dividend per share (cents) (93,9) 110,0 1 800,0
Reconciliation of headline earnings
Profit attributable to ordinary shareholders of the Group 114 255 133 204
Foreign exchange gain on repayment of portion of loan by foreign subsidiary (15 170) -
Taxation on foreign exchange gain 4 248 -
Loss/(profit) on disposal of plant and equipment 215 (461)
Headline earnings (22,0) 103 548 132 743
Headline earnings per share (cents) (22,8) 606,2 785,3
Diluted headline earnings per share (cents) (22,7) 586,6 758,6
Condensed consolidated statement of financial position
31 July 2012 31July 2011
Reviewed Audited
R000's R000's
ASSETS
Non-current assets 880 985 887 577
Property, plant and equipment 848 013 861 418
Goodwill 4 520 4 520
Investment in associated company 23 066 21 399
Deferred taxation assets 5 386 240
Current assets 683 486 560 487
Inventories 122 816 118 248
Trade and other receivables 267 940 224 089
Income taxation receivable - 438
Cash and cash equivalents 292 730 217 712
Total assets 1 564 471 1 448 064
EQUITY AND LIABILITIES
Equity 1 295 846 1 198 085
Share capital 64 816 64 816
Treasury shares (122 861) (122 861)
Share-based payment reserve 47 212 47 212
Share awards reserve 19 155 12 451
Reserves 109 290 111 153
Retained earnings 1 171 149 1 077 697
Ordinary shareholders' interest 1 288 761 1 190 468
Non-controlling interest 7 085 7 617
Non-current liabilities 74 861 76 242
Shareholders' loans 9 934 9 231
Deferred taxation liabilities 64 927 67 011
Current liabilities 193 764 173 737
Trade and other payables and provisions 183 469 173 402
Income taxation payable 9 955 -
Shareholders for dividends 340 335
Total equity and liabilities 1 564 471 1 448 064
Condensed consolidated statement of changes in equity
Year ended Year ended
31 July 2012 31 July 2011
Reviewed Audited
R000's R000's
Balance at beginning of year 1 198 085 1 355 799
Share awards reserve 6 704 3 968
Premium on acquisition of non-controlling interest - (3 580)
Share buy back - (1 897)
Treasury shares sold to BEE partners - 24 352
Profit attributable to ordinary shareholders of the Group 114 255 133 204
Movement in foreign currency translation reserve 28 932 27 751
Movement in non-controlling interest (532) (1 015)
Transfer to dividend reserve (20 803) (340 473)
Dividend reserve 20 803 340 473
Net dividend paid (51 598) (340 497)
Balance at end of year 1 295 846 1 198 085
Condensed consolidated statement of cash flows
Year ended Year ended
31 July 2012 31 July 2011
Reviewed Audited
R000's R000's
Operating activities
Operating profit adjusted for non-cash items 282 754 345 158
Changes in working capital (38 352) (28 342)
Cash generated from operations 244 402 316 816
Finance income 30 880 22 535
Finance expenses (6) (1 516)
Dividends paid (51 594) (340 375)
Taxation paid (51 456) (93 814)
172 226 (96 354)
Investing activities (97 911) (138 246)
Increase of share in investment in associated company (868) (10 529)
Property, plant and equipment (net) (97 043) (127 717)
Financing activities 703 16 564
Shareholders' loans raised/(repaid) 703 (330)
Additional shareholding acquired in NCI Australia - (5 561)
Share buy back - (1 897)
Treasury shares sold to BEE partners - 24 352
Net movement in cash and cash equivalents 75 018 (218 036)
Cash and cash equivalents at beginning of year 217 712 435 748
Cash and cash equivalents at end of year 292 730 217 712
Commentary
OVERVIEW
Ceramic Industries is the largest manufacturer of wall and floor tiles in South Africa, and a major manufacturer of sanitaryware and acrylic
baths. The Group comprises four tile factories, Samca Wall, Samca Floor, Pegasus and Vitro; two Sanitaryware factories, Betta and Aquarius,
in South Africa, as well as a glazed porcelain tile factory, Centaurus, in Australia.
Trading conditions in the Group's markets remained difficult, characterised by continued intense competition from cheap imported product and
limited investment in residential housing by the private and public sector as low levels of confidence prevailed, reflecting global economic
uncertainty.
- The local tile operation regained and retained market share, but at the expense of margins. Despite reporting record sales volumes,
profitability was reduced as a result of:
* above-CPI price increases on core input costs for gas, electricity and glaze; and
* a deliberate strategy employed in the first half of the year to contain product price increases to combat price pressure in the local market.
Average selling prices (ASP) remained in line with 2011 levels, eroding margins from 12,4% to 7,8%;
- Whilst market share lost in the prior year was regained, operational inefficiencies hampered the ability to fully restore capacity to meet
increased new demand. The factories operated at an average capacity of 92% for the period.
- The disappointing performance delivered by the South African operation was compounded by further deterioration in the Australian business,
Centaurus. This operation, which contributes 12% of Ceramic's turnover, reported an operating loss of R44,7 million for the period
(2011: R3,7 million).
- Ceramic's sanitaryware division, comprising the Betta and Aquarius operations, improved on the sound performance delivered in the prior year,
despite subdued market conditions. Production and sales volumes increased, while intensive cost containment and increased sales of higher value
products resulted in an improved margin.
OPERATIONAL REVIEW
Year ended Year ended
31 July 2012 31 July 2012 % change
Revenue (R'million)
Tiles 1 350,2 1 299,6 3,9
South Africa 1 157,5 1 080,3 7,1
Australia 192,7 219,3 (12,1)
Sanitaryware 298,4 247,6 20,5
Group 1 648,6 1 547,2 6,6
Sales - units
Tiles (m2 million) 35,8 34,5 3,8
South Africa 32,6 30,6 6,5
Australia 3,2 3,9 (17,9)
Sanitaryware (pieces '000) 1 477,3 1 301,7 13,5
Production - units
Tiles (m2 million) 34,3 35,0 (2,0)
South Africa 31,1 31,0 0,3
Australia 3,2 4,0 (20,0)
Sanitaryware (pieces '000) 1 502,3 1 343,3 11,8
- Group operating profit decreased 33,1% to R128,4 million (2011: R191,8 million).
* Operating profit from tiles declined 39,4% to R105,6 million (2011: R174,2 million).
* The sanitaryware division grew operating profit by 29,5% to R22,8 million (2011: R17,6 million).
- Finance income for the period increased to R30,9 million (2011: R22,5 million), including a R15,2 million foreign exchange gain on the
repayment by the Australian operation of a portion of its loan account.
- Headline earnings declined 22,0% to R103,5 million (2011: R132,7 million), while headline earnings per share decreased to 606,2 cents
(2011: 785,3 cents).
- Capital expenditure of R95,9 million was incurred in the review period. The bulk of the expenditure related to installation of high
definition inkjet technology at Pegasus and equipment upgrades at Vitro. These programmes have had a significant impact on improving the
quality of product and standard of packaging delivered to the market.
- Notwithstanding this outlay, the Group's cash reserves improved to R292,7 million (2011: R217,7 million) attributable to the cash generative
nature of the business and intensive cost management.
MANUFACTURING OPERATIONS - TILE DIVISION
South Africa
- Sales of 32,6 million m² outstripped production of 31,1 million m².
- High definition inkjet printer technology was successfully implemented in three of the Group's four factories, namely Samca Wall tiles,
Pegasus and Vitro. There is no intention at present to install this technology in the Samca Floor tile plant. The introduction of this
innovation has significantly improved the Group's fashion offering and will give the Group a short-term competitive advantage.
- Export sales increased 10% to R194,9 million (2011: R176,9 million). Noteworthy sales growth was experienced in Zimbabwe, Namibia and
Zambia.
Pegasus
The low cost large format glazed tiles which Pegasus produces have strong appeal for the DIY and contract market, and serve as the
Group's import-replacement offering.
Pegasus was unable to meet the strong demand experienced in the review period due to operational inefficiencies which hindered production and
led to a decline in volumes from 14,9 million m² to 14,7 million m².
Despite disappointing production volumes, record sales were reported, increasing to 15,3 million m² (2011: 14,9 million m²). Margins were
however eroded by production inefficiencies and increased input costs.
Vitro
This plant manufactures full bodied glazed and unglazed extruded punched tiles for the up-market domestic and contract sectors.
The installation of selection and packaging equipment in the first half of the year served to hamper production, and whilst volumes did not
reach anticipated levels, the factory performed well to deliver 5,3 million m² (2011: 5,4 million m²). Significantly, Vitro grew sales by 10% to
5,6 million m² (2011: 5,1 million m²).
Whilst costs were well controlled, and efficiencies gained from the implementation of this equipment, the operation reported a marginal decline
in profitability due to increased input costs.
Samca Floor Tiles
This factory produces predominantly large format fashionable pressed glazed floor tiles.
Production volumes increased to 5,7 million m² (2011: 5,3 million m²), while sales volumes improved to 6,0 million m² (2011: 5,2 million m²).
The improved performance delivered by this factory is a reflection of the restructured management team and enhancements in operational
efficiencies and product range. Notwithstanding the increase in production and sales volumes, however, profitability was reduced by higher
input costs and a static ASP.
Samca Wall Tiles
The pressed, glazed wall tiles produced by this factory are targeted at both the commodity and fashion markets. This operation
is the only one in the Group and country that manufactures wall tiles.
Production volumes increased to 5,5 million m² (2011: 5,3 million m²), while sales volumes grew to 5,7 million m² (2011: 5,4 million m²).
Despite improved production and sales volumes reported for the full year, severe margin pressure was experienced due to increased input costs
as well as production constraints in the first half resulting from the installation and commissioning of new technology.
Australia
Centaurus
This operation produces premium-end glazed porcelain floor tiles in various size formats for the sophisticated consumer market.
Centaurus is the only volume tile manufacturer in Australia.
This business continued to under-perform, delivering its worst performance since operations commenced in 2005. Inability to deliver a
consistently high quality fashionable product eroded the division's customer base and the resulting under-utilisation of manufacturing capacity
(reduced to 50%) impacted on production costs.
Whilst far-reaching remedial measures were implemented during the period, including a management restructure and technological upgrades which
resulted in improved product quality and range, they failed to timeously effect the urgent turnaround required. It is anticipated that the impact
of these measures will become evident in the forthcoming period and should assist in regaining the confidence of Centaurus' customers.
MANUFACTURING OPERATIONS - SANITARYWARE DIVISION
- Strong growth in production and sales volumes were reported by both the sanitaryware and bath factories for the review period, whilst cost
containment and a higher ASP achieved in the Betta operation assisted in improving the profitability of the division.
- Export sales increased with particularly strong sales growth reported in Zimbabwe and Namibia. Robust demand for Ceramic's products continues
to be experienced in the region, which will remain a focus area for future growth.
Betta
This factory manufactures high volumes of low cost glazed porcelain sanitaryware.
Production volumes increased to 1 378 506 pieces (2011: 1 244 695 pieces), while sales volumes grew to 1 350 229 pieces (2011: 1 199 289 pieces).
Improved sales were achieved through increased exports into Africa, and to a lesser degree, Europe, as well as due to import replacement in the
local market.
Increased ASP, together with good cost control, resulted in improved profitability of the operation.
Aquarius
This factory manufactures drop-in and free-standing acrylic baths for the local and export market.
Production volumes increased to 123 779 pieces (2011: 98 652 pieces) and sales volumes improved to 127 026 pieces (2011: 102 433 pieces).
The factory reported a loss of R3,5 million for the period, but remains cash generative. Aquarius operates in a low margin, price-sensitive
environment, but has strategic value for the Group insofar as its offering complements Ceramic's tile and sanitaryware ranges and provides a
complete product 'solution' to customers.
OFFER TO CERAMIC SHAREHOLDERS
Ceramic shareholders were advised on 28 May 2012 that Italtile had expressed an interest in making an offer to Ceramic shareholders other than
Rallen (Pty) Limited ("Rallen"), the majority shareholder of both Italtile and Ceramic, to acquire between 15% and 20% of the issued share capital
of Ceramic for a cash consideration of R130 per Ceramic share. Ceramic shareholders were advised that should Italtile succeed, this would lead to a
proposal to delist Ceramic from the JSE.
An announcement was made on 31 August 2012 advising shareholders that Italtile and Rallen had notified the Ceramic Board of their firm intention
to make an offer to acquire, subject to conditions precedent, all the ordinary shares held by the Ceramic Shareholders other than Rallen
(Pty) Limited and its associates in the issued share capital of Ceramic at a price of R130 per share, cum dividend.
Accordingly, the Ceramic Board will propose a resolution to shareholders to terminate the listing of the company on the exchange operated by the
JSE Limited.
The offer circular will be posted to shareholders on or about 1 October 2012.
PROSPECTS
It is likely that current trading conditions will prevail for the foreseeable future. There are no evident signs of significant investment in
the new residential housing sector and whilst some activity will continue to be experienced in the renovations market, the new build segment will
remain largely stagnant.
In this context, management's challenge will be to capitalise on opportunities within the current environment and within its operations. Priority
focus will be on improving efficiencies in the factories and enhancing the Group's product range to meet demand in terms of volumes and quality.
Opportunities also exist for the Group to regain market share and reduce losses in the Australian operation. Management's efforts will be directed at
leveraging remedial interventions implemented over the past year and restoring consumer confidence through consistent delivery of high quality
fashionable product in line with market demand.
Sub-Saharan Africa continues to provide growth potential for the Group, with strong demand experienced for Ceramic's offering.
Whilst Rand weakness should serve to favour consumption of local product versus imports, margin growth will be constrained due to increases in
dollar denominated costs.
In the prior year the Group announced plans to commission another volume-based tile plant in South Africa. Feasibility studies are currently
being conducted on the clay body formulation.
DIVIDEND
Due to the terms of the offer received from Italtile, the Board resolved not to pay a dividend. If the offer is not successful the Board will
pay a dividend in line with the Group's dividend policy.
On behalf of the Board
G A M Ravazzotti N Booth
Chairman Chief Executive Officer
6 September 2012
STATEMENT OF COMPLIANCE
The reviewed preliminary condensed consolidated financial results for the year have been prepared in accordance with the framework concepts and
the measurement requirements of International Financial Reporting Standards ("IFRS"), the AC 500 Series as issued by the Accounting Practices
Board and the presentation and disclosure requirements of IAS 34: Interim Financial Reporting, the JSE Listings Requirements and in the manner
required by the South African Companies Act, 2008, as amended. The accounting policies applied in preparation of the reviewed preliminary
condensed consolidated financial statements are consistent with those applied in the Group's annual financial statements for the year ended
31 July 2011, which comply with IFRS.
The results have been prepared under the supervision of the Chief Financial Officer, Mr D R Alston (CA) SA.
AUDITOR'S INDEPENDENT REVIEW
These preliminary condensed consolidated financial results for the year have been reviewed by the Group's auditors, KPMG Inc., in terms of
International Standards on Review Engagements 2410. The scope of the review was to enable the auditors to report that nothing had come to
their attention that caused them to believe that the accompanying condensed consolidated interim financial statements are not presented,
in all material respects, in accordance with IAS 34: Interim Financial Reporting and the South African Companies Act, 2008, as amended.
Their unmodified review report on the condensed consolidated interim financial statements is available for inspection at the registered
office of the company.
Directors: G A M Ravazzotti (Chairman), N Booth (Chief Executive Officer), D R Alston (Chief Financial Officer), S D Jagoe,
E M Mafuna, N S Nematswerani, N D Orleyn, 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 2247, Vereeniging, 1930
Transfer secretaries: Computershare Investor Services (Pty) Limited, 70 Marshall Street, Johannesburg 2001. PO Box 61051, Marshalltown 2107
Sponsor: One Capital.
Date: 06/09/2012 07:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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