Wrap Text
Reviewed Group results for the six months ended 31 December 2012
Italtile Limited
Share code: ITE
ISIN: ZAE000099123
Reg. no.: 1955/000558/06
Incorporated in the Republic of South Africa (Italtile or the Group)
Reviewed Group results for the six months ended 31 December 2012
Commentary
Overview for the six months ended 31 December 2012
Founded 43 years ago, Italtile Limited is South Africas leading franchisor and retailer of imported and local ceramic
tiles, sanitaryware, bathroomware, laminate flooring, décor and other related products. The Groups brand portfolio
consists of Italtile Retail, CTM and TopT. The local retail network comprises 90 stores nationwide; the Group also has 17
CTM stores in eight other African countries and eight CTM stores in Australia. The retail operation is supported by a
strategic property portfolio and vertically integrated supply chain.
The Group has delivered creditable results in an industry which experienced a persistent lack of private and public
sector investment, borne out by the paucity of new build activity, sluggish renovations segment and statistics which
indicate a reduction in tile consumption across the market. This decline in market size, together with intensified
competition amongst industry participants challenged retailers to greater innovation, and Italtiles four decades of experience
served to benefit the business in delivering solid growth.
Trading environment
Consumer spending slowed appreciably during the reporting period as increased utility costs and higher fuel and food
prices served to constrain discretionary spend. In the LSM 1 to 6 segment economic uncertainty, lack of job security,
high levels of unemployment and indebtedness, and tighter lending criteria in the unsecured lending market also served to
foster the spending slowdown evidenced by markedly reduced footfall in certain of the Groups regions.
In particular, some of the Groups traditionally robust rural markets failed to deliver historical growth levels
largely as a function of these factors. It is likely that the impact of recent strike action on these communities further
reduced disposable income resulting in a less buoyant December trading period than expected.
The Groups traditional core market, namely inland suburban communities, delivered good growth, whilst the coastal
regions lagged their counterparts.
Whilst consumers remained price sensitive, the demand for high quality, stylish product in keeping with international
trends continued to grow. Economic instability in European markets provided good buying opportunities, but the steady
depreciation of the Rand over the period served to partially negate the benefits of importing product.
In general, competition amongst industry participants remained fierce and further consolidation of players was
evident.
Financial highlights
- System wide turnover improved 10% to R2,04 billion (2011: R1,84 billion). During the latter part of the period five
new stores were opened including one CTM and four TopT stores; however, given their negligible contribution to
turnover, the Groups increased revenue is largely derived from same-store organic growth.
- Revenue from Group-owned stores grew 14% to R1,08 billion (2011: R946 million), while franchised stores increased
turnover by 6% to R956 million (2011: R898 million).
- Reported trading profit rose 15% to R312 million (2011: R271 million), reflecting tight cost control; additionally,
after several consecutive years of absorbing pricing pressure and sacrificing margins in the context of substantially
higher input costs, modest inflation-linked price increases were implemented in the retail network.
- Basic earnings per share and headline earnings per share increased 12% and 13% respectively to 24,2 cents per share
and 24,3 cents per share.
- The Groups cash and cash equivalent reserves at the end of the period were R453 million (2011: R904 million),
reflecting the investment of R529 million incurred to acquire a strategic stake in Ceramic Industries Limited and capital
expenditure of R95 million invested primarily in enhancing the quality of the property portfolio.
- Net asset value per share increased by 15% to 236 cents (2011: 205 cents).
Key to the Groups growth was:
- A refined and improved product range across the Groups brands ensuring a better product value/quality mix;
- The deliberate strategy to up-sell complete solutions of products rather than individual commodities, which
served to increase the size and value of the average consumer basket. The enhancement of stores with greater focus on
lifestyle displays also promoted this strategy;
- Continued growth in the bathroomware division across the Group which delivered an average 9% increase in sales
volumes;
- Consolidation and expansion by each of the brands in their specialist areas: Italtile Retail continued to grow its
presence in the up-market projects sector and entrenched its leadership in the environmentally-friendly product niche;
CTM made further inroads into the middle and lower top-end of the market with continued pioneering and introduction of
highly fashionable inkjet technology tile products (wood and stone look-alike) and imported Spanish product; and TopT grew
brand awareness with the opening of four new stores and continued to grow market share with its opportunistic product
range, including ceiling tiles and paint;
- Investment in CTMs electronic media brand campaigns continued to raise the profile and increase sales volumes of
core ranges including Elf flooring, Tivoli taps and Kilimanjaro extruded porcelain tiles;
- The Groups deliberate tactic to promote its policy of the right stock at the right time through an increased
inventory and improved range continued to have positive benefits by delivering enhanced customer service. During the period,
prudent inventory management ensured the continued decline in stock losses and consistently improved stock turn; and
- Significant progress was achieved in improving the Groups interactive web-based capability and increasing web
traffic to the CTM site. During the period, CTMs customers were able to view the product range and ascertain availability
online, in real-time and develop a quote. This service will be extended when the brands online store becomes fully
functional in the second half of the calendar year enabling customers to view and purchase products online and arrange
delivery via the internet. This offering will have appeal for a new generation of younger tech-savvy consumers and will
significantly increase convenience for small business builders. This innovation is expected to provide an important
competitive advantage.
Support services
The Groups support services which comprise the integrated supply chain include ITD (an importer and supplier of taps,
accessories and other brassware), Cedar Point (an importer and supplier of laminate flooring, bathroom cabinets and
tile décor) and Distribution Centre (an importer of porcelain tiles).
During the review period, the exchange rate depreciated further while input costs continued to rise, specifically
transport costs, labour costs (locally and in China) and utilities costs. In this context, the supply chain took a strategic
decision to support the retail operations by absorbing margin pressure where possible. In the few instances where price
increases were implemented, these were the first in over four years.
Notwithstanding the truck drivers strike which impacted negatively on delivery to stores, the supply chain continued
to add value to the brands through ensuring consistent availability of an improved range and price blend for customers.
Highlights during the period include accreditation by the SABS of ITDs Amalfi range and Cedar Points centralisation of
décor supply which has improved the offering and service.
Rest of Africa
Italtile has been represented in Africa north of our borders for some 12 years via the Groups CTM brand which
comprises 17 stores in eight African countries. During the period a new store was opened in Nairobi.
Management is cognisant of the strong demand for the Groups products in the region, particularly in East Africa, but
experience gained has proved that further expansion will continue to be restricted by logistical and infrastructural
constraints.
Australia
The Australian operation comprises only a very small component of the Groups total business, being limited to eight
CTM stores in Queensland and New South Wales.
Trading conditions remained difficult in the review period, reflected by a marginal loss reported by the business for the six
months. Management has implemented a comprehensive strategic programme to restore the operation to profitability, and
further roll out of the store network has been postponed until the benefits of this business model transformation are
evident. This operations ability to compete effectively in the current economic climate will determine whether it remains
a viable prospect.
Property portfolio
The Groups property portfolio comprises premium sites offering strategic support to the retail brands; it has an
estimated market value in excess of R1,4 billion.
Investment of R80 million (2011: R71 million) was made in acquiring new and extending existing properties; in addition
capital expenditure of R15 million (2011: R17,6 million) was incurred on improving the retail space of existing
properties.
Directorate
On 28 November 2012, the Board announced that Chief Financial Officer (CFO), Peter Swatton, had resigned his
position and would leave the Group in April 2013.
After 25 years of service to the company Peter advised that he would be stepping down to pursue new challenges and
business interests, being satisfied that he had accomplished his goals, including the Groups consistently strong financial
performance record. Group Chairman, Giannni Ravazzotti noted that Peters contribution to the success of the business
over that period has been significant. The Group is delighted to retain Peters expertise as a Non-executive Director.
The Board has tasked the Groups Nominations Committee with recruiting and appointing a CFO to replace Peter in April
2013. A further announcement will be made to shareholders in this regard in due course.
Acquisition of a strategic stake in Ceramic Industries Limited
Historically, Italtile has enjoyed a sound relationship with Ceramic Industries Limited (Ceramic), having a long
history of purchasing tiles, sanitaryware and baths from Ceramic. In order to support Italtiles growth objectives, the
Board sought to strengthen its relationship with Ceramic, a key supplier to the Group, through the acquisition of a
strategic shareholding in the company.
Accordingly, Rallen Proprietary Limited (Rallen) and Italtile extended a conditional joint offer to acquire all or
part of the ordinary shares held by Ceramic Shareholders, other than Rallen and its associates and subsidiaries of
Ceramic (Independent Ceramic Shareholders), in the issued share capital of Ceramic at a price of R130,00 per share.
Shareholders were advised on 26 November 2012 that the joint offer had been validly accepted by Independent Ceramic
Shareholders, in respect of 5 497 832 of their Ceramic shares (27,1% of Ceramics issued share capital). Consequently,
Italtiles total beneficial interest in Ceramic is 20,0% of the issued share capital of the company and Rallens total
beneficial interest is 60,95%.
As one of the conditions precedent to the offer, Ceramic shareholders approved the delisting of Ceramics ordinary
shares from the JSE. Accordingly, trading in Ceramics shares was suspended with effect from Monday, 19 November 2012.
Only one month of revenue (December 2012) was contributed by Ceramic to this set of results. The contribution was
nominal.
Prospects
Management is of the opinion that in the current macro-economic environment, trading conditions will remain difficult
for the foreseeable future. There are strong indications that consumers will continue to be pressured by constrained
disposable income and will prioritise essential spending over discretionary spending in the face of economic uncertainty.
In this regard, the Groups consumers in the lower LSM sector are expected to prove least resilient. It is anticipated
that above-inflation income growth and the low interest rate environment will support consumer spending in the Groups mid
to upper LSM target markets, but probably not at levels achieved over recent years.
Notwithstanding this subdued economic context, the Group remains confident that growth opportunities exist for
innovative retailers. Managements focus will be on leveraging improvements in the business and supply chain to capitalise on
capacity in the local market to increase Italtiles market share.
Basis of preparation of accounting policies
The Reviewed Interim Profit Announcement has been prepared in accordance with the framework concepts and the
measurement and recognition requirements of International Financial Reporting Standards and the AC 500 Standards as issued by the
Accounting Practices Board and its successor, and contains the information required by International Accounting
Standard 34, Interim Financial Reporting. These results have been prepared under the supervision of Chief Financial Officer, Mr
P D Swatton CA(SA).
Dividend
The Group has maintained its dividend cover of three times. The Board has declared an interim dividend of 8,0 cents
per share (2011: 7,0 cents), a 14% increase.
Dividend announcement:
The Board has declared an interim dividend (number 93) for the six months ended 31 December 2012 of 8,0 cents per ordinary share to all shareholders recorded in
the books of Italtile Limited.
Shareholders are hereby advised that the dividend will be subject to the Dividends Tax that was introduced with effect
from 1 April 2012. In accordance with paragraphs 11.17 (a) (i) to (x) and 11.17 (c) of the JSE Listings Requirements,
the following additional information is provided:
- The dividend has been declared out of income reserves.
- The local dividend tax rate is 15% (fifteen percent).
- There are Secondary Tax on Companies (STC) credits to be utilised to the amount of R5,2 million or 0,50172 cents per
share.
- The gross local dividend amount is 8,00000 cents per share for shareholders exempt from the Dividends Tax.
- The net local dividend amount is 6,87526 cents per share for shareholders liable to pay the Dividend Tax.
- The local dividend withholding tax amount is 1,12474 cents per share for shareholders liable to pay the Dividend
Tax.
- Italtiles income tax reference number is 9050182717.
- Italtile has 1 033 332 822 shares in issue including 25 893 037 shares held by the Share Incentive Trust and
88 000 000 shares held as BEE treasury shares.
The cash dividend timetable is structured as follows: the last day to trade cum dividend in order to participate in
the dividend will be Friday, 1 March 2013. The shares will commence trading ex dividend from the commencement of business
on Monday, 4 March 2013 and the record date will be Friday, 8 March 2013. The dividend will be paid on Monday, 11 March
2013. Share certificates may not be rematerialised or dematerialised between Monday, 4 March 2013 and Friday, 8 March
2013, both days inclusive.
For and on behalf of the board
G A M Ravazzotti P D Swatton
Executive Chairman Chief Financial Officer 13 February 2013
The results, excluding the commentary, have been reviewed by Ernst & Young Inc. and their unqualified review opinion
is available for inspection from the company secretary at the companys registered office.
System-wide turnover analysis
For the six months ended 31 December 2012 (Rand millions unless otherwise stated)
Reviewed Reviewed Audited
six months to six months to year to
% 31 December 31 December 30 June
increase 2012 2011 2012
Group and franchised turnover
- By Group owned stores and entities 1 080 946 1 845
- By franchise owned stores (unaudited) 956 898 1 673
Total 10 2 036 1 844 3 518
Abridged Group statements of comprehensive income
For the six months ended 31 December 2012 (Rand millions unless otherwise stated)
Reviewed Reviewed Audited
six months to six months to year to
% 31 December 31 December 30 June
increase 2012 2011 2012
Turnover 1 080 946 1 845
Cost of sales (710) (615) (1 113)
Gross profit 12 370 331 732
Other operating income 188 162 228
Operating expenses (245) (224) (438)
(Loss)/profit on sale of property, plant and equipment (1) 2 1
Trading profit 15 312 271 523
Financial revenue 19 24 46
Financial cost (12) (12) (24)
Income from associates 3 4 5
Profit before taxation 12 322 287 550
Taxation (87) (77) (155)
Profit for the period 12 235 210 395
Other comprehensive income:
Currency translation difference 2 21 31
Other comprehensive income from associates 2 - -
Total comprehensive income for the period, net of tax 3 239 231 426
Profit attributable to:
- Equity shareholders 222 199 378
- Non-controlling interests 13 11 17
12 235 210 395
Total comprehensive income attributable to:
- Equity holders of the parent 226 220 409
- Non-controlling interests 13 11 17
3 239 231 426
Earnings per share: (all figures in cents)
- Earnings per share 12 24,2 21,7 41,1
- Headline earnings per share 13 24,3 21,4 41,0
- Diluted earnings per share 12 24,1 21,6 41,0
- Diluted headline earnings per
share 14 24,2 21,3 40,8
- Dividends per share 14 8,0 7,0 14,0
Abridged Group statements of financial position
As at 31 December 2012 (Rand millions unless otherwise stated)
Reviewed Reviewed Audited
six months to six months to year to
31 December 31 December 30 June
2012 2011 2012
ASSETS
Non-current assets 1 850 1 180 1 223
Property, plant and equipment 1 252 1 110 1 154
Investments 4 4 4
Investments in associates 553 26 24
Long-term assets 26 24 24
Goodwill 6 6 6
Deferred taxation 9 10 11
Current assets 961 1 325 1 400
Inventories 346 269 339
Trade and other receivables 149 139 126
Cash and cash equivalents 453 904 917
Taxation receivable 13 13 18
Total assets 2 811 2 505 2 623
EQUITY AND LIABILITIES
Share capital and reserves 2 167 1 883 2 008
Stated capital 818 818 818
Non-distributable reserves 86 72 82
Treasury shares (477) (478) (478)
Share option reserve 39 7 9
Retained earnings 1 624 1 385 1 500
Non-controlling interests 77 79 77
Non-current liabilities 251 320 323
Interest-bearing loans 243 313 315
Deferred taxation 8 7 8
Current liabilities 393 302 292
Trade and other payables 250 238 224
Provisions 39 36 39
Interest-bearing loans 100 22 26
Taxation 4 6 3
TOTAL EQUITY AND LIABILITIES 2 811 2 505 2 623
Net asset value per share (cents) 236 205 218
Store network
At 31 December 2012
2012 2011
Region Franchise Other Total Franchise Other Total
South Africa
- Italtile - 8 8 - 8 8
- CTM 40 25 65 41 23 64
- TopT 9 8 17 8 5 13
Rest of Africa 12 5 17 14 3 17
Australia - 8 8 - 8 8
61 54 115 63 47 110
Abridged Group statement of cash flows
For the six months ended 31 December 2012 (Rand millions unless otherwise stated)
Reviewed Reviewed Audited
six months to six months to year to
31 December 31 December 30 June
2012 2011 2012
Cash flow from operating activities 181 164 226
Cash flow from investing activities (645) (99) (148)
Cash flow from financing activities - - -
Net movement in cash and cash equivalents
for the period (464) 65 78
Cash and cash equivalents at the beginning
of the period 917 839 839
Cash and cash equivalents at the end
of the period 453 904 917
Group statement of changes in equity
For the six months ended 31 December 2012 (Rand millions unless otherwise stated)
Non- Non-
distri- Share control-
Stated butable Treasury option Retained ling Total
capital reserves shares reserve earnings Total interest equity
Balance at
30 June 2011 818 51 (478) 5 1 241 1 637 70 1 707
Profit for the year 378 378 17 395
Other comprehensive income for the year 31 31 31
Total comprehensive income for the year - 31 - - 378 409 17 426
Dividends paid (119) (119) (12) (131)
Transactions with non-controlling interests - 2 2
Share incentive costs 4 4 4
Balance at
30 June 2012 818 82 (478) 9 1 500 1 931 77 2 008
Profit for the period 222 222 13 235
Other comprehensive income for the period 4 4 4
Total comprehensive income for the period - 4 - - 222 226 13 239
Dividends paid (66) (66) (2) (68)
Transactions with non-controlling interests - (11) (11)
Reinstatement of BEE share incentive reserve 30 (30) - -
Share incentive costs (including vesting settlement) 1 - (2) (1) (1)
Balance at
31 December 2012 818 86 (477) 39 1 624 2 090 77 2 167
Segmental report
For the six months ended 31 December 2012 (Rand millions unless otherwise stated)
Supply and
support Inter-group
Retail Franchising Properties services transactions Group
Reviewed period
to December 2012
Turnover 834 - - 543 (297) 1 080
Gross margin 306 - - 64 - 370
Other income* 16 119 117 65 (130) 187
Overheads (252) (10) (24) (89) 130 (245)
Trading profit 70 109 93 40 - 312
Reviewed period
to December 2011
Turnover 741 - - 456 (251) 946
Gross margin 273 - - 58 - 331
Other income* 10 110 103 60 (119) 164
Overheads (228) (10) (21) (84) 119 (224)
Trading profit 55 100 82 34 - 271
* Other income includes franchise fees, rentals, royalties and rebates received, as well as profit or loss on disposal of property, plant and equipment.
Notes
1. Commitments and contingencies
As previosuly disclosed, legal proceedings have been instituted against Majuba Aviation Proprietary Limited, a subsidiary company of the Group providing
aircraft charter services. There is no further update on these proceedings. Majuba Aviation has in place adequate passenger liability insurance; accordingly
no material effect on the financial position of the Group is anticipated.
Capital commitments at 31 December 2012: R'm
- Contracted 23
- Authorised, not contracted 111
Total 134
2. Changes in accounting policy
The accounting policies adopted and methods of computation are in terms of IFRS and are consistent with those of the previous financial year except for the
adoption of new and amended IFRS and IFRIC interpretations which became effective during the current financial year. The application of these standards and
interpretations did not have a significant impact on the Groups reported results and cash flows for the six months ended 31 December 2012 and the financial
position at 31 December 2012.
3. Investment in Ceramic Industries Limited
As announced on 26 November 2012, the Group acquired a 20% stake in Ceramic Industries Limited (Ceramic) for R529 million following the acceptance of a joint
offer by Rallen Proprietary Limited and the Group to independent Ceramic shareholders. The investment is accounted for in accordance with the equity accounting
requirements of IAS 28, Investments in associates. Included in the Groups results is a one months earnings related to Ceramic, resulting in a nominal contribution
to earnings.
4. Purchase of non-controlling interests in Cedar Point Trading 326 Proprietary Limited
The Group acquired an additional 15% stake in Cedar Point Trading 326 Proprietary Limited from a non-controlling shareholder on 30 October 2012 for R11,1 million.
As a result, the Groups effective shareholding of this entity is 70% as at 31 December 2012 (30 June 2012: 55%).
Subsequent to the reporting period end, a further 15% stake was acquired from another non-controlling shareholder for R13,6 million, increasing the Groups
shareholding to 85%.
5. Nedbank loan settlement
Subsequent to the reporting period end, R100 million of the R300 million loan facility was repaid to Nedbank (on 9 January 2013). It is managements intention to
clear local gearing from the statement of financial position as and when the available cash balance and working capital requirements allow for such.
Reviewed Reviewed Audited
six months to six months to year to
31 December 31 December 30 June
6. Earnings per share 2012 2011 2012
Reconciliation of shares in issue (all figures in millions):
- Total number of shares issued 1 033 1 033 1 033
- Share Incentive Trust shares 26 26 26
- BEE treasury shares 88 88 88
Shares in issue to external parties 919 919 919
Share numbers used for earnings per share calculations
(all figures in millions):
- Weighted average number of shares 919 919 919
- Diluted weighted average number of shares 922 922 923
Reconciliation of headline earnings (Rand millions):
- Profit attributable to equity shareholders 222 199 378
- Loss/(profit) on sale of property, plant and equipment 1 (2) (1)
Headline earnings 223 197 377
Registered Office: The Italtile Building, cnr William Nicol Drive and Peter Place, Bryanston (PO Box 1689, Randburg 2125)
Transfer Secretaries: Computershare Investor Services (Pty) Limited, 70 Marshall Street, Johannesburg 2001.
(PO Box 61051, Marshalltown 2107)
Directors: G A M Ravazzotti (Executive Chairman), *P D Swatton (Chief Financial Officer), P Langenhoven
Non-executive Directors: S M du Toit, S I Gama, S G Pretorius, **A Zannoni
(*British ** Italian)
Company Secretary: E J Willis
Sponsor: KPMG Services (Pty) Ltd
Date: 14/02/2013 07:07:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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