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Preliminary reviewed Group results for the year ended 30 June 2014, dividend declaration and appointment of director
Italtile Limited
Share code: ITE
ISIN: ZAE000099123
Registration number: 1955/000558/06
Incorporated in the Republic of South Africa
(“Italtile” or “the Group” or “the company”)
Preliminary profit announcement, reviewed Group results for
the year ended 30 June 2014, dividend declaration and appointment of director
System-wide turnover analysis
For the year ended 30 June 2014 Reviewed Audited
year to year to
% 30 June 30 June
(Rand millions unless otherwise stated) increase 2014 2013
Group and franchised turnover (continuing operations)
- By Group-owned stores and entities 2 714 2 047
- By franchise-owned stores (unaudited) 1 747 1 776
Total 17 4 461 3 823
Condensed Group statement of comprehensive income
For the year ended 30 June 2014 Reviewed Audited
year to year to
% 30 June 30 June
(Rand millions unless otherwise stated) increase 2014 2013
Continuing operations
Turnover 2 714 2 047
Cost of sales (1 657) (1 241)
Gross profit 31 1 057 806
Other operating income 245 241
Operating expenses (560) (451)
Profit on sale of property, plant and equipment 9 15
Trading profit 23 751 611
Financial revenue 11 26
Financial cost (20) (17)
Income from associates after taxation 29 11
Profit before taxation from continuing operations 22 771 631
Taxation (227) (168)
Profit for the year from continuing operations 17 544 463
Discontinued operations
(Loss)/profit after taxation for the year from discontinued operations (20) 1
Profit for the year 13 524 464
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Currency translation difference 12 13
Total comprehensive income for the year 12 536 477
Profit attributable to:
- Equity shareholders 509 444
- Non-controlling interests 15 20
13 524 464
Total comprehensive income attributable to:
- Equity shareholders 521 457
- Non-controlling interests 15 20
12 536 477
Earnings per share: (all figures in cents)
- Earnings per share 14 55,3 48,3
- Headline earnings per share 22 57,6 47,4
- Diluted earnings per share 13 54,7 48,2
- Diluted headline earnings per share 21 57,1 47,3
Earnings per share for continuing operations (all figures in cents):
- Earnings per share 19 57,4 48,2
- Headline earnings per share 24 58,7 47,3
- Diluted earnings per share 18 56,9 48,1
- Diluted headline earnings per share 23 58,1 47,2
- Dividends per share (excluding special cash dividend) 19 19,0 16,0
Condensed Group statement of financial position
As at 30 June 2014 Reviewed Audited
year to year to
30 June 30 June
(Rand millions unless otherwise stated) 2014 2013
ASSETS
Non-current assets 1 856 1 850
Property, plant and equipment 1 296 1 246
Investments - 4
Investments in associates 522 553
Long-term assets 14 24
Goodwill 6 6
Deferred taxation 18 17
Current assets 857 777
Inventories 408 335
Trade and other receivables 169 121
Cash and cash equivalents 249 303
Taxation receivable 31 18
Assets classified as held for sale - 26
TOTAL ASSETS 2 713 2 653
EQUITY AND LIABILITIES
Share capital and reserves 2 230 2 303
Stated capital 818 818
Non-distributable reserves 102 93
Treasury shares (472) (474)
Share option reserve 55 36
Retained earnings 1 676 1 774
Non-controlling interests 51 54
Discontinued operations reserves - 2
Non-current liabilities 12 53
Interest-bearing loans - 44
Deferred taxation 12 9
Current liabilities 471 297
Trade and other payables 261 252
Provisions 43 43
Interest-bearing loans 165 -
Taxation 2 2
TOTAL EQUITY AND LIABILITIES 2 713 2 653
Net asset value per share (cents) 242 251
Store network
At 30 June 2014 2014 2013
Region Franchise Other Total Franchise Other Total
South Africa
- Italtile - 8 8 - 7 7
- CTM 31 36* 67 39 27 66
- TopT 18 6 24 11 8 19
Rest of Africa 11 5 16 12 5 17
Australia - - - - 7 7
60 55 115 62 54 116
*Includes CTM webstore.
Group statement of changes in equity
For the year ended Non- Non-
30 June 2014 distri- Share Discon- con-
Stated butable Treasury option Retained tinued trolling Total
(Rand millions) capital reserves shares reserve earnings operations Total interest equity
Balance at 30 June 2012 818 82 (478) 9 1 500 - 1 931 77 2 008
Profit for the year 444 444 20 464
Other comprehensive income for the year 13 13 13
Total comprehensive income for the year - 13 - - 444 - 457 20 477
Dividends paid (141) (141) (4) (145)
Discontinued operations (2) 2 - -
Transactions with non-controlling interests - (39) (39)
Reinstatement of BEE share incentive reserve 30 (30) - -
Share incentive costs 4 (3) 1 2 2
Balance at 30 June 2013 818 93 (474) 36 1 774 2 2 249 54 2 303
Profit for the year 509 509 15 524
Other comprehensive income for the year 12 12 12
Total comprehensive income for the year - 12 - - 509 - 521 15 536
Transfer of reserves (9) 9 - -
Dividends paid (618) (618) (13) (631)
Discontinued operations 6 (2) 4 5 9
Transactions with non-controlling interests - (10) (10)
Share incentive costs 2 19 2 23 23
Balance at 30 June 2014 818 102 (472) 55 1 676 - 2 179 51 2 230
Segmental report
For the year ended Supply Inter-
30 June 2014 and group Dis-
Fran- Proper- support elimi- continued
(Rand millions) Retail chising ties services nations Group operations
Reviewed year to June 2014
Turnover 2 249 - - 1 337 (872) 2 714 31
Gross margin 812 - - 127 (20) 919 11
Other income* 35 250 255 178 (326) 392 -
Overheads (648) (102) (76) (60) 326 (560) (23)
Trading profit 199 148 179 245 (20) 751 (12)
Inter- Dis-
South Rest of group continued
Geographical analysis Africa Africa Other entities Group operations
Revenue 3 994 233 78 (1 198) 3 106 31
Non-current assets 2 303 87 143 (694) 1 838 -
For the year ended Supply Inter-
30 June 2013 and group Dis-
Fran- Proper- support elimi- continued
(Rand millions) Retail chising ties services nations Group operations
Audited year to June 2013
Turnover 1 597 - - 1 072 (622) 2 047 94
Gross margin 585 - - 116 - 701 36
Other income* 29 211 231 135 (245) 361 -
Overheads (485) (92) (61) (58) 245 (451) (35)
Trading profit 129 119 170 193 - 611 1
Inter- Dis-
South Rest of group continued
Geographical analysis Africa Africa Other entities Group operations
Revenue 3 042 174 59 (867) 2 408 94
Non-current assets 2 313 95 172 (747) 1 833 8
* Other income includes franchise fees, rentals, royalties and rebates received, as well as profit or loss on disposal
of property, plant and equipment.
Condensed Group statement of cash flows
For the year ended 30 June 2014 Reviewed Audited
year to year to
30 June 30 June
(Rand millions) 2014 2013
Cash flow from operating activities (127) 376
Cash flow from investing activities (50) (694)
Cash flow from financing activities 123 (296)
Net movement in cash and cash equivalents for the year (54) (614)
Cash and cash equivalents at the beginning of the year 303 917
Cash and cash equivalents at the end of the year 249 303
Notes
1. Commitments and contingencies
As previously disclosed, legal proceedings have been instituted against Majuba Aviation Proprietary Limited, a
subsidiary company of the Group providing aircraft charter services, for which there is insurance cover.
There are no material contingent assets or liabilities at 30 June 2014 in addition to the above.
Capital commitments at 30 June 2014 total R175 million (contracted: R68 million; authorised and not contracted:
R107 million).
2. Changes in accounting policies
The accounting policies adopted and methods of computation are in terms of International Financial Reporting
Standards (“IFRS”) and 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 in the Group’s reported results and cash
flows for the year ended 30 June 2014 and the financial position at 30 June 2014, but will result in additional
disclosures.
3. Fair values of financial instruments
The Group does not fair value its financial assets or liabilities in accordance with quoted prices in active markets
or market observables, as there is no material difference between their fair value and carrying value due to the
short-term nature of these items. There were no transfers into or out of Level 3 during the period.
4. Sale of non-controlling interests in Cedar Point Trading 326 Proprietary Limited
As previously reported, the Group sold a 20% stake in Cedar Point Trading 326 Proprietary Limited to two new business
partners during the period. This stake was sold at a cost of R14 million, and reduces the Group’s interest in this
entity to 80%.
5. Purchase of non-controlling interests in TopT Ceramics Proprietary Limited
Subsequent to the financial year end, the Group acquired the 20% non-controlling stake held by the previous business
partner of TopT Ceramics Proprietary Limited at a cost of R11 million. The Group is currently in the process of
identifying new business partners for this business.
6. Discontinued operations
The Group disposed of the following non-core businesses (date of disposal disclosed in brackets):
- Cladding Finance Proprietary Limited - the entity used to extend and manage credit to the contractors market
(30 September 2013);
- The seven store CTM retail operation in Australia (31 October 2013); and
- Allmuss Properties Zambia Limited - a property holding company (31 December 2013).
The results of these businesses have thus been recorded as discontinued operations in these results.
Cladding Finance Proprietary Limited and Allmuss Properties Zambia Limited’s contribution to Group earnings is
immaterial, although R4 million profit was realised on the sale of the latter. The sale of the Australian retail
operations was concluded via a management buyout, and was preceded by fixed asset impairment and other
rationalisation costs totalling R9 million. A further consequence of the sale of the Australia retail operations
was the derecognition of deferred assets totalling R8 million, also included in the discontinued operations results.
7. Staff share scheme
During the year, the Group implemented a share incentive scheme for all employees of the Group and its franchisees
in South Africa that had been in the employ of the Group and/or franchise network for a period of three
uninterrupted years as at 31 August 2013. As a result 13 million of the Group’s shares were held by qualifying staff
members at 30 June 2014 (the shares were previously held by the Italtile Empowerment Trust). The allotment is funded
by the Group and the shares are restricted instruments which will vest with employees following a further three
years of employment. Until vesting, the shares will continue to be accounted for as treasury shares, although they
do have an impact on the diluted weighted average number of shares.
The scheme is classified as an equity settled scheme in terms of IFRS 2, Share-based Payment, and has resulted in a
charge of R17 million to the Group’s income (R11 million thereof being a once-off charge for franchisee staff).
8. Impairment of Australian property
Given the continued restrained economic conditions in Australia, the Group has recorded a further R20 million
impairment (2013: R5 million) on Australian property.
Reviewed Audited
year to year to
30 June 30 June
2014 2013
9. Earnings per share
Reconciliation of shares in issue (all figures in millions):
- Total number of shares issued 1 033 1 033
- Shares held by Share Incentive Trust (24) (26)
- BEE treasury shares (88) (88)
Shares in issue to external parties 921 919
Share numbers used for earnings per share calculations
(all figures in millions):
- Weighted average number of shares 921 919
- Diluted weighted average number of shares 929 921
Total operations Continuing operations
Reviewed Audited Reviewed Audited
year to year to year to year to
30 June 30 June 30 June 30 June
2014 2013 2014 2013
Reconciliation of headline earnings:
(Rand millions):
- Profit attributable to equity shareholders 509 444 529 443
- Profit on sale of property, plant and equipment (8) (13) (8) (13)
- Impairment of Australian property, plant and equipment 29 5 20 5
Headline earnings 530 436 541 435
Overview for the year ended 30 June 2014
Italtile Limited is a franchisor and retailer of local and imported tiles, sanitaryware, bathware, laminated flooring
and other related home-finishing products in South Africa. The Group’s national branded retail store network comprises
115 CTM, Italtile Retail and TopT stores and has appeal for homeowners in the LSM categories 4 to 10. The brands are
strategically supported by a property investment portfolio and vertically integrated supply chain.
At the end of the prior financial year, a range of key focus areas were identified, including investment in people and
processes, innovation in products and technology, and enhancement of efficiencies and cost containment, to ensure that
the Group improved profitability and retained market share. In this regard, good progress has been achieved. As a result
of these initiatives and the commitment to improvement by the people of Italtile, pleasing double digit growth was
reported, including in previously under-performing regions. The Group also entrenched its focus on standardising and
promoting performance consistency of the offering across the brands to enhance in-store satisfaction for customers.
Trading environment
During the review period the ratio of household debt to disposable income continued to rise, serving to constrain
consumer discretionary spend further in an economy which has recorded deteriorating growth over several years. In the
construction sector the renovations market was slightly more buoyant than the new-build market, which remained subdued in the
context of negative sentiment and restrained public and private sector investment.
Whilst the middle income market appeared less resilient than the top and bottom-end earners, consumers across the
spectrum were price sensitive and acutely conscious of value-for-money offerings.
The devaluation of the currency over the period had a significant impact on industry participants and trading
behaviour, harming independent opportunistic traders and restricting access to the industry to new entrants. Other consequences
of this currency volatility and aggressive price competition were stock shortages and range gaps both in price and
fashion, as operators attempted to cut costs further.
The strength of Italtile’s well-established business model, underpinned by its integrated supply chain and cash
reserves were critical to its continued growth in this testing environment. The Group’s stated policy of ensuring the right
stock at the right time, place and price, together with an uncompromising focus on quality, ensured that Italtile
entrenched its position as a leading retailer in the sector.
Financial highlights - continuing operations
Following the disposal of non-core businesses (disclosed in the Notes section), the financial information presented
below refers to continuing operations only.
- System-wide turnover for the period rose 17% to R4,46 billion (2013: R3,82 billion).
- Due to a deliberate strategy to capture costs in the supply chain, competitive pricing in the stores was maintained.
- Trading profit grew 23% to R751 million (2013: R611 million) and was impacted by an IFRS 2 charge of R17 million,
of which R11 million is a once-off charge, related to an equity-settled staff share incentive scheme implemented during
the period, and an impairment of R20 million (2013: R5 million) recorded on the Group’s property portfolio in Australia,
a reflection of continued adverse economic conditions in that country.
- Earnings per share and headline earnings per share grew 19% and 24% respectively. Headline earnings have been
adjusted for the impairment on the Group’s property in Australia as well as after tax profits realised on the sale of Allmuss
Zambia (a property holding company in Zambia) and other properties, totalling R8 million.
- Inventory levels increased to R408 million (2013: R335 million), primarily due to stocking up new stores which were
added to the Group owned store network and an extension of the Cedar Point range. One of the Group’s key competitive
advantages is the consistent availability of an extensive range of fashionable merchandise. Stock control is therefore a
priority challenge for management to ensure that stock turn continuously improves to enhance product life-cycles and provides
for the addition of new ranges.
- Capital expenditure of R166 million (2013: R168 million) was incurred primarily to enhance the Group’s property
investment portfolio through the acquisition of four new properties and an ongoing store upgrade programme across the
network. This investment, together with the net special dividend of R467 million paid during the period, resulted in net cash
reserves of R249 million at the end of the period.
Operational review
Italtile Retail: This business improved sales and profitability and accomplished good progress in a range of key focus
areas. Whilst growth was achieved across the merchandise categories, notably strong sales were reported in the Bath
Shop. In addition, the Commercial Projects division delivered strong growth in the brand’s non-residential business in
Gauteng. Intensive cost containment ensured that margins remained firm in the context of currency devaluation and the
brand’s deliberate decision to broaden its range to appeal to the middle-income market; the gain in market share in this
segment endorses this strategy.
CTM: CTM performed better in the second six months of the year than the first six months, and most of the brand’s
trading regions recorded double digit growth for the full review period. Particularly noteworthy was the improvement
reported by the coastal markets, which have lagged growth in the inland regions for several years.
During the period the brand retained its market share across the merchandise categories and made progress in improving
tile sales volumes, which had underperformed management’s expectations in the prior year. The average product basket
size improved, as did sales of complete product solutions and higher value items.
In the context of rand weakness, the brand derived competitive advantage from the strength of its supply chain which
ensured uninterrupted supply of well-priced imported product across the merchandise categories, and also guaranteed
consistent availability of good quality local tile products.
Top T: TopT continued to gain traction in its markets, reporting strong sales for the year. The brand made progress in
building on its growing reputation as a one-stop home-finishing supplier, and its ability to ensure consistent
availability of good quality, affordable merchandise gave it a competitive edge in a market characterised by less formalised,
independent traders.
During the period the brand fine-tuned its pay-off line to “Every price a LOW price”, reinforcing TopT’s positioning
as the low cost leader in the industry. New product categories continued to be added to the mix, in response to consumer
demand.
Support Services: The supply chain businesses, International Tap Distributors, Distribution Centre and Cedar Point,
reported increased turnover for the period reflecting improved sales through the Group’s retail brands. Whilst average
price increases rose across their industries in the context of rand weakness, these operations implemented a deliberate
strategy to support the Group’s competitive value offering in-store by absorbing higher input costs.
Investment in associates
Ceramic Industries Limited (“Ceramic”): The 20% strategic investment in its largest supplier of tiles, sanitaryware
and baths once again delivered tactical advantages in supporting the Group’s growth programme. In the context of the
weaker rand, this relationship with Ceramic served to enable consistent supply of local high quality, affordable products.
The all-round improved performance reported across this business resulted in a 70% growth in profitability and an increase
in contribution to Group profit of R24 million for the full year (2013: R9 million).
Ezeetile: The Group holds an effective 46% strategic stake in this business, a national manufacturer of grout,
adhesive and related products. Wide-ranging enhanced business processes and systems were implemented in the operation over the
past year, and whilst improved efficiencies have resulted, the restructuring remains to be completely bedded down before
the full benefits of the programme will be realised. The business reported growth for the period, contributing R5
million (2013: R3 million) to Group profits.
Global property investment
Significant strategic advantage is afforded to the retail operations by the Group’s property investment portfolio.
This division’s mandate is centred on providing an optimal shopping experience for customers, which it achieves through
ensuring that branded stores are situated on highly visible, accessible sites and by continuously evaluating and enhancing
the quality of its properties to ensure an aesthetically pleasing, well-maintained shopping environment.
This portfolio has a market value of approximately R1,9 billion. During the year capital expenditure of R96 million
(2013: R114 million) was incurred on new properties and improvements across the brand footprint.
Staff share scheme
During the reporting period an equity-settled staff share scheme was implemented, consistent with the Group’s ethos of
promoting partnership with its employees and incentivising them to participate in the growth and profitability of the
business.
Directorate: board appointments and change in function
With effect from 1 July 2014, Mr Nick Booth assumed the position of Chief Executive Officer (“CEO”) of the Group.
Mr Giovanni Ravazzotti, who served as interim CEO pending Mr Booth’s appointment, resumed his role as Chairman, while
Mr Brand Pretorius, who served as interim Chairman in Mr Ravazzotti’s stead, resumed his position as independent
non-executive director. With effect from 1 August 2014, Mr Jan Potgieter was appointed Chief Operating Officer and
executive director to the Board. With effect from 20 August 2014, Ms Ndumi Medupe has been appointed to the Board as an
independent non-executive director. Ms Medupe, CA(SA) is a founder and director of Indyebo Consulting (Pty) Limited. The Board
welcomes Ms Medupe and looks forward to her contribution. These appointments reflect the Board’s commitment to enhancing management
depth and succession planning across the Group.
Prospects
Management anticipates that current trading conditions will persist for the foreseeable future. However, the Group
remains optimistic that there are sufficient opportunities to leverage in the business and the industry to enable it to
continue to deliver a satisfactory performance in the interests of all stakeholders.
In this regard, a clear strategy is in place for growing each of the three retail brands. In addition, improvements in
the supply chain related to procurement and stock management will drive efficiencies and cost containment. Enhanced
recruitment and training will be another key focus area in the forthcoming period.
Italtile’s reputation for innovation in the industry will be pursued through continuous research into new markets,
cutting edge merchandise, and systems and equipment to improve customer shopping experience.
Basis of preparation
The preliminary profit announcement has been prepared in accordance with the framework concepts and the measurement
and recognition requirements of International Financial Reporting Standards and the SAICA Financial Reporting Guides as
issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting
Standards Council, and contains the information required by International Accounting Standard 34, Interim Financial
Reporting, the 2008 Companies Act and the JSE Listing Requirements. These results have been prepared under the supervision
of Chief Financial Officer, Mr B G Wood CA(SA).
Cash dividend
The Group has maintained its dividend cover of three times. The Board has declared a final gross cash dividend of 10,0
cents per share (2013: 8,0 cents per share), which together with the interim gross cash dividend of 9,0 cents per share
(2013: 8,0 cents per share), produces a total gross cash dividend declared for the year ended 30 June 2014 of 19,0
cents per share (2013: 16,0 cents per share), an increase of 19%.
Dividend announcement
The Board has declared a final gross cash dividend (number 96) for the year ended 30 June 2014 of 10,0 cents per
ordinary share to all shareholders recorded in the books of Italtile Limited.
In accordance with paragraphs 11.17 (a) (i) to (x) and 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 R1 million or 0,08026 cents
per share.
- The Gross local dividend amount is 10,0 cents per share for shareholders exempt from the Dividends Tax.
- The net local dividend amount is 8,51204 cents per share for shareholders liable to pay the Dividends Tax.
- The local dividend withholding tax amount is 1,48796 cents per share for shareholders liable to pay the Dividends
Tax.
- Italtile’s income tax reference number is 9050182717.
- The Group has 1 033 332 822 shares in issue including 24 376 224 shares held by the Share Incentive Trust and
88 000 000 shares held as BEE treasury shares.
Timetable for cash dividend
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, 5 September 2014. The
shares will commence trading ex dividend from the commencement of business on Monday, 8 September 2014 and the record date
will be Friday, 12 September 2014. The dividend will be paid on Monday, 15 September 2014. Share certificates may not be
rematerialised or dematerialised between Monday, 8 September 2014 and Friday, 12 September 2014, both days inclusive.
For and on behalf of the Board
N Booth B Wood
Chief Executive Officer Chief Financial Officer
The preliminary profit announcement has been reviewed by Ernst & Young Inc. (“EY”). EY’s unqualified review opinion
does not necessarily report on all of the information contained in this preliminary profit announcement. Shareholders are
therefore advised that in order to obtain a full understanding of the nature of auditors’ engagement, they should obtain
a copy of EY’s unqualified review opinion together with the accompanying financial information from the company
secretary at the company’s registered office.
Johannesburg
20 August 2014
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)
Executive directors:
N Booth (Chief Executive Officer), B G Wood (Chief Financial Officer), J Potgieter (Chief Operating Officer), P Langenhoven#
Non-executive directors:
G A M Ravazzotti (Chairman), S G Pretorius, S M Du Toit, S I Gama, P D Swatton*, A Zannoni**, N Medupe
(*British **Italian #Australian)
Company secretary:
E J Willis
Sponsor:
Merchantec Capital
www.italtile.com
Date: 21/08/2014 07:35:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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