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Preliminary Profit Announcement, Reviewed Group Results for the Year Ended 30 June 2017 and Dividend Declaration
Italtile Limited
Share code: ITE
ISIN: ZAE000099123
Registration number: 1955/000558/06
Incorporated in the Republic of
South Africa ("Italtile" or "the Group")
PRELIMINARY PROFIT ANNOUNCEMENT, REVIEWED GROUP RESULTS
FOR THE YEAR ENDED 30 JUNE 2017 AND DIVIDEND DECLARATION
- Net asset value 403 cents
(2016: 362 cents)
- System-wide turnover R6,21 billion
(2016: R5,96 billion)
- Net cash R511 million
(2016: R347 million)
- Headline earnings per share 85,7 cents
(2016: 86,9 cents)
- Dividends per share 30,0 cents
(2016: 29,0 cents)
- Store network 162
(2016: 146)
COMMENTARY
OVERVIEW FOR THE YEAR ENDED 30 JUNE 2017
Italtile Limited is a franchisor and retailer of local and imported tiles, sanitaryware, bathware, laminated and vinyl
flooring and other related home-finishing products. The Group’s retail brands are CTM, Italtile Retail and TopT,
represented through a total network of 162 stores, 18 of which are located in the rest of Africa. The brand offering
targets homeowners across the LSM 4 to 10 categories.
The retail operation is strategically supported by a vertically integrated Supply Chain, investments in key suppliers,
and an extensive property portfolio.
The Group’s dream is to become the best retailer in the world of tiles, sanitaryware and ancillary products, by offering
an unrivalled shopping experience for customers. This ambition is underpinned by the retail excellence strategy, "right
product, at the right time, place and price".
TRADING ENVIRONMENT
Trading conditions and consumer sentiment continued to deteriorate over the year as a result of poor economic growth
and socio-political uncertainty.
In this adverse environment, homeowners curtailed or deferred discretionary spend on residential improvements and
renovations, while the new-build segment declined further, reflected by a marked decrease in building plans passed.
In general, large segments of the market remained overstocked due to the downturn in consumer demand and the high
level of imported product in the country culminating from opportunistic traders capitalising on currency strength.
With the industry-wide fall in sales, price competition and margin pressure intensified.
In this context, the Group’s robust business model served it well. The strategic retail brand portfolio ranging across
the income continuum, integrated supply chain, strong partnerships with entrepreneurial franchisees, property portfolio
and long-standing solid reputation, together with sustained investment in revitalising the offering continued to appeal
to traditional customers as well as new, emerging homeowners.
INDUSTRY TRENDS
Historically, traditionally house-proud South Africans have invested relatively freely in upgrading or replacing their
homes. However, with intensified pressure on disposable incomes, homeowners increasingly view property spend as a
luxury indulgence and are significantly more discerning in their purchases, which are now less frequent than in prior
years, and more selective in their choice of retailers.
During the year, a range of trends emerged in the industry which illustrates this:
- While price and service remained key sales drivers, consumers are also gravitating to "convenience" offerings -
convenient both in terms of accessibility of brick and mortar stores as well as innovative online and digital
technology offerings aimed at expediting and enhancing the ease of the shopping experience. The Group’s continued
investment in its national store network and digital and in-store technology are designed to cater to this trend.
- Rapidly evolving technology and its omnipresence in most areas of modern lifestyles had a significant influence on
driving quicker changes in fashion trends and a growing demand for instant gratification from consumers seeking latest
fashion products with limited lead times. Associate, Ceramic Industries’ state-of-the-art inkjet printing technology has
been a game changer for the business, enabling its factories to respond timeously to up to the minute design trends.
- The widespread availability of technology to consumers and their unlimited access to online research information
has served to educate them and influence their expectations of the in-store experience. This development has necessitated
that retailers improve their offering to meet customers’ increasingly demanding aspirations. Up-weighting the "delight"
and "disruptive" factors in the shopping experience has become a major strategy for the Group's brands.
RESULTS
At the end of the first six months of this period, management cautioned that due to the subdued economic climate and
constrained consumer demand, results in the second six months would be weaker than the first six (being typical of
the Group’s cyclical long-term retail sales trend), but also weaker than the comparable second six months of 2016.
Disappointingly, this forecast proved to be accurate, with sales and profitability failing to meet management’s targets.
Key factors contributing to the inadequate performance include the slow-down in discretionary spending (detailed above);
the volatility of the currency; the Group’s overstock position, which while substantially improved over the past six
months, remains a key focus area; and the general country-specific risks which continue to cause both private and public
sectors to suspend investment in property.
System-wide turnover for the period increased by 4% to R6,21 billion (2016: R5,96 billion). System-wide turnover is defined
as the aggregate of the Group’s consolidated turnover as reported (total sales by Group-owned entities and corporate stores,
excluding sales from owned supply chain businesses to corporate stores) and the turnover of franchisees of the Group.
Like-on-like retail store turnover for the period increased by 2,7%. Retail store turnover is defined as the aggregate of
turnover of all stores, either corporate or franchised, in the Group’s network.
Trading profit increased 2% to R1 063 million (2016: R1 047 million). While turnover for the period includes the partial or
full contribution of the 10 corporate TopT stores opened during the period, profitability was offset by high pre-opening
expenses. Average price inflation of 4,3% was lower than the prior comparative period (2016: 6,5%).
Retail margins were marginally lower despite both de-stocking activities and the retail brands continuing to offer
competitive value to price-conscious customers. This was achieved through improved containment of costs in the second half
of the period (specifically in distribution, manpower costs and stock control); prudent marketing activities; improved
use of trading intelligence and an enhanced mix of higher margin products in the average basket.
The Group’s basic earnings per share rose by 3% to 90,3 cents (2016: 87,8 cents), while headline earnings per share
decreased 1% to 85,7 cents (2016: 86,9 cents).
Basic earnings include the impact of a R37 million once-off gain realised on the sale in December 2016 of the Group’s
Australian property holding company, which is excluded from headline earnings.
Good progress was achieved in terms of the Group’s stated goals for the second half of the period, namely to reduce
operating costs and to improve its working capital position. In this regard cash and cash equivalent reserves at the end
of the period grew to R511 million (2016: R347 million), representing an increase of 47%. Inventory levels reduced to
R548 million (2016: R693 million), a decline of 21%, while simultaneously reflecting enhanced quality. Stock management is
a core discipline across the business and improved stock turn and reduced stock losses are closely monitored key
performance indicators.
During the period capital expenditure of R334 million (2016: R375 million) was incurred, primarily on property
acquisitions and upgrades in the property investment portfolio to underpin the Group’s growth programme.
Total dividends of R305 million (2016: R279 million) were paid in the period.
The Group’s net asset value was 403 cents (2016: 362 cents).
OPERATIONAL REVIEW
PRIORITIES
The following activities were prioritised during the period, aimed at driving further growth in the business and
improving returns for stakeholders:
- Instil the principles of retail excellence as a standard operating procedure;
- Continue to expand the Group’s store network;
- Leverage opportunities in the Supply Chain;
- Continue to invest in information technology ("IT") and e-commerce;
- Gain market share from imported product through new Gryphon products; and
- Improve inventory management and working capital.
Good progress was recorded in several areas, including the expansion of the store network with the addition of 14 TopT
and two CTM stores; implementation of the Group’s Business Optimisation Programme ("BOP") across the business, resulting
in improved efficiencies; and continued investment in IT to upgrade the brands’ webstores and websites as well as enhance
technology in-store to improve the customer shopping experience. In addition, Gryphon’s ranges were entrenched as market
leaders in the import substitute category. Pleasing results were also achieved in terms of improving working capital and
inventory management during the second half of the period, as discussed further in the results section.
While all of these initiatives contributed to enhancing the business, numerous additional opportunities exist to leverage
further growth and efficiencies. Management acknowledges that substantial progress needs to continue to be made to attain
the Group’s ambitious growth targets.
Retail brands
Despite the competitive landscape, CTM maintained its share of market, while Italtile Retail and TopT continued to
grow their respective customer bases in both existing and new markets.
All three brands grew their sales and total value of the average basket, however Italtile Retail and CTM recorded
lower profitability, while TopT improved profits. Each of the brands experienced a degree of margin pressure, reporting
a slight decline in margins.
The strongest performing regions across the brand portfolio were Limpopo and the Western Cape (the latter a function
of increased property investment resulting from homeowners semi-grating from other regions), while Gauteng, the region
which historically delivers the Group’s highest value in sales, reported flat results.
While CTM’s results underperformed management’s targets, under new operational leadership the business made progress
on improving basic disciplines. Enhanced efficiencies were achieved in warehouse management, and the brand’s performance
rating programmes, Voice of the Customer and Mystery Shopper, recorded better levels of customer service and sentiment
in the stores. Management recognises that further substantial improvements need to be made across the business to bring
it in line with the Group’s expectations.
Italtile Retail’s premium-end market niche continued to contract as wary consumers postponed their investment decisions
in the current climate. Furthermore, the Commercial Projects division which had reported an upturn in recent months
experienced another setback, as a number of projects were put on hold following the sovereign credit downgrade by
investment rating agencies. During the period the brand upgraded its bespoke sales consultant training programmes, aimed
at raising service benchmarks even higher, and is well positioned for growth when trading conditions improve.
In the period under review, TopT achieved national brand status with the expansion of its store footprint to all nine
provinces. The good local geographical distribution of sites was complemented with the opening of a store in Botswana in
July 2017. TopT’s solid results for the period illustrate the optimal use of BOP across the store network, with a
strong correlation between availability of business critical stock and higher sales.
Supply Chain
The Group’s strategically integrated Supply Chain comprises International Tap Distributors ("ITD"), Cedar Point and
Distribution Centre.
During the review period, ITD reported a decrease in sales and stock turn primarily due to the overstock position of
many of the Group’s stores; despite this, however, profits and margins improved due to better cost control. ITD’s founder
(and former Managing Director) retired at the end of the financial year, selling his 14% shareholding in the business
to the Group, which now owns 98% of the company. A new, well-qualified and experienced management team has subsequently
been appointed, and in keeping with Italtile’s ethos of profit sharing and empowerment, the Group intends selling a 10%
minority stake to a suitable partner from this new team during the second half of the new financial year.
Cedar Point recorded higher sales, but profits, margins and stock turn declined, primarily due to a substandard range/price
matrix and historically poor inventory management. Re-engineering of the operation is a key priority in the period ahead and
will include range rationalisation, a change in warehouse management systems, restructuring of the staff complement and
reconfiguration of logistics solutions to the stores. Remedial action to improve investment in stockholding will include
exploring opportunities to supply the open market.
In the Distribution Centre business, sales, profits and margins deteriorated as a function of the general downturn in demand
from the Group’s stores.
INVESTMENT IN ASSOCIATES
Ceramic Industries
The Group holds a 21% strategic stake in manufacturer Ceramic, its primary supplier of tiles, sanitaryware and bathware. This
tactical investment is key to advancing Italtile’s growth agenda. The business comprises five tile factories, a sanitaryware
factory and a bath factory in South Africa, and one tile factory in Australia.
Ceramic’s results in the first half of the period were substantially stronger than the second half. Locally, in the latter six
months the business experienced a fall in sales in light of the general economic slow-down and overstocked position of most of
its customers, exacerbated by the high level of imported product in the market. The weaker sales resulted in poor capacity
utilisation in the factories, causing a decline in profits and margins during the second half of the period. In the Australian
operation, sales decreased slightly in subdued trading conditions, while the deliberate strategy to gain market share through
keen pricing resulted in a nominal decline in margins.
Ceramic’s after tax profits for the period declined from the prior period as a result of an increase in its effective
tax rate, having benefited from tax incentives related to the Gryphon factory in the prior period. Accordingly,
Ceramic’s contribution to Group profit for the period decreased 2% to R81 million (2016: R83 million).
Despite prevailing difficult trading conditions, Ceramic remains optimistic about growth opportunities in South Africa
and Australia and will continue to invest in upgrading its factories and facilities to ensure it is optimally
positioned to capitalise on any increase in market demand.
Ezee Tile
The Group holds an effective 46% stake in Ezee Tile, a national manufacturer of grout, adhesive and related products.
In the context of subdued consumer demand across the industry, Ezee Tile’s sales, profits, margins and stock turn for
the period, although improved, were less buoyant than the previous period. The business contributed R13,5 million (2016:
R12 million) to Group profit, an increase of 13%.
OFFER TO ACQUIRE SHARES IN CERAMIC
Further to the SENS announcements published on 26 April 2016, 9 June 2016 and 20 July 2016, Italtile submitted a binding
offer ("Binding Offer") on 16 July 2016 to Ceramic, to acquire up to a further 73,5% of the company’s issued share
capital ("the Acquisition"). In terms of the Acquisition, the purchase consideration equates to R3,61 billion which will
be settled in cash (50%) and the balance by the issue of Italtile shares at R11,57 per share.
The Acquisition remains subject to attainment of certain conditions precedent and approval from the competition authorities.
Shareholders are referred to the SENS announcements published on 20 and 28 July 2016, 11 August 2016, 14 and 21 September 2016,
10 February 2017, 17 March 2017, and 1 August 2017, as well as the Acquisition circular dated 23 August 2016, for further detail
in this regard.
Following the Competition Commission’s ("the Commission’s") prohibition of the Acquisition, the Group filed a Request
for Consideration with the Competition Tribunal ("the Tribunal") and subsequently an in limine hearing was held with the
Tribunal on 25 and 26 October 2016 to consider certain circumscribed aspects of the proposed merger.
On 10 February 2017 the Group advised in its reviewed condensed results announcement for the six months ended 31 December 2016
that a full hearing with the Tribunal was scheduled to take place between 6 and 15 March 2017.
Shareholders were subsequently advised that, following a request from the Commission, proceedings scheduled for 6 to
15 March 2017 would be delayed to enable the Commission additional time to prepare for the hearing, including verifying
key industry information which the Commission indicated may be dispositive to its concerns regarding the proposed
Acquisition.
Accordingly, new Tribunal hearing dates were scheduled for 10 to 14 July 2017, with presentation of final arguments
scheduled for 31 July 2017.
These dates were beyond the previously agreed extension date of 30 June 2017 stipulated in the Binding Offer and
Implementation Agreement. Approval was therefore requested and obtained from the boards of Italtile and Ceramic to:
- further extend the date for fulfilment of the Conditions contained in paragraphs 9.4(a), 9.4(f), 9.4(h) and 9.4(m)
of the Binding Offer to 30 September 2017; and
- further extend the date for fulfilment of the Conditions contained in clauses 5.1(c)(v), 5.1(c)(vii) and 5.1(c)(xii)
of the Implementation Agreement to 30 September 2017.
The hearings scheduled for 10 and 14 July have subsequently been concluded, although presentation of final arguments
is now scheduled to take place on 18 August 2017. It is anticipated that the entire process will conclude within the
next two months.
Italtile remains optimistic of a favourable outcome in terms of obtaining the required approvals from the competition
authorities to proceed with the Acquisition.
Shareholders will be apprised of the details of the ruling as soon as practicable thereafter.
PROPERTY INVESTMENT PORTFOLIO
The Group’s property portfolio affords strategic advantage to the retail brand operations by ensuring stores are easily
accessible, well-presented and maintained, and contribute to an aspirational shopping experience. The portfolio is
continuously evaluated and enhanced to ensure optimal returns.
As at 30 June 2017, the portfolio had an estimated market value of R2,6 billion (2016: R2,4 billion). In the period
under review, R232 million (2016: R284 million) was invested in an ongoing store upgrade programme and the acquisition of
eight properties. During the period, 14 new TopT and two new CTM stores were opened.
In line with management’s stated intent, the Group concluded the sale of its Australian property holding company in
December 2016, realising a gain of R37 million.
STAFF SHARE SCHEME
The Group’s equity-settled Staff Share Scheme is designed to incentivise employees to participate in the growth and
profitability of the business. In this regard, management has previously proudly reported that the first allotment of
shares in this scheme, granted in 2013, vested on 31 August 2016. A total of 334 employees qualified for the vesting, of
which 42 employees opted to receive shares and the balance (292 employees) received the net value of the awards in cash.
Cash payments after tax averaged R204 000 per individual and totalled R59,7 million, funded by the sale of the related
shares to the market. Employees who elected to receive shares, received between 12 083 and 15 802 Italtile Limited shares
each (dependent on the individual’s effective income tax rate).
During the reporting period a further allotment of 2,8 million shares (2016: 3,1 million shares) was allocated to 155
eligible employees of the Group and franchisees (2016: 161 employees).
DIRECTORATE
As announced on SENS during the course of the year, the following changes were made to the Board of directors of the
Company:
- Ms Alessia Zannoni resigned as a non-executive director on 25 November 2016;
- Mr Nick Booth, formerly Chief Executive Officer, announced his decision to take early retirement with effect from
28 February 2017. He stepped down from executive duties on 1 December 2016, and was succeeded by Mr Jan Potgieter,
formerly the Group’s Chief Operating Officer; and
- Ms Gugu Mtetwa was appointed as a non-executive director with effect from 28 January 2017.
PROSPECTS
All indications are that current socio-political and economic conditions will prevail for at least the next six months.
Real disposable income is likely to decline further in the context of poor economic growth, limited job creation and
significant increases in personal income taxes for middle and high-income earners. Country-specific risk will also remain
a factor for the forthcoming period and management anticipates a weakening trend of the local currency.
Sustained high levels of stock in the market and lower-consumer demand will drive intensified competition as operators
vie for a share of wallet. Further rationalisation of marginal industry participants is also probable.
Despite this contextual outlook, the Group remains confident that its strong brands as well as robust and resilient
business model can capitalise on growth opportunities in this market, particularly given the relatively low per capita
consumption of tiles in this country compared to peer economies.
Furthermore, management is satisfied that its competent leadership team, clearly defined strategies and clarity of
purpose positions the business well for continued growth. The Group’s competitive advantage will continue to be furthered
by its tactical brand portfolio, integrated supply chain, strong entrepreneurial partnerships and long-standing
reputation.
While advancement of the store roll-out programme will be determined by market demand and availability of suitable sites
and operators, the Group’s goal is to open a total of 20 new stores over the next financial year, including at least one
Italtile Retail store and three CTM stores. Furthermore, capacity in the Supply Chain will also continue to be developed
to support anticipated growth over the long term.
In addition to expanding the capacity of the business, opportunities for growth also exist within the business itself,
through improved competencies, efficiencies, and conceptualisation of retail innovations and market-disruptive strategies.
Management’s key focus areas in the forthcoming period will include:
- further improvement of the working capital position through intensified control of inventory and all overhead costs;
- better productivity through enhanced performance management and training initiatives;
- attracting, retaining and developing an appropriately skilled personnel complement, capable of enabling the Group’s
growth strategy;
- continued development of sector leading technology; and
- driving the strategy to offer a customer-centric shopping experience which constantly delights our customers.
SUBSEQUENT EVENTS
No events have occurred subsequent to the reporting period that require any additional disclosures or adjustments.
CASH DIVIDEND
The Group has maintained its dividend cover of three times. The Board has declared a final gross cash dividend of 14,0
cents per share (2016: 15,0 cents per share), which together with the interim gross cash dividend of 16,0 cents per
share (2016: 14,0 cents per share), produces a total gross cash dividend declared for the year ended 30 June 2017 of 30,0
cents per share (2016: 29,0 cents per share), an increase of 3%.
DIVIDEND ANNOUNCEMENT
The Board has declared a final gross cash dividend (number 102) for the year ended 30 June 2017 of 14,0 cents per
ordinary share to all shareholders recorded in the books of Italtile as at the record date of Friday, 8 September 2017.
In accordance with paragraphs 11.17(a)(i) to (x) and 11.17(c) of the Listings Requirements of the JSE Limited ("JSE
Listings Requirements"), the following additional information is provided:
- The dividend has been declared out of income reserves.
- The local dividend withholding tax rate is 20% (twenty percent).
- The gross local dividend amount is 14,00 cents per share for shareholders exempt from the dividends tax.
- The net local dividend amount is 11,20 cents per share for shareholders liable to pay the dividends tax.
- The local dividend withholding tax amount is 2,80 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 9 866 130 shares held by the Italtile Share Incentive Trust
and 83 120 423 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 Tuesday, 5 September 2017. The shares will commence trading ex-dividend from the commencement of business
on Wednesday, 6 September 2017 and the record date will be Friday, 8 September 2017. The dividend will be paid on Monday,
11 September 2017. Share certificates may not be rematerialised or dematerialised between Wednesday, 6 September 2017 and
Friday, 8 September 2017, both days inclusive.
The full reviewed Group results announcement has been released on SENS and is available for viewing on the Company’s website
(www.italtile.com); furthermore, it is available for inspection at the registered offices of Italtile and the sponsor,
Merchantec Capital, during business hours. Copies of the full announcement are available at no cost on request and may be
obtained from the Company Secretary who is contactable on: +27 11 882 8200 or: lizw@rootginger.co.za.
For and on behalf of the Board
J Potgieter B Wood
Chief Executive Officer Chief Financial Officer
No forward looking statements in this announcement have been reviewed or reported on by the Group’s auditors.
The condensed Group results announcement for the year ended 30 June 2017 has been reviewed by Ernst & Young Inc.("EY").
EY’s unmodified review conclusion does not necessarily report on all of the information contained in this condensed
Group results announcement. Shareholders are therefore advised that in order to obtain a full understanding of the nature
of the auditors’ engagement, they should obtain a copy of EY’s unmodified review opinion together with the accompanying
financial information from the Company Secretary at the Company’s registered office.
Johannesburg
16 August 2017
System-wide turnover analysis
For the year ended 30 June 2017
(Rand millions unless otherwise stated) Reviewed Audited
year to year to
% 30 June 30 June
increase 2017 2016
Group and franchised turnover
- By Group owned stores and entities 4 3 670 3 539
- By franchise owned stores (unaudited) 5 2 540 2 416
Total 4 6 210 5 955
Store network
At 30 June 2017
2017 2016
Region Franchise Other Total Franchise Other Total
South Africa
- Italtile - 11* 11 - 11* 11
- CTM 31 38* 69 28 41* 69
- TopT 41 23 64 37 13 50
Rest of Africa 9* 9* 18 9 7* 16
81 81 162 74 72 146
*Includes web store.
Condensed Group statements of comprehensive income
For the year ended 30 June 2017
(Rand millions unless otherwise stated) Reviewed Audited
year to year to
% 30 June 30 June
increase 2017 2016
Turnover 4 3 670 3 539
Cost of sales (2 182) (2 117)
Gross profit 5 1 488 1 422
Other operating income 392 342
Operating expenses (832) (728)
Profit on sale of property, plant and equipment 15 11
Trading profit 2 1 063 1 047
Finance income 32 25
Finance cost (1) (2)
Profit from associates - after tax 96 96
Profit before taxation 2 1 190 1 166
Taxation (310) (315)
Profit for the period 3 880 851
Other comprehensive income
Items that may be reclassified subsequently to profit or
loss (net of taxation):
Foreign currency translation difference (24) 25
Items that have been reclassified subsequently to profit or loss:
Recycling of foreign currency translation difference on the
Australian disposal (75)
Other comprehensive income from associates (7) 8
Total comprehensive income for the period (12) 774 884
Profit attributable to:
- Equity shareholders 845 813
- Non-controlling interests 35 38
3 880 851
Total comprehensive income attributable to:
- Equity shareholders 739 846
- Non-controlling interests 35 38
(12) 774 884
Earnings per share (all figures in cents):
- Earnings per share 2,8 90,3 87,8
- Headline earnings per share (1,4) 85,7 86,9
- Diluted earnings per share 3,9 89,8 86,4
- Diluted headline earnings per share (0,4) 85,2 85,5
Condensed Group statements of financial position
As at 30 June 2017
(Rand millions unless otherwise stated) Reviewed Audited
year to year to
30 June 30 June
2017 2016
ASSETS
Non-current assets 2 775 2 309
Property, plant and equipment 1 807 1 594
Investments in associates 732 674
Long-term assets 176 15
Goodwill 6 6
Deferred taxation 54 20
Current assets 1 388 1 365
Inventories 548 693
Trade and other receivables 313 306
Cash and cash equivalents 511 347
Taxation receivable 16 19
Non-current assets in disposal group - 116
Total assets 4 163 3 790
EQUITY AND LIABILITIES
Share capital and reserves 3 773 3 353
Stated capital 818 818
Non-distributable reserves 13 122
Treasury shares (436) (454)
Share option reserve 88 95
Retained earnings 3 230 2 711
Non-controlling interests 60 61
Non-current liabilities 24 18
Deferred taxation 24 18
Current liabilities 366 384
Trade and other payables 304 329
Provisions 46 53
Interest-bearing loans - *
Taxation payable 16 2
Liabilities directly associated with non-current
assets in disposal group - 35
Total equity and liabilities 4 163 3 790
Net asset value per share (cents) 403 362
* Less than R1 million.
Condensed Group statement of changes in equity
For the year ended 30 June 2017
(Rand millions unless otherwise stated) Non- Non-
distri- Share con-
Stated butable Treasury option Retained trolling Total
capital reserves shares reserve earnings Total interest equity
Balance at 30 June 2015 818 89 (461) 72 2 154 2 672 62 2 734
Profit for the period 813 813 38 851
Other comprehensive income for the period 33 33 33
Total comprehensive income for the period - 33 - - 813 846 38 884
Dividends paid (252) (252) (27) (279)
Transactions with non-controlling interests (7) (7) (12) (19)
Share incentive costs (including vesting settlement) 7 23 3 33 33
Balance at 30 June 2016 818 122 (454) 95 2 711 3 292 61 3 353
Profit for the period 845 845 35 880
Other comprehensive income for the period (106) (106) (106)
Total comprehensive income for the period - (106) - - 845 739 35 774
Dividends paid (292) (292) (13) (305)
Subsidiary transactions (3) (3) (3)
Transactions with non-controlling interests (38) (38) (23) (61)
Share incentive costs (including vesting settlement) 18 (7) 4 15 15
Balance at 30 June 2017 818 13 (436) 88 3 230 3 713 60 3 773
Condensed Group cash flow statement
For the year ended 30 June 2017
(Rand millions unless otherwise stated) Reviewed Audited
year to year to
30 June 30 June
2017 2016
Cash generated by operations 1 205 892
Dividend paid (305) (279)
Taxation (322) (330)
Other* 31 23
Cash flow from operating activities 609 306
Additions to property, plant and equipment (334) (375)
Proceeds on disposal of property, plant and equipment 41 15
Increase in investments 32 21
Increase in long-term financial assets (112) -
Purchase of interest in subsidiaries - (19)
Net cash flow from disposal of subsidiary (6) -
Cash flow from investing activities (379) (358)
Acquisition of non-controlling interest (84) -
Treasury share movements 18 7
Cash flow from financing activities (66) 7
Net movement in cash and cash equivalents for the period 164 (45)
Cash and cash equivalents at the beginning of the period 347 392
Cash and cash equivalents at the end of the period 511 347
* Includes finance income and finance costs
Segmental report
For the year ended 30 June 2017
(Rand millions unless Turnover Gross margin Net profit before tax
otherwise stated) June June % June June % June June %
2017 2016 change 2017 2016 change 2017 2016 change
Retail 5 714 5 441 5 1 099 1 072 3 256 285 (10)
Franchising 210 200 5
Properties 256 249 3
Supply and Support Services 1 966 1 934 2 183 183 - 366 358 2
Associates 96 96 -
Total 7 680 7 375 4 1 282 1 255 2 1 184 1 188 -
Franchise stores (2 540) (2 416) 5
Consolidation entries (1 470) (1 420) 4 6 (22) 127 6 (22) 127
Total Group 3 670 3 539 4 1 288 1 233 4 1 190 1 166 2
Geographical analysis
(Rand millions unless otherwise stated) Inter-
South Rest of group Disposal
Africa Africa entries Group group*
Reviewed year to 30 June 2017
Turnover 4 717 423 (1 470) 3 670 -
Non-current assets 3 166 148 (593) 2 721 -
Audited year to 30 June 2016
Turnover 4 562 397 (1 420) 3 539 -
Non-current assets 2 775 115 (601) 2 289 112
* Australia.
Notes
1. Basis of preparation and changes in accounting policy
Basis of preparation
The preliminary condensed consolidated financial statements for the year ended 30 June 2017 have been
prepared in accordance with IAS 34 Interim Financial Reporting, the Companies Act, 2008 (Act 71 of 2008),
as amended, 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 the JSE
Listings Requirements. The condensed consolidated financial statements do not include all information on
disclosures required in the annual financial statements and should be read in conjunction with the Group’s
annual financial statements as at 30 June 2017. These results have been prepared under the supervision of
Chief Financial Officer, Mr B Wood CA(SA).
New standards, interpretations and amendments adopted
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 on the Group’s reported
results and cash flows for the year ended 30 June 2017 and the financial position at 30 June 2017.
2. Commitments and contingencies
There are no material contingent assets or liabilities at 30 June 2017.
(Rand millions unless otherwise stated) 30 June 30 June
2017 2016
Capital commitments
- Contracted 60 42
- Authorised but not contracted for 235 239
Total 295 281
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 difference between their fair value and carrying value due to
the short-term nature of these items, and/or existing terms are equivalent to market observables. There were
no transfers into or out of Level 3 during the period.
4. Cedar Point Trading 326 Proprietary Limited
The Group acquired the remaining 10% non-controlling stake in Cedar Point Trading 326 Proprietary Limited at
the beginning of the period under review, held by the previous business partner at a cost of R14 million. At
the same time the Group sold a 10% stake in Cedar Point Trading 326 Proprietary Limited at the beginning of
the period under review to a new business partner. This stake was sold at a cost of R16 million, and kept the
Group’s interest in this entity at 90%.
5. Disposal of Australian business
Management elected to sell the operations of Italtile Australia Proprietary Limited, a subsidiary of Italtile
Limited. The business of Italtile Australia Proprietary Limited represented the Group’s Australian property
portfolio. A buyer was identified before the 2016 year end, the assets of the operations were therefore treated
as a disposal group at 30 June 2016. The sale was concluded on 13 December 2016, at a total profit of R37 million
via a release of foreign currency in the foreign currency translation reserve.
6. International Tap Distributors Proprietary Limited
The Group acquired a 19% non-controlling stake in International Tap Distributors Proprietary Limited at the end
of March 2017, held by the previous business partners at a cost of R76 million, increasing the Group’s interest
in this entity to 98%.
7. Staff Share Scheme
During the 2014 financial year, the Group implemented a share incentive scheme for all employees of the Group
and its franchisees that had been in the employ of the Group and/or franchise network for a period of three
uninterrupted years at each allotment date in August every year from implementation date. As a result, 7 million
of the Group’s shares net of forfeitures were held by qualifying staff members at 30 June 2017 (2016: 15 million).
Until vesting, the shares will continue to be accounted for as treasury shares and have an impact on the diluted
weighted average number of shares.
The first allotment of shares in the scheme, granted in 2013, vested on 31 August 2016. A total of 334 employees
qualified for the vesting, of which 42 employees opted to receive shares and the balance (292 employees) received
the net value of the awards in cash. This resulted in a decrease in treasury shares of 4 879 577 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 (2016: R13 million) to the Group’s income; R10 million (2016: R9 million) of this
charge is a once-off accelerated expense for franchise staff.
Reviewed Audited
year to year to
30 June 30 June
2017 2016
8. Earnings per share
Reconciliation of shares in issue (all figures in millions):
- Total number of share issued 1 033 1 033
- Shares held by Share Incentive Trust (10) (19)
- BEE treasury shares (83) (88)
Shares in issue to external parties 940 926
Reconciliation of share numbers used for earnings per share
calculations (all figures in millions):
Weighted average number of shares 936 925
- Dilution effect of share awards 5 15
Diluted weighted average number of shares 941 940
Reconciliation of headline earnings (Rand millions):
- Profit attributable to equity shareholders 845 813
- Profit on sale of property, plant and equipment - after taxation (12) (9)
- Profit on sale of Australian operation - after taxation (30) -
Headline earnings 803 804
No adjustments to earnings are required for diluted earning per share calculations, as the share awards do not
have an impact on diluted earnings.
Registered office
The Italtile Building, cnr William Nicol Drive
and Peter Place, Bryanston
(PO Box 1689, Randburg 2125)
Transfer secretaries
Computershare Investor Services Proprietary Limited
Rosebank Towers, 15 Biermann Avenue
Rosebank, 2196, South Africa
PO Box 61051, Marshalltown, 2107
Executive directors
J N Potgieter (Chief Executive Officer)
B G Wood (Chief Financial Officer)
Non-executive directors
G A M Ravazzotti (Non-executive Chairman), S M du Toit, S I Gama, N Medupe,
N V Mtetwa, S G Pretorius
Company Secretary
E J Willis
Sponsor
Merchantec Capital
Auditors
Ernst & Young Inc.
www.italtile.com
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