Wrap Text
Reviewed Condensed Group Results For The Six Months Ended 31 December 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" or "the Company")
Reviewed condensed Group results for the six months ended 31 December 2017 and dividend declaration
System-wide turnover R4,25 billion
2016: R3,50 billion
22% increase
Headline earnings per share 48,6 cents
Adjusted 2016: 46,4 cents
5% increase
Trading profit R716 million
2016: R594 million
21% increase
Net asset value 500,0 cents
Adjusted 2016: 387,0 cents
29% increase
Earnings per share 48,6 cents
Adjusted 2016: 50,8 cents
4% decrease
Dividends per share 17,0 cents
2016: 16,0 cents
6% increase
Commentary
Overview
Italtile Limited is a franchisor, retailer and manufacturer of 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 174 stores. The brand offering targets homeowners across the LSM 4 to 10 categories.
The retail operation is strategically supported by a vertically integrated supply chain (comprising key manufacturing
and import operations) and an extensive property portfolio.
The Group's goal is to become the best retailer and manufacturer of tiles, sanitaryware and ancillary products in the
world, by offering an unrivalled shopping experience through the strategy of ensuring the right product, at the right
time, place and price.
Impact of certain transactions on the Group's results and reporting reference terms
Comparable disclosure and analysis of the Group's results for the six months ended 31 December 2017 ("the Period") with
the prior corresponding period have been impacted on by the acquisition ("Acquisition") of Ceramic Industries Limited
("Ceramic") and the partially underwritten renounceable Rights Offer ("Rights Offer") as detailed below:
Acquisition
Following the Acquisition becoming effective on 2 October 2017, the Group now holds a 95,47% stake in Ceramic and an
effective 71,54% in Ezee Tile Adhesive Manufacturing Proprietary Limited ("Ezee Tile"). Accordingly, the results for the
period include the consolidated results of both businesses from 2 October 2017.
Sales related to Ceramic and Ezee Tile are referred to as "manufacturing" sales to distinguish them from "retail"
sales reported by Italtile's retail brands (CTM, Italtile Retail and TopT).
Issued share capital
In terms of the Acquisition, 150 936 170 Italtile shares were issued to shareholders of Ceramic. Further, in terms of
the Rights Offer, as published on SENS on 23 October 2017 and 2 November 2017, 135 985 156 Italtile shares were
subscribed for by the close of the Rights Offer on 24 November 2017 (this equated to a 99% take-up).
The Group's current issued share capital is 1 320 254 148 shares, reflecting an increase of 28% (pre-Rights Offer and
Acquisition: 1 033 332 822 shares). Consequently, the current period weighted average number of shares is higher than
that of the prior period. Furthermore, the weighted average number of shares for the current and prior corresponding
period has been adjusted in accordance with IAS 33 Earnings Per Share, in order to account for the deemed bonus element
inherent in the Rights Issue as a result of the Rights Offer being priced at a discount to the market share price.
Trading environment
In the context of sustained subdued economic conditions and socio-political uncertainty, investment in property
remained muted across both the public and private sectors during the Period. In the Group's target residential segment,
new-build growth was limited, while in the renovations market, homeowners continued to invest in their properties; however,
the frequency and value of that spend declined compared to prior years.
In response to this adverse operating environment, management's primary focus over the Period was twofold; namely to
leverage opportunities for growth within the business through intensified implementation of retail excellence disciplines
and trading innovations and to improve the Group's working capital position through aggressive enhanced inventory
management and cost leadership.
In light of limited disposable income, consumers were increasingly discerning in their selection of suppliers, seeking
out offerings which provided superior value, quality, service and convenience. Price rivalry and margin pressure were
features of the Period as industry participants competed for a share of the reduced wallet. In this environment, the
Group's unique business model served it well. The high-profile strategic brand portfolio extending across the income
spectrum and continued investment in the shopping experience appealed to traditional and new customers.
During the Period, the consistent supply of imported product was hampered by a shortage of containers, general shipping
delays and supply disruptions in China. The Group, however, benefited from the support of its local supply chain and
its multi-decade relationships with international business partners. Although imported inventory levels have stabilised,
management will investigate alternative suppliers and markets.
Results
While management was dissatisfied with turnover growth recorded by the Group during the Period, good progress was made
in terms of improving profitability and stabilising margins - achieved through resolute cost leadership with operating
costs decreasing 3% from the prior period on a like-for-like basis. In the retail operation, trading margins improved
despite average selling price deflation. While the supply chain absorbed the impact of currency volatility on imported
products and increased industrial input costs, management of overheads served to reduce the impact on trading margins.
The Group's system-wide turnover for the review Period was R4,3 billion, 21,6% higher than the prior corresponding
period (2016: R3,5 billion). System-wide turnover is defined as the aggregate of the Group's consolidated turnover
(total sales by Group-owned entities and corporate stores, excluding sales from owned Supply Chain businesses to
corporate stores) and the retail turnover of franchisees of the Group.
Like-on-like retail store turnover for the Period decreased by 3,9% compared to the prior corresponding period, with
average selling price deflation estimated at 1%. Retail store turnover is defined as the aggregate of turnover of all
stores, either corporate or franchised, in the Group's retail network.
Manufacturing sales for the period from 2 October 2017 to 31 December 2017 grew by 8,8% compared to the prior corresponding
period. Manufacturing sales for the Period increased by 3,7% compared to the prior corresponding period. Average selling
price inflation for the Period is estimated at 2%.
Consolidation of the manufacturing sales for the period from 2 October 2017 to 31 December 2017, resulted in an increase of
R1,068 million for the Period.
Trading profit grew 21% to R716 million (2016: R594 million).
The Group's basic earnings per share decreased 4,3% to 48,6 cents (2016 adjusted: 50,8 cents), while headline earnings per
share increased 4,7% to 48,6 cents (2016 adjusted: 46,4 cents).
The disparity between basic earnings and headline earnings growth is attributable to:
- a gain of R37 million realised during the prior corresponding period on the disposal of the Italtile Australia property
holding business; and
- a gain of R15 million realised during the prior corresponding period on the disposal of South African properties.
Inventory value increased to R824 million (2016: R761 million). Excluding the consolidated inventory balances of Ceramic
and Ezee Tile, the Group's inventory balance was R580 million.
Capital expenditure of R313 million (2016: R243 million) was incurred during the Period, primarily on enhancing the
property portfolio, manufacturing facilities and store refurbishments to support the Group's growth programme.
The Group's cash balance increased to R562 million (2016: R182 million), including the consolidated cash balances of
Ceramic and Ezee Tile, totalling R174 million. Significant cash flows for the Period were as follows:
- Capital expenditure of R313 million;
- Tax payments of R220 million;
- Cash consideration for the Ceramic Acquisition of R1,8 billion;
- Cash proceeds of the Rights Issue of R1,6 billion; and
- Dividend payments of R148 million.
Notwithstanding the above, the improvement in the Group's cash balance is also attributable to focused cost leadership
and the cash generative nature of the business.
The Group's net asset value was 500 cents (2016 adjusted: 387 cents).
Operational review
Across the brands, investment continued to be made in optimising personnel; IT and digital capacity; and store revamps,
aimed at delivering an unparalleled shopping experience for customers. Enhanced retail and store operator training led
to improvements in service and efficiencies, while the Group's digital strategy also continued to provide rewarding
returns. The ongoing store upgrade programme and new look offerings across the brands were met with enthusiasm by customers,
driving sales. The Business Optimisation Programme (BOP) continued to assist in improving stock management through more
scientific analysis and forecasting, and proved successful where it has been comprehensively implemented, such as in the
TopT network.
Retail brands
CTM
CTM's primary target market, middle-income consumers, continued to experience substantial economic hardship as disposable
income remained stagnant or declined and indebtedness levels rose. In this context, homeowners remained extremely discerning
in allocating discretionary spend, seeking out optimum value/quality offerings.
During the Period, while the brand's sales and market share declined, profits and margins improved due to an aggressive
campaign to drive operating overheads down; good progress was achieved in reducing transport, inventory control and
personnel costs.
Management's major focus in the Period was the development of store operator skills, growing the personnel pipeline
and entrenching retail excellence in all disciplines. Successful execution of BOP remains a key goal, and once attained,
will afford a significant improvement in stock management in this business.
Continued investment in IT systems and functionality affords CTM strategic advantage in the market. During the Period,
the webstore reported an increase in online sales in excess of 30%, and also drove traffic to the stores. The brand is
currently in the process of launching upgraded mobile hand-held scanners that will have an important impact on customer
service.
CTM's priority in the Period ahead will be to regain market share.
One new store was opened during the Period, in Polokwane, bringing the total network to 70 stores.
Italtile Retail
Trading in the premium-end of the market continued to improve incrementally over the Period.
Homeowners and developers who had temporarily deferred investment in properties, adopting a wait-and-see stance, reinstated
projects and drove sales growth for the brand. The business also recorded a growth in market share, resulting from a range
of initiatives implemented over recent months, including an improved range and better in-stock levels, roll out of a new look
to most stores across the network, and enhanced customer service facilitated by bespoke interior design training completed by
all sales consultants.
Improved sales were accompanied by increased profitability, and margins were maintained despite price deflation. Key to
this achievement was an import substitution strategy facilitated by Ceramic's high-end Gryphon ranges, which were warmly
received by customers.
With the opening of one new store, in Polokwane, the brand's network now comprises 12 stores including its webstore,
which also continued to enjoy good growth.
TopT
This brand continued to meet management's robust forecasts, delivering improved sales, profitability and margins, and
growing market share in new and existing markets.
Central to these results was an enhanced merchandise range and consistently good in-stock levels, achieved through
optimal implementation of BOP across the business. An improved marketing strategy and better brand awareness among
personnel also contributed to TopT's growth.
During the Period, 10 new stores were opened including a store in Botswana, bringing the total network to 74 stores.
The brand is expected to open a further 10 stores in the next six months.
Supply Chain
The Group's retail brand operation is strategically supported by its vertically integrated Supply Chain businesses
which comprise manufacturing businesses (Ceramic and Ezee Tile) and importers (International Tap Distributors,
Distribution Centre and Cedar Point).
Slower sales and de-stocking in the Group's stores had a negative knock-on impact on both the manufacturing and import
businesses in the supply chain.
Manufacturing
Ceramic Industries
One out of every two tiles, baths and toilets purchased in South Africa is made by Ceramic, hence this operation has
significant strategic advantage for the Group.
Across the business, sales growth failed to meet management's high expectations. Lower production volumes resulted in
inefficient capacity utilisation, and, together with the deliberate strategy to defer price increases to support
beleaguered customers, eroded profitability and margins in the context of higher industrial input costs. Notwithstanding
this, the business made good progress in improving its logistics and distribution operations, resulting in cost savings.
Tiles
The general overstock position across Ceramic's customer base resulted in lower tile sales in the local market. Export
sales for the Period were flat, primarily due to poor economic growth in Africa and consequent limited demand, specifically
from Ceramic's biggest import market, Zimbabwe. The Australian operation reported improved sales and profits for the Period.
During the Period, Gryphon's second production line and a new rectification line were commissioned, increasing the plant's
capacity to meet growing demand for its premium-end import substitute-quality products.
Sanitaryware
The general disarray among manufacturers in the industry resulted in significantly increased demand for baths specifically,
and sanitaryware to a lesser extent. Unfortunately, due to various manufacturing challenges experienced, the bath factory
was unable to fully capitalise on this situation. These matters are currently being addressed, and remedial measures will
be implemented.
Ezee Tile
This business manufactures grout, adhesives, paint and other related products for the Group's brands, as well as open-market
customers.
In the Period, plant and equipment upgrades were implemented across most of its factories, and new product development
remained a key priority.
Consistent, reliable supply to TopT supported that brand's strong growth during the Period, however, sales to CTM were
negatively affected by reduced sales in the stores. In line with its strategic intent, Ezee Tile succeeded in gaining
market share in the open market.
While modest sales growth was achieved, profitability remained flat and margins declined as a result of higher-volume
sales of lower-margin products. Efficiencies resulting from plant upgrades are expected to improve profitability in the
next six months.
Importing
As a function of intensive de-stocking activities in the store network, the Supply Chain's import businesses experienced
a decline in sales and profitability. Margins were adversely affected by limited price inflation aimed at supporting
price-sensitive customers, and currency volatility, which drove up the landed price of imports.
Management is pleased to report that stock management improved during the Period resulting in increased stock turn and
an enhanced mix and quality of inventory.
Property investment
The retail brand operation is supported by a strategic property investment portfolio, comprising high visibility,
easily accessible stores which are well presented and maintained, and designed to contribute to an aesthetically
pleasing shopping experience.
Returns from this portfolio for the Period declined in line with lower retail brand turnover.
In the Period, investments of R209 million were incurred on the acquisition of properties, new build projects and an
ongoing store refurbishment programme. Twelve stores were opened, bringing the total network to 174 stores.
As at 31 December 2017, the portfolio's estimated market value and carrying value were R3,5 billion (2016: R2,6 billion)
and R2,3 billion (2016: R1,8 billion) respectively.
Staff share scheme vesting
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, the second allotment of shares, granted in 2014, vested on 31 August 2017.
A total of 134 employees qualified, of which 130 employees opted to receive shares and the balance received the net value
of the awards in cash. Cash payments after tax averaged R143 000 per individual (aggregate payments including income tax
totalled R19 million), funded by the sale of the related shares to the market. Employees who elected to receive shares,
received an average of 10 600 Italtile Limited shares each (dependent on the individual’s effective income tax rate).
During the Period, a fifth allotment of shares was made, comprising 3,5 million shares allocated to 181 eligible
employees of the Group and franchisees.
As at 31 December 2017, there were 395 participants in the scheme, holding 7,6 million Italtile Limited shares.
Directorate
Subsequent to the Period, and effective 29 January 2018, Mr Siyabonga Gama resigned as an independent non-executive
director from the Board, given time constraints in light of his other professional commitments.
The Board wishes to record its gratitude to Mr Gama for his long-standing and valuable contribution to the Group since
his appointment as a director in 2004.
Prospects
Despite the improved outlook for South Africa and a gain in consumer confidence stemming from recent political events,
the macro-economic environment will remain challenging in the short term.
However, management anticipates that the second half of the year will be stronger than the second half of the prior
year, with growth exceeding that of the current Period under review. This stance is based on the expectation that further
growth momentum will be derived from the initiatives implemented and action taken in the period, as outlined in this
announcement.
The Group plans to open at least another 10 stores in the next six months, which will bring the total number of stores
opened during the full year to 22, exceeding the 20 stores previously committed to.
The Group is currently awaiting regulatory approval for its acquisition of the CTM Tanzania business. Once approval of
the transaction is granted, this operation will provide a solid addition to the base for growth prospects in the
region.
The Group's manufacturing businesses, Ceramic and Ezee Tile, both have strong order books for the forthcoming period,
and operational enhancements in both businesses should produce improved sales, profitability and margins. Management's
longer-term goals for these acquired businesses include reviewing all opportunities to leverage strategic synergies in
the merged business and optimising utilisation of the combined balance sheet.
Subsequent events
No events have occurred subsequent to the Period that require any additional disclosures or adjustments.
Cash dividend
The Group has maintained its dividend cover of three times. The Board has declared an interim gross dividend of
17,0 cents per share (2016: 16,0 cents), an increase of 6%.
Dividend announcement
The Board has declared an interim gross cash dividend (number 103) for the six months ended 31 December 2017 of 17 cents
per ordinary share to all shareholders recorded in the shareholder register of the Company as at the record date of
Friday, 2 March 2018.
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 withholding tax rate is 20% (twenty percent).
- The gross local dividend amount is 17,0 cents per share for shareholders exempt from the dividends tax.
- The net local dividend amount is 13,6 cents per share for shareholders liable to pay the dividends tax.
- The local dividend withholding tax amount is 3,4 cents per share for shareholders liable to pay the dividend tax.
- Italtile's income tax reference number is 9050182717.
- Italtile has 1 320 254 148 shares in issue including 12 301 238 shares held by the Share Incentive Trust and
83 380 622 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, 27 February 2018. The shares will commence trading ex-dividend from the commencement of
business on Wednesday, 28 February 2018 and the record date will be Friday, 2 March 2018. The dividend will be paid on
Monday, 5 March 2018. Share certificates may not be dematerialised or rematerialised between Wednesday, 28 February 2018
and Friday, 2 March 2018, both days inclusive.
The full Reviewed Condensed 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 Company's 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 N Potgieter B G 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 reviewed condensed Group results announcement for the six months ended 31 December 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 Reviewed Condensed Group Results 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 unmodified review opinion
together with the accompanying financial information from the Company Secretary at the Company's registered office.
Johannesburg
6 February 2018
System-wide turnover analysis
For the six months ended 31 December 2017
(Rand millions unless otherwise stated)
Reviewed Reviewed Audited
six months to six months to year to
% 31 December 31 December 30 June
increase 2017 2016 2017
Group and franchised turnover
- By Group owned stores and entities 36 2 831 2 081 3 670
- By franchise owned stores (unaudited/not reviewed) - 1 420 1 415 2 540
Total 22 4 251 3 496 6 210
Store network
At 31 December 2017 At 30 June 2017
Region Franchise Corporate Total Franchise Corporate Total
South Africa
- Italtile - 12* 12 - 11* 11
- CTM 31 39* 70 31 38* 69
- TopT 51 22 73 41 23 64
Rest of Africa
- CTM 9* 9* 18 9* 9* 18
- TopT 1 - 1 - - -
92 82 174 81 81 162
*Includes web store.
Condensed Group statements of comprehensive income
For the six months ended 31 December 2017
(Rand millions unless otherwise stated)
Reviewed Reviewed Audited
six months to six months to year to
% 31 December 31 December 30 June
increase 2017 2016 2017
Turnover 36 2 831 2 081 3 670
Cost of sales (1 765) (1 298) (2 182)
Gross profit 36 1 066 783 1 488
Other operating income 227 243 392
Operating expenses (577) (447) (832)
Profit on sale of property, plant and equipment # 15 15
Trading profit 20 716 594 1 063
Investment income 24 14 32
Finance cost (34) (1) (1)
Profit from associates - after tax 30 56 96
Profit before taxation 11 736 663 1 190
Taxation (202) (169) (310)
Profit for the period 8 534 494 880
Other comprehensive income
Items that may be reclassified subsequently to profit
or loss (net of taxation):
Foreign currency translation difference (43) (20) (24)
Other comprehensive income from associates 4 (7) (7)
Items that have been reclassified subsequently to
profit or loss:
Recycling of foreign currency translation difference
on the Australian disposal - (75) (75)
Total comprehensive income for the period 495 392 774
Profit attributable to:
- Equity shareholders 507 477 845
- Non-controlling interests 27 17 35
8 534 494 880
Total comprehensive income attributable to:
- Equity shareholders 468 375 739
- Non-controlling interests 27 17 35
495 392 774
Earnings per share (all figures in cents):
- Earnings per share (4) 48,6 50,8* 89,7*
- Headline earnings per share 5 48,6 46,4* 85,1*
- Diluted earnings per share (3) 48,4 50,1* 89,2*
- Diluted headline earnings per share 6 48,4 45,7* 84,7*
- Dividends per share 6 17 16,0 30,0
* Adjusted to account for Rights Offer bonus element.
# Less than R1 million.
Condensed Group statements of financial position
As at 31 December 2017
(Rand millions unless otherwise stated)
Reviewed Reviewed Audited
six months to six months to year to
31 December 31 December 30 June
2017 2016 2017
ASSETS
Non-current assets 3 719 2 669 2 775
Property, plant and equipment 3 481 1 772 1 807
Investments in associates 22 706 732
Long-term assets 153 152 176
Goodwill 11 6 6
Deferred taxation 52 33 54
Current assets 2 345 1 361 1 388
Inventories 824 761 548
Trade and other receivables 927 401 313
Cash and cash equivalents 562 182 511
Taxation receivable 32 17 16
Total assets 6 064 4 030 4 163
EQUITY AND LIABILITIES
Share capital and reserves 5 218 3 634 3 773
Stated capital 4 307 818 818
Non-distributable reserves (26) 20 13
Treasury shares (482) (442) (436)
Share option reserve 182 92 88
Retained earnings 1 035 3 066 3 230
Non-controlling interests 202 80 60
Non-current liabilities 149 18 24
Deferred taxation 149 18 24
Current liabilities 697 378 366
Trade and other payables 591 296 304
Provisions 92 46 46
Taxation payable 14 36 16
Total equity and liabilities 6 064 4 030 4 163
Net asset value per share (cents) 500,0 387,0* 402,0*
* Adjusted to account for Rights Offer bonus element.
Condensed Group statement of changes in equity
For the six months ended 31 December 2017
(Rand millions unless otherwise stated)
Equity
attribu-
table
Non- to Non-
distri- Share owners con-
Stated butable Treasury option Retained of the trolling
capital reserves shares reserve earnings parent interests Total
For the six months ended 31 December 2016
Audited balance at 30 June 2016 818 122 (454) 95 2 711 3 292 61 3 353
Profit for the year 477 477 17 494
Other comprehensive income for the year (102) (102) (102)
Total comprehensive income for the year - (102) - - 477 375 17 392
Dividends paid (140) (140) (7) (147)
Transactions with non-controlling interests 7 7 9 16
Share incentive costs (including vesting settlement) 12 (3) 11 20 20
Reviewed balance at 31 December 2016 818 20 (442) 92 3 066 3 554 80 3 634
For the six months ended 31 December 2017
Audited balance at 30 June 2017 818 13 (436) 88 3 230 3 713 60 3 773
Profit for the period 507 507 27 534
Other comprehensive income for the period (39) (39) - (39)
Total comprehensive income for the period (39) 507 468 27 495
Proceeds from rights issue 1 565 (20) 1 545 - 1 545
Acquisition of interest in subsidiaries 1 924 88 (2 610) (598) 129 (469)
Dividends paid (134) (134) (14) (148)
Share incentive costs (including vesting settlement) (26) 6 42 22 - 22
Reviewed balance at 31 December 2017 4 307 (26) (482) 182 1 035 5 016 202 5 218
Condensed Group cash flow statement
For the six months ended 31 December 2017
(Rand millions unless otherwise stated)
Reviewed Reviewed Audited
six months to six months to year to
31 December 31 December 30 June
2017 2016 2017
Cash generated by operations 763 377 1 205
Dividend paid (148) (147) (305)
Taxation (220) (146) (322)
Other* (10) 13 31
Cash flow from operating activities 385 97 609
Additions to property, plant and equipment (313) (243) (334)
Proceeds on disposal of property, plant and equipment 6 36 41
Increase in investments 33 17 32
Increase/(decrease) in long-term financial assets 23 (73) (112)
Net cash flow from acquisition/disposal of subsidiary (1 602) (3) (6)
Cash flow from investing activities (1 853) (266) (379)
Proceeds from share and rights issue 1 565
Treasury share movements (46) 12 18
Purchase of interest in subsidiary – (8) –
Acquisition of non-controlling interest – – (84)
Cash flow from financing activities 1 519 4 (66)
Net movement in cash and cash equivalents for the period 51 (165) 164
Cash and cash equivalents at the beginning of the period 511 347 347
Cash and cash equivalents at the end of the period 562 182 511
* Includes finance income and finance costs
Segmental report
For the six months ended 31 December 2017
(Rand millions unless otherwise stated)
Turnover Gross margin Net profit before tax
December December % December December % December December %
2017 2016 change 2017 2016 change 2017 2016 change
Retail 3 125 3 138 0 597 585 2 167 131 27
- Group stores 1 705 1 723 (1) 597 585 2 167 131 27
- Franchise stores 1 420 1 415 0 - - 0 - - 0
Franchising 182 186 (2)
Properties 129 156 (17)
Supply and Support Services 939 1 218 (23) 90 96 (6) 74 147 (50)
Manufacturing 1 068 - 100 281 - 100 179 - 100
Associates 30 56 (46)
Total 5 132 4 356 18 968 681 42 761 676 13
Franchise stores (1 420) (1 415) 0
Consolidation entries (881) (860) 3 30 (13) 331 (25) (13) (92)
Total Group 2 831 2 081 36 998 668 49 736 663 11
(Rand millions unless otherwise stated)
Gross Net
Turnover margin profit
Audited year to 30 June 2017
Retail 5 714 1 099 256
- Group stores 3 174 1 099 256
- Franchise stores 2 540 - -
Franchising 210
Properties 256
Supply and Support Services 1 966 183 366
Associates 96
Total 7 680 1 282 1 184
Franchise stores (2 540)
Consolidation entries (1 470) 6 6
Total Group 3 670 1 288 1 190
Geographical analysis
(Rand millions unless otherwise stated)
Inter-
South Rest of group
Africa Africa Australia entries Group
Reviewed six months to 31 December 2017
Turnover 3 226 231 256 (882) 2 831
Non-current assets 4 352 151 158 (994) 3 667
Reviewed six months to 31 December 2016
Turnover 2 724 217 - (860) 2 081
Non-current assets 3 012 152 - (528) 2 636
Audited year to 30 June 2017
Turnover 4 717 423 - (1 470) 3 670
Non-current assets 3 166 148 - (593) 2 721
Notes
1. Basis of preparation and changes in accounting policy
Basis of preparation
The interim condensed consolidated financial statements for the six months ended 31 December 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 six months ended 31 December 2017 and the financial position at 31 December 2017.
2. Commitments and contingencies
There are no material contingent assets or liabilities at 31 December 2017.
(Rand millions unless otherwise stated)
31 December 31 December 30 June
2017 2016 2017
Capital commitments
- Contracted 342 111 60
- Authorised but not contracted for 279 252 235
Total 621 363 295
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. 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 and 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.
5. Ceramic acquisition
Following the acquisition on 2 October 2017, the Group now holds a 95,47% stake in Ceramic and an effective
71,54% in Ezee Tile. Accordingly, the results for the Period include the consolidated results of both
businesses from 2 October 2017.
On 2 October 2017, the Group acquired an additional 74,5% interest in the voting shares of Ceramic for a
consideration of R3,5 billion, increasing its ownership interest to 95,5%. Ceramic is a manufacturer of glazed
porcelain floor tiles; ceramic wall and floor tiles; vitreous china sanitaryware and acrylic baths and shower
trays. The Group acquired the additional interest in Ceramic because the acquisition will result in improved
efficiencies and reduced costs; enhance the allocation of capital as well as create a depth of management,
experience and skill within the Group.
The Group has elected to measure non-controlling interests in Ceramic at book value.
Assets acquired and liabilities assumed
The book values of the identifiable assets and liabilities of Ceramic as at 2 October 2017 are:
R million
Assets
Property, plant and equipment 1 431
Goodwill 5
Equity-accounted investee 57
Deferred taxation assets 2
Inventories 238
Trade and other receivables 549
Income tax receivable -
Cash and cash equivalents 141
2 423
Liabilities
Shareholders' loans 4
Deferred taxation liabilities 83
Trade and other payables and provisions 352
Income tax payable 14
Shareholders for dividends #
453
Total identifiable net assets at fair value 1 970
# Less than R1 million.
The Group has also obtained a controlling interest in Ezee Tile as a result of the Acquisition. Prior to the
Acquisition, Italtile Ceramics and Ceramic each held a 36,6% interest in Ezee Tile. Post the Acquisition, the
Group now holds an effective interest of 71,54% in Ezee Tile.
The book values of the identifiable assets and liabilities of Ezee Tile as at 2 October 2017 are:
R million
Assets
Property, plant and equipment 42
Investments in subsidiaries 5
Inventories 43
Loans to group companies 7
Trade and other receivables 78
Cash and cash equivalents 27
202
Liabilities
Deferred taxation liabilities #
Trade and other payables and provisions 57
Loans from group companies 6
Income tax payable 5
68
Total identifiable net assets at fair value 134
# Less than R1 million.
The Group adopted a pooling of interest accounting policy to account for the Acquisition which is a common control
transaction and thus scoped out of IFRS 3 Business Combinations ("IFRS 3"). Under the pooling of interest method,
the carrying amounts of the assets and liabilities of Ceramic and Ezee Tile have been included in the statement of
financial position of Italtile, with the difference between the purchase consideration and the net assets of Ceramic
and Ezee Tile being included directly in equity and netted off against retained income. This amounted to R2.6 billion.
No goodwill will be recognised.
Transaction costs amounting to R25 million related to the Acquisition were incurred and capitalised to the cost
of investment in Ceramic.
6. Rights Offer
In terms of a partially underwritten renounceable Rights Offer, the Group offered a total of 260 539 178 new
ordinary shares of no par value at a subscription price of R11,57 in the ratio of 22 Rights Offer Shares for
every 100 Italtile shares held at the close of business on 10 November 2017. Following the close of the Rights
Offer on Friday, 24 November 2017, 135 985 156 Rights Offer Shares were subscribed for, equivalent to 99% of
the 137 473 296 Rights Offer Shares that could have been subscribed for (a large portion of Rights was not
followed by Rallen, as the Rights Offer had taken place in order to allow minority shareholders of Italtile an
opportunity to claw back their shareholding positions which were diluted as a result of the Ceramic acquisition).
Proceeds of the Rights Offer totalled R1,6 billion, and was utilised to settle the outstanding cash portion
(and interest thereon) related to the Ceramic acquisition.
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, 8 million of the Group's
shares net of forfeitures were held by qualifying staff members at 31 December 2017 (2016: 8 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 second allotment of shares in the scheme, granted in 2014, vested on 31 August 2017. A total of 134 employees
qualified for the vesting, of which 130 employees opted to receive shares and the balance received the net value
of the awards in cash. This resulted in a decrease in treasury shares of 1 468 409 (2016: 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 R14 million (2016: R17 million) to the Group's income; R12 million (2016: R10 million) of this charge
is a once-off accelerated expense for franchise staff.
Reviewed Reviewed Audited
six months to six months to year to
31 December 31 December 30 June
2017 2016 2017
8. Earnings per share
Reconciliation of shares in issue (all figures in millions):
- Total number of share issued 1 320 1 033 1 033
- Shares held by Share Incentive Trust (12) (15) (10)
- BEE treasury shares (83) (88) (83)
Shares in issue to external parties 1 225 930 940
Reconciliation of share numbers used for earnings per share
calculations (all figures in millions):
Weighted average number of shares in issue 1 038 932 936
Weighting of Rights Issue bonus element 5 6 6
Weighted average number of shares* 1 043 938 942
- Dilution effect of share awards 5 13 5
Diluted weighted average number of shares 1 048 951 947
Reconciliation of headline earnings (Rand millions):
- Profit attributable to equity shareholders 507 477 845
- Profit on sale of property, plant and equipment - after taxation - (11) (12)
- Profit on sale of Australian operation - after taxation - (31) (30)
Headline earnings 507 435 803
* The weighted average number of shares has been adjusted in accordance with IAS 33 Earnings per Share, to account
for the deemed bonus element inherent in the Rights Offer.
No adjustments to earnings are required for diluted earning per share calculations, as the share awards do not have
an impact on diluted earnings.
9. Supplementary disclosure
A proforma Group statement of comprehensive income has been prepared in order to demonstrate the financial performance
of the Group had the Ceramic acquisition not taken place in the current period. This information has not been reviewed
by the Group's auditors and is available on the corporate website (www.italtile.com).
Corporate information
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. (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, N Medupe, G Mtetwa, S G Pretorius
Company Secretary: E J Willis
Sponsor: Merchantec Capital
Auditors: Ernst & Young Inc.
For full financial results please visit our website: www.italtile.com
Date: 07/02/2018 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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