Wrap Text
Preliminary Reviewed Condensed Group Results for
the Year ended 30 June 2018 and Dividend
Declaration 2018
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 reviewed condensed Group results for the year ended 30 June 2018
and dividend declaration 2018
INTRODUCTION
System-wide turnover R8,7 billion up 40%
2017: R6,2 billion
Trading profit R1 518 million up 43%
2017: R1 063 million
Earnings per share 95,0 cents up 6%
2017 adjusted: 89,7 cents
Headline earnings per share 95,0 cents up 12%
2017 adjusted: 85,1 cents
Ordinary dividends per share 38,0 cents up 27%
2017: 30,0 cents
Special dividend per share 30,0 cents
Net cash R679 million up 33%
2017: R511 million
Net asset value 486 cents up 21%
2017 adjusted: 402 cents
Store network 176 stores up 9%
2017: 162 stores
Commentary
Overview for the year ended 30 June 2018
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 176 stores, including four online webstores. 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 dream is to become the best retailer 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.
2018 marks the 30th anniversary of the Group's listing on the JSE Limited, and the commencement of the Company's
50th year of trading.
Impact of certain transactions on the Group's results and reporting reference terms
Comparable disclosure and analysis of the Group's results for the year ended 30 June 2018 ("review period") with
the prior corresponding period have been impacted 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 review 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). In addition,
in terms of a specific repurchase of shares ("Repurchase") as published on SENS on 8 March 2018, 25 000 000 Italtile
shares were purchased by Italtile from Four Arrows Investments 256 Proprietary Limited.
As a result of the above, the Group's current issued share capital is 1 295 254 148 shares, reflecting an increase of
25,35% (pre-Rights Offer, Acquisition and Repurchase: 1 033 332 822 shares). Consequently, the current review period
weighted average number of shares is higher than that of the prior period. Furthermore, the weighted average number of
shares for the review period 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
Despite the improved outlook for South Africa and an initial gain in business and consumer confidence following
recent leadership changes in government, the macro-economic environment remained subdued during the review period.
In the context of sustained economic pressure on disposable income, consumers remained restrained in their spend on
non-essential items, and discerning in their selection of retailer - with the price/value proposition being a key
driver of purchasing decisions.
The Group's solid performance for the period is therefore largely a reflection of the impact of enhancements made in
the business during the year which started to gain momentum, particularly in the second six months, as opposed to
improved sentiment or spend by consumers.
Over the past 30 years since listing on the JSE and almost 50 years since the Group was founded, Italtile has laid
down a strong track record of continued improvement, consistency and resilience. Central to this achievement is our
unique business model which has served as a major differentiator in the industry and a strong investment proposition
for franchisees and shareholders. The key components are:
- Strategic portfolio of strong retail brands, which appeal to consumers across the income spectrum;
- Integrated supply chain which underpins our policy of "right product at the right time, place and price";
- Flat, low-cost organisational structure comprising strong teams and unique individuals intimately involved in the
operations;
- Recognition that our people are key to our competitive advantage and hence continued investment in them is
paramount;
- Strong partnerships with employees, equity partners and entrepreneurial franchisees;
- Reward and empowerment ethos which incentivises personnel to participate in the profitability of the business;
- Extensive property portfolio which comprises high-profile, accessible and aspirational stores, state-of-the-art
factories and productive quarries;
- A customer-centric philosophy which ensures all our activities are centred on keeping them top of mind;
- Longstanding reputation as the industry trend setter and fashion authority, retailing highly fashionable product
in all the markets we serve;
- Sustained investment in improving and innovating the shopping experience and ensuring the offering remains
attractive to traditional customers and new, emerging homeowners; and
- Concerted focus on developing and employing industry-leading technology in both our retail offering and
manufacturing operations.
Industry trends
A range of trends is evident, or emerging in our industry and market, which impact on our business. Accordingly, we
have developed strategic responses to mitigate any negative effects and capitalise on the opportunities they present.
These include:
- Constrained consumer discretionary spend, which led to a weaker sales environment and intensified value scrutiny.
Our response is to ensure our brands are aspirational and offer customers consistent year-round value; our price
offering is supported by strong brand equity, product quality and customer-centric service.
- Highly competitive trading landscape, which featured intense competitor activity with margins sacrificed by peer
operators striving to survive. Our response is to focus on achieving an optimal product-price-margin matrix which
holds appeal for customers but supports profits for store operators. Our robust cost leadership ethos is key to
preserving margins.
- Consumer demand for convenience (including accessibility to brick and mortar stores; demand for faster, more
efficient in-store service; and access to omnichannel shopping experience - seamless transition between online
and physical stores). Our response is to continue to roll out stores to underserviced markets; explore flexible
store-size formats relevant to specific markets for our brands; invest in technology to improve the customer
shopping experience; and expand our online retail and mobile commerce model.
- Industry-wide shortage of skilled retail-specialist personnel. Our response is to continue to invest significantly
in training and development; while our partnership and reward initiatives are designed to incentivise our people
and position the Group as an employer of choice.
- Innovative in-store shopping experiences are increasingly important. Our response is to continue to focus on
up-weighting the "delight and disrupt" factors in our stores through innovative layouts, lifestyles, products
and use of technology.
Results
In line with management's expectations, improvements made to the business in the first half of the review period
gained momentum, resulting in a stronger performance in the second half. In summary, while turnover growth reported
for the period failed to meet management's expectations, pleasing progress was made in improving profitability and
stabilising margins, achieved through robust cost leadership.
The Group's system-wide turnover for the review period was R8,7 billion, 39,8% higher than the prior corresponding
period (2017: R6,2 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.
System-wide retail store turnover grew 2% for the review period compared to the prior corresponding period.
Like-on-like retail store turnover decreased by 1,4% compared to the prior corresponding period. Retail store
turnover is defined as the aggregate turnover of all stores, either corporate or franchised, in the Group's
retail network.
Manufacturing sales for the period from 2 October 2017 to 30 June 2018 rose by 15,2% compared to the prior
corresponding period, with manufacturing sales for the review period growing by 10,6% compared to the prior
corresponding period.
Trading profit increased by 43% to R1 518 million (2017: R1 063 million). Average selling price inflation is estimated
at 1% in the retail operation (2017: 4,3%) and at 3% in the manufacturing operation.
The Group's basic earnings per share grew by 6% to 95,0 cents (2017 adjusted: 89,7 cents), while headline earnings per
share improved by 12% to 95,0 cents (2017 adjusted: 85,1 cents).
The disparity between basic earnings and headline earnings growth is attributable to a gain of R37 million realised
on the disposal of the Italtile Australia property holding business and a gain of R15 million realised on the disposal
of South African properties during the prior review period.
Retail margins were higher due to intensified cost containment, judicious price promotions which served to support
margins, and an improved mix of higher margin products in the average basket.
Inventory value, including the consolidated inventory balances of Ceramic and Ezee Tile, increased to R806 million
(2017: R548 million). Management is satisfied that good progress has been made in the retail operation to destock,
rationalise and improve the quality and mix of stock across the business. Excluding the inventory balances of Ceramic
and Ezee Tile, total inventory value decreased from the prior period.
Capital expenditure of R669 million was incurred during the period (2017: R334 million). This includes investments
made across the Group's retail properties and manufacturing plants.
The Group's cash balance rose to R679 million (2017: R511 million), including the consolidated cash balances of
Ceramic and Ezee Tile. Material cash flows for the review period include:
- Capital expenditure of R669 million;
- Tax payments of R435 million;
- Cash consideration for the Acquisition of R1,8 billion;
- Cash proceeds of the Rights Offer of R1,6 billion; and
- Dividend payments of R360 million.
The Group's net asset value per share was 486 cents (2017 adjusted: 402 cents).
Operational review
In response to the prevailing adverse operating environment, management's primary focus has been to leverage
opportunities for growth within the business. The following narrative outlines our key priorities and imperatives
during the review period and our progress in delivering against them:
- Store roll-out programme: 15 stores were opened and the business is on track to open another 10 to 15 stores in
the new financial year.
- Further improvement of the working capital position through intensified control of inventory: across the retail
network and supply chain (importers), inventory management improved. Enhanced product mix assisted in increasing
stock turn, and where inventory levels have risen, this was a function of improved in-stock levels of
business-critical items.
- Better productivity, cost leadership and margin management: good progress was made in the first half of the year
and improved on further in the second half, resulting in below-inflation cost growth, while margins improved across
the Group despite the weak sales trend.
- Develop capacity and leverage opportunities in the supply chain: key management appointments have been made, with a
view to substantially enhancing the contribution of this operation. In the year ahead we will: trial a new merchandise
category in various formats across the brands; commission a new plant to manufacture PVC panels for TopT; expand
operations into new African markets; and investigate the potential of outsourcing the management of the new Durban
and Cape Town Distribution Centres, which will further streamline the supply chain.
- Enhance performance management and training initiatives: extensive efforts were made to improve our learnership and
recruitment methodologies and we made good inroads in terms of upgrading our store operator complement.
- Attract, retain and develop an appropriately skilled personnel complement, capable of enabling the Group's growth
strategy: key management appointments were made across the business, including in the Supply Chain, Finance, Marketing
and Property divisions.
- Continued development of sector leading technology, retail innovations and market-disruptive strategies: the Group's
webstores, particularly CTM, have continued to benefit from early-mover advantage, both in South Africa and the East
Africa region. Our online capability is complemented by innovations instore, with the introduction of technology designed
to substantially enhance the shopping experience. The state-of-the-art technology employed in Ceramic's tile factories
continues to give us a leading edge as the industry fashion trend setter.
- Drive the strategy to offer a customer-centric shopping experience which constantly delights our customers: across the
brand network we focused on instilling retail excellence disciplines, resulting in improvements across key areas of the
offering, including range, presentation (merchandising and display) and service. Ongoing independent customer satisfaction
assessments confirm the improved in-store experience.
- East African expansion: regulatory approval to acquire the formerly franchised CTM Tanzania business was granted in
July 2018. The goal over the next four years will be to grow the footprint from four stores (including a webstore)
to eight stores.
In addition, Ezee Tile has advanced its expansion drive into sub-Saharan Africa and plans to commission three new
factories in the 2018/19 financial year. Ceramic has also investigated opportunities to build new factories in Rwanda
and Kenya, and an investment decision in this regard is expected in the new financial year provided adequate raw materials
are identified, gas supply secured and a local partnership established.
Retail brands
Improvements made across the business in the first six months gained momentum over the year, and better execution of
basic retail excellence principles and increased focus on key targets resulted in an improved second half performance
across all the brands. Italtile Retail and TopT built on their solid first half results, delivering double-digit growth.
While CTM recorded lower year-on-year sales as middle-income consumers continued to show stronger symptoms of economic
hardship, low single-digit growth was reported in the second six months.
During the review period, we gauge that Italtile Retail and TopT grew market share, while CTM succeeded in gaining
back share lost in the first half of the year.
CTM
Sales declined in a weak-demand environment; however, good progress was achieved in growing profits and margins.
Stock turn improved and, although average store inventory increased in the second half, management is satisfied that
the range, product mix and ratio of business-critical items has been enhanced.
Good results were recorded in attaining key priorities identified, including driving customer service excellence,
enhancing the human capital structure and skills development, and building stronger relationships with suppliers.
During the review period, one new Millennial-format store was opened in Capricorn, Limpopo (2017: two opened) and two
stores revamped, in Hermanus, Western Cape, and Tzaneen, Limpopo (2017: three revamped).
Italtile Retail
In the year under review, the brand achieved improved sales and profitability and reduced general operating costs
across the business. Margins declined nominally due to the strategy to support price-sensitive consumers. Stock turn
was improved and average store inventory reduced.
Italtile recorded good progress against its key imperatives, including improving the range overall, aligned to new
technologies in printing, multiple surface finishes, and a variety of sizes in large format porcelain tile slabs.
A rewarding growth in market share in this high fashion segment was recorded. In addition, the brand's Commercial
Projects division delivered a strong performance and has become an important contributor to the business.
One new store was opened during the year, in Polokwane (2017: none opened), and four stores were revamped to the
new-look new-generation store format.
TopT
The business reported improvements across all key metrics including sales, profits and margins, and grew its
contribution to total Group retail sales. Stock turn increased, while stock management resulted in lower average
store inventory and improved product mix.
During the review period, TopT achieved its key priorities, being to enhance its franchise partner and operator
training programmes; build on collaboration with suppliers to ensure that growing demand was met; grow the brand's
profile internally and externally; and enhance logistics and distribution to the stores.
Thirteen stores were opened (2017: 14), four of them corporate stores and the balance franchised.
Supply Chain: Manufacturers
Ceramic Industries
Over the past nine months since acquisition of this operation, our focus has been on improving business-to-business
communication, including enhanced production and logistics planning between the stores and the factories.
Tiles
During the review period, improvements were made to the tile matrix, including developing innovative new products and
rationalising the ranges.
The key challenge facing Ceramic is constrained market demand which is prevalent in the sector at present. During the
second half of the year, destocking took place across the Group's stores and industry-wide, as operators sought to
correct overstock positions evident in the first six months. While customer demand increased, volumes are not yet at
notable levels. This weak market is anticipated to result in underutilisation of capacity in the factories, which will
impact on profitability.
Ceramic's state-of-the-art Gryphon plant has commenced producing extra-large format tiles in various sizes to improve
the business's import-replacement advantage. Initial consumer response has been very positive; however, to grow this
market to projected scale will require education of consumers and installers, and consistency of quality on new innovative
product lines.
It is anticipated that in the year ahead, Ceramic will benefit from the reduction of Chinese government export
subsidies and decrease in production of smaller format tiles, which will result in inconsistent supply to our local
market. Furthermore, Ceramic plans to actively expand its local customer base to counter the weakened demand from
existing customers.
Bathroomware and baths
Disappointingly, Betta Sanitaryware under-performed management's targets. Operational inefficiencies, exacerbated by
warehouse space constraints, hampered the division's performance. A new management team has been appointed and a
comprehensive review and restructuring of the operation is under way to enable the business to meet the strong demand
for its products.
After a difficult first six months, in which Betta Baths experienced various manufacturing challenges, remedial
measures implemented served to address shortcomings, and the division reported an improved performance in the
second half. Enhancing profitability of the business will be prioritised in the year ahead.
Ezee Tile
During the review period, Ezee Tile made good progress in its local market, with the implementation of improvements
at several of its production facilities; expansion of product lines; and increased penetration of the open market.
The business also furthered its goal to expand into Africa, concluding joint venture partnerships with resident
partners to build manufacturing plants.
Supply Chain: Importers
During the year under review, both International Tap Distributors ("ITD") and Cedar Point made good progress in
rationalising ranges, although stockholding targets were not achieved. This will remain a key imperative in the
year ahead.
Severe supply disruptions out of China in the first half of the year impacted on the Group's in-stock position,
however better anticipation and prudent inventory management eased the situation in the second half, which proved
less challenging. Due to the supply uncertainty, both ITD and Cedar Point have reviewed their suppliers, and succeeded
in finding alternative suppliers, both in China and in new markets.
Property investment
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 Group's
manufacturing operations comprise well-maintained state-of-the-art factories which are supplied with raw materials
sourced from productive quarries in close proximity to the plants.
As at 30 June 2018, the portfolio's estimated market value was R3,7 billion, comprising a retail portfolio valued at
R2,9 billion (2017: R2,6 billion) and a manufacturing portfolio valued at R0,8 billion. During the review period,
capital expenditure of R355 million was incurred on the property portfolio on an ongoing store upgrade programme and
the acquisition of five retail properties, while R277 million was invested across the manufacturing operations on
plant and equipment upgrades.
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 four 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 review 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 30 June 2018, there were 363 participants in the
scheme, holding 6,9 million Italtile shares.
Directorate
During the review period, several changes were made to the composition of the Board.
Resignation of independent non-executive director
With effect from 29 January 2018, Mr Siyabonga Gama tendered his resignation as an independent non-executive director,
given time constraints in light of his other professional commitments. The Board wishes to record its gratitude to
Siyabonga for his long-standing and valuable contribution to the Group since his appointment as a director in 2004.
Appointment of executive directors
With effect from 11 May 2018, Ms Tsundzukani Mhlanga, formerly Financial Director of certain of the Group's subsidiary
companies, was appointed to the Board as Executive Director: Group Finance and Administration. Tsundzukani replaces
Brandon Wood, who has been appointed Executive Director: Commercial and Supply Chain.
Appointment of independent non-executive director
With effect from 11 May 2018, Ms Nkateko Khoza was appointed as an independent non-executive director to the Board.
The Board welcomes Nkateko and looks forward to her contribution.
Appointment of deputy chairman
The Nominations Committee ("the Committee") has commenced the process of identifying suitable potential candidates
to fill the position of non-executive Chairman upon the retirement of our current Chairman, in time.
The Committee's mandate is to identify candidates who have the appropriate expertise and experience to meet the
requirements of this business, and who satisfy the criteria of key stakeholders, including our shareholders.
In this regard, Ms Luciana Ravazzotti Langenhoven has been appointed to the Board as deputy chairman with effect
from 21 August 2018. The Board welcomes Luciana and looks forward to her contribution.
Further, over the course of the next year, the Committee will identify and appoint an additional independent
non-executive Board member with relevant businesses experience, strong leadership qualities and a proven
track record.
Prospects
Boosting the economy sustainably, improving household prosperity and rebuilding consumer confidence to translate into
positive investment sentiment are key to the growth of our industry. In the foreseeable future, the following
socio-economic issues need to be addressed urgently: high unemployment and indebtedness, prevailing evidence of
corruption, and policy uncertainty regarding key issues including prospective wealth taxes and land redistribution
without compensation. Failure to do so will see consumers remaining under pressure and negatively disposed, and
homeowners will continue to defer discretionary spend on their properties.
We anticipate that our first half results for the new financial year will be better than the comparable first half of
the prior year, due to the low base effect. Results in the second half of the year are expected to be less robust than
the second half of the year under review, unless country-specific risk factors reduce materially.
Our goal for the new financial year will be to continue to deliver improved headline earnings growth.
While the short to medium-term socio-economic forecast is pessimistic, we remain confident that our resilient
business model will stand us in good stead, as it has done over the past 50 years. We are optimistic that there are
opportunities within the business which we can capitalise on and we have a competent team with clarity of purpose
and strategy to achieve our growth targets.
We have identified our future focus areas. They include the following imperatives:
- Grow sales across the brands, which will have a positive knock-on effect in the supply chain;
- Continue to improve working capital and manage margins through robust cost leadership;
- Build on our reputation for retail innovation and disruptive technology, including continuing to enhance our
leading-edge online offering;
- Accelerate the Group's growth in selected markets in Africa;
- Advance the store roll-out programme, targeting 10 to 15 new stores;
- Progress improvements made in building a pipeline of talent and enhance depth of management;
- Make better use of analytics to inform targeted customer marketing and reward campaigns;
- Leverage opportunities in the integrated supply chain; and
- Upweight our marketing and brand building initiatives.
Subsequent events
No events have occurred subsequent to the reporting period that require any additional disclosures or adjustments.
Ordinary cash dividend
Following the reduction of the Group's dividend cover to two and a half times (2017: three times) the Board has
declared a final gross ordinary cash dividend of 21 cents per share (2017: 14,0 cents per share), which together with
the interim gross ordinary cash dividend of 17,0 cents per share (2017: 16,0 cents per share), produces a total gross
ordinary cash dividend declared for the year ended 30 June 2018 of 38 cents per share (2017: 30,0 cents per share),
an increase of 27%.
Special dividend
In light of the Group's cash reserves being in excess of operational requirements, the Board has declared a special
cash dividend of 30 cents per share (2017: nil).
Italtile has obtained the relevant South African Reserve Bank approval in respect of the special dividend, and the
Board has reasonably concluded that the Company will satisfy the solvency and liquidity test immediately after
distribution thereof and for the next 12 months.
Dividend announcement
The Board has declared a final gross ordinary cash dividend (number 104) and a special cash dividend (number 5) for
the year ended 30 June 2018 of 21 cents per ordinary share and 30 cents per ordinary share to all shareholders,
respectively, recorded in the books of Italtile as at the record date of Friday, 7 September 2018.
In accordance with paragraphs 11.17(a)(i) to (x) and 11.17(c) of the Listings Requirements of the JSE ("JSE Listings
Requirements") the following additional information is provided:
- The dividends have been declared out of income reserves.
- The local dividend withholding tax rate is 20% (twenty percent).
- The gross local ordinary dividend amount is 21 cents per share for shareholders exempt from the dividends tax.
- The net local ordinary dividend amount is 16,8 cents per share for shareholders liable to pay the dividends tax.
- The local ordinary dividend withholding tax amount is 4,2 cents per share for shareholders liable to pay the
dividends tax.
- The gross local special dividend amount is 30 cents per share for shareholders exempt from the dividends tax.
- The net local special dividend amount is 24 cents per share for shareholders liable to pay the dividends tax.
- The local special dividend withholding tax amount is 6 cents per share for shareholders liable to pay the
dividends tax.
- Italtile's income tax reference number is 9050182717.
- The Group has 1 295 254 148 shares in issue including 12 301 238 shares held by the Italtile Share Incentive Trust
and 61 851 217 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 dividends will be Tuesday, 4 September 2018. The shares will commence trading ex dividend from the commencement
of business on Wednesday, 5 September 2018 and the record date will be Friday, 7 September 2018. The dividends will
be paid on Monday, 10 September 2018. Share certificates may not be rematerialised or dematerialised between
Wednesday, 5 September 2018 and Friday, 7 September 2018, 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 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
Chief Executive Officer
B G Wood T Mhlanga
Executive Director Executive Director
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 2018 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
21 August 2018
System-wide turnover analysis
For the year ended 30 June 2018
(Rand millions unless
otherwise stated)
% Reviewed Audited
increase year to year to
30 June 30 June
2018 2017
Group and franchised turnover
- By Group owned stores and entities 65 6 064 3 670
- By franchise owned stores (unaudited) 3 2 615 2 540
Total 40 8 679 6 210
Store network
At 30 June 2018
2018 2017
Region Franchise Other Total Franchise Other Total
South Africa
- Italtile - 12* 12 - 11* 11
- CTM 34 35* 69 31 38* 69
- TopT 54 22 76 41 23 64
Rest of Africa
- CTM 9* 9* 18 9* 9* 18
- TopT 1 - 1 - - -
98 78 176 81 81 162
* Includes webstore.
FINANCIALS
Condensed Group statements of comprehensive income
for the year ended 30 June 2018
(Rand millions unless
otherwise stated)
% Reviewed Audited
increase year to year to
30 June 30 June
2018 2017
Turnover 65 6 064 3 670
Cost of sales (3 736) (2 182)
Gross profit 56 2 328 1 488
Other operating income 417 392
Operating expenses (1 227) (832)
Profit on sale of property, plant and equipment # 15
Trading profit 43 1 518 1 063
Investment income 61 32
Finance cost (35) (1)
Profit from associates - after tax 31 96
Profit before taxation 32 1 575 1 190
Taxation (429) (310)
Profit for the year 30 1 146 880
Other comprehensive income
Items that may be reclassified subsequently to
profit or loss (net of taxation):
Foreign currency translation difference (29) (24)
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 4 (7)
Total comprehensive income for the period 45 1 121 774
Profit attributable to:
- Equity shareholders 1 080 845
- Non-controlling interests 66 35
30 1 146 880
Total comprehensive income attributable to:
- Equity shareholders 1 055 739
- Non-controlling interests 66 35
45 1 121 774
Earnings per share (all figures in cents):
- Earnings per share 6 95,0 89,7*
- Headline earnings per share 12 95,0 85,1*
- Diluted earnings per share 6 94,6 89,2*
- Diluted headline earnings per share 12 94,6 84,7*
# Less than R1 million.
* Adjusted to account for Rights Offer bonus element.
Condensed Group statements of financial position
as at 30 June 2018
(Rand millions unless
otherwise stated)
Reviewed Audited
year to year to
30 June 30 June
2018 2017
ASSETS
Non-current assets 3 872 2 775
Property, plant and equipment 3 675 1 807
Investments in associates 23 732
Long-term assets 149 176
Goodwill 11 6
Deferred taxation 14 54
Current assets 2 455 1 388
Inventories 806 548
Trade and other receivables 942 313
Cash and cash equivalents 679 511
Taxation receivable 28 16
Total assets 6 327 4 163
EQUITY AND LIABILITIES
Share capital and reserves 5 525 3 773
Stated capital 4 010 818
Non-distributable reserves (12) 13
Treasury shares (477) (436)
Share option reserve 183 88
Retained earnings 1 575 3 230
Non-controlling interests 246 60
Non-current liabilities 132 24
Deferred taxation 132 24
Current liabilities 670 366
Trade and other payables 534 304
Provisions 114 46
Taxation payable 22 16
Total Equity and liabilities 6 327 4 163
Net asset value per share (cents) 486 402*
*Adjusted to account for Rights Offer bonus element.
Condensed Group statement of changes in equity
for the year ended 30 June 2018
(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 2016 818 122 (454) 95 2 711 3 292 61 3 353
Profit for the year 845 845 35 880
Other comprehensive
income for the year (106) (106) (106)
Total comprehensive
income for the year (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
Profit for the year 1 080 1 080 66 1 146
Other comprehensive
income for the year (25) (25) (25)
Total comprehensive
income for the year (25) 1 080 1 055 66 1 121
Proceeds from Rights Offer 1 565 (20) 1 545 1 545
Acquisition of interest
in subsidiaries 1 924 88 (2 610) (598) 129 (469)
Share repurchase
from Four Arrows (297) 161 6 (130) (130)
Distribution received
from Ceramic Foundation (158) 158 - -
Dividends paid (339) (339) (21) (360)
Transactions with n
on-controlling interests 12 12
Share incentive costs
(including vesting) (24) 7 50 33 33
Balance at 30 June 2018 4 010 (12) (477) 183 1 575 5 279 246 5 525
Condensed Group cash flow statement
for the year ended 30 June 2018
(Rand millions unless
otherwise stated)
Reviewed Audited
year to year to
30 June 30 June
2018 2017
Cash generated by operations 1 748 1 205
Dividend paid (360) (305)
Taxation (435) (322)
Other* 26 31
Cash flow from operating activities 979 609
Additions to property, plant and equipment (669) (334)
Proceeds on disposal of property, plant and equipment 11 41
Increase in investments 33 32
Increase in long-term financial assets 27 (112)
Net cash flow from acquisition/disposal of subsidiary (1 602) (6)
Cash flow from investing activities (2 200) (379)
Proceeds of share Rights Offer 1 565 -
Acquisition of non-controlling interest - (84)
Treasury share movements (176) 18
Cash flow from financing activities 1 389 (66)
Net movement in cash and cash equivalents for the period 168 164
Cash and cash equivalents at the beginning of the period 511 347
Cash and cash equivalents at the end of the period 679 511
* Includes finance income of R61 million (2017: R32 million) and finance costs of R35 million
(2017: R1 million).
Segmental report
for the year ended 30 June 2018
(Rand millions unless otherwise stated)
Turnover Gross margin Net profit before tax
June June % June June % June June %
2018 2017 change 2018 2017 change 2018 2017 change
Retail 5 828 5 714 2 1 160 1 099 6 325 256 27
- Group stores 3 213 3 174 1 1 160 1 099 6 325 256 27
- Franchise stores 2 615 2 540 3
Franchising 233 210 11
Properties 230 256 (10)
Supply and
Support Services 1 871 1 966 (5) 179 183 (2) 289 366 (21)
Manufacturing 2 994 - 100 795 - 100 489 - 100
Associates 31 96 (68)
Total 10 693 7 680 39 2 134 1 282 66 1 597 1 184 35
Franchise Stores (2 615) (2 540) 3
Consolidation
entries (2 014) (1 470) 37 109 6 1 717 (22) 6 (500)
Total Group 6 064 3 670 65 2 243 1 288 74 1 575 1 190 32
Geographical analysis
(Rand millions unless otherwise stated)
Inter-
South Rest of group
Africa Africa Australia entries Group
Reviewed year to 30 June 2018
Turnover 7 284 445 349 (2 014) 6 064
Non-current assets 4 333 170 219 (865) 3 857
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 preliminary condensed consolidated financial statements for the year ended 30 June 2018 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 Financial Reporting Standards Council and the Listings
Requirements of the JSE. 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 2018. These results have been prepared under the supervision of
Executive Director: Group Finance and Administration, Ms T Mhlanga 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 2018 and the financial position at 30 June 2018.
2. Commitments and contingencies
There are no material contingent assets or liabilities at 30 June 2018.
(Rand millions unless
otherwise stated)
30 June 30 June
2018 2017
Capital commitments
- Contracted 491 60
- Authorised but not contracted for 294 235
Total 785 295
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 review period.
4. Disposal of Australian business
In the prior year, 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 gains 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 review 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 95,47%. 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 proportionate share of the
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 was 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 ("Rights Offer Shares") 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 Proprietary Limited, 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 Acquisition).
Proceeds of the Rights Offer totalled R1,6 billion, and were utilised to settle the outstanding cash portion
(and interest thereon) related to the Acquisition.
7. International Tap Distributors Proprietary Limited
The Group sold a 10% non-controlling stake in International Tap Distributors Proprietary Limited at the beginning
of January 2018 to a new business partner, at a cost of R14 million, reducing the Group's interest in this entity
to 88%.
8. Four Arrows transactions
On 20 February 2018, Four Arrows Investments 256 Proprietary Limited ("Four Arrows") submitted a formal written
offer to the Group to sell 25 million of the 35,2 million Italtile shares it held, back to the Group. The offer
price was set in accordance with the terms of a Preference Share Agreement signed in 2007, in terms of which
Four Arrows had raised the funds for the purchase of the 35,2 million shares. According to this agreement, the
offer price was set at R11,83 per share (the Italtile 10-day VWAP immediately preceding the date of receipt of
the offer), amounting to R295 750 000 in total.
In accordance with specific approval granted by Italtile shareholders in July 2007, the Board approved the
repurchase and the shares were subsequently repurchased on 13 March 2018. Following acceptance of the offer
and approval by the Board, Italtile called for the redemption of 800 000 redeemable, cumulative preference
shares in Four Arrows, the capital and arrear dividends totalling R165 790 840 for such. The redemption payment
was made on 20 March 2018.
The transactions resulted in a net cash outflow of R129,7 million and a reduction of 25 million shares in the
Group's issued share capital as the shares which were repurchased by Italtile were cancelled in terms of the
Companies Act.
9. 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 the implementation date. As a result,
seven million of the Group's shares net of forfeitures were held by qualifying staff members at 30 June 2018
(2017: seven 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 four 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 (2017: 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 R16 million (2017: R17 million) to the Group's income; R9 million (2017: R10 million) of this
charge is a once-off accelerated expense for franchise staff.
10. Distribution received from Ceramic Foundation
On 14 June 2018, the Ceramic Foundation Trust transfered 13 670 595 Italtile shares to the Italtile and Ceramic
Foundation Trust, which is consolidated for Group reporting purposes. The transfer was done in order to merge
the two trusts, which embark on social economic development projects independently from the Group. The transfer
has resulted in an increase in treasury shares of 13 670 595 shares and related carrying value of R158 million.
Reviewed Audited
year to year to
30 June 30 June
2018 2017
11. Earnings per share
Reconciliation of shares in issue (all figures in millions):
- Total number of share issued 1 295 1 033
- Shares held by Share Incentive Trust (12) (10)
- BEE treasury shares (62) (83)
Shares in issue to external parties 1 221 940
Reconciliation of share numbers used for earnings per share
calculations (all figures in millions):
Weighted average number of shares in issue 1 133 936
Weighting of Rights Offer bonus element 3 6
Weighted average number of shares# 1 136 942
- Dilution effect of share awards 5 5
Diluted weighted average number of shares 1 141 947
Reconciliation of headline earnings (Rand millions):
- Profit attributable to equity shareholders 1 080 845
- Profit on sale of property, plant and equipment - after taxation * (12)
- Profit on sale of Australian operation - after taxation - (30)
Headline earnings 1 080 803
* Less than R1 million.
# The weighted average number of shares has been adjusted in accordance with IAS 33 Earnings per Share,
to account the deemed bonus element inherent in the Rights Offer.
No adjustments to earnings are required for diluted earnings per share calculations, as the share awards
do not have an impact on diluted earnings.
12. Supplementary disclosure
A pro forma Group statement of comprehensive income has been prepared in order to demonstrate the financial
performance of the Group had the Acquisition not taken place in the current period. In addition, a pro forma
statement of comprehensive income has been prepared for the manufacturing businesses (Ceramic and Ezee Tile)
to demonstrate the financial performance of these businesses for the current period. This information has not
been reviewed by the Group's auditors and is available on the corporate website (www.italtile.com).
Administration
Registered office:
The Italtile Building, corner William Nicol Drive and Peter Place, Bryanston (PO Box 1689, Randburg 2125)
Transfer secretaries:
Computershare Investor Services Proprietary Limited
Company Secretary:
E J Willis
Sponsor:
Merchantec Capital
Auditor:
Ernst & Young Inc.
Executive directors:
J N Potgieter (Chief Executive Officer), B G Wood (Executive Director: Commercial and Supply Chain)
T T A Mhlanga (Executive Director: Finance and Administration)
Non-executive directors: G A M Ravazzotti (Non-executive Chairman), LR Langenhoven (Non-executive Deputy Chairman),
S M du Toit, N Medupe, G Mtetwa, S G Pretorius, N P Khoza
For full financial results please visit our website:
www.italtile.com
Date: 21/08/2018 05:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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