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ITALTILE LIMITED - Voluntary Trading Statement for the year ended 30 June 2018

Release Date: 08/08/2018 10:02
Code(s): ITE     PDF:  
Wrap Text
Voluntary Trading Statement for the year ended 30 June 2018

(Incorporated in the Republic of South Africa)
(Registration number: 1955/000558/06)
Share code: ITE ISIN: ZAE000099123
(“Italtile” or “the Group”)


Italtile is currently finalising its results for the year ended 30 June 2018 (“the review period”).

The Board of Directors (“the Board”) has elected to release this voluntary announcement on the
occasion of the Group’s 30th anniversary of listing on the Johannesburg Stock Exchange (“JSE”), on
8 August 1988.


Despite the improved outlook for South Africa and a gain in 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 were 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.

Over the past 30 years since listing on the JSE, Italtile has laid down a strong track record of continued
improvement and consistency. The Group’s solid performance for the review period is therefore
primarily due to its resilience and the impact of enhancements made in the business during the year,
as opposed to improved sentiment or spend by consumers.

In response to the prevailing adverse operating environment, management’s primary focus over the
review period was twofold:

    -   to leverage opportunities for growth within the business through better execution of basic
        retail excellence principles and increased focus on key targets, while introducing innovative
        and disruptive trading innovations; and
    -   to further improve the Group’s working capital position through intensified control of
        inventory, cost leadership and margin management.


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:


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).

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 repurchased 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 corresponding period. Furthermore, the weighted average number of shares for the review
period and prior corresponding period have 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.


In line with management’s forecasts, improvements made to the business in the first half of the review
period gained momentum, resulting in a stronger performance in the second half. While revenue
growth reported for the year failed to meet management’s expectations, improved profitability was
achieved through cost leadership and management of working capital and margins.

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.

Total system-wide retail store turnover grew 2% for the review period compared to the previous
corresponding period. Like-on-like retail store turnover decreased by 1.4% compared to the previous
corresponding period, with average selling price inflation estimated at 1%. Retail store turnover is
defined as the aggregate turnover of all stores, either corporate or franchised, in the Group’s retail

Manufacturing sales for the period from 2 October 2017 to 30 June 2018 rose by 15.2% compared to
the previous corresponding period, with manufacturing sales for the review period growing by 10.6%
compared to the prior corresponding period. Average selling price inflation for the review period is
estimated at 3%.

The Group’s basic earnings per share is expected to be between 93.3 cents and 96.9 cents (2017
adjusted: 89.7 cents), representing an increase of between 4% and 8% compared to the prior
corresponding period.

Headline earnings per share is expected to be between 92.8 cents and 96.2 cents (2017 adjusted:
85.1 cents), reflecting an increase of between 9% and 13% compared to the prior corresponding

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.


The information on which this announcement is based has not been reviewed or reported on by
Italtile's auditors.


The Group's results for the year ended 30 June 2018 are expected to be published on SENS on or about
22 August 2018.

8 August 2018

Merchantec Capital

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