Wrap Text
Reviewed condensed Group results for the six months ended 31 December 2018 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 2018 and dividend declaration
"2019 marks the Group's 50th anniversary since it was founded in 1969. Our solid results for the review
period are primarily attributable to the integrated business model which has evolved and adapted over the
past five decades to withstand severe adversity, and to management's unrelenting customer-centric focus."
Jan Potgieter, CEO
System-wide turnover
R5,3 billion up 23%
2017: R4,3 billion
Trading profit
R968 million up 35%
2017: R716 million
Earnings per share
55,4 cents up 14%
2017: 48,6 cents
Headline earnings per share
54,7 cents up 13%
2017: 48,6 cents
Dividends per share
22,0 cents up 29%
2017: 17,0 cents
Net asset value
453 cents down 9%
2017: 500 cents
Store network
182 stores up 3%
June 2018: 176 stores
Commentary
OVERVIEW
Italtile Limited is a manufacturer, franchisor and retailer of tiles, bathroomware and related products.
The Group's retail brands are CTM, Italtile Retail and TopT, represented through a total network of 182 stores,
including five 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 ambition 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.
2019 marks the Group's 50th anniversary since it was founded in 1969.
Impact of certain transactions on the Group's results and reporting reference terms
Comparable disclosure and analysis of the Group's results for the review period with the prior corresponding period
have been impacted by the acquisition of Ceramic Industries Proprietary Limited ("Ceramic") ("Acquisition") which
became effective on 2 October 2017 and the partially underwritten renounceable rights offer ("Rights Offer"). Detailed
information in this regard is set out in the circulars to shareholders of Italtile dated 23 August 2016, and
6 November 2017, respectively.
Acquisition
Following the Acquisition, the Group 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 for the full six-month period from 1 July 2018 to 31 December 2018 versus the three-month
period from 2 October 2017 to 31 December 2017 in the prior corresponding period.
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 and weighted average number of shares
In terms of the Acquisition, 150 936 170 Italtile shares were issued to shareholders of Ceramic. Further, in terms of
the Rights Offer, 135 985 156 Italtile shares were subscribed for by the close of the Rights Offer on 24 November 2017.
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
25,3% (pre-Acquisition, Rights Offer and Repurchase: 1 033 332 822 shares). Consequently, the weighted average number
of shares in the review period is 17,1% higher than that of the prior corresponding period.
Trading environment
Weak trading conditions persisted over the review period. Consumer discretionary spend remained constrained in the
context of high levels of personal indebtedness, unprecedented unemployment and recent hikes in interest rates, VAT and
fuel prices. While the upper-LSM segment remained relatively resilient, activity in the lower end of the market slowed
and, in line with recent years, the middle-income segment continued to display the clearest signs of financial hardship.
Compounding the effects of the lacklustre economic environment, country-specific risks served to subdue consumer
sentiment further and restrain meaningful investment by the public and private sectors in the face of policy uncertainty,
endemic corruption, dissatisfaction with poor service delivery and inconsistent power supply.
While the renovations market continued to fuel modest growth in the sector, new build activity was largely stagnant.
For the category to grow materially, investment in new build is imperative, but will require a substantial turnaround
in consumer confidence in the future.
During the review period, currency volatility provided challenges for importers, demanding judicious stock and cash
flow management. The severe over-stock situation reported across the industry in the prior corresponding period has
largely been resolved among retailers, although many wholesalers remain overstocked.
In light of this testing external economic and socio-political environment, management's deliberate strategy continued
to be to focus on those internal conditions within our control, by leveraging opportunities for growth within the
business. Over the review period our key priorities were to better execute basic retail excellence principles, further
improve the Group's working capital position, as well as intensify cost leadership and margin management.
Results
Revenue for the review period was R3,8 billion, 30,0% higher than the prior corresponding period (2017: R2,9 billion).
The Group's system-wide turnover for the review period was R5,3 billion, 23,3% higher than the prior corresponding
period (2017: R4,3 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 retail store turnover grew 6,3% for the review period compared to the previous corresponding period.
Like-on-like retail store turnover for the review period increased by 4,6% compared to the previous corresponding period,
with average selling price inflation estimated at 2,4%. Retail store turnover is defined as the aggregate turnover of all
stores, either corporate or franchised, in the Group's retail network.
Manufacturing sales included in the consolidated results for the review period grew by 105,9% compared to the previous
corresponding period. Manufacturing sales for the period 1 July 2018 to 31 December 2018 improved by 6,1% compared to
the same period in the prior year. Average selling price inflation for the review period is estimated at 3,5%.
Trading profit rose 35,2% to R968 million (2017: R716 million).
The Group's basic earnings per share increased 13,9% to 55,4 cents (2017: 48,6 cents), while headline earnings per
share rose 12,6% to 54,7 cents (2017: 48,6 cents). The disparity between basic earnings and headline earnings growth
is attributable to a profit of R11 million on the disposal of a local property.
Inventory value, including the consolidated inventory balances of Ceramic and Ezee Tile increased to R846 million
(2017: R824 million). Excluding the consolidated inventory balances of Ceramic and Ezee Tile, the Group's inventory
balance was R556 million (2017: R580 million).
Despite inconsistent supply of imported product over the review period, management is satisfied that current stock
levels are in line with operational requirements. Import replacement through the Group's integrated suppliers has
played an important role in stabilising this situation.
Capital expenditure of R306 million (2017: R313 million) was incurred during the review period, primarily on
investments across the Group's retail properties and manufacturing plants.
The Group's cash balance improved to R1 010 million (2017: R562 million), including the consolidated cash balances
of Ceramic and Ezee Tile, totalling R326 million (2017: R174 million).
Material cash flows for the period include:
- capital expenditure of R306 million;
- tax payments of R299 million;
- dividend payments of R661 million; and
- term funding loan raised of R500 million.
The Group's net asset value per share was 453 cents (2017: 500 cents). The decrease in the net asset value per
share is attributable to:
- the special dividend paid and a reduction of dividend cover during September 2018;
- the increase in weighted average number of shares; and
- the implementation of IFRS 16 Leases.
Operational review
The Group's creditable results reported for the period are primarily attributable to the integrated business model
which has evolved and adapted over the past five decades to withstand severe adversity, and to management's
unrelenting customer-centric focus.
With the integration of Ceramic and Ezee Tile, the business model now offers a total solution to customers,
underpinning the Group's policy of ?right product at the right time, place and price'.
While the solid results reported for the period reflect improvements made in the business, management is mindful that
significant work remains to be done to achieve its long-term growth objectives.
Retail brands
Instilling retail excellence disciplines throughout the business remained a key management priority.
Across the brands, the stronger sales reported for the review period are attributable to the unwavering emphasis on
enhancing the customer shopping experience through better execution. Key focus areas included improvement of sales
levers, and enhancing the range, fashion and availability of business-critical merchandise to ensure that our
customers enjoy the right product at the right time, place and price.
In-store sales growth was complemented by an improvement of more than 40% in combined webstore revenue reported by CTM
and Italtile Retail. This increasingly important income stream demonstrates our customers' appreciation of the Group's
omni-channel ?total solution' offering.
Nine stores were opened during the review period, while three under-performing stores were closed. The Group plans to
open a similar number of stores in the forthcoming six months. The store roll-out programme reflects management's belief
that significant opportunity exists to grow the tile category in this country, given that per capita tile consumption
is approximately only half of that reported in other emerging markets.
CTM
CTM's key metrics improved over the review period, with a growth in sales, margins, profits and store productivity,
while stock holding stabilised. The positive turnaround from the prior corresponding period is largely derived from
enhanced efficiencies in the business. In addition, the brand retained market share and made good progress in building
brand recognition among existing and new customers through its high-profile multi-media advertising campaign, Sithi Wena
("You deserve it"), which has been well received by consumers. Ongoing efforts to improve the customer shopping experience
through better in-store execution continued to gain momentum.
The key priority over the forthcoming period will be on improving sales skills and execution through more stringent
and strategic KPIs and bespoke retail-specific training.
Three stores were opened during the review period, bringing the total network to 90 stores; a further three new stores
outside South Africa are scheduled to open in the remainder of the financial year.
Italtile Retail
This brand reported double digit sales growth and improved profits, stock turn and store productivity for the review
period. However, some margin pressure was experienced in light of import replacement strategies to support pricing to
customers, and the trend by a segment of consumers to shop down in the constrained disposable income environment. A gain
in market share was achieved, driven in part by the Commercial Projects division, which delivered another pleasing
performance.
Italtile Retail is represented by 12 stores nationwide, with a further store in Clearwater, Gauteng scheduled to open
in the forthcoming six months.
TopT
Consistent with this brand's track record, double digit sales growth was reported, while profits, margins, store
productivity and stock turn improved.
During the review period, TopT launched its online webstore, an e-learning platform, as well as its bespoke training
academy for staff.
Six new stores were opened in the review period, while three under-performing stores were closed, bringing the total
network to 80 stores. A possible further six stores will be opened in the current financial year.
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 ("ITD"),
Distribution Centre and Cedar Point.
Supply chain: manufacturers
The integration of Ceramic and Ezee Tile continued to progress well and to deliver benefits in terms of improved
business-to-business communication including enhanced production and logistics planning between the stores and
the factories.
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.
Tiles
Ceramic's South African operation reported solid results for the review period, underpinned by a favourable response
from existing customers to the latest enhanced tile range, and a gain in new open-market customers. Increased sales
volumes resulted in efficient capacity utilisation across the tile plants, improving profitability.
Solid growth was recorded by the Australian tile plant, in line with management's projections.
Exports into Africa grew during the review period. However, current political and economic instability in Zimbabwe
and Zambia, Ceramic's primary export markets, are likely to impact sales to those countries.
Sanitaryware
The sanitaryware and bath businesses continued to undergo restructuring to enable them to attain their full potential.
Management's priority focus in the operations is to ensure consistency and improve quality and yields.
Ezee Tile
This business underperformed management's expectations, failing to timeously address changing market conditions. While
sales improved, margins, profits and market share declined. Management is satisfied that the operational inefficiencies
experienced in the review period will be remedied in the short term.
Supply chain: importers
The Group's import operations, ITD, Cedar Point and Distribution Centre achieved higher sales and profits for the
review period. Stock management remained a key focus in the businesses and good progress was reported, albeit that
further improvements can still be made.
Under intensified focus, margins improved slightly in these operations, although not in line with management's target
benchmark. While aggressive pricing in the market, currency volatility, and the deliberate decision to support the
retail brand price offering to customers eroded some profitability in the review period, it is anticipated that margin
growth will be achieved in the second half of the year.
Property investment
The Group's property portfolio affords strategic advantage to the retail brand operations, comprising high visibility,
easily accessible stores which are well presented and maintained and contribute to an aesthetically pleasing 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.
Management's constant priority is to improve returns on this portfolio through optimal utilisation of existing owned
land, strategic development of new store formats and achieving keener construction costs.
As at 31 December 2018, the estimated market value of the portfolio was R3,8 billion, comprising a retail portfolio
valued at R3,0 billion (2017: R2,8 billion) and a manufacturing portfolio valued at R0,8 billion (2017: R0,8 billion).
During the review period, capital expenditure of R144 million was incurred in respect of an ongoing store upgrade programme
and the acquisition of four retail properties, while R105 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 third allotment of shares, granted in 2015, vested on 31 August 2018.
A total of 101 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 R135 000 per individual (aggregate payments including income
tax totalled R17,6 million), funded by the sale of the related shares to the market. Employees who elected to receive
shares, received an average of 9 554 Italtile shares each (dependent on the individual's effective income tax rate).
During the reporting period, a sixth allotment of shares was made comprising 3,3 million shares allocated to
150 eligible employees of the Group and franchisees. As at 31 December 2018, there were 394 participants in the
scheme, holding 7,9 million Italtile shares.
Prospects
It is anticipated that trading conditions will remain very difficult over the next six months.
With little economic relief forecast in the short term, consumers will continue to experience financial hardship.
The prevailing socio-political disquiet is also expected to intensify in the lead up to the national elections, and
homeowners are likely to defer investment in properties until at least the middle of the current calendar year.
Ongoing service delivery protests will disrupt trading in our stores, and should regular load-shedding be
reimplemented, the Group's manufacturing operations will be hampered, resulting in inconsistent supply to the market.
Despite this adverse context, management remains optimistic that in the short term there are further opportunities to
grow market share through the implementation of continuous improvements to the Group's customer-centric shopping
experience. Over the longer term, there is potential to grow the tile category in this country in line with South
Africa's global emerging market peers.
In the forthcoming six months, management's key goals will be to:
- continue to entrench retail excellence disciplines across the business;
- drive sales through our customer-centric shopping experience strategy and innovation;
- advance the store roll-out programme and revamp existing stores;
- leverage opportunities in the supply chain, including launching new merchandise categories to enhance the complete
shopping experience; and
- continue to extract synergies from our integrated supply chain.
Outlook
Management believes that solid headline earnings growth will be achieved in the forthcoming six months, albeit not
at the same level as the prior corresponding period.
Subsequent events
No events have occurred subsequent to the review period that require any additional disclosures or adjustments.
Cash dividend
The Group's dividend cover is two and a half times (2017: three times). The Board has declared an interim gross
dividend of 22,0 cents per share (2017: 17,0 cents), an increase of 29%.
Dividend announcement
The Board has declared an interim gross cash dividend (number 105) for the review period ended 31 December 2018 of
22,0 cents per ordinary share to all shareholders recorded in the shareholder register of the Company as at the
record date of Friday, 8 March 2019.
In accordance with paragraphs 11.17(a)(i) to (ix) and 11.17(c) of the Listings Requirements of the JSE ("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 22,0 cents per share for shareholders exempt from the dividends tax;
- The net local dividend amount is 17,6 cents per share for shareholders liable to pay the dividends tax;
- The local dividend withholding tax amount is 4,4 cents per share for shareholders liable to pay the dividend tax;
- Italtile's income tax reference number is 9050182717; and
- Italtile has 1 295 254 148 shares in issue including 12 301 238 shares held by the Italtile Share Incentive Trust,
61 851 217 shares held as BEE treasury shares and 2 781 604 shares held by Italtile Ceramics Proprietary Limited
("Italtile Ceramics").
Timetable for cash dividend
The cash dividend timetable is structured as follows: the last day to trade cum dividend in order to participate in
the dividend will be Tuesday, 5 March 2019. The shares will commence trading ex-dividend from the commencement of
business on Wednesday, 6 March 2019 and the record date will be Friday, 8 March 2019. The dividend will be paid on
Monday, 11 March 2019. Share certificates may not be dematerialised or rematerialised between Wednesday, 6 March 2019
and Friday, 8 March 2019, both days inclusive.
The full Reviewed Condensed Group Results announcement for the six months ended 31 December 2018 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
T T A Mhlanga
Executive Director: Group Finance and Administration
B G Wood
Executive Director: Commercial and Supply Chain
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 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 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
14 February 2019
System-wide turnover analysis
for the six months ended 31 December 2018
(Rand millions unless otherwise stated)
Reviewed Reviewed Audited
six months to six months to year to
% 31 December 31 December 30 June
increase 2018 2017 2018
Group and franchised turnover
- By Group owned stores and entities 31 3 701 2 831 6 064
- By franchise owned stores (unaudited) 15 1 626 1 420 2 615
Total 25 5 327 4 251 8 679
Store network
at 31 December 2018 at 30 June 2018
Region Franchise Other Total Franchise Other Total
South Africa
- Italtile - 12* 12 - 12* 12
- CTM 37 35* 72 34 35* 69
- TopT 63 16 79 54 22 76
Rest of Africa
- CTM 5 13* 18 9* 9* 18
- TopT 1 - 1 1 - 1
Total 106 76 182 98 78 176
* Includes webstore.
Condensed Group statements of comprehensive income
for the six months ended 31 December 2018
(Rand millions unless otherwise stated)
Reviewed Reviewed Audited
six months to six months to year to
% 31 December 31 December 30 June
increase 2018 2017* 2018*
Turnover 31 3 701 2 831 6 064
Cost of sales (2 294) (1 765) (3 736)
Gross profit 32 1 407 1 066 2 328
Franchise and royalty income 137 122 209
Other operating income 124 105 208
Operating expenses (711) (577) (1 227)
Profit on sale of property, plant and equipment 11 # #
Trading profit 35 968 716 1 518
Finance income 31 24 61
Finance costs (9) (34) (35)
Profit from associates - after tax - 30 31
Profit before taxation 35 990 736 1 575
Taxation (276) (202) (429)
Profit for the period 34 714 534 1 146
Other comprehensive income
Items that may be re-classified
subsequently to profit or loss:
Foreign currency translation difference (14) (43) (29)
Other comprehensive income from associates - 4 4
Total comprehensive income for the period 41 700 495 1 121
Profit attributable to:
- Equity shareholders 676 507 1 080
- Non-controlling interests 38 27 66
34 714 534 1 146
Total comprehensive income attributable to:
- Equity shareholders 662 468 1 055
- Non-controlling interests 38 27 66
41 700 495 1 121
Earnings per share (all figures in cents):
- Earnings per share 14 55,4 48,6 95,0
- Headline earnings per share 13 54,7 48,6 95,0
- Diluted earnings per share 14 55,1 48,4 94,6
- Diluted headline earnings per share 13 54,5 48,4 94,6
- Dividends per share 29 22,0 17,0 38,0
# Less than R1 million.
* Amounts have been reclassified. Refer to note 7.
Condensed Group statements of financial position
as at 31 December 2018
(Rand millions unless otherwise stated)
Reviewed Reviewed Audited
six months to six months to year to
31 December 31 December 30 June
2018 2017 2018
ASSETS
Non-current assets 4 249 3 719 3 872
Property, plant and equipment 3 817 3 481 3 675
Right-of-use assets 210 - -
Investments in associates 23 22 23
Long-term assets 174 153 149
Goodwill 11 11 11
Deferred taxation 14 52 14
Current assets 2 819 2 345 2 455
Inventories 846 824 806
Trade and other receivables 935 927 942
Cash and cash equivalents 1 010 562 679
Taxation receivable 28 32 28
Total assets 7 068 6 064 6 327
EQUITY AND LIABILITIES
Share capital and reserves 5 537 5 218 5 525
Stated capital 4 010 4 307 4 010
Non-distributable reserves (26) (26) (12)
Treasury shares (499) (482) (477)
Share option reserve 203 182 183
Retained earnings 1 599 1 035 1 575
Non-controlling interests 250 202 246
Non-current liabilities 810 149 132
Interest-bearing loans 500 - -
Lease liabilities 167 - -
Deferred taxation 143 149 132
Current liabilities 721 697 670
Trade and other payables 403 591 534
Provisions 110 92 114
Interest-bearing loans 164 - -
Lease liabilities 33 - -
Taxation 11 14 22
Total equity and liabilities 7 068 6 064 6 327
Net asset value per share (cents) 453,0 500,0 486,0
Condensed Group statement of changes in equity
for the six months ended 31 December 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
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 Offer 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
For the six months ended 31 December 2018
Audited balance at 30 June 2018 4 010 (12) (477) 183 1 575 5 279 246 5 525
Effect of adoption of new
accounting standards (29) (29) - (29)
Profit for the year 676 676 38 714
Other comprehensive income for the year (14) (14) (14)
Total comprehensive income for the year - (14) - - 676 662 38 700
Repurchase of own shares (38) (38) (38)
Dividends paid (633) (633) (28) (661)
Transactions with non-controlling interests - (6) (6)
Share incentive costs (including
vesting settlement) 16 20 10 46 - 46
Reviewed balance at 31 December 2018 4 010 (26) (499) 203 1 599 5 287 250 5 537
Condensed Group cash flow statement
for the six months ended 31 December 2018
(Rand millions unless otherwise stated)
Reviewed Reviewed Audited
six months to six months to year to
31 December 31 December 30 June
2018 2017 2018
Cash generated by operations 984 763 1 748
Dividend paid (661) (148) (360)
Taxation paid (299) (220) (435)
Other* 26 (10) 26
Cash flow from operating activities 50 385 979
Additions to property, plant and equipment (306) (313) (669)
Proceeds on disposal of property, plant and equipment 15 6 11
Increase in investments - 33 33
(Decrease)/increase in long-term financial assets (42) 23 27
Purchase of interest in subsidiaries (12) -
Net cash flow from acquisition of subsidiary - (1 602) (1 602)
Cash flow from investing activities (345) (1 853) (2 200)
Proceeds from share and rights issue - 1 565 1 565
Increase in loans and borrowings 664 - -
Acquisition of non-controlling interest (16) - -
Treasury share movements (22) (46) (176)
Cash flow from financing activities 626 1 519 1 389
Net movement in cash and cash equivalents for the period 331 51 168
Cash and cash equivalents at the beginning of the period 679 511 511
Cash and cash equivalents at the end of the period 1 010 562 679
* Includes finance income and finance costs.
Segmental report
for the six months ended 31 December 2018
(Rand millions unless otherwise stated)
Turnover Gross margin Net profit before tax
December December % December December % December December %
2018 2017 change 2018 2017 change 2018 2017 change
Retail 3 329 3 125 7 605 597 1 189 167 13
- Group stores 1 703 1 705 - 605 597 1 189 167 13
- Franchise stores 1 626 1 420 15
Franchising 198 182 9
Properties 148 129 15
Supply and Support
Services 1 001 939 7 94 90 4 100 74 35
Manufacturing 2 199 1 068 106 582 281 107 352 179 97
Associates - 30 (100)
Total 6 529 5 132 27 1 281 968 32 987 761 30
Franchise stores (1 626) (1 420) 15
Consolidation entries (1 202) (881) 36 102 30 240 3 (25) (112)
Total Group 3 701 2 831 31 1 383 998 39 990 736 35
Geographical analysis
(Rand millions unless otherwise stated)
Inter-
South Rest of group
Africa Africa Australia entries Group
Reviewed six months to 31 December 2018
Turnover 4 378 262 263 (1 202) 3 701
Non-current assets 4 713 208 223 (909) 4 235
Reviewed six months to 31 December 2017
Turnover 3 364 231 118 (882) 2 831
Non-current assets 4 352 151 158 (994) 3 667
Audited year to 30 June 2018
Turnover 7 284 445 349 (2 014) 6 064
Non-current assets 4 333 170 219 (865) 3 857
Notes
1. Basis of preparation and changes in accounting policy
Basis of preparation
These reviewed interim condensed consolidated financial statements have been prepared in accordance with
International Accounting Standard (IAS) 34 Interim Financial Reporting, the SAICA Financial Reporting Guides
as issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial Reporting
Standards Council and the requirements of the Companies Act of South Africa. These results have been prepared
under the supervision of Executive Director: Group Finance and Administration, Ms T T A Mhlanga.
New standards, interpretations and amendments adopted by the Group
The accounting policies adopted in the preparation of these interim condensed consolidated financial statements
are consistent with those followed in the preparation of the Group's annual consolidated financial statements
for the year ended 30 June 2018, except for the adoption of new standards effective as of 1 January 2018.
The Group has elected to early adopt IFRS 16 Leases which has been issued but is not yet effective.
The Group applies, for the first time, IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial
Instruments that require restatement of previous financial statements. As required by IAS 34, the nature
and effect of these changes are disclosed below.
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods
beginning on or after 1 January 2018, bringing together all three aspects of the accounting for financial
instruments: classification and measurement; impairment; and hedge accounting. The Group has elected to apply
the standard retrospectively.
The Group assessed its financial assets and liabilities and based their classification and measurement on the
business model of the Group and on the cash flows associated with each asset and liability. This resulted in a
change in the classification of financial assets but the measurement thereof remaining the same. Therefore the
application of this standard did not have a significant impact on the Group's reported results and cash flows
for the six months ended 31 December 2018 and the financial position.
IFRS 15 Revenue from Contracts with Customers
The standard is effective for accounting periods beginning on or after 1 January 2018 and was adopted by the
Group on 1 July 2018. A key area of impact has been the clarity provided on the treatment of 'bill and hold'
arrangements as well as the recognition of the refund liability and related right of return asset. The return
of asset and refund liability were not accounted for in the interim results due to their immateriality.
The application of this standard did not have a significant impact on the Group's reported results and cash
flows for the six months ended 31 December 2018 and the financial position.
IFRS 16 Leases
The Group has opted for the early adoption of IFRS 16 Leases using the modified retrospective approach by
recognising the cumulative effect of initially applying IFRS 16 as an adjustment to the opening balance of
equity at 1 July 2018. Therefore the comparative information has not been restated and continues to be
reported under IAS 17 Leases and related interpretations.
The Group has elected to use the exemptions applicable to the standard on lease contracts for which the lease
terms ends within 12 months as of the date of initial application, and lease contracts for which the
underlying asset is of low value. The Group has leases of certain office equipment that are considered
of low value.
During 2018, the Group performed a detailed impact assessment of IFRS 16. At 1 July 2018, the extraction of
leases included 75 real estate and 128 non-real estate leases.
The effect of adopting IFRS 16 is as follows:
Impact on the statement of financial position as at the transition date of 1 July 2018:
Rm
Assets
Right-of-use assets 192
Liabilities
Lease liabilities 221
Net impact on equity (29)
The right-of-use assets disclosed above excludes the lease premiums of R40 million which have been
reclassified from long-term assets.
Impact on the statement of comprehensive income as at 31 December 2018:
Rm
Increase in depreciation expense (included in operating expenses) 22
Decrease in operating lease expense (26)
Increase in trading profit 4
Increase in finance costs (4)
Profit for the period (#)
# Less than R1 million.
Due to the adoption of IFRS 16, the Group's trading profit will improve, while its interest expense
will increase.
This is due to the change in the accounting for expenses of leases that were classified as operating
leases under IAS 17.
2. Commitments and contingencies
There are no material contingent assets or liabilities at 31 December 2018.
Capital commitments (Rm's) 31 December 31 December 30 June
2018 2017 2018
- Contracted 240 342 491
- Authorised but not contracted for 118 279 294
Total 358 621 785
3. Fair values of financial instruments
The Group does not fair value its financial assets or liabilities in accordance with quoted prices in active
markets or market observables, as there is no difference between their fair value and carrying value due to
the short-term nature of these items, and/or existing terms are equivalent to market observables. There were
no transfers into or out of Level 3 during the period.
4. Cedar Point Trading 326 Proprietary Limited
The Group acquired a 10% non-controlling stake in Cedar Point Trading 326 Proprietary Limited at the end of
August 2018, held by the previous business partner at a cost of R15,7 million and increases the Group's
interest in this entity to 100%.
5. 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
years of each allotment date, being August every year. As a result, eight million of the Group's shares, net
of forfeitures, were held by qualifying staff members at 31 December 2018 (2017: eight 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 third allotment of shares in the scheme, granted in 2015, vested on 31 August 2018. A total of 101 employees
qualified for the vesting, of which four employees opted to retain the shares and the balance received the net
value of the awards in cash. This resulted in a decrease in treasury shares of 1 044 139 (2017: 1 468 409) 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: R14 million) to the Group's income; R14 million (2017: R12 million) of this charge
is a once-off accelerated expense for franchise staff.
6. Earnings per share
Reviewed Reviewed
six months to six months to
31 December 31 December
2018 2017
Reconciliation of shares in issue (all figures in millions):
- Total number of share issued 1 295 1 320
- Shares held by Share Incentive Trust (10) (12)
- BEE treasury shares (61) (83)
- Shares held by Italtile Ceramics (3) -
Shares in issue to external parties 1 221 1 225
Reconciliation of share numbers used for earnings per share
calculations (all figures in millions):
Weighted average number of shares in issue 1 222 1 038
Weighting of Rights Offer bonus element - 5
Weighted average number of shares* 1 222 1 043
- Dilution effect of share awards 5 5
Diluted weighted average number of shares 1 227 1 048
Reconciliation of headline earnings (Rand millions):
- Profit attributable to equity shareholders 676 507
- Profit on sale of property, plant and equipment
- after taxation (8) -
Headline earnings 668 507
* 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 earnings per share calculations, as the share awards do not
have an impact on diluted earnings.
7. Disaggregation of revenue from contracts with customers
Set out below is the disaggregation of the Group's revenue from contracts with customers:
Reviewed Reviewed
six months to six months to
31 December 31 December
2018 2017
Turnover 3 701 2 831
Royalty income from franchising* 82 73
Other franchise income* 55 49
3 838 2 953
Turnover represents net revenue from sale of goods, excluding value added tax and inter-company sales.
* Franchise income has been disaggregated from other operating income and comparatives have been reclassified
accordingly.
8. Events after reporting date
The directors are not aware of any matters or circumstances arising since the end of the reporting period which
significantly affect the financial position at 31 December 2018 or the results of its operations or cash
flow for the period then ended.
Italtile Limited Corporate Information
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: Group Finance and Administration)
Non-executive directors: G A M Ravazzotti (Non-executive Chairman), L R Langenhoven (Non-executive Deputy Chairman),
S M du Toit, N Medupe, N V Mtetwa, S G Pretorius, N P Khoza
www.italtile.com
Date: 14/02/2019 07:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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