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ITALTILE LIMITED - Trading Statement for the Year Ending 30 June 2020 and Impact of COVID-19

Release Date: 17/06/2020 08:00
Code(s): ITE     PDF:  
 
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Trading Statement for the Year Ending 30 June 2020 and Impact of COVID-19

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

TRADING STATEMENT FOR THE YEAR ENDING 30 JUNE 2020 AND IMPACT OF COVID-19

The Group will be reporting its results for the year ending 30 June 2020 on or about 25 August 2020.

In the interim, given the general uncertainty in the economy and trading environment caused by the
COVID-19 global pandemic, management believes it is appropriate to update shareholders regarding
the Group’s performance over the past 48 weeks to 31 May 2020, with specific emphasis on the period
since the Group’s interim results for the six months ended 31 December 2019 which were published
on SENS on 13 February 2020.

The results reported in this announcement include the contribution of Ceramic Industries Proprietary
Limited (“Ceramic”), in which the Group holds a 95.47% stake, and Ezee Tile Adhesive Manufacturers
Proprietary Limited (“Ezee Tile”), in which the Group holds an effective 71.54% stake. 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, namely CTM, Italtile Retail, TopT and U-Light.

TRADING STATEMENT FOR THE YEAR ENDING 30 JUNE 2020 AND IMPACT OF BBBEE TRANSACTION
ON EARNINGS PER SHARE (“EPS”) AND HEADLINE EARNINGS PER SHARE (“HEPS”)

In terms of paragraph 3.4(b) of the JSE Limited ("JSE") Listings Requirements, and in light of the impact
of the pandemic on the business and the economy, the Board of Directors (“the Board”) is satisfied
that a reasonable degree of certainty exists that the expected ranges of the Group's EPS and HEPS for
the year ending 30 June 2020 will be as set out in the table below.

Furthermore, as announced on SENS on 7 February 2020, the Group incurred a once-off charge of
R39.0 million related to the Broad-Based Black Economic Empowerment (“BBBEE”) transaction
concluded with Yard Investment Holdings Proprietary Limited (“Yard”). Accordingly, the guidance
below also illustrates the expected impact of the BBBEE transaction on projected EPS and HEPS for
the year ending 30 June 2020.

                                    Year ended              Forecast: year ending       Percentage
                                    30 June 2019            30 June 2020*               change
 Excluding BBBEE charge
 - Earnings per share               102.6 cents             74.9 cents to 85.2 cents    -27% to -17%
 - Headline earnings per share      101.8 cents             76.4 cents to 86.5 cents    -25% to -15%
 Including BBBEE charge
 - Earnings per share               102.6 cents             71.8 cents to 82.1 cents    -30% to -20%
 - Headline earnings per share      101.8 cents             73.3 cents to 83.5 cents    -28% to -18%

*While it is difficult to predict with accuracy the Group’s performance for the balance of the current
financial year, being the remainder of June 2020, early indications are that sales will continue to pick
up, and will exceed the strong sales reported in June 2019. Should this not materialise and the actual
earnings for the year ending 30 June 2020 differ from the forecast above, a further trading statement
will be issued after 30 June 2020.

IMPACT OF THE COVID-19 PANDEMIC ON THE GROUP’S SALES PERFORMANCE

The Group’s results for the second six months of the current financial year, being 1 January to 30 June
2020, are best analysed in the context of the progression of the pandemic in our trading markets. In
the pre-COVID-19 era, up to 27 March 2020 when the national lockdown was implemented, sales were
on track with management’s stated target to deliver growth in line with the first six months of the
current financial year, being 1 July 2019 to 31 December 2019. However, subsequent to the
commencement of the lockdown, sales across the manufacturing, supply chain and retail operations
were severely impacted as illustrated below.

 Date (2020) and          Impact on Group operations                   Impact on Group revenue
 level of economic
 activity according to
 Government’s risk-
 adjusted economic
 activity model

 27 March – 30 April      SA
 Level 5                  Manufacturing and supply chain               No revenue was generated by
                          operations were closed.                      supply chain and manufacturing
                          Retail stores were permitted to sell         operations and only minimal
                          emergency supplies to essential service      revenue was generated by the
                          providers and registered tradespersons       retail stores.
                          only (a limited number of stores traded
                          only during the last week of April).

                          Rest of Africa
                          Retail stores and manufacturing              Minimal      revenue        was
                          operations in East Africa were permitted     generated by the retail stores.
                          to trade.

 1 May – 31 May           SA
 Level 4                  Easing of trading regulations:               Curtailed         sales        in
                          30% to 50% of manufacturing capacity         manufacturing and supply chain
                          and all supply chain operations brought      operations reported compared
                          back on-stream.                              to prior year.
                          All retail stores re-opened.                 Robust retail sales, specifically
                          Reduced staff numbers in all operations.     in certain rural markets, with
                                                                       growth being recorded on the
                                                                       prior year’s sales results.

In summary, total retail store sales for the 48 weeks ended 31 May 2020 decreased by 5%, while like-
for-like retail store turnover declined by 10% compared to the prior corresponding period.

Manufacturing sales for the 48 weeks were 10% lower when compared to the prior comparable
period.

In terms of individual brand performance, Italtile Retail’s sales were substantially lower than the prior
comparable period. This is due to a combination of factors including the continued deterioration of
the commercial projects market in the premium-end segment and the general decline in size of the
top-end residential market in the wake of private investor capital exiting SA. The inability of
contractors to operate during the lockdown further restricted sales in the high-end home renovations
segment.

Prior to the lockdown period, CTM’s sales were solid and in line with the performance reported in the
year ended 30 June 2019. However, sales during Level 5 of the lockdown were minimal. The
subsequent easing of restrictions in Level 4 resulted in an increase in turnover compared to the prior
year, with a clear disparity between rural-based stores which traded robustly, and suburban stores
where sales were more obviously impacted by cautious consumer behaviour in light of the pandemic
and sustained limited disposable income.

TopT has reported a surprisingly strong performance in the second half of the current financial year,
notwithstanding restricted trading in line with regulations. This is underpinned by improved
operational disciplines in the business, as well as higher spend in certain regions where homeowners
returned to their rural homes to wait out the lockdown. Consumers in this segment typically continue
to invest incrementally in their homes as funds become available, and with the full re-opening of
stores in May 2020, brisk sales resumed with double digit growth achieved.

For the most part, post-lockdown, the franchise network across the brands is healthy and stable.

The Group’s well-established online sales and delivery platform recorded a pleasing performance over
the period pre-lockdown, and with restrictions placed on consumers shopping in-store during the
lockdown, this channel benefitted from growing traffic and increased quotes and sales. This trend is
likely to become entrenched, aligned with consumer behaviour which adapted and changed due to
restrictions imposed by lockdown regulations and will likely become a permanent feature.

The Group’s robust cash reserves and engrained disciplines of working capital management and cost
leadership have been a significant advantage for the business, specifically since lockdown.
Additionally, with the onset of the pandemic and trading restrictions, management implemented
immediate and urgent measures to further optimise cashflow and preserve cash. These measures
included further cost savings across the operations; temporary deferral of operational and capital
expenditure and headcount costs; and salary and fee sacrifices by executive and non-executive
directors, as well as management at various levels. Management continues to aggressively review the
Group’s cost base and remains cautiously optimistic regarding improved trading and continued solid
cash flows going forward.

COVID-19 RISK-MITIGATING MEASURES

The safety of our customers, employees and neighbouring communities is a key priority for the Group
and extensive measures are in place in our stores and factories to ensure operational health and safety
protocols comply with prescribed government regulations to curb the spread of the virus. Where
practicable, work-from-home practices are also still in place for administration and finance employees.

REVIEW OF RESULTS

The information on which this announcement is based and any forecast financial information included
in this announcement has not been reviewed or reported on by Italtile's auditors.

Johannesburg
17 June 2020

Sponsor
Merchantec Capital

Date: 17-06-2020 08:00:00
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