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| "There is still much scope for
us to consolidate and improve out position." |
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| Once more Italtile has turned in an impressive
set of results, notching up its thirteenth consecutive set of improvement
in real earnings. While this is naturally cause for satisfaction,
there is still much scope for us to consolidate and improve our
position in an ever-expanding market, domestically and in the limited
international operations we have beyond the borders of South Africa.
Our long-standing emphasis on entrepreneurship and energetic application
of sound business practices and values, combined with a ready availability
to the market of growing top-of-the-range ceramic tiles and ancillary
products, is now a proven formula for success. Against this background,
Italtile will remain a dependable business and will husband its
resources, going forward, with its usual care through the reputable
brands of CTM and Italtile. |
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| Results |
The Group delivered a rewarding set of results.
System wide turnover for the year ending 30 June 2004 improved by
15,5% to R1,57 billion (2003: R1,36 billion). In the same period
trading profit increased 29%, from R165,6 million in 2003 to R213,7
million in the financial year under review. Headline earnings showed
an improvement of 24%, rising from R121,7 million in the previous
financial year to R151,1 million in 2004. That this growth was achieved
in the face of an oversupply in the international ceramic tile “There
is still much scope for us to consolidate and improve our position.”
market – which saw a proliferation of smaller retailers entering
the market – and cheaper imports, is testament to the energetic
manner in which the group has applied itself.
Last year we forecast that the reduction of interest rates would
have a positive effect on our business, and this proved to be the
case. Indeed, sustained consumer confidence, the anticipation that
interest rates in South Africa would remain low in the foreseeable
future, the continued boom in the residential property market and
the exponential growth of the renovation market as new property
prices escalated, all benefited trading.
A significant growth driver was the strong performance of the Group’s
empowered black franchises and joint venture partners. These now
contribute more than 15% to system wide sales, a result of the company’s
strategic initiatives in the past few years. Almost all our stores
are franchised, and we have undertaken to ensure that, by the end
of 2005, all remaining group-owned stores will be franchised, either
outright or in joint ventures.
Our strategy of franchising our stores and ensuring that franchisees
have a clear and close knowledge of their market, and of increasing
the number of black portfolios, is key. It will be one of our greatest
strengths going forward.
The Group has earned its reputation as the foremost supplier of
the highest quality fashion ceramic tiles, but it had been clear
for some time that a demand existed to provide ancillary products
as well. During the year we strengthened and expanded our reliable
supply chain through the acquisition of a controlling interest in
International Tap Distributors, a dedicated tap importer and distributor.
This investment, which was funded through our own resources, is
expected to yield solid returns for the group, since it ensures
that our stores will be well supplied with top-quality bathroomware.
This in itself is significant since consumers increasingly look
to Italtile and CTM to provide them with a one-stop destination
at which they can obtain the full range of their needs. This is
now a reality in our stores. |
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| African operations |
| In a market characterised by increased levels
of competition and deflationary price pressures, the improved level
of profitability delivered by both Italtile and CTM is a tribute
to the strength of the Group’s brands, the resilience of the
business model, and the ability to innovate. As one of the world’s
biggest buyers of ceramic tiles, the group was able to negotiate
keen prices, thus ensuring that we remained strongly competitive
in the market. In line with Group strategy, no new stores were opened
during the year under review. Both Italtile and CTM made strong
contributions to the Group’s performance. |
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| Italtile |
| The eight Italtile showrooms continued to be
upgraded with improved finishes to enhance the level of sophistication
already apparent in these stores. We opened our new flagship at
Menlyn in Pretoria during the year, and its appealing architecture,
bright interior and attractive gardens capture the unique ambience
that reflects the superior quality of the offering of the brand.
Italtile carries a full range of unique bathroomware, and a rich
variety of ceramic tiles obtained from our strong supply chain –
both locally and abroad. |
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| CTM |
CTM underwent ongoing improvements as well during
the year, with an emphasis on the departmentalisation of stores
to include clearly defined tile and bathroomware sections. Tiles
are now strongly viewed as highly fashionable décor throughout
houses and in commercial buildings. CTM is a popular destination
for growing numbers of people for whom the brand is top-of-mind
as a trustworthy one-stop supplier of tiles and bathroomware.
The brand has successfully continued its operations in Africa beyond
the borders of South Africa. CTM’s presence in the region
remains a key strategic imperative, and investment in resources
to provide further growth has been made. The CTM model is well suited
to the countries in which it operates – Botswana, Namibia,
Swaziland, Lesotho, Malawi, Uganda, Tanzania and Zambia. It needs
to be recognised, however, that the potential for rapid expansion
is constrained by infrastructural and logistical considerations.
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| Property portfolio |
| Continued investment in the Group’s property
portfolio remains a core strategy. An additional R74 million was
invested this year, bringing the carrying value of the South African
and Australian property portfolio to some R309 million. |
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| International operations |
| The first of three new stores were opened in
New South Wales during the year. A further two new stores will open
by the end of 2004 in Queensland and New South Wales respectively,
bringing the total number of stores in Australia to 12. A strong
local currency will continue to restrict this operation’s
contribution to Group turnover and profits to below 10%. I am nevertheless
satisfied that sustained growth in Australian dollar terms is achievable. |
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| Economic empowerment |
Italtile’s strategy is to increase black ownership as it continues
to transform the group to more accurately reflect the demographics
of South Africa, and strengthening its penetration of the market
by ensuring a sound, informed knowledge of its growing markets.
The Group recognises the growing potential of high-density areas
and is actively planning to open its first CTM stores in these neighbourhoods.
Our joint venture and franchise strategy has already borne fruit
in empowering black entrepreneurs. This will continue apace. Through
our training academy we also provide skills to tilers – aspiring
entrepreneurs in their own right who are determined to serve a demanding
market. |
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| Prospects |
| I believe that we will see continued deflationary
price pressure in the foreseeable future, particularly given low
interest rates and the strong rand. This latter factor has already
seen a number of new entrants to the market and will foster still
more, with a resultant short-term oversupply of imported product.
The Group has shown itself to have much resolve, and I am confident
that our strategy will continue to translate itself into sound growth
in the future. We will continue to focus our energies on being price
competitive, while maintaining a low overhead base, a strong cash
position and optimal working capital levels. |
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| Dividends |
| A final dividend of 90 cents per share was declared.
Together with the interim dividend of 70 cents this brought the
dividend declared for 2004 to 160 cents (2003: 130 cents), an increase
of 23,1%. Shareholders have also received a special dividend of
140 cents. Further special dividends will, as always, be considered
in the future should circumstances warrant it. |
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| Directorate |
| One change occurred during the year when Mr Siyabonga
Gama, Chief Executive Officer of the National Ports Authority South
Africa and Chairman of the Port Management Association of Eastern
and Southern Africa, was appointed to the board on 8 April 2004.
We look forward to our association with him and his involvement
on the board. |
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| Appreciation |
Italtile has shown itself to be an energetic
company with a clear vision. Thirteen consecutive years of solid
performances speaks volumes for the work ethic of people associated
with Italtile, be they members of the board, staff, franchisees
and joint venture partners, suppliers or customers. All have truly
earned a niche for Italtile in the South African landscape, and
I believe this has as much to do with the outstanding product that
we carry as it does for the people who, in one way or the other,
derive a benefit from it.
My thanks thus go to everyone who has made this possible. Our own
people, who interact daily with customers, have convincingly shown
how success is achieved by providing customers with top-quality
fashion products through superior service. My thanks are also due
to our customers – for their demands that help keep us sharply
focused on our business and, in the end, for their custom. Our suppliers
enable us to provide the service needed and I thank them too.
Finally, my gratitude to members of the board whose knowledge and
perception of our marketing environment enables the Group to operate
with the success it has demonstrated. |
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| G A M Ravazzotti |
| Executive Chairman |
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