Financial resultsReviewed Group results Download the entire paid announcement Commentary | System-wide turnover analysis | Abridged Group statements of comprehensive income Abridged Group statements of financial position | Store network | Abridged Group statement of cash flows Group statement of changes in equity | Segmental report | Notes CommentaryOverview for the six months ended 31 December 2012Founded 43 years ago, Italtile Limited is South Africa’s leading franchisor and retailer of imported and local ceramic tiles, sanitaryware, bathroomware, laminate flooring, décor and other related products. The Group’s brand portfolio consists of Italtile Retail, CTM and TopT. The local retail network comprises 90 stores nationwide; the Group also has 17 CTM stores in eight other African countries and eight CTM stores in Australia. The retail operation is supported by a strategic property portfolio and vertically integrated supply chain. The Group has delivered creditable results in an industry which experienced a persistent lack of private and public sector investment, borne out by the paucity of new build activity, sluggish renovations segment and statistics which indicate a reduction in tile consumption across the market. This decline in market size, together with intensified competition amongst industry participants challenged retailers to greater innovation, and Italtile’s four decades of experience served to benefit the business in delivering solid growth. Trading environment Consumer spending slowed appreciably during the reporting period as increased utility costs and higher fuel and food prices served to constrain discretionary spend. In the LSM 1 to 6 segment economic uncertainty, lack of job security, high levels of unemployment and indebtedness, and tighter lending criteria in the unsecured lending market also served to foster the spending slowdown evidenced by markedly reduced footfall in certain of the Group’s regions. In particular, some of the Group’s traditionally robust rural markets failed to deliver historical growth levels largely as a function of these factors. It is likely that the impact of recent strike action on these communities further reduced disposable income resulting in a less buoyant December trading period than expected. The Group’s traditional core market, namely inland suburban communities, delivered good growth, whilst the coastal regions lagged their counterparts. Whilst consumers remained price sensitive, the demand for high quality, stylish products in keeping with international trends continued to grow. Economic instability in European markets provided good buying opportunities, but the steady depreciation of the rand over the period served to partially negate the benefits of importing product. In general, competition amongst industry participants remained fierce and further consolidation of players was evident. Financial highlights
Key to the Group’s growth was:
Support services The Group’s support services which comprise the integrated supply chain include ITD (an importer and supplier of taps, accessories and other brassware), Cedar Point (an importer and supplier of laminate flooring, bathroom cabinets and tile décor) and Distribution Centre (an importer of porcelain tiles). During the review period, the exchange rate depreciated further while input costs continued to rise, specifically transport costs, labour costs (locally and in China) and utilities costs. In this context, the supply chain took a strategic decision to support the retail operations by absorbing margin pressure where possible. In the few instances where price increases were implemented, these were the first in over four years. Notwithstanding the truck drivers’ strike which impacted negatively on delivery to stores, the supply chain continued to add value to the brands through ensuring consistent availability of an improved range and price blend for customers. Highlights during the period include accreditation by the SABS of ITD’s Amalfi range and Cedar Point’s centralisation of décor supply which has improved the offering and service. Rest of Africa Italtile has been represented in Africa north of our borders for some 12 years via the Group’s CTM brand which comprises 17 stores in eight African countries. During the period a new store was opened in Nairobi. Management is cognisant of the strong demand for the Group’s products in the region, particularly in East Africa, but experience gained has proven that further expansion will continue to be restricted by logistical and infrastructural constraints. Australia The Australian operation comprises only a very small component of the Group’s total business, being limited to eight CTM stores in Queensland and New South Wales. Trading conditions remained difficult in the review period, reflected by a marginal loss reported by the business for the six months. Management has implemented a comprehensive strategic programme to restore the operation to profitability, and further roll out of the store network has been postponed until the benefits of this business model transformation are evident. This operation’s ability to compete effectively in the current economic climate will determine whether it remains a viable prospect. Property portfolio The Group’s property portfolio comprises premium sites offering strategic support to the retail brands; it has an estimated market value in excess of R1,4 billion. Investment of R80 million (2011: R71 million) was made in acquiring new and extending existing properties; in addition capital expenditure of R15 million (2011: R17,6 million) was incurred on improving the retail space of existing properties. Directorate On 28 November 2012, the Board announced that Chief Financial Officer (“CFO”), Peter Swatton, had resigned his position and would leave the Group in April 2013. After 25 years of service to the company Peter advised that he would be stepping down to pursue new challenges and business interests, being satisfied that he had accomplished his goals, including the Group’s consistently strong financial performance record. Group Chairman, Giannni Ravazzotti noted that Peter’s contribution to the success of the business over that period has been significant. The Group is delighted to retain Peter’s expertise as a Non-executive Director. The Board has tasked the Group’s Nominations Committee with recruiting and appointing a CFO to replace Peter in April 2013. A further announcement will be made to shareholders in this regard in due course. Acquisition of a strategic stake in Ceramic Industries Limited Historically, Italtile has enjoyed a sound relationship with Ceramic Industries Limited (“Ceramic”), having a long history of purchasing tiles, sanitaryware and baths from Ceramic. In order to support Italtile’s growth objectives, the Board sought to strengthen its relationship with Ceramic, a key supplier to the Group, through the acquisition of a strategic shareholding in the company. Accordingly, Rallen Proprietary Limited (“Rallen”) and Italtile extended a conditional joint offer to acquire all or part of the ordinary shares held by Ceramic Shareholders, other than Rallen and its associates and subsidiaries of Ceramic (“Independent Ceramic Shareholders”), in the issued share capital of Ceramic at a price of R130,00 per share. Shareholders were advised on 26 November 2012 that the joint offer had been validly accepted by Independent Ceramic Shareholders, in respect of 5 497 832 of their Ceramic shares (27,1% of Ceramic’s issued share capital). Consequently, Italtile’s total beneficial interest in Ceramic is 20,0% of the issued share capital of the company and Rallen’s total beneficial interest is 60,95%. As one of the conditions precedent to the offer, Ceramic shareholders approved the delisting of Ceramic’s ordinary shares from the JSE. Accordingly, trading in Ceramic’s shares was suspended with effect from Monday, 19 November 2012. Only one month of revenue (December 2012) was contributed by Ceramic to this set of results. The contribution was nominal. Prospects Management is of the opinion that in the current macro-economic environment, trading conditions will remain difficult for the foreseeable future. There are strong indications that consumers will continue to be pressured by constrained disposable income and will prioritise essential spending over discretionary spending in the face of economic uncertainty. In this regard, the Group’s consumers in the lower LSM sector are expected to prove least resilient. It is anticipated that above-inflation income growth and the low interest rate environment will support consumer spending in the Group’s mid to upper LSM target markets, but probably not at levels achieved over recent years. Notwithstanding this subdued economic context, the Group remains confident that growth opportunities exist for innovative retailers. Management’s focus will be on leveraging improvements in the business and supply chain to capitalise on capacity in the local market to increase Italtile’s market share. Basis of preparation of accounting policies. The Reviewed Interim Profit Announcement has been prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards and the AC 500 Standards as issued by the Accounting Practices Board and its successor, and contains the information required by International Accounting Standard 34, Interim Financial Reporting. These results have been prepared under the supervision of Chief Financial Officer, Mr P D Swatton CA(SA). Dividend The Group has maintained its dividend cover of three times. The Board has declared an interim dividend of 8,0 cents per share (2011: 7,0 cents), a 14% increase. Dividend announcement: The Board has declared an interim dividend (number 93) for the six months ended 31 December 2012 of 8,0 cents per ordinary share to all shareholders recorded in the books of Italtile Limited. Shareholders are hereby advised that the dividend will be subject to the Dividends Tax that was introduced with effect from 1 April 2012. In accordance with paragraphs 11.17 (a) (i) to (x) and 11.17 (c) of the JSE Listings Requirements, the following additional information is provided:
The cash dividend timetable is structured as follows: the last day to trade cum dividend in order to participate in the dividend will be Friday, 1 March 2013. The shares will commence trading ex dividend from the commencement of business on Monday, 4 March 2013 and the record date will be Friday, 8 March 2013. The dividend will be paid on Monday, 11 March 2013. Share certificates may not be rematerialised or dematerialised between Monday, 4 March 2013 and Friday, 8 March 2013, both days inclusive. For and on behalf of the board
The results, excluding the commentary, have been reviewed by Ernst & Young Inc. and their unqualified review opinion is available for inspection from the company secretary at the company’s registered office. |