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Italtile builds on superb performance trend
Johannesburg, Wednesday, 04 August 2004: Italtile Limited, represented by leading national branded chains, CTM and Italtile, has delivered an extremely rewarding set of results for the year to June 2004. As South Africa's foremost retailer of ceramic tiles, bathware and related products, the group's offering caters across the spectrum, ranging from the entry-level and DIY markets, to the niche, premium-end sector. The company's store network, both franchised and group owned, comprises 64 CTM and 8 Italtile outlets. In its thirteenth consecutive year of real earnings improvement, turnover improved 15.5% to R1.57 billion (2003: R1.36 billion), while trading profit grew 29% to R213.6 million (2003: R165.6 million). Headline earnings increased 24% to R151 million (R122 million). A final ordinary dividend of 90 cents per share has been declared, which together with the interim ordinary dividend of 70 cents, produces a total ordinary dividend for the year of 160 cents (2003: 130 cents), an improvement of 23%. In addition, a special dividend of 140 cents will also be paid. Peter Swatton, Chief Financial Officer says: "Italtile remains a strong cash generator and we are satisfied that current cash resources coupled with projected net cash inflows are in excess of operating requirements and planned capital expenditure. It is our philosophy that surplus cash holdings are counterproductive to operational efficiencies, and further special dividends will be considered should the need arise." Contrary to conventional trading patterns, performance in the second six months outstripped the first half, which traditionally encompasses greater promotional activity. The group's strategy of maintaining and growing market share through a meaningful reduction in average selling prices continued. Swatton comments: "The upsurge in trading activity is a reflection of sustained consumer confidence, the anticipation that interest rates would remain low, the continued strong residential property boom, and the exponential growth of the renovation market as new property prices escalated." He adds: "A significant growth driver was the strong performance delivered by the group's empowered franchises, which now contribute more than 15% to turnover. The company's strategic imperative to increase black ownership comprises two elements: the need to transform the group to more accurately reflect the demographics of the country, and the opportunity to enhance market penetration by enjoying improved, informed insight into the markets we serve." While inroads have been made into emerging markets in key urban areas and to some extent RDP housing, traditional high density mass markets have not as yet been tapped, and afford obvious growth potential. "The role of the group's black partners cannot be underestimated in this regard," contends Swatton. Trading EnvironmentThe impact of buoyant consumer sentiment on industry performance was partially offset by substantial product over-supply in the international ceramic tile market, which continued to exercise a dramatic impact locally, manifested by the proliferation of new entrants and cheap imports, exerting downward pressure on prices. Exacerbating this volatility is a shortage of available shipping capacity and an upward pressure on prices particularly for heavy goods of low unit value. Swatton notes: "These factors have vindicated our policy to continue to support local tried-and-tested suppliers as opposed to developing short-term opportunistic relationships. The long-term reliability of supply, and consistency of quality and price has, and will continue, to prove worthwhile for the group." African Operations: Italtile and CTM"In a market characterised by increased levels of competition and deflationary price pressures, the improved profitability delivered by both CTM and Italtile is a tribute to the strength of the brands, the resilience of the business model, and the ability to innovate. By leveraging our position as one of the world's major purchasers of tiles, the group's price competitiveness ensured that we entrenched our leadership status in the country," Swatton says. The period under review featured ongoing improvements to both CTM and Italtile, with the former undergoing segmentalisation of its stores to include clearly defined tile and bathware sections, while the Italtile showrooms continued to be upgraded with improved finishes to elevate the level of sophistication of the offering. "We succeeded in achieving pleasing gains in market share in the bathware market in both trading divisions," adds Swatton. In line with group strategy, no new stores were opened during the year. "The strong results were achieved from our existing store base validating management's view that the market for tiles and bathware has significant, sustained growth potential. In support of this view, we will expand many of our existing sites to enlarge each store's footprint and enhance the shopping experience for consumers. Success in this regard has already been achieved at certain key node stores." Management has undertaken to ensure that by the end of 2005, all remaining group-owned stores will be franchised, an acknowledgement of the positive impact entrepreneurship and empowerment, characteristic of owner-driven businesses, have on performance. During the review period, the group acquired a controlling interest in International Tap Distributors, a dedicated tap importer and distributor. Swatton says: "Initial performance has been positive with the company already contributing to group profits. This investment is key to supporting our penetration into the bathware market; it is anticipated that this business will become an important component of the group's activities in the future." This investment was funded through cash reserves. AfricaExpansion of the group's presence in the African market remains a key strategic imperative, and investment in resources to promote further growth in the region has been made. Swatton says: "Management is, however, realistic that whilst the CTM model is suited to the territories and demand for the product is significant, the potential for rapid expansion is constrained by infrastructural and logistical challenges." The brand is represented in Botswana, Namibia, Swaziland, Lesotho, Malawi, Uganda, Tanzania and Zambia, with further opportunities being explored. International OperationsComplementing the existing nine Australian stores, the first of three new stores commenced trading in New South Wales during July. A further two stores will open during the fourth quarter of 2004. The latest store epitomises an evolved trading formula which modifies the traditional CTM warehouse concept to incorporate a customer-friendly showroom facility. This enhancement will be rolled out into all existing and further new stores. Following on from success in the South African market, the group plans to extend its product basket to include sanitaryware and taps. A strong local currency will continue to restrict this operation's contribution to turnover and profits to below 10%, but management is satisfied that sustained growth in Australian dollar terms is achievable. Property PortfolioContinued investment in the company's property portfolio remains a core strategy, with a further R69 million invested this year, bringing the carrying value of the South African and Australian property portfolios to R309 million. The group believes that the shopping experience is enhanced by placing its trading outlets in purpose-built premises situated in prominent, prime locations adjacent to target markets, and is a key component of its retail strategy. The returns achieved on this portfolio are in line with the contribution from the group's trading operations. ProspectsSwatton says: "Sustained Rand strength will continue to foster new entrants into the market with a resultant short term over-supply of imported product. The competitive landscape will thus be characterised by deflationary price pressure for the foreseeable future. We will continue to focus our energies on maintaining price competitiveness, a low overhead base, a strong cash position and optimal working capital levels. We expect to maintain current growth levels." For further information contact:
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