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Italtile Capitalises On Favourable Conditions
Johannesburg, 09 February 2005: Represented by sector-leading brands, CTM and Italtile, Italtile Limited is South Africa's principal retailer of ceramic tiles, bathware and related products, trading through a network of 98 stores in Southern Africa and Australia. With the significant growth of its bathware component, supported by the acquisition of specialist tap importer and distributor, International Tap Distributors, the group's traditional profile has evolved from niche tile retailer to specialist home-enhancement fashion retailer, offering a suite of tiling and bathware products catering to consumers from entry-level to premium end. This enhanced offering has impacted results favourably, by broadening the group's target market and promoting margin growth. Peter Swatton, Chief Financial Officer, says: "Complementing increased market share, favourable trading conditions and brand dominance enabled the group to deliver strong results for the six months ended 31 December 2004." Group and franchise turnover improved 29% to R997 million (2003: R775 million), while trading profit increased 28% to R120.2 million (2003: R93.9 million). Headline earnings per share grew 24% to 463.9 cents (2003: 374.3 cents). An interim dividend of 110 cents has been declared, an improvement of 57% (2003: 70 cents). The Board has taken a strategic decision to reduce the dividend cover from 5 times to 4 times based on the group's current cash position and strong ability to generate cash. The effective tax rate increased to 31.3% as a result of STC applied on the special dividend declared in the prior reporting period. Trading EnvironmentThe buoyant retail environment featuring stable interest rates and positive consumer confidence has translated into a sustained, flourishing new residence and DIY renovation market. Swatton comments: "The review period presented the initial signs of a trend to consolidation in the industry, which will likely result in a more structured marketplace. Constrained shipping capacity has resulted in limited and erratic supply of imported product, placing limitations on smaller participants." He adds: "Imported product continued to impact the local market, particularly in the middle to upper price range. The lower end of the market was to some extent cushioned from this impact by the competitive role of local suppliers and shipping constraints on high mass low value goods. Our doctrine of nurturing long-standing relationships with traditional suppliers was rewarded with reliable, sustained supplies of competitively priced, sound quality product." African Operations (Italtile and CTM)"Both CTM and Italtile delivered improved profitability derived predominantly from volume growth, and whilst an average basket price increase of 3% was implemented, the company has been able to maintain certain price points dating back to 1991," says Swatton. Pursuant to its conviction that the local market affords significant growth opportunities in existing markets, the group did not open any new stores, but did increase the footprint of certain stores, particularly in the Gauteng region. The company's strategic focus on positioning itself as a one-stop destination retailer, offering comprehensive tile and bathware packages in both its divisions, proved very successful. Swatton comments: "Consumers have readily accepted the group's enhanced offering which incorporates presentation of a complete lifestyle and fashion concept." The group acquired controlling interests in International Tap Distributors and Earlyworks, distributors of taps and tiling tools respectively. Swatton explains: "By integrating these businesses into the group's supply chain, both CTM and Italtile are guaranteed of a consistent, supply of high quality product. A significant degree of the improved performance can be attributed to this development." Improved access and exposure to bath- and sanitaryware products is giving rise to an increasingly discerning South African consumer, demanding quality, fashionable merchandise. Whilst CTM's core philosophy remains value for money, the brand has shed the dated perception of a cash and carry warehouse providing low cost product catering predominantly for the entry-level market. Viewed by its target audience as an aspirational brand, CTM offers a good quality product at competitive prices, thereby capitalising on the opportunity to grow its customers through the brand across the spectrum. With the introduction of lifestyle design displays, the division is seen to be offering an upgraded shopping experience affording fashion advice rather than simply as a commodity retailer. With increased disposable income enjoyed by a broader segment of the population and enhanced acceptance of the product by new markets, the group is planning to invest directly in communities which it has not formerly served. Recognising that growth lies in the emerging black market, management is currently refining initiatives to support entry into the RDP level housing sector. Given the strong performance track record of the group's franchise network, management has committed to converting all remaining group owned stores into joint ventures or franchises by the end of 2005. The process of attracting suitable partners is currently underway.
The group is represented through 15 CTM stores in Botswana, Namibia, Swaziland, Lesotho, Malawi, Uganda, Tanzania and Zambia. Rapid expansion remains constrained by infrastructural and logistical obstacles. Intent on capitalising on the strong demand for CTM's product, the group will begin making direct investments in fixed property providing franchisees with enhanced trading platforms, thereby facilitating sustainable, long term performance. International OperationsThe group's complement of stores in Australia has risen to 11, with two new outlets having been opened during the fourth quarter of 2004 in New South Wales. The new stores, replete with a wider product offering, have enjoyed a positive response from customers. Where appropriate, the balance of the group's stores will be modified to meet the same specifications. Whilst the operation continues to make a modest contribution to group profits, a significantly improved performance is not anticipated for another two to three years. Property PortfolioThe company continues to derive a competitive advantage from ongoing investment in its property portfolio, a strategy aimed at supporting the group's profile as a destination retailer offering an enhanced shopping experience. Investment was made in the heart of prime real estate in several key areas for future development, as well as the provision of additional trading space for stores situated in the larger catchment areas. A total of R50 million was invested in land and buildings bringing the carrying value of the combined South African and Australian property portfolio to some R359 million. ProspectsIt is anticipated that the retail trading environment will remain positive in the short term. Consumer confidence buoyed by positive sentiment and stable interest rates will continue to drive the new residential and renovation markets. Swatton concludes: "Management's customary strategic focus on optimal cash flow and inventory management will remain paramount. By leveraging our price competitive position as a major global tile purchaser, continuing to invest in our brands, and aggressively promoting the bathware component of the business, the group expects to expand market share and maintain growth." For further information contact:
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