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Strong Year Boosts Italtile Close to R2bn Turnover
Johannesburg, 15 August 2005: Pre-eminent retailer of ceramic tiles, bathware and related products, Italtile Limited, is represented by category leading brands, CTM and Italtile. The group's comprehensive product offering has broad consumer appeal, ranging from entry level and DIY markets to the niche, premium-end sector. The company trades through a network of 101 stores in Southern Africa and Australia. Favoured by the buoyant trading environment, the group delivered strong results in line with market expectations. In its fourteenth consecutive year of real earnings improvement, total turnover improved 25% to R1.96 billion (2004: R1.57 billion), while trading profit increased 28% to R274.5 million (2004: R213.7 million). Headline earnings grew 26% to R190.0 million (2004: R151.1 million). A final ordinary dividend of 160 cents per share has been declared, which together with the interim ordinary dividend of 110 cents produces a total ordinary dividend for the year of 270 cents per share (2004: 160 cents), an improvement of 69%. The group remains a strong cash generator and continues to accumulate cash reserves in excess of operating requirements; consequently, a special dividend of 330 cents per share has also been declared. Chief Financial Officer, Peter Swatton, says: "These results are a reflection of the group's successful evolution from niche tile merchant to specialist home-enhancement fashion retailer, offering a comprehensive suite of both tiling and bathware products and an enhanced shopping experience. Growth was simultaneously driven by increased volumes out of existing stores, and the emerging trend by consumers as they graduate across our product offering to buy a wider range of higher priced commodities." Swatton notes that during the review period no price increases were implemented and no new stores opened. He adds: "Contributing to the strong growth of the business's bathware component was the integration of recent acquisitions, International Tap Distributors and Earlyworks, distributors of taps and tiling tools respectively. We are confident that this sector affords encouraging growth opportunities for the group." Swatton says: "The company's strategic imperative to increase black ownership of the business continued to reap rewards. Our empowered franchises delivered a strong performance, attributable to the franchisees' understanding of and affinity for their communities which they serve. The group's empowered partners will continue to play an integral role in penetrating major growth markets afforded by the emerging middle class." Trading EnvironmentRetail trading conditions remained extremely positive, facilitating the sustained growth of the new residential and renovation sectors. In response to this favorable climate and low barriers to entry, a host of opportunistic entrants has emerged, including competitors from non-traditional sectors such as hardware retailers and allied industry players. Restrained shipping capacity continued to impact regular delivery of high mass low value commodities, while the sanitaryware shortage persisted unabated. The group was fortunate to benefit from its symbiotic relationships with traditional long-standing suppliers, which ensured consistency of quality and price, and certainty of supply. African Operations : Italtile And CTMSwatton cautions: "The aggressively competitive trading environment demands that we continuously re-energise our operations to retain our category leadership position. Focus on core competencies must be complemented by innovation and responsiveness to ensure continued appeal to existing and new consumers. Whilst we forecast sustained growth of the tile and bathware markets, we recognise that to capitalise on growing demand for the product our challenge will be to further enhance our product and service offering." In this regard, he notes that the group will be complementing its ongoing programme of store upgrades and cost competitive policy with the introduction of a highly sophisticated computer warehousing system which will underpin and augment the franchise model. Swatton says: "We have invested R25 million in a cutting-edge logistics system designed to improve distribution by eliminating logistics-related costs and inefficiencies and facilitating just-in-time deliveries. Implementation of the programme is scheduled for September 2005, and we anticipate that in due course, this system will be extended to a wide range of our suppliers, thereby enhancing our strategy of backward integrating the group's supply chain." The group's store network comprises 65 CTM stores and eight Italtile stores in South Africa, and a further 16 CTM outlets in Botswana, Namibia, Swaziland, Lesotho, Malawi, Uganda, Tanzania and Zambia. A new site has been acquired in Kenya, with the store scheduled for opening by the end of 2005. Further expansion in Africa is constrained by logistical and infrastructural obstacles. Given the brand's strong acceptance and suitability of the model, management recognises that to capitalise on the robust demand for the product, the group will need to make strategic investments in fixed property, and where appropriate, facilitate distribution, aimed at improving trading platforms and promoting performance of local franchises. Australian Operation : CTM"The current recessionary trading environment experienced in Australia continued to impact the group's operations in that country, although the three recently opened new-generation stores delivered improved performances, illustrating acceptance by consumers of the extended product range and customer-friendly showroom facilities. However," says Swatton, "we anticipate that the prevalent adverse conditions will continue to restrict this operation's contribution, with no major improvement anticipated in the short term." The company has 12 stores situated across Queensland, New South Wales and Victoria. Property PortfolioA further R100 million was invested in property during the review period, bringing the carrying value of the combined South African and Australian portfolios to some R400 million. Continued investment in property remains a core tactical strategy based on the strong returns derived, which are in line with the group's trading operations. A significant competitive advantage is afforded the franchises by ensuring that trading outlets are situated in prominent, prime locations, which support the group's positioning as a destination retailer offering an enhanced retail experience. Swatton says: "Management is cognisant that increasingly the emerging middle class will be a substantial contributor to the success of the business, hence investment will be made in desirable locations which are accessible and conveniently situated for these consumers." Black Economic Empowerment "BEE"Swatton notes that good progress has been made in terms of the group's internal component of BEE. "As evidence of our commitment to transformation the group has stipulated that a future condition of franchise will be the incorporation of a BEE element in all contracts. This applies to all new franchisees and existing franchise agreements when they become eligible for renewal. We are also currently exploring opportunities to invest in property in communities we have traditionally not served, as well as investigating a credit model for consumers which will reduce barriers to purchase," says Swatton. With regard to an external BEE structure for the group, he notes that the Board has been mandated to urgently pursue appropriate black empowerment partnership opportunities. ProspectsSwatton says: "It is anticipated that growth in the new residential and renovation markets will continue to be buoyed by the favourable trading environment. Stable interest rates, consumer confidence and the significant economic impact of the emerging middle class will continue to drive the expansion of this industry. Equally, these conducive conditions will continue to spawn new competitors and the group recognises that it will need to be vigilant against complacency to ensure we retain our leadership status in this highly competitive market." Swatton concludes: "Traditional focus on cash flow management, inventory and leveraging purchasing power will be complemented by enhanced levels of service, further investment in group brands and aggressive pursuit of market share. It is anticipated that growth will be achieved across the group's businesses, with an increasingly enhanced contribution derived from the bathware component." For further information contact:
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