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Italtile Improves Performance in Line with Retail Sector TrendJohannesburg, 18 February 2010: Trading conditions in the review period remained difficult. Notwithstanding the recessionary environment and restrained disposable income, the Group reported a 3% improvement in organic system wide turnover to R1.44 billion (2008: R1.39 billion) in line with retail sector trends and management's stated objective to retain and grow market share. Trading profit increased 4% from R194 million in the comparative period to R202 million. Chief Executive Officer, GianPaolo Ravazzotti comments: "The impact of interest rate cuts began to filter through, and consumer sentiment generally was more positive. After a lengthy period of subdued activity, the market took advantage of our very strong value offering." He adds: "Improved turnover was achieved with zero price inflation, reflecting the competitive trading environment. Our operating margin remained firm in the tile division, but in keeping with our strategy to become a value player with a one-stop-shop offering, we implemented an aggressive pricing policy in the sanitaryware business, thereby sacrificing margins." Headline earnings increased from R136 million to R143 million. Headline earnings per share and basic earnings per share increased 5% to 17.9 cents (2008: 17.1 cents). Sustained intensive inventory management continued to reduce stock holding and improve product mix for the fourth consecutive period. Inventories decreased from R191 million in June 2009 to R173 million in the review period. Cash reserves of R808 million illustrate the Group's strong cash generating ability (2008: R533 million). These reserves include domestic borrowings of R300 million - a loan strategy employed with a view to making expeditious investments in the property portfolio given the current softening of land prices and continued rationalisation of the industry. An interim ordinary dividend of 6 cents per share has been declared (2008: 6 cents). In addition, given the Group's strong balance sheet and cash holding in excess of operational requirements the Board has declared a special dividend of 60c per ordinary share payable to shareholders, who will have the option to acquire additional shares at 325 cents per share in lieu of the special cash dividend, or to elect a combination of both cash and shares. The special dividend will also have the effect of assisting the Group's BEE partners in lowering their debt owed for the initial share acquisition. The Group's tangible net asset value per share increased 17% to 182 cents (2008: 156 cents). OPERATIONAL REVIEW The industry faced testing conditions, illustrated by further rationalisation of less robust, import-dependent industry participants. Ravazzotti comments: "Key to the Group's improved turnover is our position as the leading value player with well established brands." He adds: "In addition to consumers' gravitation to value, our long-standing relationships with suppliers and our investment in integrating the supply chain continued to deliver benefits for the Group. Reduced dependence on imports negated the effect of currency fluctuations and inconsistency of supply and quality, while the investment in our supply chain has added significant strategic advantage." During the reporting period, the emerging market sector remained buoyant, positively impacting CTM's sales growth. In addition, modest market share was gained in the middle income urban market during the last quarter. The Italtile stores experienced noticeably less customer traffic in the past six months. Trends indicate that affluent clients were more price sensitive and value conscious than previously, thereby pressuring new build and renovation sales. "We are comfortable that Top T, our entry-level fledgling brand will in time establish a strong foothold in the South African market. A conservative roll out programme will commence in the next six months, and the existing network will be expanded as appropriate opportunities arise," explains Ravazzotti. Italtile is actively pursuing a programme to raise awareness of environmental sustainability throughout the Group. Demonstrated by the construction of its environmentally friendly Training Academy, efforts are being made to ensure the Group's stores are more self sufficient and resourceful in terms of energy and water consumption. Henceforth all new stores will be built to comply with environmentally responsible standards and existing stores will be modified accordingly. AFRICA "Given the current economic environment, and our conservative stance to establishing a presence in Africa, no further expansion of the 14 store network was undertaken," notes Ravazzotti. AUSTRALIA Ravazzotti says: "After a lengthy period of restructuring the Australian operation, we are pleased to report that the business unit delivered a commendable performance, and made a creditable contribution to Group profit. This turnaround is based on our strategy to remedy logistical decisions made when we initially entered the country. We are confident that the optimal trading model to suit the unique Australian market is now in place and that we can sustain this performance." PROPERTY PORTFOLIO The Group's combined South African and Australian portfolio has a carrying value of R824 million (2008: R810 million). "Our strategy is to support our brands with high profile destination sites and over the next 18 months we will implement an aggressive relocation programme to optimise on that policy," comments Ravazzotti. "Whilst we have a long term investment horizon, the current softening in commercial property prices presents acquisition opportunities, which we will explore. Our traditionally selective approach to investments will ensure that this portfolio continues to deliver a sustainable, required return rate," he adds. PROSPECTS The Group will invest in retail technologies to augment in-store trading systems aimed at improving operational efficiencies and enhancing the shopping experience. Ravazzotti concludes: "The economic environment is generally expected to remain challenging over the forthcoming period. It is also difficult to forecast the impact of 2010 World Cup activities on trading in the next six months, and in particular in the months of June and July 2010. " "Notwithstanding this uncertain economic climate, we believe that growth at current levels will be maintained for the forthcoming period." ends Notes to editors: Italtile Ltd is South Africa's leading retailer of tiles, sanitaryware and related bathroom products. The Group is represented through its three branded retail outlets, Italtile, CTM and Top T. The store network comprises:
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