Financial results

Reviewed Group results
For the six months ended 31 December 2012

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


Overview for the six months ended 31 December 2012

Founded 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

  • System wide turnover improved 10% to R2,04 billion (2011: R1,84 billion). During the latter part of the period five new stores were opened including one CTM and four TopT stores; however, given their negligible contribution to turnover, the Group’s increased revenue is largely derived from same-store organic growth.
  • Revenue from Group-owned stores grew 14% to R1,08 billion (2011: R946 million), while franchised stores increased turnover by 6% to R956 million (2011: R898 million).
  • Reported trading profit rose 15% to R312 million (2011: R271 million), reflecting tight cost control; additionally, after several consecutive years of absorbing pricing pressure and sacrificing margins in the context of substantially higher input costs, modest inflation-linked price increases were implemented in the retail network.
  • Basic earnings per share and headline earnings per share increased 12% and 13% respectively to 24,2 cents per share and 24,3 cents per share.
  • The Group’s cash and cash equivalent reserves at the end of the period were R453 million (2011: R904 million), reflecting the investment of R529 million incurred to acquire a strategic stake in Ceramic Industries Limited and capital expenditure of R95 million invested primarily in enhancing the quality of the property portfolio.
  • Net asset value per share increased by 15% to 236 cents (2011: 205 cents).

Key to the Group’s growth was:

  • A refined and improved product range across the Group’s brands ensuring a better product value/quality mix;
  • The deliberate strategy to up-sell ‘complete solutions’ of products rather than individual commodities, which served to increase the size and value of the average consumer basket. The enhancement of stores with greater focus on ‘lifestyle’ displays also promoted this strategy;
  • Continued growth in the bathroomware division across the Group which delivered an average 9% increase in sales volumes;
  • Consolidation and expansion by each of the brands in their specialist areas: Italtile Retail continued to grow its presence in the up-market projects sector and entrenched its leadership in the environmentally-friendly product niche; CTM made further inroads into the middle and lower top-end of the market with continued pioneering and introduction of highly fashionable inkjet technology tile products (wood and stone look-alike) and imported Spanish product; and TopT grew brand awareness with the opening of four new stores and continued to grow market share with its opportunistic product range, including ceiling tiles and paint;
  • Investment in CTM’s electronic media brand campaigns continued to raise the profile and increase sales volumes of core ranges including Elf flooring, Tivoli taps and Kilimanjaro extruded porcelain tiles;
  • The Group’s deliberate tactic to promote its policy of the right stock at the right time through an increased inventory and improved range continued to have positive benefits by delivering enhanced customer service.
  • During the period, prudent inventory management ensured the continued decline in stock losses and consistently improved stock turn; and
  • Significant progress was achieved in improving the Group’s interactive web-based capability and increasing web traffic to the CTM site. During the period, CTM’s customers were able to view the product range and ascertain availability online, in real-time and develop a quote. This service will be extended when the brand’s online store becomes fully functional in the second half of the calendar year enabling customers to view and purchase products online and arrange delivery via the internet. This offering will have appeal for a new generation of younger tech-savvy consumers and will significantly increase convenience for small business builders. This innovation is expected to provide an important competitive advantage.

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.


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.


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.


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).


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 dividend has been declared out of income reserves.
  • The local dividend tax rate is 15% (fifteen percent).
  • There are Secondary Tax on Companies (“STC”) credits to be utilised to the amount of R5,2 million or 0,50172 cents per share.
  • The gross local dividend amount is 8,00000 cents per share for shareholders exempt from the Dividends Tax.
  • The net local dividend amount is 6,87526 cents per share for shareholders liable to pay the Dividend Tax.
  • The local dividend withholding tax amount is 1,12474 cents per share for shareholders liable to pay the Dividend Tax.
  • Italtile’s income tax reference number is 9050182717.
  • Italtile has 1 033 332 822 shares in issue including 25 893 037 shares held by the Share Incentive Trust and 88 000 000 shares held as BEE treasury shares.

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

G A M Ravazzotti P D Swatton  
Executive Chairman Chief Financial Officer 13 February 2013


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.