Financial results

Interim Results
For the six months ended 31 December 2002

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Commentary | Income statements | Segmental reporting | Balance sheets 
Statement of changes in equity | Cash flow statement

Commentary

For the six months ended 31 December 2002, turnover for Italtile Limited and its franchisees amounted to R725 million, an improvement of 36% (2001: R533 million): the contribution from group owned stores improved 33% to R407 million (2001: R306 million), while turnover from franchises grew 40% to R317 million (2001: R227 million). Trading profit increased to R78 million from R50 million in the prior comparable period, an improvement of 56%. Attributable earnings grew 53% to R53,5 million (2001: R35 million), while headline earnings per share increased 52% to 291 cents (2001: 191 cents).

Italtile Limited is South Africa's leading retailer of ceramic tiles, sanitaryware, bathroom accessories and other related products, and trades through two national branded retail chains, CTM and Italtile, which cater to the value-for-money and premium-end markets respectively. The company is amongst the largest purchasers of tiles globally.

Central to the achievement of these results are the group's key competitive strengths:

  • Strong brand awareness and responsiveness to consumer demand
  • Advantageous store location on company owned premises
  • Leverage to source and buy superior quality product at competitive prices
  • Strategic partnerships throughout the supply chain which energise the trading model

Contributing to performance improvement was the buoyant trading environment, complemented by the current surge in the building industry.

Turnover growth was derived from existing operations, with only one new store, the Lonehill Super Store, having been opened during this review period. This performance substantiates management's view that the South African ceramic tile market still affords significant growth opportunities in both the developed and undeveloped sectors.

The period under review featured some important developments, including the very successful performance of the group's joint venture enterprises. The company's strategic imperative to empower and energise individuals at every level of the business is accomplished by decentralising decision making, and fostering entrepreneurship by encouraging the development of a successful retail formula at store level. This philosophy has been positively received, and together with the motivation characteristic of an owner-driven business, has produced rewarding returns.

Inroads were made into the sanitaryware and tap market, with gains reported in sales and market share. This associated-product market has traditionally been regarded by the group as peripheral, rather than a core focus area, but with evolving consumer appetite demanding improved convenience and a wider product range, the synergies have become increasingly attractive.

Important opportunities have been identified and growth is forecast for this business segment. Management is confident that the group's status as the leading tile retailer can be replicated in the tap and sanitaryware market.

Property Portfolio

A further R16 million was invested in the property portfolio, increasing the total carrying value to R228 million. The group's policy of trading out of company-owned premises which are situated in highly visible, prime locations positioned to support group brands has continued to deliver important benefits. As a consequence, ongoing investment in this portfolio will be made.

African Operations - CTM and Italtile

The group operates three franchise-linked vehicles: 100% franchises, joint venture franchises and black empowered franchises.

The CTM brand is represented by eight company owned stores, 51 franchised stores, five empowered franchise stores and nine joint venture stores in South Africa. CTM is also presently represented in Botswana, Namibia, Swaziland, Lesotho, Malawi and Tanzania. Expansion plans include a second store in both Malawi and Tanzania, and the commencement of trading in Zambia within the next few months.

Italtile is represented by seven company owned stores, one franchised store, and three joint venture stores in South Africa.

This review period saw the joint venture structure coming into its own as a result of the successful combination of complementary factors: a careful selection process, ensuring the right match of franchisee and customer profile, entrepreneurial commitment of franchise owners, and the mentorship and experience added by the company. Given the success of this trading formula, the balance of group owned stores will be joint ventured in time.

The empowerment franchise vehicles also performed well, incentivising the group to consider opening a further three stores in heavily populated areas. With skills transfer and mentoring taking place at the coalface and benefits flowing through to SME's, management is satisfied that the group's black economic empowerment programme is firmly on track.

Having established itself as a major franchisor the company's goal is to ensure that the bulk of the business vests in the hands of franchisees.

International Operations

The Australian operations continued to perform well, growing both turnover and profits. The group is represented by nine CTM stores across Queensland, New South Wales and Victoria. In line with Australian consumer retail expectations, stores will be upgraded over time to afford an aesthetically enhanced shopping experience. Further expansion will commence once the store upgrade programme has been completed. The group's Italian operation continues to add value and has performed in line with expectations.

Directorate

During the period under review, Mr Brian van Rooyen resigned his position as a non executive director of the Board to devote more time to the company of which he is Chief Executive Officer. The Board wishes to thank Mr van Rooyen for his valuable contribution.

Issue of Shares

On 18 November 2002, the Group issued 366 541 shares at 2400 cents each to the Share Incentive Trust in order to eliminate the exposure on the loan owed by the Trust to the group. This brings the total number of shares in issue to 18 396 401. Share issue expenses have been capitalised.

Prospects

Trading conditions are expected to remain favourable over the next 12 months. While expansion opportunities afforded by the market will facilitate further store openings during the coming year, the group remains cognisant that to support these stores the market needs to be created and nurtured. Attention will thus be directed at sourcing and training suitable partners and franchisees to exploit untapped markets where brand recognition is already strong.

Management is satisfied that with continued focus on key performance areas steady growth and satisfying returns are achievable.

Accounting Policies

The financial information has been presented in accordance with South African Statements of Generally Accepted Accounting Practice. The accounting policies applied are consistent with those of the prior reporting period, with the exception of the adoption of AC133 "Financial Instruments Recognition and Measurement".

Dividend

The Board has declared an interim dividend of 50 cents, an improvement of 43% (2001: 35 cents).

Dividend Announcement

The directors have declared an interim dividend (number 73) of 50 cents per share to all shareholders recorded in the books of Italtile Limited. The last day to trade "CUM" the dividend in order to participate in the dividend will be Friday 21 February 2003. The shares of Italtile Limited will commence trading "EX" dividend from the commencement of business on Monday 24 February 2003 and the record date will be Friday 28 February 2003. Payment will be made on Monday 3 March 2003. Share certificates may not be dematerialised or rematerialised between Monday 24 February 2003 and Friday 28 February 2003, both days inclusive.

For and on behalf of the Board

G A M Ravazzotti
Executive Chairman

 

P D Swatton
Chief Financial Officer

5 February 2003


Registered Office: The Italtile Centre, cnr Peter Place and William Nicol, Bryanston (PO Box 1689 Randburg 2125)

Transfer Secretaries: Computershare Services Limited, 70 Marshall Street, Johannesburg 2001 (PO Box 61051, Johannesburg 2107)

Directors: G A M Ravazzotti (Chairman), P D Swatton**, J Couzis*, G Cousins, D H Rabin, *Greek **British