Financial results

Interim Results
For the six months ended 31 December 2008

Commentary

Results

The Group reported a 2% decline in system-wide turnover to R1,39 billion (2007: R1,42 billion). Price inflation year-on-year was limited to 2,5%, reflecting the tight trading conditions. Foot traffic across the store network is down on the previous period, however, the Group experienced better than expected December trading.

Reported trading profit decreased by 6,7% to R194 million (2007: R208million), reflecting a marginal decrease in the Group operating margin to 14,0% from 14,7% in the previous year as the Group responded to the highly pressured trading environment to protect CTM’s brand position as the leading value player in the market.

The entry level market segment showed substantial growth, while sales in the established market declined. Although sales declined slightly, consumers have become more discerning in their purchasing decisions, gravitating towards products which offer value. As a result, the Group is seeing greater demand for its locally procured merchandise rather than imports. Its strategic alliances with local suppliers are supporting lower inventory levels and efficiencies in the supply chain.

The Group maintained its concerted efforts to clear its inventories which were successfully decreased to R224 million from R263 million in June 2008, representing a drop of 15%. Having run down its slower moving stock, the Group now has the flexibility to purchase products meeting customers’ current requirements.

The Group’s cash reserves increased by R25 million to R306 million (2008: R281 million) through effective inventory management.

The tangible net asset value per share has increased by 5% to 156 cents (2008: 149 cents).

Operational review

The Group is starting to reap the benefits of the operational programmes to cement its leadership in the South African market which were initiated 18 months ago. The enhanced in-store systems and controls are enabling a better shopping experience. Although the focus on training and mentorship is paying off with the quality of leadership starting to increase and better service levels, the Group is not satisfied that these have reached their full potential and will continue to concentrate on training.

The Group continues to evolve and develop Top T, the retail brand established to service the highly price-sensitive entry level market, which is suited to the current trading environment.

The Group maintained its conservative approach to building a presence in Africa. The stores in Kenya and Uganda are delivering profits and the Group is currently evaluating the feasibility of re-entering the Zambian and Malawian markets.

The Group’s Australian operation, comprised of eight stores, broke even as demand has been severely impacted by current economic conditions.

Property portfolio

Although the Group evaluates investment opportunities on an ongoing basis, land prices have not sufficiently declined to reflect the uncertain global economic outlook and sellers’ expectations remain unrealistic. The Group has a long-term property investment horizon and will maintain its conservative and selective approach with regard to location and price to ensure that its property portfolio is positioned to sustainably deliver the required return.

Prospects

The Group will be unable to maintain the level of earnings for the full year, that were achieved in the previous year.

Basis of preparation

The preliminary profit announcement has been prepared in accordance with IFRS and IAS 34 Interim Financial Reporting. The same accounting policies and methods of computation have been applied as in the most recent annual financial statements.

Dividend

The Group has maintained its dividend cover of around three times.

The board has declared an interim dividend of 6,0 cents per share (2007: 4,0 cents), an increase of 50%.

Dividend announcement

The board has declared an interim cash dividend (number 85) of 6 cents per share to all shareholders recorded in the books of Italtile Limited for the six-month period ended 31 December 2008. The last day to trade cum the dividend will be Friday, 27 February 2009. The shares of Italtile Limited will commence trading ex dividend from the commencement of business on Monday, 2 March 2009 and the record date will be Friday, 6 March 2009. Payments will be made on Monday, 9 March 2009.

Share certificates may not be rematerialised or dematerialised between Monday, 2 March 2009 and Friday, 6 March 2009, both days inclusive.

For and on behalf of the Board

G P E Ravazzotti
Chief Executive Officer

P D Swatton
Chief Financial Officer

9 February 2009

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

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

Directors: G A M Ravazzotti (Chairman), G P E Ravazzotti (Chief Executive Officer), *P D Swatton
(Chief Financial Officer)

Non-executive Directors: S I Gama, G K Morolo, D H Rabin, **G Zannoni (*British ** Italian)