Financial results

Interim Results
For the six months ended 31 December 2010

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Commentary | Turnover analysis | Income statements | Segmental reporting | Balance Sheets
Statement of changes in equity | Cash flow statement | Notes | Store network



Trading conditions in the building and construction industry remained severe, featuring a sluggish recovery compared with other sectors of the economy. In this context, the Group’s results are primarily a reflection of improvements in the business.

Italtile Limited has reported a 10,0% increase in system-wide turnover to R1,59 billion (2009: R1,44 billion) for the six months ended 31 December 2010. Group-owned stores grew revenue 11,4% to R771 million (2009: R692 million), while franchised stores improved turnover 9,4% to R814 million (2009: R744 million). Real organic growth, excluding new store turnover contribution of 1,0% and price deflation of 0,1%, equates to 8,9%.

Reported trading profit rose 14% to R231 million (2009: R202 million), primarily as a result of operating cost containment and improved contribution to profitability by the Group’s supply chain partners, as well as R3 million profit on disposal of property, plant and equipment. The Group’s operating margin remained firm as a result of intensive cost control and improved supply chain and in-store efficiencies.

Adjusted headline earnings per share increased 13% to 17,6 cents (2009: 15,5 cents).

Enhanced product mix and rigorous stock management in the supply chain and at store level resulted in a further decrease in inventories to R228 million from R232 million at 30 June 2010.

Despite capital expenditure of R63 million on properties and IT infrastructure, cash reserves grew to R820 million (June 2009: R711 million), reflecting the Group’s strong cash-generative ability. The adjusted net asset value per share improved 10,0% to 174 cents (2009: 158 cents).

Trading environment

The industry remained under intense pressure during the review period, constrained by limited new build activity and subdued growth in the renovations market. The strengthened Rand afforded short-term advantage to opportunistic importers, resulting in an influx of imported product from a range of countries, and more significantly, a proliferation of very low-priced entry-level tiles, a trend last experienced three years ago. The average selling price of imported product declined by 10%, exerting price pressure on the value-for-money segment of the market specifically.

Operational review

Significant investment in fine-tuning the business model and the introduction of operating innovations over the past two years have started to yield the anticipated benefits. The restructuring of the Italtile brand, investment in people and processes at CTM, and developing the Top T trading format has ensured that the brands are positioned for growth as the economy improves. Continued focus on efficiencies and synergies will enhance the Group’s standing as the market leader in its industry.


The premium-end of the market remained stagnant, with little development taking place in the R2 millionplus housing market. Despite this, Italtile delivered a strong growth performance and succeeded in gaining market share amongst its traditional affluent customer base, as well as making further inroads into the fledgling projects market.

The brand continues to enjoy a gratifying response to its environmentally friendly strategies and products, evidenced by Italtile’s Earth range, (porcelain tiles indistinguishable from natural stone and internationally accredited for their environmentally sensitive features) which has captivated the local market. Furthering the goal to lead the industry in providing aesthetically superior ecologically sustainable products, Italtile has introduced an environmentally conscious range of sanitaryware, Cotto, manufactured in Thailand. Cotto demonstrates impressive ‘green’ credentials through the entire product cycle, from manufacture to consumption, and is expected to attain strong market share in South Africa.


Trading conditions remained difficult, featuring an abundance of imported product, with fierce competition at entry-level price points particularly evident. Notwithstanding this trend, CTM succeeded in retaining its market share based on its resilient business model and strong brand presence. Favourable customer response to in-house brand building campaigns continues to grow, with brands such as Kilimanjaro and Tivoli Taps becoming established household names. The decline in import prices at retail level were offset by the increase in sales at CTM of higher value products. This phenomenon is mainly due to the continued absence of small project contractors who traditionally drive the commodity-priced segment of the market.


A further five stores were opened during the review period, bringing to 13 the total network. Located in previously under-serviced rural areas, these stores have been well received, affording the Group access to a new market segment amongst emerging entry-level consumers. The enlarged store network has had the benefit of enabling management to understand and fine-tune the trading model and improve the brand’s buying power. Consistent buoyant growth is anticipated for Top T and further stores will be rolled out in future.

Supply chain

The Group’s partners are pivotal to the integrated supply chain model, and Cedar Point and International Tap Distributors made a significant contribution to the improved profitability of the business. Enhanced buying practices and better range management generated improved efficiencies and service, and promoted increased sales into the Group’s stores.

Rest of Africa

The Group is represented by 14 CTM stores in seven African countries. Turnover growth in these territories was negligible, with the East African operations particularly hampered by poor economic conditions. Opportunities to expand the Group’s network into Africa are reviewed on a continual basis, within the context of logistical and infrastructural constraints and the availability of suitable partners.


The downturn in the Australian economy remained evident during the reporting period, curtailing consumer spend, notably in the building and construction sector. As a result, the Group’s stores failed to achieve management’s expectations for the business during this period under review. The adverse trading conditions are anticipated to prevail over the next six months, exacerbated by the disruptive impact of recent inclement weather. Notwithstanding this environment, the Group remains resolute in its intention to expand the store network to 15 stores by 2013, pending availability of suitable sites.

The operation is currently represented by eight CTM stores in New South Wales and Queensland.

Property investment

The Group’s African and Australian property portfolio comprises high profile destination sites strategically selected to support the retail brands. These quality investments deliver returns in line with the trading operations. Favourable construction costs have enabled the Group to develop a number of properties during the period, and the continued decline in commercial property prices will afford improved opportunities to acquire new key sites in the short term.

The portfolio has an estimated current market value of R1,3 billion (2009: R1,1 billion).


Improving the in-store shopping experience is a major driver for the Group. Constant re-evaluation of the retail trading format is key to capitalising on growth opportunities and consequently the focus on range, service, systems and supplier relationships will continue to be re-examined and enhanced. Innovation and training will underpin this strategy.

It is anticipated that growth in the global economy will remain subdued over the short to medium term. In South Africa the building and construction industry particularly will be subject to continued pressure. Notwithstanding this environment, the Group is satisfied that growth at current levels can be maintained in the forthcoming six months.

Death of chief executive officer, Italtile colleagues, and business partners

On 09 February 2011, the Board announced with great sadness the untimely death of Mr Gianpaolo Ravazzotti, Chief Executive Officer of the Group, and eight of his colleagues and business partners, namely Ms Gia Celori (Italtile Ltd), Ms Marilize Compion (Italtile Ltd), Mr Sava Di Bella (Prima Bella Bathroom Accessories), Mr Simon Hirschberg (Grainwave Pty Ltd), Mr Jody Jansen van Rensburg (CTM Alberton), Ms Aletsia Krause (Italtile Ltd), Ms Bronwyn Parsons (Pilot, Italtile Ltd), and Ms Alison van Staden (Co-pilot).

Gianpaolo and his colleagues tragically passed away in an aeroplane accident on Tuesday, 08 February 2011 in the Robberg area near Plettenberg Bay. A full investigation is underway to determine the cause of the crash.


Gianpaolo joined Italtile in 2000, was appointed to the Board in 2004 and assumed the position of CEO in 2006. He was highly regarded as an innovative and insightful leader and during his tenure achieved a range of important successes for the Group. He enjoyed the highest esteem amongst all his colleagues and peers in the business and the industry. He will be sadly missed by his family and friends, his fellow Board members and colleagues.

On behalf of the Board, Chief Financial Officer, Mr Peter Swatton said, “We express our heartfelt condolences to the Chairman of the Group, Mr Gianni Ravazzotti, his wife Annabel and their daughters, and Gianpaolo’s wife, Vanessa and their children, as well as the families of all of our deceased colleagues.

Each and every one of those who passed away in this accident was an important part of the broader Italtile family and played a valuable role in the business. Their camaraderie and contribution will be missed. As colleagues and friends we offer our deepest sympathies to their families.”

Basis of preparation of accounting policies

The reviewed interim financial results 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, and contains the information required by International Accounting Standard 34, Interim Financial Reporting.


The Group has maintained its dividend cover of three times. The Board has declared an interim dividend of 6 cents per share (2009: 6 cents).

Dividend announcement

The Board has declared an interim dividend (number 89) of 6 cents per ordinary share to all shareholders recorded in the books of Italtile Limited. The last day to trade cum dividend in order to participate in the dividend will be Thursday, 17 March 2011. The shares will commence trading ex dividend from the commencement of business on Friday, 18 March 2011 and the record date will be Friday, 25 March 2011. The dividend will be paid on Monday, 28 March 2011. Share certificates may not be rematerialised or dematerialised between Thursday, 17 March 2011 and Friday, 25 March 2011, both days inclusive.


For and on behalf of the Board

G A M Ravazzotti
Executive Chairman


P D Swatton
Chief Financial Officer

  12 February 2011

The results have been reviewed by Ernst & Young Inc. and their unqualified review opinion is available on request from the company secretary at the company’s registered office.

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 (Executive Chairman), *P D Swatton (Chief Financial Officer)

Non-executive Directors: S M du Toit, S I Gama, **A Zannoni (*British ** Italian)

Company Secretary: E J Willis

Sponsor: BDO Corporate Finance