Wrap Text
Preliminary Reviewed Condensed Group Results for the Year Ended 30 June 2019 and Dividend Declaration
Italtile Limited
Share code: ITE ISIN: ZAE000099123
Registration number: 1955/000558/06
Incorporated in the Republic of South Africa
("Italtile" or "the Group" or "the Company")
Short form announcement for the year ended 30 june 2019
Highlights
System-wide turnover: R10,0 billion
2018: R8,7 billion
Up 15%
Trading profit: R1 797 million
2018: R1 518 million
Up 18%
Earnings per share: 102,6 cents
2018: 95,0 cents
Up 8%
Headline earnings per share: 101,8 cents
2018: 95,0 cents
Up 7%
Ordinary dividend per share: 41,0 cents
2018: 38,0 cents
Up 8%
Special dividend per share: 50,0 cents
2018: 30,0 cents
Up 67%
Net cash: R1 201 million
2018: R679 million
Up 77%
Net asset value per share: 480 cents
2018: 486 cents
Down 1%
Store network: 189
2018: 176
Up 7%
System-wide turnover (Rm) Trading profit (Rm)
2009: 2 571 2009: 361
2010: 2 750 2010: 389
2011: 3 021 2011: 448
2012: 3 518 2012: 523
2013: 3 917 2013: 619
2014: 4 492 2014: 740
2015: 5 224 2015: 905
2016: 5 955 2016: 1 047
2017: 6 210 2017: 1 063
2018: 8 679 2018: 1 518
2019: 9 995 2019: 1 797
"Our customers' journey is defined by 'moments of truth'. Every touchpoint is measurable and every opportunity for
engagement can and must be improved on. Accordingly, our integrated business model, evolved over our 50-year history, is
designed to control and optimise the process from factory gate to our customers' homes. Our overriding goal is to deliver
an unparalleled shopping experience by ensuring the right product displayed beautifully at the right time, place and
price." Jan Potgieter, CEO
OVERVIEW
Established 50 years ago, in 1969, Italtile Limited is a manufacturer, franchisor and retailer of tiles, bathroomware
and other related home-finishing products. The Group's retail brands are CTM, Italtile Retail and TopT, represented
through a total network of 189 stores, including five online webstores. The brand offering targets homeowners across
the LSM 4 to 10 categories. The retail operation is strategically supported by a vertically integrated supply chain,
comprising key manufacturing and import operations, and an extensive property portfolio.
IMPACT OF CERTAIN TRANSACTIONS ON THE GROUP'S RESULTS AND REPORTING REFERENCE TERMS
Comparable disclosure and analysis of the Group's results for the year ended 30 June 2019 ("review period") with the
prior corresponding period have been impacted on by the acquisition of Ceramic Industries Proprietary Limited ("Ceramic")
("Acquisition") as set out in the circular to shareholders of Italtile dated 23 August 2016, which became effective on
2 October 2017 and the partially underwritten renounceable rights offer as set out in the circular to shareholders of
Italtile dated 6 November 2017 ("Rights Offer"). Shareholders are referred to previous announcements in this regard.
RESULTS
Notwithstanding the exceptionally difficult trading conditions experienced over the past year, the Group has recorded
a creditable performance, achieving our stated goal of delivering improved headline earnings growth for the review
period. In line with our guidance, the results for the first half of the year were stronger than the prior comparable
period, due to a low-base effect, while the performance for the second half of the year was solid, albeit as forecast,
less robust than the prior comparable period.
Contribution to Group profit before tax
Franchising Retail Manufacturers
2019: 16% 2019: 19% 2019: 35%
2018: 15% 2018: 20% 2018: 33%
Properties Supply and support services
2019: 14% 2019: 16%
2018: 14% 2018: 18%
Group performance
The results reported for the review period are a good reflection of the Group's:
- robust proudly South African 50-year trading history as the industry trendsetter and style icon;
- strategically structured resilient business model, which provides a total solution through our integrated supply
chain;
- competent team with clarity of purpose and clearly defined strategies;
- mutually beneficial partnerships with longstanding franchisees and operators;
- strong cash generative nature, disciplined cash management and cost leadership;
- portfolio of market leading retail brands which are strategically positioned to cater across the demographic and
income spectrum, uniquely targeting each segment and supported by a multi-channel offering (in-store, online, social
and digital);
- consistent investment in the shopping experience and unwavering efforts to better execute retail excellence
principles;
- leading-edge technology employed in the manufacturing operations to produce high quality fashionable products; and
- leveraging growth opportunities in the business through an unrelenting focus on the customer.
OPERATIONAL REVIEW
Most of the key performance metrics improved across the retail brands and the integrated supply chain importers,
although the manufacturers did not fare as well. While our stores performed commendably in the weak trading climate, tile
sales, specifically, failed to live up to our expectations. This generally softer retail demand and the overstock position
of tile wholesalers and retailers in the industry impacted negatively on capacity utilisation at Ceramic's factories.
Retail brands
Across the brands, retail excellence disciplines improved, reflected by better in-stock levels, enhanced store and
merchandise presentation, technological innovation, and better analytical reporting, resulting in an improved customer
experience. CTM maintained its market share, while Italtile Retail and TopT continued to make gains in the competitive
environment. In total 17 stores were opened across the portfolio during the review period and four stores were closed.
CTM
After a series of disappointing sets of results, CTM started to demonstrate signs of a turnaround, despite the brand's
target market remaining under intense financial pressure. Growth was reported across sales, margins, profits and store
productivity, while stock turn increased and average store inventory was reduced. This improvement is attributable to a
focus on basic retail excellence principles; roll out of the new store format and revamp of older stores; the emphasis
on product (cost leadership, differentiation and trendsetting fashion); a brand repositioning campaign which built
meaningful equity; and prioritisation of the people pipeline and skills development. During the period, key leadership
changes were implemented, including the identification of an equity partner, which should continue to positively impact
on CTM's performance.
Italtile Retail
The brand reported pleasing growth in sales and profitability and improved average stock turn. However, some margin
was sacrificed due to an import substitute strategy centred on locally manufactured product. The customer shopping
experience was improved with the introduction of innovative webstore and digital initiatives; roll out of the new store
format; and an extended range of large format imported tiles and local porcelain tiles. While the Commercial Projects
division delivered another strong performance, post year-end there has been a noticeable slowdown in commissioning of new
developments, and generally, spend in the upper end of the market has declined as consumers defer investment in the current
conditions.
TopT
The brand reported another strong performance, recording double-digit like-on-like sales and profit growth. Stock turn
increased and average store inventory reduced. Some margin pressure was experienced in light of cost conscious customers
buying down. TopT continued to benefit from successful implementation of the business optimisation programme (BOP); roll
out of new stores to underserviced markets and a growing national presence; constant range re-evaluation and responsiveness
to customer demand; and introduction of a range of profile building initiatives including a mobile store (Gig Rig), a webstore,
community-linked marketing campaigns, and the launch of a dedicated training centre.
U-Light
During the review period, we commenced trialling a new lighting merchandise category which was rolled out to all the
TopT stores. To test the scalability and viability of the U-Light offering as a standalone brand, five pilot stores will
be opened in Gauteng by the end of August 2019; the five stores will each comprise a slightly different format and target
a different market segment. This start-up business will benefit from existing store locations, customer base, business
partners and an effective back-office set up.
MANUFACTURERS
Ceramic Industries
The acquisition of Ceramic some 20 months ago continues to deliver the gains envisaged, among them, a stronger combined balance
sheet for future expansion, and improved planning and production efficiencies, benefiting both the stores and the factories.
Tiles
In the South African operation, solid results reported in the first half of the review period were eroded by a weaker
performance in the second six months. While market share was gained by Gryphon's large format range, generally demand
across the market was sluggish, with many wholesalers and retailers overstocked. In light of slow demand, kilns were
shut off at four of Ceramic's factories in the third and fourth quarter of the year; this under-utilisation of capacity
impacted negatively on margins and profit for the period and will continue to remain a challenge in the short term.
The Australian operation reported improved profitability for the review period, and the investment to increase
capacity and product range was completed.
Focus will remain on reducing costs and improving yields across the operations.
Bathroomware and baths
Both Betta Sanitaryware and Betta Baths reported an improved second six months after a difficult first half. The new
warehouse facility should be completed during the next financial year which will improve capacity management and service
to customers. As with the tile factories, focus will remain on reducing costs and improving yields.
Ezee Tile
In the first half of the year, the business underperformed management's expectations, delivering disappointing margins
and profits. While the remedial actions implemented in the second half have addressed operational inefficiencies and
resulted in an improved performance in the latter six months, the business's results for the full year are not in line
with targets. Good progress was achieved in upgrading the plant in Mombasa and developing new production facilities in
Lusaka and Harare. The business also succeeded in gaining market share in the paint and construction chemicals segments.
SUPPLY CHAIN: IMPORTERS
Cedar Point
Improved sales and profit growth were reported for the year. Key focus areas were range rationalisation, reducing
stock levels and improving stock turn. In the year ahead, better implementation of BOP will assist in establishing optimal
stockholding and facilitating sell-through. Having successfully outsourced the warehouse function, management's primary
focus will henceforth be on improved buying and operational co-ordination.
International Tap Distributors (ITD)
Competition intensified in the brassware category as an increasing number of opportunistic importers entered the
market. Aggressive pricing and margin pressure were a constant feature in the review period, and in order to support
cash-strapped customers, ITD reduced average selling prices, which further impacted on profits. Some opportunity exists
to recover margins should the exchange rate stabilise favourably. Progress was achieved in rationalising the range and
enhancing the in-stock position while simultaneously reducing overall stockholding, however, there is further room for
improvement in terms of balancing business critical and supplementary stock.
Durban Distribution Centre
In the weak sales environment and given the overstocked position of numerous wholesalers, sales declined marginally
although profits improved, based on intensified cost management. Good progress was made on rationalising ranges and
reducing stockholding. In light of currency volatility and general margin pressure experienced in the industry, the
business continues to investigate new suppliers in new markets.
PROPERTY INVESTMENT
As at 30 June 2019, the portfolio's estimated market value was R3,8 billion, comprising a retail portfolio valued at
R3,0 billion (2018: R2,9 billion) and a manufacturing portfolio valued at R0,8 billion (2018: R0,8 billion). During the
period capital expenditure of R312 million was incurred on the retail portfolio in respect of an ongoing store upgrade
programme and the acquisition of five retail properties, while R189 million was invested across the manufacturing
operations on plant, warehouse and equipment upgrades.
ORDINARY CASH DIVIDEND
The Board has declared a final gross ordinary cash dividend of 19,0 cents per share (2018: 21,0 cents per share), which
together with the interim gross ordinary cash dividend of 22,0 cents per share (2018: 17,0 cents per share), produces a
total gross ordinary cash dividend declared for the year ended 30 June 2019 of 41,0 cents per share (2018: 38,0 cents per
share), an increase of 8%.
The dividend cover remains at two-and-a-half times.
SPECIAL DIVIDEND
In light of the Group's strong cash generative nature and cash reserves being in excess of operational requirements,
the Board has declared a special cash dividend in celebration of 50 years, of 50,0 cents per share (2018: 30,0 cents per
share).
Italtile is in the process of obtaining the relevant South African Reserve Bank approval in respect of the special
dividend, and the Board has reasonably concluded that the Company will satisfy the solvency and liquidity test immediately
after distribution thereof and for the next 12 months.
DIVIDEND ANNOUNCEMENT
The Board has declared a final gross ordinary cash dividend (number 106) and a special cash dividend (number 6) for
the year ended 30 June 2019 of 19,0 cents per ordinary share and 50,0 cents per ordinary share, respectively, to all
shareholders recorded in the books of Italtile as at the record date of Friday, 13 September 2019.
In accordance with paragraphs 11.17(a)(i) to (x) and 11.17(c) of the Listings Requirements of the JSE, ("JSE Listings
Requirements") the following additional information is provided:
- The dividends have been declared out of income reserves.
- The local dividend withholding tax rate is 20% (twenty percent).
- The gross local ordinary dividend amount is 19,0 cents per share for shareholders exempt from the dividends tax.
- The net local ordinary dividend amount is 15,2 cents per share for shareholders liable to pay the dividends tax.
- The local ordinary dividend withholding tax amount is 3,8 cents per share for shareholders liable to pay the
dividends tax.
- The gross local special dividend amount is 50,0 cents per for shareholders exempt from the dividends tax.
- The net local special dividend amount is 40,0 cents per share for shareholders liable to pay the dividends tax.
- The local special dividend withholding tax amount is 10,0 cents per share for shareholders liable to pay the
dividends tax.
- Italtile's income tax reference number is 9050182717.
- The Group has 1 295 254 148 shares in issue including 10 451 786 shares held by the Italtile Share Incentive
Trust and 60 818 201 shares held as BEE treasury shares and 3 369 062 shares held by Italtile Ceramics
Proprietary Limited ("Italtile Ceramics").
TIMETABLE FOR CASH DIVIDEND
The cash dividend timetable is structured as follows: the last day to trade cum dividend in order to participate in
the dividend will be Tuesday, 10 September 2019. The shares will commence trading ex-dividend from the commencement
of business on Wednesday, 11 September 2019 and the record date will be Friday, 13 September 2019. The dividend will
be paid on Monday, 16 September 2019. Share certificates may not be rematerialised or dematerialised between Wednesday,
11 September 2019 and Friday, 13 September 2019, both days inclusive.
PROSPECTS
There is little to indicate that meaningful economic growth is imminent, and in that light, we anticipate discretionary
spend to remain constrained. Unresolved socio-political issues and general uncertainty will also continue to impact
negatively on consumer confidence and investor sentiment.
Despite the very testing operating environment, we remain optimistic that those factors within our own control provide
prospects for growth, and we will continue to invest accordingly. We plan to open 15 stores in the next financial year
and will continue to build capacity in the supply chain.
We derive significant confidence from the Group's strong 50-year track record and the business model which has proved
to be resilient and robust over the past five decades. Management is satisfied that we have the appropriate team and
strategies in place and will endeavour to meet the expectations of our stakeholders.
We anticipate that the Group will deliver growth for the full year. Given the high base effect, we expect that growth
in the first six months is likely to be lower than growth in the second half of the year.
Short form announcement
The content of this short form announcement is the responsibility of the directors. Shareholders are advised that this
short form announcement represents a summary of the information contained in the full long form announcement which is
available at https://senspdf.jse.co.za/documents/2019/JSE/ISSE/ITE/YE19.pdf and also published on Italtile's website at
https://www.italtile.com/investor-reports-and-results.asp. Any investment decisions by investors and/or shareholders
should be based on a consideration of the full announcement as a whole and investors and shareholders are encouraged to
review the full announcement, which is available as detailed herein.
Both the short form and full announcement are also available for inspection at the registered offices of Italtile and
sponsor, Merchantec Capital, during business hours, and copies may be obtained at no cost on request from the Company
Secretary who is contactable on +27 11 882 8200 or lizwillis@ejaysecretarial.co.za.
www.italtile.com
Date: 22/08/2019 07:15:00
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