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ITALTILE LIMITED - Voluntary Trading Statement for the Six Months Ended 31 December 2018

Release Date: 28/01/2019 09:00
Code(s): ITE     PDF:  
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Voluntary Trading Statement for the Six Months Ended 31 December 2018

ITALTILE LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1955/000558/06)
Share code: ITE ISIN: ZAE000099123
(“Italtile” or “the Group”)

VOLUNTARY TRADING STATEMENT FOR THE SIX MONTHS ENDED 31 DECEMBER 2018

Italtile is currently finalising its results for the six months ended 31 December 2018 (“the review
period”).

IMPACT OF CERTAIN TRANSACTIONS ON THE GROUP’S RESULTS AND REPORTING REFERENCE
TERMS
Comparable disclosure and analysis of the Group’s results for the review period with the prior
corresponding period have been impacted 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”).

ACQUISITION
Following the Acquisition, the Group holds a 95.47% stake in Ceramic and an effective 71.54% in Ezee
Tile Adhesive Manufacturing Proprietary Limited (“Ezee Tile”). Accordingly, the results for the review
period include the consolidated results of both businesses for the full six-month period from 1 July
2018 to 31 December 2018 versus the three month period from 2 October 2017 to 31 December 2017
in the prior corresponding period.

Sales related to Ceramic and Ezee Tile are referred to as “manufacturing” sales to distinguish them
from “retail” sales reported by Italtile’s retail brands, CTM, Italtile Retail and TopT.

ISSUED SHARE CAPITAL AND WEIGHTED AVERAGE NUMBER OF SHARES
In terms of the Acquisition, 150 936 170 Italtile shares were issued to shareholders of Ceramic.
Further, in terms of the Rights Offer, 135 985 156 Italtile shares were subscribed for by the close of
the Rights Offer on 24 November 2017. In addition, in terms of a specific repurchase of shares
(“Repurchase”) as published on SENS on 8 March 2018, 25 000 000 Italtile shares were repurchased
by Italtile from Four Arrows Investments 256 Proprietary Limited.

As a result of the above, the Group’s current issued share capital is 1 295 254 148 shares, reflecting
an increase of 25.3% (pre- Acquisition, Rights Offer and Repurchase: 1 033 332 822 shares).
Consequently, the weighted average number of shares in the review period is 17.1% higher than that
of the prior corresponding period.

OVERVIEW
Weak trading conditions persisted over the review period. Consumer discretionary spend remained
constrained in the context of high levels of personal indebtedness, unprecedented unemployment
and recent hikes in interest rates, VAT and fuel prices. In addition, country-specific risks continued to
subdue sentiment and restrain meaningful investment by the public and private sectors in the face of
policy uncertainty, endemic corruption, dissatisfaction with poor service delivery and inconsistent
power supply.
2019 marks the Group’s 50th anniversary since founding in 1969. Over the past five decades the
business model has evolved and adapted to withstand testing conditions. This resilience and long-
standing track record of improvement through unrelenting customer focus continued to stand the
Group in good stead in the adverse economic and socio-political environment.

RETAIL BRANDS

The stronger sales reported below for the review period are attributable to management’s focus on
enhancing the customer shopping experience through better execution. Key focus areas included
improvement of sales levers, and enhancing the range, fashion and availability of business-critical
merchandise - with the Group’s mantra being to ensure that the customer enjoys the right product at
the right time, place and price.

Double digit growth was reported by the TopT and Italtile brands, while CTM recorded a positive
turnaround from the prior corresponding period, largely derived from increased efficiencies,
combined with benefits achieved from the launch of the brand’s high-profile multi-media advertising
campaign, which has been well received by consumers.

SUPPLY CHAIN: MANUFACTURING

Ceramic reported solid results for the review period, underpinned by a favourable response from
existing customers to the latest enhanced tile range, and a gain in new open market customers.
Increased sales volumes resulted in efficient capacity utilisation across the tile plants, improving
profitability. The sanitaryware and bath businesses continued to undergo restructuring to enable
them to attain their full potential.

Ezee Tile under-performed management’s expectations, failing to respond timeously to changing
market conditions. Management is satisfied that the operational inefficiencies experienced in the
review period will be remedied in the short-term.

SUPPLY CHAIN: IMPORTING

Stock management remained a key focus at Cedar Point, International Tap Distributors and the
Group’s Distribution Centre during the review period and good progress was reported, albeit that
further improvements can be made. The deliberate decision to support the retail brand price offering
to customers in light of constant currency volatility eroded some profitability in the review period,
however margins will be regained over the next six months.

RESULTS
The Group’s system-wide turnover for the review period was R5.3 billion, 25.3% higher than the prior
corresponding period (2017: R4.3 billion). System-wide turnover is defined as the aggregate of the
Group’s consolidated turnover (total sales by Group-owned entities and corporate stores, excluding
sales from owned supply chain businesses to corporate stores) and the retail turnover of franchisees
of the Group.

Total retail store turnover grew 6.3% for the review period compared to the previous corresponding
period. Like-on-like retail store turnover for the review period increased by 4.6% compared to the
previous corresponding period, with average selling price inflation estimated at 2.4%. Retail store
turnover is defined as the aggregate turnover of all stores, either corporate or franchised, in the
Group’s retail network.
Manufacturing sales included in the consolidated results for the review period grew by 106%
compared to the previous corresponding period. Manufacturing sales for the period 1 July 2018 to
31 December 2018 increased by 6.1% compared to the same period in the prior year. Average selling
price inflation for the review period is estimated at 3.5%.

The Group’s basic earnings per share is expected to be between 54.4 cents and 55.9 cents (2017:
48.6 cents), representing an increase of between 12.0% and 15.0% compared to the prior
corresponding period.

The Group’s headline earnings per share is expected to be between 53.9 cents and 55.4 cents (2017:
48.6 cents), reflecting an increase of between 11.0% and 14.0% compared to the prior corresponding
period.

The disparity between basic earnings and headline earnings growth is attributable to a profit of
R11 million on the disposal of a local property.

OUTLOOK

Very strong double-digit growth in headline earnings per share was achieved for the six-month period
ended 30 June 2018, derived from major improvements in efficiencies and robust cost leadership
across the business, as well as the consolidation of Ceramic and Ezee Tile for the full six-month period.
Management believes that solid headline earnings growth will be achieved in the forthcoming six
months, albeit not at the same level as the prior corresponding period.

REVIEW OF RESULTS
The information on which this announcement is based has not been reviewed or reported on by
Italtile's auditors.

PUBLICATION OF RESULTS
The Group's results for the six months ended 31 December 2018 are expected to be published on SENS
on or about 14 February 2019.

Johannesburg
28 January 2019

Sponsor
Merchantec Capital

Date: 28/01/2019 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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