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CRM
CRM
CRM - Ceramic Industries Limited - Unaudited interim results for the six
months ended 31 January 2010
CERAMIC INDUSTRIES LIMITED
(Registration number 1982/008520/06)
(Incorporated in the Republic of South Africa)
("Ceramic Industries" or "the Group")
Share code: CRM ISIN: ZAE000008538
Unaudited interim results for the six months ended 31 January 2010
Condensed consolidated statement of comprehensive income
Six months Six months Year ended
ended ended
31 January 31 January 31 July
2010 2009 2009
Change Unaudited Unaudited Audited
% R000`s R000`s R000`s
Revenue 8.2 779 976 720 811 1,440,199
Tiles 10.3 672 440 609 775 1,218,277
Sanitaryware (3.2) 107 536 111 036 221 922
Operating profit before 21.9 177 671 145 783 307 285
depreciation
Depreciation 17.5 (62 235) (52 971) (100 734)
Operating profit before 24.4 115 436 92 812 206 551
share-based payment cost
Tiles 38.6 121 837 87 908 193 126
Sanitaryware (230.5) (6 401) 4 904 13 425
Share-based payment cost of - - (49 343)
transaction with BEE
partners
Operating profit after share- 24.4 115 436 92 812 157 208
based payment cost
Finance income 66.0 8 634 5 201 9 863
Finance expenses (99.8) (8) (3 519) (8 300)
Profit before taxation 31.3 124 062 94 494 158 771
Taxation 20.2 (36 424) (30 293) (68 080)
Profit for the period 36.5 87 638 64 201 90 691
Other comprehensive income
Foreign currency translation 19 157 (17 662) (26 078)
differences for foreign
operations
19 157 (17 662) (26 078)
Total comprehensive income 106 795 46 539 64 613
for the period
Profit attributable to:
Ordinary shareholders of the 34.3 86 707 64 582 90 729
Group
Non-controlling interest 931 (381) (38)
Total comprehensive income
attributable to:
Ordinary shareholders of the 105 014 47 426 65 676
Group
Non-controlling interest 1 781 (887) (1 063)
Earnings per share
Basic earnings per share 34.3 504,3 375,5 527,6
(cents)
Diluted earnings per share 29.4 486,0 375,5 525,3
(cents)
Dividend per share (cents) 27.3 140,0 110,0 210,0
Reconciliation of headline
earnings
Profit attributable to 86 707 64 582 90 729
ordinary shareholders of the
Group
Loss on disposal of plant 78 115 177
and equipment
Headline earnings 34.1 86 785 64 697 90 906
Headline earnings per share 34.2 504,7 376,1 528,6
(cents)
Diluted headline earnings 29.3 486,5 376,1 526,4
per share (cents)
Condensed consolidated statement of financial position
31 January 31 January 31 July
2010 2009 2009
Unaudited Unaudited Audited
R000`s R000`s R000`s
ASSETS
Non-current assets 887 622 934 866 921 325
Property, plant and equipment 876 955 917 631 910 749
Goodwill 4 520 4 520 4 520
Unlisted investment 5 704 6 005 5 682
Deferred taxation assets 443 6 710 374
Current assets 636 396 466 820 518 761
Inventories 87 513 124 287 119 247
Trade and other receivables 207 775 242 124 244 504
Income taxation receivable 11 952 6 567 -
Cash and cash equivalents 329 156 93 842 155 010
Total assets 1 524 018 1 401 686 1 440 086
EQUITY AND LIABILITIES
Equity 1 314 649 1 180 391 1 227 149
Share capital 64 816 64 962 64 816
Shares held by share trust (112 110) (112 110) (112 110)
Share-based payment reserve 47 212 - 47 235
Share awards reserve 7 913 7 176 7 959
Reserves 87 087 68 960 61 093
Retained earnings 1 211 460 1 144 737 1 151 666
Ordinary shareholders` interest 1 306 378 1 173 725 1 220 659
Minority shareholders` interest 8 271 6 666 6 490
Non-current liabilities 81 579 78 452 72 328
Shareholders` loans 9 638 10 134 9 736
Deferred taxation liabilities 71 941 61 817 60 660
Borrowings - 6 501 1 932
Current liabilities 127 790 142 843 140 609
Trade and other payables and 127 586 142 653 135 825
provisions
Income taxation payable - - 3 247
Shareholders for dividends 204 190 1 537
Total equity and liabilities 1 524 018 1 401 686 1 440 086
Condensed consolidated statement of cash flows
Six months Six months Year
ended ended ended
31 January 31 January 31 July
2010 2009 2009
Unaudited Unaudited Audited
R000`s R000`s R000`s
Operating activities
Operating profit adjusted for non-cash 191 387 136 504 299 899
items
Changes in working capital 60 224 (8 354) (12 522)
Cash generated from operations 251 611 128 150 287 377
Finance income 8 634 5 201 9 863
Finance expenses (8) (3 519) (8 300)
Dividends paid (20 559) (27 514) (47 315)
Taxation paid (47 531) (69 871) (92 075)
192 147 32 447 149 550
Investing activities (15 948) (51 258) (101 932)
Acquisition of shares in unlisted (22) (6 005) (5 682)
investments
Property, plant and equipment (net) (15 926) (45 253) (96 250)
Financing activities (2 053) (13 609) (18 870)
Costs incurred in respect of BEE (23) (1 960) (2 108)
transaction
Additional shares issued - - 8
Share buy back - - (154)
Cash outflow from share trust dealings - (481) (481)
Borrowings repaid (1 932) (10 948) (15 517)
Shareholders` loans repaid (98) (220) (618)
Net movement in cash and cash 174 146 (32 420) 28 748
equivalents
Cash and cash equivalents at the 155 010 126 262 126 262
beginning of the period
Cash and cash equivalents at the end 329 156 93 842 155 010
of the period
Condensed consolidated statement of changes in equity
Six months Six months Year
to to to
31 January 31 January 31 July
2010 2009 2009
Unaudited Unaudited Audited
R000`s R000`s R000`s
Balance at the beginning of the 1 227 149 1 162 781 1 162 781
period
Net additional shares acquired by - (481) (481)
share trust
Share-based payment cost of - - 49 343
transaction with BEE partners
Costs incurred in respect of BEE (23) (1 960) (2 108)
transaction
Additional shares issued - - 8
Share buy back - - (154)
Share awards reserved (46) 1 037 1 820
Profit attributable to ordinary 86 707 64 582 90 729
shareholders of the Group
Movement in foreign currency 18 307 (17 156) (25 053)
translation reserve
Movement in minority shareholders 1 781 (887) (1 063)
Transfer to dividend reserve (26 913) (18 921) (38 139)
Dividend reserve 26 913 18 921 38 139
Net dividend paid (19 226) (27 525) (48 673)
Balance at the end of the period 1 314 649 1 180 391 1 227 149
Commentary
Operating environment
The sustained economic slowdown continued to have a negative impact on tile
and sanitaryware industries globally. Further market contraction was
experienced in the South African sanitaryware sector as a result of
stagnation in new build projects in both the private and government sectors.
In line with the previous six months, tile consumption in this country
remained constrained, although a slight improvement in the renovation market
became evident towards the end of the period.
Financial results
Notwithstanding the difficult trading environment and continued subdued
demand, Ceramic achieved good results attributable to the following factors:
- A substantially improved performance by Centaurus in Australia;
- Improved customer service and internal efficiencies, achieved through
balancing production levels and product mix with market demand; and
- An increased share of the tile market gained from import replacement as
customers sought consistency of supply.
Whilst the Group`s tile factories reported a pleasing performance, Betta and
Aquarius delivered disappointing results. Reduced demand in both the private
and government sectors was exacerbated by strike action and operational
inefficiencies at these plants.
Group revenue increased 8,2% to R780,0 million (2009: R720,8 million). Tile
revenue improved 10,3% to R672,4 million (2009: R609,8 million). Average
selling prices increased by approximately 6% during the period under review.
Tile sales volumes across the Group improved from 17,215 million mSquared to
17,667 million mSquared, with the bulk of the increase experienced in
Australia where sales volumes increased 35%. Tile production increased 9,2%
from 15,528 million mSquared to 16,963 million mSquared.
Revenue from the Group`s sanitaryware factories, Betta and Aquarius, declined
3,2% to R107,5 million (2009: R111,0 million). Sales and production volumes
decreased by 13% (from 634 424 pieces to 553 290 pieces) and 24% (from 659
035 to 500 621 pieces) respectively.
Group operating profit increased 24,4% to R115,4 million (2009:
R92,8 million). Operating profit from tiles increased 38,6% to
R121,8 million (2009: R87,9 million); in contrast, sanitaryware operating
profit declined from a profit of R4,9 million to a loss of R6,4 million.
The effective tax rate reduced from 32,1% for 2009 to 29,4% for 2010. The
higher charge for 2009 was the result of a proportionally higher STC charge
and the fact that a deferred tax asset was not created for the accumulated
losses of the Australian company.
Headline earnings increased 34,1% to R86,8 million (2009: R64,7 million),
with a corresponding increase of 34,2% in headline earnings per share to
504,7 cents (2009: 376,1 cents).
In all of the South African tile factories, sales volumes outstripped
production. Consequently, inventories reduced from R119,2 million to
R87,5 million.
The Group`s cash reserves increased from R155,0 million to R329,2 million,
largely due to the cash generative nature of the business, improved margins,
reduced inventories, reduced receivables and reduced capital expenditure
during the review period.
Ceramic`s net asset value per share increased 11,4 % to 7,646 cents (2009:
6,862 cents).
Manufacturing operations - tile division
Pegasus
Pegasus produces large format glazed pressed tiles for the DIY and contract
market. The quality, cost effective range has broad market appeal and
competes successfully against Chinese and Brazilian imports.
The factory increased year on year production by 10% from 6,08 million
mSquared to 6,68 million mSquared. Sales volumes grew 3% from 6,63 million
mSquared to 6,80 million mSquared. Pegasus` improved performance is
attributable to range rationalization, improved yields and development of new
product ranges.
Vitro
This factory manufactures full bodied glazed and unglazed extruded punched
tiles for the up-market domestic and contract sectors.
The recently commissioned drier extension has been successful in improving
output of larger volumes of first grade product and facilitated range
expansion of the 40x40 format. Production increased from 2,49 million
mSquared in 2009 to 2,54 million mSquared. Whilst sales volumes decreased
from 2,71 million mSquared to 2,61 million mSquared, internal efficiencies
resulted in reduced production costs. A second drier extension will be
commissioned in May 2010.
Samca Floor Tiles
Samca Floor Tiles produces primarily large format fashionable pressed glazed
floor tiles.
Three months of strike action, which has now been resolved, reduced
production volumes from 2,65 million mSquared to 2,38 million mSquared and
sales volumes declined commensurately from 2,95 million mSquared to 2,65
million mSquared. Despite the challenging circumstances, Samca Floor Tiles
improved operational efficiencies to generate higher first grade yields and
the opportunity to increase average selling price. Lower production costs
positively impacted margins.
Samca Wall Tiles
This is the only factory in the Group and the country that manufactures wall
tiles. The pressed, glazed tiles are produced for both the commodity and
fashion markets.
Production volumes, which increased from 2,56 million mSquared to 2,59
million mSquared, were restricted from further growth by strike action in the
review period. While sales volumes declined marginally from 2,87 million
mSquared to 2,83 million mSquared, the factory delivered a sound performance
to improve efficiencies and increase margins. Continued focus on developing
fashionable matching wall and floor tile combinations in this factory will
provide an opportunity to expand Samca Wall Tiles` market share.
Centaurus - Australia
Centaurus produces glazed porcelain floor tiles in various size formats. As
the only volume tile manufacturer in Australia, the business benefits from
import replacement based on its competitive pricing and strong local support
for domestically manufactured products.
In spite of the economic downturn in Australia, management is pleased to
report a turnaround at this factory after several years of disappointing
results. Production volumes grew 60% from 1,74 million mSquared to 2,78
million mSquared while sales volumes increased 35% from 2,05 million mSquared
to 2,77 million mSquared. This improvement, which is attributable to a focus
on matching production with demand, rationalising products and developing new
ranges, has generated a favourable response from customers and extended
Centaurus` share of the floor tile market.
The increase in volumes has in turn improved economies of scale, enabling the
factory to make a creditable contribution to Group profits.
Manufacturing operations - sanitaryware division
Betta
Betta is a high volume, low cost manufacturer of glazed porcelain
sanitaryware.
The factory failed to meet management`s expectations and delivered another
disappointing performance.
Production volumes decreased from 617 988 pieces in the previous period to
447 791 pieces. Sales volumes declined from 586 957 pieces to 500 810 pieces.
Difficult trading conditions contributed to this performance. Strike action
for three months from November 2009 to the end of January 2010 hampered
production and sales, while the industry in general continued to experience
constrained demand. The residential new build market showed no significant
improvement and roll out of public sector programmes remained sluggish.
Management is currently implementing a rigorous review and restructuring of
the business.
Aquarius
Aquarius manufactures free standing and custom made acrylic baths and shower
trays for the local and export market.
Operational shortcomings were exacerbated by margin pressure resulting from
high input costs and an oversupply in the market.
Whilst Aquarius delivered below expectation, management did succeed in
reducing the loss for the period compared with the prior period.
Production volumes were 52 830 pieces (2009: 41 047 pieces), and sales
volumes were 52 480 pieces (2009: 47 467 pieces).
At the end of July 2009, management identified areas in this business
requiring remedial action. As a result, during the past six months, the
factory management team was strengthened, and enhanced systems and processes
were implemented, which should deliver benefits for the business in future.
Improvement of efficiencies will remain a priority in the forthcoming six
months.
Black Economic Empowerment
At the General Meeting held on 11 December 2008, shareholders approved the
conclusion of a BEE equity ownership transaction. The remaining component of
that transaction, namely the empowerment of Ceramic`s clay quarries, is still
awaiting approval from the Department of Mineral Resources. It is hoped that
this suspensive condition will be fulfilled within the next six months, and
the accounting impact of this transaction will be reflected in the reported
results for the period ended 31 July 2010. It is anticipated that operating
profit will be impacted by a once-off, non-cash IFRS2 charge of approximately
R8 million.
Prospects
Management expects prevailing economic conditions to persist for the
forthcoming six months. Whilst a modest improvement in the renovation market
is anticipated, the new build segment and public sector programmes are
expected to remain subdued.
Ceramic Industries has a proven ability to manufacture competitively priced
fashionable product. The benefits of improved production planning and
internal efficiencies evident in the tile factories` contribution to results
will remain a priority in future.
Aquarius and Betta will continue to be re-engineered to meet management`s
expectations of their potential.
While investment will be made on routine maintenance, no major capital
expenditure is planned for the six months to the end of the financial year.
Dividend
The Board has declared an interim dividend (number 40) of 140 cents per share
(2009: 110 cents per share).
On behalf of the Board
G A M Ravazzotti N Booth
Chairman Chief Executive Officer
3 March 2010
Dividend announcement
The Board has declared an interim dividend (number 40) of 140 cents per share
to all shareholders recorded in the books of Ceramic Industries Limited at
the close of business on Friday, 16 April 2010. The last day to trade cum
dividend in order to participate in the dividend will be Friday, 9 April
2010. The shares will commence trading ex dividend from the commencement of
business on Monday, 12 April 2010 and the record date will be Friday, 16
April 2010. The dividend will be paid on Monday, 19 April 2010. Share
certificates may not be dematerialised or rematerialised between Monday, 12
April 2010 and Friday, 16 April 2010, both days inclusive.
By order of the Board
E J Willis
Secretary
3 March 2010
Basis of preparation of accounting policies
The unaudited interim financial results for the period are prepared in
accordance with IAS 34 - Interim Financial Reporting, and comply with the
Listings Requirements of the JSE Limited and the South African Companies Act,
1973.
The accounting policies applied in these unaudited interim financial
statements are consistent in all material respects with those applied in the
preparation of the Group`s annual financial statements for the previous year
ended 31 July 2009 except for the adoption of new standards and
interpretations. The following two standards had an impact for the half year-
ended 31 January 2010. Other standards and interpretations that were issued
did not have any impact on the entity.
- IAS 1 (Revised) Presentation of Financial Statements - The Group has
adopted IAS 1 (Revised) which is effective for financial periods beginning on
or after 1 January 2009. The amendment mandates requirements for the
presentation of financial statements on the basis of shared characteristics.
- IFRS 8 Operating segments - The Group has adopted IFRS 8 Operating Segments
which is effective for financial periods beginning on or after
1 January 2009. This standard requires the disclosure of information based on
the "management approach" to reporting on the financial performance of
operating segments.
Directors: G A M Ravazzotti (Chairman), N Booth (Chief Executive Officer), D
R Alston (Chief Financial Officer), S D Jagoe, E M Mafuna, N S Nematswerani,
N D Orleyn, L E V Ravazzotti, K M Schultz, G Zannoni (Italian)
Company Secretary: E J Willis
Registered office: Farm 2, Old Potchefstroom Road, Vereeniging, PO Box 2247,
Vereeniging, 1930
Transfer secretaries: Computershare Investor Services (Pty) Limited, 70
Marshall Street, Johannesburg 2001, PO Box 61051, Marshalltown 2107
09 March 2010
Date: 09/03/2010 07:05:02 Produced by the JSE SENS Department.
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