Ceramic tiles, the mainstay of the Group’s product offerings, increasingly finds favour with South African and indeed global customers as a preferred wall and floor covering
 
CHAIRMAN’S REVIEW
Favoured by the buoyant trading environment in South Africa, Italtile Limited has once again delivered pleasing results for the year under review, having achieved pleasing growth for the 14th year in succession. South Africa continues to experience significant growth in the residential property arena as evidenced by a 25% increase in mortgage advances in the past year. The increase in new housing coupled with the increased spend in renovations has obviously had a positive impact on the Group’s results.
 
RESULTS
ystem wide turnover improved 25% to R1,96 billion (2004: R1,57 billion). Trading profit increased 28% to R274,5 million (2004: R213,7 million), while headline earnings grew 26% to R190,0 million (2004: R151,1 million).
 
AFRICAN OPERATIONS
The aggressively competitive trading environment demands that the Group continuously re-energise its operations to retain its category leadership position. With an eye on sustaining and increasing our appeal to existing and potential customers, the Group must retain a clear focus on core competencies. There is unquestionable growth potential in the tile and bathware markets, but going forward the Group intends to enhance its product and service offerings.

The Group’s storewide network in South Africa comprises 65 CTM stores and eight Italtile stores. The Group is represented through 16 CTM outlets in Botswana, Namibia, Swaziland, Lesotho, Malawi, Uganda, Tanzania and Zambia. A new site has been acquired in Kenya, with the store scheduled for opening by the end of 2005. The Group is on target to meet its commitment of converting its remaining three Group-owned stores to franchises by the end of 2005. Further expansion in Africa is currently constrained by logistical and infrastructural obstacles. Given the brand’s strong acceptance and the suitability of the model, we recognise that in order to capitalise on the demand in the rest of Africa for ceramic tiles, sanitaryware and ancillary products, the Group will have to make strategic investments in fixed property and, where appropriate, facilitate distribution. The objective in doing this will be to improve trading platforms on the continent, and to promote the growth of local franchises, the latter being integral to our policy of optimising our performance through the use of local knowledge, skills and business acumen. A dedicated Executive has been appointed to manage the process of expansion into Africa.
 
PROPERTY PORTFOLIO
Italtile’s policy of investing in property continued to yield benefits during the year under review. The year saw a number of stores refurbished, providing greater convenience, improved productivity and an enhanced shopping experience. These included CTM outlets in Boksburg and Port Elizabeth, and CTM and Italtile state-of-the-art stores in Menlyn, Pretoria, both of which provide new benchmarks of excellence for the Group. The Group is also currently exploring opportunities to invest in property in communities that it has traditionally not served, and is actively involved in working through some of the logistical challenges inherent in establishing property in hitherto under- or undeveloped areas.
 
 
INTERNATIONAL OPERATIONS
The Group remains committed to expanding its international operations and in the coming year will be evaluating additional opportunities in this regard. The Australian operation has contributed to the Group’s profits, and both the Australian and Group’s management teams remain confident that the contribution will grow given changes in store layout, product offerings and an enhanced shopping experience more suited to local taste and expectations. It is anticipated, however, that the prevailing adverse conditions will continue to restrict the contribution from this operation in the short to medium term.
 
BLACK ECONOMIC EMPOWERMENT
Individual empowerment and, in particular, the empowerment of historically disadvantaged individuals have been important issues within the Group for many years.

The Group’s staff complement inclusive of the franchised outlets is at all levels reflective of our country’s demographics and comprises 79% historically disadvantaged individuals.

The Group anticipates being in a position to announce the conclusion of a BEE equity transaction prior to the announcement of the Group’s next Interim Results.
 
DIVIDENDS
A final ordinary dividend of 160 cents was declared by the Board which, together with the ordinary dividend of 110 cents per share, resulted in a total dividend of 270 cents for 2005. This represented an increase of 69% over the dividend of 160 cents for the previous financial year. The increased dividend is a reflection of the Board’s decision, taken after the interim period, to reduce dividend cover from five times to four times.

The Group remains a strong cash generator and continues to accumulate cash reserves in excess of operational requirements. As a consequence a special dividend of 330 cents per share, payable to shareholders, has been declared for the year. Further special dividends will be considered in the future should the need arise.
 
PROSPECTS
The country’s economic growth, low interest rates, currency strength and the increase in the Group’s customer base appears likely to continue in the coming financial year and it is anticipated that the company’s current levels of growth will be maintained for this period. Ceramic tiles, the mainstay of the Group’s product offerings, increasingly finds favour with South African and indeed global customers as a preferred wall and floor covering, given its inherent qualities of ease of maintenance, durability and aesthetic appeal. The increase in sales of sanitaryware and brassware have been most satisfying and are anticipated to continue.
 
DIRECTORATE
I was appointed as Non-Executive Chairman of the Board with effect from 8th December 2004, when Mr G A M Ravazzotti relinquished the post of Executive Chairman.

Mr Ravazzotti now acts solely in the capacity of Chief Executive Officer. I have had the pleasure of being associated with the Group for over 30 years and have watched the Group under the leadership of our Chief Executive and founder become widely recognised as one of the world’s pre-eminent retailers of ceramic tiles. Mr Gordon Cousins will retire at the forthcoming Annual General Meeting from the Board as an independent non-executive director. He has served the Board since 1995 and we have valued his contribution. We wish him well in the future.
 
APPRECIATION
The Group’s Executive Management Team is a focused, skilled and highly motivated one that will undoubtedly continue to deliver on behalf of customers and shareholders alike. My thanks go to them and to all our staff, franchisees and joint venture partners for the invaluable part they play in our success. Thank you also to members of the Board for their valuable contribution.
 
D H Rabin
Chairman
 
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