Tiling retailer Italtile CEO Lance Foxcroft is concerned about the financial health and investment sentiment of the company’s customer base going forward, given the context of rapidly rising living costs and general disillusionment with regard to the domestic sociopolitical environment.

Higher inflation and further interest rate hikes continue to have a negative impact on consumers.

“As discretionary spend deteriorates further, the competitive landscape will also become more aggressive in the fight for share of wallet and market,” he said during a presentation of the company’s financial results for the year ended June 30, on August 25.

Italtile reported a marginal decline in consolidated turnover, from R11.6-billion in 2021 to R11.3-billion in the year under review.

Foxcroft told Engineering News that one of the reasons for the reduction in turnover was the shift in consumer spend away from home improvement to other recreational and discretionary purchases – particularly around the year-end festive season – as pandemic-related restrictions were lifted and various sectors of the economy reopened.

As a result, lower customer footfall and a decline in demand is widespread across the construction industry.

“Consumer confidence continued to decline, centred on widespread despondency regarding deteriorating political, social and economic conditions.

“Several successive interest rate increases and accelerating inflationary pressure on building costs subdued investment sentiment further and reduced affordability, influencing cost-conscious homeowners to defer or scale down on renovation and building projects,” he said.

He added that disruptions and higher costs caused by higher levels of load-shedding and for a prolonged period – despite mitigating measures implemented by the company – negatively affected operations and profitability.

Lower sales volumes, reflecting softer market demand during the period, were offset by average selling price inflation of 8%, meaning that trading profit rose by 6% from R2.6-billion to R2.7-billion.

Ongoing global supply chain disruptions continued to cause instability in supply and pricing for much of the year, Foxcroft pointed out, adding that significant increases in inflation in most markets, including South Africa, drove up input and other operating costs and reduced discretionary spend.

Among the most concerning input cost increases was that of fuel, which directly affects Italtile’s business case as much of the business depends on the delivery of materials to customers, as well as energy security at its production facilities.

“Energy security and consumption will be top of mind for our management team [going forward]. Global pricing uncertainties, local capacity constraints and reducing our carbon footprint are all issues we will be focused on,” Foxcroft said.

He said the company was awaiting an announcement from the National Energy Regulator of South Africa and energy company Sasol regarding a potential increase in pipeline gas prices.

“A significant increase is likely to have an impact on affordability of product, as well as on manufacturing margins,” Foxcroft said.

Further, to limit the company’s dependence on State-owned Eskom’s grid, Italtile will be commissioning an additional 2.7 MW of solar power.

Meanwhile, despite the tough operating conditions, Italtile opened ten new stores during the year, including four CTMs, three TopTs, two U-Lights and one Italtile Retail, bringing the total network up from 206 stores to 211 stores.

During the period, heavy rains and social unrest delayed construction on some sites, with a further five stores now scheduled to open in the first quarter of the 2023 financial year.

In addition to the new store roll-out, Italtile revamped 15 stores and continued to roll out its millennial-format Bathroom Boulevards across the CTM network.

In addition, the R350-million upgrade of Italtile’s Samca+ factory in Hammanskraal, Gauteng, was commissioned, providing significant strategic advantage for the group by increasing its local manufacturing capability and further reducing its dependence on unstable international supply chains.

Italtile reported 8% growth in earnings a share from 140.7c in the 2021 financial year to 152c in the year under review, while headline earnings a share increased by 9%, from 140.1c to 152.1c.