South African manufacturer, franchiser and retailer of tiles, bathroomware and other complementary home-finishing products Italtile achieved solid retail results, built up manufacturing capacity and grew its cash reserves in the financial year ended June 30, despite contending with several challenges.

Italtile’s retail brands are CTM, Italtile Retail, TopT and U-Light, represented through a network of 216 stores, including seven online webstores. The retail operation is supported by a vertically integrated supply chain comprising manufacturers, Ceramic Industries and Ezee Tile, import operations and a property portfolio.

CEO Lance Foxcroft says trading conditions and consumer sentiment deteriorated over the period, and competition intensified. In this context, demand declined across the industry and margin pressure intensified.

He tells Engineering News that the operating environment for the period included a tough local economy with high inflation and interest rates, reduced building activity and depressed consumer demand across many industries, making it difficult to sustain volumes.

The group also had to bolster security measures to mitigate ongoing and increasing crime levels.

Moreover, Foxcroft noted ongoing challenges in sourcing and building skilled teams in the manufacturing division.

Despite this, group revenue increased by 2% to R9.2-billion from R9-billion the previous year, which Foxcroft attributes to Italtile’s retail brands’ continued resilience in the challenging environment.

Total system-wide turnover grew by 1% to R11.5-billion from R11.3-billion in the prior financial year.

Earnings a share for the period were 132.6c, headline earnings a share 132.3c and the dividend a share 53c.

The challenging environment resulted in volumes decreasing slightly, with average selling price inflation of 6.7% for the period and Italtile continuing to experience a difficult sales environment, Foxcroft says.

Softer consumer demand and poor efficiencies in the manufacturing businesses resulted in the group’s net operating profit declining by 14%.

The trading profit for the period was R2.3-billion, compared with R2.7-billion the previous year.

“However, we believe that we have a good footprint of stores and compelling offering that will enable us to keep pushing to take more market share,” Foxcroft says.

“The cash-generative nature of the business is reflected by our strong balance sheet. Cash reserves increased by 143% to R1-billion,” Foxcroft highlights. Cash for the period was R1-billion, compared with R400-million the previous year.

“During the period we made meaningful progress in building our manufacturing capabilities and enhancing the in-store experience for our customers, reflecting our goal to optimise our investment in people and technology.

“Disappointingly, difficult trading conditions and internal inefficiencies impacted negatively on our South African businesses, although our East African and Australian operations delivered better results. Improvement strategies are being implemented in the South African manufacturing entities,” Foxcroft notes.

Foxcroft highlights that, despite the difficult operating environment, Italtile continued to roll out new stores, refurbishments and relocations in a measured manner.

Seven CTM and TopT stores were opened, as well as three Easy Life Kitchens on group-owned properties; and 13 stores were revamped.

Italtile also continued to invest in online development, implementing wide-ranging improvements to the local online shopping experience and opening a new bespoke webstore for CTM Botswana, bringing its online stores to seven.

Italtile previously invested in a new Ezee Tiles plant in Vulcania, Brakpan, relocating the primary plant from Germiston.

Foxcroft says the move to Vulcania – the largest plant in South Africa which includes the latest technology – is taking longer than anticipated, but it is almost complete and slated for completion in the first quarter of the next financial year. 

Across the other business units, Italtile had a project at the Betta warehouse which is also starting to come online and expected to be fully commissioned by the end of the second quarter.

The group is also investing in an upgrade at Ceramic Tiles’ Vitro factory in South Africa, to the latest technology ion one of the production lines there, which is expected to materialise toward the end of the financial year.

OUTLOOK

“Opportunities for growth lie in our focus areas for the forthcoming year. These include growing sales and market share through leading products and service; improving execution of operational excellence and efficiency; and developing our teams and depth of leadership. We will also pursue our purpose-driven approach to responsible citizenship and sustainability,” Foxcroft says.

He cautions that while the group is confident that operational improvements can be made in the business, it remains mindful that the economic environment will determine consumer demand in the market.

“We will continue to focus on the growth levers within our control and influence. While trading conditions are challenging, the long-term dynamics of the housing market remain favourable, and the board has confidence in the group’s proven business model and experienced teams,” he says.