Chief Executive Officer Lance Foxcroft, says, “At the year‑end, we committed to our ‘fighting‑fit’ mantra, which stood us in good stead for the review period. Our operators once again displayed their perseverance and resilience. Our stores are profitable and the franchise network is healthy. Our vertically integrated manufacturing and import businesses underpinned the retail operations’ value offering for cost‑conscious customers. Our continued efforts to instil retail excellence disciplines were rewarded by our customers’ loyalty to our brands and their approval of our shopping experience. We are gratified to report that the six months under review ended stronger than it started, buoyed by improved consumer sentiment and increased disposable income.”
Established in 1969, Italtile Limited is a proudly South African manufacturer, franchisor and retailer of tiles, bathroomware and other complementary home-finishing products. The Group’s retail brands are CTM, Italtile Retail and TopT, represented through a network of 211 stores, including seven webstores. The brands target homeowners across the LSM 4 to 10 categories. The retail operation is strategically supported by an integrated supply chain, comprising key manufacturing and import operations, and an extensive property portfolio.
TRADING ENVIRONMENT: Foxcroft comments, “The six‑month period was characterised by two distinct halves. In the first half (“Q1”), consumer confidence and spend in the building and construction sector remained subdued in the context of high interest rates and inflation, which restricted disposable income and discretionary investment, and impacted on the affordability of renovation and new build projects.”
He adds, “In the second half (“Q2”), consumer sentiment turned more positive subsequent to the successful and peaceful transition to the Government of National Unity (“GNU”), while homeowners’ disposable income increased as a result of two interest rate cuts, generally lower inflation levels and payouts released by the two‑pot pension fund reforms. In this context, the Group reported a notable uptick in sales in the latter part of the review period. While this is encouraging, management is cautious regarding the sustainability of this positive trend, particularly since the impact of the once‑off cash injection provided by the two‑pot retirement funds has started to diminish.”
“Unfortunately, the structural production over-capacity in the tile industry has not eased, and the vast imbalance between excess supply and weak consumer demand persists. The overstocked position of most retailers, wholesalers and manufacturers in the market continues to drive predatory and deflationary pricing, and cause margin pressure, which has been exacerbated by elevated input costs including energy and imported raw materials,” says Foxcroft.
GROUP PERFORMANCE: Foxcroft states, “The stronger performance in Q2 was underpinned by a combination of external and internal factors. Externally, we benefited from the positive consumer sentiment and spend in the latter half of the period, a trend also reported on by other retailers. Internally, improvements were made across the business. While further work remains to be done in terms of continuing to execute better on our retail excellence disciplines, we are satisfied that we made good progress on improving in‑store presentation, market awareness of our value offerings and we capitalised on opportunities that we had identified.”
Foxcroft says, “Quality and affordability are our customers’ primary watchwords, and we strive to add value through key points of differentiation, including our innovative fashionable products at various price ranges; trusted quality; stock availability; meaningful warranties; and product service experts.” He adds, “Our value proposition is underpinned by the Group’s buying prowess, synergies in our integrated supply chain and our marketing initiatives designed to ensure our brands are top of mind at all times, and effectively communicate our “Every Day Low Prices” positioning through CTM and TopT’s offerings of “Big Savings. More Style” and “Every price a low price.””
In the Retail division, TopT delivered another consecutive set of good results, while CTM showed early signs of turning around its recent disappointing results. The East Africa region also improved its performance, after the challenging prior six months. The webstore offering grew traffic and sales, a pleasing achievement. Total retail turnover grew by 4% to R2.84 billion. Like-for-like system-wide store revenue rose by 3% to R4.1 billion. Average selling price inflation was nominal, at 0.33%.
Foxcroft comments, “In the Manufacturing division, Ezee Tile delivered another solid performance, albeit off a low base, and its flagship Vulcania factory is now operating close to design specification. Although Ceramic Industries’ Q2 results were markedly stronger than Q1, results for the full six months declined against the prior comparable period, as selling prices remained under pressure and production cost reductions only filtered into the business toward the end of Q2. While the Tile division reported slightly weaker results compared to the prior corresponding period, given the excess capacity in the market and prevailing price wars, the business did well to retain market share. The Sanitaryware division grew its key metrics, however, there are further opportunities to improve internal efficiencies.”
Ceramic’s turnover was 4% lower, while Ezee Tile reported revenue growth of 7%. Combined manufacturing sales declined by 2%, compared to the decline of 4% in the prior comparable period. This is a creditable result given that the division withheld price increases for the review period, compared to average selling price inflation of 4% in the prior corresponding six months.
The integrated Supply Chain Import businesses serve the Group’s stores, and hence their results track the Retail division’s performance closely. Collectively, the import businesses reported sales growth of 8%, a commendable achievement given that no price increases were implemented. The results were also positively impacted by an improved stock position compared to the prior corresponding period, which featured delays in shipping deliveries.
“Good progress was also made in improving the competence and strength of the human capital support function to facilitate our ambitious growth targets,” remarks Foxcroft.
KEY FOCUS AREAS
Retail: Foxcroft states, “We aim for continued improvement in the execution of retail excellence disciplines in our stores and opportunities exist for each of our brands to grow and gain market share in the second half of the current financial year should the external environment remain favourable in terms of consumer sentiment and spend.”
TopT plans to roll out three new stores in the forthcoming six months and will benefit from sales from the four new and relocated stores opened in the period. Management will also continue to drive simplification of store operations to assist operators to improve execution at key touchpoints.
“We will strive to build on the momentum gained by CTM during the period by continuing to differentiate the brand as an icon of affordable fashion, through price, quality and service. The sustained turnaround of the business will be achieved through exceptional performance at all key customer touchpoints, underpinned by building our competencies and capability in this business – and is dependent on continued momentum in the retail industry. Strengthening our operators and operations teams is an ongoing process, and we will escalate our investment in this regard in the period ahead. Our new customer Xperience programme will provide a solid benchmark for setting CTM apart from its competitors,” comments Foxcroft.
Italtile Retail’s unrivalled leadership in home décor fashion trends will continue to entice exclusive residential customers, while the Commercial Projects division has opportunity to develop and expand its presence in the development market through innovative, high‑quality products.
Margins in the Retail division are expected to remain under pressure in the competitive environment. Cost leadership will be key, together with ensuring an optimal product mix and tactical price ladders.
Manufacturing: Foxcroft remarks, “Substantial efficiencies and synergies have been extracted at Ezee Tile’s flagship Vulcania plant, and the business will continue to grow through driving gains in market share. Developing new products and identifying viable market niches will be key, and the specifications and projects segments will be targeted.”
“In the deflationary pricing environment for ceramic tiles, Ceramic’s margins will remain under pressure, and management will focus on driving growth through reducing costs further, optimising capacity utilisation and enhancing operating efficiencies to recover margins, including improving yields and reducing waste,” he says.
“Ceramic’s goal is to grow market share through introducing products to substitute imports, including for the commercial projects segment. Installation of new technology at the Vitro factory will increase capacity utilisation and improve our competitive advantage in the sought‑after rectified tile market,” Foxcroft states.
“Importantly,” he notes, “Securing a sustainable, viably priced alternative to Sasol’s piped natural gas supply from Mozambique will remain a key priority for management. The engineering design and costing for our coal‑gas trial project has been completed, however, given the extension of Sasol gas supply to June 2028, implementation of this project has been delayed while we continue to explore proposals currently being developed by providers of other alternative energy solutions.”
Foxcroft comments, “Developing our leadership pipeline and optimising our human capital resource will remain of vital importance and substantial investment has been made in restructuring and recapacitating our Human Capital division, which we expect to have positive results on the performance of the business.”
PROSPECTS AND OUTLOOK: Foxcroft says, “The trading environment will remain very challenging while supply continues to exceed demand and distressed competitors resort to increasingly predatory tactics. Margins will remain tight and our priority will be to drive efficiencies hard in the business.”
He notes, “The improved consumer confidence and trading conditions experienced during the last three months of the period are tenuous and may not be sustained, as we do not expect further benefit from the released two‑pot pension funds, and we remain generally concerned about global trading uncertainties. Further interest rate cuts and lower inflation could start to impact positively on disposable income in the home improvement sector, however, consumer spend remains constrained.”
Foxcroft remarks, “Although the high cost of living will continue to weigh on South Africans, experience has proved that local homeowners prioritise their homes as their primary asset and invest in them when funds permit. We expect this trend to persist, albeit that spend will be restrained. In the longer‑term, prospects for growth in the sector are relatively positive. South Africa is under‑housed and the dynamics of the housing market are favourable, featuring a young, growing, upwardly mobile population with a strong aspiration to own a home.”
Foxcroft concludes, “Our stated intent is to focus on the growth levers within our control. While we are hopeful that interest rates and inflation will decline further and the economy will be strengthened through structural reforms and increased investment, our strategy is to realise the opportunities within our business. We will do this by improving our competitiveness at all touchpoints, being our iconic brands, leading‑edge technology and products, vertically integrated supply chain, and resilient, capable teams and franchise partners.”
