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Currently viewing: Chief Executive Officer's report and review of operations

Chief Executive Officer's report and review of operations

In the context of sustained economic pressure on disposable income, the Group’s solid performance for the period is largely a reflection of the impact of enhancements made in the business rather than improved sentiment or spend by consumers.

Overview

Operating environment

Despite the improved outlook for South Africa and an initial gain in business and consumer confidence following recent leadership changes in government, the macro-economic environment remained subdued during the review period.

The hope that renewed optimism experienced in the country would translate into an economic upturn failed to materialise and is best illustrated in our sector by the June 2018 FNB/BER Building Confidence Index which declined steeply at the end of Q2 and was at the lowest level since Q2 in 2012, with more than 70% of respondents citing dissatisfaction with prevailing business conditions.

In the context of sustained economic pressure on disposable income, consumers remained restrained in their spend on non-essential items, and discerning in their selection of retailer – with the price/value proposition being a key driver of purchasing decisions.

The Group's solid performance for the period is therefore largely a reflection of the impact of enhancements made in the business during the year which started to gain momentum, particularly in the second six months, as opposed to improved sentiment or spend by consumers.

Over the past 30 years since listing on the JSE and almost 50 years since the Group was founded, Italtile has laid down a strong track record of continued improvement, consistency and resilience. Central to this achievement is our unique business model which has served as a major differentiator in the industry and a strong investment proposition for franchisees and shareholders. The key components are:

  • Strategic portfolio of strong retail brands, which appeal to consumers across the income spectrum;
  • Integrated supply chain which underpins our policy of 'right product at the right time, place and price';
  • Flat, low-cost organisational structure comprising strong teams and unique individuals intimately involved in the operations;
  • Recognition that our people are key to our competitive advantage and hence continued investment in them is paramount;
  • Strong partnerships with employees, equity partners and entrepreneurial franchisees;
  • Reward and empowerment ethos which incentivises personnel to participate in the profitability of the business;
  • Extensive property portfolio which comprises high profile, well maintained, aspirational stores, state-of-the-art factories, and productive quarries;
  • A customer-centric philosophy which ensures all our activities are centred on keeping them top of mind;
  • Long-standing reputation as the industry trend setter and fashion authority, retailing highly fashionable products in all the markets we serve;
  • Sustained investment in improving and innovating the shopping experience and ensuring the offering remains attractive to traditional customers and new, emerging homeowners; and
  • Concerted focus on developing and employing industry-leading technology in both our retail offering and manufacturing operations.

Scorecard: achievement of key strategic imperatives

In my 2017 report, I outlined management's key priorities for the year ahead. The following account provides an evaluation of the progress we made in achieving those imperatives. Within the business, management's performance is rated according to a scorecard and I have applied the same format to our achievements in the year under review. The scorecard comprises the following categories:

  Superior achieve   Exceeded target  
  Achieve   Achieved target  
  Under achieve   Failed to meet target  

Store roll out and revamp programme   Achieve  

At the end of the prior year, I stated that our goal was to open 15 to 20 new stores during the financial year, including at least one Italtile Retail store and three CTM stores. While we fell short of the higher end of the target range, we did succeed in opening 15 stores, including one Italtile Retail store. We are on track to open another 10 to 15 stores in the new financial year. The Property Investment report provides details of the store footprint and capital investment in this portfolio over the year.

Further improvement of the working capital position through intensified control of inventory   Achieve  

In the first half of the year we reported that stock levels were higher than our targets and intense focus would be applied to reducing stock holding and improving stock turn to increase cash balances.

I am pleased to report that across the retail network and supply chain (importers), inventory management improved. Enhanced product mix assisted in increasing stock turn, and where inventory levels have risen, this was a function of improved in-stock levels of business-critical items. This achievement is noteworthy given the extreme supply disruptions experienced during the period caused by shipping and container constraints and the closure of numerous Chinese suppliers. In the year ahead, the Business Optimisation Programme ("BOP"), which is now entrenched across the operation, will be evolved to afford improved forecasting, which will be particularly beneficial in the supply chain import businesses.

Better productivity, cost leadership and margin management   Superior Achieve  

In the current weak economy and constrained margin environment, we took a considered decision not to sacrifice margins through excessive promotional activity, instead favouring the route of robust cost leadership in key areas of the business. Good progress was made in the first half of the year and improved on further in the second half, resulting in below-inflation cost growth, while margins improved across the Group despite the weak sales trend.

Develop capacity and leverage opportunities in the supply chain   Achieve  

Our conviction is that control of the supply chain from factory gate to the customer's home affords the Group a key strategic advantage, and we have identified this component of the business as offering meaningful growth opportunities. In this light, the Group's former Financial Director has been appointed to head up the supply chain and related commercial activities, with a view to substantially enhancing the contribution of this operation.

Key initiatives of this growth programme will be to develop new supply chain businesses offering new merchandise categories, and where feasible, bring in-house formerly outsourced supply. In the forthcoming year we will trial a new electrical lighting retail offering in various formats across the brands, ranging from a new merchandise category in TopT, to a shop-within-a-shop in Italtile Retail, and a standalone offering next to existing CTM stores.

In August 2018, we commissioned a new plant, PiViCal Panels, to manufacture PVC panels for the TopT brand. This import-replacement product will substantially reduce lead times of one of TopT's fastest growing merchandise category and afford the Group strategic advantage through its sector-leading technology. PiViCal Panels is a joint venture partnership with a local previously disadvantaged entrepreneur, which will assist to improve the Group's BBBEE scorecard, particularly with regards to preferential procurement and supplier development criteria.

During the review period, the Cedar Point warehouse management function was outsourced to a third-party specialist. Initial results reveal increased efficiencies; should the trial continue to prove viable, consideration will be given to extending this arrangement to management of the new Durban and Cape Town Distribution Centres, which will further streamline the supply chain.

The Ezee Tile business will be expanding its African operations during the new financial year, with strategic partnerships already identified in certain countries. Its African operations will include the manufacture and distribution of tile adhesive, paint and related products.

Enhanced performance management and training initiatives   Achieve  

As noted in the Operating context report, the resource pool of personnel with specialist retail expertise is very limited in the local market, which dictates material investment of resources to train and develop a core of fit-for-purpose employees. During the period, extensive efforts were made to improve our learnership and recruitment methodologies and we made good inroads in terms of upgrading our store operator complement through more relevant performance management and training initiatives. In the year ahead, we will focus on attracting and developing the appropriate calibre of individuals to expand and complement our sales force. The Human resources and training report outlines our achievements in this area over the past year.

Attracting, retaining and developing an appropriately skilled personnel complement, capable of enabling the Group’s growth strategy   Achieve  

Substantial effort was made during the period to build the depth of leadership in the business. Key management appointments were made across the business, including in the supply chain, Finance, Marketing and Property divisions. Additionally, a dedicated human resources specialist will be appointed to each of the retail brands.

While we are satisfied with achievements made during the year, there is significant room for improvement in this key focus area. In the period ahead, we will further strengthen the capacity of our Finance department and Property portfolio (in the latter, formerly outsourced functions will be brought in-house, which will effect cost savings and efficiencies).

One of the Group's key resources is its network of long-standing, experienced franchisees – many of whom are strong leaders with entrepreneurial ambitions. Given the success of the TopT model, which comprises Master Franchisees who operate discrete territories comprising numerous stores, consideration is being given to replicate this format on a smaller scale in the CTM model, which has traditionally not employed a multistore ownership structure.The benefit of this modification will be to simplify the business model (with the Group reducing its owned-corporate store complement), cater to our franchisees' ambitions, and optimise on the existing expertise and experience in the business, without increasing our manpower costs.

In striving to build a core team of people to deliver on the Group's growth strategy, we are cognisant that retail is a challenging environment and requires a unique skill set. We are also mindful that the Group's high performance culture requires like-minded employees.

Continued development of sector leading technology, retail innovations and market-disruptive strategies   Achieve  

The Group's webstores, particularly CTM, have continued to benefit from early-mover advantage, both in South Africa and our rest of Africa region (Tanzania and Kenya). Locally the brand recorded 150 000 unique users monthly on average and very high double-digit growth of online sales and online quotes converted to sales in store. The offering is widely approved by users for its unique customer-friendly, interactive and personalised service.

Our online capability is complemented by innovations in-store, with the introduction of technology which is designed to substantially enhance the shopping experience, as discussed in the Operating context report and the e-Commerce report.

As discussed here, our new supply chain businesses will afford the Group strategic leverage in new markets, and we will continue to pursue other appropriate opportunities as they arise.

The state-of-the-art technology employed in Ceramic's tile factories continues to give us a leading edge as the industry fashion trend setter.

Drive the strategy to offer a customer-centric shopping experience which constantly delights our customers   Achieve  

Across the brand network we focused on instilling retail excellence disciplines, which resulted in improvements across key areas of the offering, including range, presentation (merchandising and display) and service. Initiatives introduced in the first half of the year gained momentum in the second half, demonstrated by better execution and improved ratings received from customers via various external customer sentiment verification surveys and Mystery Shopper initiatives.

Following a nationwide roadshow to retrain staff on customer service, CTM's Mystery Shopper customer assessment surveys (both in store and telephonic) confirmed that sentiment had improved and compliments significantly exceeded complaints. TopT conducted its first ever customer appraisal survey and received very good reviews, while Italtile Retail's year-round Mystery Shopper customer sentiment measures confirmed consistently high levels of customer satisfaction.

East African expansion   Achieve  

At the half-year, we advised shareholders that we were awaiting regulatory approval to acquire the formerly franchised CTM Tanzania business. This approval was granted in July 2018. It is anticipated that this operation will contribute to the Group's growth prospects in the region, although expansion in the territory will be cautious and determined by the potential return on investment. The goal over the next four years will be to grow the footprint from four stores (including a webstore) to eight stores.

As noted above, Ezee Tile has advanced its expansion drive into sub-Saharan Africa, and its goal is to commission three new factories in the 2018/19 financial year.

Ceramic has investigated opportunities to build new factories in Rwanda and Kenya, and an investment decision in this regard is expected in the new financial year provided adequate raw materials are identified and a local partnership secured.

Results overview

The Group's results are discussed in the Financial Director's report.

In summary, while we were dissatisfied with turnover growth reported for the period, pleasing progress was made in improving profitability and stabilising margins, achieved through robust cost leadership, as outlined earlier in this report.

System-wide turnover for the period grew 39,8% to R8,7 billion (2017: R6,2 billion), while trading profit rose 43% to R1 518 million (2017: R1 063 million).

System-wide retail store turnover grew 2% for the review period compared to the previous corresponding period. Like-on-like retail store turnover decreased by 1,4% with average selling price inflation estimated at 1% (2017: 4,3%). Retail store turnover is defined as the aggregate of turnover of all stores, either corporate or franchised, in the Group's network.

Manufacturing turnover (sales related to Ceramic Industries and Ezee Tile) for the period since acquisition on 2 October 2017 to 30 June 2018, improved 15,2% against the prior comparable period. Manufacturing sales for the full year compared to the prior corresponding period increased by 10,6%. Average selling price inflation for the period is estimated at 3%.

Given the Group's consistent ability to generate cash, and in the interests of improving returns to loyal shareholders, the Board has resolved to reduce the dividend cover from three times to two and a half times.

Group performance

Retail brands

Improvements made across the business in the first six months gained momentum over the year, and better execution of basic retail excellence principles and increased focus on key targets resulted in an improved second-half performance across all the brands. Italtile Retail and TopT built on their solid first-half results, delivering double-digit growth. While CTM recorded lower year-on-year sales as middle income consumers continued to show stronger symptoms of financial hardship, low single-digit growth was reported in the second six months.

During the review period, we gauge that Italtile Retail and TopT grew market share, while CTM succeeded in gaining back share lost in the first half.

In the period ahead, we will be assessing the health of our brands, and where appropriate, refresh and revamp them to ensure they remain contemporary and appealing to existing customers and attract new customers.

Supply chain: importers

During the year under review, both International Tap Distributors ("ITD") and Cedar Point made good progress in rationalising ranges, although stockholding targets were not achieved. This will remain a key imperative in the year ahead. Severe supply disruptions out of China in the first half of the year impacted on the Group's in-stock position; however, better anticipation and prudent inventory management eased the situation in the second half, which proved less challenging. Due to the supply uncertainty, both ITD and Cedar Point have reviewed and succeeded in finding alternative suppliers, both in China and in new markets.

Supply chain: manufacturers

Ceramic Industries

Over the past nine months since acquisition of this operation, our focus has been on improving business-to-business communication, including enhanced production and logistics planning between the stores and the factories.

Tiles

During the review period, improvements were made to the tile matrix, including developing innovative new products and rationalising the ranges.

The key challenge facing Ceramic Industries is constrained market demand which is prevalent in the sector at present. During the second half of the year, destocking took place across the Group's stores and industry-wide, as operators sought to correct over-stock positions evident in the first six months. While demand has increased, volumes are not yet at notable levels. This weak market is anticipated to result in underutilisation of capacity in the factories, which will impact on profitability.

Ceramic's state-of-the-art Gryphon plant has commenced producing extra-large format tiles in various sizes to improve the business's import replacement advantage. Initial consumer response has been very positive; however, to grow this market to projected scale will require education of consumers and installers, and consistency of quality on new innovative product lines.

It is anticipated that in the year ahead, Ceramic will benefit from the reduction of Chinese government export subsidies and decrease in production of smaller format tiles, which will result in inconsistent supply to our local market. Furthermore, Ceramic will look to actively increase its local customer base to counter the weakened demand from existing customers.

Bathroomware and baths

Disappointingly, Betta Sanitaryware underperformed on management's targets. Operational inefficiencies, exacerbated by warehouse space constraints, hampered the division's performance. A new management team has been appointed and a comprehensive review and restructuring of the operation is underway to enable the business to meet the strong demand for its products.

After a difficult first six months, in which Betta Baths experienced various manufacturing challenges, remedial measures implemented served to address shortcomings, and the division reported an improved performance in the second half. Increasing profitability of the business will be prioritised in the year ahead.

Ezee Tile

During the review period, Ezee Tile made good progress in the local market, with the implementation of improvements at several of its production facilities; expansion of product lines; and increased penetration of the open market.

The business also furthered its goal to expand into Africa, concluding joint venture partnerships with resident partners to build manufacturing plants.

Retail brandsItaltile Retail

Italtile Retail

Overview and performance matrix

Nature of business

Leading fashion retailer of exclusive ranges of tiles, bathware and related products.

Strategic positioning Target market Footprint
Live beautifully
  • LSM 8 – 10
  • Discerning consumers in the upper-middle and premium-end segment and Commercial Projects market
stores
(2017: 11) including webstore
store opened in Polokwane
(2017: 0 opened)
   
stores revamped in Bryanston, Cape Town, Nelspruit and Umhlanga
(2017: 2 revamped)
Key performance indicators Trends 2018 Trends 2017
Sales
Average basket growth
Average selling price
Margins
Net profit
Stock turn
Average store inventory
Key differentiators

Trend setter and leading buyer of exclusive high quality fashionable international and local products.

Widely recognised as the industry front-runner in environmentally sensitive products.

Well-established specialist expertise and nationwide network.

2017/18 priorities Scorecard
  • Gain market share across the merchandise categories with specific focus on large format tiles and sanitaryware.
  • Reduce stockholding by improving inventory management.
  • Reduce general operating costs across the business, with transport costs remaining a key focus.
  • Roll out the new-look new-generation store format across the network.
  • Continue to develop and upskill our personnel complement.
2017/18 major achievements
  • Raised the benchmark of the Menlyn showroom, particularly large format tile displays.
  • Ongoing training for existing and new sales advisers on our bespoke accredited Interior Designer programme.
  • Improved the range overall with inclusion of new technologies including high definition digital printing, coupled with multiple surface finishes, a variety of sizes and large format porcelain tile slabs.
  • Entrenched the Commercial Projects division as an important contributor to the business.
2018/19 priorities 2018/19 prospects
  • Develop the talent pool at all levels across the operation.
  • Interrogate our current marketing and media strategy and adapt to evolving market conditions and customer base profile.
  • Continue to build scale in the Commercial Projects segment.
  • Open one new store in Clearwater, Gauteng.
  • We have commenced implementing several digital initiatives which will enhance the customer experience, among them, a room-build visualiser, which will provide significant strategic advantage in the Commercial Projects business.
  • We will continue to measure our customer experience via initiatives such as the Mystery Shopper programme and will roll out customer satisfaction reviews (both product and service-related), which will give us more insight into customer touch points, and ensure improvements are made aligned with feedback received.

Retail brandsCTM

CTM

Overview and performance matrix

Nature of business

Leading specialist retailer of tiles, laminate boards, taps, sanitaryware, shower enclosures, bathroom furniture and accessories.

Strategic positioning Target market Footprint
Big savings. More style.
  • LSM 5 – 8
  • Middle income DIY customers and small builders
stores (2017: 69*) in South Africa and 18* stores (2017: 18*) in the rest of Africa
Corporate: 44*(2017: 49*)
Franchised: 43*(2017: 38*)
*Includes webstores.
store opened in Capricorn, Limpopo
(2017: 2 opened)
stores revamped in Hermanus, Western
Cape and Tzaneen, Limpopo
(2017: 3 revamped)
    store closed in Cross Roads, Western
Cape
(2017: 0 closed)
Key performance indicators Trends 2018 Trends 2017
Sales
Average basket growth
Average selling price
Margins
Net profit
Stock turn
Average store inventory
Key differentiators

Local and international buying power

Year-round value offering with strong fashion component.

Integrated supply chain ensuring consistent availability of stock.

2017/18 priorities Scorecard
  • Drive customer service excellence (through ongoing roadshows).
  • Enhance the human capital structure and skills development (upgraded Operator Training Programme; Senior Management Development Programme training; and induction programme).
  • Optimise use of the integrated supply chain and BOP methodology to gain market share (this was hampered in the first half of the year due to import supply disruptions but improved notably in the second half).
  • Build stronger relationships with our suppliers.
2017/18 major achievements
  • Delivered strong year-on-year profit growth.
  • Opened a new Millennial store format in Capricorn, Limpopo.
  • Launched a differentiated, fashionable tile range at CTM Style Expo.
  • Made good progress in rationalising range matrixes and price ladders.
2018/19 priorities 2018/19 prospects
  • Focus on product (cost leadership, differentiation and trendsetting fashion).
  • Continue to drive customer-centricity (launch our new marketing strategy).
  • Continue to prioritise the human capital structure and skills development.
  • Open three new stores (Clearwater and Bruma, in Gauteng and Giyani in Limpopo).
  • Relocate the Durban store to a larger, more suitable property.
  • Launch our new targeted marketing and advertising strategy.

Retail brandsTopT

TopT

Overview and performance matrix

Nature of business

Retailer of home-finishing products including tiles, paint, ceiling décor, taps, sanitaryware, hardware and accessories.

Strategic positioning Target market Footprint
Every price a low price
  • LSM 4 – (lower) 7.
  • Entry-level value offering strategically situated in underserviced rural areas and outlying markets in close proximity to urban townships.
stores (2017: 64) Corporate: 22 (2017: 23)
Franchised: 55 (2017: 41)
 

stores opened (2017: 14); 4 Corporate
and 9 Franchised
(2017: 10 and 4)

New stores
Gauteng: Spruitview, KwaThema,
Orange Farm and Hammanskraal
Limpopo: Malamulele
Waterberg: Lephalale and Modimolle
Mpumalanga: Acornhoek
Mopani: Tzaneen
KwaZulu-Natal: Kokstad
North West: Potchefstroom
Botswana: Gaborone

Key performance indicators Trends 2018 Trends 2017
Sales
Average basket growth
Average selling price
Margins
Net profit
Stock turn
Average store inventory
Key differentiators

Flexible, opportunistic home-finishing product range.

Affordability and availability of stock and accessibility to market.

Strong community relationships and local marketing.

2017/18 priorities Scorecard
  • Enhance franchise partner and operator training programmes: this was successfully concluded and yielded significant results in terms of improved efficiencies, productivity and generally enhancing the customer shopping experience.
  • Build on collaboration with suppliers to ensure demand continues to be met. Optimal alignment of the business plan with BOP improved our forecasting and in-stock position of business-critical products, contributing to TopT’s good results for the period.
  • Continue to build brand profile, internally and externally: we completed our second nationwide roadshow in the review period, creating excitement in the stores. A new marketing manager was also appointed to raise brand awareness among our external target audiences.
  • Enhance logistics and distribution to the stores. Progress was made over the year, and further improvements are anticipated given that the supply chain (logistics and distribution functions) will henceforth be addressed at Group level.
2017/18 major achievements
  • Double-digit sales and profit growth reported.
  • Our second successful nationwide roadshow to stores was completed.
  • We grew our contribution to total retail brand sales.
2018/19 priorities 2018/19 prospects
  • A human resource specialist was appointed in the new financial year and will focus on developing talent and building leadership to enhance succession planning in the business.
  • A new marketing strategy will be launched, designed to increase and improve market penetration.
  • We have made enhancements to our team of buyers, which will improve the offering and coordination of supply.
  • We will launch our dedicated TopT Training Centre in August 2018, which will play an important role in improving the practical and theoretical skills of our personnel.
  • TopT’s webstore will be launched in the second quarter, aimed at enhancing the convenience offering for customers.
  • We will introduce our TopT ‘Gig Rig’, a mobile store offering which will travel around predominantly rural areas, raising awareness of the brand in new or previously underserviced markets.

Supply chain: importersInternational Tap Distributors (“ITD”)

International Tap Distributors (“ITD”)

Overview and performance matrix

Nature of business

Importer and distributor of brassware and accessories.

Strategic positioning Target market
Experience water’s inspiration Italtile Retail, CTM and TopT store networks.
Key performance indicators Trends 2018 Trends 2017
Sales
Average selling price
Margins
Net profit
Stock turn
Closing inventory
Key differentiators

Integral component of the Group’s supply chain.

Long-standing relationships with international suppliers and extensive import experience.

State-of-the-art robotic warehouse facility.

ITD’s Tivoli range is the only major Italian brassware brand available in South Africa.

2017/18 priorities Scorecard
  • Leverage BOP to improve in-stock positions and stock turn while simultaneously reducing overall stock holding (in-stocks and stock turn improved, but overall stock holding was slightly higher in order to improve businesscritical in-stocks and due to slower than planned clearance of slow moving stock).
  • Rationalise ranges and drive product innovation to create differentiation for retail brands. This was achieved through:
    • reduction of slow moving items per range;
    • rationalisation and discontinuation of slow moving bathroom, kitchen and accessory ranges, which were replaced with modern ranges and products;
    • introduction of black sink mixers and bathroom range; and
    • introduction of two stainless steel accessory ranges.
  • Find an alternative certification for products given the dysfunctionality of the SABS.
 

A new certification body has been established and is in the final stages of certification with the DTI’s South African National Accreditation System, which will enable ITD to obtain the Joint Acceptance Scheme for Water Services Installation Components (“JASWIC”) certification on product. The process is expected to be concluded in the new financial year.

  • Explore opportunities to supply product to the open market.
2017/18 major achievements
  • Installation of a new young, dynamic management team.
  • Improvement in business-critical product levels and overall in-stock position, as well as the ratio of business-critical items to total stock mix.
  • Improvement in our range matrix.
  • Improved efficiencies in the robotic warehouse, which achieved a record for single-day pickings and reduced downtime during the year.
2018/19 priorities 2018/19 prospects
  • Leverage BOP to improve in-stock position and stock turn while simultaneously reducing overall stock holding across the integrated supply chain.
  • Complete alternative certification for products given the dysfunctionality of the SABS.
  • Grow market share through increased contribution to TopT total sales and through supplying product to the open market.
  • Sales are expected to remain constrained for the next 12 months as consumers continue to experience financial hardship.
  • Margins will remain under pressure due to the subdued market and the price sensitivity of consumers; the volatility of the exchange rate; as well as the competitor landscape, which has seen aggressive cost-cutting by peer operators.
  • Despite the above, management is satisfied that performance can be enhanced by improving business efficiencies.

Supply chain: importersCedar Point

Cedar Point

Overview and performance matrix

Nature of business

Importer and distributor of tile cutters, laminated and vinyl floor boards, bathroom furniture, shower enclosures, accessories, décor and other home-finishing products.

Target market
Italtile Retail, CTM and TopT store networks.
Key performance indicators Trends 2018 Trends 2017
Sales
Average selling price
Margins
Net profit
Stock turn
Closing inventory
Key differentiators

Integral component of supply chain across merchandise categories.

Strong relationships with international suppliers.

Leading buyer and supplier of high quality European laminated and vinyl floor board range and shower enclosures in South Africa.

2017/18 priorities Scorecard
  • Implement a full warehouse management system across all warehouses – management of certain warehouses has subsequently been outsourced to a third-party specialist.
  • Streamline and upskill staff complement.
  • Reduce costs across all warehouses.
  • Establish a warehouse in Durban to reduce costs and improve efficiencies in the KwaZulu-Natal region (the warehouse has been acquired, but the operation is only anticipated to commence in the new calendar year).
2017/18 major achievements
  • Substantial reduction in total stock holding.
  • Reduction in operating costs due to streamlining the warehouse operation.
  • Expansion of the Cape Town warehouse and improved efficiencies in the Western Cape region.
2018/19 priorities 2018/19 prospects
  • Outsource management of Vereeniging warehouse to a third-party specialist.
  • Establish operations in the newly acquired KwaZulu-Natal warehouse.
  • Improve our product offering by continued rationalisation, intensifying focus on fashion and displaying greater awareness of market trends.
  • Continue to expand our product offering to TopT by introducing locally manufactured bathroom and kitchen furniture.
  • Expand our shower enclosure offering to Italtile Retail by introducing latest fashion and modular concepts.
  • Explore opportunities to supply open market customers.

Supply chain: importersDistribution Centre

Distribution Centre

Overview and performance matrix

Nature of business

Procures stock for the Group and is one of the largest importers of porcelain tiles in South Africa.

Provides warehousing, distribution and logistics services to the Group.

Target market Footprint
The Group’s retail store networks and integrated suppliers. Durban
Key performance indicators Trends 2018 Trends 2017
Sales
Average selling price
Margins
Net profit
Stock turn
Closing inventory
Key differentiators

Long-standing relationships with international suppliers and transport agents.

Extensive (+30 years) import experience.

Strong financial position facilitates optimal investment in inventory.

2017/18 priorities Scorecard
  • Improve our product range matrix to facilitate the goal of right stock at the right time, place and price.
  • Re-evaluate the entire logistics system to ensure improved service and reduction of costs – this is currently underway and should be finalised in the new financial year.
  • Achieve all targets set for new financial year.
2017/18 major achievements
  • Succession planning was successfully implemented following the retirement of the long-serving Distribution Manager.
  • Stock turn improved despite the weak sales environment.
  • Achieved a zero-level of obsolete stock.
  • Distribution to the TopT stores was managed well; volumes sold to this brand reflected strong double-digit growth.
2018/19 priorities 2018/19 prospects
  • Achieve all agreed targets set for the new financial year.
  • Relocate to the newly acquired warehouse facility, which will also incorporate the Cedar Point operation.
  • It is anticipated that TopT will continue take up increased volumes of product.
  • Cost savings will be achieved once the relocation takes place from the current leased premised to the owned property.

Supply chain: manufacturersCeramic Industries

Ceramic Industries

Overview and performance matrix

Nature of business

Manufacturer of tiles (South Africa and Australia) and bathroomware (South Africa).

Strategic positioning Target market
Preferred supplier of tiles and bathroomware Retailers and wholesalers of fashionable and affordable tiles and bathroomware in Australia, South Africa and selected export markets.
Key differentiators

Leader in design and fashion, creating desirable products.

Low cost manufacturing ensures products are affordable.

Local supply ensures an understanding of customer requirements and a short, reliable supply chain. This supports our ‘always in stock’ policy, with consistent volume supply of fashionable well-priced product.

Complementary products for bathroom and complete home tiling solutions.

Key performance indicators South Africa Australia
  Trends 2018 Trends 2017 Trends 2018 Trends 2017
Sales volumes
Production volumes
Average selling price
Margins
Net profit
Closing inventory
2017/18 priorities Scorecard
  • Commission larger formats on Gryphon’s second production line.
  • Commission rectification plant for larger sizes and project requirements.
  • Continue to invest in technology to build on our reputation for innovation.
  • Improve customer service and on-time-in-full delivery.
2017/18 major achievements
  • Commissioned new large format sizes and rectification plant at Gryphon.
  • Increased market share of glazed porcelain tiles.
  • Expanded product range with new tile sizes at all plants.
  • Logistics optimisation implemented.
  • Established our bespoke artisan Training Academy in Babelegi/Hammanskraal for our employees. The long-term goal is to offer courses to members of the local community.
2018/19 priorities 2018/19 prospects
  • Investment to extend capacity and product range at Samca Wall factory.
  • Grow market share, especially of larger formats and rectified product from Gryphon.
  • Improve profitability of Australian plant and complete investment to increase capacity and product range in Australia.
  • Reduce operating costs across the business.
  • Continue to improve training and development of all staff.
  • Opportunities are being explored in several potential markets to open a tile factory in Africa.
  • Despite continued challenging trading conditions, there are still substantial opportunities to increase market share.
  • Drive on cost reduction and fashionable product should improve margin.

Supply chain: manufacturersCeramic Industries

Ceramic Industries

Bathroomware division
Betta Sanitaryware (“Betta”) and Betta Baths
Key performance indicators Trends 2018 Trends 2017
Sales volumes
Production volumes
Average selling price
Margins
Net profit
Closing inventory
Key differentiators

Integral component of supply chain across merchandise categories.

Strong relationships with international suppliers.

Leading buyer and supplier of high quality European laminated and vinyl floor board range and shower enclosures in South Africa.

2017/18 priorities Scorecard
  • Improve margin through reduced operating costs and improved yields.
  • Develop freestanding bath manufacturing technology.
  • Commence design of a new warehouse for sanitaryware and bath plants.
2017/18 major achievements
  • Investment in a new robotic glaze line at Betta.
  • Reduced process variation at Betta.
  • Investment in stretch technology vacuum forming to reduce raw material costs.
  • Installation of 1 MW solar power plant.
2018/19 priorities 2018/19 prospects
  • Improve production volumes at Betta.
  • Reduce waste across the operation.
  • Reduce operating costs across the operation.
  • Invest in a new warehouse to facilitate improved customer service.
  • Improve operating margins at Betta Baths through improved raw material sourcing and continuous improvement of production.
  • Continue to develop staff through enhanced training and development.
  • Sales of ceramic sanitaryware have been constrained by production shortfalls. Increased production will result in an improved performance by Betta.
  • Betta Bath’s sales remain sensitive to the weaker exchange rate as costs of imported raw materials are a significant proportion of the finished bath price. Despite this, a change in strategy has resulted in improved profitability in recent months and improved performance is expected.

Supply chain: manufacturersEzee Tile

Ezee Tile

Overview and performance matrix

Nature of business

Manufacturer of cement-based adhesives, grouts, water-based paints and related products. Comprises eight manufacturing facilities in Johannesburg, Durban, Port Elizabeth, Cape Town, Bloemfontein, Mokopane, Windhoek and Mombasa.

Strategic positioning Target market
Africa’s preferred tiling solutions Primarily the Group’s retail network, Italtile Retail, CTM and TopT. Also supplies a select group of open market retail partners.
Key performance indicators Trends 2018 Trends 2017
Sales
Average selling price
Margins
Net profit
Stock turn
Closing inventory
Key differentiators

A national footprint of manufacturing plants which underpins Ezee Tile’s ‘always in stock’ policy with consistent supply of products.

Strong strategic partnerships with key raw material suppliers which provide access to the latest technologies to improve quality while reducing costs.

2017/18 priorities and major achievements Scorecard
  • Implement improvements at the production facilities
 
  • Stretch hood in Johannesburg
  • Relocate and revamp the Namibian factory
  • Sand drying operation in Mokopane
  • Expansion of product lines
 
  • Cleaning chemicals and sealers
  • Construction chemicals
  • Increase activities in the open market
2018/19 priorities 2018/19 prospects
  • Upgrade the factory in Mombasa.
  • Open production facilities in Zeerust and three in Africa.
  • Identify a property and build a new factory in Johannesburg which will provide additional capacity.
  • Secure ownership or partnership for supply of sand in Johannesburg.
  • Introduce the Homegrown paint range to open market retailers and professional applicators.
  • Increase sales in the Ezee Tile Construction Chemicals division with a particular focus on waterproofing.
  • With the protracted economic slowdown in South Africa, there has been minimal volume growth in the tile adhesive market; entry of new low-cost competitors; and a definite shift towards lower priced products. Consequently, growth in 2019 is expected to come from new product lines and expansion in African markets.

Support Servicese-Commerce

e-Commerce

Overview and performance matrix

Nature of business

To provide our customers with a seamless, omnichannel shopping experience, enabling them to easily view and purchase our products and services online and smoothly transition between online shopping and our brick and mortar stores.

Target market Footprint
The Group’s retail operations and its customers. The Group’s online shopping stores are:
CTM South Africawww.ctm.co.za;
Italtile Retail South Africawww.italtile.co.za;
CTM Kenyawww.ctm.co.ke; and CTM Tanzaniawww.ctm.co.tz.
Key performance indicators Trends % increase
  2018 2017 2018 2017
  • Online sales
       
  • CTM SA
30 23
  • Italtile Retail
39 61
  • CTM Kenya
89 #
  • CTM Tanzania
# # # #
  • Quotes generated for all stores (Rands)
       
  • CTM SA
21 18
  • Italtile Retail
54 26
  • CTM Kenya
9 #
  • CTM Tanzania
# # # #
  • Visitor sessions
       
  • CTM SA
27 23
  • Italtile Retail
15 28
  • CTM Kenya
48 #
  • CTM Tanzania
# # # #

# Webstore opened in 2017, hence no prior year comparable trend.

2017/18 priorities Scorecard
  • Launch 3D visualiser technology for Italtile Retail webstore.
  • Launch new user interface for CTM and Italtile Retail webstores.
2017/18 major achievements
  • Combined webstore sales grew by 33% over the review period, due to an improved online shopping experience.
  • A product video studio was created, and product videos of the most popular products have been uploaded to facilitate an easier online product choice.
  • Transportation and export networks linked to the webstores have been set up to SADC countries to deliver online purchases to these countries.
2018/19 priorities 2018/19 prospects
  • Launch the TopT webstore.
  • Migrate all webstores to a new e-Commerce solution (Magento 2).
  • Implement Smart Sales 2 (a CRM, order processing and logistics solution to support omnichannel shopping).
  • Despite the general downturn in traditional consumer spend, the rapid growth of internet users and online shoppers presents significant opportunity for the webstores.
  • We will expand our offering to include online credit, Visa checkout and other new payment methods, which is expected to enhance the shopping experience.
  • Our strategy to target new markets traditionally not serviced by online retail will be pursued.

Support ServicesInformation technology

Information technology

Overview and performance matrix

Nature of business

To provide relevant, effective information technology (“IT”) solutions to enable a secure and optimal shopping experience in the Group’s retail stores, online and in the supply chain. This is achieved by ensuring simplicity and functionality for the end-user, combined with a personalised customer service which gives the Group a unique edge in the marketplace.

Maintenance of data integrity and minimising downtime and risk.

Strategic positioning Target market
Stability at the core – innovation at the edge The Group’s retail operations, their customers, and the Support Services businesses.
Key performance indicators Scorecard
  • Continual enhancement of the SAP ERP environment to achieve its full potential, thereby enabling sustainable growth and functionality relevant to the business’s needs.
  • Management of potential downtime and system failure risk through the use of technology and process management.
  • Consistent adaptation and preparation for events in the changing marketplace/landscape that could threaten or enhance the current state of IT globally.
  • Roll out of new innovative value-added technology in a cost effective manner.
2017/18 priorities Scorecard

This division is a key business enabler, supporting the Group by building an innovation roadmap which ensures that each of the brands retain their competitive advantage.

Focus over the past year was primarily on creating stability and improving governance of our IT systems. This was achieved through successfully implemented projects including:

 
  • Adoption of cloud-based services such as Microsoft Azure and Office 365.
  • Infrastructure upgrades to servers and networks to support growth.
  • The continued archiving of the Group’s extensive database.
  • Cybersecurity, ensuring risks were pro-actively mitigated.
2017/18 major achievements
The Group has been recognised in the 2018 SAP Quality Awards competition as one of the most innovative companies in Africa for its implementation of an omnichannel customer experience. The awards recognise leading enterprises which have implemented successful digital transformation initiatives, built on SAP technologies.
2018/19 priorities 2018/19 prospects

Operating in a digital era, the IT organisation must build systems that are geared for rapid deployment to market, and stability, which is key to maintaining an optimal shopping experience through the omnichannel.

Focus will be placed on the customer experience through the following initiatives, which form part of the digital transformation roadmap:

  • Analytics – real-time actionable insights for store operators and business stakeholders.
  • Automation – integration of systems and processes to streamline operations.
  • Mobility – untether back-office and sales processes to increase productivity.
  • E-Commerce – supplement growth by leveraging the existing brand and supply chain footprint.
  • Implement a new Point of Sale offering.
  • Accelerate the e-Commerce push to roll out more Group brands.
  • Upgrade SAP ERP to take advantage of enhanced business processes.

Property investment portfolioProperty investment portfolio

Overview and performance matrix

The Group’s property portfolio affords strategic advantage to the retail brand operations by ensuring stores are easily accessible, well presented and maintained, and contribute to an aspirational shopping experience. The portfolio is continuously evaluated and enhanced to ensure optimal returns.

The Group’s manufacturing operations comprise well-maintained state-of-the-art factories which are supplied with raw materials sourced from productive quarries in close proximity to the plants.

Environmental sustainability

The Group’s sustainability agenda is promoted through the use of cost-effective, energy-efficient practices in the construction of new buildings and the renovation of older buildings. Optimal use of natural light, solar technology, new-generation lighting, water-saving taps, rain water harvesting, and environmentally sensitive building materials is prioritised.

Our factories at Ceramic Industries use latest technology to ensure efficient production and rank among the most energy efficient in the world.

Target market
Italtile Retail, CTM and TopT store network.
Key statistics 2018 2017  
  • Retail portfolio market value
R2,9 billion R2,6 billion  
  • Manufacturing portfolio market value
R0,8 billion  
  • Total number of stores
173* 158*  
  • Italtile Retail
11* 10*  
  • CTM
85* 84*  
  • TopT
77* 64*  
* Excluding webstores.      
  • Capex incurred (new and refurbishments)
R355 million R232 million  
  • Portfolio changes
     
  • Properties acquired
5 8  
  • Properties sold
0 3  
  • New stores opened
     
  • Italtile
1 0  
  • CTM
1 2  
  • TopT
13 14  
2017/18 priorities Scorecard
  • Conversion of land to trading stores.
  • Build capacity and capability in the division to support the store roll out programme.
  • Continue to source suitable new sites to facilitate the network expansion programme.
2017/18 major achievements
  • We successfully opened 15 new stores and advanced the ongoing store upgrade programme.
  • The capacity of the division was increased with the appointment of two specialist personnel, following the retirement of the former Managing Director.
  • A more suitable building in Durban has been procured to replace the existing Distribution Centre property.
    2018/19 priorities 2018/19 prospects
    • Conversion of land to trading stores (while endeavouring to reduce construction costs and improve property returns).
    • Maintaining and refurbishing older properties in the portfolio to ensure relevant market value.
    • Continue to source suitable new sites to facilitate the network expansion programme.
    • Sell non-profitable/non-viable sites to ensure the portfolio remains healthy and retains optimal value.
    • Support the Group’s expansion programme into sub-Saharan and east Africa.
    • Review opportunities to convert leased sites to owned properties for high performing TopT stores in proven markets.

Environment and sustainabilityEnvironment and sustainability

Overview and performance matrix

Nature of business

Measures, manages and reduces the Group’s impact on the environment and promotes its long-term sustainability.

Overview

Italtile is committed to fight for the rights of all Africans to have a beautiful home, which means not only our places of residence but also the communities and natural environments we live in. A beautiful home is therefore one where social and environmental challenges are addressed in a way that still generates economic value. Italtile is constantly striving to achieve the concept of creating shared value.

Agenda
Target a reduction in the Group’s carbon footprint and participation in environmental initiatives designed to contribute to the betterment of communities in which the business operates.
Target audience
The Group’s retail operations, Support Services businesses and local communities.
Key performance indicators
  • Carbon footprint study
 

A study reporting on the greenhouse gas (“GHG”) emissions of the Group was conducted in July 2018. The study analysed direct GHG emissions from sources that are either owned or controlled by the Group and indirect emissions which are a consequence of the activities of the Group but occur at sources owned or controlled by other entities.

Our GHG emissions have been estimated and reported using the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard (Revised Edition) methodology.

  Emission source Trend: 2017/18 vs 2016/17*  

Distribution of total GHG emissions by scope
(including Ceramic and Ezee Tile)

Distribution of total GHG emissions by scope (including Ceramic and Ezee Tile)

Scope 1  
Scope 2  
Scope 3  
* Trend pre-acquisition of Ezee Tile and Ceramic Industries.
 
 
 

Compared to the previous financial year, the Group’s overall GHG emissions decreased by 7% (excluding Ceramic Industries and Ezee Tile). This reduction is primarily attributable to a decrease in emissions from purchased electricity and upstream transportation and distribution.

However, the acquisition of Ceramic and Ezee Tile has resulted in a significant increase in the Group’s carbon footprint. Scope 1 accounts for the bulk of the Group’s emissions at 58%. The majority of these emissions emanate from process-related emissions at Ceramic. The consumption of fuel in company-owned kilns, dryers and generators also contributed to high emissions under scope 1. Purchased electricity at company-owned sites accounted for the 30% of the Group’s total emissions, the majority of which were also from Ceramic. The largest source of emissions under scope 3 was derived from transportation and distribution services sourced by the Group.

Retail operations  
2017/18 priorities Scorecard
  • Create increased awareness among consumers of the environmentally friendly products stocked by all our retail stores.
  • Roll out our waste management programme at selected Group stores.
  • Continue to explore opportunities to reduce energy consumption.
  • Work in line with national climate change strategies to reduce the Group’s carbon footprint. Expand the existing carbon reduction programme to increase the number of carbon offset initiatives by exploring projects that go beyond generating renewable energy
  • Commission the Group’s eighth carbon footprint study.
2017/18 major achievements
Water
  • The drought in the Western Cape highlighted the need to prioritise issues related to water for the sake of business continuity, the environment and society. Stores across the Group made significant effort to increase awareness of water consumption and reduction.
  • All three brands, Italtile Retail, TopT and CTM, also tried to support consumers’ efforts to reduce water use through campaigns which offered water saving products on promotion.
  • In an effort to support communities most affected by the drought, Italtile Retail ran a campaign to distribute bottled water to areas experiencing extreme shortages.
  • A pilot study analysing how best to implement grey water systems to meet basic sanitation needs in our stores was completed during the period. This study served to determine best practice on how to roll out such a programme to existing stores across the Group; in addition, the system will automatically be installed in all new stores.
Energy
  • Over the past year, the Group has followed a multifaceted approach to energy saving. One of the areas investigated is the conversion of photovoltaic systems already installed in stores from a grid-tied system to a hybrid system, which would enable the store to operate during a power failure using solar energy without the need of a generator, thereby decreasing the use of fuel. The efficiency of such a system is currently being evaluated before roll out to other stores. The Group is also making an effort to ensure that green technology is installed in all new developments from the outset. Our latest new stores, CTM Clearwater and Italtile Clearwater, will operate 70 kWh hybrid photovoltaic systems, which will account for half their energy requirements.
  • Improving the efficiency of lighting has been another area of focus in reducing energy consumption. Energy-efficient LED is being trialled in certain CTM stores with the intention of rolling this out should the savings prove viable. All new stores will be fitted with full LED lighting from the outset.
  • Waste management continues to be a priority. The Group has started engaging with stores regarding recycling of their broken tiles. Tiles that do not meet the required standard for trade have been repurposed, as opposed to being sent to the land fill.
  • The Group’s Marketing department continues to grow its focus on marketing through digital mediums as opposed to traditional print media, which has reduced the amount of paper utilised for marketing purposes.
2018/19 priorities and prospects
  • Research and innovation: we will aim to improve the environmental sustainability of the Group’s practices through ongoing research of local and international best practice trends and the utilisation of cutting-edge technology and building materials. The Group will ensure that it utilises the best green technology to facilitate energy and water consumption savings on all of its properties as well as seeking innovative solutions to reduce the Group’s impact on the environment.
  • Water: the Group aims to roll out a water harvesting pilot study to all CTM Western Cape stores with the aim of improving knowledge and understanding of systems, for further roll out to the rest of the store network over time.
  • Energy: we will continue to improve energy efficiency in the operations and decrease dependence on the national grid, focusing on increasing the use of renewable energy.
Manufacturing plants
Ceramic Industries’ factories use latest technology to ensure efficient production. Gas consumption is reduced though the use of state-of-the-art burner technology and heat recovery systems that heat combustion air. Process water is recovered and reused, ensuring no effluent leaves the factories. Natural lighting techniques and new-generation LED lighting has replaced less efficient lighting in many places in the factories. Large solar generation systems have been installed in Australia and at the sanitaryware site in South Africa. Concurrent rehabilitation of raw material quarries is conducted and quarries are rehabilitated once end of productive life is reached.
Water management: Our factories rely primarily on water from boreholes and municipalities for production. It is for this reason that our existing boreholes are registered with the Department of Water and Sanitation and we are in the process of registering new ones. We conduct monthly water monitoring on site to detect our potential impact on the environment and also conduct groundwater level monitoring to determine how much we are consuming from our natural resources. Furthermore, our factories are designed to maintain a closed loop system which means that most of our water is recycled right through the process and lost through evaporation. In the effort to enable our factories to operate environmentally efficiently, we have active water treatment plants at some of our factories which make it possible to clean and reuse our dirty processed water; we also operate water reticulation plants which treat borehole water to supply the factories. These initiatives all reduce the reliance on municipal water.
Waste management: We aspire to comply with the hierarchy of waste management by preventing, minimising, recycling and recovering, with disposal being the last option. This approach applies to all waste that could potentially emanate from our production process and domestic waste which is generated on a day-to-day basis. Some of the initiatives that have been implemented at the factory include recycling of heat, raw materials and process water which all feed back into the process. We also have a waste management system which separates waste at the source and aims to dispose of as little waste as possible. This is an ongoing project which continues to improve over time.
Air management: One of our biggest challenges is the emission of dust resulting from the type of raw material used in the production process. This is a risk both inside the factory and to the external environment. Our factories have been equipped with baghouses and wetscrubbers which ensure that dust has been minimised or eliminated at areas where a risk has been identified. In line with our occupational health and safety standards, we assess and monitor occupational hazards and implement mitigating measures. While our monitoring focuses on a variety of potential gases including HF, SO2, CO,2, NOx, etc, over the years the results have proven that our risk is very low.
Energy consumption: We have started rolling out solar panels at the factories, aimed at reducing our reliance on electricity, which will ultimately reduce the carbon footprint. The Company has over the years also invested in technology and robots within the process, which not only improve productivity, but have an indirect positive impact on the environment. Other changes in the factory including motion sensors, heat recovery, and light bulb retrofitting will eventually add up to a notable saving in energy and costs.
2017/18 major achievements
  • Implementation of a new air quality management plan for the Vereeniging site.
  • Implementation of a new water quality management plan at the Vereeniging site.
  • Ongoing implementation of the environmental management system.
  • Installation of solar panels at Betta.
  • Establishment of a baseline carbon footprint for the operation.
2018/19 priorities and prospects
  • Register and commence with the water treatment plant at Betta.
  • Register the water reticulation plant as well as boreholes at Samca.
  • Assess the impacts of our activities by monitoring our neighbouring boreholes.
  • Create a centralised waste management area at the Vereeniging site.
  • Aim for minimal waste disposal and focus more on recycling, reducing and re-using.
  • Acquire emission licences for the Betta and Samca factories.
  • Continue with monitoring and mitigating as per licence requirement.
  • Recommend roll out of solar panels to the other factories.

The Group aims to intensify efforts to decrease its GHG emissions in order to reduce its environmental impact and contribution to climate change. In addition to advancing the roll out of renewable energy, both in stores and in the manufacturing plants, there will be a new focus on the implementation of carbon offset projects.

In addition to community-linked environmental projects, the Group’s broader corporate social investment programmes focus on education, entrepreneurship, welfare and conservation. The corporate social responsibility narrative of the Corporate governance report outlines in detail the charitable activities of the Group during the year.

Human resources and trainingHuman resources and training

Overview and performance matrix

Nature of business

Add value through recruiting and retaining fit-for-purpose personnel. Develop and empower the Group’s human capital resource through relevant training and support.

Provide an efficient payroll and administration function.

Target audience
Support Centre, franchisees and employees
Key performance indicators Trends 2018 Trends 2017
  • Recruitment and retention of fit-for-purpose personnel
  • Engagement with employees across the Group
  • Development of appropriate skills training, learnerships and competencies
  • Support the Group’s growth objectives and overriding strategy to deliver an incomparable customer experience
  • Improve productivity and performance to achieve retail best practice benchmarks
  • Develop leadership capability and capacity
  • Training programmes
2017/18 priorities Scorecard
  • Partner with SAQA-aligned training providers to offer NQF-level accredited courses.
  • Obtain accreditation for the training academy with the Department of Higher Education and Training.
  • Migrate to a new Learning Management System (“LMS”). The LMS system, rolled out to two of the retail brands during the year, includes induction, product and service modules. This enabled us to reach more staff and provide training in a more timeous, flexible, consistent and cost-effective way. We are also able to track learner progress more quickly and report on learner activity by brand, region and store.
  • Further improve our BBBEE Skills Development Scorecard.
    • By initiating Career Days at universities, we were able to access a wider pool of suitable candidates for learnerships.
    • A major drive was made to utilise accredited NQF-aligned courses for softer skills training.
    • Opportunities for disabled persons to successfully integrate into the organisation has been a focus, with a two-month training and orientation programme having been implemented, as well as a more targeted recruitment process.
    • A pilot programme was conducted for unemployed learners from local communities, offering an accredited short-skills tiling apprenticeship.
2017/18 major achievements
  • During the period, capacity and capability were improved in the supply chain and in the Finance, Property and Marketing divisions.
  • The CTM sales consultants’ training programme launched in the previous year, was successfully completed by a number of CTM stores. The course will be rolled out to other stores and is currently going through an accreditation process.
  • The accredited interior design course first launched in Italtile Retail has now also been introduced into CTM.
  • A pilot programme designed for persons with disabilities was rolled out in selected TopT and CTM stores. Eleven learners have been placed in the programme which offers them an opportunity to obtain the NQF level 2 qualification in Retail and Operations, while gaining work experience.
  • Participation in Career Days has been successful in attracting qualified talented individuals into the Group, thus enabling us to substantially increase the number of learnerships offered in the Group.
  • The launch of a more interactive video-based LMS has proved successful, with overall positive participation, completion and feedback statistics.
2018/19 priorities 2018/19 prospects
  • Target recruitment and development for improved succession planning.
  • Introduce a two-week induction and orientation programme which will be conducted regionally.
  • Continue driving BBBEE skills development initiatives.
  • Obtain accreditation of the Training Academy to offer shortskills technical programmes.
  • Our goal is to create more job opportunities and interest in the retail sector by increasing the number of learnerships and internships on offer.
  • We will drive, create and incentivise opportunities for continuous learning and upskilling of personnel.

Group outlook

Boosting the economy sustainably, improving household prosperity and rebuilding consumer confidence to translate into positive investment sentiment are key to the growth of our industry. For the foreseeable future until such factors as high unemployment and indebtedness, prevailing evidence of corruption and policy uncertainty regarding key issues are addressed, the consumer will remain under pressure and negatively disposed, and homeowners will continue to defer discretionary spend on their properties.

We anticipate that our first-half results for the new financial year will be better than the comparable first half of the prior year, due to the low base effect. Results in the second half of the year are expected to be less robust than the second half of the year under review, unless country-specific risk factors reduce materially.

Our goal for the new financial year will be to continue to deliver improved headline earnings growth.

While the short to medium-term socio-economic forecast is pessimistic, we remain confident that our resilient business model will stand us in good stead, as it has done over the past 50 years. We are optimistic that there are opportunities within the business which we can capitalise on and we have a competent team with clarity of purpose and strategy to achieve our growth targets.

We have identified our future focus areas and will benchmark our performance over the next year against them in the 2019 Integrated Annual Report.

They include the following imperatives:

  • Grow sales across the brands (through entrenching retail excellence), which will have a positive knock-on effect in the supply chain;
  • Continue to improve working capital and manage margins through robust cost leadership;
  • Build on our reputation for retail innovation and disruptive technology (both in-store and online);
  • Accelerate the Group’s growth in select markets in Africa (spearheaded by our new CTM venture in Tanzania, and Ezee Tile’s new plants). We will also cautiously explore other retail opportunities for expansion in Kenya, Rwanda and Uganda;
  • Advance the store roll out programme, targeting 10 to 15 new stores;
  • Progress improvements made in building a pipeline of talent;
  • Build depth of management, while simplifying the business model and limiting costs, by creating opportunities for topachieving CTM franchisees to expand their territories to become multistore franchisees;
  • Make better use of analytics to inform targeted customer marketing and reward campaigns;
  • Progress the supply chain journey. Leverage opportunities to link our manufacturing and retail operations by streamlining and upgrading our distribution and logistics functions;
  • Upweight our marketing and brand building initiatives and broaden our capability in the digital and social media environment; and
  • Increase open market business for all integrated suppliers.

Appreciation

I would like to pay special tribute to the Group’s founder and Chairman, Giovanni Ravazzotti, in this historic year, which sees us celebrating the business’s 30th anniversary since listing and commence our 50th year of trading. These milestones are testament to the personal traits which define him, and in turn have moulded the culture of this company: his ambition, innovation, integrity, humility and the understanding that partnership and empowerment are fundamental to building a successful team.

Mr Ravazzotti’s exceptional vision and hands-on management over the past 50 years have been instrumental in growing this business from a small start-up in 1969, to the enterprise it is today, comprising three retail brands, represented by 176 stores (including webstores) in South Africa and the rest of Africa, an integrated supply chain, substantial manufacturing assets both locally and in Australia, and an employer of 2 530 people across our operations.

On behalf of everyone in our business I would like to congratulate him on his immense achievements over the past five decades.

The year under review has been another challenging one, with trading conditions testing the finest operators. After a disappointing start to the year, the business delivered a much improved second half, and I would like to thank the people of Italtile for their commitment and continued determination to constantly improve their performance and attain our robust targets. Resilience and resourcefulness are key characteristics of the team and I look forward to working with you to advance our mission to be the world’s leading retailer of tiles, sanitaryware and ancillary products.

Finally, my appreciation is extended to my fellow Board members for their valuable contribution and support for our efforts to meet and exceed the expectations of all stakeholders.

J N Potgieter
Chief Executive Officer


Story of Melvyn Jansen

“This Company teaches us business skills and how to grow. We are constantly encouraged to be the best and never settle for less.”

Story of Melvyn Jansen


Melvyn Jansen joined Italtile Retail in 1991 as a truck assistant. After working for two years as a driver, he was promoted to showroom tiler. At the same time, he started serving as a trainee salesperson on weekends, which he enjoyed and excelled at. Recognising his talent, management promoted him to the temporary position of sales consultant, for a six-month trial period. His success in this role resulted in him being appointed permanently to the sales team. In those days, Melvyn says, the sales people also had to tile the display boards – whereas today selling is regarded as a specialist skill and a lot of focus is spent on ensuring consultants are equipped to manage customers as professionally as possible.

Melvyn loves working for the Group because he believes management always puts their employees first. Besides making sure to provide basic employment benefits such as medical aid – which many other companies do not provide – employees also participate in the profit share scheme.

A key lesson he has learnt in the Group, is that teamwork is important to achieve the best results. Melvyn says the Company is transparent and shares all information with the teams so that individuals are empowered and take part in the decision-making process. He adds that he has huge respect for his managers who have mentored him and afforded him with the opportunities to become part of a successful team.