The environment
we operate in

The general context in which we operate impacts on our ability to deliver on our strategy and create sustainable value.

The table below illustrates the emerging and existing trends which prevail in our industry and market, the effect they have on our business and our strategic response – which is aimed at mitigating or managing any negative impact and, wherever possible, capitalising on opportunities presented.

Market and/or industry trend Impact on our business Our strategic response

Impact of COVID-19

The leadership theory acronym, VUCAD, best sums up the impact of the pandemic on our society, economy, industry and business.

Volatility, uncertainty, complexity, ambiguity and disruption are all features of the new normal which need to be managed to ensure business sustainability.

Our strategic business model has enabled the Group to withstand and capitalise on the challenges faced:

  • our high profile brands are trusted and our stores are perceived by safety-conscious consumers as safe shopping environments;
  • our omnichannel offering affords customers the opportunity to interact with us on the platform of their choice (growing online activity reflects changing consumer behaviour and a responsiveness by new customers to non-traditional platforms);
  • the interruption of import supply experienced due to lockdowns and port delays was negated by our local integrated manufacturing capability; and
  • strong cash generation and cost management disciplines are entrenched in the business and ensured balance sheet flexibility at a key time. Our debtors' book was not materially affected; the short-term contingency facility raised has not been required; and we have been able to reinstate our roughly R800 million capex programme with immediate effect.

Beleaguered consumers respond positively to offerings which are empathetic and evoke the sentiment 'we're in this together'.

Under the challenging conditions we face as a country, our Proudly South African positioning, demonstrated across our business and in our campaigns, continued to find favour with customers.

Our ethos of controlling the supply chain from factory gate to customer home is based on our local manufacturing capability and integrated supply chain. Make local and buy local to create jobs and grow the economy is key to our business model and is communicated in our Proudly South African messaging.

The weak economy and country-specific risks constrain consumer income and impact on investment confidence.

With limited disposable income and low levels of confidence, consumers eschew or defer non-essential spend.

For keen buyers, the key purchasing determinants are value, quality and experience.

Our goal is to deliver an unparalleled shopping experience. We strive to ensure our brands are aspirational and offer customers consistent year-round value. Our price offering is supported by strong brand equity, product quality and customer-centric service.

Highly competitive trading landscape and increase in opportunistic traders.

Intense competitor activity with margins sacrificed by operators striving to survive.

We focus on achieving an optimal product-price-margin matrix which holds appeal for customers but supports margins for store operators. Our robust cost leadership ethos is key to preserving margins.

Flight of capital in the upper-LSM market segment.

Significantly reduced or deferred spend by consumers in the premium-end of the market continued to impact on our Italtile Retail brand performance.

Our brand offering is strategically positioned to appeal to consumers across the income spectrum and hence spreads and reduces risk.

Opportunities exist to migrate upper-end CTM customers into the Italtile Retail space with a carefully curated range of high quality import substitute tiles.

Consumer demand for convenient, accessible shopping experiences.

Demand for access to omnichannel shopping options and seamless transition between online and physical stores.

Demand for faster, more efficient in-store service. Aligned to this is the growing trend of pre-retailing, which empowers consumers to research and inform themselves before engaging with a sales person.

We invest in a combined bricks-and-clicks trading format.

We continue to roll out stores to under-serviced markets – with good success. We also continue to explore flexible store-size formats relevant to specific markets for all our brands.

We invest in technology to improve the customer shopping experience both in-store and online.

We recognise that improved access to technology creates opportunities for new customers to access our offering on new platforms. All of our retail brands are now supported by interactive webstores.

Technology and fashion are increasingly interlinked.

Access to the internet, largely due to smartphones, continues to gain momentum locally.

The omnipresence of social media and growing sophistication of local consumers is driving an international fashion bias, rapid design evolution and quicker fashion changes, while the demand for instant gratification dictates shorter lead times.

Our Gryphon factory is the leading manufacturer of import replacement-quality large format tiles, while all of the Group's factories utilise state-of-the-art inkjet technology. This technology enables timeous manufacture of up-to-the-minute designs, giving the Group a key strategic advantage in the market.

CTM has launched a multi-surface tile visualiser which enables customers to digitally view our tiles in their own rooms and match wall and floor tile offerings in lifelike reality.

We invested in improving social media content; recognising that better engagement with customers translate into sales growth.

Innovative shopping experiences across all platforms

are increasingly important.

Online access has educated consumers and influenced shopping expectations. Customers are increasingly more discerning and demanding and quick to use social media to share their experiences.

We recognise that successful retailers are defined by consistently memorable shopping experiences. We continue to focus on up-weighting the 'delight and disrupt' factors in our stores and online through innovative layouts, lifestyles, products and use of technology.

The traditional customer profile is evolving.

Increasingly, women are making the major decisions in home-finishing purchases in our stores.

Our business is well-positioned to capitalise on this trend, since we are viewed as a fashion retailer rather than a building materials supplier.

Unrelenting effort is directed at ensuring the shopping experience is aesthetically pleasing, with our keen focus being on fashionable product, stylish presentation and aspirational lifestyle displays.

We continue to align our personnel profile with the demographics of our customer base.

Industry-wide shortage of skilled retail-specialist personnel.

Competent, ambitious, fit-for-purpose employees and franchise partners are key to the Group's success.

Our training and development spend is significant and aimed at building a deep resource pool of appropriately skilled personnel.

To ensure we recruit and retain the right calibre of individuals; we drive the culture and activities of the business through our core values and beliefs.

We continue to review and upgrade our learnership programmes and recruitment methodologies to ensure our people are aligned to our growth strategy. Our partnership and reward initiatives are designed to incentivise our people and position the Group as an employer of choice.

Intensified shareholder and consumer focus on ESG issues.

Increasingly frequently, shareholders identify ESG credentials as having an impact on their decision to invest in companies.

ESG awareness continues to grow among consumers who prefer to associate with brands that have admirable reputations and align their words with actions.

Our goal for the year ahead is to progress the journey to improve the Group's current ESG credentials as well as the disclosure of developments in this regard.

Environment

The Group employs a dedicated Citizenship Manager, who is tasked with reviewing and reducing the Group's carbon footprint on an ongoing basis. Across our operations, we strive to reduce consumption of non-renewable resources and, where possible, increase generation of renewable resources.

Our factories at Ceramic Industries use the latest technology to ensure efficient production and rank among the most energy efficient in the world. Rehabilitation of raw material quarries is conducted concurrently during use and once end-of-productive-life is reached.

Social impact

We will continue to strive to ensure that our community social initiatives are meaningful and sustainable and we will measure their impact on an ongoing basis.

We will advance our Proudly South African campaign in our stores and prioritise selling local products manufactured by local people.

We will strive to retain our BBBEE status level 4 through ongoing initiatives to transform the demographic profile of the business.

Governance

Our priority is to continue to entrench the implementation of good corporate governance principles across all of the Group's business units.