Trading environment

South Africa and Africa

Reflecting similar trading conditions to those experienced in recent years, the building industry remained subdued with little investment in the sector; typical of a downturn in the economy, some activity was evident in the renovations market while the new build segment remained largely stagnant.

Sustained instability in global economies continued to force suppliers to seek new markets, and vast quantities of Chinese and European product entered the country in the review period.

Volatility in the market was exacerbated by aggressive price positioning and margin pressure. Further fragmentation of the industry was witnessed as industry participants down-sized and consolidated as unsustainable margins impacted their businesses.

Fashion and value remained the key drivers in this sector with increasingly more sophisticated consumers aspiring to international tastes.

Australia

The Australian economy featured a sluggish building sector and low consumer confidence levels primarily due to increased borrowing costs and the implementation by Federal Government of new levies and taxes.

Widespread flooding in Queensland badly impacted the local economy; additionally, Government funding and reconstruction work has to date failed to provide the anticipated stimulus needed by the industry.

A sustained influx of cheap imports continued to create trading volatility and margin pressure.

In line with global trends, trading and buying patterns continued to evolve as consumers started to favour online interactivity and more sophisticated in-store experiences.

Operations

South Africa

The Group’s improved results are derived predominantly from organic growth in the business. The retail operation reported increased revenue and profitability, and a gain in market share was recorded across the Group’s brands, Italtile Retail, CTM and TopT and across their respective merchandise categories. The Group’s supply chain, comprising Cedar Point, International Tap Distributors (ITD) and the Distribution Centre, also reported a solid performance, with ITD delivering record sales and profits.

Robust growth was experienced in emerging and middle class market segments and further penetration of outlying and rural areas was achieved. In terms of regional performance, strong growth was reported in Limpopo, Mpumalanga and Gauteng, with improved performances in Botswana, Namibia, North West and Free State provinces. The coastal regions continue to underperform their inland counterparts.

Australia

The Group’s operation which comprises eight stores in Queensland and New South Wales, delivered a disappointing performance, with the business reporting a loss for the period. In context, the Australian operation contributes 6% to total Group revenue.

Intensified market competition and an oversupply of cheap tiles served to squeeze margins. In response, management has elected to increase its range of European products which should restore margins and add flair to the range.

The business has also signed a deal with a retail partner to introduce carpets, natural wood and laminate boards into the stores, with the intention of promoting the operation’s ambition to be a comprehensive floor covering specialist.

Management’s priority in the forthcoming period will be to contain overheads, and a strategic plan to restore profitability is being finalised at present.

Results

The Group reported like-on-like system-wide turnover of R3,52 billion (2011: R3,02 billion) an increase of 16%. Trading profit grew 17% to R523 million (2011: R448 million) notwithstanding the Group’s tactic to restrict price inflation in the current competitive trading environment. Cash reserves improved 9% to R917 million (2011: R839 million), demonstrating the healthy cash generative nature of the business.

Dividend

The Board has approved a final dividend of 7 cents per share (2011: 6 cents), which together with the interim dividend of 7 cents per share (2011: 6 cents per share) amounts to a total dividend of 14 cents per share for the year (2011: 12 cents per share), an increase of 17%.

The dividend cover remains unchanged at three times.