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Strategic focus |
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2012 |
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2013 focus and targets |
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Enterprise Risk Management |
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- The Group has in place an Enterprise Risk Management framework which is based on a combined assurance model comprising three key components: management (divisional and executive directors); external auditors (Ernst & Young Inc.); and head office oversight (including the internal audit function). This structure serves to: specify the sources of assurance over the Group’s risks; link risk management and assurance activities, which facilitates review of risk management effectiveness; and provides a basis for identifying assurance gaps. These activities are designed to ensure that the Group’s risks are adequately addressed.
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- Management: regular regional and divisional meetings are held and flat reporting structures facilitate transparent communication and oversight. The Group will continue to ensure intensive involvement by the executive directors in frequent visits to stores and supply chain partners; regular communication with and motivation of staff; and fostering a culture of partnerships, all aimed at promoting safeguarding of assets and policy compliance.
- External audit: addresses perceived audit risk related to presented financial information, internal controls and audit differences. The Group has received unmodified audit reports throughout its relationship with Ernst & Young Inc. – reflecting the strong control environment within the Group – and will strive to continue to do so.
- A significant component of the Group’s accounting, operational and HR functions are centralised at the Support Centre which enables effective oversight of in-store operations and results. The internal audit function focuses mainly on the assessed risks of inventory and cash management and identifying possible obstacles to achieving key targets. It is anticipated that this function will continue to evolve and play an increasingly significant role.
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Market risk and financial viability |
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- The Group increased turnover by 16% and trading profit by 17%. These results were achieved notwithstanding the subdued industry and competitive marketplace.
- Goals outlined in the previous report included: development of new markets in previously under-serviced sectors, and to grow existing markets. In this regard, improved revenue, profitability and a gain in market share were achieved across the Group’s operations through the policy of ‘the right stock at the right time’, an ongoing programme to ensure optimum inventory, range and service management.
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- The Group’s stated goal is to achieve the status of world-class low-cost retailer, underpinned by alignment of customer satisfaction and profitability. In the current economic environment the Group’s challenge will be to leverage growth opportunities within the existing supply chain and store network.
- Intensified emphasis on innovation, technology, training and service will be required to retain industry leadership and grow market share.
- Implementation of ‘the right stock at the right time’ policy will remain central to the Group’s operations.
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Reliance on key suppliers
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- The Group is reliant on key local suppliers (e.g. Ceramic Industries and Ezee Tile) and its growth targets are dependent on these suppliers meeting its demands in terms of volume, pricing and quality. Proactive management of these relationships ensured the Group’s requirements were met consistently throughout the year.
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- Very close supplier relationships will remain a priority, including regular meetings and projection planning. The Group is a key customer to its suppliers, who therefore have a vested interest in retaining its business.
- In the event of inadequate supply, the Group could source alternative supply from other local suppliers (adhesive) or importers (tiles and sanitaryware).
- The Group will continue to monitor and ensure its suppliers’ capacity to ramp up production if required by the Group.
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Supply chain management |
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- Automated ordering and increased model stock levels were implemented across the retail operation. Notwithstanding significantly higher inventory demands, prudent management by the supply chain ensured consistent availability of merchandise.
- Increased inventory levels were matched by improved stock turn.
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- Relationship building with international and local suppliers will remain a priority and is acknowledged to be critical to negating erratic supply, price fluctuations and volatility in the market. The Group’s intention to acquire a strategic stake in Ceramic Industries exemplifies this policy.
- Inventory management will continue to be improved through enhanced systems and processes.
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Supply chain disruption (Distribution Centre) |
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- The Group has in place disaster management plans to withstand disruption of operations due to supplier, shipping or warehouse storage problems.
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- Maintaining prudent stock levels will ensure that any potential disruption to supply is managed seamlessly.
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Remaining fashionable |
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- The Group retained and grew market share as a result of prioritising the fashion and flair component of its offering.
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- Ensuring that the Group remains the fashion leader will be facilitated through:
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Regular regional meetings and attendance at international trade fairs to gain insight into markets and product offering. |
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Experienced brand managers in key positions. |
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Cost/pricing adjustments and expansion of distribution channels (e.g. e-commerce). |
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International competitiveness
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- Evolving consumer trends pointed to growing international fashion tastes and demands for greater online shopping capabilities. Italtile’s rapid response to these developments assisted in entrenching the Group’s reputation as a trend-setter in the industry.
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- In the current technology-driven era, the Group will prioritise greater use of web-based interaction and social media to ensure its offering remains contemporary and aspirational.
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Foreign currency |
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- Foreign currency fluctuations are managed keenly and all foreign liabilities are matched with forward exchange contracts on confirmation of order.
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- In current volatile economic markets, management of foreign currency exposure remains a key priority.
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Computer-based business processes |
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- The Group’s comprehensive disaster recovery plan was fortified with the commissioning of a back-up datacentre to ensure uninterrupted functionality in the event of primary site failure.
- R14 million was invested in upgrading in-store technology and enhancing the Group’s online interactivity to optimise customers’ shopping experiences.
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- Reliance on IT infrastructure is a core component of operations, and risk-mitigating activities related to continued upgrading of back-up facilities, soft-and hardware and training will remain a priority.
- Technology innovations will continue to be introduced to meet evolving consumer behaviour which is trending toward greater online activity.
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Liquidity, cash reserves and Treasury risk |
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- The Group’s robust cash generating ability and prudent capital management ensured that cash reserves are in excess of operational requirements.
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- Potential Treasury risks include:
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Sub-standard investment returns; |
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Inadequate liquidity of investments to meet commitments; |
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Institutional/commercial risk relating to funds into which investments are made. |
- The Group has in place a Treasury policy which will continue to mitigate these risks.
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Credit risk |
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- Trade credit available through Italtile and CTM is managed and insured by Cladding Finance, an outsourced specialist debtors’ solutions business. Consumer credit is outsourced through RCS, an independent financial services Group specialising in credit products.
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- In the current economic climate credit applications and credit management will continue to be subject to onerous scrutiny.
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Brand reputation |
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- Prudent investment in brand-building and ongoing review of the offering enabled the brands to grow market leadership in their respective categories.
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- Brand reputational risks arise from: poor customer service; poor product quality and unrealistic pricing; poor staff management; negative environmental impact and non-compliance with legislation and standards.
- The Group’s primary objective to deliver an unparalleled shopping experience to customers will continue to underpin all activities and ensure the good standing of its brands amongst consumers.
- The Group employs experienced brand managers who attend regular regional meetings to gain insight into markets and product offering: it also has in place an employment equity policy; environmental sustainability programme; whistle-blowing facility; and utilises the services of a Health and Safety expert.
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Property portfolio |
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- The Group’s property portfolio has an estimated market value of R1,5 billion and has robust cash reserves. The portfolio delivered returns in line with the retail operations.
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- Improving the quality of its properties remains the primary focus of this division. Identifying new and better locations and maintenance and upgrade of properties will be conducted on an ongoing basis to minimise risk and ensure the required rate of return.
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Preservation of the organisational philosophy and structure |
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- The Group’s business model promotes a culture of partnership and autonomy. Each business unit is managed and operated independently within the broader Group structure, thereby facilitating growth of management experience and expertise across the organisation.
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- A culture of entrepreneurship will continue to be fostered to ensure preservation of the Group’s philosophy and structure. The existence of flat reporting structures will continue to facilitate transparent communication, oversight and mentorship. Optimal recruitment and training programmes will ensure the business model is entrenched.
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Succession planning |
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- Attracting, developing and retaining human capital remained a major focus. Mentorship and leadership programmes were prioritised, with in-house programmes anticipated to deliver five suitable candidates for store management positions annually.
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- Ongoing development of leadership and management potential is recognised as a critical initiative.
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Chairman’s mentorship programme |
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- An ongoing management mentorship programme is conducted by the Chairman through which the values and ethics of the business are inculcated across the organisation.
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- Developing depth of talent is a key priority in the organisation and is under the direct oversight of the Chairman.
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