Financial review
Trading conditions
Generally, the building industry remained subdued with limited public or private sector investment. The market continued to experience an influx of product from Chinese and European suppliers targeting new markets for growth opportunities. This led to greater fragmentation of the sector with aggressive supplying of opportunistic traders who carry limited stock and forego margins in an effort to gain a foothold in the market. This short-term strategy will inevitably lead to further rationalisation of industry players.
Competition remained extremely intense in the polished porcelain and entry level tile market, and in the laminate board segment the price war continued unabated.
Steady growth and a gain in market share were achieved across the Group’s retail brands, Italtile, CTM and TopT, as well as the supply chain businesses, comprising International Tap Distributors and Cedar Point. The middle class market continued to provide strong growth opportunities, largely a function of the brands’ better understanding and response to customer demands, and to attaining access to previously under-serviced rural and outlying areas.
Results
Like-on-like system-wide turnover increased 16% to R3,52 billion (2011: R3,02 billion), while trading profit grew 17% to R523 million (2011: R448 million). Margins reduced slightly, reflecting the Group’s deliberate strategy to absorb the impact of currency volatility and increased energy costs in the current competitive trading environment. Average selling prices were sub-inflationary and contained to certain product lines, in a continued effort to entrench the Group’s everyday value proposition.
Inventory levels rose to R339 million (2011: R241 million) in line with the intentional tactic to ensure optimum stock levels and consistent availability of merchandise – a factor which played a significant role in the Group’s improved results.
Capital expenditure of R170 million (2011: R135 million) was incurred during the period, predominantly related to improving the quality of the Group’s property portfolio. Notwithstanding this outlay, cash reserves increased to R917 million (2011: R839 million), demonstrating Italtile’s robust cash generating ability.
The Group’s net asset value grew to 218 cents per share, an improvement of 17%.
Divisional review
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Consistent themes are woven through the review of each business unit, namely: unwavering application of basic retail principles and focus on people. Underpinning these themes is the Group’s ambition to be a world-class low-cost retailer, embodying an optimal combination of profitability and customer satisfaction. |
Italtile Retail
| Overview and performance matrix | |
| Nature of business | Leading fashion retailer of exclusive ranges of tiles, bathware and related products. |
| Target market | Premium-end consumers and professional projects market. |
| Number of stores | 8 |
| Key performance indicators | Trends |
| Sales | ↑ 26% |
| Average price inflation | ↔ |
| Margins | ↓ 1% |
| Net profit | ↑ |
| Stock turn | ↑ |
| Key differentiators | Trend-setter and leading buyer of exclusive quality international and local products.
Widely recognised as industry front-runner in environmentally conscious products. Established specialist expertise and nationwide network. |
| Strategic positioning | Live beautifully. |
The Italtile Retail brand delivered a satisfying performance for the period, reporting good growth in revenue and profitability, and success in achieving goals outlined at the end of the prior year.
The brand opened its flagship latest generation store in Boksburg, and renovated its Bryanston showroom to encapsulate Italtile’s new-look retail design concept; both developments have been favourably received by clients. In line with its ambition to grow market share, the product range was strategically broadened to cater to a wider segment incorporating the upper end of the middle class market, and has started to deliver pleasing results. Implementation of the ‘Italtile Way’ was completed; this is the brand’s best practice benchmark programme linked to service and customer experience. Independent evaluation has confirmed that this initiative has added significant value to Italtile’s offering.
Further down-sizing of competitors and sustained sluggishness in the trading environment prevailed. In this context, the brand performed well to gain market share across the product offering, a reflection of a range of operating improvements, including:- improved in-stock supply based on enhanced automated ordering programmes;
- brand-centred promotional campaigns for ranges including Cotto sanitaryware and Hans Grohe brassware;
- intensified training initiatives including training by international suppliers, and continued implementation of the ‘Mystery Shopper’ programme to measure success of the ‘Italtile Way’ ethos; and
- enhancements to the brand web page, to cater to the growing trend by clients to conduct pre-purchase research. The improvement in the ‘virtual store’ experience has resulted in a significant increase in visits and length of time spent on the site.
Management’s stated goal to grow the brand’s Commercial Projects base was advanced with the successful completion of a prestigious bank office block in Menlyn, Pretoria. A range of Italtile products including tiles, sanitaryware and brassware is showcased in this project. The building has a 4-star Green rating and serves as an excellent reference for architects and other professional contractors. There are currently several other commercial projects in the specification phase with promising prospects.
Priorities and prospects
Italtile has a long-standing reputation in the industry as a leader of style and flair. In a fluid industry featuring rapidly changing consumer tastes, management’s challenge is to constantly stay ahead of fashion developments and continue to set trends.
Attracting, retaining and growing human capital is a major focus in this business, and continued investment in this regard will remain a priority.
The obvious success of Italtile’s improved website offering has promoted the development of a web-based programme aimed at assisting professionals to simplify and streamline the specification phase of projects. This offering is anticipated to provide Italtile with an important competitive advantage amongst its target audience.
The new Boksburg and revamped Bryanston stores are expected to make an important contribution to revenue growth in the year ahead. A further two stores in Johannesburg North and South will be opened in late 2013, and over the longer term three to five year horizon, additional opportunities for expansion will be considered in other local and Southern African markets.