Support services

The components of the Group’s vertically integrated supply chain are: Cedar Point, an importer and distributor of tiling tools, laminate boards, cabinets and accessories; International Tap Distributors (ITD), an importer and distributor of taps and accessories; and Distribution Centre, which sources imported tiles for the retail brands and provides warehousing and distribution facilities to the Group.

ITD

Overview and performance matrix
Nature of business	Importer and distributor of brassware and accessories.
Target market	Predominantly (90%) Group brands CTM and TopT; and a small open-market client base.
Key performance indicators	Trends
Sales	↑ 31%
Average price inflation	↓
Margins	↔
Net profit	↑
Stock turn	↑
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.

Notwithstanding the aggressively competitive trading environment, ITD succeeded in gaining market share across its offering and improved on the solid performance reported in the prior year to deliver record sales and profits. These results are attributable to improved stock management, and range and warehouse efficiencies achieved through the following initiatives:

Stock management and range

• Enhanced automated ordering systems implemented in the stores, which increased stock on hand supplies;
• Introduction of automated stock ordering from international suppliers;
• Improved variety and flair in the range with the introduction of exclusive Hans Grohe ranges, and new-look colour and other product ranges sought by emerging middle class consumers;
• Good progress made in reducing slow-moving stock;
• Leveraged the Tivoli brand-building advertising campaign and increased the ranges into CTM and TopT stores with significant success; and
• Intensified retail training of sales and product skills and revamped displays throughout the store network thereby improving the customer shopping experience.

Warehouse

• Invested in and upgraded robotic technology, thereby fine-tuning efficiencies and reducing downtime; and
• Reorganisation of stock receipt and despatch systems to streamline and accelerate these key functions.

ITD’s price increases over the period were largely sub-inflationary and limited to certain ranges in the offering. The effect of rand weakness in the last quarter on the cost of imports was to some extent offset by European suppliers seeking new markets and offering competitive prices, enabling ITD to pass on cost savings to its customers. This is best illustrated by the Group’s affordable, high quality Tivoli tap range imported from Italy, which serves as an important competitive advantage for the Group.

While Chinese ranges continued to improve in quality and style, product prices increased sharply as a result of higher labour costs and the impact of exchange rate fluctuations. For the most part, ITD absorbed these price increases to ensure sustained competitiveness.

Priorities and prospects

In-store training via ITD’s agents has delivered a measurable improvement in sales growth, and therefore remains a key focus area.

Brassware and accessories are perceived as high-fashion products and continued research will be directed at sourcing innovative stylish ranges to improve the Group’s competitive advantage.

ITD will be introducing a new Italian brand, Idral, custom-designed specifically for the medical sector. This will be retailed through the Italtile Projects division and is a leading innovation in the local market.

ITD’s application for SABS accreditation has been advanced with the formal certification of two tap ranges and further accreditation of other ranges anticipated in due course. This endorsement will have significant benefit in growing the business’s customer base.

Expansion of ITD’s warehouse capacity will commence in the first quarter of 2013 and is anticipated to deliver further improvements in efficiency.

Cedar Point

Overview and performance matrix
Nature of business	Importer and distributor of tiling tools, laminate boards, cabinets, accessories and décor.
Target market	CTM and TopT store network.
Key performance indicators	Trends
Sales	↑ 27%
Average price inflation	↔
Margins	↓
Net profit	↔
Stock turn	↑
Key differentiators	Integral component of supply chain across merchandise categories.   Strong relationships with international suppliers.   Leading buyer and supplier of laminate board range in South Africa.

Cedar Point’s results improved across its merchandise categories, although margins were impacted by the unfavourable exchange rate and intensified competition in the laminate board market.

Notwithstanding the fiercely contested trading environment, the Elf laminate range, which comprises 30% of Cedar Point’s business, successfully gained market share amongst its traditional customers and grew the category into new markets. Central to this growth was:

• the extensive in-store assessment conducted across the CTM store network which culminated in improved product training, ranges and displays;
• Cedar Point’s ability to maintain competitive price points through spirited supplier negotiations; and
• the well received profile-raising Elf flooring advertising campaign which took place during the year, entrenching this predominantly German product range in the market as a fashionable floor covering, based on its stylishness, user guarantees and unmatchable price.

To meet growing demand for the product in under-serviced rural and emerging markets, new ranges have been introduced and have met with favourable response.

Particularly strong growth was experienced in Cedar Point’s tiling tool and cabinet category. The introduction of new ranges, including ornate cabinets, to meet changing consumer tastes played an important role in this growth.

The décor category remains a key growth area for the business. A significant strategic shift is currently underway to restructure Cedar Point as a wholesaler of décor to the Group, by integrating supply from the Group’s existing external local suppliers into Cedar Point’s operation. The process will involve rationalising the ranges offered by these suppliers and managing the distribution of product into the stores. The benefits of integrating this function into the supply chain will include improved stock management (investment, warehousing and stock on time) and greater convenience and efficiency for store operators.

Priorities and prospects

Cedar Point’s priority focus areas in the period ahead include continued innovation in its product range and merchandise displays, ongoing training for staff and customers, and intensified cost containment.

The volatility of the exchange rate has an important effect on Cedar Point’s margins, and hence management’s strong relationships with international suppliers are critical in ensuring the sustained profitability of this business.

Significant growth opportunities exist in the décor component of the business and will be realised firstly through integrating external supply into Cedar Point’s wholesale function, and furthermore by improved alignment of products with the Group’s tile and sanitaryware offering. The development of complete ‘solutions’ comprising suites of matching floor and wall tiles, sanitaryware and complementary décor will afford this business an important advantage in a competitive market segment.

Distribution Centre

Overview and performance matrix
Nature of business	Procures stock for the Group’s retail brands, and is the single largest importer of polished and glazed porcelain tiles in South Africa.   Provides warehousing, distribution, logistics and foreign exchange services to the Group.
Target market	CTM, TopT, Cedar Point and ITD.
Key performance indicators	Trends
Sales	↑ 27%
Margins	↓
Net profit	↑
Stock turn	↑
Key differentiators	Long-standing relationships with international suppliers and transport agents.   Extensive (+30 years) import experience.   Strong balance sheet facilitates optimal investment in inventory.

This business delivered a pleasing performance, growing revenue across its customer base by 46%. Rand value sales to the CTM store network improved by 40%, equating to an increase in square metre sales of 42%.

Margins were slightly lower than forecast as a function of absorbing some of the impact of rand weakness and the sharp increase in diesel prices to ensure that the Group retained its price leadership in the keenly contested imported tile segment.

The division’s focus on consistent availability of affordable, fashionable stock played a key role in its gain in market share during the period.

In order to meet customer demands, the Distribution Centre ensures that its comprehensive offering includes ‘standard range’ items as well as high-fashion products. Management’s continued focus is on setting style trends and introducing international flair to the local market.

Reflecting recent evolving customer buying trends, sales of imported glazed porcelain tiles grew at a faster rate than polished porcelain products.