Priorities and prospects

The primary value that this business adds to CTM and TopT is management’s expertise in sourcing large quantities of latest fashion affordable products which give these brands a competitive edge in the market. Staying ahead of fashion trends and robust supplier negotiations will remain a priority to ensure continued delivery on this service.

Current economic instability in Europe and resultant product price reductions provide opportunity for the Group to explore new supply markets; the relative stability of the euro compared to the US dollar supports this tactic. Accordingly, increased volumes of product will be imported from Spain and lower volumes from China in the forthcoming six months. This development will afford the introduction of a variety of new, cutting-edge tile ranges at competitive prices.

Prospects for the year ahead look favourable, and management’s commitment is to achieve revenue growth and profitability in line with the results reported in this review.

Information Technology

Overview and performance matrix
Nature of business	Provides relevant, effective IT solutions to enable an optimal shopping experience in the Group’s retail stores through ensuring simplicity for the end user, maintenance of data integrity, and minimising downtime and risk.
Target market	The Group’s head office, retail operations and support services businesses.

Key performance indicators and achievements:   SAP network upgrade   Management of potential downtime and system failure risk   Roll out of technology   Improved interactivity of retail websites

In support of its sustainability strategy and goal to achieve world-class low-cost retailer status, the Group invested R14 million during the review period in a number of key infrastructure and information technology (IT) projects which include the following:

• Roll-out of mobile handheld barcoded point of sale (POS) devices to the entire CTM network and introduction of the technology to four pilot TopT stores. This programme was completed on time and on budget in December 2011 at a cost of R8 million. The mobile barcoded POS environment has made a significant improvement to the speed as well as quality of customer service, and affords the Group an important competitive advantage.
• Upgrade of the Group’s SAP network from ECC5 to ECC6 at a cost of R0,7 million. The upgrade was effective from March 2012 and started delivering operational improvements immediately.
• Commissioning of a secondary datacentre for the Group’s SAP hosting at a cost of R1,2 million. This back-up facility is vital to ensure uninterrupted functionality in the event of failure at the primary site.
• Development of a web-shopping functionality on the CTM website, aimed at enabling customers to view products and create quotes online from the comfort of their homes. The first version of the CTM Online Store was implemented at a cost of R0,7 million. Initial consumer response to this offering has been very favourable.

Priorities and prospects

The IT environment holds substantial potential to enable the Group to achieve its growth objectives and improve customer satisfaction. In this regard, ongoing attention will be paid to opportunities to unlock strategic value.

Further development will be conducted on the CTM website’s Online Store functionality aimed at evolving the offering into a comprehensive store service through which customers are able to buy products 24 hours a day and receive delivery of their orders directly to their homes.

The Group is also developing an online automated payment card authorisation system that is fully integrated into SAP, aimed at reducing customer checkout time and minimising operator errors.

Property Investment

Overview and performance matrix
Nature of business	Underpins the Group’s retail operations by ensuring that stores are optimally located on high profile destination sites or within easy access of previously under-serviced rural and outlying areas.
Target market	Italtile, CTM and TopT store network.
Key statistics
Portfolio value	+R1,5 billion
Number of stores	112 in South and Southern Africa and Australia      – 89 CTM stores      – 8 Italtile stores      – 15 TopT stores
Capex incurred	R88 million on new properties in South Africa and R36 million in Australia
Portfolio changes	4 properties acquired and 2 sold
New stores opened	6 (1 Italtile and 5 TopT stores)
Stores renovated/relocated	12

Improving the quality of its properties remains a consistent theme for this division. In light of the role this portfolio plays in supporting the Group’s retail operation, the division’s continued focus remained on evaluating and enhancing property investments through identifying new and better locations, and maintenance and upgrade of properties to create enhanced shopping environments for customers.

Generally, the property market remained subdued, in line with recent prior years. Statistics show that while there was some activity in the entry-level residential market and early signs of improvement in the commercial property market, this was on a very limited scale.

In terms of the Group’s retail operations, the following developments were recorded:

ITALTILE: This brand’s latest generation Green store opened in Boksburg during the year, with two new stores planned for Johannesburg North and South in the forthcoming year. The longer term three to five year vision for expansion includes a further five stores across South and Southern African markets.

CTM: Whilst no new stores were opened, a range of renovations, extensions and relocations were conducted across the CTM store network. The brand will open a new store in Northriding, Gauteng and Nairobi, Kenya in the year ahead. The CTM network continues to offer good growth potential and further store roll-out is constantly being pursued, pending availability of suitable sites.

TopT: Improved its market presence with the opening of five new stores and closure of three underperforming stores. Most of the operations trade out of rental properties and whilst the intention is to convert this model to owned-properties, it must be noted that reasonably priced land in rural and outlying areas is in short supply due to tightly held land-ownership patterns. Areas such as Mpumalanga, North West Province, Limpopo and KwaZulu-Natal are currently being considered for expansion opportunities.

The Group’s environmental policy is an important factor in the property portfolio’s operations. All new properties and renovations to existing properties align with Italtile’s efforts to reduce its carbon footprint. Low energy consumption programmes include optimal utilisation of natural light in the stores, harvesting of rainwater, recycling of water and waste, establishment of water-wise gardens, composting programmes, and conversion of inefficient electrical systems to new technologies.

Improved insulation of buildings is also a key focal area for future store improvements, based on the positive effect of combining this environmentally friendly solution with an enhanced shopping experience for customers.

Priorities and prospects

Identification and maintenance of optimal sites to best represent the retail operations will remain this division’s core focus. In this regard, a range of properties is being explored at present related to all three of the Group’s brands, and afford interesting potential.

Innovations in new building methods are currently being investigated, aimed at reducing construction time and costs and improving efforts to implement the Group’s Green agenda. If proved feasible, these will have a significant effect on further store roll out across the Group.

Environmental sustainability

Overview and performance matrix
Nature of business	Measures, manages and reduces the Group’s impact on the environment and promotes its long-term sustainability.
Target market	The Group’s head office, store network and suppliers.
Key performance indicators
Electricity savings	A 3,2% saving has been achieved between February 2009 and January 2011.
Water	Roll-out of rainwater harvesting tanks and water-wise gardens from only new to established stores.
Recycling	60% of stores have committed to the recycling programme (2011: 30%).
Carbon footprint	The recently completed second study (FY2011) confirmed a decrease of 8,34% in direct CO2 emissions per rand value of turnover.

This division’s aim to align and integrate the Green agenda into the day-to-day processes and functioning of the business continued to gain momentum. Buy-in and adoption by store operators and employees of the agenda has been widespread and commitment to converting all stores to energy-, water-, and waste-efficient operations has grown.

A range of initiatives were implemented in the review period:

• The third carbon footprint study (FY2012) has been commissioned and is expected to reveal further reductions in CO₂
• emissions.
• Widespread implementation of the Eco icon Green accreditation symbol by the Italtile stores. This bespoke standard, designed by the Group to create awareness of the environmentally beneficial aspects of products, has found favour with Italtile’s environmentally conscious consumers.
• The planting of 87 trees at Zimasa Community School in Langa, Cape Town, to offset the CO₂
• impact of holding an annual Carbon Neutral CTM conference.
• A rehabilitation programme centred around the Group’s head office environs, incorporating a clean-up the local river and the greening and reforestation of the area including the removal and containment of invasive alien tree species and planting of indigenous trees.
• Awarding of the first-ever R50 000 Green Excellence Award (to CTM Polokwane) for excellence in implementing the Group’s Green agenda.
• The most significant milestone achieved during the year was the opening of the Group’s flagship Green store, Italtile Boksburg. Designed to optimise indoor environmental quality and reduce resource consumption, the building maximises natural light, insulation and solar energy, utilises evaporative cooling, implements water-storage and harvesting practises, and features an indigenous garden. Sophisticated metering equipment will facilitate enhanced energy usage control.
  A comparable, standard-design building, would consume approximately 391 kWh/m² of energy whilst this custom-designed energy efficient structure is projected to utilise only 109 kWh/m² per annum. Close measurement of this performance will be conducted and will inform construction of future Group stores.

Priorities and prospects

This division’s priority is to continue to reduce Italtile’s impact on the environment.

Future initiatives in this regard include closer collaboration with the Group’s training department, aimed at increasing employees’ exposure to the Green agenda.

Improved monitoring and benchmarking will be facilitated through installation of water and electricity meters across all CTM and Italtile stores.

Further opportunities will be explored to expand on the Eco icon programme in-store to promote environmentally responsible products at point of sale.

At present, efforts are underway to integrate carbon footprint data capture and analysis into the Group’s SAP platform. Once completed, this intervention will have a significant effect on improving measurement and evaluation of the Group’s environmental impact.

Human Resources and Training

Overview and performance matrix
Nature of business	Adds value by developing and empowering human capital through relevant training and support, and providing an efficient payroll and administration function.
Target market	Head office, franchisees and employees.
Key performance indicators	Trends
Skills training and competencies	↑
Staff retention	↑
Compliance with employment equity targets	↑
Cost to stores	↓

This division’s philosophy is that the Group’s primary asset is its people – and the success of the business lies in attracting, developing and retaining the best calibre of personnel possible.

Three key initiatives were undertaken during the period:

• Streamlined and rationalised in-house product and skills training programmes from 43 to 23 courses, aimed at adding value through improved relevance and reducing costs to stores. Greater emphasis was placed on cost-effective video-based training and in-store supplier training as well as outsourcing training to best-of-breed specialists. In-house leadership programmes aimed at developing superior store operators are ongoing. These six- to nine-month training programmes are designed to deliver an average of five successful store operators per year.
• Introduction of management and leadership development programmes in conjunction with the University of Stellenbosch. Response to this initiative has been remarkable, and application for these certificate courses has been oversubscribed.
• Implementation of an integrated payroll system to enhance operating efficiencies.

The Practical Tiling, Plumbing and Laminate course conducted at the Group’s Training Academy has been successfully completed by 919 staff since opening in 2009, comprising almost 73% of the Group’s staff complement, and up from 40% at the end of the prior year. This supplier-based training has played an important role in equipping sales people with practical and theoretical product knowledge. The course will continue to be evolved, aligned with the introduction of new products and services in the stores.

Employment equity (EE) remains a priority for the Group and targets set in the EE Plan were once again exceeded, in line with prior year achievements.

Priorities and prospects

This division’s primary goals centre on developing human capital for the long-term benefit of all stakeholders. Promoting commitment to training by all parties will be achieved by adding value at reduced cost, and establishing quantifiable measures which will accurately evaluate the link between training and improved service and sales. In addition, management plans to develop a schematic to illustrate all individual career paths in the Group with a view to improving manpower retention.

Management’s immediate imperative is to bed-down and integrate existing and new training courses, and where required, continue to rationalise underperforming courses.

Outlook

The retail environment is a rapidly evolving one, driven by ever-new technology which is changing the way consumers shop. The Group recognises that to ‘touch’ customers’ lives and appeal to younger generations of consumers entering the market requires a move away from conventional trading to embracing greater use of web-based interaction and social media. The Group will continue to invest in technology to ensure that its offering remains top of mind and within easy access.

In the short term, instability in European markets presents opportunities to source high quality fashionable product at affordable prices, and the Group will leverage this potential.

Management is satisfied that the Southern African business will continue to grow at current rates in the forthcoming period. Continued focus on innovative trading and overhead containment will remain key to the Group’s goal to achieve an optimal balance of customer satisfaction and profitability.

Appreciation

Tribute must be paid to the people of Italtile for their first-rate efforts this year.

Each of the divisions and business units across the Group delivered an improved performance in the period under review, both in terms of profitability and meeting strategic objectives. In the current economic climate and trading environment this is a notable achievement.

Italtile’s aggressive growth targets and high performance culture demand absolute commitment from each person who works in the business; the results reported on in this review are a reflection of that dedication and support for the Group’s vision to be a world-class low-cost retailer.