• The Group’s Enterprise Risk Management structure is based on a combined assurance model comprising three elements: management (divisional and executive directors); external auditors (EY); and support centre 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.
• Throughout the period, management held regular regional and divisional meetings. Flat reporting structures facilitated transparent communication and oversight. The executive directors paid frequent visits to stores and supply chain partners; embraced regular communication with and motivation of staff; and continued to foster a culture of partnerships.
• The external audit function focused on addressing perceived audit risk related to presented financial information and internal controls.
• A significant proportion 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 role continued to centre mainly on the assessed risks at store level and identifying possible obstacles to achieving key targets.
• The Group introduced the ‘Be Heard’ hotline in conjunction with an independent third party supplier to enable staff to report perceived fraud or any other improper workplace practices.

• Management’s hands-on stance will continue to ensure focus on safeguarding of assets and compliance with relevant policies.
• Support Centre oversight will improve with the continued formalisation of business improvements to ensure consistent practices in-store. The internal audit function will grow with the business and will play an increasingly important role.

• Despite the challenging trading environment, the Group grew system-wide turnover by 11% and trading profit by 18%.
• Gains were made in new markets and product categories, while growth in existing markets was solid. One of the Group’s key competitive advantages is its consistent policy to ensure ‘the right stock at the right price and time’, an ongoing programme to ensure optimum inventory, range and service management. The Group’s strong statement of financial position and prudent cash management supports this policy.

• Growth opportunities exist within the Group, its supply chain and the industry. Constant focus will be on innovation, technology, service and training which will assist the Group in achieving its stated goal of being a world-class low-cost retailer through alignment of customer satisfaction and profitability.

• The Group is reliant on its integrated supply chain and key local suppliers (namely Ceramic Industries and Ezeetile), and its growth targets are dependent on those suppliers meeting its demands in terms of volume, pricing and quality. During the period the Group acquired a 20% strategic stake in Ceramic Industries which increased its holding in Ezeetile to 46%, thereby strengthening its relationships with these suppliers.
• The Group’s requirements were consistently met by its supply chain throughout the year.

• Proactive management of supplier relationships will ensure the Group’s requirements continue to be executed throughout the year. This will include projection planning, monitoring, and ensuring suppliers’ capacity to expand production if required.
• In the unlikely event of inadequate supply, the Group could source alternative supply from other local suppliers or importers.

• Further improvements were made in automated ordering processes, systems and model stock levels across the Group. The supply chain provided solid support to the retail operations through affordable pricing, fashionable range and availability of merchandise.
• Despite increased inventory levels, stock turn continued to improve.
• During the period the Group acquired a strategic stake in Ceramic Industries, its primary local supplier of tiles and sanitaryware, thereby strengthening its position as Ceramic Industries’ key customer.
• A new Distribution Centre was opened in Cape Town during the period. This facility will play an important role in streamlining distribution and logistics of imported product in the Western Cape and should assist in improving the Group’s performance in theregion.

• The Group’s disaster management plan is structured to withstand interruption of operations due to supplier, shipping or warehouse storage difficulties.

• The Group will continue to ensure optimal inventory levels thereby negating any disruption to supply.

• Increasingly the industry in which the Group operates is regarded as one of high fashion, and remaining on-trend is key to Italtile’s market leadership.
• During the year efforts were intensified to prioritise fashion and flair and entrench the Group’s position as a trend-setter; its gain in market share is a reflection of the success of this strategy.

• In order to remain the leading trend-setter, the Group will continue to invest in research-led innovation.
  This will be achieved through access to international markets and trade shows to gain insight into global trends and product offerings. Locally, experienced brand managers and consistent communication at regional and national level will ensure comprehensive understanding of local fashion demands.
  Optimal range/pricing structures will also remain a priority.

• The local market continued to mimic international trends both in fashion taste and desire for innovation in products and technology. The Group continued to strive to ensure its offering remained contemporary and aspirational through significant enhancements in its range and upgrade of its web-based shopping capability.

• The Group has identified a range of initiatives to promote its international competitiveness in the technology and social media sphere as well as in cost/pricing adjustments and expansion of distribution channels.

• As an importer, the Group was subject to fluctuations in the local currency and volatility of international markets. Management of foreign currency exposure remained a key priority and wherever possible risk was mitigated.

• Company policy dictates that foreign currency fluctuations will continue to be keenly managed and all foreign liabilities will be matched with forward exchange contracts on confirmation of order.

• The IT environment holds substantial potential to enable the Group to achieve its growth objectives and to improve customer satisfaction. Innovations in technology were a focus during the period, including improvements in the Group’s online web-shopping capability, streamlined automated ordering systems, and in-store point-of-sales functionality, including mobile units.
• The Group’s comprehensive disaster recovery plan was further enhanced, with record-low downtime reported.

• The SAP system will continue to be enhanced to unlock efficiencies, thereby enabling growth.
• Roll out of technology, including improved interactivity of retail websites, will remain a focus area.
• IT infrastructure is central to the Group’s operations; accordingly management of potential downtime and system failure risk will remain a key priority.

• Cost containment and capital management were key priorities during the period. This, together with the Group’s strong cash generating ability ensured that cash reserves exceeded operational requirements.

Potential Treasury risks include:

• Sub-standard investment returns;
• Inadequate liquidity of investments to meet commitments; and
• Institutional/commercial risk relating to funds into which investments are made.

• Intensive management of cashflow and overheads will remain core focus areas. The Group has in place a Treasury policy which will continue to mitigate risks linked to investments.

• Italtile and CTM offer a trade credit facility which is managed and insured by an outsourced specialist debtors’ solutions business, Cladding Finance. Consumer credit is outsourced through RCS, an independent financial services group specialising in credit products. During the reporting period, credit applications and credit management continued to be subjected to intense scrutiny.

• The Group has limited exposure to consumer credit risk, since the business model favours cash transactions in its retail operations.
• Given prevailing economic conditions, credit applications and management will remain a focus area.

• Italtile’s retail brands are central to the Group’s operations. Accordingly reputation management of these brands is a core activity conducted through ongoing review and brand-building activities. Potential areas of reputational risk include poor customer service; poor product quality and unrealistic pricing; poor staff management; negative environmental impact and non-compliance with legislation and standards. Each of these risk areas was monitored closely and mitigated through the following mechanisms:

  –	brand managers who attend regular regional meetings to gain insight into markets and product offering, and
  –	implementation of an employment equity policy; environmental sustainability programme; whistle-blowing facility; and involvement of the services of a Health and Safety expert.

• The Group’s goal is to deliver an unparalleled shopping experience to customers and retain and entrench its market leadership position. Reputation management of its brands will continue to be a major priority implemented through the range of mechanisms outlined under the adjacent 2013 column.

• The Group’s property investment portfolio supports its brands through high profile, easily accessible store locations, and well maintained aesthetically attractive shopping environments. It has an estimated market value of R1,6 billion and strong cash reserves; returns are in line with the retail operations. During the reporting period over R100 million was added to the value of this investment portfolio net of property sales and refurbishment capex.

• This division’s primary goal is to continuously improve the value and quality of its investment properties to support the retail operations in delivering the required rate of return. Consistent review of the portfolio and marketplace ensures that risk is minimised and investment opportunities capitalised on.

• Partnership, entrepreneurship and autonomy are central tenets of the Group’s business model and philosophy. Individual business units continued to be managed and operated independently within the broader Group structure, facilitating development of management experience and expertise across the organisation.

• The Group’s organisational structure and culture will be preserved by fostering mentorship, promoting empowerment, encouraging transparent communication through flat reporting lines and ensuring optimal leadership development.

• Attracting, developing and retaining human capital remained a key focus, with mentorship and leadership programmes prioritised.

• The Group announced the appointment of a new CEO with effect from 1 July 2014.
• Elsewhere in the business, the goal is to build succession cover for each major management position to ensure that there are successors for each key individual, both in the short and longterm.

• Under the stewardship of the Chairman, an ongoing management mentorship programme is conducted through which the values and ethics of the business are instilled across the organisation.
• CTM’s in-house Operator Training Programme yielded 11 graduates who have the necessary skills and qualifications to manage Group stores. This is significant progress in the Group’s stated ambition to develop depth of management.

• Developing a pool of leaders with extensive experience and expertise is a key Group goal, and significant resources will continue to be committed to initiatives which assist in achieving this ambition.