Review of operations

Information Technology (“IT”)

At the end of the prior year the IT department outlined its overriding goal, namely to assist the Group in unlocking efficiencies in the SAP environment to capitalise on growth opportunities in the business. During the review period good progress was made in furthering this aim.

• The Group’s Business Optimisation Plan (“BOP”) is underpinned by SAP functionality. Over the past year, BOP was implemented in the Supply Chain with rewarding results. As noted in the Cedar Point, ITD and Distribution Centre reports, enhanced utilisation of SAP systems led to improved insight and understanding of demand and resulted in better procurement and stock management practices, thereby aligning the Supply Chain with the retail operation more effectively.
• The mobile Point of Sale (“POS”) device, a unique in-store application which integrates SAP, credit card payments and web shopping functionality was upgraded. These handsets have improved the customer experience by affording more personal, knowledgeable sales service, from the store door to despatch.
• The data centre and disaster recovery centre were upgraded to ensure continued seamless operation across the retail operations, Supply Chain and Support Services businesses.
• The CTM operation in Kenya was integrated into the Group’s SAP network on 1 July 2015; this will facilitate improved reporting and oversight between that business and the local Support Centre.

Priorities and prospects

A range of strategic imperatives have been outlined by the IT department for the year ahead:

• Continue to underpin the BOP initiative as it is rolled out to the retail operations in the months ahead with the goal of enhancing stock management and improving the shopping experience for customers by ensuring the right products are in stock at the right place and time;
• Ongoing development of in-store technology with the goal being to double the volume of sales and quotes performed on the mobile POS devices;
• Maintain the track record of uninterrupted up-time of SAP and the integrated credit card solution during trading hours;
• Development of security measures to prevent breaches of all critical systems and improved data loss protection; and
• Integration of the Tanzania franchise operations into the Group’s SAP network.

Further investment will be required in both the IT and e-commerce segments of this business to deliver on the underlying opportunities which this environment offers.

This division has significant strategic advantage for the Group’s retail operations through ensuring that the brands are represented by aesthetically pleasing, well-maintained stores situated on highly visible, accessible sites. Management’s goal to deliver an optimal shopping experience for customers is advanced through this division’s continuous evaluation and enhancement of its property portfolio.

In this regard, the following improvements were undertaken during the period:

Italtile Group

The Support Centre (head office) in Bryanston, Gauteng, underwent extensive renovations to accommodate the growth of the business over the past few years.

Italtile Retail

The long-standing Nelspruit store in Mpumalanga was relocated to a new prime site and revamped in line with the brand’s style-icon status.

CTM

During the year, the Lonehill (Gauteng), Bethlehem (Free State) and Windhoek (Namibia) stores underwent extensions, and the Vaal (Gauteng) store was revamped. Three stores were relocated to better sites, in Vredenburg (Western Cape), Nelspruit and Queenstown (Eastern Cape).

TopT

Eleven new stores were opened in the review period, namely Pietermaritzburg, Mtubatuba and Ladysmith in KwaZulu-Natal; King William’s Town and Mthatha in the Eastern Cape; Mafikeng, Northam and Klerksdorp in North West province; Ermelo and Bushbuckridge in Mpumalanga; and Taung in the Northern Cape.

Australian investment

The Group owns and manages a small portfolio of retail properties in Australia, which are leased out. During the period one property was sold; the portfolio now comprises four remaining properties. The intention is to dispose of the balance of this portfolio when market conditions improve in that country.

Environmental sustainability

Management strives to ensure that the Group’s sustainability agenda is promoted by the activities of this division. Accordingly, where feasible, new and existing stores employ cost-effective, energy-efficient practices, including solar technology and optimisation of renewable resources.

Priorities and prospects

• In line with the continued growth of the Group’s retail property footprint and further planned store openings, the division has been restructured to enhance skills and capacity in-house in order to be able to direct appropriate resources at key areas to address opportunities and challenges as they arise.
• The Property division will continue to strive to improve its green credentials with regard to compliance with international benchmarks related to building practices and resource consumption in both new and existing properties. In addition, management of utilities will remain a priority, with particular emphasis on ensuring the Group is adequately prepared for the deteriorating water infrastructure in certain provinces.

The Group’s retail footprint will be enhanced as follows:

Italtile Retail

At the end of June 2015 new stores were under construction in Northriding and Waterfall (Woodmead) in Gauteng. These stores are scheduled to open in 2016.

At the year end, renovations were underway in the showroom at Somerset West in the Western Cape and the warehouse at the Pretoria store. These projects will be completed within the next six months.

Management is satisfied that it has secured a pipeline of suitable properties required for Italtile Retail’s expansion plans for the next five years.

CTM

The following new stores are planned for completion in fiscal 2016: Mitchells Plain (Western Cape), Hazyview (Mpumalanga), Thohoyandou (Limpopo) and Waterfall (Woodmead) (Gauteng). The store in Middelburg (Mpumalanga) will be relocated, a revamp will take place in the Bloemfontein (Free State) store and the Mokopane (Limpopo) store will be redeveloped.

CTM’s operation in Kenya currently comprises two stores. Should suitable opportunities arise, the brand’s footprint may be extended by a further three stores and possibly also include establishment of a Distribution Centre. Management will continue to cautiously pursue its investigation in this regard.

The strategy to introduce flexibility to the store size format is underway, designed to ensure that new stores are optimally aligned with their specific market size, and affording the brand the opportunity to extend its presence in new, smaller non-traditional markets where it is currently under-represented.

A pipeline of sites has been secured which will ensure that CTM’s three-year expansion plan is on track.

TopT

In line with TopT’s strategy to roll out between five and ten stores per year, three new stores have already opened since year end: Queenstown in the Eastern Cape and Alberton and Germiston in Gauteng.

The following provinces will be targeted for new stores in the year ahead: Eastern Cape, Gauteng, Mpumalanga and Limpopo. Availability of suitable sites will impact on the pace of the roll-out programme.

The environment and sustainability agenda is centred on continuing to reduce the Group’s carbon footprint across its operations and developing meaningful social investment programmes designed to contribute to the betterment of communities in which the business trades. Key goals include reducing consumption of energy and water resources and advancing sustainability through promotion of environmentally friendly products, education of employees and customers, and improving waste management. Social responsibility initiatives are predominantly based on education and sports programmes aimed at enhancing the lives of disadvantaged children.

Environment

The Group has in place three customised brand-specific policies which are managed within the Group-wide sustainability agenda.

Energy management

Projects implemented during the period include:

• Continued roll out of photovoltaic (“PV”) panels to new stores. These panels, which supply 40% of each store’s energy requirements, have been installed in 15 stores thus far. Utilisation of these panels has resulted in energy savings of 624 608,2kWh resulting in a substantial reduction in carbon emissions and water savings;
• Implementation of energy efficient technologies and lighting in all new, upgraded and relocated stores and optimisation of natural renewable resources;
• Retro-fitting energy efficient lighting in older stores;
• Installation of independent metering equipment at stores experiencing inaccurate billing, which improved measurement and management of energy consumption; and
• Collaboration with the Private Sector Energy Efficiency organisation in order to gain a better understanding of energy consumption and potential savings. The Group is currently implementing follow-up programmes to evaluate its status.

Water management

Despite the Group not being a major consumer of water, ongoing conservation programmes remain a high priority.

• During the year existing water-wise product ranges were expanded and new ranges introduced designed to deliver significant water savings without compromising efficacy of the products or their SABS accreditation. These products include a range of three full-flush toilets which reduce consumption to as little as two and a half litres per flush, from an average of nine litres. These brands, Mondo, Atlantis and Coral, are available at CTM. In addition, all Tivoli taps feature a reduced water flow of six litres per minute, down from an average of 12 litres per minute. Notably, all Tivoli Murano and Orta taps are manufactured in a carbon neutral factory.
• In-store education for customers and staff is an ongoing initiative, and Pula aerator devices are available to customers at no charge.
• The Group is currently developing a risk management strategy to ensure stores have contingency plans in place to mitigate the inevitability of water shortages in certain regions in the country.

Waste management

The Group is currently piloting a recycling programme in all Italtile Retail Gauteng stores aimed at improving measurement and management of waste. The programme also incorporates a social investment component, by creating employment for previously disadvantaged individuals. Should this programme prove viable, it will be rolled out across the Group’s other brands.

Social investment

During the period, the Group’s Social Investment Programme was moved under the auspices of the Environment and Sustainability portfolio.

The Group’s community-based initiatives centre on investment in education and sport for children in disadvantaged communities. These initiatives are funded through both the Italtile Group and its Foundation Trust. The Group’s current major project is the development of a sports field and related facilities in Thohoyandou, which should be completed by the end of December 2015. During the reporting period the Group also worked closely with the One School at a Time Programme to sponsor extra-curricular tuition and upgrade the facilities at Forte High School in Dobsonville. In addition, the Group is an anchor sponsor of the Soweto Sports Field, a Platinum Partner of the National Sea Rescue Institute and a sponsor of the environmental group Stop Rhino Poaching.

Priorities and prospects

Improvement in resource consumption and promotion of sustainability across the Group’s operations will remain key strategic imperatives. The measures and initiatives outlined above will continue to be implemented and rolled out across the business to achieve the long-term sustainability agenda.

The Group’s sixth carbon footprint study has been commissioned. Over the past consecutive five studies, there has been a marked downward trend in CO₂ emissions; this, together with current initiatives in place, augurs well for a further reduction in the Group’s footprint in the year ahead.

In line with Italtile’s current and anticipated future growth it is recognised that the HR and Training functions are pivotal to ensuring that the Group’s fit-for-purpose personnel component is appropriately recruited, trained, empowered, incentivised and retained to keep abreast of the business’s staffing needs.

During the period this department commenced a structural overhaul to ensure it is adequately equipped to align itself with the organisation’s goals. A more formalised and focused approach was adopted regarding the human capital portfolio, which included reviewing and revising a range of HR policies and procedures to increase their relevance to the business’s current needs, and effecting changes to ensure the department is optimally staffed.

With a view to the longer term, a five year strategy plan has been developed and is key to ensuring this division’s ongoing evolution continues to be aligned to the broader growth of the business.

The department recorded the following achievements during the period:

• Progress was made in gaining better insight into the current pipeline of talent in the business and identifying skills training opportunities across the organisation. This process required improved evaluation and measurement of capability as well as implementation of appropriate coaching where required.
• Established closer partnerships with the Operational divisions, resulting in improved identification of the unique needs of individual business units and brands. The formation of Skills Development Committees specific to each brand and business division assisted in providing improved insight into the Group’s human capital matrix.
• Implementation of the first Group-wide employee engagement survey designed to develop an understanding of employees’ current sentiment and establish a basis and benchmark against which to track year-on-year improvements.
• The first ever introduction of rural learnerships and workplace experience for learners in the Group’s various business units and retail brand operations. This initiative is structured to develop a potential resource from which to recruit future employees.
• Employee communication was improved with the launch of a monthly electronic newsletter providing information on training initiatives, HR policies, internal vacancies, and other related matters.
• An employee wellness programme was introduced, which together with the improved communication strategy is aimed at engaging better with employees.
• Online e-learning courses were trialled as an alternative method for staff training in the Group’s outlying stores, and proved to be a useful tool.
• The Operator Training Programme, in partnership with Stellenbosch University’s Business School, produced a further nine graduates for the 2014/15 academic year. This programme is designed to develop the Group’s pipeline of potential store operators. In the prior year 11 students graduated from the course and currently hold store management positions in the Company.
• Specific attention was paid to recruitment of specialist retail skills; this will be an ongoing imperative.

Priorities and prospects

In overview, the HR and Training departments’ primary goal in the forthcoming period will be to ensure their activities support the Group’s targets in terms of its growth objectives and its overriding strategy to deliver an incomparable customer experience.

• A new Retail Academy Programme was launched in August 2015.
• The Group has made application to the Wholesale and Retail Sector Education and Training Authority to register the Company as an accredited training provider, in order to achieve formal recognition for its Academy for Tiling, Plumbing and Laminate Flooring. This facility was established some 10 years ago and is an invaluable training resource for the Group’s employees and customers.
• The following areas will receive priority attention in the year ahead: recruitment and retention of fit-for-purpose employees; development of leadership capability and capacity; upgrade of the existing retail specific knowledge base; and improvement in productivity and performance to achieve retail specific best practice benchmarks through appropriate training and development programmes.

Outlook

The trading environment is likely to remain largely unchanged. In the context of further Rand weakness, continued rationalisation, especially amongst smaller independent traders in the wholesale segment, is anticipated.

If prevailing conditions do not deteriorate further and the Group succeeds in capitalising on the growth opportunities which exist in the business and the marketplace, Italtile should deliver results in line with its current performance in the next reporting period.

Management is satisfied that there is absolute clarity of strategy and structure across the business for the future.

The opportunities for growth are internal and external:

• The Business Optimisation Programme will be rolled out to the retail brand operations. Focus will be on enhancing the human capital portfolio, improving retail excellence and in-store execution, and better analysis of the Group’s value proposition and trading intelligence. Further investment will be made in systems, technology and human resources to achieve the programme’s goals; it is anticipated that full implementation of the programme will take up to three years.
• In light of sustained demand for the Group’s offering and steady growth in market share in traditional and new markets, the business will continue to expand its retail footprint across all three brands. Management’s deliberate strategy is to ensure flexibility of the new store format to match available markets, which will facilitate the network’s growth. The pace of this programme will be determined by availability of suitable sites and franchisees.

Appreciation

The people of Italtile have a strong, entrenched culture of passion for the business, and the pleasing performance reported for the period is a reflection of their enthusiastic and energetic character. The positive response of management and staff to the subdued trading environment, the ever tougher benchmarks, and the stretch targets set within the business is to be acknowledged and applauded.

Rather than being daunted by the challenges faced, this unique team of people is inspired by the opportunities that are presented. Their commitment will be invaluable to the continued success of the business in the year ahead.