PRINCIPAL ACTIVITIES OF THE COMPANY
Italtile Limited ("Italtile" or "the Company" or "the Group"), headquartered in Bryanston, Johannesburg, is a leading retailer and manufacturer of tiles, bathroomware and related products in South Africa.
The Group operates as a franchisor, featuring a streamlined parent operation focused on growing market share and fostering entrepreneurial opportunities through its franchise and joint venture programmes.
The Group is represented via its high-profile branded retail outlets, Italtile Retail, CTM, TopT and U-Light, which cater to homeowners across the income spectrum, holding appeal for market segments ranging from the premium upper end to entry level consumers. These stores are situated on high-visibility sites and/or close to previously underserviced markets, and their comprehensive offerings position them as one-stop solution destinations. The Group also has an online presence, with webstores operating for all retail brands and across multiple territories. Ranges include ceramic and porcelain wall and floor tiles, sanitaryware, bathroom furniture, brassware, fittings, accessories, laminated wooden flooring, vinyl flooring, shower enclosures, paint, home-finishing products, lighting, décor and tools.
As at 30 June 2020, the store network comprised 198 stores, including six webstores (2019: 189 stores and five webstores), situated in Southern and East Africa.
Underpinning the retail network is an extensive property portfolio. The Group derives important strategic advantage by supporting its brands with high-profile prime sites that enhance Italtile's positioning as a destination retailer. The Group's manufacturing operations comprise well-maintained state-of-the-art factories which are supplied with high-quality raw materials sourced from productive quarries in close proximity to the plants.
The Group's vertically integrated supply chain comprises International Tap Distributors ("ITD"), an importer and distributor of brassware and accessories, and Cedar Point, an importer and distributor of sanitaryware, laminated and vinyl boards, shower enclosures, cabinets and décor. The Group holds a controlling interest in both of these businesses. ITD and Cedar Point service the Italtile Retail, CTM and TopT retail network.
The Group's Distribution Centre, which has facilities in KwaZulu-Natal and the Western Cape, sources imported products and provides warehousing and distribution facilities to CTM, Italtile Retail and TopT. It is also responsible for arranging logistics and foreign exchange for the Group's retail brands as well as ITD and Cedar Point.
Ceramic Industries (Pty) Ltd ("Ceramic")
The Group holds a 95,47% stake in Ceramic, its largest supplier of tiles, sanitaryware and baths. Ceramic delivers tactical advantages by supporting the Group's growth programme through supply of local high-quality, affordable products. This business contributed R325 million (2019: R418 million) to Group profit after tax for the full year.
The Group holds an effective 71,54% strategic stake in this business, a national manufacturer of grout, paint, adhesive and related products. The business reported growth for the period, contributing R48 million (2019: R39 million) to Group profit after tax for the full year.
STATEMENTS OF RESPONSIBILITY
The responsibilities of the Group's directors are detailed in Directors' responsibility statement.
AUDIT AND RISK COMMITTEE
The Audit and Risk Committee report discusses the responsibilities of this Committee and how these were discharged during the year.
The financial results as detailed below, were adversely affected by the global coronavirus pandemic and the related lockdowns in various territories related to such. The lockdowns commenced in the fourth quarter of the year under review and have persisted since. During this time, the Group incurred losses as it was unable to trade and profits remained suppressed thereafter as activities resumed incrementally with the phased relaxation of regulated restrictions. To date, the pandemic has not had a materially adverse effect on collection of receivable balances due to the Group, no material impairments directly attributable to the pandemic have been recorded, and the Group remains a robust going concern with positive prospects for growth.
System-wide turnover across the Group decreased 7% to R9,3 billion (2019: R10,0 billion). Retail store turnover decreased 3,9%, and manufacturing sales for the year under review decreased by 8,8% compared to the previous corresponding period.
Reported trading profit decreased 16% to R1,5 billion (2019: R1,8 billion). Included in the trading profit was an impairment charge of R16 million in the year under review, details of which are provided below. Trading profit margins in the retail and manufacturing business were adversely impacted in the lockdowns as detailed above, but prior to such had shown improvement as operating costs were well maintained and production efficiencies improved.
Earnings per share
The Group's basic earnings per share decreased by 24% to 78,3 cents (2019: 102,6 cents), while headline earnings per share decreased by 22% to 79,2 cents (2019: 101,8 cents).
Earnings per share is impacted by a once-off IFRS 2 charge of R39 million. During the year under review, 26,4 million shares were issued to a wholly owned subsidiary of Yard Investment Holdings Proprietary Limited for a net consideration of R304 million. The transaction took place in accordance with the Group's strategic intent to improve its BBBEE credentials and resulted in a once-off charge of R39 million calculated in accordance with IFRS 2 Share-based Payment.
Excluding the impact of this charge, adjusted earnings per share and adjusted headline earnings per share decreased 21% and 19% respectively.
Property, plant and equipment
The estimated current market value of the property portfolio increased to R4,3 billion (2019: R3,8 billion). During the year under review, capital expenditure of R274 million was incurred across the retail portfolio on an ongoing store upgrade programme and the acquisition of five retail properties, while R180 million was invested across the manufacturing operations on plant, warehouse and equipment upgrades.
During the year under review, a decision was made by the Group to perform an upgrade of the manufacturing equipment and machinery at its SAMCA Floor tile factory. The upgrade will result in the replacement of a significant portion of the equipment and machinery at the factory. Efforts have been made to identify possible repurposing or move of affected components to other factories, as well as to dispose of those components which could not be used elsewhere.
In anticipation of the upgrade, all operations at the factory were ceased towards the end of the period under review. Equipment and machinery with a carrying amount of R16 million as at 30 June 2020 has been impaired as a result, as these components have been deemed to have negligible recoverable amounts as they cannot be reused elsewhere or sold to third parties.
Cash and cash equivalents
The Group's cash balance decreased to R860 million (2019: R1,2 billion), with material cash flows for the year under review including:
- capital expenditure of R614 million;
- tax payments of R416 million;
- own share purchases totalling R243 million; and
- total dividend payments of R1 481 million.
The consequences of the coronavirus pandemic will be evident for the foreseeable future. Given the weak underlying structural fundamentals, the economy is likely to struggle to recover, even after all risk-adjusted restrictions have been lifted. Unemployment and personal indebtedness will continue to rise and disposable income will remain severely constrained. In light of the economic uncertainty and possible health risks, consumer confidence and spend will be fragile. We anticipate that semblances of traditional consumer behaviour will only resume once the pandemic subsides substantially.
Our clear challenge will be to continue to optimise on improvements made in our business to extract growth and gain market share.
- We are better structured operationally to reduce overhead costs across the business.
- The heightened emphasis on the joint venture store model will afford improved profitability and oversight.
- We will entrench and grow our market leadership through our high-profile, trusted brands and continue to invest in new and upgraded stores and manufacturing plants.
- Technological innovation will remain a key driver of growth.
In terms of the forthcoming financial year and the external environment, we anticipate the first six months will be very difficult while lockdowns persist. We are optimistic that the second six months commencing 1 January 2021 will be more robust, particularly since the comparison will be against five months of trading in FY2020. Our expectation is that the Group will deliver positive sales and profit growth in the first half of the new financial year and comparatively stronger sales and profits in the second half.
The authorised share capital remains unchanged at 3 300 000 000 shares of no par value. Issued share capital increased as a result of the BBBEE ownership transaction detailed above to 1 321 654 148 shares of no par value (2019: 1 295 254 148).
The Board declared a final gross cash dividend (number 108) for the year ended 30 June 2020 of 10,0 cents per ordinary share to all shareholders recorded in the books of Italtile as at the record date of Friday, 18 September 2020. The dividend cover remains at two and a half times.
DIRECTORS AND OFFICERS
The details of the directors of the Company are set out in Our Board of directors of this report.
As announced on SENS during the course of the year, the following changes were made to the Board:
- Ms Nomagugu Mtetwa resigned as an independent non-executive director with effect from 31 August 2019;
- Ms Ndumi Medupe resigned as an independent non-executive director with effect from 14 November 2019;
- Ms Zizipho Nyanga was appointed as an independent non-executive director with effect from 1 June 2019, and subsequently resigned with effect from 25 March 2020; and
- Mr Isaac Malevu was appointed as an independent non-executive director with effect from 25 March 2020.
In accordance with the Company's MOI, Mr G A M Ravazzotti, Ms S M du Toit, Mr S G Pretorius and Ms N P Khoza retire by rotation, and being eligible, offer themselves for re-election at the forthcoming AGM. Further, in accordance with the Company's MOI, the appointment of Mr I N Malevu as director of the Company is to be confirmed at the forthcoming AGM.
DIRECTORS' SHAREHOLDING AND OTHER INTERESTS
Except for the long-term incentive schemes detailed below, the Company was not party to any arrangement during the year or at year end, which would enable the directors or officers, or their families, to acquire benefits by means of acquisition of shares in the Company.
Other than disclosed in note 35, none of the directors or officers of the Company had any interest in any contracts which significantly affected the affairs or business of the Company or its subsidiaries during the year.
It is Company policy that all directors (and employees who have access to price-sensitive information) may not deal directly or indirectly in the shares of the Company from the end of a reporting period until publication of the interim results or annual profit announcement.
The directors' beneficial and non-beneficial interest in the stated share capital of the Company at the reporting date is set out in note 35. Refer to the SENS announcement on 7 September 2020 for details of change of interests between 30 June 2020 and the date of this IAR.
DIRECTORS' PARTICIPATION IN SHARE INCENTIVE SCHEMES
Directors' holdings under the Share Appreciation Rights Scheme and Executive Retention Plan as at 30 June 2020 are set out in note 35. Refer to the SENS announcement on 7 September 2020 for details of change of interests between 30 June 2020 and the date of this IAR.
All emoluments paid to directors are short term in nature, other than gains on exercise of share options, and contributions to medical aid and provident fund.
The remuneration of both executive and non-executive directors is determined by the Remuneration Committee. Other benefits include once-off benefits paid and the fringe benefit value of Company cars for executive directors, and fees for services rendered by non-executive directors or as otherwise noted. Refer to note 35 for detailed disclosure relating to directors' remuneration.
Details of the Company's interest in its subsidiaries are set out in note 37.
The Company's interest in the profits or losses after taxation and the non-controlling shareholders' interest of its subsidiaries (direct and indirect) is:
|Profits||1 012||1 261|
The Corporate governance report is set out here.
An analysis of the shareholdings of the Company appears here.
As at 30 June 2020, the Group employed 2 609 employees (2019: 2 545).
At the AGM of shareholders held on Thursday, 14 November 2019, three special resolutions were approved by the requisite majority of votes, namely: authorising the Company to purchase its own shares; authorising the Company to provide financial assistance to related and inter-related entities and approving the Company's non-executive directors' fees.
Full details of the special resolutions passed will be made available to shareholders on request.
Details related to share schemes operated by the Group are disclosed in note 6. The schemes include:
- Staff Share Scheme for all employees of the Group and its franchisees that meet certain qualifying criteria;
- Share Appreciation Rights Scheme in accordance with which selected directors and employees of the Group will receive a conditional right to receive a share award as determined by the rules of the plan and scheme;
- The Italtile Retention Scheme, which replaces the Executive Retention Plan, is an additional mechanism, over and above the SARS, to retain and reward selected employees and directors of the Group;
- Ceramic Industries Equity Incentive Scheme, which is used to incentivise senior management of Ceramic Industries on long-term profitability; and
- Ceramic Industries Escrow Scheme, which is a mechanism to retain and reward selected high-performing Ceramic Industries executives and senior management.
In terms of the MOI, the Company has unlimited borrowing powers.
At the AGM of 14 November 2019, shareholders approved the appointment of PricewaterhouseCoopers Inc. as auditor for the 2020 financial year (replacing EY) with Mr T Howatt being the individual registered auditor undertaking the audit.
The Company Secretary is Ms E J Willis, whose business and postal address is:
|Registered office:||The Italtile Building
Corner William Nicol Drive and
|Postal address:||PO Box 1689
|Telephone number:||+27 (0) 11 510 9050|
|Fax number:||+27 (0) 11 510 9060|