Environmentalreport

OVERVIEW

Italtile is committed to fighting for the rights of our customers to have a beautiful home, which means not only our places of residence but also the communities and natural environments we operate in. A beautiful home is therefore one which is economically sustainable while sympathetically addressing social and environmental challenges. The Group strives for sustainability by addressing the impact it has on the environment, increasing the eco-efficiency of the business, and creating or sourcing products that enable our customers to live sustainably.

RETAIL AND SUPPLY CHAIN OPERATIONS

Our retail and supply chain businesses strive to comply with eco-friendly practices where possible.

During the year under review, a number of initiatives were implemented in our ongoing endeavour to reduce the Group’s environmental impact.

PRIORITIES AND GOALS 2020 – 2021

The table below outlines our scorecard against the priorities and goals we set ourselves for 2020 – 21.

SCORECARD

Implement the renewable energy roll-out plan (grid-tied solar systems) to stores.

Continue the conversion of stores to LED lighting with the aim of converting all CTM stores by 2022. Product to be supplied by U-Light.

Automate various processes in stores and improve functionality of mobile scanners (particularly in the warehouse/dispatch areas of stores), to achieve reduced paper consumption and wastage.

Ongoing product sourcing and innovation (water and energy efficient products), including the EcoTec range from Ceramic.

Grow awareness of our wide range of environmentally sensitive products.

New store builds will prioritise optimal use of natural light, solar technology, new-generation lighting, water-saving taps, rain water harvesting and environmentally sensitive building materials. Gardens in all new stores will comprise indigenous, endemic and water wise plants to reduce irrigation requirements

MAJOR ACHIEVEMENTS 2020 – 21

Energy management

A detailed assessment of the retail operation’s electricity consumption was conducted by a professional service provider. Based on the assessment performed, the Group’s estimated electricity consumption for the year was 130,3 GWh. The Group is actively working to reduce its reliance on electricity from the national grid and has initiated a number of projects to improve its energy efficiency.

The Properties division has collaborated with a solar energy provider to upgrade, maintain and operate the existing 15 solar photovoltaic (“PV”) systems in our stores. An additional 21 stores have been fitted with solar PV systems under a power purchase agreement. These stores are now less dependent on electricity from the national grid and make use of a clean source of energy. Over the past year, 506 MWh of power was consumed from the solar PV systems in our retail stores.

There has been a continued focus on the conversion of the lighting in our stores to more sustainable LED lighting. All of the TopT stores have been converted, while 12 of 14 Italtile stores and 81 of 93 CTM stores have been converted. External lighting masts that run purely on solar with a battery back-up are being investigated, with CTM Empangeni currently serving as a test site. Based on the initial success of this test case, these lights will now be installed at Ezee Tile Adhesive’s new factory in Brakpan, Gauteng.

Water management

Water tanks for harvesting rain water continue to be installed at all of the Group’s new developments. Where practicable, retrofitting of tanks at existing stores has also commenced. Gardens at new stores are landscaped with indigenous, endemic and water-wise plants to reduce the volume of water required in irrigation, along with automated irrigation systems to prevent overwatering. Where possible, boreholes are installed for alternative water supply in new developments.

Green buildings

The Group’s Properties division strives to ensure that all new store buildings are as environmentally sustainable as possible. Where practicable, new stores are designed to include eco-friendly features: Gardens are indigenous, endemic and as water-wise as possible, while not compromising on the beauty of the gardens. The entire building is fitted with LED lighting which has a longer life span and consumes less power, while affording the customer a better shopping experience. The roof design incorporates a combination of clear and opaque polycarbonate sheets to facilitate an optimal level of natural light. These polycarbonate sheets allow for up to 90% light transmission while simultaneously blocking 99.9% of harmful UV radiation. The result is a well-lit environment that reduces energy consumption and saves on electricity costs.

2021 – 22 PRIORITIES AND PROSPECTS

Water management

Water filtration systems will be investigated in properties with boreholes in an effort to provide safe drinking water to our stores. Rain water will continue to be used for irrigation in our gardens.

Waste management

The Properties division is reviewing alternative ways to deal with the waste during construction. The aim is to separate all waste generated during construction and ensure it is all recycled. This will be implemented and trialled at CTM Mthatha’s new store in the period ahead.

Energy consumption

The focus for the upcoming year will be to complete the installation of LED lighting at CTM and Italtile stores. Installation of PV systems at a further 20 sites is currently being investigated. There is also ongoing research for more energy efficient lights in an effort to reduce our electricity demand.

Green buildings

We are constantly exploring alternative eco-friendly materials for construction purposes. A specific focus is on how we can use recycled materials as an alternative. Energy efficient equipment and electronics will also be prioritised for all new sites, such as inverter drive technology being implemented to air-conditioning systems to reduce energy consumption.

Targets and reporting

A key priority for the new year will be to formalise the targets set for key environmental focus areas. There will also be a continued effort to improve the measurement and reporting of all environmental data.

MANUFACTURING CERAMIC INDUSTRIES

MAJOR ACHIEVEMENTS 2020 – 21

Product innovation

With efforts to make environmental responsibility one of our top priorities, the EcoTec tile was developed by Ceramic Industries with the following positive environmental benefits in mind: less energy used for firing; less water used for production; the tile is made with 10% fewer natural resources; less packaging is used for the final product and the lighter product consumes less fuel to transport.

Energy management

Ceramic’s manufacturing operations are underpinned by environmentally friendly processes. This past year, the factories managed to increase production output without increasing the greenhouse house gas (“GHG”) emissions from combustion and electricity sources per unit. The reduction in emissions per unit can be attributed to improved technological advances in our factories such as heat recovery systems, resource reuse and recycling, water treatment, as well as the new EcoTec tile. The EcoTec Tile project commenced in July 2020 and there has already been a significant improvement in energy consumption, leading us to investigate a potential section 12L energy efficiency incentive.

The solar panels fitted at our factories have reduced our consumption of electricity from the grid. Over the years Ceramic has also invested in technology and robots within the process, which have improved productivity and reduced energy use. Other energy efficient changes in the factories include the installation of light motion sensors and the conversion of halogen and fluorescent light bulbs and fittings to LED lights in an effort to reduce energy consumption and costs whilst improving lighting.

Water management

2021 – 22 PRIORITIES AND PROSPECT

Ceramic is planning to install a 3 MWp rooftop solar system at the Vereeniging factories which is expected to save around 4500 tons CO₂ emissions per year.

GROUP CARBON FOOTPRINT

Context

The 2021 financial year carbon footprint analysis focused on the main emitters within the Group in South Africa. These emitters are the manufacturing entities (Ceramic and Ezee Tile) and the retail entities (Italtile Retail, TopT, CTM and U-Light). The reported footprint results consist of the following emissions:

direct emissions from fossil fuels and manufacturing processes (Scope 1);
indirect emissions from purchased electricity (Scope 2); and
indirect emissions associated with activities supporting the business entities (Scope 3), which includes contractor logistics, business travel, water and paper.

The emissions associated with the Group’s activities were calculated to align with South African legislative requirements. Scope 1 emissions are determined according to the National GHG Emissions Reporting Regulations as issued by the Department of Forestry, Fisheries and the Environment (“DFFE”) and the Carbon Tax Act No 15 of 2019. Scope 2 emissions are based on Eskom’s latest grid emission factor. The Scope 3 emissions are determined in accordance with the United Kingdom’s Department for Environment, Food and Rural Affairs (“DEFRA”) guidelines. Generally, all calculations align with The Greenhouse Gas Protocol and ISO 14064 standards.

Overview of the FY21 carbon footprint results

The image illustrates each emitting entity’s contribution to the overall footprint of 435 279 tCO₂e which consists of Scope 1, Scope 2 and selected Scope 3 emissions.

Italtile's head office and showroom in Bryanston, Johannesburg.

The following image illustrates the breakdown of the Group’s emissions based on the various source categories. In this breakdown “mobile” represents sources such as forklifts and fleet vehicles. The specified fuels (i.e. burner, diesel, paraffin, petrol and Sasol gas) all fall under the classification “stationary combustion” emission and are all Scope 1 emission sources. The Group collectively consumed 3 243 887 GJ of energy from these mobile and stationary fuels. Electricity is a Scope 2 emissions source.

The selected Scope 3 emissions sources are: “upstream logistics” representing emissions from service providers transporting goods from source to factory / facility and “downstream logistics” which represent the transport of goods from factory / facility to end user. The remaining categories represent indirect emissions resulting from business travel, paper and water use.

FY21 is the first year in which emissions from inter-business transfers (“IBTs”) were assessed as part of the footprint. The IBT emissions are excluded when comparing FY21 emissions to previous years (to ensure an objective assessment), but will be incorporated in future year-on-year assessments. The specific contribution of IBTs is highlighted in red in the figure below (2% to the overall footprint).

The figures in the graph present a comparison of results for the FY19, FY20 and FY21 years. The general observable increase in emissions from FY20 to FY21 can mainly be attributed to the closure and subsequent restarting of operations in line with pandemic-enforced nationwide lockdowns, and the resultant increase in activity of the Group’s manufacturing and retail operations.

In a more normalised comparison, i.e. between the FY19 results and FY21 results, there is an overall increase of 2.3% in the Group’s footprint.

The observed increase in FY21 emissions compared to FY19 can be attributed to changes in the following areas:

downstream logistics (+1.6% overall contribution) – the manufacturing entities have shown an increase in production output which in turn increased the emissions associated with downstream logistics;
retail electricity (+0.9% overall contribution) – additional stores were added since FY19. This includes the introduction of a new brand, U-Light;
upstream logistics (+0.4% overall contribution) – FY21 observed an increase in imported shipments from overseas suppliers in line with increased demand experienced in FY21; and
process (+0.4% overall contribution) – Ceramic Industries reported a significant increase in annual production output. However, it is important to note that the increase in emissions is much lower that the increase in production.

The positive impact of interventions

A very positive observation is that the Group’s tile factories in South Africa managed to increase their production output without increasing GHG emissions from combustion and electricity sources. The presented figure illustrates how the factories have improved energy efficiency over time through various initiatives including the installation of new technologies; refining production efficiency (recycling waste clay and water back into the process, improving slip density, reducing gaps and fired waste); improving logistics efficiency (optimising load and schedules); and the introduction of EcoTec tiles which deliver the same square metre coverage using thinner tiles but require fewer raw materials and less energy to manufacture and consume less packaging and fuel to transport.

Manufacturing energy efficiency improvements have been independently assessed from FY16 up to FY20 and enabled the Group to claim a total of R137 million in income tax deductions under the section 12L tax incentive. We are presently quantifying claims for the FY21 period and further improvements are expected for FY22, specifically linked to the new installations and upgrades being implemented at Ceramic’s Samca Plus factory.

The Group is exploring methods of tracking GHG emissions against normalising factors, such as tiles produced, or products sold, to enable an objective view of year-on-year changes in emission intensities. Normalisation against production output has been selected as an appropriate driver for assessing manufacturing performance since most of the emissions are generated either as a direct result (for example stationary combustion) or indirect result (for example transport of manufactured goods) of the production process. Similarly, sales were selected as driver for the retail stores since ~70% of the retail footprint is linked to the transport of goods. The example below indicates how the relevant emission intensities reduced (i.e. less tCO₂e emitted per driver) from FY20 to FY21.

Assessment of year-on-year changes based on normalised emissions intensities

It must be noted that some of these observed improvements can be linked to lower manufacturing performance due to factory shutdowns during the Covid-19 lockdown period, therefore the changes from FY19 to FY20 were also included for objective comparison. Inclusive of the changes from FY19 to FY20, the comparison still shows positive improvements linked to manufacturing, while the significant improvement in retail emissions can be linked to the significant increase in sales during the period.

COMPLIANCE

Environmental incidents or complaints

Over the past year, there have been no material environmental complaints received nor any environmental incidents that have taken place in the manufacturing, retail or supply chain operations.

Carbon tax

The payment date for carbon tax is scheduled annually for the month of July and the recent 2020 tax period covered the emissions from 1 January 2020 to 31 December 2020. Presently the carbon tax applies to selected activities covering Scope 1 emissions and only directly affects the Group’s manufacturing entities, resulting in an estimated carbon tax exposure of R19.9 million (based on 156 360tCO₂e taxable emissions) for the tax period. While this is the full liability determined at R127/tCO₂e, the final tax liability for the Group was reduced to R4.26 million through the utilisation of several carbon tax allowances (including the Basic, Trade Exposure, Performance Benchmark and Carbon Budget).

Carbon tax also presents an indirect exposure risk through increasing the costs of purchased fuels, electricity and general services. The first phase of the tax (ending 31 December 2022) already includes a fuel levy component in the purchasing price of petrol and diesel. The tax is designed not to directly increase the cost of Eskom’s electricity during Phase 1, but Phase 2 may see some costs being passed through to consumers.

The implementation of carbon tax thereby clearly supports the uptake of interventions mitigating direct emissions (Scope 1), but it also highlights the importance of understanding the impact of indirect emissions (Scope 2 and 3) and the subsequent risks of associated costs being passed through to the Group by suppliers and contractors. Some additional details on the Group entities are therefore presented below.

It must be noted that an independent expert was engaged to assess the Group’s carbon tax liability and GHG emissions reporting requirements. All activity classifications, thresholds, emission factors, energy contents and calculations are based on the guidance provided by the National Greenhouse Gas Emissions Reporting Regulations and the Carbon Tax Act No 15 of 2019.

Retail

The retail component of the business has the potential to be impacted by carbon tax due to the use of back-up electricity generators. An analysis of installed capacities across all the stores in the Group found that levels are currently below the 10 MW threshold, thereby exempting the retail business from the tax under the current conditions. The retail business will continue to investigate ways to reduce reliance on diesel powered generators while still ensuring that there are measures in place to improve our energy security. This will include continued roll out of solar PV, and use of UPS systems and batteries to store energy where economically viable while avoiding the risk of incurring further tax related liabilities.

Ezee Tile

An analysis of Ezee Tile’s operations found that the thermal input capacities of the equipment installed in the South African operations exceed the 10 MW threshold and, accordingly, the business has reported on the GHG emissions. Ezee Tile further incurs a carbon tax liability linked to GHG emissions emanating from stationary fuel combustion, resulting in levy of R126 130 being paid for the 2020 tax period. Ezee Tile is pursuing energy efficiency projects and investigating opportunities to claim allowances where possible to decrease this liability.

Ceramic Industries

Ceramic’s operations are a significant consumer of natural gas which is utilised to dry and fire ceramic products. This activity exceeds the prescribed carbon tax and GHG emissions reporting thresholds and resulted in Ceramic paying a carbon tax levy of R3 761 809 and Sphinx Acrylic Bathroomware paying a levy of R376 150. These manufacturing entities are currently pursuing energy efficiency projects as well as exploring available carbon tax allowances (including the Performance Benchmark and Carbon Budget allowances) to reduce the overall taxable emissions as far as possible.

From the quarry to the home, EcoTec provides benefits throughout the value chain.