Directors' report
PRINCIPAL ACTIVITIES OF THE COMPANY
Retail
Italtile Limited ("Italtile" or "the Company" or "the Group"), headquartered in Bryanston, Johannesburg, is a leading manufacturer, retailer and franchisor of tiles, bathroomware and related products in South Africa.
Franchising
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 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, laminate and vinyl flooring, shower enclosures, paint, home-finishing products, lighting, décor and tools.
As at 30 June 2022, the store network comprised 211 stores, including six webstores (2021: 206 stores including six webstores), situated in Southern and East Africa.
Property investment
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.
Supply chain
The Group's vertically integrated supply chain includes 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, bathroom furniture 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 import services, logistics and foreign exchange for the Group's retail brands as well as ITD and Cedar Point.
Manufacturing
Ceramic Industries (Pty) Ltd ("Ceramic")
The Group holds an effective 98,06% 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.
Ezee Tile Adhesive Manufacturers (Pty) Ltd ("Ezee Tile")
The Group holds a controlling stake in this business, a national manufacturer of grout, paint, adhesive and related products. During July 2021, the Group acquired an additional 26% interest in Ezee Tile from founder and non-controlling shareholder of Ezee Tile, Mike Du Plessis, who retired with effect from 30 June 2021, for a consideration of R120 million, increasing the Group's holding to 98,29% of Ezee Tile (June 2021: 71,54%)
STATEMENTS OF RESPONSIBILITY
The responsibilities of the Group's directors are detailed on this report.
AUDIT AND RISK COMMITTEE
The Audit and Risk Committee report which discusses the responsibilities of this Committee and how these were discharged during the year.
FINANCIAL REVIEW
In the context of the adverse operating environment outlined, our strategic focus remained on the growth levers within our control and influence: constant innovation and investment in delivering an unsurpassed shopping experience for our customers; sales growth; productivity; cost leadership; and partnerships with our people.
The solid results reported for the period are primarily attributable to:
- improved retail excellence disciplines and enhanced efficiencies at key touchpoints (service, range, product differentiation, and availability of stock);
- our strategically integrated business model; and
- our high-performance culture and the enormous contribution of our resilient team.
The Group reported a marginal decline in consolidated turnover, a satisfactory achievement given the high comparable base, which was underpinned by pandemic-related stay-at-home restrictions.
System-wide turnover
System-wide turnover across the Group decreased by 1,9% to R11,3 billion (2021: R11,6 billion). Retail store turnover increased by 2,8%, and manufacturing sales for the year under review increased by 1,8% compared to the previous corresponding period.
Trading profit
Reported trading profit increased by 6,3% to R2,7 billion (2021: R2,6 billion). Like-for-like operating cost growth (excluding profit share and B-BBEE-related costs) declined by 2,1%, with stock control costs, property costs and manpower costs being well-managed.
Earnings per share
The Group's basic earnings per share increased by 8% to 152,0 cents (2021: 140,7 cents), while headline earnings per share increased by 9% to 152,1 cents (2021: 140,1 cents).
Property, plant and equipment
During the year under review, capital expenditure of R398 million was incurred across the retail portfolio on an ongoing retail property enhancement programme and the acquisition of six retail properties, while R350 million was invested across the manufacturing operations on the upgrade of the Samca+ factory, providing a significant strategic advantage for the Group.
Cash and cash equivalents
The Group's cash balance decreased to R431 million (2021: R1 081 million), with material cash flows for the year under review including:
- capital expenditure of R1 024 million (2021: R1 025 million);
- tax payments of R755 million (2021: R738 million);
- acquisition of the non-controlling interest in Ezee Tile for R120 million;
- retention scheme vesting payments of R118 million by Ceramic; and
- total dividend payments of R1 404 million (2021: R559 million).
PROSPECTS
In terms of our growth programme, we have identified the following focus areas for the forthcoming period, aligned with management's KPIs:
- retain and grow market share by optimising our customers' shopping experience at every touchpoint on the end-to-end customer journey. Key areas include people, service, fashion, value and presentation;
- improve recruitment, development and training of our people to achieve their full potential and meet the Group's demanding growth targets;
- drive KPIs that enhance growth, including cost leadership, inventory management, efficiency and productivity;
- continue to roll out new stores, revamp existing stores, and enhance the capacity of our supply chain and manufacturing operations;
- leverage and invest in cutting-edge technology and innovations to entrench our competitive advantage across all our trading platforms and in all our operations;
- capitalise on synergies in the integrated supply chain and opportunities in the external supply chain;
- pursue our ESG journey to enhance our sound credentials as a responsible, safe and sustainable business; and
- cautiously build on our footprint in the rest of Africa, focusing on tested markets where our success is proven.
By consistently investing in the future of our business and providing an unrivalled customer shopping experience, we will position our operations to continue to grow and gain market share. Given the prevailing instability in the global environment, the fragile state of the local economy, uncertain energy pricing and ongoing and unresolved country risks, it is imprudent to provide more specific guidance regarding future performance at this point.
STATED CAPITAL
The authorised share capital remains unchanged at 3 300 000 000 shares of no par value. Issued share capital remains unchanged at 1 321 654 148 shares of no par value (2021: 1 321 654 148).
ORDINARY CASH DIVIDEND ANNOUNCEMENT
The Board declared a final gross cash dividend (number 112) for the year ended 30 June 2022 of 27,0 cents per ordinary share to all shareholders recorded in the share register of Italtile as at the record date of Friday, 16 September 2022. The dividend cover remains at two-and-a-half times.
This final dividend, together with the interim gross ordinary cash dividend of 34,0 cents per share, produces a total gross ordinary cash dividend declared for the year ended 30 June 2022 of 61,0 cents per share.
DIRECTORATE
The details of the directors of the Company are set out in our board of directors.
Changes in directorate
As announced on SENS on 26 May 2022, the following changes were made to the composition of the Board and the Audit and Risk Committee ("Committee"): Ms Alex Motshwanetsi Mathole was appointed as an independent non-executive director with effect from 1 June 2022; Mr Isaac Malevu tendered his resignation as a non-executive director and Chairman of the Committee with effect from 31 July 2022; and Ms Lushane Prezens replaced Mr Malevu as Chairman of the Committee with effect from 1 August 2022. The Board would like to thank Mr Malevu for his contribution and welcomes Ms Mathole.
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.
DIRECTORS' PARTICIPATION IN SHARE INCENTIVE SCHEMES
Directors' holdings under the Share Appreciation Rights Scheme, Executive Retention Plan and Italtile Retention Scheme as at 30 June 2022 are set out in note 35.
DIRECTORS' EMOLUMENTS
All emoluments paid to directors are short term in nature, other than gains on long term share incentive plans, 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.
SUBSIDIARY COMPANIES
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:
| 2022 Rm |
2021 Rm |
||
|---|---|---|---|
| Profits | 1 850 | 1 718 |
CORPORATE GOVERNANCE
The Corporate governance report.
SHAREHOLDERS
An analysis of the shareholdings of the Company appears on analysis of shareholders.
EMPLOYEES
As at 30 June 2022, the Group employed 2 652 employees (2021: 2 613).
SPECIAL RESOLUTIONS
At the AGM of shareholders held on Friday, 12 November 2021, 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.
SHARE SCHEMES
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 who 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; and
- Ceramic Industries Share Retention Scheme, which replaces the Ceramic Industries Equity Incentive Scheme and Ceramic Industries Escrow Scheme, is a mechanism to retain and reward selected high-performing Ceramic Industries executives and senior management.
BORROWING POWERS
In terms of the MOI, the Company has unlimited borrowing powers.
AUDITOR
At the AGM of 12 November 2021, shareholders approved the re-appointment of PricewaterhouseCoopers Inc. as auditor for the 2022 financial year with Mr T Howatt being the individual registered auditor undertaking the audit.
SECRETARY
The Company Secretary is Ms E J Willis, whose business and postal address is:
| Registered office: | The Italtile Building Corner William Nicol Drive and Peter Place Bryanston 2021 |
| Postal address: | PO Box 1689 Randburg 2125 |
| Telephone number: | +27 (0) 11 510 9050 |
| Fax number: | +27 (0) 11 510 9060 |
