In general, unfavourable economic conditions and the large-scale unwinding of the pandemic-related home improvement boom have resulted in a widespread decline in foot traffic and transaction numbers. The impact of constrained disposable income was evident in consumers’ cost-conscious behaviour of buying-down in most product categories; their heightened responsiveness to sales promotions; and increased online research and quote-sourcing. Increasingly, consumers are also diverting disposable income to electricity back-up and generation alternatives, adding further pressure on discretionary spend in the home improvement sector.

In the fight for share of wallet in this competitive market place, the Group continued to be recognised for its long-standing, high-profile brands and reputation for quality and affordable fashion. Margin was absorbed across all business units to support our price conscious customers.

A detailed analysis of the Group’s results is contained in the Chief Financial Officer's report

Notwithstanding the weak economy, our goal was to match the production and sales volumes of the prior year, gain market share and improve profits.

We continued to invest in people and technology across the business to deliver an unrivalled shopping experience and a one-stop solution to customers. Disappointingly, we failed to achieve our goals in the South African businesses, although our East African and Australian operations reported good results.

Total system-wide turnover grew by 1,0% to R11,5 billion (2022: R11,3 billion). Average selling price inflation of 6,7% across the Group for the period partially offset weaker sales volumes.

Like-for-like sales value declined by 0,3% in the retail division. Volumes also decreased slightly in the division, resulting in lower margins.

In the manufacturing division, Ceramic and Ezee Tile’s combined sales grew by 3,7%. In the integrated supply chain import businesses, combined sales of Cedar Point, ITD and DC declined by 4,6%. Both manufacturers and importers employed a deliberate strategy to withhold passing on the full effects of inflationary input costs to customers in light of softer demand and the competitive landscape. As a result, margins declined across the division to support affordability for customers.

Cost leadership is a key discipline and particularly critical in the current inflationary environment. Like-for-like cost growth was 8,4%, driven mainly by increases in fuel and electricity.

Inventory volumes declined from the high levels built up as cover during pandemic-related supply chain delays and pricing volatility, although the Rand value of R1,3 billion remained the same due to currency weakness and increase in inventory in manufacturing.

The Group’s trading profit declined by 14,9% to R2,3 billion (2022: R2,7 billion), heavily impacted by the poor performance of the manufacturing entities, which contributed 34% to profits, down from 40% in 2022. Our manufacturing businesses thrive at full capacity utilisation, and while weak demand was an adverse factor, production volumes also declined due to internal inefficiencies.

In response to the poor performance in the manufacturing business, remedial strategies have been developed and are being executed. These plans include an organisational restructure; actions to capacitate management and the operational team with competencies and skilled individuals; and a back-to-basics plan to refocus on improving systems and management of efficiencies, quality and costs. The Group’s Chief Financial Officer has been seconded to Ezee Tile until June 2024 to oversee operations and bed down improvements in the business. A new Chief Executive Officer has been appointed at Ceramic Industries and, together with the senior executive team, is driving improvement in that business.

While our results failed to meet our expectations, we are cognisant that the largely solid performance was achieved under very difficult circumstances. Contributing positively to this performance are our integrated business model, ethos of partnership and profit-sharing with our people, improved outcomes-based training and overriding drive to deliver an unrivalled shopping experience.

We identified the following performance levers for the review period and have outlined our progress achieved in that regard.

Retail

• Continue to recruit, develop and retain store managers, assistant store managers, warehouse managers and the operations team. Identifying, developing and retaining skilled retail-specialist personnel remains one of our biggest challenges. While natural attrition, including emigration, remained a constant feature, it is pleasing to report that we strengthened our teams in Namibia and Botswana and have started to build the pipeline of local candidates. We recognise that there is room for continued improvement and this will remain a key imperative.
  
  Our improved outcomes-based training continued to build our pipeline and enhance the expertise of our teams and align their understanding and actions with our high-performance culture and service expectations.
• Gain market share by continuously improving the shopping experience and differentiating our offering from our peers by maximising added value. While we competed vigorously through our key focus areas of people, service, range, presentation, fashion, quality and value, little market share was gained.
  
  With the reopening of global travel, our design team was able to attend international trade events, while our procurement specialists were able to connect with existing and new suppliers in Europe and South East Asia, to drive our goal to deliver competitively priced, innovative and fashionable products for our customers.
• Instil retail excellence disciplines at all customer touchpoints. Good progress was made in strengthening our visual merchandising and procurement competencies, which is reflected in an enhanced in-store shopping experience. The surveys that we conduct to measure customer satisfaction delivered a consistent improvement in sentiment, which is rewarding recognition of our ongoing efforts to delight our customers at all touchpoints.
• Drive brand awareness through extensive promotions and improved marketing to retain loyal customers and attract new customers. We continued to improve our digital marketing capability given that more customers initiate their purchases with online research.
• Improve efficiencies in light of input cost pressure. Productivity, which is benchmarked against an increase in sales per person in the retail operation increased, but at a lower rate than product cost-price inflation, primarily due to weaker demand. During the period, we intensified our focus on reducing stock control costs and logistics costs across the business.
• Continued expansion and enhancement of the retail footprint. During the review period, we opened two CTMs and five TopTs and closed two TopTs. We also incorporated new Easy Life Kitchens (“ELK”) stores at three of our existing sites in Gauteng. Thirteen stores were revamped in the year under review, and following the conversion of the final nine stores in the forthcoming period, the Millennial-look format will have been rolled out across the Group.
  
  Following protracted local municipal delays, the multi-brand retail node in Walmer, Gqeberha, which comprises Italtile Retail, CTM and ELK stores, commenced trading on 1 July 2023. The node will expand our national footprint and offers an exciting new shopping experience for local customers as well as those relocating to the northern Garden Route.
  
  Our East Africa operations, specifically Kenya and Tanzania, delivered a good performance, despite disruption in Kenya during the elections and subsequent flooding in both countries. The stores have been renovated to align with the New Generation layout of our South African stores, and benefitted from improvements in retail excellence disciplines, staff restructuring, enhancements to the supply chain (which affords improved supply and exclusivity of products), and growing brand recognition in the region. During the period, our new store opened in Nakuru, Kenya, and is reporting positive results.

Integrated Supply Chain: Manufacturers

• Improve sales volumes. Despite the current adverse economic, social and political environment, we achieved growth in net sales, underpinned by new product launches and margin reduction as costs were absorbed to maintain pricing.
• Improve capacity utilisation and efficiencies across the business units. The manufacturing businesses, specifically Ceramic, benefit from optimal capacity utilisation to achieve maximum efficiencies. Disappointingly, soft market demand and internal inefficiencies resulted in poor capacity utilisation, which had a negative impact on profits.
• Launch additional import replacement products at Gryphon and Samca+. The launch of new categories of products was delayed by technical challenges in bedding down final processes. Following initial difficulties in commissioning the new technology, our team gained better understanding and improved their competencies. It is anticipated that these challenges will be resolved in the first quarter of the new financial year.
• As operations at Samca+ are bedded down, efficiencies are expected to improve. Achievement of installed capacity and expected yields is becoming more consistent as the production team builds competence on the new technology.
• Invest in additional free-standing production capacity at Betta Baths. We temporarily postponed adding capacity at Betta Baths until the new Betta Sanitaryware warehouse is fully operational, as discussed below.
• Full operation of Betta warehouse. Our state-of-the-art Betta warehouse will be fully operational by the end of the first quarter of the new financial year. Commissioning of this bespoke, automated facility was delayed due to the challenges of designing the unique and complex software required for the five-storey facility that will operate 12 robotic vehicles.
• Ezee Tile: completion of the Vulcania plant commissioning and organisational restructure. The commissioning of our new factory in Vulcania and subsequent relocation from Germiston has been more disruptive than anticipated. While several production lines have been commissioned, final commissioning of the full plant and closure of the Germiston facility will only be completed at the end of the first quarter. The organisational structure was revisited and the management team capacitated accordingly. Improvements at the business’s satellite branches is expected as a result of improved delivery from Vulcania.

Integrated Supply Chain: Importers

• Maintain margins through enhanced product procurement and internal efficiencies. Optimising our stock levels, product mix and price ladders are important sales and profit drivers. Current market conditions and fierce competition have left most other importers unable or unwilling to pass on the full effects of cost inflation and exchange rate deterioration to consumers. The reopening of global markets afforded our teams the opportunity to enhance our procurement efforts through leveraging the Group’s buying power and its established supplier relationships to source new fashion and collaborate on improved pricing.
• Improve stock turn of Cedar Point and ITD products. As international supply chains have normalised, the surplus inventory in our import businesses has been sold through and stock levels have returned to normal. Opportunity exists to improve stock turn in the stores through improvement of the vendor managed inventory model and parameters in use at Cedar Point and ITD.
• Distribution Centre to complement local production with imported fashion. The import of fashionable product at improved prices has been facilitated by several factors, including the drastic decrease in shipping rates and product costs from some international markets; improved access to global travel; and changing market dynamics. Accordingly, we have increased the stock holding at our Distribution Centre, complementing our local tile production with imported fashionable ranges.

Group-wide

• Prioritise the key performance indicators that drive growth, including productivity, efficiency, cost leadership and inventory management. There are still opportunities to improve on all our key performance indicators, notwithstanding the weak demand which impacted productivity, efficiency and stock turn metrics in the businesses.
• Leverage and invest in cutting-edge technology and innovations to entrench our competitive advantage across all our trading platforms and in all our operations. Recognising the importance of an omni-channel presence, we continued to invest in web development. We opened a new webstore for the Botswana operation and implemented wide-ranging improvements to the online shopping experience locally.
  
  Across our operations we strive to implement state-of-the-art technology to promote efficiencies, produce world-class products, enhance customer service and reduce our impact on the planet. Most recently, in our manufacturing operations we have introduced leading-edge technology at Samca+ and will be implementing technology innovations in the new Ezee Tile paint plant and Vitro kiln upgrade.
• Improve synergies in the integrated supply chain. The Group’s Transport Management System (“TMS”) is now operational in Cedar Point, ITD and DC and was rolled out to Ezee Tile towards the end of the review period. This innovation has afforded more flexibility in inbound and outbound transport logistics and enhanced efficiencies. A vendor managed system is now also in place in all our integrated supply chain businesses, which has resulted in better in-stocks in the stores and improved customer service.
• Pursue our ESG journey to enhance our sound credentials as a responsible, safe and sustainable business. Aggressively pursue energy projects that will facilitate reduced reliance on the national grid. Our Environmental report outlines in detail our energy journey. In addition to our ongoing programme, we are currently converting 38 stores to hybrid power through a bridging battery solution that will store solar power and reduce reliance on generators during load shedding and infrastructure failure. The solution will decrease our carbon emissions at an affordable pay-back.
• Build our people pipeline to ensure adequate cover of key positions and leverage our outcomes-based training initiatives to enhance depth of leadership. Following a Board strategy session in late 2022, we revisited the organisational structure, with specific focus on succession in all business units. The new human capital programme is designed to achieve sustainable performance through having the required skills in the business and well-defined processes for recruiting and developing new skills. During the review period our focus was on capacitating this programme at Ezee Tile and Ceramic, given the shortage of skills and recent poor performance of those businesses. In this regard, we have recruited key individuals across the business.

This report is followed by a comprehensive evaluation of the performance of the individual business units, with the exception of our investment in associate company, ELK, and the U‑Light business, which are discussed below.

Divisional reports from the Retail brands to Support services

The Group holds a 30% stake in ELK, a leading manufacturer and installer of kitchen, bathroom, vanity, built-in-cupboards, bar and storage design. This investment is aligned with our goal to provide customers with complete specialist solutions in home finishing. There are good synergies between our businesses, with ELK manufacturing furniture for our integrated supply chain, while benefitting from cross-selling opportunities where ELK stores are situated on Group sites.

During the period, margins came under pressure due to increased input costs, including imported components.

The business has a strong pipeline of projects for the first half of the new financial year.

We will continue to explore opportunities to open further ELK stores on our properties; identification and training of suitable franchisees is key to expanding the national footprint.

U-Light

U-Light’s performance remained disappointing and two stores were closed in the period. Further steps are being implemented to reduce losses by this business, which comprises two Company-owned stores, three franchised stores, a webstore and a distribution centre.

Opportunities for growth lie in our strategic focus areas for the forthcoming year.

Improved sales

• Improve execution of our sales strategy including improved brand awareness, complemented by improved ranges and supply from our integrated import and manufacturing businesses.

Operational excellence

• Improve efficiencies in Ezee Tile and Ceramic.
• Enhance the shopping experience for our customers by continuing to improve our ranges, presentation, service and affordable quality.
• Continue to invest in the digital experience.
• Capitalise on opportunities to substitute imported product.

Develop teams

• Recruit for and develop our depth of talent, leadership pipeline and competencies.
• Recruitment and development must continue to address disparities in under-represented groups in the business to meet our transformation goals.

Resource security

• Mitigate against risks associated with power, gas and water supply; set consumption reduction targets; and transition to renewable resources.

Entrench our purpose-driven approach to responsible citizenship

• Continue to contribute positively to our stakeholders and the various communities in which we operate by creating good quality employment; reducing our carbon footprint through our products, practices, properties and plants; and actively participating in constructive stakeholder engagements.

Despite this clear programme and our confidence that operational improvements can be made, we are mindful that the economic environment will determine the financial health of the consumer and the demand in the market. We anticipate continued subdued demand, and this will likely result in our factories not being fully loaded. Without strong volumes and optimal use of capacity, our cost base and profitability will be negatively affected. Furthermore, local inflation is expected to continue to outpace that in competitor markets of India, China, Zambia and Tanzania, which will serve to intensify margin pressure.

We will continue to focus on the growth levers within our control and influence; however, a range of adverse external factors are cause for concern in the period ahead.

• While training and development are key drivers in our business, the persistent lack of specialist skills and the small human capital pool in our market segment are troubling.
• Continued instability of energy supply, deteriorating infrastructure, and increasing levels of crime, corruption and poor government performance are likely to continue to constrain gross domestic product growth and dampen consumer sentiment.
• Sasol has indicated that it could stop supplying liquefied natural gas from Mozambique as early as 2026. The present lack of development of alternative LNG imports is concerning, and the repercussions for Ceramic are serious if alternative bulk gas supply is not commercially available at a viable price. Management is vigorously exploring alternatives, both in the IGUA-SA forum and independently.
• The stagnating economy and socio-political volatility are unlikely to improve in the months leading up to the national elections in 2024, and with central banks forecasting a higher-for-longer interest rate cycle, consumers are likely to remain under pressure.

Despite this adverse outlook, our solid 54-year track record of trading through various turbulent periods, our leading brands, our factories’ latest technology, and our high-performance culture provide opportunities to improve our performance in the year ahead. The long-term dynamics of the housing market remain favourable, and the Board has confidence in the Group’s proven business model and experienced teams.

I would like to thank our team for their commitment and enthusiasm to deliver on our pledge to offer an unrivalled shopping experience for our customers. Despite the challenging operating environment, our people continue to demonstrate their resilience and resourcefulness, which we applaud.

Mr Ravazzotti retired as Chairman on 30 June this year, but remains keenly involved in the business, his mentorship programmes, and preserving our organisational culture. We are privileged to be able to continue to draw on his extensive experience and wisdom in his non-executive role.

I would like to welcome L R Langenhoven as Chairman. We have worked well together over many years, and I look forward to her contribution in her new position.

I would also like to thank my Board colleagues for their counsel and continued support for our strategies to grow the business sustainably.

L A Foxcroft

Chief Executive Officer