2023INTEGRATED ANNUAL REPORT
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Environmental report

OVERVIEW

As a business, we have a moral obligation to protect our planet for future generations. In this light, we are committed to fighting for the rights of our customers to have a beautiful home – both in their places of residence, and also in the communities and natural environments we operate in.

The Group strives for sustainability by addressing the impact it has on the environment, improving its eco-efficiency, and developing or procuring products that help our customers to live sustainably. We are committed to the Sustainable Development Goals (SDGs) of the United Nations, which urge businesses to contribute to a more sustainable future for all. The Group complies with the UN Global Compact principles and obtains confirmation of compliance from significant external suppliers. This report demonstrates how we strive to advance sustainable development in our business in South Africa, by minimising negative impacts and maximising positive impacts on people and the planet.

In the year under review, a range of initiatives were implemented to advance our ongoing endeavour to reduce the Group's environmental impact.

Retail and integrated supply chain operations

Awareness

Our retail and supply chain businesses are constantly considering ways to operate more sustainably. This includes encouraging eco-friendly behaviour such as recycling, efficient use of water and energy, implementation of green technologies and eco-sensitive construction practices. Responsibly sourcing our products is also a key priority.

Improved monitoring through Smart Meters

The Group has initiated a Smart Meter project that records the consumption of water and electricity in real time. The meters provide greater clarity on consumption behaviour in stores and assist with early detection of resource waste. This project minimises reliance on municipal readings and mitigates against billing errors due to incorrect meter readings. To date, meters have been installed in 47 stores.

Energy management

The Group is actively working to reduce its reliance on electricity from the national grid and increase its use of clean energy sources:

  • a total of 43 retail stores have been fitted with solar PV systems since the commencement of the programme in 2021. The Group has three entirely off-grid properties that the Properties division is using as test cases to determine the feasibility of rolling out similar systems. The most recent installation is CTM Protea Glen, which was completed in the review period;
  • 12,32% of the total energy consumed by our retail stores is now supplied by solar energy, a 1,32% improvement from the prior year; and
  • the Properties division is implementing a recently developed solar PV strategy for the Group and rolling out battery backup technology to the retail division. This will include the conversion of grid-tied solar systems to a hybrid system in an effort to reduce scope 1 carbon emissions from generator usage.
Water management
  • Climate change, deteriorating infrastructure and poor municipal service delivery levels in the country are increasingly impacting on our business's access to water. The Group continues to investigate and implement measures to mitigate this potential risk to our operations. Boreholes are installed on all new-build sites in an effort to reduce dependence on the municipal supply; the water is tested with each installation to determine the quality, but usage is restricted to irrigation and sanitation to alleviate any safety concerns. Water meters are used to measure and encourage responsible consumption.
  • We will continue to install boreholes on our owned properties to supplement flushing of toilets, fulfil irrigation requirements and connect to evaporative coolers.
Waste management

The Group recognises the importance of a circular economy and continues to expand efforts to reduce, reuse or recycle all waste generated by the business. Our existing waste management suppliers have been contracted to establish a recycling programme in our stores. During the period, six additional Gauteng stores received installations and are now able to track their waste generated and recycled. Those Gauteng stores with established recycling systems generated 7,04 tonnes of waste, 67% of which was recycled.

Where feasible, the recycling programme will continue to be rolled out to Gauteng stores. In addition, the Properties division actively manages building waste during construction.

Green buildings

We are constantly exploring alternative eco-friendly building materials, energy efficient equipment, and optimal waste management practices in our construction projects. A recent innovation is the installation of external sensor lights in all new-builds.

Manufacturing operations

CERAMIC INDUSTRIES

Water management
  • Ceramic uses borehole water for production purposes. In the year under review, we started to intensify consumption tracking, ensuring that all flow meters on our sites are operating efficiently. The Betta Baths factory has successfully converted from municipal to borehole water. Customised filters to recycle the water will be commissioned in the new financial year and a reduction of 20% in water consumption is anticipated with effect from August 2023. Ceramic's existing water treatment facilities at its other factories in Vereeniging and Hammanskraal have operated using recycled water for several years. Regular maintenance is performed to ensure efficiency of the systems.
  • Samca Wall and the factories at Hammanskraal will further reduce their consumption of municipal water by redirecting water from their Reverse Osmosis (RO) tanks for domestic use in the factories. The filtered water in the tanks is not suitable for manufacturing purposes and will therefore supply other water requirements in the factories.
Energy management
  • Ceramic has invested in solar power to reduce consumption from the grid. The following solar systems were installed and commissioned in this reporting period: Gryphon factory, Vereeniging (2 200 kWp); Samca Wall factory, Hammanskraal (0,6 mWH); Samca+ factory, Hammanskraal (1 mWH) and Betta warehouse, Krugersdorp (750 kWp).
  • Ceramic employs heat-recovery systems that capture heat from the kiln for use in the dryers, thereby substituting consumption of natural gas. To optimise efficiency of the system, an IoT-based platform was recently introduced to monitor heat recovery uptime and downtime.
  • In the year ahead, solar projects will be rolled out to Samca+ (596 kWp) and Samca Wall (1 450 kWp).
Environmentally sensitive products

Ceramic launched its EcoTec product range in 2020. These tiles are produced using recycled heat and water in the manufacturing process; they are made using 10% fewer resources; consume less packaging materials and cost less to transport. The Vitro, Samca Wall, Samca+ and Gryphon factories all employ EcoTec technology.

Quarry rehabilitation

Ceramic's policy is to minimise its disruption to the environment through concurrent rehabilitation during mining activities. During the year, three quarries in Gauteng were concurrently rehabilitated. The intention is also to rehabilitate end-of-life quarries for other suitable purposes.

Green buildings and production efficiency

Ceramic is currently replacing the original Vitro NCI kiln with a new kiln, which will assist with waste reduction and achieve efficiency on gas and electricity consumption. The construction of the new section at the factory will encompass clear roof sheets for penetration of natural light and energy saving lights.

EZEE TILE

Vulcania plant

The construction of the new primary plant in Vulcania, Gauteng factored in energy efficient environmentally sensitive practices, equipment and processes where feasible.

Vulcania energy and water management
  • A 1 140 kWp solar system was installed on the roof of the factory to reduce dependence on the electricity grid.
  • A water recycling plant will be fully commissioned, which will reduce the municipal water consumption in the paint production process.
Ezee Tile factories
  • Waste recycling processes at the Ezee Tile factories will be formalised.
  • Product innovation will be central to reformulating the composition of our paint products to reduce reliance on ammonia.
  • Air quality will be a focus, with improved dust suppression practices being targeted at all manufacturing sites.
  • A TMS will be implemented at all branches to improve route planning and load optimisation, thereby reducing downstream emission intensity on transport of goods to customers.

CARBON FOOTPRINT


The 2023 financial year carbon footprint analysis focused on the main emitters within the Group, being the manufacturing and retail entities. 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 usage.

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. Scope 2 emissions are based on Eskom's latest grid emission factor. The scope 3 emissions are determined in accordance with the UK'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 2023 CARBON FOOTPRINT ASSESSMENT
 

Results and observations

The carbon footprint assessment categorised results into three main entities: Ceramic Industries, Ezee Tile and Retail stores (consisting of the CTM, Italtile Retail, U-Light and TopT stores and retail distribution centres owned by the Group). The images below illustrate each entity's contribution to the overall footprint of 405 749 tCO2e which consists of scope 1, scope 2 and selected scope 3 emissions.

2023 emissions per entity (tCO2e and percentage of total)

2023 emissions per scope tCO2e and percentage of total

The image below gives a breakdown of the Group’s emissions based on the various source categories. In this example ‘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. These are all scope 1 emission sources while 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 facility and ‘Downstream logistics‘ which represent the transport of goods to customers as well as the movement of goods between different retail stores. The remaining categories represent indirect emissions resulting from business travel, paper and water use.

Breakdown of FY2023 emissions (tCO2e and percentage of total)

The figures below present a comparison of results for the 2022 and 2023 financial years.

Group annual carbon footprint – emissions (tCO2e)

SIGNIFICANT RESULTS

Stationary fuel (scope 1) and Electricity (scope 2)

Emissions from electricity use is 34% of the Group’s overall footprint. Year-on-year changes in emissions associated with electricity consumption contributed 0,1% towards the overall movement in the Group’s carbon footprint. The specific year-on-year change of electricity-related emissions (isolated from the rest of the footprint) amounts to a 0,3% increase. This change is the result of various positive and negative impacts. The most significant contributing items being:

  • Eskom’s grid emission factor increased by 1,28% which in turn increased the emissions associated with every kWh of electricity the Group purchased from Eskom and local municipalities;
  • load shedding increased from an estimated 93 days in 2022 to 324 days in 2023. This impact can be observed in the significant increase in onsite diesel consumption (see figure below). The increase in diesel usage manifests as an increase in the scope 1 Stationary category;
  • Ezee Tile increased its electricity consumption by 7,29% through the addition of the new Vulcania factory which is more automated than the predecessor Germiston plant. Delays were experienced in commissioning of its 1 140 kWp solar system; and
  • as a whole the Group managed to increase its use of solargenerated electricity by 153% (year-on-year) to the extent that 4,76% (prior year: 1,88%) of its electricity consumption is covered by renewable energy. This increase in electricity from solar generation is illustrated in the image.

Diesel consumption (litres)

Electricity from solar generation (kWh)

Upstream logistics (scope 3)

The emissions associated with this activity contribute 5% to the overall footprint and contributed 1,5% (out of the total 1,7%) reduction in the footprint. The observed reduction is largely linked to a reduction in emissions from road freight (down by 18% compared to its specific 2022 value) as well as a slight reduction of imported goods (via shipping and air freight). The reductions occurred at Ezee Tile (down 6,5%) and the Retail stores (down 14,5%). The reduction is due to a reduction in imports and production/sales activities; however, a portion of the reduction can also be attributed to revised DEFRA emissions factors.

Emissions (tCO2e) per upstream logistics activities

Logistics (scope 3)

The emissions associated with this activity contribute 12% to the overall footprint and contributed 0,3% (out of the total 1,7%) reduction in the footprint. The biggest contributors to downstream logistics linked emissions are Ceramic Industries (down by 3,15%) and the Retail stores (down by 1,14%). The reduction can be attributed to a reduction in production and sales volume outputs. The use of new DEFRA emission factors for the 2023 results produced a slightly higher tCO2e emission per tonne.km compared to 2022’s emission factor. The implication is that, for example, Ezee Tile’s downstream freight activity (tonne per kilometre) for 2023 was slightly less than 2022, but the use of a new (and higher) emission factor resulted in a slightly higher emission being reported.

Emissions (tCO2e) per downstream road freight activities

PERFORMANCE ASSESSMENT OF SPECIFIC ENTITIES

Retail stores

The scope 1 and 2 emissions associated with the Italtile, CTM, TopT and U-Light stores are responsible for 3,8% of the Group’s overall footprint. Effectively all these emissions are linked to electricity consumption with backup generators and forklifts adding to the overall emissions. Comparing the emissions intensity of 2023 to 2022 shows a decrease of 11,4% in tCO2e/m2 (gross leasable area) which can be linked to the impact of load shedding and an increase in solar generated power. In total the stores generated 1,89 GWh of electricity from solar thereby reducing Eskom linked emissions by 1 968 tCO2e.

Owned retail stores: emissions (tCO2e) per square metre

Ceramics Industries

The scope 1 and 2 emissions associated with Ceramic’s factories are responsible for 76% of the Group’s overall footprint. Regular investment in new technologies, energy efficiency and new products (for example the EcoTec tile range) ensured that these factories reported a continued year-on-year improvement in consumption efficiency. Independent assessments from 2016 up to 2021 have enabled the Group to claim a total of R195 million in income tax deductions under the Section 12L tax incentive.

A detailed assessment of the tile factories reflects a decrease in production combined with minimal movements in facility level electricity and natural gas consumption (combined energy consumption increased by 0,3%). Production and energy consumption at the sanitaryware and bath factories increased by 0,5% and 1,6% respectively. In the tile factories, the disproportionate change in production versus energy indicates a slight reduction in overall manufacturing efficiency, while the sanitaryware factories showed a slight improvement. The figures below illustrate the year-on-year production-related emissions intensity. The operations also generated more energy from solar in 2023 than ever previously (almost 300% higher than the prior year), which helped to reduce reliance on the Eskom grid and effectively prevented 4 249t CO2e from being emitted.

Ceramic Industries: emissions intensity
(kgCO2e per square metre of tiles produced)

Ceramic Industries: emissions intensity (kgCO2e per piece of sanitaryware produced)

Ezee Tile

The scope 1 and 2 emissions associated with the Ezee Tile factories are responsible for 1,4% of the Group’s overall footprint. The overall production of the factories decreased by 4,9% while total energyrelated emissions reduced by 17%. It must be noted that these results are influenced by the relocation of the largest manufacturing facility (from Germiston to Vulcania). During this time not all sand was dried at the factory as per normal operations. The purchase of dried sand reduced energy-related emissions significantly.

Ezee Tile: overall production intensity (kgCO2e/tonne)

      2023   2022 2021

CARBON FOOTPRINT ANALYSIS

 Ceramic
Industries		 Ezee Tile Retail
stores		 Total Total Total
Total direct energy consumption (gigajoules) – non-renewables 3 215 835 48 266 18 243 3 282 344 3 100 000 3 243 887
Total direct energy consumption (gigajoules) – renewables 1 134,82 189,66 525,66 1 850 1 194 #
Total direct energy consumption (gigajoules) – all fuels 3 216 970 48 456 18 768 3 284 194 3 101 194 3 243 887
Percentage of direct energy consumption from renewable fuels – – – 0,0563% 0,0385% #
Direct energy efficiency: total direct energy consumed per person hour worked (kJ/PHW) 1 361 115 6 564 641 681
Total volume of electricity purchased (MWh) – excluding self-generated from solar, wind or other sources 117 571 2 122 13 464 133 156 132 502 129 794
Total volume of electricity self-generated (MWh) – i.e., from solar, wind or other sources 4 085 683 1 892 6 660 2 536 506
Total volume of electricity consumed (MWh) – purchased + self-generated – calculated 121 656 2 804 15 356 139 817 135 038 130 300
Percentage of electricity consumed that was self-generated (%) 3,36 24,35 12,32 4,76 1,88 0,39
Electricity efficiency: average electricity consumed per person hour worked (kWh/PHW) 51,48 6,64 5,06 24,03 27,92 27,34
Total indirect energy consumption (i.e., electricity) in gigajoules – calculated 437 962 10 095 55 283 503 340 477 007 467 258
Total direct and indirect (i.e., electricity) energy consumption in gigajoules – calculated 3 654 931 58 552 74 051 3 787 534 3 578 201 3 711 145
Total energy efficiency: total direct energy and indirect energy consumed per person hour worked (kJ/PHW) 1 546 139 24 651 740 779
Total carbon emissions (tonnes CO2e) – scope 1 187 374 3 565 1 400 192 339 193 658 195 470
Total carbon emissions (tonnes CO2e) – scope 2 122 274 2 206 14 003 138 482 138 112 130 307
Total carbon emissions (tonnes CO2e) – scope 3 13 653 36 112 25 163 74 927 118 684 109 501
Total carbon emissions (tonnes of carbon dioxide equivalents, CO2e) 323 300 41 883 40 565 405 749 450 453 435 279
Carbon intensity: average volume of carbon emissions per person hour worked (tonnesCO2e /PHW) 0,14 0,10 0,01 0,07 0,09 0,09
# Not measured.

Compliance

ENVIRONMENTAL INCIDENTS

Over the past year, no material environmental complaints were received and no environmental incidents took place in the manufacturing, retail or supply chain operations.

CARBON TAX

An independent expert was engaged to assess the Group’s carbon tax liability and GHG Emissions Reporting requirements. The recent 2022 carbon tax payments (due annually in July) made to SARS covered the emissions from 1 January 2022 to 31 December 2022. 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.

Presently the carbon tax applies to selected activities covering scope 1 emissions and only directly affects the Group’s manufacturing entities, resulting in an overall exposure of R27,6 million (based on 191 857 tCO2e of taxable emissions) for the 2022 tax period. Note that this is the full liability determined at R144/tCO2e – the final tax liability for the Group was reduced to R6,09 million through the effective utilisation of several carbon tax allowances (including the Basic, Trade Exposure, Performance Benchmark and Carbon Budget allowances).

Carbon tax also presents an indirect exposure risk through increasing the costs of purchased fuels, electricity and general services. The headline rate of the carbon tax is set to increase to R462/tCO2e by 2030. In addition to the rate increase, a reduction in available allowances and the implementation of mandatory carbon budgets (with potential penalties for exceeding given budgets) will come into effect soon. These increased costs associated with fossil fuel use continue to motivate the uptake of energy efficiency and alternative energy projects in the Group.

EXTENDED PRODUCER RESPONSIBILITY

The South African Extended Producer Responsibility (“EPR”) Regulations form part of the National Environmental Management: Waste Act of 2008 (Act No. 59 of 2008) and affects entities within the value chain of the following sectors: electrical and electronic equipment, lighting, paper, packaging, and some single use products. Producers, brands and importers of specified products exceeding prescribed thresholds are required to comply with the requirements set out by the EPR Regulations. As part of this compliance process, a detailed review of the Group’s structure was conducted to identify entities with potential EPR liability. The granular operational data was collected to determine reportable results and to calculate payable fees/levies. The Group registered with the Department of Environment, Forestry and Fisheries as a producer for each of the producer categories and selected a producer responsibility organisation (“PRO”) where ongoing fees for qualifying items will be paid on a bi-annual basis.

EMISSION-REDUCTION TARGET-SETTING

Italtile’s energy and emissions targets will not be developed in isolation, but need to integrate into the core business strategy.

In the year under review, the Executive Committee adopted the following process to set emission-reduction targets:

What is our aspiration?

  • A Beautiful Home should be part of a Beautiful Planet.
  • The Group strives to drive value in everything it does. Shareholder value will not be compromised in the interests of appearing more 'green'.
  • Sustaining the Group and the planet for future generations means:
    • reducing the impact of emissions;
    • effectively using resources; and
    • achieving these goals in a way that increases value for all.

Where will we participate?

  • The Group committed to setting targets for scope 1 and 2 emissions.
  • Scope 3 targets will be considered in future.
  • Targets will be linked to emissions intensity (e.g. tCO2e/product).
  • The 2023 financial year will be the project's baseline year and the 2025 financial year will be the target year.
  • Targets and results will be compared to SA's National Determined Contributions and Science-Based Target pathways, but it will not be compulsory to align with them.

How will we succeed?

  • Detailed data, internal targets and tracked results will focus on matters relevant to the Group's stated aspirations.
  • Targets will be applied to metrics relevant to specific team KPIs.
  • Only practical, achievable projects will be selected to inform bottom-up target-setting. These will be rolled-up into business unit and group-level targets.

What capabilities must we develop?

  • Expand current footprint to incorporate scope 1 and scope 2 emissions from our Properties division and franchises, including scope 3 emissions from up- and downstream logistics.
  • Consider reclassifying footprint reporting boundaries to align with financial reporting business units.
  • Develop internal 'Cost of Carbon' pricing model to incorporate into project feasibility assessment and future production cost considerations.

What steps will be taken next?

  • Summarise outcomes for the Executive Committee.
  • Develop short and medium-term targets in the first half of the 2024 financial year.
  • Implement real-time monitoring, and report on actual performance versus targets.
  • Business unit managers to translate targets into specific KPIs for relevant teams.