Chairperson’s statement

In addition, Italtile is steeped in the culture built over six decades by my father, Giovanni Ravazzotti, colloquially known in our business as “Mr R”. The values of fairness, integrity, honesty, human dignity, empowerment, excellence, partnership and servant leadership are core to this Company and continue to be inculcated through the mentorship and training programmes that he still conducts.

RESULTS

Our retail operation‘s full-year results were slightly lower than the prior comparable year, but it is pleasing to report that the division recovered market share and performed better in the second half of the period than the first half. In the manufacturing division, Ceramic Industries (“Ceramic”) achieved efficiency improvements in manpower, systems, quality and products and these remain key focus areas. Despite the improvements however, the business failed to grow tile volumes and improve capacity utilisation to leverage economies of scale and improve profitability; this inability to fully load the tile factories continued to impact negatively on Ceramic‘s contribution to the Group‘s results.

The Group‘s total system-wide turnover increased marginally to R11,54 billion (2023: R11,50 billion). Trading profit for the full year decreased by 11% to R2,1 billion (2023: R2,3 billion), an improvement from the 17% decline reported at half-year, and a less steep decrease than the prior year. Trading profit in the second half was only slightly lower than the prior comparable period.

In the year ahead, our goal is to improve the competitiveness of the business across all operations. There will be an unwavering focus on reducing costs, improving efficiencies, differentiating our offering from competitors and reclaiming market share.

BOARD FOCUS

The Board‘s deliberations during the year focused on the following key issues:

• the over-supply of capacity and product in the market that has resulted in intensified competition, aggressive price wars and margin pressure;
• the imperative to improve our competitiveness, efficiencies, and training and development across the business in light of this aggressive competition, and focus on what we are good at – creating beautiful homes;
• the opportunity to remain relevant by manufacturing products that people desire – specifically products that are unique to South Africa and resonate with local people;
• the strategy to clearly differentiate the positioning of our brands to appeal to consumers across the spectrum: from our community-based conveniently located TopT stores, to our fashionable year-round value offering, CTM, and our premium-end luxe niche brand, Italtile Retail;
• streamlining under-performing assets and improving returns on investment through focused interventions, including exiting the U-light business and disposing of non-profitable sites;
• improving business processes and harnessing information faster through a more cohesive IT platform; and
• resolving the potential natural gas supply constraint to ensure Ceramic‘s business continuity. As discussed in the commentary below, this was a key management priority during the review period, and work on an industrial-scale project to trial an alternative solution will be started in the current financial year.

ESG

• Environment

Compared to the previous financial year, the carbon footprint of Ceramic, our retail stores, and Ezee Tile reduced by 7,5%, 0,5% and 0,4% respectively in terms of total emissions. The Environmental report on page 82 details our initiatives in terms of water and waste management, energy consumption reduction, environmentally sensitive building practices, and rehabilitation of quarries.

Our pressing concern during the period was the threat that Sasol‘s piped natural gas supply to the market would terminate in mid-2026, although Sasol subsequently announced in late August 2024 that supply would be extended to at least June 2027.

Although we welcome this extension, given that 70% of Ceramic‘s energy requirements are supplied by this gas source, management‘s priority remains to resolve this threat to safeguard business continuity. Exhaustive research and investigations were conducted into an array of alternatives to replace Sasol‘s supply. While gas is our preferred choice of fuel, in the event viably priced natural gas is not available, a project has been approved to invest in and convert one production line at our Gryphon factory to use a coal-based synthetic gas solution for heating and firing and to test this established technology in our process, using our raw materials. Given the Group‘s long-standing eco-awareness, converting Ceramic‘s operations to coal syngas would be the option of last resort for us.

Future gas supply has implications for the national economy and affects numerous major local companies. While Sasol‘s extension of the supply deadline to mid-2027 and potentially mid‑2028 has afforded breathing space for industry, we remain hopeful that an alternative natural gas solution will be achieved collaboratively with all key parties prior to those deadlines.

• Social

Transformation

At the end of the 2023 financial year, we committed to maintaining our level 2 B-BBEE rating (99,34 points). Skills development, enterprise and supplier development, and management control were identified as key focus areas for improvement.

In the assessment conducted in September 2024, we attained a level 2 rating, with a score of 98,03 points.

The Group remains committed to supporting the objectives and principles of the B-BBEE Codes, however, under the current onerous trading conditions and our strategy to improve competitiveness through reducing costs across the business, the Board has approved targeting a level 3 rating for the 2025 financial year.

Refer to the Transformation report.

Proudly South African

Our Proudly South African policies and practices focus on promoting the sustainability of our business, the communities in which we operate, and the broader economy. By selling local products manufactured by local people, we support job creation and facilitate skills transfer. During the period, approximately three quarters of all merchandise procured by the Group was sourced from South African businesses. This is a decline from recent years, as currently, the competitive environment and pricing dynamics favour certain imported products from new factories in Africa, and we have capitalised on buying opportunities to support our cost-conscious customers. Local procurement remains our preferred option, and we will continue to explore expanding our import-substitute opportunities.

Socio-economic development

Our broad-based black ownership scheme, the Italtile and Ceramic Foundation Trust (“Foundation”), is the primary vehicle for the Group‘s community outreach and social impact spend. The Foundation‘s goal is the transformation and upliftment of previously disadvantaged communities through distributions made to public benefit activities in education, sport and conservation. In the year under review, the Foundation‘s spend of R33 million was allocated to education: 40%; sport: 40%; conservation: 10% and other: 10%.

We work together with dedicated non-profit organisations to advance our CSI projects, and I would like to pay tribute to them for the remarkable results they achieve in the communities and natural environments they care for. My thanks also go to the Foundation‘s trustees and staff and our Group employees, who volunteer their time and services for these worthwhile initiatives. As outlined in the CSI report, our franchisees also make valuable contributions to community development projects, for which I thank them.

The Foundation and Group CSI reports elaborate on our community projects undertaken during the review period.

• Governance

In preparing this IAR, we referred to the JSE‘s Sustainability and Climate Disclosure Guidance documents as a benchmark for the business‘s reporting standards. The Board is satisfied that disclosures regarding governance, strategy, management, and metrics, targets and performance, as recommended by the guidelines have largely been adopted in this report.

BOARD COMPOSITION AND SUCCESSION PLANNING

Building leadership depth and a strong succession pipeline are key strategic priorities in our business. Throughout the reports in this IAR, there are references to our investments in human capital to ensure we have the best possible operating structure and the most competent teams.

During the period, we strengthened our executive management capability with the creation of a new Group COO position. Brandon Wood, our former CFO, has been appointed to this position. Brandon is vastly experienced, having joined the Group in 2010. In addition to serving admirably as CFO, he has held various roles across the business including Executive Director: Commercial and Supply Chain and Executive Director: Retail. Over the past 20 months, he was responsible for turning around the performance of our Ezee Tile business, which included the successful transition to a new facility and management team. In his capacity as COO, he will provide operational support to the Chief Executive Officer, with specific focus on optimising value in the retail brands and integrated supply chain businesses.

Lamar Booysen has been appointed CFO, and having worked closely with Brandon over the past year has assumed his new responsibilities comfortably.

A new CEO and strengthened management team have been appointed at Ceramic, and our Group CEO, Lance Foxcroft will assist them to build on improvements made and help develop leadership capability in manufacturing as they settle in and navigate the challenges faced by unprecedented competition and the weak-demand environment.

STAFF SHARE SCHEMES

Our equity-settled staff share scheme is designed to incentivise employees to participate in the growth and profitability of the business. Most often, our employees elect to receive the payout rather than shares, as the amounts can be life-changing – and even more so in the current difficult environment.

In terms of the new staff share scheme implemented on 31 March 2023 that replaced the previous scheme, awards were made to 535 qualifying employees of the Group and franchisees. On 22 March 2024, awards were made to an additional 196 qualifying employees and franchisees. As at 30 June 2024, there were 595 participants in the staff share scheme, with awards linked to 3,2 million Italtile shares.

In terms of the previous scheme, the final vesting of awards, granted in August 2020, took place on 31 August 2023. A total of 110 employees qualified, with all employees opting to receive the net value of the awards in cash. Cash payments after tax averaged R146 512 per individual (aggregate payments including income tax totalled R23,0 million), funded by the sale of the related shares to the market.

DIVIDEND AND DIVIDEND POLICY

The Group‘s dividend cover is two-and-a-half times. The Board is satisfied that this level affords rewarding returns for shareholders, while remaining prudent in light of the challenging trading environment and potential capital investment required in the medium term to mitigate against the risk linked to the decline in gas supply. A final gross ordinary cash dividend of 22,0 cents per ordinary share (2023: 21,0 cents per share) was declared. This, together with the interim gross ordinary cash dividend of 27,0 cents per share (2023: 32,0 cents per share), produces a total gross ordinary cash dividend declared for the year of 49,0 cents per share (2023: 53,0 cents per share), a decrease of 8%.

In light of the Group‘s robust cash reserves being in excess of operational requirements, the Board has declared a special cash dividend of 78,0 cents per share (2023: nil).

CAPITAL ALLOCATION

Net cash reserves increased by 76% to R1,8 billion in the reporting period. It is anticipated that cash generation will remain strong in the year ahead. In this regard, our capital allocation strategy will continue to be based on a blended programme comprising capital expenditure, share buy-backs and returns to shareholders. Forecast capex for the year ahead is at R350 million, including the prospective coal syngas trial programme at Gryphon. Having concluded our major expansionary projects and in light of current excess production capacity in the market, capex is lower than recent years, and confined to maintenance rather than expansion. We will continue to assess and implement a range of options for allocation of cash reserves, which include possible acquisitions, share buy-backs and special dividends.

CURRENT TRADING

Trading conditions subsequent to year-end have remained difficult. While consumer sentiment and outlook have improved in light of lower inflation, the cessation of load shedding, and the formation of a government of national unity (“GNU”), this positivity has yet to translate into increased disposable income and spend. In July, sales value and volumes were in line with the prior year, although August‘s results declined marginally. We have not experienced a discernible ‘green shoots‘ trend yet, with trading proving to be variable month to month. We are optimistic that a continued decline in inflation and a downward trend in interest rates will provide much needed impetus to the economy and cash-strapped consumers.

OUTLOOK

Competition in the industry is extremely challenging and unlikely to be alleviated in the short term. We will continue to face new challenges in the market, on both the retail and manufacturing side.

Notwithstanding this prognosis, we believe that within our business there are prospects for growth. By focusing on our competitiveness at every customer satisfaction touchpoint: fashion, range, price, service and quality, we will position ourselves to capitalise on opportunities as they emerge.

In the year ahead, our focus in manufacturing will be on optimising and bedding down capex projects and driving operational excellence; in the retail division, our continued goal will be to ensure customer satisfaction through a differentiated and unmatched shopping experience.

APPRECIATION

This has been a momentous year for me and I greatly value all the people in this business who are fiercely committed to our goal of being Africa‘s best retailer of tiles, sanitaryware and complementary products.

The executive management team is aligned and working strategically with the Board. Their unflagging commitment to grow the business and face the new and competitive landscape continues to impress me.

Our store operators and franchisees have valiantly faced down the competitive challenges presented this year. I would like to pay tribute to them for their resilience and for striving to ensure every customer in our stores experiences an unrivalled shopping experience.

Our institutional and private shareholders are important components of our business eco-system and I would like to thank them for their long-standing support and constructive engagements.

I wish to extend my appreciation to our business partners and advisors, who continue to support us during challenging times and contribute to the success of this business.

Over this past year, I have drawn on the expertise and diverse knowledge of my fellow Board members. I am grateful for their counsel and support.

Finally, Mr R, our former Chairman, has continued to guide and support me and I have gained enormously from his wealth of experience. As Italtile transitions from a founder-led company to a founder-inspired business, we owe him a debt of gratitude for the formidable legacy he has handed us.

Luciana Ravazzotti Langenhoven

Chairperson