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 and TopT, 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 2024, the store network comprised 208 stores, including six webstores (2023: 216 stores, including seven webstores), situated in Southern and East Africa. Direct webstore sales continue to represent a minor component within overall retail sales.
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 99,12% stake in Ceramic, its largest supplier of tiles, sanitaryware and baths. Ceramic delivers tactical advantages by supporting the Group’s growth programme through the supply of local high-quality, affordable products.
Ezee Tile Adhesive Manufacturers (Pty) Ltd (“Ezee Tile”)
The Group holds an effective 99,12% stake in this business, a national manufacturer of grout, paint, adhesive and related products.
STATEMENTS OF RESPONSIBILITY
The responsibilities of the Group’s directors are detailed in the Directors' responsibility statement.
AUDIT AND RISK COMMITTEE
Refer to the Audit and Risk Committee report, which discusses the responsibilities of this Committee and how these were discharged during the year.
FINANCIAL REVIEW
The challenging trading conditions reported in the first half of the year worsened in the second half as living costs and interest rates continued to rise, putting further pressure on homeowners experiencing high levels of unemployment and real wage decreases.
Difficult trading conditions and internal inefficiencies impacted negatively on the Group’s performance, with disappointing results in the South African businesses, although our East African and Australian operations reported better results. While our resilient business model and high-performance culture stood us in good stead, we regret that opportunities for growth were missed, specifically in the manufacturing operations.
System-wide turnover
System-wide turnover across the Group increased marginally to R11,54 billion (2023: R11,50 billion). Like-for-like retail store turnover (excluding sales of stores opened and closed during the period) decreased by 2% and manufacturing sales for the year under review decreased by 6% compared to the previous corresponding period.
Trading profit
Reported trading profit decreased by 11% to R2,1 billion (2023: R2,3 billion). Like-for-like operating cost growth increased marginally by 0,7%, with costs being well-managed.
Earnings per share
The Group’s basic earnings per share decreased by 8% to 122,1 cents (2023: 132,6 cents), while HEPS decreased by 7% to 123,0 cents (2023: 132,3 cents).
Property, plant and equipment
During the year under review, capital expenditure of R609 million was incurred including R21 million on the new Ezee Tile factory, R102 million on retail property enhancements, and R185 million on the Vitro Poppi Kiln replacement, with the balance of the spend being on factory upgrades.
Cash and cash equivalents
At 30 June 2024, the Group’s cash balance was R1 844 million (2023: R1 049 million).
Material cash outflows for the period include:
- capital expenditure of R609 million (2023: R671 million);
- tax payments of R543 million (2023: R633 million);
- purchase of own shares by the Group totalling R212 million (2023: R104 million); and
- total dividend payments of R606 million (2023: R785 million).
The outflows were partially offset by cash proceeds of R76 million from the sale of properties.
The Group’s net asset value per share at 30 June 2024 increased to 707,5 cents (2023: 641,8 cents).
PROSPECTS
The trading environment will remain extremely challenging in the short term. Competition in both the manufacturing and retail segments will likely intensify until the vast imbalance between excess manufacturing supply and weak demand levels out. Despite this concern, we are mildly optimistic about prospects for growth in the market. South Africa is underhoused and the dynamics of the housing market are favourable – evidenced by a young, growing, upwardly mobile demographic with a strong popular culture of owning a home.
Key to conditions improving will be the sustained downward trend of inflation and an improvement in consumer investment sentiment. The possibility of an interest rate reduction cycle starting in the current calendar year should further boost disposable income and confidence, while implementation of the two-pot retirement system in September may provide an injection of cash into the economy. If load shedding remains manageable and support for the GNU holds firm, it is also likely that the currency will stabilise and investors and customers will adopt a more positive stance.
Irrespective of the external challenges, our focus will remain on the internal levers within our control. Our goal is to ensure that the business is fighting-fit and we are determined to succeed in improving our competitiveness across all our operations. We are confident that we have assets to achieve this, namely competent, engaged and motivated teams; robust iconic brands; industry-leading technology and products; and the competitive advantage of a vertically integrated supply chain.
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 (2023: 1 321 654 148).
ORDINARY CASH DIVIDEND ANNOUNCEMENT
The Group's dividend cover is two-and-a-half times. The Board has declared a final gross ordinary cash dividend (number 116) for the year ended 30 June 2024 of 22,0 cents per share (2023: 21,0 cents) out of income reserves to all shareholders of Italtile as at the record date of Friday, 13 September 2024. The dividend cover remains at two-and-a-half times.
A gross special cash dividend (number 8) of 78,0 cents per share (2023: nil) has also been declared. The net special dividend amount is 62,4 cents per share for shareholders liable to pay dividends tax and 78,0 cents per share for shareholders exempt from paying dividends tax.
These final dividends, together with the interim gross ordinary cash dividend of 27,0 cents per share (2023: 32,0 cents per share), produces a total gross cash dividend declared for the year ended 30 June 2024 of 127,0 cents per share (2023: 53,0 cents).
DIRECTORATE
Refer to Our Board of directors for details of the directors of the Company.
Changes in directorate
As advised in the SENS announcement published on 30 May 2024, from 1 July 2024, Brandon Wood, formerly CFO, was appointed as COO and will remain an executive director. Lamar Booysen, formerly Group Finance Executive, was appointed as CFO and executive director.
These appointments are aligned with the Group’s long-standing succession plan and ongoing strategy to enhance depth of management in the business.
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 37, 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 37.
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 2024 are set out in Note 37.
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 37 for detailed disclosure relating to directors’ remuneration.
SUBSIDIARY COMPANIES
Details of the Company’s interest in its subsidiaries are set out on Note 39 .
The Company’s interest in the profits or losses after taxation and the non-controlling shareholders’ interest of its subsidiaries (direct and indirect) is:
| 2024 Rm |
2023 Rm |
||
|---|---|---|---|
| Profits | 1 462 | 1 605 |
CORPORATE GOVERNANCE
Refer to the Corporate Governance report.
SHAREHOLDERS
Refer to Analysis of shareholders.
EMPLOYEES
As at 30 June 2024, the Group permanently employed 2 297 employees (2023: 2 477).
SPECIAL RESOLUTIONS
At the AGM of shareholders held on Thursday, 9 November 2023, 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:
- The Italtile Staff Share Scheme, which replaces the previous staff share scheme, for all employees of the Group and its franchisees who meet certain qualifying criteria;
- The Share Appreciation Rights Scheme (“SARS”) 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, an additional mechanism, over and above the SARS, to retain and reward selected employees and directors of the Group; and
- The Ceramic Industries Share Retention Scheme, 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 9 November 2023, shareholders approved the reappointment of PricewaterhouseCoopers Inc. as auditor for the 2024 financial year, with Mr T J Howatt being the individual registered auditor undertaking the audit.
COMPANY SECRETARY
The Company Secretary is Acorim (Pty) Ltd, whose business and postal address is:
| Registered office: | 13th Floor, Illovo Point |
| 68 Melville Road, Illovo | |
| Sandton 2196 | |
| Telephone number: | +27 (11) 325 6363 |
| Fax number | : +27 (11) 325 6362 |
