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The general context in which we operate impacts our ability to achieve our strategic goal to create sustainable value for all stakeholders.

This report outlines emerging and existing trends, which prevail in our industry and market, the effect they have on our business and our strategic response – which is aimed at mitigating or managing any negative impact, and wherever possible, capitalising on opportunities presented.

Increasingly, disruption (industry reconfiguration, social change, technology or other factors) and diversity (cross-cultural, gender, intergenerational), are becoming commonplace, alongside volatility, uncertainty, complexity and ambiguity.

Refer to Our Stakeholders’ report and Strategic management of material risks report.

1 ECONOMY IMPACTING OUR INDUSTRY AND CUSTOMERS

Local economy

• SA economy remained subdued as GDP grew only 0,1%;
• Consumer confidence and spend in the building and construction sector was muted;
• Weak consumption resulted in manufacturing production falling significantly;
• Consumers continued to be price-conscious and constrained by tight budgets;
• Country-specific risks: South Africa’s trading environment is onerous and has a relatively unsupportive investment climate for manufacturers; and
• Infrastructure continued to deteriorate amidst endemic crime and corruption.

Global economy

• In the changing global environment, over-capacity and subdued demand have exerted pressure on tile manufacturers worldwide;
• As many seek to find alternative markets, tariffs have been applied in local markets and dumping has increased in those without tariffs, resulting in increased competition in domestic markets; and
• Reduced shipping and freight costs, mainly from India, and a stable exchange rate have improved the viability of imports.

2 REGULATION AND GOVERNANCE

• Introduction of tariffs on imports by Zambia and Zimbabwe to protect their local production has affected the ability of local producers to export into these countries, resulting in a loss of market share in these export markets;
• 30% tariffs imposed by the USA could have wide-ranging and devastating consequences for regions that are dependent on exports and so indirectly affect demand for our products in those areas;
• Carbon tax;
• Shareholder and legislative pressures on remuneration; and
• Legislative pressure on transformation.

3 INEQUALITY AND TRANSFORMATION

• Social imbalances, income inequality and poverty prevail;
• Disparity in gender and race representation;
• Historical inequities and slow pace of government reforms continue to cause socio-political instability;
• Transformation (diversity, equity and inclusion) is a key business imperative, but hampered by the small pool of employable skills due to an underperforming education system; and
• Widespread dissatisfaction with the state’s poor basic service delivery record.

4 DISRUPTIVE TECHNOLOGY AND DIGITAL ADOPTION

• Online sales as a proportion of total sales are rising globally;
• IT risk management and cybersecurity are global concerns;
• Higher levels of digital adoption and changing consumer behaviour require more focus on data analytics and business intelligence;
• Artificial intelligence and machine learning are becoming commonplace and require investment to keep pace; and
• Digital marketing is increasingly important and complex.

5 COMPETITIVE LANDSCAPE

• Proliferation of new entrants in the retail and manufacturing segments;
• SADC-based ceramic competitors engaged in predatory pricing in South Africa;
• Tile supply exceeded demand in Southern Africa;
• Deflationary prices exerted pressure on margins;
• Closure of Johnson Tiles reduced tile manufacturing capacity by five million square metres per annum, leaving only two local producers; and
• Profusion of adhesive producers offering inferior, low-priced products, as the industry imposes no regulated standards.

6 HUMAN CAPITAL AND SKILLS

• Shortage of retail and manufacturing specialist skills; and
• Constant need to upgrade skills, develop expertise and provide ongoing training to maintain high standards.

7 CLIMATE CHANGE AND CARBON FOOTPRINT

• Key components of ESG considerations for investors and customers;
• Carbon tax increasing in line with the government’s drive to reduce emissions; and
• Growing impact is driving awareness and responsiveness of appropriate policies and practices.