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Italtile increases FY turnover, expands retail footprint

25th August 2016

By: Mia Breytenbach

Creamer Media Deputy Editor: Features

  

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JSE-listed ceramic tiles retailer Italtile has reported a system-wide turnover increase of 14% to R5.96-billion for the year ended June 30, while like-for-like revenue at the retail store level also grew 14%.

In expanding its retail footprint, Italtile opened 20 new stores during the reporting period, including 15 TopT stores, three CTM stores and two Italtile retail stores. The group also launched a CTM Web store in Kenya.

Italtile reported that particular emphasis was placed on introducing “flexible store formats to align each offering optimally with its respective market”. This flexibility enabled the group to gain market share in existing and new markets.

While the 20 new stores were opened in the period under review, their full contribution to revenue will only be reflected in the following six months.

Further, “improved performances were reported by the group’s retail operation, comprising Italtile Retail, CTM and TopT, with each brand recording double digit sales growth and a gain in market share across its trading regions and merchandise categories,” Italtile CEO Nick Booth noted on Thursday.

CTM was the biggest contributor to profit and turnover, while the best growth performer for the year had been the TopT retail brand, Booth told Engineering News Online, adding that he expected a similar performance in the next financial year.

Booth attributed the gratifying performance to the “continued expansion of the BOP across key areas of the group, which facilitated further improvements within the business and a meaningful gain in market share from competitors”.

The BOP started to record notable improvements in key areas, including stock management, such as availability, range and price matrix, and stock turn; the personnel complement; and information technology (IT) and e-commerce, according to the group.

Booth however acknowledged that there was at least another two years of work to be invested into the BOP.

Basic earnings a share increased by 16% year-on-year to 87.8c, while headline earnings a share increased by 21% to 86.9c.

While trading profit increased by 16% to R1.05-billion, inventories increased to R693-million to meet growing demand from existing retail operations and the new stores added to the network.

Italtile, which holds a 20% strategic stake in manufacturer and primary supplier Ceramic and a 46% stake in Ezee Tile, a national manufacturer of grout, adhesive and related products, further reported that the combined contribution from Ceramic and Ezee Tile to group profits increased by 53% to R95-million. Ceramic’s contribution to group profit for the period rose 51% to R83-million.

While Booth was “comfortable with the results”, noting that the performance highlighted the work realised in terms of optimising the supply chain and stock, providing the company with a level of efficiency that meant the group could invest into pricing and retain the business’s competitiveness in the retail space, he, nevertheless, believed the performance could have been better.

TRADING ENVIRONMENT
While the renovations market grew during the reporting period, the new-build segment remained sluggish, illustrated by the negligible increase in the number of building plans passed, the group reported on Thursday.

“This statistic reflects the deterioration in consumers’ investment sentiment based on uncertainty in the economy and sociopolitical environment, with homeowners more likely to upgrade existing properties than commit to more substantial new-build spend,” the group stated.

While competitor activity intensified across the industry, featuring aggressive pricing and promotions as traders sought to retain market share, currency volatility and cash flow constraints led to further rationalisation of less established operators.

However, in this context, the group noted that it benefited from its solid balance sheet and integrated supply chain, which ensured consistent availability of high-quality reputable brands and stable pricing.

PROSPECTS
Italtile believes the prevailing economic and sociopolitical conditions are unlikely to improve materially in the forthcoming year, suggesting that, in this context, consumers will continue to allocate their discretionary spend cautiously, seeking out optimal value and quality offerings. 

Despite expected growth in the home improvement segment, forecasts for increased new-build activity are less positive, while competition in the market will intensify as participants strive to retain and gain market share.

Italtile emphasises that to sustain results at current levels, opportunities for growth have to be realised within the business.
Italtile will also continue to expand its store network, including opening an additional 15 TopT stores by March 2017, with four stores to be opened in the Western Cape in the next few weeks. The 11 remaining stores will be split among the Eastern Cape, KwaZulu-Natal and Gauteng. 

The group also aims to accelerate the expansion of CTM and Italtile by opening more stores in the following year. 
Further, the group has capital expenditure plans of about R300-millon on buildings and properties, with part of this drive being into Kenya, Booth explained.

While Italtile already has a base in Kenya, operating two stores, the group aims to build three stores under the CTM retail brand in the country in the next financial year, which are expected to be operational in two years’ time.

The group is also considering the potential acquisition of stores in Tanzania.

Further, assuming the successful conclusion of the acquisition of Ceramic Industries, the group will integrate the IT platform of the business and the Ezee Tile operation into its own.

In July, Italtile submitted a binding offer to Ceramic to acquire up to a further 73.5% of the company’s issued share capital, with a further consequence of the acquisition being that of increasing the group’s total effective holding in Ezee Tile to 68.95%.

Italtile’s rationale for acquiring Ceramic is based on management’s positive view of opportunities for growth in South Africa, and the benefits of this transaction for both Italtile and Ceramic, which are “far-ranging”, the group stated.

However, the acquisition is subject to attainment of certain conditions precedent and approval from competition authorities and Italtile shareholders.

In July, the Competition Commission ruled that it prohibited the proposed acquisition of Ceramic Industries and Ezee Tile Adhesive Manufacturers – finding that “there would be no viable alternatives for competitors in the downstream retail market [and] that the merged entity could foreclose retailers by raising prices, reducing supplies or refusing outright to supply,” Engineering News reported earlier this month.

Italtile opposed the commission’s ruling and has, earlier this month, submitted a request for consideration with the Competition Tribunal. The group is awaiting a date for the prehearing.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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