JSE-listed Italtile increased its trading profit for the six months ended December 31, 2018, by 35% to R968-million, compared with the R716-million trading profit reported for the six months ended December 2017.

This was despite a challenging trading environment during which import prices increased and customer buying activity decreased in a growth-constrained economy.

“While the renovations market continued to fuel modest growth in the sector, new

build activity was largely stagnant. For the category to grow materially, investment in new build is imperative, but will require a substantial turnaround in consumer con­fidence in the future,” Italtile group CEO Jan Potgieter said on Thursday.

He told Engineering News Online that in trying trading times the company focuses on internal growth and margin management. “Owing to the currency movements, our supply chain businesses, in the short term, had to sacrifice on margins to make it better on the retail side, to maintain good pricing for customers.”

To further support pricing to customers, Italtile Retail implemented import replacement strategies through its Gryphon manufacturing brand, which is able to deliver local stock for the upper-end markets that are comparable to international stock, but at lower prices.

Italtile Retail now imports between 50% and 65% of overall stock, compared with between 85% and 90% in earlier periods.

Meanwhile, earnings a share and headline earnings a share increased by about 14% to 55.4c, compared with 48.6c in the prior comparable period.

Italtile’s earnings supported a 29% increase in dividends a share to 22c, compared with 17c in the prior comparable period.

Italtile now has a network of 182 stores, compared with 176 as at the end of June 30, 2018. The company’s retail brands are CTM, Italtile Retail and TopT, while its manufacturing brands are Ceramic Industries and Ezee Tile Adhesive Manufacturing.

Italtile also has five online webstores, the combined revenue of which grew 40% in the reporting period.

The company opened nine stores during the period, while closing three underperforming stores.

Italtile plans to open a further nine stores in the six months to June 30, this year.

Potgieter pointed out that load-shedding has affected some of the group’s manufacturing operations, with Babalegi and Hammanskraal experiencing short-term challenges with some shutdowns, while the company’s Vereeniging manufacturing operation, which constitutes the majority of manufacturing operations, has been minimally impacted on, as a result of pre-planning and contingency measures having been put in place.

“The biggest impact is on our sanitaryware, which is manufactured in Krugersdorp, where one shutdown in a factory equates to 12 hours of lost productivity, while putting strain on machines since it is not made to be put on and off in such a short period of time, which drives up maintenance costs and downtime required for maintenance.”

Potgieter added that one hour of downtime equates to R300 000 in production losses in most of the company’s factories.

He noted that Italtile’s retail stores are able to operate manually during a power outage, with the stores remaining open for business. Nevertheless, load-shedding reduces customer buying activity and small business buying.

Meanwhile, in the current six-month period, the company’s key goals will be to continue to entrench retail excellence disciplines across the business, drive sales through its customer-centric shopping experience strategy, advance store roll-outs and revamp existing stores, leverage opportunities in the supply chain and continue to extract synergies from its integrated supply chain.

Potgieter highlighted that the store roll-out programme reflected management’s belief that significant opportunity exists to grow the tile category in South Africa, given that, per capita tile consumption is only about half of that reported in other emerging markets.

Opportunities in the supply chain include launching new merchandise categories to enhance customers’ complete shopping experience. Potgieter noted that the company is rolling out the supply of lighting products through its TopT stores, since lights form part of home finishing.

“Depending on how that goes, there might be opportunity in the broader group to either add to current merchandise categories or consider complementary new product supply.”

The company believes solid headline earnings growth will be achieved in the forthcoming six months, albeit not at the same level as the reporting period.