Italtile grows interim profit to R1.4bn

11th February 2021 By: Marleny Arnoldi - Creamer Media Online Writer

JSE-listed tile and bathroomware manufacturer Italtile has achieved trading profit growth of 38% year-on-year to R1.4-billion for the six months ended December 31, 2020.

The company declared an interim ordinary dividend of 31c apiece, up 35% from the 23c apiece interim dividend declared for the six months ended December 31, 2019.

CEO Jan Potgieter says the company recorded double-digit sales growth across all of its operations – retail brands, supply chain importers and manufacturing businesses.

He attributes the sales growth to people having spent more time and income on home improvement, given the trend of working from home during all levels of lockdown in 2020, as well as to a productivity and technology drive across the group.

Italtile’s retail store turnover increased by 17% year-on-year.

In the supply chain, Italtile’s import businesses grew sales by 25% year-on-year, while manufacturing sales for the reporting period rose by 18%.

Adjusted basic earnings per share (EPS) grew by 33% to 77.9c for the six months under review, compared with adjusted basic EPS of 58.4c apiece reported in the prior comparable period.

The company incurred R359-million of capital expenditure during the review period, on par with the prior period. Italtile had temporarily deferred expansion projects totalling R800-million in the six months under review owing to lockdown and trading restrictions, but these have been reinstated and are under way.

These expansion projects include commissioning of technology and equipment in the Samca floor tile factory, relocation of Ezee Tile’s primary manufacturing facility to a new site, construction of a new fully automated dark warehouse for Betta sanitaryware and development of a retail store node in Boksburg, which will feature all of the group’s retail brands.

Italtile had cash on hand of R1.1-billion at the end of December, compared with cash of R702-million at the end of 2019, demonstrating the cash generative nature of the business.

Italtile had 203 stores at the end of December, up from 198 stores at the end of December 2019. The company also has six online webstores.

RETAIL BRANDS

Potgieter says robust growth was achieved in-store across all three of the company’s major brands, CTM, Italtile Retail and TopT, across all merchandise categories, across all regions, and across key metrics including sales, profits, average basket value, stock turn and sales per person.

“We invested substantial resources in developing and implementing innovative technology online to enhance our competitive offering. During the review period, record unique visitor traffic was reported across all of the webstores, reflecting the sustained trend of consumers to conduct their pre-store visit research online.

"In addition, growing numbers of customers concluded sales online, demonstrating the relevance of the group’s omni-channel offering which aims to provide a seamless shopping experience across all trading platforms.”

Potgieter reports that CTM’s Sithi Wena, or you deserve a beautiful home, culture is well-entrenched across the brand offering and continues to underpin the step-change that is epitomised by improvements in the range, presentation and look-and-feel in the stores.

“CTM delivered double-digit sales and profit growth, which is particularly commendable given the lower personnel headcount and competitive trading environment,” Potgieter notes.

He adds that while good sales growth was recorded across all key merchandise categories, notably strong results were achieved by the bathroomware division, specifically in stores which have been converted to the highly stylish Millennial format.

Italtile Retail reported rewarding sales and profit growth and improved store productivity. Potgieter comments what was particularly pleasing is the strong gain in market share, entrenching Italtile Retail as the leader in the premium-end segment.

This strong performance is largely attributable to the brand’s unique offering, being a balance of high-end imported product and the best that the local market has to offer at competitive prices, which has attracted new customers.

The retail business, which is largely driven by renovations, outperformed the projects division and is likely to continue to do so until new build and commercial projects regain momentum over the longer term.

TopT delivered double-digit sales and profit growth, and improved margins, average basket value and store productivity. The brand succeeded in maintaining market share, despite fierce competition in its segment.

In line with the strategy to convert nonperforming franchise stores to corporate, the group took back three regions in the prior financial year and has seen a pleasing turnaround in turnover and profitability in those territories.

“TopT has launched a major new positioning campaign, Woza Ekhaya, or come home, centred on helping customers to create their dream home; the underlying theme is the importance of community, TopT’s role as part of that community and its proudly South African credentials.

“The campaign is expected to achieve strong consumer equity and drive sales as it gains traction in the months ahead,” Potgieter explains.

Moreover, Potgieter says Italtile’s Ceramic Industries business offers significant strategic advantage for the group given that one out of every two tiles, baths and toilets bought in South Africa are manufactured by Ceramic.

“Ceramic’s tile operations in South Africa and Australia recorded robust sales and profit growth, as unrelenting demand in both markets drove full capacity utilisation in the factories, boosting efficiencies and lowering unit costs. Management’s sustained focus on enhancing yields and reducing costs and waste in the operations also contributed to the strong results,” remarks Potgieter.

The Betta Sanitaryware and Baths operations delivered solid performances, reflecting ongoing improvements in the quality of processes and planning implemented by the restructured management team.

This while the Ezee Tile business continued to gain momentum as a result of improved production efficiencies and intensified cost management.

Double-digit sales growth was recorded, while profits rose strongly, derived from full capacity utilisation and operational enhancements in all its factories.

Management anticipates that varying degrees of lockdown will continue to be implemented over the next year which, while damaging the economy generally, will likely favour the prevailing home improvement trend.

Albeit that consumers will face greater financial hardship and constrained disposable income in the year ahead, current evidence indicates that they will continue to spend on their homes when funds permit; low, single-digit interest rates are expected to be retained for the short to medium term, which will further encourage homeowners to invest in their primary asset.

In light of this, management is optimistic about the group's growth prospects and has developed strategies to optimise on the opportunities presented.

“We will also continue to roll out capital expenditure projects and new store openings where proven consumer demand exists.

"Simultaneously, preparations are in place to manage the anticipated continued disruption of imported product, and to ensure uninterrupted supply from our own and other local manufacturing operations to all of our markets in South Africa and the rest of Africa,” Potgieter states.