Italtile customers view Bathroom ware at one of its CTM stores. Italtile said its stores were profitable in the six months to December 31 despite the tough macro-economic environment.
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Italtile managed to increase system-wide turnover 1% to R6.1 billion in a tough operating environment and its 211 stores remained profitable in the six months to December 31, CEO Lance Foxcroft said on Monday.
The retailer, manufacturer and importer of tile, bathroom ware and other home finishing products in South Africa, increased interim headline earnings per share by 4% to 70.1 cents and the dividend was lifted by the same percentage to 28 cents a share during the period.
In an interview with Business Report on Monday, Foxcroft said the balance sheet was healthy, net cash was up 9% to R1.6bn, and there were no immediate large capital expenditure plans so there may be a large cash balance available at the end of the second half for further dividends and share buybacks.
He said their six month-old ‘fighting‐fit’ mantra had stood them in good stead, while the trading environment had improved in the second quarter of the first half.
“Our stores are profitable and the franchise network is healthy. Our vertically integrated manufacturing and import businesses underpinned the retail operations’ value offering for cost‐conscious customers,” Foxcroft said.
He said the six months under review ended stronger than it started, buoyed by improved consumer sentiment and increased disposable income, but the outlook for the second half remained uncertain.
The group’s retail brands are CTM, Italtile Retail and TopT, represented through a network of 211 stores, including seven webstores. The brands target homeowners across the LSM 4 to 10 categories. The retail operation is supported by manufacturing and import operations, and an extensive property portfolio.
“The six‐month period was characterised by two distinct halves. In the first half consumer confidence and spend in the building and construction sector remained subdued from high interest rates and inflation, which restricted disposable income and discretionary investment, and impacted on the affordability of renovation and new build projects,” he said.
“In the second half (Q2), consumer sentiment turned more positive subsequent to the successful transition to the Government of National Unity (GNU), while homeowners’ disposable income increased as a result of two interest rate cuts, lower inflation and payouts from the two‐pot pension fund reforms.
“However, the improvement in Q2 trading conditions may not be sustained, as further benefit from the released two‐pot pension funds were not expected, and the group remained concerned about global trading uncertainties.
“Further interest rate cuts and lower inflation could start to impact positively on disposable income in the home improvement sector, however, consumer spend remains constrained.
“Although the high cost of living will continue to weigh on South Africans, experience has proved that local homeowners prioritise their homes as their primary asset and invest in them when funds permit. We expect this trend to persist, albeit that spend will be restrained.”
On the manufacturing side, two kilns were mothballed to match lower volumes and despite higher volumes in the second quarter, and this situation was expected to persist into the second half. The store footprint of the TopT stores would be increased in areas close to its customer base, he said.
In the longer‐term, however, prospects in the sector are relatively positive.
“South Africa is under‐housed and the dynamics of the housing market are favourable, featuring a young, growing, upwardly mobile population with a strong aspiration to own a home,” he said.
“Our strategy is to realise the opportunities within our business. We will do this by improving our competitiveness at all touchpoints, being our iconic brands, leading‐edge technology and products, vertically integrated supply chain, and resilient, capable teams and franchise partners.”
Total retail turnover grew by 4% to R2.84bn. Like-for-like system-wide store revenue rose by 3% to R4.1bn. Average selling price inflation was only 0.33%.
In the Manufacturing division, Ezee Tile delivered another solid performance, albeit off a low base, and its flagship Vulcania factory was operating close to design specification.
The Tile division reported slightly weaker results compared to the prior corresponding period, but it did well to maintain market share given the excess capacity in the market and price wars.
The Sanitaryware division grew key metrics and there were opportunities to improve efficiencies.”
In the deflationary pricing environment for ceramic tiles, Ceramic’s margins would likely remain under pressure, and management would focus on driving growth through reducing costs, optimising capacity utilisation and enhancing operating efficiencies to recover margins, including improving yields and reducing waste.
The engineering design and costing for our coal‐gas trial project had been completed, however, given the extension of Sasol gas supply to June 2028, implementation of this project had been delayed while proposals being developed by other alternative energy solutions providers would be explored.
BUSINESS REPORT
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