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Covid-19 no deterrent to Italtile’s R800m capex plans

Group also declares a dividend.
Italtile’s Jan Potgieter. The company saw double-digit sales growth following the relaxation of Covid-19 lockdown restrictions in June. Image: Supplied

Despite Italtile’s revenues taking a knock due to Covid-19 and lockdown restrictions in the final quarter of its financial year to end June, it still plans to invest around R800 million in expanding its manufacturing and retail footprint.

Italtile CEO Jan Potgieter confirmed on Tuesday that the group’s capex plans are “still going ahead” following the release of its 2020 annual results.

The ceramic tile and sanitaryware giant– which owns the CTM, TopT and Italtile chains as well as a significant manufacturing operation – paid out a dividend for the second half of its financial year.

This contrasts with many fellow JSE-listed companies that are slashing capex budgets and withholding dividends to conserve cash and boost liquidity in the face of the Covid-19 crunch.

“Italtile has a capex of around R800 million, which we plan to spend over the next 12 to 18 months,” Potgieter told Moneyweb, adding that the biggest single investment as part of its current capex plans is a planned R250 million upgrade of its Samca tile factory near Hammanskraal in Gauteng.

“Generally, we spend around R600 million in capex annually. However, the company was forced to hold back some of our capex in the last quarter of our financial year [April to June] due to Covid-19 lockdown restrictions. We will thus be spending R800 million as part of our current capex plans.”

Italtile’s Samca tile factory near Hammanskraal in Gauteng, which is set to be upgraded to the tune of R250 million. Image: Italtile website

Italtile’s group-wide turnover for the financial year came in at R9.3 billion, 7% lower than the prior comparable period. The company reported a 6.2% decline in like-for-like retail store turnover.

However, it noted that prior to the lockdown (up to March 27), retail store sales were up 5.4% year on year. “During the lockdown, only marginal sales were recorded in April. In May and June, store sales grew 3% and 11% respectively.”

Read: Italtile’s capital flight warning as top-end sales take a hit

While Italtile posted a trading profit of just over R1.5 billion for the year, this was 16% down on the previous financial year (2019: R1 797 million).

Dividend

The group declared a second-half ordinary cash dividend of 10 cents a share. This brings its total dividend for the year to 33 cents a share (it declared a half-year dividend of 23 cents per share).

Italtile’s comparatively strong full-year performance saw its share price surge more than 8% on Tuesday, closing at R11.90 on the JSE.

Italtile share price

“Despite the impact of the lockdown and related trading restrictions, the group reported a solid set of results for the review period,” said Potgieter.

“Our goal throughout this period was to come through the crisis well, and in certain respects, better than before. The double-digit growth delivered in June to August, with a leaner team, less stock and healthy brands, is rewarding evidence of this.”

Market share gains

He noted that the group’s three major retail brands all gained market share, while its fledgling U-Light brand established a good footprint of five stores in its first year of operation.

Overall, the group’s retail footprint is set to surpass the 200-store mark by the end of August, with several more store openings planned for its 2021 financial year.

Despite its retail business seeing double-digit sales growth, following the further relaxation of Covid-19 lockdown restrictions since June, Potgieter is not convinced this will continue through to December, saying: “There was pent-up demand and consumers seem to be spending more on their homes due to Covid-19 restrictions and more people working from home.

“We anticipate that the first six months of the new financial year will be very difficult [overall], while the impact of the pandemic persists,” he added.

“We are optimistic that the second six months [commencing in January 2021] will be more robust, particularly since the comparison will be against just five months of trading in our 2020 half-year period.”

Listen to Nompu Siziba’s interview with Italtile CEO Jan Potgieter:

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This smacks of arrogance, typical retail over expansion of footprint. Let’s see what gets left behind after the market reality bites.

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