JSE-listed ceramic tile and sanitary-ware retailer and manufacturer Italtile has bucked the general poor showing in the South African retail market, delivering a commendable set of full-year results on Thursday with group turnover up 15.2% and trading profit up 18.4% for the year ended June 30.
SA’s lacklustre economic growth, low consumer confidence levels and the woes in the construction industry do not seem to have dented Italtile’s performance as much as other retail and industrial players. The group saw improvements in all key performance metrics.
Italtile CEO Jan Potgieter spoke to Moneyweb. He says the group’s turnover hit the R10 billion mark, with trading profit also showing double-digit growth coming in at R1.79 billion, up from R1.5 billion in the 2018 financial year. “This is a credible performance in a very difficult environment, especially if you look at how tough other retailers are finding things.”
The group, which operates 189 stores across SA and in several other African countries through retail chains such as CTM and TopT, declared an ordinary dividend per share of 41 cents for the full year.
Its dividend was up 8%, and it also paid a special dividend of 50 cents per share from its strong cash reserves. The special dividend was in celebration of its 50th anniversary and effectively more than doubled its dividend payout to shareholders for the year.
Total retail store turnover grew 6.1%, while like-for-like retail store turnover increased by 4.2%. However, manufacturing sales for the period rose by a modest 1.4%.
Potgieter, who was CEO of Massmart’s Massdiscounters division for just over six years until 2013, became Italtile CEO in 2016 after a few years as the group’s chief operating officer.
He says Italtile’s good performance comes down to what it is doing within the business as a buffer against the impact of “exceptionally difficult trading conditions experienced over the past year”.
He notes that the group’s focus on “cost leadership” – including internal cost controls and disciplined management of working capital – plays a key part in the company’s performance.
“I am proud of Italtile’s robust business model and strong cash-generative nature,” he says, adding that the company has benefitted from efficiency gains across its operations, from the factory gate to the retail floor.
“Our vertically integrated business means that with the CTM and TopT stores, around 90% of stock is local and comes largely from our factories.
“At Italtile Retail, which targets the upper income market, we now have a 50/50 split between local and imported products. This has decreased from around 80% imported stock a few years ago. Italtile’s manufacturing operations also supply other businesses in SA, including many of our competitors.”
Questioned about new competitors such as French DIY retailer Leroy Merlin coming into the local market, as well as Massmart’s fast-growing Builders Warehouse chain, he says Italtile does not focus on the competition.
“We focus on our own business, which targets specific markets and segments. We are not big-box retail like Leroy Merlin and Builders Warehouse. Instead, we see ourselves as selling fashion for the home.
“Despite the challenges in the local market, Italtile is on an upward growth curve and we are looking to grow our market share,” he adds.
Independent analyst Anthony Clark says Italtile’s performance shows that the company “remains a resilient force within the consumer DIY, hardware and renovations market that it operates in”.
“For any company to report positive earnings growth year on year in this tough economic and consumer environment has to be seen as a commendable performance.”
Clark notes that the company has seen somewhat modest growth following its realignment after merging with Ceramic Industries. However, he says there has been an “improved performance from its underlying divisions” particularly the low-end TopT chain, while CTM has seen a renewed focus.
“There has been a fall-off in the second half of the year compared to the first, and underlying conditions going forward will remain challenging. However, the company is reformatting its offerings particularly in the mid-market CTM, with better price points and improved optimisation of its assets in order to maximise throughput and profitability per store.
“This is positive,” he adds.
Clark says that if one looks at the sector, the likes of Massmart and Cashbuild have not fared as well. “Overall, despite this being a challenging environment and despite some ‘acquisitive accounting’ in Italtile’s numbers due to the ongoing benefits of Ceramic Industries, I feel that these results are pleasing, and the company remains solid. When the SA market actually recovers, it will be businesses like Italtile that will rise much faster than most other companies.”
Italtile’s share price was up 8% on Thursday, following the release of its results.