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

Group expects 18-28% fall in headline earnings per share for its year-end to June, largely due to Covid-19 impact.
Italtile's new generation retail store in Waterfall, Gauteng, which also includes a 'millennial' CTM. Picture: Supplied

Italtile Limited, the JSE-listed ceramic tile and sanitaryware retailer and manufacturer, warned of “substantially lower” sales within its upmarket Italtile retail chain in a trading update on Wednesday.

The group’s financial year is to the end of June and the trading update highlights the impact of Covid-19. However, buried down in the second page of the update is the worrying warning.

“Italtile Retail’s sales were substantially lower than the prior comparable period. This is due to a combination of factors including the continued deterioration of the commercial projects market in the premium-end segment and the general decline in size of the top-end residential market in the wake of private investor capital exiting SA,” it said.

Read: Capital flight: SA property companies invest billions more offshore

Interestingly the group, which also owns mid-market and discount sanitaryware chains CTM and TopT, did not highlight the impact of Covid-19 first in relation to lower sales within its premium Italtile chain.

“The inability of contractors to operate during the lockdown further restricted sales in the high-end home renovations segment,” it said.

Warnings

Italtile’s comments around private investor capital exiting the country come amid warnings about capital flight from several economists and business organisations, such as the SA Property Owners Association (Sapoa), even before the Covid-19 pandemic struck in March.

Moneyweb reported in July last year of Sapoa’s concerns around capital flight due to SA’s economic woes and policy uncertainty. JSE-listed private education groups, such as AdvTech, also warned last year of student “withdrawals” from its premium schools due to emigration.

The Covid-19 pandemic is expected to further restrict private sector investment and spending by South Africa’s rich, as they opt to conserve cash. Retrenchments are also likely to impact higher level jobs, with the economic fallout from the pandemic pushing the country deeper into recession.

Read:
Covid-19: B4SA foresees up to 4 million job losses
Repo rate effectively slashed by over 40% this year

Meanwhile, Italtile also warned in its trading update that headline earnings per share (Heps) for its year-end to June, will be between 18% and 28% lower. The forecast includes a once-off cost of R39 million related to its black empowerment deal with Yard Investment Holdings.

Impacted sales

The overall decline in group earnings is largely related to the Covid-19 lockdown and restrictions to trade. However, it noted that with the easing of the lockdown, sales were picking particularly within its CTM and TopT divisions.

“The group’s results for the second six months of the current financial year, being January 1 to June 30 2020, are best analysed in the context of the progression of the pandemic in our trading markets. In the pre-Covid-19 era, up to March 27 2020 when the national lockdown was implemented, sales were on track with management’s stated target to deliver growth in line with the first six months of the current financial year, being July 1 2019 to December 31 2019,” it said.

“However, subsequent to the commencement of the lockdown, sales across the manufacturing, supply chain and retail operations were severely impacted,” it added.

Italtile said that total retail store sales for the 48 weeks ended May 31 2020 decreased by 5%, while like-for-like retail store turnover declined by 10%, compared with the prior corresponding period.

It said that manufacturing sales for the 48 weeks were 10% lower when compared with the prior comparable period.

Commenting on the performance of its CTM division, the group said that prior to the lockdown period, CTM’s sales were solid and in line with the performance seen in the comparative period last year.

“However, sales during Level 5 of the lockdown were minimal. The subsequent easing of restrictions in Level 4 resulted in an increase in turnover compared to the prior year, with a clear disparity between rural-based stores which traded robustly, and suburban stores where sales were more obviously impacted by cautious consumer behaviour in light of the pandemic and sustained limited disposable income,” it pointed out.

Italtile added that its TopT division saw “a surprisingly strong performance” in the second half of the current financial year, despite Covid-19 restrictions to trade.

“This is underpinned by improved operational disciplines in the business, as well as higher spend in certain regions where homeowners returned to their rural homes to wait out the lockdown. Consumers in this segment typically continue to invest incrementally in their homes as funds become available, and with the full re-opening of stores in May 2020, brisk sales resumed with double digit growth achieved,” it said.

Meanwhile, in the face of Covid-19 uncertainty, the group said it has “robust cash reserves”. However, it has also implemented several cash preservation measures including differing planned capital expenditure and “salary and fee sacrifices” by executives, non-executives and within its senior management.

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Canary in the coal mine right here. Capital “flight”? I’d go with “evacuation” or “emergency exit”. The proto-Marxists have made their intentions clear, as if there was any ever doubt. They will consume, blame, consume, blame, consume, blame and then … there will be nothing. Act accordingly dear citizen

End of comments.

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