Italtile lays down resilient results in tough conditions

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BR Italtile 2014 Independent Newspapers In a weak market, Italtile products are finding favour with price-sensitive consumers. Photo: Supplied

Nompumelelo Magwaza

As activity in home renovations and the new build sector slowed down, consumers in the lower end and upper end of the market remained resilient, Italtile chief financial officer Brandon Wood said yesterday.

The tile and bathroomware manufacturer and retailer said despite the current weak trading environment, its products had found favour with discerning and price-sensitive consumers in the six months to December last year.

“Consumers in the middle-income segment were particularly price sensitive, whereas our entry-level and premium-end customers demonstrated greater resilience,” Wood said.

Italtile has a network of about 114 stores that trade under the CTM, Top T and Italtile Retail brands.

“In the context of subdued economic growth and intensified pressure on consumers’ disposable income, the renovations sector continued to experience greater activity than the new build sector, but generally growth in these markets remained muted.”

Italtile grew system-wide turnover by 15 percent to R2.3 billion in its first half from a year earlier. Revenue from group-owned stores rose 31 percent to R1.37bn due to the conversion and contribution of nine previously franchised CTM stores to corporate stores.

Wood said the conversion of these stores was as a result of a contract agreement coming to an end and not a trend.

The group’s interim trading profit rose 22 percent to R379 million with basic earnings a share increasing by 19 percent to 28.6c.

Wood said that the group reported improved revenues across its retail operations and supply chain businesses, and gained market share across most merchandise categories.

“During the six months improvements in the supply chain were achieved, and despite increased input costs, each business played a critical role in supporting the retail operations through competitive pricing.”

A 20 percent investment in manufacturer Ceramic Industries delivered a R10m contribution to group profit for the period. The group had an uninterrupted supply of sanitaryware during the second quarter when a general shortage was experienced in the market.

Despite its pleasing results, Italtile said margins in the supply chain had taken a knock as a result of the volatile currency. Although the company imports only 40 percent of its stock, the weakening rand had trickled down to locally manufactured products.

“There is pressure both on imported and exported stock. We have a large portion of local stock but having said that, manufactures are also exposed to the weak rand, including fuel costs related to distribution and supply chain as a whole,” Wood added.

Daniel Isaacs, an analyst at 36One Asset Management, said Italtile had delivered a good set of results, especially considering the context of generally tough trading conditions and consumer strain.

“It is obviously a tough space for consumers and to pull off double-digit growth in this market environment is impressive,” Isaacs said.

Isaacs said the resilience from consumers could point to the fact that during tough economic times people would rather do renovations on their house than look to buy new houses, and this could intensify as interest rates increased.

Italtile share price dropped 0.65 percent to close at R7.60 on the JSE yesterday.


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