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Italtile increases profit despite tough competition

Cape Town - Italtile's interim results show an increase of 12% in trading profit to R594m compared to the previous six month period.

System-wide turnover was up 14% to R3.50bn and the dividend declared was up 14% to 16.0 cents per share.

Eleven new stores were opened during the interim period.
   
According to Italtile's CFO Brandon Wood, despite testing trading conditions, the group’s Italtile Retail and CTM brands retained market share across their trading regions and merchandise categories, while TopT grew market share in its existing and new markets. Furthermore, improved turnover and profitability were reported by each of the Supply Chain businesses, ITD, Cedar Point and Distribution Centre, while the combined contribution of associates Ceramic Industries and Ezee Tile to Group profit grew by 27% to R56m.

The group said in the context of sustained economic instability, currency volatility and constrained disposable income, consumer and industry confidence levels continued to decline, resulting in a general slow-down in activity in the building and construction sector.

In keeping with recent trends, modest growth was experienced in the renovation and commercial projects segments, with little improvement reported in the new build market, as both public and private sectors deferred investment.

Across the income spectrum, investment in durable (home improvement) merchandise is increasingly regarded as a luxury, and disposable income is allocated only after extensive research. Consumers continued to favour multi-faceted value offerings.

Opportunistic importers

The group said during the period, "opportunistic importers" and established peer competitors took advantage of sporadic rand strength, driving a strong influx of imported product, thereby creating an over-stock situation across large segments of the market. As a result, price competition is expected to intensify over the forthcoming months.

“We anticipate continued margin pressure over the next six months based on planned deflationary price adjustments and anticipated slower sales in the prevailing environment,” said Wood.

The group has historically reported a stronger first half than second half, based primarily on consumers having access to additional funds from bonuses and stokvels pay-outs and capitalising on in-store festive season promotional activity at the end of the first half.

Management believes this trend will continue, and furthermore, given the prevailing economic climate, that the growth in the second half of the forthcoming six months will be weaker than the strong growth of the second half of the prior year.

Following intensive re-engineering across the business, and in the context of uncertain trading conditions, the emphasis in the forthcoming six months will be on refining retail excellence disciplines.  

“Management has an optimistic long-term outlook for the future of business in South Africa and for the opportunities which exist for the group.  Accordingly, continued investment will be made in expanding the store footprint, developing supply chain operations to support the growing business, and improving the offering to customers through investment in people and technology,” said Wood.

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