Italtile Limited (JSE:ITE) News - Short-Form Announcement and Cash Dividend Declaration for the Six Months ended 31 December 2021

Italtile Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1955/000558/06)
Share code: ITE 
ISIN: ZAE000099123
("Italtile" or "the Group")


SHORT-FORM ANNOUNCEMENT AND CASH DIVIDEND DECLARATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2021


Financial highlights
- System-wide turnover R6,1 billion 2020: R6,2 billion
- Trading profit R1,5 billion 2020: R1,4 billion
- Earnings per share 84,0 cents 2020: 77,9 cents
- Headline earnings per share 83,9 cents 2020: 77,1 cents
- Net asset value 543,0 cents 2020: 517,0 cents
- Ordinary dividend per share 34,0 cents 2020: 31,0 cents
- Net cash R0,5 billion 2020: R1,1 billion
- Store network 209 June 2021: 206 December 2020: 203

"In the current challenging external environment, our strategic focus is on the growth levers within our control and
influence: productivity, cost leadership, partnerships with our people, and constant innovation and investment aimed 
at delivering an unrivalled shopping experience for our customers."
Lance Foxcroft, CEO.

OVERVIEW
Founded in 1969, Italtile Limited is a proudly South African manufacturer, franchisor and retailer of tiles,
bathroomware and other related home-finishing products. The Group's retail brands are CTM, Italtile Retail, TopT and
U-Light, represented through a total network of 209 stores, including six online webstores. The brand offering targets
homeowners across the Living Standards Measure 4 to 10 categories.

The retail operation is strategically supported by a vertically integrated supply chain comprising key manufacturers
and import operations and an extensive property portfolio. The manufacturers are Ceramic Industries Proprietary Limited
("Ceramic") and Ezee Tile Adhesive Manufacturers Proprietary Limited ("Ezee Tile"). The import businesses are Cedar
Point, International Tap Distributors ("ITD") and Durban Distribution Centre ("DC").

The Group's dream is to become the best manufacturer and retailer of tiles, sanitaryware and ancillary products in
Africa, by offering an unrivalled shopping experience through the strategy of ensuring the right product, at the right
time, place and price.

TRADING ENVIRONMENT AND CONSUMER TRENDS
State of the consumer
During the review period, the local economic and socio-political environment remained fragile as the ongoing impact of
the Covid-19 pandemic ("pandemic") continued to highlight major structural flaws and inequalities in the South African
bedrock, and persistent corruption, infrastructure failure, poor service delivery, policy uncertainty, and general
dissatisfaction regarding overdue transformational reforms weighed heavily on consumer and business confidence and
spend.

In light of weak economic growth and record unemployment levels, homeowners faced growing financial hardship,
experiencing low wage inflation, high levels of personal debt, rising consumer inflation and more recently, two
interest rate increases.

In this context, consumer despondency and fatigue, which we flagged at year end, intensified and is reflected in the
anecdotal evidence of our customers in the mass middle market specifically, who have significantly reduced or deferred
investment in their homes over recent months.

Our industry
From an operational perspective, the pandemic continued to cause severe disruptions to global supply chains, a
situation exacerbated by local port delays. Due to the severe disruptions in supply chains, stock availability across
the industry has been erratic over the past 18 months. More recently, after prolonged shortages, stock levels have
risen disproportionately to demand as sales fell short of anticipation.

Compounding the pressure on our industry, the review period featured rampant price inflation across the spectrum of
input costs, further affecting affordability for consumers and resulting in a margin squeeze.

In this content, it is reassuring to report that the Group's local integrated supply chain and manufacturing capability
afforded the business significant strategic advantage by alleviating supply volatility.

Home improvement trends
Since early 2020, pandemic-related work-and-study-from-home restrictions altered consumers' disposable income spending
priorities and boosted strong demand for home improvement products. However, over the past six months, there has been 
a steady decline in this demand as lockdown restrictions were eased or lifted and various sectors of the economy
reopened. The cocooning trend that prevailed since the pandemic emerged has diminished significantly, and disposable
spend has been channelled away from home improvements back to other discretionary and lifestyle pursuits.

RESULTS
In the Group's prospects statement for the year ended 30 June 2021 and the voluntary sales update for the five months
to 30 November 2021, management cautioned that the business would remain on track to deliver sales and profit growth
for the full year, assuming trading conditions did not deteriorate materially in the balance of the current financial
year. Regrettably, as outlined above, conditions have continued to worsen, resulting in a concomitant decline in sales
growth from Q1 to Q2 of the review period, and leading into January 2022.

Notwithstanding this context, management remained consistent in prioritising and focusing on the growth levers in the
business over which the Group has control and influence. The results reported for the period are a reflection of the
following factors which contributed to supporting sales growth and off-setting the contextual adversities:
- our ongoing productivity drive, emphasis on cost leadership, and the extraordinary response of our team to adjusting 
  to the new normal;
- management's focus on improving the customer shopping experience through enhanced ranges, presentation, and service;
- the Group's robust business model, specifically the local integrated supply chain, which ensured consistent
  availability of a wide product range at stable prices;
- continued innovation and investment in technology for the future - both in our factories and across the Group's
  omnichannel trading platforms;
- six new store openings, three store closures and the reinstatement of our store revamp programme;
- conscientious management of Covid-19 health and safety protocols for our customers and our people, which ensured all 
  of our factories continued to operate without interruption throughout the pandemic, providing seamless service to our
  customers; and
- our ethos of partnership and profit-sharing with our people, which empowers them to participate in the success of the
  business.

DIVISIONAL REVIEW
RETAIL BRANDS: STORES AND WEBSTORES
As the pandemic-related cocooning trend declined, evidenced by consumers channelling discretionary spend away from home
improvements to other lifestyle pursuits, our store operators were challenged to respond with resourcefulness and
innovation to retain a share of customers' wallets.

CTM
CTM's performance for the period is largely a reflection of the stressed state of the mass middle market consumer.
While most of the brand's key metrics improved, including sales per person and average basket value, total transactions
declined as demand in this segment of the market waned. During the review period, a key focus was on store presentation
and revamps, the latter having been postponed during the prior six months due to the pandemic. A total of 14 stores
were revamped, with pleasing results reported by the stores post their refurbishment.

Management's focus in the forthcoming period will be on driving increased sales volumes through improved ranges and
price laddering, enhanced service at all customer touchpoints, and entrenching key disciplines related to stock and
cost controls and in-stock levels.

Italtile Retail
Following a very strong performance in FY2021, Italtile Retail delivered another pleasing set of results. Key metrics 
improved, including sales per person, profits, average basket value and productivity. While the residential/retail 
component accounted for the bulk of sales, the Commercial Projects division showed very early signs of recovery in the 
latter part of the review period. The business unit has a good pipeline of prospective projects and management is hopeful 
that improved investor sentiment in this market segment will continue to gain traction.

The brand opened a pilot small-format store in George, Western Cape, during the review period.

TopT
The brand reported a sound performance, with improvements recorded across most key metrics: sales per person, profits,
average basket value and productivity. During the review period encouraging opportunities were identified to optimise
in-stocks and price laddering through enhanced procurement, planning and logistics. As a result, the business model
will be simplified to centralise these functions, thereby freeing up operators to focus on sales and in-store
disciplines to provide an improved customer shopping experience. With 92 stores in the network, this specialised,
centralised capability will add value by leveraging untapped synergies across TopT's regions.

The brand has a strong pipeline of new stores which will be rolled out in proven markets as opportunities arise.

U-Light
While performance is still below management's expectations, further progress was made during the review period with
improving the business model. It is pleasing to report that the webstore gained traction and is a valuable tool in the 
customer offering. In the period ahead the business will focus on range enhancements; growing market share in the external 
projects segment, where initial inroads have been made; and further developing the webstore offering.

WEBSTORES
The Group operates six webstores, one each for Italtile Retail, TopT and U-Light, and three for CTM's markets in South
Africa, Tanzania and Kenya. In general, user traffic across the webstores remained above pre-pandemic levels, affirming
that consumer behaviour has modified permanently. Given the growing contribution of this offering to the Group's
multi-channel sales platform, management continues to invest in developing and enhancing the capability to provide
customers with a seamless, personal digital experience to differentiate our offering from our peers, in a market space
which is becoming increasingly sophisticated and competitive.

INTEGRATED SUPPLY CHAIN: MANUFACTURERS
Ceramic Industries
This business has significant strategic advantage for the Group given that one out of every two tiles, baths and
toilets purchased in South Africa are manufactured by Ceramic.

As a volume-driven operation, Ceramic prospers at full-capacity utilisation. In light of the decline in customer demand
and annual shutdown, specifically in Q2, Ceramic's profits and margins for the period were flat. Although improvements
were made in efficiencies throughout the operations, particularly with regard to the logistics function, the impact of
unforeseen inflationary costs and the decision to withhold price pressure on customers off-set these.

During the period, additional capacity was unlocked in the Gryphon and Pegasus factories, and continued investment in
technology was made throughout the division to facilitate new finishes and features on products. It is also pleasing to
report a gain in share of the large format as well as the import substitute tile markets.

The Samca Plus factory underwent a major upgrade, comprising the installation of state-of-the-art Italian technology
and equipment. The commissioning of the R350 million factory in November 2021 provides a significant strategic
advantage for the Group, complementing Ceramic's existing range with another premium-end import substitute offering.
The early response from customers has been favourable, and management is satisfied that the product will capture market
share in the import segment.

Management is confident that there are strong growth prospects for the entire Ceramic business through import product
substitution; improving alignment in the Group's integrated supply chain; and unlocking value in the stores, which will
drive volumes in the factories.

Shutdowns for annual maintenance performed in December and January will result in incomparable performance in January.

Ezee Tile
Directly aligned to weaker demand from the retail brands, specifically CTM, this business reported solid results in Q1
and a softer performance in Q2. International supply chain bottlenecks were particularly testing during the period,
resulting in inconsistent supply of raw materials and steeply inflated input cost price increases. Notwithstanding
severe pandemic-related supplier delays, Ezee Tile will relocate and upgrade its Germiston factory from rented premises
to an owned site in Brakpan, Gauteng in April 2022. The new site will provide substantial opportunity to streamline
operations and expand the business's current capacity.

INTEGRATED SUPPLY CHAIN: IMPORTERS
Global supply chain interruptions had a harsh impact on the three import businesses - Cedar Point, ITD and DC - which
collectively reported lower sales due to erratic or non-delivery of imported products. Pricing volatility was another
significant adverse factor, and in light of these obstacles, which are expected to continue for the short-term, greater
focus will be placed on exploring local import substitute alternatives that will ease supply and pricing volatility and
further the Group's proudly South African ethos.

SUSTAINABILITY PRIORITIES
The Group's sustainability agenda is underpinned by our practices, facilities and product offering, that are designed
and managed to limit the Group's carbon footprint, reduce the impact on the natural environment of local communities,
and ensure the mental and physical wellbeing of our people. Our proudly South African ethic prioritises selling local
products manufactured by local people, thereby creating jobs, providing training, and contributing to the economy.

PROPERTY PORTFOLIO
As at 31 December 2021, the estimated market value of this portfolio was R4,8 billion (2020: R4,4 billion), comprising
a retail portfolio valued at R3,6 billion (2020: R3,4 billion) and a manufacturing portfolio valued at R1,2 billion
(2020: R1,0 billion). During the reporting period, capital expenditure of R205 million was incurred on an ongoing
property enhancement programme, while R217 million was invested across the manufacturing operations on plant and
equipment upgrades.

DECLARATION OF ORDINARY CASH DIVIDEND
The Group's dividend cover is two and a half times. The board of directors of Italtile ("the Board") has declared an
interim gross cash dividend (number 111) for the review period ended 31 December 2021 of 34,0 cents per share (2020:
31,0 cents) out of income reserves to all shareholders of Italtile as at the record date of Friday, 4 March 2022. The
dividend per share is calculated based on 1 321 654 148 shares (2020: 1 321 654 148 shares) in issue at the date of
dividend declaration. The net local dividend amount is 27,2 cents per share for shareholders liable to pay dividends
tax and 34,0 cents per share for shareholders exempt from paying dividends tax.

Dividend declaration date                                         Thursday, 10 February 2022
Last day to trade cum the dividend                                Tuesday, 1 March 2022
Date to commence trading ex-dividend                              Wednesday, 2 March 2022
Record date                                                       Friday, 4 March 2022
Payment date                                                      Monday, 7 March 2022.

Share certificates may not be rematerialised or dematerialised between Wednesday, 2 March 2022 and
Friday, 4 March 2022, both days inclusive.

PROSPECTS
The Group's most powerful assets are its robust business model and its innovative, resilient people. Management is
gratified by the Group's performance over the past six months in very trying circumstances, and is confident that the
challenges that lie ahead will be overcome.

Focus will be centred on the following growth levers in the period ahead:
- gaining market share will be a key priority, particularly in the tile segment catering for the mass middle market; this
  will be achieved through improving ranges and instilling retail excellence disciplines at every customer touchpoint;
- the ongoing store roll out programme - specifically in underserved markets - and the continued upgrade of stores across
  the network;
- opportunities to leverage both the integrated and external supply chains, and improve in-stocks across the Group;
- our capital expenditure investments are counter-cycle, and by investing timeously, we have avoided inevitable future
  cost increases and delays; we are well positioned to take advantage as trading conditions improve;
- we will explore opportunities to expand our existing local facilities and increase capacity;
- we will pursue opportunities to capitalise on the Group's footprint in Africa, and expand cautiously where appropriate;
  and
- over the past six months, input cost inflation has risen significantly - where feasible, costs have been absorbed in
  the short term, but prices and margins will be adjusted in the forthcoming periods to support business units and store
  operators.

OUTLOOK
Notwithstanding the challenging external environment, management remains optimistic that there are opportunities for
growth in our business, and in line with our stated philosophy, we will continue to focus on levers within our control
and influence. We continue to target improved sales and profits for the year, despite the current challenging
conditions. Given the uncertainties related to persistent country-specific risks and ongoing pandemic-related concerns,
it is imprudent to provide more specific guidance in terms of future performance at this point. In this regard,
management will continue to provide regular, transparent communication to the market over the forthcoming period.

For and on behalf of the Board

L A Foxcroft                   B G Wood
Chief Executive Officer        Chief Financial Officer

10 February 2022


SHORT-FORM ANNOUNCEMENT
The content of this short-form announcement is the responsibility of the directors. Shareholders are advised that this
short-form announcement represents a summary of the information contained in the full long-form announcement which is
available at:

https://senspdf.jse.co.za/documents/2022/jse/isse/ite/interims22.pdf and on Italtile's website at
https://www.italtile.com. This short-form announcement was published on SENS on 10 February 2022.

Any investment decisions made by investors and/or shareholders should be based on a consideration of the full
announcement as a whole and investors and shareholders are encouraged to review the full announcement, as detailed
herein.

Both the short-form and full announcements are also available for inspection at the registered offices of Italtile and
sponsor, Merchantec Capital, during business hours, and copies may be obtained at no cost on request from the Company
Secretary, who is contactable on +27 11 882 8200 or lizwillis@ejaysecretarial.co.za.


Registered office: The Italtile Building, corner William Nicol Drive and Peter Place, Bryanston, 2021 
                   (PO Box 1689, Randburg, 2125) 

Transfer secretaries: Computershare Investor Services Proprietary Limited 

Company Secretary: E J Willis

Sponsor: Merchantec Capital Auditor: PricewaterhouseCoopers Inc.

www.italtile.com

Date: 10-02-2022 07:15:00
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