Jan Potgieter’s swansong results at Italtile sparkle

Jan Potgieter and his team at Italtile delivered stellar financial results on Thursday, with group-wide turnover up 25% to R11.6 billion, headline earnings per share (Heps) up 77% to 140.1 cents and shareholders getting both a final dividend of 25 cents per share (cps) and a special cash dividend of 50 cps for the year to the end of June 2021.

That is quite a swansong for Potgieter, who presented his final set of results for the group as CEO. He will leave on a high after announcing earlier this year that he plans to retire and emigrate at the end of the year to Portugal.

While the group has benefitted significantly from the Covid-boosted home improvement boom, it has also taken a hit from the pandemic, with extra costs associated with sanitisers and personal protective equipment (PPE) for staff as well has disruptions to trade when Covid cases occur among staff.

The group, which owns retail sanitaryware and tiling chains Italtile, CTM and TopT together with vertically integrated manufacturing operations, reported double-digit sales growth in all business units for its latest financial year.

Italtile is a relatively tightly held JSE-listed company from a shareholder perspective, but its share price firmed just over 3% on Thursday as shareholders and the market acknowledged the strong performance.

It closed at R16.65 a share, valuing the group at over R21.3 billion.

That is around R9 billion more than retailer Massmart, which owns DIY chain Builders Warehouse. Incidentally, Massmart is where Potgieter once worked as CEO of Massdiscounters (the former unit that housed the Game and DionWired chains) during its heydays between 2007 and 2013.

“Italtile is grateful for the great results, which highlights that we were ready to seize the opportunities to come out of the pandemic. It was a tough year, but we were well positioned as a group,” Potgieter tells Moneyweb.

“We were rewarded with double-digit growth across all business units. While the comparison with the prior year is a bit distorted due to the Covid lockdown hit in FY2020, we still showed double-digit growth when compared to our 2019 financial year,” he points out.

He says the performance is a testimony to the group’s agility in the face of Covid-19 as well as its “robust and integrated supply chain” which was enhanced over the past year with further significant investment.

Despite the ongoing impact of the pandemic on the economy, the group’s manufacturing operations (Ceramic Industries) and store network saw an investment of more than R800 million, split almost equally during the financial year.

Read: Covid-19 no deterrent to Italtile’s R800m capex plans

According to Potgieter, Italtile spends around R600 million on capex during a normal year. However, there were four big projects undertaken over the last 12 to 18 months such as the group’s new Samca ceramic tile factory in Gauteng.

“This is going to be a game-changer for us as we increase local production. The Samca factory is expected to come online in mid-September and boasts the latest technology, including having lower C0₂ emissions,” he says.

“The factory will not only allow us to compete with imports but will give the group a greater advantage in the face of supply chain disruptions globally due to Covid-19. It will enhance Italtile’s vertically integrated business model.”

On his pending departure, Potgieter says while “it is nice to leave on a high” he always planned to retire after six-to-eight years at the group.

He will remain on Italtile’s board as a non-executive director following his retirement and adds that the group is in good hands, with long-term succession planning in place.

Read: How succession should (and should not) be done

Lance Foxcroft, current CEO of subsidiary Ceramic Industries, will take over as group CEO from January 1, 2022.

Independent analyst at Small Talk Daily Research Anthony Clark says the market seemed pleased with Italtile’s results, as the share price rose over 3%.

“With net cash of R1.1 billion, and given its strong cash generation [it] can easily fund its forecast R800 million capex programme. There remain many new avenues of growth for Ceramic Industries and Italtile both at home and into Africa,” he adds.

“The company painted a positive note that they are not seeing any slowdown in demand for their products and plan to further capitalise on the investment made in the key brands to continue to grow market share and percentage share of the consumer’s home refurbishment wallet,” notes Clark.

“The market is seemingly missing the inherent strength and prospects within Italtile and on an 11.9x PE [price-earnings ratio] rating and a 6.4% dividend yield … I do not believe the price is that extended given the expectations for the company,” he says.

“Yes, the group’s share price was ahead 3% following the results, but the market I believe has wholly under-recognised the blue-chip, mid-cap royalty status of Italtile.”