Currently viewing: Corporate governance

Corporate governance

The Board and management of Italtile are committed to ensuring the sustainability of the business and entrenching an ethical corporate culture. Improving our responsiveness and accountability to our stakeholders is pivotal in ensuring responsible growth and sustainable profitability.

OVERVIEW

Italtile is committed to applying, in all material respects, the principles contained in the King Report on Governance for South Africa, 2009 (“King III”), which became effective on 1 March 2010, as well as the additional requirements for good corporate governance stipulated in the JSE SRI index.

KING III

The JSE Listings Requirements require all JSE-listed companies to provide a narrative of how they have applied the recommendations contained in King III, in respect of financial years commencing on or after the effective date.

Ongoing measurements and reviews are conducted to ensure continued compliance with the implications of King III by the Group.

OVERALL APPLICATION AND COMPLIANCE WITH KING III

Italtile accepts the obligation to apply the practices prescribed by King III and has resolved as a business philosophy to adopt and pursue the same. It therefore strives to meet those objectives in accordance with the content of the table below.

The Group subscribes to the Institute of Directors’ Governance Assessment Instrument (“IoDSA GAI”). The following report on the application of King III is extracted from that tool, and the full report on all 75 principles of King III is included on the Italtile website, www.italtile.com.

king iii governance

KING III GOVERNANCE REGISTER AT 30 JUNE 2017

AAA Highest
application
AA High
application
BB Notable
application
B Moderate
application
C Application to
be improved
L Low
application
  ITALTILE LIMITED – 1955/000558/06   IoDSA GAI   APPLIED/PARTIALLY
APPLIED/NOT APPLIED
  Plus   Chapter 1: Ethical leadership and corporate citizenship   AAA   Applied
  Plus   Chapter 2: Boards and directors   AAA   Applied
  Plus   Chapter 3: Audit committees   AAA   Applied
  Plus   Chapter 4: The governance of risk   AAA   Applied
  Plus   Chapter 5: The governance of information technology   AAA   Applied
  Plus   Chapter 6: Compliance with laws, rules, codes and standards   AAA   Applied
  Plus   Chapter 7: Internal audit   AAA   Applied
  Plus   Chapter 8: Governing stakeholder relationships   AAA   Applied
  Plus   Chapter 9: Integrated reporting and disclosure   AAA   Applied
  OVERALL SCORE   AAA   Applied

general meeting

Board of directors

A formal Board charter, as recommended by King III, has been adopted. The charter includes a code of ethics to which all directors subscribe. Procedures exist in terms of which unethical business practices can be brought to the attention of the Board by directors.

Composition of the Board

The Board comprises two executive directors, a non-executive Chairman and five non-executive directors of which four are independent.

The directors are individuals of a high calibre with diverse backgrounds and expertise, facilitating independent judgement and broad deliberations in the decision-making process.

Classification of directors

The basis on which directors have been classified in terms of their independence in this report, is as follows:

  • Executive directors are involved in the management of Italtile and/or its subsidiaries and are employed in a full-time capacity by Italtile.
  • Non-executive directors are those who have been nominated by a shareholder owning more than 20% of the Group, or who were in the employ of the Group in the preceding financial year. Non-executive directors are not involved in day-to-day management and are not in full-time salaried employment of Italtile and/or its subsidiaries.
  • Independent non-executive directors are all other directors irrespective of the period during which they have been members of the Board and as defined in the King Code and JSE Listings Requirements.

No director has an automatic right to a position on the Board. All directors are required to be elected by the shareholders at an annual general meeting on a rotational basis.

Board responsibilities

The Board is responsible to shareholders for the conduct of the business of the Italtile Group, which includes providing Italtile with clear strategic direction. The schedule of matters reviewed by the Board includes:

  • Approval of the Group’s strategy and annual budget;
  • Overseeing Group operational performance and management;
  • Ensuring that there is adequate succession planning at senior levels;
  • Overseeing director selection, orientation and evaluation;
  • Approval of major capital expenditure or disposals, material contracts, material acquisitions and developments;
  • Reviewing the terms of reference of Board Committees;
  • Determining policies and processes which seek to ensure the integrity of the Group’s risk management and internal controls;
  • Maintaining and monitoring the Group’s systems of internal control and risk management;
  • Communication with shareholders, including approval of all circulars, prospectuses and major public announcements;
  • Approval of the interim statement and Integrated Annual Report and accounts (including the review of critical accounting policies and accounting judgements and an assessment of the Company’s position and prospects); and
  • Approval of dividends.

The Board retains full and effective control over the business of Italtile. The Board has defined levels of materiality through a written delegation of authority, which sets out decisions the Board wishes to reserve for itself. The delegation is regularly reviewed and monitored.

Division of responsibility

The Company conducts an annual evaluation of its Board, Board Committees and individual directors, and is confident that there is an appropriate balance of power and authority on the Board to ensure that no one director has unfettered powers of decision making.

The division of responsibilities maintains a balance of power and authority on the Board.

Term of office

The two executive directors have a fixed term of employment. In accordance with the Company’s Memorandum of Incorporation, all non-executive directors are subject to retirement by rotation and re-election by shareholders at least every three years.

If requested to serve a further term, those retiring directors may offer themselves for re-election by shareholders. Any director appointed during the year must retire at the annual general meeting held immediately after his or her appointment.

Board meetings

The Board meets at least every quarter or more frequently if circumstances require. At the meetings, the Board considers both financial and non-financial qualitative information that might have an impact on the Group’s stakeholders. Prior to every Board meeting, each director receives an information pack that provides background information on the performance of the Group for the year to date and any other matters for discussion at the meeting.

Board members have full and unrestricted access to relevant information, management, and the Company Secretary, and may, at the cost of the Group, seek independent professional advice in the fulfilment of their duties.

Details of attendance at Board meetings are set out below:

Board member Attendance at meetings
G A M Ravazzotti 5/6*
N Booth#1 3/3
J N Potgieter# 6/6
S M du Toit 6/6
S I Gama 5/6
A Zannoni2 2/3*
S G Pretorius 6/6
N Medupe 5/6
B G Wood# 6/6
N V Mtetwa3 3/3

# Executive.
* There was one extraordinary Board meeting in regard to the proposed acquisition of Ceramic Industries (Pty) Ltd, from which Mr Ravazzotti and Ms Zannoni recused themselves due to a conflict of interest.
1 Mr Booth retired as CEO with effect from 28 February 2017.
2 Ms Zannoni retired as a non-executive director on 25 November 2016.
3 Ms Mtetwa was appointed as a non-executive director with effect from 28 January 2017.

Board appointment policy

The Board evaluates its composition each year to ensure an appropriate mix of skills, experience, professional and industry knowledge to meet the Company’s strategic objectives. Demographic representation is also a consideration. New directors are subject to a “fit and proper” test. An induction programme is available to incoming directors, providing guidance on their responsibilities. The appointment of the directors is approved at the annual general meeting of shareholders.

None of the non-executive directors have entered into service contracts or standard letters of appointment with Italtile.

Lead independent director

While the Board is led by a non-executive Chairman, Ms S M du Toit continues to serve as lead independent non-executive director to the Company’s Board.

Board Committees

The Board has established four committees to which it has delegated specific responsibilities in meeting its corporate governance and fiduciary duties.

These committees operate within written terms of reference approved by the Board. These are:

  • Audit and Risk Committee;
  • Remuneration Committee;
  • Nominations Committee; and
  • Social and Ethics Committee.

Audit and Risk Committee

Accounting and internal controls

The Board has established controls and procedures to ensure the accuracy and integrity of the accounting records and to provide reasonable assurance that assets are safeguarded from loss or unauthorised use and that the financial statements may be relied upon for maintaining accountability for assets and liabilities and preparing the financial statements.

REMUNERATION COMMITTEE


Members and invitees Attendance at meetings
S M du Toit 2/2
G A M Ravazzotti 2/2
S G Pretorius 2/2

Read the full Remuneration report.

Management monitors the operation of the internal control systems in order to determine if there are deficiencies. Corrective action is taken to address control deficiencies as they are identified. The Board, operating through the Audit and Risk Committee, oversees the financial reporting process and internal controls systems. The Group applies the principles of integrated reporting.

The Italtile Limited Group Company Secretary, E J Willis, attends all meetings of the Committee as secretary. The Chief Executive Officer and Chief Financial Officer attend all meetings by invitation.

Read the report of the Audit and Risk Committee. The current members of the Committee are:

Ms S M du Toit (Chairman), Ms N Medupe, Ms N V Mtetwa and Mr S G Pretorius.

Nominations Committee

The Nominations Committee is a sub-committee of the Board and meets on an ad hoc basis as required, but at least once a year. The Committee is chaired by the non-executive Chairman and comprises a majority of independent non-executive directors. The current members of the Committee are: Mr G A M Ravazzotti (Chairman), Mr S G Pretorius and Ms S M du Toit.

The Nominations Committee’s key roles include the identification and evaluation of suitable candidates for appointment to the Board, as well as succession planning.

The Committee met once in the period under review. Attendance at the meetings was as follows:

Members and invitees Attendance at meetings
G A M Ravazzotti 1/1
S G Pretorius 1/1
S M du Toit 1/1

The Board considers the composition of the Nominations Committee to be appropriate for the needs of the Group at this time, and believes that the members are suitably equipped with the necessary knowledge, skills and experience.

Social and Ethics Committee

Composition

The Social and Ethics Committee is a sub-committee of the Board as required by the Companies Act. The Committee has adopted a formal charter that was approved by the Board. The Committee conducts its affairs in compliance with its charter. The Committee meets at least twice per annum and is chaired by an independent non-executive director. The Committee is comprised of two directors.

The Board considers the Committee’s composition appropriate in terms of the necessary knowledge, skills and experience of the members.

The Italtile Group Company Secretary, Ms E J Willis, attends all meetings of the Committee as secretary. A representative from Human Resources attends all meetings by invitation in order to provide input and guidance to the Committee on employment and ethics-related matters. Mr G A M Ravazzotti attends all meetings by invitation.

The Committee met twice during the year. Attendance at the meetings was as follows:

Members and invitees Attendance at meetings
N Medupe 2/2
N Booth* 1/1
B G Wood 2/2
J N Potgieter 1/1

*Retired with effect from 28 February 2017.

Role and responsibilities

The Committee’s role and responsibilities include its statutory duties as per the Companies Act, and the principles of the King III Code, which includes:

  • Monitoring the Group’s activities with regard to matters relating to:
    • social and economic development;
    • good corporate citizenship, including the Group’s promotion of equality, prevention of unfair discrimination, reduction of corruption, contribution to development of the communities in which its activities are predominantly conducted or within which its products or services are predominantly marketed, and record of sponsorship, donations and charitable giving;
    • the environment and health and public safety;
    • consumer relationships, including the Group’s advertising, public relations and compliance with consumer protection laws; and
    • labour and employment.
  • Monitoring the Group’s performance and interaction with its stakeholders and ensuring that this interaction is guided by the Constitution and Bill of Rights;
  • Determining clearly articulated ethical standards and ensuring that the Group takes measures to achieve adherence to these in all aspects of the business, thus achieving a sustainable ethical corporate culture within the Group; and
  • Providing effective leadership based on an ethical foundation and ensure that the Company is and is seen to be a responsible corporate citizen.

Social and ethics policy

This policy sets out Italtile’s commitment to undertake its business activities in a socially and environmentally responsible and ethical manner, and sets out the standards by which all employees, representatives and franchisees will be guided in their actions and dealings with colleagues, customers, suppliers and business partners. The policy was approved by the Board and is communicated to all directors and employees.

Italtile is committed to a policy of fairness and integrity in its business dealings. Italtile recognises that maintaining high ethical standards is essential to the long-term economic success of the Group. The Group believes in integrity and transparency, hands-on involvement, partnerships to promote entrepreneurial spirit and passion for customer service.

  1. Italtile’s relationship with employees

    Italtile strives to treat all employees equally and believes in providing a workplace that is free from unfair discrimination. In this pursuit Italtile subscribes to the following principles and supports the following programmes and initiatives:

    • All employees have the right to work in an environment that is free from any form of discrimination on the basis of race, age, place of origin, religion, creed, gender, sexual orientation, political persuasion, marital or family status, disability, nationality or HIV/Aids.
    • Italtile promotes the health, safety and welfare of all employees.
    • Italtile provides appropriate training and the opportunity for development to all employees, management and leadership.
    • Italtile gives fair remuneration to employees that reflect an individual’s worth to the Group and abides by both the terms of contracts of employment and its human resources policies. An important element of the Group’s remuneration philosophy is the profit share, shared by all employees. Depending on individual contribution and Group performance, the profit share can have a significant impact on an individual’s earnings.
    • Italtile does not exploit labour and upholds the principle of fair labour practices.
    • Italtile respects an individual’s right to freedom of association.
    • Italtile is committed to employment equity. The Employment Equity Committee meets regularly to monitor and implement the requirements of the Employment Equity Act, 1998.
  2. Employees, leaders, franchisees and business partners’ relationship with Italtile

    All employees and leaders will demonstrate high levels of integrity, professionalism and performance in their work.

    • Integrity – We are open, honest and fair in all our relationships. We make and keep commitments and accept accountability for our actions.
    • Professionalism – We try to achieve our full potential as leaders and employees. We commit to winning by learning as much as we can, improving and working as an effective team every day.
    • Performance – We strive for continuous improvement, set clear goals and reward excellence.
  3. Italtile’s relationship with its franchisees and business partners

    Italtile’s association with its business partners and franchisees is conducted in a spirit of partnership. We will:

    • Honour all commitments;
    • Strive to achieve Italtile’s business objectives; and
    • Preserve the entrepreneurial nature of the business.
  4. Dealings with colleagues

    In dealing with Italtile colleagues we are open, honest, fair and respectful.

  5. Dealings with customers

    Italtile exists because of its customers. Customer service is thus our top priority. We will provide:

    • Friendly, courteous, knowledgeable and professional service and advice at all times; and
    • Quality, fashionable products that provide good value for money.
  6. Dealings with suppliers

    Relationships with suppliers are conducted in a professional manner in order to support Italtile’s reputation and business objectives. In doing business, we will:

    • Honour Italtile’s commitments;
    • Not knowingly associate with suppliers who exploit labour or discriminate on any basis;
    • Not deal with suppliers who conduct unethical or improper business practices; and
    • Encourage dealings with suppliers committed to the process of transformation.
  7. Dealings with competitors

    Italtile recognises that competition is essential to continuous improvement. Every action that Italtile takes will comply with both the spirit and the letter of the law.

    We will compete fairly in the marketplace.

  8. Compliance with laws and regulations

    Employees and leaders must comply with all applicable laws and regulations relating to their activities for and on behalf of Italtile.

  9. Conflict of interest

    Employees and leaders must be independent from any organisation providing goods or services to Italtile. In maintaining independence:

    • Employees and leaders must not take a direct or indirect financial interest in such organisations, nor accept gifts or favours that create an actual or perceived obligation to such organisations; and
    • Employees and leaders must not use their position at Italtile for their own personal benefit.

Company Secretary

The Company Secretary is Ms E J Willis and she is neither a director nor a shareholder of Italtile or any of its subsidiaries. On that basis, the Board believes that E J Willis maintains an arm’s length relationship with the executives, the Board and the individual directors.

The Company Secretary is responsible for administering the proceedings and affairs of the directorate, the Company and, where appropriate, owners of securities in the Company, in accordance with the relevant laws. The Company Secretary is available to assist all directors with advice on their responsibilities, their professional development and any other relevant assistance they may require.

The Nominations Committee has considered the skills and experience of the Company Secretary and the level of competence she has demonstrated as Italtile’s Group Company Secretary since 2009, and in her role as a company secretarial consultant since 2001. The Board, on the recommendation of the Nominations Committee, is satisfied with the level of competence of the Company Secretary. It requires a decision of the Board as a whole to remove the Company Secretary, should this become necessary.

Code of business and ethics

The Group has adopted a formal Code of Business Ethics and Conduct (“the Code”) which requires all directors and employees to act with honesty and integrity and to maintain the highest ethical standards. The Code deals with compliance with laws and regulations through a system of values and standards.

The Board oversees and ensures that management throughout the Group assumes responsibility for training and mentoring staff on the Group’s values and standards and ensuring compliance.

The Code will be evaluated on a regular basis to ensure it aligns with the Corporate Compliance policy, King III and relevant new legislation.

Stakeholder communication

Italtile is committed to open, honest and regular communication with key stakeholders on financial and non-financial matters. A working partnership between the Group, its suppliers, franchisees, employees and members of the community forms the basis of a mutually beneficial association.

The annual general meeting provides an opportunity to communicate directly with shareholders. The Chairman has the opportunity to present to the shareholders a report on current operations and developments. The meeting also provides a forum for shareholders to question and express their views about the Company’s business. The Chairmen of the Audit and Risk and Remuneration Committees are available at the meetings to answer questions from shareholders.

Notice of the annual general meeting and related documents are mailed to shareholders at least 15 business days before the meeting. Separate resolutions are proposed on each substantially different issue. The notice is contained in the Integrated Annual Report.

The Group’s executive management team meets with investors after the publication of interim and annual results to present an update on the industry, current operations of the business and its prospects.

Share dealings

All directors of the Company are required to comply with the requirements of the JSE regarding inside information, transactions and disclosure of transactions.

In line with the Financial Markets Act, No 19 of 2012, the Board enforces a restricted period for dealing in Italtile shares, in terms of which any dealings in shares by all directors and senior personnel is disallowed from the time that the reporting period has elapsed to the time that results are released and at any time that such individuals are aware of unpublished price-sensitive information, whether the Company is trading under cautionary announcement as a result of such information or not.

Risk management and internal controls

Italtile recognises that managing risk and compliance is an integral part of generating sustainable shareholder value and enhancing stakeholder interests.

The Group has in place an Enterprise Risk Management framework which is based on a combined assurance model comprising: management (divisional and executive directors); external auditors (Ernst & Young Inc.); and Support Centre oversight (including the internal audit function). The structure of this model and its activities are designed to ensure that the Group’s risks are adequately addressed.

The Board, assisted by the Audit and Risk Committee, is responsible for risk, risk tolerance determination, risk management within the Group, performance of risk assessments, the use of acceptable risk methodologies and the monitoring of risk on a continual basis.

The Board ensures there is regular assessment of financial and non-financial risks in the context of the Group’s business environment, with a view to mitigating and/or eliminating risk through the Group’s strategies and processes.

Internal controls are designed to manage rather than eliminate risks of failure to achieve business objectives, and provide reasonable rather than absolute assurance against material misstatement or loss. The internal audit function is a structured review of internal controls based on risk assessment.

The key material risks, controls and strategic imperatives report discusses the Group’s top risks and issues and the management thereof in detail.

SUSTAINABILITY

Italtile is committed to good corporate citizenship practices and organisational integrity in the direction, control and stewardship of the Group’s affairs.

The Group recognises the imperative to balance returns for shareholders with the long-term needs of the business, its employees, the broader society and the environment.

The Company is aware of its responsibility to safeguard the interests of all stakeholders and believes that good governance is essential to the Group’s long-term sustainability and functioning. The Group’s objective is to conform stringently to transparency, while operating profitably and remaining accountable to the broader community which it serves.

Shareholders, customers, employees, suppliers, regulators and the communities in which the Group operates are regarded as key stakeholders.

King III places emphasis on the principles of strategy, sustainability and governance and provides for greater integration of those elements. Accordingly, Italtile continues to strive to align the Group’s practices with the recommendations of King III.

Transformation

Italtile is committed to empowerment in its business and is supportive of transformation in the country. The Group endorses the principles in the Employment Equity Act and aligns its human resources policies accordingly.

Employment equity

Employee composition statistics

As at 30 June 2017

  Male Female
  African Coloured Indian White African Coloured Indian White
Skilled to top management 99 4 5 56 28 8 4 27
Semi-skilled and unskilled 503 58 5 75 211 29 5 38
Total 602 62 10 131 239 37 9 65

The above statistics apply to South African operations only and do not include the franchised stores. The Group submits its employment equity reports to the Department of Labour on an annual basis and has consistently met relevant targets in recent prior years.

Corporate social responsibility

The Group is committed to uplifting the societies in which it operates through following sound employment practices and meeting the real needs of those communities. Refer here in this regard.

Occupational health and safety

Italtile complies with the Occupational Health and Safety Act, No 85 of 1993 and other relevant legislation, regulations and codes of practice for South Africa. The aim of the Group’s Health and Safety policy is to prevent and minimise work-related injuries and health impairments by ensuring that all employees are provided with adequate training and supervision to undertake their roles.

Environmental management

The Group’s Environmental department is instrumental in implementing Italtile’s long-standing environmental consciousness values across the business. Programmes are aimed at measuring, managing and reducing the Group’s impact on the environment and promoting its long-term sustainability. This department operates in conjunction with executive management, with a view to better aligning and integrating the Green agenda into the day-to-day processes and functioning of the business.

Read the Group’s Green agenda in greater detail.

Human capital development

Italtile strives to be the employer of choice in its industry. The Group’s strategy is to recruit and retain the best people from South Africa’s diverse population base, and to ensure they are empowered, accountable for their actions and rewarded accordingly. Read more here in this regard.

Skills development

Training and development initiatives are formulated and conducted in-house, ensuring relevance to the Group’s culture, values and strategy.

Training courses are designed for students ranging from beginners to intermediate and advanced levels. Training courses include an induction course for all new employees, as well as focused business, technical, management and corporate governance programmes. Minimum training competencies have been mapped for all job titles to support consistent standards across the Group.

Over the past year, training spend and operating costs amounted to R7,8 million (2016: R10 million). 1 525 (2016: 3 413) staff members completed courses in the review period.

In addition to Group-wide training interventions, Italtile’s Tiling, Plumbing and Laminate Academy continues to raise the benchmark in product knowledge training.

Economic impacts

Italtile is committed to satisfying the needs of its customers while delivering acceptable profit growth. The Group endeavours to create wealth for the benefit of all stakeholders.

The value added statement below is a measurement of the wealth the Group created in its operations by adding value to the cost of raw materials, products and services purchased. The statement shows the total wealth created and how that was distributed.

The statement also takes into account the amounts retained and reinvested in the Group for the replacement of assets and development of future operations.

Value added statement

  Group
  2017 
Rm’s 
    2016 
Rm’s 
%  
Turnover 3 670    3 539     
Cost of goods and services (1 816)   (1 821)    
  1 854    1 718    
Income from investments and interest received 32    25    
Value added 1 886    1 743    
Value distributed and retained      
Employees      
– Salaries, incentives and benefits 307    16    248  14   
Providers of capital 327    17    290  17   
– Outside equity holders 35      38   
– Ordinary dividend 292    15    252  15   
Taxation 322    18    313  18   
Reinvested in Group activities 930    49    892  51   
– Depreciation 85      79   
– Retained income 845    45    813  47   
  1 886    100    1 743  100   

Value distributed and retained   Value distributed and retained
Value distributed and retained Value distributed and retained

Indirect impacts

The total economic impact of an organisation includes indirect impacts. These are usually benefits arising in the course of its business to which a monetary amount is not directly attributable. Italtile does not assess and quantify its indirect economic impacts although the Group does provide indirect economic benefits:

  • The Group spent R1 816 million during the year purchasing tiles and sanitaryware as well as other products and services from suppliers. This in turn creates opportunities for suppliers to employ more staff to keep pace with the Group’s demands.
  • During the year the Group paid R322 million in taxation, for the ultimate benefit of all citizens in the territories it operates.
  • The Group paid R307 million during the year to employees in the form of salaries, incentives and benefits. These employees in turn supported their families, contributing to the economic activity of their communities and the overall economies.