OVERVIEW

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

King III

The King Report on Governance for South Africa became effective on 1 March 2010. The JSE Listings Requirements require all JSE-listed companies to provide a narrative of how they have applied the new recommendations contained in King III, in respect of financial years commencing on or after the effective date.

During the year, the Group made notable progress in respect of applying the King III Code and the principles of integrated reporting:

a thorough review of the implications of King III was conducted;
a gap analysis comparing the Group’s governance practices with those recommended in King III was implemented;
the Board and Board committees were restructured to ensure alignment with the report;
key risk areas were identified and are now under intensified formal oversight; and
strategic management of sustainability and stakeholder considerations, including the Integrated Report were prioritised.

Areas in which the Company does not comply with the King III Code are noted in the section “Areas of non-compliance” in this report.

Italtile subscribes to a set of values which seeks to foster integrity, innovation, individual empowerment and personal accountability. The Company affirms a commitment to the principles of transparency and timeous, relevant and meaningful reporting to all its stakeholders.

BOARD OF DIRECTORS

A formal Board charter, as recommended by the King Code 2002, 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, an executive chairman and four non-executive directors of which three 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 employed in a fulltime capacity by Italtile;
Non-executive directors are those who, while not in the fulltime employment of the Company, are members of the Management Committee or who have been nominated by a shareholder owning more than 20% of the Company; and
Independent non-executive directors are all other directors irrespective of the period during which they have been members of the Board.

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 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
recommendation of dividends.

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

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

TERM OF OFFICE

The three executive directors have a fixed term of employment. In accordance with the Company’s Articles of Association, all 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.

CHANGES TO DIRECTORATE

Mr Gianpaolo Ravazzotti, Chief Executive Officer of the Group, passed away tragically on 8 February 2011.

With effect from 30 June 2011, Mr Sybrand (Brand) Gerhardus Pretorius was appointed as a Non-executive Director and member of the Audit and Risk Committee and Mr Pierre Langenhoven as an Executive Director. Confirmation of their appointments will be placed before the forthcoming annual general meeting.

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 which 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:

	26 November 2010	12 February 2011	19 May 2011	21 August 2011
G A M Ravazzotti	√	√	√	√
P D Swatton	√	√	√	√
S M du Toit	√	√	√	√
S I Gama	√	√	√	√
G P E Ravazzotti	√	—	—	—
A Zannoni	√	√	√	√
S G Pretorius*	—	—	—	√
P Langenhoven*	—	—	—	√
*Appointed 30 June 2011

BOARD APPOINTMENTS 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.

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.

AREAS OF NON-COMPLIANCE

Following the untimely death of the Group’s Chief Executive Officer, G P E Ravazzotti, G A M Ravazzotti formerly Non-executive Chairman, assumed the role of Executive Chairman tasked with all management functions and the day to day affairs of the business.

LEAD INDEPENDENT DIRECTOR

The previous King Report (“King II”) emphasised that there should be a clear division of responsibilities at the head of the Company, ensuring a balance of power and authority, so that no one individual has “unfettered powers of decision-making” (Code 2.3.1). This points strongly to having an independent non-executive chairman.

However, King III recognises that a company may have sound reasons for appointing a chairman who does not meet all the criteria for independence, but should be prepared to justify its decision. In such circumstances, King III as well as the JSE Listings Requirements advocate that the appointment of a lead independent director (“LID”) can assist the Board in dealing with any actual or perceived conflicts of interest that arise in these or future circumstances.

The main function of an LID (as per King III) is to provide leadership and advice to the Board, without detracting from the authority of the chairman, when the chairman has a conflict of interest. The LID should at all times be aware that his/her role is that of support to the chairman and Board and not in any way to undermine the authority of the chairman. The LID should also chair those Board meetings which deal with the succession of the chairman and the chairman’s performance appraisal.

Having regard to these recommendations set out in King II and King III, S M du Toit was appointed as lead independent non-executive director to the Company’s Board.