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.

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 report of the Audit and Risk Committee is here.

Remuneration and nominations committee

Composition and terms of engagement

The Remuneration and Nominations Committee complies with the King III Code of Governance Principles. The Committee meets at least twice per annum. The Committee is chaired by an independent non-executive director and is comprised of three directors. The current members of the Committee are:

• S M du Toit (Chairman) – Independent non-executive director;
• G A M Ravazzotti – Executive Chairman; and
• P D Swatton – Executive director.

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

The Company Secretary, E J Willis, attends all meetings of the Committee as secretary.

No attendee may participate in any discussion or decision regarding his or her own remuneration.

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

Members	Attendance at meetings   in 2012
S M du Toit	2/2
G A M Ravazzotti	2/2
P D Swatton	2/2

Role and responsibilities

The Committee chairman reports formally to the board on its proceedings after each meeting of the Committee and attends the annual general meeting to respond to any questions from shareholders regarding the Committee’s area of responsibility.

• The Committee operates within the written terms of reference confirmed by the Board, which includes:
• Assisting the Board in setting the Group’s Remuneration Policy;
• Advising on the fees for non-executive directors;
• Determining the total remuneration of the Executive Directors and Executive Management;
• Reviewing and recommending short- and long-term incentive policies for directors, executive management and staff;
• Identifying fit and proper candidates who could be recommended for appointment to the Board, and evaluating them against the specific disciplines and expertise required.

The Committee reviews and evaluates the contribution of each director and member of senior management and determines their salary adjustments on an annual basis.

The Committee reviews remuneration and Board best practice reviews and obtains market information and remuneration trends from consulting with independent advisers in order to fulfil its responsibilities. These include, among others, Ernst & Young and PricewaterhouseCoopers.

Details of directors’ remuneration are set out here.

Remuneration policy

Italtile is committed to maintain pay levels that reflect an individual’s worth to the Group. The Group’s philosophy is to treat employees as business partners. Remuneration policies are designed to attract, reward and retain the executives and employees needed to deliver on Italtile’s business strategy.

Performance management

For executives and senior management, performance is linked to strategic delivery and defined financial targets set each year.

Policy on annual incentive schemes

All employees share in Group profits, based on the individual’s contribution to the Group.

Policy on long-term incentives

There are two long-term incentive schemes within the Italtile Group, each rewarding performance in an appropriate manner, designed to reward and retain key personnel. The long-term incentives include The Italtile Long-Term Incentive Plan as well as the Share Appreciation Scheme.

Long-Term Incentive Plan

In accordance with the Long-Term Incentive Plan (“LTIP”), selected directors and employees of the Group are entitled to receive conditional notional Italtile Limited share awards. 25% of the awards vest after three years from grant date, and the balance (75%) after five years. There is no strike price attached to these awards, and the exercise price is defined as the volume weighted average price of Italtile Limited shares as traded on the JSE over the 10 trading days preceding and including the vesting date.

Share Appreciation Rights Scheme

In accordance with the Share Appreciation Rights Scheme (“SARS”), selected directors and employees of the Group are entitled to a conditional cash award linked to the value of notional Italtile Limited shares. 25% of the awards vest after three years from grant date, and the balance (75%) after five years. The value of an award is equal to the increase in the value of the shares between grant date and vesting date (the value at the latter date is defined as the volume weighted average price of Italtile Limited shares as traded on the JSE over the 10 trading days preceding and including the vesting date).

Awards from both schemes are to be applied towards the obligatory subscription and/or purchase of Italtile Limited ordinary shares.

Business partners have the opportunity to earn dividends through their non-controlling shareholding in the respective joint-venture businesses.

Non-executive directors’ fees

The Remuneration Committee takes cognisance of market norms and practices, as well as the additional responsibilities placed on Board members by new legislation and corporate governance rules.

Non-executive director remuneration consists of an annual retainer and a meeting attendance fee. The fees are market related and not linked to the share price of Italtile Limited.

Italtile Limited non-executive directors do not receive bonuses or share options to ensure actual and perceived independence. However, it should be noted that S I Gama participates in the Group’s BEE transaction.

Subsequent to year end the Board has decided to split the roles of the Remuneration and Nominations Committee. Composition of these Committees is disclosed here.

Company secretary

The Company Secretary is E J Willis.

The Company Secretary is required to provide the members of the Board with guidance and advice regarding their responsibilities, duties and powers and to ensure that the Board is aware of all legislation relevant to or affecting the affairs of the Company. The Company Secretary is required to ensure that the Company complies with all applicable legislation regarding the affairs of the Company, including the necessary recording of meetings of the Board, Board Committees and shareholders of the Company and ensuring that proper procedures are followed in all Board matters. It requires a decision of the Board as a whole to remove the Company Secretary, should this become necessary.

All directors have unlimited access to the services of the Company Secretary.

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.

Social and ethics committee

In compliance with the new Companies Act, the Group established a Social and Ethics Committee, constituted by the Board on 14 February 2012. The Committee held its first meeting on 22 May 2012 and plans to meet twice annually.

The recommendation of the Remuneration and Nominations Committee was that the composition of the Committee comprise: S M du Toit, G A M Ravazzotti and P D Swatton, with the Committee chaired by S M du Toit. An advisory panel comprising individuals within the Group will work alongside the Committee in achieving the objectives agreed upon by the Committee.

The Committee operates within the written terms of reference confirmed by the Board. A work plan was developed in line with the requirements of the Companies Act and the principles of the King 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, prevention 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, health and public safety, including the impact of the Group’s activities and of its products or services;
  –	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;
• Providing effective leadership based on an ethical foundation and ensuring that the Group is and is seen to be a responsible corporate citizen.

Social and Ethics Committee meetings

Board member	Attendance at meetings   in 2012
G A M Ravazzotti	1/1
S M du Toit	1/1
P D Swatton	1/1

Stakeholder communication

Italtile Limited 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 21 working 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 Securities Services Act, 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.

This principle is also applied at other times whenever there is a corporate action or similar circumstance.