CORPORATE GOVERNANCE

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.

During 2013, the Group subscribed 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 Ill Governance Register at 30 June 2015

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 three 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 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; 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 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.

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 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 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:

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

Whilst the Board is led by a non-executive Chairman, 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.

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 set out here.