DEAR STAKEHOLDERS

Background statement

I am pleased to present Italtile's Remuneration report for the year ended 30 June 2020.

The Committee has oversight of the Group's remuneration practices and policies. The Committee is focused on responsible remuneration practices across the Company and strives for fair, responsible and transparent remuneration through the review of remuneration practices.

During the year under review, the Chairman of the Remuneration Committee engaged extensively with a range of shareholders regarding the remuneration policy. This has resulted in a refinement of our policy and the successful approval of the new retention scheme.

The new Italtile Retention Scheme was adopted by shareholders at a general meeting held on 24 June 2020 with 96% of votes in favour of the new scheme.

The Company's remuneration policy and Implementation report were approved by 95% of shareholders at the Company's 2019 AGM. We believe that this reflects recognition of our ongoing commitment to engage with our shareholders and act on concerns where necessary.

REMUNERATION COMMITTEE AT A GLANCE

As tasked by the Board, the Committee assists in setting the Company's remuneration policy and reviews, recommends and approves the remuneration of executive and non-executive directors, prescribed officers and senior management. (collectively referred to as "the executive team").

A core responsibility of the Remuneration Committee is to ensure that the remuneration philosophy and policy support Italtile as follows:

• aligns the executive reward with the Group's commercial success and long-term sustainability; and
• supports the Group's strategic objectives and allows for the recruitment, motivation and retention of senior executives, ultimately maximising shareholder value while complying with relevant legislation and requirements of the King IV.

As per its terms of reference, published on our website, the Committee's responsibilities are to:

• assist the Board in developing and setting the Group's remuneration policy;
• determine and approve the total remuneration of the executive team;
• review executive performance contracts;
• determine and approve the performance measures for the executive team;
• review the compensation basis and proposed average annual increases for the Group's employees;
• review remuneration and Board best practice and trends in order to assess the appropriateness of the remuneration policy;
• review remuneration matters for top management promotions, transfers and termination of employment;
• oversee any proposed major changes to employee benefit structures throughout the Group;
• review and recommend short and long-term incentive policies and targets for directors and executive management;
• set the participation principles for the various remuneration schemes;
• review and recommend performance management policies;
• ensure compliance with applicable laws and codes;
• advise on the fees for non-executive directors;
• review the Group's succession plan for executives; and
• review and evaluate the contribution of each executive director and member of senior management and determine their salary adjustments on an annual basis, ensuring pay for performance.

Key decisions taken by the Remuneration Committee during the year under review include:

• approval of increases and adjustments for executives, as well as the framework for increases for all other employees;
• approval of short and long-term incentive structures and awards for executives, as well as the framework for all other employees;
• approved the key performance indicators for the executives; and
• recommendation of non-executive director fees for approval to the Board.

As required by the Companies Act and King IV, the following resolutions will be tabled for shareholder voting at the AGM, details of which can be found in the AGM notice:

• binding vote on non-executive directors' fees; and
• non-binding advisory vote on the Group's remuneration policy and Implementation report.

In the event that the remuneration policy or Implementation report is voted against by shareholders exercising 25% or more of the voting rights, dissenting shareholders will be invited to engage with the Company. The manner and timing of such engagement will be provided, if necessary.

The Committee Chairperson reports to the Board after each Committee meeting and attends the AGM to answer questions from shareholders on the Committee's area of responsibility.

The Committee is focused on responsible remuneration practices across the Company. Our industry faces many challenges and we recognise the need to retain top talent to ensure a focused drive to meet shareholder expectations. It is important that Italtile presents a competitive value proposition in remuneration and benefits.

REMUNERATION COMMITTEE COMPOSITION

The Remuneration Committee is a sub-committee of the Board. The Committee meets at least twice per annum. The Committee is chaired by an independent non-executive director and comprises three directors. The majority of directors on the Committee are independent.

The current members of the Committee are:

Mrs S M du Toit (Chairman), Mr G A M Ravazzotti and Mr S G Pretorius.

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

The Italtile Group Company Secretary, E J Willis, attends all meetings of the Committee as secretary. The CEO attends all meetings by invitation in order to provide input and guidance with regard to executive director and senior management remuneration.

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
S M du Toit	2/2
G A M Ravazzotti	2/2
S G Pretorius	2/2
J N Potgieter	2/2
B G Wood	1/2
L R Langenhoven	2/2

We trust that this Remuneration report provides an accurate overview of the Company-wide remuneration policy and its implementation and specifically an in-depth view on executive management remuneration in the past year.

Susan du Toit
Remuneration Committee Chairman
23 September 2020

REMUNERATION PHILOSOPHY

Italtile is committed to maintaining pay levels that reflect an individual's worth to the Group. The Group's philosophy is to treat employees as business partners, developing a sense of ownership and to pay for performance.

Our remuneration philosophy is governed by the principles of equity, fairness, pay for performance and affordability, ensuring alignment between management and shareholder requirements.

Remuneration policies are designed to attract, reward and retain the executives and employees needed to deliver on Italtile's business strategy.

REMUNERATION POLICY

The remuneration policy subscribes to King IV recommendations and principles on which it is based include the following principles:

• remuneration practices are aligned with Company strategy;
• total rewards are set at competitive levels in the relevant market to ensure we attract, motivate and retain highly talented individuals;
• total rewards are managed to align to the principle of responsible and fair pay;
• total remuneration costs need to be affordable at an individual corporate entity level and justifiable to employees and stakeholders;
• incentive-based results are linked to achieving demanding performance conditions consistent with shareholder interest over the short, medium and long term; and
• performance measures and targets for incentive plans are structured to operate effectively throughout the business cycle and support the business strategy.

ELEMENTS OF REMUNERATION

Italtile has an integrated remuneration and reward model which includes guaranteed remuneration, short-term incentives and long-term incentives. The components of total remuneration for permanent employees, prescribed officers and executives are fixed remuneration and variable remuneration.

Fixed remuneration comprises a basic salary and benefits, aligned to roles and performance. Variable remuneration comprises short- term incentives and long-term incentives, aimed at retention of critical employees. Performance is measured against set performance indicators.

All employees share in Group profits, based on an individual's contribution to the Group. The Group has a minimum cost to Company target of R120 000 per employee (2019: R100 000).

During the 2014 financial year, the Group implemented a Share Incentive Scheme for all qualifying employees of the Group and its franchisees who had been in the employ of the Group and/or franchise network for a period of three uninterrupted years at each allotment date in August, every year from the implementation date. Until vesting, the shares will continue to be accounted for as treasury shares and have an impact on the diluted weighted average number of shares.

The allotment is funded by the Group and the shares are restricted instruments which will vest with employees following a further three years of employment.

The various elements of remuneration are outlined below:

Guaranteed salary for employees

Guaranteed salary is reviewed annually and positioned competitively against peers that are comparable in size, sector and business. Company performance, affordability, individual performance and average industry and sector increases are considered in determining any annual adjustment. Increases are generally inflation-linked and, where affordable, additional budget is allocated for adjusting remuneration levels that are not appropriately aligned to internal pay ranges and/or market rates for a specific job.

Benefits

Benefits offered to employees include medical aid, provident fund and other benefits relevant to Italtile.

Fair and responsible remuneration

Steps that have been taken to improve the lives of the most junior employees:

1.	The Group pays employees a living wage. The minimum basic wage paid in 2020 was R6 500 per month at CTM, R5 500 per month at TopT and R6 000 per month at Ceramic Industries. The minimum wage paid has been increased to R6 900 at CTM, R6 000 at TopT and R6 400 at Ceramic Industries as from 1 August 2020.
2.	Assistance to buy property: pension-backed housing loans are offered through FNB and funding for affordable housing is offered through Nedbank. The Group offers support in securing a home loan and also assists in restructuring of loans.
3.	Programmes helping employees manage their finances are available through our Employee Wellness Programme: EAP Ask Nelson. Employees have access to qualified financial consultants who can assist with budgeting, saving, investments, debt counselling, wills and estate planning, home loans, insurance, personal tax, garnishee orders and vehicle finance.
4.	Training programmes are run for incoming graduates. CTM and TopT incoming graduates are placed on a six-week induction programme, consisting of factory visits, practical plumbing and tiling courses, as well as sales training. In addition, they go through a four-week NQF 4 qualification in retail management over 12 months.

Incentives

The Italtile Group administers incentive schemes to encourage and reward delivery of its strategic priorities over the short, medium and long term. The short-term incentive focuses on achieving business targets in that financial year, while the long- term incentive closely aligns the interests of executives with shareholders over the longer term.

Short-term incentives

All employees share in profit. Executives take part in the Executive Profit Share Scheme.

Long-term incentives

As per the policy on long-term incentives, there are four 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 Share Appreciation Rights Scheme;
• the Italtile Retention Scheme (replacing the Executive Retention Plan);
• the Ceramic Industries Equity Incentive Scheme; and
• the Ceramic Industries Escrow Scheme.

Qualifying criteria for the long-term incentives are as per the executive scorecards.

• Share Appreciation Rights Scheme
  • In accordance with the Share Appreciation Rights Scheme ("SARS"), selected directors and employees of the Group are awarded a conditional share award linked to the value of notional Italtile Limited shares ("shares"). A total of 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).
  • The qualifying criteria specific to SARS awards are the short- term strategic initiatives and operational KPIs per the executive scorecards.

• The Italtile Retention Scheme (replaces the Executive Retention Plan)
  • In line with Italtile Group's remuneration philosophy of partnership and in accordance with Italtile Group's recognition of the importance of efficient and transparent succession planning within the Italtile Group, Italtile established the scheme in order to retain and incentivise selected high-performing employees, identified by the Remuneration Committee from time to time, with a proven track record for their contribution to the growth and sustainability of the Italtile Group.
  • Performance targets for each award are set by the Remuneration Committee. The targets include headline earnings per share ("HEPS"), return on invested capital ("ROIC") and individual performance targets as appropriate, considering the role of the employee, and are weighted at the time of the award.
  • To the extent that the performance targets have been attained at the end of the five-year retention period, awards are automatically redeemable and trust shares are transferred to participants.
  • The number of shares allocated for all share schemes (SARS, existing Executive Retention scheme and this new Retention Scheme) cannot exceed 154 999 923 shares, being 12% of issued shares.
  • The number of Trust Shares linked to units that may be acquired by any participant in terms of this deed of trust, when added to the number of Italtile shares which are issued and/or transferred to the same participant under the SARS, Italtile Retention Scheme and the former Executive Retention Plan, may not exceed 20 666 656 Italtile shares, being 1,6% of issued shares.

• Ceramic Industries Equity Incentive Scheme
  • The scheme is used to incentivise senior management on long-term profitability. A number of notional shares are awarded to an individual. These shares are due in two tranches (25% after two years, 75% after four years). Of the shares vesting in any one of the tranches, 20% are not conditional, while 80% are conditional. For conditional shares, there is a minimum profit target (below which no conditional shares are received). A straight-line calculation is used to find the number of shares to be received if the profit lies between the minimum and maximum targets. The targets are based on the profit for two years (year one and two for the first tranche and year three and four for the second tranche). The shares are cash-settled. After tax is paid, the balance of the cash payment is applied towards the obligatory purchase of Ceramic Industries ordinary shares.

• Ceramic Industries Escrow Scheme
  • This scheme is a mechanism to retain and reward selected high-performing Ceramic Industries executives and senior management in line with the Group's values and philosophy of partnership. Subscription shares are issued to participants without monetary payment being made for such shares. The consideration of the shares is the rendering of services by the participant over the restricted period. Participants receive dividends from the date of issue of awards. The shares are held in trust until the end of the retention period (restricted period) of five years, at which time the shares are transferred out of Escrow to the participant.
  • When new shares are issued on this scheme (planned for December 2020), a lock-in period of three years after the restricted period will be introduced, as well as appropriate performance measures.
  • Executives and prescribed officers are encouraged to build a meaningful shareholding in the Company over time. The guideline from the Remuneration Committee is for executives to hold between 0,5% and 1,5% of issued shares.

Malus and clawback

The Committee has the discretion to clawback the pre-tax proceeds of any discretionary payment or share award received by employees in the event of a trigger event.

A trigger event would include, inter alia:

• the discovery of material misstatement of the financial statements, in terms of which the discretionary payment was made, to which the Board is satisfied that the employee has contributed or is responsible for;
• the discovery that the assessment of any metrics upon which the award was made was based on erroneous, inaccurate or misleading information;
• any action or conduct which, in the reasonable opinion of the Board, amounts to dishonesty, misbehaviour, fraud or misconduct;
• the discovery of a material failure in risk management to which the employee had contributed to or is responsible for; and/or
• the discovery that performance related to financial and non- financial targets was misrepresented and that such misstatement led to the over-payment of incentives.

The clawback applies for three years after the discretionary payment is made, or in the case of share schemes, three years after the awards have vested.

EXECUTIVE AND KEY MANAGEMENT PERFORMANCE MANAGEMENT

Executive and key management's performance is measured in the following categories, with specific performance targets/indicators per category, namely:

• Strategic plan objectives per five-year plan;
• Financial performance;
• Human capital;
• BBBEE;
• Customer satisfaction;
• Cultural fit/values; and
• Stakeholder relations.

The Remuneration Committee believes that the set of key performance indicators ("KPIs") as per the executive scorecard agreed with the CEO, is suitably challenging. Refer to the Implementation report for the CEO scorecard.

ESG matters have become more prominent globally. Given the appreciation of material sustainability issues facing our business and the strategic importance of building a sustainable business, additional tangible KPIs related to ESG matters will be included in the 2021 year-end scorecards, in order to improve the link between ESG and remuneration.

The outcome of the performance evaluation of the CEO is disclosed in the Implementation report below.

SERVICE CONTRACTS OF EXECUTIVE DIRECTORS AND PRESCRIBED OFFICERS

• Executive directors and prescribed officers have permanent contracts.
• The notice period prescribed by the contracts is one calendar month.
• Contracts are regularly reviewed to ensure they remain aligned with governance and legislative requirements.

NON-EXECUTIVE DIRECTOR FEES

• Non-executive director appointments are made in terms of the Company's MoI and confirmed at the AGM of shareholders after the appointment.
• Fees reflect the directors' role and Committee membership and are not linked to the Italtile share price. A fee applies for any additional ad hoc work but not exceeding 100 hours a year above Board and Committee meetings.
• Fees are reviewed by the Committee annually and require approval from shareholders at the AGM.
• Non-executive directors do not participate in any of the Company's short or long-term incentive plans and they are not employees of the Company.
• The recommendation of the Remuneration Committee on the proposed fees is submitted to the Board for consideration before being proposed to shareholders for consideration and approval at the AGM. If approved, the fees become effective in the month following the AGM.

Non-executive director fees for 2020 are tabulated in the Implementation report on page 134.

USE AND JUSTIFICATION OF REMUNERATION BENCHMARKS

The Remuneration Committee reviews remuneration and Board leading practice and remuneration trends in order to assess competitiveness in the market. External remuneration benchmark reviews published by PwC, EY and the Institute of Directors in South Africa are reviewed and taken into account when determining pay levels and structures.

NON-BINDING ADVISORY VOTE

Shareholders are requested to cast a non-binding advisory vote on section 2 of this Remuneration report (remuneration policy).

The Implementation report details the outcomes of implementing the approved policy in section 2 of this report.

PERFORMANCE ASSESSMENT OUTCOME

The key performance areas for the CEO for the year under review, were as per the KPIs included in the scorecard below.

The Committee concluded that, on an overall basis, the CEO met the expectations and achieved the targets set by the Board. In addition, the Committee reviews the performance management process of all executives and prescribed officers.

The financial performance for the year under review was significantly impacted by the Coronavirus and the resulting lockdown period and slow-down in the economy.

Despite the impact of lockdown, the Group reported a solid set of results for the period by continuing to focus on sales, cost leadership, productivity improvements, further entrenching the performance culture and continued focus on the strategic objectives.

The leadership shown through the crisis deserves special mention. Despite the significant business disruption, management instilled confidence in employees and other stakeholders through clear communication and action plans delivered with positive energy, supported by the Chairman and the Board. The executive team stayed committed to the Group's strategic direction, core values and culture despite the need for short-term focus and actions. Extraordinary measures taken to contain costs and preserve cash during lockdown, include granting special leave, allowing negative annual leave balances, salary sacrifices for three months and re-engineering business units to name a few.

The Group has come through the crisis well, as a result of these measures and the leadership shown by the executives.

CEO KPIs

Focus area		Desired outcome	Performance	Rating
1.	Strategic plan	Drive eight key strategic objectives of approved five-year plan	In progress	Achieve
		Create ‘one page’ per business unit to ensure total alignment	Complete	Achieve
		Property portfolio growth: Open 10 to 15 new stores for the year Close any non-performing stores Improve return on property portfolio by selling non-productive assets	Opened 13 Closed three Improving	Achieve
		Drive better integration between Italtile and Ceramics by utilising synergies	Improved processes	Achieve
		Drive cost leadership/productivity initiatives across the Group (factories, logistics, stores) to become more competitive	In progress	Achieve
		Build stronger CTM leadership warrior group in operations and regions to ensure longer-term sustainability	Much better CTM operations team and JV partners	Achieve
		Enhance online offering and open U-Light webstore	Complete	Achieve
2.	Financial performance	Grow Group profit for the year: HEPS 10% CTrading profit 15%	Profits declined due to COVID-19 Full year – 17% (+7% half) Full year – 16% (+6% half)	Under achieve
		Improve Group working capital management and Group stock turn by 5% with clear individual targets	Same as prior and big improvement since COVID-19 Total retail 5,9% versus 4,9%	Achieve
		Return on shareholders’ interest improved (minimum 23%)	End March 23% but last quarter dropped to +/- 20% due to COVID-19 impact Special dividend paid for three consecutive years	Achieve
3.	Human capital	Improve employee engagement score to 75 with next survey	Actual 77 versus prior 74	Superior
		Store operator pipeline improved to 10 per annum	Most appointed	Achieve
		Support executive management and prescribed officers on leadership development programme	Woodburn Mann programme and external coaching	Achieve
		Senior executive succession planning in place for future	Clear succession plans	Achieve
4.	BBBEE	Achieve 80 points and aim for level 4	Actual 81 level 4	Achieve
		Ownership initiative implemented not to be discounted	Yard deal complete	Achieve
		Drive YES initiative	* Deliberately postponed by Board decision
5.	Customer satisfaction	Improve score and measurement in all three retail brands including new Brand Health monitor to retain and take market share: Italtile Retail CTM TopT	Improvement across all brands with regard to brand health, sentiment score, mystery shop and NPS	Achieve
		Build CRM solution with digital capability	Operational	Achieve
6.	Cultural fit/ values	Entrench the Group’s core values of partnerships, hands-on approach, performance driven, entrepreneurial flair, high work ethic, transparency in communication, dignity, empowerment, integrity and putting the customer first	Step change with renewed energy	Achieve
		Creating and driving a performance culture across the Group	Improvement on prior year	Achieve
7.	Stakeholder relations	Maintain good relationships with all external shareholders and other important stakeholders	Shareholder engagement: Meet personally twice per year with results and any ad hoc request during the year. 95% approval of remuneration policy. All stakeholder relations active	Achieve

Executive performance

The outcome of the performance assessment directly impacts decisions on guaranteed pay, short-term incentives and long-term incentives, as illustrated in the table below:

Description	Assessment of performance	Impact on executive remuneration
Guaranteed basic salary	Scorecard KPIs - achieved	Given the uncertain impact of COVID-19 on the business and the economy over the next few months and year, no salary increases (other than to the lowest paid employees) have been approved at this stage. The decision will be reviewed in January 2021.
Short-term incentives	0,25% of profit before tax shared between the CEO and CFO CEO:               60 units CFO:               40 units	Executives shared in profits Group profit before tax decreased by 20%
Long-term incentives	Awarded to high-performing, high-potential employees and executives in line with the Group's philosophy of partnership	Both executives and the two prescribed officers share in long-term incentives as disclosed in this section of this report.

EXECUTIVE DIRECTORS' AND PRESCRIBED OFFICERS' PARTICIPATION IN SHARE INCENTIVE SCHEMES

Executive directors' holdings under the SARS are set out in the table below:

Prescribed officers	Awards held at 1 July 2019			Awarded during the year	Vested and  exercised  during  the year	Forfeited during the year	Awards held at 30 June 2020
J N Potgieter	3 250 000			–	(2 500 000)	–	750 000
B G Wood	2 000 000			–	(650 000)	–	1 350 000
T T A Mhlanga#	500 000			–	–	–	500 000

^# Following her resignation, the awards held by T T A Mhlanga at year end were forfeited on 1 July 2020.

Executive directors' holdings under the Executive Retention Plan are set out in the table below:

Director	Awards held at 1 July 2019			Awarded during the year	Vested during the year	Forfeited during the year	Awards held at 30 June 2020
J N Potgieter	3 000 000			–	–	–	3 000 000
B G Wood	1 000 000			–	–	–	1 000 000
T T A Mhlanga#	500 000			–	–	–	500 000

^# Following her resignation, the awards held by T T A Mhlanga at year end were forfeited on 1 July 2020.

Prescribed officers' holdings under the Ceramic Industries Escrow Scheme are set out in the table below:

Prescribed officers	Awards held at 1 July 2019			Awarded during the year	Vested during the year	Forfeited during the year	Awards held at 30 June 2020
L Foxcroft	207 069			–	–	–	207 069
T Molefakgotla	165 656			–	–	–	165 656

DIRECTORS' AND PRESCRIBED OFFICERS' EMOLUMENTS ("SINGLE FIGURE REMUNERATION")

All figures in R000	Base salary	Short-term incentives	Provident fund and medical contributions	Gain on  share  scheme  awards†	Other	Total 2020			Total 2019
Executive directors
J N Potgieter	3 503	2 435	493	22 883	647	29 961			20 550
B G Wood	2 243	1 461	310	6 428	352	10 794			11 266
T T A Mhlanga	1 733	–	231	2 382	363	4 709			5 330
2020	7 479	3 896	1 034	31 693	1 362	45 464
2019	6 816	5 586	1 104	22 505	1 135				37 146
Prescribed officers
L Foxcroft	2 813	2 865	650	8 642	377	15 348			15 406
T Molefakgotla	1 928	2 006	416	6 914	331	11 594			11 506
2020	4 741	4 871	1 066	15 557	708	26 942
2019	4 657	4 916	1 124	15 514	701				26 912

^† IFRS 2 expense recognised for the Ceramic Industries Escrow Scheme.

BOARD MEETING ATTENDANCE OF EXECUTIVE DIRECTORS

Executive directors and prescribed officers do not draw any additional remuneration for attending the main Board or Committee meetings.

NON-EXECUTIVE DIRECTORS' FEES

Payments to non-executive directors

All figures in R000	Board fees	Other	Total 2020			Total 2019
Non-executive directors
G A M Ravazzotti	1 568	–	1 568			1 687
L R Langenhoven	340	–	340			192
S M du Toit	760	–	760			884
S G Pretorius	485	–	485			550
N Medupe	225	–	225			481
N V Mtetwa	45	–	45			380
N P Khoza	262	–	262			291
I Z Nyanga	330	–	330			8
I N Malevu	52	–	52
2020	4 067	–	4 067
2019	4 473	–				4 473
Aggregate emoluments of directors who served during the year			76 473			68 531

The following fixed fees were in place for the year under review:

Basic annual fee	R105 000
Board meeting fee	R26 250
Committee fee	R22 000
Chairman of Committee	R27 300
Strategy session fee	R31 500
Hourly rate for ad hoc work, not exceeding 100 hours a year	R3 570 per hour
Chairman of the Board	R1 313 550

NON-BINDING ADVISORY VOTE

Shareholders are requested to cast a non-binding advisory vote on section 3 of this Remuneration report.

STAKEHOLDER ENGAGEMENT

We value our continued engagement with various stakeholders, and we endeavour to maintain our relationships with all in the hope that we will continue to receive their valued input.

APPROVAL

This Remuneration report was approved by the Board of directors of the Company on 23 September 2020.