ITALTILE

Basis of preparation

The preliminary condensed consolidated financial statements are prepared in accordance with the requirements of the JSE Limited Listings Requirements for preliminary reports and the requirements of the Companies Act of South Africa. The Listings Requirements require preliminary reports to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (“IFRS”) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting. The accounting policies applied in the preparation of the condensed consolidated financial statements are in terms of IFRS and are consistent with those applied in the previous consolidated annual financial statements. These results have been prepared under the supervision of the Chief Financial Officer, Mr BG Wood.

New standards, interpretations and amendments adopted by the Group

The accounting policies adopted in the preparation of these preliminary reviewed condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s annual consolidated financial statements for the year ended 30 June 2019, except for the adoption of new and amended International Financial Reporting Standards (“IFRS”) and International Financial Reporting Interpretations Committee (“IFRIC”) interpretations which became effective during the current financial year. The application of these standards and interpretations did not have a significant impact on the Group’s reported results and cash flows for the year ended 30 June 2020 and the financial position at 30 June 2020.

There are no material contingent assets or liabilities at 30 June 2020.

The Group does not fair value its financial assets or liabilities in accordance with quoted prices in active markets or market observables, as there is no difference between their fair value and carrying value due to the short-term nature of these items, and/or existing terms are equivalent to market observables. There were no transfers into or out of Level 3 during the period.

The Group sold a 10% non-controlling stake in Cedar Point Trading 326 Proprietary Limited effective at the beginning of July 2019 to new business partners, at a cost of R15,9 million, reducing the Group?s interest in this entity to 90%.

Effective 1 February 2020, the Group acquired a 25,1% stake in Easylife Kitchens Management Proprietary Limited for a consideration of R18 million. This investment is accounted for as an associate investment from the effective date of acquisition.

During the 2014 financial year, the Group implemented a share incentive scheme for all employees of the Group and its franchisees that 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 implementation date. As a result, 9 million of the Group?s shares net of forfeitures were held by qualifying staff members at 30 June 2020 (2019: 8 million). 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 fourth allotment of shares in the scheme, granted in 2016, vested on 31 August 2019. A total of 94 employees qualified for the vesting, of which five employees opted to retain the shares and the balance received the net value of the awards in cash. This resulted in a decrease in treasury shares of 909 106 (2019: 1 044 139) shares.

The scheme is classified as an equity-settled scheme in terms of IFRS 2 Share-based Payment, and has resulted in a charge of R25 million (2019: R18 million) to the Group?s income; R13 million (2019: R9 million) of this charge is a once-off accelerated expense for franchise staff.

During the period under review, a decision was made by the Group to perform an upgrade of the manufacturing equipment and machinery at its SAMCA floor tile factory. The upgrade will result in the replacement of a significant portion of the equipment and machinery at the factory. Efforts have been made to identify possible repurposing or move of affected components to other factories, as well as to dispose of those components which could not be used elsewhere.

In anticipation of the upgrade, all operations at the factory were ceased towards the end of the period under review. Equipment and machinery with a carrying amount of R16 million as at 30 June 2020 has been impaired as a result, as these components have been deemed to have negligible recoverable amounts as they cannot be reused elsewhere or sold to third parties.

* Adjusted for once-off charge of R39 million related to the BBBEE transaction.

No adjustments to earnings are required for diluted earnings per share calculations, as the share awards do not have an impact on diluted earnings.

* Cash flows related to IFRS 16 have been restated in order to be comparable to current period disclosures.

During the fourth quarter of the period under review, trading in our operations ceased for a five-week period as a result of the national lockdown brought about by the COVID-19 pandemic. During this time, the Group incurred losses as it was unable to trade and profits remained suppressed thereafter as activities resumed incrementally with the phased relaxation of regulated restrictions. During the final month of the period under review, much improved trading results and profit growth were achieved. To date, the pandemic has not had a materially adverse effect on collection of receivable balances due to the Group, no material impairments directly attributable to the pandemic have been recorded, and the Group remains a robust going concern with positive prospects for growth.

During the period under review, 26,4 million shares were issued to a wholly owned subsidiary of Yard Investment Holdings Proprietary Limited for a net consideration of R304 million. The transaction took place in accordance with the Group?s strategic intent to improve its BBBEE credentials and resulted in a once-off charge of R39 million calculated in accordance with IFRS 2 Share-based Payment.

The directors are not aware of any matters or circumstances arising since the end of the reporting period which significantly affect the financial position at 30 June 2020 or the results of its operations or cash flow for the period then ended.