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annual report annual report 2008
Ceram
ic Industries Limited annual report 2008
contents The Group operates through the following manufacturing facilities:
Samca Floor Tiles, which is located in Babelegi 75 kilometres north
of Tshwane, manufactures pressed glazed floor tiles;
Samca Wall Tiles, which is located adjacent to Samca Floor Tiles,
manufactures pressed glazed wall tiles;
Vitro, which is located west of Vereeniging in the Vaal Triangle,
manufactures extruded, punched floor tiles;
Pegasus, which is located adjacent to Vitro, manufactures pressed
glazed floor tiles;
Centaurus, which is located in Rutherford, New South Wales,
manufactures glazed porcelain floor tiles;
Betta Sanitaryware, which is located in Krugersdorp, west of
Johannesburg, manufactures a comprehensive range of vitreous
china sanitaryware;
Sphinx Bathroomware, which is located in Springs, east of
Johannesburg, manufactures a range of acrylic baths and shower
trays; and
Aquarius, which is on the same site as Betta Sanitaryware, manufactures
a range of acrylic baths and shower trays.
During its 2008 financial year, the Ceramic Industries Group maintained its position as the largest Southern African manufacturer and supplier of ceramic tiles and vitreous china sanitaryware. The Group also entrenched itself in Australia as a small but world-class manufacturer of porcelain tiles.
The Group, which now manufactures approximately 60% of all tiles and sanitaryware purchased in South Africa, is uniquely positioned in its market. The Group continues to offer a comprehensive range of products to merchants and wholesalers in South Africa and most Southern African countries.
vision and mission statement 1
group structure 2
financial highlights 3
chairman’s report 4
chief executive’s review 6
corporate governance 15
audit committee report 23
stock exchange performance 24
analysis of shareholders 25
annual financial statements 26
shareholders’ diary 70
notice to shareholders 71
form of proxy 75
business addresses IBC
Ceramic Industries Limited annual report 2008 page 1
To be the preferred low cost global manufacturer and
supplier of ceramic tiles and sanitaryware by 2010.
vision
mission statementTo be and remain an internationally competitive manufacturer of ceramics,
ensuring our customers’ expectations are exceeded by delivering quality
service and products, through empowered people, thereby creating prosperity
for all stakeholders through innovative employment of assets.
Ceramic Industries will conduct business around the principles of excellence,
integrity, human dignity and fairness.
Never forgetting our business thrives on productivity and contributions from
our people, also remembering that their financial security, personal growth,
quality of life and health are values that we strive for.
Recognising our strengths as being a leader in the industry: hard working,
confident and visionary; we remain humble in acknowledging our weaknesses
and striving to convert them into strengths.
Ceramic Industries Limited annual report 2008 page 2
group structure
CeramicHoldingsPty Ltd1
National Ceramic
IndustriesAustralia Pty Ltd1
SAMCA Wall Tiles
The following dormant companies are not included as part of the Group structure: Ceramic Development Corporation (Pty) Ltd Ceramic Industries Properties (Pty) Ltd Gail Ceramics (Pty) Ltd Samcatiles (Pty) Ltd
1 Incorporated in Australia
CRM Brick& Associated
Industries (Pty) Ltd
Tilecor Properties (Pty) Ltd
Sphinx Acrylic Bathroomware
(Pty) Ltd
Mollyn 55 (Edms) Bpk
Pegasus Pressed Tiles
(Pty) Ltd
SAMCA Floor Tiles
DIVISION DIVISION
National Ceramic
Industries South Africa
(Pty) Ltd
National Ceramic
Industries (Pty) Ltd
DIVISIONS
Ceramic Industries Limited annual report 2008 page 3
financial highlights
2008 2007
% change R000’s R000’s
Revenue 6,8 1 469 638 1 375 448 Operating profit (15,1) 251 272 295 923 Total assets 7,6 1 484 446 1 379 598 Cash and cash equivalents net of borrowings (41,5) 108 813 185 972 Shareholders’ equity 15,0 1 162 781 1 011 553 Number of shares in issue (000’s) — 18 263 18 263 Number of shares used for calculating earnings per share (000’s) (0,5) 17 206 17 285 Headline earnings per share (cents) (15,5) 1 056,0 1 250,0 Dividends per share (cents) (14,7) 290,0 340,0 Net asset value per share (cents) 15,5 6 758 5 852
Shareholders’ equity(R million)
Market capitalisation(R million)
0803
3 500
3 000
2 500
2 000
1 500
1 000
500
004 05 06 07
Return on equity(Percentage)
0803
30
25
20
15
10
5
004 05 06 07
Operating margin(Percentage)
0803
30
25
20
15
10
5
004 05 06 07
Headline earnings per share (Cents per share)
0803
1 400
1 200
1 000
800
600
400
200
004 05 06 07
Dividends per share (Cents per share)
0803
350
300
250
200
150
100
50
004 05 06 07
Revenue(R million)
0803
1 600
1 400
1 200
1 000
800
600
400
200
004 05 06 07
Operating profit(R million)
0803
300
250
200
150
100
50
004 05 06 07
Profit after taxation(R million)
0803
250
200
150
100
50
004 05 06 07
0803
1 200
1 000
800
600
400
200
004 05 06 07
Ceramic Industries Limited annual report 2008 page 4
Introduction
Ceramic Industries expanded capacity in its factories in
South Africa and Australia by investing approximately
R450 million in the 2007 and 2008 financial years.
Unfortunately, we underestimated the complexity
of managing capital projects in operating factories,
particularly in Betta, and were also too optimistic in
believing that our skills in building and running ceramics
factories could easily be transferred to commissioning
new bath technology in Aquarius.
On the positive side, the Group has a number of factors
in its favour:
• Followingseveralyearsofcapitalinvestmentthe
factories are all in a good state of repair and will
be able to capitalise on any increase in consumer
demand;
• Wehaveacompetentandexperiencedmanagement
team in our tile and porcelain sanitaryware factories,
and a well trained workforce who understand the
values of the organisation;
• Wehaveimprovedourabilitytoproducefashionable
products, and are able to meet current market
demands in both tiles and sanitaryware;
• Ourcustomerbaseisdiversifiedandhasremained
loyal; and
• Wehaveastrongbalancesheet,whichisalmostdebt
free.
Although sales of tiles in the financial year improved,
I was disappointed in the performance of the Group.
The major areas of concern (some of which were self-
inflicted) were:
• Increasedcostpressuresacrosstheboard,but
particularly on energy inputs;
• Electricitypoweroutagesinthefirsthalfofthe
financial year, which affected all our factories but had
the largest impact at Betta;
• LossesincurredinSphinxandAquarius,ourbath
factories; and
• Highinterestrates,whichreducedconsumerdemand
for our products.
In the global ceramic industry, demand has held up
inSouthAmerica,AfricaandtheMiddleEast.InAsia,
producers are continuing to export to their traditional
markets, although China is experiencing cost and
environmental pressures which has resulted in the
closure of some capacity and increases in selling prices.
IntheUSAandEurope,thesituationisverydifferent,with
significantly reduced demand. Manufacturers are now
holding increased inventory levels, have excess installed
capacity and are running down their cash resources.
I believe that approximately 30% of the kilns in Spain
and Italy have been, or will be, shut down because of
prevailing market conditions.
Financial
Revenue for the financial year increased by 6,8% to
R1 469,6 million ( 2007: R1 375,4 million), but net profit
attributable to ordinary shareholders declined by
16,1% to R181,6 million from R216,3 million in 2007.
Headline earnings decreased by 15,9% to R181,7 million
from R216,1 million in 2007, with a 15,5% reduction in
headline earnings per share to 1 056,0 cents
(2007: 1 250,0 cents).
Cash and cash equivalents decreased to R126,3 million
from R195,1 million in 2007, due to higher inventories and
continued capital investments, and we maintained our
dividend cover at 3,5 times and paid an annual dividend
of 290 cents (2007: 340 cents).
chairman’s report
Our factories are now more than capable of competing with
foreign manufacturers on both price and quality
(continued)
Ceramic Industries Limited annual report 2008 page 5
chairman’s report
Prospects
Since the end of the financial year, conditions in the
global economy have deteriorated rapidly and we have
witnessed extreme volatility in financial and credit
markets. The broader economy will not remain immune
to the difficult credit conditions and weak stock markets,
but the extent to which the real economy is going to be
impacted is not yet clear. Although we expect demand
to weaken in both South Africa and Australia, the rapid
decline in the value of the Rand and the Australian Dollar
will reduce the attractiveness of imported products and
strengthen demand for locally produced products. Our
factories are now more than capable of competing with
foreign manufacturers on both price and quality within
their market segments.
Although energy prices are declining, they remain high in
Rand terms and we will need to ensure that we maintain
a tight control on operating costs and extract maximum
efficiencies out of the technology employed in the factories.
Management of our installed capacity will be a challenge
and, after the year-end, one kiln at each of Pegasus and
Centaurus was closed to help manage our stock levels
andbalancecapacitytodemand.Weareusingthese
temporary shutdowns, which should not be for long
periods,toundertakeroutinemaintenance.Wewillbe
hard pressed in the new financial year to sell the same
volumes of tiles as we did during the 2008 financial year,
and we expect our capacity utilisation to drop.
Black economic empowerment (BEE)
I am pleased to announce that we have reached
agreementwithallthepartiesinvolvedinourBEE
initiative. A circular will be posted to shareholders at the
end of October and a special general meeting to vote on
the transaction will take place after the annual general
meeting on 28 November 2008.
InanticipationofshareholderapprovaloftheBEE
transaction we have invited Thandi Orleyn from Peotona
Holdings and Sam Nematswerani from Aka Capital to join
the Board of Directors. I would like to welcome them and
look forward to their contribution.
Acknowledgements
During the year, our management and staff rose to the
challenges of completing our capital projects and running
a business where enormous cost pressures were being
felt. The challenges in the coming year are going to be
very different from last year, and I count on your ongoing
support to ensure we remain competitive. Thank you all
for your continued efforts.
To every member of the Board of Directors, your
commitment and guidance during these testing times is
most appreciated.
G A M Ravazzotti
Non-executive chairman
Ceramic Industries Limited annual report 2008 page 6
KEY FEATURES
• Marketdemandfortilesandsanitarywaredeclined
as interest rate hikes as well as fuel and food inflation
impacted consumers’ discretionary spending, which
resulted in a contraction of approximately 12% in the
local market.
• CeramicIndustries’focusoninnovationandnew
product development is delivering a competitive
advantage. Improved selling prices resulted from the
launch of more than 300 new tiles across a broad
range of size formats, patterns and textures.
• TheGroupreportedrecordtilessalesof
36,2 million m2, despite muted consumer demand.
• Pegasus,whichincreasedproductionto14,6millionm2,
was unable to fully realise the efficiency gains from its
increased installed capacity due to lower building
activity levels.
• SamcaFloorTilesbenefitedfromtheintensive
maintenance programme in 2007, with increased
uptake of its larger tile formats.
• Centaurusachievedthemilestoneof15%market
share in Australia despite a static market. Its
increased capacity enabled the factory to meet the
market’s fashion requirements.
• WhilechangingdemandpatternsaffectedBetta’s
domestic sales, the factory made good inroads into
the export market. The R120 million expansion will be
completed in November 2008.
• ProductionproblemswereencounteredattheSphinx
and Aquarius bath manufacturing plants. However,
the Group has dedicated resources to turn the
bathroomware factories around.
The South African economy
South Africa has proved not to be immune from the
difficult conditions in the global economy brought on by
the subprime crisis in the United States and inflationary
pressures caused by increasing commodity prices.
The 2008 financial year was characterised by two distinct
halves – with gradual slowdown in demand during the
first six months as the interest rate hikes and the tighter
lending environment started to dampen residential
property demand. The power crisis which hit the country
from December 2007 to March 2008 led to a rapid drop
in consumer confidence, which was further dented
by rampant fuel and food price increases. Household
consumption has shown a marked decrease, with flat
retail sales year-on-year, compared to growth of about
10% before these economic shocks affected consumers.
The upward trend in oil related costs, which increased by
more than 30% year-on-year, had an impact on transport,
gas and packaging. Although the Group continued to
focus on efficiencies to drive down costs, these were
not sufficient to counteract inflationary pressures.
However, Ceramic Industries experienced a positive
spin-off from higher transport costs as the landed
price of imports escalated. The Rand, which weakened
during 2008, further eroded the cost benefits of tile and
sanitaryware imports and the Group benefited from
import substitution.
The Australian economy
The global credit crunch and high energy costs took their
toll on the Australian economy, although the commodity
boom provided some relief. GDP growth slowed markedly
to about 2,0%. These economic pressures filtered into
the residential construction market, and the Australian
tile market declined in the year under review. Centaurus,
however continued to show market share gains, as
it benefited from its new distribution strategy using
wholesalers and it extended its product range.
Market conditions
In South Africa, the most significant decline across
Ceramic Industries’ market segments was in the mid-
market which was affected by a decline in consumer
spending. Higher interest rates slowed the residential
contracting market. Demand in the premium product
lines was consistent despite the tougher economic
environment.
chief executive’s review
Ceramic Industries Limited annual report 2008 page 7
chief executive’s review
Government’s ongoing focus to eliminate the backlog
of low cost housing and sanitation supported the entry-
level tile and sanitaryware market, albeit across Ceramic
Industries’ lower margin product lines.
Fashionremainsanimportantfactorinconsumers’buying
decisions, despite their tighter budgets, with larger tile
formatsbecomingmorepopular.Emergingmarketsinthe
EasternCape,LimpopoandMpumalangaareshowing
improved demand for shiny and patterned tiles. The Group
continues to source designs internationally and its ability
to quickly replicate styles for the South African market is
delivering benefits. More than 300 new tiles were launched
during the year under review, with good levels of repeat
orders. However, retailers faced the challenge of reducing
their more expensive imported inventories before being
able to commit to the Group’s ranges. The middle and
premium sanitaryware markets also remain highly sensitive
to fashions and the Group’s factories continue to focus on
developingnewrangestomeettheserequirements.Water
savingcompactrangesdevelopedfortheEuropeanexport
market found favour during the year. At the other end of the
spectrum in the local market, the entry level segment which
is currently supporting demand across the industry is not led
by fashion trends, but by value for money.
In Australia, our target market remains highly fashion
conscious with a preference for larger size formats and
neutral colours. Despite the reduced activity in the residential
construction market, there is still reasonable demand for
fashionable high-quality porcelain tiles. These demand
patterns force the Centaurus factory to produce shorter runs
with a greater variety of colours and styles and are partly
responsible for the increased stock holdings in Australia. This
is part of our strategy to grow our market share in Australia.
Financial performance
The Group once again reported record tiles sales of
36,2 million m2 (2007: 35,1 million m2), despite muted
consumer demand and a contraction of approximately
12% in the local tile market. The increase was underpinned
by the additional capacity brought on stream in 2007 at
Pegasus and Centaurus.
Revenue increased by 6,8% to R1 469,6 million
(2007: R1 375,4 million) underpinned by a 10,5% increase
in tile revenue to R1 222,7 million (2007: R1 107,0 million).
The average selling price of tiles in South Africa increased
by 4,4% during the year, while selling prices in Australia
moved up marginally.
Sanitaryware revenue declined by 8,0% to R246,9 million
(2007: R268,4 million) as sales decreased by 8,3% to
1,437 million pieces (2007: 1,568 million pieces). Betta’s sales
were lower by 100 000 pieces as demand patterns shifted
from the mid-market into the entry level product lines.
Operating profit showed a decrease of 15,1% to
R251,3 million (2007: R295,9 million). Operating profit
from tiles increased by 1,4% to R237,1 million (2007:
R233,8 million) as rampant fuel increases had an impact
on major input costs with clay, packaging, transport
and gas being the worst affected. Although the tile
(continued)
(continued)
Ceramic Industries Limited annual report 2008 page 8
factories continued to improve efficiencies, these could
not overcome the impact of higher costs and the Group
continued to absorb cost increases to defend its market
share.SamcaFloorTilesdeliveredimprovedresults
as consistent production and improved cost control
resulted in lower unit costs. Despite increased volumes
at Pegasus, the factory did not run at full capacity and
consequently did not deliver the efficiencies expected.
Operating profit from sanitaryware declined by
77,1% to R14,2 million (2007: R62,1 million) as the Group’s
sanitaryware factories lost efficiencies while production
was reconfigured and new technology rolled out. Higher
input costs eroded margins and the migration of demand
towards lower margin products negatively impacted the
sales mix.
Headline earnings declined by 15,9% to R181,7 million
(2007: R216,1 million), with a 15,5% reduction in reported
headline earnings per share to 1 056,0 cents (2007:
1 250,0 cents).
Cash flow from operations, declined by 28,0% to
R274,4 million (2007: R381,1 million) as a result of lower
profitability and higher inventories, which increased by
R68,3 million, mainly as a result of slowing demand in the
second six months and the additional production from
the expansions at Pegasus and Centaurus. Cash and
cash equivalents decreased to R126,3 million
(2007: R195,1 million), mainly as a result of the increase in
inventory levels and investments amounting to
R201,2 million in property, plant and equipment in order
to increase production capacity.
The net asset value per share increased by 15,5% to
6 758 cents from 5 852 cents.
Prospects
Pressure on discretionary spending is expected to
persist throughout the next financial year. As such, the
Group anticipates that demand in the new housing and
residential contractor markets will remain subdued.
Heightened activity levels in government’s infrastructure
and housing and sanitation programmes is anticipated to
continue to support volumes, albeit in the lower margin
commoditised products.
A large volume of competitively priced tiles and
sanitaryware was imported into South Africa before the
recent weakness in the Rand which will continue to place
some pressure on prices in the short term. However,
inflationary pressures are having an impact on global tile
and sanitaryware producers, and we are seeing evidence
of price increases in imports. The Group remains well
positioned to compete head-on with imports with a
quality offering at competitive prices. Ceramic Industries
will continue to focus on enhancing internal efficiencies
to counteract the impact of cost inflation.
The Group’s tile factories have experienced management
teams, in-depth understanding of their markets, and
increased production capacity. Management is confident
that these factories have the resilience to withstand the
current downturn, especially with their increased focus
on fashionability for both floor and wall tile ranges.
After an extremely disappointing performance by the
sanitaryware division the Group is dedicating resources
to ensure a sound footing for the future. The investment
in Betta’s increased capacity will come on stream in
November 2008, contributing to higher volumes from the
beginning of 2009. The Group’s bathroomware factories
will continue to be under the spotlight, to ensure that
these are reconfigured to meet the long-term returns
required by the Group.
chief executive’s review
(continued)
Ceramic Industries Limited annual report 2008 page 9
chief executive’s review
The Group has, over the last two years, invested in
excess of R450 million (from internally generated
funds) in additional production capacity. No additional
investments will be required in the immediate future and
the Group is well positioned to take immediate advantage
of any upturn in the economy.
Ceramic Industries has the resources to weather the
prevailing economic environment, with its solid balance
sheet and its stable customer base.
Acknowledgements
The foundation of our business is strong thanks to the
efforts of our employees. I wish to acknowledge every
employee of the Group for rising to the challenge and
making a difference. My thanks to our executive team for
their continued commitment in ensuring a world-class
operation.
The support and valuable strategic input of our Board of
Directors continues to benefit the long-term outlook for
the business.
MANUFACTURINg OPERATIONS – TILE DIVISION
Samca Floor Tiles
Focus
SamcaFloorTilesproducespressed,glazedfloortilesin
two size formats for indoor use, targeted at the mid tiers
of the consumer market and commercial end users. This
factory has an annual capacity of 7,0 million m2.
Market conditions
The factory dampened the impact of slowing demand
through its increased focus on production of
50 cm x 50 cm tiles which continued to gain acceptance
in the market. The 50 cm x 50 cm size format accounts
for 40% of the factory’s production and has managed
to replace a large volume of imported product. As the
factory extended its range to offer more fashionable
products, so it has achieved greater acceptance of this
larger format.
Performance
The factory benefited from the intensive maintenance
programme which was completed during 2007, showing
a 6,0% increase in production to 6,9 million m2. Despite
the good uptake of its high quality larger tile formats, the
impact of decreasing consumer demand resulted in a
2,0% reduction in sales to 6,5 million m2.
Having dedicated one kiln to manufacturing 50 cm x 50 cm
tiles in the previous year, with sufficient time to develop
afullrangeoftiles,SamcaFloorTilesreapedthebenefits
of its efforts as selling prices increased by 5%. Based on
its successes with the larger format, a second kiln was
dedicated to the production of these larger tiles from
June 2008.
Ceramic Industries Limited annual report 2008 page 10
chief executive’s review(continued)
The factory continued to fine-tune its process, with
the second of its three kilns being shut down for
refurbishmentinDecember2007.Efficienciesinthe
factory continued to improve as a result of the higher
volumes and it successfully reduced glaze and clay
waste during the year.
Innovation
Having created a strong appetite for its 50 cm x 50 cm
tile format and dedicated capacity to satisfy market
demand,SamcaFloorTilesturneditsattentiontothe
time consuming process of developing new ranges of
tiles. Approximately 80 new tiles were designed with
innovative glaze and print effects thus creating desirable
and sophisticated import substitutes.
Outlook
The factory will remain focused on producing high quality,
fashionable tiles particularly in the larger 50 cm X 50 cm
format.
Samca Wall Tiles
Focus
SamcaWallTilesproducespressedglazedwalltilesfor
indoor use, targeted mainly at the lower and middle tiers
of the market. This factory has an annual capacity of
7,0 million m2 and is the only local supplier of the
25 cm x 40 cm wall tile format.
Market conditions
Demand for wall tiles was heavily influenced by slowing
demand from the residential property development
market. Despite tighter budgets, consumers’ focus on
highfashionproductsheightened,andSamcaWallTiles
was able to meet these demands with larger size formats.
Performance
SamcaWallTiles’produced6,8millionm2, but slower
demand with sales declining to 6,1 million m2, resulted
in increased stock levels. The factory ran efficiently as it
improved both yields and grades. However, it was unable
to recoup the higher input costs, which increased by
more than 7%.
Inordertosatisfythedemandforfashion,SamcaWall
Tiles developed more than 100 new tiles during the year,
with a bias towards larger tile formats. The improved
sales mix, reduced the effect of lower volumes with
selling prices increasing by 5%.
Innovation
SamcaWallTilescontinuedtoacceleratetherateofnew
range development, producing six size formats across
its three kilns during the year. The newly introduced
30 cm x 55 cm format attracted sufficient demand to
require the development of further ranges in this size
format.
Outlook
SamcaWallTileswillcontinuetodrivequalityandfashion
in 2009. Turning its attention to the presentation of its tiles
to customers, the factory will also improve the quality of
its packaging.
Pegasus
Focus
Pegasus produces matt and shiny glazed pressed floor
tiles in two size formats for indoor use targeted at the
contractor and DIY market. This target market requires
value for money. The factory’s annual capacity was
doubled to 18,0 million m2 during the year.
Ceramic Industries Limited annual report 2008 page 11
chief executive’s review(continued)
Market conditions
Although the broader market came under pressure,
Pegasus was shielded from the worst impact as
consumers transferred spending from the middle market
to more cost effective products. The market slump only
had an impact on Pegasus from June 2008.
Performance
The factory achieved a 12,4% increase in production to
14,6 million m2, with a commensurate increase in sales
to 14,2 million m2. Although the factory did not operate
at full capacity because of lower demand, moderate
increases in selling prices were achieved, reflecting the
market’s appetite for its consistent quality, design and
supply.
EfficiencieswerelostduetoPegasusrunningbelowfull
capacity, which reduced margins. The factory continued
to focus on fine tuning its processes and training to
improve its in-house skills, which led to an improvement
in first grade yield.
Small investments were initiated during the year to
introduce further efficiencies. In line with its ongoing
aim to reduce unit costs, Pegasus started building a
new crushing plant, a function which was previously
outsourced. In addition, a water recycling plant is being
built to reduce the impact of factory effluent on the
environment.
Innovation
Pegasus accelerated the rate of new product
development, launching more than 130 new tiles. It
achieved higher acceptance of its products than in
the past as the factory tied its designs more closely to
Brazilian trends. These were found to be better aligned
withtheSouthAfricanmarketthantheEuropeantrends
that had historically formed the basis of its product
development.
Outlook
Pegasus will continue to consolidate its position in 2009,
with a greater focus on training and refining its internal
processes to ensure that the factory is ideally placed to
take advantage of any increase in demand.
Vitro
Focus
Vitro produces full bodied glazed and unglazed, extruded,
punched tiles in four size formats for indoor and outdoor
use. This factory has an annual production capacity of
5,6 million m2 and produces specialist products with
niche applications. Its offering competes with products
other than typical ceramic tiles, including imported
porcelain and natural stone tiles.
Ceramic Industries Limited annual report 2008 page 12
chief executive’s review(continued)
Market conditions
Withitstargetmarketbeingtheupperendofthemarket,
the impact of the downturn in consumer demand was
less marked for Vitro. This segment of the market remains
driven by fashion trends. The market has accepted the
Vitro product and the factory was successful in taking
market share from imported products during the year.
Performance
Vitro continued to deliver a strong production performance
with total production of 5,4 million m2. The marginal
decrease in production from 5,6 million m2 the previous
year was due to the planned four week shutdown of the
NCI-line kiln, for refurbishment. Vitro continued to increase
its first grade yield year-on-year, enabled by a greater
focus on training, encouraging greater staff accountability
and better attention to quality. Although the scrap rate
remained constant the factory continues to strive for greater
efficiencies by reducing waste.
Vitro’s ongoing focus on gauging consumer trends with
its high fashion ranges assisted in improving selling prices
by 6% during the year. These increases were insufficient
to fully counteract the effect of higher input costs.
Innovation
Vitro maintained its innovation drive during the year,
developing more than 30 new tiles. The factory focused
on textures as well as on glazes and prints to achieve
more realistic and hard wearing alternatives to natural
stone.
In addition, the flexibility of the factory enabled Vitro to
develop modular tile ranges, made up of compatible size
formats.
Outlook
As Vitro continues to capitalise on the inherent potential
of its production capability, the factory will continue on
its good performance path. To this end, it will to focus
on innovation to meet its target market’s requirements
as well as making small investments to improve its
packaging facilities. The factory will continue to pursue
improved efficiencies in the year ahead.
Centaurus – Australia
Focus
Centaurus produces glazed porcelain floor tiles in three
size formats targeted at a sophisticated consumer. It has
an annual production capacity of 6,0 million m2 from two
kilns.
Market conditions
The Australian residential construction market came
under pressure during the year under review, with
reduced demand for building materials, including
tiles. Notwithstanding the declining market, Centaurus
increased its share of the market. The market is highly
fashion conscious, with a preference for larger formats
and neutral tones.
The stronger Australian Dollar benefited tile imports into
the country during the year. However, with the currency
showing weakness at financial year-end, the situation has
since reversed.
Performance
Production showed a 50,0% increase to 5,0 million m2,
facilitated by the successful commissioning of the second
kiln in October 2007.
Ceramic Industries Limited annual report 2008 page 13
chief executive’s review(continued)
Sales rose to 4,2 million m2 but Centaurus was unable
to sell its entire increased production due to lower
demand. However, it successfully increased market share
to 15%, from 10% in the previous reporting period. This
is particularly noteworthy against the backdrop of the
subdued residential construction market and increased
imports. The factory took the decision a year ago to align
its marketing approach to local distribution models by
introducing wholesalers between itself and retailers,
which is showing signs of success.
Centaurus maintained its first grade yield, with consistent
production of high quality tiles in terms of size and colour.
Innovation
The greater flexibility afforded by the new installed
capacity enabled Centaurus to broaden its product
range. Two larger size formats were introduced to meet
market demand previously satisfied by imports, namely
40 cm x 40 cm and 50 cm x 50 cm. Innovations included
the introduction of more textured tiles and anti-slip
products.
Outlook
Having fine tuned its distribution model and bedded
down the increased production capacity, Centaurus now
faces the challenge of gaining further market share to
fully realise the benefits of its installed capacity.
MANUFACTURINg OPERATIONS – SANITARYWARE
DIVISION
Betta
Focus
Betta is a high volume, low cost producer of glazed
porcelain sanitaryware, with a maximum production
capacity of 1,5 million pieces per year.
Market conditions
Whiledemandslowedinmostsectorsofthemarket,
demand in the lower end of the market remained
steady, supported by government low cost housing
developments and sanitation programmes. Declining
interest in residential construction resulted in lower
volumes in the mid-market segment. The premium
segment of the consumer market remains steady.
Imports became less competitive due to increasing
transport costs.
Performance
Despite the severe impact of power outages on
production during the first half of the financial year, Betta
recouped lost volumes and maintained its production
at 1,4 million pieces. Lower demand dampened Betta’s
ability to fully utilise its additional capacity. The bias
towards entry level products reduced profitability, due
to the lower margins in this segment. Margins were also
reduced by higher input costs which were absorbed to
maintain sales volumes.
Although power outages negatively affected productivity,
reduced scrap levels and increased efficiencies reversed
this in the second half of the year.
Ceramic Industries Limited annual report 2008 page 14
chief executive’s review(continued)
The factory maintains its global competitive advantage
with lower scrap rates than its international benchmarks,
facilitated by recent investments in technologically
advanced equipment and its focus on establishing new
manufacturing methodologies. Betta achieved ISO 9001
certification after year end, providing evidence that its
quality management systems meet global best practice.
Innovation
Betta started to reap the benefits of the intensive product
development drive initiated in the previous period.
It is now equipped with a number of well-designed
fashionable new ranges which appeal to both local tastes
and the export market. Having successfully leveraged
Sphinx’s export relationships, Betta exported increased
volumes during the last four months of the financial year,
as its product was viewed as a favourable alternative to
ChineseimportsinEurope.
Outlook
The commissioning of Betta’s R120 million expansion
project will increase capacity to 2,0 million pieces per
annum. Although initially scheduled for completion in
July 2008, the project was delayed, and will deliver higher
output for only a portion of the 2009 financial year.
Having developed a broad range of products, Betta is
positioned to continue gaining market share against
imports. Value for money is key in the current trading
environment.
The export market presents opportunities and Betta’s
world-class production capability and its strong ongoing
product development should increase volumes sold into
Europe.
Bathroomware factories – Sphinx and Aquarius
Sphinx manufactures free-standing and customised
acrylic baths and Aquarius is an automated, high-volume,
low-cost acrylic bath production facility.
The Group underestimated both the difficulties
of commissioning the new technology and the
characteristics of the new raw material used at Aquarius
and the factory delivered a disappointing result,
compounded by inefficiencies and high waste levels. The
factory operated at a significant loss for the year.
Sphinx continued to encounter disruptions due to the
reorganisation of the acrylic bathroomware division in the
second half of the year, reporting a loss for the full year.
Action was taken to stem the losses at the factory,
while protecting the Group’s investment. A decision has
been taken to temporarily reconsolidate the Group’s
bath production facilities at Sphinx, while upskilling the
workforce and reconfiguring Aquarius to manufacture the
Group’s entire bathroomware range. It is management’s
current intention to recommence production at Aquarius
within six months.
Aquarius has an inherent competitive edge as its
manufacturing plant is comprised of disparate
technologies which have been combined to offer unit
cost benefits. As such, the Board is confident that the
bathroomware operations can deliver acceptable returns
in the long term.
The outlook improved after year end, with good
price increases and increased production volumes,
indicating these operations are starting to turn around.
Acrylic bathroomware remains strategic to the Group,
spearheadingitssanitarywaresalesintoEurope.
N Booth
Chief Executive Officer
Ceramic Industries Limited annual report 2008 page 15
corporate governance
Ceramic Industries complies with the King II Report on Corporate Governance except that it does not have an independent chairman. The Group continues to instill a culture of openness, accountability and integrity which is reflected in its commitment to best practice. The Group is proud of its ethical and transparent management of the business, following not only accepted corporate practices for risk management, but also providing a strong assurance to its shareholders and other stakeholders by living the ethics of the Group.
LegislationThe Group does not have its own dedicated capacity to identify and manage legislative compliance including legislation governing health and safety, labour, environment and mining. The Group is advised on its ongoing obligations by skilled compliance officers who also offer an unfettered opinion when needed. The necessary changes highlighted by the officers are then made to ensure that the Group is fully legally compliant.
The Group’s company secretary ensures that it complies with all regulations and reports back to the Board in this regard on a regular basis.
Board of DirectorsThe Board of Directors acknowledges and accepts its statutory, regulatory and ethical responsibilities as set
downbytheCompaniesAct,therulesoftheJSE,theSecurities Regulation Code and King II. The Directors keep abreast of developments in corporate governance, especially with regard to King III and will review compliance once it has been finalised.
The members of the Board play an important role in providing strategic vision and guidance to the company, based on their own relevant fields of specific and diverse experience as non-executive directors.
In line with their fiduciary duty to Ceramic Industries, the Board fosters and encourages the existing open and honest management style of the Group and the values that exist throughout the workforce, which are constantly evolving and being evaluated.
The Board consists of nine members including the ChiefExecutiveOfficer(CEO).TheBoardischairedbyG A M Ravazzotti who is a non-executive director. The credentials of Board members and senior management are made available for inspection prior to nominations totheBoard.TheCEOtakesresponsibilityforseniormanagement’s performance and is accountable to the Board.
The Board of Directors and their sub-committee responsibilities are listed below:
Meeting attendance
Name Classification Committee Board Audit Remuneration
G A M Ravazzotti Chairman: non-executive Remuneration 5/5 — 2/2N Booth Chief executive officer Risk 5/5 3/3# 2/2#
S D Jagoe Director: Independent non-executive Audit & Risk 5/5 3/3 —EMMafuna Director: Independent non-executive Remuneration 5/5 — 2/2N S Nematswerani* Director: Independent non-executive Audit 3/3 2/2 —N D Orleyn* Director: Independent non-executive Remuneration 3/3 — 1/1LEVRavazzotti Director: Non-executive 4/5 — —K M Schultz Director: Independent non-executive Audit 5/5 3/3 1/1G Zannoni Director: Non-executive 4/5 — —* Appointed to the Board of Directors on 25 January 2008
# Attendance by invitation
(continued)
corporate governance
Ceramic Industries Limited annual report 2008 page 16
MonitoringImplementation and monitoring of the Group’s compliance with its corporate governance obligations is driven by the Board of Directors. A regular self-evaluation initiative enables the Board to identify and develop goals for improvement and initiate focused changes to meet them.
Professional adviceThe company secretary is responsible to the Board for ensuring that procedures are properly followed and all directors have unlimited access to her advice and services.Withtheapprovalofthechairman,alldirectorsare also entitled to seek independent advice on matters concerning the Group at its expense.
Risk managementAs a listed company, Ceramic Industries takes the responsibility of managing risk on behalf of its shareholders and other stakeholders very seriously. The risk committee ischairedbyCEONBoothandcomprisestheexecutivecommittee and independent non-executive director, S D Jagoe.
Risk is discussed monthly at management meetings and the risk committee meets at least once per year. Risk identification and assessment is carried out bi-annually by the executive members of the committee and the chair reports the committee’s findings to the Board of Directors.
The analysis includes identification of new risks, which are given a monetary value, to the business. The risks are then cross-referenced against the probability of occurrence, which determines the ranking of each risk. The potential impact on earnings is then measured and action plans are put in place to manage the top-ranked risks.
Audit committeeThe audit committee was chaired by independent non-executive director S D Jagoe until the appointment of N S Nematswerani as an independent non-executive director on 25 January 2008. One other independent non-executive director, K M Schultz, also sits on the committee. Meetings of the audit committee, which are heldatleastthreetimesayear,areattendedbytheCEO,
theChiefFinancialOfficerandarepresentativeoftheexternal auditors. The committee reviews and evaluates the company’s corporate governance processes, financial reporting, risk management processes, internal audit and controls as well as its external auditors. The committee reports its findings to the Board.
Remuneration committeeThe remuneration committee meets at least once a year,andischairedbyEMMafuna,anindependent non-executive director, and consists of two additional non-executive members, N D Orelyn who is an independent, and G A M Ravazzotti. The responsibility of the committee is to review executive remuneration, performance bonuses, directors’ fees and the allocation of shares in terms of the share incentive trust. Remuneration of senior executives is based on their performance within their area of responsibility and is calculated using key performance indicators, which include operational and financial performance. Senior management incentives are linked to achieving divisional targetsandprofits.TheGroup’sCEOisassessedonthegrowth performance of the Group as a whole.
Ethics policyThe Group prides itself on its commitment to principles of integrity, human dignity and fairness in practice. The Group operates under a comprehensive ethics policy, which is integral to its business values. The management team sets an example with its actions which are governed by the ethics policy. It is therefore expected of every employee to follow the example set by the management team. Management is highly visible on factory floors with an “open door” policy throughout the organisation. This encourages informal processes which enable employees to report unethical behaviour at all levels.
Internal audit and controlIn line with the Group’s philosophy of optimising its resources at every opportunity, its unconventional but highly effective approach to internal audit continues to be successful. On an annual basis, each deputy factory manager swaps duties with one of his colleagues to evaluate the status of the Group’s production facilities. This includes measurement of inventory levels and
(continued)
Ceramic Industries Limited annual report 2008 page 17
corporate governance
evaluationofprocessesinthefactory.Eachdeputyfactory manager then feeds back to his colleagues on issues such as inefficiencies and processes that could be evolved to enhance the profitability of the Group.
This process, which is overseen by the finance department, has won substantial support from the Group’s employees and is considered more effective than employing external resources.
AuditorsKPMG, the external auditors employed by the Group during the year had direct access to the chair of the audit committee. The Group is satisfied that the non-audit services provided did not compromise KPMG’s independence as auditors. The fees for KPMG for the year under review were as follows:Audit: R1 381 984Non-audit: R247 982
Price sensitive informationOnlythechairman,CEOandCFOmaydiscussmatterswhich involve price sensitive information with third parties. The Group classifies such information according totheJSELimited’sguidelinesonpricesensitiveinformation and has defined procedures for dealing with confidential undertakings, in particular concerning discussions with the press, institutional investors and analysts. The Group follows a “closed period” principle for the month before close of the half year until publication of the interim results and the month before close of the financial year until final results are made public. During these periods, employees and directors are prohibited from dealing in the company’s shares.
Executive managementTheCEOandtheexecutivemanagementteammeetregularly to consider issues of strategic importance to the Group.
Financial statements and internal controlThe annual financial statements, which are set out on pages 26 to 69 of this report are prepared by the Board inaccordancewithInternationalFinancialReportingStandards in a manner that fairly represents the state of affairs and results of the operations of the company and the Group. The financial statements are externally audited to ensure their fair presentation and compliance with InternationalFinancialReportingStandards.
In order to ensure that assets are safeguarded and that transactions are executed and recorded in accordance with general business practices, the Group maintains financial and operational control systems which include proper delegation of responsibilities, effective accounting procedures and adequate segregation of duties which aremonitoredregularlythroughouttheGroup.Employeesare required to act with integrity in all transactions.
SUSTAINABILITY REPORTCeramic Industries recognises its responsibility to safeguard the interests of all its stakeholders and believes that good governance is essential to the Group’s long-term sustainability and functioning. The Group aims to operate profitably while remaining accountable to the broader community which it serves, respecting the natural environment and conforming to its stringent requirement for transparency.
The Group embraces the King II report’s guidelines for socially responsible reporting according to the “triple bottom line” – the economic, social and environmental impacts of its operations – as a method of enhancing its commercial success as well as improving the likelihood of its long-term success.
(continued)
Ceramic Industries Limited annual report 2008 page 18
Stakeholder engagementThe Board considers it a duty to keep all the Group’s stakeholders informed and up to date with regard to its practices, policies and financial results, while maintaining its accountability for the sustainability of the Group to its investors and employees.
Direct discussions with stakeholders are always welcomed by the Board. In addition to communication at the annual results presentation which is made to key shareholders and analysts, media releases are published when appropriate, as well as ad hoc meetings with interested parties on request.
The Group meets regularly with its shareholders and recognises its fiduciary duty to maximise the value of its assets for their benefit. In addition, shareholders are encouraged to attend the Group’s annual general meeting to vote on resolutions of the company and, where appropriate, to enter into discussions with the directors.
As part of its duty as a South African corporate citizen, the Group is committed to its responsibility of engaging with the local communities where its operations have a potential environmental impact on their surroundings.
The Group aims to develop a positive working relationship with local communities through organised committees.
TransformationCeramic Industries is committed to the ongoing transformation of South Africa and supports the principlesembodiedintheBEECodeandtheMiningCharter. The Group has achieved substantial success in its employment equity plans, and black managers occupy a number of senior positions in the Group’s factories. In addition, staff are encouraged to think as owners of their respective divisions or factories through a profit sharing scheme in terms of which approximately 7% of divisional or factory pre-tax profit is distributed to factory employees, the majority of whom are historically disadvantaged South Africans (HDSA).
OwnershipOn 10 June 2008, Ceramic Industries advised shareholders that it had reached agreement with all the partiesinvolvedinitsBlackEconomicEmpowermenttransactions, comprised of two major initiatives:• TheempowermentoftheGroup’sclayquarries;and• Theissueof2029283CeramicIndustriesordinary
sharestoselectedBEEpartners.
corporate governance
Investors Annualandinterimreports,profitannouncements,SENSannouncements,annualgeneralmeeting,
investor relations programme, results presentations, website and internet
Employees Quarterly newsletter, intranet, invitation to all staff to attend the monthly executive committee
meetings. Participative structures to deal with issues affecting employees directly and materially
set up with trade unions to achieve good employer/employee relations through effective sharing
of relevant information, consultation and the early identification and resolution of conflict. Training,
e-mail and notice-board announcements, monthly income statement reports, employee handbook,
information gathering and dissemination meetings at the beginning of each factory shift
Customers Contracts, meetings, letters, e-mail updates, account statements
Suppliers Contracts, letters, e-mails, invoices, statements
Communities Public relations, profit announcements, website, meetings with local community committees
The Group has defined its major stakeholders, and communicates with them as follows:
(continued)
Ceramic Industries Limited annual report 2008 page 19
corporate governance
The quarry transaction Clay is a low-price product and, excluding transport costs, is not a major input cost for the factories. However, a secure supply of clay is an integral part of the Ceramic Industries business.
AspartofitsBEEtransaction,CeramicIndustriessetup a new company to acquire the Group’s quarries at fair value. All those employees of the Group who do not participate in any share incentive schemes will be
entitled to acquire units in a trust which will acquire 60% of the shares in the new company with the balance being held by Ceramic Industries. The employees have the right to exchange their interest in the new company owning the quarries for shares in Ceramic Industries in 2018. The Group will hedge its exposure by purchasing the requisite number of Ceramic Industries shares in the market.Employeesareentitledtothecapitalgrowthanddividends from their Ceramic Industries shares.
The BEE partners’ transactionTheBoardagreedtoissue2029283CeramicIndustriessharestoBEEpartners,comprisedasfollows:
BEE partner Shareholding Rationale
Peotona Group Holdings
(Proprietary) Limited (Peotona)
2% (405 857 shares) Peotona and Aka have the ability to assist the Group in
meetingitscommitmentacrosstheBEEscorecardwith
an initial emphasis on transformation, skills development,
preferential procurement and enterprise development.Aka Capital (Proprietary)
Limited (Aka)
2% (405 857 shares)
PBO Trust, benefiting HDSA
communities surrounding the
Group’s factories (and in particular,
the women of these communities)
4% (811 712 shares) A public benefit organisation is being established to
administer the projects that will be undertaken for the benefit
of the HDSA participants with whom the Group interacts.
Peotona will, in conjunction with the trustees, take the lead in
managing the PBO Trust.
EmployeeShareTrust 2% (405 857 shares) EmployeeswillparticipateintheBEEtransactioninaddition
to their ongoing share in divisional profits and ownership of
the quarries, through an employee share trust which will hold
the shares on behalf of the employees.
Ceramic Industries Limited annual report 2008 page 20
corporate governance(continued)
The Board of Directors of Ceramic Industries is committed to improving the Group’s performance across the Department of Trade and Industry’s generic scorecard forBroadBasedBlackEconomicEmpowermentandhasthereforeengagedwithBEEgroupswhoareabletoassistthe Group to meet this commitment.
The2029283newshareswillbeissuedtotheBEEpartners for the nominal amount of R0,01 per share and theBEEpartnerswillbeentitledtoalltherisksinandbenefits of the shares.
Payment for the shares, including accumulated interest on a notional loan account based on the market value of the shares, will be made by repurchasing shares at the end of the seven year lock up period.
Employment equityThe Group submits its employment equity reports to the Department of Labour on an annual basis. During 2008, it met the overall targets set out in its employment equity reports.
Ceramic Industries’ employment statistics at 31 July 2008
Skills developmentTo address the skills shortage, which remains a reality across the industry, the Group continues investing heavily in training initiatives in its factories for on-the-job practical knowledge improvement. The internal programme launched within the factories to improve the workforce’s day-to-day ability to run each plant proved successful to develop the employees’ skills.
The Group also has a mentorship programme, which increased to four (2007: three) management trainees during2008.Whilstontheprogramme,thetraineesareexposed to both the operational and administrative aspects of the business as well as attending formal academic training programmes.
During the year, five artisans qualified as fitters through the Group’s internal programmes which include on-the-job training as well as attendance at formal academic training programmes.
A total of 608 employees of which 91% were HDSA, attended, on average, two training courses in the course of the year, as set out below:
Top management
Other50%
Historically disadvantaged individuals50%
Senior and mid management
Other56%
Historically disadvantaged individuals44%
Other permanent staff
Other 7%
Historically disadvantaged individuals93%
White female 2%
HDSA male 83%
HDSA female 8%
White male 7%
Ceramic Industries Limited annual report 2008 page 21
corporate governance(continued)
The Group’s training and development initiatives included, among others, debt management training; ISO training, HIV,healthandsafetytraining.Employeesattendedmorethan 430 technical and administrative training courses to enhance their skills. In addition, induction training for new employees included topics such as the culture and valuesoftheGroup.ABETtrainingcourseswereattendedby 77 employees.
Bursaries were granted to eight employees completing studies related to their work, and to an employee’s child.
Investments are also made in official training at local colleges, universities and technikons to extend employees’ theoretical knowledge and to ensure that employees can contribute to both the quality and profitability of the Group’s products.
SOCIAL IMPACTResponsibility to employeesThe Group places great importance on its responsibility to uphold basic human rights within the organisation. As such, it has a dedicated ethics policy, which is made available to all members of staff and strictly adhered to at all times. The Group does not simply see this as a legislative requirement with which it must comply, it considers that such transparent guidelines reflecting its core values and beliefs go hand-in-hand with empowering and entrusting its people, who are its most valuable asset.
The Group operates a profit share scheme for all employees, which not only incentivises them, but also provides a level of responsibility and ownership for the work they do. An awards ceremony is conducted bi-annually, where employees are acknowledged and awarded substantial prizes for performance and innovation, amongst other areas.
All wage negotiations at the factories which are unionised were completed successfully. There was no strike action during the year under review.
Health and safetyThe Group’s health and safety policy complies with the Occupational Health and Safety Act, 1970 and other relevant legislation, regulations and codes of practice for South Africa. The policy aims to prevent and minimise work-related and health impairments by applying international best practice and ensuring that all employees are supplied with adequate training and supervision for the role they undertake.
Because of the potential risks inherent in the Group’s activities, the Group takes health and safety obligations very seriously. A safe working environment also makes sound commercial sense.
During the year under review, more than 200 individuals attended health and safety training, but unfortunately three disabling accidents occurred. The Group uses various incentives for non-injury among its employees which have helped it to achieve a low accident rate statistic.
All factory sites have established on-site clinics which offer primary healthcare and other wellness programmes to employees. Other healthcare services provided include interventions aimed at preventing diseases such as HIV and Aids and tuberculosis. Preventive measures are also employed to avoid occupational health hazards, such as silicosis to the respiratory systems of employees, by undertaking regular dust surveys within the working environment.
HIV and AidsThe Group is acutely aware of the threat of HIV and Aids in South Africa. As such, it has developed a fully comprehensive programme for employees affected by
Ceramic Industries Limited annual report 2008 page 22
This is complemented by environmental management plans(EMPs)ateachoftheGroup’sfactoriesandquarries.TheEMPsaimtosystematicallyandefficientlyensure that the Group’s goal of sustainable development is not attained at the expense of the environment. This is achieved through environmental impact assessments (EIAs)onallnewprojectstoassesspotentialenvironmental consequences as well as preventive remedialactions.EIAsareincorporatedintoeachsite’sEMPandmonitoredforeffectivenessforthedurationofthe project.
ImpactsWater,energy,clayandglazearethekeymaterialsusedby the Group in the execution of its business. The Group is currently implementing initiatives to drive down its fuel consumption. No hazardous emissions are produced by the Group in its daily business activities and it has resolved to use only natural gas in an effort to limit the effect of CO2 emissions.
The Group produces approximately 500 tons of fired scrap per month, which is used to fill and shape redundant quarries so that the environmental impact is minimised and the land may be rehabilitated and used for other purposes.
Substantial quantities of water are used in the daily mining operations of the Group, largely to reduce the amount of dust in the air. Borehole water is used whenever possible, providing this does not infringe any municipal regulation. During the year under review, Vitro and Pegasus started constructing water recycling plants, while Betta initiated an upgrade of its water recycling facility to ensure compliance with regulations. The Group’s objective is, by 2009, to clean all water that is released from operations.
the disease. Voluntary counselling and testing, anti-retroviral medication as well as comprehensive lectures on wellness and nutrition are readily available at all of its factory sites. During the year, a large contingent of employees agreed to undergo anonymous voluntary counselling and testing for HIV and Aids. The cost of implementing health and safety initiatives, including the HIV and Aids programme, was approximately R200 000 during the year under review.
Corporate Social Investment (CSI)WhiletheGrouphasnoformalCSIpolicy,ithasbeeninvolved in a number of ad hoc projects and donations tobenefitthelocalcommunity.Followingtherelocationof its administration and service centre to the Vaal Triangle, the Group investigated social investments in the area and contributes to maintenance of certain local infrastructures.
CeramicIndustriessupportstheWorldwideFundforNature(WWF)aspartofitscorporatesocialinvestment.WWFistheworld’slargestprivatelyfinancedconservationorganisation, working in more than 100 countries to conserve the diversity of life on earth.
ENVIRONMENTAL IMPACTOverall policy and standardsThe Group recognises that due to the nature of its mining activities, there is potential for negative impacts on the environment. It is therefore a high priority for the Group’s long-term sustainability to mitigate any such effects at every possible opportunity.
The Group complies with relevant environmental legislation. Surveys are in progress to evaluate the impact of its seven quarries with regard to air pollution in order to ensure it complies with air pollution legislation. Awareness of environmental issues is raised amongst employees through the Group’s comprehensive environment protection policy.
corporate governance(continued)
Ceramic Industries Limited annual report 2008 page 23
BackgroundThe Corporate Laws Amendment Act, (the Act) became effective on 14 December 2007: As a consequence the committee has, during the year under review, commenced with the implementation of most of its requirements.
The committee’s operation is guided by a detailed charter, that is based on the Act and the principles set out in King II, and are approved by the Board as and when amended.
PurposeThe purpose of the committee is:•toassisttheBoardindischargingitsdutiesrelating
to safeguarding Group assets, the operation of adequate systems, control and reporting processes and the preparation of accurate reporting and financial statements in compliance with the applicable legal requirements and accounting standards;
•toprovideaforumfordiscussingbusinessriskandcontrol issues for developing recommendations for consideration by the Board;
•tooverseetheactivitiesofexternalaudit;and•toperformdutiesthatareattributedtoitbytheAct.
MembershipDuring the course of the year; the membership of the committee was revised and comprises independent non-executive directors. They are:•NSNematswerani(chairman)•SDJagoe•KMSchultz
External auditThe committee has satisfied itself through enquiry that the auditor of Ceramics Industries Limited is independent as defined by the Act.
The committee, in consultation with executive management, agreed to a provisional audit fee for the 2008 financial year. The fee is considered appropriate for the work that could reasonably have been foreseen at that time. The final adjusted fee will be agreed on completion of the audit. Audit fees are disclosed in note 2 to the financial statements.
There is a formal procedure that governs the process whereby the auditor is considered for non-audit services, and each engagement letter for such work is reviewed by the committee.
The committee has nominated, for approval at the annual general meeting, KPMG Inc. as the external auditor for the 2009 financial year, and T G Cheadle as the individual registered auditor.
Internal auditInternal audits are conducted by the deputy factory managers and the finance department on the basis discussed in the corporate governance report.
Annual financial statementsThe committee has tabled the financial statements for approval by the Board. The Board has subsequently approved the financial statements which will be open for discussion at the forthcoming annual general meeting.
N S NematsweraniChairman of the Audit Committee
13 October 2008
audit committee report
Ceramic Industries Limited annual report 2008 page 24
stock exchange performance
2008 2007 2006 2005 2004 2003
Market price per share
– Closing at year-end cents 7 020 18 445 12 550 10 705 6 000 6 200
– High cents 19 000 19 000 15 000 11 000 7 050 7 900
– Low cents 7 020 12 570 10 750 6 200 5 500 6 000
Volume of shares traded as
percentage of issued shares % 12,6 6,6 8,2 6,3 9,1 3,6
Closing share price as percentage of
net asset value per share % 103,9 315,2 256,3
247,9 186,2 225,2
Number of transactions recorded on
theJSELimitedSouthAfrica 1 186 795 1 013 682 1 087 881
Number of shares traded 000’s 2 298 1 207 1 494 1 155 1 656 655
Value of shares traded R000’s 269 250 189 423 188 427 109 930 103 977 46 134
Market price per share(Cents)
0803
20 000
18 000
16 000
14 000
12 000
10 000
8 000
6 000
4 000
2 000
004 05 06 07
Ceramic Industries Limited annual report 2008 page 25
analysis of shareholders
Concentration of holdings
Number of
shareholders % of total
Number of
shares
% of shares
held
1 – 5 000 shares 546 84,00 469 903 2,57
5 001 – 20 000 shares 54 8,31 566 463 3,10
20 001 – 100 000 shares 34 5,23 1 414 522 7,75
100 001 – 1 000 000 shares 14 2,15 4 329 016 23,70
1 000 001 shares and over 2 0,31 11 483 639 62,88
Total 650 100,00 18 263 543 100,00
Shareholders’ spread
Category of shareholders
Number of
shareholders %
Number of
shares held %
Non-public shareholders 10 1,6 12 697 112 69,5
Directors of the company 4 0,6 423 478 2,3
Associates of directors 5 0,8 11 212 932 61,4
Ceramic Industries share incentive trust 1 0,2 1 060 702 5,8
Public shareholders 640 98,4 5 566 431 30,5
Individuals 362 55,7 1 323 090 7,2
Companies, funds and other corporate bodies 177 27,2 3 073 476 16,8
Nominees and trusts 101 15,5 1 169 865 6,5
650 100,0 18 263 543 100,0
Major shareholders (holding > 4%)
Number of
shares held % of total
Rallen (Pty) Limited 10 422 937 57,07
Ceramic Industries share incentive trust 1 060 702 5,81
Tommaso Altini Trust 900 000 4,93
Old Mutual Group 871 155 4,77
13 254 794 72,58
Ceramic Industries Limited annual report 2008 page 26
contentsapproval of the annual financial statements 27
certificate by the company secretary 27
report of the independent auditors 27
directors’ report 28
directorate and administration 31
income statements 32
balance sheets 33
statements of changes in equity 34
cash flow statements 35
accounting policies 36
notes to the annual financial statements 46
annual financial statementsfor the year ended 31 July 2008
Ceramic Industries Limited annual report 2008 page 27
approval of the annual financial statements
The Group and company annual financial statements, set out on pages 28 to 69, were approved by the Board of Directors on 13 October 2008 and are signed on its behalf by:
G A M Ravazzotti N BoothNon-executive Chairman Chief Executive Officer
certificate by the company secretaryDeclaration by the Company Secretary in terms of section 286 (G) (d) of the Companies Act 1973 as amended.I declare, to the best of my knowledge, the company has lodged with the Registrar of Companies all such returns as are required of a public company in terms of the Companies Act and that all such returns are true, correct and up to date.
E J WillisCompany secretary
report of the independent auditorsTo the members of Ceramic Industries LimitedWe have audited the Group annual financial statements and the annual financial statements of Ceramic Industries Limited, which comprise the balance sheets at 31 July 2008, and the income statements, the statements of changes in equity and cash flow statements for the year then ended, significant accounting policies and the notes to the financial statements, and the directors’ report as set out on pages 28 to 69.
Directors’ responsibility for the financial statementsThe company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of South Africa. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors’ responsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used as the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, these financial statements present fairly, in all material respects, the consolidated and separate financial position of Ceramic Industries Limited at 31 July 2008, and its consolidated and separate financial performance and consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards, and in the manner required by the Companies Act of South Africa.
KPMG Inc. Per T G Cheadle 85 Empire RoadRegistered Auditor Chartered Accountant (SA) Parktown, South Africa Registered Auditor 13 October 2008 Director
Ceramic Industries Limited annual report 2008 page 28
directors’ report
The directors of Ceramic Industries Limited have pleasure
in presenting the annual financial statements for the
Group, for the year ended 31 July 2008.
Nature of business
Ceramic Industries Limited and its subsidiaries
manufacture ceramic floor tiles, wall tiles, vitreous china
sanitaryware and acrylic bathroomware. The Group is
listed on the JSE Limited, South Africa in the Construction
and Building Materials sector.
Group results
The results of the Group and the company, which are
prepared in terms of adopted International Financial
Reporting Standards (IFRS), are set out on pages 32 to
69 of this report.
Dividends
The Board has declared a final dividend of 160 cents per
ordinary share, which together with the interim dividend of
130 cents produces a total dividend of 290 cents per share
(2007: 340 cents per share), a decrease of 14,7% from
2007. The Group has maintained its dividend cover of
3,5 times.
Significant dates for the final dividend are as follows:
2008
Last day to trade cum dividend Friday, 3 OctoberFirst day to trade ex dividend Monday, 6 OctoberRecord date Friday, 10 OctoberDividend payment date Monday, 13 October
The capital remaining after the payment of the above
dividend is considered sufficient by the Board to support
current operations and future developments of the Group.
Shareholders and capital
The authorised and issued share capital remained
unchanged at the following levels during the 2008
financial year:
Issued Authorised
Number of ordinary shares of no par value 18 263 543 27 709 467
Property, plant and equipment
During the year the Group invested R201,2 million in new
property, plant and equipment in order to expand its
operations. Details of property, plant and equipment are
contained in note 7 of the annual financial statements.
The register of land and buildings is available for inspection
at the registered office of the company during normal
business hours.
BEE transaction
In June 2008 the Group reached agreement, conditional
on shareholder approval, with all the parties involved
in its Black Economic Empowerment transactions. The
BEE transactions comprise two major initiatives, the
empowerment of the Group’s clay quarries and the
issue of 2 029 283 Ceramic Industries ordinary shares to
selected BEE partners, (for further details refer to page 18
of this report).
Ceramic Industries Share Trust
In terms of a resolution passed at a shareholders’ meeting
held on 12 January 1993, the directors are authorised
to make available for the purposes of the scheme, a
maximum aggregate number of 2 739 500 ordinary shares
(2007: 2 739 500), representing 15% of the issued share
capital. The scheme exists for the directors and senior
management of the Group with a limit of 350 000 shares,
which any one participant may acquire.
Ceramic Industries Limited annual report 2008 page 29
directors’ report
The movements in the number of shares allocated to
eligible participants are as follows:
2008 Number
of shares
2007 Number
of shares
At 1 August 516 250 718 750New allocations made — 90 000Redeemed allocations (63 750) (182 500)Forfeited allocations — (110 000)Allocations at 31 July 452 500 516 250Average subscription price per share R123,12 R117,09
The allocations made at 31 July 2008 will mature at various
dates up to 21 September 2011. Resignation from the
Group before the maturity dates, results in participants
forfeiting their allocations.
Ceramic Industries Limited ordinary shares totalling
1 060 702 (2007: 1 030 864) were held by the share trust.
The surplus, being the difference between allocated shares
and shares held by the share trust increased to
608 202 shares (2007: 514 614). Following the
announcement of the BEE transactions, the Group traded
under a cautionary for most of the financial year and as
a result it was not possible to make any allocations to
participants in the share incentive scheme.
There is no dilutive effect on the issued share capital of the
company as shares are bought in the open market by the
share trust. Acquisitions are funded by the company. At
31 July 2008, the total loan to the share trust amounted to
R74,6 million (2007: R91,9 million). As a result of the decline
in the Ceramic Industries share price, the company has
impaired the share trust loan account in the amount of
R21,7 million.
Directors’ participation in the share trust
Details of directors’ share allocations are contained in
note 28 of the annual financial statements.
Directors and secretary
The names of the directors and their personal details
appear under the section “Directorate and administration”
on page 31 of this report.
Subsidiary companies
Details of the company’s interest in and indebtedness to
or by its subsidiary companies are set out in note 12. The
attributable interest in the aggregate net profits or losses,
after taxation of subsidiaries is:
2008R000’s
2007R000’s
Profits 196 148 225 690Losses (6 778) —
Total 189 370 225 690
Events subsequent to balance sheet
Subsequent to year-end, the company concluded an
agreement to acquire a shareholding of approximately
10% in the group of companies that manufactures the
Ezee Tile range of adhesives. It is Ceramic Industries’
intention to remain a passive investor in this acquisition.
To date a deposit of R5,9 million has been paid.
Subsequent to year-end, a decision was taken to stem
the losses at the Group’s bathroomware manufacturing
factories, while protecting the Group’s investment.
A decision has been taken to temporarily reconsolidate
the Group’s bath production facilities at Sphinx, while
upskilling the workforce and reconfiguring Aquarius to
manufacture the Group’s entire bathroomware range. It is
management’s current intention to recommence production
at Aquarius within six months. The Board is confident that
the factory can deliver solid returns in the long term.
(continued)
Ceramic Industries Limited annual report 2008 page 30
directors’ report(continued)
are safeguarded and that the risk of error, fraud or loss
is reduced in a cost-effective manner. All controls are
monitored and reviewed. There was no breakdown in the
system of internal controls during the year under review.
The directors have reviewed the Group’s budget and cash
flow forecast for the 2009 financial year and, in light of this
review and the current financial position, they are satisfied
that the Group has adequate resources to continue
operating for the foreseeable future. For this reason the
Group continues to adopt the going concern basis in
preparing the annual financial statements.
Report on directors’ remuneration
In accordance with the requirements of the JSE Limited,
South Africa, a detailed report on directors’ remuneration
appears in note 28.
Directors’ shareholding
The directors’ beneficial and non-beneficial interests in the
stated share capital of Ceramic Industries Limited at the
balance sheet date is set out in the table below.
There has been no material change in these interests
between 31 July 2008 and the date of this report.
Directors’ interest in contracts
No material contracts involving directors exist other than
those disclosed in note 27, or were entered into, during the
year under review.
Corporate governance
Under the Companies Act, 1973, as amended, the Board
is required to maintain adequate accounting records
and to prepare annual financial statements in order to
fully represent the state of affairs of the Group and the
company as at the end of the financial year and of the
profit or loss for that year, to conform with International
Financial Reporting Standards and in the manner required
by the Companies Act, 1973, as amended.
The financial statements are the responsibility of the
directors and it is the responsibility of the independent
auditors to report thereon. Their report to the members is
set out on page 27.
For the directors to discharge their fiduciary duty to the
members of the company, the Group maintains adequate
accounting systems, accounting records and systems of
internal controls. These focus on critical risk areas and
are designed to provide reasonable assurance that assets
At 31 July 2008Beneficial Non-beneficial
Director Direct Indirect Total % held Direct Indirect Total % held
N Booth 121 000 — 121 000 0,7 — — — —S D Jagoe 67 000 23 000 90 000 0,5 — — — —E M Mafuna 20 000 — 20 000 0,1 — — — —G A M Ravazzotti 215 478 6 447 298 6 662 776 36,5 — 40 000 40 000 0,2G Zannoni 325 000 4 169 174 4 494 174 24,6 — 208 460 208 460 1,1
At 31 July 2007Beneficial Non-beneficial
Director Direct Indirect Total % held Direct Indirect Total % held
N Booth 126 000 — 126 000 0,7 — — — —S D Jagoe 67 000 23 000 90 000 0,5 — — — —E M Mafuna 20 000 — 20 000 0,1 — — — —G A M Ravazzotti 190 678 6 450 938 6 641 616 36,4 — 40 000 40 000 0,2K M Schultz 2 000 — 2 000 0,0 — — — —G Zannoni 265 500 4 168 374 4 433 874 24,3 — 208 420 208 420 1,1
Details of the directors’ participation in the share trust are set out in note 28.
Ceramic Industries Limited annual report 2008 page 31
directorate and administration
DIRECTORSG A M Ravazzotti (65)Non-executive chairman
N Booth (48)Chief executive officer
S D Jagoe (57) BSc (Eng), MBAIndependent non-executive director
E M Mafuna (63) BA Psych Soc, BA (Hons) SocIndependent non-executive director
N S Nematswerani (47) BCom, BAcc, MCom, CA(SA)Independent non-executive director
N D Orleyn (52) B Juris, BProc, LLBIndependent non-executive director
L E V Ravazzotti (39)Non-executive director
K M Schultz (71) BSc (Geology)Independent non-executive director
G Zannoni (69)Non-executive director – Italian
TRANSFER SECRETARIESComputershare Investor Services (Pty) Limited
SPONSORSBarnard Jacobs Mellet Corporate Finance (Pty) Limited
SHARE CODESJSE: CRMISIN: ZAE000008538
COMPANY REGISTRATION NUMBER1982/008520/06
AUDITORSKPMG Inc.
ATTORNEYS Biccari Bollo Mariano Inc.Edward Nathan Sonnenbergs Inc.Weavind & Weavind
BANKERSNedbank Limited
EXECUTIVE MANAGEMENTH Breytenbach (38)Betta Sanitaryware
L Foxcroft (36) BSc Eng (Physical Metallurgy) BCom Hons (IT)Samca Floor Tiles
H Deetlefs (33)Samca Wall Tiles
P de Lange (37) BEng (Mech) (Hons) PrEng Pegasus
T Molefakgotla (31) BTech (Mech Eng)Vitro
A Ferrara (45)Factory shop
L Pereira (47)Centaurus
J Coetzee (33)Sphinx and Aquarius
G Bowler (34) MBASales and Marketing – Tiles
R P Coleman (40)Sales and Marketing – Sanitaryware
D R Alston (54) BCom CA(SA) Finance and Administration
AUDIT COMMITTEEN S Nematswerani (Chairman)S D Jagoe K M Schultz
REMUNERATION COMMITTEEE M Mafuna (Chairman)G A M RavazzottiN D Orleyn
RISK COMMITTEEN Booth (Chairman)S D Jagoe D R AlstonH BreytenbachP de LangeL Foxcroft
COMPANY SECRETARY E J Willis
are safeguarded and that the risk of error, fraud or loss
is reduced in a cost-effective manner. All controls are
monitored and reviewed. There was no breakdown in the
system of internal controls during the year under review.
The directors have reviewed the Group’s budget and cash
flow forecast for the 2009 financial year and, in light of this
review and the current financial position, they are satisfied
that the Group has adequate resources to continue
operating for the foreseeable future. For this reason the
Group continues to adopt the going concern basis in
preparing the annual financial statements.
Report on directors’ remuneration
In accordance with the requirements of the JSE Limited,
South Africa, a detailed report on directors’ remuneration
appears in note 28.
Directors’ shareholding
The directors’ beneficial and non-beneficial interests in the
stated share capital of Ceramic Industries Limited at the
balance sheet date is set out in the table below.
There has been no material change in these interests
between 31 July 2008 and the date of this report.
Ceramic Industries Limited annual report 2008 page 32
income statements
GROUP COMPANY
Notes2008
R000’s2007
R000’s2008
R000’s2007
R000’s
Revenue 1 1 469 638 1 375 448 — —
Cost of sales 1 033 350 913 516 — —
Gross profit 436 288 461 932 — —
Operating expenses 185 016 166 009 21 736 266
Operating profit/(loss) 2 251 272 295 923 (21 736) (266)
Finance income 3 13 764 14 219 124 029 19 445
Finance expenses 4 1 107 715 — —
Profit before taxation 263 929 309 427 102 293 19 179
Taxation 5 81 853 92 464 12 488 12 715
Profit for the year 182 076 216 963 89 805 6 464
Attributable to:
Ordinary shareholders of the Group 181 563 216 324 89 805 6 464
Minority shareholders 513 639 — —
Basic earnings per share (cents) 6 1 055,2 1 251,5
Diluted earnings per share (cents) 6 1 055,2 1 243,6
Dividends per share (cents) 290,0 340,0
for the year ended 31 July 2008
Ceramic Industries Limited annual report 2008 page 33
as at 31 July 2008
balance sheets
GROUP COMPANY
Notes2008
R000’s2007
R000’s2008
R000’s2007
R000’s
ASSETS
Non-current assets 943 408 815 580 379 730 371 015
Property, plant and equipment 7 935 001 808 356 6 208 6 208
Intangible asset 8 50 100 — —
Goodwill 9 4 520 4 520 — —
Share trust loan 10 74 605 91 923
Deferred taxation assets 19 3 837 2 204 — —
Payment in advance 11 — 400 — —
Investment in subsidiaries 12 298 917 272 884
Current assets 541 038 564 018 9 306 9 877
Inventories 13 164 747 96 473 — —
Trade and other receivables 14 250 029 272 446 9 305 8 902
Cash and cash equivalents 15 126 262 195 099 1 975
Total assets 1 484 446 1 379 598 389 036 380 892
EQUITY AND LIABILITIES
Shareholders’ equity 1 162 781 1 011 553 141 114 109 166
Share capital 16 64 962 64 962 64 962 64 962
Shares held by share trust 17 (111 629) (105 034)
Share awards reserve 6 139 5 014 6 139 5 014
Reserves 96 680 73 089 29 223 36 529
Retained earnings 1 099 076 967 401 40 790 2 661
Ordinary shareholders’ interest 1 155 228 1 005 432 141 114 109 166
Minority shareholders’ interest 7 553 6 121
Total liabilities 321 665 368 045 247 922 271 726
Non-current liabilities 87 758 75 588 246 052 270 385
Shareholders’ loans 18 10 354 9 918 — —
Loans from subsidiaries 12 233 159 262 520
Deferred taxation liabilities 19 59 955 56 543 12 893 7 865
Borrowings 20 17 449 9 127 — —
Current liabilities 233 907 292 457 1 870 1 341
Trade and other payables 21 192 892 236 831 — —
Taxation payable 34 356 48 983 1 691 1 178
Provisions for liabilities and charges 22 6 480 6 480 — —
Shareholders for dividends 179 163 179 163
Total equity and liabilities 1 484 446 1 379 598 389 036 380 892
Ceramic Industries Limited annual report 2008 page 34
statements of changes in equity
Attributable to equity holders of the parentReserves
GROUP
Share capital R000’s
Shares held by
share trust
R000’s
Share awards reserveR000’s
Foreign currency
trans-lation
R000’sDividend
R000’s
Retainedearnings
R000’sTotal
R000’s
Minorityshare-
holdersR000’s
TotalR000’s
Balance as at 1 August 2006 64 962 (84 811) 3 354 14 557 30 404 809 757 838 223 8 023 846 246 Movement in translation of foreign subsidiaries 10 663 10 663 10 663 Movement in translation of long-term amounts owing by foreign subsidiaries 20 450 20 450 918 21 368 Movement in deferred taxation relating to movement in translation of long-term amounts (6 261) (6 261) 84 (6 177) Total income and expense for the year recognised directly in equity — — — 24 852 — — 24 852 1 002 25 854 Profit for the year 216 324 216 324 639 216 963 Total income and expense for the year — — — 24 852 — 216 324 241 176 1 641 242 817 Movement in interest in subsidiary (3 543) (3 543) Movement in share awards reserve 2 235 2 235 2 235 Dividends paid (58 444) (58 444) (58 444) Dividends received by share trust 3 040 3 040 3 040 Share awards exercised 575 (575) — —Net additional shares acquired by share trust (20 798) (20 798) (20 798) Transfer to dividend reserve 58 680 (58 680) — —Balance as at 31 July 2007 64 962 (105 034) 5 014 39 409 33 680 967 401 1 005 432 6 121 1 011 553 Movement in translation of foreign subsidiaries 11 669 11 669 919 12 588 Movement in translation of long-term amounts owing by foreign subsidiaries 23 988 23 988 23 988 Movement in deferred taxation relating to movement in translation of long-term amounts (5 154) (5 154) (5 154) Total income and expense for the year recognised directly in equity — — — 30 503 — 30 503 919 31 422 Profit for the year 181 563 181 563 513 182 076 Total income and expense for the year — — — 30 503 — 181 563 212 066 1 432 213 498 Movement in share awards reserve 2 413 2 413 2 413 Dividends paid (60 270) (60 270) (60 270) Dividends received by share trust 3 470 3 470 3 470 Share awards exercised 1 288 (1 288) — —Net additional shares acquired by share trust (7 883) (7 883) (7 883) Transfer to dividend reserve 49 888 (49 888) — —Balance as at 31 July 2008 64 962 (111 629) 6 139 69 912 26 768 1 099 076 1 155 228 7 553 1 162 781
COMPANY
Share capital R000’s
Share awards reserveR000’s
DividendreserveR000’s
Retainedearnings
R000’sTotal
R000’s
Restated balance as at 1 August 2006 (refer to page 37) 64 962 3 354 32 876 57 718 158 910 Profit for the year 6 464 6 464 Total income and expense for the year — — — 6 464 6 464 Movement in share awards reserve 2 235 2 235 Share awards exercised (575) 575 —Dividends paid (58 443) (58 443) Transfer to dividend reserve 62 096 (62 096) —Balance as at 31 July 2007 64 962 5 014 36 529 2 661 109 166Profit for the year 89 805 89 805Total income and expense for the year — — — 89 805 89 805Movement in share awards reserve 2 413 2 413 Share awards exercised (1 288) 1 288 —Dividends paid (60 270) (60 270) Transfer to dividend reserve 52 964 (52 964) —Balance as at 31 July 2008 64 962 6 139 29 223 40 790 141 114
Ceramic Industries Limited annual report 2008 page 35
cash flow statementsfor the year ended 31 July 2008
GROUP COMPANY
Notes2008
R000’s2007
R000’s2008
R000’s2007
R000’s
CASH GENERATED BY OPERATIONS 26.1 274 380 381 124 2 010 1 422
Finance income 13 764 14 219 124 029 19 445
Finance expenses (1 107) (715) — —
Dividends paid 26.2 (56 784) (55 384) (60 254) (58 423)
Taxation paid 26.3 (99 560) (100 574) (6 947) (7 242)
Net cash inflow/(outflow) from operating activities 130 693 238 670 58 838 (44 798)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment to expand operations (201 236) (257 483) — —
Proceeds from disposal of property, plant and equipment 831 2 475 — —
Increase in investment in subsidiary — — (26 033) (37 690)
Acquisition of additional investment in subsidiary — (14 662) — —
Net cash outflow from investing activities (200 405) (269 670) (26 033) (37 690)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash outflow from share trust dealings (7 883) (20 798) — —
Borrowings raised 8 322 3 294 — —
Shareholders’ loans raised 436 880 — —
(Increase)/decrease in net amounts owing to subsidiaries (29 361) 83 345
Increase in share trust loan (4 418) (17 839)
Net cash inflow/(outflow) from financing activities 875 (16 624) (33 779) 65 506
Movement in cash and cash equivalents (68 837) (47 624) (974) (16 982)
Cash and cash equivalents at beginning of year 195 099 242 723 975 17 957
Cash and equivalents at end of the year 126 262 195 099 1 975
Ceramic Industries Limited annual report 2008 page 36
Ceramic Industries Limited (the Company) is a company
domiciled in South Africa. The consolidated financial
statements of the Company as at and for the year ended
31 July 2008 comprise the Company and its subsidiaries
(together referred to as the Group).
The principle accounting policies adopted in the
preparation of the financial statements are set out below.
STATEMENT OF COMPLIANCE
The financial statements have been prepared in
accordance with and comply with International Financial
Reporting Standards (IFRS) and its interpretations adopted
by the International Accounting Standards Board (IASB).
BASIS OF PREPARATION
The annual financial statements are prepared on the
historical cost basis, adjusted by the fair value of certain
assets and liabilities.
The accounting policies set out below have been applied
consistently to all periods presented in these consolidated
financial statements and have been applied consistently
by all Group entities.
The Group has adopted the following new and amended
IFRS and IFRIC interpretations during the year. Adoption of
these revised standards and interpretations did not have
any effect on the financial performance or position of the
Group. They did however give rise to additional disclosures,
including in some cases, revisions to accounting policies or
adjustments to the financial statements on an entity level.
• IFRS7,Financial Instruments: Disclosures:
This revised standard requires disclosure of:
(a) the significance of financial instruments for
an entity’s financial position and performance.
These disclosures incorporate many of the
requirements previously in IAS 32.
(b) qualitative and quantitative information
about exposure to risks arising from financial
instruments, including specified minimum
disclosures about credit risk, liquidity risk and
market risk. The qualitative disclosures also
describe management’s objectives, policies
and processes for managing those risks. The
quantitative disclosures also provide information
about the extent to which the entity is exposed
to risk, based on information provided internally
to the entity’s key management personnel.
Together, these disclosures provide an overview
of the entity’s use of financial instruments and
the exposures to risks they create.
• AmendmentstoIAS1,Presentation of Financial
Statements:
The amendments require that an entity disclose
information that enables users of its financial
statements to evaluate the entity’s objectives, policies
and processes for managing capital.
• IFRIC10,Interim Financial Reporting and Impairment:
An entity is required to assess goodwill for impairment
at every reporting date, to assess investments in
equity instruments and in financial assets carried at
cost for impairment at every balance sheet date and,
if required, to recognise an impairment loss at that
date in accordance with IAS 36 and IAS 39. However,
at a subsequent reporting or balance sheet date,
conditions may have so changed that the impairment
loss would have been reduced or avoided had the
impairment assessment been made only at that date.
This interpretation provides guidance on whether
such impairment losses should ever be reversed.
Furthermore, the interpretation addresses the
interaction between the requirements of IAS 34 and
the recognition of impairment losses on goodwill in
IAS 36 and certain financial assets in IAS 39, and the
effect of that interaction on subsequent interim and
annual financial statements.
• IFRIC11,Group and Treasury Share Transactions:
This interpretation addresses two issues. The first is
whether certain transactions should be accounted
for as equity-settled or as cash-settled under the
requirements of IFRS 2. This did not affect the results
of the Group. The second issue concerns share-based
payment arrangements that involve two or more entities
within the same group. In applying this interpretation
the Group’s results have not been affected, however
the results of the Company and some of its subsidiaries
have been adjusted accordingly.
accounting policiesfor the year ended 31 July 2008
Ceramic Industries Limited annual report 2008 page 37
accounting policies (continued)
The preparation of financial statements in conformity with
IFRS requires management to make judgements, estimates
and assumptions that affect the application of policies and
reported amounts of assets and liabilities, income and
expenses. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed
on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised
if the revision affects only that period, or in the period of
the revision and future periods, if the revision affects both
current and future periods.
The assumptions and estimates that have the potential
to cause a material adjustment to the carrying amount of
assets and liabilities within the next financial year, relate to
the provision for inventory obsolescence and the provision
for rehabilitation of clay quarries.
Provision for inventory obsolescence: The Group determines
whether there is obsolete inventory on an annual basis. This
requires an estimation of the expected future saleability of
inventory items based on historical experience. More details
of the inventory write-off are given in note 13.
Provision for rehabilitation of clay quarries: The Group
determines, on an annual basis, the quantum of
rehabilitation required to return clay quarries to a useable
state. This requires an estimation of future asset retirement
obligations. Actual costs incurred in future periods could
differ materially from the estimates. Additionally, future
changes in environmental laws and regulations, life of
quarry estimates and discount rates could affect the
carrying amount of the provision. More details of the
provision for rehabilitation of clay quarries are given in
note 22.
The financial statements are presented in Rands which
is the Company’s functional and Group’s presentation
currency, and all values are rounded to the nearest
thousand (R000’s) except when otherwise indicated.
The Company
The Company applies the accounting policies adopted
by the Group. These accounting policies have been
applied consistently to all periods presented in these
financial statements, except in relation to the adoption
of the new IFRS 7, “Financial Instruments: Disclosures”,
the amendments to IAS 1, “Presentation of Financial
Statements”, the new IFRIC 10, “Interim Financial Reporting
and Impairment” and the new IFRIC 11, “Group and
Treasury Share Transactions”, during the year. Other
than IFRIC 11, adoption of these revised standards and
interpretations did not have any effect on the financial
performance or position of the Company. They did
however give rise to additional disclosures including, in
some cases, revisions to accounting policies.
The effect of the adoption of IFRIC 11 is as follows:
This interpretation addresses two issues. The first is
whether certain transactions should be accounted for as
equity-settled or as cash-settled under the requirements
of IFRS 2. This did not effect the results of the Company.
The second issue concerns share-based payment arrangements that involve two or more entities within the same group. In this Group structure, employees of a subsidiary are granted rights to equity instruments of its parent as consideration for the services provided to the subsidiary. This interpretation requires the Company to account for this grant as part of its investment in the subsidiary that granted the options to its employees.
The impact on the Company is the inclusion of a share awards reserve in the Company (previously accounted for in a subsidiary) and a corresponding increase in the investment in said subsidiary. In terms of this interpretation retrospective application is required.
To reflect the adoption of IFRIC 11, comparative figures
have been appropriately restated by creating a share
awards reserve in the Company with a consequential
increase in the investment in subsidiaries. The cumulative
reserve created up to 1 August 2006 was R3 353 212,
with a movement recognised in 2007 of R2 235 607. This
had the effect of creating a share awards reserve and
increased the investment in subsidiaries by R5 588 819 at
31 July 2007, over that previously reported.
The adoption of IFRIC 11 has no tax effect or impact on
minorities.
for the year ended 31 July 2008
Ceramic Industries Limited annual report 2008 page 38
BASIS OF CONSOLIDATION
Subsidiaries
The Group financial statements include the financial
statements of the Company, its subsidiaries and its share
trust.
Subsidiaries are those entities over whose financial and
operating policies the Group has the power to exercise
control, so as to obtain benefits from their activities. In
assessing control, potential voting rights that are currently
exercisable are taken into account.
Where an investment in a subsidiary is acquired or
disposed of during the financial year its results are
included from, or to, the date control commences or
ceases.
The Company’s investment in subsidiaries are accounted
for at cost, less impairment losses.
New acquisitions are included in the Group’s financial
statements using the purchase method whereby the
assets and liabilities are measured at their fair value. The
purchase consideration is allocated on the basis of the fair
values on the dates of acquisition.
All intra-group transactions and balances, and any
unrealised income and expenses arising from the
intra-group transactions, are eliminated in preparing the
consolidated financial statements.
All companies in the Group maintain consistent accounting
policies and have the same year-end.
Minority interest represents the portion of profit or loss
and net assets not held by the Group and are presented
separately in the income statement and within equity in
the consolidated balance sheet, separately from equity
attributable to equity holders of the parent. Acquisitions of
minority interests are accounted for using the parent entity
extension method, whereby the difference between the
consideration and the book value of the share of the net
assets acquired is recognised as goodwill.
FOREIGN CURRENCIES
Foreign currency transactions
Foreign currency transactions are translated to the
respective functional currencies of Group entities at the
rates of exchange ruling at the dates of the transactions.
Balances on monetary assets and liabilities outstanding
on foreign transactions at the end of the financial year are
translated to the functional currency at the rates ruling at
that date. Gains or losses on translation are recognised in
the income statement.
Non-monetary assets and liabilities that are measured in
terms of historical cost in a foreign currency are translated
using the exchange rate at the date of the transaction.
Non-monetary assets and liabilities denominated in foreign
currencies that are stated at fair value are translated to
Rands at the foreign exchange rates ruling at the dates the
fair value was determined.
Foreign subsidiaries
Each entity in the Group determines its own functional
currency and items included in the financial statements of
each entity are measured using that functional currency.
The assets and liabilities of foreign subsidiaries, including
goodwill and fair value adjustments on acquisition, whose
functional currencies are not Rands, are translated into
Rands at rates of exchange ruling at the end of the
financial year and the income and expenses of the foreign
subsidiaries to Rands at exchange rates at the date of
the transaction. Gains and losses on translation are taken
directly to a foreign currency translation reserve (FCTR) in
shareholders’ equity.
Where loans to the foreign subsidiaries are long term
in nature in that they form part of the Company’s net
investment in the foreign subsidiary, the translation gains
or losses arising on converting the loans to the rates of
exchange ruling at the end of the financial year are taken
directly to an FCTR in shareholders’ equity in the Group
financial statements and to the income statement for the
Company. On disposal of the net investment, the relevant
amount in the FCTR is transferred to profit or loss.
accounting policies (continued)
for the year ended 31 July 2008
Ceramic Industries Limited annual report 2008 page 39
accounting policies (continued)
Exchange rates utilised to convert financial information are
as follows:
2008 2007
Weighted average rate for
the yearClosing
rate
Weighted average rate for
the yearClosing
rate
ZAR : AUD 6,69 : 1 6,98 : 1 5,72 : 1 6,08 : 1ZAR : EUR 10,96 : 1 11,53 : 1 9,44 : 1 9,72 : 1ZAR : USD 7,35 : 1 7,40 : 1 7,19 : 1 7,10 : 1
SEGMENTAL REPORTING
A segment is a distinguishable component of the Group
that is engaged in providing products or services (primary
segment) within different geographical areas (secondary
segment) which are subject to risks and returns which
are different from those of other segments. The basis
of segment reporting is representative of the internal
structure used for management reporting.
Segment results, assets and liabilities include items directly
attributable to a segment as well as those that can be
allocated on a reasonable basis.
REVENUE RECOGNITION
Revenue is recognised only when it is probable that the
economic benefits associated with a transaction will
flow to the Company and/or the Group and the amount
of revenue can be measured reliably. No revenue is
recognised if there are significant uncertainties regarding
the recovery of the consideration due, associated costs or
the possible return of goods, and continuing managerial
involvement with the goods.
Goods
Revenue arising from the sale of goods is recognised when
the significant risks and rewards of ownership of the goods
have passed to the buyer. Revenue from the sale of goods
is measured at the fair value of the consideration received
or receivable, net of returns, trade discounts and volume
rebates and after eliminating sales within the Group.
FINANCE INCOME
Dividends
Dividends are recognised when the right to receive
payment is established, with the exception of dividends
on preference share investments which are recognised on
a time proportion basis, using the effective interest rate
method, in the period to which they relate.
Interest
Interest income is recognised in the income statement as
it accrues using the effective interest rate method.
Exchange gains
Gains and losses on foreign currency transactions are
reported on a net basis and are included under finance
income.
FINANCE EXPENSES
Finance expenses comprise interest payable on
borrowings calculated on the principal outstanding using
the effective interest rate method.
TAXATION
The income tax expense comprises current and deferred
tax and is recognised in the income statement except to
the extent that it relates to items recognised directly in
equity, in which case it is recognised in equity.
Current taxation comprises taxation payable calculated
on the basis of the expected taxable income for the year,
using the taxation rates enacted or substantively enacted
at the balance sheet date, and any adjustment of taxation
payable for previous years.
Deferred taxation is provided using the balance sheet
method based on temporary differences. Temporary
differences are differences between the carrying amounts
of assets and liabilities for financial reporting purposes
and their tax base. Deferred taxation is recognised in the
income statement except to the extent that it relates
to a transaction that is recorded directly in equity or a
business combination that is an acquisition in which
case it is recognised in equity. The amount of deferred
taxation provided is based on the expected manner of
realisation or settlement of the carrying amount of assets
and liabilities using taxation rates enacted or substantively
enacted at the balance sheet date. A deferred taxation
asset is recognised to the extent that it is probable that
future taxable profits will be available against which
the associated unused taxation losses and deductible
temporary differences can be utilised. Deferred taxation
assets are reduced to the extent that it is no longer
probable that the related taxation benefit will be realised.
for the year ended 31 July 2008
Ceramic Industries Limited annual report 2008 page 40
Deferred taxation is not recognised for the following
temporary differences:
• Theinitialrecognitionofgoodwill
• Theinitialrecognitionofassetsandliabilitiesina
transaction that is not a business combination and that
affects neither accounting nor taxable profit
• Differencesrelatingtoinvestmentsinsubsidiariesto
the extent that the timing of the reversal is controlled
by the Group and it is probable that they will not
reverse in the foreseeable future.
Deferred tax assets and liabilities are offset, if a legally
enforceable right exists to set off current tax assets against
current tax liabilities and the deferred taxes relate to the
same taxable entity and the same taxation authority.
Secondary taxation on companies (STC) is recognised in
the year dividends are declared, net of dividends received.
A deferred tax asset is recognised on unutilised STC
credits when it is probable that such unutilised STC credits
will be utilised in the future.
DIVIDENDS PAYABLE
Dividends payable and any secondary taxation on
companies pertaining thereto are recognised in the period
in which such dividends are declared.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost, less
accumulated depreciation and impairment losses.
Cost includes expenditure that is directly attributable to
the acquisition of the asset. Purchased software that is
integral to the functionality of the related equipment is
capitalised as part of that equipment.
Land is not depreciated. Buildings, plant and equipment
are depreciated on the straight-line method over their
expected useful lives to an estimated residual value.
Leased assets are depreciated over the shorter of the
lease term and their useful lives. The current estimated
useful lives are generally:
• Freeholdbuildings 10to20years
• Plantandmachinery 5to15years
• Motorvehicles 5years
• Officeequipment 5years
• Computerequipment 3years
Depreciation methods, useful lives and residual values are
reviewed at each reporting date. Estimates of useful lives
in respect of certain items of plant and machinery were
revised during the current year.
Where the carrying amount of an asset is greater than its
estimated recoverable amount (i.e. the higher of value in
use and net fair value less costs to sell) it is written down
immediately to its recoverable amount.
The cost of replacing part of an item of property, plant
and equipment is recognised in the carrying amount of
the item if it is probable that the future economic benefits
embodied within the property, plant and equipment will
flow to the Group and/or Company and its cost can be
measured reliably. The costs of the day-to-day servicing
of property, plant and equipment are recognised in the
income statement as incurred.
Where parts of an item of property, plant and equipment
have different useful lives, they are accounted for as
separate components of property, plant and equipment.
Depreciation of an item of property, plant and equipment
begins when it is available for use and ceases at the earlier
of the date it is classified as held for sale or the date that it
is derecognised.
An item of property, plant and equipment is derecognised
upon disposal or when no future economic benefits
are expected from its use or disposal. Gains and losses
on derecognition of property, plant and equipment are
determined by reference to their carrying amount and
the net disposal proceeds and are taken to the income
statement in the year the asset is derecognised.
LEASED ASSETS
Operating leases
Leases which do not transfer substantially all the risks and
rewards of ownership of an asset are treated as operating
leases with lease payments charged against operating
income. Payment made under operating leases are
charged against income on a straight-line basis over the
period of the lease.
INTANGIBLE ASSETS
Intangible assets are stated at cost less accumulated
amortisation and impairment losses.
accounting policies (continued)
for the year ended 31 July 2008
Ceramic Industries Limited annual report 2008 page 41
accounting policies (continued)
Amortisation is recognised in the income statement on
a straight-line basis over the estimated useful lives of
intangible assets, other than goodwill, from the date that
they are available for use. The current estimated useful
lives of intangible assets are as follows:
• Trademarks 10years
GOODWILL
Where an investment in a subsidiary is made, any excess
of the purchase price over the fair value of the attributable
net assets is recognised as goodwill. Goodwill in respect of
subsidiaries is disclosed as goodwill. When the excess is
negative (negative goodwill) it is recognised immediately in
the income statement.
Goodwill relating to subsidiaries is not amortised and
is tested annually for impairment and carried at cost
less accumulated impairment losses. Gains and losses
on disposal of an entity include the carrying amount of
goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the
purpose of impairment testing. Impairment losses
recognised in respect of cash-generating units are
allocated first to reduce the carrying amount of goodwill
allocated to the cash-generating units, and then to reduce
the carrying amount of other assets in the unit on a
pro rata basis.
PAYMENTS IN ADVANCE
Payments in advance for the supply of gas are carried at
cost and recognised over the five-year period of supply of
the gas.
IMPAIRMENT OF ASSETS
Financial assets
A financial asset is assessed at each reporting date to
determine whether there is any objective evidence that it
is impaired. A financial asset is considered to be impaired if
objective evidence indicates that one or more events have
had a negative effect on the estimated future cash flows of
that asset.
An impairment loss in respect of a financial asset
measured at amortised cost is calculated as the difference
between its carrying amount, and the present value of
the estimated future cash flows discounted at the original
effective interest rate.
Individually significant financial assets are tested for
impairment on an individual basis. The remaining financial
assets are assessed collectively in groups that share
similar credit risk characteristics.
All impairment losses are recognised in the income
statement.
An impairment loss is reversed if the reversal can
be related objectively to an event occurring after the
impairment loss was recognised. For financial assets
measured at amortised cost, the reversal is recognised in
the income statement.
In relation to trade receivables, a provision for impairment
is made when there is objective evidence (such as the
probability of insolvency or significant financial difficulties
of the debtor) that the Group will not be able to collect
all of the amounts due under the original terms of the
invoice. The carrying amount of the receivable is reduced
through use of an allowance account. Impaired debts are
derecognised when they are assessed as uncollectable.
Non-financial assets
The carrying amount of the Group’s non-financial
assets, other than inventories and deferred tax assets,
are reviewed at each balance sheet date to determine
whether there is an indication of impairment and at
any time when there is an indication of impairment. If
there is any indication that an asset may be impaired, its
recoverable amount is estimated.
The recoverable amount of an asset or cash-generating
unit is the higher of its fair value less cost to sell and its
value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market
assessments of the time value of money and risks specific
to the asset.
A cash-generating unit is the smallest identifiable
asset group that generates cash flows that are largely
independent from other assets or groups. Impairment
for the year ended 31 July 2008
Ceramic Industries Limited annual report 2008 page 42
losses are recognised in the income statement.
Impairment losses recognised in respect of cash-
generating units are allocated first to reduce the carrying
amount of goodwill allocated to the cash-generating units,
and then to reduce the carrying amount of other assets in
the unit on a pro rata basis.
An impairment loss is recognised whenever the carrying
amount of an asset or its cash-generating unit exceeds its
recoverable amount. Impairment losses are recognised in
the income statement.
A previously recognised impairment loss, other than
for goodwill, is reversed if there is an indication that the
impairment loss has reversed and if the recoverable
amount increases as a result of a change in the estimates
used to determine the recoverable amount, but not to an
amount higher than the carrying amount that would have
been determined (net of depreciation or amortisation) had
no impairment loss been recognised in previous years.
Impairment losses in respect of goodwill are not reversed.
INVENTORIES
Inventories are stated at the lower of cost or net realisable
value. Cost is determined using weighted average cost.
These costs are regularly reviewed and updated to reflect
the input costs of raw materials, direct labour, other direct
costs and related normal production overheads. Slow-
moving goods and obsolete inventories are written down
to their estimated net realisable value.
Net realisable value is the estimated selling price in the
ordinary course of business, less the estimated costs of
completion and selling expenses.
PROVISIONS
Provisions are recognised when the Group and/or
Company has a present legal or constructive obligation
as a result of past events, for which it is probable that an
outflow of resources embodying economic benefits will
be required to settle the obligation and a reliable estimate
of the obligation can be made. If the effect is material,
provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current
market assessments of the time value of money and,
where appropriate, the risks specific to the liability.
Rehabilitation costs
Provisions for rehabilitation costs are based on the
estimated expenses to be incurred in order to return
clay quarries to a usable state. These costs include
estimates made by management in order to comply with
legislated environmental requirements. The adequacy
of the provisions is reviewed annually against changed
circumstances and legislation and any adjustment is
recognised in the income statement.
EMPLOYEE BENEFITS
Short-term employee benefits
The cost of all short-term employee benefits is recognised
during the period in which the employee renders the
related service.
An accrual is made for the estimated liability for annual
leave and performance bonuses as a result of services
rendered by employees up to the balance sheet date. The
accruals have been calculated at undiscounted amounts
based on current salary rates.
Retirement benefits
The Group contributes to a defined contribution fund
for employees. Current contributions to the retirement
fund operated for Group employees are charged against
income as incurred.
Equity participation plan
Selected employees, including directors, of the Group
receive remuneration in the form of share options,
whereby they render services in exchange for rights over
shares. The cost of share options is measured by reference
to the fair value at the date at which they are granted.
The fair value is determined by using a binomial option-
pricing model, further details of which are given in note 2.
In valuing the share options, no account is taken of any
performance conditions, other than conditions linked to
the price of the shares of the Company.
The cost of the share options is recognised, together with
a corresponding increase in shareholders’ equity, over the
vesting period ending on that date on which the employees
become fully entitled to take up the share options. The
cumulative expense recognised for share options granted
at each balance sheet date until the vesting date, reflects
accounting policies (continued)
for the year ended 31 July 2008
Ceramic Industries Limited annual report 2008 page 43
accounting policies (continued)
the extent to which the vesting period has expired and the
number of share option grants that will ultimately vest in
the opinion of the directors of the Group and/or Company,
at that date. This is based on the best available estimate
of the number of share options that will ultimately vest.
No expense is recognised for share options that do not
ultimately vest, except for where forfeiture is only due to
share prices not achieving the threshold for vesting.
Where the terms of the share options are modified, as a
minimum, an expense is recognised as if the terms had
not been modified. In addition, an expense is recognised
for any increase in the value of the options, as a result of
the modification, as measured at the date of modification.
Where an unvested share option is cancelled, the
cumulative cost accounted for this option is reversed.
However, if a new share option is substituted for the
cancelled share option, and designated as a replacement
share option on the date that it is granted, the cancelled
and new share option grant are treated as if they were a
modification of the original grant, as described above.
FINANCIAL INSTRUMENTS
Financial instruments are initially recognised at fair
value and, except for financial instruments stated at fair
value through profit or loss, include directly attributable
transaction costs. The Group assesses whether embedded
derivatives are required to be separated from host
contracts when the Group first becomes party to the
contract. Reassessment only occurs if there is a change
in the terms of the contract that significantly modifies the
cash flows that would otherwise be required.
Subsequent to initial recognition these instruments are
measured as detailed below.
Financial assets
Financial assets are recognised when the Group and/or
Company has rights or other access to economic benefits.
Such assets consist of cash and cash equivalents, a
contractual right to receive cash or another financial asset
or a contractual right to exchange financial instruments
with another entity on potentially favourable terms.
Trade and other receivables
Trade and other receivables are non-derivative financial
assets with fixed or determinable payments that are not
quoted in an active market. After initial measurement,
these are carried at amortised cost, using the effective
interest rate method, less impairment losses. Amortised
cost is calculated taking into account any discount or
premium on acquisition and includes fees that are an
integral part of the effective interest rate and transaction
costs.
Cash and cash equivalents
Cash and cash equivalents comprise cash and bank
balances, deposits held on call with banks and in money
market instruments. Bank overdrafts that are repayable
on demand and form an integral part of the Group and/
or Company’s cash management are included as a
component of cash and cash equivalents for the purpose
of the cash flow statement. Cash and cash equivalents are
measured at fair value.
Financial liabilities
Financial liabilities are recognised when there is an
obligation to transfer benefits and that obligation is a
contractual liability to deliver cash or another financial
asset or to exchange financial instruments with another
entity on potentially unfavourable terms. Financial liabilities
other than derivative instruments are measured at
amortised cost, using the effective interest method.
Offset
Financial assets and financial liabilities are offset and the
net amount reported in the balance sheet when the Group
and/or Company has a legally enforceable right to set off
the recognised amounts, and intends either to settle on
a net basis, or to realise the asset and settle the liability
simultaneously.
Derecognition of financial instruments
Financial assets
A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is
derecognised when:
• therightstoreceivecashflowsfromtheassethave
expired;
for the year ended 31 July 2008
Ceramic Industries Limited annual report 2008 page 44
• theGroupand/orCompanyretainstherighttoreceive
cash flows from the asset, but has assumed an
obligation to pay them in full without material delay to
a third party under a “pass through” arrangement; or
• theGroupand/orCompanyhastransferreditsrights
to receive cash flows from the asset and either (a) has
transferred substantially all the risks and rewards of
the asset, or (b) has neither transferred nor retained
substantially all the risks and rewards of the asset, but
has transferred control of the asset.
When the Group and/or Company has transferred its
rights to receive cash flow from an asset and has neither
transferred nor retained substantially all the risks and
rewards of the asset nor transferred control of the asset,
the asset is recognised to the extent of the Group’s
and/or Company’s continuing involvement in the asset.
Continuing involvement that takes the form of a guarantee
over the transferred asset is measured at the lower of the
original carrying amount of the asset and the maximum
amount of consideration that the Group and/or Company
could be required to repay.
When continuing involvement takes the form of a written
and/or purchased option (including a cash-settled option
or similar provision) on the transferred asset, the extent of
the Group’s and/or Company’s continuing involvement is
the amount of the transferred asset that the Group and/
or Company may repurchase, except that in the case
of a written put option (including a cash-settled option
or similar provision) on an asset measured at fair value,
the extent of the Group’s and/or Company’s continuing
involvement is limited to the lower of the fair value of the
transferred asset and the option exercise price.
Financial liabilities
A financial liability is derecognised when the obligation
under the liability is discharged or cancelled or expires.
When an existing financial liability is replaced by another
from the same lender on substantially different terms,
or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as a
derecognition of the original liability and the recognition of
a new liability, and the difference in the respective carrying
amounts is recognised in the income statement.
Gains and losses on subsequent measurement
Gains and losses arising from a change in the fair value
of financial instruments that are not part of a hedging
relationship are recognised in the income statement in
the year in which the change arises as well as through the
amortisation process, if appropriate.
Gains and losses from measuring the hedging instruments
relating to a fair value hedge at fair value are recognised
immediately in the income statement.
EARNINGS PER SHARE
The Group presents basic and diluted earnings per share
(EPS) data for its ordinary shares. Basic EPS is calculated
by dividing the profit or loss attributable to ordinary
shareholders of the Company by the weighted average
number of ordinary shares outstanding during the period.
Diluted EPS is determined by adjusting the profit or loss
attributable to ordinary shareholders and the weighted
average number of ordinary shares outstanding for the
effects of all dilutive potential ordinary shares, which
comprise share options granted to employees that have
not yet met the applicable recognition criteria.
IFRS AND IFRIC INTERPRETATIONS NOT YET
EFFECTIVE
The Group has not applied the following IFRS and IFRIC
interpretations that are not yet effective:
• AmendmentstoIFRS2, Share-based Payment –
Vesting Conditions and Cancellations:
These amendments are to be applied for annual
periods beginning on or after 1 January 2009. These
amendments provide further guidance and clarity
regarding the treatment of vesting conditions
associated with share-based payments as well as the
effect of cancellations thereof.
• IFRS3,Business Combinations:
This statement has been revised and is to be applied
for annual periods beginning on or after 1 July 2009.
The statement is aimed at ensuring that an acquirer
of a business recognises the assets acquired and
liabilities assumed at their acquisition-date fair values
and discloses information that enables users to evaluate
the nature and financial effects of the acquisition. The
accounting policies (continued)
for the year ended 31 July 2008
Ceramic Industries Limited annual report 2008 page 45
accounting policies (continued)
statement requires that assets and liabilities that arose
from business combinations whose acquisition dates
preceded the application of this IFRS not to be adjusted
upon application of this IFRS.
• IFRS8,Operating Segments:
This standard is to be applied for annual periods
beginning on or after 1 January 2009. This statement
requires that an entity shall disclose information to
enable users of its financial statements to evaluate the
nature and financial effects of the business activities in
which it engages and the economic environments in
which it operates.
• IAS1,Presentation of Financial Statements:
This statement has been revised and is to be applied
for annual periods beginning on or after 1 January 2009.
IAS 1 sets overall requirements for the presentation of
financial statements, guidelines for their structure and
minimum requirements for their content.
• AmendmentstoIAS23, Borrowing Costs:
These amendments are to be applied for annual
periods beginning on or after 1 January 2009. The
standard requires that borrowing costs that are directly
attributable to the acquisition, construction or production
of a qualifying asset form part of the cost of that asset.
Other borrowing costs are recognised as an expense.
• AmendmentstoIAS27,Consolidated and Separate
Financial Statements:
These amendments are to be applied for annual
periods beginning on or after 1 July 2009. The
amendments aim to reduce alternatives in accounting
for subsidiaries in consolidated financial statements
and in accounting for investments in the separate
financial statements of a parent, venturer or investor.
• AmendmentstoIAS32, Financial Instruments:
Presentation and IAS 1, Presentation of Financial
Statements – Puttable Financial Instruments and
Obligations Arising on Liquidation:
These amendments are to be applied for annual
periods beginning on or after 1 January 2009 and will
not impact the activities of the Group.
• IFRIC12,Service Concession Arrangements:
This interpretation is to be applied for annual periods
beginning on or after 1 January 2008 and does not
apply to the activities of the Group.
• IFRIC13,Customer Loyalty Programmes:
This interpretation is to be applied for annual periods
beginning on or after 1 July 2008 and does not apply to
the activities of the Group.
• IFRIC14,IAS 19 – The Limit On A Defined Benefit
Asset, Minimum Funding Requirements And Their
Interaction:
This interpretation is to be applied for annual periods
beginning on or after 1 January 2008 and does not
apply to the activities of the Group.
The Group expects the pronouncements listed above
to have no impact on the Group’s results, other than
additional disclosures required in the Group annual
financial statements in the period of initial recognition and/
or for comparative periods as may be required. The Group
intends to apply these statements and interpretations in
the periods prescribed and required.
for the year ended 31 July 2008
Ceramic Industries Limited annual report 2008 page 46
1. SEGMENTAL REPORTING
The Group is organised into two main business segments, the manufacturing of a wide range of wall and floor tiles
and the manufacturing of a full range of vitreous china sanitaryware products and acrylic bathroomware. The Group
manufactures in two geograpical areas, South Africa and Australia.
Segment assets consist primarily of:
– property, plant and equipment;
– payments in advance;
– inventories;
– receivables;
– deferred taxation asset, and
– cash.
Segment liabilities consist primarily of:
– borrowings;
– deferred taxation liability; and
– payables.
2008
Sanitaryware Tiles
South Africa
R000’s
South Africa
R000’s
Australia
R000’s
Total
R000’s
Revenue 246 922 992 824 229 892 1 469 638
Depreciation 17 835 60 235 28 686 106 756
Operating profit 14 208 224 793 12 271 251 272
Assets 292 514 808 412 383 520 1 484 446
Cost of assets acquired 148 667 29 351 23 218 201 236
Liabilities 42 567 179 763 99 335 321 665
2007
Sanitaryware Tiles
South Africa
R000’s
South Africa
R000’s
Australia
R000’s
Total
R000’s
Revenue 268 443 952 678 154 327 1 375 448
Depreciation 20 920 60 916 20 202 102 038
Operating profit 62 147 228 172 5 604 295 923
Assets 270 109 870 560 238 929 1 379 598
Cost of assets acquired 41 460 152 431 63 592 257 483
Liabilities 36 343 282 559 49 143 368 045
notes to the annual financial statementsfor the year ended 31 July 2008
Ceramic Industries Limited annual report 2008 page 47
notes to the annual financial statements (continued)
for the year ended 31 July 2008
GROUP
2008 2007
R000’s R000’s
2. OPERATING PROFIT
The following items have been charged/(credited)
in arriving at operating profit:
Amortisation of intangible asset 50 50
Amortisation of payments in advance 400 1 600
Auditors' remuneration 1 630 1 230
Audit fee – current year 1 061 1 100
Audit fee – prior year underprovision 321 52
Fees for other services – current year 248 78
Depreciation 106 756 102 038
Buildings 11 002 8 770
Plant and machinery, vehicles and office equipment 95 754 93 268
Directors’ remuneration Refer note 28 2 714 2 872
Fees paid for 11 073 8 743
Managerial services 3 454 1 762
Secretarial services 92 127
Technical services 7 527 6 854
Inventory impairment 2 656 3 175
Impairment of trade receivables 606 322
Loss/(profit) on disposal of property, plant and equipment 140 (522)
Operating lease charges in respect of equipment 7 238 6 361
Retirement fund contributions 7 888 4 578
Salaries and wages 163 414 139 256
Ceramic Industries Limited annual report 2008 page 48
for the year ended 31 July 2008
notes to the annual financial statements (continued)
2. OPERATING PROFIT (continued)
Share Incentive Trust
In terms of the share incentive trust, shares are offered on a combined option and deferred sale basis. Options vest over
a period of five years. An agreement of deferred sale is automatically constituted on acceptance of the offer. All shares
must be taken up by way of a purchase and delivery by no later than seven years after the grant date. The exercise price
of the option is not less than the market value of the ordinary shares on the day prior to the date of grant and the option is
exercisable provided that the participant has remained in the Group’s employ until the option vests. Should the participant
resign before the vesting date, the option will be forfeited. An exception is made in the case of termination of employment
as a result of death or retirement. Options are settled in equity once exercised and subsequently taken up.
In terms of a resolution passed at a shareholders’ meeting on 12 January 1993, the directors are authorised to make
available for the purposes of the scheme a maximum aggregate number of 2 739 500 ordinary shares (2007: 2 739 500),
representing 15% of the issued share capital at that time. The scheme exists for the directors and senior management of
the company with a limit of 350 000 shares which any one participant may acquire.
The following assumptions were used in valuing the various option grants:
2008 2007
Expected volatility 20% 20%
Risk-free interest rate 7,26% to 8,89% 7,26% to 8,89%
Expected dividend yield 2% 2%
Expected life (years) 3 to 5 years 3 to 5 years
The expected life of the option is based on historical data and expected future trends and is not necessarily indicative
of exercise patterns that may occur. The expected volatility in 2008 of 20% reflects the assumption that the historical
volatilities of 20% are indicative of future trends.
The fair value of the share options that were granted over the year to 31 July 2008 is RNil (2007: R3 133 000). Included in
the expenses in the profit or loss for the year is R2 412 893 (2007: R2 235 607), relating to the current year amortisation of
the share option expense.
Ceramic Industries Limited annual report 2008 page 49
for the year ended 31 July 2008
notes to the annual financial statements (continued)
2. OPERATING PROFIT (continued)
The following table illustrates the number and weighted average exercise prices of share options held by eligible
participants including executive directors:
2008 2007
Number of
share options
Weighted
average
exercise price
(R)
Number of
share options
Weighted
average
exercise price
(R)
At 1 August 516 250 117,09 718 750 103,63
New allocations made — — 90 000 144,00
Redeemed allocations (63 750) 74,35 (182 500) 63,77
Forfeited allocations — — (110 000) 139,64
Outstanding at 31 July 452 500 123,12 516 250 117,09
Average subscription price per share 123,12 117,09
The options outstanding at 31 July 2008 become unconditional on the following dates:
2008
Subscription
price
(R)
Number
of shares
18 March 2009 72,00 107 500
9 December 2010 138,00 285 000
21 September 2011 144,00 60 000
452 500
Should the participant resign from the Group prior to the dates as indicated above, the shares for options will not be
awarded, payment will not be required, and the options will be forfeited.
A breakdown of the share options in issue to executive and non-executive directors is given in note 28.
Ceramic Industries Limited annual report 2008 page 50
notes to the annual financial statements (continued)
for the year ended 31 July 2008
GROUP COMPANY
2008 2007 2008 2007
R000’s R000’s R000’s R000’s
3. FINANCE INCOME
Interest received 8 345 7 467 41 63
Dividends received 43 2 816 100 000 640
Net foreign exchange gains 5 376 3 936 23 988 18 742
13 764 14 219 124 029 19 445
4. FINANCE EXPENSES
Interest paid
Bank 1 075 441 — —
South African Revenue Services 29 210 — —
Other 3 64 — —
1 107 715 — —
5. TAXATION
South African normal taxation
– current taxation 78 288 85 529 520 —
– current year 79 059 85 860 520 —
– prior year overprovision (771) (331) — —
– deferred taxation (3 375) (290) 5 028 5 490
– current year (3 699) (290) 4 645 5 490
– prior year underprovision 2 002 — 357 —
– rate change (1 678) — 26 —
Total normal taxation 74 913 85 239 5 548 5 490
Secondary taxation on companies 6 940 7 225 6 940 7 225
Total taxation charge 81 853 92 464 12 488 12 715
The effective rate of taxation differs from the
standard rate of taxation as follows:
% %
Standard rate of taxation 28,00 29,00
Disallowed expenditure 0,51 0,37
Exempt income (0,05) (0,29)
Normal taxation prior year overprovision (0,29) (0,11)
Secondary taxation on companies 2,63 2,33
Deferred taxation prior year underprovision 0,76 —
Effect of foreign tax rate 0,08 —
Rate change (0,63) —
Utilisation of tax losses not raised — (1,42)
Effective rate of taxation 31,01 29,88
Ceramic Industries Limited annual report 2008 page 51
notes to the annual financial statements (continued)
GROUP
2008 2007
R000’s R000’s
6. EARNINGS PER SHARE
Net profit attributable to ordinary shareholders 181 563 216 324
Weighted average number of ordinary shares in issue (000’s) 17 206 17 285
Basic earnings per share (cents) 1 055,2 1 251,5
Basic earnings per share is calculated by dividing the net profit attributable
to ordinary shareholders by the weighted average number of ordinary shares
in issue during the year.
Reconciliation of headline earnings
Profit attributable to ordinary shareholders of the Group 181 563 216 324
Loss/(profit) on disposal of property, plant and equipment 140 (522)
Impairment of investment in subsidiary — 255
181 703 216 057
Headline earnings per share (cents) 1 056,0 1 250,0
Headline earnings per share is calculated by dividing
the headline earnings attributable to ordinary shareholders
by the weighted average number of ordinary shares in issue during the year.
Dilutive effect
The calculation of diluted earnings per share and diluted headline
earnings per share is based on:
Weighted average number of shares in issue for basic and headline
earnings per share (000’s) 17 206 17 285
Potentially dilutive ordinary shares resulting from the weighted average
number of options outstanding (000’s) — 110
Weighted average number of shares for diluted earnings per share (000’s) 17 206 17 395
Diluted earnings per share (cents) 1 055,2 1 243,6
Diluted earnings per share is calculated by dividing the profit attributable
to ordinary shareholders by the diluted weighted average number of ordinary shares
in issue during the year.
Diluted headline earnings per share (cents) 1 056,0 1 242,1
Diluted headline earnings per share is calculated by dividing the headline earnings
attributable to ordinary shareholders by the diluted weighted average number of
ordinary shares in issue during the year.
As the outstanding share options have been issued at prices in excess of the current
market value they are unlikely to be taken up and as such there will be no dilutive
effect.
for the year ended 31 July 2008
Ceramic Industries Limited annual report 2008 page 52
notes to the annual financial statements (continued)
for the year ended 31 July 2008
2008
Accumulated CarryingCost depreciation amount
R000’s R000’s R000’s
7. PROPERTY, PLANT AND EQUIPMENT
GROUP 1 486 963 (551 962) 935 001
Land and buildings 314 284 (58 062) 256 222
Plant and machinery, vehicles and office equipment 1 046 717 (493 900) 552 817
Capital work in progress 125 962 — 125 962
COMPANY
Land and buildings 6 208 — 6 208
2007
Accumulated CarryingCost depreciation amount
R000’s R000’s R000’s
GROUP 1 254 714 (446 358) 808 356
Land and buildings 236 627 (47 060) 189 567
Plant and machinery, vehicles and office equipment 805 025 (399 298) 405 727
Capital work in progress 213 062 — 213 062
COMPANY
Land and buildings 6 208 — 6 208
Ceramic Industries Limited annual report 2008 page 53
notes to the annual financial statements (continued)
for the year ended 31 July 2008
2008
Landand
BuildingsR000’s
Plant andmachinery,
vehiclesand office
equipmentR000’s
Capital work
in progressR000’s
TotalR000’s
7. PROPERTY, PLANT AND EQUIPMENT (continued)
Reconciliation of the carrying amount
GROUP
Carrying amount at beginning of year 189 567 405 727 213 062 808 356
Additions net of transfers from capital work in
progress 67 137 230 134 (96 035) 201 236
Carrying amount of disposals — (971) — (971)
Depreciation charge (11 002) (95 754) — (106 756)
Translation differences 10 520 13 681 8 935 33 136
Carrying amount at end of year 256 222 552 817 125 962 935 001
COMPANY
Carrying amount at beginning and end of year 6 208 — — 6 208
2007
Landand
buildingsR000’s
Plant andmachinery,
vehiclesand office
equipmentR000’s
Capitalwork
in progressR000’s
TotalR000’s
GROUP
Carrying amount at beginning of year 171 129 363 803 95 412 630 344
Additions net of transfers from capital work in
progress
17 391 122 442 117 650 257 483
Carrying amount of disposals (196) (1 757) — (1 953)
Depreciation charge (8 770) (93 268) — (102 038)
Translation differences 10 013 14 507 — 24 520
Carrying amount at end of year 189 567 405 727 213 062 808 356
COMPANY
Carrying amount at beginning and end of year 6 208 — — 6 208
A register of land and buildings is kept detailing cost and improvements.
Ceramic Industries Limited annual report 2008 page 54
notes to the annual financial statements (continued)
for the year ended 31 July 2008
GROUP
2008 2007
R000’s R000’s
8. INTANGIBLE ASSET
Trademark
Cost 500 500
Accumulated amortisation (450) (400)
Carrying amount 50 100
Carrying amount at beginning of year 100 150
Amortisation (50) (50)
Carrying amount at end of year 50 100
The intangible asset consists of a trademark, which arose from the acquisition of the Vitro punched tile plant during the
1999 financial year.
GROUP
2008 2007
R000’s R000’s
9. GOODWILL
Opening balance 4 520 991
Acquisition of additional investment in subsidiary — 3 529
Closing balance 4 520 4 520
The goodwill arose in previous years on the acquisition of an additional 5% interest in National Ceramic Industries
Australia Pty Ltd and the investment in Sphinx Acrylic Bathroomware (Pty) Ltd and Mollyn 55 (Edms) Bpk.
10. SHARE TRUST LOAN
The loan is long-term in nature, not callable on demand and is unsecured, does not bear interest and has no fixed
terms of repayment. As a result of the decline of the Ceramics Industries share price, the company has impaired the
share trust loan account in the amount of R21,7 million.
GROUP
2008 2007
R000’s R000’s
11. PAYMENT IN ADVANCE
Pipeline for supply of gas
Cost 8 000 8 000
Accumulated amortisation (8 000) (7 600)
Carrying amount — 400
Carrying amount at beginning of year 400 2 000
Amortisation (400) (1 600)
Carrying amount at end of year — 400
Ceramic Industries Limited annual report 2008 page 55
notes to the annual financial statements (continued)
for the year ended 31 July 2008
Issued Percentage holding Cost of shares Loans to/(from)
share
capital
2008
%
2007
%
2008
R000’s
2007
R000’s
2008
R000’s
2007
R000’s
12. INVESTMENT IN SUBSIDIARIES
Held by Ceramic Industries Limited
Operating company
National Ceramic Industries
South Africa (Pty) Ltd
(R) 2 000 100 100 33 566 31 154 (233 159) (262 520)
Holding companies and indirect
subsidiaries
National Ceramic Industries (Pty) Ltd (R) 100 000 100 100 11 272 11 272 8 398 8 398
Tilecor Properties (Pty) Ltd 3 000 3 000
National Ceramic Industries Australia Pty Ltd 184 169 160 548
Ceramic Holdings Pty Ltd (AUD) 1 100 100 58 506 58 506
Dormant companies
Gail Ceramics (Pty) Ltd (R) 6 000 100 100 6 6 — —
Samcatiles (Pty) Ltd (R) 447 960 100 100 — — — —
44 844 42 432 20 914 (32 068)
COMPANY
2008
R000’s
2007
R000’s
Shares at cost 44 844 42 432
Loans to subsidiaries 254 073 230 452
Investment in subsidiaries 298 917 272 884
Loans from subsidiaries (233 159) (262 520)
Ceramic Industries Limited annual report 2008 page 56
Issued Percentage holding Cost of sharesshare
capital2008
%2007
%2008
R000’s2007
R000’s
12. INVESTMENT IN SUBSIDIARIES (continued)
Held by National Ceramic Industries South Africa (Pty) Ltd
Operating companies
Pegasus Pressed Tiles (Pty) Ltd (R) 1 100 100 * *
Sphinx Acrylic Bathroomware (Pty) Ltd & Mollyn 55 (Edms) Bpk (R) 100 100 100 17 500 17 500
Held by National Ceramic Industries (Pty) Ltd
Property companies
CRM Brick and Associated Industries (Pty) Ltd (R) 2 000 100 100 2 2
Tilecor Properties (Pty) Ltd (R) 1 100 100 * *
Dormant companies
Ceramic Development corporation (Pty) Ltd (R) 860 000 100 100 860 860
Ceramic Industries Properties (Pty) Ltd (R) 1 100 100 1 1
Held by Ceramic Holdings Pty Ltd
National Ceramic Industries Australia Pty Ltd (AUD) 200 92,7 92,7 58 506 58 506
Deregistered in the current year
Samcastone (Pty) Ltd (R) 100 100 100 * *
All holdings are in the ordinary share capital of the undertaking concerned.
The loans are unsecured, have no fixed terms of repayment, are not callable on demand and do not bear interest.
The fair value of the unquoted ordinary shares has not been determined.
*Less than R1 000.
GROUP COMPANY2008 2007 2008 2007
R000’s R000’s R000’s R000’s
13. INVENTORIES
Raw materials 34 386 35 725 — —
Finished goods and merchandise 130 361 60 748 — —
164 747 96 473 — —
The amount of write-down of inventories recognised as an expense is R2 656 000 (2007: R3 175 000).
This expense is included in the cost of sales line item on the face of the income statement.
notes to the annual financial statements (continued)
for the year ended 31 July 2008
Ceramic Industries Limited annual report 2008 page 57
GROUP COMPANY2008 2007 2008 2007
R000’s R000’s R000’s R000’s
14. TRADE AND OTHER RECEIVABLES
Trade receivables 237 977 262 039 — —
Prepayments 1 964 852 — —
Other 10 088 9 555 9 305 8 902
250 029 272 446 9 305 8 902
Trade receivables are comprised of:
Gross receivables – external 179 405 190 720
Gross receivables – related parties 91 679 102 881
Gross trade receivables 271 084 293 601
Provision for impairment of trade receivables (4 288) (4 323)
Other allowances against trade receivables (28 819) (27 239)
Net trade receivables 237 977 262 039
The amount of the write-down of trade receivables recognised as an expense is R605 638 (2007: R322 401).
Movements in the provision for impairment of trade receivables were as follows:
GROUP2008 2007
R000’s R000’s
Balance at beginning of year 4 323 3 788
Charge for the year 606 522
Utilised (699) (272)
Movement in FCTR 58 285
Balance at end of year 4 288 4 323
Other allowances against trade receivables are
comprised of:
Allowance for rebates 26 644 25 472
Allowance for settlement discounts 2 175 1 767
28 819 27 239
The Group generally deals with large corporates who have a sound credit standing. Management regards the risk
profile of customers as well spread and managed as discussed below.
Collaterals are generally not held for blue chip companies as their payment history does not require it, but collateral
is obtained for certain smaller entities and certain foreign customers, where appropriate, as security for outstanding
amounts.
Trade receivables comprise a widespread customer base, made up primarily of merchants and wholesalers trading
in ceramic and porcelain tiles, vitreous china sanitaryware and acrylic bathroomware. The Group does not have any
significant exposure to any one customer, other than Italtile Limited, through its own and franchised stores, which
comprises 34% (2007: 35%) of the gross trade receivables balance.
notes to the annual financial statements (continued)
for the year ended 31 July 2008
Ceramic Industries Limited annual report 2008 page 58
14. TRADE AND OTHER RECEIVABLES (continued)
The Group sells principally to merchants and wholesalers in South Africa and most Southern African countries. The
Group also has entrenched itself in Australasia as a small manufacturer of porcelain tiles. The maximum exposure to
credit risk for gross trade receivables at the reporting date by geographical region was:
GROUP2008 2007
R000’s R000’s
South Africa 167 569 214 510
Rest of Africa 44 962 31 264
Australasia 51 742 43 606
Other 6 811 4 221
271 084 293 601
Credit risk is minimised through an initial new client acceptance procedure whereby potential customers are
individually assessed before an appropriate credit limit is allocated to the new client. Ongoing credit evaluation of the
financial position of customers is performed.
Management views the trade receivables days per geographic region as within expectations compared with the
Group’s standard payment terms for that region. Trade receivables’ terms differ in the Africa and Australasia regions
due to local economic and market conditions and the risks involved in trading in those geographical regions. The
decrease in accounts receivable days is due to improved credit control that has been enforced during the financial year
in order to maximise cash flow and minimise associated credit risk.
The following table illustrates the ageing of gross trade receivables. The provision for impairment of trade receivables of
R4,3 million (2007: R4,3 million) relates to the past due 61+ days ageing category only.
GROUP2008 2007
R000’s R000’s
Not past due 179 641 227 956
Past due 1 – 30 days 51 800 37 963
Past due 31 – 60 days 19 992 14 602
Past due 61+ days 19 651 13 080
271 084 293 601
Listings of overdue customer balances are reviewed monthly and evaluated against their credit terms and limits. Any
customer exceeding their credit terms/limits must settle their overdue balances before any further credit is extended.
Appropriate action is taken to recover outstanding amounts, where necessary.
At 31 July 2008, management did not consider there to be any material concentration of credit risk that had not been
adequately provided for. Management considers the risk of irrecoverability as low.
notes to the annual financial statements (continued)
for the year ended 31 July 2008
Ceramic Industries Limited annual report 2008 page 59
GROUP COMPANY2008 2007 2008 2007
R000’s R000’s R000’s R000’s
15. CASH AND CASH EQUIVALENTS
Cash and bank balances 123 072 103 201 — —
Short term deposits and marketable securities 3 190 91 898 1 975
126 262 195 099 1 975
Cash at banks earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for
varying periods of between one day and 12 months, depending on the immediate cash requirements of the Group, and
earn interest at the respective short-term deposit rates.
The fair value approximates the carrying value due to the short-term nature of these balances.
GROUP COMPANY2008 2007 2008 2007
R000’s R000’s R000’s R000’s
16. SHARE CAPITAL
Authorised
27 709 467 ordinary shares of no par value
Issued
18 263 543 (2007: 18 263 543) ordinary shares
of no par value 64 962 64 962 64 962 64 962
Ordinary shares totalling 2 739 500 (2007: 2 739 500)
are reserved for the Company’s employee share
incentive scheme.
The remaining unissued shares are under the
control of the directors until the next annual general
meeting.
Number of shares issued to external parties:
Total shares in issue 18 263 543 18 263 543 18 263 543 18 263 543
Weighted average shares held by share trust (1 056 937) (978 367) — —
Net weighted average shares held by external parties 17 206 606 17 285 176 18 263 543 18 263 543
17. SHARES HELD BY SHARE TRUST
The Group has consolidated its share trust again in the current year. The effect of consolidating the
share trust was to decrease the weighted average number of shares in issue by 1 056 937
(2007: 978 367) and has resulted in an accumulated adjustment to retained earnings of R12,1 million
(2007: R10,8 million) and the inclusion of the shares held by the share trust of R101,4 million (2007: R94,8 million).
18. SHAREHOLDERS’ LOANS
The shareholders’ loans are unsecured, have no fixed terms of repayment, are not callable on demand and do not bear
interest. The loans are due to the minority shareholders in National Ceramic Industries Australia Pty Ltd.
notes to the annual financial statements (continued)
for the year ended 31 July 2008
Ceramic Industries Limited annual report 2008 page 60
GROUP COMPANY2008 2007 2008 2007
R000’s R000’s R000’s R000’s
19. DEFERRED TAXATION
The movement on the deferred taxation account is
as follows:
Balance at beginning of year 54 339 48 452 7 865 2 375
Income statement charge (3 375) (290) 5 028 5 490
current year (3 699) (290) 4 645 5 490
prior year underprovision 2 002 — 357 —
rate change (1 678) — 26 —
Balance sheet 5 154 6 177 — —
movement through equity 5 154 6 177 — —
Balance at end of year 56 118 54 339 12 893 7 865
Balance at end of year is made up of:
Deferred taxation assets 3 837 2 204 — —
Deferred taxation liabilities 59 955 56 543 12 893 7 865
56 118 54 339 12 893 7 865
Comprising:
Capital allowances 59 454 57 559 — —
Provisions (14 157) (8 085) — —
FCTR included in equity 14 146 8 908 — —
Foreign currency translation 14 146 8 992
Estimated taxation losses (3 325) (4 043) (1 253) (1 127)
56 118 54 339 12 893 7 865
20. BORROWINGS
Foreign
Secured
AUD2 500 000 (2007: AUD1 500 000) bearing interest
at the Bank Bill rate, secured by fixed property to the
outstanding value of the loan.
17 449 9 127 — —
There are no fixed terms of repayment.
Total borrowings 17 449 9 127 — —
Borrowings approved by the directors may not exceed the lesser of 30% of the shareholders’ equity or 30% of the
market capitalisation.
The fair value of the borrowings approximates the carrying value, as the current market rates of interest do not differ
materially from those specified in the loan agreements.
notes to the annual financial statements (continued)
for the year ended 31 July 2008
Ceramic Industries Limited annual report 2008 page 61
GROUP COMPANY2008 2007 2008 2007
R000’s R000’s R000’s R000’s
21. TRADE AND OTHER PAYABLES
Trade payables 149 478 194 101 — —
Accruals 43 414 42 730 — —
192 892 236 831 — —
For terms and conditions relating to related party payables, refer to note 27.
Trade payables are non-interest bearing and are normally settled on 30 day terms.
Accruals are non-interest bearing and have an average term of 30 days.
The fair value of the trade and other payables approximates the carrying value, due to the short-term nature of these
balances.
GROUP COMPANY2008 2007 2008 2007
R000’s R000’s R000’s R000’s
22. PROVISIONS FOR LIABILITIES AND CHARGES
Provision for rehabilitation of clay quarries 6 480 6 480 — —
A provision is recognised for the rehabilitation of the quarries based on an assessment from an independent consultant
working in conjunction with management. A report on the rehabilitation assessment is lodged with the Department of
Minerals and Energy each year.
The provision represents the best estimate of the costs of either restoring the quarries to their original state or eliminating
adverse environmental impacts to a long-term acceptable condition.
23. FINANCIAL INSTRUMENTS
The Group has various financial assets, such as trade and other receivables and cash and short-term deposits, which arise
directly from its operations. The Group’s principal financial liabilities comprise trade and other payables and borrowings.
The main purpose of these financial liabilities is to raise finance for the Group’s operations.
The Group enters into derivative transactions, primarily forward currency contracts. The purpose is to manage the
currency risk arising from the Group’s operations.
It is, and has been throughout 2008 and 2007, the Group’s policy that no trading in derivatives shall be undertaken.
notes to the annual financial statements (continued)
for the year ended 31 July 2008
Ceramic Industries Limited annual report 2008 page 62
23. FINANCIAL INSTRUMENTS (continued)
The main risks arising from the Group’s financial instruments are currency risk, credit risk, interest rate risk and liquidity
risk. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below.
Currency risk
The Group incurs currency risk as a result of purchases, borrowings and cash held in foreign currencies. The foreign
currencies in which the Group primarily deals are Euros, US Dollars, Australian Dollars and British Pounds. The Group
has exposure to foreign currency relating to the following assets/(liabilities) which have not been covered by forward
exchange contracts at 31 July 2008:
Foreign
currency
000’s Currency
Rand
equivalent
R000’s
Trade and other payables (20 578)
(1 759) EUR (20 286)
(27) USD (202)
(13) AUD (90)
Trade receivables 1 042
27 EUR 310
83 USD 617
8 GBP 115
Currency held in foreign bank accounts 4 555
6 EUR 71
58 USD 431
277 GBP 4 053
The following foreign currency balances have been consolidated in
the Group financial statements at 31 July 2008:
Assets
Property, plant and equipment 37 430 AUD 261 254
Inventories 8 444 AUD 58 937
Trade and other receivables 7 023 AUD 49 019
Cash and cash equivalents 1 543 AUD 10 770
Liabilities
Trade and other payables (9 813) AUD (68 493)
Borrowings (2 500) AUD (17 449)
notes to the annual financial statements (continued)
for the year ended 31 July 2008
Ceramic Industries Limited annual report 2008 page 63
23. FINANCIAL INSTRUMENTS (continued)
Foreign
currency
000’s Currency
Rand
equivalent
R000’s
Income statement
Revenue 34 450 AUD 230 504
Cost of sales (26 880) AUD (179 900)
Operating expenses (5 675) AUD (37 981)
Finance income 85 AUD 569
The exchange rates used for the conversions are as follows:
USD EUR AUD GBP
Closing rate 7,40 11,53 6,98 14,65
Average rate 7,35 10,96 6,69 14,69
Australian Dollar denominated loan balance
As a result of the Australian Dollar denominated loan balance, the Group’s balance sheet can be affected by
movements in the Australian Dollar/Rand exchange rate. Due to the value of the loan any movements are unlikely to
have a material effect on the results of the Group.
Sensitivity analysis
A 10% strengthening of the Rand against the following currencies would have increased (decreased) equity and profit
or loss by the amounts shown below. This analysis assumes that all variables, in particular interest rates, remain
constant. The analysis is performed on the same basis for 2007.
Equity
R000’s
Profit or
loss
R000’s
2008
USD (46) (46)
EUR 2 620 2 620
AUD (10 157) 9
GBP (394) (394)
2007
USD 47 47
EUR (2 607) (2 607)
AUD (8 237) —
GBP — —
A 10% weakening of the Rand against the above currencies would have had the equal but opposite effect on the above
currencies to the amounts shown above, on the basis that all other variables remain constant.
notes to the annual financial statements (continued)
for the year ended 31 July 2008
Ceramic Industries Limited annual report 2008 page 64
notes to the annual financial statements (continued)
for the year ended 31 July 2008
23. FINANCIAL INSTRUMENTS (continued)
Credit risk
Credit risk primarily relates to exposure on cash and cash equivalents and trade receivables. The Group only deposits
cash surpluses with well-established financial institutions of high credit standing. Trade receivables comprise a
widespread customer base. Ongoing credit evaluation of the financial position of customers is performed.
The granting of credit is made on application and is approved by management. At 31 July 2008 management did
not consider there to be any material concentration of credit risk which has not been adequately provided for.
Management consider the risk of irrecoverability as low.
Disclosure of the exposure to credit risk over trade receivables is included in note 14.
Interest rate risk
The Group’s exposure to the risk of changes in market interest rates relates primarily to the finance revenue generating
ability of the Group’s cash surplus, due to floating interest rates.
As part of the process of managing the Group’s interest rate risk, interest rate characteristics of new borrowings are
positioned according to expected movements in interest rates.
The Australian Dollar denominated loan balance (refer to note 20) attracts a fixed rate of interest, but its small size
relative to the rest of the balance sheet means that any change in interest rates will have an insignificant effect on the
Group’s results. Full details of interest rates relating to borrowings are detailed in note 20.
Liquidity risk
The Group monitors its risk to a shortage of funds arising by using a recurring liquidity planning tool. This tool considers
the maturity of both its financial liabilities and financial assets (e.g. accounts receivable, other available-for-sale
investments) and projected cash flows from operations.
Ceramic Industries Limited annual report 2008 page 65
notes to the annual financial statements (continued)
for the year ended 31 July 2008
23. FINANCIAL INSTRUMENTS (continued)
The table below summarises the maturity profile of the Group’s financial liabilities at year-end, based on contractual
undiscounted payments.
Carrying
amount
R000’s
Contractual
cash flows
R000’s
Less than
1 year
R000’s
More than
1 year
R000’s
2008
Non-derivative financial liabilities
Secured borrowings 17 449 17 449 — 17 449
Trade and other payables 192 892 192 892 192 892 —
210 341 210 341 192 892 17 449
2007
Non-derivative financial liabilities
Secured borrowings 9 127 9 127 — 9 127
Trade and other payables 236 831 236 831 236 831 —
245 958 245 958 236 831 9 127
The Group has cash and cash equivalents, net of borrowings, of R108,8 million (2007: R186,0 million), and unutilised
credit facilities of R156,5 million (2007: R193,0 million) in respect of which all conditions precedent had been met.
Fair value
The fair values of all financial instruments are the same as the carrying amounts reflected in the balance sheet.
Capital management
The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and
healthy ratios in order to support its business.
The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To
maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital
to shareholders or issue new shares. No changes were made to the objectives, policies or processes during the year
ended 31 July 2008 and 2007.
Capital includes equity attributable to the equity holders of the parent. Refer to note 16 for a quantitative summary of
authorised and issued share capital.
In addition, consideration is given to black economic empowerment, or BEE. The Group is in the process of finalising
the BBE deal and it will be presented for approval at a general meeting on 28 November 2008.
Ceramic Industries Limited annual report 2008 page 66
notes to the annual financial statements (continued)
for the year ended 31 July 2008
GROUP COMPANY2008 2007 2008 2007
R000’s R000’s R000’s R000’s
24. COMMITMENTS
24.1 Capital commitments
Capital expenditure authorised and
contracted for
39 486 213 986 — —
Capital expenditure authorised, but not
yet contracted for
40 159 49 857 — —
79 645 263 843 — —
The proposed capital expenditure will be financed by cash generated from operations.
GROUP COMPANY2008 2007 2008 2007
R000’s R000’s R000’s R000’s
24.2 Operating commitments
The Group leases certain of its office
equipment in terms of operating leases.
The total future minimum lease payments
under non-cancellable operating leases are:
Not later than one year 3 132 2 436 — —
Between one and five years 6 514 4 826 — —
9 646 7 262 — —
25. RETIREMENT BENEFIT INFORMATION
In South Africa the Group contributes to a defined contribution retirement fund for its employees. The fund is governed
by the Pension Funds Act. The fund is administered by Alexander Forbes. All permanent employees are required to join
the fund. The present market value of the assets in the fund is R39,1 million (2007: R36,4 million). At year-end the total
number of permanent employees in the Group belonging to the fund was 665 (2007: 604).
In Australia the Group contributes the legislated defined contribution amounts into the various superannuation funds
specified by its 49 (2007: 44) employees.
Ceramic Industries Limited annual report 2008 page 67
notes to the annual financial statements (continued)
for the year ended 31 July 2008
GROUP COMPANY2008 2007 2008 2007
R000’s R000’s R000’s R000’s
26. CASH FLOW INFORMATION
26.1 Cash generated by operations
Profit before taxation 263 929 309 427 102 293 19 179
Adjustments for:
Amortisation of intangible asset 50 50 — —
Depreciation 106 756 102 038 — —
Finance costs 1 107 715 — —
Finance income (13 764) (14 219) (124 029) (19 445)
Impairment of share trust loan 21 736 —
Loss/(profit) on disposal of property, plant
and equipment 140 (522) — —
Recognition of payments in advance 400 1 600 — —
SARS penalties and interest (295) 412 — —
Share-based payments 2 413 2 235 2 413 2 235
Unrealised foreign currency loss 3 440 7 511 — —
Changes in working capital
Increase in inventories (68 274) (6 058) — —
Decrease/(increase) in trade and other
receivables 22 417 (86 284) (403) (547)
(Decrease)/increase in trade and other
payables (43 939) 64 219 — —
274 380 381 124 2 010 1 422
26.2 Dividends paid
Shareholders for dividends at beginning of year (163) (143) (163) (143)
Dividends paid (56 800) (55 404) (60 270) (58 443)
Shareholders for dividends at end of year 179 163 179 163
(56 784) (55 384) (60 254) (58 423)
26.3 Taxation paid
Balance payable at beginning of year (48 983) (56 391) (1 178) (1 195)
Charge to income statement (85 228) (92 754) (7 460) (7 225)
SARS penalties and interest 295 (412) — —
Balance payable at end of year 34 356 48 983 1 691 1 178
(99 560) (100 574) (6 947) (7 242)
Ceramic Industries Limited annual report 2008 page 68Ceramic Industries Limited annual report 2008 page 68
27. RELATED PARTY TRANSACTIONS
The Company is controlled by Rallen (Pty) Ltd (incorporated in South Africa), which owns 57,1% (2007: 57,1%) of the
Company’s shares and all related party transactions are concluded at arm’s length.
The subsidiaries of the Group are identified in note 12, including loans owed to/(from) the company. The directors are
listed on page 31.
Outstanding balances at year-end are unsecured, interest free and settlement occurs in cash. There have been no
guarantees provided to, or received from, any related party receivables or payables. For the year ended 31 July 2008,
the Group has made provision for doubtful debts relating to amounts owed by related parties of R1,9 million
(2007: R1,9 million).
This assessment is undertaken each financial year through examining the financial position of the related party and the
market in which the related party operates.
Sale transactions
Total sales to Rallen (Pty) Ltd’s subsidiary, Italtile Limited, its own stores and its franchised stores amounted to
R667 million (2007: R813 million).
Purchase transactions
Total purchases from Ser Export S.R.L., a company in which Italtile Limited has an equity share, amounted to
R80,7 million (2007: R70,0 million).
Outstanding balances
The total value of accounts receivable from Italtile Limited’s own stores and franchised stores amounted to
R91,7 million at year end (2007: R102,8 million).
Management fees
A total amount of R785 880 (2007: R857 605) was paid to Rallen (Pty) Ltd for management fees.
Loans to directors
At 31 July 2008 there were no loans to directors or executive management, other than through their participation in the
share trust.
Directors’ remuneration and share options
Detailed disclosure of directors’ remuneration is made in note 28.
GROUP2008
R000’s2007
R000’s
Compensation of key management personnel
Short-term employee benefits 11 344 11 450
Profit on exercise of share options 338 9 270
Share-based payments 1 284 644
Long-term employee benefits 571 504
Total compensation paid to key management personnel 13 537 21 868
notes to the annual financial statements (continued)
for the year ended 31 July 2008
Ceramic Industries Limited annual report 2008 page 69
28. DIRECTORS’ REMUNERATION
Basic
remuneration
R000’s
Other
benefits
R000’s
Retirement
and
medical
R000’s
Incentives
and
bonuses
R000’s
Directors’
fees
R000’s
Total
R000’s
2008
Executive
N Booth 1 284 151 189 600 — 2 224
Non-executive
G A M Ravazzotti* — — — — — —
S D Jagoe — — — — 116 116
E M Mafuna — — — — 81 81
N S Nematswerani — — — — 38 38
N D Orleyn — — — — 35 35
L E V Ravazzotti — — — — 42 42
K M Schultz — — — — 109 109
G Zannoni — — — — 69 69
1 284 151 189 600 490 2 714
2007
Executive
N Booth 1 200 135 170 774 — 2 279
Non-executive
G A M Ravazzotti* — — — — — —
S D Jagoe — — — — 89 89
E M Mafuna — — — — 81 81
L E V Ravazzotti — — — — 50 50
K M Schultz — — — — 101 101
P D Wickens — 146 — — 63 209
G Zannoni — — — — 63 63
1 200 281 170 774 447 2 872
*G A M Ravazzotti is paid by Rallen (Pty) Ltd for his services as director of Ceramic Industries Limited (refer note 27).
The remuneration of the executive director is determined by the remuneration committee.
Other benefits include the fringe benefit value of a company car for the executive director.
Directors participate in the Company’s share trust, which is designed to recognise the contributions of employees,
including salaried directors and non-executive directors, to the continued growth of the Company’s business
operations. Scheme shares are acquired at a price determined by the Board of Directors in accordance with the
scheme.
The exercise prices were equal to or at a premium to the market price at dates of the offer.
Details of options held by directors are as follows:
As at 31 July 2008, N Booth held 75 000 share options at an average price of R138,00.
notes to the annual financial statements (continued)
for the year ended 31 July 2008
Ceramic Industries Limited annual report 2008 page 70
shareholders’ diary
Financial year-end 31 July 2008
Annual general meeting 28 November 2008
Dividends
Interim dividend Declared 11 March 2008
Paid 14 April 2008
Final dividend Declared 4 September 2008
Paid 13 October 2008
Future reports
Interim results 10 March 2009
Preliminary financial results 8 September 2009
Annual financial statements 30 October 2009
Ceramic Industries Limited annual report 2008 page 71
CERAMIC INDUSTRIES LIMITEDRegistration number 1982/008520/06Incorporated in the Republic of South AfricaShare Code: CRM ISIN: ZAE000008538(“Ceramic” or “the company”)
Notice is hereby given that the twenty fourth annual general meeting of shareholders of Ceramic Industries Limited (“Ceramic” or “the company”) will be held at the company’s registered office, Farm 2, Old Potchefstroom Road, Vereeniging, 1930, on Friday, 28 November 2008 at 14:00 for the following business:
1. To consider and adopt the annual financial statements of the company and its subsidiaries for the year ended 31 July 2008, together with the reports of the directors and auditors contained therein.
2. To approve the directors’ remuneration paid to the directors of the company for the year ended 31 July 2008, as set out on page 69 of the financial statements.
3. To approve the appointment of the following directors who were appointed to the Board on 25 January 2008:
Mr N S Nematswerani Ms N D Orleyn
A brief curriculum vitae in respect of each of these directors is contained on page 74 of this annual report.
4. To re-elect individually, the following directors of the company, who retire by rotation in terms of the company’s articles of association and who are eligible and offer themselves for re-election:
Ms L E V Ravazzotti Mr G Zannoni
A brief curriculum vitae in respect of each director offering himself for re-election is contained on page 74 of this annual report.
5. To authorise the directors to reappoint KPMG Inc. as the independent auditors of the company for the ensuing year and to determine the remuneration of the auditors.
As special business, to consider and, if deemed fit, pass with or without modification, the following resolutions:
RESOLUTIONSSpecial Resolution Number 1 – Buy-back of shares“Resolved, as a special resolution, that the company be given a mandate providing authorisation, by way of a general approval, to acquire the company’s own securities, upon such terms and conditions and in such amounts as the directors may from time-to-time decide, but subject to the provisions of the Companies Act, 1973 (Act 61 of 1973), as amended, (the Act), the company’s articles of association and the Listings Requirements of the JSE Limited (JSE), and subject to the following terms and conditions:• Anyrepurchaseofsecuritiesmustbeeffectedthrough
the order book operated by the JSE trading system and done without any prior understanding or arrangement between the company and the counterparty;
• Atanypointintime,thecompanymayonlyappointoneagent to effect any repurchase;
• Thisgeneralauthoritybevaliduntilthecompany’snextannual general meeting, provided that it shall not extend beyond 15 (fifteen) months from date of passing of this special resolution (whichever period is shorter);
• Anannouncementbepublishedassoonasthecompany has cumulatively repurchased 3% of the initial number (the number of that class of share in issue at the time that the general authority is granted) of the relevant class of securities and for each 3% in aggregate of the initial number of that class acquired thereafter, containing full details of such repurchases;
• Repurchasesbythecompanyinaggregateinanyonefinancial year may not exceed 20% of the company’s issued share capital as at the date of passing of this special resolution or 10% of the company’s issued share capital in the case of an acquisition of shares in the company by a subsidiary of the company.
• Repurchasesmaynotbemadeatapricegreaterthan10% above the weighted average of the market value of the securities for the five business days immediately preceding the date on which the transaction was effected;
• Repurchasesmaynotbeundertakenbythecompanyorone of its wholly owned subsidiaries during a prohibited period and may also not be undertaken if they will impact negatively on shareholder spread as required by the JSE; and
• Thecompanymaynotenterthemarkettoproceedwiththe repurchase of its ordinary shares until the company’s sponsor has confirmed the adequacy of the company’s working capital for the purpose of undertaking a repurchase of shares in writing to the JSE. The directors are of the opinion that, after considering the effect of
notice to shareholders
Ceramic Industries Limited annual report 2008 page 72
(continued)
Material changeOther than the facts and developments reported on in this annual report, there have been no material changes in the affairs, financial or trading position of the company since the signature date of this annual report and the posting date hereof.”
Ordinary Resolution Number 1 – Control of authorised but unissued shares7. “RESOLVED THAT the authorised but unissued shares
in the capital of the company be and are hereby placed under the control and authority of the directors of the company until the next annual general meeting and that the directors of the company be and are hereby authorised and empowered to allot, issue and otherwise dispose of such shares to such person or persons on such terms and conditions and at such times as the directors of the company may from time to time and in their discretion deem fit, subject to the provisions of the Companies Act (Act 61 of 1973, as amended) (the Act), the articles of association of the company and the JSE Limited (JSE) Listings Requirements, when applicable.”
Ordinary Resolution Number 2 – Approval to issue shares for cash8. “RESOLVED THAT the directors of the company be and
are hereby authorised by way of a general authority, to allot and issue all or any of the authorised but unissued shares in the capital of the company for cash, as and when they in their discretion deem fit, subject to the Act, the articles of association of the company, and the JSE Listings Requirements, on the following bases:
the equity securities which are the subject of the issue for cash must be of a class already in issue, or where this is not the case, must be limited to such securities or rights that are convertible into a class already in issue;
any such issue will only be made to “public shareholders” as defined in the JSE Listings Requirements and not related parties, unless the JSE otherwise agrees;
the number of shares issued for cash shall not in the aggregate in any one financial year exceed 15% (fifteen per cent) of the company’s issued ordinary shares. The number of ordinary shares which may be issued shall be based on the number of ordinary shares in issue at the date of such application less any ordinary shares issued during the current financial year, provided that any ordinary shares to be issued pursuant to a rights
the maximum repurchase permitted and for a period of 12 months after the date of this annual general meeting:
• thecompanywillbeable,intheordinarycourseofbusiness, to pay their debts;
• theassetsofthecompanywillbeinexcessoftheliabilities of the company, the assets and liabilities being recognised and measured in accordance with the accounting policies used in the latest audited annual company financial statements;
• theworkingcapitalofthecompanywillbeadequateforordinary business purposes; and
• thesharecapitalandreservesareadequatefortheordinary business purposes of the company.
The effect of the special resolution and the reason therefore is to extend the general authority given to the directors in terms of the Act and the Listings Requirements of the JSE for the acquisition by the company of its own securities, which authority shall be used at the directors’ discretion during the course of the period so authorised.
In terms of the Listings Requirements of the JSE, the following disclosures are required with reference to the general authority to repurchase the company’s securities set out in the special resolution above, some of which are set out elsewhere in the annual report of which this notice forms part (this annual report).Directors – refer page 31;Major shareholders of the company – refer page 25;Directors’ interests in the company’s securities – refer page 30;Share capital – refer page 59.
Litigation statementThe directors of the company, whose names are given on page 31 of this annual report, are not aware of any legal or arbitration proceedings, pending or threatened against the company, which may have or have had, in the 12 months preceding the date of this notice, a material effect on the company’s financial position.
Directors’ responsibility statement The directors, whose names are given on page 31 of this annual report, collectively and individually, accept full responsibility for the accuracy of the information given and certify that, to the best of their knowledge and belief, there are no facts that have been omitted which would make any statement false or misleading, and that all reasonable enquiries to ascertain such facts have been made and that the annual report contains all the information required by law and the JSE Listings Requirements.
notice to shareholders
Ceramic Industries Limited annual report 2008 page 73
(continued)
Forms of proxy may also be obtained on request from the company’s registered office. The completed forms of proxy must be deposited at or posted to the transfer secretaries at the address below, to be received no later than 14:00 on Thursday, 27 November 2008. Any member who completes and lodges a form of proxy will nevertheless be entitled to attend and vote in person at the annual general meeting should the member subsequently decide to do so.
Shareholders who have dematerialised their shares through a Central Securities Depository Participant (CSDP) or broker, other than “own name” registered holders of dematerialised shares, who wish to attend the annual general meeting, must request their CSDP or broker to issue them with the letter of representation.
Should shareholders who have dematerialised their shares, other than with “own name” registration, wish to vote by proxy, they must provide their CSDP or broker with their voting instructions in terms of the custody agreement entered into between the dematerialised shareholders and their CSDP or broker.
Dematerialised shareholders who have elected “own name” registration and who are unable to attend but wish to vote at the annual general meeting, must complete and return the attached form of proxy and lodge it with the transfer secretaries of the company.
By order of the Board
E J WillisCompany secretary
13 October 2008
Registered officeFarm 2Old Potchefstroom RoadVereeniging, 1939PO Box 2247Vereeniging, 1930
Transfer secretariesComputershare Investor Services (Pty) LtdGround Floor, 70 Marshall StreetJohannesburg, 2001PO Box 61051Marshalltown, 2107
issue (announced and irrevocable and underwritten) or acquisition (concluded up to date of application) may be included as though they were shares in issue at the date of application;
this authority is valid until the company’s next annual general meeting, provided that it shall not extend beyond 15 (fifteen) months from the date that this authority is given;
a paid press announcement giving full details, including the impact on the net asset value and earnings per share, will be published at the time of any issue representing, on a cumulative basis within 1 (one) financial year, 5% (five per cent) or more of the number of shares in issue prior to the issue; and
the maximum discount at which ordinary shares may be issued for cash is 10% (ten per cent) of the weighted average traded price on the JSE of those shares over the 30 (thirty) business days prior to the date that the price of the issue is determined or agreed by the directors of the company.”
Note In terms of the JSE Listings Requirements, a 75%
majority of the votes cast by all members present or represented by proxy and entitled to vote at the annual general meeting must be cast in favour of ordinary resolution 2 for it to be approved.
OTHER BUSINESSTo transact such other business as may be transacted at an annual general meeting.
Voting and proxiesA shareholder of the company entitled to attend, speak and vote at the annual general meeting is entitled to appoint a proxy or proxies to attend, speak and vote in his/her stead. The proxy need not be a shareholder of the company. A form of proxy is attached for the convenience of any certificated shareholder and “own name” registered holder of dematerialised shares who cannot attend the annual general meeting, but who wishes to be represented thereat.
On a show of hands, every shareholder of the company present in person or represented by proxy shall have one vote only. On a poll, every shareholder of the company present in person or represented by proxy shall have one vote for every ordinary share held in the company by such shareholder.
notice to shareholders
Ceramic Industries Limited annual report 2008 page 74
RetiringGiuseppe Zannoni (69)
Giuseppe Zannoni, who resides in Italy, started his career
in ceramics as an entrepreneur in 1961. Although his
formal training is in finance and administration, Giuseppe
has been deeply involved in the actual manufacturing of
tiles, pioneering new methods and technologies in the
production of ceramic tiles. He has held the CEO position
at several ceramic companies, retiring from the board of
Richetti, a company listed on the Milan Stock Exchange, in
2001. Giuseppe has had a long association with Ceramic
Industries and his experience in the ceramics industry is
valued by the company.
Giuseppe was appointed to the Board of Ceramic
Industries on 18 November 1993.
Luciana Erminia Violetta Ravazzotti (39)
Luci is a human resources manager, currently living in
Australia.
Luci’s formal training is in human resources and
information technology, with fifteen years’ experience in
the ceramic tile industry. She worked for Italtile Ceramics in
South Africa and has a strong understanding of all aspects
of the industry.
Luci is the daughter of Giovanni Ravazzotti, the chairman
of Ceramic Industries. She was nominated as a director
by Rallen (Pty) Ltd, the major shareholder of Ceramic
Industries.
Luci was appointed to the Board of Ceramic Industries on
8 September 2005.
Newly appointedNoluthando Dorian Orleyn (52)
B Juris, B Proc, LLB
Thandi practised as an attorney at the Legal Resources
Centre and Routledge Modise Commercial Law Firm.
She was previously national director of the Independent
Mediation Services of South Africa (IMSSA) and the
Commission for Conciliation Mediation and Arbitration
(CCMA) and is a member of the Competition Tribunal.
Thandi serves as a non-executive director on the boards
of the South African Reserve Bank, Arcelor Mittal SA,
Freeworld Coatings, Implats, Reunert and Toyota SA and is
an executive director of Peotona Group Holdings, a private
company wholly owned by women.
Thandi is also an author and adjunct Professor of Law at
the University of Cape Town.
Thandi was appointed to the Board of Ceramic Industries
on 25 January 2008.
Nkhumeleni Samuel Nematswerani (47)
BCom, BAcc, MCom, CA(SA)
Sam is the CEO of Aka Capital, a private equity and
investment holding company.
He is a Chartered Accountant with over ten years’
experience in accounting, auditing and merchant banking.
He specialised in corporate finance in merchant banking
for over six years. His experience includes mergers/
acquisitions, capital raising, stock exchange listings,
restructurings and management buy-outs/buy-ins.
Sam serves as a non-executive director of the JSE Limited
and a number of other companies in which Aka Capital is
invested.
Sam was appointed to the Board of Ceramic Industries on
25 January 2008.
curriculum vitae for Ceramic Industries Limitedretiring directors and newly appointed directors
Ceramic Industries Limited annual report 2008 page 75
form of proxy
CERAMIC INDUSTRIES LIMITEDRegistration number 1982/008520/06Incorporated in the Republic of South AfricaShare code: CRM ISIN: ZAE000008538(“Ceramic” or “the company”)
For use only by ordinary certificated shareholders or holders of dematerialised shares with “own name” registration, at the annual general meeting of the company to be held at the company’s registered office, Farm 2, Old Potchefstroom Road, Vereeniging, 1930, on Friday, 28 November 2008 commencing at 14:00.
Holders of dematerialised ordinary shares other than with “own name” registration, must inform their CSDP or broker of their intention to attend the annual general meeting and request their CSDP or broker to issue them with the necessary letter of representation to attend the annual general meeting in person and vote or provide their CSDP or broker with their voting instructions should they not wish to attend the annual general meeting in person, but who wish to be represented thereat. These shareholders must not use this form of proxy.
I/We(full name/s in block letters)
of(address)
being the holders of ordinary shares in the company, hereby appoint (see note 1)
1. or failing him
2. or failing him3. the chairman of the annual general meeting
as my/our proxy to vote for me/us and on my/our behalf at the annual general meeting which will be held on Friday, 28 November 2008 at 14:00 at Farm 2, Old Potchefstroom Road, Vereeniging, 1930, for the purpose of considering, and if deemed fit, passing with or without modification, the ordinary resolutions to be proposed thereat and at each adjournment thereof and to vote for or against the ordinary resolutions or to abstain from voting in respect of the shares in the issued capital of the company registered in my/our name/s, in accordance with the following instruction (see note 4):
Number of votes (1 vote per share)
For Against Abstain
1. To adopt the annual financial statements
2. To approve the directors’ remuneration
3. To approve the appointment of Mr N S Nematswerani as a director
4. To approve the appointment of Ms N D Orleyn as a director
5. To re-elect Ms L E V Ravazzotti as a director
6. To re-elect Mr G Zannoni as a director
7. To authorise the directors regarding the re-appointment and remuneration of the auditors
8. Special Resolution 1 – Approval of share buy-back
9. Ordinary Resolution 1 – Control of authorised but unissued shares
10. Ordinary Resolution 2 – Approval to issue shares for cash
Please see notes on the reverse hereof.
Signed at on 2008
Signature Assisted by me (where applicable)
Ceramic Industries Limited annual report 2008 page 76
Notes
1. This form of proxy must only be used by certificated
ordinary shareholders or shareholders who hold
dematerialised ordinary shares with “own name”
registration.
2. Ordinary shareholders of dematerialised shares are
reminded that the onus is on them to communicate
with the CSDP or broker.
3. Each shareholder is entitled to appoint one or
more proxies (who need not be shareholder(s) of
the company) to attend, speak and vote in place
of that shareholder at the annual general meeting.
A shareholder may insert the name of a proxy or the
names of two alternative proxies of the shareholder’s
choice in the space provided, with or without deleting
“the chairman of the annual general meeting” but any
such deletion must be initialled by the shareholder.
The person whose name appears first on the form
of proxy and who is present at the annual general
meeting will be entitled to act as proxy to the
exclusion of those whose names follow.
4. A shareholder’s instructions to the proxy must be
indicated by the insertion of the relevant number
of votes exercisable by that shareholder in the
appropriate box provided. Failure to comply with the
above will be deemed to authorise the chairman of
the annual general meeting, if the chairman is the
authorised proxy, to vote in favour of the ordinary
resolutions of the annual general meeting, or any
other proxy to vote or to abstain from voting at the
annual general meeting as he deems fit in respect of
all the shareholder’s votes exercisable thereat.
5. Documentary evidence establishing the authority of a
person signing this form of proxy in a representative
capacity must be attached to this form of proxy
unless previously recorded by the company’s transfer
secretaries or waived by the chairman of the annual
general meeting.
6. The chairman of the annual general meeting may
reject or accept any form of proxy which is completed
and/or received other than in accordance with these
instructions, provided that he is satisfied as to the
manner in which a shareholder wishes to vote.
7. Any alteration or correction made to the form of proxy
must be initialled by the signatory/ies.
8. The completion and lodging of this form of proxy will
not preclude the relevant shareholder from attending
the annual general meeting and speaking and voting
in person thereat to the exclusion of any proxy
appointed in terms hereof.
9. A minor or any other person under legal incapacity
must be assisted by his/her parent or guardian,
as applicable, unless the relevant documents
establishing his/her capacity are produced or have
been registered by the company.
10. Where there are joint holders of any shares:
– any one holder may sign this form of proxy;
– the vote(s) of the senior shareholders (for that
purpose seniority will be determined by the order
in which the names of shareholders appear in the
company’s register of shareholders) who tenders
a vote (whether in person or by proxy) will be
accepted to the exclusion of the vote(s) of the other
joint shareholder(s).
Forms of proxy must be lodged with the transfer
secretaries at the address given below not later
than 14:00 on Thursday, 27 November 2008
(excluding Saturdays, Sundays and public holidays);
Computershare Investor Services (Pty) Limited
Ground Floor
70 Marshall Street
Johannesburg, 2001
(PO Box 61051, Marshalltown 2107)
business addresses
BaBelegi
Stand 70/71, 9th Street, Babelegi
☎ 012 719 8692 Fax: 012 719 8152
Vereeniging
Farm 2, Old Potchefstroom Road, Vereeniging
☎ 016 930 3700 Fax: 016 930 3850
Krugersdorp
4 Dobson Street, Chamdor
☎ 011 279 6000 Fax: 011 762 5490
Vereeniging
Farm 2, Old Potchefstroom Road, Vereeniging
☎ 016 930 3701 Fax: 016 930 3851
Ceramic Industries Limited Registration number 1982/008520/06
registered office
Farm 2, Old Potchefstroom Road, Vereeniging
2247, Vereeniging 1930, Website: www.ceramic.co.za
☎ 016 930 3600 Fax: 016 930 3650
australia
175 Racecourse Road, Rutherford, NSW 2320
☎ 09612 4931 8400 Fax: 09612 4931 8499CENTAURUS
daggafontein
5 Cadmium Road, Daggafontein
☎ 011 363 1714 Fax: 011 363 1032
Krugersdorp
4 Dobson Street, Chamdor
☎ 011 279 6014 Fax: 016 930 3941
BASTION GRAPHICS
Ceram
ic Industries Limited annual report 2008