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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.


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


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


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)


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


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



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)


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.


(continued)



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.


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.



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.



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.



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.



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


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)



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)



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)


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.


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)



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.


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%


Other permanent staff

Other 7%


White female 2%

HDSA male 83%

HDSA female 8%

White male 7%



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


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.



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


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


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


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


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


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.


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)


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.


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.


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


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


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


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 (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


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.



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.





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.



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.





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


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


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



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


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





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;



• 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





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:


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:


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:


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:


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:


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.



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


notes to the annual financial statements (continued)


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




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.




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.




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



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.





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




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.




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




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)


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.




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.




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.




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.




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.




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.




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)





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.







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.





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.




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.




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




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.




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 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


(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.



(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.



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


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)


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


☎ 016 930 3701 Fax: 016 930 3851

Ceramic Industries Limited Registration number 1982/008520/06

registered office


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

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