During the 2016 reporting period the Group completed its most significant acquisition, and its first in the northern hemisphere, with the purchase of leading fashion footwear chain Office in the UK.
This earnings enhancing acquisition has strengthened the Group's investment case by diversifying the business mix, customer base and country risk, while also generating hard currency earnings. Strategically, Office provides access to developed northern hemisphere markets and a platform for further organic and acquisitive offshore growth.
Management has focused intensely on integrating Office into the Group in the seven months since the completion of the transaction in December 2015. The acquisition offers wide-ranging benefits for both Truworths and Office. However, we are under no illusion of the challenging and competitive trading environment in which we will be operating, and even more so since the UK's decision to leave the European Union.
CREATING SHAREHOLDER VALUE
The Group remains highly cash generative and financially strong, and continues to deliver competitive returns for shareholders.
Cash generated from operations was used to fund the Office acquisition and the related transaction costs totalling R3.5 billion (R2.7 billion net of the cash acquired pursuant to the transaction), and R1.4 billion in dividend payments. Interest-bearing borrowings of R4.5 billion were raised to fund the Group's operating activities.
The Group's net asset value per share increased by 13% to 2 032 cents, underlining the strength of the balance sheet.
Diluted headline earnings per share (HEPS) increased by 12.5% to 665.9 cents. Excluding the once-off Office acquisition transaction-related costs, adjusted diluted HEPS increased by 16.2% to 688.2 cents.
Following the Office acquisition the board has elected to make capitalisation share awards, and accordingly has declared scrip dividends with cash dividends as an alternative in respect of the period. A final cash dividend of 182 cents per share has been declared, resulting in a total cash dividend of 452 cents per share (2015: 405 cents per share), an increase of 12% on the prior period.
In the past five years the Group has generated R12 billion in cash from operations, invested R1.8 billion in organic growth through capital expenditure, returned R8.8 billion to shareholders through dividends and share buy-backs, and invested R3.9 billion in acquisitions.
GOVERNANCE ENHANCING VALUE
Governance in the Group extends beyond compliance and is aimed at improving corporate performance, which aims ultimately to enhance value for our stakeholders.
The directors believe sound corporate governance is creating value in the business through reduced risk and better risk mitigation, improved sustainability, enhanced accountability, consistent financial performance, sound stakeholder relationships, high levels of legislative compliance and reputational integrity.
Following the acquisition of Office in the UK, governance processes are being implemented that are suited to the structure and needs of the Office business, and aligned with the Group's practices and policies. Good progress has been made in introducing a formal risk governance structure, including forming a risk committee, appointing a risk officer, conducting a risk assessment and creating a top risks register.
Governance standards in the Group are independently assessed each year as part of the evaluation process for the FTSE/JSE Responsible Investment Top 30 Index. The Group was included in the Top 30 Index and achieved 100% for the governance pillar on the FTSE environmental, social and governance (ESG) ratings scorecard.
Transparent reporting is a hallmark of good governance. The quality of the Group's reporting was again recognised in the EY Excellence in Integrated Reporting Awards where the 2015 Integrated Report was ranked sixth among the top 100 companies on the JSE, being the only retailer in the top ten. This continues the Group's proud performance in the EY reporting awards where it has been ranked in the top ten for nine successive years, being the only company on the JSE to achieve this distinction.
South Africa's corporate governance landscape will be further enhanced with the imminent introduction of the King lV code. This new code will align with governance and regulatory developments both locally and internationally since the 2009 King lll report. Based on the draft King lV report, which was made available for public comment, the directors are confident in the Group's ability to apply the code seamlessly when it is expected to be effective from 1 November 2016.
BOARD AND MANAGEMENT
Truworths International has a strong, stable and diverse board with an appropriate balance between non-executive and executive directors. The non-executive directors provide extensive support to the business and to the executive team, and this was particularly evident in the past year with the acquisition of Office.
Michael Mark, who has served as Group CEO since 1996, has extended his contract with the Group and we look forward to continuing to benefit from his astute leadership, importantly during the integration phase of the Office business into the Group.
Jean-Christophe Garbino resigned from his position as CEO Designate and as an executive director in December 2015 after a short tenure, and we wish him well in his future career.
Doug Dare, who has been the Director: Buying and Merchandising of Truworths since 1999, was appointed as an executive director of Truworths International with effect from 19 August 2016. Doug has been with the Group for over 30 years and has extensive experience in merchandise management and planning, retail operations and marketing. We look forward to continue benefiting from his wealth of retail knowledge.
The strong senior leadership team provides the Group with CEO succession candidates. The executive committee of Truworths Ltd has been strengthened with the internal appointment of two highly experienced senior executives and we will also consider recruiting external candidates to broaden the depth of talent and our pool of succession candidates.
Thank you to Michael and his management team for their leadership during a challenging but exciting year. On behalf of the board I welcome the Office management and employees to the Group and we look forward to the contribution from our northern hemisphere colleagues.
My fellow non-executive directors continue to provide invaluable wisdom and insight, and I thank them for their active participation in our boardroom debate.
Our external stakeholders are vital to the continued success and sustainability of the business, and I thank in particular our shareholders, customers, suppliers, regulators and advisers for their ongoing support.
Independent non-executive Chairman