Some things in life are better viewed on a big screen

Please open this report on a tablet in landscape mode or a bigger screen

Chairman's report

Hilton Saven

Independent Non-executive Chairman

Great strides have been made over the 2017 reporting period in delivering the Group’s strategy of becoming a world-class omni-channel retailer of fashion clothing and footwear.

This year marks the centenary of the founding of Truworths and it has been a year of investment in future growth. Good progress has been achieved with the integration of Office, while the Group has continued its investment in stores, information technology and distribution infrastructure, introduced a customer loyalty programme and developed a new e-commerce platform with enhanced functionality to launch early in the 2018 reporting period. Shortly after the period-end, Office London footwear stores were launched in South Africa and the Group acquired the upmarket South African linen and homeware chain, Loads of Living.

The Group’s financial performance has been tempered by factors in the external environment that have collectively had a significant impact. These are primarily the deteriorating economic and political landscape in South Africa, the fallout following the Brexit vote in the United Kingdom and onerous credit regulations which have restricted growth in the Truworths account base.

The Group’s operating profit increased by 1% to R4 billion and diluted headline earnings per share were virtually unchanged at 661 cents. The annual dividend was maintained at 452 cents per share.

Cash generated from operations increased by 8% to R3 billion and was used to fund mainly dividend payments of R1.5 billion, capital expenditure of R467 million, share buy-backs of R101 million and loan repayments of R324 million.

The Group remains committed to pursuing its strategy of complementing organic growth with the acquisition of fashion and related businesses. Cash resources of R2 billion at the end of the financial period position the Group favourably to take advantage of opportunities in these turbulent economic times.

Compelling investment case

The board believes Truworths International is an attractive proposition for equity investors seeking exposure to the fashion retail sectors in both South Africa and the United Kingdom.

The acquisition of Office in the UK has strengthened the investment case by creating a more diversified business, with the Group’s customer base spread across developed and emerging markets, and a diversified product, sales, earnings and country risk profile. Office provides access to developed northern hemisphere markets and a platform for further organic and acquisitive offshore growth.

The Group is highly cash-generative with a strong balance sheet, achieves internationally competitive financial and operating metrics, has an expanding retail presence in all its markets as well as in the growing e-commerce arena, and has one of the most highly rated management teams in the sector.

Although short-term performance has been constrained, this does not detract from our investment case of proven organic and acquisitive growth, and track record of delivering sustainable wealth for shareholders.

In the past five years the Group has generated R13 billion cash from operations, invested R2 billion in organic growth through capital expenditure, returned R9 billion to shareholders through dividends and share buy-backs, and invested R3 billion in acquisitions.

Governance enhancing value

We believe the Group’s governance standards are in line with best practice, not only in South Africa but also internationally. The board views governance as more than a compliance discipline, and rather as a means of improving corporate performance and ultimately enhancing value for our stakeholders.

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 again included in the Top 30 Index and achieved 100% for the governance pillar on the FTSE environmental, social and corporate governance (ESG) ratings scorecard.

The directors are committed to diversity at board level in the belief that this will lead to balanced decision-making and a deeper understanding of the needs of our mass middle-income target market. A board gender diversity policy was adopted during the reporting period, with the directors setting a voluntary target of achieving 30% female representation on the board in the medium-term.
An important element of this policy is to consider the development and promotion of female executives within the Group to become potential board candidates.

The Group’s ongoing commitment to improving disclosure and enhancing reporting was again recognised in the EY Excellence in Integrated Reporting Awards. The Group’s 2016 Integrated Report was ranked seventh among the top 100 companies by market capitalisation on the JSE, again being the only retailer in the top ten. This continues the Group’s proud performance in the EY reporting awards in which it has now been ranked in the top ten for ten consecutive years. These awards are independently judged by the University of Cape Town’s College of Accounting and are widely regarded as the benchmark for integrated reporting in the country.

We have continued to align our reporting to shareholders with the requirements of the International Integrated Reporting Council’s Framework which is now the global reporting benchmark. Given the Group’s large offshore shareholder base, it is particularly relevant that we strive to report in terms of this international standard.

Locally the introduction of the King IV Report on Corporate Governance during the reporting period should ensure that South Africa’s corporate sector remains at the forefront of global governance practice, further increasing the attractiveness of local companies to international investors.

The revised King code aligns with governance and regulatory developments both locally and internationally since King lll was introduced in 2010. The board is confident that the code will be seamlessly applied across the business in the months ahead and we will report according to the code from our 2018 financial period onwards.

Board and management

We are 100

Our board is active and engaged, confirmed by the 100% attendance at board meetings during the reporting period. We have an appropriate balance between our six independent non-executive and three executive directors, with the non-executive directors being closely aligned with the executive team. A formal assessment of the independence of our non-executive directors during the reporting period confirmed that they are correctly categorised as independent when benchmarked against all applicable regulatory standards.

Independent non-executive director Khutso Mampeule resigned from the board in March 2017 and we thank him for his contribution over the past three years.

Doug Dare, Director: Buying and Merchandising of Truworths, was appointed as an executive director of Truworths International in August 2016. Doug brings over 30 years of experience in merchandise management and planning, retail operations and marketing to the board.

While the board extended our CEO, Michael Mark’s, employment contract with the Group, succession planning remains a priority for the board. The strong senior leadership team in Truworths provides the Group with CEO succession candidates and we will also consider recruiting externally to broaden the depth of talent and our pool of potential successors.


Thank you to Michael Mark and his executive teams in Truworths and Office for their inspired leadership during a particularly challenging year, not only for the Group but also for the retail sector in general.

My fellow non-executive directors have a wealth of experience across a diverse range of disciplines. I thank them for their ongoing counsel and commitment to the highest standards of oversight.

Thank you to our external stakeholders including shareholders, customers, suppliers, regulators and advisers for their ongoing support and contribution to our sustained success.

Hilton Saven
Independent Non-executive Chairman