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Governance creating and protecting value

Board contribution to strategic delivery and value creation

The Truworths International board functions in terms of a written charter and provides ethical and strategic direction and leadership to the Group. The board is ultimately accountable for the overall strategy, governance and performance of the Group.

The board of directors periodically reviews the opportunities and threats it believes could have the most significant impact on the Group’s ability to create sustainable value for the Group’s stakeholders. In determining these material issues the directors consider several internal and external factors, including the Group’s strategy as formulated by executive management; the needs, expectations and concerns of our main stakeholders; and the economic and trading environment.

In the 2017 financial period the board re-endorsed the Group’s strategy of aiming to be a world-class omni-channel retailer of fashion clothing, footwear, related merchandise and homeware, operating in both the southern and northern hemispheres. The board confirmed that this strategy is aimed at ensuring a diversified mass-market customer base in both developed and emerging market countries.
The board noted that the successful implementation of this strategy should result in a diversified earnings profile, improved returns for shareholders, and more value being created for its other stakeholders.

During the period under review the board confirmed that fashion risk, supply chain efficiency, retail presence and managing the risk of the book remain the material issues for the Truworths segment. Owing to the importance of the Office segment to the Group, the specific material issues of fashion risk, supply chain efficiency and retail presence have been identified for this business.

The board confirmed the following medium-term growth strategies for the Group:

  • Truworths and Office integration and collaboration
  • Strategic acquisitions that meet the board’s investment criteria
  • Account activities and portfolio optimisation within Truworths
  • Omni-channel retailing capability and e-commerce platform within Truworths
  • Product procurement and supply chain management within Truworths
  • Strategically aligned product, brand and store diversification within Truworths
  • Implementation and communication of the business philosophy within Office
  • Marketing, customer engagement and loyalty within Office
  • Optimisation of product and planning within Office
  • Store, concession and partnership expansion and growth within Office
  • E-commerce expansion and optimisation within Office

The board will regularly monitor progress being made in relation to the implementation of these strategic growth initiatives and will measure performance against the agreed financial targets, strategic goal objectives and key performance indicators.

The board, aided by the operating company boards, will assess on an ongoing basis whether the activities of the Group are creating value for its key stakeholders and will use the following measurements of value added in conducting this assessment:

1

SHAREHOLDERS

  • Share price appreciation and growth in dividends
  • Long-term growth in diluted headline earnings per share

2

CUSTOMERS

  • Truworths: Measure the customer experience in-store
  • Office: Net Promoter Score (measures customers’ likelihood of recommending Office)

3

EMPLOYEES

  • Annual turnover rate of permanent employees, indicating satisfaction
  • Percentage employees proud to work in the Group (based on employee surveys)
  • Percentage of employees from designated groups, indicating diversity (South Africa only)

Board deliberations

During the period under review board deliberations included the following:

Noted

Key issues

  • Progress being made to integrate the Office business into the Group and implement a governance framework within the Office business
  • Management’s plans to implement a customer loyalty programme during the year
  • The Group’s plans and budget to implement a world-class e-commerce platform during 2018

Routine matters

  • The general annual declarations made by directors regarding their personal financial interests
  • The quarterly analysis of the company’s shareholders and beneficial owners of shares
  • Various presentations by management relating to different aspects of the Group’s business

Considered

Key issues

  • The progress made and steps being taken to ensure adequate succession planning for key executives, especially the Chief Executive Officer
  • Some of the issues that would require consideration to achieve alignment between the Group’s governance framework and the King IV recommendations

Routine matters

  • The quarterly financial reports and forecasts presented by the Chief Financial Officer
  • The quarterly reports of the chairmen of the Audit, Remuneration, and Social and Ethics Committees
  • The quarterly presentations of the Risk Committee chairman, together with the top risk matrix
  • The quarterly presentations by the Company Secretary on new relevant legislation/regulations
  • The quarterly analysis by the Chief Financial Officer of published competitor financial metrics
  • How management was performing against the financial targets and key performance indicators

Approved

Key issues

  • Executive management’s growth strategies for the Truworths and Office business segments

Routine matters

  • The Group’s operational and capital expenditure budgets by business segment
  • The Group’s Audited Annual Financial Statements, Integrated Report, and Preliminary Report on the Audited Group Annual Results
  • The Group’s Interim Report and all results announcements on SENS and in the media
  • The Group’s interim, scrip and final dividends and the company’s dividend cover
  • The Group’s financial and strategic targets for executive incentive scheme purposes

Authorised

Key issues

  • Executive management to explore various potential acquisition targets
  • Executive management to conclude the Loads of Living business acquisition
  • Executive management’s decision to embark on litigation against the National Credit Regulator and the Minister of Trade and Industry, together with two other listed retailers, relating to aspects of the affordability assessment regulations

Routine matters

  • Executive management to undertake share repurchases within defined parameters
  • Executive management to issue and list shares pursuant to share incentive scheme transactions within defined parameters

Resolved

Key issues

  • To adopt a board gender diversity policy and target
  • To appoint the Truworths Director: Buying and Merchandising as an executive director of the company

Routine matters

  • To conduct a structured evaluation of the independence of the non-executive directors

Board and governance processes

The evaluation concluded that the board’s overall functioning and governance were excellent and, amongst others, indicate that:

  • the board believes that it is important to continue to evolve its composition by breadth of skill and by race and gender and continues to be mindful of the proportion of non-executive to executive directors;
  • succession planning remains an important area of focus with particular attention to continue to be given to the succession plan for the Chief Executive Officer;
  • the board is satisfied with the level of ethical behaviour and proper compliance standards throughout the organisation; and
  • the board is satisfied that there is a high level of consideration of its various constituencies.

Board priorities for the 2018 period

  • Ensure that the board provides ethical leadership so that the Group operates within a culture of integrity and compliance.
  • Ensure that the Group’s international and local acquisition strategy maintains momentum in a low growth environment.
  • Ensure that the Group’s strategies for managing its key risks and suitably dealing with its material issues are appropriately implemented and regularly reviewed.
  • Ensure that progress as regards succession planning for the Chief Executive Officer is made.
  • Ensure that the performance of executive management against financial targets is regularly reviewed.

Summarised governance review

This report is a summary of corporate governance matters within the Group and should be read in conjunction with the more detailed Annual Corporate Governance Report 2017.

During the 2017 financial period the Group continued to practise corporate governance at a high level, aimed at adding value to the business as well as facilitating the Group’s sustainability, generating long-term shareholder value and benefiting other stakeholders.

Governance in the Group goes far beyond a box-ticking process, and accordingly compliance with codes, legislation, regulations and listings requirements is the minimum requirement. Management has adopted sound corporate governance principles and appropriate governance structures and policies, and believes it has embedded into operations a business-wide culture of good governance that is aligned to our business philosophies.

An independent assessment of the Group’s standard of governance is provided by the annual evaluation process for the FTSE/JSE Responsible Investment Top 30 Index, which relies on publicly available information. In the reporting period the Group again qualified for inclusion in this index attaining 100% (2016: 100%) for the corporate governance theme of the FTSE environmental, social and governance (ESG) ratings scorecard.

King IV

The Group has commenced the process of assessing the impact of the King IV principles and welcomes the move towards an outcomes-based approach to corporate governance. While some changes to the Group’s governance processes have already been brought about, the work involved to align the Group’s governance structures, policies and processes with the King IV-recommended practices is ongoing. The corporate governance disclosures relating to King IV that are required by the JSE Listings Requirements with effect from 1 October 2017 will be made in the Group’s Integrated Report for the period ending 1 July 2018.

Governance adding value at Truworths

Corporate governance can be viewed by its detractors as a compliance overhead that adds little tangible value, and is costly and distractive in terms of resource utilisation.

Truworths’ approach to corporate governance, however, is to aim for the relevant policies, structures and processes that may have been brought into existence initially to ensure adherence with applicable regulation and codes of conduct, to contribute to improved operational decision-making and corporate performance. This aim is achieved by:

  • considering the governance requirements critically and with a view to determining how they could be implemented within the Group in a value-adding way;
  • identifying opportunities in governance requirements for enhanced accountability, improved decision-making, better risk mitigation and more comprehensive disclosure;
  • conducting a thorough debate and enquiry process before putting into place the applicable policies, reporting and monitoring mechanisms, and committee structures that are hallmarks of a sound corporate governance framework; and
  • periodically reviewing these elements and benchmarking the Group’s initiatives against comparable organisations and recommended best practice.

Improved corporate performance arising from sound corporate governance has manifested itself in a number of ways in the Group, including:

  • diversity and independence of opinion in board decision-making, with the aim of ensuring sound outcomes;
  • improved operational decision-making that takes into account diversity and broadness of perspectives;
  • maintenance of discipline and integrity in management’s reporting to the board;
  • enhanced levels of accountability and transparency by management to the board;
  • meaningful risk management and controls that are embedded in day-to-day operations and decision-making;
  • better and more integrated reporting of both financial and non-financial aspects to stakeholders;
  • improved levels of assurance regarding the reporting by management to shareholders; and
  • achievement of an appropriate balance in meeting the expectations of the different stakeholders of the Group.

It is the view of the board that the improved corporate performance achieved through its sound governance framework has created value for the business and its stakeholders, in the form of lower risk, improved sustainability, consistency of financial performance, sound stakeholder relationships, high levels of legislative compliance and reputational integrity.

BOARD AND COMMITTEE MEETING ATTENDANCE

Director            Status Board Audit Committee Remune-
ration Committee
Risk Committee Non-
executive and
Nomination Committee
Social and Ethics Committee Annual General Meeting
Hilton Saven I 4/4# 4/4 4/4# 1/1
Rob Dow I 4/4 3/3 4/4# 4/4 1/1
Michael Thompson I 4/4 2/3# 3/4 4/4 3/3# 1/1
Thandi Ndlovu I 4/4 4/4 3/3 1/1
Tony Taylor I 4/4 4/4 1/1
Roddy Sparks I 4/4 3/3 4/4 1/1
Khutso Mampeule* I 3/3 4/4 1/1
Michael Mark E 4/4 4/4# 1/1
David Pfaff E 4/4 4/4 3/3 1/1
Doug Dare** E 4/4 1/1
% attendance 2017 100 89 100 92 100 100 100
% attendance 2016 100 100 100 92 100 89 100
# = Chairman    E = Executive    I = Independent non-executive    * = Resigned March 2017    ** = Appointed August 2016

Governance Developments in 2017

While the board believes the Group has achieved a suitably high level of maturity in relation to governance, processes, policies and structures are continually reviewed and modified. The following enhancements were made to the Group’s governance framework during the period:

Governance element Governance development
Social and Ethics Committee The committee adopted and structured its meeting agendas according to a board-approved framework to facilitate its monitoring function to ensure that over a rolling period all matters required by regulation are suitably considered by the committee, or by the board or other structures that report to the board.
Non-executive director independence assessment A formal written evaluation process was adopted and implemented by the board to assess the independence of non-executive directors with reference to regulatory measures or guidelines regarding independence.
Risk governance The reporting by the Risk Committee to the board of the company has been enhanced to encompass reporting on risk management initiatives in and the top risk register of the Office business.
Board gender diversity policy The board developed and adopted a gender diversity policy at board level, including the adoption of a medium-term target in this regard.
Risk governance in Office The risk management process has been embedded into the Office business operations, and initiatives such as the functioning of a Risk Committee, the work of the Risk Officer, the conduct of a risk assessment process and the creation of risk registers for business units within the Office business have been further developed.
Office Audit Committee The functioning of the Audit Committee established in Office has gathered traction and has added value to the financial reporting and internal control management processes.
Information technology (IT) governance The IT governance processes have been extended to the Office business, including the involvement of the IT Audit Manager in promoting and monitoring IT governance, the routine consideration of IT governance matters on the agendas for Audit Committee meetings and the embedding of good IT governance practices in operations.
Anti-bribery and corruption policies The Group’s policies, and contracts with suppliers, agents and employees aimed at combating bribery and corruption were amended.
Supplier codes of conduct The supplier codes of conduct for both local and international suppliers have been reviewed and further amended to reinforce the Group’s zero tolerance approach to any forms of bribery and corruption, and insistence on full legislative compliance, especially as regards employee rights and protections.
Consumer and credit legislation scompliance Management implemented new processes in response to consumer and credit legislation changes, including the affordability assessment regulations under the National Credit Act, and commenced processes to ensure compliance with the Consumer Credit Act in Swaziland.
Business continuity The Group’s business continuity plans were further developed and its disaster recovery capabilities as regards key information system applications were further tested and upgraded.
Operational governance The Group’s operational governance within Office was embedded through the implementation of the Group’s change control procedures, and the Group’s lease and capital expenditure approval processes.
Procurement governance The procurement policy governing the processes and authorisation levels that relate to the purchase of goods and services by the Truworths business has been reviewed and amended, as has the charter of the Tender and Capex Committee and the Tender and Contracts Approval Policy.
Tax risk governance Management reviewed its Group-wide transfer pricing policy and inter-company agreements, and commenced the process of extending these policies to transactions between the Office and Truworths businesses to ensure cross-border transactions take place on an arm’s length basis and the profit allocation reflects the underlying economic activities.
Sustainability reporting The Group’s reporting on environmental, social and governance issues was critically reviewed and upgraded through the publication of a comprehensive Social and Environmental Report.

2018 GOVERNANCE PRIORITIES

Board and governance priorities for the 2018 financial period will include:

  • Further progressing the Group’s application of the King IV principles.
  • Further developing the corporate governance framework within the Office business.
  • Further improving the Group’s compliance with the regulatory requirements in the foreign territories in which it conducts operations.
  • Further developing the Group’s tax risk governance framework by reviewing and extending the Group’s transfer pricing policy and the reporting of tax-related information to revenue authorities.
  • Further extending the reporting by management to the Social and Ethics Committee and implementing an effective dashboard to enable the committee to monitor progress on key environmental, social and governance initiatives.
  • The development by the board of a policy on the promotion of racial diversity at board level, including giving consideration to targets to be set for achieving such diversity.

The board will continue to follow an approach of continuous incremental improvement as regards governance practices and structures, to ensure the reasonable expectations of stakeholders as regards the Group’s corporate governance standards are met.