STRATEGICALLY, WE FOLLOWED THE PRINCIPLES UNDERLYING OUR BUSINESS PHILOSOPHY AND REMAINED TRUE.
Read more about our CEO's reportCHAIRMAN'S
REPORT
OUR GOVERNANCE STANDARDS ARE INDEPENDENTLY RATED AS BEING IN LINE WITH BEST PRACTICE, NOT ONLY IN SOUTH AFRICA BUT ALSO GLOBALLY.
DURING THE REPORTING PERIOD MANAGEMENT REMAINED UNWAVERINGLY COMMITTED TO, AND BELIEVING IN THE DNA OF OUR BUSINESSES AS OUTLINED IN OUR BUSINESS PHILOSOPHY , SUPPORTED BY OUR RESILIENT BUSINESS MODEL AND STRONG BALANCE SHEET. THESE FACTORS ENABLED THE GROUP TO EMERGE FROM THE COVID-19 ERA WITH AN EVEN HEALTHIER BALANCE SHEET, AND WITH BRANDS ENTRENCHED AND THE BUSINESS MODEL FURTHER EVOLVED TO A STRONG POSITION. THE BUSINESSES HAVE THRIVED AS THE WORLD’S ECONOMIES HAVE REOPENED AND THE RETAIL SECTOR CONTINUES TO EVOLVE.
Our post-pandemic performance exceeded market expectations, with headline earnings increasing by 50% to 780 cents per share and the annual dividend being increased by 44% to 505 cents per share.
The Group achieved its highest ever trading profit, headline earnings (aggregate) and headline earnings per share, with the previous highest being recorded in 2016 (trading profit and headline earnings per share) and 2017 (aggregate headline earnings). This represents a 10.9% compound annual growth in the Group's headline earnings per share since the 2019 financial year.
This year's results are reflective of innovation and organic growth, as we have made no material acquisitions in the past six years. Growth has been driven by a clear strategy, an improved sales performance, strong gross margins and an intense focus on expense management. A most pleasing feature has been the robust performance of Office where the turnaround plan has gained momentum after being stalled by the pandemic over the past two years.
Our capital management strategy focuses on investing in the long-term growth of the business, while returning surplus funds to shareholders through dividend payments and share buy-backs. Ongoing strong cash generation over the past year enabled the Group to return R3.2 billion to shareholders, including dividends totalling R1.6 billion.
Management again sought opportunities to capitalise on share price weakness to maximise returns and bought back 29.4 million shares for R1.6 billion. Since the start of the share buy-back programme 20 years ago, 155 million shares have been repurchased at a total cost of R6 billion. Since January 2020 (shortly before COVID-19) the Group has bought back 51.9 million shares at an average price of R47.88, comprising 12% of the 416.9 million shares in issue (net of treasury shares) at that date.
Our confidence in the future is reflected in the record capital investment of over R800 million which has been committed for the 2023 financial year, with a substantial portion allocated to the first phase of the development of a new world-class distribution facility for Truworths.
Governance and reporting
We believe that good governance practices contribute to better corporate performance and create value for shareholders and other stakeholders through improved reporting to shareholders, greater transparency and disclosure, improved quality of management reporting to the board and enhanced accountability to shareholders.
Our governance standards are independently rated as being in line with best practice, not only in South Africa but also globally. Each year our governance standards are assessed as part of the evaluation process for the FTSE4Good Index Series, conducted by FTSE/Russell, and the Group again achieved a 100% rating for corporate governance in the FTSE environmental, social and governance (ESG) ratings scorecard.
Governance extends to our ongoing commitment to improving disclosure and enhancing reporting. We are proud that the Truworths International 2021 Integrated Report was ranked eighth in the Ernst & Young 2022 Excellence in Integrated Reporting Awards among the 100 largest companies on the JSE. The Group has been ranked in the top 10 of these awards for 15 successive years and rated 'Excellent' for the past 20 years, the only JSE-listed company to achieve this distinction. The Integrated Reports are rated by a panel of independent adjudicators from the College of Accounting at the University of Cape Town and the awards are well recognised and respected in South African corporate reporting.
External auditor rotation
Ahead of the adoption of mandatory audit firm rotation in South Africa for financial years commencing from April 2023 onwards, there has been increased investor awareness of auditor tenure and growing shareholder momentum in voting against the reappointment of audit firms with long-term relationships with companies.
As a Group, we support the philosophy of audit firm rotation if it contributes to enhanced independence, objectivity and oversight, and improved audit quality.
The Group's auditor, EY and its predecessor firms, has been engaged since 1975. The Audit Committee undertook a formal audit firm tender process during the year and has appointed Deloitte as the Group's external auditor for the 2024 financial year. This appointment will be proposed for shareholder approval at the annual general meeting in November 2023.
The external auditor of the Office segment in the UK is PwC who will remain as auditors in the 2023 year, but will be replaced by Deloitte in 2024.
Board and management
Our board is strong, active and engaged, with an appropriate balance between our nine independent non-executive and three executive directors.
Emanuel (Mannie) Cristaudo, who was appointed as Chief Financial Officer (CFO) and an executive director at the start of the financial year, was also appointed to the role of Chief Operating Officer (COO), effective from March 2022. This dual role recognised Mannie's responsibilities in the areas of credit risk, information technology and corporate finance in addition to his responsibilities for the finance portfolio, which includes oversight of the Truworths and Office finance teams as well as the company secretarial, internal audit and legal functions.
Independent non-executive director, Cindy Hess, resigned from the board in June 2022 when she was appointed to a full-time executive position in another JSE-listed company.
Our board is diverse in its composition, thinking and experience which we believe enables it to add value to the strategic direction of the business. Diversity in the boardroom ensures balanced decision-making and that the needs and concerns of our mass middle-income target market are addressed. Diversity has been a major consideration in recent board appointments and will continue to be, in line with our policy on the promotion of broader diversity at board level.
Female representation on the board is 33% (2021: 36%), ahead of the 30% voluntary medium-term target contained in the board's gender diversity policy. Black representation is 25% (2021: 29%) relative to the 30% medium-term target in the diversity policy.
CEO SUCCESSION
Michael Mark has been at the helm of Truworths for 31 years, serving as Group CEO for 26 years from 1996, and as Managing Director of Truworths Ltd from 1991 to 1996. At the time of his appointment, the business was a relatively small niche specialty retailer and is now one of SA's most prominent retailers, with a wide network of stores and e-commerce presence in southern Africa and the United Kingdom (through its Office brand).
Given the length of time Michael has served as CEO, the board is cognisant of the critical importance of a seamless and carefully considered leadership succession and transition process into a new era.
The Group has a unique DNA, with historical long-term high returns on equity and investment and significant cash generation capability, and so the board is aware of the weight of responsibility it bears to facilitate this transition in a highly responsible manner.
The process of ensuring that a competent team is in place, that caters for CEO succession as well as for long-term succession at all senior levels, has been a lengthy one with several options explored along the way.
The board has been resolute in its determination to maintain the focus of the business on its unique DNA and its Business Philosophy (see Our Business Philosophy).
In September 2020 we advised shareholders that Michael had indicated his desire to retire in two years at the November 2022 AGM. I noted in 2020 that the Nomination Committee of the board, which I chair, had assumed responsibility for developing and implementing a Group-wide senior executive succession plan over the next two years to ensure a smooth transition in a number of senior management positions, including the CEO. We also advised that after the successful implementation of the succession plan, it was envisaged that Michael would move into a consulting role for a further year to advise the board and support the transition.
The transition process is well under way and at a point where the board feels confident that Sarah Proudfoot and Mannie Cristaudo, together with the eight Truworths directors and 12 divisional directors, and the five directors and divisional directors of Office, are the right team to take the Group into the new era by retaining the strength of the Group's unique DNA while at the same time being able to continue to move the businesses forward.
The recently announced appointments of Sarah and Mannie as the Group's Joint Deputy CEOs confirms the board's firm belief in their competence, and that of the directors and divisional directors who report to them.
The board has requested Michael to extend the transition process beyond the November 2022 AGM by retaining the position of the Group's CEO and chairman of the material subsidiary companies, while handing over an increasing number of operational responsibilities to Sarah and Mannie and the executives who report to them.
The ultimate timing of the formal appointment of the CEO to succeed Michael has yet to be decided by the board.
Shareholders should also be reassured of the Group's longer-term succession prospects owing to the depth and quality of talent at director and divisional director levels within the Truworths and Office segments, with industry specialists across all key areas of the business. For example, the 11-strong Truworths Ltd board has an average tenure of 23 years and collective experience of over 250 years with the company.
Non-executive director succession
Our board comprises a good blend of longer serving and more recently appointed directors. As part of the succession for long-serving non-executive directors, the board has, in recent years, followed a process of refreshing the non-executive component of the board. This is aimed at ensuring the Group has continuity in terms of the important and ongoing contribution from long-standing directors, while newly appointed non-executive directors grow their knowledge of the Group and increasingly influence board deliberations.
Since 2018, six new non-executive directors have been appointed to the board as part of this succession strategy. As these new directors are promoted to committee membership, long-serving non-executives will be retiring from the board.
This practice was evident in that all the board committee appointments in the past year were of recently appointed directors. The Audit Committee was strengthened with the appointments of Dawn Earp and Tshidi Mokgabudi, both chartered accountants, when two long-serving members of the committee stood down. Mannie Cristaudo and Thabo Mosololi were appointed as members of the Social and Ethics Committee.
After the end of the reporting period, one of our long-serving directors, Mike Thompson, retired as a non-executive director and chairman of the Social and Ethics Committee on 1 September 2022. Mike has made a most valuable contribution to the Group over the past 18 years, during which time he also served as the chairman of the Audit Committee. We will miss his wise counsel, calmness and business acumen and wish him a healthy and fulfilling retirement. Following Mike's retirement, Thabo was appointed chair of the Social and Ethics Committee and I joined the Social and Ethics Committee, both appointments with effect from 1 October 2022.
We do not believe that the tenure of non-executive directors limits their judgement or independence of thought. A formal assessment of the independence of our directors during the reporting period confirmed that they are correctly categorised as independent when benchmarked against governance and regulatory standards.
Appreciation
Thank you to my fellow non-executive directors for their commitment to achieving high standards of governance and oversight, and for their ongoing guidance and counsel. Michael Mark's decisive leadership of the Group, together with our other executive directors, Sarah Proudfoot and Mannie Cristaudo, has ensured the Group delivered a sterling post-COVID-19 comeback.
The executive team is ably supported by highly experienced management teams in Truworths and Office, who have both produced exceptional performances.
Our stakeholders are integral to our success and sustainability, and we thank our shareholders, customers, employees, suppliers, business partners and regulators for their collaboration and engagement.
Hilton Saven
Independent Non-executive
Chairman
