MANAGING STAKEHOLDER RELATIONSHIPS
MANAGEMENT PROACTIVELY RESPONDS TO THE NEEDS, EXPECTATIONS AND CONCERNS OF STAKEHOLDERS, RECOGNISING THAT THEY IMPACT ON OUR ABILITY TO CREATE VALUE, OR MINIMISE THE EROSION OF VALUE, OVER THE SHORT, MEDIUM AND LONG TERM.
Stakeholder engagement and collaboration was intensified during the COVID-19 pandemic owing to the increased interaction required with most stakeholder groups to address the widespread challenges that arose over the past two years.
The stakeholder relationship programme continues to focus primarily on the five stakeholder groups that are most likely to influence the delivery of the Group’s strategy and to impact on the material issues within the business, namely:
QUALITY OF RELATIONSHIPS
Management assesses the quality of these relationships on an ongoing basis to ensure the Group understands, considers and responds to the legitimate needs and interests of its stakeholders.
A five-point internal rating scale is applied by management for rating stakeholder relationships:
Strong relationship of transparency, trust and mutual understanding
Good quality, value-adding relationship
Satisfactory relationship
Functional, low-quality relationship
Poor quality to no relationship
Rationale for engaging: Shareholders are the Group’s principal providers of financial capital. Engagement is focused on local and international institutional and private investors as well as fund managers and analysts. The Chief Executive Officer and Chief Financial Officer, together with the senior finance management team members and appropriate directors, are responsible for investor relations. The Group has adopted a hybrid Investor relations model comprising written communication through a dedicated investor relations email channel followed by one-on-one meetings where requested/attendance at investor conferences, as required. This hybrid approach facilitates detailed and prompt responses to investor questions and enhances the overall efficiency of engagement while treating all shareholders as equal irrespective of size of shareholding and without providing any party with price-sensitive information not yet released to all shareholders.
KEY ENGAGEMENT ISSUES
Impact of civil unrest in KwaZulu-Natal and Gauteng in July 2021 – and the floods in KwaZulu-Natal in April 2022 – on store operations and trading.
Impact of local and global supply chain challenges and the Group’s strategy in relation to local and international sourcing.
Outlook for consumer spending with increasing inflationary pressures and rising interest rates in SA.
Growth prospects and strategies to support growth in the Group’s SA and UK businesses.
RESPONSE TO ENGAGEMENT ISSUES
Management addresses all key engagement issues directly with investors through a range of forums, including interim and annual results presentations, post-results investor meetings, participation in investor conferences, written communication via the Group’s dedicated investor relations email channel, and through one-on-one or other engagement with shareholders and analysts, as well as formal communications on SENS and in the Integrated Report. Based on the materiality or price sensitivity of certain information, such information is communicated on SENS before it is discussed with any market participants to ensure simultaneous and equal access to the information.
KEY ENGAGEMENT ISSUES
Remuneration policy and implementation thereof in relation to executive directors in the 2021 Integrated Report.
RESPONSE TO ENGAGEMENT ISSUES
An invitation to engage, following the last annual general meeting, was extended to all dissenting shareholders allowing them the opportunity to outline the reasons for their vote against the resolutions relating to the approval of the Group’s remuneration policy and implementation report. Thereafter, a virtual meeting of dissenting shareholders was held on 17 January 2022 and attended by the Group Chairman, Remuneration Committee chairman, Group CEO, Group CFO and Company Secretary. We appreciate the time taken by those who engaged with us as we believe these engagements are crucial to improving our shared understanding of our remuneration strategy and achieving an outcome that supports and delivers a positive and balanced outcome for all our stakeholders.
KEY ENGAGEMENT ISSUES
Succession of CEO.
RESPONSE TO ENGAGEMENT ISSUES
Regular updates to shareholders on Nomination Committee deliberations and progress on CEO succession.
Rationale for engaging: As the consumers of our merchandise and users of account facilities, customers are the primary source of revenue for Truworths. Engagement covers account and cash customers in South Africa and the rest of southern Africa. Store management and employees, call centre agents and customer relations employees are the main contacts with customers. Engagement takes place in stores, through call centres, social media platforms, e-commerce websites and emailers. Customer satisfaction is monitored on an ongoing basis using the Net Promoter Score as a universally comparable benchmark alongside an internally developed customer service measurement scale. The engagement process seeks to advance our social and relationship capital, and the material levels which all of revenue generated from customers as well as customer satisfaction levels which all point to the strength of the Group’s social and relationship capital.
KEY ENGAGEMENT ISSUES
Customer health and safety in stores.
RESPONSE TO ENGAGEMENT ISSUES
Stores maintained COVID-19 health and safety compliance throughout the pandemic to ensure the safety of customers and employees. As restrictions were gradually relaxed, in-store protocols were adjusted accordingly.
KEY ENGAGEMENT ISSUES
Customer safety and protection during the civil unrest in KwaZulu-Natal and Gauteng in July 2021.
RESPONSE TO ENGAGEMENT ISSUES
Customer and employee safety was paramount during the civil unrest. In addition to 57 Group stores being damaged and looted, a further 160 stores were closed during the height of the violence as a precautionary measure to ensure the safety of customers and employees. Fortunately, no casualties were reported. The non-looted stores were reopened on a controlled basis as authorities indicated it was safe to resume trading.
KEY ENGAGEMENT ISSUES
Security of information.
RESPONSE TO ENGAGEMENT ISSUES
Truworths continues to ensure all aspects of the Protection of Personal Information Act (POPIA) are being adhered to so as to ensure the ability to continuously engage with customers.
KEY ENGAGEMENT ISSUES
Recurring account and lay-by communication, including in relation to fraud prevention initiatives as well as updates on promotions.
RESPONSE TO ENGAGEMENT ISSUES
Customers are informed about credit-related issues which include their balances and payment plans in addition to communication regarding merchandise and loyalty promotions through engagement by SMS, email, telephone, in-store and social media platforms.
Rationale for engaging: Employees provide their talent and skills to ensure the business operates in an efficient and sustainable manner. They comprise Truworths’ human capital and are key custodians of our intellectual capital. Engagement includes all full-time and flexi-time employees, with line management being the key point of engagement, supported by the Human Resources Division. Employee engagement occurs through formal communication issued by the business, formal and informal training, personal interaction with line management, the online platform to engage directly with the CEO, through in-house presentations covering various topics such as business performance, the hotline as well as through WhatsApp communication channels.
KEY ENGAGEMENT ISSUES
Policy on remote working following the lifting of COVID-19 restrictions.
RESPONSE TO ENGAGEMENT ISSUES
A hybrid work policy was introduced enabling employees to continue working a portion of their work week remotely. Remote working is allowed where employees have comorbidities or display COVID-19 symptoms. It is also allowed, where practical, for employees to manage their work hours through a self-managed platform where they can monitor their hours worked and structure flexibility based on individual need but in line with clear guidelines.
KEY ENGAGEMENT ISSUES
Access to wellness services for all employees.
RESPONSE TO ENGAGEMENT ISSUES
The wellbeing of employees is a priority for Truworths, and many employees faced increased levels of anxiety post COVID-19. Truworths engaged a leading health insurance group to provide employee wellness services, including 24/7 psycho-social counselling and trauma support, financial advice, medical support, legal support, debt structuring support and family care. These services are available to all employees and their immediate families.
KEY ENGAGEMENT ISSUES
Security of information.
RESPONSE TO ENGAGEMENT ISSUES
Communication and e-learning channels have continued to be used to educate employees on POPIA, the protection of customer and employee data, and protection against phishing and cyberattacks, both in their business and in their personal capacities as employees.
KEY ENGAGEMENT ISSUES
Engagement on business performance, incentives, acknowledgement and awards to general staff.
RESPONSE TO ENGAGEMENT ISSUES
Regular written and video communication on Group performance, strategic objectives, achievement of past objectives, awards and incentives to staff.
KEY ENGAGEMENT ISSUES
Developmental feedback and personal growth plans including individual plans for high-potential employees.
RESPONSE TO ENGAGEMENT ISSUES
Regular performance feedback is given through line management but is augmented with specific motivational and training-related initiatives that drive engagement and enhance performance of both individuals and teams. Specific individualised plans are developed for high-potential employees.
Rationale for engaging: Suppliers are the providers of merchandise and other goods and services to Truworths. They are therefore Truworths’ source of manufactured capital, and the breadth and depth of our supply chain is a key measure of Truworths’ considerable social and relationship capital. They include local and international design centres, product manufacturers as well as landlords. The primary sources of contact are executives, merchandise buyers and planners, and management. Engagement occurs formally and informally through supplier assessments, merchandise design and order negotiations, account management interaction and supplier development discussions.
KEY ENGAGEMENT ISSUES
Several factors continued to influence the sustainability of local manufacturers and cut-make-trim (CMT) facilities. These include reduced customer demand during COVID-19 which therefore affected production levels, supply chain challenges affecting the availability of fabric and trims (which are mainly imported) as well as the impact of ongoing electricity load shedding on production capacity.
RESPONSE TO ENGAGEMENT ISSUES
Truworths is committed to ensuring the sustainability of its local supply base. The merchandise team has identified key suppliers and CMTs and supported their businesses to mitigate the impact of the pandemic.
KEY ENGAGEMENT ISSUES
Suppliers require advance notice of planned production volumes to allow them to plan and manage their businesses adequately.
RESPONSE TO ENGAGEMENT ISSUES
Truworths engages with key suppliers to discuss production and category volume forecasts to assist suppliers in their production, business and cash flow planning, and enable them to implement processes to manage their businesses more efficiently.
KEY ENGAGEMENT ISSUES
Supplier performance needs to be continually monitored to ensure that Truworths has a sustainable and reliable supply base.
RESPONSE TO ENGAGEMENT ISSUES
A supplier scorecard is used by the merchandise divisions to review performance and to assist in setting targets for each supplier. This not only ensures that suppliers aim to improve their delivery and quality performance, but also ensures that Truworths is allocating volumes to sustainable and high-performing suppliers.
KEY ENGAGEMENT ISSUES
Managing retail space is a dynamic process which requires ongoing landlord engagement. Key focus areas included lease renewal negotiations at market-related rates, new store and expansion opportunities, backup electricity connections, and reopening of riot-damaged stores to resume trading as quickly as possible.
RESPONSE TO ENGAGEMENT ISSUES
Several new leases and lease renewals were negotiated during the period. Discussions regarding new store and expansion opportunities have been positive and will support the roll-out of newly launched concepts. Given the increasing frequency of electricity load shedding, the need for backup electricity options remains an ongoing discussion point with landlords. 51 of the 57 stores damaged in the July 2021 civil unrest were reopened by the end of August 2021, a further one store was reopened during the rest of the period, and five remained closed due to fire damage to malls.
KEY ENGAGEMENT ISSUES
While best value (price and quality) will always drive our purchasing decisions, Truworths is committed to the principle of broad-based black economic empowerment (BBBEE) and will transform its supply base over time.
RESPONSE TO ENGAGEMENT ISSUES
Suppliers are engaged on the principles of BBBEE with the aim being to encourage compliance and transformation within the supply chain and to be able to measure, manage and report on preferential procurement and supplier and enterprise development.
Rationale for engaging: Regulators are the custodians of legislative and regulatory compliance and providers of licences to trade. These include government departments, regulatory bodies and local authorities, with the engagement being managed by the executive directors and finance, legal and account risk executives. Engagement occurs through regulatory filings and submissions, formal and informal discussions regarding key issues, dispute resolution mechanisms and through the National Clothing Retail Federation (NCRF). The recognition by regulators of Truworths as a good corporate citizen with high levels of legislative and regulatory compliance that emerges from these engagements is testimony to a history of investment by management in the Group’s social and relationship capital.
KEY ENGAGEMENT ISSUES
Human resources
A compliance review of Truworths’ employment equity plan 2019 – 2024 was undertaken by the Director-General of the Department of Employment and Labour.
A compliance review of Truworths’ employment equity plan 2019 – 2024 was undertaken by the Director-General of the Department of Employment and Labour.
RESPONSE TO ENGAGEMENT ISSUES
No material issues were identified in the Director-General’s review, however, recommendations were issued to the company. Truworths submitted a formal response on how the recommendations have been addressed and awaits further response from the Department of Employment and Labour.
KEY ENGAGEMENT ISSUES
Merchandise and supply chain
Master Plan for the Retail – Clothing, Textile, Footwear and Leather value chain
Master Plan for the Retail – Clothing, Textile, Footwear and Leather value chain
RESPONSE TO ENGAGEMENT ISSUES
As a signatory to the Master Plan, Truworths supports the local manufacturing industry, and rebates on customs duty on certain imported fabric have assisted the business in procuring more product locally at competitive prices. Truworths continues to pursue its vertical integration strategy and consolidate design centres into the in-house Truworths Africa Design Division as well as support the sustainability of local CMTs.
KEY ENGAGEMENT ISSUES
Finance
Revenue office, audits and requests for information.
Revenue office, audits and requests for information.
RESPONSE TO ENGAGEMENT ISSUES
Truworths has engaged with revenue authorities in various countries of operation in relation to audits and requests for information in a constructive, transparent and compliant manner, and has sought to render tax payments and returns that are correctly determined and completed, in a timeous manner.
KEY ENGAGEMENT ISSUES
Finance
JSE proactive monitoring of financial statements.
JSE proactive monitoring of financial statements.
RESPONSE TO ENGAGEMENT ISSUES
Truworths’ 2021 Audited Annual Financial Statements were selected for review by the JSE’s proactive monitoring review panel. Management engaged with and answered the questions raised by the JSE in a constructive manner and agreed to implement a small number of clarifications and improvements in future financial statements based on the JSE’s feedback.
Rationale for engaging: Truworths International is the controlling shareholder of the Office business and the board of Office Holdings Ltd is ultimately responsible to the board of Truworths International. Engagement is managed between the executive directors of the respective businesses.
KEY ENGAGEMENT ISSUES
Progress with the turnaround strategy, the implementation of which commenced early in the 2020 financial period and resulted in the sustained improvement in the profitability of Office.
RESPONSE TO ENGAGEMENT ISSUES
The Group remains committed to maximising the value of its investment in Office. The turnaround strategy involved restructuring, cost control and significant improvement in stock management. These initiatives gained traction as the UK retail sector emerged from the pandemic and Office reported improvements in all key performance metrics in the period. This includes the expansion of the gross profit and operating profit margins, an increase of 351% in profit before finance costs and tax and strong cash generation. The store portfolio has been stabilised and trading space was only reduced by 4.4% compared to the planned 12% owing to favourable lease negotiations and improved store performances.
Rationale for engaging: Customers are the buyers of merchandise and the primary source of revenue for Office. Engagement focuses on customers in the UK, Germany and Republic of Ireland, and both national and international online customers. Engagement occurs through informed service in stores and via the e-commerce sites as well as through well-established social media platforms.
KEY ENGAGEMENT ISSUES
Despite Office providing improved size guides, online customers would like further support in understanding the size shoes they need for brands they are buying for the first time.
RESPONSE TO ENGAGEMENT ISSUES
Office is engaging with potential providers of a size analytics solution which is offered by a number of online fashion retailers.
KEY ENGAGEMENT ISSUES
Customers are requesting additional delivery options, including secure lockers.
RESPONSE TO ENGAGEMENT ISSUES
New courier and delivery options are being constantly assessed.
Rationale for engaging: Employees provide their talent and skills to ensure the business operates in an efficient and sustainable manner. Engagement includes all full-time and flexi-time employees, with line management being the key point of engagement, supported by the Human Resources Division. Employee engagement occurs through formal communication and surveys, formal and informal training, personal interaction with line management and through direct communications with the Managing Director.
KEY ENGAGEMENT ISSUES
Employee well-being post-COVID-19.
RESPONSE TO ENGAGEMENT ISSUES
Office subscribes to the services offered by the Retail Trust, an employee assistance programme for the retail industry. In the past year, 59 employees were supported with wellbeing services through the Retail Trust. A mental health week was held across the head office, stores and the warehouse to create awareness of the Retail Trust services. Office has 16 qualified mental health first aiders who have been trained to support employees in need of mental health assistance.
KEY ENGAGEMENT ISSUES
Flexible working arrangements post lockdown.
RESPONSE TO ENGAGEMENT ISSUES
Office has adopted a flexible 4:1 approach for head office, with employees working from home one day a week according to the needs of the business. Monday is the core day at head office when all employees are required to be at the office.
KEY ENGAGEMENT ISSUES
National minimum wage increase.
RESPONSE TO ENGAGEMENT ISSUES
The national minimum wage in the UK for 2022 increased by 6.6% for employees over the age of 23, the highest increase since the introduction of the minimum wage. Office salaries were reviewed in April 2022 and where applicable adjusted in line with the revised minimum wage levels.
Rationale for engaging: Suppliers are the providers of merchandise and other goods and services, including international suppliers of branded and own-brand merchandise, and landlords. The primary sources of contact are executives, merchandise buyers and management. Engagement occurs formally and informally through the merchandise range selection and development process, order negotiations, account management interaction and through collaboration on mutually beneficial alignment with key brands to launch and showcase key product lines. Ongoing engagement is held with landlords.
KEY ENGAGEMENT ISSUES
Merchandise suppliers
Exploring opportunities that are mutually beneficial and strategically aligned with brand partners’ plans.
Exploring opportunities that are mutually beneficial and strategically aligned with brand partners’ plans.
RESPONSE TO ENGAGEMENT ISSUES
Reopening of stores post lockdown has been instrumental in strengthening closer working relationships with brand partners. New retail locations that are aligned with the brands’ strategies are identified and committed to, while also modernising and refurbishing other strategically important stores. The digital user experience has been improved through the implementation of several e-commerce enhancements, including site search optimisation, product launch improvements and image optimisation. Long-standing relationships with brand partners proved beneficial when stock flow was negatively impacted by supply chain disruptions, with Office often able to secure larger stock allocations due to its strategic importance to branded product partners.
KEY ENGAGEMENT ISSUES
Stock availability owing to global supply chain challenges.
RESPONSE TO ENGAGEMENT ISSUES
Long-standing relationships with brand partners proved beneficial when stock flow was negatively impacted by supply chain disruptions, with Office often able to secure larger stock allocations due to its strategic importance to branded product partners.
KEY ENGAGEMENT ISSUES
Property landlords
Lease negotiations in the weak retail trading environment impacted by COVID-19.
Lease negotiations in the weak retail trading environment impacted by COVID-19.
RESPONSE TO ENGAGEMENT ISSUES
Favourable negotiations with the majority of landlords resulted in Office renewing more leases than planned. Several landlords offered short-term, flexible leases to secure Office’s tenancy. The property market remains favourable to Office, with rentals generally at discounts to pre-pandemic levels.
Rationale for engaging: Regulators are the custodians of legislative and regulatory compliance and providers of licences to trade. They include government departments, regulatory bodies and local authorities, with the engagement being managed by the executive directors as well as finance and legal executives. Engagement occurs through regulatory filings and submissions, and formal and informal discussions regarding key issues.
KEY ENGAGEMENT ISSUES
Revenue office audits and request for information.
RESPONSE TO ENGAGEMENT ISSUES
Office has engaged with revenue authorities, principally in the UK in relation to audits and requests for information in a constructive, transparent and compliant manner and has sought to tender tax payments and returns that are correctly determined and completed in a timeous manner.
