REPORT FROM THE CHAIRMAN OF THE REMUNERATION COMMITTEE

Dear Shareholder

On behalf of the Remuneration committee (the committee), I am pleased to present the Group's Remuneration Committee report for the 2022 financial year. The financial year has again been challenging on a number of fronts for all our stakeholders and we have had to be responsive in motivating, rewarding and retaining high-performing employees in both Truworths and Office. The remuneration philosophy and reward principles have remained consistent and we continue to focus on maintaining the long-term sustainability of the business and achieving balance for all stakeholders by setting appropriate performance targets that are aligned with the Business Philosophy.

Our teams have worked with focus to navigate the challenges of the period so as to reduce risk to the business and achieve set targets. The commitment and work ethic from the leadership and employees is a testament to the strong values embedded in the business and have allowed us to respond to the challenges posed over the past year with the passion, innovation and energy that is the core of our values system.

We are very pleased with the results achieved for the 2022 financial year. Our post-pandemic performance exceeded market expectations, with headline earnings increasing by 49.9% 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 (HEPS), with the previous highest being recorded in 2016 (trading profit and HEPS) and 2017 (aggregate headline earnings). This represents a 10.9% compound annual growth in the Group's HEPS since the 2019 financial year.

We believe that this achievement demonstrates that through focus on our Business Philosophy, exceptional effort and hard work, our executives and teams have been able to drive very pleasing results. There have been no material acquisitions by the Group since 2016, so the results are reflective of organic rather than acquisitive growth, driven by an improved sales performance, strong gross profit margins and a continued focus on expense management.

OUR PERFORMANCE AND REMUNERATION OUTCOMES

The period under review presented various challenges for the Group in both South Africa and the UK. The global economy continues to be affected by the war in Ukraine, resulting in further supply chain disruption and significantly increased inflation levels in many countries. The relaxing of COVID-19 restrictions during the period contributed to a normalising economy which was favourable for consumer sentiment and ultimately retail spending, however, this was also dampened by inflationary pressures. The trading environment was expected to remain challenging in light of the COVID-19 pandemic, ongoing electricity load shedding, flooding and civil unrest in parts of South Africa as well as international supply chain challenges.

In this macroeconomic environment, significant focus was placed on driving sales, managing working capital and exercising rigorous expense control, as well as on the other leading metrics to maintain earnings performance. The focus on key strategic projects has resulted in the desired performance results and the continued performance recovery of the business across all key metrics.

A number of targets were set for short-term incentives (STI) and long-term incentives (LTI), including HEPS growth greater than inflation, gross profit margin, return on assets (ROA), return on equity (ROE) and successful completion of key strategic initiatives which contributed to the good financial results achieved. The outcome achieved in respect of the overall STI target was 142.8% and for the LTI the outcome achieved was 139.8%, which is in line with the exceptional results achieved by the Group in the 2022 financial year. Further detail on the specific targets and results are included in the implementation report.

In light of the exceptional achievement relative to targets, stretch financial targets have been extended further for the 2023 financial year.

We remain focused on rewarding in a responsible, fair and sustainable manner to ensure the retention of key employees so as not to hamper succession plans, while also continuing to focus on transformation. Further detail in this regard is provided in the section on fair and responsible remuneration in the remuneration policy.

VOTING AND SHAREHOLDER ENGAGEMENT

At the company's annual general meeting (AGM) held on 4 November 2021, 54.12% of shareholders voting at the meeting voted in favour of the Group's remuneration policy and 33.46% voted in favour of the implementation report.

Dissenting shareholders were invited to engage and provide reasons for their votes against the resolutions relating to the approval of the Group's remuneration policy and implementation report. A virtual meeting of dissenting shareholders was held on 17 January 2022 and attended by the Chairman of the board, chairman of the committee, CEO, COO/CFO and Company Secretary. Two shareholders attended, one of whom had voted in favour of both the remuneration policy and implementation report at the AGM but participated in the engagement to better understand the perspectives of the dissenting shareholders. We appreciate the time taken by these shareholders 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. Going forward the Group will, on an ongoing basis, seek additional methods of engagement with shareholders.

The following shareholder concerns were raised, and actions taken by the committee during the course of the year are noted:

Shareholder feedback			Actions taken
Utilising HEPS as the only quantitative performance metric for STIs was too narrow and shareholders recommended multiple performance metrics be deployed which focused on broader performance.			The performance metrics for STIs in respect of the 2022 financial year were expanded to include HEPS growth greater than inflation, ROA, ROE and gross profit margin. These performance metrics applied to both STIs and LTIs awarded during the year and will also be applied for the 2023 financial year.
Disclosure in respect of the non-financial performance targets was not adequate for both the STI and LTI.			Strategic targets for both the STIs and LTIs are included in the implementation report. Forward-looking targets for strategic projects are considered to be commercially sensitive and need to remain confidential during the period of measurement. All strategic targets are therefore reported on in appropriate detail on a retrospective basis once the project is finalised and the measurement period is closed.
The ratings used to measure the non-financial targets for both STI and LTI were not easily understood.			Ratings for non-financial performance metrics have been amended to be more understandable.
STI bonuses were paid in cash shortly after year-end, whereas deferred delivery in the form of shares that vested later was preferred.			The STI policy and incentive mechanism aims to reward the achievement of short-term targets while supporting the achievement of long-term goals. The reward mechanism for the short-term performance target achievement is a cash incentive. The achievement of long-term goals is supported and rewarded through the LTI plan. While deferred delivery of STIs is common practice in the financial services industry, this is not the practice in the retail industry. Instead, caps on the STI level ensure that STIs are limited in value.
Performance criteria in respect of all three LTI schemes should be disclosed.			Awards were only made under the performance share plan in 2021 and consequently only those targets were disclosed. No awards were made in respect of the performance appreciation rights plan nor the Office performance equity plan.
Targets for LTIs appeared soft, with 150% of LTIs vested for only 3.7% HEPS growth. It was proposed that targets should be set on a normalised basis, ignoring the impact of COVID‑19.			The committee noted the feedback but confirmed that in May 2020, at the time of setting the targets for the September 2020 share award, the COVID-19 lockdown had a significant impact on the operating environment and the targets were carefully considered and deemed appropriate at the time when they were set, taking into account the context of the uncertain prospective trading environment. The committee further noted that LTI targets previously set were not relaxed to account for the unusual impact of the COVID-19 pandemic, as some other companies had done. It was acknowledged that targets should be more challenging in future, based on the information known at the time of setting such targets. In particular, the HEPS target has been amended to an inflation-linked growth and targets for ROA, ROE and gross profit margin have been revised.
Caps on both STI and LTI vesting were preferred.			Both STI and LTI plans have payment caps of 150% of guaranteed remuneration which mitigate against the risk of windfall gains.
Consider introducing minimum shareholding for executives at a value equivalent to two to three times annual cost to company remuneration to ensure long-term lock-in and alignment with shareholders. Directors should be required to continue to hold LTI-awarded shares post their vesting.			The committee takes a long-term view on rewarding and retaining key employees and this is reflected in our Business Philosophy. This view is mirrored in our reward strategy through our focus on long-term incentives, with longer and staggered vesting periods in most instances. The Group has therefore not deemed it necessary to introduce a minimum shareholding requirement (MSR) policy. The shareholdings of directors are disclosed in the implementation report. We will continue to monitor this in future.
The issue of restricted shares without performance conditions to executive directors was not supported.			The LTI policy has been amended and all future shares awarded to executive directors will have performance conditions.

The committee was grateful for the feedback received from shareholders and noted that the development of the remuneration policy and its implementation was one of continuous improvement, whereby the Group considered and attempted to balance the diverse views of shareholders as regards executive remuneration, while at the same time keeping management motivated, focused and retained during this crucial period to ensure the performance of the Group returned to prior levels.

KEY ACTIVITIES OF THE COMMITTEE

The activities undertaken by the committee during the period include the following:

• Reviewed and approved the remuneration of executives including increases, STI payments, LTI awards and LTI vesting outcomes.
• Approved the STI targets for the 2023 financial period.
• Commissioned research by external remuneration advisers, PricewaterhouseCoopers (PwC), of market best practice with regard to STI deferral and co-investment share awards. The committee agreed that at this time, it would not proceed with the STI deferral and co-investment plan as this did not enhance the Group's remuneration strategy.
• Based on a benchmarking exercise by executive management, reviewed and recommended for approval by shareholders the non-executive directors' remuneration for the 2022 calendar year.
• Reviewed and approved the issue of share-based LTI awards in terms of the 2012 share plan.
• Approved the release of dividends to LTI share scheme participants holding restricted and performance shares. These dividends are subject to clawback provisions, in terms of which 100% vesting does not occur if performance targets are not achieved.
• Confirmed that all long-term remuneration allocations and payments were made in accordance with the rules of the LTI schemes.
• Agreed and recommended for approval by the board the performance targets for the relevant LTI share schemes in respect of awards during the reporting period.
• Reviewed the benefits offered by the Group across all levels of employees and approved the enhancements to the healthcare and wellness benefits for all employees.

FUTURE FOCUS AREAS

The committee plans to undertake the following in the 2023 reporting period:

• Continue to monitor and address pay equity to ensure the principles and application of 'equal pay for work of equal value' are maintained across all levels within the Group, and how the application of such principles addresses fair and responsible remuneration for executive management in the context of overall employee remuneration. Particular focus will be applied to reviewing our approach to a living wage and offering benefits that enhance the quality of living standards.
• Continue to monitor the reward structures and retention mechanisms for scarce and critical skills based on market data while considering evolving trends, one of which is emigration of young, skilled personnel.
• Continue to focus on the phased succession plan for top management and senior executives and ensure it is supported by appropriate remuneration best practice and aligned with our transformation plans.

ADVISERS

During the year under review, PwC continued to serve as our primary external remuneration consultants and the committee is satisfied that PwC's opinions remain independent and objective.

POLICY STATEMENT

This report of the committee provides an overview of organisation-wide remuneration policies with an emphasis on remuneration structure for the Truworths International executive and non-executive directors. There were no policy exceptions during the period and the committee is satisfied that the remuneration policy achieved its stated objectives during the period.

Hans Hawinkels

Chairman

In line with the recommendations of King IV, the committee comprises only independent non-executive directors, namely Hans Hawinkels, Hilton Saven, Rob Dow and Tony Taylor. Further detail on the committee members is available in the section Truworths International board. The CEO is an invitee to committee meetings and recuses himself from various discussions, including those that relate to his performance and remuneration.

The committee ensures that the Group takes cognisance of evolving legislation and remuneration practices through continuous research and monitoring, with specific focus on 'equal pay for work of equal value'. In this regard, remuneration governance will continue to evolve and improve as the Group takes account of evolving international best practice and through its commitment to ongoing shareholder engagement.

The chairman of the committee reports to the board on all aspects of the committee's work as a standing agenda item at each board meeting. This feedback covers all aspects of remuneration strategy and policy, how the policy objectives are being achieved and the implementation thereof over the annual cycle.

FAIR AND RESPONSIBLE REMUNERATION

Fair and responsible reward management ensures that there is equal opportunity across the Group for growth and development of high-performing individuals who are aligned with the Group's values and philosophies. Our well-established performance measurement practices also ensure consistent application to ensure appropriate reward is applied.

Fair and responsible reward continues to be a key focus area for us, including raising the living standards for employees, not just through earning levels, but also through providing benefits which enhance their health and well-being. In the reporting period we have continued to focus on ensuring that pay aligns to the role, years of service, experience and performance levels for all employees across the Group. An analysis of a living wage, as well as the impact of raising the minimum salary level was undertaken and is currently being assessed for implementation. In addition, a race and gender pay gap analysis, utilising REMChannel data, was conducted and adjustments were made accordingly. This is a core focus for the Group and ongoing assessments will be conducted. Further to this, we introduced an employee assistance wellness programme accessible to all employees as well as a hybrid working policy available to our head office employees where roles permit. Further details relating to this as well as the full benefits available to employees can be accessed in Truworths Human capitaland Office Human capital.

In addition to the above, consideration is always given to closing the earnings gap when annual salary reviews are agreed and in the reporting period we have continued to maintain increases for junior employees at a higher level than that of senior management.

The core principle of the Group's performance management process is the effective alignment of Group strategic objectives, which are driven by its Business Philosophy (refer to Group strategy), with individual outputs.

ELEMENTS OF REMUNERATION

The total remuneration mix is determined as follows:

GUARANTEED REMUNERATION			VARIABLE AND PERFORMANCE-RELATED REMUNERATION
ANNUAL GUARANTEED REMUNERATION			SHORT-TERM PERFORMANCE			LONG-TERM PERFORMANCE
Total guaranteed package, which can include the following benefits: Salary Travel allowance Retirement benefits Healthcare benefits Group life and disability insurance benefits			Short-term cash-based incentive scheme			Restricted share plan Share appreciation rights plan			Performance share plan Performance appreciation rights plan
Total guaranteed package is based on performance, contribution, experience and market value relative to responsibilities within the Group. Benefits are compulsory but offer flexibility in option choices.			Incentives are based on Group, subsidiary company and individual performance criteria, and are only paid if the Group achieves its threshold performance levels. Short-term incentives are paid to all qualifying employees across the Group.			Long-term share-based incentives are aimed at rewarding performance of senior employees as well as encouraging sustainable shareholder wealth creation.

Benchmarking

The Group utilises external professional service providers, external market surveys and best practices for continued remuneration benchmarking and for job evaluation purposes. Remuneration is further benchmarked against other JSE-listed retailers and comparable JSE-listed companies. All data is appropriately aged, and weighted averages, medians and ranges are applied to establish the most appropriate remuneration levels.

The Group conducts annual remuneration benchmarking of guaranteed and variable pay against comparable JSE-listed companies and also utilises the services of professional advisers to conduct external surveys with the aim of maintaining average guaranteed remuneration at the median market level.

The current JSE-listed retail peers utilised as comparators are:

• Clicks Group
• Cashbuild
• Dis-Chem Pharmacies
• Italtile
• Lewis Group
• Massmart Holdings
• Mr Price Group
• Pepkor Holdings
• Pick n Pay Stores
• Shoprite Holdings
• The Foschini Group
• The Spar Group
• Woolworths Holdings

The selection methodology takes account of both size and performance metrics, which include the number of employees, turnover, total assets and earnings before interest paid and tax (EBIT). This methodology supports an objective determination of the comparator group that eliminates bias and promotes the selection of a comparator group that is not disproportionately weak or strong.

Guaranteed remuneration

Guaranteed remuneration is determined in relation to employment market norms. It includes salary, healthcare benefits, retirement benefits, travel allowance, and group life and disability insurance benefits.

To ensure consistency in the evaluation and sizing of employment roles, the Group conducts job profiling and evaluation to ensure the correct match to comparable roles and benchmarking of guaranteed remuneration levels. This is achieved by utilising REMeasure, REMChannel and the Willis Towers Watson databases.

A combination of performance and market remuneration positioning is utilised to adjust guaranteed remuneration levels annually. Adjustments to guaranteed remuneration outside of the annual review process are made on an exception basis and linked to changes in responsibility level.

All store employees' compensation complies with the Sectoral Determination or statutory requirements, and the minimum rates of pay as determined for the retail industry are either met or exceeded.

Guaranteed remuneration is reviewed annually on 1 March. When agreeing annual salary review levels, consideration is given to expected market movements in terms of salary reviews, Group performance, retail market data, internal comparatives, individual performance as well as the prevailing inflation levels within the economy. Annual salary reviews are merit based and a range of increases is approved based on the employee's level of seniority, the market positioning in terms of their compa-ratio (which is aimed at the median level), as well as the individual's performance rating for the prior period. The committee is cognisant of the disparity in levels of executive guaranteed pay relative to those of lower-paid employees within the retail industry, and therefore due consideration is given to ensuring an appropriate salary increase range is approved to ensure this disparity is addressed over time.

Variable remuneration

The performance of executive directors is reviewed annually by the committee against predetermined financial and non-financial targets to ensure alignment with shareholder interests. Incentive targets for both short and long-term variable pay schemes are selected to discourage behaviour, which would be contrary to the Group's risk appetite. Instead, performance targets are set with the objective of being challenging, yet realistic within the context of the economic realities of the countries in which we are operating and stage in the business life cycle.

The performance targets and measures are verifiable and a robust process is applied to both obtaining approval for the determination, as well as when making payment, of short and long-term incentives. The committee has discretion regarding incentive payments to mitigate unintended consequences such as windfall gains that may arise from a purely formulaic approach. Discretion will not be used to compensate for unfavourable outcomes.

Short-term incentives

The STI scheme aims to drive short-term performance through appropriate incentivisation in a measurable and sustainable way, thereby rewarding and retaining key talent.

The Group follows a hybrid approach with regard to structuring the STI, which is a combination of both top-down and bottom-up considerations. The top-down approach ensures STIs are linked to the key annual performance metrics of the business which determines the incentive pool size, and the bottom-up approach together with individual performance and contribution level determine the individual's relative share of the pool. The incentive pool, which is self-funded through the achievement of financial targets, is based on a percentage of profit before finance costs and tax and is limited to a maximum of 4% of profit before finance costs and tax.

Incentives are based on Group, company and individual performance levels and no short-term incentive is paid to executive directors if the Group's gatekeeper and threshold performance measures for the period are not achieved. The gatekeeper requires that profit before finance costs and tax must grow by inflation prior to STIs being paid to executive directors. The committee has discretion regarding STI payments to mitigate unusual circumstances or unintended consequences, including windfall gains that may arise from a purely formulaic approach.

The table below depicts the historical STI payments as percentage of profit before finance costs and tax:

	53 weeks  2022	2021	2020	2019	53 weeks  2018	2017	2016
Profit before tax and impairments	4 149	2 952	2 494	3 439	3 696	3 918	3 946
Growth in profit before tax and impairments (%)	41	18	(27)	(7)	(6)	(1)	15
STI paid	119	82	–	38	30	28	45
Executive directors received incentives	Yes	Yes	No	No	No	No	Yes
% of profit before tax and impairments	2.9	2.8	–	1.1	0.8	0.7	1.1

All qualifying employees across the Group participate in the STI award scheme.

The malus and clawback policy is applicable to STIs paid to executive and senior managers.

The Group STI targets, i.e. HEPS growth greater than inflation, ROA, ROE, gross profit margin and strategic targets as well as threshold, target and stretch levels are determined by the committee prior to the commencement of the financial year. STI targets are published retrospectively due to their commercially sensitive nature and will include ESG targets from the 2023 financial period. Refer to the Group's plans for 2023 as outlined in the Material issues, risk and opportunities ,Truworths Human capital and Governance creating value respectively, for the strategic focus themes.

Group measures		Weightings %	Threshold %	Target %	Stretch %
HEPS growth		20	–	100	150
ROA		20	–	100	150
ROE		20	–	100	150
Gross profit margin		10	–	100	150
Strategic targets		30	–	100	150

Note: STI performance is measured on a 52-week period.

Individual performance is measured with reference to a scorecard of metrics to encourage all participants to focus on both the financial and non-financial performance targets that are directly aligned to the participant's responsibilities.

The quantum of the STI earning potential is based on the guaranteed pay of the relevant employee multiplied by a market-related on-target percentage based on his/her Paterson grade.

The committee must be satisfied that such payments are fair and reasonable. All executive directors' STI payments are approved by the committee. The achievement of targets is reviewed by the committee before any STI payments are made to executive directors. STIs are paid in cash.

The table below indicates the threshold, on-target and stretch STI payments as a percentage of guaranteed pay. These may be further adjusted based on the individual performance score achieved, and STIs are capped at 150% of annual guaranteed pay.

Percentage of annual guaranteed earnings for STI purposes		Below threshold	Threshold %	On-target %	Stretch %	Cap %
CEO		–	50	100	150	150
Executive directors		–	40	80	130	150

Long-term incentives

Long-term incentive (LTI) schemes are aimed at aligning executive remuneration with shareholder interests by rewarding executives for the creation of shareholder value over the medium to longer term. The LTI schemes are reviewed regularly to ensure alignment with relevant legislation, other governing rules and standards, appropriate market benchmarks and best practice.

The Group operates four share-based LTI plans in terms of the 2012 share plan:

• Restricted share plan (not awarded to executive directors)
• Share appreciation rights plan (not awarded to executive directors)
• Performance share plan
• Performance appreciation rights plan

The following core principles apply to the Group's share-based schemes:

• The maximum aggregate allocation in terms of all the schemes is limited to 5% of the company's issued shares at June 2012 over the life of the schemes in terms of the policy, being 23 090 501 shares.
• Annual allocations are capped at 1.25% of issued shares at June 2012 in any one year, but committee guidelines are to limit annual allocations to below 1% in any one year.
• The maximum aggregate allocation for any one employee across all schemes is limited to 1% of issued shares at June 2012 over the life of the schemes in terms of the policy, being 4 618 100 shares.
• Annual awards are allocated based on face value of the awards granted. The maximum annual allocations are limited to 150% of annual guaranteed pay for the CEO and 130% of annual guaranteed pay for other executive directors.
• The restricted share plan scheme and share appreciation rights scheme have no performance conditions, and are utilised to support the reward of performing senior key employees. Executive directors do not participate in the restricted share plan scheme or share appreciation rights scheme.
• The performance share plan scheme and performance appreciation rights scheme have multiple performance targets, and are utilised to support and reward good long-term decision-making and both financial and non-financial performance. Threshold, target and stretch measures are applied to all long-term incentive targets.
• Awards can be made across all schemes and can vest over a period of up to six years.
• Where awards lapse, there is no replacement compensation.
• No long-term incentive allocation is guaranteed.
• The committee assesses and approves all Group performance targets to ensure that the interests of all stakeholders are appropriately considered, and financial and non-financial targets are set as an incentive for employees to perform, and simultaneously for the business to achieve stretch goals.
• All unvested shares, as well as unvested and unexercised options and vested rights are forfeited upon an employee's resignation or dismissal in terms of the scheme rules.
• The malus and clawback policy is applicable to LTIs awarded to executive and senior managers and can be referred to below.
• All annual awards made to executive directors are linked to performance conditions. The prior policy allowed for up to 50% of awards to be retention focused, however, based on feedback from shareholders, the long-term incentive policy was amended during the period and all awards made to executive directors are now subject to performance conditions.
• The committee approves the release of dividends to holders of both restricted and performance shares. Dividends paid on performance shares held, where performance targets are not yet finalised, are clawed back from participants should performance targets not be met and, therefore, 100% vesting not be achieved.
• The committee regularly monitors the overall actual and forecast impact and costs of these schemes on Group earnings.

In line with the Group's value of rewarding excellence as well as maintaining a long-term perspective on both the business and employees' careers, management aims to ensure participation by all high-performing employees at senior level as well as those key to future succession or with scarce skills in the LTI share schemes.

Targets agreed for performance shares to be awarded in the 2023 financial year, with the measurement period being the 2025 financial year, are as follows:

2025 LTI targets for September 2022 award		Weighting	50%   vesting   target	100%   vesting    target	150%    vesting   target	Published    medium-term    Group targets^
HEPS growth		20%	Inflation   pa*	Inflation* + 1ppt pa	Inflation* + 2ppt pa
ROA		20%	22.0%	25.5%	29.0%	22% - 27%
ROE		20%	31.0%	34.5%	38.0%	31% - 36%
Gross profit margin		10%	49.0%	51.5%	54.0%	49% - 53%
Strategic targets		30%

^	Medium-term Group targets as published in the Chief Financial Officer's report.
*	Inflation refers to the average of the South African consumer price index (CPI, as published by Statistics South Africa) and the UK harmonised index of consumer prices (HICP, as published by the UK Office for National Statistics), weighted based on Truworths' and Office's relative contribution to Group profit before finance costs and tax.
#	Refer to the Group's medium-term plans as outlined in Material issues, risk and opportunities for the strategic focus themes. Strategic targets also include relevant ESG and transformation objectives. These targets will be disclosed retrospectively.

Note: LTI performance is measured on a 52-week period.

No awards were made under the performance appreciation rights plan and, as such, no performance conditions were agreed for this scheme. Similarly, no awards were made under the share appreciation rights plan.

Legacy share scheme

The legacy long-term incentive scheme (1998 share option scheme) remains in operation, but no further awards have been made in terms of this scheme since 2012, nor are currently planned to be made. The outstanding share options issued under this scheme currently are scheduled to expire in the 2023 financial year. Potential gains relating to restricted instruments under the 1998 share option scheme as well as the number of instruments issued in terms of this scheme are taken into account in the allocation of shares under the 2012 share plan.

MALUS AND CLAWBACK

The malus and clawback policy is applicable to all variable remuneration awarded to executives and senior managers. The duration of malus provisions is aligned with the duration of the relevant incentive, up to the point of settlement. The duration of clawback provisions is limited to a period of two years from settlement. Any variable remuneration (both STI and LTI) may be reduced or recovered in whole or in part after the occurrence of a trigger event.

The following constitute trigger events, which will result in the malus or clawback provisions being applied:

• An intentional and material misstatement by the employee concerned of the financial results relating to the performance period or employment period in respect of an award, resulting in an adjustment in the audited accounts of a company in the Group.
• The assessment of any performance metric or condition in respect of an award which is based on a material error, or materially inaccurate information.
• The assessment of any performance metric or condition in respect of an award which is based on intentionally misleading information.
• Events or behaviour of the employee or events attributable to an employee, which lead to the censure of a company in the Group and as a direct result thereof cause material and ongoing reputational damage to a company in the Group.
• Reasonable evidence of employee action or conduct which amounts to dishonesty, fraud or gross misconduct.

SECTION C

IMPLEMENTATION REPORT 2022

The Group applied the remuneration policy as set out in Section B without any deviations for the reporting period, and no payments were made as a result of termination of office or employment.

GUARANTEED REMUNERATION ADJUSTMENTS

The annual remuneration increase ranges recommended by the committee for non-unionised employees ranged from 3.5% to 8.5% (dependent on seniority, performance and market rate positioning) for employees performing at the Group's minimum required standard or higher, with averages as follows:

• Management 4.5%
• Non-management 5.5%

Unionised employees, whose increases are subject to negotiation with the union, received a remuneration increase of 4.5%.

Following a detailed market analysis, guaranteed pay has been adjusted for executive directors as follows over the last three years:

EXECUTIVE DIRECTORS’ GUARANTEED PAY		Change 2022 on 2021 %	2022 R'000	2021 R'000	2020 R'000
Michael Mark		2.5	10 200	9 950	9 950
Emanuel Cristaudo*		n/a	4 600	n/a	n/a
Sarah Proudfoot#		15.2	4 627	4 014	3 533

*	Emanuel Cristaudo joined as CFO on 1 July 2021 and was appointed COO, effective 1 March 2022.
#	Sarah Proudfoot was appointed as Deputy Managing Director of Truworths Ltd in 2021 and this is a market-related salary adjustment.

SHORT-TERM INCENTIVE OUTCOMES FOR THE 2022 FINANCIAL PERIOD

As detailed in the remuneration policy, the Group follows a formulaic approach which includes Group and individual scorecards. This combined approach mitigates against unjustified outcomes, while it ensures that at the same time employees are rewarded for the performance conditions which were met over the financial period.

The STIs in respect of the 2022 reporting period, determined with reference to the Group HEPS growth, ROA, ROE, gross profit margin and the successful implementation of strategic projects defined for the period, were pre-agreed. The Group targets were set as follows:

Group measures		Weighting	Threshold 0%	Target 100%	Stretch 150%	Achieved 2022	Weighted outcome
HEPS growth		20%	Inflation* pa	Inflation* + 1 ppt pa	Inflation* + 2 ppt pa	740.8 cps	30%
ROA		20%	24%	26.5%	29%	32.7%	30%
ROE		20%	34.5%	37%	39.5%	49.6%	30%
Gross profit margin		10%	49%	51%	53%	53.5%	15%
Strategic targets(detail set out in the table that follows)		30%	50%	100%	150%	126%	37.8%
Total		100%					142.8%

*

Inflation refers to the average of the South African consumer price index (CPI, as published by Statistics South Africa) and the UK harmonised index of consumer prices (HICP, as published by the UK Office for National Statistics), weighted based on Truworths' and Office's relative contribution to Group profit before finance costs and tax. Inflation for the 2022 reporting period measured 7.8%.

Note: The above results are based on a 52-week period

STI FOR THE PERIOD ENDED JUNE 2022

The STI strategic targets set and achieved for the 2022 financial year are as follows:

Strategic target	Rating description		% Rating	Weighting	Weighted result
Continue with the Office turnaround strategy.	The turnaround in the performance of Office was successful, with store sales recovering by 74%. Office grew profit before finance costs and tax by over £30 million. Favourable negotiations with landlords and the better than expected post-pandemic recovery resulted in fewer store closures than planned. Six unprofitable stores were closed while several leases were renegotiated on short-term flexible terms, which favoured Office in the uncertain retail trading environment. Office continues to build collaborative and strategic partnerships with some of the most sought-after brands in the global sneaker and footwear market. The merchandise team has focused on revitalising the range of higher margin own-brand, made-to-order (MTO) footwear. The MTO contribution increased from 7% to 10% of retail sales, with plans to grow this further by expanding the range and introducing luxury shoes, a menswear range and accessories. Key to the turnaround has been the increased integration of Truworths' buying and planning methodologies into Office. These proven processes have ensured well-balanced ranges, with improved stock management and higher margins through lower markdowns.		150%	25%	37.50%
Identify and put in place initiatives to take advantage of opportunities in key merchandise categories where Truworths is under-represented.	Our various fashion brands within Truworths cover many lifestyles and we have expanded the brand portfolio to increase customer appeal and focus on product categories where we are under-represented. Our results this year are a reflection of the success of this initiative with improved performance across most brands, particularly in the second half of the financial year.		125%	20%	25.00%
Launch three new retail concepts, i.e. Kids, Identity and Context larger format stores and roll out into appropriate retail environments.	Launched a number of Identity larger format stores in the 2022 financial period with notable success in sales and profitability. The new Truworths Kids multi-brand concept was expanded and has been implemented in a number of retail locations. Customer response has been positive. The newly developed Fuel and Sync brands were expanded and by the end of the period traded from 25 and 16 locations, respectively. The new Context concept was introduced to offer a range of exclusive Truworths fashion, including Earthaddict, LTD, lingerie, beauty and homeware for discerning female customers. By the end of the period, Context was trading from six locations.		125%	20%	25.00%
New distribution centre - complete contract negotiations and sign contracts for both the land and the technology required. Make significant progress into the design of the new warehouse and on the design of the material handling systems needed.	Approval granted by the board to proceed with the development of the new distribution centre. Following an extensive selection and negotiation process, contracts have been signed with a property developer and the site development plan has been submitted to local authority for approval. Warehouse design complete and design of the materials handling solution for the new distribution centre is at an advanced stage. Management has commenced engagement with a lender to fund the cost of the building, which is to be green-certified upon completion.		125%	10%	12.50%
Vertical integration - complete the strategy and start with implementation. This includes partnering with and/or investing in key local manufacturers.	The strategy to develop an integrated vertical supply chain gained traction during the period with the completion of the integration of Barrie Cline Clothing into the Truworths Africa Design Division. This has created a combined ladies', men's and kids' internal design division, which is focused on local production and enables Truworths to directly control the largest bespoke design centre servicing the business. Truworths acquired Barrie Cline Clothing, a ladieswear apparel design centre, in April 2021 and the business was relocated to the Truworths head office. Truworths' in-house design capability previously focused on men's and kidswear. The in-house design capability will significantly enhance Truworths' ability to design and create unique ranges for customers while generating economies of scale in areas including fabric purchasing, production planning and logistics. Support was given to a number of strategic manufacturing outlets to secure supply.		100%	10%	10.00%
The launch of an alternative credit product in the market. This is aimed at consumers who require short-term interest-free financing with simple payment plans.	During the period a new, internally developed, financed and managed 'buy now, pay later' payment option was introduced, targeting consumers who do not want a traditional account and who prefer no interest on their purchase, with payment over a shorter period. This product fits between the Truworths account and the lay-by option. A deposit is paid up front with subsequent payments over two consecutive months. Results have been promising, testing is ongoing and the roll-out will continue based on collections performance. The project was launched ahead of deadline, within budget and is performing according to expectation.		125%	5%	6.25%
Omni-channel - re-platform the Truworths website with vastly improved consumer experience, improved site speed and additional functionality. Move platforms onto Oracle Commerce Cloud. Go live with Identity online.	The omni-channel shopping experience was enhanced with the introduction of a new cloud-based website platform together with the launch of the Identity e-commerce website in the first half of the period. The benefits of this online platform include added functionality with improved customer experience and quicker response times. Loads of Living online was launched as a component of the Truworths e-commerce site, with customers able to shop with a single basket across the Truworths, Office London and Loads of Living brands. All Truworths and Identity products are now available on our e-commerce sites.		100%	5%	5.00%
Change the IT operating model to ensure we have sufficient development capacity to satisfy the information systems requirements for our Group going forward.	In order to satisfy the demand for limited and skilled IT resources, we have enhanced our information systems operating model. Select areas of IT are now in-sourced from various local and offshore partners to assist with meeting the business' growing information systems requirements. This has proved to be successful in helping us advance our technology initiatives in a cost-efficient manner and with added flexibility.		100%	5%	5.00%
Totals				100%	126.25%

As targets were achieved by the Group, a resultant incentive pool of R119 million was agreed (being 2.9% of Group profit before tax and impairments) and incentives were approved for payment to all qualifying employees. Executive directors' STIs were agreed as follows:

Executive Director		On-target STI %	Overall achievement after Group and personal performance modifiers %	STI payment (based on cap of 150%) R'000
Michael Mark~		100	214	15 300
Emanuel Cristaudo~		80	171	6 890
Sarah Proudfoot~		80	171	6 890

~	The cap of 150% on STI payments resulted in reduced STIs being paid out at the capped level of 150% of annual guaranteed pay for all executive directors. The STI payments indicated above are after the application of the policy caps.

LONG-TERM INCENTIVES WITH A PERFORMANCE PERIOD ENDED DURING THE 2022 FINANCIAL PERIOD

Group financial performance conditions and targets for LTI purposes are determined by the committee. Measuring performance over a longer period ensures a focus on longer-term, sustainable growth in shareholder value.

Actual performance against targets was assessed for the performance period ended during the year under review and applied to performance shares allocated in September 2019 and March 2020, and resulted in a total vesting level of 139.8%. This result was achieved based on a comparative 52-week period. Details of the targets for awards made during the 2020 financial year with a performance period that ended at the end of the 2022 financial year as well as vesting achieved are as follows:

FY2022 LTI targets		Weighting	50%    vesting   target	100%   vesting   target	150%   vesting   target	Achieved 2022	Weighted outcome
September 2019 and March 2020 share awards
ROA		25%	14.5%	16.5%	19.0%	32.7%	37.5%
HEPS growth		15%	inflation* pa	inflation* + 1ppt pa	inflation* + 2ppt pa	740.8 cps	22.5%
Gross profit margin		15%	49%	51%	53%	53.5%	22.5%
Inventory turn		15%	3.5	4.0	4.5	4.6	22.5%
Strategic targets		30%	Below   expectation	Achieved   expectation	Exceeded   expectation	116%	34.8%
Total		100%					139.8%

*

Inflation refers to the average of the South African consumer price index (CPI, as published by Statistics South Africa) and the UK harmonised index of consumer prices (HICP, as published by the UK Office for National Statistics), weighted based on Truworths' and Office's relative contribution to Group profit before finance costs and tax.

 

Note: The above results are based on a 52-week period

The LTI strategic targets achieved are as follows:

FY2022 LTI STRATEGIC TARGETS

Strategic target		Rating description	%Rating	Weighting	Weighted outcome
Enhancing distribution capability		Investigated all options for the development of a new distribution facility to cater for the business' growth plans over the next 10 to 15 years, including an investigation into brown fields versus green fields. This investigation also considered the optimal distribution model and geographical location from a logistics point of view and Truworths' retail footprint. Existing distribution facilities were optimised to prolong their life and to ensure efficient capacity over the next few years.	125%	40%	50%
Supply chain development/strategic sourcing		Established a highly efficient, flexible, competitive and sustainable supply base (both locally and offshore), including product design. This has improved stability and enabled faster response to changing trends.	100%	35%	35%
Digital commerce		Delivered an excellent, consistent and seamless digital omni-channel experience that is profitable.	125%	25%	31%
Totals				100%	116%

During the period, the committee agreed and recommended for approval by the board the performance targets for the relevant share plan in relation to awards made in the 2022 reporting period.

The performance measures for awards made to executive directors were based on HEPS growth, ROA, ROE, gross profit margin and strategic targets with a variable vesting scale from 0% to 150%, with the application of linear vesting between performance measures.

The targets applicable to the performance shares awarded during the 2022 financial year are as follows:

FY2024 LTI targets		Weighting	50% vesting target	100% vesting target	150% vesting target	Published    medium-   term   Group   targets^
September 2021 share awards
HEPS growth		20%	inflation pa	inflation + 1ppt pa	inflation + 2ppt pa
ROA		15%	20.0%	22.5%	25.0%	20% - 25%
ROE		15%	27.0%	29.5%	32.0%	27% - 32%
Gross profit margin		20%	51%	52%	53%	49% - 53%
Strategic targets		30%	below expectation	achieved expectation	exceeded expectation

^ Medium-term Group targets as published in the 2021 Integrated Report.
Note 1:	Inflation refers to the average of the South African consumer price index (CPI, as published by Statistics South Africa) and the UK harmonised index of consumer prices (HICP, as published by the UK Office for National Statistics), weighted based on Truworths' and Office's relative contribution to Group profit before finance costs and tax.
Note 2:	The awards have a vesting period of between three and five years.
Note 3:	The vesting period for executive directors' shares awarded in September 2021 is as follows: for Michael Mark vesting is three years, with 100% vesting in year three; for Emanuel Cristaudo, vesting is four years with 83% vesting in year three and 17% vesting in year four; and for Sarah Proudfoot, vesting is five years with 30% vesting in years three and four, and 40% vesting in year five.
Note 4:	The performance measurement takes place at the end of financial year three, being June 2024.
Note 5:	No shares vest if performance falls below the 50% vesting target, while performance above the maximum 150% vesting target does not increase the vesting percentage above 150%.

These targets were set taking into account the economic environments in which the operating segments of the Group operate and are intended to focus management's attention on growing revenue, containing the fixed cost base, making well-reasoned and profitable capital expenditure decisions, maintaining a healthy and efficient balance sheet structure, and achieving the deliverables on the non-financial performance measures relating to strategic projects.

Based on feedback received from shareholders during the shareholder engagement sessions held, the committee:

• reduced the weighting of strategic project performance in respect of share awards made this year to 30%; and
• reviewed and resolved to amend the policy relating to the allocation of performance-based share awards to executive directors. In terms of this policy amendment, all shares awarded to executive directors would in future be subject to performance conditions.

LONG-TERM INCENTIVES AWARDED DURING THE 2022 FINANCIAL PERIOD

Executive director share scheme allocations in the 2022 financial period:

		2022				2021
EXECUTIVE DIRECTOR		Number     of awards    and type@ '000	Face value of awards allocated R'000	Face value as % of guaranteed pay	Number of     awards     and type@ '000	Face value of awards allocated R'000	Face value as % of guaranteed pay
Michael Mark		228 PSPs	12 438	122%	420 PSPs	12 900	129%
Emanuel Cristaudo*		55 PSPs    37 RSPs	3 000 2 000	108%
Sarah Proudfoot		99 PSPs	5 414	117%	172 PSPs	6 000	149%

@

'PSPs' refer to performance share plan awards (with performance targets). 'RSPs' refer to restricted share plan awards (without performance targets).

*

Emanuel Cristaudo was awarded restricted shares on appointment to CFO on 1 July 2021. These restricted shares were awarded as a component of his remuneration agreed in the 2021 financial period. A combination of cash and non-performance based restricted shares were issued in lieu of his restraint of trade and in order to compensate him for certain equity-based remuneration benefits forfeited at his previous employer. These restricted shares will be forfeited if he resigns or retires or has his employment terminated prior to the vesting dates. This award was regarded by the committee as being a preferred alternative to cash, and was more aligned to the interests of shareholders compared to an upfront cash payment. Following feedback from shareholders on the 2021 Remuneration Committee report, the long-term incentive policy was amended and no non-performance based restricted shares will be awarded to executive directors in future.

Total share scheme allocations to all participants in the 2022 financial period:

SCHEME		Number of participants	Face value of awards R'000
Restricted share plan (with no performance targets)		440	80 955
Performance share plan (with performance targets)		46	54 389

Share instruments awarded to employees and executives, including the above share scheme allocations in the 2022 financial period, (i.e. total share scheme utilisation), constitute 15 678 000 shares, being 3.4% (2021: 4.4%) of total issued shares at June 2012 which is below the policy's aggregate allocation of 5%. The annual allocation as detailed above is 0.54% of issued shares at June 2012 which is below the committee guideline of 1% in any one year (1.25% in terms of the policy). The maximum aggregate allocation for any one participant is 0.60% of shares in issue at June 2012 (1.0% in terms of the policy).

EXECUTIVE DIRECTORS’ REMUNERATION

Please refer to the Group Audited Annual Financial Statements 2022 on the company's website www.truworths.co.za/reports for further details relating to executive directors' remuneration and share-based awards. The total annual guaranteed pay, benefits, short-term cash incentives and loans pursuant to the 1998 share scheme in the single-figure remuneration table below have been extracted from note 30.1 of the Group Audited Annual Financial Statements 2022, while the values of long-term incentives and qualifying dividends have been calculated in terms of the requirements of King IV.

		Single-figure remuneration
Director		Months paid	Total annual guaranteed pay R'000	Benefits* R'000	Short-term cash incentive R'000	Long-term    incentive^ R'000	Qualifying     dividends# R'000	Total single figure of remuneration	Benefit of interest- free loans pursuant to 1998 share scheme R'000
2022
Michael Mark		12	10 200	–	15 300	–	7 902	33 402	2 100
Emanuel Cristaudo		12	4 600	1 000	6 890	–	306	12 796	–
Sarah Proudfoot		12	4 627	8	6 890	5 403	1 709	18 637	110
2021
Michael Mark		12	9 950	–	14 925	15 023	4 447	44 345	1 955
Sarah Proudfoot		12	4 014	8	4 662	4 462	747	13 893	103

*	Benefits comprise subsistence allowances for local and overseas travel, long-service awards and fringe benefits on life insurance premiums paid.
^	The long-term incentive value is calculated as the sum of: Performance share plan: For all awards where performance against the company performance targets (CPTs) was measured in the financial period the five-day volume weighted average price (VWAP) of the company's share at period-end multiplied by the CPT vesting percentage and the number of awards. Performance appreciation rights plan: For all awards where performance against the CPTs was measured in the financial period, the difference between the five-day VWAP of the share at period-end and the strike price multiplied by the CPT vesting percentage and the number of awards.
#	Portion of the dividends received relate to performance shares which have not yet vested and for which performance has still to be measured against agreed targets. Security, in the form of a pledge of the shares in question, for the possibility that a portion of such dividends may have to be repaid if such targets are not achieved, has been provided by the directors to the company.

Total awards and cash flow			Opening  balance  28 June 2021  '000	Granted   '000	Forfeited/  lapsed  due to  performance  conditions  not achieved  or resignations  '000	Additional  shares  granted  due to  performance  conditions  achieved  '000	Vested/  exercised  '000	Closing  balance  3 July 2022  '000	Cash flow on  settlement   R'000	Estimated  closing  fair value  3 July 2022  R'000
Director	Award type
2022
Michael Mark			2 613	228	(15)	–	(71)	2 755	7 902	71 232
	Options		450	–	–	–	–	450		1 836
	Shares		1 550	–	–	–	–	1 550		32 480
	Restricted shares with performance conditions		613	228	(15)	–	(71)	755		36 916
Emanuel Cristaudo			–	92	–	–	–	92	306	4 483
	Restricted shares without performance conditions		–	37	–	–	–	37		1 793
	Restricted shares with performance conditions		–	55	–	–	–	55		2 690
Sarah Proudfoot			452	99	(2)	8	(32)	525	1 709	21 421
	Options		13	–	–	–	–	13		24
	Shares		81	–	–	–	–	81		1 667
	Restricted shares without performance conditions		–	–	–	–	–	–		–
	Restricted shares with performance conditions		331	99	(2)	8	(32)	404		19 730
	Appreciation rights without performance conditions		15	–	–	–	–	15		–
	Appreciation rights with performance conditions		12	–	–	–	–	12		–

Director	Award type		Opening  balance  29 June 2020  '000	Granted  '000	Forfeited/  lapsed  due to  performance  conditions  not achieved  or resignations  '000	Additional  shares  granted  due to  performance  conditions  achieved  '000	Vested/  exercised  '000	Closing  balance  27 June 2021  '000	Cash flow on settlement  R'000	Estimated  closing  fair value  27 June 2021  R'000
2021
Michael Mark			2 273	420	(80)	–	–	2 773	4 447	126 605
	Options		450	–	–	–	–	450		5 121
	Shares		1 550	–	–	–	–	1 550		87 048
	Restricted shares with performance conditions		273	420	(80)	–	–	613		34 436
Sarah Proudfoot			304	172	(24)	–	–	452	747	23 204
	Options		13	–	–	–	–	13		68
	Shares		81	–	–	–	–	81		4 549
	Restricted shares without performance conditions		–	–	–	–	–	–		–
	Restricted shares with performance conditions		183	172	(24)	–	–	331		18 587
	Appreciation rights without performance conditions		15	–	–	–	–	15		–
	Appreciation rights with performance conditions		12	–	–	–	–	12		–

Notes:

• The fair value of restricted shares and performance shares is based on the relevant year-end company share price.
• The fair value of appreciation rights is based on the binomial actuarial option pricing model at the relevant year-end.
• All options granted under the legacy 1998 share option scheme have vested. The fair value of such options is based on the difference between the year-end share price and the option strike price.
• The cash flow on settlement includes share gains made during the period.

Other than the executive and non-executive directors, the company does not have any prescribed officers as defined in the Companies Act (71 of 2008, as amended) of South Africa.

NON-EXECUTIVE DIRECTORS’ REMUNERATION

The total fees paid to non-executive directors in respect of the 2022 and 2021 financial periods are detailed below.

		Total remuneration (excluding VAT)
	Months paid	2022 R’000	2021 R’000
Hilton Saven	12	1 622	1 464
Roddy Sparks	12	853	822
Michael Thompson	12	670	742
Hans Hawinkels	12	648	534
Rob Dow	12	609	758
Tony Taylor	12	569	534
Cindy Hess*	12	545	440
Dawn Earp	12	545	93
Maya Makanjee	12	470	436
Tshidi Mokgabudi	12	385	360
Thabo Mosololi	12	385	93
Emanuel Cristaudo^	6	–	185
Total		7 301	6 461

*	Resigned with effect from 21 June 2022
*	Appointed as non-executive director with effect from January 2021 and as executive director and CFO with effect from July 2021

Note: Reductions in 2022 fees relative to 2021 reflect reduced board committee involvement.