INTEGRATED REPORT 2023

X
GOVERNANCE

REMUNERATION COMMITTEE REPORT

Section a

REPORT FROM THE CHAIRMAN OF THE REMUNERATION COMMITTEE

Dear Shareholders

The Group's remuneration policy continues to evolve as the employment market evolves. The Group strives to maintain a delicate balance between the different components of the remuneration policy, including the level and stretch of targets and remuneration disclosure, while ensuring that high‑performing individuals are retained and continue to be motivated to perform and achieve the Group's market-leading metrics.

In addition to satisfying best practice governance criteria, our board regards it essential to align our remuneration policy and practices with our Business Philosophy.

Over the past period, a substantial amount of effort was expended in reviewing the Group's remuneration policy and practices to ensure they align with our objectives while meeting the expectations of our shareholders and other key stakeholders. This process included engagement with relevant stakeholders, including international advisers to form an understanding of their views and what they believe are important components of this policy.

The Group has also focused on driving its transformation and succession plans. This included refreshing the Values component of our Business Philosophy through the addition of 'Embracing the power of inclusive teams' as one of the Group's core values.

The Remuneration Committee (the committee) aims to ensure that its targets are consistent with the successful execution of our Business Philosophy. As such, we have provided a more comprehensive update of our remuneration philosophy in Section B of this report to outline how the committee has worked towards this objective.

PERFORMANCE AND REMUNERATION OUTCOMES

The well-documented macroeconomic conditions have made this a particularly tough trading period and the Group's performance is a credit to its committed executives, supported by its employees who continue to remain resilient and contribution focused. Trading continued to be impacted by pressure on consumer disposable income in both our major markets of South Africa and the United Kingdom (UK). Record levels of electricity load shedding compounded the pressure on our South African business.

Group retail sales increased by 13.2% to R20.6 billion, exceeding R20 billion for the first time. Group gross margin decreased from 53.5% to 52.5% with profit before finance costs and tax increasing by 8.1%. Adjusted (pro forma) diluted headline earnings per share, which excludes one-off items, increased by 8.7% to 807.3 cents.

As a result, the outcome achieved in respect of the long-term incentive (LTI) awards made in September 2020 and March 2021 was 137.3%, reflecting the Group's exemplary post-COVID-19 recovery through management's consistent focus on its Business Philosophy. A key matter considered by the committee was whether this outcome against targets and the share price recovery represented windfall gains. In making this assessment the committee considered various factors, one of which relates to the Group's consistent and material outperformance of analyst consensus forecasts over the three year period since the awards were made. On average, actual reported diluted headline earnings per share (DHEPS) (on a pro forma basis, ie excluding the indirect tax matter in 2023 and based on 52 weeks in 2022) exceeded the average September analyst forecast tracked by the Group by more than 30%. This confirms that the Group's performance over this period materially exceeded market expectations (which takes into account the Group's historic performance and the prevailing macroeconomic conditions) and is testimony to the Group's successful execution of innovative growth strategies in Truworths and the strategic turnaround plan in Office.

Accordingly, the committee concluded that the LTI outcome is not a windfall on share price but the result of the executive team's relentless efforts to implement strategies that would deliver significant shareholder value over time. This is reflected in total shareholder return, from the 28 June 2020 period end to the date the Group released its 2023 results on 31 August 2023, of 36.2% on a compound annual basis.

The committee further noted that the performance targets for awards that vested based on June 2020 results, at the height of the COVID-19 pandemic, were not adjusted for exceptional circumstances beyond management control (such as COVID-19 restrictions which weighed materially on the Group's performance) and that those awards (which were made in August 2017) achieved a vesting outcome of 37.5%. Similarly, the committee never exercised its discretion to adjust the outcome of any other LTI award targets which were set prior to and which vested since the pandemic to compensate for changes in the macro environment.

The short-term incentive (STI) outcome achieved for the period was 87.8%. Further detail on the specific targets and results are included in the implementation report below.

In the context of the operating environment, consumer disposable income remains under pressure due to inflationary pressures in both our main trading environments, while consumer credit health in South Africa is concerningly low. Despite the expected continuing high interest rates and inflationary pressures, as well as continued load shedding expected to disrupt trading in South Africa, we are cautiously optimistic about South Africa and the UK's medium-term outlook. We continue to grow our customer base and the appeal of our quality, aspirational merchandise remains strong. The Group's balance sheet is healthy and the businesses generate robust cash flows.

We remain focused on rewarding executives and employees in a responsible, fair and sustainable manner to ensure the retention of key executives, as well as other employees, to achieve our objectives, which include implementing our succession plans and our ongoing focus on transformation. We continue to monitor both the internal and external landscape, taking cognisance of all stakeholders, to ensure our remuneration policy remains relevant and fulfils its purpose in the short, medium and long term.

SHAREHOLDER ENGAGEMENT AND VOTING

The remuneration policy and the implementation report were presented to shareholders for non-binding advisory votes at the company's annual general meeting (AGM) on 4 November 2022. Of the votes cast, 69.95% were in favour of the Group's remuneration policy (increased from 54.12% in the prior year) and 69.96% voted in favour of the implementation report (increased from 33.46% in the prior year).

The Group's single largest shareholder advised the company prior to the AGM of its intention to vote against the remuneration policy and implementation report. At the date of the AGM, this shareholder held approximately 17.5% of the company's shares in issue. If the dissenting votes of this shareholder are excluded, then the remaining shareholders voted in excess of 90% in favour of the remuneration policy and implementation report.

The Group's remuneration policy continues to evolve as the market evolves.

The table below demonstrates the progress made on a comparison of the 2022 AGM voting results with those of 2021.

2022 AGM RESULTS 2021 AGM RESULTS
Votes for
%
Votes against
%
Total shares
voted as
a % of total
issued
shares
Votes for
%
Votes against
%
Total shares
voted as
a % of total
issued
shares
Remuneration policy 69.95 30.05 81.23 54.12 45.88 73.94
Remuneration implementation report 69.96 30.04 81.23 33.46 66.54 73.94

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 8 December 2022 and attended by the chairman of the board, chairman of the committee, members of the committee, CEO, Joint Deputy CEO and CFO, Divisional Director: Finance and the Company Secretary. A representative of one shareholder attended the meeting and we appreciate the time taken to engage with us. 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.

The large dissenting shareholder did not attend the meeting, and accordingly a separate engagement session was requested by the committee with the shareholder to understand, in greater depth, the reasons for its dissenting votes. This meeting was attended by the chairman of the board as well as the chairman and members of the committee. No executives were present at the request of the shareholder, who requested a subsequent engagement with the CEO, which meeting will take place after publication of this report. Feedback from this shareholder is included in the table of shareholder concerns that follows.

Going forward the Group will on an on-going basis explore various methods of engagement with shareholders.

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SHAREHOLDER CONCERNS

The following shareholder concerns, including those of the large dissenting shareholder, were raised and actions taken by the committee during the period are noted:

Shareholder concerns and comments   Group response
     

While they acknowledged that the company continues to make strides in relation to the incorporation of multiple financial indicators, their view was that the LTI targets, particularly headline earnings per share (HEPS) growth at CPI for 50% vesting, were not sufficiently stretching and targets should be more closely aligned with shareholder interests.

 

The LTI targets for the September 2022 award were re-evaluated. The following target details are for noting:

  • The Group produces metrics which are ahead of all local and most international benchmarks including gross margin, operating margin, return on assets (ROA), return on equity (ROE), inventory turn, asset turnover, and significant excess of return on invested capital (ROIC) versus the weighted average cost of capital (WACC). As the Group performs exceptionally well against these local and global benchmarks it believes that employees should be rewarded for the exceptional and unique contribution in maintaining these world class metrics. There is a fine balance to ensure the Group maintains these metrics without taking on undue additional risk to the businesses.
  • HEPS growth is inflation-linked, with 50% LTI vesting achieved at CPI, 100% vesting achieved at CPI + 1ppt pa and 150% vesting achieved at CPI + 2ppt pa. We note that the macro environment in both our main trading markets has been exceptionally tough, with high inflation levels and extreme pressure on household disposable income.
  • The targets for ROA, ROE and gross margin to achieve 150% vesting of LTIs were all set higher than the upper end of the Group's medium-term published targets. The Group's medium-term ROE and ROA targets were also revised upwards from the previously published targets. Further details in the LTI and Group medium-term targets and in the Chief Financial Officer's report.

Alignment with shareholder wealth creation

 
  • A point was raised that ROE plays too small a role in incentivising management.
  • Although ROE is an important metric to incentivise, the weighting thereof has been reduced to 10% in the September 2023 LTI award. This is due to an important wealth creation metric being added.
  • An additional metric of ROIC greater than WACC was added to the LTI targets in the September 2023 award to further align with shareholder interests, with a weighting of 30%.

Strategic targets make up 30% of the LTI and STI targets and additional clarity was required regarding how ESG was integrated into these strategic targets and specifically how transformation, B-BBEE, and local procurement were included.

 
  • This has been a key focus area for Truworths over the reporting period and additional information regarding this is included in the target reporting in the Creating stakeholder value report as well as in the Environmental, Social and Sustainability Governance Report 2023.

Board tenure and CEO succession were raised as an area of concern

 
  • Hans Hawinkels was appointed as Lead Independent Director and Wayne Muller was appointed as an additional member of the committee. Further information on CEO succession and the succession for non-executive directors is contained in the Chairman's report.

The committee is 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.

The remuneration policy and financial year 2023 implementation report will be presented to shareholders for separate non-binding advisory votes at the AGM in November 2023. The committee was pleased with the improved votes received at the 2022 AGM and believes that the improvements made to the reporting disclosure as well as setting targets aligned with shareholder expectations as expressed during our engagement sessions, support the achievement of further improved voting results.

Legislative changes

The committee ensures that the Group takes cognisance of evolving legislation through continuous research and monitoring.

During the period under review, the following remuneration related legislative changes were made:

  • In South Africa, amendments were made to the National Minimum Wage Act, No 9 of 2018, and the national minimum wage increased from R23.19 to R25.42 per hour with effect from 1 March 2023.
  • Amendments were made to the Sectoral Determination 9 wage rates which were implemented on 1 March 2023.
  • In the UK, amendments were made to the National Living Wage and National Minimum Wage which were effective on 1 April 2023.
  • In Ireland, amendments were made to the National Minimum Wage which were effective on 1 January 2023.

The Group has taken the necessary steps to ensure compliance with these regulatory changes.

Focus areas

The activities undertaken by the committee during the period include:

  • Following the introduction of refreshed Values and the increased focus on diversity, equity and inclusion, the committee reviewed the remuneration philosophy and all remuneration policy impact areas to ensure they sufficiently focused on attraction, retention and reward of top talent, with additional focus on employment equity. This resulted in a detailed market assessment and engagement with external remuneration advisers on market best practice with regard to the remuneration policy. The policy and approach changes are detailed below, but highlights include that LTI awards made to directors of the company and its major operating subsidiaries would be 100% performance based. The vesting periods are a minimum of three years and a maximum of five years. This aligns with the target measurement period of three years.
  • Reviewed market practice and the changing landscape with regard to minimum shareholding requirements. This will be an area of focus for the next period. It is noted that, at the year-end date, the CEO held vested shares to the value of approximately R63 million (net of the loan pursuant to the 1998 share scheme that was used to acquire some of these shares) in his personal capacity, which is in excess of 500% of his annual guaranteed remuneration for the 2023 financial period.
  • Reviewed and approved the remuneration of executives, including annual increases, STI payments, LTI awards and LTI vesting outcomes.
  • Approved the STI targets for the 2024 financial period.
  • Based on a benchmarking exercise by executive management, reviewed and recommended for approval by shareholders the non-executive directors' remuneration for the 2024 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. Dividends for performance shares are subject to clawback provisions, in terms of which 100% vesting occurs if performance targets are met and, if not, dividends received on the deficit in performance are required to be repaid.
  • Confirmed that all LTI 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 made during the reporting period.
  • Reviewed the benefits offered by the Group across all levels of employees and approved the enhancements thereto, which included the reintroduction of wellness days. These wellness days include dealing with mental health, which is becoming an issue of increasing concern globally.

Future focus areas include:

  • 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.
  • Continue to focus on setting remuneration targets which drive shareholder wealth creation and earnings growth, for all performing employees at all levels and offering benefits that enhance the quality of living standards of all employees.
  • 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 employees.
  • 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 the Group's transformation plans as well as retention of key individuals.
  • Review the LTI policy against market best practice in terms of allocation levels as well as considering the introduction of new employee LTI award criteria and guidelines.
  • Review remuneration policies to clarify directors' contractual rights in terms of pay multiples, and STI and LTI treatment, should there be a change in control of the Group or severance agreements reached.
  • Evaluate the introduction of minimum shareholding requirements for executives.

External advisers

During the reporting period the committee engaged the consultancy services of PricewaterhouseCoopers (PwC) as well as the services of a global leading corporate governance and remuneration consultancy familiar with the practices and policies of proxy advisory services to conduct a review of the Group's remuneration framework with particular focus on voting policies and global best practice on remuneration reporting. The committee is satisfied that the opinions and advice received from both are independent and objective.

Additionally, the Group also subscribes to REMeasure and REMChannel, both provided by Old Mutual, which are utilised for benchmarking and remuneration market data in South Africa remuneration, and Willis Towers Watson for remuneration market data in the UK.

Finally, the Group consulted with a South African based remuneration consultancy familiar with South African remuneration practices and policies to conduct an additional review of the Group's remuneration framework.

Remuneration committee composition

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 details on the committee members is available in the Truworths International board section. The CEO is an invitee to committee meetings and recuses himself from various discussions, including those that relate to his performance and remuneration. Detail on the committee meeting attendance is included in the Report on Corporate Governance and Application of King IV Principles 2023 on the website at www.truworths.co.za/reports.

Following feedback received from the global corporate governance consultancy regarding the perceived independence of the board chairman and committee members, the Nomination Committee appointed Hans Hawinkels as Lead Independent Director. Wayne Muller, who has been an independent non-executive director since 1 August 2023, was appointed as an additional member to the committee effective 1 September 2023 as part of the process of succession of committee members over time. The Group will continue the process of refreshing the non-executive component of the board in a systematic manner that will enable it to have 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 begin to influence board deliberations in a substantive manner.

Policy statement

This report of the committee provides an overview of organisation-wide remuneration policies with an emphasis on the 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 summarised in this report achieved its stated objectives during the period and is expected to do so again in the 2024 financial period.

Hans Hawinkels

Chairman

Section B

REMUNERATION POLICY

APPROVAL OF REMUNERATION POLICY AND IMPLEMENTATION REPORT

In terms of the King IV principles and the JSE Listings Requirements, the Group's forward-looking remuneration policy and its implementation report as set out in Section B and C are required to be approved by separate non-binding advisory votes at the AGM of shareholders scheduled for 9 November 2023.

Should 25% or more votes be cast against either or both of the non-binding advisory resolutions, the company undertakes to engage with shareholders to ascertain the reasons for the dissenting votes. Details of the engagement process, if applicable, will be published on SENS after the AGM.

The steps taken to address legitimate and reasonable concerns (if any) of shareholders will be disclosed in the following year's Remuneration Committee report.

BUSINESS PHILOSOPHY

The Group's Business Philosophy is its guiding light and allows us to focus on what we need to do as a business to create long-term sustainable growth and wealth. There are three components to the Business Philosophy; our Purpose which describes how we serve our customers, our Values which define how we behave as an organisation and our Vision of expectations we try to satisfy for the various stakeholders in our business.

Our Vision for Shareholders states:

"We are long-term investors in Truworths International because we trust in management's capacity to execute innovative strategies which deliver significant value over time".

Our STI and LTI programmes are aligned with our Business Philosophy, with measurement benchmarks and strategic objectives focused on management's ability to fulfil our Purpose and live by our Values, thereby aligning ourselves to the Vision for our stakeholders.

This aptly describes our commitment to our shareholders. We are not short-term focused. We focus on the long term and strive to deliver sustainable value over time.

Our Values shape our business culture which guides the behaviour of employees. These values are entrenched in the business and in how we operate, behave, recruit, and in the employee performance evaluation process. The central element of our Values is Innovation and Passion. This core value ensures we recruit, encourage and incentivise Innovation and Passion.

The other values including "Contribution focused" and ultimately "Celebrate and reward excellence in contribution" guide us in determining of our STI and LTI targets.

BEST-IN-CLASS OPERATING AND PRODUCTIVITY METRICS

The Group sets medium-term targets for key operating and productivity metrics (refer to the Chief Financial Officer's report). Over time the performance against these targets has improved and are currently the highest when compared to local benchmarks and among the highest internationally. We believe this shows an outstanding commitment and contribution ethic in our Group.

2023 
52 weeks 
Pro forma 
Medium-term 
targets 
(published in FY22)
Local   
benchmark@
International  
benchmark^
Gross margin  (%) 52.5  49 - 53  43.6    54.3  
Operating margin  (%) 22.7  18 - 23  13.3    12.8  
Return on equity  (%) 48  31 - 36  20    15  
Return on assets  (%) 30  22 - 27  14    11  
Inventory turn  (times) 4.2  3.5 - 4.5  2.3    3.3  
Asset turnover  (times) 1.2  0.9 - 1.3  1.0    1.0  
@ The local benchmarks are based on the average ratios for comparable JSE-listed apparel retailers, being Mr Price Group (year ended 1 April 2023) and TFG (year ended 31 March 2023).
^ The global benchmarks are based on the average ratios for listed global fashion retailers, being H&M (year ended 30 November 2022), Inditex (owner of the Zara fashion chain) (year ended 31 January 2023) and Lojas Renner (year ended 31 December 2022).

Remuneration philosophy and principles

The remuneration philosophy is well aligned with the Group's Business Philosophy and is aimed at driving a high‑performance culture that delivers the Group's long-term strategic objectives as well as sustainable shareholder returns within the Group's risk appetite. The Business Philosophy directs our consistent focus on the long term, through good and bad times.

The reward philosophy ensures that the Group's reward approach is fair, sustainable and equitable and that rewards are applied across all employee levels in a responsible and transparent manner.

The remuneration objectives are achieved by utilising a total remuneration approach which comprises different elements of financial reward, including guaranteed earnings, STIs and LTIs. The combination of financial and non-financial rewards constitutes 'total reward' and supports the holistic employee value proposition. For further details on the employee value proposition, refer to the Truworths Human capital report, the Office Human capital report and the Environmental, Social and Sustainability Governance Report 2023 on the website at www.truworths.co.za/reports.

Remuneration practices are closely linked to the achievement of performance objectives of the Group, subsidiary companies, teams and individuals. The composition of total remuneration is based on the employee's role and level in the Group and there is a strong and sustainable link between performance and contribution over time, and the rewards received by the employee.

The Group's reward policy is designed to achieve the following objectives:

  • Internal equity, which ensures employees are rewarded appropriately in relation to peers as well as ensuring an adherence with the principle of 'equal pay for work of equal value'.
  • External equity, to ensure employees are rewarded competitively in relation to the employment market.
  • Fair and responsible reward management, which ensures that:
    • there is equal opportunity across the Group for growth and development of high‑performing individuals who are aligned with the Group's Business Philosophy
    • performance measurement practices are regularly and consistently applied
    • remuneration and benefits at all levels are equitable and applied consistently
    • employees across all levels of the Group are rewarded appropriately based on their performance and their contribution
    • reward practices promote an ethical culture and responsible corporate citizenship.
  • A balanced and appropriate mix of short and long-term incentives.
  • Alignment of risk and reward, with remuneration practices and schemes designed to encourage superior medium to long-term performance relative to competitors, while operating within prudent risk parameters to ensure sustainability.

Remuneration governance

The committee has oversight of the Group's remuneration practices and policies. The committee is responsible for reviewing, recommending and approving the remuneration of executive and non-executive directors of the company; and directors, divisional directors and key executives of principal subsidiaries (collectively referred to as 'executives'). The committee periodically reviews the Group's remuneration strategy to ensure it supports the business and human resource strategies, remains aligned with the objective to enhance shareholder value and is focused on achieving the following objectives:

  • Attracting, engaging, motivating, rewarding and retaining a high‑performing executive team as well as ensuring these principles are applied and maintained across all employee levels of the Group.
  • Ensuring that the CEO and executive team continue to fulfil the principles of the Business Philosophy and thereby pursue the long-term sustainable growth and success of the Group.
  • Demonstrating a clear relationship between short and longer-term performance and remuneration.
  • Ensuring an appropriate balance between guaranteed and variable remuneration, taking into account both the short and long-term objectives of the Group.
  • Differentiating pay between higher and average performers through effective performance management and assessment.

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 Business Philosophy.

Fair and responsible reward continues to be a key focus area for us, including raising the living standards of employees. 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. Both minimum wage and race and gender pay gap analyses utilising REMChannel data analytics are conducted annually and adjustments are made accordingly.

In addition to the above, consideration is given to closing the earnings gap when annual salary reviews are agreed and in the reporting period we have continued to maintain salary increase ranges for junior employees at a higher level than that of senior management. Refer below for further details on guaranteed remuneration adjustments.

Pay for performance

Executive directors' remuneration is determined according to the nature and responsibilities of the executive's role in relation to market benchmarks, and the performance of the individual in relation to Group and individual performance targets. Rewarding executives through guaranteed and performance‑related remuneration is aimed at achieving the following:

  • alignment of executive and shareholder interests
  • promotion of a culture of executive share ownership
  • promotion of excellence in individual executive performance
  • retention of high‑performing executives

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

The below graphics depict the pay outcomes under the different performance scenarios for the executive directors.

CEO performance
Executive directors

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
  • Performance share plan
  • Performance appreciation rights
  • 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 the 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 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 aims to maintain 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
  • Mr Price Group
  • Pepkor Holdings
  • Pick n Pay Stores
  • Shoprite Holdings
  • The Foschini Group
  • The Spar Group
  • Woolworths Holdings

Note: Massmart no longer included following its delisting

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 the employment role, 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 periodically as part of an assessment of the remuneration policy. Adjustments to guaranteed remuneration outside of the annual review process are made on an exception basis and only linked to changes in responsibility level.

All store employees' compensation complies with the Sectoral Determination 9 or statutory requirements, and the minimum rates of pay as determined for the retail industry are either met or exceeded by the Group.

Guaranteed remuneration is periodically reviewed. 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 contribution and 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, as well as the individual's contribution and performance rating for the prior period.

The committee is cognisant of the disparity in levels of executive guaranteed pay relative to 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. It is anticipated that in general, executive salary increases will be lower than those across the broader workforce unless additional responsibility is given to executives or unusual circumstances exist with due consideration to closing the earnings gap over time and the impact of variable compensation opportunities.

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. Performance targets are set with the objective of being challenging, yet realistic within the context of the economic realities of the countries in which the Group operates and the stage in the business life cycle.

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, while the bottom-up approach together with individual performance and contribution levels determine the individual's relative share of the pool. The incentive pool is self-funded through the achievement of financial targets and is based on a percentage, limited to a maximum of 4% of profit before tax (excluding accounting impairments).

Incentives are based on Group, company and individual performance levels and no short-term incentive is paid to executive directors if the Group's threshold performance measures for the period are not achieved.

The table below depicts the historical STI payments as a percentage of profit before tax (excluding accounting impairments):

2023  
Pro forma  
52 weeks*
2022  
52 weeks^
2021
52 weeks
Profit before tax (excluding accounting impairments) (Rm) 4 058   3 943   2 952
Growth in profit before tax (excluding accounting impairments) (%) 1   34   18
STI paid (Rm) 105   119   82
Executive directors received STI Yes   Yes   Yes
% of profit before tax (excluding accounting impairments) (%) 2.6   3.0   2.8
* Pro forma profit before tax (excluding accounting impairments), ie excluding the impact of the indirect tax matter, and compared to the corresponding 52-week prior period.
^ Pro forma 52-week results (weeks 1 - 52), ie the results for the 53-week period excluding the impact of the 53rd week.

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

The malus and clawback policy applies to STIs paid to executive and senior managers and can be referred to below.

The Group's 2024 STI targets ie adjusted 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 period. Adjusted HEPS growth refers to HEPS growth relative to the pro forma 2023 HEPS, which excludes the impact of the indirect tax matter in that year.

STI targets are published retrospectively due to their commercially sensitive nature and include ESG and transformation targets from the 2023 financial period onwards. Refer to the Group's plans for 2024 as outlined in Material issues, risks and opportunities, Truworths Human Capital, Office Human Capital and Governance creating value for the strategic focus areas. The detailed performance achieved against targets for the 2023 financial period can be referred to below.

2024 STI targets Weightings
%
Threshold
%
Target
%
Stretch
%
Adjusted HEPS growth > inflation 15 100 150
ROA 20 100 150
ROE 20 100 150
Gross margin 15 100 150
Strategic targets 30 100 150
Note:
The weighting of adjusted HEPS growth was reduced and gross margin was added after consultation with various stakeholders who felt margin protection was key to the performance of the Group with generally high inventory levels and promotional activity across the retail sector in the current constrained macro environment.

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 with 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 the Patterson 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 incentive image
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 plans:

  • The maximum aggregate allocation in terms of all the plans is limited to 5% of the company's issued shares at June 2012 over the life of the plans 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 plans is limited to 1% of issued shares at June 2012 over the life of the plans 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 and share appreciation rights plan 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 or share appreciation rights plan.
  • The performance share plan and performance appreciation rights plan 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 plans 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.
  • All unvested shares, as well as unexercised options and vested and unvested rights are forfeited upon an employee's dismissal in terms of the scheme rules.
  • All unvested shares and vested and unvested rights are forfeited upon an employee's resignation in terms of the plan rules.
  • The malus and clawback policy is applicable to LTIs awarded to executive directors and senior managers and can be referred below.
  • All annual awards made to executive directors are linked to performance conditions and have a vesting period of no shorter than three years.
  • The committee approves the release of dividends to holders of both restricted and performance shares. Dividends paid on performance shares held where performance against targets has not yet been assessed, are clawed back from participants should performance targets not be met and, therefore, 100% vesting not be achieved. At the date the dividend is declared, the executive accepts the dividend and can agree to simultaneously lend it to the company, until the performance measurement period has expired at which time the company pays back to the executive the amount of the dividend due to them. If the cash dividend is accepted at the payment date, the executive agrees that the shares be pledged to the company, until the measurement period has elapsed. In the event of termination of the executive prior to the end of the performance measurement period, the dividend paid to the executive must be refunded in full.
  • The committee regularly monitors the overall actual and forecast impact and costs of these plans 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 levels as well as those key to future succession or with scarce skills in the LTI plans.

LTI targets agreed for performance shares to be awarded in the 2024 financial year, with the measurement period being the 2026 financial period, are as follows:

2026 LTI targets (for awards made in September 2023) Weighting#
%  
50% 
vesting 
target 
100% 
vesting 
target 
150% 
vesting 
target 
Published 
medium-term 
Group targets 
Adjusted HEPS^ growth  10   Inflation*
pa 
Inflation*
+ 1ppt pa 
Inflation*
+ 2ppt pa 
ROA  20   22.0  24.5  27.0  22 - 27 
ROE  10   31.0  33.5  36.0  31 - 36 
ROIC > WACC  30   WACC + 2ppt
pa 
WACC + 3.5ppt
pa 
WACC + 5ppt
pa 
Strategic targets  30   50%  100%  150% 
* 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.
^ Adjusted HEPS growth refers to HEPS growth relative to the pro forma 2023 HEPS, which exclude the impact of the indirect tax matter in that year.
# After consultation with stakeholders the committee introduced an important wealth creation metric, being ROIC exceeding WACC. In order to do so and to align LTIs to wealth creation over time as encapsulated in the Group's Vision for shareholders, certain of the LTI target weightings were amended relative to the 2022 LTI award.

For the 2023 financial period no awards were made under the performance appreciation rights plan and as such, no performance conditions were agreed for this plan. Similarly, no awards were made under the share appreciation rights plan to any employee.

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 2025 financial period. 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.

Employment contracts

There are no contractual obligations at any level to pay special severance amounts or compensation on termination of employment contracts arising from failure or incapacity to perform, or from under-performance against contracted objectives.

There are no contractual obligations at any level to allocate any short or long-term incentives, the only exception being the allocation of restricted shares in lieu of a restraint payment when employees join the Group except in the case of an executive director where performance shares will be allocated.

No employment contract terms are affected by, or are linked in any way to, the automatic severing of such contracts as a result of a change in control of the Group. Furthermore, no payments of unvested short or long-term incentives are guaranteed on, or linked to, such a change in control, save that the rights of participants in the 2012 share plan must be accommodated by the board on a fair and reasonable basis on a change of control, and vesting of such rights will, unless the committee decides otherwise, be accelerated if such change of control leads to retrenchment within 24 months of the change in control. This policy will be reviewed in the 2024 financial period to include and clarify the treatment of STIs and LTIs in such instance of a change in control or termination of contract.

The executive directors' service agreements are subject to a six-month notice period.

Non-executive directors' remuneration

Non-executive directors receive fixed fees for services rendered as directors and as members of board committees. All non-executive directors receive the same base board fees, regardless of their length of service. In line with best governance and remuneration practice, non-executive directors do not participate in incentive schemes and do not receive any benefits (other than the discounts applicable to employees in respect of purchases charged to store card accounts) or performance‑related remuneration from the Group. None of the non-executive directors have service contracts with the Group and no consultancy fees were paid to non‑executive directors during the period.

The fee structure of non-executive directors is reviewed annually by the committee with due consideration of internal, economic and market factors utilising benchmarks from similar businesses. In line with best practice and to avoid a conflict of interest, the peer group comparators utilised are the same as those utilised for executive director guaranteed in the remuneration considerations and are aimed at the median. Recommendations for increases are researched and presented by executive management to the committee for consideration, and presented to the shareholders at the AGM for consideration and approval by way of special resolution. Fees are determined in advance for an ensuing calendar year.

The proposed fees for non-executive directors for the 2024 calendar year were benchmarked against fees payable by the peer group companies. This has been part of a three year process of aligning our non-executive directors' fees to our targeted median positioning against peer companies. Our fee adjustments for Audit Committee members, the Nomination Committee chairman and the Social and Ethics committee chairman roles are therefore higher. These adjustments are considered the final increases to close this gap and reach the targeted median position as detailed below.

Proposed fees
(excluding VAT)
for 12 months to
December 2024
R'000
2023 fees
R'000
change
%
Non-executive chairman 1 530 1 475 3.7
Lead independent director 700 n/a n/a
Non-executive director 460 435 5.8
Audit Committee chairman 380 365 4.1
Audit Committee member 190 170 11.8
Remuneration Committee chairman 210 200 5.0
Remuneration Committee member 103 100 3.0
Risk Committee member (non-executive only) 130 125 4.0
Nomination Committee chairman* 200 165 21.2
Nomination Committee member 100 95 5.3
Social and Ethics Committee chairman 165 150 10.0
Social and Ethics Committee member (non-executive only) 95 95
* The proposed fee increase of the Nomination Committee chairman will be phased in over a two-year period.
Section C

IMPLEMENTATION REPORT 2023

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 4.0% to 9.6% (dependent on seniority, performance and market rate positioning) for employees performing at the Group's minimum required standard or higher. The increase ranges and averages for management and non-management employees were as follows:

  • Management range of 4.0% - 8.5%, with an average of 8.1%
  • Non-management range of 4.5% - 9.6%, with an average of 8.8%

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

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

Executive directors' guaranteed pay 2023
R'000
2022
R'000
Change
%
Michael Mark ~ 10 860 10 200 6.5
Emanuel Cristaudo * 5 217 4 600 13.4
Sarah Proudfoot* 5 217 4 626 12.8
~ Michael Mark's guaranteed pay has increased from R9 383 000 in 2019 to R10 860 000 in 2023, being an average increase of 3.8% per annum over the prior four years.
* Emanuel Cristaudo and Sarah Proudfoot were appointed as Group Joint Deputy CEOs in October 2022. Their roles were benchmarked and the salary increases awarded are market related guaranteed pay adjustments for both executives moving into this new role.

Short-term incentive outcomes for the 2023 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 2023 reporting period, determined with reference to the adjusted Group HEPS growth, adjusted ROA, adjusted ROE, gross margin and the successful implementation of strategic projects defined for the period, were pre-agreed. HEPS growth, ROA and ROE were adjusted to exclude the impact of the indirect tax matter, and measures HEPS growth relative to the pro forma 52-week prior period (which excludes the impact of the 53rd trading week in the prior period).

The Group targets were set as follows:

2023 STI targets Weighting Threshold
0%
Target
100%
Stretch
150%
Achieved
2023
Weighted
outcome
Adjusted HEPS growth 20% Inflation*
pa
Inflation*
+ 1 ppt pa
Inflation*
+ 2 ppt pa
818.5
cents^
30.0%
Adjusted ROA 20% 28.0% 30.0% 32.0% 28.0% 0.4%
Adjusted ROE 20% 44.5% 46.5% 48.5% 44.7% 10.8%
Gross margin 10% 50.5% 52.0% 53.5% 52.5% 11.7%
Strategic targets(detail set out in the table that follows) 30% 50.0% 100.0% 150.0% 116.3% 34.9%
Total 100% 87.8%
* 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.
^ HEPS growth was measured against pro forma HEPS on a 52-week basis, which excludes the impact of the indirect tax matter in the current period and the 53rd week in the prior period. Pro forma HEPS of 818.5 cents represents growth of inflation plus 2.8 percentage points.

STI for the period ended June 2023

The STI strategic targets set and achieved for the 2023 financial period are as follows:

Strategic target Rating description Rating
%
Weighting
%
Weighted
result
%

Ensure succession planning is in place for executives.

The committee is satisfied that Truworths and Office have adequate key executive succession plans in place. This includes the appointment of the Joint Deputy CEOs, the successful on-boarding of the Office Managing Director (employed late in the prior year), along with seven Truworths directors and 10 divisional directors, and the other four directors and divisional directors at Office.

100

15

15.0

Implement structure changes in Truworths and Office to deliver the companies' strategies. Additional areas of responsibility to be allocated to key executives as part of the succession plan.

A number of service departments were integrated, including Finance, Legal, Company Secretariat, components of Customer Service and the Internal Audit function which are run by Truworths. Most Truworths executives now work operationally in alignment with Office executives. Specific areas include merchandise management, CRM, IT, HR, ESG and vendor relationships. Additional responsibilities were given to a number of senior executives including the two Joint Deputy CEOs and the merchandise executives.

125

15

18.8

Ensure core components of the 2023 strategic plan derived from identified opportunities are successfully progressed.

Good top line performance in both businesses with market share growth in key categories in Truworths, based on our strategy to identify opportunities in the target market, and excellent performance from Office through improvement in their product mix. Various Truworths retail formats rolled out as per the strategic plans, and investment in refurbishment and new stores commenced in Office. Continued growth of the two new brands, Sync and Fuel, in Truworths. Integrated design departments with the purchase of Bonwit to improve local supply and speed to market. Significant progress was made with the building of the new Truworths distribution centre.

125

20

25.0

Manage capital structure in accordance with Group directives through appropriate capital allocation.

Conservative balance sheet maintained. All loans in Office repaid and good cash balance held in the UK for further investment. Green loan approved for the construction of the new Truworths distribution centre. Treasury policy ensured maximum yield on cash assets as per investment guidelines. In 2022 the Group repurchased 29.9 million shares (R1.6 billion) at an average cost of R54.02 per share, with a further 556 655 shares repurchased in 2023. The share buy-back programme will continue at the appropriate time in the future.

100

10

10.0

Evaluate acquisition opportunities and make recommendations to the Deal committee.

A small manufacturer was acquired during the financial year. A number of other opportunities of significant scale were considered by Truworths executives and the Deal committee, with substantial due diligence work undertaken on the most appropriate opportunities. Although transactions were not concluded the committee determined that diligence was nevertheless excellent.

100

10

10.0

Incorporate the Group's ESG philosophy into Office.

Continued improvement in our B-BBEE scorecard.

Modify the Business Philosophy and Values of the Group to promote a culture of inclusivity.

Through engagement with consultants in the UK, and work performed with Truworths executives, a strategy with key milestones was developed and is being implemented in Office.

Responsibility for each B-BBEE pillar has been assigned to a Truworths director or divisional director, with ongoing improvement in the scorecard, to level 5 from level 6.

The Values, a key component of our Business Philosophy, were modified and aligned in Truworths and Office, with the addition of "Embracing the power of inclusive teams", ie inclusivity is seen to be a key component to address diversity. The rollout of the refreshed Values has commenced across the Group to entrench the importance of this change.

125

10

12.5

Ensure continued focus on governance and compliance for the Group.

The Group maintained its rigorous governance standards. The Group's 2022 Integrated Report ranked 8th in the Ernst & Young (EY) 2023 Excellence in Integrated Reporting Awards. This is the 16th consecutive year that the Group has attained a top 10 ranking in the EY excellence in reporting awards.

125

20

25.0

Total 100 116.3

As targets were achieved by the Group, a resultant incentive pool of R105 million was agreed being 2.6% of Group profit before tax and impairments (prior year was R119 million being 3.0% 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)
R'000
Michael Mark 100 122 13 250
Emanuel Cristaudo 80 114 5 951
Sarah Proudfoot 80 114 5 951

Long-term incentives with a performance period endED during the 2023 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 2020 and March 2021, and resulted in a total vesting level of 137.3% reflecting the Group's exemplary post COVID-19 recovery through management's consistent focus on its Business Philosophy. A key matter considered by the committee was whether the outcome against targets and the share price recovery represented windfall gains. The committee concluded that the LTI outcome is not a windfall gain on share price but the result of the executive team's relentless efforts to implement strategies that would deliver significant shareholder value over time. Please refer to Section A for further detail. Details of the targets for awards made during the 2021 financial year with a performance period that ended at the end of the 2023 financial year as well as vesting achieved are as follows:

2023 LTI targets Weighting Threshold
0%
Target
100%
Stretch
150%
Achieved Weighted
outcome
September 2020 and March 2021 LTI awards
ROA 15% 14.0% 17.0% 20.0% 27.6% 22.5%
Total shareholder return (TSR) 10% inflation*
pa
inflation*
+1 ppt pa
inflation*
+2 ppt pa
27.3%*pa 15.0%
HEPS growth 10% inflation*
pa
inflation*
+1 ppt pa
inflation*
+2 ppt pa
818.5cents~ 15.0%
Gross margin 15% 49.0% 51.0% 53.0% 52.5% 20.7%
Inventory turn 10% 3.5times 4.0times 4.5times 4.2times 12.1%
Strategic targets (including COVID-19 recovery) 40% 50.0% 100.0% 150.0% 130.0% 52.0%
Total 100% 137.3%
Pink image
* TSR of 27.3% pa represents compound annual growth of inflation plus 21.8 percentage points per annum.
~ Pro forma HEPS of 818.5 cents represents compound annual growth of inflation plus 20.3 percentage points per annum.
2023 LTI strategic targets

The LTI strategic targets achieved are as follows:

Strategic target Rating description Rating
%
Weighting
%
Weighted
results
%

Dramatically improve the profitability of Office.

Significant progress including:

  • Closure of most of the unprofitable stores
  • Alignment with Truworths best-in-class retail practices
  • Improvements in stock turn, freeing up working capital
  • The repayment of all loans with a healthy cash balance at period end
  • Optimal selection of key brands and enhanced relationships with key brand suppliers
  • Shared services across many support areas to minimise costs
  • Improved online capability, including the implementation of a CRM solution, the modernisation of the Office and Offspring websites and the launch of additional payment options
  • The closure of one of the two Office warehouses to reduce costs and improve distribution efficiency

These factors have contributed to strong performance in Office, and the business is now positioned for further store expansion.

150

25

37.5

Create new world-class retail formats for Truworths with particular emphasis on the flagship Emporium store concept.

New groundbreaking design for the Truworths Emporium (called Truworths Re-imagined) was completed with the first store using this design opening shortly after the financial year-end.

Included our separate kids brands (LTD Kids, Earthchild and Naartjie) into a compelling Truworths Kids Emporium format with great success.

Created the Identity Megastore concept, including Identity Kids, modelled along the lines of the Truworths Emporium with separate entrances, and successfully rolled out this concept.

Configured and built the Truworths 'designer' concept called Context, a format for our designer brands, along with selected fragrance, home and accessories to complement the mix and to create an exclusive feel.

130

20

26.0

New brand formats to cater for lifestyles that are relevant to the fashionable and youthful South African.

Fuel, a streetwear brand launched and now in 49 stores.

Our interpretation of a "value" offering, which is good value but still with good quality, was launched through Sync and is now in 19 stores.

A number of brand extensions were successfully launched.

125

20

25.0

Significantly upgrade the Truworths, Identity and Office London (SA) e-commerce offering.

The Truworths and Office London (SA) e-commerce website was significantly enhanced with added functionality, additional services and a core recommendation engine to improve sales.

The Identity e-commerce site was launched.

125

20

25.0

Implement broad-based phased succession plan.

The board is now satisfied with the succession plans, including the appointment of two Joint Deputy CEOs, a strong executive team in Truworths and the continued on-boarding of an experienced MD in Office.

110

15

16.5

Total     100 130.0

Long-term incentives awarded during the 2023 financial period

During the period the committee agreed and recommended for approval by the board the performance targets for the relevant share plans in relation to awards made in the 2023 reporting period.

These targets were set taking into account the macroeconomic environments in which the operating segments of the Group operate. They are aimed at rewarding management for achieving strategic imperatives aligned with the Business Philosophy which are: growing revenue, containing the 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 embodied in the strategic projects.

The performance measures and targets for these awards made to executive directors were disclosed in the policy section of the Remuneration report in the Integrated Report 2022.

Executive director share plan allocations in the 2023 financial period:

    2023     2022  
Executive director Number
of shares
and type '000
Face value
of shares
allocated
R'000
Face value
as % of
guaranteed
pay
Number
of shares
and type
'000
Face value
of shares
allocated
R'000
Face value
as % of
guaranteed
pay
Performance share plan (PSPs) (with performance targets)*
Michael Mark 263 PSPs 15 300 141 228 PSPs 12 438 122
Emanuel Cristaudo 103 PSPs 5 980 115 55 PSPs 3 000 108
37 RSPs 2 000
Sarah Proudfoot 104 PSPs 6 015 115 99 PSPs 5 414 117
* The long-term incentive policy was amended and therefore no non-performance restricted shares were awarded to any executive director during the reporting period.
Note 1: The awards have a vesting period of between three and five years.
Note 2:

The vesting periods for executive directors' shares awarded in September 2022 are as follows:

  • Michael Mark: three years, with 100% vesting in year three
  • Emanuel Cristaudo: four years with 40% vesting in year three and 60% vesting in year four
  • Sarah Proudfoot: five years with 30% vesting in years three and four, and 40% vesting in year five
Note 3: The performance measurement takes place at the end of financial year three, being June 2025
Note 4: No shares vest if performance falls below the 50% vesting target, whilst performance above the maximum 150% vesting target does not increase the vesting percentage above 150%

Total share plan allocations to all participants in the 2023 financial period:

Plan Number of
participants
Face value
of awards
R'000
Restricted share plan (with no performance targets) 468 84 071
Performance share plan (with performance targets) 42 60 301

Share instruments awarded to employees and executives, including the above share plan allocations in the 2023 financial period, (ie total share scheme utilisation) constitute 13 529 000 shares, being 2.9% (2022: 3.4%) 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 0.70% of shares in issue at June 2012 (1.0% in terms of the policy).

The committee will evaluate the introduction of a minimum shareholding level for executives in the coming year. It notes that shares held by executives in their personal capacity as at the reporting date were as follows:

Vested shares
held in private
capacity
Vested shares held
and pledged
pursuant to the
1998 share option
scheme
Total value of
vested shares
Rm
Value of loans
pursuant to
share scheme
Rm
Value of vested
shares net of
loans outstanding
Rm
Multiple of
guaranteed pay
Michael Mark 323 573 1 550 000 106 43 63 580%
Sarah Proudfoot 92 299 81 000 10 2 8 153%
Emanuel Cristaudo*
* Emanuel Cristaudo was employed effective 1 July 2021 and therefore no shares have vested yet

Executive directors' remuneration

Please refer to the Group Audited Annual Financial Statements 2023 on the company's website 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 2023, while the values of qualifying dividends and long-term incentives have been calculated in terms of the requirements of King IV.

The fair value of long-term incentive awards is included in the period when performance targets are measured, notwithstanding that vesting of the award (and therefore the benefit to the participant) occurs in future years.

The single figure remuneration information has been separated into remuneration received and remuneration receivable (representing the fair value of long-term incentives) to provide improved disclosure of long-term incentive awards. An important reason for the separation is that the vesting of long-term incentives take place over time (ie tranche vesting) as opposed to once-off "cliff vesting" at the end of the performance measurement period. The committee is of the view that this aligns the participants with shareholder interests as they remain vested in the performance of the business after the performance measurement period. It is important to note that the fair value of long-term incentives is calculated with reference to the five-day volume weighted average price before the end of the financial year, and therefore is not a reflection of the value that may be earned at the date of future vesting and could be subject to forfeiture in certain circumstances.

      Single-figure remuneration - received (excluding LTIs)          Single-figure remuneration
- receivable (LTIs only)
Director  Months 
paid 
Total 
annual 
guaranteed 
pay 
R'000 
Benefits*
R'000  
Short-term 
cash 
incentive 
R'000 
Benefit of 
interest- 
free loans 
pursuant to 
1998 share 
scheme 
R'000 
Qualifying  
dividends#
R'000  
   Single 
figure of 
remuneration 
received 
R'000 
Vesting dates and fair value of  
long-term incentive receivable^
R'000  
2023 
Michael Mark  12  10 860  100   13 250  3 334  10 715      38 259  Sep 2023: 12 860  
Sep 2024: 19 290  
Emanuel Cristaudo  12  5 217  –   5 951  –  794      11 962  –  
Sarah Proudfoot  12  5 217  59   5 951  175  2 466      13 868  Sep 2023: 3 953  
Sep 2024: 3 953  
Sep 2025: 5 270  
2022 
Michael Mark  12  10 200  –   15 300  2 100  7 902      35 502  –  
Emanuel Cristaudo  12  4 600  1 000   6 890  –  306      12 796  –  
Sarah Proudfoot  12  4 627  8   6 890  110  1 709      13 344  Sep 2022: 2 161  
Sep 2023: 3 242  
* Benefits comprise subsistence allowances for local and overseas travel, long-service awards and fringe benefits on life insurance premiums paid.
# 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.
^ 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 company's share at period-end and the strike price multiplied by the CPT vesting percentage and the number of awards.

Total awards and cash flow

Director Award type Opening
balance
4 July 2022
'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
2 July 2023
'000
Cash flow on
settlement
R'000
Estimated
closing
fair value
2 July 2023
R'000
2023
Michael Mark 2 755 263 (107) 2 911 10 715 101 405
Options 450 450 5 319
Shares 1 550 1 550 44 476
Restricted shares with performance conditions 755 263 (107) 911 51 610
Emanuel Cristaudo 92 103 (9) 186 794 10 501
Restricted shares without performance conditions 37 (9) 28 1 558
Restricted shares with performance conditions 55 103 158 8 943
Sarah Proudfoot 525 104 29 (90) 568 2 466 27 652
Options 13 13 71
Shares 81 81 25 290
Restricted shares with performance conditions 404 104 29 (90) 447 2 291
Appreciation rights without performance conditions 15 15
Appreciation rights with performance conditions 12 12
Director Award type 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
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 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

Other than the executive and non-executive directors, the company does not have any prescribed officers as defined in the Companies Act (No. 71 of 2008, as amended) of South Africa.

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.
Non-executive directors' remuneration

The total fees paid to non-executive directors in respect of the 2023 and 2022 financial periods are detailed below.

  Total remuneration
(excluding VAT)
Months
paid
2023
R'000
2022
R'000
Hilton Saven 12 1 862 1 622
Hans Hawinkels 12 702 648
Rob Dow 12 610 609
Dawn Earp 12 583 545
Maya Makanjee 12 510 470
Tshidi Mokgabudi 12 583 385
Thabo Mosololi 12 550 385
Roddy Sparks 12 898 853
Tony Taylor 12 610 569
Michael Thompson* 2 165 670
Total 7 073 6 756
* Resigned with effect from 1 September 2022.
INTEGRATED REPORT 2023