The Foschini Group Limited (TFG) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to The Foschini Group Limited Annual General Meeting. I will now hand you over to your Chair, Michael Lewis.

Thank you very much indeed. Good afternoon, ladies and gentlemen. I welcome you to the first digital and the 83rd Annual General Meeting of Shareholders of The Foschini Group Limited. In terms of Section 22.27 of the Memorandum of Incorporation, which I'll talk -- refer to as MOI going forward, I'm chairing the meeting in my capacity as Chairman of the Supervisory Board of Directors. We have a quorum present, and I therefore declare this meeting properly constituted. The Chairpersons of all [Audio Gap] Supervisory Board of Directors, and we shall now proceed with the business of the meeting. Pursuant to Clause 22.28.3 of the MOI, I determined that the voting in respect of this meeting shall proceed by way of a poll. Such poll voting shall be conducted entirely electronically as contemplated in Section 63.2 of the Companies Act and Clause 22.6 through the electronic online facility provided by the transfer secretaries of the company being Computershare. For the purpose of the poll, I nominate a representative of the transfer secretaries present at this meeting to act as scrutineers. All the resolutions to be proposed at today's Annual General Meeting have been seconded by Mr. D. Van Rooyen, the company's Secretary. I will now open the voting on the electronic online facility and voting can be performed at any time during the meeting until I close the voting on the resolutions. You will still be able to send messages and view the webcast while the poll is open, and I will allow any questions pursuant to the motions to be discussed after I have tabled the last resolution on the agenda. The trading update was released on SENS yesterday. If there are any questions in respect to the trading update, please submit these as well, and they will also be discussed at the end of the meeting. I will now deal with each of the resolutions in turn. Ordinary resolution #1. The first item on the agenda, ordinary resolution #1, is to receive and adopt the annual financial statements of the company and the group for the year ended 31 March, 2020. I move that the annual financial statements of the company and its subsidiaries as approved by the Supervisory Board, incorporating [Audio Gap] ended March 31, 2020, as well as the Social and Ethics Committee report contained in the 2020 integrated annual report be taken as read. I propose that the annual financial statements for the year ended 31 March, 2020, and the independent auditor's report, Director's report, the Social and Ethics Committee report and the Audit Committee report be approved and adopted. Would you now please complete your electronic voting in respect to ordinary resolution #1? The resolution #2 is to reappoint Deloitte & Touche as auditors of the company and Mr. M. van Wyk as the designated partner until the following Annual General Meeting. The Audit Committee has considered the reappointment of the auditors and recommends the reappointment of Deloitte & Touche. The third item on the agenda, ordinary resolution #3, is to reelect Ms. N. V. Simamane, who is retiring by rotation as an Independent Nonexecutive Director in accordance with the provisions of the MOI. Ms. N. V. Simamane, being eligible, offers herself for reelection as an independent Nonexecutive Director. Ms. N. V. Simamane's CV was included in the notice and appears on Page 11 of the notice. The Nomination Committee has [ considered ] Ms. Simamane and recommends her reappointment. I therefore propose that Ms. N. V. Simamane, an Independent Nonexecutive Director retiring by rotation, be reelected as an Independent Nonexecutive Director. Would you please complete your electronic voting in respect to ordinary resolution #3? The fourth item on the agenda, ordinary resolution #4, is to reelect Mr. D. Friedland, who is retiring by rotation as an Independent Nonexecutive Director in accordance with the provisions of the MOI. Mr. D. Friedland, being eligible, offers himself for reelection as an Independent Nonexecutive Director. Mr. D. Friedland's CV was included in the notice and appears on Page 11 of the notice. The Nomination Committee has considered the reappointment of Mr. D. Friedland and recommends his reappointment. I therefore propose that Mr. D. Friedland, an Independent Nonexecutive Director retiring by rotation, be reelected as an Independent Nonexecutive Director. Will you now please complete your electronic voting in respect of ordinary Resolution #4? The fifth item on the agenda, ordinary resolution #5, is to reelect Mr. R. Stein, who is retiring by rotation as an Independent Nonexecutive Director in accordance with the provisions of the MOI. Mr. R. Stein, being eligible, offers himself for reelection as an Independent Nonexecutive Director. Mr. R. Stein's CV was included in the notice and appears on Page 11 of the notice. The Nominations Committee has considered the reappointment of Mr. R. Stein and recommends his reappointment. I therefore propose that Mr. R. Stein, an Independent Nonexecutive Director retiring by rotation, be reelected as an Independent Nonexecutive Director. Would you please complete your electronic voting in respect of ordinary resolution #5? The sixth item on the agenda, ordinary resolution #6, is to reelect Mr. G. H. Davin, who is retiring by rotation as an Independent Nonexecutive Director in accordance with the provisions of the MOI. Mr. G H. Davin, being eligible, offers himself for reelection as an Independent Nonexecutive Director. Mr. Davin's CV was included in the notice and appears on Page 11 of the notice. The Nominations Committee has considered the reappointment of Mr. Davin and recommends his reappointment. I therefore propose that Mr. G. H. Davin, an Independent Nonexecutive Director retiring by rotation, be reelected as an Independent Nonexecutive Director. Would you now please complete your electronic voting in respect of ordinary Resolution #6? Ordinary resolution #7, the seventh item on the agenda, is to elect Mr. E. Oblowitz, an Independent Nonexecutive Director, as a member of the Audit committee. Mr. E. Oblowitz' CV was included in the notice and appears on Page 12 of the notice. The Nomination Committee has considered the appointment of Mr. E. Oblowitz and recommends his appointment. I propose that Mr. E. Oblowitz, an Independent Nonexecutive Director be appointed as a member of the Audit Committee. Would you now please complete your electronic voting in respect of ordinary resolution #7? The eighth item on the agenda, ordinary resolution #8, is to elect Ms. B. L. M. Makgabo-Fiskerstrand, an Independent Nonexecutive Director, as a member of the Audit Committee. Ms. B. L. M. Makgabo-Fiskerstrand's CV was included in the notice and appears on Page 12 of the notice. The Nomination Committee has considered the appointment of Ms. B. L. M. Makgabo-Fiskerstrand and recommends her reappointment. I propose that Ms. B. L. M. Makgabo-Fiskerstrand, an Independent Nonexecutive Director, be appointed as a member of the Audit Committee. Would you now please complete your electronic voting in respect of ordinary resolution #8? The ninth item on the agenda, ordinary resolution #9, is to elect Mr. R. Stein, an Independent Nonexecutive Director, as a member of the Audit Committee. Mr. R. Stein's CV was included in the notice and appears on Page 13 of the notice. The Nominations Committee has considered the appointment of Mr. R. Stein and recommends his appointment. I propose that Mr. R. Stein, an Independent Nonexecutive Director, be appointed as a member of the Audit Committee. Will you now please complete your electronic voting in respect of ordinary resolution #9? 10 is to elect Ms. N. V. Simamane, an Independent Nonexecutive Director, as a member of the Audit Committee. Ms. N. V. Simamane's CV was included in the notice and appears on Page 13 of the notice. The Nominations Committee has considered the appointment of Ms. Simamane and recommends her appointment. [Audio Gap] Independent Nonexecutive Director, be appointed as a member of the Audit Committee. Will you now please complete your electronic voting in respect of ordinary resolution #10? Ordinary resolution #11, the 11th item on the agenda, is to elect Mr. D. Friedland, an independent Nonexecutive Director, as a member of the Audit Committee. Mr. Friedland's CV was included in the notice and appears on Page 13 of the notice. The Nominations Committee has considered the appointment of Mr. D. Friedland and recommends his appointment. I propose that Mr. D. Friedland, an Independent Nonexecutive Director, be appointed as a member of the Audit Committee. Would you now please complete your electronic voting in respect of ordinary resolution #11? The 12th item on the agenda, ordinary resolution #12, is to endorse by way of a nonbinding advisory vote the company's remuneration policy as set out in the Remuneration Committee Report on Pages 125 to 139 of the integrated annual report. I propose that the company [Audio Gap] The 13th item on the agenda, ordinary resolution #13, is to endorse by way of a nonbinding advisory vote the company's remuneration implementation report as set out in the Remuneration Committee report on Pages 140 to 146 of the integrated annual report. I propose that the company's remuneration implementation report be endorsed. Will you now please complete your electronic voting in respect of ordinary resolution #13? The 14th item on the agenda, ordinary resolution #14, subject to the passing of special resolution 1, is to approve the TFG 2020 Share Appreciation Rights plan, which I'll refer to as SAR 2020. The salient features of the SAR 2020 were included in the notice and appear on Pages 14 to 18 of the report. Copies of the SAR 2020 were also made available for inspection during normal business hours at, one, the registered office of the company from the date of issue of the 2020 integrated annual report; and also on TFG's website. The percentage of voting rights required for the adoption of this ordinary resolution 14 is more than 75% of the voting rights capable of being exercised in respect of this ordinary resolution #14. I propose that ordinary resolution #14 be approved and adopted. Would you now please complete your electronic voting in respect of ordinary resolution #14? The 15th item on the agenda, ordinary resolution #15, subject to the passing of special resolution 2, is to approve the TFG 2020 Forfeitable Share Plan, which I will refer to as FSP 2020. The salient features of the FSP 2020 were included in the notice and appear on Pages 14 to 18 of the notice. Copies of the FSP 2020 were also made available for inspection during normal business hours at the registered office of the company from the date of issue of the 2020 integrated annual report, and also on the TFG website. The percentage of voting rights required for the adoption of this ordinary resolution #15 is more than 75% of the voting rights capable of being exercised in respect of this ordinary resolution #15. I propose that ordinary resolution #15 be approved and adopted. Would you now please complete your electronic voting in respect of ordinary resolution #15? The 16th item on the agenda, special resolution #1, subject to the passing of ordinary resolution 14, is to authorize and approve as a special resolution for all purposes under the Companies Act, including but not limited to Sections 41.1, 44.2 and 45.2 of the Companies Act, the adoption and implementation of SAR '20. By way of explanation, this resolution seeks to obtain approval for the shareholders of the company to enable the company to adopt, authorize and fully implement the SAR 2020, which includes shareholder approval by way of special resolution under the Companies Act, including but not limited to, Section 41.1 as the SAR 2020 contains rights exercisable for shares and such shares may be issued to related and interrelated persons, such as Executive Directors and prescribed officers of the company and the group who qualify as participants under the SAR 2020; and also Sections 44.2 and 45.2 as the SAR 2020 may involve to giving a financial assistance to directors and prescribed officers of the company and the group and financial assistance in connection with the acquisition of shares of the company. I propose that special resolution #1 be adopted -- approved and adopted. Will you now please complete your electronic voting in respect of special resolution #1? The 17th item on the agenda, special resolution #2, subject to the passing of ordinary resolution 15, is to authorize and approve as a special resolution for all purposes under the Companies Act, including but not limited to Sections 41.1, 44.2 and 45.2 of the Companies Act, the adoption and implementation of FSP 2020. By way of explanation, this resolution seeks to obtain approval from the shareholders of the company to enable the company to adopt, authorize and fully implement the FSP 2020, which includes shareholder approval by way of special resolution under the Companies Act, including but not limited to Section 41.1 as the FSP 2020 contains rights exercisable for shares and such rights may be issued to related and interrelated persons, such as Executive Directors and prescribed officers of the company and the group who qualify as participants under the FSP 2020; and also Sections 44.2 and 45.2 as the FSP 2020 may involve to giving a financial assistance to directors and prescribed officers of the company and the group and financial assistance in connection with the acquisition of shares in the company. I propose that special resolution #2 be approved and adopted. Will you now please complete your electronic voting in respect of special resolution #2? The 18th item on the agenda, special resolution #3, is to approve an amendment to the MOI of the company whereby a new clause, 24.13(a) will be inserted immediately after the existing clause, 24.13 is polished. 24.13(a), in addition to clause 24.13, either the Chairman or the Deputy Chairman of the Board shall be entitled with written consent of the remaining directors of the Board to appoint any person as a Director in terms of Section 66.4(a)1 of the Companies Act provided that such appointment must be ratified by the shareholders by way of ordinary resolution at the next Annual General Meeting. By way of explanation, the reason for the aforesaid special resolution #3 is that Section 16.1(c) of the Companies Act requires the shareholders to approve by way of a special resolution any amendments to the MOI. The effect of the aforesaid resolution is that the MOI will be amended in accordance with the amendment set out above. I propose that special resolution #3 be approved and adopted. Would you now please complete your electronic voting in respect of special resolution #3? And Anthony, would you please chair the next resolution?

Thank you, Michael. Special resolution #4. The 19th item on the agenda, special resolution #4, as set out in the notice convening this meeting, is to approve the remuneration to be paid to Nonexecutive Directors for the period on October 2020 to 30 September 2021. Full details of which are contained in the notice. I move that special resolution #4, as set out in the notice convening this meeting, be taken as read. I now propose that special resolution #4, as set out in the notice convening this meeting, be approved and adopted. Will you now please complete your electronic voting in respect of special resolution #4? Thank you. Michael, I'll hand back to you.

Thank you. The 20th item on the agenda, special resolution #5, is to approve, that the company may provide direct or indirect financial assistance to a related or interrelated company or corporation, provided that such financial assistance may only be provided within 2 years from the date of adoption of the special resolution and subject further to Sections 44 and 45 of the Companies Act. I move that special resolution #5 and the reason and effect of special resolution #5 as set out in the notice convening this meeting be taken as read. I now propose that special resolution #5 as set out in the notice convening the meeting be approved and adopted. Will you now please complete your electronic voting in respect of special resolution #5? [Audio Gap] item on the agenda, ordinary resolution #16, is to authorize any Director of the company or the Company Secretary of the company to carry out and do all such things and matters as may be or are necessary in connection with the subject matter of the ordinary resolutions 1 to 16 and special resolutions 1 to 5 proposed at the company's Annual General Meeting, including, without limitation, being authorized to make, amend and sign all and any such necessary documents, letters, applications, announcements and affidavits as may be required for purposes of and in connection with any such resolution, and including, without limitation, such Companies and Intellectual Property Commission, CIPC, [ forms ] as required in connection with the resolutions above and to pay the filing fees, if any, in respect of the MOI of the company to CIPC. I propose that ordinary resolution #16 be approved and adopted. Will you now please complete your electronic voting in respect of ordinary resolution #16? The last item on the agenda is to transact any other business that may be transacted at an Annual General Meeting. Notice has not been received of any other business, and this, therefore, concludes the matters upon which we are required to vote. I will now allow any questions pursuant to the resolutions tabled at today's Annual General Meeting to be discussed before closing the voting. Mr. Van Rooyen, have any questions been raised pursuant to the resolutions tabled at today's Annual General Meeting?

Yes, Mr. Chairman, we have 3 questions raised by [ Nikliri Nakube ] and I'll read them out one at a time. The first question relates to the remuneration policy and the remuneration implementation, and the question reads as follows: Although a few of the concerns raised before have been considered, areas of concerns around the payment of dividends on unvested shares to Executive Directors. This practice is frowned upon as payments are inadvertently disclosed -- been adequately disclosed, and the payments have not been earned as there should not be any entitlement until shares have vested. Dividends on the performance shares undermine the efforts to link pay to performance.

So I think I'm going to ask Eddy to address that. And if you need any additional comment maybe, Anthony, but let's go to Eddy first if that's possible. Eddy?

Thank you, Chair, and thank you, [ Mr. Nakube ], for your questions. Certainly, in terms of the first question, we will look into it. We do have a principle of aligning shareholders to the TFG staff who benefit from our share schemes, but this is something that we will look into. I see there's another question from you regarding rem. So maybe after Darwin has read that, so Mr. Chair and I will respond to that as well.

Thanks, Eddy.

So the second question relating to the remuneration policy implementation. Given the challenges of the COVID pandemic, how will the RemCo adjust the stretch targets to ensure that executives are not penalized by the environment, but at the same time, not setting very low hurdles?

So it's a very good question. Eddy, can you tackle that?

So obviously, this is a question that's quite germane to most corporates around the world, given the global pandemic. And I'm pleased to say that we've really started to engage with some of our shareholders, and we'll continue to do so to obtain input and guidance from them in terms of them offering ideas and, as I said, guidance on how to approach this in the most pragmatic way. It is a very, very difficult situation now to be able to plan ahead in terms of target-setting. So this is, as I say, a matter that is already on our agenda, Mr. Chairman, for discussion and implementation.

Good. Darwin, further questions?

Yes. Mr. Chairman, there's one more question pursuant to the resolutions, and it relates to special resolution #5. And the question is, given the recent capital raise, how much is anticipated to be allocated to interrelated companies, particularly acquisition targets?

Anthony, would you like to address that?

Yes. Thanks, Michael. Again, a very good question. I'll try and summarize. We had a slide on this in our year-end results presentation when we announced the proposed capital raise. There were really, I think, 3 key objectives behind us going to the market for the capital raise. The first was clearly to insulate our balance sheet given the level of COVID-related uncertainty ahead of us. Nobody had or still has any real insights in terms of how long this is going to run and the economic impact that this might have, both in South Africa and, in fact, all the territories that we operate within. We did set a target. We said we wanted to reduce our net debt-to-EBITDA ratio to between 1 and 1.5x. We felt that, that was probably the appropriate risk appetite given the current uncertainty in the market. So that was very much objective number one. Objective number two was to provide sufficient capital to allow the group to continue to invest behind some of its own key organic growth levers. These are the areas that we've already proven have been fundamentally important to our success as a group and I think, if anything, during the coverage period have become even more critically important. And these 2 areas more specifically are in the e-commerce space and in the local supply chain and quick response manufacturing areas, both of those have just become much, much more important. And then the third element was really to position ourselves to be able to act swiftly and decisively if we did find suitable acquisition opportunities. We didn't have in mind at the time, but we did anticipate that there was likely to be consolidation right across the market. As it turned out, I think the timing was very fortuitous, and this allowed us in some ways to have the confidence to pursue the Jet acquisition. I think if we hadn't gone through the capital raise or knew that, that was in play, we might have been a bit more reticent really to look at any opportunities no matter how favorable they might be. So I think that's probably a summary of where we see the capital value.