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

Thank you. Good afternoon, ladies and gentlemen. I welcome you all to the 86th Annual General Meeting of the Shareholders of The Foschini Group Limited. In terms of Section 22.27 of the Memorandum of Incorporation, which I will refer to as the MOI, I am 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. I would also like to welcome the members of the Board who are in attendance at today's meeting as well as the Company Secretary, Mr. Darwin Van Rooyen; the chairpersons of all the Board committees are present at this meeting. Notice of this meeting has been given in terms of the MOI and the Companies Act. The minutes of the previous Annual General Meeting held on the 8th of September 2022, have been verified by the Supervisory Board of Directors. We shall now proceed with the business of the meeting. Pursuant to clause 22.283 of the MOI, I determine 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 of the MOI through the electronic online facility provided by the transfer secretaries of the company being Computershare, who I will call the transfer secretaries. 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. Darwin Van Rooyen, the Company 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 whilst 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. A trading update and trading statement were released on SENS on Tuesday, the 5th of September 2023. If there are any questions in respect of the trading update and trading statement, please submit these as well as they will also be discussed at the end of the meeting. I will now deal with each of the resolutions in turn. 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 2023. I move that the annual financial statements of the company and its subsidiaries, as approved by the Supervisory Board, incorporating the independent auditors' report, the directors' report and the Audit Committee report for the year ended 31 March 2023 as well as the Social and Ethics Committee report contained in the 2023 integrated annual report be taken as read. I propose that the annual financial statements for the year ended 31 March 2023 and the independent auditors' report, directors' report, the Social and Ethics Committee report and Audit Committee report be approved and adopted. Will you now please complete your electronic voting in respect of Ordinary Resolution #1? [Voting]

The second item on the agenda, Ordinary Resolution #2, is to reappoint Deloitte & Touche as auditors of the company and Mr. J. H. W. de Kock 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. I therefore propose that Deloitte & Touche be reappointed as auditors of the company and that the designated partner is Mr. J. H. W. de Kock until the following Annual General Meeting. Would you now please complete your electronic voting in respect of Ordinary Resolution #2? [Voting]

The third item on the agenda, Ordinary Resolution #3, is to reelect Mr. R. Stein, who is retiring by rotation, as an Independent Non-Executive Director in accordance with the provisions of the MOI. Mr. R. Stein, being eligible, offers himself for reelection as an Independent Non-Executive Director. Mr. R. Stein's CV was included in the notice and appears on Page 11 of the notice. The Nomination Committee has considered the reappointment of Mr. R. Stein and recommends his reappointment. I therefore propose that Mr. R. Stein, an Independent Non-Executive Director retiring by rotation, be reelected as an Independent Non-Executive Director. Will you now please complete your electronic voting in respect of Ordinary Resolution #3? [Voting]

The fourth item on the agenda, Ordinary Resolution #4, is to reelect Ms. N. V. Simamane, who is retiring by rotation as an Independent Non-Executive Director, in accordance with the provisions of the MOI. Ms. Simamane, being eligible, offers herself for reelection as an Independent Non-Executive Director. Ms. Simamane's CV was included in the notice and appears on Page 11 of the notice. The Nomination Committee has considered the reappointment of Ms. Simamane and recommends her reappointment. I therefore propose that Ms. N. V. Simamane, an Independent Non-Executive Director retiring by rotation, be reelected as an Independent Non-Executive Director. Will you now please complete your vote -- your electronic voting in respect of Ordinary Resolution #4? [Voting]

The fifth item on the agenda, Ordinary Resolution #5, is to reelect Mr. D. Friedland, who is retiring by rotation as an Independent Non-Executive Director, in accordance with the provisions of the MOI. Mr. D. Friedland, being eligible, offers himself for reelection as an Independent Non-Executive Director. Mr. 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. Friedland and recommends his reappointment. I therefore propose that Mr. D. Friedland, an Independent Non-Executive Director retiring by rotation, be reelected as an Independent Non-Executive Director. Will you now please complete your electronic voting in respect of Ordinary Resolution #5? [Voting]

The sixth item on the agenda, Ordinary Resolution #6, is to reelect Mr. J. N. Potgieter as an Independent Non-Executive Director in accordance with the provisions of the MOI. Mr. J. N. Potgieter, being eligible, offers himself for reelection as an Independent Non-Executive Director. Mr. J. N. Potgieter was appointed on the 10th of July 2023 as an Independent Non-Executive Director of TFG by the Supervisory Board in terms of the MOI. Mr. J. N. Potgieter is required to retire his appointment at the end of the Annual General Meeting in terms of the MOI, unless reelected by the shareholders as contemplated herein. Mr. Potgieter's CV was included in the notice and appears on Page 12 of the notice. The Nomination Committee has considered the reappointment of Mr. Potgieter and recommends his reappointment. I therefore propose that Mr. J. N. Potgieter, an Independent Non-Executive Director, be reelected as an Independent Non-Executive Director. Will you now please complete your electronic voting in respect of Ordinary Resolution #6? [Voting]

The seventh item on the agenda, Ordinary Resolution #7, is to elect Mr. E. Oblowitz, an Independent Non-Executive Director, as a member of the Audit Committee. Mr. Oblowitz' CV was included in the notice and appears on Page 13 of the notice. The Nomination Committee has considered the appointment of Mr. Oblowitz and recommends his appointment. I propose that Mr. E. Oblowitz, an Independent Non-Executive Director, be appointed as a member of the Audit Committee. Will you now please complete your electronic voting in respect of Ordinary Resolution #7? [Voting]

The eighth item on the agenda, Ordinary Resolution #8, is to elect Ms. B. L. M. Makgabo-Fiskerstrand, as an Independent Non-Executive Director -- an Independent Non-Executive Director as a member of the Audit Committee. Ms. Makgabo-Fiskerstrand's CV is included in the notice that appears on Page 13 of the notice. The Nomination Committee has considered the appointment of Ms. Makgabo-Fiskerstrand and recommends her appointment. I propose that Ms. B. L. M. Makgabo-Fiskerstrand, an Independent Non-Executive Director, be appointed as a member of the Audit Committee. Would you now please complete your electronic voting in respect of Ordinary Resolution #8? [Voting]

The ninth item on the agenda will be Resolution #9, is to elect Mr. G. H. Davin, an Independent Non-Executive Director, as a member of the Audit Committee. Mr. Davin's CV was included in the notice and appears on Page 14 of the notice. The Nomination Committee has considered the appointment of Mr. Davin and recommends his appointment. I propose that Mr. G. H. Davin, an Independent Non-Executive Director, be appointed as a member of the Audit Committee. Will you now please complete your electronic voting in respect of Ordinary Resolution #9? [Voting]

The tenth item on the agenda, Ordinary Resolution #10, is to elect Ms. N. V. Simamane, an Independent Non-Executive Director, as a member of the Audit Committee. Ms. Simamane's CV was included in the notice and appears on Page 14 of the notice. The Nomination Committee has considered the appointment of Ms. Simamane and recommends her appointment. I propose that Ms. N. V. Simamane, an Independent Non-Executive Director, be appointed as a member of the Audit Committee. Will you now please complete your electronic voting in respect of Ordinary Resolution #10? [Voting]

The 11th item on the agenda, Ordinary Resolution #11, is to elect Mr. D. Friedland, an Independent Non-Executive Director, as a member of the Audit Committee. Mr. Friedland's CV was included in the notice and appears on Page 14 of the notice. The Nomination Committee has considered the appointment of Mr. Friedland and recommends his appointment. I propose that Mr. D. Friedland, an Independent Non-Executive Director, be appointed as a member of the Audit Committee. Will you now please complete your electronic voting in respect of Ordinary Resolution #11? [Voting]

The 12th item on the agenda, Ordinary Resolution #12, is to elect Mr. J. N. Potgieter, an Independent Non-Executive Director, as a member of the Audit Committee. Mr. Potgieter's CV was included in the notice and appears on Page 14 of the notice. The Nomination Committee has considered the appointment of Mr. Potgieter and recommends his appointment. I propose that Mr. J. N. Potgieter, an Independent Non-Executive Director, be appointed as a member of the Audit Committee. Will you now please complete your electronic voting in respect of Ordinary Resolution #12? [Voting]

The 13th item on the agenda, Ordinary Resolution #13, 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 136 to 144 of the integrated annual report. I propose that the company's remuneration policy be endorsed. Would you now please complete your electronic voting in respect of Ordinary Resolution #13? [Voting]

The 14th item on the agenda, Ordinary Resolution #14, 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 145 to 152 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 #14? [Voting]

Anthony, would you care to share the next resolution, please?

Thank you, Chair. Special Resolution #1, the 15th item on the agenda, Special Resolution #1, as set out in the notice convening this meeting is to approve the remuneration to be paid to Non-Executive Directors for the period 1 October 2023 to 30 September 2024, full details of which are contained in the notice. I move that Special Resolution #1, as set out in the notice convening this meeting, be taken as read. I now propose that Special Resolution #1, as set out in the notice convening this meeting, be approved and adopted. Would you now please complete your electronic voting in respect of Special Resolution #1? [Voting]

Back to you, Chair. Thank you, Chair.

Thanks very much, Anthony. The 16th item on the agenda, Special Resolution #2, 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 the adoption of this Special Resolution and subject further to Sections 44 and 45 of the Companies Act. I move that Special Resolution #2 and the reason and effect of Special Resolution #2, as set out in the notice convening this meeting, be taken as read. I now propose that Special Resolution #2, 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 #2? [Voting]

The 17th item on the agenda, Special Resolution #3, as set out in the notice convening this meeting, is to authorize the company and/or any subsidiary of the company by way of general authority from time to time to repurchase ordinary shares in the share capital of the company upon such terms and conditions and amounts as the directors of the company may from time to time determine but subject to the proviso set out on Page 6 of the notice convening this meeting. Attention is drawn to the statement by the Supervisory Board of Directors of the company and the explanatory note, which includes the reason and effect of this Special Resolution on Page 7 of the notice convening this meeting. I move that Special Resolution #3, the provisos, the statement of the Supervisory Board of Directors and the explanatory note, which includes the reason and effect of Special Resolution #3, as set out in the notice convening this meeting, be taken as read. I now propose that Special Resolution #3, 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 #3? [Voting]

The 18th item on the agenda, Ordinary Resolution #15, is to authorize any director of the company or the Company Secretary of the company to carry out and to do all such things and matters as may be or are necessary in connection with the subject matter of the Ordinary Resolutions 1 to 15 and Special Resolutions 1 to 3 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. I propose that Ordinary Resolution #15 be approved and adopted. Will you now please complete your electronic voting in respect of Ordinary Resolution #15? [Voting]

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 questions -- any questions pursuant to the resolution 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. Thanks, Mr. Chairman. We have a few questions.

The first one is from [ Julienne Kube ], and it deals with a similar theme to a question with us, so I'll read out both questions because I think they can be answered almost as one. So the first question is on Audit Committee reappointment. A number of Directors proposed to the Audit Committee are not Independent as they are long tenured. Why is the Nominations Committee proposing them for election to the committee, given this should be an independent committee? And then the second question, which is on a similar theme, how does the Board ensure the independence of long-tenured directors over 10 years on the Board? We have noted that a number of independent non-executive directors have long tenures. This puts the directors' independence to question and is not in line with best practice. Is the Board considering ratification of this issue?

Okay. Thank you. Graham, as Lead Independent Director, would you care to address these questions?

Yes. Let me address them individually. So in regard to the first question, as recommended by King IV on corporate governance, the firm categorizes non-executive directors as independent after assessing and concluding that there is no interest, position, association or relationship which, when judged from the perspective of a reasonable and informed third party, is likely to unduly or cause bias in the decision-making in the best interests of the company. King IV and other independence indicators, including long tenure, are considered holistically and, importantly, in a substance of reform basis when performing this assessment, which was also aided by an annual independence questionnaire, which was completed by each non-executive. And so it's on that basis that we conclude that the non-executive directors appointed to the Audit Committee are, in fact, independent, albeit that they have been -- have a tenure of longer than 9 years. Let me then turn to the second question, which is, does the long tenure put the matter in question on what the company is doing about it? I refer you to Page 63 of our 2023 integrated annual report where the Board did acknowledge that investors had concerns about the potential waning of independence through long tenure. But notwithstanding the fact that the Board is satisfied that all of its directors consistently demonstrated independence and character and judgment, it has decided to implement a new policy, progressively over a 3-year life path, such that over these 3 years, a non-executive director with tenure longer than [Audio Gap]

[Audio Gap] as to the RemCo's deliberations on reaching this award. Further to this, given the previous COVID headwinds and the effects, how were targets normalized given the low base we were coming from?

Thanks, Darwin. Eddie, would you care to address that, please?

Sure. Thank you, Mr. [ Ncudi ] for the question. Everything is set out in the integrated annual report. So when you look at the combined ZAR 45 million and bonuses, it's actually composed of 3 components. The one is the annual incentive or the short-term incentive of about ZAR 14.5 million. And then within the deferred incentive, there are 2 components: one being a current -- in other words, a financial year 2023 single incentive award of about ZAR 14.5 million; and the balance actually relates to residual under the old scheme at 2020 award, which has got a 3-year vesting period, which now has been paid out in meeting all the criteria. Those criteria and KPIs have all been set out, as I said, either in this report, or in prior year reports and have been validly met. It's important to note, [ Mr. Ncubi ], that the RemCo didn't apply any discretion, none whatsoever. Formulaically, in terms of the assessments of the benchmarks, of the various KPIs, they were validly met. In terms of your point about how did we deal with the benchmarks? As I said, there was no discretion applied. In fact, the prior year's award was not made because of COVID. So as I said, this is all set out, I think it's Page 148 of the report. I'd be happy to get our RemCo consultant and myself to meet with you on a one-on-one to stress test these but it's all been adequately disclosed. Thank you, Mr. Chairman.

Thank you. Darwin, any other questions regarding the resolutions?

Yes, Mr. Chairman. We have another question around the remuneration policy. Given the fashion industry's substantial impact upon climate change, why are ESG metrics not directly attributed to climate change targets?

Anthony, would you like to take that one or hand it over to…

Yes, Chair. Happy to kick it off. So I think it's a very good question and I think particularly relevant. ESG does form a specific part of our incentive scheme. I think from a South African context, in particular, the social part of ESG, the S in ESG is right now, probably our single biggest focus and that's obviously against a backdrop of an ailing economy and very, very high unemployment. What we are seeking to do first and foremost, in the ESG space is to create as many employment opportunities through our value chain, particularly with our localized manufacturing and the factories that we've either acquired or developed over the last couple of years, in particular. We do place a lot of emphasis on climate change as well over and above the social aspect in South Africa. We're working on a reduction in carbon footprint plan and in South Africa, very specifically around electricity usage, both from an environmental point of view, but equally, from a sustainability of our operations perspective, given the weakness in Eskom's performance. Chair, I think that's probably it for myself.

Okay. Good. Thank you. Darwin, any other questions related to the resolutions?

Just having a look, Mr. Chairman. No, there's no further questions related to the resolutions.

Good. Okay. Well then, have any questions been raised in respect to the trading update and trading statement, or have any other questions of a more general nature been raised?

Yes, Mr. Chairman. We have a question from [ Chris Reddy ] asking how has trade been in the period post 26th August across the various geographies and divisions? Are conditions getting better or worse?

Anthony, do you want to address that?

Sure. With pleasure. [ Chris ], thanks very much for joining the meeting and for the question. You've obviously seen our trading update. And as you said, that dealt with trade up to the 26th of August. So we're literally talking less than 2 weeks post that. And there's obviously a limit to what I can share without sharing any price-sensitive information. But I think in broad strokes, if you look at the 3 different geographies, we had seen a gradual improvement over the last couple of months. And up until the report that we put out, that has pleasingly continued and that's despite having had some elevated levels of load shedding over the last couple of days as the country moved back to Stage 6. So I think it's very short term in its nature, but more positive than not. I think equally, if you -- and this would be something you'd observe if you walk through shopping malls at the moment, we were in a super promotional period across South African retail for many of the last couple of months. For the most part, that seems to be drying up as we reach the end of the winter season. Summer is starting to appear in most retail stores at the moment. And it certainly feels like the promotional or levels of promotional activity have also lessened, which is good news that, that continues because that's obviously been one of the big pressures on gross margin. Looking at Australia and the U.K., I think, again, slightly different dynamics to South Africa and actually, even between themselves. But the last 2 weeks, we have seen slightly better trade. Again, just to state the obvious, caution again, it's over such a limited period of time that I wouldn't place too much emphasis on it, but it's certainly better news than we otherwise could be sharing. Thank you, Chair.

Thanks very much. And Darwin, any other questions?

No, Mr. Chairman. There are no further questions.

Okay. Thank you. Well, I now close the voting, and the results will be shown shortly. Okay. There they are. So the results of the polls, I'm happy to say reflect that all the ordinary resolutions and special resolutions, with the exception of Ordinary Resolution 13 have been passed by the requisite majority. I would like to say something about the results of the voting in respect of Ordinary Resolution 13, which I just mentioned, which did not pass and 14, the nonbinding advisory votes in respect of the company's remuneration policy and remuneration implementation report, respectively. We are grateful to shareholders who supported the relevant resolutions related to remuneration. However, we are disappointed that the voting outcomes of our remuneration policy and implementation were well below our expectations. These outcomes do not tangibly reflect or support the progress attained from the intensive and ongoing efforts of our Remuneration Committee to engage with shareholders throughout the year. These regular shareholder engagements serve as valuable forums for our Remuneration Committee to timelessly address shareholder concerns and coordinate the design and integration of shareholder insights and recommendations into our remuneration policy and its implementation. We reiterate: Our stated intent to ensure that the alignment of our remuneration policy and its implementation with our shareholder preferences remains a fundamental and ongoing process for our Remuneration Committee. Shareholders are invited to advise the group of their reasons for their dissenting votes on the remuneration policy and the implementation of the remuneration policy by sending correspondence by e-mail to the Company Secretary, Darwin Van Rooyen. His e-mail is [email protected], and please do so by the 7th of October. We welcome further engagement on these issues, and based on the feedback received, we'll schedule individual meetings with the relevant shareholders. As all the business on the agenda has been dealt with, I declare the meeting closed, and thank you for your attendance.