Shareholders’ dissatisfaction on display at Truworths AGM

An unprecedented 42.23% of shareholders voted against the re-appointment of Rob Dow to Truworths’ audit committee at the group’s annual general meeting on Thursday. In addition, a hefty 40.72% voted against the re-appointment of Mike Thompson to the same committee. A further indication that shareholders are not happy with the profile of the board was the 32.18% vote against the re-appointment to the board of chairman Hilton Saven.

As a general rule, shareholders seldom vote against non-executive directors and rarely against their appointment to board committees. However, this is the second consecutive year that both Thompson and Dow’s re-appointment to the audit committee has faced significant opposition. At the 2019 AGM 28% of shareholders voted against Thompson and 30% against Dow.

“This board is tone deaf,” said Mike Martin of Active Shareholder, a proxy adviser to ethical investors, which recommended voting against both directors again being appointed to the Audit Committee.

Martin said that despite last year’s long overdue introduction of new directors to the Truworths’ board, and despite the requirement that members of audit committees be independent, Truworths’ audit committee continues to be dominated by long-serving directors. “Dow (63), has been a director for 22 years, therefore we do not consider him sufficiently independent to serve on this committee,” says Martin. Likewise for Thompson (77), who has been a director for 16 years.

Martin is also frustrated by the board’s announcement during the AGM, that it is holding onto external auditor EY until 2023, when implementation of the mandatory auditor rotation will force it to change. Active Shareholder recommended voting in favour of the reappointment of EY this year because it believed Truworths was in the process of finding a replacement.

“The audit committee report states that a tender process would be undertaken in the 2021 financial year to replace the auditors. We do not like the fact that the auditors have been in office for such a long period (45 years), but given that the process to replace them looked set to take place in the coming year, we supported the reappointment for a further year,” said Martin, adding that now it seems EY will be hanging on for even longer. Some 27.08% of shareholders voted against EY’s reappointment.

In response to pension fund advisor Mehluli Ncube’s question on the impact of Covid-19 on executive targets, group CEO Michael Mark told the meeting that executives have missed a significant number of long-term targets for awards issued three years ago. They also did not earn any short-term incentives. “Salary increases have increased at the normal rate,” he added.

In 2020 Mark’s remuneration was R20.4 million, which includes R1.7 million of long-term incentives and R5.7 million of “qualifying dividends”. The R1.7 million was awarded for reaching ‘strategic long-term targets’, details of which are not disclosed in the group’s remuneration report.

The report does disclose that the “qualifying dividends” include dividends on performance shares, which have not yet vested and for which performance has still to be measured against agreed targets. The directors’ have had to provide security for the possibility of dividends having to be repaid if the targets are not achieved. In addition to the R20.4 million Mark, who holds more than 2.4 million Truworths’ shares, has an outstanding loan owed to Truworths of R43 million, which relates to a 1998 share scheme.

On Thursday the share price perked up, adding R1.19c to R34.70, and this continued into Friday, with the share rising above R35.60, but it remains significantly off its early 2018 high of R106, with investors evidently unhappy about the extensive write-offs that had to be taken on its R5.5 billion 2015 acquisition of UK footwear retailer Office.

Total write-offs to date come to R4.7 billion. Mark told the meeting that it is unlikely that further impairments will be necessary.

Group chief operating officer David Pfaff added that a review is undertaken at each reporting period. “There are £17 million worth of trademarks left; it’s still too early to tell if we will take additional impairments at this stage.”