We Focus on Fashion

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Annual Report 2006 TRUWORTHS INTERNATIONAL ANNUAL REPORT 2006 SHAREHOLDERS’ DIARY

Annual general meeting 9 November 2006

Reports Annual results for the period ended 25 June 2006 announced 24 August 2006 Annual report for the period ended 25 June 2006 mailed By 30 September 2006* Interim results for the period ended 24 December 2006 announced 22 February 2006*

Dividends Dividend declared Dividend paid For the period ended 25 June 2006 24 August 2006 18 September 2006 (Dividend number 15) For the period ended 24 December 2006 22 February 2007* 20 March 2007* (Dividend number 16)

*These are approximate dates

ADMINISTRATION

we focus on fashion

Truworths International Limited Principal bankers (registration no 1944/017491/06) The Standard Bank of South Africa Limited JSE Limited code: TRU • NSX code: TRW Auditors ISIN: ZAE000028296 Ernst & Young Company secretary Lead sponsor in South Africa Chris Durham, FCIS, PG Dip. Adv. Co Law (UCT) Barnard Jacobs Mellet Corporate Finance (Pty) Limited Registered ofﬁce Joint Sponsor in South Africa No.1 Mostert Street, Cape Town, 8001, South Africa The Standard Bank of South Africa Limited Postal address Sponsor in Namibia PO Box 600, Cape Town, 8000, South Africa Old Mutual Investment Services (Namibia) Tel: +27 21 460 7911 • Telefax: +27 21 460 7132 (Pty) Limited www.truworths.co.za Attorneys Transfer secretaries Bernadt Vukic Potash and Getz In South Africa Edward Nathan and Friedland Computershare Investor Services 2004 (Pty) Limited Sonnenberg Hoffmann and Galombik 70 Marshall Street, Johannesburg, 2001, South Africa MacRoberts Inc Tel: +27 11 370 5000 • Telefax: +27 11 370 5271 www.computershare.com

In Namibia Transfer Secretaries (Pty) Limited Shop 12, Kaiserkrone Centre, Post Street Mall Windhoek, Namibia Tel:+264 61 22 3162 • Telefax: +264 61 24 8531 www.truworths.co.za

Composite our business

Truworths International Limited (’the company’) is an investment holding and management company listed on the JSE Limited and the Namibian Stock Exchange. Its trading subsidiaries, Truworths Limited (”Truworths”) and Young Designers Emporium (Pty) Limited (”YDE”), are engaged either directly, or through franchises and agencies, in the retailing of fashion apparel and related merchandise. Truworths International Limited and its subsidiaries (”the Group”) operate primarily in South Africa. our purpose

NCE O Youthful fashionable South Africans want to look attractive LLE F LEA XCE DE E E RS and successful and feel enthused with conﬁdence. To IS & N CONTR M G TO IBU E O E TE M this end, Truworths entices them into the most exciting, C AG ID E R E B U A E R O S R visually appealing “real” and virtual retail environments Y C FUTURE P S L IN OT S T EN O where they can shop effortlessly for an innovative and U S T F E I O V A T R N LEARN & L E adventurous blend of colour, fabric, value and fashion E O A I T SH N N A M E E R S styling of international standards. P E G O OVATIO N N IN

& Y E NER G the vision

FOR OUR CUSTOMERS “Truworths will be the ﬁrst place I go when I want quality fashion that makes me look attractive and feel successful because shopping at Truworths is effortless and I am helped by lively and committed people.”

FOR OUR SHAREHOLDERS “We are long-term investors in Truworths because we trust o u r in management’s capacity to execute innovative strategies which deliver signiﬁcant real growth year after year.” v a l u e FOR OUR EMPLOYEES s y s t e m “I am totally committed to Truworths because I am always encouraged to offer innovative ideas which contribute to the ultimate purpose of Truworths. As a result Truworths is generous in recognising my role as an effective team member.” CONTENTS

2 Group fi nancial highlights 3 Ratios 6 Share statistics 7 Nine year review 8 Truworths International board 10 Group structure 12 Chairman’s statement 16 Chief executive offi cer’s review 22 Group fi nancial director’s review 32 Operational reviews

32 Merchandise and brands 32 The fashion studio 33 Sourcing division 33 Supply chain 34 Review 35 Prospects 37 Group brands at a glance 38 Group brands’ performance 40 Brand review

62 Retail, store design and franchise operations 62 Retail operations 63 Store design 66 Franchise operations

68 Customer relationship management 68 Credit risk and credit operations 71 Group key debtor statistics 72 The National Credit Act 73 Analytics and market research 73 Marketing

74 Information technology 74 Applications 76 Infrastructure

78 Human resources 78 Review 82 Prospects

84 Corporate governance report 84 Compliance with King Code 84 Highlights 86 Ongoing objectives 86 The roles of the group’s boards 90 Board committees 97 Risk management 102 Internal control 102 Internal audit 103 External auditors 103 Legislative compliance 104 Remuneration 106 Financial reporting 107 Directors’ share dealings 107 Values and ethics 108 Stakeholder communication

112 Corporate social responsibility report 112 GRI content index 116 Vision for sustainability 117 Economic impact 118 Value added statements 125 Social impact 133 Environmental impact

138 Deﬁ nitions 140 Annual ﬁ nancial statements

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 1 GROUP FINANCIAL HIGHLIGHTS

% 2005 2006 2006 2005 % change 52 weeks 52 weeks 52 weeks 52 weeks change

$m $m Group summary Rm Rm 9 498 543 Sale of merchandise 3 816 3 115 23 13 104 117 Proﬁt for the period 823 648 27 13 104 117 Headline earnings 823 648 27 17 94 110 Cash generated from operations 776 587 32 9 267 290 Wealth created through cash value added 2 040 1 666 22 (10) 394 355 Total assets 2 634 2 618 1 5 1 275 1 339 Market capitalisation 9 924 8 478 17

Ordinary share performance (cents per share) Basic earnings 186.4 144.8 29 Headline earnings 186.4 144.8 29 Cash equivalent earnings 202 152 33 Dividends per share 89 69 29 Net asset value 440 407 8 Market price 2 055 1 740 18

Nine year Key ﬁnancial ratios average Operating margin (%) 33 31 23 Return on average equity (%) 44 39 29 Stock turn (times) 6.1 5.6 5.5

PROSPECTS

With the further expansion of trading space, market share gains and the continued emphasis on the fashionability of merchandise, management is conﬁdent that trading for the period will yield positive growth.

Notwithstanding the possible effects of changes to the retail environment resulting from possible further increases in interest rates, rising inﬂation and higher levels of consumer debt, management’s primary goal will be to continue to procure the right merchandise at the right price to attract the growing market of fashion conscious consumers.

A major challenge will be dealing with the implications of the China agreement, which attempts to regulate clothing and textile imports from China (see further comments on page 20).

Note: Income statement and cash flow figures have been translated at an average of R7.03/US$1 (2005: R6.25/US$1). Balance sheet figures have been translated at a closing rate of R7.41/US$1 (2005: R6.65/US$1).

2 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 RATIOS

Eight year compound growth % or nine year Truworths International Limited Group Truworths Limited average Period (Av.) 2006 2005* 2004 2003 2002 2001 2000 1999 1998 Number of weeks 52 52 52 52 53 52 52 52 52 Returns Return on average equity (%) Av. 29 44 39 38 34 32 28 (5) 26 25 Return on capital (%) Av. 47 66 59 54 48 49 38 32 37 41 Asset reinvestment rate v :1 Av. 1.3 1.5 1.6 1.0 1.0 1.2 1.3 1.3 1.1 1.7 Return on invested capital (ROIC) (%) Av. 21 27 26 25 21 22 20 17 18 16 Weighted average cost of capital (WACC) (%) Av. 16 13 13 15 14 17 16 19 20 18 ROIC divided by WACC (%) 2.1 2.0 1.7 1.5 1.3 1.2 0.9 0.9 0.9 Productivity Sale of merchandise per full-time equivalent (FTE) employee ** (R’000) 10 765 707 695 622 564 471 428 359 345 Sale of merchandise per store ** (R’000) 10 10 630 9 497 8 828 8 007 7 321 5 974 5 535 5 262 4 922 Sale trading density ** (R) 10 24 719 22 335 20 481 18 120 16 428 14 329 13 082 11 965 11 497 Net asset turn (times) Av. 1.9 2.0 1.7 1.9 1.8 2.0 1.9 2.1 1.7 2.0 Net assets per FTE employee (R’000) 368 399 361 351 284 245 204 210 175 Gross margin (%) Av. 52 54 54 53 51 52 52 52 52 52 Trading margin (%) Av. 17 25 24 22 18 18 13 11 13 13 Operating margin (%) Av. 23 33 31 27 24 23 18 16 19 19 EBITDA margin (%) Av. 26 35 34 30 27 26 21 19 23 22 Basic earnings per FTE employee (R’000) 159 141 127 104 83 63 (11) 49 40 Stock turn (times) Av. 5.5 6.1 5.6 6.5 6.7 6.1 5.2 5.5 4.5 3.7 Effective tax rate (%) 34 34 32 29 36 30 227 29 37 Solvency and liquidity Net cash to total equity (%) Av. 27 11 33 31 34 13 38 23 33 26 Current ratio :1 Av. 3.6 3.2 3.1 3.3 3.7 4.3 3.5 3.5 4.0 3.5 Total liabilities to total shareholders’ equity (%) Av. 49 38 43 42 41 40 56 62 54 64 Dividend cover (times) 2.1 2.1 2.3 2.5 2.9 3.0 – 2.1 4.0

PROFITABILITY SALES TRADING DENSITY AND TRADING AREA

40 30000 180000 Trading margin Sales trading density 25000 160000 Operating margin 30 Total trading area,

E 20000 140000 excluding franchise

AG and YDE stores EBITDA margin 20 15000 120000

10000 100000 PERCENT TRADING SQM

10 RANDS PER SQM 5000 80000

0 0 60000 1998 1999 2000 2001 2002 2003 2004 2005 2006 1998 1999 2000 2001 2002 2003 2004 2005 2006

DIVIDENDS AND HEADLINE CASH FLOW, EARNINGS AND CASH EQUIVALENT EARNINGS PER SHARE EARNINGS PER SHARE

200 210 Dividends per share 175 185 Cash flow per share 160 Headline earnings 150 per share Earnings per share 125 135 110 100 Cash equivalent 85 earnings CENTS CENTS 75 60 50 3 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 35 25 10 0 -15 1998 1999 2000 2001 2002 2003 2004 2005 2006 1998 1999 2000* 2001 2002 2003 2004 2005 2006

RETURN ON AVERAGE SALE OF MERCHANDISE AND EQUITY AND RETURN ON CAPITAL PROFIT FOR THE PERIOD 75 4000 1200 Return on average equity 65 3500 1050 Sale of merchandise 3000 900 Return on capital 55 Profit for E 2500 750 45 the period AG 2000 600 35 1500 450 25 R’ MILLIONS R’ MILLIONS 1000 300 PERCENT 15 500 150 5 0 0 -5 -150 1998 1999 2000* 2001 2002 2003 2004 2005 2006 1998 1999 2000* 2001 2002 2003 2004 2005 2006

TOTAL ASSETS AND SALE OF MERCHANDISE SALE OF MERCHANDISE AND GROSS MARGIN 4000 4000 54 Total assets 3500 3500 52 Sale of merchandise Sale of 3000 3000 50 Gross margin

merchandise E 2500 2500 48 AG

2000 2000 46 1500 R’ MILLIONS R’ MILLIONS 1500 44 PERCENT 1000 1000 42

500 500 40

0 0 38 1998 1999 2000 2001 2002 2003 2004 2005 2006 1998 1999 2000 2001 2002 2003 2004 2005 2006

* Write-off of Sportsgirl investment RATIOS

Eight year compound growth % or seven year Truworths International Limited Group Truworths Limited average Period (Av.) 2006 2005* 2004 2003 2002 2001 2000 1999 1998 Number of weeks 52 52 52 52 53 52 52 52 52

Key debtor statistics Number of active customer accounts (000’s) 1 364 1 074 857 780 737 729 709 Arrear accounts: overdue accounts as a % of total debtors (%) Av. 15 14 14 14 14 13 15 18 Net bad debts: credit sale of merchandise ** (%) Av. 2.9 2.7 2.3 2.2 2.5 2.2 3.7 4.7 Credit:cash sales mix ** (%) 74:26 74:26 73:27 72:28 72:28 75:25 77:23 Net bad debts as a % of gross debtors’ book (%) Av. 6.0 5.1 4.6 4.3 5.1 4.7 8.0 10.0 Bad debt allowance as a % of gross debtors’ book (%) Av. 5.7 5.9 5.9 5.9 5.9 5.6 5.6 4.9 Cost of credit • (Rm) 26 29 11 3 18 37 –1

Operating statistics Total number of FTE employees excluding YDE 4 991 4 403 3 912 3 710 3 520 3 386 3 310 3 474 3 281 Total number of FTE employees including YDE 5 180 4 604 4 062 3 710 3 520 3 386 3 310 3 474 3 281 Total number of Truworths stores, excluding franchise and YDE stores 342 311 291 269 257 255 246 230 224 Total number of franchise stores 17 17 17 19 14 12 10 7 6 Total number of YDE stores 12 13 12 – – – – – – Total trading area (m2), excluding franchise and YDE stores (%) 6.5 162 847 146 285 133 604 127 072 121 170 115 414 109 402 104 221 98 419 Total trading area for YDE stores 3 772 3 909 3 649 – – – – – – Total expenses as a % of sale of merchandise 29 30 31 33 34 39 40 40 39 Depreciation costs as a % of sale of merchandise 2 2 3 3 3 3 3 4 3 Employment costs as a % of sale of merchandise 12 12 13 13 14 15 15 16 15 Occupancy costs as a % of sale of merchandise 7 7 7 8 8 10 10 10 10 Other operating costs as a % of sale of merchandise 8 9 8 9 9 11 12 10 11

Annual growth (%) Sale of merchandise 23 15 18 16 24 13 14 10 13 Trading profit 28 25 48 13 68 33 † 6 5 Profit before finance costs, discontinued operations and tax 27 31 36 22 55 28 † 12 11 Profit before tax 27 29 39 21 49 † † 16 13 Profit for the period 27 25 34 33 36 † † 30 11

The Truworths International Limited Group information has been disclosed for the 2001 to 2006 periods. For the purposes of comparability the information in respect of the operating company Truworths Limited has been disclosed for the 1998 to 2000 ﬁnancial periods. * Information in respect of the 2005 period has been restated as a result of the adoption of International Financial Reporting Standards and certain interpretation changes relating to the application of South African Statements of Generally Accepted Accounting Practice. v Excluding No. 1 Mostert Street and its related depreciation ** Excludes sale of merchandise made by YDE to customers as these sales are on behalf of the designers. The commission earned on these sales is reported in the Group’s revenue. • Excludes notional interest from debtors 1 This information is not available. † % change not meaningful

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 4 PROFITABILITY SALES TRADING DENSITY AND TRADING AREA

40 30000 180000 Trading margin Sales trading density 25000 160000 Operating margin 30 Total trading area,

E 20000 140000 excluding franchise

AG and YDE stores EBITDARATIOS margin 20 15000 120000

10000 100000 PERCENT TRADING SQM

10 RANDS PER SQM 5000 80000

0 0 60000 1998 1999 2000 2001 2002 2003 2004 2005 2006 1998 1999 2000 2001 2002 2003 2004 2005 2006

DIVIDENDS AND HEADLINE CASH FLOW, EARNINGS AND CASH EQUIVALENT EARNINGS PER SHARE EARNINGS PER SHARE

200 210 Dividends per share 175 185 Cash flow per share 160 Headline earnings 150 per share Earnings per share 125 135 110 100 Cash equivalent 85 earnings CENTS CENTS 75 60 50 35 25 10 0 -15 1998 1999 2000 2001 2002 2003 2004 2005 2006 1998 1999 2000* 2001 2002 2003 2004 2005 2006

TOTAL ASSETS AND SALE OF MERCHANDISE SALE OF MERCHANDISE AND GROSS MARGIN 4000 4000 54 Total assets 3500 3500 52 Sale of merchandise Sale of 3000 3000 50 Gross margin

merchandise E 2500 2500 48 AG

2000 2000 46 1500 R’ MILLIONS R’ MILLIONS 1500 44 PERCENT 1000 1000 42

500 500 40

0 0 38 1998 1999 2000 2001 2002 2003 2004 2005 2006 1998 1999 2000 2001 2002 2003 2004 2005 2006

* Write-off of Sportsgirl investment

5 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 SHARE STATISTICS

Eight year Truworths International Limited Group Truworths Limited compound Period growth 2006 2005* 2004 2003 2002 2001 2000 1999 1998() Number of weeks % 52 52 52 52 53 52 52 52 52

Performance on JSE Limited Traded share prices period end (cents per share) 2 055 1 740 1 011 730 599 509 550 625 400 high (cents per share) 2 949 1 880 1 060 800 610 580 720 700 915 low (cents per share) 1 700 1 000 715 530 415 350 450 208 400 weighted average (cents per share) 2 421 1 505 903 623 513 457 578 464 637 Price earnings ratio 11 12 9 9 10 12 18 24 12 Truworths International share price index (1998:400 = 100) 514 435 253 183 150 127 138 156 100 JSE retail index (1998:9 551 = 100) 235 207 130 87 68 64 108 113 100 Period end share price / net asset value per share (times) 5 4 3 3 3 3 4 4 3 Number of shares in issue (000’s) 482 915 487 241 482 732 476 385 467 603 461 289 457 709 448 511 429 526 Number of shares in issue adjusted for treasury shares (000’s) 433 891 447 498 446 374 460 444 449 874 457 172 457 709 448 511 429 526 Volume of shares traded (000’s) 398 943 236 232 204 582 213 396 180 585 102 827 142 235 107 670 31 024 Number of transactions 45 211 21 950 13 972 9 538 7 065 6 985 8 241 10 585 3 170 Volume traded as a % of number of shares in issue (%) 83 49 42 45 39 22 31 24 7 Value of shares traded (Rm) 9 658 3 555 1 847 1 329 927 470 822 500 198 Market capitalisation (Rm) 9 924 8 478 4 880 3 478 2 801 2 348 2 517 2 803 1 718

Share performance Earnings per share basic earnings (cents per share) 24 186.4 144.8 113.0 84.9 64.2 47.0 (4.0) 27.3 32.3 headline earnings (cents per share) 24 186.4 144.8 110.0 85.8 63.3 43.5 30.9 25.9 32.6 Cash ﬂow (cents per share) 114 125 104 98 32 50 43 36 32 Cash equivalent earnings (cents per share) 202 152 126 98 76 56 10 42 48

Free cash ﬂow per share Net asset value (cents per share) 16 440 407 326 282 222 182 148 163 134 Dividends declared (cents per share) 35 89 69 48 34 22 15 13 13 8 Cumulative shares repurchased (value–Rm) 528 330 275 80 67 – – – – Cumulative shares repurchased (number–000’s) 49 024 39 743 36 358 15 768 13 612 – – – –

SHARE PERFORMANCE NET ASSET VALUE PER SHARE AND PERIOD END SHARE PRICE 3500 2500 Traded share price - high/low Net asset value 3000 per share 2000 JSE retail index 2500 Period end share price 2000 1500 Traded share price - period end 1500 CENTS

CENTS 1000 1000 500 500

0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 1998 1999 2000 2001 2002 2003 2004 2005 2006

* Information in respect of the 2005 period has been restated as a result of the adoption of International Financial Reporting Standards and certain interpretation changes relating to the application of South African Statements of Generally Accepted Accounting Practice.

() The statistics for 1998 are for the period between 11 May 1998 (date of listing) and 30 June 1998.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 6 NINE YEAR REVIEW

Truworths International Limited Group Truworths Limited

Period Eight year 2006 2005* 2004 2003 2002 2001 2000 1999 1998 Number of weeks compound 52 52 52 52 53 52 52 52 52 growth % Rm Rm Rm Rm Rm Rm Rm Rm Rm Income statements Sale of merchandise 16 3 816 3 115 2 719 2 306 1 984 1 595 1 417 1 247 1 132 Cost of sales 16 (1 765) (1 443) (1 287) (1 141) (949) (759) (677) (599) (541) Gross profit 17 2 051 1 672 1 432 1 165 1 035 836 740 648 591 Expenses 12 (1 097) (927) (834) (761) (676) (622) (579) (488) (440) Depreciation and amortisation (74) (65) (69) (67) (58) (48) (48) (44) (35) Employment costs (442) (384) (349) (304) (271) (240) (216) (197) (174) Occupancy costs (272) (232) (201) (179) (163) (152) (140) (127) (108) Other operating costs (309) (246) (215) (211) (184) (182) (175) (120) (123) Trading profit 26 954 745 598 404 359 214 161 160 151 Investment income 290 234 148 144 89 75 65 78 61 Profit before finance costs, discontinued operations and tax 25 1 244 979 746 548 448 289 226 238 212 Finance costs – – – (1) – – (2) (1) (2) Profit before discontinued operations and tax 1 244 979 746 547 448 289 224 237 210 Discontinued operations – – 15 (1) 5 15 (194) 4 (2) Profit before tax 25 1 244 979 761 546 453 304 30 241 208 Income tax expense (420) (328) (243) (159) (162) (90) (68) (71) (77) Profit after tax 26 824 651 518 387 291 214 (38) 170 131 Minority interest (1) (3) (1) – – – – – – Profit for the period 26 823 648 517 387 291 214 (38) 170 131 Cash flow statements Cash EBITDA 24 1 050 820 674 481 433 274 35 217 194 Working capital movements (274) (233) (139) (53) (179) (22) (47) (50) (47) Cash generated from/(utilised by) operations 23 776 587 535 428 254 252 (12) 167 147 Net interest received 288 232 144 140 84 68 55 72 59 Tax paid (563) (261) (205) (123) (192) (92) (72) (82) (76) Cash inflow/(outflow) from operations 18 501 558 474 445 146 228 (29) 157 130 Dividends paid 53 (362) (266) (194) (118) (75) (53) (16) (15) (12) Net cash from/(used in) operating activities 139 292 280 327 71 175 (45) 142 118 Net cash used in investing activities (144) (77) (88) (56) (208) (36) (40) (51) (49) Net cash (used in)/from financing activities (382) (36) (193) 39 (46) 4 – – – Net (decrease)/increase in cash and cash equivalents (387) 179 (1) 310 (183) 143 (85) 91 69 Net cash inflow from discontinued operations – – 10 1 5 15 – – – Cash and cash equivalents for the period (387) 179 9 311 (178) 158 (85) 91 69 Balance sheets Assets Non – current assets 574 499 449 409 429 280 291 300 281 Current assets 15 2 060 2 119 1 639 1 431 966 1 017 801 820 663 Total assets 14 2 634 2 618 2 088 1 840 1 395 1 297 1 092 1 120 944 Equity and liabilities Attributable to equity holders of the parent 1 908 1 823 1 455 1 302 1 000 830 676 729 575 Minority interests – 13 12 – – – – – – Total equity 16 1 908 1 836 1 467 1 302 1 000 830 676 729 575 Non – current liabilities 87 99 127 154 168 178 186 186 181 Current liabilities 639 683 494 384 227 289 230 205 188 Total equity and liabilities 2 634 2 618 2 088 1 840 1 395 1 297 1 092 1 120 944

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 7 Wayne van der Merwe Rob Dow Tony Taylor Mike Thompson (48) BCom, B Acc Sc (Hons), CA(SA) (49) BSc (Hons), Dip.Acc (Dist), CA(SA) (59) BA (63) BCom, MBA, AMP (Harvard) Group ﬁ nancial director Independent non-executive director Deputy managing director Independent non-executive director Director: Truworths Ltd, Young Designers Emporium (Pty) Ltd, Investment adviser and business consultant Director: Truworths Ltd, Truworths (Namibia) Ltd, Retired banking executive and management consultant Uzzi (Pty) Ltd, Truworths (Namibia) Ltd, Truworths (Swaziland) Ltd Director: Kensani Capital (Pty) Ltd, Morella Investments (Pty) Truworths (Swaziland) Ltd Member: Council of University of Cape Town Appointed to the board in August 2002 Ltd, St Mary’s School Wavereley (Assoc. incorp. under S21) Appointed to the board in February 1999 Director: Cape Town Convention Centre (Pty) Ltd, Artscape Appointed to the board in February 1998 Chairman of social responsibility committee and member Chairman of risk committee and transformation committee (Assoc. incorp. under S21) of risk committee Chairman of remuneration committee and member of audit Appointed to the board in March 2004 committee Chairman of audit committee and member of risk committee

Michael Mark Hilton Saven Thandi Ndlovu (53) BCom, MBA, ACMA (53) BCom, CA (SA) Chief executive ofﬁ cer Chairman of the board (51) BSc, MBChB Edward Parfett Executive chairman of Truworths Ltd Independent non-executive director Independent non-executive director (64) AMP (Harvard) Director: Young Designers Emporium Chairman: Moores Rowland South Africa Medical practitioner and businesswoman Independent non-executive director (Pty) Ltd, Truworths (Namibia) Ltd, Director: Lewis Group Ltd, Boardroom Director: Medscheme Ltd, Motheo Retired retail executive and business consultant Uzzi (Pty) Ltd Corporate Services (Pty) Ltd, Mazars Inc. Group (Pty) Ltd, Baitshepi Development Director: Microb Investments (Pty) Ltd Consulting Services (Pty) Ltd, Faranani Appointed to the board in July 1988 Appointed to the board in February 2003 Appointed to the board in February 1988 Member of audit committee and Investment Holdings (Pty) Ltd, Thulong Chairman of non-executive committee remuneration committee Investments (Pty) Ltd Appointed to the board in February 2001

Truworths International Board

8 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 Wayne van der Merwe Rob Dow Tony Taylor Mike Thompson (48) BCom, B Acc Sc (Hons), CA(SA) (49) BSc (Hons), Dip.Acc (Dist), CA(SA) (59) BA (63) BCom, MBA, AMP (Harvard) Group ﬁ nancial director Independent non-executive director Deputy managing director Independent non-executive director Director: Truworths Ltd, Young Designers Emporium (Pty) Ltd, Investment adviser and business consultant Director: Truworths Ltd, Truworths (Namibia) Ltd, Retired banking executive and management consultant Uzzi (Pty) Ltd, Truworths (Namibia) Ltd, Truworths (Swaziland) Ltd Director: Kensani Capital (Pty) Ltd, Morella Investments (Pty) Truworths (Swaziland) Ltd Member: Council of University of Cape Town Appointed to the board in August 2002 Ltd, St Mary’s School Wavereley (Assoc. incorp. under S21) Appointed to the board in February 1999 Director: Cape Town Convention Centre (Pty) Ltd, Artscape Appointed to the board in February 1998 Chairman of social responsibility committee and member Chairman of risk committee and transformation committee (Assoc. incorp. under S21) of risk committee Chairman of remuneration committee and member of audit Appointed to the board in March 2004 committee Chairman of audit committee and member of risk committee

Truworths International Board

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 9 group structure

Truworths International Limited (South Africa) Investment Holding JSE/NSX Listed Holding Company

100% 100%

Truworths Young Limited Designers (South Africa) Emporium (Pty) Limited Retailing & Franchising Retailing

100% 100%

Truworths Truworths Limited Limited (Namibia) (Swaziland)

Retailing Retailing

10 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 continually reinvigorate our store formats. Our ongoing strategy isto

REVIEWS chairman’s statement

In another period of extended positive • We continued to improve our returns on equity growth in the South African economy, to 44%; the local retail industry continued • We extended our overall trading space by 11% to capture a larger market share; to flourish. Many factors required to We actively grew and maintained our customer create an ideal trading environment, • base during the period to capture a larger such as resilient domestic demand for portion of the market, with the active customer consumer goods, sustained growth base showing excellent growth of over 20% in consumer spending and a strong during the period to reach over 1,3 million active accounts; and uptake of consumer credit, contributed • We succeeded in increasing market share for towards this environment. our ladies and menswear businesses during the reporting period according to statistics released Against this positive economic cycle, Truworths by the Retail Liaison Committee. International Limited (TI) experienced another exceptional period, with an increase in headline We have not been tempted at this stage to enter into earnings per share of 29% and compounded other retail formats that are not part of our core growth over eight years of 24%. The Group achieved focus. Instead we chose to stick to what we do best, unprecedented trading across all areas of the the merchandising and retailing of fashion. business and continued to build on its enduring We have taken advantage of this buoyant cycle The Group achieved superior earnings growth track record. in the market to grow our share of the fashion unprecedented retail market through the controlled expansion trading across The Group truly excelled in the following areas of of our retail space and growth in our customer all areas of the performance during the 2006 financial period: base. As the business enters its 90th year of trade business and • We increased dividends paid to shareholders since opening its doors in 1917 we hope that by continued to build by 36% maintaining our focus we can ensure the longevity on its enduring of the Group. superior earnings • We achieved remarkable efficiencies in trading growth track record. densities on average of R24 700/m² compared to Outlook the industry average of less than R20 000/m²; Strong consumer spending and investment have • We continued to procure merchandise and been the cornerstones of South Africa’s economic control inventory levels exceptionally well, prosperity over the past few years. In the first resulting in reduced markdowns and consistent quarter of 2006, gross domestic expenditure more optimised gross margins; than trebled, demonstrating that the economy • We further improved operating margins to 33%; is still performing well. Although we expect

12 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 economy seems set to continue as the corporate world steadily implements broad-based black economic empowerment, public infrastructure spending increases, formal sector job growth increases and wages and salaries rise.

The current high level of retail growth cannot last forever, and consequently the Group’s current rate of growth must eventually slow. However, the emergence of a stronger middle class, which has already resulted in notable growth in our customer Hilton Saven (53) BCom, CA (SA) Chairman of the board Independent non-executive director base, should help to ensure the sustainability of Chairman: Moores Rowland South Africa our business going forward. Although our target Director: Lewis Group Ltd, Boardroom Corporate Services (Pty) Ltd, Mazars Inc. market is rapidly expanding and consumer Appointed to the board in February 2003 spending and disposable income seem Member of audit committee and remuneration committee set to remain fluid for the time being, we By believe we will have to be more efficient consumer spending to remain robust, given a and effective to maintain a competitive weaker rand, the recent increase in interest rates advantage in the market place. maintaining and with more rates hikes expected, expenditure may start to ease somewhat and retail industry Although the implementation of the growth rate is likely to slowdown. new National Credit Act will absorb our focus we considerable resources of the Group, A substantial increase in interest rates would put we hope that the restrictions imposed can ensure the pressure on disposable income and hinder real on the irresponsible overextension of growth in household income. However, although credit will go some way to alleviating interest rates may rise further in the next financial longevity of the the risk of consumer credit levels period, these increases are unlikely to be large becoming dangerously high. We enough to have a marked impact on disposable are however concerned that certain Group for income and significantly disrupt current spending requirements of the Act may be patterns. difficult to implement and appear another While demand for credit has grown appreciably, excessive when applied to our industry. our own debtors’ statistics do not indicate that This notwithstanding, we believe that the 90 years. over-borrowing and the ease of availability of implementation of the Act will not have credit are major issues for the Group. a detrimental effect on our trading for the ensuing period. Although our statistics show that the ratio of bad debt to sales has grown marginally, it is still well Trends and prospects within the parameters we set for the business. Truworths took cognisance of the emerging trend Net bad debt write-off to credit sales and as a towards increased fashion awareness in its male percentage of the debtors’ book has also stayed customer base, and positioned itself to take in line with the Group’s expected norms. However, advantage of this more discerning market segment. credit growth may peak and ease off slightly in the The acquisition of Uzzi will further this objective by coming period, which could result in a slower rate enhancing our menswear offering and attracting of growth in our debtors’ book. additional customers to the Group.

An important factor affecting the retail industry There has been a sharp increase in new and is the structural change to the economy that available retail property in the past few years, with have given rise to the long-term transformation this growth trend still on the rise. At this stage we of the trading environment. There has been a do not anticipate a saturation point in the uptake rapid growth of a middle class in the lower Living of retail property or in the inability of the economy Standards Measurement (LSM) sectors that has to support the rise in retail developments. All our disposable income. The transformation of the new stores in the major new shopping centres are

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 13 CHAIRMAN’S STATEMENT

performing well, without detracting unduly from During the period under review we improved our existing stores. governance structures, particularly within the internal audit and risk management functions. Truworths has grown by expansion with an In order to instil a culture of risk management average growth of 9% in trading space in the throughout the Group so that it is embedded in last three years from 269 stores in 2003 to 342 the way we operate everyday, we are encouraging stores in 2006, achieving our objective of growth employees to be mindful of managing risk by through expansion in order to gain market share. making it a key performance area for all staff. We believe that there are prospects for further growth of our businesses and as such, we will We were extremely pleased with our continue to expand in a controlled manner during top ten ranking in the Ernst & Young Excellence the 2007 financial period where good retail in Corporate Reporting survey of annual reports. opportunities arise. However, we remain cautious This acknowledgement is a heartening reward for in our approach to expansion and thoroughly test the enormous amount of work and care that goes the viability of each site, its effect on our existing into compiling the annual report. We continue stores and the expected returns amongst other to benchmark our disclosure and governance factors and preconditions. standards against local and global best practice In the period under review, the Group once again standards. We are proud of this rating as it not only achieved excellent results and exponential growth, acknowledges the effort we put into the quality of with no sign of slowing down at this stage. We our reporting and disclosures, but also reassures remain as always cautiously optimistic, given the us that our level of voluntary disclosure has been fact that next period’s performance will be off rewarded. an extremely high base, and we realise that we Transformation cannot maintain the current rate of growth forever. However, the board is confident about prospects We are committed to the transformation, growth for the forthcoming period. Even if sales growth and diversification of the South African economy across the Group is not as high as that achieved and have established the transformation in the previous two periods, we believe that this committee to support its effort to advance broad- will be balanced against gaining a larger market based black economic empowerment (BBBEE). share through our expansion into more stores, The transformation committee is tasked to controlled growth of our debtors’ book and our establish a policy, programme and targets for consistent ability to remain focussed on procuring our transformation process, and is well advanced the right merchandise. in establishing and implementing a long-term strategy, which is focussed on all components of We have taken the opportunity to grow our the Department of Trade and Industry’s (DTI’s) business while the economy is strong, and believe BBBEE scorecard. we have created a robust and sustainable business for the future. We believe that the same successful Our initial BBBEE focus has been on skills transfer formulas and process that guided our business and the upliftment of our own employees in line through challenging times in the past and that with our human resources policy to ensure that we have ensured our present success will continue retain and grow existing talent within the business to be as effective when this positive cycle in the and offer opportunities for advancement internally. economy inevitably slows down. Further information on our progress in this regard can be found on page 120. Corporate governance Social investment Truworths continues to be committed to the highest levels of corporate governance. Several Through its corporate social investment (CSI) committees have been established to assist the programme, the Group actively contributes to board in discharging its responsibilities. Through the upliftment of all South Africans by taking an these committees, the board maintains a firm focus active role in nurturing and transferring skills to on upholding the highest standards of corporate the communities from which its current and future governance as well as proactively monitoring customers, staff, suppliers and other stakeholders business risks and challenges. originate.

14 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CHAIRMAN’S STATEMENT

During the period under review, the CSI programme In particular, I would like to compliment our Chief focussed mainly on areas of education, health, Executive Ofﬁcer, Michael Mark, and his executive social development, arts and culture and sport. team on their strong leadership and effective A number of our CSI initiatives are focussed on management during this extremely eventful and our employees and their families as part of our successful period for the Group. commitment to the upliftment of our staff as well The board is well aware of the need to have a as skills and training. In addition, we continued reliable and constantly evolving succession plan to support our employees countrywide who in place. The non-executive committee under voluntarily involve themselves in CSI initiatives. the chairmanship of an independent director and past Chief Executive Ofﬁcer and Chairman of TI, The social accountability committee is responsible Edward Parfett, regularly debates the executive for monitoring funds allocated to the three and CEO succession plan, and is comfortable charitable trusts operating within the Group. that it has a plan in place to deal with short and Bilateral textile agreement with China medium-term contingencies that may arise.

The bilateral textile agreement with China Stakeholder acknowledgements recently announced by government is a cause On behalf of the board, I wish to extend my for concern. Whilst it is understandable that appreciation to the directors of Truworths Limited, government wishes to protect the local textile who continue to manage the business extremely and clothing industry we are concerned that the well. This period’s excellent performance measures introduced will not have the desired demonstrates the drive of the entire team to effect. deliver strong results in line with the Group’s growth strategy. The introduction of these measures will create a short-term problem for retailers in procuring We thank our loyal customers who have always goods but these measures are unlikely to have supported our business and enhanced our growth. the desired effect in the long term. Goods will We would also like to welcome the thousands of be procured from other low cost countries with new customers who became a part of Truworths the result that consumers will have to foot this period and thank them for joining us. the bill for increased prices at the till. What is A business can only be successful if strong concerning is the fact that the retailers were partnerships are created between its management not consulted in regard the impact of these and stakeholders. We would like to express our regulations despite that fact that the retail gratitude to our suppliers, professional advisors, industry is a substantial employee in our consultants and shareholders who partner with us economy. every step of the way to ensure we stay on top of our game. We trust that your support will continue If these measures are introduced as planned to be rewarded. for a period of two years we believe they will do very little to sustain the long term viability of Finally, my heartfelt appreciation goes to our our local textile and clothing industry. employees for all their hard work and dedication, which enabled us to deliver this excellent set of Board matters ﬁnancial results and ensured that we maintained our reputation as South Africa’s leading fashion In the period under review there were no changes retailer. to the TI board or any of the board committees.

I would like to take this opportunity to thank my colleagues on the board for their unwavering focus and strategic guidance to ensure the sustainability of the Group’s current and future business. Its success is dependent on their individual Hilton Saven skills and experience and well as their collective Chairman efforts.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 15 chief executive

Our focus on fashion has meant that over time we officer’s have developed solid formulas and philosophies on which our successful retail and merchandising strategies are based. We carefully adhere to these review formulas as we believe they give us our unique competitive edge. The theme of this On the other hand, we are careful not to rest on our period’s annual past successes, but constantly refine our processes report is simple; it’s all and reinvent ourselves within our own expertise. In about fashion. other words, we do the same things that are proven This straightforward to work year-on-year, except every time we try to do them better than before. This gives us scope to concept is a empower people to deliver, create new initiatives, powerful reminder develop new formats, improve efficiencies, control about what expenses, increase productivity, expand trading Truworths is space, effectively utilise cash and continue to build brand integrity. all about – fashion. During the period under review a new promotional The formula behind Truworths’ success is line, “For the Love of Fashion”, was created 2006 was another straightforward. The Group’s core and only focus for the Truworths brand. This line describes exceptional period for is fashion. how its employees and customers feel about the Group, as the retail Truworths. We stick to what we know best, the successful industry delivered retail and merchandising of fashion. This singular Financial review unprecedented focus has earned us the reputation as South earnings growth 2006 was another exceptional period for the Group, Africa’s leading fashion retailer. on the back of as we delivered unprecedented earnings growth healthy economic We own our brands, which are mainly home grown. on the back of healthy economic fundamentals including robust consumer confidence, a strong fundamentals. This gives us full control over their identities, as demand for consumer goods and increased well as the design and quality of our merchandise disposable income. and the formats we use to sell each brand in store. Almost all our brands are unique and exclusive to As is the custom at Truworths, the board assessed our stores, whether Truworths, Identity or YDE. performance using profit, wealth creation and

16 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 The Group ﬁnancial director’s report on page 22 discusses in detail the ﬁnancial performance for the period. However, the following highlights illustrate the success of our operations and strategies in the period under review:

• The Group once again produced superior returns on average equity of 44% compared to 39% achieved previously, while operating margin increased to 33%, higher than 31% in 2005; Michael Mark (53) BCom, MBA, ACMA Chief executive officer • Sale of merchandise amounted to R3.8 billion, Executive chairman of Truworths Ltd Director: Young Designers Emporium (Pty) Ltd, Truworths up by 23% from R3.1 billion in 2005, with an (Namibia) Ltd, Uzzi (Pty) Ltd increase in trading space of 11%. Comparable Appointed to the board in July 1988 stores sale of merchandise showed growth The period of 16%, with product inflation of about 1%; headline earnings as the key indicators. Once again • A final dividend of 45 cents per share has saw all of the results exceeded the board’s performance been declared, compared to 37 cents per expectations: the plans share for the 2005 period. Including the • Headline earnings per share of 186.4 cents interim dividend of 44 cents per share, that we reflected a 29% increase, with the compound total dividends for the period increased growth rate over the last eight years being 24%; by 29% to 89 cents per share. The previously • New wealth creation amounted to R2 040 million dividend cover has been maintained at compared to R1 666 million in 2005. To fund 2.1 times headline earnings; put in place future expansion, 23% or R463 million remained • Real wealth was created with a return in the business. The remaining R1 577 million on invested capital (ROIC) reaching 27% come to was disbursed to the Group’s stakeholders, with compared to 26% previously. This exceeded 22% of new wealth created paid to employees, the weighted average cost of capital (WACC) fruition. 21% to government as taxes, 13% to lessors in of 13% for the period; the form of rentals and 17% to shareholders in • Gross margin of 54% was up on the nine year the form of dividends; average of 52%; and • The success of the Group’s growth strategies • Significant sales growth of 47% from Identity is evidenced in the 28% increase in trading is largely attributable to the exponential profit to R954 million. Operating profit of expansion of this division to 86 stores, with R1 244 million is 27% higher than 2005. 19 new Identity stores opening in the period Trading and operating profits have shown under review. eight year compound growth rates of 26% and Business highlights 25% respectively. Both trading and operating margins have shown further improvements on The period saw all of the plans that we previously 2005. put in place come to fruition.

The board and management continued to manage On 1 November 2005, Truworths acquired the the business extremely well, with all areas remaining 25% of YDE and now owns 100%. We performing above expectations. The results have maintained YDE’s successful formula of highlight the success of the Group’s strategies for providing each designer with their own branded expansion of the stores, growth in the customer space in store. During the period under review, agency sales grew by 11%, all on a comparable base, accurate merchandising, buying and design store basis. We have launched YDE’s “Plastic” store strategies and strengthening of the debtors’ book.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 17 CHIEF EXECUTIVE OFFICER’S REVIEW

credit card to over 11 000 customers. We anticipate Retail improving sales growth in periods ahead through an We continued with our strategy to grow the increased uptake of credit, opening three additional Group’s trading space in order to capture a stores, a renovation programme, full introduction larger portion of market share. Taking into of retail best practices, and the introduction of a account new stores, the expansion of existing range of YDE-branded merchandise. stores and the closure of one YDE store during the period, total retail trading space, inclusive of During the period under review, we aimed to take Identity, expanded to 167 000m², an increase of advantage of the strong growth in the menswear 11%, including an additional 32 stores. Identity market and investigated the idea of developing increased its retail trading space by a further our own Italian-inspired menswear concept. The 4 801m², including 19 new Identity stores. opportunity to acquire 51% of Uzzi arose, which fits in well with our existing business and strategies. The Group achieves excellent returns per Uzzi currently has 25 stores and we expect to open square metre, well above the returns per square many more in the periods ahead. Truworths has metre generated by the industry, which justifies the option of purchasing the remaining 49% of Uzzi continued expansion. The annualised retail sale at any point up until May 2008. of merchandise per square metre of trading space increased by 11% to R24 700/m², compared to Operating update R22 300/m² in 2005. In 2006 we continued to make progress on many Most of the Group’s stores are based on key initiatives to accommodate the ongoing growth the Emporium format, making it possible of our business and streamline and enhance to showcase the wide array of Truworths efficiencies in our day-to-day activities. brands using a store-within-a-store concept. Merchandising Since 2004 the Group has continually reinvented All the merchandising departments developed the Emporium configuration, as well as the strategic plans over the last two to three years, individual store formats within the Emporium. This which they were able to implement in Summer period saw further enhancements to the Emporium 2005 and Winter 2006. These merchandising and in line with European retail trends. These buying strategies were exceptionally successful, enhancements will be used in the refurbishment attracting customers and sales into the store, of the existing Emporium at Westgate in Gauteng and creating many other positive spin offs for as well as in Gateway in Durban. The Identity the business. Because of the desirability of the format was also improved, with most of the new merchandise, new accounts showed good growth, stores launched during the period and all the and repayments also improved as customers stores planned for the period ahead based on the wanted to keep their accounts open to buy. new format. This, coupled with the buoyant economy and strong consumer spending, resulted in good growth of Refer to page 62 for further information on the customer accounts and the active account base. Group’s retail operations and store designs. Refer to page 32 for further information on the merchandising operation. People

Credit During the period under review, the human resources (HR) division initiated an intensive During the period there was a marked increase programme of training employees across the of over 20% in the number of active accounts. Group. Significant effort and resources were With Truworths, Identity and YDE combined, focussed on enhanced training and development there are now well over 1 300 000 active accounts compared to about 1 074 000 last period. During interventions for staff. These included leadership the period 74% of retail sales across the Group development, talent management and general were made on credit. Despite this strong growth, employee capability building initiatives in stores the quality of the debtors’ book remained high. and at head office. HR also developed new training Refer to page 68 for further information on the programmes for field operations and built capacity Group’s credit management. amongst field managers to conduct training.

18 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CHIEF EXECUTIVE OFFICER’S REVIEW

Throughout the Group, learnerships are those who have instalment credit agreements, contributing to the optimisation of the skills home loans and high levels of debt. However, development legislation as well as providing our past experience confirms that the Group has employment and training to entry-level employees. operated profitably irrespective of the interest rate, Refer to pages 78 and 123 for further information even in times when the rates were extremely high. on the HR division and the Group’s skills and For this reason, the Group believes any interest rate increases will not have a significant negative training initiatives. impact on future results. Information technology The weakening of the rand in the last half of the The growth in the number of stores, the increase period will cause inflation in product prices above in new accounts, and the concurrent rise in the the level experienced previously. volume of account transactions placed enormous The National Credit Act demands on the Group’s information technology (IT) infrastructure. The IT division performed The National Credit Act will be a major focus in well, and many infrastructure and systems the period ahead as the Group makes the required improvements were made during the period. These changes to its systems and processes to achieve included a number of key initiatives resulting in compliance with the legislation. enhanced capacity, functionality, efficiencies and The Act is a challenge for the retail industry as it productivity, as well as cost management benefits. impacts on all retailers who grant credit. However, Refer to page 74 for further information on the we do not expect it to have a major impact on Group’s IT operations. credit granting, as the Group does not advance Future prospects and challenges credit indiscriminately, but uses sound Economy methodologies and systems to carefully select customers who qualify for new credit facilities, The operating environment for the next period will as well as those who qualify for a credit limit be tougher than in 2006, as the robust economy increase. of the past few years begins to show signs of a Although the Act requires more restrictive potential slowdown. The environment continues procedures in approving credit, the Group is to be positive for retailers, but not to the same already adapting its processes and systems extent as the last three years. We can expect in respect of accepting new account holders, more volatility in the economy with challenges granting and increasing credit, as well as the way ahead relating to interest rate hikes, petrol price in which it markets credit facilities. Our existing increases and currency uncertainty. systems will cope with the challenge of meeting Although the economy is still robust, periods of the regulations and the increase in administrative good growth are of a cyclical nature and must processes required to grant or increase credit. inevitably slowdown. We have been proactive in our We do believe some regulations contained strategies to reinvent our business and feel we are in the Act are excessive for our industry and well positioned for the less predictable operating place unnecessary compliance restrictions and environment ahead. Even if the rand weakens additional administration requirements. We have and inflation rises marginally we believe we will been in the forefront of making our views known to continue to do well, as the Group has historically appropriate authorities over the past 12 months. traded well in similar conditions. However, we We will be well prepared to deal with the challenges are unlikely to sustain results at the current high and take advantages of the opportunities that the levels in the forthcoming period, particularly as Act introduces. they are coming off such a high base. Further details on the implications of the National The increase in interest rates and the strong Credit Act for the Group can be found in the possibility of further increases, will affect Customer Relationship Management Operational consumers’ disposable income, particularly for Review on page 72.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 19 CHIEF EXECUTIVE OFFICER’S REVIEW

Store expansion We believe the best way to show our support is by continuing to order substantial volumes In the past few years there has been a sharp of merchandise from the local manufacturing increase in new retail space, including a significant industry to ensure its sustainability. Our support number of up-market shopping centres. The success of these new retail areas is evidence of for local manufacturers has increased as the overall positive consumer confidence as well as volumes of our local orders escalate in line with the robust South African economy which have the strong growth of our business. We also actively sustained this rapid growth. support the objectives of the Cape Clothing and Textile Cluster (CCTC), of which we, together with During the period, the Group continued to expand other large retailers’ are active participants. its overall trading area throughout South Africa in order to capture a larger portion of market share. It is interesting to note that some of our largest We remain conservative in our expansion strategy, local suppliers often make use of many CMT only taking advantage of the best opportunities, operations around South Africa, especially in the always ensuring returns are acceptable and new Cape and Kwazulu-Natal. For example, our largest stores do not overly dilute existing stores. single supplier makes use of about 40 CMT’s in To date, the expansion of stores has been justified the Western Cape. We believe we are directly and by excellent returns per square metre. In the indirectly responsible for part and permanent next period, we plan to expand trading space at employment of more than 20 000 South Africans. a similar rate as 2006, but thereafter we expect None of the above lessens the need for local the rate of expansion to normalise at around suppliers to become internationally competitive. 5% to 6% per annum. However, we will remain The local industry is already protected by 40% considered and cautious in our expansion plans, duties on most apparel, by shipping and insurance which are carefully monitored and managed to costs which add at least another 10% to 15% to ensure that growth through expansion remains cost of imports and by significant language and logical, controlled and aligned with the Group’s proximity advantages. The fact is that despite these overall appetite for risk. Real return on capital is protection advantages, we and other retailers still used as the key determinant in making decisions need to import product in order to satisfy our about new stores, and the viability and potential risks of each new site will continue to be carefully customers’ fashion demands. measured. This ability benefits the consumer through retailers Most leases entered into are for five-year periods. having access to the best suppliers by product type This means that in any period, the Group has available in the world whether from South Africa, flexibility over about 20% of all its leases. In a China, India, Brazil or elsewhere. Restrictions serious economic downturn, this gives the Group on such ability, however noble such cause may opportunity to reduce the overall number of stores appear, will harm the consumer through limited and renegotiate improved lease terms. selection and increased prices.

Additional information on the store expansion can Through YDE, Truworths was the first major be found on page 62. fashion retailer to align itself with independent South African designers. Our association with The South African clothing and textile industry these talented, emerging, young South African The problems faced in the last decade by the designers is another way in which we are local clothing and textile industry are cause for supporting the growth of the clothing industry in concern. Truworths only stocks its own exclusive South Africa. home-grown brands and does not import branded goods. The lion’s share of the Group’s clothing Bilateral textile agreement with China collections (about 65%) are manufactured in At the end of June 2006 it was announced in the South Africa usually by local cut, make and trim media that South Africa had concluded a trade deal (CMT) factories, as the proximity of local suppliers with China. Little detail was provided regarding means that lead times are significantly reduced. In the ambit of this pact, although it was reported addition, the flexibility of the local industry allows that China had agreed to limit textile and clothing for the shorter runs we prefer as well as quick exports to South Africa in order to improve stability turnaround times on orders to restock items that in the local manufacturing industry. have sold well.

20 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CHIEF EXECUTIVE OFFICER’S REVIEW

On 1 September 2006 details of the agreement We remained active with our buy back strategy were published, as were the requisite regulations in the period under review, and have increased under the International Trade Administration Act, the Group’s repurchases by over 16 million whereby the nature and terms of the restrictions shares to total 56 million shares since the on imports of certain textile and clothing products inception of the programme in the 2002 financial were proposed. period. We still see the TI share as an excellent investment, and will carry on with our share In summary these regulations propose that, with buy-back programme, purchasing shares when we effect from 28 September 2006 and for the period perceive them to be under-priced by the market until 31 December 2008, specified goods will and offering good value. not be capable of import from China except by virtue of non-transferable special import permit Appreciation certificates, which are proposed to be allocated on I am proud to say that our superb team at a volume basis per 6-digit customs tariff heading Truworths performed remarkably well and took per calendar year mainly to existing importers, advantage of the opportunities that arose over the based on their imports over the past three years. past few years. For this I am truly grateful, as we Management observes that the authorities have developed a solid business that will remain have embarked on this course of action without sustainable in the leaner years that may lie ahead. meaningfully consulting major clothing retailers We have developed a clear skill set, a business regarding their perspectives on the implementation philosophy and a value system that the hundreds and implications of the proposed restrictions. The of middle and senior managers throughout retail sector is key to the South African economy, Truworths are deeply committed to and implement given the scale of its investment, substantial with great success. contribution to the fiscus and extensive levels I wish to extend my appreciation to the boards of of employment, and is surprised at the minimal TI and Truworths Limited for their commitment, degree of engagement by the authorities on the energy and innovation in implementing strategies subject, as well as the limited opportunity to and protocols for the business that will ensure our comment on the proposals and the immediacy of success for a long time to come. their proposed implementation. As always, we benefited from the support and The Group is of the view that the restrictions as insight of our various business partners, suppliers, proposed will have a significant impact on clothing professional advisors and consultants, for which I inflation and may have unintended consequences, am truly thankful. especially for consumers. Thank you to our loyal customers for your ongoing However the Group is positioned to deal with the solid support and to our new customers for putting attendant uncertainties, given that it imports less their trust in us. We hope to always provide you than 30% of its merchandise from China, and is with an exceptional shopping experience and confident of its ability to procure product from quality fashion that makes you look attractive and alternative sources, albeit at higher prices. feel successful. Future strategies and prospects Utilisation of cash

The Group remains in a solid cash position with cash and cash equivalents of R219 million. In 2006 we utilised cash for acquisitions, expansion, Michael Mark refurbishment of stores and share buy-backs and Chief Executive Ofﬁcer will continue to do so in the period ahead.

Cash will continue to be utilised to refurbish existing stores and roll out the new Truworths Emporium and Identity retail formats.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 21 Group financial director’sHighlights 2006 proved to be another successful period, with record trading and sales across all areas of the business, building on the Group’s enduring review superior earnings growth track record. Headline earnings per share of 186.4 cents equate to an increase of 29% on the prior period. This represents compounded growth in the past eight years of 24%. Economic overview Gross margin and trading margin exceeded those The successful management of the overall achieved in 2005 as well as the nine year averages domestic economy over the past decade has and once again the Group’s operating margin is buoyed consumer confidence, as lower interest materially higher than the norm in the industry. rates and a reduction in personal taxation resulted Stock turns improved again and were in line with in more disposable income. targets set. A record return on capital of 66% was achieved This favourable environment is expected to compared to 59% achieved in 2005 and signifi- be affected by controlled interest rate hikes, cantly higher than the nine year average of 47%. higher inflationary pressures and the effects of Return on average equity was up from 39% in 2005 a weakening currency. Notwithstanding these to 44%. changes, the ongoing challenge for the Group is The key financial ratios below indicate the high to ensure that it procures the right merchandise to level at which the business performed for the attract this market of keen consumers. period under review:

KEY FINANCIAL RATIOS

9-Year 2006 2005 2004 Average

Gross margin (%) 54 54 53 52 Trading margin (%) 25 24 22 17 Operating margin (%) 33 31 27 23 Return on average equity (%) 44 39 38 29 Return on capital (%) 66 59 54 47 Stock turn (times) 6.1 5.6 6.5 5.5

22 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 Wayne van der Merwe (48) BCom, B Acc Sc (Hons), CA(SA) Group ﬁnancial director CREDIT vs CASH SALES Director: Truworths Ltd, Young Designers Emporium (Pty) Ltd, 100 Uzzi (Pty) Ltd, Truworths (Namibia) Ltd, Truworths (Swaziland) Ltd 90 Credit sales Appointed to the board in August 2002 Chairman of social responsibility committee and member of 80 70 Cash sales risk committee E

AG 60 The Group’s key ratios continue to compare 50 favourably with local and international benchmarks. 40

PERCENT 30 One of the Group’s prime performance measures 20 10 is wealth creation. Real wealth was created with a Note: 0 Including Identity return on invested capital (ROIC) of 27% compared to 2001 2002 2003 2004 2005 2006 26% in the prior period. This exceeded the weighted average cost of capital (WACC) by 14% for the period, Year-on-year sales growth is partly due to consistent represented graphically below. growth in retail trading space, which has grown by an average of 9% over the past three years. In line with Sales growth the strategy of growth through expansion, 2006 saw an unusual increase in retail trading space of 11%, Sale of merchandise, excluding YDE sales, which which resulted in an 11% increase in the annualised are conducted on an agency basis, increased by sale of merchandise per retail trading square metre 23% to R3.8 billion. Sale of merchandise, excluding to R24 700. the IFRS adjustments, increased to R4 billion, a 23% improvement on 2005. This includes comparable This was complemented by a 13% increase in store sales growth of 16%, which is in line with the the number of full-time equivalent employees average for the past three years. (excluding YDE) to 4 991 versus 4 403 in the prior period. Sale of merchandise per full-time The growth exceeded the estimated average equivalent employee improved by 8% growing from growth in sales for the clothing, footwear and R707 000 to R765 000 per employee. textile industry sector as measured by the Retailer Liaison Committee, which tracks the performance of all major retail companies. The Group’s ROIC vs WACC compound sales growth over the last eight years 30 Return on was 16%. invested capital 25

E 20 Weighted average The average product inflation of approximately 1% cost of capital AG was lower than the Group’s inflation average over 15 the last few years, mainly due to the strength of 10 the rand during the reporting period. This enabled PERCENT well priced yet quality imports of garments and 5 fabrics to enhance the appeal and excitement of 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 our offering to the South African consumer.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 23 GROUP FINANCIAL DIRECTOR’S REVIEW

There was a noticeable growth in credit uptake • The unusually high growth in new stores, during the period, with both new and active expansion and renovation of existing stores in accounts showing excellent growth. At the end the period generated additional occupancy and of the period, 87% of all account holders were in employee costs; a position to purchase on their accounts, in line • Increased sale and customer promotional with the prior period. activities; Excluding Identity, credit sales as a percentage of • The increase in debtor costs arising from retail sales was 79%, in line with the prior period. a higher active account base and a slight With the inclusion of Identity’s sales, this figure is deterioration in net bad debt indicators; and 74%. The effect of the adoption of IFRS on operating Gross margin • expenses. Refer to note 29 in the annual Gross margin was 54% in line with that for 2005, financial statements for further details. resulting in a 23% increase in gross profit. Gross margins for both 2006 and 2005 have been adjusted If these expenses are excluded, overall expenses to exclude the effect of cell phone sales. Income for the period under review showed a 9% from cell phone sales has been reclassified to increase. other operating expenses and has had the effect The biggest expense incurred is employment of reducing these expenses. costs, followed by occupancy costs and bad debt costs. The ongoing challenge for the business is to EMPLOYMENT COSTS AND EMPLOYMENT maintain the increase in these three main expense COSTS PER FTE EMPLOYEE Employment costs 100 500 categories within acceptable levels. 90 450 80 400 Employment costs Employment costs per FTE employee 70 350 Employment costs increased on the prior period by 60 300 50 250 15% and maintained a level of 12% as a percentage 40 200 of sale of merchandise. If non-comparable costs 30 150 R’ MILLIONS in respect of additional staffing costs arising 20 100

R’ THOUSANDS PER FTE from new, expanded and renovated stores and Note: 10 50 FTE – Full-time the effects of accounting for the new cash settled equivalent 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 compensation scheme are excluded, employment costs increased by 10% on 2005.

OCCUPANCY COSTS AND OCCUPANCY COSTS PER SQUARE METRE Occupancy costs 2100 350 Occupancy costs 1800 300 Occupancy costs increased by 17% and maintained a level of 7% of the sale of merchandise. If non- Occupancy costs 1500 250 per SQM comparable costs are excluded, costs increased 1200 200 by 7%. 900 150 The average rate of rental escalation is 600 100 R’ MILLIONS

RANDS PER SQM approximately 8%. This rate does not take into 300 50 account any increases in turnover rentals, which 0 0 depend on how well each store trades. Turnover 1998 1999 2000 2001 2002 2003 2004 2005 2006 rentals comprised 9% of total operating lease Expenses costs compared to 7% for 2005.

Expenses increased by 18% and reduced as a Depreciation percentage of the sale of merchandise from Depreciation for the period under review 30% in 2005 to 29% for the period. The increase amounted to R74 million compared to R65 million in expenses during the period under review was in 2005. Depreciation as a percentage of the sale of unusually impacted by the following factors: merchandise was maintained at 2%.

24 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 GROUP FINANCIAL DIRECTOR’S REVIEW

Net bad debts and other operating costs Trading and operating proﬁts

Other operating costs increased by 26% compared Trading profit, which reflects the performance of to 2005. Net bad debts and associated collection the core business before interest received, was up costs are included in other operating costs. Cost by 28% to R954 million for the period compared to R745 million for the last period. This represents of collections, net bad debt and the increase in the eight year compound growth of 26%. Improvements debtor allowance increased by 46% to R156 million. in the performance of the core business stem from Although lower interest rates impacted on interest the success of the store expansion drive and the income, interest from debtors grew by 34% to improved operating margin based on accurate buying and reduced markdowns, the ongoing strict R257 million, while income from financial services control of expenses and higher sales per employee increased to R12 million. Compared to the prior and per square metre of trading space. period, growth in the debtors’ book was 28%, increasing to R1.5 billion. Net bad debt write-off The trading margin grew to 25%, trending well above the nine-year average of 17%. to credit sales and as a percentage of the debtors’ book increased marginally from the prior period. Operating profit, which is the profit before finance costs and tax, was R1 244 million, 27% The credit business showed an improvement in higher than the R979 million achieved in 2005. The the cost of credit from R29 million in the previous eight year compound growth is 25%. period to R26 million. The Group’s operating margin of 33% is high by Refer to page 68 for further information on the international and local standards and compares Group’s credit management. favourably to 31% in the prior period and the nine year average of 23%. Capital expenditure Interest received During the period under review 32 new stores Total interest received increased from opened, including 13 Truworths stores and R232 million to R288 million. Interest earned 19 Identity stores, while 12 stores were renovated on investments on an average daily investment or extended, four stores were relocated and balance of R419 million decreased by 23% to two stores were closed. The total trading area R31 million. This decrease was mainly due to increased by 11%. This was ahead of the 8% the significant utilisation of R398 million of targeted growth in trading area for 2006, as more investment balances for the purposes of funding new stores were opened than anticipated as a share repurchases. The average interest rates result of better opportunities for suitable retail earned on investments for the period was 7.1% space than was initially expected. Total capital compared to 7.0% in 2005. Details of interest on debtors is included under the section headed expenditure during the period under review was “Net bad debts and other operating costs”. R107 million versus R102 million in the previous period, with capital expenditure on store Tax development amounting to R80 million. The Group’s effective tax rate equates to 34% in line with the rate in 2005. Included in this expense is For the period ahead a R172 million capital higher secondary tax on companies (STC) incurred expenditure budget has been approved to fund on increased dividend payments and shares the Group’s ongoing growth through expansion, cancelled, coupled with other non-taxable income including R119 million for store development. and a prior period under provision of current tax. If STC payments, other non-taxable income and CAPITAL EXPENDITURE the prior period under provision are excluded, the 2007 2006 2005 effective tax rate for the period is 29%. Budget Actual Actual Rm Rm Rm Earnings Store development 119 80 69 Profit for the period improved by 27% to Head office 20 – 10 R823 million compared to the R648 million Distribution centre 3 7 1 achieved in the previous period. This is in line Computer equipment 30 20 22 with the eight year compound growth rate of 172 107 102 26% in profit.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 25 GROUP FINANCIAL DIRECTOR’S REVIEW

Headline earnings improved by 27% during the • Intangible assets increasing to R73 million period to R823 million. Headline earnings per compared to R59 million in 2005 due to share of 186.4 cents were up by 29%, with the eight additional goodwill of R14 million, arising on year compound growth being 24%. Fully diluted the purchase of the remaining 25% interest in headline earnings were in line with the analysts’ YDE; and

consensus forecast, rising by 29% to 181.0 cents. • Financial assets increasing from R93 million to Basic earnings per share of 186.4 cents are 29% R122 million due to a R23 million investment in higher than the 144.8 cents attained in the prior an option contract with an independent financial period, and compare favourably to the eight year institution to finance a new cash-settled compensation scheme for management and compound growth rate of 24%. employees, additional funds being advanced Higher earnings once again resulted in an to charitable trusts amounting to R44 million improvement in the return on average equity of to finance social investment activities, offset 44% versus 39% in 2005, well above the nine year partially by a R24 million payment received in average of 29%. respect of the export partnership participation. Previously the charitable trusts were funded Dividends by loans that were repaid prior to period end A final dividend of 45 cents per share has been and such repayments were disclosed as part of declared for the 2006 period. Including the interim cash and cash equivalents. dividend of 44 cents per share, total dividends Inventories for the period amount to 89 cents per share, a 29% increase on the distribution to shareholders The 12% increase in inventories at period- in respect of 2005 of 69 cents per share. end was the result of the tight management of inventories and an above-average winter trading Total cash dividends paid during the period season. Adequate provisions have been made for amount to R362 million compared to R266 million markdowns, shrinkage and inventory obsolescence paid in the 2005 period. Over the past eight years, and included in inventories is an amount in dividends per share have shown a compound respect of these provisions of R80 million growth rate of 35%. (2005: R83 million).The improved inventory levels are reflected in the higher stock turn of 6.1 times The dividend cover has been maintained at compared to 5.6 times in 2005. 2.1 times headline earnings. Trade receivables Balance sheet Growth in trade receivables is attributable to the Net asset value per share of 440 cents is an 8% increase in credit sales and the graduated trend improvement on the prior period’s 407 cents per of movement by customers from the six-month share. Total assets were marginally above 2005 at interest-free plan to longer term interest-bearing R2.6 billion, comparing favourably to the growth of plans. It is envisaged that this trend will continue. 23% in sale of merchandise. In 2006 the interest-bearing portion of the book Non-current assets was 47% compared to 38% in 2005. This excludes the portion of the book that is subject to notional Non-current assets grew 15% to R574 million from interest that is calculated on the six-month R499 million in 2005. The increase arose from: interest-free sales which comprises 77% of total • Property, plant and equipment increasing by credit sales. 9%, as capital expenditure showed a marked Net bad debt write-off to credit sales was at increase. This expenditure was mainly 2.7% for the period compared to last period’s earmarked for the development of new, 2.3% and 2.2% in 2004. Net bad debt write-off as a expanded and refurbished stores in line with percentage of the debtors’ book was 5.1% versus the Group’s strategy to increase its total trading 4.6% in 2005 and 4.3% in 2004. These percentages area; are within the Group’s expected norms.

26 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 GROUP FINANCIAL DIRECTOR’S REVIEW

The Group continued to account for bad debt in The strategy to buy back shares continued accordance with a strict ageing policy. A doubtful during the period. Repurchased shares are debt allowance has been calculated on a basis held as treasury shares and represented consistent with that of last period at 5.9% of the 10% of issued shares at the end of the period gross book. In monetary terms, the allowance compared to 8% at the end of the 2005 period. has increased by R20 million to R91 million. The The progress of this programme since its inception quality of the debtors’ book remains high and in the 2002 ﬁnancial period is shown in the table at arrears as a percentage of the book are similar to the bottom of the page. those reported at the end of the previous period.

Cash and cash equivalents Cash ﬂow

The Group confirmed its strong financial position As a result of the sustained high quality of earnings, with cash and cash equivalents at the reporting attributable cash equivalent earnings per share date of R219 million, a decrease of 64% on improved by 33% to 202 cents. Cash flow per share 2005. The percentage of net cash to total equity of 114 cent equates to a realisation rate of 56%. decreased to 11% from 33% in the previous Cash earnings before interest, tax, depreciation period. The significant decrease in cash and cash and amortisation increased to R1 050 million, a equivalents for the period was mainly as a result 28% increase on 2005. Higher working capital of R398 million being utilised to repurchase and requirements of R274 million were mainly due cancel shares and higher tax payments. to the larger investment in trade receivables Trade and other payables and inventory levels, which were partly offset by growth in trade and other payables as a During the period, trade and other payables rose consequence of improved trading activities and to R492 million from R417 million, an increase on associated higher volumes. 2005 of 18%, mainly due to an increase in trading volumes. The Group’s policy of paying all suppliers Tax paid rose to R563 million compared to 30 days from statement date remains consistent R261 million in 2005 because of higher profits, with prior periods. increased STC resulting from higher dividend Equity payments, and higher provisional tax payments arising both from a higher base on which such The number of shares in issue increased by payments are calculated and earlier payment 2.9 million as a result of shares issued in terms compared to previous period. Total dividends of the share incentive scheme at an average price paid during for the period increased by 36% to of R5.91. The proceeds of the shares issued were R362 million as a consequence of higher earnings. R17 million. During the period 7.2 million shares were repurchased and subsequently cancelled. Net cash used in investing activities amounted to The cost of the cancelled shares amounted to R144 million. Capital expenditure remained tightly R200 million, which was offset against share managed and within budget at R107 million. premium. Included in the cash used in investing activities

SHARE BUYBACK PROGRAMME

Total number Total cost Average price of shares of shares of shares repurchased repurchased repurchased

Shares repurchased since inception of the programme 56 223 295 R728m R12.95 Shares cancelled for the 2006 period (7 199 588) (R200m) R27.87

Shares held as treasury shares 49 023 707 R528m R10.77 Shares repurchased for the 2006 period 16 480 738 R398m R24.15

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 27 GROUP FINANCIAL DIRECTOR’S REVIEW

were loans advanced to charitable trusts YDE offers a range of merchandise from local amounting to R53 million and the purchase of emerging designers on consignment in its up- option contracts in respect of a new cash-settled market stores. Its main source of income is from compensation scheme amounting to R23 million. commission earned on the sale of the designers’ These outflows were partly offset by an amount merchandise, which amounted to R37 million in of R24 million received in respect of investment the period under review. In addition, designers in the export partnership participation and contribute towards display space for their own a R30 million disposal of a preference share branded in-store merchandising, and in this period investment. display fees received amounted to R17 million.

Net cash used in ﬁnancing activities was Uzzi

R382 million, with proceeds on shares issued On 3 July 2006, the remaining conditions precedent of R17 million, offset by the total repurchase of for the acquisition of a 51% interest in Uzzi were shares for an amount of R398 million. met. This chain operates 25 stores in the better- A key indicator of the Group’s ability to generate end male fashion market. The acquisition cost has solid and sustainable free cash flows is evidenced been financed from the Group’s cash resources. by the graph below. The strong free cash flows For further disclosure on the acquisition refer to have been growing consistently over the nine-year note 28 in the annual financial statements. period, apart from 2000, where cash flows were Truworths Limited (Zimbabwe) affected by the discontinuance of operations at Sportsgirl. The Group has a 34.4% (2005:34.4%) interest in Truworths Limited Zimbabwe, which is involved in FREE CASH FLOW AND the retail of fashion products through its 95 stores. CASH FLOW FROM OPERATIONS The results of this associate have not been equity 600 Free cash flow accounted in the current or prior period as the 500 financial effect is considered to be immaterial. Cash flow from operations 400 Financial risk management 300

200 There were no material changes to the treasury

R’ MILLIONS policy in the period under review. The Group has 100 a detailed and comprehensive treasury policy to 0 regulate its currency, interest rate and counterparty -100 1998 1999 2000 2001 2002 2003 2004 2005 2006 exposures, amongst other things. This policy has been approved by the board of directors and is regularly evaluated and adapted to take into account Young Designers Emporium (YDE) the rapid pace of change in this area.

YDE sales, which are conducted on an agency Derivatives are used to provide an economic basis, increased for the period by 11% to hedge in respect of foreign exchange and to R166 million. Sales on credit have grown to hedge the cash-settled compensation scheme. No R29 million, which amounts to 17% of YDE’s sales. speculative trading is permitted. During the period Earnings and operating proﬁt were in line with under review, all exposures remained within the management’s expectations. limits of authority as approved by the board.

28 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 GROUP FINANCIAL DIRECTOR’S REVIEW

The Group’s policy is to fully cover all committed was placed in the top ten of all listed companies import exposures in all areas of the business in the Ernst & Young Excellence in Corporate using forward cover contracts. The Group had no Reporting survey conducted by Ernst & Young in uncovered foreign currency liabilities at the end conjunction with the Department of Accounting at of the financial period. Foreign currency exposure the University of Cape Town. arises mainly from the import of merchandise, As part of the process of continuous improvement although there are certain non-merchandise in financial reporting, the detailed report resulting transactions that occur in foreign currencies from this survey is used as input into the annual that relate to information technology services. reporting process for the following financial However, these do not have a significant impact on period. During the period, staff also attend regular the profitability of the Group. Details of the Group’s technical updates and engage various accounting forward cover exposure are included in note specialists on emerging technical issues. 18.2.1 in the annual financial statements. For the 2006 period, the annual financial In the 2006 financial period, the impact of all statements were prepared in compliance with IFRS forward cover transactions resulted in a profit and interpretations of those standards. The Group of R7 million. Looking ahead, foreign exchange adopted IFRS for the first time in the 2006 financial fluctuations will impact on imported merchandise period, with comparative information being adjusted accordingly. purchases, but this is not expected to have a material effect on earnings. IFRS 1: First time Adoption of International Financial Reporting Standards provides for issuers Due to its strong cash position, the Group’s of financial statements to elect certain optional operations are wholly financed by its own cash and mandatory exemptions from full retrospective flows. The Group remains ungeared and had application, and the Group has elected the R475 million in unutilised domestic general following: banking facilities at the end of the period. This strong financial position ensures that the Group • Property, plant and equipment: has adequate resources to continue its operations The Group elected to measure the head office and to meet any future demands for operating and building at its fair value on the transition date funding requirements. and use such fair value as the deemed cost.

The company’s articles of association do not • Share-based payments: limit its borrowing powers, while the borrowing The Group elected to apply IFRS 2: Share-based powers of the wholly-owned operating subsidiary, payments, to such payments granted after Truworths Limited, may, in terms of its articles of 7 November 2002 that had not yet vested at association, be limited by the holding company. 1 January 2005.

Accounting standards • Business combinations: The Group’s approach to ﬁnancial reporting is one The Group elected not to retrospectively of openness and transparency. Evidence of the apply IFRS 3: Business Combinations, to levels of compliance and adherence to current and business combinations that occurred before emerging standards is the recognition received in 28 June 2004. On that date, the carrying amount respect of the Group’s 2005 annual report, which of goodwill equated to the amortised amount.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 29 GROUP FINANCIAL DIRECTOR’S REVIEW

The adoption of IFRS and interpretation changes • IFRS 2: Share-based payments: had no significant net impact on the profit and Equity-settled share-based payments are cash flow as reported for the 2005 financial period. measured at fair value on grant date, with the The reconciliation of total equity under SA GAAP expense recognised in the income statement as previously reported to total equity under IFRS, over the vesting period. is reflected in note 29 of the annual financial • SAICA Circular 9/2006 Discounts: statements. The valuation of inventories and trade The adoption of IFRS and interpretation changes accounts receivable and payable, as well as the had an impact on the following: measurement of cost of sales and the sale of • IAS 16: Property, plant and equipment: merchandise, have been adjusted retrospectively Residual values and useful lives of property, by the settlement discounts received from plant and equipment have been reassessed at suppliers in terms of merchandise purchases, each balance sheet date, and the impact has and discounts granted to employees in respect been applied retrospectively. The total impact of the sale of merchandise. The total impact to to opening retained earnings, including the opening retained earnings was a reduction of IFRS 1 exemption in terms of the head office, R1 million. amounted to R 43 million. The International Accounting Standards Board • IAS 39: Financial Instruments - Recognition and (IASB) issued eight amendments to existing Measurement: standards during the period. This adoption resulted in the recognition of notional interest on interest free debtors, and the Additionally one new standard and five impact has been applied retrospectively. Secured interpretations were published. The Group has loans to share incentive scheme participants elected not to adopt the accounting treatment have now been measured at fair value. and additional disclosure requirements in its The total impact to opening retained earnings financial statements earlier than is required by was a reduction of R23 million. these publications.

30 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 We love fashion and revel in the innovative blending of colours, fabrics, styles and trims.

OPERATIONAL OPERATIONAL REVIEWS OPERATIONAL REVIEW merchandise a n d brands

Truworths caters to youthful, fashionable South The expansion of Identity and the acquisition of YDE Africans, including men, women, teenagers saw the Group enter a growing niche market that and children, across all age groups and lifestyle attracts a vibrant and trendy younger generation, choices. Its comprehensive range of exclusive who are both aspirational and extremely fashion brands offer customers an exciting shopping conscious. YDE also offers this younger generation experience covering the full spectrum of access to well-priced designer labels and leading- leisurewear, formalwear, eveningwear, intimate apparel, shoes, accessories, jewellery, cosmetics edge styling from a host of talented local emerging together with home décor and gifts. By shopping designers. across the Truworths brands, customers enjoy an In the period under review, the Group saw a adventurous blend of brands, colours, fabrics new opportunity to satisfy its existing and a mixture of classical fashion styling customers and grow its customer and hot global trends. The Group’s goal base by concluding an agreement Truworths caters to youthful, is to be ﬁrst with to acquire the Uzzi menswear fashionable South Africans fashion in South business and developing a Africa in order to new supporting brand under A fundamental element of the retain its position as Truworths Womenswear, Lucia Truworths merchandising and the country’s leading Rosati. Both of these new brands brand strategy is a continual fashion retailer. focus on Italian-inspired styling focus on the reinvention of its core and tailoring and will be developed business to ensure that its stores in the forthcoming year. and merchandise are up to date with the latest global fashion and retail trends to THE FASHION STUDIO meet the ever-changing demands of its fashion- conscious customers. In addition, the constant The fashion studio is the conceptual hub of introduction of new formats and ranges has the business. Well-tested and proven methodologies given the Group a unique competitive edge. are used to select colours, fabrics, styles, As a result, customers have come to trust Truworths trims and accessories for each of the Group’s as the fashion authority in South Africa. main and subordinate brands well ahead of the The Group specialises in retail formats. Truworths coming seasons. Womenswear, Truworths Man, Identity, Daniel As a Southern hemisphere business, the Group is Hechter, LTD, Elements, Fine Jewellery and fortunate to be able to monitor the performance of Living were organically developed to meet Northern hemisphere fashion retailers who are a the diverse lifestyle needs of its customers. These main brands are supported by sub- season ahead of South Africa. The fashion studio brands catering across a wide range of clothing analyses these emerging global fashion trends and preferences. interprets them for its South African customers.

32 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 Doug Dare (45) Terri Murdoch-Coyle (47) B Bus Sc Dip H Ed Director: Merchandising of Truworths Limited Director: Buying and Design of Truworths Limited Appointed to Truworths Limited board in July 1999 Appointed to Truworths Limited board in July 1998 Employee of Truworths since June 1984 Employee of Truworths since June 1985 Ms Murdoch-Coyle was on extended sick leave for much of the ﬁnancial period due to ill health.

Through a close working relationship with the timelines and shorter runs required to create the Truworths buying teams, the fashion studio wide range of garments that make up the various understands who its customers are, what they Truworths collections. The Group actively looks for like and what has proven to be successful. It uses opportunities to increase its sourcing from local this knowledge to support the buying division, suppliers, in line with its strategy of sourcing as in deciding which emerging trends will work close to local consumption wherever possible. for its customers, as well as how to develop the In remaining committed to local manufacturers, latest trends creatively to support and reflect the the Group has pledged its support and funding signature style of each brand. to the recent industry-led projects of the Cape To support the merchandising function, continual Clothing and Textile Cluster (CCTC) to assist upgrades of information technology and systems in developing a world-class domestic clothing enable the fashion studio teams to improve their and textiles manufacturing industry. For more ability to read international fashion markets and information on the Group’s involvement in trends, provide appropriate information in a readily CCTC, refer to page 124. In addition, the Group usable format to buying teams, and speedily allocates a portion of the rebate it receives in communicate new concepts to the supply base. terms of the government’s Duty Credit Certificate scheme, for training and skills development The Group’s goal is to be first with fashion in as well as purchasing of and improvements to South Africa in order to retain its position as the capital equipment in local cut, make and trim country’s leading fashion retailer. This forms the (CMT) factories. basis of the strategy in the merchandising division. One of the factors contributing to the Group’s Truworths uses its own international sourcing unique competitive edge is strict adherence to the division as well as international agents to careful formulas and philosophies on which its import merchandise not readily available in the successful buying strategies are based. Although domestic market. Imported lines consist mainly the merchandising division constantly refines its of shoes, accessories, homeware and gifts, as processes, it is exacting and disciplined in applying well as outerwear products unavailable locally tried and tested buying formulas from season to or if available, they would be significantly more season. expensive.

SOURCING DIVISION SUPPLY CHAIN

The sourcing division is an essential element The strategic function of the Group’s supply chain, of the merchandising strategy. Currently the including the Truworths Distribution Centre (TDC), majority of outerwear procured by Truworths is is to implement decisions as soon as possible in sourced from local suppliers as the local textile order to reduce lead times between the supplier and fashion-manufacturing industry is better and the stores by accurately delivering the right equipped to respond to the ﬂexibility, demanding stock to the right store in the shortest time.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 33 OPERATIONAL REVIEW

During the period the total costs of the supply Substantial funds and effort have been invested chain increased by 15% as a result of the increase to minimise physical risks. Pre-emptive plans in supplier to store distribution throughput of are in place to ensure that all identiﬁed risks 19% more units than in the previous period. are mitigated, e.g. the building has its own water Major contributors to the increase were the hike tanks, fuel tanks and generators and is equipped to in transport costs, with a 26% average increase handle ﬁres. These plans are regularly monitored in the fuel price during the period, as well as an and evaluated by the risk committee. increase in asset costs for new equipment and upgrading of facilities. Increased productivity REVIEW and efficiencies were realised with a similar Performance headcount to the period before, and direct staff costs only increasing marginally. In what was a good period for fashion retail in

The healthy ratio of cost to throughput is evidence general, real growth in the sale of merchandise of the ongoing focus on optimised productivity across all the Truworths brands was achieved and efficiency in the supply chain during the past as well as further increases in the Group’s three years. Productivity improvements were market share as reported by the Retailer Liaison higher by 3% during the period. The total cost per Committee. This performance highlights the unit processed was well controlled at a level that success of the Group’s merchandising, sourcing, is consistent with previous years and below the buying and design strategies during the period, Group’s budget. with women’s and menswear increasing their The renewed efficiencies in the supply chain, market share respectively. particularly in TDC, also relate to its enhanced The overall sale of merchandise amounted to stock management system. Processes were R3.8 billion, up by 23% from R3.1 billion in 2005, re-engineered and new technology for better once again exceeding sales growth reported by the communication was introduced by installing Retailer Liaison Committee over the same period. broad-band links, the pick-by-line system was upgraded and network systems were improved. In particular, strong performances were recorded from Truworths Man, Truworths, Identity and Looking ahead, there are plans for increased Daniel Hechter. automation to enhance productivity as well as some process re-engineering. Any automation The Group took advantage of the emerging undertaken will be to increase speed and trend of increased fashion awareness amongst not to replace labour. Employees will receive male customers to grow Truworths Man into the ongoing training programmes in conjunction leading menswear fashion retailer and increase with the automation. There are also plans to its contribution to the overall Group sales. Sales add more updated equipment and provide more growth of 25% from Truworths Man for the period warehousing space. was attributable to accurate merchandising and During the period, two value-added service centres well-balanced product ranges, effective stock were opened to supplement capacity at TDC. These management, improved sell-offs of merchandise, will house all non-production service departments lower markdowns and an increase in the total area and allow for the absorption of additional units at of its retail trading space. TDC without having to extend this facility or find new space. These non-production services include Similarly, an increase in retail trading space, amongst others, hanger processing, archives, coupled with skilful buying and range coordination shop fittings and stationery. saw Truworths Womenswear achieve 18% annual

The Group recently engaged consultants to sales growth, up from 16% last period, as well as evaluate the risks inherent in the current supply improved margins and well-controlled markdowns chain infrastructure, assess its long-term needs across the division. In addition, the continued and implement any necessary changes to ensure growth of an aspirational middle class resulted in production capacity for the next decade. healthy sales growth of 27% from Daniel Hechter.

34 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 OPERATIONAL REVIEW

Other strong performances from Truworths This initiative has been successful, with a decline Elements, Truworths Jewellery and Truworths in the number of items returned to suppliers. Living highlight their potential as areas for growth The quality assurance team continues to work with within the wider Truworths offering. Truworths both local and international suppliers to ensure Elements showed sales growth of 19% despite the superior quality of Truworths merchandise. tough competition in the market, while the smaller The team was increased and up skilled during Truworths Jewellery and Truworths Living brands the period in line with the growth of the Group’s both showed strong annual sales growth of 22% sourcing requirements. and 25% respectively. PROSPECTS Signiﬁcant sales growth of 47% from Identity is largely attributable to the exponential expansion of Brands this division to 86 stores, with 19 new Identity stores Womenswear will concentrate on maintaining opening in the period under review. If new stores and entrenching its share of the women’s fashion are excluded, Identity showed comparable year- market by continuing with its long-term strategy on-year sales growth of 27%. The merchandising of developing its own home-grown brands. The team’s clear understanding of the Identity target current ﬁnancial period will see the launch of market resulted in accurate buying and the correct an Italian-inspired label, Lucia Rosati, in the product mix, which also contributed to the brand’s Womenswear division. performance. Menswear is a core focus area for the next period, In the period under review the Group marginally and the Truworths Man, Daniel Hechter and LTD increased its gross margin after markdowns as a brands will be positioned to take advantage of the result of improvements in the sales mix, buying growing demands of this more fashionable male margins, inventory control and well-controlled market segment. The introduction of the stand- markdowns. The increase in gross margins is alone Uzzi chain of stores within the Truworths evidence of the consistency in the merchandising stable will further the Group’s menswear strategy team’s ability to accurately predict trends and and offering. then purchase the right stock based on these predictions. The Identity brand continues to be a strong Quality performer and will be developed to increase its market share to ensure it remains one of the The period under review saw the results of the strongest growth areas in the Group in the next Group’s major drive to improve quality standards. few years.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 35 we offer a broad range of leading fashion merchandise across various lifestyles.

36 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 GROUP BRANDS AT A GLANCE

OUTBACK RED Denim-friendly urban adventure wear

TRUWORTHS JEANS Authentic jeans styled for comfort and individual ﬁt

GINGER MARY International fashion, with global, ethnic design

FINNIGANS Modern suiting solutions TRUWORTHS TRUWORTHS COLLECTION An understated modern collection of classic WOMENSWEAR suiting separates

A conﬁdent collection of fashion– ESSENCE Exclusive elegant wear for special occasions forward leisurewear, formalwear, TRUWORTHS GLAMOUR An evening and occasion wear collection that offers an eveningwear, lingerie, shoes and exquisite expression of individual style accessories designed for the modern, ZETA Inspiring and unique, real fashion for women in fashion-aware woman sizes 40-48 INTRIGUE A luxurious range of the most sensuous underwear

SKINY Comfortable, sporty body wear that’s trendy and cheeky

PEEP A range of underwear that’s naughty, girlie and gorgeous

TRUWORTHS MATERNITY A fashionable range of comfortable maternity wear for every occasion SUPPORTING BRANDS HEMISPHERE Jeanswear for the self-assured modern man

HEMISPHERE SPORT Active wear for the adventurous man on the move TRUWORTHS MAN STUDIO Innovative fashion for the man with an enviable Formal and leisure lifestyle fashion, sense of style shoes, accessories and underwear for EXSTREAM An extreme expression of up-to-the-limit street wear the fashion conscious modern man for the non-conformist

A European inﬂuenced collection of high quality, modern, timeless designs for men and women

An eclectic collection of easy yet sophisticated leisure time dressing for women, men, teenagers, children, and toddlers

A cutting edge range of casual, formal and glamour fashion that demands to be noticed

A superb range of the best international skincare, colour cosmetics and fragrance brands for him and her

A collection of unique modern designs to add style to the home

Modern, ﬁne quality jewellery, branded watches and sunglasses

Young, funky and affordable casual street gear for men and women

Cutting-edge fashions and related lifestyle products aimed at the 16-35 age group

Italian-inspired formal and leisure lifestyle fashion, footwear and accessories for the fashion conscious modern man

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 37 GROUP BRANDS’ PERFORMANCE

PERFORMANCE FOR 2006 TRUWORTHS TRUWORTHS DANIEL WOMENSWEAR MAN HECHTER LTD INWEAR

Market segment Women across Youthful men Modern men Women, men, Youthful all ages across all ages and women teenagers, children women and lifestyles and lifestyles and toddlers

Range Leisurewear, Formal and Classically- Leisurewear Trendy, formalwear, leisure styled casual including cutting-edge eveningwear, outerwear, and formal footwear and casual, formal intimate apparel, underwear, outerwear, accessories and shoes and footwear and footwear and eveningwear accessories accessories accessories

No. of stores at period end: Departments 225 221 122 53 139 Stand alone 228 17 7 3 1 No. of new stores 12 1 – – – Trading area# (m2) 67 248 21 233 9 346 4 169 6 954 Trading density (R) 25 261 33 910 45 695 29 092 34 101 Market share @ @ Not measured Not measured Not measured Retail sales1 (Rm) 1 700 720 427 121 237 Annual sales growth rate (%) 18 25 27 20 20

KEY PERFORMANCE INDICATOR Five year compound sales growth (%) 16 24 23 18 16 Contribution to retail sales (%) 45 18 11 3 6 Margins @ @ @ @ @ Stockturn (times) @ @ @ @ @ Markdowns ¤ ¤ ¤ ¤ ¤

CONTRIBUTION BY 2006 SALES DIVISION 2005

3% LTD 3%

6% Inwear 6%

9% Identity 8%

11% Daniel Hechter 11%

18% Truworths Man 18%

45% Truworths 46%

8% Elements, 8% Jewellery, Living

38 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 GROUP BRANDS’ PERFORMANCE

PERFORMANCE FOR 2006 TRUWORTHS TRUWORTHS TRUWORTHS ELEMENTS JEWELLERY LIVING IDENTITY YDE Market segment Men and Men and Men and Younger men Youthful men women women women and women and women in the 16-35 age group Range Fragrances, Fine quality Home décor Funky and Cutting-edge skincare and jewellery and accessories affordable outerwear, colour cosmetics leading and gifts casual intimate wear, international street wear footwear, watch and accessories sunglasses and lifestyle brands products from local emerging young designers No. of stores at period end: Departments 65 90 29 86 12 Stand alone – – – 86 12 No. of new stores – – – 19 – Trading area # (m2) 4 363 1 680 513 20 763 3 772 Trading density 64 392 32 671 20 210 17 444 44 804 Market share Not measured Not measured Not measured Not measured Not measured Retail sales1 (Rm) 281 55 10 362 166 Annual sales growth rate (%) 19 22 25 47 11 Five year compound KEY PERFORMANCE INDICATOR sales growth (%) 23 11 35† 55 15* Contribution to retail sales (%) 7 1 – 9 – Margins @ @ @ @ @ Stockturn (times) @ @ @ @ – Markdowns ¤ ¤ ¤ ¤ –

* YDE two year † Living four year # Excluding non-trading area that cannot be directly attributable to an individual brand 1 Excluding franchise sales and IFRS adjustments.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 39 BRAND REVIEW w o m e n s w e a r

Truworths Womenswear offers fashion-conscious South African women an exciting, internationally inspired collection of its own exclusive brands. The collection caters for women across all lifestyles and encompasses a wide range of leisurewear, formalwear, eveningwear, intimate apparel, shoes and accessories. Review The division’s core long-term strategy is developing, growing and promoting its own home grown, exclusive brands, rather than brands generally available in the marketplace. Truworths Womenswear achieved 18% annual sales growth, improving on last period’s 16% growth due to its ongoing strategy of careful planning and range

Stocks were skilfully coordination to ensure that customers are offered a balanced assortment of appealing and desirable merchandise. Stocks were skilfully managed throughout managed throughout the period and markdowns were well contained resulting in improved the period and markdowns margins and profitability across the division. were well contained There are currently 228 Truworths stores, 24 of which form the core resulting in improved offering along with Truworths Man in the major Truworths Emporium margins and stores. The total trading area of Womenswear grew by 5 753 m² profitability across during the period. the division Prospects Womenswear will concentrate on maintaining and entrenching its share of the women’s fashion market by focusing on the careful interpretation of international fashion trends for the South African market and the coordination and planning of its ranges to meet the specific needs of its customers. All aspects of its customers’ lifestyles will be provided for including daywear, eveningwear, casual wear, formalwear, outerwear, underwear, shoes and accessories, through the promotion of its outerwear and underwear brands - Outback Red, Ginger Mary, Zeta, Finnigans, Truworths Collection, Truworths Glamour, Truworths Maternity, Intrigue, Peep and Skiny. Prospects for the period ahead include a further 6 600 m² trading space or 12 stores.

TRUWORTHS WOMENSWEAR 2000 75000 Sale of merchandise 1600 60000

1200 45000 Trading SQM

800 30000 SQM R’ MILLIONS 400 15000

0 0 2002 2003 2004 2005 2006

40 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 41 BRAND REVIEW truworths man

Truworths Man Truworths Man caters for the entire wardrobe requirements of modern, fashion-conscious, youthful South African men by offering a range of exclusive menswear brands - Truworths Man, Hemisphere, Hemisphere Sport, Studio and Exstream – that encompass formal and leisure lifestyle fashion, shoe and accessory choices. Review Truworths Man anticipated the emerging trend towards increased fashion awareness in its male customer base, and positioned itself to take advantage of the growing requirements of this more discerning market segment. By delivering on its promise of “Fashion without Boundaries” with merchandise that is always at the forefront of global trends, Truworths Man entrenched its position as a recognised fashion leader in the menswear market. The division’s ability to remain abreast of global fashion trends and react timeously to emerging product trends was enhanced by establishing strategic supplier relationships to procure key commodities. This strategy contributed positively to the period’s results and is expected to continue to bear fruit going forward. Last period’s sales growth performance of 21% was bettered during the period under review to 25%, largely attributable to focussed and well-balanced product ranges across all lifestyles of menswear. Effective stock management and improved sell- offs of merchandise resulted in reduced markdowns and positively contributed to this division’s proﬁtability and net margin growth. Truworths Man is predominantly located as a store-within-a-store as a core anchor brand alongside Womenswear in all the major Truworths Emporiums. It is currently incorporated in 204 Truworths stores as well as 17 stand-alone stores. During the period, Truworths Man signiﬁcantly increased its retail trading space by 10% to 21 233m². The format of the Truworths Man stores was reinvigorated during the period, with the opening of new concept stores as well as a greater emphasis on menswear in the Emporium stores. Enhancements to the merchandising, formats and in-store experience at Truworths Man have created a fresh look and feel for the Truworths Man brand. A new Emporium concept for Truworths Man was launched at the Pavillion shopping centre in Westville, Durban. The Truworths Man Emporium combines menswear ranges from Truworths Man, Daniel Hechter and LTD. This format has had a positive response from customers, and further Truworths Man Emporiums are planned for the future. TRUWORTHS MAN Prospects 1000 25000 Sale of During the period ahead, growing the menswear offering and merchandise 800 20000 increasing its market share will be a major focus and strategy for the Group. 600 15000 Trading SQM The improved store formats for Truworths Man, combined with

400 10000 SQM improved procurement strategies, a bigger store presence and the emerging male fashion market, bode well for the prospects R’ MILLIONS 200 5000 of this division in the period ahead. Plans are in place to increase this division’s retail space by 0 0 2002 2003 2004 2005 2006 2 200 m², which equates to two stand-alone stores and ten stores within an Emporium format.

42 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 43 BRAND REVIEW daniel hechter

Daniel Hechter

The Daniel Hechter collection offers sophisticated, contemporary casual and formal wear for modern men and women who appreciate style, quality and timeless fashion. In line with its brand slogan: “Speak French without saying a word”, this European-inspired collection epitomises good taste and has attracted a loyal following of discerning customers who appreciate the range’s classic styling, superior tailoring, fine quality fabrics and the refinement of the finishes used.

Daniel Hechter is located in seven stand-alone stores and 115 stores within Truworths Emporium and mini-Emporium formats.

Review

The ongoing transformation of the South African society and economy has proven positive for the growth of the Daniel Hechter brand. A healthy sales growth of 27% conﬁrms Daniel Hechter’s aspirational status as the most sought after designer brand in South Africa.

In the period under review the division increased its overall proﬁtability as a result of improvements in its overall sales mix, improved buying margins and tightly- controlled markdowns.

Prospects

The continued growth of a wealthy and aspirational middle class, together with the brand’s focus on fulﬁlling the promise of exceptional quality and timeless classic styling, has established a ﬁrm foundation for a promising period ahead. Eleven new stores within an Emporium format are planned for the period ahead.

DANIEL HECHTER 500 10000 Sale of merchandise 400 8000

300 6000 Trading SQM

200 4000 SQM R’ MILLIONS 100 2000

0 0 2002 2003 2004 2005 2006

44 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 45 BRAND REVIEW l t d

LTD blends unusual colours and designs with quality fabrics and trims that offer texture and luxury to create a cosmopolitan leisurewear range for women, men, teenagers and children with its own distinctive time-transcending look and eclectic brand signature. LTD focuses on producing a commercial interpretation of current fashion trends to create a versatile range that coordinates reliable, well-cut classics with unexpectedly distinctive and exotic design pieces.

Review

During the period, LTD took advantage of the growing demand for children’s wear to expand its distinctive LTD kidswear range to cater for toddlers in the one to two year old age bracket. Sales growth of 20% from this division is attributable to LTD focuses accurate buying strategies as well as the extension of the kidswear range. on producing This division’s ability to accurately predict trends as well as the a commercial requirements of its market segment and then purchase the right interpretation of stock based on this knowledge, resulted in improvements to the current fashion sales mix and a healthy increased net margin after markdowns. trends During the period under review, the Somerset West store was renovated, bringing the total stand-alone LTD stores to three. In addition, a further 53 LTD stores are located across South Africa in a variety of store-within-a-store Truworths Emporium and Truworths mini-Emporium formats.

Prospects

Plans are in place to open four stores within new Truworths Emporiums, increasing this divisions trading space by 500 m².

LTD 150 5000 Sale of merchandise 120 4000

90 3000 Trading SQM

60 2000 SQM R’ MILLIONS 30 1000

0 0 2002 2003 2004 2005 2006

46 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 47 BRAND REVIEW i n w e a r

Inwear is a cutting-edge, trendy and sexy range of formal, leisure and eveningwear that accentuates the body through the use of progressive styling, colour and fabrics. The brand caters to youthful female customers with a good body image, healthy energy and sexy vitality. The Inwear woman aspires to wear the latest seasonal hot new looks the moment they appear in the global fashion arena, making the brand extremely reactive to international style trends.

Review

In the period under review, Inwear increased its brand awareness by placing a strong emphasis on Inwear-branded t-shirts and jeans.

Inwear’s ability to provide forward-looking fashion to meet emerging trends saw sales increase by 20% for the period. The proﬁtability of this division’s product lines increased compared to previous years as a result of improvements in merchandise areas that were not performing at their best as well as generally improved buying margins and well-controlled markdowns.

During the period, 11 Inwear departments were opened within Truworths Emporium stores.

Prospects

Inwear will continue with its current strategy to grow its market share and boost its performance levels while maintaining its status as a leader in the female youth fashion market. The Inwear brand logo was redesigned during the period under review and the new updated logo will be launched in the upcoming ﬁnancial period.

INWEAR 250 7500 Sale of merchandise 200 6000

150 4500 Trading SQM

100 3000 SQM R’ MILLIONS 50 1500

0 0 2002 2003 2004 2005 2006

48 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 49 BRAND REVIEW truworths elements

Truworths Elements offers a comprehensive range of the most sought after and prestigious skincare, colour cosmetics and fragrance brands in a fresh, uncluttered store-within-a-store beauty destination. Truworths customers enjoy the freedom of an open-sell environment with the assistance and expertise of specialist cosmetic consultants.

Truworths Elements exists as a store-within-a store in 59 of the larger Truworths Emporium stores countrywide, and has specialist fragrance counters in a further six mini-Emporium stores.

Review

Truworths Elements achieved sales growth of 19%, up on last period’s 12%. Truworths Elements This strong improvement in sales is attributable to the division’s focus on maximising offers sought after its aggressive fragrance launch and gifting opportunities, as well as and prestigious more focussed and accurate stock management. skincare, colour Prospects cosmetics and fragrance brands Despite tough competition in the market, the division expects its market share to improve in the period ahead, as a number of strategic initiatives are being implemented that, together with continued divisional focus, new product lines and increased product launches, should increase this division’s sales base. An additional six stores within Emporiums are planned for the period ahead as part of this growth strategy.

The Truworths Elements logo was redesigned during the period under review and the new updated logo will be launched in the upcoming ﬁnancial period.

TRUWORTHS ELEMENTS 375 5000 Sale of merchandise 300 4000

225 3000 Trading SQM

150 2000 SQM R’ MILLIONS 75 1000

0 0 2002 2003 2004 2005 2006

50 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 51 BRAND REVIEW truworths jewellery

Truworths Jewellery appeals to youthful men and women across a broad lifestyle spectrum. The range includes ﬁne quality jewellery combined with select leading international watch and sunglass brands.

Review

Truworths Jewellery adhered to its strategy of expanding the range of brands on offer in the jewellery, watch and sunglasses areas, while also improving its inventory management. These key initiatives allowed the division to maintain its strong annual sales growth, with sales growth in the period under review of 22%. Jewellery adhered In addition, performance was boosted by the division’s growth to its strategy of in retail space during the period. Truworths Jewellery currently expanding the range trades within 90 Truworths emporium stores, with 37 of these of brands on offer being new concept Emporium stores.

Prospects

In the period ahead, this division will maintain its focus on providing sought-after branded ranges of jewellery, watches and sunglasses to meet the needs of its market segment. Plans for Truworths Jewellery include the opening of six new Jewellery stores within Truworths Emporiums.

TRUWORTHS JEWELLERY 75 2000 Sale of merchandise 60 1600

45 1200 Trading SQM

30 800 SQM R’ MILLIONS 15 400

0 0 2002 2003 2004 2005 2006

52 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 53 BRAND REVIEW truworths living

Truworths Living provides a range of exciting home décor accessories and gifting items. This division targets fashionable home lovers who follow the latest international décor trends, but interpret these within the unique South African context. Luxurious fabrics, colours and textures are combined to create opulent and decorative products synonymous with the brand signature of the Truworths Living range.

Review

A broadening of the product range and concurrent brand building strategies during the period under review have established Truworths Living as a meaningful brand with its own identity. In addition, the ongoing strength of the South African economy has seen an exponential increase in expenditure on products for the home. These factors resulted in a strong performance from this division in the period under review, with sales growth of 25%.

Prospects

The solid performance from Truworths Living during the period established it as a potential growth area within the wider Truworths offering. Plans for the period ahead include enhancements to the range of merchandise offered by Truworths Living as well as its expansion into ﬁve more Truworths Emporium stores.

c e l l u l a r Review

The Cellular division The Cellular division continues to benefit from the strong South African continues to benefit economy, the increase in individual disposable income and the rapid expansion of from the strong South telecommunications into the mass market. African economy The Cellular division experienced robust sales growth of 46%, with sales amounting to R115 million. This performance has been achieved with tight stock management, ensuring a range of mobile phones that cater specifically for the needs of the Truworths target market.

54 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 55 BRAND REVIEW u z z i

Uzzi’s Italian-inspired styling and tailoring caters for the formal and lifestyle fashion, footwear and accessory requirements of youthful, fashion-conscious, South African men.

Using distinctive fabrics sourced mainly in Europe, Uzzi’s fashion is inspired by the latest global menswear trends to create outerwear that is branded with the exclusive Uzzi private label. The manufacturing of the range is outsourced to local cut, make and trim operators, while accessories and footwear under the Uzzi label are predominantly imported.

Uzzi currently operates as a cash business through a chain of 25 stores throughout South Africa, located in the main shopping malls primarily in Cape Town, Johannesburg, Pretoria, Durban, Rustenburg and Bloemfontein. The Uzzi brand will be exclusive to the Group Review and prospects and ﬁts in well with The Uzzi brand will be exclusive to the Group and ﬁts in well with its existing business its existing business and merchandising strategies. The acquisition and merchandising will allow Uzzi to draw from the Group’s knowledge in fashion strategies retailing, technology, infrastructure and strategy while continuing with its already extremely successful business model. In the period ahead, the Group will focus on integrating Uzzi into its systems and administrative platforms.

Once the transaction is bedded down, the Uzzi concept will be expanded and the merchandise and store formats will be developed accordingly.

56 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 57 BRAND REVIEW i d e n t i t y

Identity’s aspirational funky and affordable merchandise appeals to a vibrant young fashion-forward market that is extremely conscious of global fashion trends and aspires to wear the latest hot items and looks as soon as they become hip. Identity’s original product mix consisted of women’s and men’s casual fashion basics combined with trendy seasonal items and a few unconventional items.

Review

In the period under review, Identity strengthened its position in this young cost-conscious market by focusing on its speed to market. To satisfy the needs of this increasingly fashion- aware youth market, Identity aims to be the ﬁrst to offer the latest global hot fashion items and looks. An updated format for Identity stores was applied in all new stores opening during the period. Identity aims to be Identity showed a 47% increase in sales in the period under review the ﬁrst to offer the compared to last period. This performance is attributable to the latest global hot merchandising department’s clear understanding of its target market, fashion items and together with accurate buying and careful merchandise planning as well looks as the expansion of this division to 86 stores.

During the period, 19 new Identity stores opened representing an additional 4 801m² of retail space. If new stores are excluded, comparable sales growth shows a 27% year-on-year increase.

Identity increased its overall proﬁtability and net margin after markdowns as a result of enhancements to the product mix, improved buying margins and stricter inventory control, as well as the merchandising team’s ability to accurately predict the desires of this trendy market.

Prospects

The continued strong performance of Identity highlights its potential as one of the strongest growth areas for the Group in the next few years. Plans for this division are to expand at a similar rate in the period ahead, with a target of at least 16 new Identity stores, which will increase its overall market share. Expectations are that Identity has the potential to grow by approximately 100 additional stores with sales approaching R1 billion in ﬁve years, which will continue to enhance its importance to the Group.

Although Identity’s offer of interest-bearing credit was well received in the period under review, the bulk of sales in this division are still cash-based. This means that there are still opportunities to grow Identity’s customer base and sales through its credit offering.

IDENTITY 375 25000 Sale of merchandise 300 20000

225 15000 Trading SQM

150 10000 SQM R’ MILLIONS 75 5000

0 0 2002 2003 2004 2005 2006

58 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 59 BRAND REVIEW young designers emporium YDE was established as an emporium to showcase the cutting-edge talent of local young South African fashion designers. YDE markets, on an agency basis, the clothing and related lifestyle products such as shoes, bags and accessories of over 80 emerging designers and suppliers. The emporiums are targeted at funky, young, fashion-forward consumers in the 16 to 35 year old age group. YDE currently trades in 12 stores in premier South African malls nationwide. Review

Over the past two years, YDE was fully integrated into the Group’s systems and administrative YDE gives young structures. This allowed YDE to draw on the Group’s vast retailing expertise and strong business designers the practices to reﬁne its interaction with the designers and offer them improved facilities for the freedom to explore supply and management of their stock in store.

their talent in an The Group has maintained the successful YDE formula of providing each designer with unconstrained their own branded space in store. All the key YDE designers remained on board through the environment merger process and four new designers were introduced. Aspirant designers are monitored on an ongoing basis and new designers and their labels will be introduced to the concept from time to time. The designers supply stock on consignment to YDE stores and remain totally independent. This gives them the freedom to explore their talent in an unconstrained environment. In turn, the Group is able to support upcoming South African designers as well as local textile and clothing manufacturing industries.

During the period under review, sales growth was 11%. By the end of the period over 11 000 customers were shopping on the YDE “Plastic” credit card. Net margins and proﬁtability improved as a result of better administrative systems which allow each designer to focus more accurately on sales mix and inventory control. Prospects

Future sales growth is expected to emanate from an increased uptake of credit as well as YDE’s planned expansion to three additional stores and the refurbishment of some of the existing stores including Canal Walk in Cape Town. These stores will have a fresh new look and updated operations, but the trading formula will remain the same. In addition, a range of YDE-branded merchandise will be launched to build and promote the YDE brand.

YDE 200 5000 Sale of merchandise 160 4000

120 3000 Trading SQM

80 2000 SQM R’ MILLIONS 40 1000

0 0 2004 2005 2006

60 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 61 OPERATIONAL REVIEW retail, store design and franchise operations

RETAIL OPERATIONS risks of each new site are carefully measured. Enlargements and relocations are generally only Review deemed necessary when the existing store space Growth through store expansion is overtraded, resulting in restricted sales ability, The Group continues to expand its overall trading or when the existing store is trading extremely well area throughout South Africa, taking advantage and there is potential to increase sales through of the best opportunities, provided returns are expansion. acceptable and new stores do not overly dilute During the period, the Group continued with its sales of existing stores. There is an element strategy of growing its trading space in order to of cannibalisation once a new store opens, but capture a larger portion of market share and this tends to level out resulting in an increase in overall sales in each geographical area. Part of promote sales growth.

the Group’s expansion strategy is to increase the Taking into account new stores, the expansion number of stores in areas where there is too much of existing stores and the closure of one YDE pressure on existing stores, from a sales density store during the period, total retail trading space perspective, and where there is no available space expanded to 167 000m², an increase of 11%. to expand these stores. Additional stores in new shopping centres tend to relieve the pressure on In the past few years there has been a sharp existing stores while at the same time creating increase in available new retail space, including a their own base of customers and contributing to significant number of up-market shopping centres. growth in overall market share. The success of these new retail areas is evidence of overall positive consumer confidence as well The Group remains considered and cautious in its expansion plans, which are carefully monitored and as the robust South African economy. In 2007 the managed to ensure that growth through expansion Group expects to expand its overall trading space remains logical, controlled and aligned with its at similar levels to the past two periods. However, overall appetite for risk. Real return on capital is the 2008 financial period should see a return to used as the key determinant in making decisions normal rates of space growth of approximately 5% about new stores, and the viability and potential or 6% per annum.

62 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 Tony Taylor (59) Roger Wyatt (60) BA Dip AD Int Des Deputy managing director Director: Architecture and Design of Truworths Limited Director: Truworths Ltd, Truworths (Namibia) Ltd, Truworths Appointed to Truworths Limited board in November 1997 (Swaziland) Ltd Employee of Truworths Limited since November 1979 Appointed to the board in February 1999 Chairman of risk committee and transformation committee

To date, the expansion of stores has been justified The YDE factory shop in Kenilworth, Cape Town, by excellent returns per square metre, well above was closed during the period under review. the average return per square metre generated The Group ended the period with 354 stores (2005: in the industry. The annualised retail sale of 324 stores) with a total trading space of 167 000m² merchandise per square metre of trading space (2005: 150 000m²). increased by 11% to R24 700/m², compared to R22 300/m² for the last period. Over the past eight STORE DESIGN years, the Group has shown a compound growth of Most of the Group’s stores are based on the sales density of 10%. Emporium format, which is unique to Truworths The Group opened 13 new Truworths Emporium and makes it possible to showcase the wide array stores with a total combined trading space of of brands using a store-within-a-store concept. 8 616 m² during the period. The most significant There are three principal Emporium formats: new stores are situated in Vaal Mall in Vanderbijl Full-scale Emporiums in major shopping Park, Paarl Mall, Mountain Mall in Worcester, • Kimberley Mall, Garden Route Mall in George, centres, which contain all the brands, Langeberg Mall in Mossel Bay, Trade Route in • Emporiums in smaller stores, which contain at Lenasia and Vangate Mall near Cape Town. All least Truworths Womenswear and Truworths have been successful and are trading well ahead Man as anchor brands plus a limited selection of of expectations. In addition, 19 new Identity stores some of the other brands and departments, and were opened, representing an additional 4 801m² of retail space. The stand-alone LTD store in • The mini-Emporium, which contains a tailored Somerset Mall in Somerset West was renovated mix of a selection of the brands. using an updated retail format. Truworths Emporiums enhance the customers’ Enlargements and refurbishments took place experience. The combination of many brands in in 16 stores, the most significant being Cresta one store creates an exciting atmosphere and in Gauteng, Somerset Mall near Cape Town, offers a convenient way to shop the mainstream Riverside Mall in Nelspruit, Highland Mews in Truworths brands as well as the other speciality Witbank, Walmer in Port Elizabeth and Eloff Street brands such as LTD and Daniel Hechter. Within in Central Johannesburg. an Emporium, customers have the opportunity to

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 63 OPERATIONAL REVIEW

select from a wide range of fashion and related Derek Kohler (53) BA (Econ) (Hons) merchandise that meet different lifestyles, style Director: Store and Franchise Operations of Truworths Limited Appointed to Truworths Limited board in November 1997 preferences, age groups and income brackets. Employee of Truworths Limited since July 1981 The Emporium configuration, as well as the Daniel Hechter, LTD, Truworths Living, individual store formats within the Emporium, Jewellery, footwear, accessories and some is constantly redesigned to keep pace with the specialised fragrances. This combination suits organic growth of the range of brands offered by the customers that frequent this upmarket the Group. In accordance with the Group’s formula shopping complex. Many of the mini-Emporiums of growth through continual reinvention of the include experimental mixes of the brands to see which combinations and formats will work for core business, new store designs are tested and future stores. the Emporium format is refined each time a new Emporium store is opened. This has resulted in a During the period the Group developed further enhancements to the Emporium in line with number of Emporium configurations to suit various European retail trends. These enhancements retail opportunities in shopping centres. will be used in the refurbishment of the existing The Truworths mini-Emporium resulted from Emporiums at Westgate in Gauteng, Tygervalley in an adaptation of the main Emporium concept. Cape Town as well as in Gateway in Durban. Most of the new stores launched in the period under Mini-Emporiums allow the Group to tailor review, as well as those planned for the period its merchandising formats by including only ahead, are based on a version of the Emporium those brands that suit the target market, format. In the 2007 financial period, the Group style and environment of the shopping plans to launch three new full-scale Emporiums, centre. For instance, the new mini-Emporium the most significant being Loch Logan in opened in Willowbridge, Cape Town, contains Bloemfontein.

NUMBER OF STAND ALONE STORES AND DEPARTMENTS PER BRAND

2005 2006 Target 2007 Stores Depts Stores Depts Stores Depts Truworths 217 222 228 225 240 237 Truworths Man 16 210 17 221 19 231 Daniel Hechter 6 116 7 122 7 133 LTD 3 48 3 53 3 57 Inwear 2 128 1 139 1 147 Identity 67 67 86 86 102 102 YDE 13 13 12 12 15 15 Total 324 804 354 858 387 922 Total trading area (m2) 150 000 167 000 185 000 Expenditure on new stores, expansion & refurbishments (Rm) 69 84 119

64 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 OPERATIONAL REVIEW

The Group also improved the Identity format and most of the new stores launched and refurbished during the period and all the stores planned for the period ahead are based on this format, TRADING AREA AND SALES TRADING DENSITY including the new store in Sandton City, Gauteng. 180 30 Trading area More design elements have been added to these 160 140 new Identity stores to attract customers into and Sales trading 120 20 density through the store. 100 Target Store formats are supported by carefully 80 60 10 conceptualised visual displays of the merchandise

SQM THOUSANDS 40 Note: in shop windows as well as in each store. Excluding 20 R’ THOUSANDS PER SQM franchise stores A great deal of time, effort and resources is put 0 0 and YDE 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 into merchandise displays, which are designed in conjunction with the overall store design and format. The main objective of visual displays is to entice customers into the store and enhance the overall shopping experience by making it easy for NUMBER OF STORES customers to ﬁnd merchandise displayed. Store 400 visuals serve as a 24-hour promotion of Truworths Number of stores and its brands. 300 Target The visual display department works closely with the buying divisions, the fashion studio and the 200 marketing department to conceptualise window 100 and in-store display designs. All visual displays are Note: Excluding in line with international trends, with inspiration franchise stores, 0 including YDE and trends drawn from regular visits to Europe 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 and the USA as well as extensive reading of trade, technical and décor literature.

Expenditure

Growth through expansion, along with the SALE OF MERCHANDISE PER FTE EMPLOYEE reinvention and evolution of existing retail formats, 800 accounted for the largest portion of capital 700 expenditure during the period. 600

During the period, capital expenditure 500 400 on establishing new stores, renovations, 300 refurbishments and expansions amounted to 200 R80 million. Of this R28 million was spent on

R’ THOUSANDS PER FTE 100 Note: Excluding new Truworths stores and R13 million was spent 0 YDE sales on new Identity stores. R13 million was spent on 1998 1999 2000 2001 2002 2003 2004 2005 2006 renovations and refurbishments and a further R26 million was spent on expanding existing stores.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 65 OPERATIONAL REVIEW

Productivity and profitability were improved combined trading area of approximately 860m² through cost reduction, greater efficiency and and two new Truworths Man stores. All these new improved processes. Controllable retail costs rose stores will have the latest retail formats. by 14% over the period. If new stores are excluded In addition, approximately 17 stores will be these costs reflect an increase of 12%. These costs refurbished with significant renovations and amount to 16% of sales, reflecting an improvement enlargements occurring at Gateway in Durban, over the 17% recorded last period. Midlands Mall near Pietermaritzburg, Tygervalley The improvement in productivity is evidenced by near Cape Town, Westgate in Johannesburg and increased trading density and improved sales per Greenacres in Port Elizabeth. full-time employee of 11% and 8% respectively. Budgeted expenditure on new stores and the Occupancy costs for the period under review expansion and refurbishment of existing stores amounted to R272 million (2005: R232 million), during 2007 is R119 million. which equates to occupancy costs per square FRANCHISE OPERATIONS metre of R1 600 (2005: R1 500). As a percentage of sales, occupancy costs for the period amounted to Review 7%. The increase in occupancy costs year-on-year Franchise sales for the period were R16 million is due to the significant expansion in the Group’s compared to R17 million in 2005. This performance trading area of 16 425m2 during the period. If should take into account the fact that the non-comparable costs are excluded, costs Truworths store in Dubai, which was one of the increased by 7%. largest franchise stores, closed down during the The average rate of rental escalation is period when the franchise agreement came to an approximately 8%. This rate does not take into end. As a result, the store was not supplied for account any increases in turnover rentals, which almost half of the period under review. The like- depend on how well each store trades. Turnover on-like franchise sales growth was 8%. rentals for the period totalled R21 million, which One new Identity store was opened in Ghana amounts to less than 1% of total sales. during the period. As a result the number of Most of the leases entered into are for an average franchise stores remained unchanged at 17 for the of five-year periods, which gives the Group a period, with 11 in Africa and six in the Middle East. measure of flexibility. Enhanced merchandise planning and distribution

Prospects contributed to improved performances in most of the franchise stores and provided greater stock to The Group plans to continue with its expansion sales efﬁciencies for the franchisees. strategy in the next ﬁnancial period and expects an increase in retail space of 10%, although Prospects expectations are for less aggressive growth The Group is investigating ways of expanding the thereafter. franchise business in a controlled and focussed

Plans are in place to open 12 new Truworths stores, manner and continues to diligently assess the the most signiﬁcant of these being Jabulani Mall in viability of each potential opportunity. Soweto, Knysna Mall, Greenstone Mall on the East Although economic conditions in targeted African Rand, Loch Logan in Bloemfontein and Highveld countries have improved, the Group remains Mall in Witbank. conservative in its overall expansion approach. The Group also plans to open 16 new Identity African countries currently being assessed stores with a combined trading area of include Kenya, Tanzania, Zambia, Mozambique approximately 4 637m², three YDE stores with a and Angola.

66 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 OPERATIONAL REVIEW

The Group recently entered into a franchise Risks agreement with a new partner in the United Arab Retail and store operational risks are discussed in Emirates. This agreement includes a focussed the Corporate Governance section of this report on development plan for the next period to open a page 97. Human resources matters are discussed new Truworths store, as well as additional Identity on pages 78 and 125. stores in Dubai. Further opportunities are being assessed in Dubai as well as in Kuwait.

STORES PER LOCATION 2006 RETAIL SALES PER LOCATION 2006

6% Eastern Cape 6% Mpumalanga 5% Eastern Cape 4% Mpumalanga 3% Free State 6% North West 4% Free State 5% North West

36% Gauteng 3% Northern Cape 44% Gauteng 1% Northern Cape 15% KwaZulu-Natal 18% Western Cape 17% KwaZulu-Natal 15% Western Cape 4% Limpopo 2% Namibia 3% Limpopo 1% Namibia

1% Swaziland 1% Swaziland

SQUARE METRES PER LOCATION

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 67 6% Eastern Cape 5% Mpumalanga

4% Free State 5% North West 40% Gauteng 2% Northern Cape 15% KwaZulu-Natal 19% Western Cape

3% Limpopo 2w% Namibia 1% Swaziland OPERATIONAL REVIEW customer relationship management

The customer relationship management (CRM) CREDIT RISK AND CREDIT OPERATIONS division manages the way the Group interfaces with Review customers. The division has responsibility for: A major highlight for the CRM division in the period • Credit risk and credit operations under review was the increase in the number of • Analytics and market research active accounts in Truworths primarily as a result • Marketing and promotions. of good new account growth. The period also marked the ﬁrst full period of credit in both YDE As customers are key to the Group’s success, and Identity stores where the uptake has been the business depends on how well customer positive, particularly in Identity. relationships are managed. The primary objective of the CRM division is to grow merchandise sales Further highlights were the improvements made in Truworths, Identity, YDE and, in the near future, to technology in this division: Uzzi. This objective is achieved through strategies In this period the CRM division adopted new to build brand image, improve customer service, • acquire new customers and retain and expand the credit line optimisation strategies to help existing customer base. boost the profitability of the card portfolio. This technology makes use of advanced The functions of the CRM division form a ‘value analytics to help design, test and implement chain’ with which to grow the Group’s business credit line strategies for individual customers through the development of lifetime associations in order to allocate the most appropriate with customers that will increase customer credit limit for them. loyalty and reduce customer churn. Marketing and promotions enhance the Group’s image in • New technology was used to develop marketing the market through appropriate brand building and credit management strategies using data- activities that attract customers into the stores. driven design principles. Credit extension and the collection of cash provide • Upgrades to the marketing, collections, credit customers with the credit required to make a line and authorisations system are underway. purchase. Market research and advanced analytics on customer behaviour are then used to gain a • Technology in the collections ofﬁce was thorough understanding of customer needs and upgraded to ensure better call-connect rates preferences. The Group uses this information to and additional collection seats were installed in continually learn and grow as a business, and line with the growth of the book and the number applies the knowledge it gains to create effective of accounts. and targeted marketing and credit management strategies.

68 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 OPERATIONAL REVIEW

of active customers able to shop on credit at Truworths remained consistent with last period at 87% of the book.

Although there has been a slight decline in some of the delinquency ratios, these are still within acceptable norms. The rise in delinquency levels is in line with expectations, taking into account the growth in new accounts over the past two years. Emanuel Cristaudo (47) B Com Independent benchmarks comparing Truworths Director: Customer Relationships Management of Truworths Limited to a number of other credit retailers in similar Appointed to Truworths Limited Board in February 2000 businesses show that the Truworths portfolio is Employee of Truworths Limited since November 1997 performing better than the average at all higher • The division continued to reﬁne and realign its levels of delinquency. credit acquisition scorecards and an additional Net bad debt write-off to credit sales for the scorecard to assist with the selection of new Group was at 2.7% for the period compared to accounts was developed. last period’s 2.3% and 2.2% in 2004. Net bad debt Truworths write-off as a percentage of the debtors’ book The account base showed growth of 24% during was 5.1% versus 4.6% in the prior period and the period, with over 1.2 million active accounts 4.3% in 2004. These percentages remain within on the book compared to 1 million in the prior the Group’s expected norms. period. Despite this strong growth, the quality of the Truworths debtors’ book remains high. The overdue percentage bad debt to debtors was only marginally worse than the prior period at Credit sales as a percentage of total retail 14.3% (2005: 14.0%), showing consistency in the sales remained consistent. Year-on-year credit sales grew by 21% from R2.4 billion in 2005 to health of the book.

R2.9 billion. The debtors’ book grew by 25% to Interest income received from debtors grew R1.5 billion, which is higher than the credit sales mostly due to the introduction of new interest- growth due mainly to the move from six-months bearing products and some movement from the interest-free to longer term interest-bearing six-months interest-free payment plan to interest- products. bearing products. The Group continues to advance credit based on strict and cautious new account acceptance Identity and YDE criteria. This conservative approach saw the This is the ﬁrst full period of credit in both YDE and acceptance rate of customers applying for Identity since the launch of credit facilities at YDE accounts drop from last years 48% to 42% in this in August 2004 and at Identity in October 2004. period. Furthermore, conservative credit limits were given to the majority of accounts opened Credit response has been fair in YDE and good in during the period under review. Identity during the period under review and the

The qualifying payment for customer accounts percentage of sales on credit is rising and looking not to be regarded as overdue was kept at 90%, promising. From a risk perspective, although it is and remains one of the highest levels in the retail still too early to give meaningful statistics, both industry. At the end of the period, the percentage books are performing as expected.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 69 OPERATIONAL REVIEW

The YDE debtors’ book grew to R12 million For both Identity and YDE accounts, the qualifying and the number of accounts increased to payment for customer accounts not to be regarded 11 000 compared to 7 000 accounts at the end of as overdue is in line with that of Truworths the prior period. Approximately 18% of YDE’s sales at 90%. are now on credit (based on a 13 week moving Financial services average). Sales on credit rose to R29 million compared to R10 million in the prior period. Income from financial services, excluding interest, Considering the type of customer that YDE attracts, increased to R12 million from R9 million in 2005, as well as the location of the 12 YDE stores a growth of 33%. nationwide in premier shopping malls, YDE’s Truworths has a portfolio of four insurance customers generally demonstrate a lower risk products - lost card protection, account balance profile. This can be seen in the 62% acceptance protection as a result retrenchment, account rate of customers applying for a YDE account, balance protection with additional funeral cover despite conservative acceptance policies. and cell phone insurance. During the period under review, the Identity Going forward there are good opportunities to debtors’ book grew to R53 million, with the cross-sell insurance to the base and as a result number of accounts increasing to just over further increasing the contribution of financial 61 000. 32% of Identity sales were on credit (based services income. on a 13 week moving average), with sales on credit increasing to R94 million. Cost of credit

Strict account acceptance criteria are used at Cost of credit comprises interest received on Identity in light of its slightly younger customer customer accounts and ﬁnancial services income, base. For this reason, the new account acceptance less net bad debt (which includes movement on rate for Identity is low at only 36%, which means bad debt allowance) and collection and other there will be opportunities to advance credit to direct costs incurred in providing credit. more customers going forward. The Group’s cost of credit improved from last Net bad debt for YDE and Identity has not been period’s R29 million to R26 million. This was due quantiﬁed for this period’s report as the debtors’ to the 39% growth in interest income across the books for these divisions are still too new at this stage Truworths, Identity and YDE portfolios, the 33% to show any meaningful net bad debt ratios. However, growth in insurance product revenue and a more bad debts to date are in line with expectations and accurate apportionment of costs. The cost of have been adequately provided for. credit excludes notional interest on the interest- free portion of the debtors’ book amounting to NET BAD DEBT 10 R88 million (2005: R70 million). The doubtful debt Net bad debt as a % of debtors’ book allowance during the period was maintained at 8 Net bad debt as a 5.9% of the total debtors’ book. % of credit sales 6 The Group continues to evaluate ways to minimise

NTAGE the cost of credit, including the development

CE 4 of other income sources and expansion of the PER 2 range of ﬁnancial and insurance products offered. The Group will continue to evaluate costs 0 critically as well as overall productivity to improve 2000 2001 2002 2003 2004 2005 2006 efﬁciencies.

70 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 OPERATIONAL REVIEW

GROUP KEY DEBTOR STATISTICS

Group key debtor statistics 2006 2005 2004 2003

Truworths Number of active accounts (000’s) 1292 1039 857 780 Credit sales as a % of retail sales (%) 78 79 78 76 Qualifying payment % (%) 90 90 90 90 Debtors’ book (Rm) 1 511 1 208 973 802 Overdue % to debtors (%) 14 14 14 14 % of active book that can purchase at period end (%) 87 87 88 88 Net bad debt write-off as a % of credit sales (%) 2.7 2.3 2.2 2.5 Net bad debt write-off as a % of debtors’ book (%) 5.1 4.6 4.3 5.1 Doubtful debt allowance as a % of debtors’ book (%) 5.9 5.9 5.9 5.9 Applicants granted credit (%) 42 48 47 50

Identity

Number of active accounts (000’s) 61 28 Credit sales as a % of retail sales (13wk mov.av.) (%) 32 11 Qualifying payment % (%) 90 90 Debtors’ book (Rm) 53 21 Applicants granted credit (%) 36 43

YDE

Number of active accounts (000’s) 11 7 Credit sales as a % of retail sales (13wk mov.av.) (%) 18 7 Qualifying payment % (%) 90 90 Debtors’ book (Rm) 12 7 Applicants granted credit (%) 62 71

Cost of credit (Rm)

Interest from debtors* 170 122 108 106 Financial services income 12 9 7 7

182 131 115 113 Collection costs (104) (89) (75) (64) Net bad debt and change in bad debt allowance (104) (71) (51) (52)

Cost of credit (26) (29) (11) (3)

* Excludes notional interest from debtors of R88 million in 2006 (2005: R70 million)

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 71 OPERATIONAL REVIEW

THE NATIONAL CREDIT ACT Although the Act requires more restrictive procedures in approving credit, the Group is already Truworths respects the principles espoused by adapting its processes and systems in respect the Act, which aims to offer substantial protection of accepting new account holders, granting and to consumers against the reckless granting of increasing credit, as well as the way in which it credit, over-indebtedness, exploitation and any markets its credit facilities. form of discrimination when granting credit. The Act also promotes transparency and competition At this stage the Act is not expected to have a in the credit market. The office of the National major impact on credit within Truworths, as Credit Regulator, which will regulate all providers there are sound methodologies and leading-edge of credit, was established during the period under technologies and systems in place to carefully review in accordance with the provision of the Act. select customers who qualify for new credit facilities, as well as those who qualify for a credit Prior to the Act being legislated, the Group engaged limit increase. with government and participated in workshops Prospects to represent the concerns of the fashion retail industry. The Act has been extensively reviewed Strategic and tactical plans for the CRM division within Truworths, and a number of external in the period ahead revolve around its primary consultants were engaged to assist with this objective of growing merchandise sales. Although process. the Group aims to grow the customer base in the next period, this objective will be achieved Achieving compliance with the Act and the without compromising the health of the existing attendant regulations will be a major focus for debtors’ book. the period ahead. In addition, plans will be put in place to act on the number of opportunities the Act The recent interest rate increases and the provides to retailers. strong possibility of further increases, will affect consumers’ disposable incomes in the next The Act allows for its provisions to be implemented period. However, based on information from past in three phases, which have taken or are planned experiences, higher interest rates did not lead to to take place in June 2006, September 2006 and a marked increase in bad debt and delinquency June 2007. It is anticipated that the first two levels. In addition, Truworths has historically phases will have a limited impact on Truworths in operated profitably irrespective of the interest the upcoming financial period, since they relate rate, even in times when the rates were very high. essentially to the establishment of the National Experience shows that if the merchandise in store Credit Regulator and oblige credit providers to is right, customers continue to purchase and will apply for registration and impose obligations pay their accounts in order to purchase more on credit bureaux regarding the consumer goods. information they hold. In order to meet with the Another factor to consider is that a large portion Act’s requirements, changes to computer and of the Group’s accounts are interest free, administration systems are already underway which means instalments are not affected by the and the Group aims to be fully prepared before increase in rates. In the case of interest-bearing each phase goes live. accounts and late payments on interest-free Phase three, which is scheduled for implementation accounts, interest rate hikes generally cause at the end of the 2007 financial period, is expected additional interest income earned, which will set to bring challenges and changes. Preparations off any increase in bad debts. For this reason, the are already being made for the requirements Group believes the interest rate increases will imposed by the Act in this final phase. Additional not have a material impact unless they increase processes are required to guard against the significantly. reckless extension of credit including affordability In the next period, the Group will take advantage of assessments for each customer prior to granting opportunities to increase credit extended to those credit, limitations on automatic credit limit new accounts that have performed well and which increases, terms and conditions of credit that had low initial credit limits to boost credit sales are accessible, transparent and understandable in this segment. Credit limits will be increased in and the responsible advertising and marketing of accordance with best practice learned from more credit facilities. than a decade of previous strategies adopted.

72 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 OPERATIONAL REVIEW

ANALYTICS AND MARKET RESEARCH Brand profiles for all major brands were reworked during the period along with new advertising and Truworths uses advanced analytics to optimise direct mail creative concepts to ensure good brand data modelling capabilities and extensive market differentiation was maintained. research to understand consumer needs in order to build powerful targeted marketing and credit Through the development of more accurate management strategies. customer merchandise preferences the division managed to improve the targeting of direct mail In the period under review, the division employed offers and marketing material resulting in better additional staff to enhance its marketing and cross-selling opportunities. risk analytics capability. The Group will continue to augment its capabilities in this area including The Group is wholly focussed on fashion. As a investing in world class technology. result, during 2005 a new promotional line, “For the Love of Fashion”, was created for the MARKETING Truworths brand. The line describes how the Review Group, its employees and customers feel about Truworths. During the period the marketing department implemented a successful advertising and The “For the Love of Fashion” campaign was promotional strategy that focussed primarily executed externally on t-shirts for store staff, on activities that are core to fashion, including shopping bags, till slips and on Truworths fashion-orientated promotions and events that Womenswear shop windows and advertising service its target market. material. Focus groups conducted showed a favourable response to this campaign amongst Major promotional activities and events sponsored female customers. for the period included providing clothing for the presenters and finalists of Idols, YOU Spectacular, An external creative agency has been appointed to YOU Starmaker and the Rooi Rose supermodel assist with creative concepts going forward. contest. All of these sponsorships succeeded Prospects in giving the Truworths brand and merchandise excellent exposure. The Truworths fashion In the new financial period the marketing workshops proved to be a successful promotional department will continue to carefully select activity, and the number of workshops held promotions and sponsorships with the potential throughout the country was increased to meet to maximise brand exposure amongst the Group’s customer demand. core target market. A core focus in the new financial period is the further roll out of the “For The Group continued to build on strategies to the Love of Fashion” promotional line, which will develop stronger relationships with the leading be continued in selected areas during the period. fashion and consumer magazines, which resulted in an increase in editorial exposure compared to As a result of growing customer demand for the the prior period. Truworths fashion workshops, this programme Market research conducted indicates that the will be enhanced and additional workshops will customer shopping experience improved this be held nationwide with the aim of strengthening period. Independent benchmarks support this relationships with customers and the target research and show an increase in market share market. The team will also continue to build on for clothing and apparel in the reporting period. relationships established during the period with the media to optimise brand and merchandise The online shopping capability offered by the exposure in leading magazines. Truworths website, www.truworths.co.za, continued to grow, with a further increase in Some exciting and unique advertising opportunities online sales. are under consideration for 2007 primarily using indirect media. Initiatives undertaken during the period to improve internal communication include the deployment New accounts growth remains a core focus albeit of video capabilities to all stores to assist with not to the detriment of the health of the book and communication from the Truworths head office data-driven marketing communication strategies as well as the continuation of an in-house loyalty are being implemented to assist with customer programme for store employees. retention and sales growth.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 73 OPERATIONAL REVIEW information technology

Review capabilities. This initiative puts the head ofﬁce in regular contact with in-store employees to impart The period under review was challenging and information on new products, the brands and other eventful for the information technology (IT) division. The exponential growth in the number business information.

of new Truworths and Identity stores, coupled During the period, the IT division rolled out two with a considerable increase in the number of major releases to its point of sale (POS) system to accountholders and volumes of transactions, improve customer relationship management and placed unusual demands on the Group’s IT store procedures. In addition, more POS terminals infrastructure. The IT division’s external suppliers and scanning devices were installed to meet the also came under pressure to deliver contracted growing demand on in-store capacity. services due to the growing demands on IT infrastructure and systems. The process of opening new accounts was evaluated from a technology perspective to improve the Infrastructure and business application upgrades Group’s ability to open new accounts. were made during the period, including a number of key initiatives detailed below, which resulted in The explosion of debit card usage in South Africa enhanced capacity, functionality, efﬁciencies and necessitated changes to in-store card-reading and productivity as well as cost beneﬁts. processing systems to enable customers to pay for

APPLICATIONS purchases using bank-issued debit cards. During the period the division completed the roll out of an Initiatives implemented during the period covered integrated solution and training programme for all all areas of the business. A number of technology stores nationwide. The ability to process debit card enhancements were made to improve the way the transactions will make transacting with the Group Group conducts its day-to-day management of easier, more accessible and more secure for a the business, including merchandising, product design, logistics, distribution, credit management, number of existing and potential customers.

customer relationship management, internal A number of systems at the Truworths Distribution communication, administration, ﬁnance and Centre (TDC) were enhanced to improve distribution human resources. and logistics capabilities. Scanning technologies Video capabilities were deployed to all stores to were upgraded and expanded to enable increased improve internal communication and training capacity, productivity levels and throughput.

74 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 OPERATIONAL REVIEW

Since its acquisition, YDE has undergone a process of integration with the Group’s business processes, systems and administrative structures. This process continued throughout the period under review, culminating in the move of the YDE head ofﬁce to the Truworths head ofﬁce in Cape Town’s city centre.

At the same time, upgrades were made to YDE’s Hannes Holtzhausen (53) Dip Datametrics, MAP system capabilities and processes, most notably Director: Information Systems of Truworths Limited enhancements to assist designers with managing Appointed to Truworths Limited Board in February 2000 Employee of Truworths Limited since August 1997 stock levels. An automated portal was developed for the designers to eliminate paper work and improve the supply chain processes. This enabled Various merchandising applications and systems were upgraded to improve planning capabilities. higher quality of transactions and information These upgrades enable the merchandising team between the designers and the stores. Barcode to take full advantage of recent improvements scanning capabilities were introduced to all YDE to the data warehouse. A number of information merchandise, which will bring this division in systems were enhanced to facilitate better line with best practice and also improve other management reporting and to accelerate their efficiencies down the line. ability to make informed decisions through The IT division is currently holding workshops to access to up-to-date high quality key information determine how to integrate the newly-acquired in various formats and modelling systems. Uzzi chain onto the Truworths IT platform. Advances were also made in terms of the To enhance initiatives in the customer relationship conceptualisation of products and the interaction management division, additional investments with suppliers. By using the internet and graphical packages more effectively instead of transacting on were made in modelling capabilities to improve paper, the process of communicating new concepts the segmentation of customers in order to more to the supply base is quicker and more reliable, effectively grant credit and thereby maintain a saving time in the process from conceptualisation lower credit risk profile. to delivery of the product envisaged. Internet Due to the growth of the debtors’ book, the capacity portals linked to the supplier base facilitate of the call centres was supplemented to improve the sharing of transactions and information to facilities to interface with collection agencies and improve logistics and the performance of specific to make these interactions more secure. Upgrades line items. to the dialler systems should also improve the The link between merchandising and the stores productivity of the debt collection area. improved with the ability to impart information On the business administration side, financial to stores in digital format. This replaces the paper-based information sent to stores in the systems were upgraded to deal with multi- past. The ability to provide new information to organisations, including multi-currencies. The the stores on a weekly basis will ensure that inability to deal with different currencies on all store employees receive better quality and more key systems gives the accounting structure and timeous information. systems more flexibility.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 75 OPERATIONAL REVIEW

In addition, workflow approval-based systems were • Improving infrastructure at the disaster recovery introduced to deal with a number of administrative centre and conducting a number of successful and financial approval processes. These systems tests in recovering information that showed a improve productivity and enable management to vast improvement in these capabilities, ensure that the highest levels of governance and • Enhancing processing and storage capabilities controls are applied to expenditure. to deal with the increased number of A more sophisticated auditing tool with automated transactions, audit alerts was introduced to alert the finance • Consolidation of technology to improve department about any accounting inconsistencies. efficiencies and drive down operational costs, This auditing tool can be deployed to test the entire database and reveal all inconsistencies. • To remain vigilant in the area of security to

The outdated human resources (HR) systems protect the business from hacking, spamming were replaced with a new HR management and viruses. Software upgrades were package, and the decision was made to invest in implemented to improve the Group’s ability to a new workforce management package to enable protect itself and prevent being compromised the Group to improve the productivity of its HR in any way, and

resources at stores. • Upgrading the store network to reduce the risk INFRASTRUCTURE of poor response times. Head office and TDC have generators in place and uninterrupted Changes to the information systems and infra- power supplies (UPS’s) to ensure that Truworths structure occur on a regular basis by means can continue to operate as a business. These of software replacements and re-engineering, measures proved to be successful during the to keep pace with the ongoing expansion of the frequent power outages in Cape Town during business, the increased uptake of credit facilities the period. by customers and the ever-changing demands of the fast-paced fashion retail environment. Some of Prospects the projects completed during the period include: Key IT initiatives envisaged for the 2007 financial • Office systems were upgraded to Windows period include: 2003, including archiving systems for emails, • Evaluation and ongoing enhancements of the which is an improvement in terms of auditing current point of sale system’s architecture to and forensics. ensure that the business is prepared for the future, • The Group’s tape library system was updated to deal with the increased volumes of the • Preparation for potential increases in capacity business. requirements at TDC over the next three to five years, IT governance • Integration of Uzzi onto the Truworths With the extent of growth in IT, ensuring that IT platform, effective, reliable and secure services continue to be delivered is paramount. To this end, the CoBIT • Ongoing improvement to merchandising and framework was adopted to optimally manage logistics’ functionality, the IT operations aiming at a “managed” level of • Ongoing customer relation management maturity in respect of the key IT processes. The initiatives to manage and grow the customer focus during the past period has been: book and meet new regulatory requirements,

76 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 OPERATIONAL REVIEW

• Improvement to all areas where technological Capital expenditure on IT during the period to solutions can improve productivity and enhance existing systems, deal with increased efﬁciencies, capacity requirements and invest in new

• Improving the HR information integrated system technologies amounted to R20 million, down on which will enable the Group to assist managing R22 million in the previous period. This expenditure people and meeting the stafﬁng requirements was divided as follows: of the business, • 42% on infrastructure,

• Eliminating the unnecessary use of cumbersome • 27% on customer relationship management, and costly paper-based systems where possible, • 11% on merchandising, and

• Implementation of workflow based solutions to • 20% on administration. improve approval and control efficiencies, and IT costs as a percentage of sales amounted to • Integrating architecture blueprints to 0.9%. It is envisaged that capital expenditure on optimise on cost efficiencies and maximise IT for the 2007 financial period will amount to opportunities. R30 million.

Expenditure IT CAPEX SPEND 40 As a result of the Group’s centralised management Capex spend model, the IT department has a clear picture of the 30 Target entire business landscape and is able to accurately predict future IT requirements. 20 In addition, management has implemented a R’ MILLIONS project office across the business to improve the 10 focus on projects, including timely implementation 0 of new initiatives, achieving the best return on 2000 2001 2002 2003 2004 2005 2006 2007 investment for all expenditure and improving the management and granting of funding. The project office subjects all ongoing projects to a review IT EXPENDITURE TO SALE OF MERCHANDISE 5000 2.5 process by the board of directors, where the Sale of merchandise importance of each project is rated in terms of the 4000 2.0 IT expenditure budget required as well as the potential impacts to sale of E 3000 1.5 merchandise and benefits of the project for the business. AG

2000 1.0 The IT division strictly monitors expenditure on R’ MILLIONS PERCENT the maintenance of existing systems. Due to the 1000 0.5 high cost of maintenance contracts, existing 0 0.0 technologies are upgraded where signiﬁcant cost 2000 2001 2002 2003 20042005 2006 beneﬁts can be achieved. For the same reason, ageing merchandise, customer and logistics Risks systems are replaced, and where possible technologically-outdated systems are upgraded. Information technology risks and the This process reduces support and maintenance management thereof are discussed in detail in the costs while ensuring that the Group’s technology Corporate Governance section of this report on remains relevant and up to date. pages 97 and 101.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 77 OPERATIONAL REVIEW human resources

REVIEW • Discover and develop South African talent in the fashion industry through continued high The human resources (HR) division plays a key role levels of focus, energy and financial investment in driving the values and business philosophy of in merchant trainee programmes, the Group, thereby enabling its people to unleash their unique talents and drive achievement of short • Ensure that management and employees and long-term strategies and objectives. receive constant training to equip them with the necessary skills to achieve outstanding People development and talent management results and meet their career aspirations, are key focus areas for the entire HR division. thereby enabling the Group through its people Significant energy is devoted to these areas and to maintain its reputation as South Africa’s they are incorporated into the strategic goals and leading fashion retailer, objectives of all HR team members. The various sections of the HR division have found innovative • Through training, development and recognition, ways to weave the focus of developing talent in enhance the capacity of employees in the field the business into their team objectives ranging so they in turn provide customers with an from coaching, classic training and development exceptional shopping experience backed by methods to career management and succession excellent customer service, planning. • Facilitate transformation by focusing specifically The HR management team is highly committed to on skills development and employment equity, achieving the goals of the Group and has aligned and its aims and objectives accordingly, as is evident from the key HR focus areas which are as follows: • Optimise opportunities presented by the new HR management system that will enable the • Instil in employees a value system that supports business to utilise real-time and accurate a culture of performance, where innovation and HR information to make informed plans and energy are prized and excellence is recognised decisions. and generously rewarded, Performance management • Ensure that there is a pool of skilled people and leadership talent to carry the business into the The Group drives the performance of the business future in a highly-competitive and scarce skills through people and promotes a performance- environment, driven culture where all people are encouraged • Source and recruit the necessary talented to bring innovation and energy to the business. people to drive, implement and keep growing Performance excellence is recognised and the business, rewarded.

78 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 OPERATIONAL REVIEW

A new performance review system was launched People development in the period under review, which has enabled line The HR division focussed strongly on training management to more effectively and objectively and development of staff during the period under rate past performance and establish future review to meet the key strategic human capital development plans. In addition, the Truworths needs of the Group. Through skills development, culture of performance is backed by various staff the Group invests in people and their future recognition programmes, which HR is actively potential and undertakes to inspire them to involved in. remain in the Group and contribute significantly to its future successes. All employees, excluding executives’ are eligible for discretionary special bonuses under the People with high levels of energy who are able to “Golden Goose” bonus scheme. These discretionary anticipate change and adapt quickly to keep abreast bonuses are awarded periodically based on of the rapidly changing fashion retail environment performance targets and store customer care are greatly valued, as the Group is driven by the performance. commitment of its employees to deliver its overall business objectives. Development of all employees Just as performance excellence is recognised through formal training programmes is an ongoing and rewarded, similarly identification and initiative that is fine tuned continually. management of poor performance also receives The Merchant Trainee Programme is of strategic focus and corrective action is taken where importance as it allows for ongoing succession required. Specific training interventions have planning and provides a ready pool of skilled and been developed to assist managers and leaders talented future merchandise buyers and planners. to recognise and address underperformance. This programme aims to develop professional HR systems and management information buyers and planners, which are identified as critical skills shortage jobs by the wholesale and Integration of the new HR system is in retail sector. implementation phase. The payroll system has There was a marked increase in training activity at migrated to the new system and the additional HR head office, the distribution centre and in stores, components will be phased in during the period with numerous interventions to up skill employees ahead. successfully undertaken, including: In implementing the new HR system, the HR • Training throughout the operations to underpin division has evaluated all of its current processes the new performance management system, and is streamlining a number of these which will Performance and Development Discussion result in reduced administration and improved data (PDD), accuracy. The information needs of the business • Individual development programmes gained were also assessed and refined to ensure that momentum during the period, with more the right information is gleaned from the system frequent and more varied learning opportunities and that reports are tailored to deliver meaningful offered, improved learning materials and real-time data. intensive mentoring and coaching of these fast- The system is already creating efficiencies in track candidates, managing HR data through its functionality to • Training was undertaken to support the capture closer to source with the ultimate objective change management strategy at TDC, with of moving towards an employee self-service new expanded roles and responsibilities environment. The overall objective of the system is underpinned by skills training, particularly to provide a meaningful mechanism to effectively supervisory training, manage information for decision making, staff • Industrial relations training was redeveloped planning and employee development. to cater for various levels of required skills to ensure that line managers have ownership and

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 79 OPERATIONAL REVIEW

responsibility for both internal and external the learners have been employed by Truworths disciplinary and performance processes, and it plans to continue with this trend of using successful learners for internal succession and • Field training was undertaken to build capacity recruitment. There are plans in place to increase amongst store managers to enable them to lead the number of learnerships. and train more effectively. Plans are underway to expand these training interventions, Truworths offers about 50 in-house training programmes across a wide variety of skills • A retail internship has also been embarked on grouped into leadership, merchant or store which focuses on recruiting and developing operation skills. Black employees were the black store management trainees, and largest beneficiaries of skills training, benefiting • Training for head office specialists to ensure from 80% of the approximately 3 000 learning that they remain updated in their specific fields interventions. Truworths also focussed on of expertise such as accounting, legal and tax. development programmes aimed at preparing The Group is fully committed to optimising and fast-tracking employees for succession into skills development legislation for the benefit of more senior positions ranging from supervisor to the organisation, employees and job creation. senior management. During the period, over 360 The Group’s approach to the Skills Development Act employees, of whom 73% were black, were on goes beyond compliance. In addition to ensuring these fast-track programmes.

the Group is fully compliant with all legislation, it Succession planning is also actively involved in national and regional initiatives, such as participation on the Standards The HR department’s approach to succession Generating Body (SGB) of the Wholesale and planning is grounded in talent acquisition Retail Sector Education and Training Authority and intensive developmental coaching for its (W&RSETA). employees. The Group allocates a signiﬁcant amount of resources to these critical people Management has adopted a proactive approach management areas and links its employment to employee training based on strategic business equity and transformation objectives to its needs and the W&RSETA sector skills priorities. succession planning. In addition it has maintained its status as an internal accredited provider, which enables Succession plans start early on in the business Truworths to deliver a nationally recognised retail and employees are nurtured around their speciﬁc qualification. During the period store operations strengths as well as their developmental needs. training was emphasised, with a particular focus The internal management team is trained on on store manager and service staff up skilling a variety of succession pillars and techniques and development. Both of these areas are of in order to equip them to better develop and strategic importance to success in the retail manage their employees. A variety of methods are sector and have been identified as critical skills used to accelerate the growth and development by the W&RSETA. of the Group’s people from formal 360-degree assessments, which are utilised to form the basis Learnerships offered during the period were of an intensive development plan, to working in particularly focussed on the up skilling of project teams that will by their nature stretch and previously disadvantaged individuals. In addition grow key individuals. the Group also sought to optimise its initiatives by recruiting for learnerships in rural areas Planned succession is particularly important for where Truworths has stores. This approach the merchandise division where an understanding resulted in 157 store learnerships being of customer and product is vital to the sustainable successfully completed during the period, and growth of the business. The merchandising 191 new learnerships being offered. Over division works closely with HR to attract, develop 90% of the learnership positions were and train top calibre people and to implement awarded to black candidates. Many of relevant programmes for merchants at all

80 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 OPERATIONAL REVIEW levels. The merchant trainee programme equips Recruitment and selection interns with the necessary skills, knowledge The Group actively markets itself as an employer and experience and grooms top candidates for of choice in order to entice top talent. The vibrant merchandising positions within the Group. The energy of the fashion retail industry is a big draw programme ensures a succession strategy for the card, which when coupled with the Group’s strong critical merchant planning and buying areas of the brands and trusted history makes Truworths an business, and many of the Group’s current buyers extremely sought-after place to work. The Group and planners are graduates of the programme. attracts talented people by offering rewarding careers in a youthful, dynamic organisation that Tailored career advancement plans are offered thrives on innovation, change, self-development to talented individuals in order to retain them and contribution. and manage their careers and prepare the next A speciﬁc recruitment drive takes place through wave of managers for the future. The training and graduate placement programmes at major development offered within the Group takes many universities and graduate business schools. In forms in order to suit each individual’s chosen order to meet the increased need for skilled staff career path. Some of the key initiatives to ensure to match the expansion and growth of the business, retention of key staff and adequate succession during the period under review the intake of interns planning include: was increased.

• Training for emerging middle-management The Group employs a competency-based process candidates in the key functions of the Group to as the basis of its recruitment procedure, which ensure succession plans are in place for key makes use of structured interviews and practical senior roles, job-related assessments. Internationally- recognised recruitment agencies are used when • Innovative executive development programmes required. for senior and middle management including As part of the Group’s commitment to the executive coaching, leadership skills and upliftment of its own staff, preference is given to regular 360-degree evaluations to enhance internal appointments. A centralised recruitment their ability to perform and to enable them department ensures that all vacancies are to take advantage of opportunities for career advertised internally on a national basis and that advancement within the Group, and employees are made aware of opportunities that exist within the Group. • New training initiatives at TDC to help people grow their careers by setting goals and During the period under review, the centralised incentives. recruitment department was enhanced with additional staff as well as a new web-based Succession planning is an essential element of management system which houses all information the Group’s long-term risk management and about employees and their history with the Group. sustainable development. The succession strategy The performance management system also includes growing people internally through helps to identify talented individuals who can be intensive training programmes to prepare them developed into more senior roles. for leadership roles, as well as recruiting talented Refer to pages 121 to 129 of this report for further individuals from outside of the Group. In this information on the Group’s policies concerning respect, in the period under review, two senior employment equity, skills development and management placements were made. Succession training, corporate social investment, human planning goes hand in hand with staff retention rights, people sourcing and recruitment, retention strategies, which aim to develop the careers of key of staff and succession planning, remuneration, employees to keep them motivated and loyal to the employee beneﬁts, employee recognition, labour relations and HIV and Aids. Group.

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PROSPECTS • Continue to optimise skills development legislation through the W&RSETA, and Transformation and broad-based black economic empowerment • Continue to implement the new integrated HR information system, with a focus in the next The transformation committee is jointly chaired by financial period on the implementation of the the deputy managing director of Truworths Limited training module. and the HR executive. It is significant that the HR division represents two out of six members on the Expenditure committee, as much of the Group’s empowerment During the period under review, R11 million strategy will be driven through skills development, was spent on skills development and training the attraction and retention of staff and employee across all departments and divisions within upliftment. the Group. This includes costs of all training During the previous financial period, the courses and programmes, actual training costs, Department of Trade and Industry published codes the Group’s skills development levy payments of good practice (the DTI code) to accompany the and substantial indirect costs incurred for staff Broad Based Black Economic Empowerment Act salaries, infrastructure and other resources due No. 53 of 2003. HR has a significant role to play to the majority of programmes being internally in attaining the Group’s employment equity and developed and delivered by the HR division and skills development agendas and all HR strategies managerial staff. are aligned to achieve the Group’s BBBEE goals. Employment costs across the Group for the Further information on the Group’s progress and period amounted to R442 million (2005: R384 activities in respect of economic transformation million), an increase of 15%. This includes can be found on page 120. recruitment costs, costs for terminating employment, salaries for permanent and Key projects flexi-time employees as well as the cost of The following key projects are planned for the all employee benefits and incentive schemes. period ahead: Employment costs as a percentage of sales • Design and implement further innovative amounted to 12%, in line with those for 2005. programmes and tools that will develop the The increase in employment costs is attributable capacity of line managers to drive and reward to the significant expansion of the business, which performance excellence and remedy poor resulted in the employment of 704 additional performance, employees. • Focus on developing future leaders in the field For more information on remuneration and to ensure adequate succession planning as employee benefits refer to page 125 of this report. well as sufficient resources for future store expansion, Risk

• Continue to ensure succession plans are in Risks relating to human capital are contained in place for key strategic merchandising and retail the Corporate Governance section of this report on areas of business through learnerships, the page 97. Merchant Trainee Programme, store manager training, intensive individual development programmes and leadership skills,

• Roll out of a holistic store leadership programme incorporating both hard and soft skills aimed at field managers and supervisors,

• Focus on training to improve skills amongst black employees to ensure they are able to take up leadership positions throughout the business,

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CORPORATE GOVERNANCE We are proﬁtable in a manner that conforms to strict requirements for transparency and acknowledges our accountability to our stakeholders. corporate

period under review the Group complied in all governance material respects with these principles except where otherwise noted in this report.

The board appreciates that application of the processes, and establishment of the structures, recommended by the King Code lead to clearer demarcation of responsibilities, balanced decision- report making, increased accountability, improved communication and rigorous practices, all of which serve to enhance the Group’s prospects of ongoing success. COMPLIANCE WITH KING CODE In addition, the board has adopted the King The Group is committed to high standards of Code’s triple bottom line approach to reporting to corporate governance. Management recognises stakeholders, as it believes that embracing social its responsibility to safeguard and respect the responsibility enhances commercial success interests of its stakeholders, and believes that good and improves the probability of the long-term governance is essential to its ongoing sustainability sustainability of the Group. The Group’s report on and functioning. The Group’s objective is to be corporate social responsibility appears on pages proﬁtable in a manner that conforms to strict 112 to 137 of this report. requirements for transparency, acknowledges its HIGHLIGHTS accountability to broader society and communities in which it operates, and respects the environment. During the period under review governance processes and structures across the Group were The board of directors of Truworths International enhanced. The following are some of the key (TI) is responsible for the Group’s corporate achievements: governance policy, and ensures that the Group conducts its activities in accordance with best • The creation of committees and forums and practice. The board subscribes unreservedly to the formal adoption of written charters for the principles contained in the Code of Corporate processes such as change control, project Practices and Conduct recommended by the 2002 management, investment management, King Report on Corporate Governance for South taxation management and information Africa (the King Code), and is satisﬁed that in the security.

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THE ROLES OF THE GROUP’S BOARDS Tender/ Risk Contracts committee committee

Transformation Change committee control Audit committee committee Truworths Truworths International Limited Social Remuneration committee Capital Limited responsibility expenditure (Operational committee company committee (Holding board) company corporate Non-executive committee board) Project steering Investment committees committee

Information HIV and Aids security committee governance committee

• The change control committee was established the Institute of Directors’ Audit Committee report to review the consequences of any changes that Forum. take place in business practices, particularly • The division of responsibility between the audit in relation to systems, where for instance committee and the risk committee was clariﬁed testing using live data before implementation is during the period, and the risk committee now emphasised. reports more extensively to the audit committee. • Departmental project steering committees In addition, the independent non-executive were established, as was a projects office chairman of the audit committee is now a with its own repository, methodology and permanent member of the risk committee as registers to improve the Group’s focus opposed to being an invitee, thus enhancing on projects, including timely delivery of accountability. new initiatives, achieving the best return • In association with external consultants on expenditure, project co-ordination and an assessment of the status of the Group’s improving the management and granting of current risk management processes was funding. The committees hold project team conducted. The assessment showed that the leaders accountable for progress on projects Group’s processes had achieved a respectable and ensure that resources are adequately level of maturity and that the Group had good spread across the business to facilitate methodologies and processes in place. project delivery. • Risk management was increasingly embedded • The function of the audit committee was into the culture of the business. The objective strengthened and its charter was amended of the Group is to make risk management an to align it with the codified responsibilities internal process as opposed to a consultancy- of audit committees as contained in the driven one, so that it becomes part of the way Corporate Laws Amendment Bill. The revised management and employees conduct day-to- charter also includes recommendations of day business. Employees are encouraged to

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 85 CORPORATE GOVERNANCE

be mindful of managing risks by making risk excellent financial results year-on-year. The board management a key performance area, so that regularly assesses the Group’s overall governance it is practiced as a matter of course throughout climate, with the aim of enhancing structures, the Group. policies and processes in a way that strikes a balance between the Group’s desire to perform • The internal audit team was refocussed, in order to better align its functions with local and its need to conform. best practice standards, the size and skills The Group continues to set high standards set of the internal audit team were enhanced of disclosure and transparency. The Group’s and the nature and quality of reporting by corporate governance and risk management the department to the audit committee were principles and processes are reviewed from time substantially upgraded. Furthermore, the to time to ensure they are properly aligned with written charter of the internal audit department the King Code, and steps are taken to address is currently under review with a view to reflecting areas where there is room for improvement. its refined focus and reporting obligations. It is the intention of the directors to align the • The Group’s 2005 Annual Report was ranked Group’s governance system with internationally in the top ten in the Ernst and Young survey, accepted standards. This goal, as well as the “Excellence in Corporate Reporting”. This is continually evolving expectations of stakeholders, an improvement on the 2004 Annual Report’s means that the development of the Group’s “excellent” ranking and is an external confirmation that the Group’s goal of high governance framework is an ongoing and dynamic quality financial reporting is being achieved. process. The ranking is seen as an acknowledgment THE ROLES OF THE GROUP’S BOARDS of the considerable effort that is put into the Group’s reporting and disclosures, and gives The different but complementary roles of the reassurance that the current level of voluntary directors of the listed investment holding company, disclosure is acceptable. Truworths International Limited (TI), and those of the wholly-owned retailing subsidiary, Truworths • A formal evaluation of the board, both in terms Limited (Truworths), are formally documented of the processes and functioning of the board to clarify their respective areas and levels of as a whole, as well as of individual director authority. contribution to its workings, was conducted The TI board provides direction and leadership using questionnaires drawn from international to the Group, and is ultimately responsible and sources, and the findings are being used accountable for the Group’s overall performance to address areas identified as requiring and affairs. Accordingly, the board has reserved development. for itself decision making with regard to material • The Group’s written tender and contracts issues. The board focuses on the enhancement of approval policy and capital expenditure shareholder value and the long-term sustainable approval policy were reviewed and updated to growth of the Group by looking at broader issues take account of changed business practices such as corporate governance, transformation and practical issues highlighted through and succession planning, while reviewing and experience. Written charters were developed monitoring the development and implementation and approved by the board for the newly of the strategic business plans developed by the Truworths board. As standard practice, all formalised tender and contracts committee significant matters affecting the Group are brought and capital expenditure committee. to its attention for noting or ratification. ONGOING OBJECTIVES On the other hand, the Truworths board functions The maintenance of sound corporate governance as the operating board and is responsible for standards supports the Group’s long-term the day-to-day management of all matters objective to remain sustainable and produce associated with fashion merchandising, retailing

86 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CORPORATE GOVERNANCE and franchising including overseeing and appropriate orientation and induction of new managing the Group’s human resources, finance, directors; and buying, merchandise planning, store operations, • To develop clear divisions of responsibility at store architecture and design, merchandise board level to ensure a balance of power and distribution, customer relationship management authority and appropriately limited individual and information technology functions. decision-making ability. The TI board Composition Board charter The Group has a unitary board structure with three The scope of authority, responsibilities, powers, full-time salaried executive directors and five composition and functioning of the board are set independent non-executive directors. Particulars out in a formal, written board charter, which is of the directors are set out on page 8. reviewed and updated from time to time. The board charter specifies that the majority of the directors in office must be non-executive, and The primary responsibilities of the board as set further that a quorum for board meetings can be out in the board charter are as follows: constituted only when five directors are present, • To review the Group’s strategic direction provided that a majority of those present are non- and monitor the execution of the Group’s executive directors. The company’s articles of strategic plans; association provide that decisions taken at board meetings must be decided by a majority of votes, • To consider financial reports, budgets and with each director having one vote. business plans presented by executive management, and monitor actual performance All non-executive directors are considered to be relative to the budgets and plans; independent in accordance with the King Code definition and the categorisation guidelines • To approve the Group’s annual and interim relating to independent directors set out in the financial reports, and dividend policy; JSE’s Listings Requirements. The board is of the • To review the Group’s risk management view that all the non-executive directors, acting strategies and ensure that adequate internal individually and collectively, bring unfettered controls and appropriate processes are in place judgement to bear on material decisions of the and functioning effectively; Group including the Group’s strategic plan, the consideration of acquisition possibilities, the • To advise on corporate finance, treasury, deployment of Group resources, the functioning employment equity and benefits, stakeholder of the board, key executive appointments, annual communication and governance issues; report disclosures, and corporate practices and conduct. • To make material investment, disinvestment, refinancing or restructuring decisions; The qualifications and experience of the non- executive directors, coupled with the fact that • To evaluate and monitor the performance of the they have no material contractual relationships board, individual directors, the chief executive with the Group, help to ensure that their views officer and executive management; carry substantial weight and that their judgement • To approve executive remuneration and the in relation to issues affecting the Group can be Group’s incentive schemes; exercised independently.

• To participate in a formal and transparent These factors, together with the separation of manner in the appointment of all new directors the roles of chairman and chief executive ofﬁcer, to the board, including the appointment of ensure the clear division of responsibilities at the chief executive ofﬁcer, and to ensure the board level so that no individual director has

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unrestricted authority with regard to decision- Board meetings making. Furthermore, the practice that all material The board schedules to meet once a quarter, matters affecting the Group are considered and and during the period under review it held debated by the board serves to bring appropriate four meetings. balance to significant decision-making. Board meetings are convened by formal notice Appointment incorporating a detailed agenda supported by relevant written proposals and comprehensive The board as a whole participates in and is required reports. Management aims to disseminate to agree on the appointment of new executive and meaningful, relevant and complete information non-executive directors in a formal and transparent in a timely manner at least five business days manner. In accordance with the company’s articles prior to board meetings, as this facilitates adequate of association, each year one-third of the board is preparation for in-depth discussion. required to retire at the annual general meeting of shareholders. Retiring directors, who are those The reports distributed, together with presentations that were made at the meetings, that have been longest in office since their most dealt with strategic and financial issues and recent re-election or appointment confirmation, acquisition considerations, as well as qualitative may offer themselves for re-election. Directors matters such as the Group’s values and ethics, appointed after the annual general meeting are risk management, social responsibility and required to have their appointments confirmed at governance enhancement. the following annual general meeting. A number of decisions were taken between board The directors have extensive experience serving on meetings by written resolution as provided for in the boards of other substantial companies and are the company’s articles of association. In addition, professionally qualified. For these reasons, each executive management consulted with non- newly appointed director undergoes a process of executive directors on matters of importance as induction appropriate to his or her individual needs, they arose. although to date there has not been a need to The attendance of directors at board meetings was conduct training courses for directors. as follows:

TRUWORTHS INTERNATIONAL LIMITED BOARD MEETINGS

2005 2006 Aug Nov Feb May

Rob Dow √ √ √ √ Michael Mark √ √ √ √ Thandi Ndlovu √ √ √ √ Edward Parfett √ √ √ √ Hilton Saven (Chair) √ √ √ √ Tony Taylor √ √ √ √ Mike Thompson √ √ √ √ Wayne van der Merwe √ √ √ √

88 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CORPORATE GOVERNANCE

Company secretary Conﬂicts of interest

The company secretary attends board meetings Directors have to and do declare their interests annually in terms of the Group’s articles of at the board’s invitation and is responsible for association and the Companies Act. If a matter the preparation of detailed meeting agendas is under discussion in which a director has a and comprehensive minutes. All directors have personal or vested interest in, it is practice for access to the advice and services of the company the director to disclose this interest and for the secretary in relation to the affairs of the Group other directors to note it and make decisions based on this disclosure. The Group has a policy and their roles and responsibilities. During the dealing with conflicts of interest that applies to all period under review, directors availed themselves directors and staff. of the company secretary’s services and advice The Truworths board on a number of issues. As a standard practice the The board of the Group’s wholly-owned subsidiary, company secretary presents a schedule of new Truworths, functions as the operating board, legislation and regulation impacting on the Group responsible for the day-to-day management of at each board meeting. all matters associated with the Group’s fashion retailing, agency and franchise business. The board In addition, subject to prior arrangement with discharges its responsibility through delegation to executive management, directors have ready the management team. access to all of the Group’s information, records, Currently the Truworths board is responsible for documents, property and management, and are the following matters: entitled to obtain independent professional advice • All operational matters in relation to the Group’s regarding Group matters at the Group’s expense. fashion retailing, agency and franchising businesses, including but not limited to: Board reviews – merchandise sourcing, buying, planning, In accordance with the King Code, the board warehousing and distribution; from time to time reviews its mix of skills and – store location, leasing, operations, design experience, and evaluates its effectiveness and architecture; as a whole as well as the individual contributions – human resource recruitment, training, development and remuneration; of its members. – information systems acquisition, The board review system was evaluated and development and maintenance; updated during the period under review to – credit management and customer relations ensure it follows acceptable practices. A formal marketing and systems; evaluation was conducted in May 2006 in line – financial management and administration; with the recommendations of the King Code. and Separate questionnaires were used to measure – selection, management and servicing of franchisees. the effectiveness of the board acting collectively Strategic plan development, execution and and to evaluate members acting individually. • refinement; The process was conducted on an anonymous basis • Budget development and achievement in and results were collated by the human resource relation to sales and expenses; consultant. The findings have been considered by • Risk identification, assessment, mitigation the board, and a task team has been established and management; to make recommendations to address aspects • Business philosophy and value system identified as requiring development or change. development and refinement;

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 89 CORPORATE GOVERNANCE

• Internal control development, monitoring and • Committees of the TI board: audit; – Audit committee • Employment equity plan development and – Remuneration committee implementation; – Non-executive committee • Development and monitoring of operational policies and procedures; • Committees of the Truworths board: • Transformation strategy development, – Transformation committee implementation and monitoring; – Social responsibility committee • Approving investment, disinvestment, – Risk committee refinancing and restructuring transactions – Project steering committees in accordance with parameters set by the TI – Change control committee board, – Investment committee • Adopting and implementing corporate governance practices, which are appropriate – HIV/Aids committee for the Group and meet the standards set out – Information security committee in the King Code. – Tender and contracts committee The attendance of directors at board meetings was as follows: – Capital expenditure committee.

TRUWORTHS LIMITED BOARD MEETINGS

2005 2006 July Oct Nov Jan Mar May Emanuel Cristaudo √ √ √ √ √ √ Doug Dare √ X √ X √ √ Hannes Holtzhausen √ √ √ √ √ √ Derek Kohler √ √ √ √ √ √ Michael Mark (Chair) √ √ √ √ √ √ Terri Murdoch-Coyle* X X X X X X Tony Taylor √ √ √ X √ √ Wayne van der Merwe √ √ √ √ √ √ Roger Wyatt X √ √ √ √ √

* Terri Murdoch-Coyle has been ill for a protracted period, hence her absence from board meetings.

BOARD COMMITTEES Audit committee

Several committees have been established to The audit committee’s primary objective is to assist the board in discharging its responsibilities to: assist the Group’s boards in discharging their responsibilities. These committees play an • Maintain adequate accounting records and important role in enhancing governance and functionally effective ﬁnancial reporting and improving the performance of the Group. internal control systems;

The following governance committees, as • Ensure compliance of published ﬁnancial distinct from operational committees, have been reports with relevant legislation, regulations, accounting practices and good corporate constituted and in terms of their formal written governance; charters have speciﬁc responsibilities delegated to them as well as prescribed reporting obligations: • Safeguard Group assets; and

90 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CORPORATE GOVERNANCE

• Comply with statutory requirements such as to Committee meetings are attended by the company consider any non-audit service rendered to the secretary, the Group financial director, the internal Group by the external auditors, set the external audit manager, senior employees of the finance auditors’ fees and formally appoint the external department as well as the external auditors. The auditors annually. internal audit manager and the external auditors, Ernst and Young, have free and unrestricted access The chairman of the audit committee reports in to the chairman of the committee. writing to the board on material issues, concerns and recommendations. This gives the board an Findings by the external auditors arising from opportunity to discuss important matters raised their annual statutory audit are tabled in their in the report. The committee also facilitates management comments letter and presented at an audit committee meeting following the audit. effective communication between the board, The audit committee notes the issues raised by management and external and internal auditors, the auditors with management, and questions as well as providing an objective and independent them on their responses and action plans. In forum for the resolution of significant accounting, subsequent meetings, management reports back compliance and reporting-related matters. on actions taken until the issue is resolved or The committee typically meets three times a year. the auditors and management agree to disagree. The quorum for meetings can only be constituted This process highlights areas to improve, helps to when two members are personally present. enhance the Group’s financial control processes The company secretary acts as the committee and reduces risks. secretary. The audit committee has approved a formal This committee currently comprises the following written policy in terms of which the external members: auditors may provide non-audit services provided consideration is given to the general restrictions • Mike Thompson, an independent non-executive set by applicable regulations and the auditing director and chartered accountant, who profession, as well as the limitations that the was appointed as committee chairman on external auditors have chosen to adopt themselves 20 May 2004; so as to maintain their independence.

• Rob Dow, an independent non-executive During the period under review, the committee director and chartered accountant who was formally appointed the external auditors, noted appointed to the committee on 23 May 2002; which audit partner had been assigned to the and engagement, considered and approved the external auditors’ fees and continued to guide management • Hilton Saven, an independent non-executive when deploying the external auditors in rendering director and chartered accountant, who non-audit services. was appointed to the committee on 1 February 2003; Remuneration committee The attendance at meetings by the members of The primary function of the remuneration the committee was as follows: committee is to assist the board in discharging its responsibilities to:

AUDIT COMMITTEE MEETINGS • Ensure that the Group’s senior executives and non-executive directors are rewarded 2005 2006 in accordance with the Group’s compensation Aug Feb May objectives, with particular attention to retention issues, performance and Mike Thompson international practice; (Chair) √ √ √ Rob Dow √ X √ • Advise, recommend and review appropriate Hilton Saven √ √ √ reward strategies and policies for Group employees, including evaluation methodologies; and

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• Determine the remuneration packages of the The attendance at meetings by the members of senior executives and non-executive directors the committee was as follows: to support the Group’s strategic objectives.

In effect, the committee reviews and approves REMUNERATION COMMITTEE the compensation of the executive directors, MEETINGS non-executive directors and senior executives. It approves all grants and awards under both 2005 2006 the Group’s share and cash incentive plans. The Aug Nov May committee also considers the application of the Rob Dow compensation and incentive plans on a Group- (Chair) √ √ √ wide basis to ensure alignment to the key business Hilton Saven √ √ √ strategies and values.

In its discussions, the committee takes into Non-executive committee account the recommendations and views of the chief executive ofﬁcer regarding the performance In accordance with the authority delegated to it by of the directors and senior executives. The the board in a written charter, the non-executive committee may also engage independent and committee’s primary objective is to assist the professional legal and remuneration specialists to board in discharging its responsibilities to: assist in reviewing and benchmarking the Group’s remuneration practices and policies. • Ensure adequate succession plans are in place in relation to the chief executive ofﬁcer’s The committee is required to report formally to position and role; the board by submitting an appropriate report. This gives the board an opportunity to discuss • Consider any sensitive or strategic matter important matters raised in the report. delegated to it by the TI board; and

The committee meets at least three times annually. • Make key appointments such as that of the The quorum for these meetings can only be chairman and the chief executive officer. constituted when two members are personally present. The human resources manager acts as The committee enables effective and the committee secretary. coordinated communication between the non- executive directors, and provides an objective The committee comprises the following and independent forum which can make members: recommendations for the resolution of significant Rob Dow, an independent non-executive direc- • issues facing the board. tor who has been the committee’s chairman since February 2001; and The committee comprises the non-executive directors and is chaired by Edward Parfett, who • Hilton Saven, an independent non-executive also acts as the committee’s coordinator. At the director who was appointed to the committee in February 2003. invitation of the committee, Michael Mark, the chief executive officer, may attend committee At the invitation of the committee, the chief meetings or parts thereof. The committee meets executive officer, attends committee meetings quarterly and the quorum for all meetings is two- except when matters relating to his own thirds of the non-executive directors. compensation are under discussion.

92 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CORPORATE GOVERNANCE

The attendance by non-executive directors at • Enable effective communication between the committee meetings was as follows: directors, management and external advisors in relation to matters falling within the NON-EXECUTIVE committee’s mandate; and COMMITTEE MEETINGS • Provide an objective and independent forum 2005 2006 to discuss signiﬁcant matters relating to Aug Nov Feb May transformation within the Group.

Edward Parfett The committee is scheduled to meet every two (Chair) √ √ √ √ months, and the quorum for meetings is at Rob Dow √ √ √ √ least four-fifths of the members, all personally Thandi Ndlovu √ X √ √ present. Hilton Saven √ √ √ √ During the previous financial period, the Mike Thompson √ √ √ √ Department of Trade and Industry published codes of good practice (the DTI code) in accordance with Transformation committee the Broad Based Black Economic Empowerment The transformation committee was established Act. In the period under review, the transformation during 2005 as a committee of the Truworths committee met regularly and engaged external board. A written charter defining the scope of consultants to assist the Group in developing authority, objectives, responsibilities, powers, a transformation strategy that will achieve composition and functioning of the committee was compliance with the scorecard embodied in formalised. the amended DTI code, as revised in December 2005, in a manner which will both make sound The Group defines transformation as a process business sense for the Group and in a meaningful of change that aims at materially increasing the way will meet the expectations of the people it number of black people who: seeks to affirm. The strategy covers all aspects • Are employed by the Group; of empowerment as laid out in the DTI code, with an initial focus on employment equity, skills • Occupy managerial positions within the Group; development, procurement and corporate social • Own meaningful equity interests in the Group; investment.

• Supply meaningful amounts of goods and Further information on the Group’s progress and services to the Group; and activities in respect of transformation can be found on page 120. • Beneﬁt materially from the social investment or enterprise development activities of the Group. The committee comprises the following members: In accordance with the authority delegated to it, the committee’s objectives are to: • Tony Taylor, deputy managing director of Truworths, and Jim Frederick, the human • Ensure that management embraces the principles of transformation on an enterprise- resources consultant for Truworths, act as joint wide basis across all facets of the Group’s chairmen; activities; • Helen Drabbe, the employee relations manager • Develop and implement an appropriate of Truworths; transformation strategy; • Chris Durham, the company secretary who is • Design, implement and regularly review also the committee’s secretary; policies, plans and processes aimed at • Hannes Holtzhausen, director of information facilitating transformation in the Group; systems at Truworths; and

• Implement integrated annual reporting to • Travell Rees, a regional manager in the retail stakeholders on aspects of transformation; operations division of Truworths.

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Wayne van der Merwe, the Group ﬁnancial director, • Ensure management educates and trains the acts as an advisor to the committee and has Group’s employees in relation to good corporate attended a number of its meetings. At the invitation citizenship and social responsibility; and of the committee, other senior executives may • Provide an objective and independent forum attend its meetings. to discuss and debate signiﬁcant sustainable The attendance at meetings by the members of development related matters. the committee was as follows:

TRANSFORMATION COMMITTEE MEETINGS

2005 2006 Jul Aug Sep Sep Oct Jan Mar May

Tony Taylor (Joint chair) √ √ √ √ √ √ √ √ Jim Frederick (Joint chair) √ √ √ √ √ √ √ √ Helen Drabbe √ √ √ √ √ √ √ √ Chris Durham √ X √ √ √ √ √ √ Hannes Holtzhausen √ √ √ √ √ √ √ √ Travell Rees n/a √ X √ X √ √ X

Social responsibility committee The committee monitors the Group's compliance The social responsibility committee reports to the with the King Code in relation to its integrated Truworths board and was founded in the previous sustainability reporting obligations, and ﬁnancial period with written terms of reference. benchmarks the Group’s sustainability and The primary function of the committee is to assist performance measures against the Global the board in discharging its responsibilities to: Reporting Index (GRI) and the criteria for listing on the Socially Responsible Investment (SRI) Index • Ensure that the Group adopts sustainable of the JSE Limited. The committee is tasked to development as an important philosophy which ensure that all initiatives undertaken make good underpins the Group’s activities; business and economic sense for the Group.

• Ensure that the Group practices appropriate At the beginning of the period under review, the levels of corporate citizenship, and social committee appointed consultants who were responsibility in its interaction with communities tasked to assist with the drawing up a proposal and the environment; for consideration by the Truworths board

• Develop and implement appropriate strategies, recommending a corporate social responsibility policies and plans in relation to the economic, vision for the Group. This proposal will encompass social and environmental impacts of the a framework within which the vision can come Group; to fruition, initial steps to be taken, strategies to be followed and initiatives to roll out in order to • Implement integrated annual sustainability formalise and enhance the Group’s interventions reporting to stakeholders on the economic, that impact on the communities it works with, its social and environmental aspects of the Group’s employees, its suppliers, society in general and activities; the environment.

• Enable effective communication between A formal register of socially responsible initiatives the directors, management, and external was developed and will be put into action by giving advisors in relation to matters falling within the responsibility for speciﬁc initiatives to relevant committee’s mandate; operational personnel within the Group, as well as

94 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CORPORATE GOVERNANCE challenging them to ﬁnd ways to set measurable • Doug Holmes, the quality control executive of targets and establish monitoring mechanisms to Truworths; track the Group’s activities and progress for each initiative. The Group’s current corporate social • Dudley Maré, the manager of the Truworths responsibility initiatives are reported on in pages distribution centre, who was appointed to the 112 to 137. committee in January 2006;

On average, the committee meets every two • Gail Moffat, the social investment manager of months. The quorum for these meetings is at least Truworths; and four ﬁfths of the members personally present. • Tony Taylor, deputy managing director of The committee comprises: Truworths.

• Wayne van der Merwe, the Group ﬁnancial Directors of Truworths may at any time attend director, who is the committee chairman; meetings of the committee, and management, • Chris Durham, the company secretary; consultants and employees may occasionally be invited to attend the meetings of the committee at • Jim Frederick, human resources consultant of the discretion of the chairman of the committee. Truworths; Gavin Teixeira, an executive in the merchandise • Mark Grier, the public affairs manager of division, is a regular attendee and contributor at Truworths; meetings of the committee.

• Kim Harrison, the Group ﬁnancial controller, The attendance at meetings by the members of the who is the committee secretary; committee held during the year was as follows:

SOCIAL RESPONSIBILITY COMMITTEE MEETINGS

2005 2006 July Sept Nov Jan March June

Wayne van der Merwe (Chair) √ √ √ √ √ √ Chris Durham √ √ √ X √ √ Jim Frederick √ √ √ X √ √ Mark Grier √ X √ √ √ √ Kim Harrison X √ √ √ √ √ Doug Holmes √ √ X X √ √ Dudley Maré n/a n/a n/a n/a √ X Gail Moffat √ √ √ √ √ √ Tony Taylor √ √ √ √ √ √

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Risk committee • Provide an objective and independent forum to discuss and debate signiﬁcant risk management The board of TI has overall accountability for the matters. Group’s risk management programme. The board of Truworths assists the TI board with discharging On average, the committee meets six times a year. its responsibilities in identifying and managing The quorum for these meetings is at least three- signiﬁcant risks facing the Group. quarters of the members personally present.

The risk committee operates under written terms During the period under review, the charter of of reference and is required to report in writing the committee was amended to provide for the to the boards of TI and Truworths. This gives chairman of the audit committee to be a permanent the boards an opportunity to discuss important member of the risk committee. Subsequently, the matters raised in the report. independent non-executive director who chairs The committee operates within a dynamic the audit committee, and who had attended risk environment in the identification and mitigation committee meetings as an invitee formally, joined of risks as well as ensuring business continuity. the risk committee. The committee comprises: It moreover provides an independent forum which • Tony Taylor, deputy managing director of meets every two months, to discuss and debate Truworths, who is the committee chairman; significant matters related to risk management. • Emanuel Cristaudo, director of customer relations The primary function of the committee is to monitor management and systems at Truworths; and evaluate Group-wide risk management • Chris Durham, the company secretary, who is interventions. Its objectives are to: also the committee’s secretary; • Assist the board of Truworths to discharge its • Hannes Holtzhausen, director of information responsibilities to the board of TI in relation to systems at Truworths; risk management by: • Brian Osborne, Group risk manager; – identifying, assessing, mitigating and managing significant risks for the Group; • Mike Thompson, an independent non-executive director and chartered accountant, who is the – developing management mechanisms chairman of the audit committee; which demonstrably enable dynamic risk identification, mitigation and communication, • Wayne van der Merwe, the Group finance and business continuity; and director; and

– maintaining functionally effective systems • Martin Rossouw, the internal audit manager of of internal control which are designed Truworths. to safeguard Group assets and support The Group’s information systems audit manager business sustainability. and external risk management consultants also • Enable effective communication between participate in meetings and deliberations of the the directors of Truworths, the board of TI, committee. the company secretary, the internal audit The attendance at meetings by the members of department, the Group risk manager and the committee was as follows: external auditors.

RISK COMMITTEE MEETINGS

2005 2006 Jul Sep Nov Jan Mar May

Tony Taylor (Chair) √ √ X √ √ √ Emanuel Cristaudo √ √ √ √ √ X Chris Durham √ √ √ √ √ √ Hannes Holtzhausen √ √ √ √ √ √ Brian Osborne √ √ √ √ √ √ Mike Thompson √ X √ √ √ X Wayne van der Merwe √ √ √ √ √ √ Martin Rossouw X √ √ √ √ √

96 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CORPORATE GOVERNANCE

RISK MANAGEMENT

Responsibility The board has adopted the King Code’s risk management principles, and has prepared a To assist the board of TI with discharging its policy framework, which guides the Group’s risk responsibilities in relation to risk management, management processes. Furthermore, the board continuous monitoring of risk management has broadly deﬁned the Group’s risk/reward activities is undertaken by the directors of appetite and is satisﬁed that management Truworths. decisions are aligned with this determination.

GROUP RISK MANAGEMENT PROCESS

Assists the Truworths Truworths Truworths International Responsible for group International Limited board to risk management Limited discharge its risk (Holding (Operating management company company responsibilities board) board)

Quarterly reporting Risk committee Quarterly monitoring

Risk Strategy & guidelines

Risk Risk assessment register

High-level controls Technical Assurance Internal controls plans audit Control gaps: action plans

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The Group risk manager facilitates a coordinated specific, industry-wide and general risks so that, risk management process across the Group. He as far as is possible within resource limitations, the also ensures that the recommendations of the Group’s ongoing long-term economic sustainability risk committee are conveyed to management and implemented, and that a culture of risk awareness can be assured. is promoted throughout the Group. Group executives have a ‘hands-on’ approach An enterprise-wide risk management approach to business operations and are able to identify, has been adopted in line with international assess, transfer, mitigate, avoid and manage best practice, so that all areas of the Group are the risks facing the Group on a day-to-day basis. subject to the risk management strategy. The The Group risk manager facilitates the risk risk management process focuses on key risk management process across the Group and acts areas including credit management, logistics, as a source of expertise. marketing, financial controls, technology, human resource issues, information management and External risk management consultants have been operational performance. retained to assist with the ongoing development and In the period under review the Group’s external improvement of the enterprise risk management risk management consultants assessed the status process. As a result of Group-wide risk assessment of the Group’s current risk management processes exercises, formal Group and operational risk and proposed that risk management be taken to registers are created, which outline risks on a the next level of maturity by combining assurance prioritised basis. This is a dynamic process in into risk management practices through having which each risk is graded according to its potential external third parties verify that the Group’s impact and the likelihood of its occurrence, key processes are appropriate and achieve their controls are determined for each risk to which intended objectives. risk owners and sub-owners are allocated, and At each board meeting, written reports compiled action plans with implementation deadlines are by the chairman of the risk committee are developed. The registers are regularly updated presented to and critically reviewed by the and the risks that have been identified, including directors. In addition, members of the executive emerging risks, are discussed at each committee management team are directly responsible meeting at which the relevant controls are reviewed for risk management interventions in their functional areas, and report on these at meetings to evaluate their effectiveness. of the board. Key performance indicators have The risk assessment exercise is used as a been determined for each executive whereby management tool to enable management to their actual performance levels are regularly identify the Group’s top 20 risks, which are updated monitored against agreed targets. every two months, and the top 20 operational Process risks, which are updated every six months. Further

The Group regards risk management as a dynamic progress was made by management during the process of continuing interventions aimed at period under review to address the risk areas providing appropriate responses to business- highlighted by the assessment exercise.

98 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CORPORATE GOVERNANCE

The top ﬁve risks facing the Group and the controls that are in place are as follows:

RISK POTENTIAL RISK STATUS IMPACT CONTROLS

Logistics and Immediate No losses Project plan for business continuity formulated. distribution

HIV and Aids: Some risk but Tolerable Health monitors show no change in the risk Staff/customers not imminent losses trend; Educational programmes initiated; Good monitoring processes are in place; Strong credit management insurance strategies.

Merchandise Immediate and Unknown Established working group and taking advice; imports present Seeking alternative suppliers; Making representations to authorities.

Information Some risk but Tolerable IT risk management processes in place, with technology not imminent losses ongoing review and improvements; Updated business continuity plans; Disaster recovery facility in place, with ongoing testing and improvements; Back-up processes.

Head ofﬁce Some risk but No Fire protection; Contingency plans; continuity not imminent losses Insurance cover.

A combined risk management assurance plan is An assessment of the status of the Group’s in place, and management is required to report on current risk management processes was conducted by external consultants during the the status of risks, controls and action plans on a period. This assessment showed that the Group’s determined basis at various management forums. risk management processes have achieved a The Group’s risk assurance process is to a respectable level of maturity and that the Group has good risk management methodologies in meaningful extent integrated with the internal place. audit plan, and the assurance in respect of risk controls has been determined according to the best A comprehensive programme of health and safety management is in place throughout the Group and a ﬁt of expertise. Furthermore, line management disaster recovery plan is in place that addresses the is responsible for reporting to the board on risk Group’s dependency upon information technology. management developments.

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Operational risks are managed through regularly reviewed, detailed control systems to ensure integrity, appropriateness and coverage. Some of the top operational risks are as follows:

RISK CONTROLS

Inventory losses Strict adherence to internal controls throughout the distribution chain; Use of independent security ﬁrms and appropriate technology

Debtor losses Clearly deﬁned and enforced credit granting policies; Proactive debtor management techniques; ‘Best-of-breed’ customer relationship systems.

Loss of Group assets/earnings Regularly reviewed insurance programme. Internal controls, policies and procedures.

Treasury risks Regularly updated board-approved treasury policy; Surplus cash invested with the most highly-rated counter parties; Instruments subject to extreme volatility are risk avoided; Limited use of derivative instruments to hedging applications; All foreign currency import exposures are fully covered.

In-store risk management enjoys high priority • Weekly stock hanger counts are conducted in order to deal with operational risks such as to highlight the losses in stores as early as theft, cash losses, systems’ down-time, employee possible. issues and shrinkage. Once a concern is identiﬁed, controls and procedures are put in place to prevent All stock cartons have full shrink-wrap for further losses. Measures used to prevent store added protection and the distribution centre and losses include: stores work closely with the Group’s preferred stock carrier to help minimise losses. Through • Utilising Sensormatic systems, with soft and the Group’s interventions, the stock carrier hard tags in strategic stores; has installed a live tracking system on all of its • Regular weekly testing of burglar alarm trucks. systems to ensure effectiveness, including To minimise in-store health and safety risks a weekly activity report from the alarm to employees and customers, an inspection is monitoring company; performed and reported on monthly.

• Drop-in safes are used in every store and cash The Group has committed significant resources is regularly removed from the tills by a cash- to manage the physical risks posed by fire and handling company; civil disturbance at the distribution centre and • All high-risk stores are supplied with roller to mitigate the physical risks posed by electrical shutters to give extra protection, and are installations in stores. monitored by armed-response security firms; Management has also examined the risks arising • Every division agrees on a maximum stock loss from electric power failure, has upgraded back-up target at the beginning of the period, which is generator capacity at the distribution centre and is broken down to store level. This has been a very looking to do so at its head office building. successful way to monitor losses on a weekly basis; and

100 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CORPORATE GOVERNANCE

Business continuity The infrastructure at the disaster recovery centre is subjected to ongoing testing to enable the The Group continues to update, expand and department to constantly upgrade capabilities. document its business continuity plan aimed at During the period under review infrastructure was ensuring business continuity notwithstanding improved at the centre and a number of successful adverse operating conditions, including natural tests in recovering information showed a vast or man-made disasters. The current business improvement in these capabilities. Facilities such continuity plan focuses on the Group’s systems as generators and uninterrupted power supply and information technology, including disaster capabilities in stores are also in place to minimise recovery facilities. The objective is to ensure that as far as possible disruptions to the business from key business systems can become appropriately power outages. functional and populated with relevant data As internet crime becomes more sophisticated, within an acceptable period of time on hardware security for the Group’s systems needs to accessible at a remote site. be constantly upgraded to better protect the The management of information technology Group’s systems environment and business risks is a vital component of the Group’s risk against hackers, as well as viruses, so as to management and business continuity strategies. maintain the integrity of strategic information and plans, the privacy of customer information In 2004 the Group adopted the Control Objectives and ultimately the sustainability of the business for Information Technology (CoBIT) framework, going forward. which enables the information systems department to manage all key technology A key objective for the current year is to devise and risks by implementing appropriate policies and implement an integrated enterprise-wide business procedures. CoBIT prescribes processes that continuity plan. Assisted by external consultants, should exist within the environment to reduce the Group aims to develop its business continuity the risk of loss of information to the business. strategies to cover risks that are important to business processes. These strategies will be In assessing the department’s compliance extended to the Group’s decentralised distribution with the Group’s risk management objectives. centre and divisional offices. Where required, enhancements are made to the framework and processes to ensure recognised Insurance practice is followed in respect of the Group’s The Group has a comprehensive insurance and corporate governance and risk management self-insurance programme in place to underwrite abilities. the Group against a wide variety of possible risks. As the Group is heavily dependent on information The insurance levels are reviewed annually to systems, the integrity of its business continuity ensure that satisfactory levels are in place. plans depends on its ability to recover from The Group uses specialist insurance financial a variety of potential information technology intermediaries to consider all insurable risks and disasters and to minimise the impact of a recommend any risk mitigation activities that the catastrophe on its ability to conduct business. A Group can undertake. The financial intermediaries disaster recovery strategy is in place, which is also rank risks and assess whether they are reviewed annually. The disaster recovery process insurable, insured or not insured, and whether the is tested quarterly and a steering group meets Group has adequate insurance in place to mitigate regularly for a progress review. In addition, risk. Areas where the Group is not insured or backups are managed by an automated process, under-insured are investigated. and a capacity management group regularly reviews the Group’s capacity and backup Concerted efforts are made to mitigate and prevent requirements. uninsurable risks.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 101 CORPORATE GOVERNANCE

INTERNAL CONTROL • Segregation of duties;

The Group strives to maintain a high standard of • Deﬁned authority levels and responsibilities; internal control. The sound control environment in • Oversight of processes; the Group is founded on a strong responsibility in relation to controls by senior executives through • Appropriate skills and knowledge; their commitment to integrity and ethical values • Financial controls and restrictions, including as well as their skills and competence. This is budgets and limits; illustrated through management’s operating style, the clear communication through human resource • Reconciliation processes;

policies and the assignment of authority and • Restriction of access to certain information and responsibilities to appropriate levels within the assets; Group. This has resulted in a control consciousness • Policies and procedural controls; and throughout the Group. • System controls. The board is ultimately responsible for the system of internal control in the Group, which is designed Management has access to pertinent information to ensure: which is defined, captured and communicated in appropriate forms and timeframes to enable • Effectiveness and efficiency of operations; them and their employees to carry out their • Safeguarding, verification and accountability of responsibilities. Key business information is assets; effectively monitored by the hands-on operating

• Detection and minimisation of fraud and style of the chief executive officer and other key potential losses; managers. The Group makes effective use of operational committees and forums to monitor Reliability of financial and operational • compliance with various policies and procedures information and reporting; and and to ensure optimal use is made of collective • Compliance with applicable laws, regulations, skills to make important business decisions. policies and procedures. INTERNAL AUDIT The board relies on management to implement Internal audit’s primary purpose is to provide and maintain the control framework in place within assurance to the TI board, via the audit committee, the Group. In addition, the board makes use of the on the adequacy and effectiveness of the Group’s following structures to monitor the effectiveness internal control and risk management practices, and adequacy of the control activities in operation and the integrity of financial reporting. Internal within the Group: audit also assists management by making • Audit committee; recommendations for improvement to the control environment. • Risk committee; The principle of the independence of the internal • Internal; and audit department remains sacrosanct and the • External audit. internal audit manager reports on operational matters to the chief executive officer and in relation Members of management follow a formal to administrative matters to the finance director. process to perform risk assessments in their individual areas of responsibilities. They develop During the period under review the internal audit and maintain the control activities, which occur team was strengthened by investing in additional throughout the business at all levels and in all skills including the appointment of an experienced functions and include: information systems audit professional.

102 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CORPORATE GOVERNANCE

Internal audit follows a formal audit methodology Ernst and Young are limited through management’s which further incorporates the Committee of policy as regards their consulting engagements to Sponsoring Organisations (COSO) in relation to the Group. the USA’s Treadway Commission risk model. The external auditors’ annual audit plan, which The scope of internal audit’s work covers all operations of the Group and includes: incorporates the identification of significant risks and how they are to be addressed during the audit, • Reviewing, appraising and reporting on the is presented at a meeting of the audit committee adequacy and effectiveness of the system of before the commencement of audit fieldwork. internal control; The external auditors have unrestricted access • Reviewing the processes and systems which are to the Group’s records and management. They designed to ensure integrity in the reporting of furnish a written report to the audit committee on financial and operating information; and significant findings arising from the annual audit • Reviewing the adequacy of compliance with and are able to raise matters of concern directly those policies, plans, procedures, laws, and with the chairman of the audit committee. regulations that could have a significant impact The audit committee considers and approves the on operations. external auditors’ fees and gives guidance to the Specific focus is placed on the system of internal management team when deploying the external control that ensures that assets and information auditors to render non-audit services. are protected against loss, theft or misuse, as well LEGISLATIVE COMPLIANCE as those controls which exist to make sure that key transactional information is of high integrity. The company secretary plays a key role in monitoring Internal audit also provides consultation and other new and pending legislation and regulation to services to management as needs arise, e.g. due identify legislation that is relevant to the business. diligence services, forensic audit services, systems The internal audit function, in conjunction with the auditing services, risk management services and company secretary, follows a rigorous process to requests for special reviews or audits. gauge legislative compliance by the Group.

The internal audit coverage plan is submitted to The company secretary prepares a schedule of new and approved by the audit committee, and formal legislation, regulation and voluntary codes which reports are tabled at each audit committee meeting are relevant to the Group for the board meetings for consideration. of both TI and Truworths. The schedules give a

EXTERNAL AUDITORS synopsis of the changes, where the new provisions can be found and what actions are required or are The board is of the view that the external auditors, taking place to ensure that the Group achieves Ernst and Young, are able to express an independent compliance. The company secretary takes the opinion on the fair presentation provided by board members through the schedule at each the Group’s annual ﬁnancial statements, and meeting, and answers questions or requests for to conduct an objective assessment of internal more information. controls. In forming this view, the board took into consideration Ernst and Young’s strictly enforced During the period under review internal audit policies that preclude their personnel from having conducted a review of the Group’s legislative a ﬁnancial interest in the Group, as well as the fact compliance. This scoping exercise is carried out that Ernst and Young do not provide any services with the assistance of the company secretary and which could be construed as participation in the with reference to a compliance matrix that lists management of the Group’s affairs. Furthermore, legislation and regulations that impact on the

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 103 CORPORATE GOVERNANCE

Group, not only in South Africa but in all territories Remuneration policy where the Group operates. For each legislative The remuneration committee assists the TI board issue, the matrix allocates a person within the in ensuring that the Group has suitable reward Group who is responsible for ensuring that the strategies and policies in place to compensate Group complies. Internal audit conducts interviews employees and directors for their contribution to with the owner of the responsibility to determine the success of the Group, and to attract, motivate whether compliance is taking place in all material and retain talented employees. respects. The review concluded that management was aware of and committed to compliance with The remuneration committee ensures that all relevant legislation and that the Group had directors and key executives receive remuneration during the period complied with relevant laws and that is appropriate to the size and complexity of their regulations in material respects. responsibilities, performance and contribution.

From a legislative perspective, the Group does not Each director and key executive is provided with a have a compliance officer. However, the Group is remuneration package that comprises: bound by the provisions of the Financial Advisory • An annual base salary (including the provision and Intermediary Services Act (FAIS), which of a company car or car allowance); require that intermediaries in the sales of long • An annual cash incentive plan; and short-term insurance products engage the services of a compliance officer. For purposes of • Long-term incentives through the granting of FAIS, the company secretary performs the duties options in respect of the company shares under of compliance officer. the share scheme or through participation in the recently introduced cash-settled high The most significant legislative development that performance share scheme; had an impact on the Group in the period under review was the promulgation, and coming into • Retirement fund contributions; and operation of some sections, of the National Credit • Other security and health benefits. Act (the Act). Further details on the implications of the Act for the Group can be found in the Customer The annual base salary, retirement fund and health Relationship Management Operational Review on care provisions are intended to establish a level of page 68. guaranteed pay that is competitive and linked to the recipient’s perceived market value. REMUNERATION All eligible employees, including about 330 key Remuneration philosophy members of the management team with at least In general terms, the Group’s remuneration one year of service and who meet the Group’s philosophy seeks to ensure that: performance standards, participate in an ongoing cash incentive scheme that is structured against • All employees, particularly executives, are agreed targets approved by the remuneration compensated for their contribution to the committee. The scheme rewards employees success of the Group’s performance and based on agreed performance criteria and targets benchmarked against norms in the retail and for both individual and Group performance, and related sectors; employees only qualify if they meet their individual • Performance-based elements of compensation performance targets. are based on pre-set and measurable business The recently-introduced cash-settled compensation and individual objectives; and scheme, the High Performance Share Scheme • Where appropriate, due regard is had for (HPSS), constitutes an integral component of the comparative levels of compensation at an remuneration package offered by Truworths to international level. its directors and executives in order to incentivise

104 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CORPORATE GOVERNANCE them to increase the profits of the Group on a Compensation sustainable basis. The HPSS grants cash-settled Executive call options to participants in the scheme. The In establishing performance criteria, each exercise of these options is conditional upon the executive director agrees on predetermined Group and the individual participant achieving pre- strategic goals and a combination of hard and soft determined objectives and goals. The quantum of targets. These are discussed with the remuneration the incentive under the HPSS is directly linked to committee and compared to market norms. growth in the company’s share price. When the Remuneration of executives is directly linked to participants in the HPSS exercise their options their performance as a team, in that the overall under the scheme, no transfer of shares takes performance of the Group is the natural override place, but instead the Group settles the benefits to any decision on remuneration. However, in cash. the emphasis is on individual contribution and The cash incentive plan and share option schemes performance so that, even if the Group has performed well, individual increases may vary. are variable components of remuneration, which are intended to offer superior earnings Incentives are linked to the overall achievement opportunities in line with the specific above- of the business strategy, and no incentive is paid unless the Group meets preset headline earnings benchmark performance of the Group. The per share targets. In addition each director has a provision of these incentive plans is intended set of agreed goals that are linked to objectives to promote a close alignment with shareholder in the business strategy that need to be achieved expectations of Group performance. before payment is made.

All employees, excluding those who participate Likewise, the chief executive is challenged to in one of the aforementioned incentive schemes, achieve ambitious performance goals impacting are eligible for discretionary special bonuses on wealth creation and earnings and is also under the “Golden Goose” bonus scheme. These monitored on approved strategic long-term goals such as succession planning and general strategic discretionary bonuses are awarded periodically direction. based on Group performance targets. In addition, this bonus scheme has been linked to the in-store The remuneration committee reviewed and revised the salaries of all directors as well as staff recognition programme, which motivates senior executives at its meeting in March 2006, employees and rewards top-performers for with input and detailed reports from independent outstanding achievements in areas such as professional advisers to ascertain both local and sales, customer care, opening of new accounts international benchmarks. and personal attitude and contribution. The These review periods are intended to allow the programme gives employees the opportunity to members of the remuneration committee sufficient earn points in various categories as a team, and time to apply their minds to each element of also for individual performance. executive remuneration, i.e. annual base pay, cash incentives and share options, while considering In the spirit of the Group’s innovative approach, the total remuneration package of the individual the remuneration committee remains abreast with executive on each occasion. changes in both local and overseas remuneration The cash incentive plan for the 2005/2006 financial trends, including incentive and share option plans, period was reviewed during the first quarter of and is accordingly well placed to proactively adjust the period and approved at the November 2005 its remuneration philosophy and policies to best suit meeting of the remuneration committee. the variable demands of the competitive business The quantum of the cash incentive awarded is environment in which the Group operates. based on:

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 105 CORPORATE GOVERNANCE

• The Group’s performance as defined by the FINANCIAL REPORTING achievement of the profit, wealth creation and Responsibilities headline earnings targets for the period set by the board (after the cost of paying the incentives The directors are responsible for preparing has been deducted); and annual financial statements that fairly present • The achievement of individualised goals and the financial position of the Group and the results targets at a high standard. of its operations and cash flows for the period in accordance with the South African Companies Act As the company performed exceptionally well and International Financial Reporting Standards during the 2004/2005 period and the majority (IFRS), which the Group adopted for the first time of the executives achieved in excess of their in the period under review. predetermined targets and goals, most of the executives were well rewarded. In view of The responsibility of the external auditors is to carry the strong results of the company during the out an independent audit of the annual financial 2005/2006 period it is reasonable to assume that statements in accordance with International the executives will once again be well rewarded. Auditing Standards, and to express an opinion as Executives were granted fewer share options to whether the financial statements do provide fair this period in light of the changes to the presentation. financial accounting requirements applicable The directors ensure that the annual financial to share-based payments. Instead the company introduced the HPSS as a substitute to the share statements provide the disclosures required by option scheme. The HPSS was approved at the the JSE Limited’s Listings Requirements and remuneration committee meeting in November the King Code, and incorporate appropriate and introduced in December 2005. The HPSS accounting policies that, unless otherwise stated, provides for the vesting of cash-settled options have been consistently applied and are supported over a four year period subject to the attainment by reasonable and prudent judgements and of Group and individual performance targets. estimates.

Non-executive The directors are of the view that the accounting The remuneration committee reviewed and records and systems of internal control have revised the fees of the non-executive directors achieved their intended purpose. They advise at its meeting in March 2006. Non-executive that no material loss, exposure or misstatement directors receive a ﬁxed level of remuneration arising from a breakdown in the functioning of the for their services based on their participation in systems of internal control or accounting have board meetings and on board committees. Non- been reported to them in respect of the period executive directors do not participate in incentive under review. bonus schemes, although some hold share options under the Group’s share scheme. Going concern

The non-executive directors’ fee structure is The annual financial statements contained in this determined after obtaining recommendations annual report have been prepared on the going from external consultants regarding market concern basis. In concluding that this basis is trends and current pay practices. The committee appropriate, the directors have had regard for the also gives consideration to any changes in the Group’s strong positive cash flows, the availability levels of responsibility and complexity of the roles of extensive unutilised borrowing facilities and when reviewing the fee structure. the revenue and cash budgets for the period to The details of individual director’s emoluments June 2007. and share and option holdings are disclosed in Based on this, and the Group’s maintenance of note 21.1 and annexure two to the annual financial market share of the fashion retail sector, the statements. directors have every reason to believe that the Further information on employee remuneration can company and the Group have adequate resources be found on page 125. to continue in operation for the year ahead.

106 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CORPORATE GOVERNANCE

DIRECTORS’ SHARE DEALINGS employees in relation to the business philosophy, and by conducting workshops to refine the values The Group has a written policy in terms of which and ethics of the Group as circumstances change. dealing in the Group’s shares by directors and The code of ethics and the code of conduct in employees is prohibited during closed periods that relation to conflicts of interest are available to commence in June and December two months all employees on the intranet as well as in the before the scheduled release of annual or interim employee handbook. financial results, and end 24 hours after the public announcement of the annual and interim financial Whistle blowing results. During the period, the name of the hotline was At least twice annually the company secretary changed from the fraud to the ethics hotline as informs directors and employees in writing about this covers a wider spectrum of incidents that may the relevant provisions of the Securities Services be reported. The ethics hotline is managed as an Act and the prohibitions it contains regarding independent mechanism in partnership with an dealing in the company’s shares, or encouraging external service provider. Whistleblowers may call dealing by others, whilst in possession of non- in with anonymous tip-offs, which are received public, price-sensitive information, or disclosing by the service provider and relayed to the human such information to others. resources department for investigation.

The company secretary is advised of any dealings The King Code requires companies to introduce in the company’s shares by directors of TI or its mechanisms to combat theft, fraud and other material subsidiaries, or associates of such unethical practices. The hotline acts as both directors, and notifies the JSE Limited and a passive and active tool in the combating of the investment community through the Stock unethical behaviour. It sends a clear message to Exchange News Service (SENS) in accordance with all employees and associates that there is a good the JSE Limited’s Listings Requirements. probability that they will be caught if they behave in a VALUES AND ETHICS manner that is detrimental to the business, and that if caught, they will be prosecuted and/or dismissed. The Group’s value system is core to its business The hotline enforces the Group’s approach of zero philosophy and provides the foundation for ethical tolerance to crime and unethical behaviour. business behaviour and integrity. The value system guides the way the Group conducts its From time to time, internal communication business and its interactions with all stakeholders. campaigns are undertaken to stimulate awareness The business philosophy and value system have of the hotline and to communicate the anonymity, the unreserved commitment of the directors and benefits and successes of the hotline, as well as meaningfully influence decision-making and reported incidents and management action taken. business activities. In the period under review, there was a drive to A more formalised policy detailing a code of ethical increase awareness of the hotline and whistle and acceptable conduct was developed during the blowing facilities, particularly through articles in period. The value system supports all aspects of internal newsletters. There are plans in place to the Group’s codes of conduct and ethics. These offer financial incentives for information on the codes, together with the consistent application of hotline that leads to the prevention or discovery of policies, practices and a disciplinary code, commit serious offences such as fraud and dishonesty. the Group to the highest standards of behaviour. The new policy on ethical and acceptable conduct The business philosophy and value system were makes it clear that reporting incidents by means developed over a number of years in consultation of the hotline is one of the prescribed channels with employees. The Group strives to inculcate of reporting laid down by the Group in terms of the value system and code of ethics in the culture the Protective Disclosures Act. This means that of the Group by ensuring the induction of new informants who use this whistle blowing channel

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 107 CORPORATE GOVERNANCE

enjoy the legal protection offered by this Act. at preventing and properly reporting money The Group promotes a culture of openness and laundering and unusual or suspicious transactions. transparency throughout the organisation, and This manual is included within each store manual employees may also report any incidents through and is also available on the intranet. The manual their immediate line manager or the human was sent to the heads of those divisions within the resources department. These channels are also Group that may be affected by FICA regulations. regarded as prescribed mechanisms by the Group To date there have been no reports of suspected as described by the Act and employees reporting in money laundering activities or unusual or this manner also receive the legislative protection suspicious transactions within any of the Group’s provided by the Act. operations.

During the period under review, the hotline was Political party donations administered by an external service provider, It is the Group’s policy not to make donations which reported all incidents to the internal audit to political parties or to politically-orientated department. However, because many of the organisations, and to date no such donations have incidents reported relate to human resource been made. issues, the incidents are now reported by the external service provider to the human resources STAKEHOLDER COMMUNICATION

department. Where an investigation is required, the In its communications with stakeholders, internal audit department will become involved. particularly the investment community, the Group’s

The hotline is proving to be a success, with an aim is to present a balanced and understandable increased volume of reports coming through. This assessment of its position, performance and is a healthy sign that the Group has promoted a prospects. culture where people feel comfortable to blow the Management aims to communicate in a clear, open, whistle, which in itself is a preventative measure timely and realistic manner, and to communicate as it increases the chance of perpetrators being in substance rather than in form in ﬁnancial caught and enforces the Group’s zero tolerance reporting, formal announcements, media releases, standpoint. annual meetings, presentations and dialogue with Money laundering analysts and institutional shareholders.

The Group has issued a manual in terms of the It is the Group’s policy to communicate periodic Financial Intelligence Centre Act (FICA) aimed ﬁnancial information to employees through a more

108 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CORPORATE GOVERNANCE understandable and shorter form of report. This The Group is inter alia a member of the following is distributed with the release of formal ﬁnancial industry associations and organisations: announcements. • The Retailers Association, a retailers' interest and lobby group, which has corporate In the period under review, the Group started membership of Business Unity South Africa a series of workshops for suppliers in order to (BUSA) which inter alia acts as a spokesperson assist them in measuring their broad-based for business in NEDLAC and Parliament; black economic empowerment (BBBEE) status • The Retailer Liaison Committee, which gathers as measured by the Department of Trade and statistics on retailers' turnovers monthly and Industry’s scorecard, which in turn will assist the determines their respective market shares; Group in determining its own score. Besides these The Consumer Credit Association, which seeks workshops, the Group also entered into one-on- • to promote responsible and fair credit granting one discussions with some of its bigger suppliers. by retailers, and regulates member businesses The Group has deﬁned its stakeholder base and through a voluntary code of conduct; determined the most effective and strategic • The Cape Regional Chamber of Commerce and methods of communicating key issues to them as Industry, which aims to act as a voice for and follows: support to business in the Western Cape;

STAKEHOLDER FORMS OF ENGAGEMENT

Customers Brochures, advertising, internet, letters, account statements, customer satisfaction surveys, in-store communications and advertising, promotions, sponsorships and associated competitions.

Employees Newsletters, intranet, staff meetings, social gatherings, labour union meetings, training, health and safety and merchandising updates, email announcements and ﬁnancial results announcements.

Shareholders Annual report, proﬁt announcements, SENS announcements, annual general meeting, investor relations programmes, investor relations website, results presentations, analyst visits, corporate advertising and internet.

Business partners Meetings, letters, email, extranet, formal communiqués and suppliers on policies, supplier forums/workshops and industry body meetings.

Society Brochures, advertising, in-store communications, public relations, proﬁt announcements, media releases, internet, promotions, sponsorships and associated competitions, meetings with community leaders and meetings with social investment beneﬁciaries.

Government, regulatory In regulated formats such as government lobbies to the bodies and industry parliamentary portfolio committees, consultation processes associations with government, through memberships of industry-related associations and organisations, and participation in industry workshops and forums.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 109 CORPORATE GOVERNANCE

• The Free Market Foundation, which promotes and stock broking industries as well as the the concept of limited governmental regulation media. Trading updates were issued in July 2005, of economic activity, and which promotes the November 2005 and January 2006. notion that economic activity should primarily The directors are accessible to and engage with be shaped by the demands of the market the media, asset managers, analysts and stock place; brokers during the period. • The South African Fraud Prevention Service, Shareholder information is available on which seeks to detect and reduce fraud page 218. committed by users of store and credit cards; and Conclusion

• The Cape Clothing and Textile Cluster (CCTC), The Group continues to critically appraise its levels an industry-led project to assist in developing of conformance, and the directors of the company a world-class domestic clothing and textiles are of the opinion that the Group’s governance manufacturing industry. framework is at least in line with best practice prevailing in South Africa. Investor relations The challenge for the future remains the The Group is committed to communicating maintenance of an acceptable balance between the updated financial information on a regular basis governance expectations of investors, stakeholders to shareholders, investment communities and the and regulators on the one hand, and the business public. Over the recent past, the Group has placed imperatives of sustainable growth and above greater emphasis on non-financial matters in its average financial performance in the competitive financial reports, including employment equity, South African retail sector on the other. social responsibility and environmental issues.

Detailed interim and annual results are issued in the form of written reports, proﬁt announcements in national newspapers and updates on the JSE Limited news service (SENS). Investors also have access to updated ﬁnancial information on the investor relations page on the Truworths website – www.truworths.co.za.

External investor relations consultants have been retained to assist the Group with investor relations programmes that encourage ongoing dialogue between senior management and the investment community and media through regular meetings, site visits, ﬁnancial results presentations, trading updates and one-on-one discussions. Senior executives also participate in investment conferences in South Africa, the United Kingdom and the United States of America.

During the period under review, comprehensive ﬁnancial results were announced in August 2005 and February 2006, accompanied by investor relations presentations to the asset management

110 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 responsibility for the products andservices We care for ourcustomers bytaking we offer.

CORPORATE SOCIAL RESPONSIBILITY corporate social responsibility report GRI CONTENT INDEX

Truworths uses the Global Reporting Initiative alongside a page number and content descriptor (GRI) as a framework for its corporate social to direct readers to the section within this annual responsibility reporting. In accordance with the report where the Group has discussed these reporting requirements of the 2002 GRI Guidelines, indicators. Where a core indicator has not been the table below contains the core key economic, assessed by the Group or is not applicable to the social and environmental performance indicators Group, this is also stipulated.

ECONOMIC PERFORMANCE INDICATORS

GRI Core Performance Pages in Indicator Indicators this Report Description of Content

CUSTOMERS

EC1 Net sales 2;145 Group ﬁnancial highlights; Income statements EC2 Geographic breakdown of markets 117 Countries of operation

SUPPLIERS

EC3 Cost of all goods, materials and 118;145 Value added statements; Income statements services purchased EC4 Percentage of contracts paid in – Not assessed accordance with agreed terms

EMPLOYEES

EC5 Employment remuneration and beneﬁts 118;125; Value added statements; Remuneration; 126;145 Employee beneﬁts; Income statements

PROVIDERS OF CAPITAL

EC6 Distributions to providers of capital 118;146 Value added statements; Statement of changes in equity

EC7 Increase/decrease in retained earnings 118 Value added statements

PUBLIC SECTOR

EC8 Taxes paid 118;145 Value added statements; Income statements EC9 Subsidies received 123 Skills development and training EC10 Donations to communities, civil 131 Funding societies and other groups broken down in terms of cash and in-kind donations

112 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 ENVIROMENTAL PERFORMANCE INDICATORS (continued) GRI Core Performance Pages in Indicator Indicators this Report Description of Content MATERIALS EN1 Total materials used other than water 134 Key materials used by type EN2 Percentage of materials used that are – Not assessed waste from sources external to reporting organisation ENERGY EN3 Direct energy use – Not assessed EN4 Indirect energy use – Not assessed EN17 Initiatives to use renewable energy 135 Energy sources and increase energy efficiency WATER EN5 Total water use – Not assessed EN22 Recycling and use of water 136 Water BIODIVERSITY EN6 Location and size of land owned, – Not assessed leased or managed in biodiversity- rich habitats EN7 Description of major effects on biodiversity – Not assessed EMISSIONS, EFFLUENTS AND WASTES EN8 Greenhouse gas emissions – Not applicable EN9 Use and emissions of ozone- depleting substance – Not applicable EN10 Nitrous oxide, sulphur dioxide and other significant emissions by type – Not applicable EN11 Total amounts of waste by type and 134;136 Key materials used; Recycling and destination waste management EN12 Significant discharges to water by – Not applicable type EN13 Significant spills of chemicals, oils and – Not applicable fuels EN32 Water systems and related ecosystems – Not applicable and habitats significantly affected by discharges of water and run off PRODUCTS AND SERVICES EN14 Significant environmental impacts of – Not assessed principal products and services EN15 Percentage of weight of products sold – Not assessed that is reclaimable versus the percentage that is reclaimable at end of products’ life and percentage actually reclaimed COMPLIANCE EN16 Incidents of and fines for non-compliance – None associated with environmental issues

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SOCIAL PERFORMANCE INDICATORS GRI Core Performance Pages in Indicator Indicators this Report Description of Content

EMPLOYMENT

LA1 Breakdown of workforce 121;122 Employment equity LA2 Net employment creation and average 119;125 Job creation; Retention of staff and succession turnover planning

LABOUR/ MANAGEMENT RELATIONS

LA3 Trade union representation 127 Labour relations LA4 Policy and procedures involving 127 Labour relations information, consultation and negotiation with employees over changes in the operations of the reporting organisation

HEALTH AND SAFETY

LA5 Practices on recording and notiﬁcation of 128 Occupational health and safety occupational accidents and diseases LA6 Formal joint health and safety committees – Not applicable comprising worker and management representatives LA7 Standard injury, lost days and absentee – Not assessed rates and number of work-related fatalities LA8 Policy and programmes on HIV/Aids 129 HIV and Aids for the workplace and beyond

TRAINING AND EDUCATION

LA9 Training per employee 79;123 People development; Skills development and training

DIVERSITY AND OPPORTUNITY

LA10 Equal opportunity policies or programmes 121;125 Employment equity; Human rights and the monitoring thereof LA11 Composition of senior management 8;84-110 Truworths International board; Corporate and corporate governance bodies governance report

114 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CORPORATE SOCIAL RESPONSIBILITY REPORT

SOCIAL PERFORMANCE INDICATORS (continued) GRI Core Performance Pages in Indicator Indicators this Report Description of Content HUMAN RIGHTS HR1 Policies, guidelines, corporate structure 125 Human rights and procedures to deal with all aspects of human rights HR2 Evidence of consideration of human rights 125 Human rights impacts as part of investment or procurement decisions HR3 Policies and procedures to evaluate and 123;125 Procurement; Human rights address human rights performance with supply chain and contractors HR4 Global policy and procedures/programmes 125 Human rights preventing all forms of discrimination in operations HR5 Freedom of association policy 127 Labour relations HR6 Prevention of child labour policy 125 Human rights HR7 Prevention of forced and compulsory 125 Human rights labour policy COMMUNITY SO1 Policies to manage impacts on 125;129 Social impact; Responsibility to customers communities BRIBERY AND CORRUPTION SO2 Policy/procedure/management 107 Whistle blowing systems/compliance mechanisms for addressing bribery and corruption POLITICAL CONTRIBUTIONS SO3 Policy/procedure/management 108 Political party donations systems/compliance mechanisms for managing political lobbying and contributions CUSTOMER HEALTH AND SAFETY PR1 Policy for preserving client health 129 Responsibility to customers and safety during use of products PRODUCTS AND SERVICES PR2 Policy/procedures related to product 129 Responsibility to customers information and labelling RESPECT FOR CONSUMER PRIVACY PR3 Policy/procedures relating to client – Not assessed privacy

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VISION FOR SUSTAINABILITY sustainable development matters. The committee is tasked to develop and implement appropriate Truworths is committed to corporate social strategies, policies and plans in relation to the responsibility, and incorporates economic, economic, social and environmental impacts of social and environmental considerations in its the Group. business practices to ensure sustainability and value for all its stakeholders. In the period under review, the committee began this process by appointing external consultants Truworths’ commitment to playing a constructive role in contributing to and investing in South tasked to assist the committee to draw up a Africa’s prosperity, growth and development is a proposal for consideration by the Truworths board sound business imperative that will enable it to recommending a social responsibility vision for sustain and grow its business in the long term. the Group. This proposal was finalised towards the As South Africa prospers, so will the fashion end of the period and encompasses a suggested retail industry, which will in turn strengthen the framework to enable the vision to come to fruition Group’s ability to further enhance the lives of its as well as initial steps to be taken, strategies to employees and everyone it engages with. be followed and initiatives to roll out to formalise The Group endorses the King Code’s and enhance the Group’s interventions that impact recommendations for integrated sustainability on the communities it works with, its employees, reporting, which requires the Group to its suppliers, society in general and the evaluate and manage its impacts environment. on the triple-bottom line – the A register of current and future economy, society and the initiatives was developed and is environment. The Group proposed to be put into action uses the Global Reporting in a formal, co-ordinated and Index (GRI) and the criteria integrated manner by giving for listing on the Socially Responsible Investment responsibility for specific (SRI) Index of the JSE Limited initiatives to a relevant as a useful framework to operational area within the Truworths is benchmark and measure its Group, as well as challenging Learner from Observatory them to find ways to set committed to activities in this regard. Primary School measurable targets and monitoring corporate social By voluntarily incorporating economic, mechanisms to track the activities and responsibility, social and environmental concerns in its progress for each initiative. and incorporates business practices and decision making, the Group economic, social is able to address the country’s transformation Certain sustainability initiatives are already and environmental challenges and ensure that it behaves responsibly being actively focussed on in the various areas considerations and respectfully towards its present and future of the business as well as through various board stakeholders. in its business committees, e.g. economic transformation, practices to ensure Social responsibility committee supporting local industries, procurement policies, HIV and Aids, business continuity, corporate social sustainability and The social responsibility committee was established investment and environmental issues at head value for all its in March 2005 as a committee of the Truworths office and the distribution centre. stakeholders. board. The committee monitors compliance with the King Code in relation to the Group’s integrated Once appropriate strategies, policies and plans in sustainability reporting obligations. relation to sustainable development are in place, The committee is mandated to ensure that the committee will focus on communicating these the Group adopts sustainable development as to stakeholders, including communication and an important philosophy which underpins its training for the management and employees of activities, so that it practices appropriate levels Truworths. To ensure that senior managers and of corporate citizenship and social responsibility employees adopt corporate social responsibility in its interactions with the communities and the as part of their business activities, these will environment in which it operates. In this regard, ultimately form part of the key areas on which the the committee also provides a forum for debate on performance of staff is measured.

116 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CORPORATE SOCIAL RESPONSIBILITY REPORT

Managing sustainability risks For this reason, the social responsibility committee is tasked to ensure that all social responsibility The risk committee is mandated to monitor, initiatives undertaken make good business and evaluate and mitigate risks to the business and ensure business continuity. Sustainability risks economic sense. are included in the enterprise risk management Countries of operation process. Sustainability risks reviewed and evaluated during the period under review include: The Group conducts its retail business operations in over 250 locations from large cities to small • Reducing or minimising the negative towns in all nine provinces across South Africa, environmental impact of Group activities; as well as in Namibia and Swaziland. For more • Identifying, assessing and reducing the information on the geographic footprint of the environmental impact of activities performed Group’s retail operations, see page 67. by contractors or entities in the production and The Group franchise business mostly takes place supply chain. To this end external consultants outside of South Africa, with 11 stores open in Africa were appointed; across Ghana, Kenya, Lesotho and Botswana. • Protecting and valuing Group assets including There are also six franchise stores in the Middle information technology and systems and East, including Dubai, Qatar, and Bahrain. intellectual property; Wealth creation Evaluating the strategic risks and opportunities • Wealth creation is one of the key indicators used relating to the medium and long term. This by the board in assessing performance. The Group risk is reviewed at each meeting of the risk benchmarks its performance against its previous committee and a workshop is planned with period’s results to improve its performance year- senior management; on-year, thereby setting itself the challenging • Investigating the impact of activities in the task of not only achieving excellent growth for Group’s sphere of inﬂuence, e.g. the impact of all aspects of the business but also creating labour relations; increased wealth for its stakeholders and in so doing contributing to the South African economy • Setting objectives relating to employee and the communities in which it operates. occupational health and safety, including HIV and Aids; and During the period under review, value added increased by 22% to R4.1 billion compared to • Assessing the social impact of projects that the Group is signiﬁcantly involved in, particularly R3.4 billion achieved in 2005. New wealth created with regards to store design and property for the Group’s stakeholders increased by 22% management. to R2 billion compared to R1.7 billion achieved in 2005. Risk management is regarded as a dynamic process of continuing interventions aimed at providing appropriate responses to business- specific, industry-wide and general risks so that, as far as is possible within resource limitations, the Group’s ongoing long-term economic sustainability can be assured.

ECONOMIC IMPACT

Sustaining profitability over the long term is an important objective, not only for the longevity of the business, but also for the benefit of all the Group’s stakeholders. Although the Group acknowledges that corporate social responsibility goes hand in hand with building a sustainable business, it also realises that its effectiveness as a responsible corporate citizen is directly influenced Movement class at Observatory Primary School by its financial performance.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 117 CORPORATE SOCIAL RESPONSIBILITY REPORT

VALUE ADDED STATEMENTS for the period ended June

2006 2005 % of % of Rm wealth % Rm wealth 52 weeks distributed increase 52 weeks distributed

Value added: 4 191 3 425 Less: Cost of merchandise, services and other costs (2 151) (1 759)

Wealth created 2 040 1 666

Distribution of wealth: Employees (salaries, wages and other beneﬁts) 442 22 15 384 23 Government (income tax including deferred tax) 420 21 28 328 20 Shareholders 360 17 36 264 16 Depreciation 74 4 14 65 4 Lessors 281 13 17 241 14 Net earnings retained 463 23 21 384 23

Wealth distributed 2 040 100 22 1 666 100

VALUE DISTRIBUTED TO SHAREHOLDERS 2006 2005

23% Employees 22% 23% 23% Government

Shareholders

Lessors 14% 13% 21% Depreciation 20%

4% Net earnings retained 17% 4% 16%

The new wealth created was distributed as follows: • Rental paid to landlords equated to 13%

• Shareholders received 17% (R360 million) in (R281 million); and the form of dividends paid; • Cash retained to fund the future growth of the • Employees directly beneﬁted as 22% business amounted to 23% (R463 million). (R442 million) was distributed to them by way of As the Group does not have any borrowings, there remuneration and employee beneﬁts; were no payments to lenders of capital. • Taxes paid to Government constituted 21% (R420 million) of the total;

118 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CORPORATE SOCIAL RESPONSIBILITY REPORT

Job creation In the period under review, over 1.3 million clients took advantage of credit offered by Truworths, The significant expansion of the business Identity and YDE combined. 74% of all purchases necessitated a concurrent rise in the number of by customers are on credit. people employed by the Group from 7 416 in the In addition, the Group offers financial products previous financial period to 8 120, an increase of to its customers, including lost card protection, 10%. During the period under review the number funeral and life cover, cell phone insurance of people who benefitted from employment and account balance protection against death, included: disability, disease and retrenchment. 775 new permanent engagements, bringing the • In the year ahead, the provisions of the National number of permanent full-time employees to Credit Act will start to come into effect and 3 053 (2005: 2 806), and implementing these provisions and the attendant • 5 067 flexi-time employees (2005: 4 610). regulations will be a major focus. The Act is not Between 3 400 and 3 700 of these flexi-time expected to have a major impact on the Group’s relationships with its customers in respect of the staff are utilised on a weekly basis at any given extension of credit. time (2005: 3 000 to 3 200) and supplement the core staff complement during peak or longer Suppliers trading hours. In the 2006 financial period, of the total wealth R442 million was paid to employees during the created by the activities of the business, 51% or R2.2 billion was spent on goods and period by way of salaries, wages, bonuses and services compared to R1.8 billion in the previous other employee benefits. Further information on period. Of this amount 82% or R1.8 billion was the remuneration of employees can be found in the paid to merchandise suppliers, compared to Social Impact section of this report on page 125. R1.5 billion in 2005. Over 500 trade suppliers In the period under review the ongoing expansion and 1900 other suppliers benefitted from these payments. of the Group’s trading space, and the continued growth in sales, meant that the Group’s suppliers The Group employs external consultants to were able to broaden employment opportunities complement its internal resources, particularly within their businesses in order to meet its in the areas of store design, distribution process increased appetite for products and services. reviews, head office process redesign, credit The Group indirectly creates employment for service systems, auditing and systems and support. thousands of people countrywide particularly in the Western Cape, through its support of local By enlisting the support of consultants and by suppliers, consultants and cut, make and trim procuring from its database of suppliers, the Group (CMT) factories. indirectly benefits thousands of other people who are employed by or in turn supply the numerous The Group will continue to contribute to job businesses from which it procures. In addition, creation in South Africa in the period ahead as it suppliers and consultants benefit from their continues with its strategies to expand. association with the Group in their new business development initiatives as the Group offers a good Customers reference for other potential customers.

As customers are crucial to the Group’s success, Shareholders the business depends on how well customer relationships are managed. The Group seeks Share repurchases are a favoured method of returning cash to shareholders. The Group to constantly improve its relationships with its remained active in its share buy back strategy customers by understanding their needs, by during the period, increasing its shareholding providing them with credit in a responsible manner, by 16 million shares to total 56 million shares by ensuring outstanding service, by providing repurchased since the inception of the programme reasonably priced and quality merchandise and by in the 2002 financial period. Almost R400 million complying with relevant consumer protection and was spent on share repurchases in the 2006 legislative measures. financial period.

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In addition, the Group returns cash to shareholders codes of good practice (DTI code) and scorecard. As via dividend payouts. The amount of dividends defined in the DTI code, Truworths uses the term paid in the 2006 financial period amounted to “black people” in this report to refer to Africans, R360 million, being payment of the final dividend Coloureds and Indians who are also South African for the 2005 financial period and the interim citizens. dividend for 2006. This equates to a total increase in dividends paid for the year of 36% compared to Strategy 2005. Dividends per share have shown a compound To ensure that the Group embraces the principles growth rate of 35% over the past eight years. of transformation on an enterprise-wide basis, Public sector a transformation committee was established in 2004 to develop and propose the implementation Total taxes paid for the period amounted to of a transformation strategy. The transformation R897 million including: committee was established as a committee of the • R561 million in direct taxes; Truworths board. A written charter defining the scope of authority, objectives, responsibilities, • R214 million in value added tax; powers, composition and functioning of the • R78 million in employees taxes; committee was formalised in June 2005. This • R35 million in municipal assessments, rates committee will recommend policy guiding the and services; and Group’s long-term transformation and BBBEE strategy. • R9 million in regional services council levies. The Group defines transformation as a process Furthermore, the Group contributes to the of change that aims at materially increasing the community through its corporate social investment number of black people who are employed, occupy activities, which are made via three charitable managerial positions, own meaningful equity trusts. During the period, Truworths contributed R7 million to these trusts. interests, supply significant amounts of goods and services and benefit materially from the social More information on the Group’s corporate social investment or enterprise development activities of investment policies can be found on page 130. the Group. Economic transformation The committee is tasked to establish a policy, Truworths supports Government’s broad-based programme and targets for the Group’s black economic empowerment policy, as contained transformation process, and will ultimately in the Broad-Based Black Economic Empowerment develop a strategy to promote all components of Act and the Department of Trade and Industry’s the DTI code and scorecard.

The Shine Centre, Observatory Primary School

120 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CORPORATE SOCIAL RESPONSIBILITY REPORT

On the recommendation of external consultants, Ownership the committee adopted a “Five A” approach to The board and management of Truworths have managing its BBBEE strategy, with each step taken a measured and conservative approach following on logically from the previous one: to bringing greater equity to the ownership and control of the Group, which is typical of the 1. Awareness – increase awareness of BBBEE thorough thought processes behind all major and employment equity within the Group and decisions taken by the Group. During the period, its supply base; several alternatives were proposed to the board, 2. Assessment – ascertain the current status of and these are currently under consideration. the Group’s BBBEE credentials, including that Any transaction on the share-ownership level of its suppliers; will be based on considerations of synergy with the Group’s existing business and will be 3. Alignment – align the Group’s BBBEE required to make sound business sense. Any credentials to the DTI code and scorecard; such transaction must be able to continue to offer long-term, enduring benefits to the Group and 4. Accreditation – obtain formal verification of its other stakeholders. The Group may favour the Group’s BBBEE status from a recognised a transaction that creates opportunities for its accreditation body; and employees. Currently, through its option schemes 5. Advocacy – communicate the Group’s BBBEE to incentivise management and employees, the majority of employees have shares in, or incentives status to its stakeholders. influenced by the share price of TI. Progress Management control

In the period under review, the transformation At the top management level, there is currently committee engaged external consultants to assist one black female non-executive director on the TI the Group in developing a strategy that is aligned board, and one female executive director on the with the DTI code, and which will make sound Truworths board. Currently 55% of all managers business and economic sense. The strategy will are black, and 70% are female. Historically low cover all aspects of empowerment as laid out in labour turnover of employees at senior and top the DTI code. management levels will mean that empowerment at these levels will take time. During the period the Group assessed its current The transformation committee in conjunction BBBEE status. Although some assumptions were with the HR department is implementing a made concerning the supply chain, the current policy and programme to increase the number of assessment as performed by the independent black people and women in senior management transformation consultants suggests that when positions through skills development initiatives. the Group is rated by an accredited agency it will More information on these training initiatives can be found to be BBBEE compliant in respect of the be found on pages 79 and 123. DTI’s generic BBBEE scorecard. The Group will Employment equity only obtain a formal rating once accreditation agencies are formally licensed by the DTI and the South African National Accreditation System WORKFORCE EMPLOYMENT EQUITY PROFILE (SANAS). 5000 The committee’s initial focus will be on areas that 4500 Asian 4000 are beneﬁcial to the sustainability of the Group’s OYEES3500 White business such as procurement, employment 3000 equity, skills development and the upliftment of 2500 Coloured employees. In addition, the Group’s corporate 2000 African social investment strategy will be reviewed to 1500 N O O1000 F E M P L ensure that it enhances the Group’s BBBEE 500 strategies. 0 2001 2002 2003 2004 2005 2006

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EMPLOYMENT EQUITY PROFILE

Black Black All Total Male Female Female Employed

Permanent Employees

Unskilled and deﬁned decision making 12 50 55 71 Semi-skilled and discretionary decision making 400 1 423 1 676 2 113 Skills technical and academic junior management and supervisory 79 215 358 466 Professionally qualiﬁed specialists and mid-management 22 49 186 267 Senior management 6 1 29 76 Top management – – 1 9

Total permanent 519 1 738 2 305 3 002

Non-permanent employees (ﬂexi-time)

Unskilled and deﬁned decision making – – 2 3 Semi-skilled and discretionary decision making 1 292 3 395 3 681 5 057

Total non-permanent 1 292 3 395 3 683 5 060

Total employees 1 811 5 133 5 988 8 062

Note: This table represents South African employees only

The Group is committed to employment equity Equal opportunities for women are also on the and offers equal opportunities to all employees. transformation committee’s agenda. Women are It seeks to provide a work environment in which well represented within the Group up to senior individuals of ability and commitment are able management levels and to this end Truworths was to develop their careers regardless of their nominated as one of South Africa’s top gender background, race, religion or gender. Although it empowered organisations in 2006 by Top Women does not speciﬁcally reserve jobs for black people, in Business and Government. The transformation preference is given to black candidates, bearing committee is recommending further increases in mind that it is still policy to employ the best in the number of women at senior management person available for the job. and executive levels. In addition, equal opportunities for the disabled are being addressed The transformation committee is mandated to by management. make recommendations with regard to the development of an employment equity strategy During the period, the committee set targets and monitor the effectiveness and attainment in respect of employment equity and made of the Group’s employment equity goals. The recommendations which were approved by the responsibility to transform the employee proﬁle at board. In compliance with the Employment Equity all levels, eliminate any forms of discrimination, Act, the Group submitted its employment equity accelerate the training and promotion of black plans to the Departments of Labour in both South people and create a culture that understands Africa and Namibia encompassing the employment and promotes equal opportunities lies with line strategy for its operations for the period 2006 to management. The current employment equity 2010 in South Africa and 2006 to 2008 in Namibia. strategy combines employment equity with The methodology behind the Group’s employment succession planning and talent management equity plans was changed to adopt a bottom- initiatives to identify high-performing individuals up strategy, using the demographics of the and grow them into senior roles. regions in which operating units are located and

122 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CORPORATE SOCIAL RESPONSIBILITY REPORT consolidating these into national goals for the Further details of our skills development and various employment equity levels and categories training strategy can be found on page 79. for the Group. Where applicable, managers have Direct expenses of approximately R11 million were employment equity targets in place, which form incurred on skills development and training during part of their performance evaluation. the period under review, and expenditure for the At period end, approximately 86% of all employees period ahead is targeted to remain at the same were black people, while 74% were female. level. This includes the cost of the courses as well Diversity and employment equity training has as substantial indirect costs incurred for staff been conducted on a national basis in the past salaries and other resources due to the majority financial period. To ensure that the importance of of programmes being internally developed and the employment equity strategy is understood and delivered by the human resources division and entrenched throughout the Group’s operations, the managerial staff. Group has adopted a wider consultative process. Procurement This process allows for quarterly regional forums where elected employment equity representatives, Management, assisted by the transformation management and employees can increase their committee, is in the process of establishing a code level of understanding, evaluate any obstacles to of practice for the Group’s procurement partners employment equity and look for opportunities in to ensure that its suppliers focus on their BBBEE this regard. status, including their own BBBEE procurement Skills development and training policies. This procurement policy will also contain conditions for the Group’s supply chain relating to In the period under review, the HR department environmental impacts, gender equality, human continued with the strategy put in place in the prior rights, child labour and the support of small local period, to focus on employee empowerment and businesses. skills development in line with the Government’s national skills development initiatives. In During the period under review the Group accordance with the overall Group strategy and the interacted with key suppliers on either a one- recommendation of the transformation committee, on-one or workshop basis. The workshops aim the focus for the period ahead is on skills to encourage suppliers to embrace the spirit development and the upliftment of employees. and see the benefits inherent in the DTI codes This will ensure that the Group retains and grows and affirmative procurement, and to increase existing talent within the business, develops and awareness of the importance of BBBEE for improves the management team, uplifts black the Group’s long-term business strategy. The staff and offers opportunities for advancement workshops also gave a better understanding of internally. challenges facing the supply base, which will Truworths is fully compliant with all skills assist the transformation committee in drawing development legislation and has paid all levies up a procurement policy. required and claimed the maximum recoupment of In the current period the Group aims to engage 70%. Implementation of the training plans in this on transformation issues with 20% of its major period reflects that 80% of the 2 326 formal training interventions were aimed at black employees, suppliers who are estimated to supply about 80% which is in line with the Group’s overall strategy of of all services and products procured. internal skills upliftment and development. The Group has evaluated the BBBEE procurement Truworths offers a wide range of in-house credentials of some of its biggest suppliers and education programmes, which are mainly aimed at is satisfied with their progress in this regard. leadership development as well as the up skilling Management will continue to track and engage of employees in the merchandising area and store with suppliers with regards to improving their operations. BBBEE credentials.

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Development of local enterprises be significantly more expensive to produce locally. This notwithstanding, the requirements for locally Global competition has created significant produced garments have grown significantly for challenges for the local South African clothing and the past six years, which would have resulted in textile industry which supplies Truworths with the capacity utilisation and job creation within the majority of its product. During 2005 the Congress local clothing and textile industry. of South African Trade Unions (COSATU) asked all In addition, YDE’s merchandising requires that retailers to sign an agreement to purchase 75% of almost all clothing be manufactured in South their stock locally. Negotiations via Nedlac on this Africa, although it does allow for some accessories agreement pursuant to Section 77 of the Labour and shoes to be imported. The acquisition of YDE Relations Act deadlocked, with all the major also places the Group in the unique position of clothing retailers refusing to sign the agreement. growing and advancing young emerging designers Truworths is concerned about the decline in through the transfer of knowledge, experience, skills and other resources. The entrepreneurial the industry as it prefers to procure from the skills of these young designers are encouraged by local clothing and textile industry as it is better the Group, and they run their own business within equipped to respond to the flexibility, demanding the framework of YDE. turnaround times and smaller merchandise runs required to produce the wide variety of styles Transformation through corporate social investment offered by Truworths in each of its ranges. Truworths contributes to economic empowerment The major fashion retailers have collaborated to through its corporate social investment (CSI) establish a trust fund aimed at providing assistance programme and acknowledges that in order to for research into the local industry and have sustain its own success it needs to actively launched an initiative to aid clothing contribute to the upliftment of all and textile manufacturers via South Africans. The Group takes the Cape and KwaZulu- an active role in nurturing Natal Clothing and Tex- and transferring skills tile Clusters (CCTC to the community from and KZNCTC) to which its current advance their opera- and future clients, tional competitive- staff, suppliers and ness to world-class other stakeholders standards. This pri- emerge. ority improvement The CSI aspects of programme will af- the business have fect 21 manufacturers in been a focus for the the Western Cape and 20 in period under review to Learners attending art KwaZulu-Natal. ensure that the investments classes made are strategically aligned Truworths is actively involved in giving with the Group’s transformation strategic, operational and financial support to agenda to achieve maximum benefits for the CCTC, and works directly with the priority the community and Truworths. The strategy for improvement facilitators. investment was also aligned with the requirements set by the DTI codes. The Group purchases about 65% of all clothing from local suppliers. Truworths only imports More information on the Group’s CSI strategies items that are unavailable in South Africa or would and projects can be found on page 130.

124 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CORPORATE SOCIAL RESPONSIBILITY REPORT

SOCIAL IMPACT to inspire them to contribute significantly to the Group’s success. Its recruitment processes ensure The Group is committed to the upliftment of that the Group attracts the right talent. Once at its employees, South African society and the Truworths, the Group is committed to recognising communities in which it operates, and is aware of and rewarding individuals for the contributory role the needs and expectations of the wider community they play, and offers competitive remuneration in terms of the way it conducts its operations, packages and incentives based on individual particularly its treatment of its employees and performance track records. customers. A further strategy to retain skills and ensure Responsibility to employees adequate succession planning is to keep employees Human rights motivated and incentivised by opportunities to The Group unequivocally subscribes to the human develop their skills to their full capabilities. The rights dictates of the South African Constitution Group has linked its succession planning and and Bill of Rights. Recognition of human rights is employment strategies in order to focus on skills entrenched throughout the Group in its policies development and the upliftment of employees to concerning employment and remuneration, ensure that the Group retains and grows existing training and development, freedom of association talent within the business, develops and improves and collective bargaining, grievance and the management team, uplifts black staff and disciplinary procedures, procurement and supplier offers opportunities for advancement internally. dealings. In dealing with employees, the Group This takes succession planning to a more strategic also has full regard to relevant employment- level and programmes are in place to offer related legislation such as the Labour Relations development opportunities to talented people at Act, the Employment Equity Act and Sectoral all levels, but particularly in the merchant function Determination 9: Wholesale and Retail Sector. and leadership positions. The Group identifies The Group prohibits the use of child, compulsory high-performance individuals who are coached or forced labour. This prohibition is enforced and fast-tracked into more senior roles. throughout the operations of the business, and For more details on the Group’s succession the Group uses its procurement muscle to prevent planning and retention strategy see page 80 of this the use of child, compulsory or forced labour in its report. supply chain. Although the turnover across all categories of People sourcing and recruitment employees within Truworths averages at about Like many industries in South Africa, the fashion 19% per annum, this figure is skewed by the retail industry faces certain skills shortages. In non-permanent nature of a large section of the addition, in some strategic job categories the workforce. In reality the Group has a proud history skills pool is not growing as rapidly as the Group of long service records within its executive and and the fashion retail industry has been in the senior management and makes good use of labour past three years. Competition for these scarce turnover trends, organisational climate surveys skills is fierce and Truworths utilises innovative and exit interviews with staff to monitor and react recruitment strategies to attract new people. to any risks to its staff retention. Consequently, building the Group’s reputation as Remuneration an employer of choice and as a highly-desirable place for talented individuals to work is a strategic The Group’s remuneration strategy is designed business imperative. to ensure that top performance is continually encouraged and rewarded. Employees are For more details regarding our people sourcing remunerated for performance with a combination and recruitment initiatives see page 81 of the of salaries and other incentives. report. With the exception of employees who are members Retention of staff and succession planning of trade unions, all salaries are reviewed annually In order to ensure a steady and planned succession based on well-defined, pre-determined and of staff within the Group, Truworths invests in measurable key performance indicators, which are people and their future potential and undertakes linked to business targets and formally monitored

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 125 CORPORATE SOCIAL RESPONSIBILITY REPORT

and assessed on a regular basis at board level. death benefits and administration expenses. The During the period under review a new performance balance of the contributions, after deducting the management system was implemented, which cost of the risk benefits and expenses, is allocated enables more accurate measurements of to the investment portfolio selected by each performance based on more discriminate rating member from a wide range of available portfolios. and assessment scales. The accumulation of the contributions allocated Furthermore, salaries are reviewed internally to members’ retirement savings together with against similar employment bands to ensure the investment return earned on the underlying equitable remuneration of staff and against investment portfolio/s represents each member’s external market norms in the retail and related fund credit, which is payable in full in the event sectors. To assist in establishing objective of retirement, death, retrenchment or resignation. remuneration benchmarks, HR subscribes to On retirement though, members may elect to various surveys that provide information on commute up to one-third of their fund credit for salaries, benefits and current remuneration a cash lump sum, with the balance used to secure practices for the retail and general South African an annuity of such amount as can be purchased markets. Where appropriate, comparative levels of from a registered insurer. An additional lump compensation at an international level are taken sum of four times a member’s pensionable salary into account. is payable in the event of death. In the event of disability, a monthly benefit of 75% of pensionable The remuneration committee assists the board salary is payable, to the earlier of age 60, recovery in ensuring that the Group has suitable reward or death. Membership of the fund continues during strategies and policies in place to compensate disablement. employees and directors, and particularly ensures that directors and key executives receive A contribution of R25 million (2005: R22 million) remuneration that is appropriate to the size and was made towards the retirement funds on behalf complexity of their responsibilities, performance of employees during the period under review. and contribution. Further information on the • Medical aid remuneration committee and remuneration can be found on pages 91 and 104 of this report. Membership of a healthcare programme is a compulsory condition of service for all South Employee benefits African permanent employees who may elect • Retirement funding to join either the Wooltru Healthcare Fund or the Ingwe Healthcare Plan, if not covered by the South African employees may choose between healthcare scheme of their partner. The above the Alexander Forbes Retirement Fund (AFRF) healthcare schemes offer a wide range of member (together with the Investment Solutions Pension options. Namibian employees may opt to join the Fund in respect of senior employees who have Namibia Medical Care Fund. so elected) and the South African Commercial Catering and Allied Workers Union (SACCAWU) Despite the unbundling of the Wooltru Limited Provident Fund. Namibian staff join the group in 2002, Truworths remains a participating Namflex Pension Fund on their commencement employer of the Wooltru Healthcare Fund. The as permanent employees. This is a defined Fund offers three benefit options, namely Core, contribution umbrella fund administered by Plus and Extended. The Plus and Extended Options Alexander Forbes Namibia. offer new-generation type benefits, with both insured and self-insured components. The insured Membership of the AFRF is compulsory for all component covers in-hospitalisation costs, certain full-time permanent employees under the normal out-of-hospital procedures, chronic benefits, HIV retirement age of 60 years who do not belong to and Aids benefits and preventative tests. another employer-sponsored retirement fund. This fund is a defined contribution umbrella retirement The self-insured component covers day-to-day fund to which members contribute 7.5% of their costs such as general practitioner visits and pensionable salaries towards retirement benefits. acute medication, and dental and optical services. In addition, the Group contributes a further 10.5% Members are responsible for managing their of pensionable salaries on behalf of members, own day-to-day expenses to ensure that they can which is applied towards the cost of the insured adequately provide for their healthcare needs

126 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CORPORATE SOCIAL RESPONSIBILITY REPORT within the annual amounts allocated. The Core Option is a network option whereby day-to-day cover is available via a network of doctors, dentists and optometrists. For 2006, Plus Option members can also access this network of doctors.

The Wooltru Healthcare Fund is ﬁnancially sound with reserves at over 90% of gross annualised contributions for the Fund’s ﬁnancial year ending 31 December 2005. The pleasing growth in the Fund’s reserves is primarily due to strong performance of the underlying investments, which are managed by Prescient Investment Managers.

Approximately 45% of gross annual contributions are allocated to the HIV reserves and used to ﬁnance the costs of anti-retroviral therapy for members of the Fund and their dependants. At the last assessment, the HIV reserves fully covered the estimated future cost of therapy for HIV claimants.

Contribution increases to the Fund during the Future Stars basketball presentation period were amongst the lowest in the industry. The Fund’s trustees are investigating exciting new Employee recognition initiatives to allow the Fund to continue to provide Employee recognition programmes aim to comprehensive hospital cover at the current low motivate employees and reward top-performers costs in the medium to long term. These initiatives for outstanding achievements. In addition, the will give members access to quality doctors and Group takes every opportunity to ensure that specialists at affordable prices. designated employees are exposed to broader- A contribution of R20 million (2005: R18 million) based business issues by involving them in was made towards medical aid funding for strategic projects as well as offering challenging employees during the period under review. and additional responsibilities. Citations are awarded by the chief executive officer During the period the Group evaluated the on an annual basis in appreciation of unique costs of providing medical aid to employees and contributions to the business from teams and benchmarked its expenditure against its major individuals. These awards are highly-regarded by competitors to establish whether it is in line with the Group’s staff members. industry norms. Results from this benchmarking survey show that the Group’s overall medical Labour relations aid contributions are favourable compared to its The Group acknowledges the rights of its competitors. employees to join a trade union and to be In addition, the Group conducted an impact represented by it, and has relationship agreements assessment to ascertain what the effect of in place with the South African Commercial providing medical benefits to employees (including Catering and Allied Workers Union (SACCAWU) flexi-time staff), under the Government’s proposed and the Namibian Wholesale and Retail Workers’ public medical aid scheme and social health Union (NWRAWU). These agreements recognise system will be in terms of costs. The assessment these trade unions as the collective bargaining found that provision of medical benefits under the representatives of their members, with the power proposed scheme would add to the overall costs of to negotiate or consult and endeavour to reach providing medical benefits to employees, but was agreement in good faith with management on still affordable and possible. their members’ behalf.

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22% of full-time permanent South African Occupational health and safety employees are members of SACCAWU. The The Group complies with the Occupational Health Group negotiates and consults with SACCAWU and Safety Act as well as other relevant regulations. and NWRAWU mostly in respect of conditions of Its health and safety policy aims to improve levels employment, changes in operations and dispute of awareness and adherence to health and safety resolutions concerning their members. In Namibia standards in the business, with the ultimate 66% of employees are union members. Agreement goal of prevention of incidents and accidents to has been reached with both unions with regard to employees, customers and third parties. wage and substantive conditions for the period The Group has a formal health and safety policy 2006 to 2007. which is available to all employees on the intranet. A formal employee relations handbook containing All managers are conversant with the policy. During basic conditions of employment, disciplinary codes the period the policy was updated and awareness and grievance procedures is made available on the of its provisions was reinforced in the divisional intranet, which is accessible to all in-store staff and offices, stores, head office and distribution centre. employees with desktop computers. Employees The well-being of staff is central to the policy and may request hard copies of this document. the top risks to employees in stores and other work areas have been pinpointed as slippages, The handbook details the disciplinary code and fire, crime, particularly physical assault, glass processes, and clearly indicates the various types breakage from windows, building structure issues of disciplinary measures that may be applied. and falling objects. This is supported by a training programme for line managers, as well as recognition agreements Measures and procedures are in place to protect with SACCAWU and NWRAWU. All employees, employees and avoid these risks including monthly regardless of whether they are full-time, flexi store manager inspection reports and quarterly or temporary staff, are subject to the same audits on every store by area managers. The disciplinary code, and disciplinary procedures are internal audit department also reports on the state applied consistently and fairly to all employees of the health and safety policy each time it audits a regardless of their status. store, and irregular items or issues of concern are reported to regional or divisional management. Despite a turbulent labour relations climate with In addition, weekly sessions for small groups many calls for stay-aways, only a few person-days of people are held with the security manager to were lost to industrial action during the period increase staff awareness of their surroundings, under review. This is evidence of the commitment and of the protection of their own and the Group’s of the Group’s employees who came to work property. These meetings are followed up where despite many difficulties. The long strike by necessary by the divisional, regional or area security workers resulted in some stores having manager. to shut down for short periods for the safety of customers, staff and in-store stock and assets. The policy is closely monitored by the Group

Industrial relations training programmes for risk manager and health and safety issues are line management covering labour relations and a standing agenda at risk committee meetings. disciplinary processes were redesigned during High awareness and tight controls have resulted the period under review to include training on in no serious work-related accidents or incidents performance management. In the new ﬁnancial during the reporting period. period, this programme will be extended to more Special safety measures undertaken during the employees at management levels. period include infrared thermo-graphic inspection The human resources department has employed reports to ensure the safety of the electrical a labour law specialist to bolster the Group’s distribution boards at the head ofﬁce, distribution expertise and enhance its understanding of and centre and top 30 stores. In addition, an independent relationships with the unions. assessment has been commissioned to review

128 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CORPORATE SOCIAL RESPONSIBILITY REPORT occupational health and safety risks at some of than these predictions. No new studies of this the Group’s strategic business sites including the nature took place during the period and none are head office, TDC and computer rooms. The Group planned for the new financial period. currently awaits the results of this assessment. Temporary and permanent disability benefits and Health and safety representatives in each store as anti-retroviral treatment are provided to those employees infected with Aids. Furthermore, anti- well as the head office and TDC received ongoing retroviral treatment is provided via the special training and retraining in safety, first aid and fire HIV and Aids reserve created in the Wooltru fighting. Healthcare Fund to members of the Fund and HIV and Aids their dependents who are infected with Aids. The trustees of the Fund are confident that it will be The HIV and Aids committee assists management able to carry the associated costs of HIV and Aids, in deciding where it should focus its efforts in estimated at between R2 million and R3 million a counteracting HIV and Aids over the next three year between 2006 and 2018. to five years. At present the primary focus is on The Group has been tracking customer deaths prevention through education of its employees. over many years and has not seen a significant In addition, line managers are trained to deal increase in the average death rate to an extent that compassionately and professionally with Aids in will meaningfully impact on credit write-offs and the workplace. the profitability of the business.

During the period under review, the committee Responsibility to customers developed a charter and a policy to guide its activities in implementing an HIV and Aids strategy The Group aims to behave in a responsible way for the entire business. An external consultant was towards its customers by taking responsibility appointed to assist the Group in formalising a HIV for the products and services it offers and by and Aids programme. complying with all relevant consumer protection

The committee has put plans in place to do a and legislative measures. KAP (Knowledge, Attitude and Prevalence) survey The following measures are in place to protect amongst permanent and casual employees in customers: about 20 stores to obtain an understanding of employee attitudes and perceptions regarding • Responsible credit extension HIV and Aids. The results of the survey will The Group undertakes to provide customers with assist the committee to develop a strategy and credit in a responsible manner. Strict criteria are programme that is relevant to employee needs in place for granting credit and the Group accepts and will give clear direction on some aspects of less than 50% of all new applications. HIV and Aids such as the logistics of a voluntary testing and counselling (VTC) programme, Truworths subscribes to the National Credit Act’s education programmes, wellness programmes principles which will protect its customers against and corporate social investment initiatives. the reckless granting of credit, over-indebtedness, An impact study conducted in 2004, which applied exploitation and discrimination when applying for the Actuarial Society of South Africa (ASSA) 2000 any form of credit. projection model to the Truworths business, In the period ahead, the provisions of the Act will showed an estimated prevalence rate of HIV and start to come into effect and implementing the Aids amongst permanent full-time employees attendant regulations will be a major focus for to be about 4.9%. Prevalence rate projections to the Group. The Act is not expected to have a major 2009 and 2018 were 5% and 2.7% respectively, with prevalence rates expected in 2007 at 5.1%. impact on its relationships with its customers, Application of the ASSA 2000 projection model also as Truworths already protects its clients as well revealed prevalence rates amongst customers that as the Group’s debtors’ book by applying sound closely mirrored the Group’s employee proﬁle. methodologies and leading-edge technologies and However, studies show prevalence to be lower systems when assessing credit limits. The Group

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will ensure that it markets its credit facilities Responsibility to society responsibly in accordance with the Act. Further Corporate social investment information on this Act can be found on page 72 of this report. Policy

• Customer care line The Group contributes to economic empowerment through its corporate social investment (CSI) The Group seeks to improve its relationships with programme that has partnering and enablement customers by understanding their needs. Market as its core philosophies. Wherever possible, the research systems track consumer perceptions on Group ensures public beneﬁt organisation (PBO) a daily basis to highlight potential opportunities status and enters into partnerships with non- and problem areas with customers as they arise. governmental organisations (NGOs), community The Group also provides a customer care line to groups and schools, while also encouraging the assist clients with queries and problems. involvement of employees.

• Product responsibility Stakeholder engagement through consultations

The Group ensures that merchandise meets the with community groups and representatives ensures that the Group is aware of the real needs highest fashion and quality standards. Every of the community and establishes relationships of year the merchandising division implements new trust and mutual respect with community leaders. initiatives to improve quality standards. However, This assists the Group in measuring the success if a product is not to a customer’s satisfaction, the of its initiatives in terms of direct benefits to Group offers a 30-day return policy for unworn community recipients. items, and will offer a full refund on defective merchandise. CSI initiatives are also communicated internally to employees through the internal newsletter, The success of the Group’s major drive to improve Communiqué, social functions, Aids awareness quality standards, particularly the quality of days and other collection days. Truworths also products sourced from suppliers, is evidenced by encourages its suppliers to partner with them to the sharp decline to below 1% in the number of support its CSI initiatives. items returned to suppliers. This is better than the To maximise the impact of its charitable targets the Group set for itself and highlights the expenditure, the Group identifies a few unique concerted effort of the supply base to improve the areas of involvement where it can have a significant quality of the products it supplies. presence and can maintain a strong Truworths identity at all times. The focus areas for the CSI The quality assurance team continues to work with strategy are education, health, social development, both local and international suppliers to ensure arts and culture and sport. the superior quality of Truworths merchandise. Corporate social investment strategies are • Responsible labelling monitored and assessed by the boards of The Group complies with the Merchandise trustees of the Group’s charitable trusts in their Marks Act of 1941, which amongst other things meetings every second month. For each project, clear structures, processes and objectives are requires textile, clothing and related products to established with a view to evaluating outcomes and be labelled with their country of origin. Country determining accountability. The Group measures of origin labelling allows customers to make the success of its CSI activities in terms of the direct educated decisions on the products they purchase. benefit to the community, the popularity of each In addition, all garments in store are labelled with project as well as evaluations conducted through washing and care instructions and also indicate the facilitators and coordinators. Projects that do the types of fabrics used. not meet required objectives are discontinued.

130 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CORPORATE SOCIAL RESPONSIBILITY REPORT

The Group also seeks to create sustainable chairman feel personally passionate about and opportunities for people to utilise their skills, and that are not covered by the other two trusts. to assist with capacity building and empowerment The investments held by the three trusts at the through sensitive facilitation based on trust and end of the period amounted to over R56 million. mutual respect. Income on these investments is distributed to The Group endeavours to support the employee qualifying institutions and organisations. volunteering initiatives of its staff countrywide. Currently it actively supports staff initiatives In the period under review the Group contributed through the sponsorship of the Enviro Clubs and R7 million in the form of donations and advanced SOS Children’s Villages as well as the mentoring R53 million in interest-free loans to these trusts. programme supported by the human resources In addition, significant donations in the form of development division at Tsiba College. clothing and other apparel were given to various charities. The Group’s CSI expenditure includes Where time off from work is required to enable the opportunity cost of these loans as well as employees to fulfil their obligations, this is expenditure on employee salaries and resources granted at management’s discretion. Employee to maintain an internal dedicated CSI management volunteering initiatives should not impact on an employee’s performance and must not in any way team, which provides hands-on involvement, constitute a conflict of interest. advice and support to the various initiatives. In total, the Group’s CSI distributions, clothing and Some of the CSI initiatives are focussed on and apparel donations and expenditure amounted to directly benefit its employees and their families, R17 million for the period, which equates to over particularly black employees. 2% of profit after tax. During the period under review, the social The spread of the trusts’ distributions in its focus responsibility committee adopted policies and areas can be illustrated as follows: practices to govern the Group’s interaction with the communities and environment in which it operates. The committee also ensured that sustainability Education 50% and transformation considerations have a strong Social 17% influence on CSI goals. The strategy for investment was reviewed to bring it in line with the Group’s Sport 12% BBBEE strategies and to maximise its scores in this regard. Investments made must ultimately Art 12% achieve maximum benefits for the community and Truworths. Health 6%

Funding Environment 3%

The annual corporate social investment budget is 0 5 10 15 20 25 30 35 40 45 50 funded via three trusts: PERCENTAGE

• The Truworths Social Involvement Trust, which Key focus areas makes donations to institutions that do not Education qualify for tax-exempt status, including sports groups and life skills programmes; Education is the primary thrust of the trusts’ CSI distributions as Truworths views education as an • The Truworths Community Foundation, which essential ingredient in nation building. The Group’s is exempt from tax and makes donations to flagship CSI project is the Lifeskills programme. registered public benefit organisations; and • Lifeskills • The Truworths Chairman’s Foundation, which offers meaningful investment in limited special Facilitated by a non-governmental organisation, initiatives that the chief executive officer and the Ikamva Labantu, the Lifeskills programme is

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 131 CORPORATE SOCIAL RESPONSIBILITY REPORT

designed to empower school learners with initiatives, such as assisting in house building extra-curricula skills such as arts, computer in a disadvantaged area and a drug-awareness skills and needlework. It also exposes them day. Truworths sponsored the attendance on this to new life experiences and life skills through programme by 40 school learners. outsourced programmes on offer which include • Tsiba college Teen Parenting, Junior Achievers, Dance for All and Music for Life. During the period, the trusts sponsored an en- trepreneurship programme for ﬁrst and second • EQUIP year students at Tsiba College. A number of Tsiba EQUIP is run by the National Business Initiative College students have been employed in part-time (NBI) in partnership with provincial education jobs at Truworths, enabling them to support their departments, business and schools. The NBI studies while gaining practical work experience. focuses on contributions by businesses for skills • Inclusive education and enterprise development, including basic education, with the aim of improving the quality of The trusts sponsored the Inclusive Education teaching in public schools. Truworths has been a programme for learners with special educational member of the NBI since 1997. needs (LSEN) at a Hanover Park school in the Western Cape. This programme aims to improve During the period the trusts sponsored several the language and reading skills of LSENs with workshops for Head of Department training for the use of educational toys, games and learning school principals and educators at the Oscar therapy. Mphetha, Vukhukanye and Walter Teka schools in Nyanga. This training includes personal and team • Observatory Primary School development as well as personal management The Observatory Primary School in the Western skills for the work and home environment. Cape provides schooling for 600 learners from • Operation education disadvantaged communities. During the period the trusts sponsored special needs education The Operation Education project provides for LSENs through the Shine Centre, a music- Truworths employees with grants for their children and-movement programme, as well as an arts at pre-primary, primary and secondary schools. workshop.

• Tru-Wish Health

Tru-Wish offers assistance to disabled children The major focus of the trusts’ health and wellness whose parents work for Truworths. During the initiatives is on assisting members of the period 20 parents were granted a ‘Tru-Wish’ in community who are directly or indirectly affected the form of disability-related assistance for their by HIV and Aids. children. • Parent centre • Enviro clubs The Parent Centre provides school-going The trusts continue to support an employee youngsters with counselling and life skills to volunteering initiative in Gauteng, the Enviro assist them with managing their own and extended Clubs, which sponsor 100 employees’ children. families. During the period the trusts sponsored These clubs are coordinated by employees and run two teen parenting programmes for 40 young in conjunction with the Wildlife and Environment teenage mothers and fathers who are parent Association. learners at the Oscar Mpetha School in Nyanga.

• Umanyano • Etafeni day centre

The Umanyano initiative is a cross-cultural youth The Etafeni Day Centre in Nyanga was established leadership programme conducted over four months. primarily for children affected by HIV and Aids. The As part of the programme, children participate in Group supports the Centre’s skills development a four-day camp as well as in various community and job creation project. During the period the

132 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CORPORATE SOCIAL RESPONSIBILITY REPORT trusts continued to support the income-generating • Frank Joubert art school division of this project by sponsoring the The Truworths trusts sponsor the Ibhabhathane employment of a coordinator as well as providing Programme at the Frank Joubert Art School, materials and food. which provides materials and transport costs to • Nazareth house enable three community schools to attend regular one-day sessions at the centre. The trusts provide ongoing support and monitor the progress of ﬁve orphaned children affected by • Blind and deaf artists HIV and Aids at Nazareth House in Cape Town. The trusts support a project for blind and deaf artists. During the period under review, this project • SOS children’s villages was nominated for a BASA (Business Arts South The trusts support two homes in the SOS Children’s Africa) award in recognition of its support for blind Villages. The trusts are considering extending and deaf workshops that support 83 learners from their support to a third home in the new ﬁnancial four schools including Athlone School for the Blind period. and Worcester School for the Deaf.

• Nonceba family counselling centre Sport

The Nonceba Family Counselling Centre in Sport helps to heal rifts in communities and Khayelitsha in the Western Cape was founded by builds teamwork through shared goals and the Ashley Kaimowitz Fund. During the period achievement. Participants in sport have a greater various training programmes for staff at the sense of personal purpose and confidence. The Centre were supported, including supervisory trusts’ sports initiatives sponsor the youth and the and leadership skills, office administration, play disabled. therapy and trauma management. • Future stars basketball • Desmond Tutu peace centre/rainbow centre The trusts continued to support nine Future Stars The trusts have pledged their support in the new basketball teams for under-12’s to under-18’s financial period for this initiative, which will focus as well as ladies’ and men’s teams. During the on providing life skills and counselling for HIV and period, all teams participated in the Western Cape Aids prevention as well as youth development in Basketball Association provincial league. Two the Guguletu and Nyanga communities. Future Stars players were chosen for provincial Arts and culture basketball teams and one was selected for the national South African basketball team. The trusts sponsor arts and culture as these activities play a key role in building a national • Glads dancesport sense of heritage, as well as developing creativity Through the Glads Dancesport ballroom dancing and keeping it alive. and the Glads Dancesport wheelchair dancing • Community arts workshop and art panels initiatives the Group continues to support able- bodied and disabled dancers by sponsoring local In the period under review, the trusts continued and national competition fees, costumes and to support emerging artists in collaboration with transport costs. Community Arts Workshop. The trusts sponsored a three-month residency programme for ten ENVIRONMENTAL IMPACT artists. South African citizens have the right to an This project is managed in conjunction with the environment that is not harmful to their health Art Panels, which are displayed in the foyer of or well-being, as well as the right to have the the Truworths head office. The Art Panels give environment protected for the benefit of present emerging artists an opportunity to show their and future generations. Curtailment of harmful works of art at no cost. Proceeds of any items sold environmental practices is vital to the well-being are purely for the benefit of the artist involved. of the communities which Truworths serves and

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 133 CORPORATE SOCIAL RESPONSIBILITY REPORT

in which it operates and is therefore an essential procurement partners to ensure that the Group’s part of the long-term sustainability of the Group. suppliers focus on the environmental impacts of their operations. Although the impact on the environment by fashion retailers is considered to be low, Truworths The Group has always been aware of its impact on recognises that its operations can still take steps various environmental management areas, such to effectively lessen its effect on the environment as the consumption of energy, water and paper, by limiting the consumption of natural resources, as well as recycling, waste management and recycling materials used, encouraging suppliers compliance with relevant legislation, and already to adopt environmentally-friendly practices, has various plans in place to control and monitor informing employees and avoiding practices that its impacts in most areas. The Group will seek may harm the environment. out and implement best practices, systems and technologies to ensure that it can effectively play a Management role in protecting South Africa’s natural heritage. Truworths is committed to identifying, assessing When evaluating new retail space, the Group sets and reducing the environmental impact of the safety, health and environmental standards. The activities performed by its operations and supply Group’s speciﬁcations ensure that new stores chain. The social responsibility committee has achieve best practice with regards to energy engaged external consultants to assist the saving through lighting and refrigerants used in air committee in drawing up a proposal for a social conditioning equipment. Thereafter, maintenance responsibility vision for the Group, which will programmes ensure that all equipment in stores include a vision for the environment. operates at an optimal level to ensure that there is no unnecessary energy usage. In the new ﬁnancial period, the committee will explore ways to be more environmentally aware in Key materials used the way it conducts its operations, and procures Other than water and energy, the main materials merchandise. This committee is in the process used by the Group in its daily business are as of establishing a code of conduct for the Group’s follows:

KEY MATERIAL USED AMOUNT USED PER ANNUM MEASURES TO MINIMISE IMPACTS

Corrugated board 350 tons Prefer board made from recycled material to use as packaging. Re-use or recycle used boxes.

Shrink wrap 96 tons Re-used or recycled. Waste is collected for disposal daily. Looking for innovative ways to reduce reliance on shrink wrap.

Plastic bags 319 tons Currently evaluating environmentally- friendly alternatives.

Sealing tape 1 620 000 metres Looking for innovative ways to reduce usage of sealing tape.

Steel staples 4 200 kg Not measured.

Timber pallets 2 000 Re-used or sold back to suppliers or waste merchants.

Plastic hangers 8 million Re-used or sold back to garment manufacturers or plastic recyclers.

Diesel (for generator Low-sulphur content diesel is used. Generator used for and pump house) 5 000 litres emergencies only.

134 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CORPORATE SOCIAL RESPONSIBILITY REPORT

Energy

The Group undertakes the following initiatives at its head ofﬁce, TDC and in stores to ensure efﬁcient use of electricity:

• Group policy dictates that as far as possible air conditioning and lighting must be switched off outside of business hours, other than emergency lighting and select display lighting in stores. The head ofﬁce is ﬁtted with power factor correctors and all air conditioning and lighting, other than emergency lighting, is on automatic timers.

• Over the past five years and in line with Eskom's guidelines, general light fittings in stores have been equipped with electronic control gear that extends lamp life from 10 000 hours to 18 000 hours with an energy saving of between 25% and 30%. Accent lighting in stores is all low wattage and TDC is phasing in lower energy consumption HP sodium type lights. Young artists at work • An external contractor regularly inspects and services the air conditioners at head office, Truworths stores and TDC to ensure they • The Group uses back-up generators for operate at optimal capacity with lower power emergency situations. The generators are requirements to reduce electricity consumption. tested monthly, diesel levels and batteries The air conditioning systems at head office are regularly serviced and the engine receives use variable refrigerants and are not water a major and a minor service every year. Low- cooled, which saves on water wastage. A strict sulphur content diesel is used. maintenance schedule is in place to ensure that there are no leaks in the refrigerant. In the period under review, the Group employed external consultants to undertake an electrical • At head office, electrical power usage is survey and investigation of its current electrical monitored by controller devices on each floor utility costs in 43 Truworths stores nationally to allow any excessive usage to be traced and and to scrutinise each store’s current electricity checked, while also ensuring that users are account for any irregularities. correctly billed. Amongst other recommendations, the Group was • Electronic load control relays are installed advised to install power factor corrector (PFC) in major stores to prevent consumption equipment to derive the greatest amount of usable reaching peak demand tariffs and to manage power from the least amount of input current. The the electrical surge caused by overloading, PFCs will generate savings of up to R20 000 per resulting in electrical usage efficiencies. month and will cover the costs of the initial capital

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 135 CORPORATE SOCIAL RESPONSIBILITY REPORT

outlay to install them within a period of six months. • Head ofﬁce and TDC’s paper waste is recycled Thereafter the Group will continue to beneﬁt from through professional recycling companies. The electricity and cost savings. proceeds of recycling initiatives are allocated

Water to the CSI budget for donations to various community-related projects. Water usage at head ofﬁce and TDC is monitored and reported on each quarter with a view Plastic

to continually evaluate ways to minimise • The Group supports the work done by the consumption. Retailers Plastic Bag Working Group in trying Truworths head office saves water by using to minimise plastic bag wastage. The Group recycled seepage water which was previously pays its plastic bag environmental levies and directed into a sump in the basement and ensures that all of its shopping bags comply pumped out into the storm water drain. The water with minimum legislated requirements. The treatment plant’s installation and chemical fine- Group is aware of the plastic pollution problems tuning was completed on 1 July 2005. Through this in South Africa and is evaluating alternative project the Group has made significant inroads in environmentally-friendly solutions to help its aims to limit its consumption of scarce water reduce its impact. resources. Measurements of the seepage water • At TDC the protective plastic wrapping used to show 1 000 litres per hour, the equivalent of 24 000 deliver merchandise is reused or recycled and litres per day. While the water is not fit for human plastic waste is collected on a daily basis. It is consumption, it is treated to be used in toilets, the estimated that about 96 tons of plastic shrink car wash facility and plant sprinkler systems at wrap and 1.6 million metres of packaging tape head office. The water is analysed monthly and a are consumed every year at TDC in order to certificate is issued to verify its quality and safety. safely transport stock to stores and avoid theft Initial projections showed that with the significant from cartons. The Group is evaluating ways to water and costs savings the plant will pay for itself reduce the use of shrink wrap and packaging within three years. However, despite a dry summer tape and improve recycling activities. In addition season in the Western Cape, current revised a project is underway to develop a unique carton projections estimate that the water savings will be to safely transport stock to stores, eliminating so substantial as to pay off the plant within two the reliance on plastic shrink wrap. years. • To save costs, plastic hangers at TDC are Recycling and waste management generally reused rather than recycled, with Paper and packaging many hangers being sold back to the garment manufacturers. Damaged or scrapped hangers There is a drive throughout the Group to recycle are sold to specialised plastic recycling paper and paper-based packaging materials and companies. initiatives are in place at head office, TDC and stores, as follows: Other wastes

• TDC uses over 480 000 cardboard cartons • The Group actively recycles most used ﬁxtures every year, most of which are made from and ﬁttings from stores during its programmed recycled paper. Cartons that are not reusable refurbishments. Items that cannot be reused by are compacted and sold as scrap to recycling the business, but are still in good condition, are either sold or donated to charity. specialists. Reusable cartons which are in good condition are sold or used again by TDC for • Throughout the Group’s operations, all waste dispatching goods. that cannot be recycled is compacted to reduce

136 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 CORPORATE SOCIAL RESPONSIBILITY REPORT

the volume to be disposed of and removed by Employee awareness a contracted removal company to a recognised Employees in TDC are educated on the economical municipal dumpsite. use of paper and cartons, and where possible • All air-conditioning equipment under the paper-less procedures are encouraged. Group’s direct control complies with the In addition, staff are aware that waste paper and conditions laid out in the Montreal Protocol board is recycled and sold, and are incentivised for acceptable refrigerants. Refrigerants are to take part in these recycling initiatives as the recovered and recycled rather than being proceeds go to charity. discharged into the atmosphere. Staff are encouraged to save water, particularly • Fluorescent bulbs are removed by waste in Cape Town where water restrictions were in management companies who specialise in the force during the period under review. Signage is disposal of fluorescent tubing. placed in toilets and at all water points to remind • For plant maintenance and pest control, plant employees of this initiative. extracts are used which are considered to be Conclusion safe for humans and are Hazard and Operability (HAZOP) approved. The Group realises that its capacity to act as a responsible corporate citizen is directly influenced • For the new financial period the Group is by its financial performance, and management is evaluating can-collecting initiatives. therefore dedicated to building and maintaining Green procurement a robust, sustainable business. The creation of wealth, facilitated by the success of the Group’s The social responsibility and transformation business, brings broader responsibilities to the committees and members of the management communities and environment in which it operates. team are currently putting together a code of Its long-term prosperity relies on a climate of practice for the Group’s procurement partners. economic and social prosperity, as well as the Although the Group already takes environmental integrity of the environment, which are ultimately considerations into account, the procurement linked to the sustainable development of society. policy will formalise conditions for the supply chain relating to environmental impacts amongst During the period under review, the Group other factors. proactively took steps through its social responsibility and transformation committees to Environmental performance is already a adopt responsible, socially and environmentally- consideration in the selection process for suppliers aware business practices and improve on its in the Group’s production and supply chain. For efforts to encourage the social transformation instance, when selecting suppliers of packaging or of South African society through its initiatives to raw-material products, the Group investigates the uplift historically disadvantaged individuals. The supplier’s environmental awareness by assessing Group is aware of the role it must play in protecting their use of recycled material as opposed to the environment, and in the periods ahead will virgin material. Preference is also given to bio- partner with expert consultants to implement and degradable products. stay abreast of ways in which it can combat its By ensuring tight control of the quality of cartons, environmental impacts. the potential to reuse them is increased.

All hangers supplied to stores and sold to suppliers are the recycled variety.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 137 definitions

1. Asset reinvestment rate 12. Earnings yield Capital expenditure divided by depreciation. Basic earnings per share divided by the period end share price on the JSE. 2. Basic earnings per full-time equivalent (“FTE”) employee 13. EBITDA Profit for the period, divided by the number of Earnings before interest, tax, depreciation full-time equivalent employees in service at and amortisation. the end of the period. 14. EBITDA margin 3. Cash ‘EBITDA’ EBITDA divided by sale of merchandise. Cash flow from trading plus dividends 15. Free cash flow received. Cash flow from operations less capital 4. Cash equivalent earnings per share expenditure to maintain operations. Profit for the period, adjusted for non-cash 16. Full-time equivalent employees items and deferred tax, divided by the weighted Determined by converting the actual number average number of shares. of flexi-time employees into a lesser number 5. Cash flow from trading of full-time equivalent employees (through dividing the aggregate working hours of all Profit before finance costs, discontinued flexi-time employees by standard working operations and tax, adjusted for dividends and hours), and adding this latter number to the interest received and non-cash items. actual number of permanent employees. 6. Cash flow per share 17. Fully diluted weighted average number of The cash inflow from operations for the period shares divided by the weighted average number of The weighted average number of shares in shares. issue, adjusted for treasury shares held by 7. Cash realisation rate subsidiaries, diluted by the share options Represents the potential cash earnings outstanding in respect of the equity-settled realised and is derived by dividing cash flow share incentive scheme. per share by cash equivalent earnings per 18. Gross margin share. Gross profit divided by sale of merchandise. 8. Cost of credit 19. Market capitalisation Comprises interest received on customer The period-end share price on the JSE accounts and financial services income, less multiplied by the number of shares in issue at net bad debt (which includes the movement the end of the period. on the bad debt allowance) and collection 20. Period-end share price/net asset value per and other direct costs incurred in providing share credit. The period-end share price on the JSE 9. Current ratio expressed as a ratio of the net asset value per Current assets divided by current liabilities. share. 10. Dividend cover 21. Net assets Headline (previously basic) earnings per share The total of non-current assets and net divided by dividends declared per share. current assets, less non-current liabilities, at 11. Dividend yield the end of the period. 22. Net asset turn Dividends declared per share divided by the period-end share price on the JSE Limited Sale of merchandise divided by closing net (“JSE”). assets.

138 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 23. Net asset value per share 33. Sale trading density Total equity before deducting goodwill divided Represents sale of merchandise (excluding by the number of shares in issue (adjusted sales to franchise stores) divided by trading for treasury shares held) at the end of the square metres. period. 34. Share-based payments 24. Net cash to total equity The expense recognised in the income Cash and cash equivalents, net of borrowings, statement over the vesting period of options divided by total equity at the end of the granted to employees in terms of the equity- period. and cash-settled compensation schemes. 25. Notional interest 35. Stock turn Interest recognised on a time-apportionment Cost of sales for the period divided by basis using the effective interest rate implicit inventories on hand at the end of the period. in the underlying transaction. 36. Trading profit 26. Operating profit Gross profit less operating expenses. Operating profit is profit before finance costs, discontinued operations and tax. 37. Trading margin 27. Operating margin Trading profit divided by sale of merchandise. Operating profit divided by sale of merchandise. 38. Weighted average cost of capital (WACC) 28. Price earnings ratio The risk-free rate at the end of the period as defined by the RSA (R157) long-term bond The period-end share price on the JSE yield adjusted by a risk premium appropriate divided by headline earnings per share for the for the Group. period. 39. Weighted average number of shares in issue 29. Return on average equity The number of shares in issue at the beginning The current period’s profit for the period of the period, increased by shares issued divided by the average of the current and prior periods’ total equity. during the period, and decreased by share repurchases, weighted on a time basis for 30. Return on invested capital (ROIC) the period during which they were in issue. In Profit before tax adjusted for operating leases, the case of shares issued pursuant to a share less depreciation subsequently calculated on capitalisation award in lieu of dividends, the the “capitalised” operating leases, less the participation of such shares is deemed to be adjusted tax charge, divided by the sum of the from the date of issue. net assets and newly capitalised operating 40. Weighted average price per share traded leases at the end of the period. The total value of shares traded divided by the 31. Return on capital total volume of shares traded for the period The current period’s profit before finance on the JSE. costs, discontinued operations and tax divided by the average of the current and prior periods’ total net assets. 32. Sale of merchandise Represents sale of merchandise through retail outlets, together with sale of merchandise to franchisees, but excludes discounts, value added tax and agency sale of merchandise to customers.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 139 CONTENTS

142 Approval of annual ﬁ nancial statements

143 Directors’ report

144 Group balance sheets

145 Group income statements

146 Group statements of changes in total equity

147 Group cash ﬂ ow statements

148 Company balance sheets

148 Company income statements

149 Company statements of changes in total equity

150 Company cash ﬂ ow statements

152 Notes to the annual ﬁ nancial statements

210 Annexure one

211 Annexure two

218 Shareholder information

220 Notice to members

225 Form of proxy

Ibc Shareholders’ diary and administration

140 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 tangible value for ourshareholders. earnings growth track record to create We continue to buildonour enduring

ANNUAL FINANCIAL STATEMENTS APPROVAL OF ANNUAL FINANCIAL STATEMENTS

The annual financial statements and Group annual financial REPORT OF INDEPENDENT AUDITORS TO THE MEMBERS statements which appear on pages 143 to 217 were approved OF TRUWORTHS INTERNATIONAL LIMITED by the board of directors on 24 August 2006 and are signed on its behalf by We have audited the annual financial statements and Group annual financial statements of Truworths International Limited set out on pages 143 to 217 for the 52 weeks ended 25 June 2006. These financial statements are the responsibility of the company’s directors. Our responsibility H Saven is to express an opinion on these financial statements based Chairman on our audit. We conducted our audit in accordance with International Standards of Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining, on a test basis, MS Mark evidence supporting the amounts and disclosures in the Chief Executive Officer financial statements. An audit also includes assessing the 24 August 2006 accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the annual financial statements present CERTIFICATE BY COMPANY SECRETARY fairly, in all material respects, the financial position of the I certify that, in respect of the period under review, the company and the Group at 25 June 2006 and the results of company has lodged with the Registrar of Companies all their operations and cash flows for the 52 weeks then ended returns required of a public company in terms of the South in accordance with the International Financial Reporting African Companies Act 61 of 1973, and that all such returns Standards, and in the manner required by the Companies are true, correct and up to date. Act in South Africa.

C Durham Ernst and Young Company Secretary Registered Auditors

24 August 2006 24 August 2006 Cape Town

142 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 DIRECTORS’ REPORT at 25 June

The directors have pleasure in submitting their report the 2006 annual financial statements cover the 52 week together with the company and Group annual financial period from 27 June 2005 to 25 June 2006. This change has statements for the 52-week period ended 25 June 2006. had no impact on the Group’s results or financial position.

NATURE OF BUSINESS SPECIAL RESOLUTIONS BY SUBSIDARY COMPANIES The company is an investment holding and management During the period under review the wholly-owned subsidiary company with trading subsidiaries engaged either directly, Quickvest 350 (Pty) Limited changed its name to Truworths or through franchises and agencies, in the retailing of Investments Two (Pty) Limited, by special resolution of its fashion apparel and related merchandise. The Group shareholders passed on 31 October 2005 and registered by the operates principally in southern Africa. Registrar of Companies on 2 December 2005. Furthermore, authority was granted to this subsidiary by simultaneous RESULTS OF OPERATIONS special resolution of its shareholders to purchase the The results for the period are detailed in the attached annual company’s shares, subject to the relevant provisions of the financial statements. Companies Act and the Listings Requirements of the JSE DIVIDENDS Limited, for a maximum period of fifteen months. Details of the dividends paid by the company during the period The authority of the wholly-owned subsidiary Truworths are contained in note 23 of the annual financial statements. Limited to purchase its own and the company’s shares, On 24 August 2006 the directors of the company resolved subject to the relevant provisions of the Companies Act and to declare a final dividend in respect of the period in the the Listings Requirements of the JSE Limited, was renewed amount of 45 cents per share, to shareholders registered for a maximum period of a further fifteen months, by special on 15 September 2006. resolution of its shareholders passed on 30 March 2006 and PROPERTY, PLANT AND EQUIPMENT registered by the Registrar of Companies on 7 July 2006. There were no major changes in the nature of the Group’s Furthermore, the name of Limenook Investments (Pty) Ltd property, plant and equipment. During the period certain (which became a subsidiary company on 3 July 2006) was useful lives were reassessed. changed to Uzzi (Pty) Limited by special resolution of its SHARE CAPITAL shareholders passed on 15 June 2006 and registered by the Details of the authorised and issued share capital of the Registrar of Companies on 7 July 2006. By simultaneous company and the movements during the period are contained special resolution of its shareholders the main business in notes 9 and 11 of the annual financial statements. and main object of this subsidiary were changed to the retailing of fashion merchandise, and its memorandum of DIRECTORS AND SECRETARY association was altered such that the subsidiary’s powers The names of the directors and company secretary in office became unlimited and special conditions would no longer at 25 June 2006 are set out on page 8 and ibc of the annual apply to its operation. report. No other special resolutions were passed by subsidiary SUBSIDIARY COMPANIES companies during the period under review, or between the Annexure one containing full particulars of the company’s balance sheet date and the date of this report. subsidiary companies appears on page 210 of the annual financial statements. EVENTS SUBSEQUENT TO PERIOD END On 3 July 2006, the Group acquired 51% of the share capital BORROWING POWERS of, and shareholder’s loan claim against, Uzzi (Pty) Ltd, a In terms of the company’s articles of association, its company specialising in the retail of men’s clothing. Details borrowing powers are unlimited. The borrowing powers of of this transaction are contained in note 28 of the annual the Group’s wholly-owned operating subsidiary, Truworths financial statements. Limited, may in terms of its articles of association be limited by the company. Any borrowings by the Group, were they to No further event which is material to the understanding of be made, would be subject to the provisions of the Group’s this report has occurred between the financial period-end board approved treasury policy. and the date of this report. REPORTING PERIOD END CHANGE During the period under review the Group changed its reporting period end from 30 June to the last Sunday in June, in order to align the Group’s current and future financial reporting periods with its trading calendar. Consequently

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 143 GROUP BALANCE SHEETS at 25 June

2006 2005 Note Rm Rm ASSETS Non-current assets 574 499

Property, plant and equipment 2 379 347 Intangible assets 3 73 59 Financial assets 4 122 93

Current assets 2,060 2,119

Financial assets 4.2 – 30 Inventories 6 290 260 Trade and other receivables 7 1,519 1,201 Prepayments 32 22 Cash and cash equivalents 8 219 606

Total assets 2,634 2,618 EQUITY AND LIABILITIES Capital and reserves Share capital and premium 9, 10 14 197 Treasury shares 11 (528) (330) Equity-settled compensation reserve 15 9 Cash ﬂow hedging reserve (3) – Retained earnings 2,410 1,947

Attributable to equity holders of the parent 1,908 1,823 Minority interest – 13

Total equity 1,908 1,836

Non-current liabilities 87 99

Deferred tax 12 11 35 Post-retirement medical beneﬁt obligation 13 23 21 Cash-settled compensation liability 21.6.2 7 – Straight-line operating lease obligation 14.1 46 43

Current liabilities 639 683

Trade and other payables 15 492 417 Tax payable 26.4 147 266

Total liabilities 726 782

Total equity and liabilities 2,634 2,618

Number of shares in issue (adjusted for treasury shares) (millions) 9 433.9 447.5 Net asset value per share (cents) 440 407

Key ratios Return on average equity (%) 44 39 Return on capital employed (%) 66 59

144 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 GROUP INCOME STATEMENTS for the period ended 25 June

GROUP

2006 2005 Note Rm Rm

Revenue 19 4,191 3,425

Sale of merchandise 19 3,816 3,115 Cost of sales (1,765) (1,443)

Gross proﬁt 2,051 1,672 Trading expenses (1,097) (927)

Depreciation and amortisation 20.2 (74) (65) Employment costs 20.3 (442) (384) Occupancy costs 20.4 (272) (232) Other operating costs (309) (246)

Trading proﬁt 954 745 Dividends received 19 2 2 Interest received 19 288 232

Proﬁt before tax 1,244 979 Tax expense 22.1 (420) (328)

Proﬁt for the period 824 651 Attributable to: Equity holders of the parent 823 648 Minority interest 1 3

824 651

Cents per share: Dividends 23 89 69

Final - payable September 45 37 Interim - paid March 44 32

Key ratios Gross proﬁt margin (%) 54 54 Total expenses to sale of merchandise (%) 29 30 Trading margin (%) 25 24 Operating margin (%) 33 31 Headline earnings per share (cents) 24.1 186.4 144.8 Basic earnings per share (cents) 24.1 186.4 144.8 Fully diluted headline earnings per share (cents) 24.2 181.0 140.8 Fully diluted basic earnings per share (cents) 24.2 181.0 140.8

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 145 GROUP STATEMENTS OF CHANGES IN EQUITY for the period ended 25 June

Attribu- Equity- table Share settled Cash to equity capital compen- ﬂow holders and Treasury sation hedging Retained of the Minority Total premium shares reserve reserve earnings parent interest equity Note Rm Rm Rm Rm Rm Rm Rm Rm

Balance at 28 June 2004 177 (275) 3 – 1,563 1,468 12 1,480 Proﬁt for the period – – – – 648 648 3 651 Dividends 23 – – – – (264) (264) (2) (266) Premium on shares issued 10 20 – – – – 20 – 20 Shares repurchased 11 – (55) – – – (55) – (55) Share option expense 21.6 – – 6 – – 6 – 6

Balance at 26 June 2005 197 (330) 9 – 1,947 1,823 13 1,836

Proﬁt for the period – – – – 823 823 1 824 Dividends 23 – – – – (360) (360) (2) (362) Acquisition of minority interest in subsidiary – – – – – – (12) (12) Premium on shares issued 10 17 – – – – 17 – 17 Shares repurchased and cancelled 10 (200) – – – – (200) – (200) Shares repurchased 11 – (198) – – – (198) – (198) Share option expense 21.6 – – 6 – – 6 – 6 Effective portion of cash ﬂow hedge 4.1 – – – (3) – (3) – (3)

Balance at 25 June 2006 14 (528) 15 (3) 2,410 1,908 – 1,908

146 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 GROUP CASH FLOW STATEMENTS for the period ended 25 June

GROUP

2006 2005 Note Rm Rm CASH FLOWS FROM OPERATING ACTIVITIES Cash ﬂow from trading 26.1 1,048 818 Dividends received 26.1 2 2

Cash EBITDA* 1,050 820 Working capital movements 26.2 (274) (233)

Cash generated from operations 776 587 Interest received 26.3 288 232 Tax paid 26.4 (563) (261)

Cash inﬂow from operations 501 558 Dividends paid 26.7 (362) (266)

Net cash from operating activities 139 292 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment to maintain operations 26.5 (21) (20) Acquisition of property, plant and equipment to expand operations 26.6 ( 79) (69) Acquisition of computer software (7) (13) Proceeds on disposal of property, plant and equipment 1 1 Acquisition of minority interest in subsidiary (26) – Loans advanced (56) (20) Loans repaid 37 44 Acquisition of held-for-trading ﬁnancial asset 4.1 (23) – Proceeds on disposal of preference shares 4.2 30 –

Net cash used in investing activities (144) (77) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds on shares issued 10 17 20 Shares repurchased by subsidiaries 11 (198) (55) Shares repurchased and cancelled 10 (200) – Funding of post-retirement beneﬁt obligation (1) (1)

Net cash used in ﬁnancing activities (382) (36)

Net (decrease)/increase in cash and cash equivalents (387) 179

Cash and cash equivalents at the beginning of the period 606 427

CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 8 219 606

Key ratios Cash ﬂow per share (cents) 24.3 114 125 Cash equivalent earnings per share (cents) 24.4 202 152 Cash realisation rate (%) 24.5 56 82

* Earnings before interest, tax, depreciation and amortisation

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 147 COMPANY BALANCE SHEETS at 25 June

2006 2005 Note Rm Rm ASSETS Non-current assets 130 109

Interests in subsidiary companies 5 130 109

Current assets 303 144

Financial assets 4 298 138 Cash and cash equivalents 8 5 6

Total assets 433 253 EQUITY AND LIABILITIES Capital and reserves Share capital and premium 9,10 14 197 Equity-settled compensation reserve 15 9 Retained earnings 47 42

Total equity 76 248 Current liabilities 357 5

Trade and other payables 15 354 5 Tax payable 26.4 3 –

Total liabilities 357 5

Total equity and liabilities 433 253

COMPANY INCOME STATEMENTS for the period ended 25 June

2006 2005 Note Rm Rm

Revenue 19 406 290

Trading expenses (3) (1)

Employment costs 20.3 (1) (1) Other operating costs (2) –

Trading loss (3) (1) Dividends received 19 406 290

Proﬁt before tax 403 289 Tax expense 22.1 (3) –

Proﬁt for the period 400 289

148 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 COMPANY STATEMENTS OF CHANGES IN EQUITY for the period ended 25 June

Equity- Share settled Non- capital and compensation distributable Retained Total premium reserve reserve earnings equity Note Rm Rm Rm Rm Rm

Balance at 28 June 2004 177 3 9 30 219 Non-distributable reserve released to retained earnings – – (9) 9 – Proﬁt for the period – – – 289 289 Dividends 23 – – – (286) (286) Premium on shares issued 10 20 – – – 20 Share option expense 21.6 – 6 – – 6

Balance at 26 June 2005 197 9 – 42 248 Proﬁt for the period – – – 400 400 Dividends 23 – – – (395) (395) Premium on shares issued 10 17 – – – 17 Shares repurchased and cancelled 10 (200) – – – (200) Share option expense 21.6 – 6 – – 6

Balance at 25 June 2006 14 15 – 47 76

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 149 COMPANY CASH FLOW STATEMENTS for the period ended 25 June

2006 2005 Note Rm Rm CASH FLOWS FROM TRADING OPERATIONS Cash inﬂow from trading 26.1 3 5 Dividends received 26.1 406 290

Cash EBITDA* 409 295 Working capital movements 26.2 1 (1)

Cash inﬂow from operations 410 294

Dividends paid 26.7 (395) (286)

Net cash from operating activities 15 8 CASH FLOWS FROM INVESTING ACTIVITIES Loans advanced to subsidiary companies (160) (55) Increase in interests in subsidiary companies (21) (6)

Net cash used in investing activities (181) (61) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds on shares issued 10 17 20 Loans advanced by subsidiary companies 348 36 Shares repurchased and cancelled 10 (200) –

Net cash from ﬁnancing activities 165 56

Net (decrease)/increase in cash and cash equivalents (1) 3

Cash and cash equivalents at the beginning of the period 6 3

CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 8 5 6

* Earnings before interest, tax, depreciation and amortisation

150 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 growth track record. building on itsenduringsuperior earnings and sales across allareas of thebusiness, period for theGroup, withrecord trading 2006 proved to beanothersuccessful

NOTES TO THE ANNUAL FINANCIAL STATEMENTS NOTES TO THE ANNUAL FINANCIAL STATEMENTS

CORPORATE INFORMATION

The consolidated ﬁnancial statements of Truworths International Limited and its subsidiaries (‘the Group’) for the 52 weeks ended 25 June 2006 were authorised for issue in accordance with a resolution of the directors taken on 24 August 2006. The Group amended its ﬁnancial reporting period end in the current period (from 30 June to the last Sunday in June), to coincide with its trading calendar period end of 52 weeks. This change had no material effect on the Group’s reported results.

Truworths International Limited, the holding Company of the Group, is incorporated and domiciled in the Republic of South Africa, and its members have limited liability.

STATEMENT OF COMPLIANCE

The annual ﬁnancial statements have been prepared in compliance with International Financial Reporting Standards (‘IFRS’).

The Group has adopted IFRS for the first time in the 2006 financial period, with the transition date in respect of such adoption being 28 June 2004. The Group has previously complied with South African Statements of Generally Accepted Accounting Practice (‘SA GAAP’). The opening balance sheets at 28 June 2004 as well as the comparative figures for the 2005 financial period have been restated accordingly. Readers are referred to note 29 in the annual financial statements for disclosure regarding the adjustments related to the first-time adoption of IFRS.

GLOSSARY OF FINANCIAL REPORTING TERMS

This glossary of ﬁnancial reporting terms is provided to ensure clarity of meaning, as certain terms may not always have the same meaning or interpretation in other countries.

GROUP STRUCTURES

Company Truworths International Limited - a legally incorporated business entity registered in terms of the Companies Act 61 of 1973 in South Africa.

Entity Any one of Truworths International Limited, Truworths Limited or a subsidiary.

Group The Group comprises Truworths International Limited and all subsidiaries.

Subsidiary Any entity over which the Group has the power to exercise control.

ACCOUNTING

Acquisition date The date on which the acquirer effectively obtains control of the acquiree.

Amortised cost The amount at which the ﬁnancial asset or ﬁnancial liability is measured at the time of initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest rate method of any difference between that initial amount and the maturity amount, and minus any reduction (directly or through the use of an allowance account) for impairment or uncollectability.

Consolidated ﬁnancial statements The ﬁnancial results of the Group presented as those of a single economic entity.

Control The power to govern the ﬁnancial and operating policies of an entity so as to obtain beneﬁts from its activities.

Credit risk The risk that counterparties fail to honour their ﬁnancial obligations to the Group.

Currency risk The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

152 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

Defined benefit plan Post-employment benefit plans other than defined contribution plans.

Defined contribution plan Post-employment benefit plans under which the Group pays fixed contributions into a separate fund, and in respect of which the Group will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods.

Discount rate The rate that reflects current market assessments of the time value of money and the risks specific to the asset. It is the return that investors would require if they were to choose an investment that would generate cash flows of amounts, timing and risk profile equivalent to those that the entity expects to derive from the asset.

Fair value The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

Foreign currency A currency other than the functional currency of the entity.

Functional currency The currency of the primary economic environment in which the entity operates.

Intangible asset An identiﬁable non-monetary asset without physical substance.

Interest rate risk The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market rates of interest.

Liquidity risk The risk that an entity will, through limited access to cash, encounter difﬁculty in meeting obligations associated with ﬁnancial liabilities.

Presentation currency The currency in which the ﬁnancial statements are presented.

Purchase method of accounting A method whereby the acquirer recognises the acquiree’s identiﬁable assets, liabilities and contingent liabilities at their fair values at the acquisition date.

Related party A party is related to an entity if:

a) directly, or indirectly through one or more intermediaries, the party: (i) controls, is controlled by, or is under common control with, the entity (this includes parents, subsidiaries and fellow subsidiaries); (ii) has an interest in the entity that gives it signiﬁcant inﬂuence over the entity; or (iii) has joint control over the entity;

b) the party is an associate of the entity;

c) the party is a joint venture in which the entity is a venturer;

d) the party is a member of the key management personnel of the entity or its parent;

e) the party is a close family member of any individual referred to in (a) or (d) above;

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 153 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

f) the party is an entity that is controlled, jointly controlled or significantly influenced by, or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e) above; or

g) the party is a post-employment beneﬁt plan for the beneﬁt of employees of the entity, or of any entity that is a related party of the entity.

Significant influence The power to participate in the financial and operating policy decisions of an entity, but not to have control over those policies.

FINANCIAL INSTRUMENTS

Available-for-sale financial asset Non-derivative financial assets that are designated as available for sale or are not classified as:

• loans or receivables;

• held-to-maturity investments; or

• ﬁnancial assets at fair value through proﬁt and loss.

Cash and cash equivalents Cash comprises cash on hand and demand deposits. Cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insigniﬁcant risk of change in value.

Cash ﬂow hedge A hedge of the exposure to variability in cash ﬂows that:

• is attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction; and

• could affect proﬁt or loss.

Derivative instrument A ﬁnancial instrument:

• whose value changes in response to movements in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract;

• that requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors; and

• that is settled at a future date.

Effective interest rate The rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability.

Equity instrument A contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

154 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

Fair value hedge A hedge of the exposure to changes in fair value of a recognised asset or liability or an unrecognised ﬁrm commitment that is attributable to a particular risk and could affect proﬁt or loss.

Financial asset Any asset that is:

• cash;

• an equity instrument of another entity;

• a contractual right:

(i) to receive cash or another ﬁnancial asset from another entity; or

(ii) to exchange ﬁnancial instruments with another entity under conditions that are potentially favourable; or

• a contract that will or may be settled in the entity’s own equity instruments and is:

(i) a non-derivative for which the entity is or may be obliged to receive a variable number of the entity’s own equity instruments; or

(ii) a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. For this purpose the entity’s own equity instruments do not include instruments that are themselves contracts for the future receipt or delivery of the entity’s own equity instruments.

Financial asset or financial liability A financial asset or financial liability that meets either of the following at fair value through profit or loss conditions:

• it is classiﬁed as held-for-trading; or

• upon initial recognition it is designated by the entity as at fair value through proﬁt or loss – the only exception being those investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured.

Financial instrument A contract giving rise to a ﬁnancial asset of one entity and a ﬁnancial liability or equity instrument of another entity.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 155 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

Financial liability Any liability that is:

• a contractual obligation:

(i) to deliver cash or another ﬁnancial asset to another entity; or

(ii) to exchange ﬁnancial assets or ﬁnancial liabilities with another entity under conditions that are potentially unfavourable to the entity; or

• a contract that will or may be settled in the entity’s own equity instruments and is:

(i) a non-derivative for which the entity is or may be obliged to deliver a variable number of the entity’s own equity instruments; or

Held-to-maturity investment Non-derivative financial assets with a fixed maturity and fixed or determinable payments that an entity has the positive intention and ability to hold to maturity other than:

• those that the entity upon initial recognition designates as at fair value through proﬁt or loss;

• those that the entity designates as available-for-sale; and

• those that meet the deﬁnition of loans and receivables.

Held-for-trading financial instrument A financial asset or financial liability:

• acquired or incurred principally for the purpose of selling or repurchasing it in the near term;

• that forms part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking; or

• that is a derivative.

Loans and receivables Non-derivative ﬁnancial assets with ﬁxed or determinable payments that are not quoted in an active market, other than:

• those that the entity intends to sell immediately or in the near term, which shall be classiﬁed as held for trading, and those that the entity upon initial recognition designates as at fair value through proﬁt or loss;

• those that the entity upon initial recognition designates as available- for-sale; or

• those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration, which shall be classiﬁed as available-for-sale.

Monetary items Units of currency held and assets and liabilities to be received or paid in a ﬁxed or determinable number of units of currency.

156 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

1. PRINCIPAL ACCOUNTING POLICIES Intra-group balances, transactions, income and 1.1 Basis of preparation of financial results expenses are eliminated in full. The annual financial statements are prepared in The Company carries its investments in subsidiaries accordance with the going concern and historical cost at cost, less any accumulated impairment losses. The bases except for held-for-trading financial assets financial statements of subsidiaries are prepared for which are measured at fair value. The accounting policies are applied consistently throughout the the same reporting period as the parent Company, Group. The presentation currency of the Group and using consistent accounting policies. Company financial statements is the South African 1.3 Foreign currency translation Rand (ZAR) and all amounts are rounded to the The financial results of an entity are accounted for in nearest million, except when otherwise indicated. its functional currency. 1.2 Basis of consolidation of financial results Translation of foreign currency transactions The consolidated annual financial statements Transactions in foreign currencies are translated to comprise of the annual financial statements of the the functional currency at exchange rates prevailing Company and its subsidiaries (including the employee at the date of the transaction. Monetary assets and share trust). liabilities are translated at exchange rates prevailing Subsidiaries at balance sheet date. Non-monetary items carried The results of subsidiaries are consolidated from at cost are translated using the exchange rate at the acquisition date and cease to be consolidated on the date of the transaction, whilst assets carried at fair date control ceases. When there is a disposal or loss value are translated at the exchange rate when the of control of a subsidiary, the consolidated financial fair value was determined. statements would include the results for the part of the reporting period during which the Group had Exchange differences on monetary items are control. Any difference between the net proceeds upon recognised in the income statement when they arise, disposal and the carrying amount of the subsidiary is except in the consolidated financial statements where recognised in the income statement. changes on monetary items that form part of the net investment in a foreign operation are recognised in New acquisitions are included in the Group financial statements using the purchase method of accounting. the foreign currency translation reserve (‘FCTR’). The excess of the cost of the business combination Exchange differences on non-monetary items are over the Group’s interest in the net fair value of recognised in equity or the income statement, identifiable assets, liabilities and contingent liabilities consistently with other gains and losses on these is recognised as goodwill. items.

When control is obtained in successive share Translation of foreign operations purchases, each significant transaction is On consolidation, the financial statements of accounted for separately. The identifiable foreign operations are translated into the Group’s assets, liabilities and contingent liabilities are presentation currency. Assets and liabilities are stated at fair value when control is obtained. translated at the closing rate on the balance sheet The purchase of minority shareholdings in existing date. Income, expenses and capital transactions subsidiaries is accounted for as an adjustment in the (such as dividends) are translated at average related goodwill balance. exchange rates or at the prevailing rates on the Minority interest at acquisition date is determined transaction dates, if more appropriate. Goodwill and as the minority shareholders’ proportionate share fair value adjustments arising on the acquisition of a of the fair value of the net assets of the subsidiary foreign entity are translated at the closing rate on the acquired. balance sheet date.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 157 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

Exchange differences arising on translation are Depreciation commences when an asset is available recognised in the statement of changes in equity in for use and ceases temporarily when the residual the FCTR. On disposal of part or all of the investment, value exceeds the carrying value. The following the proportionate share of the related cumulative gain depreciation rates apply: or loss previously recognised in the FCTR is included in determining the profit or loss on disposal of that Buildings 14-25 years investment and recognised in the income statement. Equipment, furniture and fittings 7-10 years Computer equipment 5 years 1.4 Property, plant and equipment Property Derecognition Immoveable property owned by the Group is classified An item of property, plant and equipment is as owner-occupied property and shown at cost less derecognised on disposal or when no future economic accumulated depreciation and impairment. Land is benefits are expected through its continued use or shown at cost and is not depreciated. disposal. Gains or losses which arise on derecognition, Lease premiums and leasehold improvements are included in the income statement in the period of Expenditure relating to leased premises is capitalised derecognition. The gain or loss is calculated as the and depreciated to expected residual value over difference between the net disposal proceeds and the the remaining period of the lease. Leasehold carrying amount of the item at the date of sale. improvements for leasehold buildings are depreciated Impairment over the lease periods or shorter periods as may be appropriate. Impairment of property, plant and equipment is assessed in terms of accounting policy note 1.7. Plant and equipment Plant and equipment is carried at cost less 1.5 Goodwill accumulated depreciation and impairment. When Goodwill is classified as an intangible asset with an plant and equipment comprises major components indefinite useful life. with different useful lives, these components are Initial recognition and measurement accounted for as separate items. Expenditure Goodwill is initially measured at cost, being the incurred to replace or modify a significant component excess of the cost of the business combination over of plant and equipment is capitalised if it is probable that future economic benefits associated with the the Group’s attributable share of the fair value of the item will flow to the entity and the cost of the item net identifiable assets at the date of acquisition. If the can be reliably measured. Any remaining book value Group’s interest in the net fair value of the acquiree’s of the component replaced is written off in the income identifiable assets, liabilities and contingent liabilities statement. All other expenditure is recognised in the exceeds the cost of the business combination, the income statement. excess is recognised immediately in profit or loss.

Depreciation Subsequent measurement Items of property, plant and equipment are Goodwill is reﬂected at cost less any accumulated depreciated to their estimated residual values on a impairment losses. straight-line basis over their expected useful lives. The depreciation methods, estimated remaining If the initial accounting for business combinations useful lives and residual values are reviewed at each has been determined provisionally, then adjustments reporting date, taking into account technological to these values resulting from the emergence of new innovations and asset maintenance programmes. information within twelve months after the acquisition A change resulting from the review is treated as a date are made against goodwill. In addition, goodwill change in accounting estimate. The depreciation is adjusted for changes in the estimated value of expense is recognised in the income statement in the contingent considerations given in the business depreciation and amortisation expense category. combination when they arise.

158 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

Derecognition Subsequent measurement Where the goodwill forms part of a cash-generating Computer software is stated at cost less accumulated unit disposed of, the goodwill associated with the amortisation and impairment. Computer software operation disposed of is included in the carrying is amortised to its estimated residual value on a straight-line basis over its expected useful life of amount of the operations when determining the 5 years. The amortisation period, amortisation gain or loss on disposal of the operation. Goodwill method and residual values are reviewed at each disposed of in this circumstance is measured on the reporting date. A change resulting from the review basis of the relative values of the operation disposed is treated as a change in accounting estimate. The of and the portion of the cash-generating unit which amortisation expense is recognised in the income is retained. statement in the depreciation and amortisation expense category. Impairment Goodwill is not amortised but tested for impairment Derecognition on an annual basis, or more frequently, if events or Computer software is derecognised on disposal changes in circumstances indicate that the carrying or when no future economic benefits are expected value may be impaired. through its continued use or disposal. Gains or losses which arise on derecognition are included in the At the acquisition date, any goodwill acquired is income statement in the period of derecognition. The allocated to each of the cash-generating units gain or loss is calculated as the difference between expected to benefit from the acquisition. Impairment the net disposal proceeds and the carrying amount of is determined annually by assessing the recoverable the item at the date of sale. amount, which is the higher of fair value less costs Impairment to sell and value in use, of the cash-generating unit Impairment of computer software is assessed in to which the goodwill relates. The value in use is terms of accounting policy note 1.7. calculated as the present value of the future cash 1.7 Impairment of non-financial assets flows expected to be derived from an asset or cash- The carrying value of the Group’s non-financial assets, generating unit. including property, plant and equipment and computer Where the recoverable amount of the cash-generating software, but excluding inventories and deferred tax, for which impairment policies are described within unit is less than the carrying amount, an impairment the respective accounting policies for these items, loss is recognised. The impairment loss is applied are reviewed at each reporting date or whenever firstly to the carrying amount of any goodwill in the events or changes in circumstances indicate that the cash-generating unit assessed. Thereafter, any carrying value may not be recoverable, to determine remaining impairment is allocated to the other assets whether there is any indication of impairment. of the unit. Impairment losses on goodwill cannot be The impairment recognised in the income statement reversed. is the excess of the carrying value over the recoverable 1.6 Computer software amount. Recoverable amounts are estimated for Computer software is classified as an intangible asset individual assets or, where an individual asset cannot with a finite useful life. generate cash flows independently, the recoverable amount is determined for the larger cash-generating Initial recognition and measurement unit to which the asset belongs. Purchased software and the direct costs associated A previously recognised impairment will be reversed with the customisation and installation thereof are insofar as estimates change as a result of an event capitalised. Expenditure on software developed occurring after the impairment was recognised. internally is capitalised if it meets the criteria for An impairment is reversed only to the extent that capitalising development expenditure. Expenditure the asset’s carrying amount does not exceed the incurred to restore or maintain the originally assessed carrying amount that would have been determined future economic benefits of existing software systems had no impairment been recognised. A reversal of an is recognised in the income statement. impairment is recognised in the income statement.

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1.8 Financial instruments valuation techniques. Such techniques include using Financial instruments recognised on the balance recent arm’s length market transactions; reference sheet include investments, derivative instruments, to the current market value of another instrument, loans, trade and other receivables, cash and cash which is substantially the same; discounted cash flow equivalents and trade and other payables. analysis and option pricing models. Equity securities for which fair values cannot be measured reliably are Initial recognition and measurement recognised at cost less impairment. The Group determines the classification of its financial assets and liabilities at initial recognition and, where Financial assets at fair value through profit and loss allowed and appropriate in limited instances, re- The Group classifies its derivatives, in the form of evaluates this designation at each financial period forward exchange rate agreements, as financial end. Financial instruments are initially measured assets at fair value through profit or loss. The Group at fair value plus, in the case of a financial asset or has additional derivatives in the form of cash-settled call options which are designated and effective cash financial liability not at fair value through profit or loss, flow hedging instruments (readers are referred to directly attributable transaction costs. Subsequent note 1.10 on hedge accounting). The Group has not measurement and impairment for each classification designated any financial assets in this category. is specified in the sections below. It is Group policy not to speculate in derivative All regular way purchases and sales of financial assets financial instruments. The fair value of forward are recognised on the trade date, i.e. the date that the exchange rate agreements is calculated by reference Group commits to purchase or sell the asset. to current forward exchange contracts traded in the Derecognition of financial assets and liabilities open market with similar maturity profiles. Those A financial asset, or a portion of a financial asset, is with positive values are recognised as current assets derecognised where: and those with negative values are recognised as current liabilities. • the rights to receive cash flows from the asset have expired; Held-for-trading financial assets Subsequent to initial measurement, held-for-trading • the Group retains the right to receive cash flows financial assets are marked to market, i.e. measured from the asset, but has assumed an obligation to at fair value, at balance sheet date. Gains and losses pay them in full without material delay to a third arising from changes in the fair value of financial party under a ‘pass-through’ arrangement; or assets held-for-trading are recognised in income.

• the Group has transferred its rights to receive Loans and receivables cash flows from the asset and either: The export partnership participation, redeemable preference shares, various other amounts owing (i) has transferred substantially all the risks to the Group, trade and other receivables and cash and rewards of the asset; or and cash equivalents are classified as loans and (ii) has neither transferred nor retained receivables. substantially all the risks and rewards of Subsequent to initial measurement, loans and the asset, but has transferred control of the receivables are carried at amortised cost using the asset. effective interest rate method. Gains and losses are A financial liability is derecognised when the recognised in income when the loans and receivables obligation under the liability is discharged, cancelled, are derecognised or impaired, as well as through the or has expired. amortisation process.

Fair value Where credit sales are made on a six month interest- The fair value of investments traded in active ﬁnancial free basis, the related receivables are recognised at markets is determined by reference to quoted prices the fair value on transaction date and notional interest is recognised over the six month interest-free period. at the close of business on the last business day in Subsequently, receivables are measured at amortised the ﬁnancial period. For investments where there cost less a provision for uncollectible amounts. is no active market, fair value is determined using

160 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

Financial liabilities Assets carried at cost Amounts owing for trade and other payables are If there is objective evidence that an impairment loss classified as financial liabilities and are measured at has been incurred on an unquoted equity instrument amortised cost. held at cost, then the loss is measured as the Offset difference between the asset’s carrying amount and Financial assets and liabilities are offset and the net the present value of the estimated future cash flows amount reported in the balance sheet when there is discounted at the current market rate of return for a a legally enforceable right to set off the recognised similar financial asset. The loss is recognised in profit amounts and there is an intention to settle on a net or loss. Such impairment losses are not reversed. basis, or realise the asset and settle the liability 1.10 Hedge accounting simultaneously. For the purposes of hedge accounting, the three 1.9 Impairment of financial assets classifications used are fair value hedges, cash flow The Group’s financial assets are reviewed at each hedges or hedges of a net investment in a foreign reporting date or whenever events or changes in operation. circumstances indicate that the carrying value may The Group is exposed to changes in the share price not be recoverable, to determine whether there is any of the Company as a result of having issued share indication of impairment. appreciation rights to senior management. The Group Assets carried at amortised cost uses derivative instruments to hedge its exposure If there is objective evidence that an impairment loss in the form of cash-settled call options. These have has been incurred, it is measured as the difference been designated as cash flow hedges. There are no between the asset’s carrying amount and the present other instances of hedge accounting. value of the estimated future cash flows discounted Initial recognition and measurement at the financial asset’s original effective interest rate. The Group’s criteria for the application of cash flow The loss is recognised in profit or loss. hedge accounting require that: The Group first assesses whether objective evidence of impairment exists individually for financial assets • at the inception of the hedge relationship, there that are individually significant, and individually or is formal designation and documentation of the collectively for financial assets that are not individually hedging relationship, risk management objective significant. If it is determined that no objective and strategy for undertaking the hedge; evidence of impairment exists for an individually • the hedge transaction is expected to be highly assessed financial asset, whether significant or not, effective in achieving offsetting changes in cash the asset is included in a Group of financial assets flows attributable to the hedged risk; with similar credit risk characteristics and that Group of financial assets is collectively assessed for • the effectiveness of the hedge can be reliably impairment. Assets that are individually assessed measured; for impairment and for which an impairment loss is • the forecast transaction that is the subject of the or continues to be recognised are not included in a cash flow hedge must be highly probable; and collective assessment of impairment. • the hedge is assessed on an ongoing basis and If, in a subsequent period, the amount of the determined actually to have been highly effective impairment loss decreases and the decrease can throughout the financial reporting periods for be related objectively to an event occurring after the which the hedge was designated. impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal Subsequent measurement of an impairment loss is recognised in the income The fair value of the cash-settled call options is statement, to the extent that the carrying value of obtained from a valuation performed by a third party the asset does not exceed its amortised cost at the financial institution at the close of business on the reversal date. last business day in the financial period.

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Where a derivative instrument is designated as a 1.13 Treasury shares cash flow hedge of an asset, liability or forecast Shares in the Company held by Group subsidiaries, transaction, the effective part of any gain or loss including the Share Trust, are classified as treasury arising on the derivative instrument is recognised shares. The cost price of these shares is deducted from directly in a separate cash flow hedging reserve in equity. The issued and weighted average number of the statement of changes in equity until the hedged shares is reduced by the treasury shares for earnings transaction affects profit or loss. The ineffective per share calculation purposes. Dividends received part of any gain or loss is recognised in the income on treasury shares are eliminated on consolidation. statement. Treasury shares are reduced by the value of those Derecognition shares that are subsequently cancelled. Share If a forecast transaction is no longer expected to capital is reduced by the par value of these cancelled occur, amounts previously recognised in equity are treasury shares. Share premium is reduced by the transferred to profit or loss. If the hedging instrument excess of the repurchase price over the par value of expires or is sold, terminated or exercised without the shares cancelled. replacement or rollover, or if its designation as a 1.14 Employee benefits hedge is revoked, amounts previously recognised in The Group remunerates its employees with short- equity remain in equity until the forecast transaction term employee benefits and also operates four defined occurs. If the forecast transaction is not expected to occur, the amount is taken to profit or loss. contribution retirement funds and one defined benefit healthcare fund. In addition, certain employees are 1.11 Inventories remunerated with share-based payments. Finished goods are valued at the lower of cost and net realisable value, using the First-In-First-Out Short-term employee benefits (FIFO) method, taking account of provisions for Remuneration to employees is recognised in the mark-downs, obsolescence and shrinkage, where income statement as the services are rendered, appropriate. Write-downs to net realisable value and except for non-accumulating benefits which are only inventory losses are expensed in the period in which recognised when the specified event occurs. Provision the write-downs or losses occur. Net realisable value is made for accumulated and incentive bonuses. is the estimated selling price in the ordinary course Defined contribution plans of business, less necessary costs to make the sale. The Group contributions to the defined contribution Fabric is valued at the lower of cost and net realisable retirement funds are based on a percentage of the value, using the specific identification method, taking pensionable payroll and are recognised in the income account of provisions for obsolescence, where statement in the period in which the service is appropriate. rendered by the relevant employees.

Store inventories are physically verified at least once a Defined benefit plans year through the performance of inventory counts and The Group has an obligation to provide certain post- shortages identified are written off immediately. An retirement medical benefits to its eligible employees allowance is made at period end, based on historical and pensioners who were employed prior to trends, for inventory losses incurred between the last 30 June 2000. physical count and the balance sheet date. The defined benefit liability is the aggregate of the 1.12 Share capital present value of the defined benefit obligation and Issued share capital is stated in the statement of unrecognised actuarial gains and losses, reduced changes in equity as the amount of the proceeds by unrecognised past service costs and the fair received less directly attributable issue costs. value of plan assets. The defined benefit obligation

162 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

is calculated using the projected unit credit method, Where the terms of an equity-settled share-based incorporating actuarial assumptions and a discount award is modified, as a minimum an expense is rate based on high quality corporate bonds. recognised as if the terms had not been modified. In addition, an expense is recognised for any Unrecognised actuarial gains and losses, in excess of modification, which increases the total fair value of the the greater of 10% of the fair value of plan assets or equity-settled share-based payment arrangement, or the present value of the obligation at the beginning of is otherwise beneficial to the employee as measured the period, are recognised in the income statement at the date of modification. over the average expected remaining working lives of employees who qualify for the benefits. Where an equity-settled share-based award is cancelled, it is treated as if it had vested on the The past service cost is recognised as an expense on date of cancellation and any expense not yet a straight-line basis over the average period until the recognised for the share-based award is recognised benefits become vested. Any curtailment benefits or immediately. However, if a new share-based award settlement amounts are recognised in the income is substituted for the cancelled equity-settled share- statement when they are incurred. based award and designated as a replacement award Share-based payments on the date that it is granted, the cancelled and new Equity-settled compensation benefits equity-settled share-based awards are treated as if they were a modification of the original award, as Employees, including directors and non-executive described above. directors, of the Group receive remuneration in the form of equity-settled share-based payments, The effect of outstanding options is reflected in the whereby they render services in exchange for rights computation of diluted earnings per share (readers over the Company’s listed shares. are referred to note 24). Cash-settled compensation benefits The cost of equity-settled share-based payments is measured with reference to the fair value at the date The cost of cash-settled share based payments is on which they are granted. The fair value is determined measured initially at fair value at the grant date using an actuarial binomial model, further details of using an actuarial binomial option pricing model. The which are given in note 21.6.1. In valuing the equity- model takes into account the terms and conditions settled share-based payments, no account is taken upon which the instruments were granted. The fair of any performance conditions, other than conditions value is expensed over the period until vesting, with linked to the price of the Company’s shares. recognition of a corresponding liability. The liability is re-measured at each balance sheet date up to and The cost of equity-settled share-based payments is including the settlement date with changes in fair recognised, together with a corresponding increase value recognised in the income statement. in total equity under the equity-settled compensation reserve, over the vesting period. The cumulative 1.15 Taxes expense recognised for share options granted at each The income tax expense consists of current tax, balance sheet date until the vesting date reflects the deferred tax and secondary tax on companies. extent to which the vesting period has expired as well Current tax as the Group’s best estimate of the number of equity The current tax charge is the expected tax payable on instruments that will ultimately vest. No expense is the taxable income for the period. The tax rates and recognised for share options that do not ultimately tax laws used to compute this amount are those that vest, except for awards where vesting is conditional are enacted or substantively enacted by the balance upon a market condition. sheet date.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 163 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

Deferred tax Deferred tax assets and deferred tax liabilities are The provision for deferred tax assets and liabilities offset, if the Group has a legally enforceable right to reﬂects the tax consequences that would follow from set off current tax assets against current tax liabilities the expected recovery or settlement of the carrying and the deferred taxes relate to the same taxable amount of the Group’s assets and liabilities. entity and the same taxation authority.

Deferred tax is provided, using the liability method, Secondary tax on companies (STC) for all temporary differences at the balance sheet STC is recognised as part of the income tax expense date between the tax bases of assets or liabilities and in the income statement when the related dividend their respective balance sheet carrying amounts. has been raised as a liability.

A deferred tax liability is recognised for all taxable 1.16 Leases temporary differences associated with investments Leases are classified as operating leases, where in subsidiaries, branches and associates, except to substantially all the risks and rewards associated the extent that both of the following conditions are with ownership of the asset are not transferred from satisfied. The parent or investor is able to control the the lessor to the lessee. Operating lease rentals with timing of the reversal of the temporary difference fixed escalation clauses are recognised in the income and it is probable that the temporary difference will statement on a straight-line basis over the lease term. not reverse in the foreseeable future. No deferred The resulting difference arising from the straight-line tax liability is recognised on temporary differences basis and contractual cash flows is recognised as an caused by the initial recognition of goodwill. operating lease obligation or asset.

A deferred tax asset is recognised where it is probable Contingent rental income and expenses are that, in the foreseeable future, taxable profits will be recognised when accrued or incurred. available against which the deferred tax asset can be 1.17 Provisions and contingent liabilities realised. Neither a deferred tax asset nor liability is A provision is recognised when the Group has a recognised where it arises from a transaction that present legal or constructive obligation as a result is not part of a business combination, and, at the of a past event, it is probable that an outflow of time of the transaction, has not impacted accounting economic benefits will be required to settle the or taxable profit. The carrying value of deferred tax obligation and a reliable estimate can be made of assets is reviewed at each balance sheet date and the amount of the obligation. The expense related reduced to the extent that it is no longer probable to any provision is charged to the income statement. that sufficient taxable profit will be available to allow If the effect of the time value of money is material, all or part of the deferred tax asset to be utilised. a discount rate is applied to determine the present Unrecognised deferred tax assets are reassessed at value of the provision. Where discounting is used, the each reporting date and are recognised to the extent yearly increase in the provision due to the passage that it has become probable that future taxable profit of time is recognised as an interest expense in the will allow the deferred tax asset to be recovered. income statement. Deferred tax assets and liabilities are measured at the A contingent liability is a possible obligation that tax rates that are expected to apply to the year when arises from past events and whose existence will be the asset is realised or the liability is settled, based confirmed only by the occurrence or non-occurrence of on tax rates and tax laws that have been enacted or one or more uncertain future events not wholly within substantively enacted at the balance sheet date. the control of the Group. Alternatively, a contingent Deferred tax relating to items recognised directly in liability could be a present obligation that arises equity is recognised in equity and not in the income from past events where the likelihood of settlement statement. is not probable or the obligation cannot be reliably

164 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

measured. Contingent liabilities are not recognised Display fees and ﬁnancial services income as liabilities in the Group ﬁnancial statements but are Revenue is recognised in the period in which it is disclosed separately in the notes. earned, according to the applicable contractual arrangements. 1.18 Dividends Dividends payable and the related taxation thereon Lease rental income are recognised as liabilities in the period in which Lease rental income is recognised in the period in the dividends are declared. A dividend declared which it is earned based on the straight-line method. subsequent to period end is not charged against total Royalties equity at the balance sheet date as no liability exists. Royalties, through the sale of merchandise to 1.19 Revenue franchisees, are recognised in the period in which they Revenue is measured at the fair value of the are earned, according to the applicable contractual consideration received or receivable. Revenue is arrangements.

recognised on the bases set out below: Warehouse and management fees Sale of merchandise Revenue is recognised when the services contracted Revenue from the sale of merchandise through retail for are rendered. outlets and to franchisees is recognised when the Dividends risks and rewards of ownership have passed to the Revenue is recognised when the Group’s right to customer or franchisee. Such income represents receive payment is established. the net invoice value of merchandise provided to 1.20 Cost of sales third parties - excluding discounts, value-added and Cost of sales includes all costs of purchase, costs general sales tax. of conversion, and other costs incurred in bringing Sales made on interest-free deferred settlement inventories to their present location and condition. terms effectively contain a ﬁnancing element. The Costs of purchase comprise the purchase price, difference between the purchase price under market import duties and other taxes and transport costs. related conditions and the amount actually paid Inventory write-downs are included in cost of sales is recognised as notional interest income over the when recognised. Trade discounts, settlement period of the ﬁnancing. discounts and other similar items are deducted in

Interest determining the costs of purchase. Interest is accrued and recognised on a time- Cost of sales is recognised as an expense in the proportion basis, at the effective rate implicit in the income statement when the risks and rewards of instrument. ownership related to the sale of merchandise passes

Commission to the customer or franchisee. Settlement discount granted by a supplier for early payment is recognised Commission, through the sale of merchandise on as a reduction in cost of sales. behalf of third parties, is recognised in the period in which it is earned according to the applicable 1.21 Finance costs contractual arrangements. Where the Group acts Finance costs are accrued and recognised in the as an agent, all payments collected from customers income statement at the effective interest rate and passed on to third parties are excluded from both relating to the relevant ﬁnancial liability, in the period revenue and expenses. in which it is incurred.

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1.22 Segmental reporting • IFRS 7 (AC 144), ‘Financial Instruments: Segmental information is not disclosed as the Group Disclosure’ is regarded as having only a single material southern – effective for annual periods beginning on or African retailing segment. after 1 January 2007 1.23 Events after balance sheet date • IAS 19 (AC 116), ‘Amendment - Employee The financial statements are adjusted to reflect Benefits Actuarial Gains and Losses, Group events that occurred between the balance sheet Plans and Disclosures’ date and the date when the financial statements are authorised for issue, provided they give evidence of – effective for annual periods beginning on or conditions that existed at the balance sheet date. after 1 January 2006 Events that are indicative of conditions that arose • IAS 21 (AC 112), ‘Amendment - The effects after the balance sheet date are disclosed, but do not of Changes in Foreign Exchange Rates - Net result in an adjustment of the financial statements Investment in a Foreign Operation’ themselves. – effective for annual periods beginning on or 1.24 IFRS and amendments, and International Financial after 1 January 2006 Reporting Interpretations Committee (‘IFRIC’) • IAS 39 (AC 133), ‘Amendment - Cash Flow Hedge interpretations, not yet effective Accounting of Forecast Intragroup Transactions’ The Group has not adopted the following IFRS standards and amendments and IFRIC interpretations – effective for annual periods beginning on or that have been issued but are not yet effective for the after 1 January 2006 period under review. They will be adopted no later • IAS 39 (AC 133), ‘Amendment - The Fair Value than their effective dates. Option’ • IFRIC 4 (AC 437), ‘Determining whether an – effective for annual periods beginning on or Arrangement contains a Lease’ after 1 January 2006 – effective for annual periods beginning on or • IAS 39 (AC 133), ‘Amendment - Financial after 1 January 2006 Guarantee Contracts’ • IFRIC 8 (AC 441), ‘Scope of IFRS 2’ – effective for annual periods beginning on or – effective for annual periods beginning on or after 1 January 2006 after 1 May 2006 • IAS 1 (AC 101), ‘Amendment - Capital • IFRIC 9 (AC 442), ‘Reassessment of Embedded Disclosures’ Derivatives’ – effective for annual periods beginning on or – effective for annual periods beginning on or after 1 January 2007 after 1 June 2006 • AC 503, ‘Accounting for Black Economic • IFRIC 10 (IAS 34, IAS 36 and IAS 39), ‘Interim Empowerment (BEE) Transactions’ Financial Reporting and Impairment’ – effective for annual periods beginning on or – effective for annual periods beginning on or after 1 May 2006 after 1 November 2006

166 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

Based on current information and interpretation, the Plant and equipment Group expects that adoption of the pronouncements The Group assesses the useful lives, depreciation listed above will have no material financial impact rates and residual values of its plant and equipment at on the Group’s financial statements in the period of each reporting date. These estimates take cognisance initial application. However, the Group will comply of current market and trading conditions for the with the additional disclosure requirements resulting Group’s specific plant and equipment. In addition, from such initial application. the useful life estimates take into account the risk of obsolescence due to advances in technology. Readers 1.25 IFRS and amendments and IFRIC interpretations not are referred to note 2 for further detail. applicable to Group activities Asset impairments The following IFRS and IFRIC interpretations that The Group determines whether assets are impaired at have been issued have not been adopted by the Group least at each reporting date. Key assumptions applied as they are not applicable to its activities: to the earnings portion of a discounted cash flow • IFRS 4 (AC 141), ‘Insurance Contracts’; calculation include the sales growth rate, operating • IFRS 6 (AC 143), ‘Exploration for and Evaluation margin, return on investment, re-investment of of Mineral Resources’; profits, working capital requirements and capital expenditure. The growth rate used to extrapolate cash • IFRIC 5 (AC 438), ‘Rights to Interests arising flows beyond the most recent budget period is also from Decommissioning, Restoration and estimated. In determining the discount rate applied Environmental Rehabilitation funds’; to calculate the present value of future earnings • IFRIC 6 (AC 439), ‘Liabilities arising from the Group estimates the risk-free rate, market risk Participating in a Specific Market - Waste return and beta value. Readers are referred to notes Electrical and Electronic Equipment’; 3 and 4 for further detail.

• IFRIC 7 (AC 440), ‘Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinﬂationary Economies’.

1.26 Use of estimates and judgements in the preparation of annual financial statements In the preparation of the annual financial statements, management is required to make estimates and assumptions that affect reported income, expenses, assets, liabilities and disclosure of contingent assets and liabilities. Use of available information and the application of judgement is inherent in the formation of estimates. Actual results in the future could differ from these estimates which may be material to the financial statements within the next financial period. The key assumptions concerning estimation uncertainties at the balance sheet date are discussed below.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 167 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

Allowance for slow-moving inventory Post-retirement medical benefits The allowance for slow-moving inventory takes into The Group provides post-retirement medical account historic information related to sales trends, benefits and obtains an actuarial valuation annually and attempts to quantify the amount of slow-moving regarding its obligation in this regard. The key inventory on hand at period end. The net realisable assumptions applied in arriving at the net obligation value assigned to this inventory is the net selling price include mortality rates, inflation rates, future salary in the ordinary course of business less necessary increases, investment return, the discount rate and costs to make the sale. This makes use of estimates current market conditions. Readers are referred to concerning the fair value of slow-moving inventory note 13 for further detail. and the related costs to sell. Fair value of share options and share appreciation Allowance for doubtful debts rights granted The Group assesses its allowance for doubtful debts The fair value attached to share options and share at least at each reporting date. Key assumptions appreciation rights granted is obtained with the use of applied in this calculation would be the estimated a binomial option pricing model. The key assumptions debt recovery rates within the Group’s varied debtors’ used in the calculation include estimates of the book as well as an estimation or view on current and share’s expected volatility, dividend yield and risk- future market conditions that could affect the debt free interest rate. Readers are referred to note 21.6 recovery rates. Readers are referred to note 7.1 for for further detail. further detail.

Deferred tax assets The current tax provision is calculated with the aid of an inventory revaluation model. The model calculates an acceptable tax value of inventory and determines the difference between the tax value and the accounting value of inventory, which difference is incorporated in the current tax calculation/liability. This difference would also affect the deferred tax via the tax base of inventory and would be classiﬁed as a timing difference (normally a deferred tax asset). Readers are referred to note 12 for further detail.

168 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

Equipment, furniture Computer Land Buildings and ﬁttings equipment Total Rm Rm Rm Rm Rm 2. PROPERTY, PLANT AND EQUIPMENT

25 June 2006 Balance at the beginning of the period, net of accumulated depreciation 3 124 185 35 347 Additions 1 6 80 13 100 Disposals – – (1) – (1) Depreciation (refer note 20.2) – (3) (49) (15) (67)

Balance at the end of the period, net of accumulated depreciation 4 127 215 33 379

Reconciliation as at 25 June 2006 Cost 4 135 501 112 752 Accumulated depreciation – (8) (286) (79) (373)

Net carrying amount 4 127 215 33 379

26 June 2005 Balance at the beginning of the period, net of accumulated depreciation 3 126 148 43 320 Additions – 1 80 8 89 Disposals – – – (1) (1) Depreciation (refer note 20.2) – (3) (43) (15) (61)

Balance at the end of the period, net of accumulated depreciation 3 124 185 35 347

Reconciliation as at 26 June 2005 Cost 3 129 422 99 653 Accumulated depreciation – (5) (237) (64) (306)

Net carrying amount 3 124 185 35 347

Reconciliation as at 28 June 2004 Cost 3 128 342 92 565 Accumulated depreciation – (2) (194) (49) (245)

Net carrying amount 3 126 148 43 320

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 169 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

2006 2005 Rm Rm 2. PROPERTY, PLANT AND EQUIPMENT (continued)

Estimated replacement and insured value 868 713

In terms of IFRS 1: First-time adoption of International Financial Reporting Standards, the Group elected the transitional provision relating to land and buildings in terms of which the fair value on 28 June 2004 of the head ofﬁce building at No.1 Mostert Street, Cape Town, amounting to R116m was deemed to be the cost. The determination of fair value was carried out by an independent professional valuer. No other land and buildings were revalued at 28 June 2004.

A register of the Group’s land and buildings is available for inspection at the registered ofﬁce.

Computer Goodwill software Total Rm Rm Rm 3. INTANGIBLE ASSETS

25 June 2006 Balance at the beginning of the period, net of accumulated amortisation 38 21 59 Additions – 7 7 On acquisition of minority interest in subsidiary 14 – 14 Amortisation (refer note 20.2) – (7) (7)

Balance at the end of the period, net of accumulated amortisation 52 21 73

Reconciliation as at 25 June 2006 Cost 52 41 93 Accumulated amortisation – (20) (20)

Net carrying amount 52 21 73

170 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

Computer Goodwill software Total Rm Rm Rm 3. INTANGIBLE ASSETS (continued)

26 June 2005 Balance at the beginning of the period, net of accumulated amortisation 38 12 50 Additions – 13 13 Amortisation (refer note 20.2) – (4) (4)

Balance at the end of the period, net of accumulated amortisation 38 21 59

Reconciliation as at 26 June 2005 Cost 38 34 72 Accumulated amortisation – (13) (13)

Net carrying amount 38 21 59

Reconciliation as at 28 June 2004 Cost 38 21 59 Accumulated amortisation – (9) (9)

Net carrying amount 38 12 50

Impairment testing of goodwill

All goodwill is related to Young Designer’s Emporium (Pty) Limited.

Key assumptions applied to determine the recoverable amount of this unit by using the value-in-use calculation relate to the sales growth rate, reinvestment of profits, working capital requirements and capital expenditure. Cash flow projections were based on historical information and financial budgets approved by senior management covering a four-year period.

The discount rate applied to these projected cash ﬂows, when calculating the value-in-use of the cash-generating unit, was 16.6% (2005:17.4%) and the variables comprising it were estimated as follows - the risk-free rate of 8.6% (2005:7.9%) was approximated to the yield on the long-term South African R157 government bond; the market risk premium of 8% (2005:8%) was approximated to the long-term return on the JSE ALSI index; and the beta value was set at 0.87 (2005: 0.70).

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 171 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

2006 2005 Note Rm Rm 4. FINANCIAL ASSETS

GROUP

Held-for-trading assets 4.1 13 –

Loans and receivables Export partnership participation 4.3 50 74 Secured housing loans to directors 4.4 – 1 Secured housing loans to employees 4.5 1 1 Secured loans to share incentive scheme participants 4.6 14 12 Unsecured loans 4.7 44 5

122 93

4.1 Held-for-trading assets Financial instruments acquired 23 – Fair value adjustment at the end of the period (10) –

Income statement charge 20.3 (7) – Cash ﬂow hedging reserve (3) –

Balance at the end of the period 13 –

The Group entered into a structured transaction with an independent financial institution when the cash-settled compensation scheme was initiated. The Group acquired hedging instruments in the form of cash-settled call options, that will be utilised to settle the hedged item, being the related financial obligation in terms of the scheme. The call options have been designed specifically to hedge the fluctuation in value of the related share appreciation rights within the scheme. The fair value of the cash-settled call options at the end of the period was determined by the independent financial institution. The fair value on this date could not be determined by reference to a quoted price from an active market, hence it has been estimated using an actuarial binomial option pricing model. The assumptions used in this estimation are as follows:

Strike price (R) 0.01- 30.89 Expected life of options (years) 1 – 4 Share price at measurement date (R) 20.55 Expected volatility (%) 28.0 Expected dividend yield (%) 4.3 Risk-free interest rate (%) 7.5 - 9.4

Refer to note 18 for further information related to ﬁnancial risk management.

172 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

2006 2005 Rm Rm 4. FINANCIAL ASSETS (continued)

GROUP

4.2 Redeemable preference shares Current balance reﬂected under current ﬁnancial assets – 30

The redeemable preference shares were short-term investment instruments and were disposed of on 19 May 2006. The instruments earned a yield of 60.5% (2005: 60.5%) of the prime interest rate. Dividends were payable bi- annually but were accrued for on a time-proportion basis.

4.3 Export partnership participation Balance at the beginning of the period 74 101 Impairment – (4) Payments received during the period (25) (25) Current interest adjustment 1 2

Balance at the end of the period 50 74

The Group participates with other companies in the former Wooltru Limited group in various export partnerships whose business was the purchase and export sale of containers. These partnerships bought and sold dry containers in terms of long-term suspensive purchase and credit sale agreements respectively, with speciﬁcally scheduled repayment terms over either a ten or a ﬁfteen year period. Trencor Services (Pty) Limited, a wholly-owned subsidiary of Trencor Limited, which is listed on the JSE Limited, acts as managing partner in these partnerships. The managing partner collects and disburses partnership funds on behalf of the partners and distributes to them the funds required to settle their deferred tax liabilities when these fall due.

At the end of the period, the Group’s participation comprised of a share of long-term receivables due by the purchaser of the containers exported of R262 million (2005: R316 million), a share of long-term liabilities due to the manufacturer of the containers of R185 million (2005: R213 million) and a share of net other liabilities of R25 million (2005: R25 million).

The participation has been valued at amortised cost, using the effective interest rate method and an effective interest rate of 1.71% per annum (2005: 1.73%).

Any impairment in the participation would result in a corresponding decrease in the deferred tax liability and thus have no income statement impact.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 173 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

2006 2005 Rm Rm 4. FINANCIAL ASSETS (continued)

GROUP

4.4 Secured housing loans to directors Balance at the beginning of the period 1 1 Repayments during the period (1) –

Balance at the end of the period – 1

Interest is payable at 8% per annum. The loans are secured by second mortgage bonds registered in favour of a subsidiary and are repayable no later than upon termination of the directors’ service with the Group.

4.5 Secured housing loans to employees Balance at the beginning and end of the period 1 1

Interest is payable at 8% per annum. Capital and interest is payable monthly. The loans are secured by a pledge over the employees’ share in the Alexander Forbes Retirement Fund. The loans are repayable no later than upon termination of the employees’ service with the Group.

4.6 Secured loans to share incentive scheme participants Balance at the beginning of the period 12 13 Advances during the period 3 1 Repayments during the period (1) (2)

Balance at the end of the period 14 12

Loans to participants in the Truworths International Limited Share Scheme are interest-free and secured by a pledge over ordinary shares in the company held by employees of subsidiaries pursuant to the scheme. The loans are predominantly awarded to key management personnel. The loans are repayable immediately upon the termination of the employees’ service with the Group.

4.7 Unsecured loans Balance at the beginning of the period 5 5 Advances during the period 53 19 Repayments during the period (14) (19)

Balance at the end of the period 44 5

Unsecured loans comprise unsecured interest-free loans to the Truworths Community Foundation and the Truworths Social Involvement Trust whose charitable activities are funded by income earned on the funds invested.

174 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

4. FINANCIAL ASSETS (continued) 2006 2005 Rm Rm

COMPANY

Loans and receivables Amounts owing by Young Designers Emporium (Pty) Limited 47 35 Amounts owing by Truworths Limited – 49 Amounts owing by Truworths Investments (Pty) Limited 131 54 Amounts owing by Truworths Investments Two (Pty) Limited 120 –

298 138

The amounts owing are unsecured, interest-free and repayable on demand.

There were no guarantees provided or received in respect of subsidiaries. The company has not made any impairment provision relating to amounts owed by subsidiaries as such amounts are considered to be fully recoverable. The company has subordinated its claim for repayment of the amount owing by Truworths Investments Two (Pty) Limited, for the beneﬁt of other creditors of that company, until its assets fairly valued exceed its liabilities.

5. INTERESTS IN SUBSIDIARY COMPANIES

GROUP

Interest in aggregate after-tax proﬁts of subsidiaries 863 672

COMPANY

Shares in Truworths Limited 115 109 Shares in Young Designers Emporium (Pty) Limited 15 –

130 109

A detailed listing of all subsidiaries is contained in annexure one.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 175 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

2006 2005 Rm Rm 6. INVENTORIES

Finished goods 290 260

Total inventories 290 260

Inventory write-downs during the period 80 83 Estimated replacement value 354 329

7. TRADE AND OTHER RECEIVABLES

Trade receivables 1,536 1,199 Allowance for doubtful debts (refer to note 7.1) (91) (71)

1,445 1,128 Other receivables 74 73

1,519 1,201

Net bad debts as % of gross debtors’ book (%) 5.1 4.6 Allowance for doubtful debts as a % of gross debtors’ book (%) 5.9 5.9

The directors consider the carrying amount of trade and other receivables to approximate its fair value.

7.1 Allowance for doubtful debts Balance at beginning of the period 71 57 Movement for the period: 20 14

Allowance raised 104 71 Allowance utilised (79) (55) Allowance released (5) (2)

Balance at the end of the period 91 71

8. CASH AND CASH EQUIVALENTS

GROUP

Cash on hand and balances with banks 219 606

For further details regarding ﬁnancial risk management refer to note 18.

COMPANY

Cash on hand and balances with banks 5 6

176 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

Number of Number of shares shares 2006 2005 2006 2005 000’s 000’s Rm Rm 9. SHARE CAPITAL

GROUP AND COMPANY

Ordinary share capital Authorised 650 000 000 (2005: 650 000 000) ordinary shares of 0.015 cent each – * – *

Issued and fully paid 482 915 041 (2005: 487 240 507) ordinary shares of 0.015 cent each – * – *

The company has one class of ordinary shares which carry no rights to ﬁxed income.

* Reﬂected as zero, due to rounding to millions.

Reconciliation of movement in issued shares: Balance at the beginning of the period 487,240 482,732 Shares issued 2,874 4,508 Shares repurchased and cancelled (7,199) –

Balance at the end of the period 482,915 487,240 Treasury shares held by subsidiaries (refer note 11): (49,024) (39,743)

Truworths Limited (36,215) (36,215) Truworths Investments (Pty) Limited (7,363) (3,363) Truworths Investments Two (Pty) Limited (5,281) – Truworths International Share Trust (165) (165)

Adjusted issued shares at the end of the period 433,891 447,497

Shares repurchased and held by subsidiaries as a % of the issued shares at the end of the period (%) 10 8

The shares issued during the period were allotted for an aggregate nominal value of R431 (2005: R676) and an aggregate subscription price before expenses of R17,071,103 (2005: R19,793,686). In terms of a shareholders’ resolution passed on 4 November 2005, the directors have until the next annual general meeting a general authority, which is limited to 10% of the company’s issued shares, to issue or use as the case may be, the unissued and treasury shares of the company. This authority is subject to the provisions of the Companies Act and the Listings Requirements of the JSE Limited.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 177 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

2006 2005 Rm Rm 10. SHARE PREMIUM

GROUP AND COMPANY

Balance at the beginning of the period 197 177 Premium on shares issued 17 20 Shares repurchased and cancelled (200) –

Balance at the end of the period 14 197

Number of Number of shares shares 2006 2005 000’s 000’s 11. TREASURY SHARES

Balance at the beginning of the period 39,743 36,358 330 275

Truworths Limited 36,215 36,215 274 274 Truworths Investments (Pty) Limited 3,363 – 54 – Truworths International Share Trust 165 143 2 1

Shares purchased by subsidiaries during the period: 9,281 3,385 198 55

Truworths Investments (Pty) Limited 4,000 3,363 79 54 Truworths Investments Two (Pty) Limited 5,281 – 119 – Truworths International Share Trust – 22 – 1

Balance at the end of the period 49,024 39,743 528 330

Reconciled as follows: (refer note 9) Truworths Limited 36,215 36,215 274 274 Truworths Investments (Pty) Limited 7,363 3,363 133 54 Truworths Investments Two (Pty) Limited 5,281 – 119 – Truworths International Share Trust 165 165 2 2

49,024 39,743 528 330

Average cumulative purchase price (cents per share) 1,076 831

Average purchase price during period (cents per share) 2,127 1,623

178 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

11. TREASURY SHARES (continued)

The articles of association of the company’s wholly-owned subsidiaries - Truworths Limited, Truworths Investments (Pty) Limited and Truworths Investments Two (Pty) Limited - have been altered by special resolution to enable them to acquire the company’s shares, subject to the relevant provisions of the Companies Act and the Listings Requirements of the JSE Limited. The repurchases were effected in terms of special resolutions passed by the company and these subsidiaries whereby these subsidiaries were generally authorised to acquire in the aggregate up to 10% of the company’s shares in issue at the date of the company’s annual general meeting on 4 November 2005.

2006 2005 Rm Rm 12. DEFERRED TAX

GROUP

Net deferred tax liability at the beginning of the period 35 78

Liability 87 133 Asset (52) (55)

Opening balance comprising: Liability 87 133

Export partnership participation 59 107 Prepayments 6 6 Property, plant and equipment 21 20 Other 1 –

Asset (52) (55)

Trade and other receivables (20) (14) Trade and other payables (7) (7) Post-retirement medical beneﬁt obligation (6) (11) Straight-line operating lease obligation (14) (14) Inventories (1) (6) Other (4) (3)

Movement for the period (refer note 22.1) (24) (43) Decrease in deferred tax liability (3) (46)

Export partnership participation (6) (44) Prepayments 2 – Property, plant and equipment 1 1 Change in corporate tax rate – (3)

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 179 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

2006 2005 Rm Rm 12. DEFERRED TAX (continued)

(Increase)/decrease in deferred tax asset (21) 3

Trade and other receivables (5) (7) Trade and other payables (8) – Post-retirement medical beneﬁt obligation – 5 Inventories – 6 Intangible assets (2) – Held-for-trading assets (5) – Other (1) (1)

Net deferred tax liability at the end of the period 11 35

Liability 84 87 Asset (73) (52)

Closing balance comprising: Liability 84 87 Export partnership participation 53 59 Prepayments 8 6 Property, plant and equipment 22 21 Other 1 1

Asset (73) (52) Trade and other receivables (25) (20) Trade and other payables (15) (7) Post-retirement medical beneﬁt obligation (6) (6) Straight-line operating lease obligation (14) (14) Inventories (1) (1) Intangible assets (2) – Held-for-trading assets (5) – Other (5) (4)

13. POST-RETIREMENT MEDICAL BENEFIT OBLIGATION

The Group operates a defined benefit healthcare fund and details of the benefit obligation are disclosed below. For further detail refer to note 21.4. Benefit obligation Present value of obligation 54 51 Fair value of plan assets (38) (36)

Funding deﬁcit 16 15 Add: Unrecognised net actuarial gains (included above) 7 6

Beneﬁt obligation 23 21 A subsidiary has undertaken to meet any shortfalls arising in respect of post-retirement medical beneﬁt obligations.

180 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

2006 2005 Rm Rm 13. POST-RETIREMENT MEDICAL BENEFIT OBLIGATION (continued)

Changes in the present value of the obligation are as follows: Opening obligation 51 49 Interest cost 4 5 Current service cost 2 2 Beneﬁts paid (2) (2) Actuarial gains on obligation (1) (3)

Closing obligation 54 51

Changes in the fair value of plan assets are as follows: Opening fair value of plan assets 36 30 Expected return 3 3 Contributions by employer (1) (1) Actuarial gains – 4

Closing fair value of plan assets 38 36

The major categories of plan assets as a percentage of the fair value of total plan assets are as follows: Cash (%) 14 24 Bonds (%) 50 50 Equity (%) 26 22 Off-shore investments (%) 7 4 Property (%) 3 –

100 100

The overall expected rate of return on the plan assets is determined with reference to the market prices prevailing at the beginning of the period, applicable to the period over which the obligation is to be settled.

Fair value of beneﬁt obligation

The audited annual ﬁnancial statements of the fund at 31 December 2005 reveal that the fund was in a sound ﬁnancial position having improved its solvency ratio from 77.5% to 91.9% of which 45% comprises the fund’s HIV reserve.

The Group valued its accrued future liability in respect of post–retirement medical aid obligations at each balance sheet date. For valuation purposes the following assumptions were made:

Discount rate (%) 8.5 8.0 Expected medical cost inﬂation (%) 6.5 6.0 Expected return on plan assets (%) 8.0 8.0 Normal retirement age (years) 60 60

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 181 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

Percentage Accumulated change in beneﬁt accumulated obligation medical beneﬁt obligation (%) Rm 13. POST-RETIREMENT MEDICAL BENEFIT OBLIGATION (continued)

The effect of fluctuation in the medical cost inflation on the accumulated benefit obligation would be as follows: 25 June 2006 1% decrease (13) 47 1% increase 16 63

26 June 2005 1% decrease (13) 45 1% increase 17 60

2006 2005 Rm Rm

Net beneﬁt expense Current service cost 2 2 Interest cost on beneﬁt obligation 4 5 Expected return on plan assets (3) (3)

Net beneﬁt expense (refer note 20.3) 3 4

The actual return earned on the Group’s post-retirement medical benefit plan assets amounted to a profit of R3 million (2005: profit of R7 million). The difference between the actual and the expected returns on plan assets is an actuarial gain.

14. LEASES

14.1 Straight-line operating lease obligation Balance at the beginning of the period 43 47 Lease obligations incurred during the period 5 –

Balance at the end of the period 48 47 Current portion reﬂected under trade and other payables (refer note 15) (2) (4)

Long-term portion reﬂected under non-current liabilities 46 43

182 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

14. LEASES (continued)

14.2 Lessee under operating leases (continued) The Group rents all its trading premises in terms of operating leases, whereas other operating assets, including the head office building No. 1 Mostert Street, two warehouses, a flat and the distribution centre are owned. Leases on trading premises are contracted for periods of between three and ten years, with renewal options for a further three or five years. Some of these leases provide for minimum annual rental payments together with additional amounts determined on the basis of sale of merchandise. One hundred and fifteen (2005: ninety one) stores, or 32% (2005: 19%) of all premises leased, reached the sale of merchandise threshold and therefore incurred these additional payments averaging approximately 5.1% (2005: 5.5%) of sale of merchandise. Rental escalations have varied at an average rate of approximately 8.2% (2005: 9%) per annum. For further details regarding lease expenses, refer to note 20.4. 2006 2005 Rm Rm

At balance sheet date, the future minimum operating lease payments due were as follows: 858 840

Within one year 221 198 Between one and five years 562 524 Between five and ten years 75 113 Between ten and fifteen years – 5

14.3 Lessor under operating leases

The Group rents out a limited number of trading and office premises in terms of operating leases. Leases on premises are contracted for periods of between two and ten years, with renewal options on certain leases for a further three or five years. Rental escalations are fixed in terms of the lease contracts and average 9% (2005: 9%) per annum. For further details regarding lease income, refer to note 20.4.

At the end of the period the future minimum lease rental income expected under non-cancellable leases was as follows: 11 17

Within one year 5 8 Between one and ﬁve years 5 9 Between ﬁve and ten years 1 –

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 183 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

2006 2005 Rm Rm 15. TRADE AND OTHER PAYABLES

GROUP Trade payables 341 287 Value-added tax 9 12 Current portion of straight-line operating lease obligation (refer note 14.1) 2 4 Shareholders for dividends 1 1 Other payables and accrued expenses 139 113

492 417

COMPANY Shareholders for dividends 1 1 Other payables and accrued expenses 1 – Amounts owing to Truworths Limited 352 4

354 5

The amounts owing to Truworths Limited are unsecured, interest-free and repayable on demand.

The directors consider the carrying amounts of all trade and other payables to approximate their fair value.

16. CAPITAL COMMITMENTS Capital commitments include all projects for which speciﬁc board approval has been obtained.

Authorised but not yet contracted for: Equipment, furniture and ﬁttings 142 83 Computer equipment 30 24

172 107

Estimated expenditure Within the following period 172 107

The capital commitments will be ﬁnanced by cash generated from operations and available cash resources.

17. CONTINGENT LIABILITIES Litigation There is no current or pending litigation which is considered likely to have a material adverse effect on the Group.

Operating leases The Group’s contingent liabilities in respect of operating lease commitments are detailed in note 14.

184 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

18. FINANCIAL RISK MANAGEMENT

18.1 Treasury risk The board, acting on the recommendation of the investment committee, manages the ﬁnancial risks and treasury management function relating to the Group’s operations. It has developed a comprehensive treasury policy and process to monitor and control these risks. This policy has been approved by the board of directors. The investment committee meets regularly to update risk policies and objectives, as well as to re-evaluate risk management strategies against revised economic forecasts. Surplus cash is invested with the most highly rated counter-parties. Policy amendments have to be submitted to the board for approval. Compliance with the stated risk policy is reported on regularly by the internal audit function and is submitted to the investment committee for review.

18.2 Currency risk

18.2.1 Forward exchange contracts The Group transacts in various foreign currencies and consequently is exposed to exchange rate fluctuations that have an impact on cash flows and financing activities. Forward exchange contracts (FEC’s) are utilised to reduce foreign currency exposures arising from imports into South Africa. Exports of merchandise in a foreign currency are not covered by FEC’s as they do not form a significant part of the Group’s business. The current FEC asset of R 9 million at the end of the period is included in other receivables in note 7.

Group policy is to cover committed import exposures. The Group had no uncovered foreign currency liabilities at 25 June 2006 (2005: Nil). At the end of the period the Group had entered into forward exchange contracts to cover speciﬁc orders of goods. These contracts will mature within twelve months.

Average Foreign Fair Contract contract currency value equivalent rate m Rm Rm

25 June 2006 US Dollars 10 75 65 6.40

26 June 2005 US Dollars 8 52 51 6.61

The average rates shown include the cost of forward cover for periods of up to twelve months.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 185 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

18. FINANCIAL RISK MANAGEMENT (continued)

18.2 Currency risk (continued)

18.2 .2 Export partnership participation A ﬁxed rate of exchange is set for the purposes of converting the foreign currency receipts in respect of container sales into Rands. Any differences are for the account of Trencor Services (Pty) Limited and will have no impact on the earnings of the Group.

18.3 Interest rate risk The Group is exposed to interest rate risk on its cash on hand and the interest-bearing portion of the debtors’ book. The interest rate and maturity profile of these instruments are summarised as follows, and no instruments have a maturity profile exceeding one year: Interest Maturity profile rate within 1 year % Rm

Period ended 25 June 2006 Floating rate Cash on hand 7.1 219 Interest-bearing portion of debtors’ book 20.0 990

Period ended 26 June 2005 Cash on hand 7.0 606 Interest-bearing portion of debtors’ book 20.0 739

18.4 Liquidity risk The Group has R475 million (2005: R475 million) of unutilised domestic general banking facilities and R5 million (2005: R3.9 million) guarantees in place. The Group operates a cash management system and as a result positive cash balances and overdrafts are offset.

In terms of the company’s articles of association, its borrowing powers are unlimited. The borrowing powers of the Group’s wholly-owned operating subsidiary, Truworths Limited, may in terms of its articles of association be limited by the company.

The Group has minimal risk of illiquidity as reﬂected by its substantial unutilised banking facilities, surplus cash and unutilised gearing capacity.

186 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

18. FINANCIAL RISK MANAGEMENT (continued)

18.5 Credit risk Credit risk management relates primarily to trade receivables and short-term cash investments. The Group invests surplus cash only with F1 + and approved F1 rated ﬁnancial institutions. The amount of exposure to any one counter-party is subject to limits imposed by the Group’s treasury policy.

Trade receivables are due by a large widespread customer base. Group entities perform ongoing credit evaluations of the ﬁnancial condition of their customers. The granting of credit is regulated, inter alia by the use of sophisticated point scoring models. The assumptions therein are reviewed and updated on a regular basis. At 25 June 2006 the Group did not consider there to be any signiﬁcant concentration of credit risk in respect of which adequate allowance had not been raised.

Concentration of credit risk There is a prima facie concentration of credit risk in relation to the Group’s export partnership participation referred to in note 4.3, in that the amounts due to the Group by virtue of such participation are, in the ﬁrst instance, owed by a single debtor. However, the indebtedness of this debtor to the Group is underpinned by amounts owing to it by its numerous internationally dispersed customers. Furthermore, the debtor is a wholly-owned subsidiary of Trencor Limited, a JSE Limited listed company, which has warranted certain important cash ﬂow aspects of the Group’s participation in these partnerships. In addition, the partnerships have a contractual right to “put” the rights and obligations which they have under the long-term suspensive purchase agreements concluded with the seller of the containers, to Trencor Services (Pty) Limited, also a wholly-owned subsidiary of Trencor Limited, in the event that the debtor is twelve months or more in arrears with any payment due to the partnerships.

18.6 Fair value of ﬁnancial instruments All ﬁnancial instruments have been recognised in the balance sheet and there is no material difference between their fair values and carrying values. The following methods and assumptions were used by the Group in establishing fair values:

Financial assets and liabilities except for forward exchange contracts and cash-settled call options Carrying amounts reported in the balance sheet approximate fair values.

Forward exchange contracts Forward exchange contracts (FEC’s) are entered into mainly for speciﬁc orders, and fair values are determined using market traded foreign exchange rates with similar maturity proﬁles to the FEC’s as at 25 June 2006.

Cash-settled call options The fair value of these options has been determined with reference to a valuation performed by a third party ﬁnancial institution at balance sheet date (refer note 4.1).

18.7 Cash flow risk The Group is exposed to fluctuations in the share price of the company as a result of the share appreciation rights that have been granted to employees in terms of the cash-settled High Performance Share Scheme. The Group uses derivative instruments, in the form of cash-settled call options, to hedge its exposure in respect of these fluctuations. Sufficient options were purchased in order to settle the total expected future liability.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 187 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

2006 2005 Rm Rm 19. REVENUE

GROUP

Sale of merchandise 3,816 3,115

Retail sales 3,800 3,098 Franchise sales 16 17

Interest received 288 232

Investment interest 31 40 Trade receivables interest 257 192

Fees earned (refer note 20.6) 76 67

Commission 58 47 Display fees 17 14 Royalties 1 1 Warehousing and management fees – 5

Lease rental income (refer note 20.4) 9 9 Dividends received 2 2

4,191 3,425

Credit: cash sales mix 74:26 74:26

COMPANY

Dividends received 406 290

20. TRADING PROFIT

This is stated after taking account of the following items:

20.1 Auditors’ remuneration Audit fees - current period 2 2 Other services – 1

2 3

20.2 Depreciation and amortisation Depreciation (refer note 2) 67 61 Amortisation (refer note 3) 7 4

74 65

188 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

20. TRADING PROFIT (continued)

20.3 Employment costs

GROUP

The Group employed 5,180 full time equivalent employees at the end of the period (2005: 4,604). The aggregate remuneration and associated costs for the period relating to the employment of permanent and ﬂexi-time employees, including executive directors, were: 2006 2005 Rm Rm

Salaries, bonuses, wages and other benefits 381 334 Contributions to the defined contribution plans (refer note 21.3) 25 22 Post-retirement medical benefit obligation (refer note 13) 3 4 Medical scheme contributions 20 18 Share-based payments 13 6 Equity-settled (refer note 21.6.1) 6 6 Cash-settled (refer note 21.6.2) 7 -

442 384

COMPANY

Directors’ fees 1 1

20.4 Occupancy costs Land and buildings 246 210

Minimum lease payments 234 205 Turnover clause payments 21 14

255 219 Lease rental income (refer note 19) (9) (9)

Plant and equipment 1 1

Total net operating lease expenses 247 211 Other occupancy costs 25 21

272 232

20.5 Fees expensed Management, technical, administrative and secretarial fees paid 27 27

20.6 Fees earned Commission, display fees, royalties, warehousing and management fees earned (refer note 19) 76 67

20.7 Foreign exchange proﬁt 7 2

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 189 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

21. DIRECTORS AND EMPLOYEES

Post- Long-term Short-term benefits retirement benefits benefits Fair value Share of equity- Perfor- Pension loan Total settled Months Director’s mance Allow- contri- fringe emolu- options paid fees Salaries bonus * ances butions benefits ments granted ** R’000 R’000 R’000 R’000 R’000 R’000 R’000 Rm

21.1 Directors’ emoluments COMPANY Period ended 25 June 2006

Executive directors Michael Mark 12 – 3 124 5 600 306 687 1 151 10 868 587 Tony Taylor 12 – 1 006 900 348 219 306 2 779 113 Wayne v d Merwe 12 – 944 775 160 214 148 2 241 97

– 5 074 7 275 814 1 120 1 605 15 888 797

Non–executive directors Rob Dow 12 175 – – – – – 175 – Thandi Ndlovu 12 90 – – – – – 90 – Edward Parfett 12 98 – – – – – 98 – Hilton Saven 12 255 – – – – – 255 22 Mike Thompson 12 150 – – – – – 150 –

768 – – – – – 768 22

Period ended 26 June 2005

Executive directors Michael Mark 12 – 2 789 5 300 310 617 1 222 10 238 668 Tony Taylor 12 – 968 800 305 204 363 2 640 117 Wayne v d Merwe 12 – 858 670 153 196 117 1 994 106

– 4 615 6 770 768 1 017 1 702 14 872 891

Non-executive directors Rob Dow 12 130 – – – – – 130 – Thandi Ndlovu 12 69 – – – – – 69 – Edward Parfett 12 73 – – – – – 73 – Hilton Saven 12 181 – – – – – 181 30 Mike Thompson 12 99 – – – – – 99 –

552 – – – – – 552 30

* Determined on performance for the period ended June

** The fair value of equity-settled options granted is the annual expense as determined in accordance with IFRS 2, and is presented for information purposes only, as it is not regarded as constituting emoluments, given that the fair value is neither received by or accrued to the directors during the period. Gains made on the exercise of such options are disclosed in note 21.2 in the period when vesting occurs

190 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

21. DIRECTORS AND EMPLOYEES (continued)

21.1 Directors’ emoluments (continued) Executive directors All amounts received by the executives, while being directors of the company, were in respect of services rendered to, and in connection with the carrying on of the affairs of subsidiaries. These emoluments were paid by the subsidiaries. The chief executive ofﬁcer entered into a further three-year contract with the Group with effect from 1 July 2005. In terms of the contract, he will be entitled to a guaranteed remuneration package, payable monthly over three years, and to participate in the Group’s various cash and share incentive schemes. Both parties have the right to terminate the contract on a six month notice period but should the Group do so for reasons other than improper conduct prior to the conclusion of the three-year period, the balance of the remuneration package owing in terms of the contract would be payable. The contract requires a six month notice period to be provided in the case of permanent disability/ incapacitation.

Non-executive directors All amounts received by the non-executive directors were for services rendered as directors of the company. None of the non-executive directors have service contracts with the company.

Consultancy fees There were no consultancy fees paid to executive and non-executive directors during the period (2005: Nil).

Cash-settled compensation scheme The remuneration committee allocated an amount for utilisation pursuant to the High Performance Share Scheme, which is a cash-settled compensation scheme, details of which are provided in note 21.6.2. Subject to the successful attainment of pre-determined Group and individual performance targets, this amount could accrue to the executives of the company over the following four years. As the performance assessment date falls after the period end, no amounts were received by or accrued to the executives during the period in respect of the scheme.

2006 2005 Rm Rm

21.2 Directors’ share option gains Executive 8 24 Non-executive – –

8 24

The directors may exercise their equity-settled share options at any date subsequent to the offer date. The shares acquired on exercise of the options are, however, only eligible for sale after the vesting date, when ownership passes to the directors who are then able to dispose of the shares. The share option gain is therefore the difference between the strike price and the share price on the vesting date.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 191 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

21. DIRECTORS AND EMPLOYEES (continued)

21.3 Defined contribution retirement funds Alexander Forbes Retirement Fund: Defined contribution plan. This is a defined contribution arrangement whereby the members pay 7.5% of their below-threshold pensionable salary as contributions towards retirement benefits. The Group contributes 10.5% towards retirement benefits, life insurance, disability benefits and administration costs. The fund’s retirement age is 60. Membership of either this fund or the Saccawu National Provident Fund is compulsory for all full-time or part-time permanent South African and Swaziland based employees (excluding flexi-time employees) under normal retirement age. The member’s pension entitlement at retirement age is determined by his/her share of the fund. Alternatively, the member is entitled to elect up to one third of the share as a cash lump sum payout and receive the balance in the form of a monthly pension. The plan is registered under the Pension Funds Act, 1956, as amended.

Investment Solutions Pension Fund: Deﬁned contribution plan. All employees above an annually determined pensionable salary threshold have an option of paying 7.5% of their above-threshold earnings as contributions into this fund, which is an umbrella retirement funding arrangement. The Group contributes 7.5% to this fund and an additional 2.9% of the above-threshold pensionable earnings towards life insurance, disability beneﬁts and administration costs. The member’s pension entitlement at retirement age is determined by his/her share of the fund. The fund’s retirement age is 60 and retirement from this fund must coincide with retirement from the Alexander Forbes Retirement Fund. The plan is registered under the Pension Funds Act, 1956, as amended.

Saccawu National Provident Fund: Defined contribution plan. The Saccawu National Provident Fund is an umbrella money purchase arrangement administered by Old Mutual. Members pay 7.5% of their pensionable salary towards retirement benefits. The Group contributes 10.0% of pensionable salaries towards retirement benefits, life insurance, disability benefits and administration costs. Membership of either the Alexander Forbes Retirement Fund or of the Saccawu National Provident Fund is compulsory for all permanent full-time and part-time South African and Swaziland employees (excluding flexi-time employees). The member’s pension entitlement at retirement age is determined by his/her share of the fund. The plan is registered under the Pension Funds Act, 1956, as amended.

Namflex Pension Fund: Defined contribution plan. The Namflex Pension Fund is a money purchase arrangement whereby the members pay 7.5% of their pensionable salary as contributions towards retirement benefits. The Group contributes 7.5% to retirement benefits and an additional 3.5% of pensionable salaries towards life insurance, disability benefits and administration costs. The fund’s retirement age is 60. Membership of the fund is compulsory for all Namibian permanent employees under normal retirement age. The member’s pension entitlement at retirement age is determined by his/her share of the fund. Alternatively, the member is entitled to elect up to one third of the share as a cash lump sum payout and receive the balance in the form of a monthly pension. The plan is registered under the Namibian Pension Funds Act.

Swaziland National Provident Fund: Defined contribution plan. The Swaziland National Provident Fund is an arrangement whereby the members and the Group pay a statutory contribution based on members’ earnings on a 50/50 basis with a maximum contribution of E60 based on a maximum wage of E600. The fund provides for a retirement benefit at or after age 45 and an age benefit at or after age 50. The fund also provides for a disability benefit, immigration benefit and a survivor’s benefit. The employer is registered under the provisions of the Registration of Contributing Employers Regulations 1975, and Section 8 of the Swaziland National Provident Fund Order 1974. Membership of the fund is compulsory for all Swaziland based permanent employees under normal retirement age. The member’s pension entitlement at retirement age is determined by his/her share of the fund.

192 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

21. DIRECTORS AND EMPLOYEES (continued)

21.3 Deﬁned contribution retirement funds (continued) Number of members Contributions 2006 2005 2006 2005 Rm Rm

Summary per fund: Alexander Forbes Retirement Fund 2,414 2,234 22 19 Investment Solutions Pension Fund 23 24 1 1 Saccawu National Provident Fund 395 403 2 2 Namﬂex Pension Fund 49 50 – – Swaziland National Provident Fund 15 16 – –

25 22

The Group expects to contribute R27 million to the above mentioned funds in the next period.

21.4 Defined benefit healthcare fund Wooltru Healthcare Fund Retired employees who participated in the Wooltru Healthcare Fund (“the fund”), which is operated as a Group administration plan, and who joined the Group prior to 30 June 2000, continue to enjoy Group subsidised contributions after retirement on the same basis as permanent employees. The fund operates as a defined benefit medical aid scheme. Refer note 13 for further information related to the defined benefit plan.

The Group expects to contribute R20 million to healthcare funds in respect of healthcare beneﬁts in the next period.

2006 2005 Rm Rm

21.5 Other Staff discount allowance 4 4

Group employees and pensioners are entitled to a discount on purchases made at Group stores.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 193 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

21. DIRECTORS AND EMPLOYEES (continued)

21.6 Share-based payment plans 21.6.1 Equity-settled compensation scheme The Group operates the Truworths International Limited share scheme (“the Share Scheme”), which is an equity-settled compensation scheme. The deed of the Truworths International Share Trust (“the trust”) provides that scheme shares and options may not exceed 15% of the company’s issued shares. In determining this percentage, scheme shares sold by employees are to be included either until the employees have terminated their employment or seven years have elapsed from the date of offer of the shares or options.

Participation is open to all permanent employees including non-executive directors at the discretion of the remuneration committee. At the end of the period there were 1,899 (2005: 2,068) participants. Shares and options are released to participants at the rate of 20% per annum commencing on the ﬁrst anniversary of the date of offer. Participants in the Share Scheme are granted options to acquire the company’s shares at a price equal to the weighted average trading price of the company’s shares on the JSE Limited over the ﬁve day period immediately preceding the date of offer. Participation by any one employee is limited to 2.4% of the company’s issued shares. No consideration is payable for the options upon acceptance, but on exercise the purchase price of the shares becomes payable, unless participants (excluding non-executive directors) qualify for interest-free loans secured by a pledge of the shares.

Shares and options which have not vested in accordance with the rules of the Share Scheme are forfeited upon termination of employment, other than on retirement. After ten years from the date of offer, options that have not been exercised lapse, and loans are required to have been settled in full.

Details of options granted during the period are as follows: 2006 2005

Expected life of option (years) 3 - 7 3 - 7 Grant price (R) 18.65 to 28.13 10.57 to 17.58 Expected volatility (%) 25 25 Expected dividend yield (%) 3.1 to 3.5 2.9 to 4.5 Risk-free interest rate (%) 6.7 to 8.4 6.8 to 10.2

The expected volatility is based on historical volatility of the company’s share price, adjusted for the initial high volatility immediately after listing, the abnormal volatility experienced during the overall share market adjustment in September 1998, previous periods’ interest rates that ﬂuctuated widely, the fact that inﬂation has decreased substantially and the tendency of volatility to revert to its mean.

The expected dividend yield is the best estimate of the forward looking dividend yield over the expected life of the option. This has been estimated by reference to the historical average dividend yield during the prior period.

The risk-free rate is the yield on zero-coupon South African government bonds of a term consistent with the estimated option term.

194 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

GROUP

2006 2005 Rm Rm 21. DIRECTORS AND EMPLOYEES (continued)

21.6 Share-based payment plans (continued) 21.6.1 Equity-settled compensation scheme (continued) The expense recognised for employee services rendered (refer note 20.3) 6 6

The following table illustrates the number of shares held by eligible participants including executive directors: Number Number of shares of shares 2006 2005 000’s 000’s

Shares held by participants 5,991 5,851 Shares held by the trust 165 165 Options held by participants 18,474 21,471 Inclusion (in terms of trust deed) of shares sold by participants, who are still employees or directors 10,564 21,858

Total utilisation at the end of the period 35,194 49,345

Issued share capital at the end of the period 482,915 487,240 % utilisation 7.3 10.1 Shares available for utilisation 37,242 23,741 % available for utilisation 7.7 4.9

Shares held by participants: Balance held by participants at the beginning of the period 5,851 6,266 Issued when options exercised 444 205 Shares sold (304) (620)

Balance held by participants at the end of the period 5,991 5,851

Shares held by trust: Balance held by trust at the beginning of the period 165 143 Subscribed for or purchased – 22

Balance held by trust at the end of the period 165 165

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 195 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

21. DIRECTORS AND EMPLOYEES (continued)

21.6 Share-based payment plans (continued) 21.6.1 Equity-settled compensation scheme (continued) Options held by participants The following illustrates the number and weighted average exercise price (WAEP) of, and movements in, share options during the period: 2006 2005 Number Number of options of options 000’s 000’s

Balance held by participants at beginning of the period 21,471 23,918 Options granted 290 2,807 Options exercised (2,889) (4,508) Options forfeited (398) (746)

Balance held by participants at end of the period 18,474 21,471

Details of options exercised during the period: Average subscription price per share R5.95 R4.39 Weighted average market price per share R23.72 R15.31

Summarised exercise conditions applicable to options: Earliest date on which options could have been exercised 1 July 2006 1 July 2005 Latest date by which options become exercisable 1 June 2011 15 June 2010 Latest date by which options will lapse if not exercised 1 June 2016 15 June 2015 Lowest price R2.28 R2.28 WAEP R6.51 R6.31 Highest price R28.13 R17.58

196 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

21. DIRECTORS AND EMPLOYEES (continued)

21.6 Share-based payment plans (continued) 21.6.2 Cash-settled compensation scheme During the current period, the remuneration committee approved the adoption of a performance related cash- settled compensation scheme, referred to as the High Performance Share Scheme (“the HPSS”). The HPSS is governed by its own rules. Participation in the HPSS is limited to key executives and management personnel selected by the remuneration committee on the recommendation of the board of the subsidiary. In terms of the mechanics of the HPSS, participants qualify to receive share appreciation rights, which will have a cash value referenced to a speciﬁed number of company shares, in equal tranches over a four year period provided certain performance conditions are met to the satisfaction of the committee. These include the achievement of predetermined Group and individual ﬁnancial and other performance targets. As the performance assessment date falls after the period end, no amounts were received by or accrued to participants during the period.

Share appreciation rights which have not vested in accordance with the rules of the HPSS are forfeited upon termination of employment, as are those rights not exercised at vesting date. 2006 Rm

Cash-settled compensation liability Expense recognised for employee services rendered during the period (refer note 20.3) 7

Balance at the end of the period 7

Total intrinsic value of cash-settled share compensation liability 3.9 Number of share appreciation rights granted (‘000s) 3,347 Fair value of share appreciation rights at the end of the period 7

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 197 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

2006 2005 Rm Rm

22. TAX EXPENSE

22.1 Current period tax charge

GROUP

South African normal tax 391 334

Current period 379 335 Prior period under/(over) provision 12 (1)

Foreign tax 5 4

Current period 5 3 Withholding tax - 1

Deferred tax (refer note 12) (24) (43)

Current period (17) (50) Prior period (over)/under provision (7) 10 Rate change – (3)

Secondary tax on companies 48 33

420 328

COMPANY

Secondary tax on companies 3 –

Group companies have lodged their income tax returns for the 2005 tax year. Income tax payments for tax-paying Group companies have been made in respect of the second period of the 2006 tax year. The most recent income tax assessments issued by the South African Revenue Services (SARS) to the company was in respect of the 2005 tax year, and to Group subsidiaries were in respect of the 2004 tax year.

198 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

2006 2005 % %

22. TAX EXPENSE (continued)

22.2 Reconciliation of effective tax rate

GROUP

South African normal tax rate 29.0 29.0 Increase in rate of tax due to: Disallowable expenditure 0.7 0.7 Prior period adjustments 0.5 1.0 Secondary tax on companies 3.9 3.4 Withholding tax – 0.1

34.1 34.2 Decrease in rate of tax due to: Change of corporate tax rate – (0.4) Difference in foreign and trust tax rates (0.1) – Exempt income – (0.1) Other non-taxable income (0.2) (0.2)

Effective tax rate 33.8 33.5

COMPANY

South African normal tax rate 29.0 29.0 Increase in rate of tax due to: Disallowable expenditure 0.1 – Secondary tax on companies 0.7 – Prior period adjustments 0.1 – Decrease in rate of tax due to: Exempt income (29.2) (29.1)

Effective tax rate 0.7 (0.1)

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 199 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

2006 2005 Rm Rm 23. DIVIDENDS PAID AND PROPOSED

GROUP Final dividend - 2004 Cash dividend of 27.0 cents per share declared on 19 August 2004 and paid on 13 September 2004. – 130

Interim dividend - 2005 Cash dividend of 32.0 cents per share declared on 24 February 2005 and paid on 22 March 2005. – 156

Final dividend - 2005 Cash dividend of 37.0 cents per share declared on 18 August 2005 and paid on 12 September 2005. 180 –

Interim dividend - 2006 Cash dividend of 44.0 cents per share declared on 22 February 2006 and paid on 20 March 2006. 215 – Less dividends received on treasury shares held by subsidiaries (35) (22)

360 264

COMPANY Final dividend - 2004 Cash dividend of 27.0 cents per share declared on 19 August 2004 and paid on 13 September 2004. – 130

Interim dividend - 2005 Cash dividend of 32.0 cents per share declared on 24 February 2005 and paid on 22 March 2005. – 156

Final dividend - 2005 Cash dividend of 37.0 cents per share declared on 18 August 2005 and paid on 12 September 2005. 180 –

Interim dividend - 2006 Cash dividend of 44.0 cents per share declared on 22 February 2006 and paid on 20 March 2006. 215 –

395 286

The ﬁnal dividend for the period ended 25 June 2006 of 45.0 cents per share that was declared on 24 August 2006 to shareholders registered on the record date of 15 September 2006, was payable on 18 September 2006 and gave rise to secondary tax on companies of approximately R24 million. No provision regarding this ﬁnal dividend and the secondary tax on companies thereon has been recognised.

200 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

24. EARNINGS AND CASH FLOW PER SHARE

Basic earnings per share are derived by dividing proﬁt for the period attributable to equity holders of the parent (“PPEH”) by the adjusted weighted average number of issued shares. Appropriate adjustments thereto are made in calculating diluted basic and headline earnings per share.

2006 2005 Rm Rm

PPEH used in calculating basic and headline earnings 823 648

The weighted average number of ordinary shares, adjusted for treasury shares held by subsidiaries, and referred to hereafter as “adjusted weighted average number of issued shares” is used in calculating all the basic earnings, headline earnings and cash ﬂow earnings per share amounts below:

No. shares No. shares 2006 2005 2006 2005 Millions Millions Cents Cents

Adjusted weighted average number of issued shares 441.6 447.6 Adjusted issued shares at the beginning of the period 447.5 446.4 Weighted average number of shares repurchased or cancelled during the period (6.6) (0.6) Weighted average number of shares issued during the period 0.7 1.8

24.1 Basic and headline earnings basis During the period there was no difference between basic and headline earnings. Basic and headline earnings per share 186.4 144.8

24.2 Fully diluted earnings basis Adjusted weighted average number of issued shares 441.6 447.6 Add: Dilutive effect of share options 13.2 12.5

Fully diluted weighted average number of issued shares 454.8 460.1

The dilution arises from share options outstanding in respect of the equity-settled share incentive scheme. The amount of the dilution is calculated with reference to the difference between the fair value and the issue price of the company’s shares, the issue price being adjusted for the cost of share-based payments, being the fair value of services to be supplied. Fair value is determined using the weighted average market price of the shares during the period.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 201 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

GROUP

2006 2005 24. EARNINGS AND CASH FLOW PER SHARE (continued) 24.2 Fully diluted earnings basis (continued) Fully diluted basic and headline earnings per share (cents) 181.0 140.8

Percentage dilution in basic and headline earnings per share 2.9% 2.8%

24.3 Cash flow basis This basis focuses on the cash inflow actually achieved during the period. Cash flow per share is calculated by dividing cash inflow from operations by the adjusted weighted average number of issued shares.

Cash inﬂow from operations (Rm) 501 558

Cash ﬂow per share (cents) 113.5 124.7

24.4 Cash equivalent earnings basis This basis recognises the potential of the earnings stream to generate cash. It is therefore an indicator of the underlying quality of earnings. Cash equivalent earnings per share is calculated by dividing the cash equivalent earnings by the adjusted weighted average number of issued shares. 2006 2005 Rm Rm

PPEH 823 648 Adjusted for: Non-cash items (refer note 26.1) 94 73 Deferred tax (refer note 22.1) (24) (43)

Cash equivalent earnings 893 678

Cash equivalent earnings per share (cents) 202.2 151.5

24.5 Cash realisation rate (%) 56 82

This represents the potential cash earnings realised and is derived by dividing cash ﬂow per share by cash equivalent earnings per share.

The reduction in the cash realisation rate during the period is mainly as a result of the higher and earlier utilisation of cash for tax payments, and is not an indication of a deterioration in earnings.

202 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

GROUP

25. RELATED PARTY DISCLOSURES

GROUP

Shareholders The company’s shares are widely held principally by public shareholders. The major shareholders of the company are provided in the annual report on pages 216 to 217.

Subsidiaries During the period the company and its subsidiaries, in the ordinary course of business, entered into various transactions with each other. These transactions occurred under terms that are no less favourable than those arranged with third parties and have been eliminated on consolidation. Details of loan balances with and interests in subsidiary companies are disclosed in notes 4,5 and 11 and annexure one. Details of treasury shares held by subsidiaries are disclosed in note 11. 2006 2005 Rm Rm

Related party transactions during the period were as follows:

Parent Company Truworths International Limited (“TI”) Management fees received from TW 2 2

Subsidiaries Truworths Limited (“TW”) Sale of merchandise to TN and TS 44 39 Management fees received from TN, TS and YDE 13 11 Management fees paid to TI 2 2

Truworths (Namibia) Limited (“TN”) Purchase of merchandise from TW 31 28 Management fees paid to TW 8 7

Truworths (Swaziland) Limited (“TS”) Purchase of merchandise from TW 13 11 Management fees paid to TW 3 3

Young Designers Emporium (Pty) Limited (“YDE”) Management fees paid to TW 2 1

Post-retirement beneﬁt plans

The Group is a member of various defined contribution plans as well as a defined benefit plan. For further detail refer to note 21.4.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 203 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

GROUP

25. RELATED PARTY DISCLOSURES (continued)

Key management personnel Key management personnel are those persons having authority and responsibility for planning, directing and controlling activities, directly or indirectly, including any director of that entity. Details relating to executive and non-executive directors’ emoluments, and shareholdings (including options) in the company, are disclosed in note 21.1, 21.2 and annexure two. Directors of the subsidiary Truworths Limited, excluding those who are also executive directors of the Company, have been classiﬁed as key management personnel. Below is a summary of the total emoluments paid to the key management personnel. 2006 2005 Rm Rm

Category Short-term benefits 10 10 Post-retirement benefits 1 1 Equity compensation benefits 1 1

Total emoluments 12 12

Details of housing loans to key management personnel are contained in note 4.4. Details of secured loans made in order to participate in the share incentive scheme are contained in note 4.6.

Interest of directors in contracts Based on annual declarations of their interests, no directors have interests in any contracts with the company or any of its subsidiaries.

Other related parties The Group has identified the Truworths Chairman’s Foundation, the Truworths Community Foundation and the Truworths Social Involvement Trust as related parties. No financial benefits are derived by the Group from these relationships. Details of loans to these entities are disclosed in note 4.7.

204 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

GROUP COMPANY

2006 2005 2006 2005 Note Rm Rm Rm Rm 26. NOTES TO THE CASH FLOW STATEMENT

26.1 Cash ﬂow from trading Proﬁt before tax 1,244 979 403 289 Add: Non-cash items 94 73 6 6

Depreciation and amortisation 20.2 74 65 – – Export partnership participation impairment – 4 – – Straight–line operating lease obligation 3 (4) – – Fair value revaluation 6 – – – Donations 3 – – – Unrealised foreign exchange gains (8) (2) – – Post-retirement medical beneﬁt obligation 3 4 – – Share-based payments: Equity-settled 21.6.1 6 6 6 6 Share-based payments: Cash-settled 21.6.2 7 – – –

Interest received 19 (288) (232) – – Dividends received (2) (2) (406) (290)

Net inﬂow 1,048 818 3 5

26.2 Working capital movements Increase in inventories (30) (64) – – Increase in trade and other receivables and prepayments (328) (250) – (1) Increase in trade and other payables 84 81 1 –

Net (outﬂow)/inﬂow (274) (233) 1 (1)

26.3 Interest received Investment interest 31 40 – – Trade receivables interest 257 192 – –

Net inﬂow 288 232 – –

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 205 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

GROUP COMPANY

2006 2005 2006 2005 Note Rm Rm Rm Rm 26. NOTES TO THE CASH FLOW STATEMENT (continued)

26.4 Tax paid Amounts owing at the beginning of the period (266) (156) – – Amounts charged to the income statement (420) (328) (3) –

South African normal tax 22.1 (391) (334) – – Foreign tax 22.1 (5) (4) – – Deferred tax 22.1 24 43 – – Secondary tax on companies 22.1 (48) (33) (3) –

Deferred tax movement (24) (43) – – Amounts owing at the end of the period 147 266 3 –

Net outﬂow (563) (261) – –

26.5 Acquisition of property, plant and equipment to maintain operations Equipment, furniture and ﬁttings (16) (16) – – Computer equipment (5) (4) – –

Net outﬂow (21) (20) – –

26.6 Acquisition of property, plant and equipment to expand operations Land and buildings (7) (1) – – Equipment, furniture and ﬁttings (64) (64) – – Computer equipment (8) (4) – –

Net outﬂow (79) (69) – –

26.7 Dividends paid Amounts owing at the beginning of the period (1) (1) (1) (1) Amounts charged to statement of changes in equity (360) (264) (395) (286) Amounts paid to minority shareholders (2) (2) – – Amounts owing at the end of the period 1 1 1 1

Net outﬂow (362) (266) (395) (286)

206 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

27. POST BALANCE SHEET EVENTS

On 3 July 2006, the Group acquired 51% of the share capital of Uzzi (Pty) Limited, an unlisted company specialising in the retail of men’s clothing, for a cash consideration of R36 million. Refer note 28 for detail on the acquisition.

28. BUSINESS COMBINATION

Acquisition of Uzzi (Pty) Limited

On 3 July 2006, the Group acquired 51% of the share capital and shareholder’s loan of Uzzi (Pty) Limited, a newly formed company for a cash consideration of R36 million. On this date this company acquired from Uzzi Clothing (Cape) (Pty) Limited, the Uzzi business, which specialises in the retail of upper end men’s fashion clothing, as a going concern. This has been disclosed as a post balance sheet event in note 27.

The fair values of the identiﬁable assets and designated liabilities of Uzzi (Pty) Limited at the date of acquisition were: Fair Carrying value amount Rm Rm

Property, plant and equipment 3 3 Cash and cash equivalents 2 2 Inventories 7 7 Estimated value of trademark 20 20 Other minor assets 1 1 Trade payables (1) (1)

Net assets acquired 32 32 Goodwill arising on acquisition 4

Purchase consideration 36

The goodwill is attributable to the Uzzi business’ strong position and proﬁtability in the men’s clothing market.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 207 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

GROUP

29. COMPARATIVE FIGURES

GROUP

Comparative ﬁgures have been restated as a result of the adoption of IFRS and certain interpretation changes relating to the application of SA GAAP.

The Group adopted IFRS for the first time in the 2006 financial period, with the transition date in respect of such adoption being 28 June 2004. The Group previously complied with SA GAAP. The opening balance sheets at 28 June 2004 as well as the comparative figures for the 2005 period have been restated accordingly.

Transitional arrangements: IFRS 1: First-time Adoption of International Financial Reporting Standards generally requires full retrospective application of IFRS. However, IFRS 1 provides for issuers of ﬁnancial statements to elect certain optional and mandatory exemptions from full retrospective application, and the Group has elected as follows:

Property, plant and equipment: The Group elected to measure the head ofﬁce building at its fair value on the transition date and use such fair value as the deemed cost.

Share-based payments: The Group elected to apply IFRS 2: Share-based payments, to such payments granted after 7 November 2002 that had not yet vested at 1 January 2005.

Business combinations: The Group elected not to retrospectively apply IFRS 3: Business Combinations, to business combinations that occurred before 28 June 2004. On that date, the carrying amount of goodwill equated to the amortised amount.

The effects of the adoption of IFRS and interpretation changes on equity are detailed below: 2005 2004 Rm Rm

Total equity under SA GAAP as previously reported 1,817 1,467 IFRS adoption: Property, plant and equipment 43 35 Notional interest (12) (10) Non-current loans receivable (11) (11) Interpretation changes: Discounts (1) (1)

Total equity restated under IFRS 1,836 1,480

The adoption of IFRS and interpretation changes had no significant net impact on the profit and cash flow as reported for the 2005 financial period, therefore no reconciliations are presented.

208 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTES TO THE ANNUAL FINANCIAL STATEMENTS

29. COMPARATIVE FIGURES (continued)

IFRS adoption:

Property, plant and equipment In terms of IFRS 1, the Group elected to use the fair value as deemed cost on transition date for its head ofﬁce building. IAS 16: Property, plant and equipment, requires that the residual values and useful lives of property, plant and equipment be reassessed at each balance sheet date. The impact of these reassessments has been applied retrospectively.

Notional interest The adoption of IAS 39: Financial Instruments - Recognition and Measurement, resulted in the recognition of notional interest on interest-free debtors. Accordingly, a portion of credit sales revenue has been deemed to be interest recognised on a time-apportionment basis using the effective interest rate implicit in the sales transaction. Previously the entire transaction was recognised as a sale with no interest implication. This policy has been applied with retrospective effect.

Non-current loans receivable Secured loans to share incentive scheme participants were previously measured at amortised cost at inception using the original effective interest rate. In accordance with IAS 39, these have now been measured at fair value using the market rate at inception.

Share-based payments IFRS 2 requires that equity-settled share-based payments are measured at fair value on grant date, with the expense recognised in the income statement over the vesting period. Prior to the adoption of IFRS 2, the Group did not recognise the ﬁnancial effect of these share-based payments. As the recognition of these share-based payments affects retained earnings and a separate component of total equity, there is no effect on equity. The cumulative impact on opening retained income at 27 June 2005 was R9 million (28 June 2004: R3 million).

Interpretation changes:

Discounts In accordance with SAICA Circular 9/2006 regarding the treatment of settlement discounts and cash discounts, the valuation of inventories and trade accounts receivable and payable, as well as the measurement of cost of sales and the sale of merchandise, have been adjusted retrospectively by the settlement discounts received from suppliers in respect of merchandise purchases, and discounts granted to employees in respect of the sale of merchandise.

Other Certain agency sales were previously recorded at their face value with the corresponding cost in cost of sales. These have been eliminated and had no effect on proﬁt.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 209 DETAILS OF SUBSIDIARY COMPANIES annexure one

Main Amounts owing business Ordinary share Percentage held Book value by/(to) subsidiaries Name * capital and premium (effective interest) of shares [refer note 4 & 15] 2006 2005 2006 2005 2006 2005 2006 2005

% % Rm Rm Rm Rm

DIRECT SUBSIDIARY COMPANIES All (Pty) Limited companies unless otherwise stated

Incorporated in South Africa Truworths Limited R R23 883 152 R23 883 152 100.0 100.0 115 109 (352) 45 Young Designers Emporium C R200 R200 100.0 75.0 15 47 35 SRG International D R2 R2 100.0 100.0 Truworths Trading D R60 R60 100.0 100.0 Truworths International Share Trust E N/A N/A 100.0 100.0 N/A N/A Truworths Investments (Pty) Limited I R120 R120 100.0 100.0 131 54 Truworths Investments Two (Pty) Limited I R120 N/A 100.0 N/A 120

Incorporated in Guernsey Truworths International Trust I N/A N/A 100.0 100.0 N/A N/A US$ US$ Truworths Worldwide Limited I 5 386 039 5 386 039 100.0 100.0

INDIRECT SUBSIDIARY COMPANIES All (Pty) Limited companies unless otherwise stated

Incorporated in South Africa Chez Brigitte Fashion Accessories D R2 R2 100.0 100.0 Daniel Hechter D R200 R200 100.0 100.0 Intrigue Fine Lingerie Company D R100 R100 100.0 100.0 Identity Retailing C R2 R2 100.0 100.0 Truworths Management Services D R12 000 R12 000 100.0 100.0 Truworths Man D R1 R1 100.0 100.0 Truworths Personal Finance D R2 R2 100.0 100.0 Woolmos Properties Share Block Limited S R5 920 950 R5 920 950 100.0 100.0 15 15

Incorporated in Namibia Truworths (Namibia) Limited R N$14 N$14 100.0 100.0 Incorporated in Swaziland Truworths (Swaziland) Limited R E40 000 E40 000 100.0 100.0 Incorporated in Lesotho Truworths (Lesotho) D M2 M2 100.0 100,0 Incorporated in Zambia Truworths (Zambia) Limited D K50 000 K50 000 100.0 100.0

Incorporated in Australia Au$ Au$ Tarra Valley ** I 23 405 000 23 405 000 100.0 100.0 Select Retail Group Australia ** I 8 350 008 8 350 008 100.0 100.0 Redfern Road ** D 7 613 643 7 613 643 100.0 100.0 Incorporated in the Isle of Man Truworths Intellectual Property Limited IP US$3 US$3 100.0 100.0

* C = Commission agent, D = Dormant, E = Employee incentive scheme, I = Investment holding, IP = Intellectual property holding, R = Retailing, S = Share block scheme **These subsidiaries were not consolidated at 25 June 2006 (26 June 2005) as they related to operations discontinued at 25 November 1999.

210 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 DETAILS OF DIRECTORS’ HOLDINGS OF SHARES AND EQUITY-SETTLED SHARE OPTIONS annexure two

2006 2005 Shares Options Total Shares Options Total 000’s 000’s 000’s 000’s 000’s 000’s

1. Directors’ holdings of shares and equity-settled share options In aggregate: Balance at the beginning of the period 8,146 6,141 14,287 9,448 6,127 15,575 Options granted – – – – 290 290 Options exercised – (344) (344) – (276) (276) Share movements during the period 97 – 97 (1,302) – (1,302)

Balance at the end of the period 8,243 5,797 14,040 8,146 6,141 14,287

By director: The direct and indirect interest of each of the directors in the company’s shares, all of which are held beneﬁcially, and only some of which are held pursuant to the equity-settled share incentive scheme, are as follows: 2006 2005 Shares Options Total Shares Options Total 000’s 000’s 000’s 000’s 000’s 000’s

Executive directors 7,703 5,717 13,420 7,610 6,061 13,671

Michael Mark 6,440 5,503 11,943 6,440 5,503 11,943 Tony Taylor 845 10 855 831 274 1,105 Wayne van der Merwe 418 204 622 339 284 623

Non-executive directors 540 80 620 536 80 616

Thandi Ndlovu – 30 30 – 30 30 Edward Parfett 520 – 520 516 – 516 Hilton Saven – 50 50 – 50 50 Mike Thompson 20 – 20 20 – 20

Balance at the end of the period 8,243 5,797 14,040 8,146 6,141 14,287

Comprising: Direct Interest 1,422 5,797 7,219 1,190 6,141 7,331 Indirect Interest 6,821 – 6,821 6,956 – 6,956

8,243 5,797 14,040 8,146 6,141 14,287

There have been no changes to these interests between the end of the ﬁnancial period and the date of the directors’ report.

It is Group policy that all directors and ofﬁcers, as well as those employees who have access to price sensitive information, should not deal in company shares, or receive or exercise share options of the company for the periods from end-December to twenty four hours after publication of the interim results and from end-June to twenty four hours after publication of the annual results.

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 211 DETAILS OF DIRECTORS’ HOLDINGS OF SHARES AND EQUITY-SETTLED SHARE OPTIONS annexure two (continued)

2006 2005 Subscription Number of Number of price options options R 000’s 000’s

2. Details of directors’ equity-settled share options in the aggregate: The options become releasable between the following dates and at the following subscription prices: Balance at the beginning of the period 6,141 6,127

Between 27 November 2001 and 27 November 2005 3.66 3,225 3,353 Between 4 October 2002 and 4 October 2006 5.02 - 52 Between 26 October 2002 and 26 October 2006 5.33 30 30 Between 25 March 2003 and 25 March 2007 4.54 366 390 Between 7 November 2003 and 7 November 2007 5.74 1,098 1,122 Between 13 March 2004 and 13 March 2008 5.82 650 690 Between 6 November 2004 and 6 November 2008 8.52 482 490 Between 29 November 2005 and 29 November 2009 15.57 290 -

Options granted – 290

Between 29 November 2005 and 29 November 2009 15.57 – 290

Options exercised (344) (276)

Between 27 November 2001 and 27 November 2005 3.66 - (128) Between 4 October 2002 and 4 October 2006 5.02 - (52) Between 25 March 2003 and 25 March 2007 4.54 (26) (24) Between 7 November 2003 and 7 November 2007 5.74 (198) (24) Between 13 March 2004 and 13 March 2008 5.82 (80) (40) Between 6 November 2004 and 6 November 2008 8.52 - (8) Between 29 November 2005 and 29 November 2009 15.57 (40) -

Balance at the end of the period 5,797 6,141

Between 27 November 2001 and 27 November 2005 3.66 3,225 3,225 Between 26 October 2002 and 26 October 2006 5.33 30 30 Between 25 March 2003 and 25 March 2007 4.54 340 366 Between 7 November 2003 and 7 November 2007 5.74 900 1,098 Between 13 March 2004 and 13 March 2008 5.82 570 650 Between 6 November 2004 and 6 November 2008 8.52 482 482 Between 29 November 2005 and 29 November 2009 15.57 250 290

212 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 DETAILS OF DIRECTORS’ HOLDINGS OF SHARES AND EQUITY-SETTLED SHARE OPTIONS annexure two (continued)

* EOPC = Exercised and ownership passes in the current year ECOPS = Exercised in the current year but ownership passes subsequently EPOPC = Exercised previously but ownership passes in the current year ESC = Exercised and sold in the current year

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 213 DETAILS OF DIRECTORS’ HOLDINGS OF SHARES AND EQUITY-SETTLED SHARE OPTIONS annexure two (continued)

ECOPS 25/3/07 9/3/06 4.54 (12) ECOPS 13/3/07 9/3/06 5.82 (20) ECOPS 7/11/06 9/3/06 5.74 (24) ECOPS 7/11/07 9/3/06 5.74 (24) EPOPC 27/11/05 18/10/04 3.66 20.26 (28) EPOPC 4/10/05 18/10/04 5.02 20.02 (26) EPOPC 7/11/06 18/10/04 5.74 20.40 (24) EPOPC 6/11/05 18/10/04 8.52 20.40 (8) EPOPC 25/3/06 23/3/05 4.54 28.80 (12) EPOPC 13/3/06 23/3/05 5.82 26.00 (20) Balance at the end of the period 204 3.66 112 Between 27 November 2001 and 27 November 2005 5.82 20 Between 13 March 2004 and 13 March 2008 8.52 32 Between 06 November 2004 and 06 November 2008 15.57 40 Between 29 November 2005 and 29 November 2009

2006 Non- executive directors Thandi Ndlovu Balance at the beginning and end of the period 5.33 30 Between 26 October 2002 and 26 October 2006

Hilton Saven Balance at the beginning and end of the period 8.52 50 Between 06 November 2004 and 06 November 2008 2005* Executive directors Michael Mark Balance at the beginning of the period 5,303 3.66 3,113 Between 27 November 2001 and 27 November 2004 4.54 340 Between 25 March 2003 and 25 March 2007 5.74 900 Between 7 November 2003 and 7 November 2007 5.82 550 Between 13 March 2004 and 13 March 2008 8.52 400 Between 6 November 2004 and 6 November 2008 EPOPC 27/11/04 29/10/03 3.66 16.13 (858) EPOPC 27/11/04 18/11/03 3.66 16.13 (600) Offered 29/11/04 15.57 200 Between 29 November 2005 and 29 November 2009 Balance at the end of the period 5,503 3.66 3,113 Between 27 November 2001 and 27 November 2004 4.54 340 Between 25 March 2003 and 25 March 2007 5.74 900 Between 7 November 2003 and 7 November 2007 5.82 550 Between 13 March 2004 and 13 March 2008 8.52 400 Between 6 November 2004 and 6 November 2008 15.57 200 Between 29 November 2005 and 29 November 2009

214 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 DETAILS OF DIRECTORS’ HOLDINGS OF SHARES AND EQUITY-SETTLED SHARE OPTIONS annexure two (continued)

Market price Number Date on date of options ownership Exercise Subscription ownership previously Number passes date price passes exercised of options Vesting dates R R 000’s 000’s 3. Details of directors’ equity-settled share options per director (continue Tony Taylor Balance at the beginning of the period 224 4.54 14 Between 25 March 2003 and 25 March 2007 5.74 150 Between 7 November 2003 and 7 November 2007 5.82 60 Between 13 March 2004 and 13 March 2008 EPOPC 28/11/04 28/11/03 8.73 16.13 (8) EPOPC 27/11/04 1/12/03 3.66 16.13 (186) EPOPC 7/11/04 1/12/03 5.74 15.08 (50) Offered 29/11/04 15.57 50 Between 29 November 2005 and 29 November 2009 Balance at the end of the period 274 4.54 14 Between 25 March 2003 and 25 March 2007 5.74 150 Between 7 November 2003 and 7 November 2007 5.82 60 Between 13 March 2004 and 13 March 2008 15.57 50 Between 29 November 2005 and 29 November 2009 Wayne van der Merwe Balance at the beginning of the period 520 3.66 240 Between 27 November 2001 and 27 November 2005 5.02 52 Between 4 October 2002 and 4 October 2006 4.54 36 Between 25 March 2003 and 25 March 2007 5.74 72 Between 7 November 2003 and 7 November 2007 5.82 80 Between 13 March 2004 and 13 March 2008 8.52 40 Between 06 November 2004 and 06 November 2008 EPOPC 27/11/04 29/10/03 3.66 16.13 (68) EPOPC 4/10/04 29/10/03 5.02 12.78 (26) EPOPC 7/11/04 29/10/03 5.74 15.08 (24) Offered 29/11/04 15.57 40 Between 29 November 2005 and 29 November 2009 ESC 9/11/04 27/11/00 3.66 15.75 (100) EOPC 25/3/05 18/10/04 4.54 16.25 (12) EOPC 13/3/05 18/10/04 5.82 17.03 (20) ECOPS 27/11/05 18/10/04 3.66 (28) ECOPS 4/10/05 18/10/04 5.02 (26) ECOPS 7/11/05 18/10/04 5.74 (24) ECOPS 6/11/05 18/10/04 8.52 (8) ECOPS 25/3/06 23/3/05 4.54 (12) ECOPS 4/10/06 23/3/05 5.02 (26) ECOPS 13/3/06 23/3/05 5.82 (20) Balance at the end of the period 284 3.66 112 Between 27 November 2001 and 27 November 2005 4.54 12 Between 25 March 2003 and 25 March 2007 5.74 48 Between 7 November 2003 and 7 November 2007 5.82 40 Between 13 March 2004 and 13 March 2008 8.52 32 Between 06 November 2004 and 06 November 2008 15.57 40 Between 29 November 2005 and 29 November 2009 2005 Non- executive directors Thandi Ndlovu Balance at the beginning and end of the period 5.33 30 Between 26 October 2002 and 26 October 2006 Hilton Saven Balance at the beginning and end of the period 8.52 50 Between 06 November 2004 and 06 November 2008

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 215 DETAILS OF DIRECTORS’ HOLDINGS OF SHARES AND EQUITY-SETTLED SHARE OPTIONS annexure two (continued)

Offer 2006 2005 price Number Number R 000’s 000’s 4. Share Scheme Detailed exercise conditions applicable to equity- settled options held by participants: Between 26 October 1998 and 26 October 2004 2.28 406 406 Between 27 October 1998 and 27 October 2004 2.28 - 29 Between 29 October 1998 and 29 October 2003 2.28 80 80 Between 30 October 1998 and 30 October 2004 2.28 236 236 Between 18 December 1998 and 18 December 2004 2.28 78 94 Between 21 December 1998 and 21 December 2004 2.28 23 49 Between 26 February 1999 and 26 February 2005 3.16 456 456 Between 7 April 2000 and 7 April 2006 5.00 - 1 Between 2 November 2000 and 2 November 2005 3.92 - 1 Between 27 November 2000 and 27 November 2005 3.66 6,089 7,156 Between 15 January 2001 and 15 January 2006 4.49 9 9 Between 22 February 2001 and 22 February 2006 4.27 - 9 Between 8 May 2001 and 8 May 2006 5.01 - 8 Between 11 May 2001 and 11 May 2006 4.38 8 8 Between 27 August 2001 and 27 August 2006 5.32 2 4 Between 27 August 2001 and 27 August 2006 5.72 31 45 Between 4 October 2001 and 4 October 2006 5.02 279 315 Between 26 October 2001 and 26 October 2006 5.33 30 30 Between 14 December 2001 and 14 December 2006 5.00 918 1,278 Between 28 February 2002 and 28 February 2007 4.70 4 4 Between 25 March 2002 and 25 March 2007 4.54 611 636 Between 17 May 2002 and 17 May 2007 5.40 500 500 Between 23 August 2002 and 23 August 2007 5.74 69 83 Between 2 September 2002 and 2 September 2007 5.88 5 5 Between 9 September 2002 and 9 September 2007 5.96 20 50 Between 7 November 2002 and 7 November 2007 5.74 2,406 3,038 Between 3 March 2003 and 3 March 2008 6.27 18 21 Between 13 March 2003 and 13 March 2008 5.82 1,622 1,827 Between 2 April 2003 and 2 April 2008 5.77 17 21 Between 23 April 2003 and 23 April 2008 6.22 32 32 Between 25 August 2003 and 25 August 2008 7.08 13 17 Between 25 August 2003 and 25 August 2008 7.92 16 38 Between 2 September 2003 and 2 September 2008 8.00 19 31 Between 15 September 2003 and 15 September 2008 7.63 26 26 Between 16 September 2003 and 16 September 2008 7.83 9 12 Between 6 November 2003 and 6 November 2008 8.52 652 662 Between 28 November 2003 and 28 November 2008 8.73 25 25 Between 3 December 2003 and 3 December 2008 8.73 859 1,003 Between 8 December 2003 and 8 December 2008 8.73 258 350 Between 12 December 2003 and 12 December 2008 8.73 14 18 Between 23 February 2004 and 23 February 2009 9.32 25 30 Between 19 April 2004 and 19 April 2009 10.27 12 12 Between 5 May 2004 and 5 May 2009 10.25 15 24 Between 5 May 2004 and 5 May 2009 10.26 19 32 Between 8 June 2004 and 8 June 2009 9.74 18 31 Between 25 August 2004 and 25 August 2009 10.57 64 71 Between 3 September 2004 and 3 September 2009 10.63 15 19 Between 9 September 2004 and 9 September 2009 11.42 15 15 Between 19 October 2004 and 19 October 2009 12.57 - 20 Between 3 November 2004 and 3 November 2009 13.10 - 13 Between 22 November 2004 and 22 November 2009 15.65 353 470 Between 29 November 2004 and 29 November 2009 15.57 1,554 1,817 Between 30 November 2004 and 8 December 2008 8.73 - 2 Between 6 December 2004 and 6 December 2009 16.32 11 11 Between 1 March 2005 and 1 March 2010 17.44 28 30 Between 1 March 2005 and 1 March 2010 17.58 40 28

216 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 DETAILS OF DIRECTORS’ HOLDINGS OF SHARES AND EQUITY-SETTLED SHARE OPTIONS annexure two (continued)

Offer 2006 2005 price Number Number R 000’s 000’s 4. Share Scheme (continued) Between 8 March 2005 and 8 March 2010 17.54 9 8 Between 18 March 2005 and 18 March 2010 16.66 7 9 Between 30 March 2005 and 30 March 2010 17.09 8 9 Between 11 April 2005 and 11 April 2010 16.02 11 11 Between 11 April 2005 and 11 April 2010 16.04 9 9 Between 18 April 2005 and 18 April 2010 16.13 9 1 Between 4 May 2005 and 4 May 2010 15.96 24 27 Between 12 May 2005 and 12 May 2010 17.44 6 6 Between 13 May 2005 and 13 May 2010 16.78 1 8 Between 18 May 2005 and 18 May 2010 16.78 7 13 Between 27 May 2005 and 27 May 2010 16.86 15 15 Between 1 June 2005 and 1 June 2010 16.78 7 7 Between 2 June 2005 and 2 June 2010 16.76 63 72 Between 7 June 2005 and 7 June 2010 17.19 - 6 Between 9 June 2005 and 9 June 2010 16.90 12 12 Between 9 June 2005 and 9 June 2010 17.51 7 7 Between 15 June 2005 and 15 June 2010 15.65 13 13 Between 02 August 2005 and 02 August 2010 18.65 6 - Between 22 August 2005 and 22 August 2010 18.67 14 - Between 23 August 2005 and 23 August 2010 18.73 24 - Between 27 October 2005 and 27 October 2010 19.17 17 - Between 02 November 2005 and 02 November 2010 19.03 18 - Between 18 November 2005 and 18 November 2010 20.38 16 - Between 22 November 2005 and 22 November 2010 20.51 10 - Between 24 November 2005 and 24 November 2010 20.46 7 - Between 15 December 2005 and 15 December 2010 20.94 29 - Between 24 February 2006 and 24 February 2011 25.99 53 - Between 09 March 2006 and 09 March 2011 26.26 14 - Between 16 March 2006 and 16 March 2011 26.26 5 - Between 21 March 2006 and 21 March 2011 26.82 8 - Between 03 May 2006 and 03 May 2011 28.13 27 - Between 01 June 2006 and 01 June 2011 24.95 9 - 18,474 21,471

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 217 SHAREHOLDER INFORMATION

Number of Number of shareholdings % shares % Analysis of holdings of ordinary shares at 25 June 2006 Size of holding 1 - 1 000 1,856 39.24 813,225 0.17 1 001 - 10 000 1,985 41.97 6,837,018 1.42 10 001 - 100 000 602 12.73 19,205,718 3.98 Over 100 000 287 6.06 456,059,080 94.43 4,730 100.00 482,915,041 100.00 Distribution of shareholders Companies and Close Corporations 210 4.44 65,081,985 13.48 Insurance Companies 352 7.44 287,539,928 59.54 Pension Funds 170 3.59 106,124,194 21.98 Nominees and Trusts 823 17.40 13,017,992 2.70 Individuals 3,175 67.13 11,150,942 2.30 4,730 100.00 482,915,041 100.00 SHAREHOLDER SPREAD AT YEAR END Pursuant to the Listings Requirements of the JSE Limited and to the best knowledge of the directors, after reasonable enquiry, the spread of shareholders at period end was as follows:

Number of Number of Number of shareholders shares % shares % 2006 2006 2006 2005 2005 Non-public shareholders Truworths Limited (treasury shares) 1 36,214,812 7.50 36,214,812 7.43 Truworths Investments (Pty) Limited (treasury shares) 1 7,362,894 1.52 3,362,894 0.69 Truworths Investments Two (Pty) Limited (treasury shares) 1 5,281,150 1.09 - - Directors of the company and subsidiaries 8 2,144,978 0.44 2,077,019 0.43 Associates of directors of the company and subsidiaries 4 6,901,881 1.43 7,358,506 1.51 Share scheme participants 1 182,447 0.05 179,615 0.04 Total non-public shareholders 16 58,088,162 12.03 49,192,846 10.10 Public shareholders 4,714 424,826,879 87.97 438,047,661 89.90 4,730 482,915,041 100.00 487,240,507 100.00

MAJOR CATEGORIES OF SHAREHOLDERS According to the company’s register of disclosures of beneﬁcial interests made by registered shareholders acting in a nominee capacity, and the disclosures made by fund managers in terms of section 140A(5) of the Companies Act, the following persons owned in excess of 3% of the company’s shares at year end: Number of % issued Number of % issued shares capital shares capital 2006 2006 2005 2005 J P Morgan Chase (Custodian) 65,072,543 13.47 – – Public Investment Corporation 54,246,021 11.23 41,953,427 8.61 Old Mutual Life Assurance Company 43,126,099 8.93 37,952,368 7.79 Truworths Limited (treasury shares) 36,214,812 7.50 36,214,812 7.43 Strate Street Bank & Trust Co (Custodian) 32,460,599 6.72 – – Investec Group – – 31,293,065 6.42 Liberty Group 24,746,769 5.12 26,436,682 5.43 Investment Solutions – – 23,801,408 4.89 Eskom Pension and Provident Fund – – 14,907,092 3.06 Namibian Government Institutions Pension Fund 14,619,764 3.03 – –

MAJOR FUND MANAGERS According to the disclosures made by nominee and asset management companies in terms of section 140A of the Companies Act, the following fund managers administered portfolios (including those of the major shareowners above) in excess of 3% of the company’s shares at year end: Number of % issued Number of % issued shares capital shares capital 2006 2006 2005 2005 Old Mutual Asset Managers 101,501,576 21.02 101,501,576 20.83 Investec Asset Management 85,171,881 17.64 85,171,881 17.48 Stanlib Asset Management 39,123,516 8.10 39,123,516 8.03 Truworths Limited (treasury shares) 36,214,812 7.50 36,214,812 7.43 RMB Asset Managers 16,736,917 3.47 16,736,917 3.44

218 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 guard and respect theinterests ofitsstakeholders, and believes thatgoodgovernance isessential to The Group recognises itsresponsibility to safe its ongoing sustainability and functioning. -

NOTICE OF AGM NOTICE TO MEMBERS

Notice is hereby given that the annual general meeting vote and in attendance or represented at the meeting, of members of Truworths International Limited (“the being cast in favour, and is further subject to paragraph Company”) will be held in the Auditorium, No.1 Mostert 5.52 of such Requirements, which provides as follows: Street, Cape Town, South Africa on Thursday, 9 November • Such shares may only be issued or sold, as the 2006 at 09h30 for the purpose of conducting the following case may be, to public shareholders as defined in business: such Requirements, and not to related parties. 1. To receive and adopt the Company and the Group’s audited annual financial statements for the period • Such shares must be of a class already in issue. ended 25 June 2006. • Such shares may not in any one financial year

2. To elect directors of the Company in accordance with its in the aggregate exceed 15% of the Company’s articles of association which provide that at least one issued shares, the number that may be issued third of the directors, being those longest in ofﬁce at or sold, as the case may be, being determined in the date of the annual general meeting, should retire, accordance with sub-paragraph 5.52 (c) of such but that such directors may offer themselves for re- Requirements. election. • The maximum discount at which such shares may Messrs M S Mark, A J Taylor and A E Parfett are required be issued or sold, as the case may be, is 10% of the to retire by rotation at the annual general meeting and, weighted average traded price of such shares on being entitled thereto, have offered themselves for re- the JSE over the 30 business days preceding the election. Voting for the directors seeking re-election date of determination of the issue or selling price, will be conducted individually. A brief résumé of each as the case may be. of these directors is attached at the end of this notice. The reason for proposing this resolution is to authorise 3. To renew the directors’ general authority (which shall the directors to issue the un-issued shares of the be additional to the speciﬁc authority in respect of the Company and to sell the treasury shares held by shares reserved for the purposes of the Company’s subsidiaries, together being limited to 10% of the equity-settled share scheme that was conditionally shares in issue at 25 June 2006, subject to regulatory renewed at the 2004 annual general meeting), which shall be limited in aggregate to 10 per cent of the and statutory limitations, either for cash or in respect Company’s shares in issue at 25 June 2006, over both the of the acquisition of assets, or otherwise.

un-issued shares, and the repurchased shares, of the The effect of this resolution, were it to be passed, Company until the following annual general meeting. would be that the directors will have a limited authority This general authority shall include the power to allot to issue the un-issued shares of the Company and to or to sell, as the case may be, such shares for cash use the treasury shares held by subsidiaries, subject subject to the provisions of the Companies Act (‘the Act”) to the applicable provisions of the JSE’s Listings and the JSE’s Listings Requirements. In particular this Requirements, the Act and the provisions of the resolution, which if passed would constitute a waiver by resolution. members of their pre-emptive rights, is subject to not less than 75% of the votes of all members entitled to

220 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTICE TO MEMBERS

4. To consider and if deemed fit to pass, with or without at which the Company’s shares traded on the JSE modification, the following as special resolution 1: over the five business days immediately preceding the date on which the transaction is effected “That the Company hereby approves, as a general approval contemplated in the Act, the acquisition (f) at any point in time, the Company appoints only one from time to time, either by the Company itself or agent to effect any repurchase on the Company’s by its subsidiaries, of the Company’s issued shares behalf and including the acquisition by the Company of any (g) the Company may only undertake such repurchases of its issued shares held by its subsidiaries, upon if thereafter it still complies with the JSE’s Listings such terms and conditions and in such amounts as Requirements concerning shareholder spread the directors of the Company may from time to time decide, subject however to the provisions of the Act (h) such repurchases are not effected during prohibited and the Listings Requirements of the JSE relating to periods as defined by the JSE.” general repurchases of shares, it being recorded that The reason for this special resolution is to authorise it is currently required that general repurchases of a the Company or its subsidiaries generally to repurchase Company’s shares can be made only if: the Company’s shares by way of bona fide open market (a) the Company and its subsidiaries are enabled by transactions on the JSE or otherwise as permitted by their articles to acquire such shares the JSE, subject to statutory and regulatory limitations (b) the Company and its subsidiaries are authorised and controls.

by their members in terms of special resolutions The effect of this special resolution were it to be taken at general meetings, to make such general passed would be that the Company and its subsidiaries repurchases, such authorisation being valid only will have been authorised generally to repurchase the until their next annual general meetings or for Company’s shares by way of bona ﬁde open market 15 months from the date of the special resolutions, transactions on the JSE or otherwise as permitted by whichever period is shorter the JSE, subject to statutory and regulatory limitations (c) such repurchases are effected through the order and controls. book operated by the JSE trading system and Directors’ Responsibility Statement without any prior understanding or arrangement between the Company and a counter party, unless The directors of the Company, whose names are given the JSE otherwise permits on page 8 of the annual report in which this notice is incorporated, collectively and individually accept (d) such repurchases are limited to a maximum of full responsibility for the accuracy of the information 20% per ﬁnancial year of the Company’s issued given in this notice in respect of this resolution, and shares of that class at the time the aforementioned certify that to the best of their knowledge and belief authorisation is given, it being noted that in terms there are no facts that have been omitted which would of the Act a maximum of 10% in aggregate of the Company’s issued shares that may have make any statement false or misleading, and that all been repurchased are capable of being held by reasonable enquiries to ascertain such facts have been subsidiaries of the Company made and that, in respect of this resolution, the notice contains all information required by the JSE Listings (e) such repurchases are made at a price no greater Requirements. than 10% above the weighted average market price

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 221 NOTICE TO MEMBERS

The other general information referred to in paragraph accounting policies used in the ﬁnancial statements 11.26 (b) of the Listings Requirements of the JSE contained in this annual report regarding the Company is contained elsewhere in this • the issued capital and reserves of the Company annual report, as follows: and the Group would be adequate for the purposes • Directors of the Company and of its material of the Company and the Group’s business subsidiary, on pages 8 and 9 • the Company and the Group’s working capital would be • Major shareholders on page 218 sufﬁcient for their requirements.

• Material changes since year-end, in note 27 on Notes: page 207 (i) The Company will publish an announcement complying • Directors’ interests in the Company’s shares, on with the JSE’s Listings Requirements if and when an pages 211 to 217 initial and successive 3% tranche(s) of its shares have been repurchased in terms of the aforementioned • Company’s share capital, on pages 177 and 218. general authority Furthermore, neither the Company nor its subsidiaries (ii) The Company’s sponsor will provide a letter to the JSE, is involved in any legal or arbitration proceedings, nor regarding the directors’ statement as to the adequacy are any such proceedings pending or threatened, that of the Group’s working capital, before the Company may or have had any material effect on the Group’s commences any share repurchases in terms of the ﬁnancial position. general authority being hereby sought. Although no such repurchases are currently in 5. To elect independent external auditors in respect of the contemplation, the general authority to repurchase audit of the Group’s annual ﬁnancial statements for the the Company’s shares will be effected within the period ending 24 June 2007. parameters laid down by the JSE as and when the directors of the Company deem it to be appropriate. The Group’s current external auditors are Ernst & After considering the effect of a general repurchase Young and the directors recommend that they be re- within these parameters, the directors are of the view appointed for the ensuing period, and that the terms of that for a period of at least 12 months after the date of their engagement and their fees be determined by the the annual general meeting referred to in this notice: Company’s audit committee.

• the Company and the Group would in the ordinary 6. To approve the fees of the non-executive directors for course of their business be able to pay their debts the year ended 25 June 2006.

• the consolidated assets of the Company and the During the year fees as detailed in the annual ﬁnancial Group would exceed the liabilities of the Company statements were paid to the non-executive directors for and the Group, such assets and liabilities being services rendered as directors, and members are being recognised and measured in accordance with the asked to approve these fees.

222 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 NOTICE TO MEMBERS

VOTING By non-registered shareowners

By registered shareowners Shareowners, who have dematerialised their Company shareholdings, such that these holdings are no longer Any member of the Company registered as such, either recorded in their own names in the sub-registers maintained as a holder of shares in certificated form or as an “own by Central Securities Depository Participants (CSDP’s), are name” holder of shares in dematerialised (i.e. electronic) not Company members as defined. Similarly, shareowners form, may attend, speak and vote at the annual general whose shares held in certificate form are registered in meeting. Alternatively every such member may appoint a the name of nominee companies, are also not Company proxy, who need not be a member of the Company, to attend members as defined. the annual general meeting and speak and, on a poll, vote thereat in his/her stead. To this end the enclosed proxy form Both such categories of shareowners who wish to attend must be lodged with Computershare Investor Services 2004 the Company’s annual general meeting should arrange with (Pty) Limited, the transfer secretaries of the Company, at their CSDP’s or brokers to be furnished with the necessary least twenty-four hours before the appointed time of the authorisation to do so, as the proxy or representative of meeting. such CSDP’s or brokers.

Any juristic person or corporate body registered as a member Both such categories of shareowners, who are either unable of the Company may either appoint a representative to attend or unwilling to attend the annual general meeting, but the annual general meeting and speak and vote thereat on nonetheless wish to be represented thereat, should provide its behalf, or alternatively appoint a proxy bearing in mind their CSDP’s or brokers with their voting instructions. that such proxy will only be able to vote on a poll. This These instructions should be given in sufficient time, and entitlement shall be subject to the requirement that proof in accordance with the agreement between them, to enable of such appointment is furnished to the satisfaction of the the CSDP’s or brokers to lodge appropriate forms of proxy directors of the Company prior to the commencement of the or appoint suitable representatives for the meeting in meeting. Such proof can take the form of either a certified accordance with such instructions. copy of a resolution of the juristic person or corporate body By order of the board or by way of a letter signed by an officer thereof.

Chris Durham Chartered Secretary Company Secretary

24 August 2006 Cape Town

TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 223 DIRECTORS’ RÉSUMÉS

Michael Mark (53) B Com, MBA, ACMA He has 38 years experience in the South African retailing industry, and has extensive knowledge of store operation, Chief Executive Officer merchandise buying, supply chain management and real Michael Mark commenced his career with the Group as estate procurement. managing director of Topics in 1988, after holding senior positions across various business functions, including at He currently chairs the Group’s risk and transformation Twins Pharmaceuticals and the Foschini Group. In 1991 he committees and the retailing operations forum, and is a was promoted to managing director of Truworths and in 1998 member of the social responsibility committee. was appointed as its executive chairman. Edward Parfett (64) AMP (Harvard) He was appointed chief executive officer of Truworths Independent Non-Executive Director International in 1996, having been appointed as a director of Edward Parfett is a retired retail executive, and currently acts the company in 1988. as a non-executive director and business consultant. Over this period he guided the company through its listing He joined Woolworths in 1961 and fulfilled various senior on the JSE Limited in May 1998 and has overseen the management responsibilities culminating in his appointment consolidation of the Group as a pre-eminent retailer in South to the board of Woolworths in 1978. Following Woolworths’ Africa. In 2000 he was appointed as executive chairman of merger with Truworths, he was appointed managing director the Group, a position which he relinquished in 2004 when the of Truworths in 1982. roles of chairman and chief executive were separated. In 1988, he was appointed managing director of Truworths He combines 24 years of experience in the fashion retail International, and became executive chairman in 1996, a industry with an ability to retain focus on the Group’s key position from which he retired in 2000. competencies and an understanding of the dynamics of fashion retailing. He has served as a non-executive director of Wooltru and as chairman of the Truworths International audit committee. He has been part of the leadership team that has enabled the Group to achieve exceptional financial performance, His extensive experience and knowledge of all aspects of including significant growth in turnover, earnings, trading retailing, together with his astute and empowering leadership density and return on equity on a consistent basis over an skills and sense of statesmanship, have been invaluable to extended period, such that it enjoys international recognition the Group’s board and executive management. as a retailer of excellence. He currently chairs and co-ordinates the activities of the Tony Taylor (59) BA Group’s non-executive committee.

Executive Director Prepared by Tony Taylor is an executive director of Truworths International, having been appointed to the board in 1999.

He joined Truworths in 1992 as its merchandise director and was appointed as retail director in 1997. Prior to joining Truworths, he had worked for Edgars as well as the Foschini Chris Durham Group, where he held the positions of merchandise director Company Secretary and operations director of Pages Stores.

He is currently deputy-managing director of Truworths, having been appointed to this position in 1998, and is responsible for retail operations, as well as the visual display, store architecture and property departments. He is also involved in the Group’s investor relations programme.

224 TRUWORTHS INTERNATIONAL LIMITED ANNUAL REPORT 2006 FORM OF PROXY

TRUWORTHS INTERNATIONAL LIMITED (Registration number 1944/017491/06) JSE Code: TRU; NSX Code: TRW; ISIN: ZAE000028296 Annual General Meeting: 9 November 2006

NB: This form of proxy is to be completed only by shareholders who hold their shares in certiﬁcated form, and by those shareholders who hold dematerialised shares with “own name” registration. Other shareholders must give their voting instructions to their CSDP or broker.

I/We (full names)

of (address)

being a member of Truworths International Limited (“the company”) and holding ______shares therein, hereby appoint ______or failing him, the chairman of the meeting as my/our proxy to attend, speak, and on a poll vote on my/our behalf, as indicated below, at the annual general meeting of members of the company to be held on 9 November 2006 at 09h30 in the Auditorium, 1st Floor, No 1 Mostert Street, Cape Town, South Africa and at any adjournment thereof.

In favour of Against Abstain

Item (1) To receive and adopt the annual ﬁnancial statements for the period ended 25 June 2006

Item (2) To re-elect by separate resolutions the retiring directors who have offered themselves for re-election:

• Michael Mark • Tony Taylor • Edward Parfett

Item (3) To give the directors limited and conditional general authority over the unissued and repurchased shares, including the authority to issue or dispose of such shares for cash

Item (4)* To give a limited and conditional general mandate for the company or its subsidiaries to acquire the company’s shares

Item (5) To re-elect Ernst & Young as auditors for the period to 24 June 2007 and to authorise the audit committee to agree the relevant terms and fees

Item (6) To approve the fees of the non-executive directors for the period ended 25 June 2006

* Special resolution

Signed at ______this ______day of ______2006.

Signature ______FORM OF PROXY

NOTES: 1. A member registered as such (either as the holder of shares in certificated form whose name is reflected in the register of company members, or as the holder of shares in dematerialised form whose name is reflected in a sub-register maintained by a CSDP) is entitled to appoint one or more proxies to attend, speak and, on a poll, vote in his/her stead. A proxy need not be a member of the company. Dematerialised shareholders, other than those with “own name” registration, must notify their CSDP or broker of how they wish to vote, in terms of the custody agreement between the shareholder and his/her CSDP or broker. This should be done in the manner and by the time stipulated by the CSDP or broker.

2. Forms of proxy, in order to be valid, must be lodged at or posted to the ofﬁce of the company’s transfer secretaries, Computershare Investor Services 2004 (Pty) Limited, 70 Marshall Street, Johannesburg, South Africa or P.O. Box 61051, Marshalltown, 2107, South Africa, or Transfer Secretaries (Pty) Ltd, Shop 12, Kaiserkrone Centre, Post Street Mall, Windhoek, Namibia or P.O. Box 2401, Windhoek, Namibia, so as to be received at least 24 hours before the commencement of the meeting.

3. If two or more proxies attend the meeting on behalf of the same member, then the person attending the meeting whose name appears ﬁrst on the form of proxy and whose name is not deleted shall be regarded as the validly appointed proxy.

4. The authority of a person signing a form of proxy in a representative capacity must be attached to the form of proxy, unless such authority has already been recorded by the company.

5. The delivery of a duly completed form of proxy shall not preclude any member or his duly authorised representative from attending the meeting and speaking and voting thereat to the exclusion of the proxy.

6. If this form of proxy is returned without any indication as to how the proxy should vote, the proxy will be entitled to vote or abstain from voting as he/she thinks ﬁt.

7. Members wishing to propose modiﬁcations to special resolution 1, or any other resolution, are required to furnish there proposals in writing for consideration at least 24 hours prior to the commencement of the meeting. SHAREHOLDERS’ DIARY

Annual general meeting 9 November 2006

*These are approximate dates

ADMINISTRATION

In Namibia Transfer Secretaries (Pty) Limited Shop 12, Kaiserkrone Centre, Post Street Mall Windhoek, Namibia Tel:+264 61 22 3162 • Telefax: +264 61 24 8531