What do you do if you’re a JSE-listed company and your shareholders keep telling you you’re lavishing too much of their money on underperforming executives? If you’re TFG, the answer is: carry on trucking.
As a clothing retailer valued at R17.8bn on the JSE, which celebrated the 100th anniversary of its first Foschini store in Joburg’s Pritchard Street last year, its behaviour sets the tone for its peers.
You’ll know the company, of course, from its clothing chains Foschini, Jet and Markhams; homeware brands including @home and Coricraft; Totalsports; and jewellers such as American Swiss and Galaxy.
You might also know TFG chair Michael Lewis, whose grandfather Meyer founded furniture hawkers Lewis in 1934, and whose father bought control of Foschini in 1958. More likely, you’ll know Michael as the man who married Lady Kitty Spencer, a first cousin to Britain’s Prince William, in 2021.
Last week, Hello magazine published photos of Spencer, 35, and her “rarely seen billionaire husband” gambolling “adorably” at a beach in the Hamptons with their three-year-old daughter.
It seems TFG shareholders find Lewis a whole lot less adorable, if last week’s AGM is any clue.
The retailer was probably expecting some heat, since its stock has halved in the past year to R53 a share, after its pre-tax profit plunged 56.9% in the year to March. Worse: its return on capital (ROC) slumped to 10.9%, which is less than its cost of capital of 11.5%.
TFG, in other words, has been destroying economic value.
In the annual report, Lewis said this year “tested TFG more than most in recent memory” as he thanked investors for their forbearance.
There wasn’t much forbearance at the AGM. TFG came within a whisker of failing to get its lead independent director, Graham Davin, reappointed to its audit committee after he got 52% of the vote. Also, 32% voted against its pay policy and 28% against the implementation of that policy.
Since AGMs are usually prosaic affairs, where investors rarely demur, those are significant protest votes. But when it comes to TFG, this is hardly new.
Last year, 19.5% voted against its pay policy, 23% rejected it in 2024, and a withering 71% gave it the thumbs down in 2023.
“The frustration is clear,” Nedbank CIB analyst Paul Steegers tells the FM. “It would appear from the AGM vote that certain shareholders are signalling their unhappiness with TFG’s governance, remuneration and capital allocation, which isn’t surprising given the share price performance.”
Lewis’s board might have hoped the radical cut to CEO Anthony Thunström’s pay — it was slashed by more than half to R18.4m from R44.7m — would calm the storm. Thunström also got a 0% pay hike and chose to forgo his bonus “in light of the company’s financial performance”.
Yet for years, shareholders have been telling TFG what was wrong with its pay policy, but the company evidently didn’t want to hear it. Its annual report said, for instance, that investors didn’t believe the profit “targets” given to Thunström to qualify for bonuses were much of a stretch.
But remuneration chair Nkululeko Sowazi felt differently. “We remain confident that the targets are appropriately challenging given the jurisdictional headwinds and the significant sector-wide downturn,” he said.
In response to questions from the FM, the retailer said it was “not unusual for remuneration resolutions to receive less than unanimous shareholder support”. She said TFG had actually engaged with shareholders and acted on the feedback — for example, by lifting the weighting in the bonus calculation of TFG’s ROC to 35%.
Pay aside, there is a deeper issue at TFG, and this is where shareholders sent an arrestingly loud message: they don’t trust the way it is allocating capital.
Notably, 35.1% voted against giving the company the authority to buy back its own shares.
This is because, in the entrails of its accounts, TFG revealed it spent R1.02bn buying back 10-million of its shares in the market last year, at an average price of R105.89 a share.
Today, those 10-million shares are worthless than R550m. With the share now at R54, TFG bought assets that halved in value — not exactly a winning trade.
On an investor call in June, one analyst asked TFG finance chief Ralph Buddle how he felt about paying so much. “Well, R105 was the market price in September. It was a year ago, it was post-GNU [when] things were still looking pretty good,” he replied. “The whole market has come down. Retail all declined — us obviously the most — and there’s a war on.”
Steegers says investors have been rattled by the fact that TFG, despite its balance sheet being “not the strongest”, opted to buy back shares rather than pay down its R8bn in debt.
“Its most recent trading update for the 21 weeks to August 22 showed 0.2% sales growth, which wasn’t great, even though there were signs of improving momentum in TFG Africa,” he says. “But what was notable was that TFG said specifically that it had met all its bank covenants — why would it say that unless people have concerns?”
TFG told the FM it has no plans to buy back more shares right now, as the focus has shifted to reducing its debt. “The general authority to buy back shares will only be used if, at some future date, the cash resources of the company are in excess of its requirements,” it said.
It “noted the voting outcome” and takes the AGM feedback “seriously”, it added.
Which would be a welcome change. The cycle of repeated votes against TFG’s pay policies suggests that until now, at least, it has been tone-deaf to what shareholders want.
