Ann Crotty Writer-at-large
A David Jones store in Sydney, Australia. Picture: REUTERS
A David Jones store in Sydney, Australia. Picture: REUTERS

The board of fashion and food retailer Woolworths told shareholders on Friday that it could not say with any certainty that it will not have to take further write-offs on the value of its Australian business David Jones, which was hit by a R7bn write-down in early 2018.

Deputy chairman and head of the group’s audit committee, Hubert Brody, said that the decision whether further impairments would be needed is part of an annual process followed by the board.

Brody told shareholders that the board needs to determine if the R7bn impairment of David Jones, which was bought for R21bn in 2014 as part of its strategy to create the largest retailer in the southern hemisphere, was adequate.

"I can’t tell you with any certainty if we will or will not need additional impairments. The last impairment was done recently. We have to see how the business plan we put in place works out," he told shareholders at the annual general meeting (AGM).

Brody, who is expected to take over as group chairman in November 2019, when Simon Susman steps down, was responding to a question raised by Wendy Volkel, one of the shareholders attending the meeting. Volkel said at the 2018 AGM there had been no mention of the possibility of having to write down the value of David Jones.

"Soon after last year’s AGM the board announced the R7bn impairment. Can we expect any more surprises after this AGM?" Volkel asked.

CEO Ian Moir told shareholders in 2014 that the acquisition was justified given SA’s sluggish economy, volatile currency and political uncertainty.

The Woolworths share price closed at R56 on Friday, almost half the level at which it peaked in November 2015, before the David Jones difficulties became apparent.

The share price is down 14% so far in 2019, lagging the JSE’s general retailers index, which is down 10%.

Woolworths said in November 2018 it would pull the David Jones brand from SA stores, "repositioning" the ranges under the Woolworths Classic Collection brand.

At Friday’s meeting, 40% of shareholders voted against the group’s remuneration implementation report, a significant increase on the 27% of shareholders who voted against the report at the 2017 AGM.

The report shows a 7.2% increase to R39.3m in the total guaranteed pay in the past financial year of Woolworths’s top four executives: group CEO Moir, CFO Reeza Isaacs, COO Sam Ngumeni and CEO of Woolworths SA Zyda Rylands.

Susman told the AGM the board has had "good and forthright discussions" with shareholders about the group’s remuneration policy. The remuneration committee had also assured shareholders that none of the executives would benefit from the introduction of return on capital as a new key performance indicator for remuneration, Susman said.

The R7bn write-off would automatically boost future returns, as it will be based on a lower capital cost. He said the results of Friday’s vote meant the remuneration committee would have to re-engage with shareholders about remuneration. The company secretary noted the top 25 shareholders hold 70% of the group’s equity.

Asief Mohamed, chief investment officer of Aeon Investment Management, said the remuneration committee should focus its engagement on the shareholders who voted against the remuneration policy, and not just the largest shareholders.