directors' statement

The group subscribes to the highest level of corporate governance and is committed to applying the principles necessary to ensure that sound governance is practised consistently throughout the group. Our approach to corporate governance is to ensure that we incorporate these principles into every aspect of the business.

The directors are of the opinion that for the financial year ended 30 June 2003 the group complied with the recommendations contained in the Code of Corporate Practices and Conduct, as set out in the second King Report, except in areas which are dealt with below.

board of directors

Board structure and responsibilities
The group has a unitary board structure with five executive directors and five non-executive directors, four of whom are independent.  In accordance with the articles of association of the group all directors are subject to retirement by rotation and re-election by shareholders at least every three years.  The board has, during the year, implemented a policy relating to the period of service by non-executive directors.  In the absence of exceptional circumstances, non-executive directors will serve a maximum of 9 years (i.e.  a maximum of three terms) on the board.

Cherrie Lowe Head of Corporate governance and group company secretary

The board operates in terms of a mandate which sets out its responsibilities and has been updated to include the latest recommendations of the King Report.  Its primary responsibilities are to ensure:- that the company has a clear strategic direction and as part of this process to review the progress made by the executive management against their plans and budgets; that provision is made for succession at senior levels and that the group has a strong and motivated pool of talent; and that Woolworths people subscribe to the values, which have always been fundamental to Woolworths culture.

In addition the board is also responsible for; -

• the determination of policies and processes to ensure the integrity of the company’s risk management and internal controls;
• compliance with all relevant laws, regulations, and accounting principles;
• ensuring that the company acts responsibly to all stakeholders such as customers, suppliers, employees, shareowners and the communities; and
• the delegation of responsibilities to sub-committees and the determination of the terms of reference for such committees.

Chairman and Chief executive officer
The board is chaired by Buddy Hawton, an independent nonexecutive Chairman.  The Chairman is responsible for providing overall leadership of the board and ensuring that the board remains efficient, focused and operates as a unit.  The responsibilities of the Chairman and the Chief executive officer are clearly separate.

The Chief executive officer, Simon Susman, is responsible for formulating and recommending to the board, strategies and policies and ensuring their implementation once agreed by the board.  The performance of the Chief executive officer is assessed by the remuneration committee when determining his remuneration.

Board effectiveness
The board through its nominations committee will regularly review its size, required mix of skills and experience and other qualities relevant to the board.  The board is composed of local and international directors, who bring a blend of knowledge, skills, objectivity and a wide range of experience and commitment to the board.  The non-executive directors are actively involved in the affairs of the group and bring strong independent judgement.

The non-executive directors have unrestricted access to employees and to all company information, records, documents and property.

The directors may seek professional advice on matters concerning the affairs of the group, at the expense of the company.

The board has determined its responsibilities and those of its sub-committees through the board charter and terms of reference of its sub-committees.  In the 2004 financial year, the board will formulate an appropriate evaluation structure to measure the performance of the Chairman, the board and board committees against agreed objectives, board charter and terms of reference.

To uphold their independence and integrity, directors disclose their material interests that may give rise to a potential conflict of interest to the board.

Induction
On the appointment of directors, an induction programme is designed to meet their specific requirements.  The directors are provided with all the necessary documentation to familiarise them with issues affecting the board.  In addition, they participate in an attachment programme with all the relevant executives to assist their understanding of the broad dynamics of the business.

Dealings in shares
The share dealing committee has been in existence for a number of years and considers applications by directors and officers for dealing in the company’s shares and those of our supplier companies.  Applications are approved prior to the respective individual dealings, in line with the provisions of the company’s insider dealing policy.  The share dealing committee is made up of a non-executive director, the Chief executive officer and the company secretary.  If a member of the committee wishes to deal in the company’s shares, that member is replaced by a nonexecutive director for purposes of making the decision.

Pursuant to the provisions of the listings requirements of the JSE Securities Exchange, South Africa, any share dealings by directors of the group, are immediately released on SENS.  Quarterly, a schedule of the directors and officers dealings in the company’s shares and those of our supplier companies is submitted to the board.

The group operates a restricted period of two months prior to the publication of its interim and annual results.  During the restricted period, the directors and officers may not deal in the shares of the company.  Additional restricted periods are enforced as necessary.

The directors are aware of the new amendments to the listings requirements of the JSE Securities Exchange, South Africa with regard to share dealings and have adopted the recommendations with effect from 1 September 2003.

Board meetings
The board meets at least four times a year.  Two further meetings are held in May and November and are devoted to strategic planning.  Additional meetings are held whenever deemed necessary.  The details of individual attendance at board meetings are set out below:

Director	Aug   2002	Nov   2002	Feb   2003	May   2003
Non-executive directors   Buddy Hawton1   Nigel Colne   Brian Frost   Mair Barnes   Sindi Zilwa	-	-
Executive directors   Simon Susman   Mark Canning   Deon de Kock   Richard Inskip   Norman Thomson
Retired director   Colin Hall 2		-	-	-

Notes:
¹ Buddy Hawton was appointed on 22 November 2002
² Colin Hall retired on 21 November 2002

Group company secretary
The board is cognisant of the duties of the company secretary and have created an environment in which the company secretary is properly supported to fulfil those duties.  Further, the group company secretary, who is also the head of corporate governance, plays a significant role in the following; -

• induction of new directors;
• tabling to the board, relevant information on regulatory and legislative changes;
• guidance to directors individually and collectively of their duties and responsibilities to the company; and
• providing guidance and advice to the board on matters of ethics and good governance.

The directors have unlimited access to the advice and services of the group company secretary.

Board committees
Specific responsibilities have been delegated to board committees with defined terms of reference.  The current board committees are;-

Audit committee
The audit committee, is chaired by an independent non-executive director, Nigel Colne.  The committee consists of two independent directors and two members with extensive financial experience, who are not directors.

The composition of the audit committee is shown on page 118 of the report.  The committee meets at least five times a year.

The Chief executive officer and the Finance director attend the meetings by invitation.  The external and internal auditors have unrestricted access to the Chairman of the audit committee and attend all audit committee meetings.

The details of individual attendance at audit committee meetings are set out below:

Member	Aug     2002	Aug     2002	Nov     2002	Feb     2003	May     2003
Nigel Colne Jon Lavies Ray Schur Sindi Zilwa

The Chairman of the audit committee attends the annual general meeting and is available to answer questions relating to the activities of the committee.

The Chairman of the committee provides a summary report to the board of the major deliberations of the committee.  The committee operates in accordance with terms of reference approved by the board.

The main responsibilities include;-

• assisting directors in fulfilling their responsibilities of ensuring that the system of internal controls, accounting practices, financial reporting and auditing processes are functioning effectively;
• facilitating the effective communication between the board of directors, management and the external auditors;
• facilitating the credibility, objectivity and reliability of published financial reports and ensuring that the financial statements comply with South African Statements of Generally Accepted Accounting Practice and providing an objective, independent forum for the resolution of significant accounting and reporting related matters;
• supporting overall effectiveness of corporate governance;
• considering whether a voluntary review of the interim report is necessary; and
• considering and making recommendations to the board on the following:
  – the appointment and retention of external auditors;
  – audit fees;
  – interim and annual financial statements disclosure; and
  – internal audit and internal control.
  The audit committee has adopted a set of guiding principles in instances where the company engages its external auditors for non-audit services.
  The committee is satisfied that during the year under review, it complied with its responsibilities as detailed in its terms of reference.

internal audit

The board recognises the need for an independent internal audit function and has established the necessary structures and policies.  The head of internal audit reports functionally to the audit committee and administratively to the head of corporate governance, who in turn reports to the Chief executive officer.

Internal audit provides independent, objective assurance and consulting services designed to add value and improve the internal control environment of the group by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of internal control.  In addition a risk based audit approach in line with international best practice has been adopted.

Internal audit operates in terms of a charter which has been approved by the audit committee and is in-line with the provisions of the Standards for the Professional Practice of Internal Auditing of the Institute of Internal Auditors.  At the audit committee meeting held in May each year the audit coverage plan for the new financial year is approved.  To ensure proper coverage of internal control and to minimise duplication of effort, internal audit co-ordinates its activities with other assurance providers.

external audit

The independent external auditors, Ernst & Young, are engaged to provide the shareowners with an independent opinion on whether the annual financial statements fairly present, in all material respects, the financial position of the company and the group.  In performing their work, the external auditors review and test the systems of internal financial control only to the extent necessary to express their audit opinion.  Copies of the external auditors’ management letters, which include observations on controls arising from their audit procedures, are provided to the audit committee, the directors and the head of internal audit.

Ernst & Young observe, as a minimum, independence rules which conform to those of the International Federation of Accountants and the Codes of Professional Conduct of the South African Institute of Chartered Accountants and the Public Accountants and Auditors Board.

The external auditors meet regularly with the head of internal audit to discuss matters of mutual interest, to exchange management letters and reports, to facilitate a common understanding of methodologies and scope of audit work.

Details of the auditors’ fees for audit and non-audit services are given in the annual financial statements on page 83.

risk management

The board is responsible for risk management.  A risk management committee will be constituted during the new financial year and the terms of reference agreed by the board.

Members of the risk management committee will not assume the normal functions of management.  Management is accountable to the board for designing, implementing and monitoring the process of risk management and integrating the process into the day-to-day activities of the company.  The group risk function reports to the head of corporate governance and is responsible for assisting management to identify, assess and manage their risks.

A decentralised approach has been adopted in which the responsibilities and accountability for risk management rests clearly with individual business units. The group risk function provides a framework to ensure a consistent view of the risk profile across the entire group.  During the year an appropriate risk assessment methodology was identified from recognised risk management models and frameworks, adapted to suit the specifics of the company and benchmarked against local and international retailers.  To embed the risk methodology and framework throughout the business, an awareness campaign was conducted.

In order to cover the key risks, assessments were conducted in human resources, operations, supply chain and logistics.  Next year assessments will be carried out in the remaining key risk areas.  Risk assessments were also conducted on significant projects.

Risk functionaries exist in various business units and report to their business unit heads.

These functionaries are responsible for the management of the following risks; -

• credit;
• business continuity;
• disaster recovery;
• information security;
• product safety and recall;
• health and safety, including HIV/Aids;
• security; and
• financial risks including taxation and treasury.

Independent external auditors provide objective assurance on the effectiveness of the risk management process annually to the audit committee.

accountability

The board is accountable for the group’s systems of internal control and has delegated the responsibility of internal control to management.

The systems of internal control are designed to provide reasonable but not absolute assurance with respect to the following; -

• integrity and reliability of financial statements;
• effectiveness and efficiency of operations;
• safe guarding of company information and assets; and
• compliance with applicable laws and regulations.

A comprehensive review and testing to ensure that the group maintained adequate and effective systems of internal controls was carried out internally.  The board is of the view that controls currently in place are adequate and effective to mitigate to an acceptable level, the significant risks faced by the company.

nominations committee

During the year, a nominations committee was established and terms of reference adopted.  The first meeting was held in May 2003.  The committee is chaired by the Chairman of the board, Buddy Hawton, and consists of four non-executive directors, three of whom are independent and the Chief executive officer.  In the next financial year the Chief executive officer will resign from the committee but will continue to attend the meetings by invitation, when necessary.  The details of individual attendance at the nomination committee meeting are set out below:

Member	May 2003
Mair Barnes   Nigel Colne   Brian Frost   Buddy Hawton   Simon Susman

The committee meets as and when deemed necessary and the Chairman reports to the board on the major activities of the committee.

The responsibilities of the committee are; -

• to regularly review the board structure, size and composition and to make recommendations to the board; and
• to identify and nominate candidates for approval by the board and to fill board vacancies as and when they arise.

Members of the nomination committee do not receive fees.

remuneration committee

The remuneration committee operates in accordance with board approved terms of reference, which clearly sets out the group’s remuneration strategy and policies.

Membership comprises of four non-executive directors, the majority of whom are independent.  The Chairman of the board, Buddy Horton, who is an independent non-executive director, chairs the committee.  The Chief executive officer attends meetings by invitation in order to advise on remuneration of the other executive directors and senior management.  He is excluded from and does not participate in any discussions or decisions related to his own remuneration.  The human resources director is invited to meetings when necessary for specific items.  The committee obtains relevant advice from external executive remuneration consultants.

The committee meets at least four times per annum.  The details of individual attendance at meetings are set out below:

Member	Aug     2002	Nov     2002	Feb     2003	May     2003
Buddy Hawton1   Mair Barnes   Nigel Colne   Brian Frost   Colin Hall2

¹ Buddy Hawton was appointed on 22 November 2002
² Colin Hall retired on 21 November 2002

The Chairman of the remuneration committee attends the annual general meeting and is available to answer questions relating to remuneration.

The remuneration committee will be evaluated by the board on at least an annual basis commencing in the 2004 financial year.  The committee is dedicated to the principles of linking pay with performance, accountability and transparency.

The objectives of the remuneration committee include; -

• to approve an overall remuneration strategy for the directors and executive management, taking cognisance of shareholders’ interests.  This specifically includes the evaluation of guaranteed pay, performance bonuses and longer-term share incentives for the directors and executive management;
• to ensure that remuneration strategy is market related and competitive in order to attract, retain and energise high quality staff at all levels and reinforce desired behaviour to achieve the overall strategy; and
• to ensure succession plans are in place, for executive directors and senior management.  This entails ensuring that succession planning is initiated at the management level where depth, scope and diversity of talent is identified and nurtured to replace executives when required.

Executive directors do not have service contracts.

Fees for non-executive directors are recommended by the remuneration committee to the board for approval.  In the past the fees for non-executive directors have been determined in accordance with the articles of association and approved by the shareholders at the annual general meeting after they had been paid.  This year in addition to asking for ratification of payments made during 2003 shareholders will be requested at the annual general meeting to approve the fees to be paid to non-executive directors for 2004.

remuneration strategy and policies

The remuneration strategy is reviewed on an annual basis and is aligned to the group strategy.  A remuneration framework is in place which aims to;-

• attract and retain high performing people, with the best mix of skills, knowledge, competencies, values and behaviours taking cognisance of transformation, employment equity and diversity that is required in our country;
• encourage the creation of value for shareowners;
• generate high potential remuneration for high performance, allowing high performers to share in the financial success of the company;
• incentivise on business unit and group performance; and
• differentiate pay according to people’s value in their specific market, their competence and performance level.

Performance measurement of staff is achieved by the use of a balanced scorecard approach, service level agreements and a performance and development system.  Performance is rewarded through both guaranteed and variable pay (performance bonuses and share incentives).

remuneration mix

Remuneration mix reflects relative proportions of guaranteed and variable pay.  It is part of the group remuneration philosophy that performance related elements (variable pay) should constitute a growing portion of executives’ total remuneration.

As the norm Woolworths targeted total pay position aims at the 60th percentile by comparison with relevant comparator companies.  The remuneration committee, with advice from external executive remuneration consultants ensures that executive remuneration is competitive by reference to a broad comparator group of South African companies comprising retail and non-retail companies, similar in size and complexity to Woolworths.  Furthermore, independent external benchmarking studies and comparisons within the retail sector are used to ensure the rewards and incentives are linked to appropriate stretched targets.

guaranteed pay and benefits

Total package or cost to company includes guaranteed pay and benefits.  Total package is designed to ensure that individuals are paid equitably both internally and externally relative to the market and to individual performance and competence.

Benefits include compulsory core benefits that will provide a minimum level of cover to retirement funding, healthcare, death and disability.  The schemes provide a menu of options to provide choice and flexibility to meet individuals’ preferences and life stage requirements.

variable pay

Variable pay is designed to incentivise people to exceed expectations and to deliver superior performance.  Variable pay comprises short-term cash incentives and a longer-term share incentive scheme.

Short-term incentive scheme
The annual performance bonus is payable on achieving certain predefined business and financial objectives.  The scheme and targets are reviewed annually.  The short-term incentive scheme rewards superior team performance and is applicable to those employees who significantly impact on the company’s one year plan.

From 2004 financial year all employees will participate in the short-term incentive scheme.  All employees will have an opportunity to earn an incentive bonus based on meeting predetermined goals.  The scheme is designed to reward exceptional performance when targets are exceeded.

Share scheme
The share scheme is designed to allow the Chief executive officer, executive directors and senior executives to individually accumulate significant shareholdings, to reinforce a sense of ownership and to align key executives’ behaviours with the interests of shareowners.  Share incentives are considered an essential element of executive remuneration and comprise a material part of executives’ remuneration.

Grants are evaluated each year based on meeting predefined stretched performance targets.  Grants are allocated at varying multiples of guaranteed remuneration dependant on the achievement of the performance targets.  Grants are not awarded if minimum targets are not met.

Non-executive directors do not participate in share incentives.

directors’ emoluments

Emoluments paid to directors of Woolworths Holdings Limited in connection with the affairs of the company and its subsidiaries during the year ended 2003 and comparatives for 2002 can be analysed as follows: