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Notice of AGM

Proxy

The directors endorse the principles of effective corporate governance and accept responsibility for ensuring that it is consistently practised throughout the Group.

The directors endorse the principles of effective corporate governance and accept responsibility for ensuring that it is consistently practised throughout the Group. In discharging this responsibility, the Board has taken steps to ensure that the Company complies in all material respects with the requirements of the Code of Corporate Practices and Conduct as set out in the second King Report on Corporate Governance (King II). The Company's approach to corporate governance is stakeholder inclusive, underpinned by effective communication and integrated into every aspect of the business.

Chairman and Chief Executive Officer

The Board is chaired by David Nurek, an independent non-executive director. The Chairman is responsible for providing leadership to the Board, overseeing its efficient operation and ensuring effective corporate governance.

The Chief Executive Officer, Alan Smart, is responsible for formulating, implementing and maintaining strategic direction, as well as ensuring that the day-to-day affairs are appropriately supervised and controlled.

Board

The Board comprises one executive director and four non-executive directors. Three of the non-executive directors are independent. The remaining non-executive director, David Tyler, is an executive of GUS plc, the majority shareholder. Biographical details on the directors appear under the Board of Directors.

In terms of its charter, the Board's responsibilities include the following:

• adoption of strategic plans;
• monitoring operational performance and management;
• ensuring effective risk management and internal control;
• overseeing director selection, orientation and evaluation;
• approving significant accounting policies;
• ensuring effective regulatory compliance;
• assessing the sustainability of the Group as a going concern;
• approving the annual and interim financial statements; and
• ensuring balanced and understandable communication to stakeholders.

The Board has defined levels of materiality recorded in a written delegation of authority, setting out decisions it wishes to reserve for itself.

The directors do not have fixed terms of appointment and all directors are subject to retirement by rotation and re-election by shareholders at least every three years.

Directors are selected to serve on the Board, based on their knowledge, experience, credibility, the contribution they can make and attention they can devote to the role.

Board meetings

The Board meets four times a year, while additional meetings will be convened when necessary.

Meetings are conducted in accordance with formal agendas, ensuring that all substantive matters are properly addressed. Any director may request additional items to be included on the agenda.

Non-executive directors bring an independent view and enjoy significant influence at the meetings. In addition, there is ongoing communication between the executive and non-executive directors outside of the formal meetings.

The directors have unrestricted access to information and management and may seek independent professional advice at the Group's expense, after consultation with the Chairman.

A summary of the attendance at Board and committee meetings is set out below.

Board committees

The responsibilities delegated to the Audit and Risk Committee and the Remuneration and Nomination Committee have been documented in the terms of reference for each committee and approved by the Board. The effectiveness of the committees will be reviewed annually by the Board.

Audit and Risk Committee

The committee consists of three non-executive directors, two of whom are independent: Hilton Saven (Chairman), David Nurek and David Tyler. The directors are financially literate and suitably qualified to perform their role.

The committee meets four times a year and is responsible for:

• Approving the internal audit plan and reviewing the activities and findings of the department. Evaluating the performance of the internal audit function.
• Reviewing the audit plan of the external auditors, providing guidance as to the extent of services other than audit to be provided. Considering the independence and objectivity of the external auditors. Considering significant differences of opinion between management and external auditors.
• Considering the adequacy of internal control and risk management.
• Ensuring compliance with regulatory requirements.
• Assessing the sustainability of the Group in terms of economic, environmental and social considerations.
• Reviewing the financial reporting systems, evaluating and approving accounting policies and the financial information issued to the stakeholders in terms of Generally Accepted Accounting Practice.

The committee has appointed a risk working group to assist with identifying, evaluating and managing significant risks faced by the Group. The risk working group meets biannually and consists of the heads of finance, human resources, information technology, store and credit operations, credit risk management, internal audit, marketing, merchandising, property management and is chaired by the Chief Executive Officer.

The risk working group was formed and tasked with the following:

• The identification and evaluation of actual and potential significant risks.
• The formulation of a response to the risk.
• Allocating responsibility for managing the risk.
• Subsequent monitoring.

Internal control and risk management

The Group's internal controls and systems are designed to provide reasonable, but not absolute assurance as to the integrity and reliability of the financial statements, to safeguard and maintain accountability of its assets, to minimise fraud, loss and material misstatements and to ensure compliance in all material respects with applicable laws and regulations.

The systems of internal control are based on established organisational structures, written policies and procedures and includes the preparation of budgets and forecasts and the subsequent comparison of actual results to these budgets and forecasts. These systems and procedures are implemented, maintained and monitored by appropriately trained personnel with suitable segregation of authority, duties and reporting lines and by the comprehensive use of computer technology.

The effectiveness of the systems of internal control is monitored by the senior executives, general managers and the internal auditors. These reviews indicate that the systems of internal control are appropriate and satisfactory and in addition, no material loss, or misstatement arising from a material breakdown in the functioning of the systems has occurred. The Board is of the view that current controls are adequate and effective to mitigate, to an acceptable level, the significant risks faced by the Group.

Internal audit

The internal audit department reports to the Audit and Risk Committee and has direct access to the Chairman of the Board and the Audit and Risk Committee. For day-to-day matters it reports to the Chief Financial Officer.

It provides assurance that management processes are adequate to identify and monitor significant foreseeable risks. It monitors the effective operation of the established internal control systems and is responsible for establishing credible processes for feedback on risk management to the Board.

The internal audit department's charter has been approved by the Audit and Risk Committee and is consistent with the Institute of Internal Auditors' requirements for internal auditing. The audit coverage plan is reviewed annually and all significant findings and recommendations are reported to executive management and the Audit and Risk Committee.

The internal audit department co-ordinates with the external auditors, as far as practicably possible, to ensure proper coverage of financial, operational and compliance controls and to minimise duplication of effort.

External auditors

The external auditors provide an independent assessment of the annual financial statements and express an opinion on the fair presentation of the financial disclosures.

The external auditors have access to the Audit and Risk Committee.

The audit plan prepared by the external auditors is reviewed by the Audit and Risk Committee to ensure that all significant areas are covered, without infringing on the external auditors' independence and right to audit.

The external auditors report to the Audit and Risk Committee and executive management their audit findings. The committee ensures that the matters identified and significant differences of opinion between management and the external auditors are considered.

Remuneration and Nomination Committee

The committee consists of three independent non-executive directors: David Nurek (Chairman), Hilton Saven and Ben van der Ross.

The committee meets twice a year and is responsible for the following:

• Developing a remuneration philosophy.
• Ensuring senior executives are fairly rewarded.
• Succession planning.
• Ensuring the Board has the required mix of skills, experience and other qualities to effectively manage the Group.
• Identifying and nominating candidates to fill Board vacancies.

Before nominating individuals, appropriate background checks are performed. Newly-appointed directors are taken through an induction programme outlining their fiduciary responsibilities and the necessary Company and industry-specific background information.

Details of the directors' remuneration are set out below:

Executive Committee

The Executive Committee is chaired by the Chief Executive Officer, Alan Smart, and consists of 14 senior members of the executive team. The committee meets quarterly and is responsible for assisting the Chief Executive Officer in the management of the Group. The committee is responsible for the performance of the Group and is responsible for making policy proposals to the Board for consideration and adoption.

Company secretary

The company secretary acts as adviser to the Board and plays a pivotal role in ensuring compliance with statutory regulations and the Code, the induction of new directors, tabling information on relevant regulatory and legislative changes, and giving guidance to the directors regarding their duties and responsibilities. The directors have unlimited access to the advice and services of the company secretary.

The appointment and removal of the company secretary is a matter for the Board.

Behavioural code

The Group is committed to a culture of the highest levels of professionalism and integrity in its business dealings with stakeholders. The behavioural code sets out standards of honesty, integrity and mutual respect. Employees are expected to act within this code at all times.

A corporate fraud policy has also been implemented which sets out the responsibility of the staff and management towards the detection and prevention of fraud.

An anonymous process is available to all employees to report suspected incidents for investigation. Employees are guaranteed confidentiality and protection from victimisation for reporting such incidences.

Stakeholder communication

In all communications with stakeholders, the Board aims to present a balanced and understandable assessment of the Group's position. This is done through adhering to principles of openness and substance over form and striving to address material matters of significant interest and concern to all stakeholders. Proactive communication is maintained with institutional share owners and investment analysts. The Board encourages shareholder attendance at general meetings and will provide understandable explanations of the effects of resolutions to be proposed.

Share dealing

The Board has implemented an insider trading policy. During closed periods, the directors, officers and defined employees may not deal in the shares of Lewis.

Directors are required to obtain written clearance from the Chairman before dealing. If the Chairman wishes to deal, he is required to obtain written permission from the chairman of the audit and risk committee.

A register of share dealings by directors is maintained by the company secretary and reviewed by the Board.

Conflict of interest

Directors or senior executives, once aware of any conflict of interest, are required to disclose such immediately and are precluded from voting at meetings on conflicting matters.

The first Board meeting of Lewis Group Limited as constituted above was held on 6 September 2004.

SUSTAINABILITY REPORT

We are committed to developing and reporting on our activities for sustainable development. Striving for economic prosperity and growth, yet encouraging environmental and social progress.

Environment

The Group recognises that its activities have an impact on the environment. We have adopted a strategy that strives to minimise this impact by regularly reviewing the activities and compliance with relevant legislation.

The activities undertaken include the following:

• Usage of electricity and water are monitored and where appropriate, steps are taken to reduce consumption. A number of electrical saving devices are being tested in selected branches and if significant savings are achieved, these devices will be extended to the rest of the Group.
• Wastage disposal companies are contracted to recycle the Group's wastage, which relates mainly to consumables such as stationery and paper.
• There is a focus on the optimisation of fuel and oil consumption by ensuring that vehicles operate efficiently and the amount of travel for delivery purposes minimised.

With respect to our suppliers, where practicable, we review their activities and supply chain to determine the impact on the environment and communities.

Communities

We are committed to the national community which we serve and to our employees. To this end, we have assisted the communities in the following ways:

• Lewis together with the GUS Charitable Trust has contributed to a children's crisis centre.
• Participated in the Get a Child to Work Project by exposing pupils from disadvantaged schools to the functioning of the Group.
• Making donations of kits to soccer clubs.
• Donating furniture to selected community projects and sponsoring computer hardware and software to various charities and schools.
• Participation in the local Woodstock upliftment project where the Group's head office is located.

Lewis will be one of the five major sponsors of the Community Chest Twilight Run, an annual event in Cape Town which assists in the fundraising drive of the Community Chest which distributes funds to over 520 charities.

In addition we contribute to the economic and social upliftment of the communities in which we operate by means of numerous smaller donations.

Through the Lewis Club the following contributions have been made to the social and economic upliftment of our communities:

• The provision of Damelin education bursaries to the value of R2 million per year to Club members, thereby assisting predominantly previously disadvantaged southern Africans to further their education. The bursary winners are published in the Club magazine.
• Two 24-hour toll-free lines offer Club members legal, healthcare, HIV and parenting advice. The legal and healthcare advice lines each average 9 000 calls per month. These services provide a much-needed service to customers, particularly those living in rural areas.
• The top three Club prize winners select charities of their choice and donations are made to these selected charities on their behalf.

Employees

Our business success relies on a productive workforce, where sound employee relations and open communications are key. We aim to create an environment where loyal people with strong entrepreneurial and work ethic are rewarded.

We are very aware of the costs associated with employee turnover and the cost of acquiring and training new staff. Staff retention is a high priority of our human resources strategy. There are a number of tenets of this strategy, one of which is to adequately remunerate employees for their contribution to the Group's overall success.

We provide for the development of our staff offering an extensive range of training courses for all employees concentrating on the skills set for each of the job categories. There is an induction programme designed to ensure that the employee is operational within 20 working days of joining. Thereafter, further classroom and on-the-job training is conducted.

Manager development programmes are in place to take the employee through junior management levels through to senior management roles where retail management and customer relationship courses at UNISA are attended.

A training team working closely with the human resources department circulates throughout South Africa providing onsite and offsite training supplementing interactive computer training on product knowledge at the stores. We are accredited as a training provider within the Wholesale and Retail Sector Educational and Training Authority. All refunds are reinvested in training.

The Group provides a number of other benefits:

• Voluntary medical aid for employees subsidised by the Company.
• Compulsory membership of either the Lewis Provident Fund or SACCAWU National Provident Fund.
• Home loans.
• Educational bursaries.
• Medical aid assistance.
• A subsidised canteen at head office.
• Counselling, advice and assistance to the employees who request such as a consequence of difficult personal circumstances.

We recognise our employees' rights to associate freely and to bargain collectively. A recognition agreement exists with the South African Commercial, Catering and Allied Workers Union (SACCAWU).

Transformation

We are committed to ensuring a workforce that is representative of the demographics of South Africa and our customer base. In 2000, a five-year Employment Equity Plan was compiled after consultation with stakeholders, including the trade unions. To date we have met the targets set in terms of the plan. Senior management have been tasked to monitor progress to ensure a successful implementation.

To support the process of transformation, staff drawn from previously disadvantaged groups have been assisted in their development through participation in training programmes. In addition a development pool comprising staff from previously disadvantaged communities, who have been identified as having management potential, are receiving further training and exposure.

Procurement

The Group procures a substantial amount of merchandise from independent suppliers, which are mostly small, medium and micro enterprises and mostly owned by persons from designated groups. More than 60% of lounge furniture, 19% of bedding, 9% of bedroom suites and more than 24% of other furniture lines are purchased from BEE suppliers. In addition 90% of all vehicles purchased were bought from a BEE vehicle dealership. Our payment terms are 30 days, compared to the average retail payment term of 90 days, which support the operations of these suppliers.

HIV/AIDS

We have an HIV/AIDS awareness programme which is integrated into the regular company training programmes available to our staff. The objective is to present the course to some 2 000 staff members annually, advising them of the effects of AIDS and prevention methods. In addition brochures are regularly distributed to staff.

Counselling, advice and assistance is available to employees who request such as a consequence of their personal circumstances. These services are provided at no cost to employees and are outsourced, guaranteeing total confidentiality.