The Company recognises the importance of, and is committed to, high standards of corporate governance. The Board is accountable to the shareholders for good corporate governance. This report together with the Audit Committee report on pages 26 to 28 and the Report on the Directors’ remuneration on pages 32 to 42 describes how the Board applies the principles of good governance and best practice as set out in the UK Corporate Governance Code 2010 issued by the Financial Reporting Council (“the Code”), available on its website www.frc.org.
The Company is headed by a Board of Directors collectively responsible for the success of the Company. The Board provides leadership within a framework of prudent and effective controls designed to enable risk to be assessed and managed.
It sets the Company’s strategy and is responsible for reviewing management performance and for ensuring that the necessary financial and human resources are in place in order to meet the Company’s objectives. The Board also sets the Company’s values and standards mindful of its obligations to shareholders and other stakeholders.
The Board currently comprises the Chairman, three Executive Directors and three Non-Executive Directors. The Board regards K G Edelman, M P George and D J Houghton as being independent. The Chairman and Chief Executive both have clearly defined roles and responsibilities which are set out in writing and approved by the Board. The Chairman has responsibility for the leadership and the running of the Board, including but not limited to ensuring that a fixed schedule of matters covering key areas of the Group’s affairs, including strategy, annual budgets, significant capital expenditure and major litigation, is exclusively retained for the Board’s review and approval and that a framework exists to allow the clear dissemination of relevant and timely information to all Directors for such discussion to occur. He is also responsible for communications with shareholders and for ensuring effective contributions from the Non-Executive Directors. The Chairman has commitments outside of the Company as detailed in his biography on page 22. All Directors are subject to reappointment by shareholders at the first Annual General Meeting (“AGM”) following their appointment and thereafter at intervals of no more than three years. In line with the Code requirement for all FTSE 350 companies, the Board has agreed that all Directors will retire and offer themselves for reappointment by shareholders on an annual basis.
The Board regularly reviews the operational performance and plans of the Company and, as necessary, determines the Company’s strategy. The Executive Directors also meet under the chairmanship of the Chief Executive on a weekly basis to discuss operational matters and ensure that Board decisions are implemented.
All Board members receive agendas and comprehensive papers prior to each Board meeting. All Directors have access to the services of the Company Secretary who is responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are adhered to. The Board maintains a register of potential conflicts of interest with its Directors and confirms that no such conflicts exist. The register is reviewed and updated as necessary throughout the financial year. Directors may also obtain further information from any manager or employee of the Company and there is a procedure for Directors to obtain independent advice from external advisers, consultants or any such further professional individual or entity at the Company’s expense. The Company maintains appropriate liability insurance for the benefit of its Directors.
The Chairman meets at least annually with the Non-Executive Directors without Executive Directors present and the Non-Executive Directors, led by the Senior Independent Director, Keith Edelman, meet annually to consider the Chairman’s performance, taking into account the Executive Directors’ views. The Senior Independent Director is also available to shareholders if they have any concerns that contact through the normal channels of the Chairman, Chief Executive or Finance Director has failed to resolve or for which such contact is inappropriate.
The terms and conditions of appointment of the Non-Executive Directors are available during normal business hours at the Company’s Registered Office and will be available for inspection at the AGM.
New appointments to the Board receive an appropriate induction to gain an understanding of the Company’s business, which includes meetings with senior management.
Given the skills and experience of the Non-Executive Directors, their general training requirements are left to their own discretion. The Company makes the necessary resources available to meet any identified requirements. The Chairman conducts a formal appraisal process for the Board, its Committees and individual Directors, including Directors due to offer themselves for reappointment at the AGM, through use of a questionnaire and one-to-one meetings which facilitates a Board discussion and, where appropriate, agreed actions for improvements. The Executive Directors are also included in the Company’s annual performance appraisal arrangements, which include development and training requirements.
The Board delegates its authority for certain matters to its Audit, Remuneration and Nomination Committees. The Board approves the terms of reference of each of the Committees, which were reviewed and amended in July 2012 and they are available on the Company’s web site, www.thorntons.co.uk, and upon request from the Company Secretary. During the financial year under review there were three meetings of the Audit Committee, three formal meetings of the Remuneration Committee and one formal meeting of the Nomination Committee with full attendance of all eligible Directors. In addition to formal Committee meetings, ad hoc decisions of the Committees are taken after discussion throughout the financial year as necessary through the form of written resolutions.
The Audit Committee throughout the financial year comprised three independent Directors and was chaired by D J Houghton. P N Wilkinson served on the Committee until his appointment as Chairman of the Board on 1 February 2013 at which time M P George joined the Committee. It meets three times each financial year with the external auditors and considers any issues that are identified during the course of their audit work. The Board is satisfied that the Committee members have recent and relevant financial experience.
Full details of the responsibilities and governance of the Audit Committee are set out in its report on pages 26 to 28. D J Houghton, Chair of the Committee, will be available at the AGM to respond to any shareholder enquiries in relation to the Committee’s report.
The Nomination Committee is composed of two independent Directors, K G Edelman and D J Houghton, and the Chairman of the Board, P N Wilkinson. J A von Spreckelsen served as the Committee Chairman until his retirement on 1 February 2013 at which time P N Wilkinson succeeded him as Chair. The Committee is responsible for reviewing the credentials of each and every potential Director before such nominee is proposed to the Board. In considering potential appointments to the Board, the Committee evaluates the balance of skills, knowledge and experience on the Board when considering the role and capabilities required for a particular appointment. When appointments are being considered, the Committee uses professional external recruitment specialists as and when appropriate, as it did in relation to the appointment of M P George, who joined the Board as a Non-Executive Director on 1 November 2012, as well as contacts of its Directors and the Company’s advisers. The Committee also reviews the contribution of those Directors offering themselves for reappointment by shareholders at the AGM.
The Remuneration Committee is composed of the three independent Directors and is chaired by K G Edelman. P N Wilkinson served on the Committee as Chair until his appointment as Chairman of the Board on 1 February 2013 at which time K G Edelman succeeded him as Chair and M P George joined the Committee. The Board has delegated authority to the Committee for setting the Chairman’s, the Executive Directors’ and the Company Secretary’s remuneration and performance-related awards. Further details of the Committee and Directors’ remuneration are set out in the Report on the Directors’ remuneration on pages 32 to 42.
Attendance by Directors at meetings for which they were eligible during the financial year ended 29 June 2013 was as follows:
|P N Wilkinson||9/9||1/1||1/1||2/2|
|J A von Spreckelsen||5/5||n/a||1/1||n/a|
|K G Edelman||9/9||2/2||1/1||3/3|
|M P George||6/6||2/2||n/a||2/2|
|J D Hart||9/9||n/a||n/a||n/a|
|D J Houghton||9/9||3/3||1/1||3/3|
|M D Killick||9/9||n/a||n/a||n/a|
Communications with shareholders are given high priority. Following the announcement of the Company’s half-year and full-year results, the Directors, normally represented by the Chief Executive and Finance Director, make detailed business presentations to institutional shareholders and investment analysts. The Chairman meets regularly with major shareholders and on request, and the Senior Independent Director is also available to all shareholders. Feedback directly from shareholders and via the Company’s advisers after these regular analyst and shareholder meetings ensures that the Board understands shareholder views. Finally, the Company’s investor web site, www.thorntons.co.uk/investor, allows shareholders to view Company results, Stock Exchange announcements and other relevant information.
The Board uses the AGM to communicate with both private and institutional investors and welcomes their attendance. Each year the Board reviews any governance and voting guidelines issued by representative bodies of its shareholders. The Directors present a business review similar to the analyst presentations referred to above and welcome questions from all those attending. The Chairman aims to ensure that the chairpersons of the Board Committees are available. All Code provisions regarding constructive use of the AGM are complied with.
The Audit Committee throughout the financial year comprised three independent Directors:
P N Wilkinson served on the Committee until his appointment as Chairman of the Board on 1 February 2013 at which time M P George joined the Committee.
The Committee meets three times each financial year with the external auditors and considers any issues which are identified during the course of their audit work. Meetings are also attended, by invitation, by the Finance Director and other management as appropriate. The Committee meets at least annually with the external auditors without any Executive Directors present.
The Audit Committee’s key responsibilities are:
The main activities of the Audit Committee during the financial year ended 29 June 2013 included:
The Committee considered the following significant accounting issues during the year:
The Directors are satisfied, on the basis of current financial projections and facilities available, that the Company and the Group have adequate financial resources to continue to operate for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements.
The Group’s control environment is the responsibility of the Company’s Directors and managers at all levels. The Board is therefore responsible for establishing and maintaining the Group’s system of internal control and for reviewing its effectiveness. No control system can provide absolute protection against material misstatement or loss but it is designed to manage rather than eliminate the risk of failure to achieve business objectives and to provide the Directors with reasonable assurance that problems should be identified on a timely basis and dealt with appropriately.
The Board has delegated responsibility for reviewing the Group’s system of internal control and its effectiveness to the Audit Committee. Due to the size of the Group, the Executive Directors are able to monitor performance and evaluate and manage on a continual basis the risks faced by the Group. The key procedures that have been established to provide effective internal control, including over the financial reporting process and the preparation of consolidated financial statements, and to comply with the Financial Reporting Council’s guidance on Internal Control: Revised Guidance for Directors on the Combined Code include:
The Board and Audit Committee review management reports prepared by the external and internal auditors and consider the suitability of suggested improvements to the system of internal controls.
The Board and Audit Committee have reviewed the effectiveness of the internal control system, including financial, operational and compliance controls and risk management, in accordance with the Code on an on‑going basis for the period from 30 June 2012 to the date of this report and have determined that they were not aware of any significant failings or weaknesses in the system of internal control.
As described above in the internal control procedures, key risks are reviewed by the Executive Directors and senior management. The assessment of risks on the basis of likelihood and potential impact, together with the controls and actions to manage or mitigate them, are reviewed by the Audit Committee and Board. The key risks and uncertainties facing the business are considered in detail in the Business review on pages 16 and 17.
The Committee receives regular detailed reports from the internal audit function on its work carried out and the results of its investigations including recommended improvements. The Committee also reviews its proposed work plan for future periods to ensure that its activities are appropriate.
In respect of safeguarding the objectivity and independence of the external auditors, the Committee has a formal policy regarding the provision of non-audit services by the external auditors including certain services which they cannot provide so as not to compromise their independence (for example, bookkeeping or other internal accounting services, internal audit, management roles or legal services). The policy provides for tendering for services where appropriate and has specific pre-approved categories of work subject to the level of fees involved. A formal rotation policy of the audit partner also exists that limits tenure to a maximum of five years.
The Committee specifically reviews the levels of all fees paid to the auditors for audit and non-audit services annually, which are set out in note 8 on page 57. The external auditors report to the Audit Committee each financial year on the actions they have taken to comply with professional and regulatory requirements and best practice designed to ensure their independence. The Committee reviews whether the auditors believe there are any relationships that may affect their independence and additionally the auditors formally confirm their independence in writing to the Board in respect of the period covered by these financial statements.
The effectiveness of the external audit process is dependent on appropriate audit risk identification at the start of the audit cycle. We receive a detailed audit plan from PriceWaterhouseCoopers LLP, identifying their assessment of these key risks. For the 2013 financial year the primary risks identified were in relation to Own Store performance including asset impairment and onerous lease provisions; Commercial customer promotional costs, discounts and rebates; going concern projections; and pension fund deficit.
These risks are tracked through the year and we challenged the work done by the auditors to test management’s assumptions and estimates in these areas. We assess the effectiveness of the audit process in addressing these matters through the reporting we receive from PriceWaterhouseCoopers LLP at both the half-year and year ends. In addition we also seek feedback from management on the effectiveness of the audit process.
For the 2013 financial year, management were satisfied that there had been appropriate focus and challenge on the primary areas of audit risk and assessed the quality of the audit process to be good. The Audit Committee concurred with the view of management.
We hold private meetings with the external auditor at each Committee meeting to provide additional opportunity for open dialogue and feedback from the Committee and the auditor without management being present. Matters typically discussed include the auditor’s assessment of business risks and management activity thereon, the transparency and openness of interactions with management, confirmation that there has been no restriction in scope placed on them by management, independence of their audit and how they have exercised professional scepticism. I also meet with the external lead audit partner outside the formal committee process throughout the year.
The Committee has also introduced an external audit questionnaire with senior members of the Finance team to assess the effectiveness of the audit process, the results of which will be reviewed annually by the Committee.
10 September 2013