The Board is committed to the highest standards of corporate governance and recognises that effective governance is fundamental to enabling the business to deliver its strategy whilst generating shareholder value and safeguarding shareholders' long-term interests.
In accordance with the Listing Rules of the UK Listing Authority, the Board confirms that throughout the year ended 29 January 2011, and as at the date of this Annual Report, the Company has been in compliance with the Code provisions set out in Section 1 of the UK Financial Reporting Council's 2008 Combined Code on Corporate Governance (the 'Combined Code'). This report together with the Directors' report, and the Directors' remuneration report provides details of how the Company has applied the principles and complied with the provisions of the Combined Code. A copy of the Combined Code is available at www.frc.org.uk.
UK corporate governance code
An updated version of the UK Corporate Governance Code (formerly the Combined Code) was published on 28 May 2010 (the 'New Code'). The New Code will apply to the reporting periods beginning on or after 29 June 2010 and will therefore apply to the Company for the financial year commencing 30 January 2011. A copy of the New Code is available at www.frc.org.uk.
The Board has conducted an initial review of the New Code and has identified a number of principles which it has chosen to adopt voluntarily in advance of its introduction, and those areas which will require further review and/or changes during the next year. The Board has agreed to voluntarily adopt the following principles ahead of the implementation of the New Code:
- all directors will stand for re-appointment at the Company's Annual General Meetings with effect from 2011; and
- the performance of the Board will be externally facilitated at least once every three years, commencing with the review carried out in 2010.
A number of key changes in the New Code have been identified as relevant to the Company. The Board have agreed to conduct a detailed review of all aspects of the revised principles of the New Code and will provide details of this review in the next Annual Report.
The Board leads and controls the Group's business and its powers are set out in the Company's Articles of Association PDF 317Kb. The Board has final responsibility for the management, direction and performance of the Group and is accountable to the Company's shareholders for the proper conduct of the business.
The Board has a formal schedule of matters specifically reserved for its approval. The schedule is reviewed periodically and includes, but is not limited to, the following matters:
- Group strategy, three-year plans and annual budgets;
- major capital expenditure, acquisitions or divestments;
- major changes to the capital structure including tax and treasury management;
- major changes to accounting policies or practices;
- approval of all financial announcements, the Annual Report and accounts and shareholder communications;
- approval of any interim dividends and recommendation of the final dividend;
- the system of internal control and risk management policy; and
- review of management development strategy.
The Board has delegated authority to standing Audit, Remuneration and Nomination Committees to carry out certain tasks as defined in their written terms of reference. Each Committee reports to, and has its terms of reference approved by, the Board. The minutes of Committee meetings are circulated to, and reviewed by, the Board. Additional information on the responsibilities of each of the Board's Committees.
The Board holds regular scheduled meetings throughout the year. Unscheduled supplementary meetings may also take place as and when necessary. These meetings are structured to allow open discussion. At each meeting the Board receives certain regular reports; an update from the Group Chief Executive, current trading/finance (including liquidity) reports from the Group Finance Director, capital expenditure approvals and reports from the Company Secretary (including governance, legal, insurance and risk, and corporate responsibility updates) and the Group HR Director.
All directors participate in discussing the strategy, trading and financial performance and risk management of the Group. Comprehensive briefing papers are circulated to all directors approximately one week before each meeting. Directors who are unable to attend a particular meeting receive relevant briefing papers, are given the opportunity to discuss any issues with the Chairman or the Group Chief Executive and, where possible, participate by telephone for critical discussions and approvals on specific matters.
The Board generally meets at the Group's Head Office in London and holds at least one meeting each year overseas. During the financial year under review, the Board held meetings in Warsaw, Poland and Toulouse, France. In addition, at least once per year, the Board holds a meeting off site, which focuses on presentations from the UK executive team and includes visits to stores.
Board and committee meeting attendance
The following table shows the number of years each director has served on the Board as at the financial year end and their attendance at the scheduled Board and Committee meetings which they were eligible to attend:
|Tenure in years||Board||Audit Committee||Remuneration Committee||Nomination Committee|
At the request of any non-executive director, the Chairman will arrange meetings consisting of only the non-executive directors to allow the opportunity for any concerns to be raised. During the year, the Chairman maintained regular contact and met with the Senior Independent Director and other non-executive directors.
Board balance and independence
The Board is made up of two executive directors, six non-executive directors and a non-executive Chairman. The current balance of the Board with its skills, experience and knowledge, together with regular briefings by executives below Board level, ensures that views, perceptions and discussions are not dominated by any specific executive view. The executive and non-executive directors have overall collective responsibility for the direction of the Company. The current directors' biographical details are set out in the Board of Directors section.
There is a clear division of responsibilities between the Chairman and the Group Chief Executive, which are set out in writing and have been approved by the Board. The Chairman, Daniel Bernard, is responsible for the overall operation, leadership and governance of the Board. He is also responsible for ensuring that all members of the Board develop an understanding of the views of major shareholders and that there is an open dialogue with shareholders. The Group Chief Executive, Ian Cheshire, is responsible for all executive management of the Group's business, consistent with the strategy and commercial objectives agreed by the Board.
The Senior Independent Director, John Nelson, supports the Chairman and is available for approach or representation from significant shareholders who may feel they are unable to raise issues with the Chairman.
During the year, the Board considered the independence of each of the non-executive directors (other than the Chairman, who was deemed independent by the Board at the date of his appointment) against the criteria specified in the Combined Code and concluded that each remained fully independent. The continuing independence of John Nelson, who has served as a non-executive director for nine years, was subject to rigorous review and the Board concluded that he remained independent.
Phil Bentley retired as a non-executive director in March 2010 and Michael Hepher, who served on the Board as non-executive director for 12 years, retired at the conclusion of the 2010 Annual General Meeting.
There is a formal, rigorous and transparent procedure for the appointment of new directors to the Board and this is described in the section on the Nomination Committee. The procedure was followed during the selection and appointment of Andrew Bonfield, Pascal Cagni and Clare Chapman who joined the Board as non-executive directors on 11 February 2010, 17 November 2010 and 2 December 2010 respectively. The terms and conditions of appointment of each of the non-executive directors are available for inspection at the Company's registered office and will also be available for inspection at the Annual General Meeting for at least 15 minutes before the meeting until its conclusion.
Information and professional development
All new directors appointed to the Board receive an induction pack in addition to a comprehensive induction programme tailored to their experience, background and particular areas of focus, which is designed to develop their knowledge and understanding of the Group's operations and culture. In particular, the programme includes:
- individual one-to-one meetings with the Chairman, the Group Chief Executive, the Group Finance Director and other directors;
- site visits to the Group's stores and those of its competitors;
- meetings with operating company management and other senior management; and
- external training courses at the Group's expense, if required.
Subsequent training in specific aspects of the Group's businesses are provided to directors, when requested, or regularly as part of site visits. Directors are briefed on issues arising at Board and Committee meetings and have full and timely access to relevant information ahead of each meeting.
The Board also receives regular reports addressing issues and concerns raised by the Company's institutional shareholders. This process allows the directors to develop the necessary understanding of the views of these shareholders and also enables the Board to judge whether investors have a sufficient understanding of the Group's objectives.
As well as planned development and briefings, directors are also expected to take responsibility for identifying their own individual needs and to take necessary steps to ensure that they are adequately informed about the Group and their responsibilities as a director. The Board is confident that all its members have the knowledge, ability and experience to perform the functions required of a director of a listed company.
There is also an agreed procedure whereby directors may take independent professional advice at the Group's expense in the furtherance of their duties.
Board performance evaluation
The evaluation of the performance of the Board during the financial year was undertaken by an external facilitator. Following a review of proposals from three external facilitators, the Board appointed ICSA Board Evaluation to facilitate a review of its performance.
The ICSA facilitator met with each director on an individual basis to obtain their views on five aspects of the Board's performance and to ascertain whether their needs and expectations were being met. The evaluator ensured that pre-defined constituent elements of each topic were covered in the discussions and a qualitative score was assigned by each director. The five topics were as follows:
- board role and responsibilities;
- board composition;
- working together; and
- outcome and achievements.
The results of the evaluation were considered by the Board at its meeting in February 2011 and the meeting considered and noted the recommendations to be included in the Board's overall objectives for the following year.
The report concluded that, as a whole, the Board was functioning well, that the contribution and commitment of each director, and their interaction with each other, was good and that the non-executives as a group offered robust challenge where appropriate.
The Board has confirmed that the contribution of each of the directors continues to be effective and that shareholders should be supportive of their re-appointment. The biographical details of all directors seeking re-appointment at the 2011 Annual General Meeting.
The Board will continue to review its procedures, effectiveness and development in the year ahead and the Chairman will use the output of the most recent Board evaluation in his individual meetings with directors during the year.
In addition, the Group Chief Executive carried out a performance review of the Group Finance Director. The non-executive directors, led by the Senior Independent Director, conducted the performance review of the Chairman in respect of the financial year.
Conflicts of interest
The Company has robust procedures in place to identify, authorise and manage conflicts of interest, and these procedures have operated effectively during the year. A register of directors' conflicts is maintained by the Company Secretary and reviewed by the Board on an annual basis. The Board is aware of the other commitments of its directors and any changes to these commitments are reported to the Board.
The Board has delegated authority to its Committees to carry out certain tasks as defined in each Committee's respective terms of reference. The written terms of reference in respect of the Audit, Remuneration and Nomination Committees are available on the Company's website and copies are available upon application to the Company Secretary at the Company's registered office.
Minutes of Committee meetings are made available to all directors on a timely basis and the chairmen of the principal Committees provide updates to the Board at subsequent Board meetings. The Board is satisfied that the terms of reference for each of these Committees satisfy the requirements of the Combined Code and are reviewed on an ongoing basis. Details of each Committee, including membership, are set out in the following reports:
The members of the Audit Committee are:
- Andrew Bonfield (Chairman with effect from 17 March 2010)
- Anders Dahlvig
- Janis Kong (appointed 16 February 2011)
- John Nelson
Andrew Bonfield was appointed as Chairman of the Audit Committee on 17 March 2010 replacing Phil Bentley who retired on the same date. In accordance with the requirements of the Combined Code, Andrew Bonfield is designated as the Committee member with recent and relevant financial experience. The Audit Committee is comprised of members having the necessary ability and experience to understand financial statements.
Under its terms of reference, the Audit Committee is required, amongst other things to:
- monitor the integrity of the financial statements of the Company;
- review, understand and evaluate the Company's internal financial risk, and other internal controls and their associated systems;
- monitor and review the effectiveness of the Company's internal audit function on an annual basis;
- oversee the relationship with the external auditors, making recommendations to the Board in relation to their appointment, remuneration and terms of engagement; and
- monitor and review the external auditor's independence, objectivity and effectiveness and to approve the policy on the engagement of the external auditor to supply non-audit services.
Where appropriate, the Audit Committee meets separately with the external auditors and the Group Audit and Risk Management Director without management being present. Further details on the work of the Audit Committee can be found under Auditors and the Audit Committee report.
A report detailing the work of the Remuneration Committee during the year.
The members of the Nomination Committee are:
- Daniel Bernard (Chairman)
- Andrew Bonfield (appointed 11 February 2010)
- Pascal Cagni (appointed 17 November 2010)
- Clare Chapman (appointed 2 December 2010)
- Anders Dahlvig
- Janis Kong
- John Nelson
The primary purpose of the Nomination Committee is to lead the process for Board appointments and to make recommendations for maintaining an appropriate balance of skills on the Board. In particular, the Nomination Committee:
- reviews the structure, size and composition of the Board and makes recommendations to the Board, as appropriate;
- identifies the balance of skills, knowledge and experience on the Board and nominates candidates to fill Board vacancies;
- reviews the time required from the non-executive directors;
- considers succession planning, taking into account the challenges and opportunities facing the Group and the future skills and expertise needed on the Board; and
- reviews the leadership needs of the organisation, both executive and non-executive, with a view to ensuring the continued ability of the organisation to compete effectively in the marketplace.
The Nomination Committee meets periodically when required and external advisers may be invited to attend. Following a rigorous search and selection process carried out with the assistance of specialist recruitment consultants, the Nomination Committee considered the proposed appointments of Andrew Bonfield, Pascal Cagni and Clare Chapman as additional non-executive directors. In making its appointment recommendations to the Board, the Nomination Committee reviewed the overall balance of skills, knowledge, experience and diversity on the Board against current and future requirements of the Company. The Board believes that its current composition represents a strong, well balanced Board with specialists in retail, technology, finance and human resources.
The Retail Board consists of the five members of the Group Executive (the executive directors and three divisional chief executives) and certain other Group functional heads. The Group Executive, meets formally up to 12 times a year under the chairmanship of the Group Chief Executive. The remaining members of the Retail Board, participate in at least four meetings per year and other meetings upon invitation.
The Group Executive, supported by the Retail Board, are primarily responsible for the day-to-day management of the Group's businesses and the overall financial performance of the Group against its strategic plans and budget.
The Retail Board are responsible for reviewing and making recommendations to the Board on:
- strategic, and business plans of individual businesses;
- monthly Group trading performance;
- the individual progress of operating companies;
- the Group's capital structure and funding;
- capital expenditure proposals, major acquisitions or disposals of businesses;
- the Group's key risks;
- management development and senior executive succession plans; and
- the Group's corporate responsibility programme.
The Company Secretary acts as Secretary to the Board and its Committees and, with the consent of the Board, may delegate responsibility for the administration of the Committees to other suitably qualified staff. The Company Secretary is also responsible for ensuring that the correct Board procedures are followed and advises the Board on legal and corporate governance matters. All directors have access to the advice and services of the Company Secretary and his appointment and removal is one of the matters reserved to the Board.
Accountability, risk management and internal control
The Board considers risk assessment, identification of mitigating actions and internal control to be fundamental to achieving the Group's strategic corporate objectives. The Board of directors has overall responsibility for the Group's system of internal control and risk management.
The Group's enterprise-wide risk management and reporting process helps Group management to identify, assess, prioritise and mitigate risk. Management at each operating company has responsibility for the identification and evaluation of the significant risks applicable to their business and any mitigating actions to be taken. The Retail Board reviews, identifies and evaluates the risks that are significant at a Group level as well as the mitigating actions against those risks. These are then considered by the Board. The type of risks identified include strategic risk, external factors (such as competition, environment and regulation), change management programmes, health and safety, retention of key management and macro market risks.
The Board of directors has overall responsibility for the Group's system of internal control and for reviewing its effectiveness. The responsibility for designing, operating and monitoring the system and the maintenance of effective control is delegated to the management of each operating company. However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material misstatement or loss.
The Board has approved a set of policies, procedures and frameworks for effective internal control that implement the Turnbull Guidance, 'Internal Control: Revised Guidance for Directors on the Combined Code', for the year under review and to the date of approval of this Annual Report. These procedures are subject to regular review and provide an ongoing process for identifying, evaluating and managing the significant risks faced by the Group.
There are clear processes for controlling and monitoring the system of internal control and reporting any significant control failings or weaknesses together with details of corrective action. These include:
- a formal quarterly confirmation provided by the managing director and finance director of each operating company certifying the operation of their control systems and highlighting any weaknesses, the results of which are reviewed by regional management, the Audit Committee and the Board;
- an annual planning process and regular financial reporting, comparing results with plan and the previous year on a monthly and cumulative basis;
- written reports from the Group Chief Executive and Group Finance Director are submitted at each Board meeting;
- operating company management report formally to the Audit Committee regularly on the control environment in their business and actions taken to maintain or improve the environment as appropriate; and
- reports and presentations are received by the Board on certain areas of specialist risk. These include treasury, insurance and pensions.
The internal audit function follows a planned programme of reviews that are aligned to the Group's risks. The function:
- works with the operating companies to develop, improve and embed risk management tools and processes into their business operations;
- reports directly to the Audit Committee and has the authority to review any relevant part of the Group;
- oversees the operation of the individual operating businesses' audit committees; and
- provides the Audit Committee and the Board with objective assurance on the control environment across the Group.
Any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. Management is required to apply judgement in evaluating the risks facing the Group in achieving its objectives, in determining the risks that are considered acceptable to bear, in assessing the likelihood of the risks concerned materialising, in identifying the Group's ability to reduce the incidence and impact on the business of risks that do materialise and in ensuring the costs of operating particular controls are proportionate to the benefit.
The Board confirms that it has reviewed the effectiveness of the internal control system, including financial, operational and compliance controls and risk management in accordance with the Combined Code for the period from 31 January 2010 to the date of approval of this Annual Report.
If significant losses were to be incurred during the year as a result of a failure of controls, a detailed report would be provided to the Audit Committee and Board. The Board confirms that no significant weaknesses were identified in relation to the review carried out during the year and therefore no remedial action is required.
Deloitte LLP were appointed as the external auditors to the Group in 2009. A resolution proposing the re-appointment of Deloitte LLP as external auditors to the Group will be put to the 2011 Annual General Meeting.
Each of the Group's businesses is consulted on the effectiveness and independence of the external auditors annually. In addition, the external auditors provide the Audit Committee with a schedule of each matter on which there was an initial difference between them and management in relation to the accounting treatment, and with the final decisions on these issues. The Audit Committee is satisfied with the effectiveness and independence of the external auditors.
In addition to their statutory duties, the services of Deloitte LLP are also engaged where, as a result of its position as external auditor, it either must, or is best placed to, perform the work in question. This is primarily work in relation to matters such as shareholder circulars, Group borrowings, tax advice, regulatory filings and certain business acquisitions and disposals. Other work is awarded on the basis of competitive tendering.
The Group has a policy on the use of its external auditors for non-audit work and this is regularly reviewed. The external auditors are precluded from engaging in non-audit services that would compromise their independence or violate any laws or regulations affecting their appointment as external auditors. The approval of the Chairman of the Audit Committee is required prior to awarding contracts for non-audit services to the external auditors, where in excess of specified amounts. The external auditors report to the Audit Committee annually on their independence from the Company. Periodic rotation of key audit partners is also required.
During the year, Deloitte LLP charged the Group £1.4m (2009/10: £1.3m) for audit and audit-related services and a further £0.3m (2009/10: £0.3m) for non-audit services during the year.
Relations with shareholders
The Company is committed to communicating its strategy and activities clearly to its shareholders and, to that end, maintains an active dialogue with investors through a planned programme of investor relations activities. The investor relations programme includes:
- formal presentations of full-year and interim results;
- conference calls to discuss quarterly trading statements;
- regular meetings between institutional investors and senior management to ensure that the investor community receives a balanced and complete view of the Group's performance and the issues faced by the Group;
- hosting investors' and analysts' sessions at which senior management from relevant operating companies deliver presentations which provide an overview of their individual businesses;
- responding to enquiries from shareholders through the Company's investor relations team;
- regular meetings with institutional investors and analysts by the Group Chief Executive and Group Finance Director to discuss business performance; and
- a section dedicated to shareholders on the Company's website.
The Chairman, the Senior Independent Director and the chairmen of the Board's Committees are available to meet major investors on request. The Senior Independent Director has a specific responsibility to be available to shareholders who have concerns, and for whom contact with the Chairman, Group Chief Executive or Group Finance Director has either failed to resolve their concerns, or for whom such contact is inappropriate.
Annual General Meeting
The principal means of communication with private investors is by electronic communications and through the Annual General Meeting, an occasion attended by all the Company's directors and at which all shareholders present are given the opportunity to question the Chairman and the directors as well as the chairmen of the Board Committees. After the Annual General Meeting, shareholders have the opportunity to meet informally with directors.
A summary business presentation is given at the Annual General Meeting before the Chairman deals with the formal business of the meeting. At the Annual General Meeting in June 2011, the Chairman will use his discretion to call for a poll on all resolutions. The results of the votes in relation to all resolutions will be disclosed to those in attendance at the meeting, published on the Company's website and announced via the regulatory new service shortly after the conclusion of the Annual General Meeting.