Extract from 2007 Annual Report
The Combined Code on corporate governance issued in June 2006 (Combined Code (2006)) contains only a limited number of modifications to the Combined Code (2003). Following the FSA’s adoption of the Combined Code (2006) and the release of its amended Listing Rules in October 2006, the Combined Code (2006) takes effect for reporting periods commencing on or after 1st November 2006. The Board has reviewed the procedures to comply with the provisions of Section 1 of the Combined Code (2006) and is committed to the principles of corporate governance.
Compliance
The Company has complied with the provisions of the Combined Code (2006) throughout the period ending 31st December 2007, other than the provisions for the attendance by the Senior Independent Director at meetings with major shareholders, the division of responsibility of Chairman and Chief Executive (for the period 1st January to 15th April 2007) and the formal appraisal of the Board performance. The Chairman, Chief Executive and Finance Director all regularly meet with the Company’s major Shareholders and the Board is of the opinion that additional regular meetings, other than those specifically requested by Shareholders, with the Senior Independent Director would not assist further in the dialogue with Shareholders. The Senior Independent Director is available to meet with shareholders, at their request, and the Board believes this arrangement to be sufficient.
The Company’s compliance with the Combined Code (2006) has been reviewed by the Auditors to the extent specified by the UK Listing Authority and their report is given on pages 81 to 82.
The Board
The Board met formally 19 times during 2007, including both full meetings and additional intermediate meetings which were arranged to consider the specific circumstances regarding strategy and the Company’s discussions with the Banks. Individual attendance at the formal meetings is set out in the table below. Where N/A appears in the table, the Director is not a Committee member.
|
Name |
Board
(Full) |
Board
(Intermediate) |
Audit
Committee |
Nomination
Committee |
Remuneration
Committee |
|
Simon Sherrard |
7 |
12 |
N/A |
3 |
7 |
|
John Talbot (Note 1) |
- |
- |
N/A |
- |
N/A |
|
Yvonne Monaghan (Note 2) |
3 |
3 |
N/A |
N/A |
N/A |
|
Michael Gatenby |
7 |
10 |
4 |
3 |
6 |
|
Baroness Judith Wilcox |
7 |
12 |
4 |
3 |
7 |
|
Michael Del Mar |
7 |
12 |
4 |
3 |
7 |
|
Number of Meetings |
7 |
12 |
4 |
3 |
7 |
Note 1 – there have been no Board meetings since appointment on 28th December 2007.
Note 2 – there have been 3 formal and 11 intermediate Board meetings since appointment on 31st August 2007.
In addition, the Non-Executive Directors have met during the year without their Executive colleagues and additionally without the Chairman. A performance evaluation of the Chief Executive was conducted during the year by the Non-Executive Directors. Other than this, a formal appraisal of each member of the Board, Board composition and the format and effectiveness of the Board meetings has not been undertaken during the year due to the Board’s priorities to resolve the availability of Bank facilities going forward. It is the Board’s intention to reinstate formal reviews and appraisals of all Board members and the Chairman in 2008.
During the year a formal evaluation of the Audit Committee was conducted by means of a questionnaire being sent to members of the Audit Committee. The responses were reviewed by the Chairman of the Committee and actions to improve the effectiveness of the Committee were agreed and have been implemented accordingly.
The results of these reviews were discussed by the Board as a whole, with action taken as appropriate.
The Board currently consists of a Non-Executive Chairman, two Executive Directors and three Non-Executive Directors, all of whom are considered to be independent in character and judgment. Until December 2003, Mr. M. B. Del Mar had been connected to the Company through his position at UBS Investment Bank, the Company’s former corporate finance advisers. Prior to his appointment, the Board considered the independence of Mr. M. B. Del Mar with particular care and concluded that Mr. M. B. Del Mar was fully independent. He has demonstrated this independence in the manner in which he has discharged his duties to date. The Non-Executive Directors are a strong element within the Board with their views carrying significant weight in the decision making process. All Directors are subject to re-election at the Annual General Meeting if appointed by the Board since the last Annual General Meeting or if they have held office for more than 30 months since last appointment. Appropriate training is available to Directors upon appointment and as required on an ongoing basis. Furthermore on appointment, Directors participate in a customised induction programme to familiarise them with the Group.
During the year the Chairman assumed the role of Executive Chairman until the appointment of the new Chief Executive, Mr. C. Skinner, became effective on 16th April 2007. Mr. C. Skinner subsequently resigned from the Board with effect from 28th December 2007 and, from that date, Mr. J. Talbot was appointed as the interim Chief Executive Officer. The Chief Financial Officer, Mr. J. Wilkinson, resigned from the Board with effect from 31st August 2007 and was immediately replaced by Mrs. Y. Monaghan as the new Finance Director for the Company. Mr. S. Moate resigned from the Board with effect from 31st July 2007.
There is normally a clear division of responsibility, as set out in writing and agreed by the Board, between the Chairman and the Chief Executive, each of which has clearly defined roles, although for the period to 16th April 2007 the roles of Chairman and Chief Executive were combined. The Chairman is responsible for the effective running of the Board whilst the Chief Executive is responsible for operating the business and implementing the Board’s strategies and policies. The commitments of the Chairman are disclosed within the Directors’ and Officer’s Biographies Section on page 14. The overall commitments have not changed during the year.
The Board, in addition to routine consideration of both financial and operational matters, determines the strategic direction of the Group. The Board has a formal schedule of matters specifically reserved for its decision which can only be amended by the Board itself. The specific responsibilities reserved for the Board include: approval of the Group’s long-term objectives and overall strategy; approval and monitoring of the annual operating budget; approval of major acquisitions, disposals and capital expenditure; dividend policy; approval of appointments to the Board and of the Company Secretary; approval of policies relating to Directors’ remuneration; consideration of succession planning for key members of the management team; and determining the terms of reference for the Board committees.
To assist the Board in performing these responsibilities, information appropriate in quality and timeliness, is received in an agreed format, for each full Board meeting.
The following responsibilities have been delegated to Executive management: the development of strategic plans that reflect the longer term objectives and priorities established by the Board; implementation of strategies and policies as determined by the Board; monitoring of operational and financial performance against plans and budgets; and developing and implementing risk management systems.
The Directors have access to the advice and services of the Company Secretary and it is acknowledged that individual Directors may wish to seek independent professional advice in connection with their responsibilities and duties. The Company will meet reasonable expenses incurred in this regard.
The Committees of the Board are the Audit Committee, Remuneration Committee and the Nomination Committee. The Audit Committee consists wholly of the Non-Executive Directors. The Remuneration Committee consists of the Chairman and the Non-Executive Directors whilst the Nomination Committee consists of the Chairman, Non-Executive Directors and normally the Chief Executive. Board appointments are subject to approval by the Board as a whole. Members of the Committees are shown on page 16. Each Committee has written terms of reference which are available on the Company’s website.
Audit Committee
The Audit Committee meets at least three times per year, and generally meets in private, with the external auditors. The Board has satisfied itself that the composition of the Audit Committee is in compliance with the Combined Code.
The main responsibilities of the Committee include: review of the financial statements and announcements relating to financial performance and recommending them to the Board; review of the system of internal control including the work of internal audit; ensuring the maintenance of a control environment and the appropriate management of risk; recommendation of appointment of and liaison with the external auditors; annual review and monitoring of external auditor’s independence and objectivity and the effectiveness of the audit process; development and implementation of policy on the engagement of the external auditor to supply non-audit services; and review of arrangements under which employees may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters ensuring that arrangements are in place for the proportionate and independent investigation and appropriate follow-up action.
In 2007 the Audit Committee discharged its responsibilities by: reviewing the Group’s draft financial statements and interim results statement prior to Board approval and reviewing the external auditor’s report thereon; reviewing the external auditor’s plan for the audit of the Group accounts, confirmations of auditor independence and proposed audit fee and approving terms of engagement for the audit; reviewing internal audit’s work programme and reports on its work during the year; review of the risk management programme; review of Group Directors’ expenses; and monitoring of reporting and follow up of items reported on the employee hotline established in line with the Code of Ethics.
The Committee also regularly monitors the non-audit services being provided by the external auditors. Note 4 details fees relating to non-audit services, summarised according to the type of services provided. A policy regarding the provision of non-audit services is in place, such that non-audit work has been categorised into 3 areas: normally performed by the auditor; may be performed by the auditor; and that normally performed by another provider. With reference to this policy, the selection of professional service firms for non-audit work is at the discretion of the management, taking into account which firm is best placed to perform such work to meet the interests of the Company and Shareholders and with regard to ensuring that independence is not compromised.
The Committee confirms it is satisfied with the independence, objectivity and effectiveness of the external auditors, PricewaterhouseCoopers LLP, and accordingly a resolution to re-appoint PricewaterhouseCoopers LLP as auditors will be proposed at the forthcoming Annual General Meeting.
The work undertaken by the Audit Committee, supported by the internal audit function, helps to enable the Board to make the statements relating to internal control on page 68 and the going concern basis on page 69.
Remuneration Committee
The responsibilities of the Remuneration Committee are outlined in the Board Report on Remuneration, page 73.
Nomination Committee
The responsibilities of the Nomination Committee include: reviewing the Board structure, size and composition; identifying and nominating candidates to fill vacancies; keeping up to date and fully aware of the strategic and commercial changes affecting the Group and the markets in which it operates; keeping under review the leadership needs of the business with a view to ensuring the continued ability to compete effectively in the marketplace; considering the continuing service of a Director; and providing recommendations for reappointment of Directors retiring by rotation.
The Committee meets as required and met during the year to review the structure and composition of the Board. The Committee decided not to appoint additional Executive Directors other than the Chief Executive Officer and Finance Director during the year.
Following the resignation of Mr. C. Skinner as Chief Executive on 28th December 2007, the Committee recommended that Mr. J. Talbot be appointed as the interim CEO. Mr. J. Talbot had been employed by the Group since November 2007, in the capacity of Chief Restructuring Officer. Mrs. Y. Monaghan had been employed by the Group since 1984 and was recommended by the Nomination Committee for the appointment as Finance Director in August 2007.
Relations with Shareholders
The Company has an active investor relations programme with the Non-Executive Chairman, the Chief Executive and the Finance Director meeting key institutions, both Shareholders and prospective Shareholders, in the periods following the announcement of the annual and interim results and at other appropriate times during the year. To ensure effective two-way communication the Chairman also meets with major Shareholders during the year. The Board is of the opinion that additional routine meetings with the Senior Independent Director would not assist further in the dialogue with Shareholders. However, the Senior Independent Director is available to meet with Shareholders, at their request. Feedback is provided to the Board on any issues raised at these meetings. External brokers’ reports are circulated to the Directors.
The Shareholders’ views of the investor meetings following the interim and final results are obtained by the Group’s brokers and circulated to the Board.
The Board welcomes private and Institutional Shareholders to the Annual General Meeting, which is normally attended by all Directors, to discuss appropriate topics during the meeting or with the Directors after the formal proceedings have ended.
The Board considers that the Preliminary Announcement, Annual Report including the Non-Executive Chairman’s Statement and Review of Operations and Financial Review which are contained therein, the Interim Report and trading update statements made during the year present a balanced and clear assessment of the Group’s position and prospects.
Internal Control
The Board is responsible for the Group’s system of internal control and for reviewing its effectiveness which has been undertaken during the year. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.
There is an on-going process for identifying, evaluating and managing the Group’s significant risks that has been in place throughout the year ended 31st December 2007 and up to the date of approval of the financial statements. This process has been regularly reviewed by the Board and accords with the internal control guidance of the Combined Code for Directors.
The Audit Committee receives reports setting out key performance and risk indicators and considers possible control issues brought to its attention by early warning mechanisms which are embedded within the operational units and reinforced by risk awareness training. The Audit Committee also receives regular reports from the internal audit function and, where appropriate, recommendations for improvement are considered. The Audit Committee’s role in this area is confined to a high level review of the arrangements for internal control.
The Board’s agenda includes a bi-annual consideration of risk and control and it receives reports thereon from the Audit Committee. The emphasis is on obtaining the relevant degree of assurance and not merely reporting by exception. The main features of the internal financial control framework are detailed below.
Financial Reporting
The Board reviews the strategies of the Group and of the subsidiary undertakings. There is a detailed budgeting system with an annual budget both challenged and approved by the Board. Monthly trading results and indebtedness are reported against the corresponding figures for the budget and the previous year with corrective action initiated by the Board as appropriate.
Treasury Management
The Group’s treasury activities are operated within Board-approved guidelines. Facilities are approved by the Board and all transactions are controlled and monitored. Monthly summaries are prepared for the Board. Speculative transactions are not undertaken.
Risk Management
The identification of major business risks is carried out in conjunction with operating management and reviewed by the Audit Committee and the Board. The Board regularly assesses the financial implications and effectiveness of the control process in place to mitigate or eliminate these risks. The Group has insurance cover where it is considered appropriate and cost effective.
Financial Control
Each business maintains financial controls and procedures appropriate to its own operating environment.
The Group has a centralised internal audit function, based at Head Office, which can second additional resources from operating companies, and which reviews the systems and procedures in all operating companies and reports regularly to the Audit Committee. A review of control procedures is undertaken in respect of all new acquisitions, within the first three months of ownership, and action taken where necessary to bring the controls up to the level required by the Group.
The Group has clearly defined guidelines for the review and approval of capital expenditure projects. These include annual budgets and designated levels of authority.
Code of Ethics
The Group has a written code on business ethics, which is reviewed regularly by the Board and which sets out guidelines for all staff to enable the Group to meet the highest standards of conduct in business dealings including those with overseas garment suppliers. New acquisitions are made aware of these standards on joining the Group and plans are put in place to ensure compliance is achieved.
Senior employees are required to sign an annual statement of compliance with the code. A confidential hotline service is available to employees should anyone wish to report perceived improprieties. Arrangements are in place to ensure any reports are followed up and the appropriate action taken.
Environmental Matters
The Board is aware of its responsibilities with regard to the environment and receives regular reports on all environmental matters and has nominated an Executive Director responsible for such matters. Potential areas of risk are identified through the Group’s risk assessment programme and mitigated wherever possible. Key operating divisions undertake quantitative audits which enable a measure of environmental improvement to be made. Several of the Group’s operating companies have achieved or are working towards ISO 14001:2004 Environmental Management System Certification.
Going Concern
After due consideration the Directors confirm that they have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly they continue to adopt the going concern basis in preparing the Group’s financial statements.
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report, the Directors’ Report, the Board Report on Remuneration and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and Parent Company financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. In preparing these financial statements, the directors have also elected to comply with IFRS, issued by the International Accounting Standards Board (IASB). The financial statements are required by law to give a true and fair view of the profit or loss of the Company and Group for the year.
In preparing those financial statements the Directors are required to:
- Select suitable accounting policies and apply them consistently.
- Make judgments and estimates that are reasonable and prudent.
- State that the financial statements comply with IFRS as adopted by the European Union and IFRS issued by the IASB.
- Prepare the financial statements on a going concern basis, unless it is inappropriate to presume the Group will continue in business, in which case there should be supporting assumptions or qualifications as necessary.
The Directors confirm that they have complied with the above requirements in preparing the financial statements. The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and the Group and to enable them to ensure that the financial statements and the Directors’ Board Report for Remuneration comply with the Companies Act 1985 and, as regard the Group’s financial statements, article 4 of the IAS regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Company’s website and legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
By order of the Board
Sonia Richmond
Secretary
29th April 2008