This is the Corporate Governance Report from the 2012 Annual Report
The Company is committed to the principles of Corporate Governance contained in the UK Corporate Governance Code (‘the Code’) published in 2010 by the Financial Reporting Council, for which the Board is accountable to shareholders.
In September 2012 the Financial Reporting Council published a new edition of the Code which applies to premium listed companies for financial years beginning on or after 1 October 2012 and the Company will report against the provisions of the revised Code for future years.
Statement of Compliance with the Code and the Application of the Principles of Good Governance
Throughout the period ended 29 December 2012, the Company has been compliant with the provisions set out in the Code and applied the principles of the Code, including both the main principles and the supporting principles. Further explanation of how the principles have been applied is set out below and, in connection with Directors’ remuneration, in the Directors’ Remuneration Report.
Directors and Board
The Board considers it has shown its commitment to leading and controlling the Company by meeting eight times in the year, and can meet when necessary for any matters which may arise. The Remuneration Committee held eight scheduled meetings, the Audit Committee six and the Nomination Committee three.
The Board sets the strategic aims and objectives of the Group, ensuring that the Group has sufficient financial and human resources to meet its objectives. The Board also sets the Group’s values and standards and ensures that its obligations to its shareholders and others are understood and met. Management is responsible for the application of the aims and objectives on a day-to-day basis, as well as monitoring the financial achievements of the business. The Board reviews the performance of management in meeting the agreed objectives and goals, and monitors appropriate remuneration levels. The Group’s management development and succession plans are scrutinised by the Board to ensure that the skills and competencies of management correspond to the Group’s requirements. At least one Board meeting each year is wholly devoted to strategy and to the consideration of a plan for the long-term growth and development of the Group. This is reviewed and discussed as appropriate at the other Board meetings held during the year.
In addition to the normal agenda at Board meetings, which is described below, the Directors usually consider one or more operational or special topic at each meeting. During the last twelve months this has included business risks, circulation and audience reach of paid for newspapers, advertising revenues, sales effectiveness, digital revenues and publishing, the Group’s finance facilities and human resource requirements, new product offers and presentations from the Group’s Publishing Unit Managing Directors.
Board Meeting Agenda
The Board maintains a formal schedule of matters specifically reserved to it for decision, including future strategy, acquisitions and disposals, dividend policy, approval of the Annual Report and Accounts, capital expenditure in excess of certain limits, trading and capital budgets and Group borrowing facilities. At each meeting during the year, the Board considered reports from the Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and the Director of Digital and Business Development. Since the start of 2013, the Board has also considered a report from the Group Commercial & Marketing Director. The Minutes of Board and Committee meetings are circulated to all Board members. The Company Secretary is responsible to the Board for the timeliness and quality of information provided to it.
The Board acknowledges the division of responsibilities for running the Board and managing the Company’s business. Ian Russell served as Non-Executive Chairman throughout the year. The Chairman is responsible for the leadership of the Board, for setting the Board’s agenda and ensuring that adequate time is available for discussion of all agenda items, in particular strategic issues. It is also his responsibility to promote a culture of openness and debate by facilitating the effective contribution of Non-Executive Directors in particular and ensuring constructive relations between Executive and Non-Executive Directors.
As part of their role, Non-Executive Directors should constructively challenge and help develop proposals on strategy. They should scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance. They should satisfy themselves on the integrity of financial information and that controls and systems of risk management are robust and defensible. They are responsible for determining appropriate levels of remuneration of Executive Directors and have a prime role in appointing and, where necessary, removing Executive Directors and in succession planning.
Mark Pain served as Senior Independent Director throughout 2012. The Senior Independent Director is available to address any concerns that shareholders may have that have not been resolved through the normal communication channels of the Chairman or Executive Directors. Throughout 2012, the Nomination Committee was chaired by Ian Russell, the Remuneration Committee by Geoff Iddison and the Audit Committee by Mark Pain. The terms of reference of each of the Board’s Committees were reviewed by the Board during 2012 and the terms are displayed on the Company’s website. Membership of each Committee is detailed with the Directors’ biographies on pages 30 and 31 of the Annual Report.
All Directors are expected to attend all Board and Board Committee meetings of which they are a member unless unable to do so.
The following table indicates their attendance during the year:
|Board||Remuneration Committee||Audit Comittee||Nomination Comittee|
Board Balance and Independence
Of the Company’s current nine Directors, three are Executive and the remainder Non-Executive, of whom four are regarded as independent. Details are provided on pages 30 and 31 of the Annual Report. Throughout the year, the Company complied with the requirement of the Code that at least half of the Board (excluding the Chairman) should consist of independent Non-Executive Directors. Ralph Marshall was appointed to the Board as the nominee Director of Usaha Tegas which owns 20% of the Company’s issued ordinary share capital. He is therefore not regarded as independent.
The Company Secretary acts as secretary to the Committee. Reporting to the Board, its duties include regularly reviewing the structure, size and composition of the Board, seeking suitably skilled and experienced candidates as Non-Executive Directors with sufficient time to devote to the role and overseeing all Board appointments. In doing so the Committee also considers the Company’s succession planning for Executive Directors and senior managers, to ensure that adequate plans are in place to protect against the loss of key staff, as well as reviewing the composition of the Board and its committees. In considering candidates to fill Board vacancies, the Nomination Committee has regard to the benefits of and the need to encourage diversity within the Board’s membership and this is specified in its terms of reference which were reviewed in 2012. Once the role of a vacancy has been determined, the Committee may appoint external recruitment consultants to assist with the search.
Induction and Professional Development
The Company has a detailed induction programme for new Directors. This is tailored to specific requirements and includes visits to a range of the Group’s operations where appropriate and meetings and discussions with senior management and advisers, together with the provision of the Company’s full written induction guide.
All Board members have access to independent advice on any matters relating to their responsibilities as Directors and as members of the various Committees of the Board. The assistance of the Company Secretary is available to all Directors for all matters connected to their duties.
Director training is undertaken as required during the year. This can encompass a variety of topics, including industry specific governance and technical issues. It is the Company’s policy that each Non-Executive Director visits at least two of the Group’s centres each year where they receive a presentation and a tour of the business. Individual Directors also attended a range of seminars presented by professionals throughout the year. When the Non-Executive Directors meet without the Executive Directors present, the balance of skills on the Board (including training needs) is one of the standard topics for the Board to consider, both individually and collectively.
Board Performance Evaluation
During the last year, the Board has conducted a rigorous evaluation of its own performance and that of each of its Committees. This involved the completion of a self-assessment questionnaire by all Directors covering the performance of the Board, individual Directors, the Company Secretary and Board Committees. Other topics included the conduct of meetings, the provision of information, relationships, strategy, training and the overall effectiveness of the Board. The composition and chairmanship of each Committee was reviewed together with its fulfilment of its role as outlined in its terms of reference, its reporting and overall performance. The topics which the evaluation exercise addressed were intended to provide the Board with an analysis of the performance of its key duties. The process has been developed internally and is administered by the Company Secretary. The process that the Company deploys utilises a scoring system for assessing Committee and Board performance with a focus on the particular skills and contributions of individuals. The Company Secretary prepared a report of the conclusions which was presented to the Board together with a summary of any individual recommendations for the consideration of the Chairman. This was followed up by meetings as appropriate between the Chairman and individual Directors. Reviews of Board Committees were undertaken by Committee members as well as the Board as a whole. The results highlighted areas of particular focus for the Board in the coming year and overall the process was positive and confirmed the effectiveness of the Board and relevant Committees as well as the contributions of individual Directors. Under the provisions of the Code, evaluation of the boards of FTSE 350 companies (which does not include the Company) should be conducted externally every three years. The Board considered whether to undertake an externally facilitated evaluation during 2012 and concluded that it was not appropriate to do so at that time. However, the position is being kept under review.
Under the provisions of the Company’s Articles of Association, all Directors are subject to election at the first Annual General Meeting after their appointment and thereafter to re-election every three years. The Company is not currently a member of the FTSE 350 index of companies and is therefore not required to comply with the provision of the Code which requires all directors of companies in that index to be subject to annual re-election. However, the Board considers that it is now appropriate that all Directors stand for annual re-election, and resolutions will be proposed at the forthcoming Annual General Meeting for the re-election of each Director who wishes to continue in office.
The Nomination Committee and Ian Russell as Chairman have, following the formal evaluation process described above, considered the performance of each of the Directors who wish to stand for re-election at the 2013 Annual General Meeting and are satisfied that those individuals’ performance continue to be effective and that they have demonstrated a clear commitment to their roles.
Separately during the course of the year, the Non-Executive Directors met without Ian Russell to review his performance as Chairman and were satisfied that he continues to be effective and has demonstrated an on-going commitment to the role.
Accountability and Audit
The Board is committed to presenting appropriate information about the Group’s financial position by complying with best practice and all standards issued by the International and UK Accounting Standards Boards relating to the disclosures which are included in the Annual Report.
Directors’ Responsibilities Statement
The Directors are responsible for preparing the Annual Report 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 are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and have elected to prepare the Parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing the Parent Company financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgments and accounting estimates that are reasonable and prudent;
- state whether applicable UK Accounting Standards have been followed; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
In preparing the Group financial statements, International Accounting Standard 1 requires that Directors:
- properly select and apply accounting policies;
- present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
- provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and
- make an assessment of the Company’s ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company 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 corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
After making enquiries, the Directors have formed a judgment, at the time of approving the financial statements, that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. Further detail is contained in the Business Review on pages 12 to 29 of the Annual Report.
The Board has applied principle C.2 of the Code by establishing a continuous process for identifying, evaluating and managing the significant risks the Group faces. The Board regularly reviews the process, which has been in place from the start of the year to the date of approval of this report and which is in accordance with the revised guidance on internal control published in October 2005 (the Turnbull Guidance). The Board is responsible for the Group’s system of internal control and for reviewing its effectiveness. 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.
In compliance with Provision C.2.1 of the Code, the Board regularly reviews the effectiveness of the Group’s system of internal control. The Board’s monitoring covers all controls, including financial, operational and compliance controls and risk management and is based principally on reviewing reports from management to consider whether significant risks are identified, evaluated, managed and controlled and whether any significant weaknesses or emerging issues are promptly remedied or indicate a need for more extensive monitoring. The Board has also performed a specific assessment for the purpose of this Annual Report. This assessment considers all significant aspects of internal control arising during the period covered by the report including work of the Group’s Internal Financial Control Committee (IFCC). The Audit Committee assists the Board (which maintains responsibility in this regard) in discharging its review responsibilities.
During the course of its review of the system of internal control, the Board has not identified or been advised of any failings or weaknesses which it has determined to be significant. Therefore a confirmation in respect of necessary actions has not been considered appropriate. The key elements of the on-going continuous process during the period under review have been:
- Formal Board reporting on a monthly basis of the Group’s performance and on any emerging risks and issues. The monthly management accounts break down the results of the Group’s operations into its two reportable segments. All significant variations against budget and the previous year are fully examined. The day-to-day responsibility for managing each of the Group’s operations rests with experienced senior executives and the Group has a clear organisational structure which includes appropriate delegation of authority. The Executive Directors ensure that regular contact is maintained with all senior executives.
- Formal Board approval for capital expenditure over £500,000 and for other investment decisions.
- Formal Board approval of the annual budget for the forthcoming financial year. This includes detailed and comprehensive budgets covering each operating business.
- Formal Board reporting of the key functional departments’ future strategy as part of the operational topics considered at Board meetings during the year.
- Review by the Audit Committee (with subsequent reporting to the Board) on a six-monthly basis of the work performed by the IFCC based on a programme of work agreed in advance. The IFCC is chaired by the Group Head of Finance who is responsible for the conduct of control reviews in selected locations by members of the Committee who are independent of the location visited. The IFCC is also responsible for the review of detailed financial control checklists submitted monthly by each operation to the Group’s head office. This work is supported by the Group’s financial accounting centre which ensures a consistent and compliant approach to the processing of transactions and ensures a uniform control process across the Group’s operations. The Audit Committee has reviewed the role of the IFCC. Due to the changing nature of the Group and in order to ensure that resources are properly deployed to identify, monitor and mitigate risk, it has concluded that the work of the IFCC be supplemented through the use of a dedicated internal audit function, the form of which shall be determined, and the appointment made by, the Audit Committee, with a recommendation being made by the Executive Directors. It is anticipated that the new internal audit structure will be in place by the end of the first half of 2013.
- Review by the Audit Committee (with subsequent reporting to the Board) of the conclusions of the Group’s external auditors in their annual audit and review of the half-year results. These reviews include discussion of any control weaknesses or issues identified by the auditors.
- The risk assessment process involving all senior managers of the Group’s businesses in addition to the Executive Directors. A risk matrix is reviewed on a regular basis throughout the year by both the local operations and senior management. Risks are examined at regular executive meetings both locally and at Group level. These risk assessment sessions are held at each operation and will evaluate and address the risks identified. The results of these assessments are addressed in the Executive Directors’ reports to the Board. During 2012, senior management considered customer care metrics; newspaper re-launch, human resources, pensions, newsprint, banking covenants, national advertising sales, revenue growth and digital strategy, management resources, newspaper sales, energy management, and property.
Steps are taken on an on-going basis to embed best practice into all the Group’s operations and to deal with areas of improvement which come to management’s and the Board’s attention.
In addition, senior management set policies, procedures and standards as detailed in the Group’s policy guidelines. These are reviewed and revised on an annual basis and tailored versions have been issued to the businesses in the Republic of Ireland and Isle of Man. The guidelines include policies on:
- Finance including cash/treasury controls and authorisation levels;
- Customer service;
- Commercial and competition;
- Property management;
- Human resources including pension administration, disability and health and safety;
- Environmental issues and energy management;
- Legal and regulatory compliance; and
- Business continuity.
At the Board meeting in early March 2013, the Directors reviewed the need for an internal audit department and, as reported on page 35 of the Annual Report, concluded that they believed it was necessary for the Group to adapt its internal audit function to reflect the changing nature of the business through the introduction of a dedicated internal audit resource.
Audit Committee and Auditors
Summary of the Role of the Audit Committee
The Audit Committee is responsible for:The Audit Committee is appointed by the Board from the Non-Executive Directors of the Company. The Audit Committee’s terms of reference include all matters indicated by Disclosure and Transparency Rule 7.1 and the Code. The terms of reference are considered annually by the Audit Committee and are approved by the Board. A copy of the current terms of reference are available on the Company’s website.
The Audit Committee is responsible for:
- monitoring the integrity of the financial statements of the Group and any formal announcements relating to the Group’s financial performance and reviewing significant financial reporting judgements contained therein;
- reviewing the Group’s internal financial controls and the Group’s internal control and risk management systems;
- monitoring and reviewing the effectiveness of the IFCC and making proposals to the Board as to the need, or otherwise, for an internal audit function;
- making recommendations to the Board, for a resolution to be put to the shareholders for their approval in general meeting, on the appointment of the external auditors and the approval of the remuneration and terms of engagement of the external auditors;
- reviewing and monitoring the external auditors’ independence and objectivity and the effectiveness of the audit process, taking into consideration relevant UK professional and regulatory requirements;
- developing and implementing the Group’s policy on the engagement of the external auditors to supply non-audit services, taking into account relevant guidance regarding provision of non-audit services by the external audit firm; and
- reviewing the arrangements by which staff may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other areas.
The Audit Committee is required to report its findings to the Board, identifying any matters on which it considers that action or improvement is needed and make recommendations on the steps to be taken. The Committee’s Terms of Reference permit it to oversee the selection process for appointing new auditors should it determine, or it becomes necessary, to do so.
Composition of the Audit Committee
The Audit Committee is chaired by Mark Pain, a Chartered Accountant, who is considered by the Board to have relevant financial experience and expertise for that role, and fulfils the requirement that the Committee includes at least one financially qualified member. All Audit Committee members are expected to be financially literate. Camilla Rhodes and Kjell Aamot, both of whom hold or have previously held board and/or executive management level posts in major media organisations, are also members. Details of each Director can be found on pages 30 and 31 of the Annual Report.
Membership of the Committee is reviewed at regular intervals by the Chairman of the Committee and the Chairman of the Board, who is not a member of the Audit Committee. The Committee is normally comprised of three independent Non-Executive Directors.
The Audit Committee is required to meet not less than three times per year and has an agenda linked to events in the Group’s financial calendar. The agenda is predominantly cyclical and is therefore approved by the Audit Committee Chairman on behalf of his fellow members. Each Audit Committee member has the right to require reports on matters of interest in addition to the cyclical items.
The Audit Committee meetings are attended by the Chief Financial Officer and the Group Head of Finance at the invitation of the Committee and by the Company Secretary, who acts as Secretary to the Committee, with minutes being circulated to all Board members. The Chairman, Chief Executive Officer and Chief Operating Officer are also invited to attend if required to do so by the Committee. Towards the close of relevant meetings, all Executives leave in order for the Committee to have appropriate discussion with the external auditors. The Audit Committee Chairman also has a private meeting with the external audit partner during the course of the year to discuss any relevant issues.
The Committee meets once during the year with the Company’s external auditors to discuss and agree the audit programme for the forthcoming year, together with any proposed non-audit work. Any significant non-audit work by the auditors is approved by the Committee in advance of any engagement letter being signed.
Overview of the Actions Taken by the Audit Committee to Discharge its Duties
Three of the scheduled meetings in 2012 followed the year-end audit and the fourth and fifth followed the interim review. The third meeting after the year-end results was required in order to consider the implications of the Group’s refinancing in April 2012. The meetings covered comprehensive reports from management on material accounting policies and significant judgement areas and from the external auditors on their work and conclusions. The Committee focussed in particular on the areas of financial judgement by the Group.
Three of the meetings during 2012 considered reports on the work of the IFCC. Its work, together with the proposed changes to the function, is described in the Internal Control section.
A sixth meeting took place in November 2012 where the Committee carried out a review of the Group’s key business risks and amendments to its system of reviewing and monitoring risk. The Committee is actively involved in the ongoing review of risk and internal controls by the main Board.
At the meeting to review the Annual Report and Accounts, the Committee formally considers the non-audit services provided by the Group’s external auditors and the effectiveness of the audit process. It is the Company’s policy that any non-audit work to be performed by the auditors, where fees on a cumulative basis exceed £50,000 in any financial year, must be approved by the Audit Committee. The Group’s policy requires that services and/or advice that requires auditing is not undertaken by the external auditors. If non-audit fees for a financial year exceed the audit related fees for a year, then Board approval must be given.
To assess the effectiveness of the external auditors, the Audit Committee reviewed:
- the arrangements for ensuring the external auditors’ independence and objectivity;
- the external auditors’ fulfilment of the agreed audit plan and any variations from the plan;
- the robustness and perceptiveness of the auditors in their handling of the key accounting and audit judgements; and
- the content of the external auditors’ reporting on internal control.
During 2012 the Company has used several professional firms for different projects. The Republic of Ireland taxation compliance and advisory work is undertaken by a professional firm other than the Group’s auditors.
The Committee oversaw the appointment of Deloitte LLP in 2002 and has a primary responsibility for the appointment, re-appointment and removal of auditors. The Committee conducted an evaluation of the effectiveness of the external audit process as part of its work during the year. The Committee reviewed the auditor’s plan for the year, noting the role of the senior statutory audit partner and key audit staff, the arrangements for day-to-day management of the audit, if there were any conflicts of interest and the extent of non-audit services provided by the auditor. Non-audit related services provided in 2012 consisted of taxation compliance and advisory and pension funding advisory, with total fees of £146,000 (see Note 8 in the Annual Report). The advice was provided by partners and staff who had no involvement in the audit of the financial statements. The Committee is satisfied that the objectivity and independence of the external audit is safeguarded. The Committee has considered the likelihood of a withdrawal of the external auditor from the market and noted that there are no contractual obligations to restrict the choice of external auditors.
The Committee has recommended to the Board the re-appointment of the external auditors. On the recommendation of the Audit Committee, the Directors will be proposing the re-appointment of Deloitte LLP at the Annual General Meeting on 26 April 2013. The Audit Partner rotated at the commencement of the 2012 interim review and will continue to rotate every five years.
Dialogue with Institutional Shareholders
The Board encourages and seeks to build a mutual understanding of objectives between the Company and its institutional shareholders. As part of this process, the Chief Executive Officer and Chief Financial Officer make twice yearly presentations to institutional shareholders and meet with shareholders to discuss any issues of concern and to obtain feedback. In addition, they communicate regularly throughout the year with those shareholders who request a meeting.
The Chairman personally contacts the leading shareholders in the Company on an annual basis to address any concerns and discuss any issues. The Board receives a report on any discussion with shareholders and the written feedback that follows full year and the half year results presentations is circulated to the Board. Brokers’ reports and analysts’ briefings, when available, are included in the Board papers sent to the Directors in advance of meetings.
The Board receives a quarterly update on the shareholder register with a summary of the main movements in shareholdings since the previous report.
Members of the Board have met with institutional shareholders during the year to consider Corporate Governance matters. All the Non-Executive Directors are prepared to meet with shareholders to understand their views more fully.
Annual General Meeting
The Board seeks to encourage shareholders to attend its Annual General Meeting. It is the policy of the Board that all Directors should attend the Annual General Meeting and be available to answer shareholders’ questions unless unable to do so. The Company uses the Annual General Meeting to communicate with private investors and encourages their participation. All Directors attended the Annual General Meeting in 2012. In 2012, the notice of the Annual General Meeting and related papers were sent to shareholders not less than 20 days before the meeting.
Information on the Company’s share capital is provided in Note 27 of the financial statements of the Annual Report.