Annual report 2016

Corporate governance statement CHAIRMAN'S INTRODUCTION


I am pleased to introduce this report, which is my first since becoming chairman at the beginning of the current financial year. My predecessor, Tim Bridge, took his responsibility for ensuring that we met high standards of corporate governance very seriously, and I will continue to do so throughout my tenure.

During the year the company again applied the main principles and relevant provisions of the UK Corporate Governance Code (the Code), and I hope this report gives you a good understanding of the systems of governance and control which continue to operate.

As you might expect, the board was very busy during the 2015/16 financial year dealing with the integration of Spirit Pub Company, the acquisition of which completed in June 2015. I am pleased to have joined Greene King at such an exciting time in our development. I am looking forward to working closely with Rooney and the rest of the board in the next stage of our progress as a leading pub hospitality company, whilst at the same time continuing to ensure that we have a well balanced and effective board, strong oversight of risk management, alignment of remuneration policies with shareholder interests and sound shareholder relationships.

In accordance with the Code, we conducted a board evaluation exercise during the year. Having joined the board in February, and to facilitate my understanding of the board and its ways of working, it was agreed that I should undertake that evaluation by means of individual discussions with each board member, with a view to looking forward and focusing on how to improve board effectiveness, rather than looking back at past practice.

Finally, I would like to thank my fellow directors for their support since my appointment. Together, I believe we can continue to maintain a strong and effective governance system to enable the business to deliver its strategy, generate shareholder value and safeguard our shareholders’ long-term interests.

I believe we can continue to maintain a strong and effective governance system.

Philip Yea
Chairman


Statement of compliance with the UK Corporate Governance Code

The company is subject to the UK Corporate Governance Code which is issued by the Financial Reporting Council and which is available at www.frc.org.uk. The code sets out guidance in the form of principles and provisions on how companies should be directed and controlled to follow good governance practice. Companies listed in the UK are required to disclose how they have applied the main principles and whether they have complied with its provisions throughout the financial year. Where the provisions have not been complied with companies must provide an explanation.

The board considers that the company has complied with the UK Corporate Governance Code dated September 2014 throughout the year in all respects, save that, with the impending retirement of Tim Bridge at the end of the financial year, no evaluation was undertaken of his performance as chairman as is required by Code provision A4.2.

Board independence – current directors

Name Independent Nomination
committee
Audit
committee
Remuneration
committee
Philip Yea Yes N
Rooney Anand No
Mike Coupe Yes N A R
Kirk Davis No
Ian Durant Yes N A R
Rob Rowley Yes N A R
Lynne Weedall Yes N R

Board composition

As at the year end the board comprised the chairman, two executive directors and five non-executive directors. The non-executive chairman was Tim Bridge, who retired at the end of the year. The new chairman is now Philip Yea. The chief executive is Rooney Anand and the senior independent director during the year was Rob Rowley.

The board believes that the structure and size of the board is appropriate and that no single individual or group dominates the decision making process. The board is currently looking to recruit a further non-executive director, to replace Ian Durant, who will be retiring from the board at the AGM in September. Further details are set out in the nomination committee report.

The directors’ biographies can be found here.

Independence of non-executive directors

In compliance with the UK Corporate Governance Code, more than half of the board, excluding the chairman, are non-executive directors. The board is satisfied that all of the non-executive directors were independent throughout the year, in that they satisfied the independence criteria of the code on their appointment and continue to satisfy those criteria.

Tim Bridge, the chairman during the last financial year, was not independent on appointment, having previously served as chief executive. However, the board was satisfied that he showed independent judgment, that his performance as chairman was effective and that he demonstrated continued commitment to the role.

Philip Yea, the new chairman, is independent on appointment, having never been employed by the company and having diverse business interests beyond the company.

Rob Rowley was the senior independent non-executive director during the year. He too has never been employed by the company and has diverse business interests. As well as supporting the chairman and acting as a sounding board for the chairman and an intermediary for other directors, a key responsibility for the senior independent director is to be available for direct contact from shareholders should they require. During the year Rob Rowley played an active role in the recruitment of Philip Yea as the new chairman, as explained in the nomination committee report.

Role of the board

The board has collective responsibility for the long-term success of the company and for its leadership, strategy, control and management.

The offices of chairman and chief executive are separate and distinct and the division of responsibilities between them has been clearly established, set out in writing and agreed by the board.

The chairman is responsible for the leadership and effectiveness of the board and for ensuring that each non-executive director is able to make an effective contribution to the board through debate and discussion with the executive directors. He is also responsible for setting the style and tone of board discussions.

The chief executive’s role is to develop the company’s strategic direction and to lead senior management in executing the company’s strategy and managing the operational requirements of the business.

The non-executive directors have a particular responsibility to ensure that the strategies proposed by the executive directors are carefully examined and fully discussed, that the performance of the company is monitored and challenged and that the financial information provided is comprehensive and accurate. They are also responsible for ensuring, through the relevant committee, that appropriate remuneration arrangements are in place for the executive directors.

Operation of the board

The board has a formal schedule of matters which are reserved for its consideration, including approval of the long term objectives and strategy, approval of budgets and financial statements including the annual report and accounts, acquisitions and disposals, changes to the structure of the group and overall corporate governance issues. It reviews trading performance and considers major capital expenditure.

The board has delegated certain responsibilities to standing committees, details of which are set out below. By delegating key responsibilities to these committees, the board is able to ensure that adequate time is devoted by board members to the oversight of key areas within their responsibility.

Day to day management and control of the business is delegated to the executive directors, business unit managing directors and certain key functional heads, who meet formally on a four-weekly basis together with other senior managers as appropriate.

Board meetings are scheduled to be held eight times a year, with main meetings linked to key events in the company’s financial calendar, with the annual results and dividend being approved in June or July and the interim results and dividend in November or December. Regular agenda items include an overview of the market and current trading as well as a detailed review of financial performance against agreed targets.

There is a two-day meeting of the board in February each year focusing on strategy, with the business unit managing directors and heads of the main functional areas, namely trading, marketing, HR and property, attending for part thereof. The strategy sessions include an in-depth review of relevant economic factors and issues affecting the sector and management’s projections for the medium term. The board then has the opportunity to agree the strategic plans across all areas for the short and medium term. Following approval of the company’s strategy, budgets are prepared for the next financial year, which are reviewed and approved by the board in April. The board also has a programme to review each business unit and main functional area in detail on a regular basis, with particular focus on the achievement of strategic objectives. The relevant managing director or functional head attends such meetings to present and answer questions.

The board has responsibility for determining, with the assistance of the audit committee, whether the annual report, taken as a whole, is fair balanced and understandable to enable shareholders to assess the company’s performance, business model and strategy. In coming to its view, the board took into account the views of the audit committee, which assisted in the process this year, as well as its own knowledge of the group, its strategy and performance in the year, the guidance given to all contributors to the annual report and a detailed review by senior management of the overall content.

A key focus area for the board during the year included the integration of the Spirit business following completion of the acquisition of Spirit Pub Company in June 2015, to ensure that planned synergies are being effectively captured and that the business is being appropriately managed during the integration period. Regular reports on progress have been presented to the board with plenty of opportunity for the board to raise any concerns. Looking forward this focus will continue whilst the programme of brand swaps is carried out and the remaining synergies continue to be captured.

Another key focus area for the board has been financing, to ensure that the group had available sufficient funds to deliver its capital expenditure programme and for general business purposes. The board approved the £300m tap of the Greene King securitisation vehicle which completed shortly after the year end realising net proceeds of £180m after settling certain interest rate swap liabilities.

The board has also spent some time considering matters relating to risk, including the issue of risk appetite and a robust assessment of the principal risks facing the group. Further details, including the new viability statement, are set out in the risk management section.

GREENE KING BOARD

The board is ultimately responsible for the long-term success of the company. Its principal responsibilities are to:

  • approve the group’s long-term objectives, commercial strategy and the overall funding strategy;
  • approve the budgets and financial statements, including the report and accounts;
  • approve acquisitions and disposals; and
  • oversee the group’s operations and review performance in the light of the group’s strategy, objectives, business plans and budgets.

NOMINATION COMMITTEE

Responsibilities

  • reviews structure, size and composition of the board;
  • makes recommendations for appointments; and
  • succession planning.

Members

  • Philip Yea (Chairman)
  • Mike Coupe
  • Ian Durant
  • Rob Rowley
  • Lynne Weedall

AUDIT COMMITTEE

Responsibilities

  • reviews and monitors full year and interim results;
  • monitors internal financial controls;
  • oversees external audit relationship; and
  • oversees risk management.

Members

  • Ian Durant (Chairman)
  • Mike Coupe
  • Rob Rowley

REMUNERATION COMMITTEE

Responsibilities

  • sets remuneration policy;
  • sets executive director remuneration and incentives;
  • approves annual performance objectives; and
  • approves granting of long-term incentives.

Members

  • Lynne Weedall (Chairman)
  • Mike Coupe
  • Ian Durant
  • Rob Rowley
Board Nomination
committee
Audit
committee
Remuneration
committee
Executive directors
Rooney Anand 8/8
Kirk Davis 8/8
Non-executive directors
Tim Bridge 8/8 3/3
Mike Coupe1 8/8 3/3 2/3 3/3
Ian Durant 8/8 3/3 3/3 3/3
Rob Rowley 8/8 3/3 3/3 3/3
Lynne Weedall2 7/8 3/3 3/3
Philip Yea3 3/3 1/1 1/1
  1. Mike Coupe was unable to attend one audit committee meeting due to prior commitments with J Sainsbury plc.
  2. Lynne Weedall was unable to attend one board meeting due to prior commitments with Selfridges Group.
  3. Philip Yea was appointed to the board on 2 February 2016.

Between meetings, as required, the board can be in frequent contact to progress the company’s business and if necessary, board meetings can be held at short notice. Where possible, however, ad hoc committees of the board are appointed to deal with matters which it is known will need to be dealt with between scheduled board meetings. It is expected that all directors attend board and relevant committee meetings, unless they are prevented from doing so by prior commitments. If directors are unable to attend meetings in person or by telephone they are given the opportunity to be consulted and comment in advance of the meeting.

Attendance at scheduled meetings held during the year is set out in the table above.

Board papers are generally circulated seven days prior to each board or committee meeting to ensure that directors have sufficient time to review them before the meeting. Documentation includes detailed management accounts, reports on current trading, reports from each business unit and main functional areas and full papers on matters where the board is required to give its approval.

The chairman holds regular, informal meetings with the non-executive directors without the executive directors being present and the non-executives also meet with the chairman and the chief executive on an informal basis twice each year.

Board performance and evaluation

The UK Corporate Governance Code requires the board to conduct an annual evaluation of its own performance and that of its committees and directors. This year, on account of the impending retirement of Tim Bridge as chairman, there was no formal evaluation of Tim Bridge’s performance as chairman.

The board evaluation exercise was carried out by Philip Yea, who conducted an informal review comprising individual meetings with each director to elicit any immediate concerns or issues that he should take account of in formulating the future conduct, structure and agenda for the board. No material concerns were expressed, and so discussions focussed on future board composition (given the planned retirement of Ian Durant at the AGM), future topics for board review, including succession planning and talent management, and other potential changes to board agendas given the increased scale of the group following the acquisition of Spirit. The findings were recorded in a paper considered by the board at its meeting in June 2016.

In addition to the annual evaluation exercise there remains an on-going dialogue within the board to ensure that it operates effectively and that any matters raised are addressed in a timely manner.

The performance of the executive directors is reviewed annually by the remuneration committee in conjunction with their annual pay review and the payment of bonuses.

Training and support

The training needs of the board and its committees are regularly reviewed and each director is responsible for ensuring their skills and knowledge of the company remain up to date. Particular emphasis is placed on ensuring that directors are aware of proposed legislative changes in areas such as corporate governance, financial reporting and sector specific issues. All directors are encouraged to visit the company’s pubs and restaurants and do so throughout the year.

Newly-appointed directors receive a tailored induction on joining the board to acquaint them with the company. This includes meetings with other board members and senior management, and the provision of an induction pack containing general information on the company, its policies and procedures, financial and operational information and a briefing on directors’ responsibilities. Philip Yea received a particularly detailed induction on joining the board given his future role as chairman of the board, and met all the board directors individually and a large number of senior managers across the business.

There is an agreed written procedure for directors, in furtherance of their duties, to take independent professional advice at the company’s expense. Directors also have access to the services of the company secretary. The company has in place directors’ and officers’ liability insurance.

Commitment and conflicts of interest

All significant commitments which the directors have outside Greene King are disclosed prior to appointment and on an on-going basis when there are any changes. The board is satisfied that the chairman and each of the non-executive directors commits sufficient time to their duties and fulfils their obligations to the company.

The board has the right, under the articles of association, to approve potential situational conflicts of interest. A small number of such potential conflicts have been approved by the board following disclosure by certain directors, in each case with the relevant director not taking part in any decision relating to their own position. Directors are also aware that the disclosure and authorisation of any potential conflict situation does not detract from their requirement to notify the board separately of an actual or potential conflict in relation to a proposed transaction by the company.

The board is keen to ensure that our shareholders have a good understanding of the business and its performance, and that the directors are aware of any issues or concerns which shareholders may have. Communication with shareholders takes a variety of forms.

Institutional shareholders and analysts

There is a regular dialogue with institutional shareholders, including meetings after the announcement of the year-end and interim results. Analysts are also invited to presentations at those times and separately to analyst trips to visit our premises and hear presentations on specific divisions of the business. The board receives regular reports and feedback on the meetings held between the executive directors and principal shareholders, and copies of analysts’ reports on the company.

The senior independent non-executive director, Rob Rowley, is available to shareholders if they have concerns about governance issues which the normal channels of contact fail to resolve.

AGM

The AGM is fully utilised as a means of communicating directly with private shareholders, who receive a brief presentation on the business before the formal business of the meeting begins. They also have the full opportunity to ask questions during the meeting and to meet directors and senior management informally after the meeting. The board aims to ensure that all members of the board, including in particular the chairmen of the board committees, are available to answer questions at the AGM.

The notice of the AGM is sent to shareholders at least twenty working days before the meeting. All substantive items of business at shareholders’ meetings are dealt with under separate resolutions, including a resolution to adopt the annual report. The chairman announces the results of the proxy voting on each resolution after it has been dealt with on a show of hands.

The next AGM will be held on 9 September 2016 at the Millennium Grandstand, Rowley Mile Racecourse Conference Centre, Newmarket, Suffolk CB8 0TF. Details can be found in the separate notice of meeting.

Website

The company maintains a website to provide up-to-date, detailed information on the company’s operations and brands, which includes a dedicated investor relations section. All company announcements are available on this site, as are copies of slides used for presentations to investment analysts. We are happy to answer questions by telephone or email (investorrelations@greeneking.co.uk or companysecretary@greeneking.co.uk).

The board has established a nomination committee, an audit committee and a remuneration committee, each of which has formal terms of reference governing its method of operation. Each of the terms of reference, which have been approved by the board, are available on request or to download from the company’s website and will be available for inspection at the AGM.

The information required by DTR 7.2 is set out in this report, the nomination committee report and the audit committee report, except for information required under DTR 7.2.6 which is set out in the directors’ report.