The Food & Drink Group PLC

Corporate Governance

Application of principles

The company is committed to compliance with the principles of good corporate governance. This statement describes how the company applies the principles contained within the Combined Code (revised) appended to the Listing Rules of the Financial Services Authority.

Compliance with the Combined Code

The company has complied throughout the year with the provisions of the Revised Combined Code with the following exceptions under section A3.1:

The non-executive Chairman, S Thomas, has an interest in 129,347 share options of the company and has a significant holding of 7.54% in the share capital.

Directors

The Board comprises of the non-executive Chairman, three executive directors and one other non-executive director. This composition is considered to provide a balance whereby no individual or small group can dominate the Board’s decision making. The Chairman of the Board is S Thomas and the Chief Executive is J Kowszun.

J Williams is considered to be independent and is the senior independent director.
S Thomas is not considered to be independent, as he is a significant shareholder and a holder of share options.

The company’s Articles of Association provide that one third (or the number nearest to but not exceeding one third) of the directors shall stand for re-election at each annual general meeting. Furthermore, the Articles of Association require a director to stand for re-election if they were not appointed or re-appointed at either of the last two annual general meetings.

All non-executive directors are initially appointed for a three-year term. The company will take into account their balance of skills, contribution to the Board and level of independence when considering whether to extend their appointment beyond the initial three-year term.

The Board meets ten times a year, and otherwise as required. Board meetings involve detailed reviews of financial and business performance of each of its trading divisions against the plan approved by the Board. The non-executives meet without the executives as and when required.

The Board has a schedule of matters specifically reserved to it for decision making, and delegates certain powers to the Board Committees and to the executive directors, collectively and individually. As part of the remuneration process the Board annually undertakes a performance evaluation of the entire Board and Executives.

Information is provided to all Board members prior to the Board meeting to enable them to consider the issues for discussion and to request clarification or additional information as necessary. The Board regularly reviews the type and amount of information provided.

The Company Secretary is responsible for ensuring that all Board procedures are observed and for advising the Board on corporate governance matters. In addition, there is an agreed procedure for seeking independent professional advice at the Company’s expense. On appointment to the Board, every director is provided with appropriate training to enable them to discharge their duties as a director.

Board Committees

In accordance with the Combined Code and corporate governance best practice, the Board has established a number of committees, which operate within terms of reference as set out below.

Nominations Committee

Board members are appointed by the Board on the recommendation of the Nominations Committee, which is chaired by S Thomas, and consists of all of the non-executive directors. This committee is only convened when required.

Audit Committee

This Committee is chaired by J Williams and comprises of all the non-executive directors. The Committee meets at least twice a year and reports to the Board on all matters relating to the regulatory and accounting requirements that may affect the Group together with the financial reporting and internal control procedures, including the annual and interim financial statements. In addition, the Committee ensures that an objective and professional relationship is maintained with the external auditors, with particular regard to the nature and extent of non-audit functions they provide.

The executive directors are not members of the Committee, but may attend meetings of the Committee by invitation to facilitate its business.

The company does not have an internal audit function at the present time, as at this stage of its development it is not considered to be economic.

Remuneration Committee

The Remuneration Committee is chaired by S Thomas and consists of all of the Non-executive Directors. This Committee determines the detail of remuneration arrangements for Executive Directors.

The Executives remuneration comprises: 1) a base salary, benchmarking is against the market medium quartile for main board directors from a UK comparator group of companies, 2) certain benefits in kind, principally a pension, car allowance and private medical insurance, 3) a deferred share bonus plan, where half of the bonus is payable in cash and the other half in shares. The bonus targets are set annually by the remuneration committee.

The remuneration committee operates a policy of rolling contracts of 12 months or less.

The Board, excluding the Non-executive Directors, reviews Non-executive Directors fees annually.

Internal Control

The Board has overall responsibility for establishing and maintaining an adequate system of internal control to safeguard shareholders' investment and the group's assets. The system of internal control is designed to manage and minimise risk, rather than eliminate it. In pursuing these objectives internal control can only provide reasonable and not absolute assurance against material misstatement or loss.

The Combined Code requires that the directors review, at least annually, the effectiveness of the company’s system of internal control, which includes financial, operational, compliance and risk management controls.

The Board has reviewed the effectiveness of the system of internal control. As part of the review process, and by its nature ongoing, the Executive Board carried out a detailed review of the current system of internal control and the processes for identifying and evaluating the significant risks affecting the business and the policies and procedures by which these risks are managed.

In addition to the on-going risk review process, the company operates under an established internal control framework, the key features of which are as follows:

Decision making

The full Board meets at least ten times a year and has adopted a schedule of matters which are required to be brought to it for decision, thus ensuring it maintains control over appropriate strategic, financial, organisational, compliance and risk issues. A regular meeting of the Executive Board takes place to make decisions relating to investment issues, capital expenditure and operational issues as well as reviewing financial and operating performance.

Financial and operational controls

There are established procedures for budgeting and planning capital expenditure, together with reporting systems for monitoring the group’s business and performance, and maintaining the integrity of its systems and procedures.

There is a rolling half year forecast in place, which is used to assess the financial impact of the company’s strategy, together with a comprehensive budgeting system with an annual budget approved by the Board. A monthly report to the Board details the financial performance of the group for the preceding period versus budget and includes a forecast of future profitability.

Property acquisitions and investment appraisal

The company has clearly defined guidelines for the acquisition of properties and for capital expenditure. These include annual budgets, detailed appraisal and review procedures, and levels of authority and due diligence requirements.

Treasury policy

The group operates a centralised service managing interest rates, cash and financing. The Board agrees and reviews policies and financial instruments for risk management.

Operations are funded by a mixture of share capital, bank borrowings and long term loans. Long term loans are at floating rates and are used to finance capital investment. Working capital requirements are met out of floating rate overdraft and share capital. Short term debtors and creditors have not been treated as financial assets or liabilities for FRS 13 disclosure purposes.

Further information on borrowings and financial instruments is contained in note 26 to the financial statements.

Going concern

Following a review of the group's financial plans, the Board has a reasonable expectation that the group and the company will have adequate resources to continue in operational existence for the foreseeable future. Accordingly these financial statements have been prepared on a going concern basis.

Employment policies

The group seeks to offer equal opportunities regardless of disability, sex, race or religion. The group recognises its obligation to provide a safe working environment for its staff.

Employment investment

Members of the management team regularly visit branches and discuss matters of current interest and concern to the business with members of staff.

Health and Safety

The company continues to promote both the safety of its customers and staff through its health and safety standards.

Relations with shareholders

The company values the views of its shareholders and recognises their interest in the company’s strategy and performance, Board membership and quality of management. The Chairman, Chief Executive and Finance Director maintain frequent contact with institutional shareholders through regular meetings. The senior independent director is also available to attend these meetings at the request of the shareholders.

The AGM is used to communicate with private investors and they are encouraged to attend and participate. The entire Board is present at the AGM to answer any questions that shareholders may have.

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