The Board of Directors has chosen to apply the QCA Corporate Governance Code (the ‘Code’) as it believes that this provides an appropriate governance framework for a group of our size and to support our growth and success. We seek to comply with the Code’s principles and application wherever possible, but there can be circumstances where the interests of the Company and its shareholders are better served by departing from the Code’s requirements. Corporate Governance adherence will be the responsibility of the Chairman, who will take steps to ensure compliance by the Board and applicable employees with the terms of the Code.
The QCA published a new edition of its Code on 25 April 2018, which was after the date on which the Company’s last Annual Report and Accounts was published. This edition of the Code requires us to provide an explanation for any departures from the principles or application of the Code. Save in relation to additional disclosures required to be made in future annual reports (where appropriate discussion will be included from the 2018 annual report onwards), there are two areas of Principle 7 in which we do not currently meet the Code’s requirement, details of which can be found below. However, we remain committed to ensuring that we will meet all of the Code’s requirements by the date of the 2018 Annual Report and Accounts.
Stephen Hemsley, Executive Chairman
This information was last updated on 28 September 2018.
|QCA Code Principle||Application (as set out by QCA)||What we do and why|
|1. Establish a strategy and business model which promote long-term value for shareholders||The Board must be able to express a shared view of the Company’s purpose, business model and strategy. It should go beyond the simple description of products and corporate structures and set out how the Company intends to deliver shareholder value in the medium to long-term. It should demonstrate that the delivery of long-term growth is underpinned by a clear set of values aimed at protecting the Company from unnecessary risk and securing its long-term future.||Franchise Brands plc’s vision, strategy and business model is explained fully within our Strategic Report section on pages 2 to 29 of our Annual Report and Accounts for the year ended 31 December 2017.In summary our vision is to create a group of market-leading franchise businesses that benefit from sharing the same support services. Our strategy to deliver shareholder value is to develop franchise businesses which have market-leading positions that primarily provide services to individuals and businesses. Our focus is on established brands which can benefit from our shared support services as well as our management expertise and experience.The execution of this strategy is achieved through a combination of organic growth and growth through acquisition. The focus of future acquisitions will be on market-leading B2B and B2C franchise businesses of scale and where we believe our management and financial resources can enhance an already profitable business.
Our shared support services underpin our business model. These include franchise recruitment, IT, finance and marketing. The shared support services allow the management of the individual brands to focus on expanding their networks and helping their franchisees to grow their businesses.
|2. Seek to understand and meet shareholder needs and expectations||Directors must develop a good understanding of the needs and expectations of all elements of the Company’s shareholder base.The Board must manage shareholders’ expectations and should seek to understand the motivations behind shareholder voting decisions.||Franchise Brands plc’s approach to relations with shareholders is explained fully within our Corporate Governance section on page 36 of our Annual Report and Accounts for the year ended 31 December 2017.The Executive Chairman, the Chief Financial Officer, and the Corporate Development Director meet with the institutional shareholders from time to time and provide the Board with feedback from those meetings and other communications with shareholders. The Board is provided with research notes from sell-side analysts plus insight into shareholders’ views from the Company’s brokers and nominated adviser.The Group welcomes the personal investment in its equity that many employees and franchisees have made, as well as our retail investors. We regularly update the Investor Relations section of the Group’s website with the aim of providing useful information for all investors, but particularly our retail shareholders. We use our Annual Report to provide shareholders with details of the Group, operations, performance, strategy and policies. The Group also exhibits and presents at events attended by retail investors and subscribes, and provides content to, retail financial news websites.
All Directors are invited to attend the AGM at which there is an opportunity for shareholders to ask questions formally, and the Directors are available following the meeting for informal discussions. Voting at the AGM is by poll, with the results being announced in the meeting.
|3. Take into account wider stakeholder and social responsibilities and their implications for long-term success||Long-term success relies upon good relations with a range of different stakeholder groups both internal (workforce) and external (suppliers, customers, regulators and others). The Board needs to identify the company’s stakeholders and understand their needs, interests and expectations.Where matters that relate to the Company’s impact on society, the communities within which it operates, or the environment have the potential to affect the Company’s ability to deliver shareholder value over the medium to long-term, then those matters must be integrated into the Company’s strategy and business model.Feedback is an essential part of all control mechanisms. Systems need to be in place to solicit, consider and act on feedback from all stakeholder groups.||The Board has a clear understanding of the Group’s key stakeholders (which includes our employees, franchisees, customers, suppliers, shareholders, regulators, banks etc.) and understands that the success of the company depends on maintaining a positive relationship with each of these groups, particularly its franchisees. There are good relations with all of the stakeholder groups.The Group’s core business as a franchisor has minimal direct impact on society or communities in general terms, but the Board understands the importance of these issues. Each of our underlying franchise networks have potential environmental impacts which have been considered and minimised. For example, ChipsAway uses water-based paints and lacquers while Ovenclean uses environmentally-friendly cleaning chemicals. Metro Rod has highly developed health and safety systems and processes which take into account the potential health and safety risk from the nature of the equipment used and the public locations in which the services are carried out.Management actively solicits feedback from employees and franchisees (both formally and informally) and maintains strong relationships with suppliers. Customer reviews, ratings and feedback for all our brands are received regularly and action taken where required.
|4. Embed effective risk management, considering both opportunities and threats, throughout the organisation||The Board needs to ensure that the company’s risk management framework identifies and addresses all relevant risks in order to execute and deliver strategy; companies need to consider their extended business, including the company’s supply chain, from key suppliers to end-customer.Setting strategy includes determining the extent of exposure to the identified risks that the company is able to bear and willing to take (risk tolerance and risk appetite).
|The Risk Management section on pages 28 & 29 of our Annual Report and Accounts for the year ended 31 December 2017 details the key risks to the business, how these are mitigated and the change in the identified risk over the last reporting period.The Board wants to embed risk management principles within its businesses with the key objective of ensuring proactive management of risks through effective implementation of a risk management framework, to better enable us to execute and deliver our strategy. As such, the Board has developed a new risk management framework during September 2018, which determines the extent of exposure to the identified risks that the Company is able to bear and willing to take.Any changes to the risk profile of the group will be discussed at Board meetings, and the risk management framework updated. The Board will formally review the risk framework bi-annually.|
MAINTAIN A DYNAMIC MANAGEMENT FRAMEWORK
|QCA Code Principle||Application (as set out by QCA)||What we do and why|
|5. Maintain the board as a well- functioning, balanced team led by the chair||The Board members have a collective responsibility and legal obligation to promote the interests of the company and are collectively responsible for defining corporate governance arrangements. Ultimate responsibility for the quality of, and approach to, corporate governance lies with the chair of the Board.The Board (and any committees) should be provided with high quality information in a timely manner to facilitate proper assessment of the matters requiring a decision or insight.The Board should have an appropriate balance between executive and non-executive directors and should have at least two independent non- executive directors. Independence is a Board judgement.The Board should be supported by committees (e.g. audit, remuneration, nomination) that have the necessary skills and knowledge to discharge their duties and responsibilities effectively.
Directors must commit the time necessary to fulfill their roles.
|The Company is controlled by the Board of Directors. The current composition of the Board and the way in which the Board functions can be found in pages 35 to 37 of our Annual Report and Accounts for the year ended 31 December 2017. The Board is responsible for formulating, reviewing and approving the Group’s strategy, budgets and corporate actions. The Group holds Board meetings at least six times each financial year and at other times as and when required.Stephen Hemsley, the Executive Chairman, is responsible for the running of the Board. Peter Molloy and Tim Harris are the Managing Directors of the two largest operating components of the Group and sit on the Board of Directors, and they are responsible for the operational leadership of their respective businesses.All Directors receive regular and timely information on the Group’s operational and financial performance. Detailed strategic board papers are sent out in advance of Board Meetings, and the Board receive the monthly management accounts detailing the performance of our brands.The Board comprises six Executive Directors and three Non-executive Directors, two of whom (Rob Bellhouse and David Poutney) are considered to be independent. The Directors’ contracts provide that they must each devote such time to the Company as is required to fulfil their duties.
The Group has established properly constituted audit, remuneration and AIM compliance committees of the Board with formally delegated duties and responsibilities, a summary of which is set out below.
|6. Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities||The Board must have an appropriate balance of sector, financial and public markets skills and experience, as well as an appropriate balance of personal qualities and capabilities. The Board should understand and challenge its own diversity, including gender balance, as part of its composition.The Board should not be dominated by one person or a group of people. Strong personal bonds can be important but can also divide a Board.
As companies evolve, the mix of skills and experience required on the Board will change, and Board composition will need to evolve to reflect this change.
|Details of the skills and experience of the Board, which cover sector, financial and public markets skills and experience, can be found on pages 30 and 31 of our Annual Report and Accounts for the year ended 31 December 2017, and details of the overall composition of our Board can be found on page 35.Where new Board appointments are considered the search for candidates is conducted, and appointments are made, on merit, against objective criteria and with due regard for the benefits of diversity on the Board, including gender.
The Board recognises that as the Group evolves, the mix of skills and experience required on the Board will change, and Board composition will need to evolve to reflect this change, with due regard for the benefits of diversity on the Board, including gender.
|7. Evaluate board performance based on clear and relevant objectives, seeking continuous improvement||The Board should regularly review the effectiveness of its performance as a unit, as well as that of its committees and the individual directors.The Board performance review may be carried out internally or, ideally, externally facilitated from time to time. The review should identify development or mentoring needs of individual directors or the wider senior management team.
It is healthy for membership of the Board to be periodically refreshed. Succession planning is a vital task for Boards. No member of the Board should become indispensable.
|The company joined the AIM market in August 2016, completed the acquisition of Barking Mad in October 2016 and in April 2017 announced the transformational acquisition of Metro Rod, the integration of which is now complete. The composition of the Board has evolved through this time, with changes to the Executive Directors as recently as April 2018. Now that these demands on the Board’s time and resources have passed and the Board composition is settled, a performance evaluation on the Board, as well as its committees and each Director, will be undertaken in Q4 2018 and reported on in the 2018 annual report and each year thereafter.While there is no formal succession plan in place, three Managing Directors run the Group’s brands and two of these individuals sit on the parent company Board. All three are experienced operators of franchised businesses and whilst it is not our plan to consolidate these businesses any further, we have significant resilience in our senior management team.|
|8. Promote a corporate culture that is based on ethical values and behaviours||The Board should embody and promote a corporate culture that is based on sound ethical values and behaviours and use it as an asset and a source of competitive advantage.The policy set by the Board should be visible in the actions and decisions of the chief executive and the rest of the management team.
Corporate values should guide the objectives and strategy of the company.
The culture should be visible in every aspect of the business, including recruitment, nominations, training and engagement. The performance and reward system should endorse the desired ethical behaviours across all levels of the company.
The corporate culture should be recognisable throughout the disclosures in the annual report, website and any other statements issued by the company.
|Our Annual Report and Accounts for the year ended 31 December 2017 lays out the five guiding principles that inform the way we work with each other, support our franchisees and serve our customers:· We demand integrity: We are professional in everything we do and treat people with respect. Nothing is more important to us than acting with integrity at all times.· We empower our people: We empower our people and expect them to take ownership of a situation and to be accountable for their actions and the results they generate.
· We are challenging of ourselves: We set high standards, are demanding of ourselves, are prepared to challenge the norm and have a relentless focus on continual improvement.
· We are fair: We consider that fairness and transparency are essential to creating high trust working relationships with each other, and with our franchisees, partners and suppliers.
· We work as a team: We place a huge amount of importance on teamwork between our colleagues and our franchisees in creating a dynamic business which delivers impressive results. We are inclusive, encourage ideas and innovation and welcome diversity.
|9. Maintain governance structures and processes that are fit for purpose and support good decision- making by the board||The Company should maintain governance structures and processes in line with its corporate culture and appropriate to its:• size and complexity; and• capacity, appetite and tolerance for risk.The governance structures should evolve over time in parallel with its objectives, strategy and business model to reflect the development of the company.||Our Corporate Governance Statement on pages 34 – 41 of our Annual Report & Accounts for the year ended 31 December 2017 details the Company’s governance structures and why they are appropriate and suitable for the Company.|
|QCA Code Principle||Application (as set out by QCA)||What we do and why|
|10. Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders.||A healthy dialogue should exist between the Board and all of its stakeholders, including shareholders, to enable all interested parties to come to informed decisions about the Company.In particular, appropriate communication and reporting structure should exist between the Board and all constituent parts of its shareholder base. This will assist:
· the communication of shareholders’ views to the Board; and
· the shareholders’ understanding of the unique circumstances and constraints faced by the company.
It should be clear where these communication practices are described (annual report or website).
|The Executive Chairman, the Chief Financial Officer, and the Corporate Development Director meet with the institutional shareholders from time to time and provide the Board with feedback from those meetings and other communications with shareholders. The Board is provided with research notes from sell-side analysts plus insight into shareholders’ views from the Company’s brokers and nominated adviser.
All Directors are invited to attend the AGM at which there is an opportunity for shareholders to ask questions formally, and the Directors are available following the meeting for informal discussions. While voting at the AGM is on a show of hands, the proxy voting results (including any votes withheld) are announced at the meeting, and subsequently to the market and published on the website.
The Audit Committee has primary responsibility for monitoring the quality of internal controls and ensuring that the financial performance of the Group is properly measured and reported on. It receives and reviews reports from the Group’s management and external auditors relating to the interim and annual accounts and the accounting and internal control systems in use throughout the Group. The Audit Committee meets not less than twice in each financial year and has unrestricted access to the Group’s external auditors. The members of the Audit Committee are David Poutney, who acts as Chairman of the Committee, and Rob Bellhouse.
The Remuneration Committee reviews the performance of the Executive Directors and makes recommendations to the Board on matters relating to their remuneration and terms of employment. The Committee also makes recommendations to the Board on proposals for the granting of share awards and other equity incentives pursuant to any share award scheme or equity incentive scheme in operation from time to time. The Remuneration Committee meets at least twice a year. The members of the Remuneration Committee are Rob Bellhouse, who acts as Chairman of the Committee, and David Poutney.
AIM Compliance Committee:
The role of the AIM Compliance Committee is to ensure that the Company has in place sufficient procedures, resources and controls to enable it to comply with the AIM Rules for Companies. The AIM Compliance Committee makes recommendations to the Board and proactively liaises with the Company’s nominated adviser on compliance with the AIM Rules for Companies. The AIM Compliance Committee also monitors the Company’s procedures to approve any share dealings by Directors or employees in accordance with the Company’s share dealing code. The members of the AIM Compliance Committee are Rob Bellhouse, who acts as Chairman of the Committee, David Poutney.