Franchise Brands is an AIM-quoted company and we have chosen to follow the QCA’s Corporate Governance Code for small and mid-size quoted companies (the “Code”) as we believe that this provides an appropriate governance framework for a Group of our size.
We believe that good corporate governance is vital in supporting our Company’s growth strategy and in turn its long-term success. The Board of Directors has chosen to apply the Quoted Companies Alliance (the “QCA”) Corporate Governance Code (the “Code”) as it believes that this provides an appropriate governance framework for a Group of our size and should help 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. In these circumstances, we will seek to explain the divergence.
Corporate governance plays a crucial role in helping to preserve value for shareholders by providing a process for decision-making which should ensure that all major decisions are considered in good time, that the Board is provided with good quality briefing materials which cover all relevant factors and that our deliberations consider the risks, as well as the opportunities, in the issues before us. It is for these reasons that the Board is committed to achieving high standards of corporate governance.
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. As a result, the remainder of this report explains how we have applied the Code during 2018. Further information on the Group’s governance practices, the business model and strategy can be found in the Company Overview, Strategic Report and Governance sections of this Annual Report and Accounts.
In addition to choosing to apply the new edition of the QCA Code, we have become members of the QCA in order to support the work it does in promoting good corporate governance.
QCA PRINCIPLE 1: Strategy and business model
Our vision and business model 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 acquire and 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.
Further information around our strategy and business model can be found in the Strategic Report.
QCA PRINCIPLE 2: Meeting shareholder needs
The Executive Chairman, the Chief Financial Officer, and the Corporate Development Director regularly meet with the institutional shareholders, 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.
QCA PRINCIPLE 3: Manage our responsibilities to wider stakeholders
The Board has a clear understanding of the Group’s key stakeholders (which includes our employees, franchisees, customers, suppliers, shareholders, regulators, and banks) 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. Management actively solicits feedback from employees and franchisees (both formally and informally) and maintains strong relationships with suppliers. In the current year this has included management visits to franchisees, one-to-one meetings by the senior executive with employees (“speed date the boss”), as well as more formal surveys carried out by independent firms. Customer reviews, ratings and feedback for all our consumer brands are received regularly and action taken where required.
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.
QCA PRINCIPLE 4: Risk management
The Board is embedding risk management principles to drive proactive management of, to better enable us to execute and deliver our strategy. As such, the Board implemented a new risk management framework during the year, 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 formally reviews the risk framework bi-annually. The Group does not currently have an internal audit function, but will consider the introduction of this as the Group grows.
QCA PRINCIPLE 5: Maintain a well-functioning Board
The Company is controlled by the Board of Directors. The Board comprises six Executive Directors and three Non-executive Directors, two of whom (Rob Bellhouse and David Poutney) are considered to be independent. 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.
The Group holds Board meetings at least six times each financial year and at other times as and when required. During the current year the board met eight times. All directors (or their proxy) attended all meetings with the exception of Nigel Wray being unable to attend one meeting. Stephen Hemsley, the Executive Chairman, is responsible for the running of the Board.
The Board is responsible to the Company’s shareholders for:
- Setting the Group’s strategy;
- Maintaining the policy and decision-making process through which the strategy is implemented;
- Checking that necessary financial and human resources are in place to meet the strategic aims of the Group;
- Providing entrepreneurial leadership within a framework of good governance and sound risk management;
- Monitoring performance against key financial and non-financial indicators;
- Overseeing the systems of risk management and internal control; and
- Setting values and standards in corporate governance matters.
The role of the Non-executive Directors is to:
- Challenge constructively and help develop proposals on strategy;
- Satisfy themselves as to the integrity of the financial reporting systems and the information they provide;
- Satisfy themselves as to the robustness of the internal controls;
- Ensure that the systems of risk management are robust and defensible; and
- Review management performance and the reporting of such performance to shareholders.
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 Directors’ contracts provide that they must each devote such time to the Company as is required to fulfil their duties.
QCA PRINCIPLE 6: Ensure Directors have necessary, up-to-date skills
Having Directors drawn from a range of backgrounds, with a cumulatively wide range of relevant skills and experiences, helps us to take decisions in the interests of all shareholders and which take into account the interests of a wide range of stakeholders. Details of the skills and experience of the Board, which cover sector, financial and public markets skills and experience, can be found on pages 32 and 33 of the Annual Report and Accounts. 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.
Directors are provided with access to the Company’s Nominated Advisor who provide briefings on necessary legislation and regulations from time to time. Directors are supported to ensure their skills remain up to date, including training courses and continuing professional development.
QCA PRINCIPLE 7: Evaluate Board Performance
A Board performance self-evaluation was undertaken in November 2018, the results of which have been discussed by the Board. Each Director was invited to complete a questionnaire providing a quantitative rating and justifying narrative on ten strategically aligned questions, with two further questions to identify any improvement opportunities. Overall, the Board felt that it was functioning effectively, with a good balance and blend of skills and experience around the Board table and meetings that were held in a constructive spirit. The evaluation identified two opportunities to enhance the Board’s effectiveness. One was to ensure that its meeting agendas and discussions focussed on strategic considerations, with operational outcomes reported by exception. The second was to have specific ‘deep dives’ into key strategic issues, including both risks and opportunities. Both have been adopted by the Board.
Since the Company joined the AIM market in August 2016, there has been an evolution in the Board’s composition, with the most recent changes to the directorate being in April 2018. 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.
QCA PRINCIPLE 8: Promote a value-based corporate culture
Franchise Brands has five guiding principles that inform the way we work with each other, support our franchisees and serve our customers and the communities in which we operate:
- 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.
An externally conducted survey has been undertaken to ascertain the views and attitudes of the franchisees of Metro Rod, the Group’s largest business. This included a number of questions providing insights into the culture within that business and the Board has discussed the survey’s findings.
QCA PRINCIPLE 9: Maintain fit-for-purpose governance structures
The role of the Audit Committee is to monitor the quality of internal controls and check that the financial performance of the Group is properly assessed and reported on. It receives and reviews reports from the Chief Financial Officer, other members of management and external auditors relating to the interim and annual accounts and the accounting and internal control systems in use throughout the Group. The members of the Audit Committee are David Poutney (Chairman) and Rob Bellhouse.
The Executive Chairman and Chief Financial Officer are invited to attend all meetings, with other senior financial managers required to attend when necessary. The external auditors attend meetings to discuss the planning and conclusions of their work and meet with the members of the Committee without any members of the executive team present after each meeting. The Committee is able to call for information from management and consults with the external auditors directly as required.
The objectivity and independence of the external auditors is safeguarded by reviewing the auditors’ formal declarations, monitoring relationships between key audit staff and the Company and tracking the level of non-audit fees payable to the auditors.
The Committee met twice during the year, to review the 2017 annual accounts and the interim accounts to 30 June 2018. The Committee reviewed with the independent auditor its judgements as to the acceptability of the Company’s accounting principles. In particular, the Committee discussed the application of the new accounting standards, IFRS9 and IFRS15, and the future application of IFRS16. The Committee reviewed and discussed the auditor’s comments on improvements which could be made to the internal controls. In addition, the Committee has discussed with the auditor the firm’s independence from Company management and the Company, and considered the compatibility of non-audit services with the auditor’s independence.
The role of the Remuneration Committee is to review the performance of the Executive Directors and make 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 members of the Remuneration Committee are: Rob Bellhouse (Chairman) and David Poutney.
The Executive Chairman is invited to attend meetings of the Remuneration Committee, but does not participate when his own remuneration is being discussed. All members of the Committee are independent Non-executive Directors.
The Company’s remuneration policy and details of the amounts due to the Directors of the Company in or in respect of the year are set out in the Remuneration Report on pages 39 and 40 of the Annual Report and Accounts. As the Company is not fully listed, it is not required to produce a formal remuneration policy or seek shareholder approval of that policy.
The Committee met once during the year, to approve the award of options under the Long-Term Incentive Plan (“LTIP”).
AIM Rules Compliance Committee
The role of the AIM Rules 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 and this role is set out in its terms of reference available on the Group’s website. The Committee makes recommendations to the Board and proactively liaise with the Company’s nominated adviser on compliance with the AIM Rules. The 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 and the requirements of the Market Abuse Regulation. The members of the Committee are Rob Bellhouse (Chairman) and David Poutney. In addition, all other Directors of the Company are invited to attend its meetings. The Committee has not met during the year, as the relevant matters were discussed at meetings of the full Board.
QCA PRINCIPLE 10: Communicate governance and performance with shareholders
The Board communicates regularly with shareholders providing updated on Group performance to shareholders via interim and annual financial reports, trading updates issued via RNS, investor presentations and meetings with institutional shareholders. The Board also ensures that the corporate website is kept up to date with all the latest information about the governance and performance of the business.
This information was last updated on 3 April 2019