STATEMENT OF COMPLIANCE
Sound corporate governance and an ongoing commitment to upholding the highest levels of integrity and business ethics serves as the foundation upon which the City Lodge Hotels Group conducts its business. This, together with a strong culture of compliance, plays a critical role in delivering sustainable value to the benefit of the company's stakeholders.
The board is the focal point for and custodian of the group's corporate governance system and is ultimately accountable and responsible for the performance and affairs of the company. It strives to keep abreast of regulatory developments, continually enhance the company's governance system, monitor and ensure compliance with applicable laws, promote a positive ethical culture and monitor and ensure compliance with applicable legislation, non-binding rules, codes, standards and frameworks, including:
- King Report on Corporate Governance™* for South Africa 2016 ("King IV");
- the JSE Listings Requirements ("Listings Requirements");
- the Companies Act, 71 of 2008 ("the Act"); and
- the International Integrated Reporting Framework.
King IV advocates a qualitative approach to implementing the recommended practices to achieve the principles and realise the intended governance outcomes. Practices are therefore implemented as are appropriate to demonstrate the group's governance in terms of King IV.
The board is satisfied that the company has satisfactorily applied the principles and recommended practices of King IV, details of which are available on the company's website, www.clhg.com. (Stakeholder Relations/King IV Governance Register)
GOVERNANCE FRAMEWORK AND DEVELOPMENTS
The board carries out its responsibilities within a framework of policies, procedures, controls and powers of execution which ensure that governance objectives are properly implemented, managed, reviewed and adjusted to ensure they are appropriately aligned and to identify areas that need to be addressed, further entrenched or improved upon, where necessary. This in turn ensures responsible corporate citizenship through adherence to applicable legislation, non-binding rules, codes, standards and frameworks, effective and ethical leadership and ongoing value creation.
The board is of the opinion that the governance framework in place contributes to ongoing value creation.
Initiatives undertaken to enhance the governance framework during the reporting period included:
- a review of the board and committee charters with a view to aligning them with the principles and recommendations contained in King IV;
- enhanced disclosures in the Integrated Report, particularly around remuneration;
- formalised terms of reference for the executive committee; and
- review of the remuneration philosophy and policy to ensure that it remains relevant and aligned with best practice.
Areas of focus for the year ahead include:
- King IV: continue efforts to address gaps as identified as requiring improvement;
- ongoing advancement of the group's ethics management, particularly in terms of ethics awareness;
- revision of the combined assurance plan to ensure that adequate mitigating strategies are in place and assurance providers identified;
- review of the corporate governance framework;
- continue to enhance reporting; and
CITY LODGE GOVERNANCE STRUCTURE
B T Ngcuka
F W J Kilbourn (lead independent), G G Huysamer, M S P Marutlulle, N Medupe, S G Morris, V M Rague, K I M Shongwe
C Ross (chief executive) A C Widegger (financial director)
Audit (statutory and board)
S G Morris (chairman), F W J Kilbourn, G G Huysamer, N Medupe
N Medupe (chairman), G G Huysamer, S G Morris, V M Rague, C Ross, K I M Shongwe, A C Widegger, M S Kobilski (divisional director)
Remuneration and nominations (board)
F W J Kilbourn (chairman), S G Morris, B T Ngcuka
Social and ethics (statutory and board)
K I M Shongwe (chairman), C Ross, A C Widegger
Audit (statutory and board)
S G Morris (chairman), F W J Kilbourn, G G Huysamer, N Medupe
N Medupe (chairman), G G Huysamer, S G Morris, V M Rague, C Ross, K I M Shongwe, A C Widegger, M S Kobilski (divisional director)
Remuneration and nominations (board)
F W J Kilbourn (chairman), S G Morris, B T Ngcuka
Social and ethics (statutory and board)
K I M Shongwe (chairman), C Ross, A C Widegger
- conducts its business within the framework of applicable laws, regulations, non-binding rules and codes of good practice; and
- is committed to maintaining a high standard of ethical and business conduct, which it has achieved through the adoption of certain values and principles, including personal integrity and fair play.
The code of ethics and business conduct ("the Code"), which applies to all directors and employees, is available on the company's website, www.clhg.com, and has been designed to raise awareness around ethics by providing clear guidelines on what is considered acceptable values and behaviour to guide day-to-day decision-making.
The Code is communicated to all employees during their induction. In addition to accepting the Code, all employees undertake to declare conflicts of interest and gifts received.
The company applies a zero tolerance approach to violations of the Code and responds to violations by taking the necessary action, which can include disciplinary, civil and/or criminal action and effecting improvements to the control environment. Reports are submitted to the social and ethics committee demonstrating the action taken.
To facilitate the reporting of activities that violate or appear to violate the Code, the company, in addition to the internal reporting mechanisms in place, operates a whistleblower alertline which is independently managed by Whistle Blowers Proprietary Limited through which stakeholders can anonymously and confidentially report perceived cases of unethical or corrupt behaviour. The service is available seven days a week, 24 hours a day. Details of the facility are available on the company's website, www.clhg.com. All reported incidents are recorded in a register, investigated and, where appropriate, action is taken.
Twenty calls were logged during the year under review, three of which were duplicates in that they related to previously reported issues. All calls were investigated and the majority were found to be internal grievances and were dealt with in accordance with the company's internal grievance procedure. Of the remaining calls, none indicated a material breach in the required standard of ethical behaviour.
The main area of focus during the year was creating awareness of the Code through the group's e-learning platform.
Going forward the company wishes to implement a process for all South African employees to annually acknowledge their adherence to the Code.
The board operates in accordance with a formally approved charter that sets out the processes and practices that have been adopted to assist it in the effective discharge of its responsibilities. The charter ensures that board activities conform to sound corporate governance principles and comply with applicable legislation. It also sets out the division of responsibilities to ensure a balance of power and authority so that no one individual has unfettered powers of decision-making. The charter was revised during the year under review so as to align with the principles of King IV.
All board members are aware of their collective, as well as individual, responsibilities. The charter supports a work plan against which agendas are prepared and which gives guidance as to the timelines against which the board is required to discharge its responsibilities.
Primary areas of focus include monitoring, reviewing and implementing matters of a strategic, financial, non-financial (including governance, compliance, ethics, sustainability and social responsibility) and operational nature.
The board takes the lead in guiding the company's strategic direction, ethics, governance processes, operating, financial, as well as non-financial performance.
The unitary board comprises 10 directors, eight of whom are classified as non-executive directors ("NED") and two as executive directors. Seven of the eight NEDs are considered independent. In total, 50% of the board comprises members of colour, with females making up 20% of the board. The chief executive and financial director serve as the two executive directors on the board. Each of the NEDs are individuals of high calibre, with sound credibility, who possess the requisite knowledge, skills and experience to make a meaningful contribution to and ensure the effective leadership of the company. All directors participate actively in board deliberations and decision-making processes.
The strong representation of tourism industry expertise and experience blends well with the diversity of experience in other areas and serves to strengthen the board's collective business acumen. As such the board is satisfied that it possesses the appropriate mix of knowledge, skills, experience, diversity and independence to discharge its responsibilities.
On 30 June 2018, Clifford Ross stepped down as chief executive due to ill health. Alastair Dooley and Lindiwe Siddo were respectively appointed to the roles of chief financial officer and chief operating officer with effect from 1 July 2018, and Andrew Widegger succeeded Clifford Ross as chief executive officer. Subsequent to the changes, the board comprises 11 members, six (55%) of whom are persons of colour and three (27%) of whom are female. While no voluntary targets have been set, the remuneration and nominations committee will annually consider race and gender diversity at board level and make recommendations in respect thereof.
Appointment, rotation and retirement
Procedures for appointments to the board are formal and transparent and a matter for the board as a whole, assisted where appropriate by Remcom. Appointments are based on leadership skills, experience and expertise required, with diversity and gender being taken into account. All potential board appointees are subject to a fit and proper test, in accordance with the JSE Listings Requirements, and all appointments are subject to shareholder approval.
NEDs have no fixed term of appointment or service contract. In accordance with the company's memorandum of incorporation ("MoI"), at least one-third of the NEDs retire by rotation at the company's annual general meeting. The directors so retiring may, if eligible, offer themselves for re-election.
Executive directors are full-time salaried employees engaged on the company's standard terms and conditions of employment, which may be terminated on three months' notice. Termination of an executive director's employment contract will result in resignation from the board and its committees.
Executive directors do not receive fees for their services as a director on the board or member of the board and statutory committees and do not retire by rotation at the annual general meeting.
Newly appointed directors retire at the first annual general meeting following their appointment and make themselves available for re-election by shareholders.
The retirement age for a NED is 70 years, subject to review at the discretion of the board, and 65 years for an executive director.
Despite him having reached retirement age, the board wishes to continue to avail itself of the services of Mr S G Morris, as he continues to be a valuable member of the board and contributes meaningfully to board and committee deliberations and on the basis that his independence, which is reviewed annually, continues.
Having considered the suitability of the directors retiring by rotation and being available for re-election, the board has resolved to put the directors, whose brief curricula vitae are set out on here to shareholders for re-election.
The board evaluates the independence of the NEDs, particularly long-serving directors on an annual basis. In addition to evaluating participation and effectiveness at meetings, consideration is given to the directors' independence of behaviour and judgement, paying close attention to his/ her interest and/or involvement with other companies, number of other directorships, relationships with, inter alia, suppliers and competitors and interests in material contracts with the company, as well as any other factors which could have a bearing on his/her ability to act independently.
The evaluation process includes disclosure by each director of external associations and/or relationships for purposes of determining, inter alia, potential conflicts of interest and possibility that independence may be impaired.
At its most recent assessment, the board concluded that:
- the chairman, Mr Bulelani Ngcuka is, not considered independent due to his substantial interest in one of the company's BEE shareholders; and
- Messrs Kilbourn and Morris, Dr Shongwe and Mrs Medupe continue to contribute to board deliberations in a manner that is objective, meaningful and unbiased and that their independence in character and judgement is in no way affected or impaired by their length of service or age and there is no interest, position, relationship or circumstance that is likely to, or could appear to, affect their independence. In fact, if one has regard to the cyclical and specialist nature of the tourism industry it could be argued that requiring directors to resign after nine years is not only impractical but not in shareholders' best interest.
Responsibility for running the board and for running the company's business are two critical functions. The role of the chairman is distinct from that of the chief executive. Separation of these roles ensures a clear division of responsibilities, which is necessary to ensure a balance of power and authority, so that no one individual has unfettered powers of decision-making.
The chairman of the board is responsible for setting the ethical tone for the company, ensuring the integrity and effectiveness of the board's governance processes, acting as the link between the board and management and providing leadership and vision in a manner that will serve to enhance shareholder value and ensure the long-term sustainability of the company. The board has, in line with the recommendations in King IV and the Listings Requirements, appointed a LID to provide leadership and advice to the board in matters where there may be an actual or perceived conflict of interest.
The chairman and LID are elected annually. The board is comfortable that Messrs Ngcuka and Kilbourn are able to effectively carry out their respective duties and has accordingly re-elected them as chairman and LID for the ensuing year.
The board is responsible for the appointment of the chief executive to whom it has delegated responsibility for the day-to-day management of the company.
The chief executive's functions and responsibilities include, inter alia:
- implementation of the board-approved strategies, objectives and decisions within the framework of the delegated authorities, values, operational planning and policies of the company;
- developing and recommending the annual business plan and budget;
- monitoring and reporting on company performance;
- ensuring key management roles are occupied by individuals with the necessary competence and authority and that the functions are appropriately resourced; and
- serving as the link between management and the board.
Board meetings and procedures
Meeting dates are established in advance in respect of each calendar year. The board works to a formal agenda prepared by the company secretary, in consultation with the chairman. Board packs containing the meeting agenda and relevant supporting documentation are circulated well enough in advance of each meeting to allow sufficient time for preparation.
Where a director is not able to attend a meeting he/she informs the chairman of the board or relevant committee, as well as the company secretary of this, together with the reason for his/her absence.
Directors may, when they are unable to attend in person, participate via video and/ or teleconferencing facilities and, where appropriate, make submissions on matters to be tabled for discussion, which submissions are recorded at the meeting. Decisions taken between scheduled board meetings, as provided in the company's MoI, are tabled for noting at the subsequent board meeting.
Details of the type and number of meetings held during the year under review, as well as individual director attendance, are set out in the table below.
Board and committee meeting schedule and attendance
|Number of meetings||4||1||3||3||3||2||3||1|
|G G Huysamer||4||1||3||–||3||–||3||1|
|F W J Kilbourn||4||1||3||3||–||–||3||1|
|B T Ngcuka||4||1||–||3||–||–||–||1|
|M S P Marutlulle||3Δ||1||–||–||–||–||–||1|
|S G Morris||4||1||3||3||3||–||3||1|
|V M Rague||4||1||–||–||3||–||–||1|
|K I M Shongwe||4||1||–||–||3||2||–||1|
|A C Widegger||4||1||3*||1*||3||2||–||1|
15 August 2017.
9 November 2017.
14 February 2018.
16 May 2018.
Special board meeting
9 November 2017.
Purpose: To receive an update from KPMG regarding matters in the public domain with a view to determining whether to recommend that KPMG be retained as the company's external auditor at the AGM.
Annual general meeting date
9 November 2017.
Induction and ongoing training and development
To assist them in the effective discharge of their responsibilities, directors are afforded the benefit of an induction programme tailored to their individual needs and aimed at broadening their understanding of the company and the business environment within which it operates.
The company shares the responsibility of ensuring directors are equipped with the necessary skills to effectively carry out their duties and, when it is deemed appropriate, directors can avail themselves of continuing professional development programmes.
- is responsible for its own succession planning and aims to balance the fresh perspectives from new members with the experience and knowledge of those with longer tenure; and
- annually reviews the succession plans in place for the executive directors and other senior executives.
Information and communication
- access to the advice and services of the company secretary and may, where necessary, and in accordance with the board-approved policy, seek independent professional advice at the company's expense; and
- unrestricted access to all company information and senior management to assist them in the discharge of their duties and responsibilities.
Strategy, risk, performance and sustainability are inseparable. The board assumes responsibility for:
- formulating, developing and adopting the company's strategic plans and providing effective leadership and oversight of performance against targets and objectives;
- satisfying itself that the strategy and business plans do not give rise to risks that have not been thoroughly assessed by management;
- ensuring that the strategy will result in sustainable outcomes;
- considering sustainability as a business opportunity that guides strategic formulation; and
- monitoring management in implementing board plans and strategies.
Progress on the implementation and achievement of the company's strategic objectives is monitored on an ongoing basis and is reported on at each meeting of the board and Exco.
Evaluation of the board, chairman, chief executive and company secretary
Board effectiveness is considered every two years and takes the form of a self-assessment. Where a director's performance is not considered satisfactory, the board will not recommend him/her for re-election.
The board is satisfied that it operates effectively, is suitably constituted, possesses the appropriate skills, experience and expertise and that it has discharged its responsibilities as detailed in the board charter and annual work plan. The next assessment, which will not be externally facilitated, is scheduled to take place during the 2018 financial year, the last having taken place in 2016.
The LID assesses the performance and leadership of the chairman in an informal manner.
The chief executive
The chairman of the board, in consultation with the NEDs, assesses the performance of the chief executive.
The appointment and removal of the company secretary is a matter for the board as a whole.
The group company secretary ensures statutory and legal compliance, as well as adherence to the Listings Requirements and relevant governance principles. She is responsible for guiding the board in discharging its responsibilities, assumes responsibility for administering the proceedings and affairs of the board, monitors directors' dealings in securities, ensures adherence to closed periods, communicates with stakeholders and liaises with the company's transfer secretary and sponsor.
Melanie van Heerden is an admitted attorney, notary and conveyancer, holding BCom and LLB degrees, with 16 years' post-qualification experience. Her academic and professional qualifications were externally verified prior to appointment.
In accordance with both the Listings Requirements and King IV the performance and independence of the company secretary is evaluated annually. The board, while evaluating her performance and interactions with the directors and board as a whole concluded that Mrs van Heerden is suitably qualified and experienced and is satisfied that she demonstrates the requisite competence to continue to hold the office of group company secretary. The board is satisfied that the arrangements in place for providing corporate governance services are effective.
The board furthermore concluded that there is an arm's-length relationship between itself and the group company secretary, taking into account that she is neither a director serving on the board nor related to a director, and that as a result, the potential for conflict of interest is minimised.
BOARD, STATUTORY AND MANAGEMENT COMMITTEES
Certain duties are delegated to various board, statutory and management committees to assist it in the discharge of its responsibilities, promote continued good governance, improve internal controls and provide in-depth focus in specific areas. Delegation in no way relieves the board from discharging its duties and it remains ultimately accountable for the performance and affairs of the company.
Each board and statutory committee operates within approved terms of reference, which are updated from time to time to ensure that they are aligned with governance best practice, as well as internal, market, legislative and regulatory requirements, and against an approved work plan, which provides members with an understanding of their roles as well as guidance as to when various responsibilities need to be discharged. The charters of the respective committees were amended during the year so as to align with King IV.
Each committee, with the exception of the management committees, is chaired by an independent non-executive director who reports on the activities and recommendations made by the committee at the board meeting immediately following the committee meeting. Minutes of all board and statutory committee meetings, save for Remcom, are tabled for noting by the board. The group company secretary serves as secretary for all the committees.
Additional meetings may be convened when necessary to address urgent matters falling within the committee's scope of responsibility. No such meetings were held during the year.
The board regularly assesses the composition of the committees to ensure that they each possess the appropriate balance of skills, knowledge and experience, as well as the need for additional committees, to assist it in carrying out its duties and meeting its statutory and other legal requirements. There were no changes in committee composition during the year under review. Post-year-end, Alastair Dooley and Lindiwe Siddo were respectively appointed to the risk and social and ethics committees, to fill the vacancies resulting on these committees following Clifford Ross' stepping down.
As with the board, the effectiveness of each committee is considered every two years and entails a self-assessment. Any areas identified as requiring improvement are considered and the appropriate measures put in place.
The board is satisfied that each committee operates effectively and has discharged the responsibilities detailed in their respective terms of reference, at the intervals indicated in the annual work plan.
The chairmen of the respective committees attend the annual general meeting to respond to any questions shareholders may raise with regard to matters falling within their respective committee mandates.
The chief executive chairs the executive and management development and succession committees established to assist him in the discharge of the responsibilities delegated to him by the board.
The audit committee is a statutory committee of the board and serves as the audit committee for the group subsidiary companies. Members are elected annually in accordance with the Companies Act and King IV by shareholders, on the recommendation of the board. It assists the board in the discharge of its statutory duties as well as other duties assigned to it by the board.
The committee comprises four independent non-executive directors all of whom are financially literate and have the necessary business and financial acumen to carry out the committee's responsibilities.
The chief executive, financial director, divisional director: financial, lead external audit partner and internal audit partner attend committee meetings by invitation and participate in discussions, but do not vote on any matters tabled for decision.
The internal and external auditors have unrestricted access to the committee through the chairman.
The chairman of the board is not a member of the committee. He may, however, attend meetings by invitation.
Role and responsibilities
The committee's responsibilities, in addition to its statutory responsibilities, as detailed in its terms of reference include:
- safeguarding the company's assets, the operation of systems, control processes and the preparation of accurate financial reports and statements in compliance with relevant legal requirements and accounting standards;
- evaluating the adequacy and efficiency of internal control systems, accounting practices, information as well as the auditing thereof;
- consideration of the internal and external audit process and accounting principles and policies;
- ensuring the independence of the external and internal audit functions; and
- ensuring legislative and regulatory compliance and compliance with applicable codes.
Meetings and activities
The three meetings held during the year focused on:
- examining and reviewing reports to shareholders, including financial and sustainability reports;
- reviewing the annual financial statements, interim reports, accompanying reports to shareholders, preliminary results announcement and any other announcement regarding the company's results or other financial information to be made public, prior to submission and approval by the board;
- reviewing the internal control structures, including financial control, accounting systems and reporting;
- nominating the registered auditor, including the lead audit partner, having executed its responsibilities as set out in 3.84(g) of the Listings Requirements, reviewing and approving the scope of work, the external audit budget and nature and extent of non-audit services;
- monitoring and supervising the effectiveness of the internal audit function, including the performance of the internal audit partner;
- ensuring that the roles and functions of external and internal audit are sufficiently clarified and coordinated;
- reviewing and approving the annual internal audit plan and fee, and receiving internal audit's written assessment of operational controls;
- receiving reports and noting the minutes from the risk committee with regard to the policy and plan for risk management and its implementation;
- overseeing the implementation of the IT governance framework and ensuring that it aligns with the company's performance and sustainability objectives;
- monitoring and evaluating significant IT investments and expenditure;
- ensuring that IT forms an integral part of the company's risk management process and that information assets are managed effectively;
- overseeing financial reporting risks, internal financial controls, fraud risks as they relate to financial reporting and IT risks as they relate to financial reporting;
- formalising and approving the policy for the provision of non-audit services by external audit;
- pre-approving and monitoring the extent of non-audit services provided, which for the year under review represented 29% (2017: 23%) of the total audit fee paid;
- considering the recoverability of Chase Bank and revenue recognition, which were highlighted as key audit matters in relation to the annual financial statements;
- reviewing and responding to the JSE's report on the pro-active monitoring of the annual financial statements;
- monitoring legislative and regulatory compliance and compliance with governance codes and accounting standards (local and international);
- considering and approving the material issues facing the company, against which reporting will take place;
- approving the annual work plan against which the agenda for committee meetings will be prepared and monitoring progress against it; and
- considering and satisfying itself as to the independence of the external auditors and determining that the reporting accountant is accredited in accordance with the provisions of the Listings Requirements.
The external and internal auditors and representatives from senior management meet, at least annually, with the committee independently of one another to report back and discuss any issues relevant to the audit process. During its meeting with management, the committee, in addition to discussing issues relevant to the audit, considered the quality and effectiveness of the external audit function and concluded that it was satisfied with the performance and level of services rendered by the external auditor.
On the basis that the auditor does not function in the role of management, does not audit its own work or serve in an advocacy role for the company, the committee concluded that the non-audit work performed did not impair the independence of the auditors. Furthermore, notwithstanding that KPMG has served as the company's auditors since 1986, the committee is satisfied that KPMG has acted with unimpaired independence.
The board, on the recommendation of the audit committee, has therefore nominated KPMG Inc. for reappointment as the company's registered auditor for the ensuing year, with Mr Dwight Thompson, who has served as the company's engagement partner for one year, as the engagement partner, at the forthcoming annual general meeting.
Both the external and internal audit partners attend the annual general meeting to respond to any questions shareholders may raise.
Confirmation of the expertise of the financial director
The audit committee has considered and confirmed that the finance function is adequately resourced with suitably skilled and technically competent individuals and in particular confirms that it is satisfied that the company's financial director, previously Mr Andrew Widegger and going forward Mr Alastair Dooley, is equipped with the necessary expertise and experience to fulfil the requirements and responsibilities associated with the position.
Further information is contained in the report of the audit committee.
Remuneration and nominations committee ("Remcom")
Remcom comprises three NEDs, two of whom are independent. The LID chairs the committee. The chief executive attends meetings by invitation, but does not have a vote on matters to be decided upon nor does he participate in the decision-making process relevant to his remuneration.
The chairman of the board drives the nomination process and leads the nomination portion of meetings.
Role and responsibilities
The committee has been established to:
- ensure the board and its committees are appropriately constituted so as to effectively discharge their duties and responsibilities;
- identify individuals qualified to become board and committee members and ensure their appointment through a formal process;
- set the direction for how remuneration should be approached and addressed on an organisation-wide basis; and
- assist the board in discharging its responsibilities in relation to the company's remuneration policy and practices and to report annually to shareholders as required by applicable rules and regulations.
Remcom is responsible for:
- ensuring that the directors and executives are fairly and responsibly remunerated and that the disclosure in respect thereof is accurate and transparent. Remcom does this by overseeing the implementation of remuneration policies in relation to NEDs, executive directors and other senior executives and reviewing the outcomes of the implementation of these policies and evaluating whether they promote the achievement of the company's strategic objectives and encourage individual performance. Where circumstances necessitate, Remcom will recommend the necessary improvements to the board;
- reviewing other remuneration-related matters, as the board may from time to time direct;
- considering the appropriate composition, in terms of size, mix, knowledge and experience for the board and its committees;
- ensuring there is a formal process in place for the appointment of directors;
- ensuring that induction and ongoing training and development of directors takes place; and
- ensuring that formal succession plans for the board, chief executive and senior executives are in place.
Meetings and activities
The committee met three times during the year and focused on:
- aligning its terms of reference to King IV;
- enhancing remuneration disclosure by taking the principles and recommended practices of King IV into account;
- reviewing the Exco's remuneration packages in accordance with the company's approved remuneration policy, which included mandating third-party service providers to conduct a benchmarking exercise and assist in the formulation of a recommendation to the board;
- determining, following review of associated performance criteria, the short-term and long-term incentive awards;
- considering the succession plans in place for the Exco and approving the company's revised organisational structure, which saw the introduction of the role of chief operating officer;
- receiving and approving the committee's annual work plan against which the agenda for committee meetings is prepared to ensure that the committee attends to all matters falling within its mandate;
- considering management's proposal regarding NEDs' fees, for recommendation to the board and subsequent approval by shareholders; and
- reviewing the company's remuneration policy and report, for tabling at the annual general meeting of the company by way of separate non-binding advisory votes.
Details on how the Remcom discharged its responsibilities can be found in the remuneration report.
Risk appetite and tolerance are fundamental concepts setting the context for determining the group's strategic objectives and are informed by the group's risk culture, and details the risks the group can or is prepared to take and which are to be avoided.
The board determines the group's risk appetite and tolerance levels, while management assumes responsibility for implementing and monitoring the processes of risk management and for the integration thereof into the day-to-day activities of the company.
The group's enterprise risk management process encompasses the review, identification, quantification, prioritisation, response to and monitoring of the consequences of both internal and external risks and also accounts for new and emerging risks and opportunities. It also promotes ownership of risk areas and accountability for risk management. Risk and control procedures are developed, and enhanced upon, on an ongoing basis to improve risk identification, assessment and monitoring. Risks are assessed in terms of potential impact and likelihood. Inherent risk is determined with reference to an evaluation of impact and probability and its significance to the business, while residual risk is determined with reference to the mitigating strategies in place.
The committee comprises eight members, five of whom are independent non-executive directors, two executive directors and a divisional director. All members have the necessary risk management skills and experience required to discharge the committee's responsibilities.
The chairman of the board is not a member of the committee.
Role and responsibilities
The risk committee assists the board in discharging its responsibilities associated with risk management by reviewing the effectiveness of the processes and procedures adopted by management in relation to identifying, evaluating, documenting, managing, monitoring and reporting on risks and the assurance provided thereon.
It is the committee's responsibility to ensure that an effective policy and plan for risk management, that will enhance the company's ability to achieve its strategic objectives, has been implemented.
- Overseeing the development of a policy and plan for enterprise risk management in the form of a group risk register (taking market risk, credit risk, liquidity risk, operational risk and commercial risk into account) and annually reviewing and recommending its approval to the Board.
- Continually monitoring the implementation of the policy and plan through risk management systems and processes.
- Evaluating the nature and extent of the risks that the company is willing to take to achieve its strategic objectives and making recommendations to the board concerning the levels of tolerance and risk appetite and monitoring that risks are managed within these levels, as approved by the board.
- Reviewing the nature, extent and parameters of the company's risk/reward strategy, in terms of the risk appetite and tolerance relative to reward, as well as the limit of potential loss, which the company can accept and ensuring that risks are quantified where practicable.
- Reviewing and approving the scope of work of the risk management function, the systems and/or research required and planned activities, and satisfying itself that the function is sufficiently resourced to provide adequate assurance to the committee and specifically that appropriate resources are directed towards areas of high risk.
- Monitoring that management creates and maintains an effective internal control and risk management environment and that risk is properly identified, managed and monitored.
- Monitoring and reviewing the implementation and execution of risk management within the business on an ongoing basis.
- Reviewing the effectiveness and efficiency of the enterprise risk management ("ERM") system and being assured that material risks are identified and that appropriate risk management processes are in place, including the formulation and subsequent updating of appropriate company policies.
- Regularly receiving a register of the company's key risks and potential material risk exposures. Reporting to the board any material changes to and/or divergence from the risk profile of the company.
- Considering the deliberations of management, the social and ethics committee, audit committee, as well as the board to ensure appropriate consideration of key risks facing the company.
- Periodically reviewing insurance and other risk transfer arrangements and considering the adequacy of the coverage in place.
- Expressing the committee's formal opinion on the effectiveness of the system and process of risk management, including instances where the determined tolerance levels have been exceeded or deviated from materially, in the Integrated Report.
- Considering internal audit's statement regarding the adequacy, effectiveness and efficiency of internal controls, governance and risk management.
- Reviewing the impact that significant litigation could have on the group.
- Reviewing reporting concerning risk management for inclusion in the Integrated Report for timeliness, comprehensiveness and relevance.
- Reviewing and approving of the combined assurance model.
- Liaising closely with the audit committee to exchange information relevant to risk, financial control and reporting.
- Overseeing that the risk management plan is distributed throughout the company and integrated in the day-to-day activities of the company.
- Monitoring the implementation of operational and corporate risk management plans.
- Considering the need to receive periodic independent assurance on the effectiveness of risk management.
- Reviewing the risks within the combined assurance model and ensuring coordination with the audit committee who is ultimately be responsible for combined assurance.
- Reviewing the compliance monitoring plans and policies and determining whether adequate and effective controls are in place to ensure regulatory compliance.
Key focus areas include the management, rather than elimination, of risk, and ensuring comprehensive, timely and relevant disclosure with regard to risks facing the company as no risk management system or combined assurance provided can give absolute certainty that the risks the company faces are fully understood and can be avoided. While the committee assumes responsibility for overseeing the risk management programme in place for the group, management is responsible for identifying and evaluating strategic and operational risks and opportunities, putting the necessary mitigating strategies in place, allocating responsibility, formulation of a risk management plan and monitoring compliance against the plan.
Exco supports the committee in discharging its responsibilities.
Meetings and activities
Three meetings were held during the year with particular focus being given to:
- performing the annual review of the group risk register, which includes:
- considering whether any issues have come to light that impact the risk profile of the company which would result in an amendment of the risk register;
- identifying opportunities where effective risk management can be turned into a competitive advantage;
- revising the combined assurance framework to a four level assurance model;
- assessing whether there are appropriate controls in place to manage the risks down to an acceptable level; and
- approving the risks identified on a qualitative basis, according to probability and severity and where appropriate re-ranking of existing risks;
- confirming its satisfaction with the effectiveness of the risk management system and processes in place and that the risks facing the company are being addressed appropriately;
- receiving the chief executive's report on the status with regard to the company's key risks;
- considering the governance, legal and compliance reports, incorporating calls to the whistleblower alertline, at intervals where the social and ethics committee does not sit;
- considering uninsured and uninsurable risks and adequacy of cover;
- aligning the committee's terms of reference to King IV; and
- approving the committee's annual work plan against which meeting agendas are prepared.
The material issues provide further detail on the material risks the company faces.
Managing the changes in the risk environment particularly insofar as they relate to cyber security, data privacy, sustainability and legal compliance will continue to be areas of focus going forward.
Social and ethics committee ("SEC")
The SEC is constituted as a statutory committee for purposes of discharging the duties contemplated in Regulation 43 of the Act, which apply only to the company and its South African subsidiaries and as a board committee in respect of the responsibilities delegated to it by the board.
The report detailing how the committee has discharged its responsibilities in this regard appears here.
The BEE committee was an ad hoc sub-committee of the board mandated to consider the options regarding the BEE funding, which was due for redemption on 31 December 2017, and to propose a way forward.
The committee comprised three members, namely Messrs Huysamer, Kilbourn and Morris, with Mr Kilbourn serving as chairman. Mr Widegger attended meetings as an invitee.
Three meetings were held to consider the various options available, including the associated processes, costs and potential advantages and disadvantages.
Based on the advice received from various tax and legal experts and engagement with the company's JSE sponsor as well as the three SPVs, the committee resolved to recommend the extension of the company's BEE shareholders' funding arrangement with the Standard Bank of South Africa to 31 January 2021.
Executive committee ("Exco")
The 12 member Exco is the most senior executive decision-making body within the group and assists the chief executive in managing the group's operations and discharging the obligations delegated to him by the board.
Zuki Jantjies was appointed as divisional director: sales and marketing and to Exco with effect from 15 January 2018 and following the resignation of Ryan Ruthven, which took effect on 14 September 2018, Neda Smith was appointed as divisional director: IT and member of Exco, effective 27 August 2018.
Exco is specifically responsible for:
- the implementation of strategies and policies adopted by the board;
- managing the day-to-day activities of the company;
- prioritising and allocating the company's capital, technical and human resources;
- establishing best management practices and functional standards;
- senior management appointments and monitoring the performance of senior management;
- maintaining a group-wide system of internal control to manage all group risks to support the board in discharging its responsibility in respect of the effective management of the risks associated with the group's operations and in so doing supporting the creation and preservation of shareholder wealth;
- maintaining a group-wide legal compliance structure;
- setting the appropriate ethical tone and creating an ethical environment;
- the development and implementation of business plans, policies, procedures and budgets, as approved by the board;
- monitoring the company's operational and financial performance;
- development and implementation of transformation initiatives;
- development and implementation of corporate responsibility initiatives, including sustainability;
- identifying, managing and developing talent;
- managing the internal control environment and preparing reports for presentation to the audit committee;
- the integrity of management information and financial reporting systems; and
- development of company policy guidelines, including the code of ethics and business conduct;
as detailed in its terms of reference which were formalised and adopted during the year.
Exco met four times during the year.
Management development and succession committee ("Mandasco")
Mandasco comprises seven members, all of whom are Exco members, and is responsible for ensuring that:
- effective management development practices are in place and that they are aligned with the group's business needs and human capital requirements;
- the company is able to meet its employment equity and transformation objectives through the attraction and retention of the appropriate level of talent; and
- an adequate succession pool and talent pipeline is maintained.
Four meetings were convened during the year under review for purposes of discharging its responsibilities in relation to:
- maintaining an adequate succession pool and talent development plan through:
- the identification of suitable candidates to populate the respective succession pools and for participation in the accelerated development and deployment programme ("ADDP");
- the compilation, execution and monitoring of individual development plans for succession pool and ADDP members to enable them to reach their full potential and develop the requisite skills and expertise necessary to suitably qualify them for the position for which they are being developed; and
- the deployment of succession pool and ADDP members to fill positions for which they have been developed, as and when they become available;
- transformation initiatives, specifically the achievement of the targeted employment equity levels, by identifying individuals for participation in the succession pools and ADDP, and monitoring the progress of existing candidates.
The various programmes in place saw the following appointments being made during the year under review:
- General manager: one ADDP candidate and one succession pool candidate.
- Assistant general manager: three succession pool candidates.
IT governance ("ITG")
Information and technology is integrated into the business and is an important enabler both in the enhancement and advancement of the company's objectives and position as a leader in its field.
The board is ultimately responsible for ITG and the strategic alignment of IT with the company's performance and achievement of its strategic objectives. It has delegated responsibility to implement the ITG framework to management under the oversight of the audit committee. ITG is a standing point on the audit committee agenda.
The divisional director: IT, who reports directly to the chief executive, is responsible for IT operations within the group and specifically the implementation of business-focused IT strategies and ensuring proper system security, data integrity and business continuity. He is furthermore responsible for consolidating feedback relating to the performance of IT within the company, so that reactive or proactive steps may be taken to ensure that the company derives the maximum value from IT, while at the same time managing its risks and ensuring that the IT function is focused on IT investment initiatives, internal engagement to promote collaborative IT planning and the promotion of IT effectively to capitalise on economies of scale across the group.
Areas of focus included:
- continued investment into technology platforms with a view to stabilising the current environment;
- introduction of enhanced technology services for guests and staff;
- renegotiation of WiFi contract;
- investigation of a guest app;
- introduction of business intelligence capability within existing platforms.
Save for the WiFi contract, these will remain areas of focus for the foreseeable future.
The board is satisfied that ITG is being addressed appropriately and is suitably aligned to the achievement of the company's objectives and that the systems of internal control over IT are adequate and effective and that there has not been a material breakdown in the functioning of the internal control systems during the year under review.
INTERNAL AUDIT FUNCTION
The internal audit function supports the audit committee, board as well as all operations within the group by evaluating significant business, strategic and control risks. This assists management in the development and implementation of effective internal controls, the identification of financial reporting risks and in ensuring the adequacy of controls to address the risk of material misstatement of financial results.
KPMG Services Proprietary Limited performs the company's internal audit function. The head of internal audit reports functionally to the audit committee and administratively to the divisional director: financial. Internal audit has unrestricted access to the chief executive, the financial director, as well as the chairman of the audit committee.
Audits are conducted in accordance with the International Standards for the Professional Practice of Internal Auditing, with hotels being audited once every three years, unless circumstances dictate otherwise. Reports are presented at each audit committee meeting and are prepared in accordance with a defined set of audit criteria which highlight audit area ratings per hotel and summarise internal audit activities. Corrective action is taken where significant internal control weaknesses are identified and follow-up audits may be conducted if deemed necessary.
Based on the results of the 19 internal audit reviews completed during the year, which yielded an overall average level of compliance with the key controls tested of 91% (2017: 93%), the internal audit function and the audit committee concluded that the overall internal control effectiveness is excellent.
The audit committee reviews the effectiveness of the internal audit function to ensure that adequate, objective internal audit assurance standards and procedures exist and annually approves the internal audit plan and budget for the ensuing year.
Where mandated by the audit committee, internal audit carries out special assignments.
The audit committee :
- having confirmed the quality and effectiveness of the internal audit processes and taking cognisance of management's views, concluded that the internal audit function operates effectively; and
- upon assessing the independence of the internal audit function has concluded that, notwithstanding KPMG acting as internal and external auditors to the company and taking the ratio of fees between non-audit services and audit services into account, is satisfied that the independence of the function has not been compromised.
The board formally adopted a policy for the provision of non-audit services by external audit.
The policy provides guidelines on the audit, audit-related, tax and other non-audit services that the external auditor may provide, as well as the services that may not be provided by external audit.
All non-audit services performed by the external auditor must be pre-approved by the audit committee in order to ensure that the provision of such services does not impair the external auditor's independence.
DEALING IN SECURITIES AND INSIDER TRADING
The company has a board-approved policy on dealing in company securities, which requires directors and the group company secretary to obtain prior written clearance from the chairman of the board before dealing in City Lodge shares during an open period. The chairman of the board requires prior written clearance from any other designated director.
All dealings in securities are effected through the office of the group company secretary who assumes responsibility for the enforcement of the policy, maintains a record of requests for dealing and clearances which, with regard to directors' dealings, is tabled at each meeting of the board, and arranges for the publication of the relevant announcement via the company's sponsor on the JSE's Stock Exchange News Service.
Directors, the group company secretary and senior employees are prohibited from dealing in the company's securities during closed periods as defined by the Listings Requirements and at any time when those persons possess inside information.
General investor interaction during closed periods is limited to discussions on strategy and/or historical, publicly available information.
CONFLICTS OF INTEREST AND OTHER DIRECTORSHIPS
In addition to the annual declaration, declaration of interests in contracts and details of other directorships, is a standing item on the board agenda.
Directors are required to recuse themselves from discussions on those matters where they are, or may potentially be, conflicted after they have provided any material information relating to the matter or known to them or if requested to make any observations or pertinent insights relating to the matter, by the other directors.
Executive directors may, with the chairman's permission, having due regard to whether the appointment may conflict with the business of the company and/or have a negative impact on the director's ability to effectively meet their responsibilities, accept external board appointments.
While no limitations are imposed on the number of other appointments directors may accept, they are required to engage with the chairman with regard to their external appointments in order to ensure that acceptance of the additional appointments will not impact his/her ability to devote sufficient time to the company.
The chairman of the board is satisfied that the NEDs have devoted the requisite amount of time to discharge their responsibilities to the company and that no director has a material interest in any contract entered into by the company.
Declaration of interests in other companies, board memberships and interests in contracts is also a standing item on the Exco agenda in addition to making an annual written declaration in this regard.
The company acknowledges the importance of acting with integrity towards its various stakeholders and supports stakeholder engagement and strategies that facilitate timely and transparent communication and the dissemination of consistent, relevant and credible information.
To promote the achievement of the company's business objectives and support economic, socially and environmentally sustainable practices continuous engagement with key stakeholders takes place. The board, as ultimate custodian of stakeholder relations, has accordingly delegated responsibility for pro-actively dealing with the group's various stakeholders, to the executive and divisional directors, group company secretary, hotels and outsourced public relations function.
Various methods of engagement have been adopted and include face-to-face meetings, results presentations with major institutional shareholders after the release of results, hosting investor and analyst sessions, the annual general meeting, engaging with the broader stakeholder community through its marketing efforts, advertising via various social media platforms, directly with guests via guest questionnaires and with local communities through various corporate social initiatives.
The company is, in the ordinary course of business, subject to legal proceedings, which for a number of reasons, including risks and uncertainties, cannot be reliably predicted.
The company is not and has not during the year under review, been involved in any legal or arbitration proceedings that will or may have a material effect on the operations or financial position of the company, nor are there any such known proceedings pending.
The company's sponsor, Nedbank Corporate and Investment Banking, advises the board on compliance with the Listings Requirements.
The company is committed to complying with applicable laws, regulations and codes of best practice. A regulatory universe has been developed to assist with the group's compliance initiatives and delegated to appropriate compliance owners, each of whom is responsible for monitoring compliance within their area of operation.
Compliance risk is monitored by the risk committee and compliance with applicable laws and regulations and consideration to non-binding rules, codes and standards is reviewed by the SEC bi-annually and the audit committee, as it applies to their respective mandates.
The board is informed of regulatory changes, non-binding standards and codes that may have an impact on the group.
Areas of focus during the year included:
- the Protection of Personal Information Act ("PoPI Act"), General Data Protection Regulation ("GDPR"), training and awareness;
- ongoing maintenance of the regulatory universe, including ongoing identification and compliance monitoring, which includes, inter alia, the review of legislation, its impact on the company, the associated compliance requirements, implementation of policies and procedures based on applicable laws and regulations and creating awareness.
Planned areas of focus for the forthcoming year include:
- ongoing compliance training in identified areas; and
- effecting improvements to the legal compliance framework with reference to emerging risks and reviewing and updating existing policies.