Directors’ statement of corporate governance

CORPORATE GOVERNANCE
The Directors are committed to maintaining the highest standards of corporate governance. As required by the Listing Rules of the Irish Stock Exchange (ISE), this Corporate Governance statement describes how the Group applied the principles of the Combined Code on Corporate Governance (June 2008) (the ‘Code’) published in June 2008 by the Financial Reporting Council (‘FRC’) throughout the financial year ended 28 February 2011. Except where otherwise stated, the Directors believe that the Group has complied with the provisions of the Code throughout the period under review.

The Directors note that on 29 September 2010, the ISE amended the Listing Rules of the ISE to require Irish listed companies to comply or explain against the provisions of the new UK Corporate Governance Code published in June 2010. The UK Corporate Governance Code applies to accounting periods beginning on or after 30 September 2010. In addition, the ISE introduced the Irish Corporate Governance Annex to apply to accounting periods beginning on or after 18 December 2010. A copy of the Combined Code on Corporate Governance (June 2008) and the UK Corporate Governance Code (June 2010) can be obtained from the Financial Reporting Council’s website: www.frc.org.uk . A copy of the Irish Corporate Governance Annex can be obtained from the ISE’s website: www.ise.ie.

The Board welcomes these corporate governance developments and believes the Company is already substantially compliant with the provisions of the new UK Corporate Governance Code. In particular, the Group has adopted the recommendation that all Directors seek annual re-election for the Annual General Meeting on 29 June 2011. The Group will seek to fully apply the UK Corporate Governance Code and the Irish Corporate Governance Annex for the financial year beginning on 1 March 2011.

BOARD OF DIRECTORS
Role
The Board is responsible for the oversight, leadership and control of the Group and its long-term success. There is a formal schedule of matters reserved to the Board for decision. This includes approval of Group strategic plans, annual budgets, financial statements, significant capital expenditure items, major acquisitions and disposals, changes to capital structure, Board appointments, and the review of the Group’s corporate governance arrangements and system of internal control.

The roles of the Chairman and the Chief Executive are separate with a clear division of responsibility between them, which is set out in writing and approved by the Board. The Board delegates responsibility for the management of the Group through the Chief Executive to executive management. The Board also delegates some of its responsibilities to Board Committees, details of which are set out below.

Individual Directors may seek independent professional advice at the Company’s expense, where they judge it necessary to discharge their responsibilities as Directors. No such professional advice was sought by any Director during the year.

The Group has a policy in place which indemnifies the Directors in respect of certain legal actions taken against them.

Membership
At 28 February 2011, the Board comprised of ten Directors, three executive and seven non-executive Directors (including the Chairman). The Board considers that, between them, the Directors bring a range of skills, knowledge and experience necessary to lead the Group. Their biographical details are set out on pages 32 and 33.

In line with best-practice governance standards, it is Board policy that at least half the Board, excluding the Chairman, shall consist of independent non-executive Directors. During the year, the Group reviewed the composition of the Board and determined that John Burgess, Liam FitzGerald, John Hogan, Richard Holroyd, Philip Lynch and Breege O’Donoghue were independent. Consequently, as at 28 February, 2011, excluding the Chairman, 66% of the C&C Group Board comprised independent, non-executive Directors.

Each of these Directors bring independent judgement to bear on issues of strategy, performance, resources, key appointments and standards. In reaching that conclusion, the Board considered the principles relating to independence contained in the Combined Code and the guidance provided by a number of shareholder voting agencies. Those principles and guidance address a number of factors that might appear to affect the independence of Directors, including former service as an executive, extended service to the Board and cross-directorships. However, they also make clear that a Director may be considered independent notwithstanding the presence of one or more of these factors. This reflects the Board’s view that independence is determined by a Director’s character and judgement. In the case of John Burgess, the Board considered his length of service but was satisfied that his independence was not compromised. As part of this assessment, the Board considered that while John Burgess has served on the Board since 1999, he has not served for more than 9 years concurrently with the same executive Directors. In the case of Sir Brian Stewart, the Board was satisfied that he was independent on his appointment as referred to below.

Chairman
Sir Brian Stewart has been Chairman of the Group since August 2010. The Chairman is responsible for the efficient and effective working of the Board. He is responsible for ensuring that the Board considers the key strategic issues facing the Group and that the Directors receive accurate, timely, relevant and clear information. He also ensures that there is effective communication with shareholders and that the Board is apprised of the views of the Group’s shareholders. While the Board has determined that Sir Brian Stewart was independent on appointment to the Board, it recognises that previous working relationships with the Group’s senior executives is a consideration in determining independence as set out by the Combined Code and some shareholder voting agencies. Consequently, while the Board was satisfied as to Sir Brian’s independence, he stepped down from his position as a member of the Remuneration Committee on his appointment as Chairman.

During the period under review there has been no change in the other significant commitments of the Chairman.

Senior Independent Director
Richard Holroyd was appointed Senior Independent Director in July 2007. He is available to shareholders who have concerns for which contact through the normal channels of Chairman, Chief Executive or Finance Director, has failed to resolve or for which such contact is inappropriate. He is also available to meet major shareholders on request.

Audit Committee Financial Expert
The Audit Committee has determined that John Hogan, who also chairs the Committee, is the Audit Committee financial expert. He is a qualified chartered accountant and was the managing partner of Ernst & Young in Ireland between 1994 and 2000. He was also a member of the Ernst and Young global board.

Company Secretary
The appointment and removal of the Company Secretary is a matter for the Board. All Directors have access to the Company Secretary who is responsible to the Board for ensuring that Board procedures are complied with. The Company Secretary is Sinead Gillen, who replaced Noreen O’Kelly on 1 April 2010.

Appointment, Retirement and Re-election
The non-executive Directors are engaged under the terms of a letter of appointment. A copy of the standard letter of appointment is available on request from the Company Secretary.

The Company’s Articles of Association, require that at least one-third of the Directors subject to rotation shall retire by rotation at the Annual General Meeting in every year. Directors appointed by the Board must also submit themselves for election at the first annual general meeting following their appointment. However, in accordance with the recommendations of the UK Corporate Governance Code, the Directors have resolved that they will all retire and submit themselves for re-election by the shareholders at the Annual General Meeting this year.

Induction and Development
All new Directors are provided with extensive briefing materials on the Group’s operations, management, governance structure and their duties as a Director. These include visits to Group businesses and briefings with senior management as appropriate. Ongoing briefings and meetings with management are also held on a regular basis.

During the period under review the Board received briefings from the Company’s solicitors on changes to the Combined Code. The Board also visited the Group’s production facilities in Clonmel during the period.

Meetings
It is Board policy to meet not less than six times a year. The Board will also meet at other times as it considers appropriate. The Board usually makes at least one visit a year to one of the operating subsidiaries. In addition the Board normally spends one day a year reviewing the Group’s strategy. During the period under review there were seven scheduled meetings of the Board. Details of Directors’ attendance at these scheduled meetings are set out in the table on page 45. Further meetings took place throughout the year. In addition, at least one meeting a year provides an opportunity for non-executive Directors and the Chairman to meet without the executive Directors present, and a further one meeting a year provides an opportunity for the Senior Independent Director and the other non-executive Directors to meet without the Chairman being present.

The Chairman sets the agenda for each meeting in consultation with the Chief Executive and the Company Secretary. The agenda and Board papers, which provide the Directors with relevant information to enable them fully consider the agenda items in advance, are circulated prior to each meeting. Directors are encouraged to participate in debate and constructive challenge.

Performance evaluation
The Board recognises the importance of a formal and rigorous evaluation of the performance of the Board and its Committees.

The Chairman conducts an annual review of corporate governance and the operation and performance of the Board and its Committees. In the period under review there has been a change of Chairman and the new Chairman, Sir Brian Stewart, has commenced a detailed review of the operation of the Board, the performance of individual Directors and, within the remit of the Nomination Committee, succession planning, identifying in this process the experience and qualities required by the Group for the future implementation of its strategy.

The Chairman conducts one to one discussions each year with each Director to assess his/her individual performance. Performance is assessed against a number of criteria, including his/her contribution to board and committee meetings; time commitments; contribution to strategic developments; and relationships with other Directors and management.

The Senior Independent Director and the other non-executive Directors review the Chairman’s performance each year.

The Board reviews and appraises its own performance annually. In the year under review this has been done by a process of self-evaluation. Board members were asked to give confidential assessments to the Group General Counsel, the results being reported back to the Board with recommendations for improvement.

The Board also recognises the need for periodic external evaluation and the UK Corporate Governance Code’s new recommendation that such reviews be externally facilitated at least every three years. The Group will establish a formal policy and process for external evaluation during the course of the 2011/12 financial year.

Remuneration
Details of remuneration paid to Directors (executive and non-executive) are set out in the Report of the Remuneration Committee on pages 46 to 51. Non-executive Directors are remunerated by way of a Director’s fee. Additional fees are also payable to the Chairman of the Audit Committee, Chairman of the Remuneration Committee and to the Senior Independent Director. It is Board policy that non-executive Director remuneration does not comprise any performance related element. Executive Directors’ remuneration is inclusive of any Director’s fee. In line with best practice, the report of the Remuneration Committee on Directors’ Remuneration will be presented to shareholders for the purposes of a non-binding advisory vote at the Annual General Meeting on 29 June 2011.

Share ownership and dealing
Details of Directors’ shareholdings are set out on page 50.

The Group has a policy on dealing in shares that applies to all Directors and senior management. This policy adopts the terms of the Model Code as set out in the Listing Rules published by the UK Listing Authority and the Irish Stock Exchange. Under this policy, Directors are required to obtain clearance from the Chairman (or in the case of the Chairman himself, from the Chief Executive) before dealing. Directors and senior management are prohibited from dealing in the Company’s shares during designated close periods and at any other time when the individual is in possession of Inside Information (as defined by the Market Abuse (Directive 2003/6/EC) Regulations).

COMMITTEES
The Board has established three permanent committees to assist in the execution of its responsibilities. These are the Audit Committee, the Nomination Committee and the Remuneration Committee. Ad-hoc committees are formed from time to time to deal with specific matters.

Each of the permanent Board Committees has terms of reference under which authority is delegated to them by the Board. These terms of reference are available on request from the Company Secretary. Minutes of all Committee meetings are circulated to the entire Board.

The current membership of each committee is set out on page 32. Attendance at meetings held is set out in the table on page 45.

The Chairman of each committee attends the Annual General Meeting and is available to answer questions from shareholders.

Audit Committee
The Audit Committee comprises only independent, non-executive Directors. It meets a minimum of four times a year. During the period under review it met six times. Attendance at meetings held is set out in the table on page 45.

The Group Finance Director attends Committee meetings as appropriate, while the internal auditor and the external auditor attend as required and have direct access to the Committee Chairman. The Head of Finance is the secretary of the Committee.

The Committee’s responsibilities include:

monitoring the integrity and fairness of the financial statements of the Group, including the annual report, interim report, interim management statements, preliminary results and other trading statements;
reviewing the effectiveness of the Group’s internal controls and risk management systems;
reviewing the effectiveness of the Group’s internal audit function;
making recommendations to the Board in relation to the appointment and removal of the Group’s external auditor;
evaluating the performance of the external auditor including their independence and objectivity;
reviewing the annual internal and external audit plans;
ensuring compliance with the Group’s policy on the provision of non-audit services by the external auditor.

The Committee discharged its obligations during the year as follows:

the Committee reviewed the trading statements issued by the Company in July 2010 and August 2010;
the Committee reviewed the Financial Report for six months ended 31 August 2010 prior to its release in October 2010;
the Committee reviewed the Interim Management Statements issued in May 2010 and January 2011;
the Committee reviewed the external audit plan presented by the external auditor in advance of the audit;
the Committee reviewed the preliminary results announcement and the annual report and financial statements. It reviewed the post-audit report from the external auditor identifying any accounting or judgemental issues requiring its attention;
the Committee approved the annual internal audit plan and received internal audit reports and reviewed the findings of the internal auditor;
the Committee considered whether or not to recommend the re-appointment of the external auditor;
the Committee commissioned a report on the accounting treatment for the joint share ownership plan; and
the Committee also reviewed its Terms of Reference during the year.

During the period under review, a new internal auditor was appointed, bringing the function in-house. The internal auditor reports to the Committee and the Committee has approved his terms of reference. He is engaged on a programme of work, which includes, inter alia, examining the fundamental controls of the Group, especially in the acquired businesses.

The Group has a policy in place governing the conduct of non-audit work by the external auditor. Under this policy the auditor is prohibited from performing services where the auditor:

may be required to audit his/her own work;
would participate in activities that would normally be undertaken by management;
is remunerated through a “success fee” structure;
acts in an advocacy role for the Group.

Other than the above, the Group does not impose an automatic ban on the external auditor undertaking non-audit work. The engagement of the external auditor in non-audit work must be pre-approved by the Committee or entered into pursuant to pre-approved policies and procedures established by the Committee.

Details of the amounts paid to the external auditor during the year for audit and other services are set out in note 3 to the financial statements on page 74. The Committee has adopted a policy that except in exceptional circumstances with the prior approval of the Audit Committee non-audit fees paid to the Group’s Auditor should be capped at a maximum of 100% of audit fees in any one year. During the year the Committee concurred with the auditor providing non-audit advisory services principally in relation to tax and other advice relating to the disposal of the Spirits & Liqueurs division on the basis that they were best placed to undertake such work in the best interests of shareholders.

Nomination Committee
The Nomination Committee is chaired by the Group Chairman and its constitution requires it to consist of a majority of independent, non-executive Directors. It meets a minimum of twice a year and has met twice in the period under review. Attendance at meetings held is set out in the table on page 45.

The Committee’s responsibilities include:

reviewing the structure, size and composition (including the skills, knowledge and experience) required of the Board and making recommendations regarding any changes in order to ensure that the composition of the Board and its Committees is appropriate to the Group’s needs;
overseeing succession planning for the Board and senior management;
establishing processes for the identification of suitable candidates for appointment to the Board;
making recommendations to the Board on membership of Board Committees.

The Committee is empowered to use the services of independent consultants to facilitate the search for suitable candidates for appointment as non-executive Directors.

During the period under review, Sir Brian Stewart was appointed to the Board as Chairman designate. He was elected as Chairman at the Company’s Annual General Meeting on 5 August 2010. As set out in the Group’s 2010 Annual Report, when the Group’s former Chairman, Tony O’Brien, indicated his desire to retire, the Committee commenced a search for a new Chairman and a sub-committee was formed to lead this process. An external recruitment consultant was engaged to identify and approach suitable candidates. A shortlist of external candidates was met by the sub-committee and assessed on agreed criteria. After these deliberations, the sub-committee recommended the appointment of Sir Brian Stewart as chairman designate, due to his extensive knowledge of the European drinks industry; and his experience in leading and chairing FTSE 100 companies.

The Nomination Committee unanimously endorsed this recommendation to the Board. The Nomination Committee and the Board considered his former chairmanship of Scottish & Newcastle plc, the former employer of the three executive Directors, but did not believe that this compromised his independence and fully supported his nomination.

The Nomination Committee recognises the need for ongoing Board refreshment and renewal. The Committee is currently reviewing the composition of the Board.

Remuneration Committee
The Remuneration Committee comprises solely of independent, non-executive Directors. It meets at least twice a year and has met three times in the period under review. Attendance at meetings held is set out in the table on page 45.

The Committee’s responsibilities include:

making recommendations to the Board on the Group’s policy for executive remuneration;
determining the remuneration of the executive Directors and senior management;
monitoring the level and structure of remuneration for senior management and trends across the Group;
reviewing the design of all share incentive plans;
approving any grant of options or awards under the Executive Share Option Scheme, the Long Term Incentive Plan, the Joint Share Ownership Plan and other share plans;
overseeing the preparation of the Report of the Remuneration Committee on Directors’ Remuneration.

The Committee receives advice from leading independent consultancy firms on compensation and benefits when necessary. Such consultants have no other connection with the Group. The Chairman and Chief Executive are fully consulted about all remuneration proposals other than in respect of each of themselves.

In the period under review, the Committee determined the remuneration package for a senior appointee and approved the redundancy terms of two members of senior management. It reviewed the remuneration of management across the Group and approved the award of share options and other share awards to executive Directors and management. In addition it reviewed the operation of share-based rewards and the harmonisation of benefits across the Group.

COMMUNICATIONS WITH SHAREHOLDERS
The Group attaches considerable importance to shareholder communications and has an established investor relations programme.

There is regular dialogue with institutional investors with presentations given to investors at the time of the release of Group first half and full year financial results and when other significant announcements are made. Interim Management Statements were issued in May 2010 and January 2011. The Group also hosted a seminar and site visit for analysts and institutional investors in Glasgow in November 2010. The Board is briefed regularly on the views and concerns of institutional shareholders.

The Group’s website, www.candcgroupplc.com, provides the full text of the Annual Report and financial statements, the interim report and other releases. News releases are also made available immediately after release to the Stock Exchange. Presentations given to investors and at conferences are also available on the website.

General Meetings
The Company operates under the Irish Companies Acts 1963 to 2009. These Acts provide for two types of shareholder meetings: the annual general meeting (‘AGM’) with all other meetings being called extraordinary general meetings (‘EGM’).

The Company must hold a general meeting in each year as its AGM in addition to any other general meetings held in that year. Not more than 15 months may elapse between the date of one AGM and the next. An AGM was held on 5 August 2010, and this year’s AGM will be held on 29 June 2011. The Directors may at any time call an EGM. EGMs may also be convened on the requisition of members holding not less than five per cent of the voting share capital of the Company. An EGM was held on 17 June 2010 to seek shareholder approval for the disposal of the Spirits & Liqueurs business as required under Irish Stock Exchange regulations.

The notice period for an AGM and an EGM to consider any special resolution (a resolution which requires a 75% majority vote, not a simple majority) is 21 days. The Company may call any other general meeting on 14 days’ notice subject to obtaining shareholder authority to do so. The Directors consider that it is in the interests of the Company to retain this flexibility, and intend to seek annually such authority. As a matter of policy, the 14 day notice period will only be utilised where the Directors believe that it is merited by the business of the meeting and the circumstances surrounding the business.

In accordance with Combined Code recommendations, the annual report (if required) and the notice of annual general meeting are sent to shareholders at least 20 working days before the AGM.

No business shall be transacted at any general meeting unless a quorum is present at the time when the meeting proceeds to business. Three members present in person or by proxy and entitled to vote shall be a quorum.

Only those shareholders registered on the Company’s register of members at the prescribed record date, being a date not more than 48 hours before the general meeting to which it relates, are entitled to attend and vote at a general meeting.

The Acts require that resolutions of the general meeting be passed by the majority of votes cast (ordinary resolution) unless the Acts or the Company’s Articles of Association provide for 75% majority of votes cast (special resolution). The Company’s Articles of Association provide that the Chairman has a casting vote in the event of a tie.

Any shareholder who is entitled to attend, speak and vote at a general meeting is entitled to appoint a proxy to attend, speak and vote on his behalf. A proxy need not be a member of the Company.

At meetings, unless a poll is demanded, all resolutions are determined on a show of hands, with every shareholder who is present in person or by proxy having one vote. On a poll every shareholder who is present in person or by proxy shall have one vote for each share of which he/she is the holder. A shareholder need not cast all votes in the same way. At the meeting, after each resolution has been dealt with, details are given of the level of proxy votes lodged for and against that resolution and also the level of votes withheld on that resolution.

The Company’s AGM gives shareholders the opportunity to question the Directors. The Company must answer any question a member asks relating to the business being dealt with at the meeting unless: answering the question would interfere unduly with the preparation for the general meeting or the confidentiality and business interests of the Company; the answer has already been given on a website in the form of an answer to a question; or it appears to the Chairman of the meeting that it is undesirable in the interests of good order of the meeting that the question be answered.

The business of the Company is managed by the Directors who may exercise all the powers of the Company unless they are required to be exercised by the Company in general meeting. Matters reserved to shareholders in general meeting include the election of directors; the payment of dividends; the appointment of the external auditor; amendments to the articles of association; measures to increase or reduce the share capital; and the authority to issue shares.

MEMORANDUM AND ARTICLES OF ASSOCIATION
The Company’s Memorandum of Association sets out the objects and powers of the Company. The Articles of Association detail the rights attaching to each share class; the method by which the Company’s shares can be purchased or reissued; the provisions which apply to the holding of and voting at general meetings; and the rules relating to the Directors, including their appointment, retirement, re-election, duties and powers. Further details in relation to the purchase of the Company’s own shares are included in the Directors’ Report.

In 2010, shareholders approved a resolution to update the Articles of Association and make them consistent with the Shareholder Rights (Directive 2007/36/EC) Regulations 2009.

CORPORATE RESPONSIBILITY
As part of its overall remit of ensuring that effective risk management policies and systems are in place, the Board examines the significance of environmental, social and governance (ESG) matters to the Group’s business and it has ensured that the Group has in place effective systems for managing and mitigating ESG risks. It also examines the impact that such risks may have on the Group’s short and long-term value, as well as the opportunities that ESG issues present to enhance value. The Board receives the necessary information to make this assessment in regular reports from the executive management.

Corporate responsibility is embedded throughout the Group. Group policies and activities are summarised on pages 26 to 31, and are available on the Group’s website www.candcgroupplc.com.

INTERNAL CONTROL
The Board has overall responsibility for the Group’s system of internal control, for reviewing its effectiveness and for confirming that there is a process for identifying, evaluating and managing the significant risks affecting the achievement of the Group’s strategic objectives. The process which has been in place for the entire period accords with the Turnbull Guidance (revised guidance published in October 2005) and involves the Board considering the following:

the nature and extent of the key risks facing the Group;
the likelihood of these risks occurring;
the impact on the Group should these risks occur;
the actions being taken to manage these risks to the desired level.

The key elements of the internal control system in operation are as follows:

clearly defined organisation structures and lines of authority;
corporate policies for financial reporting, treasury and financial risk management, information technology and security, project appraisal and corporate governance;
annual budgets for all operating units, identifying key risks and opportunities;
monitoring of performance against budgets on a weekly basis and reporting thereon to the Directors on a periodic basis;
an internal audit function which reviews key business processes and controls; and
an audit committee which approves plans and deals with significant control issues raised by internal or external audit.

This system of internal control can only provide reasonable, and not absolute, assurance against material misstatement or loss.

The terms of reference of the Audit Committee require it to conduct an annual assessment of internal control. The risks facing the Group are reviewed regularly by the Audit Committee with the executive management. Specific annual reviews of the risks and fundamental controls of each business unit are undertaken an ongoing basis, the results and recommendations of which are reported to and analysed by the Audit Committee with a programme for action agreed by the business units.

Accordingly through the process outlined above, the Board confirms that it has conducted a review of the internal control systems in operation.

During the period under review the internal audit function was brought inhouse with the appointment of a new internal auditor and supporting staff.

During the period under review the Board also appointed a General Counsel to the Group, who reports to the Board and attends Board meetings and to whom all Directors have access. The General Counsel has responsibility for the Group’s legal affairs, compliance and governance.

GOING CONCERN
The principal risks and uncertainties facing the Group are set out in this report on page 35. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are set out are set out in the Finance Review on pages 21 to 25. A description of the business of the Group is set out in the Chief Executive’s Review and the Operations Review on pages 6 to 20.

The Group has significant revenues, a large number of customers and suppliers across different geographies, and considerable financial resources. For these reasons, the Directors have a reasonable expectation that the Company, and the Group as a whole, have adequate resources to continue in operational existence for the foreseeable future. Consequently they continue to adopt the going concern basis in preparing the financial statements.

ATTENDANCE AT MEETINGS
Attendance at scheduled board meetings and board committee meetings during the period was as follows:

             Scheduled
           Board Meetings
           Audit Committee
           Meetings
           Nomination
            Committee Meetings
          Remuneration
           Committee Meetings
  A B A B A B A B
                 
Sir Brian Stewart* 7 6     1 1 2 1
John Burgess 7 6     2 2    
John Dunsmore 6 6            
Liam FitzGerald 7 6 6 6     3 2
Stephen Glancey 6 6            
John Hogan 7 7 6 6        
Richard Holroyd 7 7 6 6     3 3
Philip Lynch 7 7     2 2 3 3
Kenny Neison 6 6            
Breege O’Donoghue 7 7     2 2    
Tony O’Brien** 3 3     1 1    

The ‘A’ columns represent the number of meetings held which each individual Director was entitled to attend, while the ‘B’ columns represent the number of meetings attended by each Director.

In addition, Directors attended a further five ad hoc Board meetings.

* Sir Brian Stewart was appointed to the Board and as a member of the Remuneration Committee in March 2010. He was elected as Chairman on 5 August 2010. He stepped down from the Remuneration Committee on his appointment as Chairman.
** Tony O’Brien retired from the Board and as Chairman on 5 August, 2010.

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