Corporate Governance Report

New Clicks Holdings is committed to effective corporate governance to ensure that the interests of the company and its stakeholders are paramount. Consequently, the group subscribes to the principles of transparency, accountability and business integrity in all its dealings with stakeholders.

The group endorses and supports the Code of Corporate Practices and Conduct contained in the King Committee Report on Corporate Governance (King ll). Following the publication of this report in March 2002, a comprehensive implementation plan was developed and the directors believe that the group is now substantially compliant with King ll.

While adherence to the King ll recommendations can be viewed as a regulatory requirement, the group recognises its responsibility and the benefits that can flow from good corporate citizenship. Accordingly the group measures not only its financial performance, but also its non-financial performance, aiming to achieve a balance of integrated economic, social and environmental performance (the so-called triple bottom line). More details are contained in the Corporate Citizenship report on page 44.

As the group continually strives to improve corporate governance standards, areas requiring further enhancement will be addressed in the 2004 financial year. This process is monitored by the recently constituted board sub-committee on corporate governance.

In line with the recommendations of King ll, the board is reviewing its charter which outlines the duties, responsibilities and accountability of the board members collectively, as well as the roles of individual directors.

Board of directors
The board of directors of New Clicks Holdings retains overall accountability for the company, its strategy and the annual business plan. It is also ultimately responsible for legislative and regulatory compliance, risk management, performance measurement, transparency and communication with stakeholders.

Authority has been delegated to the group leader, other executive directors and senior management for the day-to-day management of the company and the directors are kept appraised of progress through regular reporting at board meetings.

Key features of the board, its composition and further steps being taken to comply with the guidelines of King ll, are as follows:

• The board is a unitary body comprising three executive directors and four non-executive directors. Three of the non-executive directors, including the chairman and deputy chairman, are deemed to be independent in terms of the King ll definition. The fourth non-executive director, Allen Zimbler, provides professional services to the group on a contractual basis on behalf of Investec Bank.
   
• The composition of the board is currently being reviewed to align the group more closely with the guidelines of King ll. The appointment of further independent non-executive directors will also provide additional resources for board sub-committees and enhance diversity at board level.
   
• The roles of the non-executive chairman, David Nurek, and the chief executive, Trevor Honneysett, are separate, with a clear distinction of responsibilities.
   
• The board has no controlling shareholder or group of shareholders, and there is no specific minority shareholder representation on the board.
   
• The non-executive directors have extensive business experience across a diverse range of sectors, enabling them to provide relevant and independent advice and judgement in the decision-making process.
   
• Newly-appointed directors participate in a formal induction programme which outlines their fiduciary duties and provides them with an in-depth understanding of the company and its operations.
   
• Directors do not have a fixed term of appointment, and one-third of the directors are required to retire by rotation each year and are eligible for re-election by shareholders at the annual general meeting. Executive directors retire from the board at 65 years of age, while there is no prescribed retirement age for non-executive directors.
   
• An annual self-assessment review process has been developed for the board, individual directors and board sub-committees, and will be implemented during the forthcoming year.
   
• All directors have access to the advice and services of the company secretary and are entitled to seek independent professional advice at the company’s expense. They also have unrestricted access to all company information, records, documents and property.
   
• The board meets at least four times a year, and additional meetings can be convened at short notice to consider specific business.

Biographical information on all directors appears on page 9.

Board committees
The board of directors has delegated specific responsibilities to sub-committees which are all chaired by independent non-executive directors. Audit and remuneration committees have been functioning for several years, and during the year a governance committee was established. The board has also approved the appointment of a nominations committee and a risk management committee which will be constituted during the coming year. All board sub-committees have specific terms of reference.

Audit committee
The board entrusts the audit committee to ensure that management has created and maintained an effective control environment in the group.

The committee consists of three independent non-executive directors and met twice during the year. Executive management, internal audit and the external audit partners and staff attend meetings at the invitation of the committee. The internal audit manager has unrestricted access to the chairman of the audit committee.

The role of the audit committee is to

– Review and approve the appropriateness of accounting and disclosure policies in the annual financial statements;

– Assess the effectiveness of internal controls;

– Review action taken on major accounting issues; and

– Ensure that management imposes no limitation on the scope of the audits.

Remuneration committee
Composed entirely of independent non-executive directors, the committee determines the broad remuneration philosophy for the group, as well as determining the remuneration of executive directors and senior management. It also proposes fees for non-executive directors, which are then tabled for approval at the annual general meeting.

The committee also assesses and reviews remuneration policies, employee share incentive schemes, performance bonuses and service contracts.

The chief executive attends meetings at the invitation of the committee but is not entitled to vote on any issues and does not participate in discussions regarding his own remuneration.

Governance committee
The increasing focus on corporate governance, transparency and accountability was the motivation for the creation of a dedicated governance committee during the year.

The committee’s role is to ensure compliance in both substance and form with the recommendations of the King Report and to monitor governance practices throughout the group.

The committee comprises the chairman of the board, the chief executive officer, the head of finance (South Africa) and the company secretary.

Risk management committee
While the board has approved the formation of a risk management committee, this body will only be formally constituted during this year.

The mandate of the committee will be to ensure material compliance with the principles of risk management as outlined in King ll.

The committee will consist of two non-executive directors and key members of operational management.

Nominations committee
The board has also constituted a nominations committee with effect from the current year which consists of the chairman and two non-executive directors.

The committee is mandated by the board to identify suitable candidates for directorships, and make recommendations to the board. It will also advise on the composition of the board, and the balance between executive and non-executive directors. It will advise the board on succession planning, particularly in relation to the chief executive and senior executive management.

Board attendance
The attendance of the directors at board meetings and sub-committee meetings for the year is detailed in the table below.

Board remuneration
Remuneration policy
New Clicks strives to employ high calibre individuals who subscribe to the company’s values and are committed to delivering sustainable long-term performance. The ability to attract, retain and motivate staff in the competitive retail environment is an ongoing challenge, where remuneration plays a key role.

Executive directors and senior management are rewarded with an annual package, variable performance-related bonus and ownership through participation in the share incentive scheme.

The board believes that in line with international norms, an increasing portion of executive directors’ and senior management’s remuneration should be linked to variable pay as opposed to guaranteed salary.

The fixed portion of the package should allow the group to remain competitive in the marketplace and reflect the individual’s responsibility and performance. The incentive-based, variable remuneration should allow for substantial wealth creation but at all times align the interests of executive directors and senior management with those of shareholders.

The individual salary, incentive and benefits of the executive directors and senior management are reviewed annually to ensure that they are appropriately rewarded for their contribution to the group.

Directors’ shareholdings
The direct and indirect holdings and transactions of the directors of New Clicks Holdings for the year ended 31 August 2003 are set out in the table below. All transactions were conducted at the ruling market price on the JSE Securities Exchange South Africa.

Board attendance
The attendance of the directors at board and sub-committee meetings for the year were as follows:

Directors’ remuneration
The following payments were made to directors for the year ended 31 August 2003 (R’000):

Accountability and audit
Risk management
The board is responsible for setting risk policies, risk tolerance and risk management processes in the group.

Business continuity plans for the head office and distribution centres have been documented and are regularly reviewed. The disaster recovery plan will ensure that the business continues with the least amount of disruption, both operationally and from an information technology perspective, with procedures in place to resume computer operations at off-site third party premises. Testing of the business continuity plans and disaster recovery plans is an ongoing process.

Details of foreign exchange, credit and interest risk are contained in note 27 on page 79 of the financial statements.

Internal audit
Internal audit is an independent, objective appraisal and assurance function and forms a core element of the group’s corporate governance structures.

The internal audit function reports to the audit committee and has the support of the board and management. Operationally, the internal audit manager reports to the head of finance, South Africa, who in turn reports to the chief executive. The procedure for the appointment and dismissal of the internal audit manager is in line with other executive positions, and would need to be sanctioned by the audit committee.

Internal audit includes the review of the effectiveness of the systems of internal control, the means of safeguarding assets, the reliability and integrity of financial and operating information, the efficient management of the group’s resources and the efficient conduct of its operations.

Internal control
The board is responsible for the group’s systems of internal control which are designed to provide reasonable – but not absolute – assurance against inaccurate internal financial information and other irregularities. The audit committee has reviewed the effectiveness of the systems of internal control and the board has been satisfied that management has established a system of controls and procedures of a high standard to ensure the accuracy and integrity of the accounting records and to effectively monitor the group’s businesses and their performance.

No incidents have come to the attention of the board that would indicate any material breakdown in these internal controls during the year.

Financial statements
The directors accept ultimate responsibility for the preparation of the financial statements and related financial information that fairly represent the state of affairs and the results of the group.

The financial statements have been prepared by management in accordance with South African Statements of Generally Accepted Accounting Practice. They incorporate full and reasonable disclosure and are based on appropriate accounting policies that are supported by reasonable and prudent judgements and estimates. The views of investors have been taken into account in determining the content and presentation of the annual report.

The external auditors are responsible for independently auditing and reporting on these financial statements in conformance with Statements of South African Auditing Standards.

Going concern
The directors are satisfied that the group has adequate resources to continue operating for the next 12 months and into the foreseeable future. The financial statements presented on pages 52 to 88 have accordingly been prepared on a going concern basis.

Personal share dealings
Directors and staff are restricted from trading in the shares of New Clicks Holdings during two formalised closed periods. These closed periods run from the end of the interim and annual reporting periods until the financial results are announced on the Securities Exchange News Service (SENS).

Embargoes may also be placed on share dealings should the group be involved in corporate activity which results in the directors and executives having access to price-sensitive information. The company secretary advises all directors and employees prior to the start of the closed periods of the prohibitions contained in the Insider Trading Act.

All directors are required to obtain written clearance from the chairman or deputy chairman prior to dealing in the company’s shares. It is also mandatory to notify the company secretary of any dealings in the company’s shares and this information is then disclosed to the Listings Division of the JSE Securities Exchange within 48 hours of the trade being made. These dealings are also disclosed at the quarterly board meetings.

Ethics and values
All employees are required to maintain the highest ethical standards of business practice. The group has adopted a set of values and behavioural principles (outlined on page 3) which require staff to display honesty, integrity, mutual respect, openness and affords them the right and obligation to challenge others who are not adhering to these values. These values are shared with all new staff as part of the formal induction programme, and staff give an undertaking to abide by the values. When staff act outside of the spirit of these values, the matter is investigated and dealt with by an appropriate executive who is empowered to recommend disciplinary action depending on the transgression.