CHARGEURS ON CORPORATE GOVERNANCE AND INTERNAL CONTROL AND RISK MANAGEMENT PROCEDURES
This report has been prepared by the Chairman for presentation to the Annual General Meeting of Chargeurs shareholders of May 4, 2016, as required by article L. 225-37 of the French Commercial Code (Code de commerce).
The preparation process included making inquiries of the departments involved in overseeing internal control and risk management processes.
The report was submitted to the Audit Committee and the Compensation Committee for review on March 9, 2016 and was approved by the Board of Directors on the same date.
The Board of Directors has decided to use the Corporate Governance Code for Small- and Mid-caps published by Middlenext in December 2009 as Chargeurs' reference for corporate governance practices and procedures and particularly for the preparation of this report. This Code may be downloaded from the Middlenext website (in French only).
Chargeurs has been gradually implementing the recommendations contained in the Middlenext Code and intends to continue this process.
[NB: during the Board meeting held on March 14, 2016, post mixed general meeting, it was decided to put in place a set of internal regulations designed to identify clearly the internal procedures, the rights and obligations of the Directors, non-voting Directors and Committee members.]
In addition to this report and as recommended by France's securities regulator (AMF) in its "comply or explain" recommendation 2013-20 issued on November 18, 2013, the Chargeurs annual report contains a summary table setting out
the recommendations in the Middlenext Code that are not relevant to the Company or that the Company has elected not to apply, with explanations provided in each case.
The members of the Board of Directors have been informed of the "Points de vigilance" ("Points to be watched") section of the Code, which describes the main issues to be addressed in order to ensure that the Company's governance system operates smoothly. The Directors recognize that the purpose of this section of the Code is to encourage the Board to consider these issues, without necessarily being required to prepare explicit, detailed responses.
Chargeurs' practices and procedures in the areas of risk management and internal control are based on the general principles defined by the AMF in its July 22, 2010 document entitled "Cadre de Référence sur les dispositifs de gestion des risques et de contrôle interne: Guide de mise en œuvre pour les valeurs moyennes et petites", which provides a risk management and internal control framework and guidelines for small- and mid-cap companies.
2015 was a pivotal year in the Company's history.
On October 30, 2015, Chargeurs acquired a new reference shareholder with the purchase by Columbus Holding SAS from the concert group comprising Jérôme Seydoux and the companies he controls (Pathé and OJEJ), and Eduardo Malone and the company he controls (SOFI EMY), all of their respective interests in Chargeurs, representing 6,334,805 shares and 27.76% of the capital.
Jérôme Seydoux, Eduardo Malone and Martine Odillard stepped down after spending 35 years, 41 years and 36 years respectively at the helm of the Company.
Following the resignation of Jérôme Seydoux, Eduardo Malone and Martine Odillard, the Board of Directors appointed the following new members:
Columbus Holding SAS, represented by Nicolas Urbain, to replace Jérôme Seydoux;
Michaël Fribourg to replace Eduardo Malone;
Emmanuel Coquoin to replace Martine Odillard.
[NB: In accordance with the law and the Company's bylaws, these appointments have been proposed at the General Meeting held on March 14, 2016 and they were ratified with a large majority.]
At its meeting on October 30, 2015, the Board of Directors decided to change the Company's governance structure, as allowed for in article 14.2 of the bylaws, by combining the positions of Chairman of the Board and Chief Executive Officer.
Reflecting his executive role, the Chairman of the Board has been given the title of Chairman and Chief Executive Officer.
Following the decision to change the Company's governance structure, on October 30, 2015 the Board of Directors appointed Michaël Fribourg as:
Chairman of the Board of Directors, for his term as a member of the Board; and
Chief Executive Officer, for a period of five years.
As Chairman and Chief Executive Officer, Michaël Fribourg
organizes and leads the work of the Board and reports thereon to the shareholders at General Meetings; oversees the effectiveness of the Company's governance structures and monitors compliance with generally accepted governance principles and best practices; and (ii) assumes responsibility for implementing the strategy decided by the Board of Directors and for the day-to-day management of the Company.
Restrictions on the Chairman and Chief Executive Officer's powersIn accordance with the Company's bylaws, the Chairman and Chief Executive Officer (or the Chief Executive Officer when the two positions are held by different people) has the broadest powers to act in all circumstances in the Company's name, within the limits of the corporate purpose and except for those powers that the law attributes to the shareholders in General Meeting and to the Board of Directors. He represents the Company in its dealings with third parties.
Internal restrictions on the Chairman and Chief Executive Officer's powers concern the requirement to obtain the Board of Directors' prior approval before issuing any guarantees that are binding on the Company, except in cases where the Board of Directors has expressly delegated its authority within the limits defined in articles L. 225-35 and R. 225-28 of the French Commercial Code.
BOARD OF DIRECTORS MembershipThe membership of the Board of Directors is presented in the "Corporate governance" section of the Annual Report.
The Board had five directors, including the Chairman and Chief Executive Officer.
Following a case-by-case review of the Directors' situation based on the independence criteria set out in the Middlenext Code and adopted by Chargeurs, two members of the Board
- CHAIRMAN'S REPORT
Corporate Governance
in its new configuration qualify as independent, Catherine Sabouret and Georges Ralli (whose term of office as a Director comes to an end after the Annual General Meeting on May 4, 2016).
Changes to the Board of Directors as proposed to the Shareholders Meeting of May 4, 2016We draw to your attention, in the context of changes to the Board of Directors, the following appointments as proposed to the Shareholders Meeting of May 4, 2016 :
the appointment of Isabelle Guichot, independent director, will be put forward and will thus bring to two the number of women on the Board of Directors. Isabelle Guichot has a significant track record in the luxury fashion industry through her experience as Head of many leading International brands. In this way, Chargeurs will comply in advance with the provisions regarding corporate governance required by law 2011-103 of January 27, 2011 in relation to the gender balance on Board of Directors;
after the appointment of Colombus Holding SAS as a Director, taken over from Jerôme Seydoux, is due to end after the Shareholders Meeting of May 4, 2016 and its reappointment is put to the vote of such Shareholders Meeting;
the appointment of Georges Ralli, as non-voting director (censeur) will also be put to the vote of Shareholders Meeting. Georges Ralli, who has years of experience as a managing executive and international banker, is considered a a renowned authority of international group management. As a non-voting director (censeur), Mr Ralli will attend Board meetings and take part in deliberations, by way of consultation.
Board members have diverse professional and personal backgrounds and significant international experience.
In accordance with AMF recommendation 2013-20 issued on November 18, 2013, the annual report includes a summary table describing changes in the Board of Directors' membership during 2015, as well as the situation of each Director in relation to the independence criteria contained in the Middlenext Code.
The Board does not have any members representing either employee shareholders or employees in general, as the Company's headcount is below the thresholds specified in articles L. 225-23 and L. 225-27-1 of the French Commercial Code that trigger the requirement for employee representation.
Organization of the work of the Board of DirectorsThe Board of Directors decides the Company' business strategy and oversees its implementation.
The Board of Directors meets at least four times a year: twice to examine the interim and annual financial statements, once to review Group strategy as reflected in the budget and business plan and once after the Annual General Meeting to implement the decisions voted by shareholders. At each meeting, the Directors also discuss the Group's business performance, major projects and the matters submitted to the Board for a decision.
CHAIRMAN'S REPORT -
Corporate Governance
In 2015, the Board met six times, twice more than in a normal year. The main reason for the additional meetings was to make various decisions related to last October's change of governance.
The role of the Board and its main operating procedures are described in the Company's bylaws.
Following the change of governance structure, the Board of Directors in its new configuration reviewed some of its procedures and identified a need to bring them up to date. This led to the decision to present a resolution at the General Meeting called on March 14, 2016, concerning Board decisions and the Board's adoption of a set of internal rules.
The Directors receive in a timely manner the information required for them to make an informed contribution to the Board's discussions. They may also ask the Chairman and Chief Executive Officer to give them any additional information they may consider useful for performing their duties.
Prior to the change of governance structure, the Chief Executive Officer regularly provided the Board with competitor analyses and updates on market trends. This information is now provided by the Chairman and Chief Executive Officer with input from the Managing Directors of the business segments.
At the Board meeting held to review accounting projections and the budget, the Managing Directors of the business segments present their operations and the outlook for each unit concerned.
The total fees awarded to the members of the Board of Directors in 2015 amounted to €45,000. These fees were allocated among the former and new members based on their attendance at Board meetings, except for the new Chairman and Chief Executive Officer and the former Chief Executive Officer who did not receive any fees in their capacity as Directors of Chargeurs SA.
The six Board meetings held in 2015 lasted for an average of three hours and the average attendance rate was 93%.
The Board of Directors did not carry out a formal self- assessment of its work and procedures in 2015. However, the Directors discussed these issues at various times during the year, therefore complying with the overall objectives of the Middlenext Code's recommendations. Following the change of reference shareholder on October 30, 2015, when the new Chairman and Chief Executive Officer took up his position he also reviewed the Board's work and procedures.
COMPENSATION COMMITTEEAt its meeting on December 16, 2015, the Board of Directors decided to set up a Compensation Committee. The members of the Committee are Georges Ralli (independent Director and Committee Chairman) and Nicolas Urbain (permanent representative of Columbus Holdings SAS on the Chargeurs SA Board).
The Compensation Committee is tasked with assisting the Board of Directors and recommending senior management compensation packages that enable the Company to retain,
motivate and hire the best talent, while ensuring that executive pay is aligned with shareholders' interests and the Company's performance. The Compensation Committee applies the seven criteria listed in the second recommendation (R2) of the Middlenext Code: Completeness, Balance, Benchmark, Consistency, Clarity, Measurement and Transparency.
The Committee's membership and the experience of its members are consistent with the size and needs of the Board of Directors.
The Compensation Committee met for the first time on December 16, 2015 in connection with the 2016 budget exercise. During the meeting, it formulated recommendations concerning (i) the criteria to be applied by the Board for the determination of senior management compensation, and
the attendance fees to be awarded to the Directors and the members of the Committees of the Board for 2016.
compliance with laws and regulations;
implementation of the instructions and guidelines set by senior management or the Board of Directors;
efficient operation of the Company's internal processes, particularly those contributing to the protection of its assets;
reliability of financial reporting.
More generally, it contributes to the control of the Company's businesses, the effectiveness of its operations and the efficient use of its resources.
By helping to anticipate and control risks that could prevent the Company from meeting its objectives, internal control plays a key role in managing and overseeing its various business operations. It cannot, however, provide an absolute guarantee that all risks have been eliminated.
SCOPE OF INTERNAL CONTROLThe Group is organized around a lean holding company and four business segments:
Chargeurs Protective Films;
Chargeurs Fashion Technologies (the new name of Chargeurs Interlining);
Chargeurs Technical Substrates;
Chargeurs Wool.
Chargeurs Technical Substrates was previously part of Chargeurs Fashion Technologies. It became the Group's fourth operating segment in 2015.
COMPONENTS OF INTERNAL CONTROL An Efficient OrganizationChargeurs is organized around decentralized operating structures and efficient information systems that provide the corporate teams with (i) high-quality financial information;
(ii) detailed understanding of how the businesses work and how they generate earnings and cash; and (iii) the ability to swiftly identify risks.
The Group is engaged in several very different businesses and has operations around the world. To take into account this diversity, organizational measures have been put into place to manage the risks that could have a material adverse effect on earnings, assets and commitments.
The cornerstones of the system are:
empowerment and accountability: the Chairmen and Managing Directors of the subsidiaries have full responsibility for managing their units;
short lines of communication;
regular reporting on strategic issues;
Group insurance programs covering all insurable risks;
an Insurance Manager for each business segment and at corporate level;
Corporate Social Responsibility (CSR) teams at both corporate level and in each business segment.
At its meeting on December 3, 2009, the Board decided to set up an Audit Committee in application of article L. 823-19 of the French Commercial Code.
During most of 2015, the Audit Committee comprised two Directors-Catherine Sabouret (Committee Chairman) and Georges Ralli. On December 16, 2015, the Board of Directors decided to appoint a third member, Emmanuel Coquoin.
The Board considers that this membership structure is appropriate in view of the skills and experience of each of the Committee's members.
When determining the roles and responsibilities of the Audit Committee, and for the execution of these responsibilities, the Company referred to the report of the AMF Working Group on Audit Committees, which was issued in 2010 and can be viewed on the AMF's website at http://www.amf-france.org.
The Audit Committee meets at least twice a year, before the Board meetings held to approve the publication of the annual and interim financial statements. It is tasked with assisting the Board in its role of approving the annual and interim financial statements of the parent company and the Group and preparing information to be disclosed to shareholders and the markets. It monitors the procedures used for Chargeurs' financial reporting process and ensures that the Group's internal control and risk management systems are effective. The Audit Committee also oversees the Statutory Auditors' audit of the financial statements of the parent company and the Group and verifies the Auditors' independence.
The Audit Committee Chairman reports to the Board on the Committee's work on a regular basis.
The Audit Committee met twice in 2015.
During these meetings it examined the process for preparing the annual financial statements for 2014 and the interim financial statements for first-half 2015, the Statutory Auditors' engagements and fee proposal, and the Company's corporate social responsibility (CSR) guidelines and action plans.
- CHAIRMAN'S REPORT
Internal Control and Risk Management Procedures
Internal control is a system that a company defines and implements under its own responsibility to provide reasonable assurance concerning:
All Group companies produce monthly management reporting packages using the same information system and the same accounting standards (IFRS).
The Chargeurs' information system is based on the monthly income statements and key balance sheet indicators reported by each of our consolidated companies (57 companies at December 31, 2015).
Each subsidiary's Managing Director and Finance Director produce written comments on their monthly results, presented in a standard format.
These results, together with the updated annual forecasts reflecting the impact of any significant new developments, are reviewed during monthly meetings between the Chairman and Chief Executive Officer and the Managing Directors of the business segments.
The Executive Committee pinpoints mission-critical issues and designates the most appropriate manager for each one, regardless of his/her position relative to other managers. A specific reporting system is in place so that the Chairman and Chief Executive Officer is informed directly, at regular intervals, of the status of these managers' work. The quality of their status reports is one of the areas covered during their annual performance review.
The issues dealt with generally concern events that could have a material adverse effect on our financial results and our Group's various risk exposures.
An outside consulting firm, specialized in economic forecasting, is used to help evaluate macro-economic risks specific to each of our host countries. The consultants periodically present their findings to the Executive Committee and model certain specific risks when requested by one of our business segments.
Chargeurs SA issued this content on 13 April 2016 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 13 April 2016 08:40:24 UTC
Original Document: http://www.chargeurs.fr/sites/default/files/chargeurs_-_chairmans_report__auditors_report_2015_-_va.pdf
