Corporate Governance

Hotel Chocolat

 

Hotel Chocolat Group plc
Corporate Governance Statement
Approved by the Board on 28th September 2018


Hotel Chocolat Group plc (the "Company") is committed to maintaining the highest standards of corporate governance throughout its operations and to ensuring that all of its practices are conducted transparently, ethically and efficiently.  The Company believes that scrutinising all aspects of its business and reflecting, analysing and improving its procedures will result in the continued success of the Company and improve shareholder value. Therefore, the Company has chosen to formalise its governance policies by complying with the UK's Quoted Companies Alliance Corporate Governance (the "QCA Code").

Accordingly, the Company has established specific committees and implemented certain policies, to ensure that:


    • it is led by an effective board which is collectively responsible for the long-term success of the Company;
    • the Board and the committees have the appropriate balance of skills, experience, independence, and knowledge of the Company to enable them to discharge their respective duties and responsibilities effectively;
    • the Board establish a formal and transparent arrangement for considering how it applies the corporate reporting, risk management, and internal control principles and for maintaining an appropriate relationship with the Company's auditors; and
    • there is a dialogue with shareholders based on the mutual understanding of objectives.

In addition, the Company has adopted policies in relation to:


    • anti-corruption and bribery;
    • whistleblowing;
    • health and safety;
    • environment and community;
    • IT, communications and systems; and
    • social media,

so that all aspects of the Company are run in a robust and responsible way.

The Board of Directors

The Board of directors is responsible for the proper management of the Company by formulating, reviewing and approving the Company's strategy, budgets, and corporate actions. In order to achieve its objectives, the Board adopts the ten principles of the QCA Code. Through successfully implementing these principles, the Company is able to deliver long-term growth for shareholders and maintain a flexible, efficient and effective management framework within an entrepreneurial environment.

It is important that the Board itself contains the right mix of skills and experience in order to deliver the strategy of the Company. As such, the Board is comprised of:


    • a chairman, whose primary responsibility is the delivery of the Company's corporate governance model. The chairman has a clear separation from the day-to-day business of the Company which allows him to make independent decisions;
    • 4 executive directors;
    • 2 independent, non-executive directors.

The Board has not appointed a senior independent director after taking into account the Company's size and stage.

Additionally, the Company has appointed a professional company secretarial consultant in the UK who assists the chairman and the company secretary in preparing for and running effective board meetings, including the timely dissemination of appropriate information. The company secretarial consultant provides advice and guidance to the extent required by the Board on the legal and regulatory environment.

Each director serves on the Board subject to annual re-election at the annual general meeting and the Board generally meets at least eleven times a year.

 Corporate Governance

In compliance with UK best practice, the Board has established the following committees to help the Board discharge its responsibilities.

 Audit Committee

The purpose of the Audit Committee is to monitor the integrity of the financial statements of the Company and to assist the board in its oversight of risk and risk management processes.
Some of the Audit Committee's duties include:


    • reviewing the Company's accounting policies and reports produced by internal and external audit functions;
    • considering whether the Company has followed appropriate accounting standards and made appropriate estimates and judgments, taking into account the views of the external auditor;
    • reporting its views to the board of directors if it is not satisfied with any aspect of the proposed financial reporting by the Company;
    • reviewing the adequacy and effectiveness of the Company’s internal financial controls and internal control and risk management systems;
    • reviewing the adequacy and effectiveness of the Company's anti-money laundering systems and controls for the prevention of bribery and receive reports on non-compliance; and
    • overseeing the appointment of and the relationship with the external auditor.

The Audit Committee has 3 members, 2 of which are independent, non-executive directors and at least one member has recent and relevant financial experience. The current members of the committee are Sophie Tomkins as Chair and Andrew Gerrie and Greg Hodder.

Remuneration Committee

The purpose of the Remuneration Committee is to determine and agree with the board the framework or broad policy for the remuneration of the Company’s executive directors and senior management.

Some of the Remuneration Committee's duties include:

    • reviewing the pay and employment conditions across the Company, including the board of directors;
    • approving targets and performance related pay schemes operated by the Company and all share incentive plans and pension arrangements;

The Remuneration Committee has two members, each of whom is an independent, non-executive director. The current members of the committee are Greg Hodder as Chair and Sophie Tomkins.

Nominations Committee

It is the view of the Board that a separate Nominations Committee is not required at present. In the event that the needs of the business change, a Nominations Committee will be formed. It has been agreed that the main Board will undertake the activities of Board appointments, re-election and succession, with a view to ensuring that the Board is composed of individuals with the necessary skills and to promote a culture that fosters diversity. As part of the annual Board evaluation and strategic review processes, the Board considered matters relating to Board composition and succession planning during the period.

Share Dealing Code

The Company has adopted a share dealing code to ensure directors and certain employees do not abuse, and do not place themselves under suspicion of abusing inside information of which they are in possession and to comply with its obligations under the Market Abuse Regulation ("MAR") which applies to the Company by virtue of its shares being traded on AIM. Furthermore, the Company's share dealing code is compliant with the AIM Rules for Companies published by the London Stock Exchange (as amended from time to time).
Under the share dealing code, the Company must:

    • disclose all inside information to the public as soon as possible by way of market announcement unless certain circumstances exist in which the disclosure of the inside information may be delayed;
    • keep a list of each person who is in possession of inside information relating to the Company;
    • procure that all persons discharging managerial responsibilities and certain employees are given clearance by the Company before they are allowed to trade in Company securities; and
    • procure that all persons discharging managerial responsibilities and persons closely associated to them notify both the Company and the Financial Conduct Authority of all trades in Company securities that they make.

Date on which this information was last reviewed: September 2018

The below sets out how the Group complies with or departs from each of the ten principles of the QCA Code. Formal references to the latest annual report will be added to this once the report is published on 17th October 2018.

The Group expects to update this document and report on compliance with the QCA Code annually, as part of the Annual Report publication cycle.


Compliance with the QCA Corporate Governance Code principles

 

Principle 1. Establish a strategy and business model which promotes long-term value for shareholders.

Our business model

We believe that growth and re-investment can benefit all of Hotel Chocolat’s stakeholders. Everything we do is guided by the three basic values that we started with and will always retain:
Originality, Authenticity, Ethics

We grow. We own a cocoa plantation in Saint Lucia called the Rabot Estate. This is the source of some of the exclusive beans used in our Rare & Vintage range and of our deep understanding of the cocoa growing process. This knowledge enables us to continuously improve our relationship with all of our cocoa growers worldwide and further our Engaged Ethics programme.

We source. We seek out the best partners to supply premium ingredients to ensure that our products set us apart from the competition.

We design. All our products are developed and designed in-house and are exclusive to the brand. With the goal of being the true sector specialist, we have created a broad product range. We strive for continual innovation in a disciplined range framework.

We make. In 2008 we established a dedicated production facility near Cambridge where we now make over 95% of our products. In-house production increases control over quality, allows faster innovation, protects intellectual property and improves gross margins.

We sell. We reach our customers through an invested multi-channel model. Our focus is on great service to ensure 100% happiness.

We distribute. Our main Distribution Centre is near Cambridge. The majority of our products are packaged here and then distributed to stores using our own fleet of vehicles. Owning the supply chain improves responsiveness and enables high levels of product availability.

We deliver. Customer happiness, Employee engagement, Supply sustainability, Shareholder value

We re-invest. Our Engaged Ethics programme drives investment in sustainability both in the UK and worldwide.


Principle 2: Seek to understand and meet shareholder needs and expectations.

The Group maintains communication with institutional shareholders through individual meetings with Executive Directors, particularly following publication of the Group’s interim and full period results. Private shareholders are encouraged to attend the Annual General Meeting at which the Group’s activities are considered and questions answered. General information about the Group is also available on the Group’s website (www.hotelchocolat.com). The Non-executive Directors are available to discuss any matter stakeholders might wish to raise, and the Chairman and independent Non-executive Directors will attend meetings with investors and analysts as required. Investor relations activity and a review of the share register are standing items on the Board’s agenda. In the period the feedback from shareholders did not give rise to any material change in business strategy.


Principle 3: Take into account wider stakeholder and social responsibilities and their implications for long term success.

The Group maintains communication with a wide range of stakeholders to ensure that their needs, interests and expectations are understood and reflected within the Group’s strategy. Customer feedback is collected from stores, online reviews and via social media. We work with cocoa growers and other agricultural producers, and with organisations that promote their interests to understand their needs. We meet with existing and potential suppliers and visit trade fairs. We also meet with charities, other activist groups, academics & specialists to keep abreast of developments in fields such as sustainability, recycling and nutrition.

The board also actively encourages employees to share their views through a number of mechanisms.

The Group strives to ensure that the business’ activities positively benefit all stakeholders including customers, growers, suppliers, employees, shareholders and local communities.

Examples include:

Our Engaged Ethics program:

The experience gained by revitalising the cocoa sector around our cocoa estate in Saint Lucia has shown us that there are a number of ways to assist in ensuring cocoa growing is sustainable:

1) Engage directly with farmers and pay a premium for cocoa grown to sustainable standards of stewardship. 100% of the cocoa purchased by Hotel Chocolat is sourced in accordance with our Engaged Ethics standards.
2)  Help farmers improve yields by providing knowledge, tools and materials to improve productivity. Hotel Chocolat has partnered with a local NGO, Green Tropic Group, for over 15 years to support higher productivity in Ghana. In 2018 our investments delivered 3 new model farms and new seedling nurseries increasing the number of farmers that can benefit from materials, training and development of better practices.
3) Support local communities. Hotel Chocolat and the Tasting Club members have funded the construction of a health centre in Osuben, Ghana, which received certification in 2017 and is now providing care such as emergency medicine, midwifery services and preventative healthcare.
4) Continuous Improvement. Whilst we are proud that 100% of our cocoa is sourced to our Engaged Ethics standard we believe there will always be ways to further improve. We are working with University of Ghana to better understand where we should prioritise our next investments to support the sustainability of cocoa growing communities and independently assess the impact.

Customers

The business is committed to a philosophy of “more cocoa, less sugar”, designed to ensure that the product offers a differentiated cocoa-rich taste with lower sugar content than many premium chocolate products. Over 95% of all products already meet Public Health England’s 2018 target for sugar per gram. In order to ensure that all products achieve the more stringent target for 2020 a project is underway to ensure accurate portion size guidance is included on all products.

Customer confidence in pricing is also important. We never go ‘on sale’ before the end of a season, so the customers know they are paying a fair price for their purchase.

Employees

We strongly believe that our team are key ingredient in the business, and are undertaking a business-wide review to improve communication, encourage everyone to share their views, and feel empowered to make decisions for the good of the business. The business regularly measures employee engagement in every team with a focus on ensuring that all team members are listened to and any concerns are addressed. We are committed to actively promoting diversity in our workforce, by encouraging the greatest possible breadth of experience we can best meet the diverse needs of our customers. The Board are committed to ensuring that employees can have a voice in the boardroom with a standing agenda item to discuss this at every meeting. Sophie Tomkins, one of the Non-executive Directors has been given a special remit to ensure employee views and concerns are fully represented. Employees have the opportunity to meet in person with the Board to discuss key issues or alternatively topics can be presented on their behalf. The Group operates an all employee annual performance bonus and a sharesave scheme which launched in August 2016. Career progression is supported and targets are set to ensure as high a proportion of vacancies as possible are filled via internal promotions. The School of Chocolate diploma is available to all employees and provides a detailed understanding of all aspects of cocoa growing and chocolate making.

Environment

The majority of our packaging is currently recycled or recyclable, and we have made a commitment that by 2021, 100% of our packaging will be recyclable. We have recently implemented an initiative within the supply chain to make smarter use of packaging that we anticipate will reduce our transit packaging cardboard usage by 75% in FY19. 100% of our electricity is obtained from renewable sources. Energy efficiency is a high priority in every capital investment decision that we make, including in-store lighting, distribution vehicles and our factory operation.


Principle 4: Embed effective risk management, considering both opportunities and threats, throughout the organisation.

The Board is responsible for reviewing risks to ensure that the business is not exposed to unnecessary or poorly-managed risks. Whilst review of the risk register is a scheduled item on the annual calendar of Board agenda items, the Board’s consideration of risk matters is not limited to those occasions. Risks and opportunities are factors which are continually considered when the Board is making decisions about the business and strategy. The Audit Committee assists the Board in this process by reviewing the risk register as well as the effectiveness of internal controls, including financial controls.

Risk Register


      1) Increased competition and changes in consumer tastes.

Potential impact: Changes to competition and/or consumer preferences may reduce demand for the Group’s products. Increased competition could make it more difficult or more costly to acquire new store leases.
Mitigation:

  • The business adheres to core values of originality, authenticity and ethics which result in a strong brand.
  • The Board strives for continuous improvement to products and services to increase sales and customer happiness.

Change to residual risk in FY 2018 - No change


      2) Economic and Political factors beyond the Groups direct control

Potential impact: A downturn in the macro-economy may reduce consumer demand generally. Costs may be increased by changes to government policy, including tax changes or other legislation.

Mitigation:


  • The Board seeks to ensure the brand retains its position as affordable luxury in order to appeal to a broad range of consumers and at price points that are appropriate.
  • Ongoing focus on cost efficiency assists in mitigating individual cost increases.

Change to residual risk in FY 2018 – Increased.

Brexit has increased macro-economic uncertainty, however trading in FY18 and since period-end has remained in line with the Board’s expectations.


      3) Foreign Exchange

Potential impact: The Group purchases many of its ingredients and capital items in currencies other than sterling. A fall in the value of sterling would increase the cost of imports. Revenues from the hotel in Saint Lucia are denominated in US dollars.

Mitigation:


  • The Group forecasts its requirement for foreign exchange purchases and hedges these purchases 18 months ahead.

Change to residual risk in FY 2018 – Increased.

Whilst sterling has fallen, the Group extends its currency hedges on a quarterly basis and is currently hedged for the whole of FY19.


      4) Key management

Potential impact: Loss of key personnel could impact the Group’s ability to implement strategy and the intended pace of growth.
Mitigation:


  • Business plans and initiatives are documented and prepared with cross-functional input to reduce reliance on single individuals.
  • The Remuneration Committee seeks to ensure rewards are commensurate with performance and aid retention.

Change to residual risk in FY 2018 - No change

The IPO has enabled the business to launch share-based incentives to assist in retaining key personnel.


      5) Disruption to supply or production of goods, or to IT systems

Potential impact: Disruption to supply or production of goods, or to IT systems, could limit availability of products and consequently reduce sales.

Mitigation:


  • The Group maintains a business continuity plan which is updated annually and tested quarterly with the incident management team.

Change to residual risk in FY 2018 - No change

The business undertakes risk assessments on an ongoing basis.


      6) Inconsistent quality or contamination of the Group’s products

Potential impact: Inconsistent quality or contamination of the Group’s products could reduce demand for the Group’s products.

Mitigation:


  • The business applies strict quality controls and seeks independent validation of these controls by the British Retail Consortium (BRC).

Change to residual risk in FY 2018 - No change

Production facilities achieved ‘A grade’ accreditation from the BRC in 2018.


      7) Negative publicity affecting the brand

Potential impact: Negative publicity affecting the brand could reduce consumer demand for the Group’s products.

Mitigation:


  • The business adheres to core values of originality, authenticity and ethics which result in a strong brand.

Change to residual risk in FY 2018 - No change


      8) International expansion

Potential impact: Operating in new territories may give rise to increased complexity and costs.

Mitigation:


  • The business adopts a cautious test, learn, grow approach to each new market.
  • Due diligence undertaken to ensure appropriate local partner.
  • New position of Chief Marketing Officer recruited to increase executive team bandwidth

Change to residual risk in FY 2018 – Increased.

The business adopts a “test, learn, grow” approach to international expansion, combining careful research and planning with small-scale tests before making significant investments.

Internal Controls and Risk Management

The Board has ultimate responsibility for the Group’s system of internal control and for reviewing its effectiveness. However, any such system of internal control can provide only reasonable, but not absolute, assurance against material misstatement or loss. The Board considers that the internal controls in place are appropriate for the size, complexity and risk profile of the Group. The principal elements of the Group’s internal control system include:


  • Close management of the day-to-day activities of the Group by the Executive Directors;
  • An organisational structure with defined levels of responsibility, which promotes entrepreneurial decision making and agile implementation whilst mitigating risks;
  • A comprehensive annual budgeting process, producing a detailed integrated profit and loss, balance sheet and cash flow, which is approved by the Board;
  • Detailed monthly reporting of performance against budget; and
  • Central control over key areas such as capital expenditure authorisation and banking facilities.

The Group continues to review its system of internal control to ensure adherence to best practice, whilst also having regard to its size and the resources available. The Board considers that the introduction of an internal audit function is not appropriate at this juncture. The Board conducts annual reviews of its register of key risks and on a bi-annual basis seeks independent third-party support to review the risk landscape in detail, including a consideration of risks, likelihood, scale of potential impact and the existence of assurance, mitigation or appropriate contingencies.


Principle 5: Maintain the board as a well-functioning, balanced team led by the chair.

The Directors recognise the value and importance of good corporate governance and are fully accountable to the Group’s stakeholders including shareholders, customers, suppliers and employees. In this section of our report we have set out our approach to governance and provided further information on how the Board and its committees operate. We will shortly be publishing our third annual report as an AIM-listed entity. The Board believes that it complies with all of the principles of the QCA Corporate Governance Code for growing Companies (“QCA code”). The corporate governance framework which the Group operates, including Board leadership and effectiveness, Board remuneration, and internal control is based upon practices which the Board believes are proportional to the size, risks, complexity and operations of the business and reflective of the Group’s values.

Board composition: The Board is responsible to the shareholders and sets the Group’s strategy for achieving long-term success. It is also ultimately responsible for the management, governance, controls, risk management, direction and performance of the Group. The Board comprises three Non executive Directors and four Executive Directors. Sophie Tomkins has no connections with the business and is fully independent. To leverage Greg Hodder’s considerable experience of launching and growing businesses in the USA, the Board has recently approved him taking on additional leadership responsibilities relating to the development of the Group’s new business there. The Board is satisfied that this does not compromise his independence of thought or judgement and therefore Greg Hodder continues to be considered by the Board to be fully independent. The Chairman is responsible for leading the Board, setting its agenda and monitoring its effectiveness. There is a clear division of responsibility between the Chairman and the Chief Executive Officer.

How the Board operates: The Board is responsible for the Group’s strategy and for its overall management. The operation of the Board is documented in a formal schedule of matters reserved for its approval, which is reviewed annually. These include matters relating to:


  • The Group’s strategic aims and objectives
  • The structure and capital of the Group
  • Financial reporting, financial controls and dividend policy
  • Setting budgets and forecasts
  • Internal control, risk and the Group’s risk appetite
  • The approval of significant contracts and expenditure
  • Effective communication with shareholders
  • Any changes to Board membership or structure.

Board meetings: Non-executive Directors communicate directly with Executive Directors and senior management between formal Board meetings. The Board met eleven times in the period ending 1st July 2018. In addition the Board held strategy days in July 2017 and July 2018 specifically to review growth opportunities and priorities across the medium to longer term.

Directors are expected to attend all meetings of the Board, and of the Committees on which they sit, and to devote sufficient time to the Group’s affairs to enable them to fulfil their duties as Directors. In the event that Directors are unable to attend a meeting, their comments on papers to be considered at the meeting will be discussed in advance with the Chairman so that their contribution can be included in the wider Board discussion.


Principle 6: Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities.

The Board has undertaken an evaluation of its effectiveness, with input obtained from every Board member on a number of key topics including:


  • The effectiveness of the Board in setting strategy
  • Confirmation that rigorous and wide-ranging debate of issues was taking place
  • That decision making was balanced and objective
  • That the Board was responsive to new events and new information
  • That the Board had the appropriate composition and skill to discharge its duties.

The Board identified specific actions which are being implemented.

The identities of all Directors, as well as the relevant skills and experience each Director brings to the Group are included in the Directors section on website, or on P38-39 of the 2017 Annual Report also located on the Results & Reports section of the website. 


Principle 7: Evaluate all elements of board performance based on clear and relevant objectives, seeking continuous improvement.

The Remuneration Committee reviews the performance of the Executive Directors and makes recommendations to the Board on matters relating to their remuneration and terms of employment.

It has been agreed that the main Board will undertake the activities of Board appointments, re-election and succession, with a view to ensuring that the Board is composed of individuals with the necessary skills and to promote a culture that fosters diversity. As part of the annual Board evaluation and strategic review processes, the Board considered matters relating to Board composition, directors’ independence and succession planning during the 2018 period.

The Board has undertaken an evaluation of its effectiveness, with input obtained from every Board member on a number of key topics including:


  • The effectiveness of the Board in setting strategy
  • Confirmation that rigorous and wide-ranging debate of issues was taking place
  • That decision making was balanced and objective
  • That the Board was responsive to new events and new information
  • That the Board had the appropriate composition and skill to discharge its duties.

Principle 8: Promote a corporate culture that is based on sound ethical values and behaviours.

The Group strives to ensure that the business’ activities positively benefit all stakeholders including customers, growers, suppliers, employees, shareholders and local communities. Examples include:

Our Engaged Ethics program:

The experience gained by revitalising the cocoa sector around our cocoa estate in Saint Lucia has shown us that there are a number of ways to assist in ensuring cocoa growing is sustainable:
1) Engage directly with farmers and pay a premium for cocoa grown to sustainable standards of stewardship. 100% of the cocoa purchased by Hotel Chocolat is sourced in accordance with our Engaged Ethics standards.
2) Help farmers improve yields by providing knowledge, tools and materials to improve productivity. Hotel Chocolat has partnered with a local NGO, Green Tropic Group, for over 15 years to support higher productivity in Ghana. In 2018 our investments delivered 3 new model farms and new seedling nurseries increasing the number of farmers that can benefit from materials, training and development of better practices.
3) Support local communities. Hotel Chocolat and the Tasting Club members have funded the construction of a health centre in Osuben, Ghana, which received certification in 2017 and is now providing care such as emergency medicine, midwifery services and preventative healthcare.
4) Continuous Improvement. Whilst we are proud that 100% of our cocoa is sourced to our Engaged Ethics standard we believe there will always be ways to further improve. We are working with University of Ghana to better understand where we should prioritise our next investments to support the sustainability of cocoa growing communities and independently assess the impact.

Customers

The business is committed to a philosophy of “more cocoa, less sugar”, designed to ensure that the product offers a differentiated cocoa-rich taste with lower sugar content than many premium chocolate products. Over 95% of all products already meet Public Health England’s 2018 target for sugar per gram. In order to ensure that all products achieve the more stringent target for 2020 a project is underway to ensure accurate portion size guidance is included on all products.

Customer confidence in pricing is also important. We never go ‘on sale’ before the end of a season, so the customers know they are paying a fair price for their purchase.

Employees

We strongly believe that our team are key ingredient in the business, and are undertaking a business-wide review to improve communication, encourage everyone to share their views, and feel empowered to make decisions for the good of the business. The business regularly measures employee engagement in every team with a focus on ensuring that all team members are listened to and any concerns are addressed. We are committed to actively promoting diversity in our workforce, by encouraging the greatest possible breadth of experience we can best meet the diverse needs of our customers. The Board are committed to ensuring that employees can have a voice in the boardroom with a standing agenda item to discuss this at every meeting. Sophie Tomkins, one of the Non-executive Directors has been given a special remit to ensure employee views and concerns are fully represented. Employees have the opportunity to meet in person with the Board to discuss key issues or alternatively topics can be presented on their behalf. The Group operates an all employee annual performance bonus and a sharesave scheme which launched in August 2016. Career progression is supported and targets are set to ensure as high a proportion of vacancies as possible are filled via internal promotions. The School of Chocolate diploma is available to all employees and provides a detailed understanding of all aspects of cocoa growing and chocolate making.

Environment

The majority of our packaging is currently recycled or recyclable, and we have made a commitment that by 2021, 100% of our packaging will be recyclable. We have recently implemented an initiative within the supply chain to make smarter use of packaging that we anticipate will reduce our transit packaging cardboard usage by 75% in FY19. 100% of our electricity is obtained from renewable sources. Energy efficiency is a high priority in every capital investment decision that we make, including in-store lighting, distribution vehicles and our factory operation.


Principle 9: Maintain governance structures and processes that are fit for purpose and support good decision making by the board.

The Directors recognise the value and importance of good corporate governance and are fully accountable to the Group’s stakeholders including shareholders, customers, suppliers and employees. In this section of our report we have set out our approach to governance and provided further information on how the Board and its committees operate. We will shortly be publishing our third annual report as an AIM-listed entity. The Board believes that it complies with all of the principles of the QCA Corporate Governance Code for growing Companies (“QCA code”). The corporate governance framework which the Group operates, including Board leadership and effectiveness, Board remuneration, and internal control is based upon practices which the Board believes are proportional to the size, risks, complexity and operations of the business and reflective of the Group’s values.

Board composition: The Board is responsible to the shareholders and sets the Group’s strategy for achieving long-term success. It is also ultimately responsible for the management, governance, controls, risk management, direction and performance of the Group. The Board comprises three Non executive Directors and four Executive Directors. Sophie Tomkins has no connections with the business and is fully independent. To leverage Greg Hodder’s considerable experience of launching and growing businesses in the USA, the Board has recently approved him taking on additional leadership responsibilities relating to the development of the Group’s new business there. The Board is satisfied that this does not compromise his independence of thought or judgement and therefore Greg Hodder continues to be considered by the Board to be fully independent. The Chairman is responsible for leading the Board, setting its agenda and monitoring its effectiveness. There is a clear division of responsibility between the Chairman and the Chief Executive Officer.

How the Board operates: The Board is responsible for the Group’s strategy and for its overall management. The operation of the Board is documented in a formal schedule of matters reserved for its approval, which is reviewed annually. These include matters relating to:


  • The Group’s strategic aims and objectives
  • The structure and capital of the Group
  • Financial reporting, financial controls and dividend policy
  • Setting budgets and forecasts
  • Internal control, risk and the Group’s risk appetite
  • The approval of significant contracts and expenditure
  • Effective communication with shareholders
  • Any changes to Board membership or structure.

Board meetings: Non-executive Directors communicate directly with Executive Directors and senior management between formal Board meetings. The Board met eleven times in the period ending 1st July 2018. In addition the Board held strategy days in July 2017 and July 2018 specifically to review growth opportunities and priorities across the medium to longer term.

Directors are expected to attend all meetings of the Board, and of the Committees on which they sit, and to devote sufficient time to the Group’s affairs to enable them to fulfil their duties as Directors. In the event that Directors are unable to attend a meeting, their comments on papers to be considered at the meeting will be discussed in advance with the Chairman so that their contribution can be included in the wider Board discussion.

Board decisions and activity during the period: The Board has a schedule of regular business, financial and operational matters, and each Board Committee has compiled a schedule of work to ensure that all areas for which the Board has responsibility are addressed and reviewed during the course of the year. The Chairman, aided by the Company Secretary, is responsible for ensuring that, to inform decision-making, Directors receive accurate, sufficient and timely information.

The Company Secretary compiles the Board and Committee papers which are circulated to Directors prior to meetings. The Company Secretary also ensures that any feedback or suggestions for improvement on Board papers is fed back to management. The Company Secretary provides minutes of each meeting and every Director is aware of the right to have any concerns minuted and to seek independent advice at the Group’s expense where appropriate. The Board reviews its AIM obligations with its Nominated Advisor annually, and endeavours to keep up with best practice governance via seminars, conferences and training material.


Board Committees: The Board has delegated specific responsibilities to the Audit and Remuneration Committees, details of which are set out below. Each Committee has written terms of reference setting out its duties, authority and reporting responsibilities. Copies of all the Committee terms of reference are available on the Group’s website. These terms of reference are kept under review to ensure they remain appropriate and reflect any changes in legislation, regulation or best practice. Each Committee comprises Non-executive Directors of the Group. No new independent external advice was sought by the Board or its Committees during the period.


Audit Committee: The Audit Committee is chaired by Sophie Tomkins and its other members are Andrew Gerrie and Greg Hodder. Sophie Tomkins and Greg Hodder are fully independent. The Audit Committee has primary responsibility for monitoring the quality of internal controls and ensuring that the financial performance of the Group is properly measured and reported on. It receives and reviews reports from the Group’s management and auditor relating to the annual accounts and the accounting and internal control systems in use throughout the Group. It also advises the Board on the appointment of the auditor, reviews their fees and discusses the nature, scope and results of the audit with the auditor. The Audit Committee meets at least twice a year and has unrestricted access to the Group’s auditor. The Chief Financial Officer attends the Committee meetings by invitation.


Remuneration Committee: The Remuneration Committee is chaired by Greg Hodder. Its other member is Sophie Tomkins. The Remuneration Committee reviews the performance of the Executive Directors and makes recommendations to the Board on matters relating to their remuneration and terms of employment. The Remuneration Committee also makes recommendations to the Board on proposals for the granting of share options and other equity incentives pursuant to any share option scheme or equity incentive scheme in operation from time to time. The remuneration and terms and conditions of appointment of the Non-executive Directors of the Group are set by the Board. The Chief Executive Officer and Chief Financial Officer are invited to attend for some parts of the Committee meetings where their input is required, although they do not take part in any discussion on their own benefits and remuneration.


Nominations Committee: It is the view of the Board that a separate Nominations Committee is not required at present. In the event that the needs of the business change, a Nominations Committee will be formed. It has been agreed that the main Board will undertake the activities of Board appointments, re-election and succession, with a view to ensuring that the Board is composed of individuals with the necessary skills and to promote a culture that fosters diversity. As part of the annual Board evaluation and strategic review processes, the Board considered matters relating to Board composition and succession planning during the period.


Principle 10: Communicate how the company is governed by maintaining a dialogue with shareholders and other relevant stakeholders.

The Group maintains communication with a wide range of stakeholders to ensure that their needs, interests and expectations are understood and reflected within the Group’s strategy. Customer feedback is collected from stores, online reviews and via social media. We work with cocoa growers and other agricultural producers, and with organisations that promote their interests to understand their needs. We meet with existing and potential suppliers and visit trade fairs. We also meet with charities, other activist groups, academics & specialists to keep abreast of developments in fields such as sustainability, recycling and nutrition.

The Group maintains communication with institutional shareholders through individual meetings with Executive Directors, particularly following publication of the Group’s interim and full period results. Private shareholders are encouraged to attend the Annual General Meeting at which the Group’s activities are considered and questions answered. General information about the Group is also available on the Group’s website (www.hotelchocolat.com). The Non-executive Directors are available to discuss any matter stakeholders might wish to raise, and the Chairman and independent Non-executive Directors will attend meetings with investors and analysts as required. Investor relations activity and a review of the share register are standing items on the Board’s agenda. In the period the feedback from shareholders did not give rise to any material change in business strategy.