Strategic Review
42 Finsbury Food Group Annual Report & Accounts 2018
Directors’ Remuneration Report (unaudited)
Corporate Governance
Financial Statements
Statement from the Chairman of the Remuneration Committee Dear Shareholder
I am delighted to present the Directors’ Remuneration Report as Chair of the Remuneration Committee of Finsbury Food Group for the year ended 30 June 2018.
I became the Chair of the Remuneration Committee with effect from 1 January 2018 and I would like to thank Ray Duignan for all his support during the transition and the work undertaken earlier in the year with the Committee in assessing and changing the reward structure for the Executive, which I explain further below.
Remuneration Policy The Committee presented its first Policy to shareholders at the 2015 AGM and it demonstrated a maturing in our business and approach to setting pay and incentivising and rewarding our Executive Directors in a structured way reflecting our business strategy. At that time our policy was to focus on reward delivered through variable pay and in particular to remunerate predominantly through our Long-Term Incentive Plan (“LTIP”) reflecting our growth aspirations. Fixed pay was set at a level which meant that the overall package was competitive and appropriate. Very stretching EPS targets were introduced, together with a relative TSR measure to ensure there was quality earnings growth which was reflected in our share price as compared to the market. The LTIP award was set at 200% of base salary. The Committee recognised that this was at the higher end of practice but considered this to be appropriate in light of base pay levels and the stretch in the EPS targets.
Since that time our Executive Directors have continued to deliver exceptional performance and under their leadership the Group has been transformed over recent years via a combination of organic growth and acquisition. More recently however, there have been greater challenges facing the business to deliver stretch EPS performance with a number of head winds which our Executives have handled superbly. In this context, the Committee recognises that our philosophy of “super reward” for “superstretch performance” was not appropriate in the current climate. It also recognised that the fixed pay levels did not reflect the increased complexity of the Group and the extended role and scope of responsibilities of our very experienced CEO and Group Finance Director. Most importantly was the need to retain the senior management team, and in particular the Executive Directors, by providing remuneration and performance targets which are appropriate for the current landscape.
The Committee therefore undertook a detailed exercise earlier in the year to rebalance fixed and variable pay in a way which slightly increased the expected value of the remuneration package, whilst reducing the overall maximum total compensation. This led to a reduction in the LTIP opportunity from 200% to 100%, the bonus opportunity being maintained at 100% and an increase in fixed pay of 20% for our CEO John Duffy and 16% for our GFD Steve Boyd.
We undertook extensive discussions with a majority of our shareholders following the changes and I am pleased to say that we received good support for these changes and a recognition of the rationale behind them.
Our updated Policy is provided on our website at
www.finsburyfoods.co.uk/investor-relations/corporate-governance, pre-faced with a summary of the limited changes which have been made to our original 2015 Policy.
The Annual Report on Remuneration which is on pages 42 to 47 provides details of the amounts earned in respect of the year ended 30 June 2018 and how the Remuneration Policy will be operated for the year commencing 1 July 2019.
Similar to last year and as a matter of best practice, the Annual Report on Remuneration has been prepared taking into account the remuneration reporting regulations applicable to fully listed companies in the UK.
Review of the 2017-2018 Financial Year As described earlier in the Annual Report, the Company has delivered a resilient trading performance in the face of unprecedented cost inflation of commodity inputs. The strong investment and efficiency focus have enabled the Company to cope with cost pressures and the volatile retail environment.
The 2017-2018 annual bonus was subject to an EBITDA performance metric. The Company achieved EBITDA in line with our forecast for the year. However, recognising the exceptional costs incurred in relation to the Grain D’Or closure and the absence of bonuses elsewhere in the Group, the Executive Directors have asked to waive their bonus entitlement and the Committee has agreed. This is a further demonstration of the prudent and reflective approach which both the Committee and the Executive Directors consistently take on matters of remuneration.
Awards made under the LTIP in December 2015 vested in respect of performance over the three financial years ending on 30 June 2018. These vested 88.63% in respect of the EPS element and 100% in respect of the relative TSR element, delivering an overall vesting of 94.32% of the maximum award. Our definition of Earnings Per Share is adjusted diluted EPS and for this year, adjustments included the exclusion of exceptional costs relating to the closure of our loss making sites. The Committee considered that this underlying EPS measure was a fairer reflection of the real improvement in earnings of the business over the last three years, in spite of significant increases in commodity prices. Our senior managers also participate in the LTIP and it was important to reward them for their long-term hard work and commitment to the business. These vested shares are subject to a further two year holding period. Full details of the vested awards are provided on page 45.
Awards under the LTIP were made during the year. As explained above these were made at a reduced level of 100% of salary compared to the historic levels of 200% of salary to reflect the resetting of performance targets and the rebalancing of fixed and variable pay. The awards will vest based on relative TSR performance and absolute EPS targets over the three year period to 2020. These awards are subject to a two year post vesting holding period.
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