Organisational ethics and responsible citizenship
The ethical tone of the Group is set by the Board and flows through to management, who are tasked to lead by example.
The code of ethics adopted by the Board is underpinned by supporting policies, including the code of conduct and conflicts of interest and share dealing policies. The social and ethics committee plays an amplified role in implementing anti-corruption and anti-fraud initiatives, as set out in its report.
The codes of ethics and conduct record the Company’s culture, how business must be conducted and how people should be treated. The conflicts of interest policy explains real and perceived conflicts of interest, and details the process for disclosure. Directors are required to disclose personal financial interests in terms of section 75 of the Companies Act. General disclosures of directors’ interests are made to the Company Secretary at least annually and are updated during the year. These disclosures are available to all Board members for inspection.
Dealing in the Company’s securities by directors, their associates and senior Company officials is regulated and monitored in accordance with the JSE Listings Requirements and the Company’s share dealing policy. Hospitality maintains a closed period from the end of a financial period to the day of publication of its financial results and any time the Company’s shares are trading under cautionary.
The Group prohibits all directors and employees from disclosing confidential information or from using confidential information, not generally known or available to the public, for personal gain. The Group’s success depends on employing the most suitable people and establishing a working environment free from discrimination, harassment, intimidation or coercion based on race, religion, gender, age, nationality or disability. Training on the Group’s governance policies and processes forms part of the Company’s induction programme for employees and non-executive directors.
Whistle-blowing procedures are in place and are outlined in the social and ethics committee review.
The Board believes that the Group meets the definition of a ‘responsible corporate citizen’ due to the implementation of its corporate governance policies and the governance framework that oversees and monitors such implementation.
Board of Directors
Hospitality’s unitary Board met on five occasions during the year under review. Board membership and analyses of its composition can be found here. The roles of the Chairman and the CEO are clearly defined to ensure a balance of power.
The Chairman is responsible for providing overall leadership to the Board and ensuring the Board performs effectively. The CEO is responsible for implementing strategy, as approved by the Board. The delegation of authority framework contributes to role clarity and the effective exercise of authority and responsibility. No one director has unfettered powers of decision-making. While the Chairman is a non-independent non-executive director, the Board appointed a strong lead independent non-executive director to ensure the necessary independence is upheld in the functioning of the Board. The lead independent non-executive director leads in the Chairman’s absence, assists with the management of any actual or perceived conflicts of interest that may arise and leads the Chairman’s performance appraisal. A clear division of responsibilities at Board level ensures a balance of power and authority.
Board members’ terms of employment are included in the remuneration implementation report.
The Board’s main functions, as set out in its approved charter, include:
- Exercising control of the Group and providing leadership
- Adopting strategic plans, delegating and monitoring their implementation by management
- Considering risks and opportunities in line with the Company’s agreed risk parameters and approving major issues, including the Company’s investment policies, acquisitions, disposals and reporting as well as monitoring operational performance
- Monitoring the Company’s performance
- Acting in the Company’s best interest while remaining accountable to shareholders and stakeholders
Hospitality’s Board charter is regularly reviewed.
The directors’ varied backgrounds and experience, as set out in their CVs, which can be found on Hospitality’s website on http://www.hpf.co.za, provide an appropriate mix of knowledge and expertise necessary to manage the business effectively.
Although Hospitality adopted a Board diversification policy that includes gender, age, ethnicity and cultural diversity, no voluntary targets were set. Board diversity is assessed and monitored annually. The Board considers diversity as a core measurement in appointing new members. The nomination committee considers and applies the Company’s approved policy in appointing and nominating directors.
Race and gender diversity at Board level improved due to the reconstitution of the Board, effective 1 June 2019. The Board is satisfied that its current composition, the components of which are set out in the graphs here, reflects an appropriate mix of knowledge, skills, experience, diversity and independence.
Appointments and succession
Board appointments are conducted in a formal and transparent manner. Directors are assessed by the nomination committee and suitable candidates are recommended to the Board for appointment. One-third of the directors retire annually at the AGM. In addition, any director appointed by the Board since the last AGM or any director who reached the age of 70, retires annually. If they are eligible, these directors may offer themselves for re-election and if appropriate, will be recommended by the Board to shareholders for re-election.
For the purpose of executive succession planning, Hospitality seeks to appoint from within the Company and has access to the available resources, skills and expertise of the larger Tsogo Sun Hotels Group.
The following changes in Board composition occurred during the reporting period:
- John Copelyn stepped down as Chairman and non-executive director on 31 May 2019.
- Marcel von Aulock, the CEO of Tsogo Sun Hotels, took on the role of Chairman on 1 June 2019.
- Rob Nicolella stepped down as CEO on 31 May 2019, but remains on the Board as a non-executive director.
- Mara de Lima, who had been the FD of Hospitality for the past two years, was appointed as CEO on 1 June 2019.
- Riaan Erasmus was appointed as FD to replace Mrs de Lima. Prior to his appointment, Mr Erasmus was the acting FD of Hospitality and the Tsogo Sun Hotels Group Treasurer managing the debt portfolio for Tsogo Sun Hotels, Tsogo Sun Gaming and Hospitality.
- Mohamed Ahmed, an existing Board member, assumed the role of lead independent non-executive director and Chairman of the audit and risk committee on 1 June 2019.
- Sydney Halliday, Mac Gani and Gerald Nelson resigned as independent non-executive directors on 31 May 2019.
- Zibusiso Kganyago resigned as a non-executive director on 31 May 2019.
- Moretlo Molefi, Jabu Ngcobo and Chris Gina were appointed as independent non-executive directors on 1 June 2019.
- Connie September was appointed as an independent non-executive director on 15 August 2019.
Accountability and compliance
The Board is held accountable by its stakeholders for its performance. The performance of the Board and its committees is regularly evaluated. Management is held accountable for its activities through quarterly performance reporting and budget updates. The CEO and FD are awarded annual STIs based on the pre-agreed financial performance of the Company and personal performance of the directors. For further information, please refer to the remuneration policy and remuneration implementation report. The Board is confident that it fulfilled its responsibilities in accordance with its charter and the Company’s memorandum of incorporation (‘MOI’) for the reporting period and that the Group established an effective framework and processes for compliance with laws, codes, rules and standards. No material contraventions were reported during the year under review.
The Company Secretary is responsible for the statutory administration of the Group and ensures compliance and provides the Board with guidance on all regulations and governance codes and policies.
The Company Secretary is not a director of the Company and ensures Board and committee processes and procedures are implemented.
Directors have unrestricted access to the advice and services of the Company Secretary. The Board is satisfied that an arm’s-length relationship exists between the Board of Directors, the executive team, individual directors and the Company Secretary.
The Company Secretary of the Group is Rosa van Onselen (Diploma (Law), Certificate (Advanced Corporate Law and Securities) and CIS (Management and Admin), who is the appointed representative of HPF Properties Proprietary Limited.
The Board constituted the following committees, to which it delegated certain Group responsibilities, as defined in their respective approved terms of reference, which are reviewed by the Board annually. The Board retains accountability for the execution of their responsibilities, even when these are delegated. All committee chairmen report back orally to the Board on the proceedings of their committee meetings.
Over and above the regular responsibilities of the Board and its committees, during the next financial year, as the full impact of Covid-19 takes effect, consideration will be given to the Group’s governance framework and the adequacy of existing policies and processes.
Board and committee meeting attendance
|1 April 2019 to 31 March 2020||Board||Audit
|Number of meetings held||5||3||2||1||1|
|MR de Lima1||5/5||3/3||2/2||1/1||1/1|
|MN von Aulock||5/5||1/1||1/1|
|1||Appointed as CEO on 1 June 2019.|
|2||Appointed as FD on 1 June 2019.|
|3||Appointed 1 June 2019.|
|4||Appointed 15 August 2019.|
|5||Non-executive. Resigned 31 May 2019.|
|6||Independent non-executive. Resigned 31 May 2019.|
|^||Attends by invitation as CFO of Tsogo Sun Hotels, effective 10 May 2019|
|*||Attended by invitation as CEO. Stepped down as CEO on 31 May 2019.|
|MH Ahmed (Chairman)^|
|MN von Aulock*|
- Included a malus and clawback provision on short and long-term incentives in the remuneration policy, for material misstatements of financial statements or errors in calculations leading to the overpayment of incentives for executive directors
- To review the remuneration (including short and long-term incentives) of employees in the context of the furlough implemented to address the impact of Covid-19 and to respond appropriately
The remuneration committee is chaired by an independent non-executive director. The committee oversees the setting and implementation of the remuneration policy for the Group and ensures the policy and remuneration implementation report are tabled every year to shareholders at the Company’s AGM for separate non-binding advisory votes.
The committee recommends the remuneration and incentivisation of the Company’s directors to the Board, evaluates the performance of the executive directors and sets their annual key performance indicators.
The committee meets at least once a year. Ad hoc meetings are held to consider special business, as required. The CEO and FD attend meetings of the remuneration committee, or part thereof, by invitation if required to contribute pertinent insights and information.
The remuneration policy and remuneration implementation report can be found here.
The Board is satisfied that the committee has fulfilled its responsibilities in accordance with its terms of reference for the reporting period under review.
Audit and risk committee
|MH Ahmed (Chairman)^|
- Oversaw the adoption of new IFRS accounting standards
- Considered Hospitality’s financial reporting taking into consideration the JSE’s:
- 2019 report on the proactive monitoring of financial statements
- the thematic review for compliance with IFRS 9 and IFRS 15
- the activities of the Financial Reporting Investigation Panel in 2019
- Monitor the implementation of new IFRS and the impact of future standards
- Continue monitoring the control and risk environments in light of the challenging operating environment focusing on the fraud and cybercrime environments
- Monitor insurance renewal terms and claims
- Review the JSE’s 2020 report on pro-active monitoring of financial statements and implement as appropriate
The audit and risk committee report can be found here in the consolidated annual financial statements for the year ended 31 March 2020.
The audit and risk committee comprised three independent non-executive directors at year end and is primarily responsible for:
- Carrying out its statutory duties as set out in section 90 of the Companies Act
- Providing independent oversight of the effectiveness of the Company’s assurance functions and services
- Reviewing prospective accounting standard changes
- Reviewing prospective legal, legislative and regulatory developments
- Reviewing insurance, treasury and taxation matters
- Ensuring an effective risk management policy and process is in place to identify and monitor the management of key risks and opportunities in relation to the Group’s risk tolerance and risk appetite levels and evaluation of appropriateness of management’s responses to the risk
- Ensuring appropriate financial reporting procedures are established and are operating
- Ensuring the Group’s financial performance is properly reported on and monitored, including reviewing the annual and interim accounts, results announcements, integrated annual reporting process, internal control systems and accounting policies and procedures
- Following an evaluation and assessment of the external auditor and the designated audit partner, making recommendations to shareholders regarding the appointment or reappointment of the independent external auditor, as well as the suitability for such appointment and independence of the external auditor and audit partner
- Approving the external audit plan and fee
- Appointing the internal auditor, approving the internal audit plan and audit fees and assessing the performance of the internal auditor for the necessary skills and resources to address the complexity and volume of risks faced by the Company
- Satisfying itself of the expertise and experience of the FD and the Company’s finance function as set out here in the consolidated annual financial statements for the year ended 31 March 2020
- Considering the effectiveness of the internal financial controls
- Reviewing IT governance
- Ensuring effective governance
The Board concluded that, during the period under review, the audit and risk committee members had the necessary financial literacy, skills and experience to execute their duties effectively and make worthwhile contributions to the audit and risk committee’s deliberations. The Board recommends the members of the reconstituted audit and risk committee for appointment at the AGM to be held on 20 October 2020.
The audit and risk committee considered and satisfied itself that the FD, Riaan Erasmus, has the appropriate expertise and experience to fulfil his role.
The audit and risk committee also:
- Confirmed that Hospitality has established financial reporting procedures and that those procedures are operating adequately
- Monitored compliance with the Group’s risk management policy and confirmed that Hospitality complied with the policy in all material respects
Non-audit services approved throughout the year mainly relate to the issue of statutory certificates in terms of Hospitality’s loan agreements.
The audit and risk committee met three times during the period under review. Ad hoc meetings are held to consider special business, as required. The CEO, FD, external auditor and internal auditor as well as Tsogo Sun Hotels’ FD and Director of Risk, attend all meetings of the audit and risk committee by invitation to contribute pertinent insights and information.
Social and ethics committee
|MR de Lima#|
- Ensured stakeholder engagement is appropriate for the size and nature of the organisation
- Monitor employee health and safety, with the view to ongoing improvements in response to Covid-19
- Monitor employee wellness and engagement levels and respond appropriately
The social and ethics committee operated in line with approved terms of reference. The social and ethics committee oversees and reports on the following areas:
- The Group’s organisational ethics in line with the Group’s adopted code of conduct and ethics policies
- Responsible corporate citizenship, including:
- The promotion of equality
- The prevention of unfair discrimination
- The environment
- Health and public safety, including the impact of the Company’s activities and of its products or services
- Sustainable development
- Stakeholder relationships
The social and ethics committee draws the attention of the Board to matters within its mandate as required and reports to shareholders at the Company’s AGM.
The social and ethics committee meets at least twice a year. Ad hoc meetings are held to consider special business, as required. The report of the social and ethics committee can be found here.
The Board is satisfied that the committee fulfilled its responsibilities in accordance with its terms of reference for the reporting period.
|MN von Aulock (Chairman)*|
- Supported the Board in its review and enhancements of its composition during the period, as well as reviewing the Board’s composition to ensure appropriate diversity of skills, experience, gender, race and tenure to support the business and its strategic ambitions
- To conduct an internal evaluation of the Board and its committees
The nomination committee ensures the Board has the appropriate composition and balance of skills for it to execute its duties effectively. It ensures the appointment of directors is transparent and made on merit through a formal process, which includes identifying and evaluating potential candidates for appointment to the Board. The nomination committee considers and applies the Company’s approved policy of gender, age, ethnicity and cultural diversity in nominating and appointing directors.
The nomination committee is responsible for induction and ongoing training and development of directors and succession planning. The nomination committee meets at least once a year. Ad hoc meetings are held to consider special business, as required. The CEO attends meetings of the nomination committee, or part thereof, by invitation if required to contribute pertinent insights and information.
Risk and opportunity
The Company treats risk identification and management as integral to how it makes decisions and executes its duties. The Group’s risk governance encompasses both the opportunities and associated risks in developing strategy and the potential positive and negative effects of such risks on the achievement of its organisational objectives. The Board exercises ongoing oversight of risk management and the Group’s risk governance function is delegated to the audit and risk committee. The responsibility for implementing and executing effective risk management is delegated to management.
The Group’s risk management process identifies and analyses Group risks, sets appropriate limits and controls and monitors risks and adherence to limits. The risk management policy is in accordance with industry practice and specifically prohibits the Company from entering into any derivative transactions that are not in the ordinary course of Hospitality’s business.
The directors have overall responsibility for the Group’s internal controls and for reviewing its effectiveness. The controls identify and manage Group risks rather than completely eliminating failure. Therefore, internal controls provide reasonable, but not absolute, assurance against material misstatement or loss. The implementation and operation of these systems is the responsibility of management and processes are regularly communicated to employees informing them of their responsibilities.
Systems include strategic planning, appropriate levels of authority, segregation of duties, appointing qualified staff, regular reporting and monitoring of performance and effective control over Hospitality’s investments.
Risks and opportunities are reviewed by the internal risk committee at least annually and presented to the audit and risk committee for review. This allows for risks to be identified and opportunities to be prioritised according to their potential impact on the Group.
Responses are designed and implemented to counter the effects of risks and to take advantage of opportunities. Significant risks identified are communicated to the Board, together with recommended actions.
The Group’s internal audit function is performed by a professional firm that reports directly to the FD and the Chairman of the audit and risk committee. Internal audit forms part of the combined assurance framework. The internal auditor carries out control-based audits, based on the annual internal audit plan as required by the external auditor and as approved by the audit and risk committee. The focus of internal audit in the past financial year was on human resources, payroll and internal financial controls.
The audit and risk committee examines and discusses the appropriateness of internal controls with the internal auditor. The audit and risk committee is satisfied with the internal audit function and that internal audit has the necessary skills and resources to address the complexity and volume of risks faced by the organisation. The committee will continuously evaluate and review the Group’s internal audit function, which is appropriate for the size and activities of the Group at this stage.
Hospitality’s material risks and opportunities are set out here
The Board is accountable for IT governance. Being part of the Tsogo Sun Hotels Group, a decision was taken by the Board to leverage the IT support and governance from the Tsogo Sun Hotels Group’s central IT department. The IT governance charter takes into account the requirements of King IV, globally accepted standards and good practice, together with the performance and sustainability objectives of the Group.
During the year, the central IT department’s focus areas within Hospitality were:
- Integrating Hospitality onto Tsogo Sun Hotels’ networks and improving support and efficiencies
- Evaluating emerging trends and potentially disruptive technologies
- Maintain operating systems, databases and applications
Although the IT function was outsourced to a central IT department, the CEO is responsible for the ownership and execution of IT governance.
The key IT risks are integrated into the enterprise-wide risk governance and management process. Independent IT assurance reviews are conducted annually to ensure governance and policies are adhered to, laws are complied with and data is secure and protected. No major incidents occurred during the year which required remedial action and the Board is satisfied with the effectiveness of IT governance.
Governance of the hotel portfolio
The selection of an appropriate tenant, a hotel management company and a hotel brand best suited to a specific property, is crucial to providing a particular product equipped to achieve optimum performance.
In this regard, Hospitality only contracts with reputable and reliable partners. New lease agreements and any variation to such existing agreements are proposed to the Board for consideration and approval. The nature of the agreements entered into between the parties includes the calculation of fixed and variable rentals based on the actual performance of the properties and align the interests of the parties. Specific performance clauses are included based on actual performance to budget. A detailed budget process is followed with each hotel annually.
The hotel management companies are representatives of the tenants and take on the full operational responsibilities of the hotels. They operate within defined limits of authority and report monthly and quarterly to management on operations, performance, marketing and strategy.
These reports are analysed by Hospitality’s management and properties are individually compared against STR nodal performance benchmarks. Hospitality has representation on the boards of Ash Brook Investments Proprietary Limited, the tenant of Radisson Blu Gautrain and Vexicure Proprietary Limited, the tenant of The Westin Cape Town. Hospitality is also represented on the body corporates of Kopanong Hotel and Conference Centre, Protea Hotel Victoria Junction and Radisson Blu Waterfront, the Arabella Home Owners Association and Champagne Share Block Limited.