Report of the Supervisory Board
In the period under review, the Supervisory Board (‘the Board’) supervised the progression which the Executive Board has made with the implementation of the Horizon 2020 strategy. One of the aspects of this was looking at developments in the agricultural sector. Special attention was given to the performance and development of ForFarmers in the United Kingdom. The Board feels that ForFarmers is setting the right priorities with its mission ‘For the Future of Farming’. The initiatives in this area are focused on efficient, sustainable and profitable business for customers, and these contribute to the long-term value creation for all ForFarmers’ stakeholders.
In 2017, ForFarmers once again showed an improvement in results in the Netherlands, Belgium and Germany. In the United Kingdom, the transformation of and efficiency improvement in the supply chain is being worked on. The progress in implementing the Horizon 2020 strategy in the United Kingdom is not yet entirely on track. The primary focus initially lay on improving the service reliability, which has in the mean time been achieved. This led to some delays in the transformation project in the third quarter. The Board will continue to monitor developments in this area in 2018. In addition to devoting specific attention to the situation in the United Kingdom, over the last year the Board contemplated the acquisition strategy and the further development of the organisation in several meetings.
The main subjects discussed in the period under review with the Executive Board and other members of the Executive Committee are described as follows. To prepare items on the agenda, these were often discussed in advance in one of the committee meetings or in a meeting of the Board without the presence of the Executive Board or Executive Committee.
Horizon 2020 Strategy
The Board was closely involved in the creation of the Horizon 2020 strategy for the long-term value creation and has lent its approval thereto. The Horizon 2020 strategy was introduced in 2014, and in the period under review, the Board held regular talks on the implementation and execution thereof as well as on the associated risks.
In every regular meeting with the Executive Committee, the Board examined the performance of ForFarmers in the various countries of operation. In May, the Board and the Executive Committee devoted an entire day to the strategy. That day was kicked off by an external speaker who spoke about the importance of big data in the agricultural sector. Against this backdrop, the Board subsequently exchanged ideas with the Executive Board on various relevant strategic aspects and potential developments that could have a disruptive influence in this respect. The influence of alternative sources of protein was also discussed.
As part of the Horizon 2020 strategy and the activities, the Board also spoke about the effectiveness of the design and operation of ForFarmers’ internal risk management and control systems. The Executive Board assessed these systems in the period under review. The findings, recommendations, and measures that came out of the assessment were discussed with the Board. The Board endorses and supports the internal risk management system as outlined in the Risk Management section of this report. The Board also supervised the work of the internal audit function.
The results of the various strategic and production partnerships entered into by ForFarmers in previous years have led, among other things, to launching high-quality nutritional products and the bundling of purchasing power and knowledge. The decision to enter into strategic partnerships has proved to be effective. In 2017, a partnership was entered into with Chr. Hansen for silage additives, with positive results.
In 2017, the integration of VleutenSteijnVoeders (hereinafter ‘Vleuten-Steijn’) took place. Over the period under review, Vleuten-Steijn made a positive contribution to the results of ForFarmers in the Netherlands and Germany. In May 2017, the company Wilde Agriculture was taken over in the United Kingdom. The Board looked into whether this business could be integrated efficiently. One of the important considerations was that Wilde Agriculture was a small dealership with which ForFarmers already did business. During every meeting of the Board, developments in terms of acquisitions were discussed. The Board also exchanged ideas with the Executive Board on potential acquisitions in the four key countries in which ForFarmers operates, as well as other countries within the Europe region and surroundings (Europe+). The Board finds it important that the Executive Board sufficiently examine the question of whether a potential acquisition fits into ForFarmers’ organisational culture and strategy. The Board also believes that acquisitions or potential acquisitions should be assessed within the context of the development of the internal organisation. In light of this, discussions were held on what the organisation can take on in terms of workload in addition to the extra attention that needs to be paid to the activities of ForFarmers in the United Kingdom. The project schedule always states the manner in which sufficient manpower can be deployed to ensure the project’s success. The basic principle of ForFarmers’ acquisition strategy continues to be that the Company aims for the regional number one or number two position in order to be able to optimise economies of scale.
During every meeting, the Executive Board informed the Board of organisational developments, in particular in terms of the filling of senior management positions and other relevant positions.
Executive Board and Executive Committee
Moreover, as part of the succession plan, attention was devoted to the available management potential among senior managers. As part of the diversity policy, the Board supports ForFarmers’ efforts to achieve a better balance in the male/female ratio. At the same time, the Board understands that the agricultural sector is male dominated and that it can be difficult to find enough suitable female candidates for some roles. In addition, the Board was informed during the year of the various Management Development Programmes.
As of 1 January 2018, Steven Read took over the tasks and responsibilities of Iain Gardner, COO of ForFarmers United Kingdom. As a result thereof, from the said date the Executive Committee team is composed of Yoram Knoop, Arnout Traas, Jan Potijk, Stijn Steendijk, Steven Read, and Adrie van der Ven. A successor is still being sought to take over the tasks of Steven Read as Director Supply Chain. The Executive Board, composed of Yoram Knoop, Arnout Traas and Jan Potijk, forms part of the Executive Committee.
In 2017, the Board conducted evaluations with all members of the Executive Committee, in which two members of the Board always spoke to one member of the Executive Committee. The evaluation of the Executive Board as a whole also came under review. The conclusions from these meetings were discussed in the plenary meeting of the Board. Conclusions were then fed back to the CEO and to the member of the Executive Committee concerned. The Board is of the opinion that the Executive Committee works well under the leadership of Yoram Knoop as CEO.
A member of the Executive Board may not be member of more than two supervisory boards and may not chair a supervisory board of another entity or company as referred to in Article 2:132a of the Dutch Civil Code. The Board is not aware of potential significant conflicts of interest among members of the Executive Board with the Company.
ForFarmers conducted an employee engagement survey in 2016. As part of this survey, actions were formulated, and in the period under review, the progress was assessed. The survey results were discussed with the Board. In particular, aspects such as conduct, culture and core values within the organisation were discussed. The Board is pleased with the progress made and supports the initiative of the Executive Board to formulate further actions for improvement with respect to the translation of the strategy to the work floor, workload, attraction and retention of talent, career opportunities and giving and receiving feedback. The plan is to conduct another extended employee engagement survey in 2019.
In 2014, the two-tier board structure was set up at the level of ForFarmers Corporate Services B.V. (holding company of the Dutch ForFarmers-companies). Hajé Nordbeck is a board member of ForFarmers Corporate Services B.V. at the recommendation of the Dutch Works Council. ForFarmers N.V. has a European works council that met once in the period under review. The members of the Board did not attend this meeting because no consultation request was made by the ForFarmers European Works Council, as indicated in the regulations of the Board.
In June and December ForFarmers held conferences for the senior management. During these meetings, in the presence of some members of the Board, attention was paid to the progress and implementation of the Horizon 2020 strategy.
The Board, following advice from the Remuneration committee, has drawn up the Executive Board’s remuneration policy. The remuneration policy was established by the General Meeting of Shareholders of 26 April 2017. The remuneration report of the Board includes a report on the remuneration policy over the last financial year.
The Board has received the internal financial reports and they were clarified and discussed by the Executive Board in the meetings. The matters discussed here included general affairs, market developments, strategic and financial developments and risks, as well as performance compared to the budget of the group as a whole and of the individual business units.
The Board approved the 2016 annual accounts, the 2017 half-yearly report and the trading updates. Moreover, the work plan of the internal auditor was approved. In addition, the dividend policy and the dividend proposal for 2016, corporate governance, and the financial reporting process of the Company were discussed. The Board discussed the management letter from the external auditor with the Executive Board. In the meantime, ForFarmers has implemented most of the ensuing action points. Improvements have been implemented mainly in the area of IT control measures, reinforcement of the finance function and enhancing the accounts receivable policy. Furthermore, valuation of goodwill was a point of attention.
In its meeting of December, the Board gave its approval for the 2018 budget with a recent version of the long-term plans and the main aspects of the strategic policy, the general and financial risks, the Company’s management and control system and compliance with all relevant legislation and regulations.
The Board discussed the 2017 annual accounts with the Executive Board and the external auditor (KPMG Accountants N.V.) and approved these in the meeting of 12 March 2018. KPMG issued an unqualified audit opinion and will attend the Annual General Meeting to provide further clarification as needed. On 26 April 2018 the annual accounts will be submitted to the Annual General Meeting for adoption as well as the proposed dividend for 2017.
Governance and culture
Partly in view of the 2016 reviewed Dutch Corporate Governance Code (hereinafter the ‘Code’), the Board discussed the Company’s corporate governance with the Executive Board. In this context, a culture focused on long-term value creation was emphasised. The core values that contribute to this culture are part of the mission ‘For the Future of Farming’. The Board supports the initiatives of the Executive Board to improve safety, among other things. Additionally, the regulations of the Board and its committees were re-adopted. ForFarmers endorses most of the best practice provisions in the Code. The chapter on corporate governance substantiates from which provisions ForFarmers deviates. The Board will continue to work towards striking a good balance between the interests of all stakeholders, in any case including customers, staff, suppliers and shareholders of ForFarmers.
The Board is informed by the Executive Board on the meetings with the Sustainability Advisory Board. In light of the mission ‘For the Future of Farming’, initiatives are continually being taken by ForFarmers in the area of sustainability. The Board supports these initiatives and believes that these contribute to long-term value creation for stakeholders. For instance, the decision to invest in the construction of a biomass plant in Lochem. With this investment, ForFarmers will achieve a considerable reduction in CO2 even though the extra capacity is not immediately necessary. The Board discussed this extensively with the Executive Board, the outcome of which was that sustainability considerations were finally decisive in granting the approval for this investment.
In the period under review, the Board also discussed with the Executive Board on the further preparation of the annual report to comply with non-financial information requirements and to make progress with Integrated Reporting.
Compliance and integrity
The Board sees the Code of Conduct as a means of promoting integrity. The overview of incident notifications and the follow-up thereof is periodically discussed with the Audit Committee and the Board. New employees receive the Code of Conduct and follow an online learning module. The Board supports the initiatives of the Executive Board to promote a culture of compliance and integrity.
Meetings and attendance
In 2017, the Board met eight times in regular meetings. These meetings of the Board were always held in the presence of the Executive Board. The members of the Executive Committee were present (or represented with the consent of the CEO in case of inability to attend) at the meetings of the Board insofar as the subject related to strategy and/or budget. During the Board meetings, presentations were given at the Board’s request by members of the Executive Committee and other members of staff on subjects for which they are specifically responsible. There have also been four tele-conferences.
Three of these conferences concerned the approval of the annual accounts, on the evening before publication, as well as the discussion of the Trading Update of May and November 2017. The Board also met three times without (representatives of) the Executive Board and the Executive Committee being present. Items discussed included: the structure of the internal organisation as well as the method and remuneration (including the variable part thereof) of the Executive Board and the other members of the Executive Committee, as well as how the Executive Committee performs as a team and the individual directors’ performance, the associated conclusions arising therefrom, and the succession planning with respect to directors and Board members. The Board also discussed its own performance, the performance of its independent committees and that of the individual members, and the associated conclusions arising therefrom. Finally, the respective members met in the three committees of the Supervisory Board. The committees reported to the Board on their meetings and findings.
Not all plenary meetings were fully attended by the Board. Members who were unable to attend always ascertained the items on the agenda and made their opinions known to the Chairman of the Board prior to the meetings.
The attendance percentage of each Board member in the eight regular Board and committee meetings is shown in the following overview.
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(*) from his appointment on 26 April 2017
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Other subjects that were discussed in the Board meetings were, among other things: the preparation and evaluation of the Annual General Meeting held by ForFarmers on 26 April 2017, and the employee participation plans for 2017. Aside from contacts in the formal meetings, there has also been regular contact between the Chairman, the other members of the Board, and the Executive Committee about various subject matters. A number of Board members also visited two locations of ForFarmers in Germany (Langförden and Hamburg).
Self-evaluation and composition
Once every three years, the Board discusses its performance with an external advisor. Given that the latest evaluation under the guidance of an external advisor took place in the fourth quarter of 2016, the Board conducted the evaluation in 2017 independently. As part of this, the Board discussed its performance, both as regards the Board as a whole and as regards its individual members, as well as that of the independent committees. Items that came up for discussion included substantive aspects, internal interaction and interaction with the Executive Board, matters that have occurred in practice from which lessons could be learned, the desired profile and composition, skills and abilities of the Board. Evaluations of individual Board members were conducted in one-on-one meetings. The Board strives towards a balanced composition of men and women, age, education and experience. The Board concluded that, both as a whole and as regards its individual members, it performs satisfactorily. In addition, the Board evaluated its meetings in the past year, and discussed the development and strategy of the Company, and the role of the Board herein. The self-evaluation was prepared by the Selection and Appointment committee of the Board and the resulting conclusions were used to further improve the Board’s performance. One of these improvements relates to joint preparation for regular meetings in a pre-meeting without the presence of the members of the Executive Board or the Executive Committee.
Over the period under review, the composition of the Board changed. During the Annual General Meeting of 26 April 2017, Mr Cees de Jong was appointed as a member of the Board. Subsequently, Cees de Jong was appointed as member of the Remuneration Committee of ForFarmers.
The diversity policy and its enforcement was clarified in the corporate governance declaration of 2017.
As part of the permanent education of the whole Board, the members followed a workshop on Enterprise Risk Management. In addition, several members of the Board follow relevant courses at a range of institutions.
ForFarmers has, managed by the Executive Committee and other managers, and with the commitment, knowledge, and dedication of all employees in 2017, achieved further progress as a result of strategic initiatives that form part of Horizon 2020. We would like to thank the Executive Committee, the employees and the works councils for their dedication and commitment. We are confident that the results of this work will also be visible in 2018.
Lochem, 12 March 2018
The Supervisory Board