Chairman’s speech 2017 AGM
421 members attended this year's annual general meeting at the QEII Conference Centre on Monday 12th June 2017
Chairman Sarah Evans opened her speech by talking about the two big issues which had dominated member correspondence over the year, namely our closure of the Montreuil showroom and issues with the pension scheme.
'I'm not going to beat about the bush but am going to address straight away the two big issues that have caused a sizeable reaction from you this year: firstly the issues about the pension scheme which are reported in the accounts and secondly, our decision to close the showroom in Montreuil. Robin and I usually have a fairly slow, steady 'post bag' from members. Both these issues caused a much higher level of member correspondence.
The pension scheme
'I'll address the pension scheme first. In 2009 The Society concluded that it needed to take more steps to manage the ever increasing cost of the final salary pension scheme. Various options were explored and it was ultimately decided, supported by legal advice, that in 2010 we should change the scheme such that we would separate salary and pensionable salary. From that date, pensionable salary rose by 2% per annum less than actual salary. At retirement, your pension would be based on your final pensionable salary.
'Moving forward several years, in early 2016 The Society consulted with the Trustees and active members of the final salary scheme to close it to future accruals. Not only was the cost and volatility of the scheme posing an increasing burden to The Society, but the position for employees was becoming more and more unfair. There were 81 active members in the final salary scheme receiving a much greater overall compensation package than the 130 members of staff in the DC (Defined Contribution) scheme.
'The Trustees, as they must, sought legal advice on whether the scheme could be closed. The lawyers were unsure based on the documents provided to them and also highlighted that they were concerned that the change that we had made in 2010 was not valid. The lawyers recommended that we instructed leading counsel – a QC – for a definitive answer. The Society and the Trustees jointly instructed counsel and in January 2017 we met with him for his views.
'His views were unequivocal. The scheme could be closed to future accruals and the link with final salary could be severed. However, he advised that the change made in 2010 was only partially valid. It was not right simply to base the pension on the final pensionable salary. For service before 2010, the pension would be based on final salary while service after 2010 would be based on final pensionable salary.
'The consequence is that the cost of providing a pension and thus the liabilities of the pension scheme for members retiring after 2010 have been understated. This year's accounts reflect the accounting entries needed to correct the position. The situation has been worsened with ever more challenging economic conditions which have seen gilt yields and corporate bond yields fall even further while inflation has crept ahead. A double whammy for pension valuations.
Accounting adjustments, not cash movements
'Importantly, these are accounting adjustments, not cash movements. They reflect the liability to the pension scheme at the year-end not an amount of cash that has been paid over. The size of the liability tends to change each year with the economic conditions and other factors such as mortality.
'We have received letters from members asking how we got into this situation questioning how we could be so incompetent and demanding to know what action we are taking. All those letters have been answered individually but I am sure there are others amongst you with similar questions. I hope that this helps to explain the situation and to demonstrate that at all times the Committee and the Trustees of the scheme have acted only after receiving professional advice.
'Of course we are examining our options in relation to the wrong advice received in 2010, but I am unable to share any details with you now: to do so could prejudice our position. As soon as we are able, we will provide an update to members.
'In the meantime, the final salary scheme was closed to future accruals at the end of April and all active members of the scheme at the date became members of our DC scheme. The DC scheme is still relatively generous compared with other schemes but the on-going cost to The Society is much less than the final salary scheme.
'The Society will continue to work with the Trustees of the final salary scheme to agree a long-term funding plan which will ensure that all liabilities of the scheme are met over its lifetime but that the business of The Society and the interests of members are not damaged.
'I will of course be pleased to answer questions that you have got on the matter of pensions in the Q&A session which follows this.
The decision to close our Montreuil showroom
'The other matter which attracted a lot of member comment was the decision taken to close our showroom in Montreuil at the end of December 2016. The common themes coming out were that the membership should have been consulted on such a decision and that we should consider opening a collection point instead near Calais.
'For those of you who have not been to Montreuil, it is indeed a delightful little town. Set on top of a small hill with cobbled streets and town ramparts surrounding the centre to create a citadel from which there are bucolic 360° views across the surrounding countryside, it made a lovely destination in its own right or a charming diversion on your way down toward the Loire or Bordeaux.
'But the fact of it was that it was used by only 2.3% of the membership. Footfall had been slowly declining for about 10 years and the future of Montreuil had been under review for many years.
Substantial increased running costs
'Having fitted out the showroom when we first moved there, we had been able to use the space rent free. But all of that was set to change from 1st January this year when the landlord – the hotel in whose buildings the shop was based – said that we would need to start to pay a commercial rate. In addition, our French partner – who employed the staff at the Montreuil showroom – had indicated her intention to raise her costs. Together these were going to increase our cost by approximately €100,000 per year; almost the same as the surplus the shop made each year. Faced with these extra costs, any further deterioration of footfall would see the shop needing to be cross subsidised; something that we did not believe was appropriate.
'Alternative premises either in Montreuil or elsewhere in Northern France were not really an option: nowhere would we get as good a deal as we had enjoyed in Montreuil. Some members asked for a collection point. But a Wine Society outlet, anywhere, should not just be about picking up wine bought cheaply and, in any event would be just as expensive to operate.
'So should the membership have been consulted on the decision? While I love the idea that members really do think of The Society as their club and feel they should have a say on important decisions, the reality is somewhat different. Through The Rules of The Society, the Committee is vested with authority on behalf of the members to make what decisions it thinks necessary. For the effective and expedient running of the business, it has to be that way.
'Through The Rules of The Society, the Committee is vested with authority on behalf of the members to make what decisions it thinks necessary. For the effective and expedient running of the business, it has to be that way.'
A decision not taken lightly
'The decision to close the Montreuil showroom was not taken lightly. We are of course sorry that it has disappointed so many members but the bottom line is that had we not shut it, the price of all wines sold to all members would have had to rise to support the operation in France. That, I am sure, would have angered far more members.
Let me move on to other matters.
Healthy sales and cost management
'Elsewhere, The Society has fared well. Over the year as a whole, regular sales were 4.8% ahead of last year with a particular boost in the run up to Christmas when sales were 10% ahead. The volume at Christmas proved quite a challenge, particularly in bottle pick, where many members of staff in the business who could be spared from their day job, spent time helping out just to get through the extra 10,000 bottles which had been ordered and needed to be dispatched.
'Another area in which the whole business was involved this year was in saving costs. Last year Robin and the Executive team set themselves a challenge of seeing that costs did not rise by more than the rate of inflation. They rose superbly to that challenge and engaged all staff in finding ways that costs could be managed or reduced without damaging the business or the service to members. By looking across the whole of the business they were able to reduce costs by 4.9% compared with last year – a huge reduction.
The broad appeal of The Wine Society
'The other business-related area that I want to touch on is the effort that we are making to ensure that The Society has a broad appeal and in particular is visible and appealing to younger members. Perhaps partly as a result of the 'baby boom' phenomenon, the average age of a Society member has increased, as has the average age of a new member. We've carried out market research amongst younger people who are not members which shows that our image is seen as old fashioned and rather dull.
'All around us we see companies using high-profile and high-impact sales tactics; tricks with pricing, hyperbole and loud messaging all with the objective of maximising sales and profits.
'Our objective is quite different: we don't seek to maximise sales or profits. We seek to maximise member satisfaction by giving you quality wine, outstanding service and great value for money. We want to show you the range of wines that we have and let you choose them on their merits, not because they are suddenly marked down by 20%. We too have bargains galore: we just don't call them bargains. So we are not as loud as others, not as brightly coloured: not as 'in your face'. Everyday low pricing is rather dull compared with '30% off for 3 days only'.
'We know that what we have to offer, the ethos and integrity of The Society does hold appeal for younger people when they get to know us, so we are looking for ways to get our message across without changing the fundamentals. That is not easy.
Continuing to experiment to get the message right
'Some of you have told us that you don't like the changes that we have made to some of our printed offers, website and tone of voice. Others do like it. We continue to experiment: sometimes we'll get it right, sometimes we won't. What we do know is that if we don't broaden our appeal eventually we may find it difficult to attract sufficient new members to allow The Society to thrive. So please bear with us. More than that, tell your friends and family – especially the younger ones – about us. Spread the word.
Appointing new team members to the Committee
'An important part of my role as Chairman is to work with our Appointments and Remuneration sub-committee to consider the composition of the Committee and to identify, assess and recruit future Committee members. In the past, we tended to identify potential co-optees from member feedback meetings that we held during the year. In the last three years or so, we have been very much more direct and have e-mailed batches of members – several thousand at a time – for interested members to contact us. We evolved this even further this year and put an article in Societynews in February.
More than 70 members have expressed interest
'The response has been very good and in the last 12 months we have seen more than 70 members who have expressed interest in co-option. As you might imagine this is a time-consuming process and I should like to thank my colleagues on the Committee who have given up so many hours and evenings to take part. The good news is that this is a zero-cost way of identifying future Committee members.
'Of course, any member is entitled to put themselves forward and to stand for election at the AGM. However, at risk of being heckled, I try to dissuade people from doing this. Standing for election immediately triggers a contested election which, by the time that the appropriate paperwork is produced and posted to almost 250,000 members, and scrutineers and counters are engaged, costs The Society in excess of £80,000: cost that we really do want to avoid. So if members do want to stand for the Committee, we are delighted to hear from them, but ask that they come to meet with us and we look at them as a potential co-optee. The roles and responsibilities of an elected member are just the same as a co-opted member.
'From the meetings that we have held this year we have identified a number of members who we think would serve The Society well as a co-optee and whom we will bring on to the Committee over the next two or three years as we continue to refresh the current membership.
Deputy Chairman George Jeffrey to retire
'A key Committee change happening this year, at the end of this meeting in fact, is that George Jeffrey, Deputy Chairman, will be retiring from the Committee. George joined the Committee as a co-optee in 1996 and was elected in 1997. With a background in IT and formerly IT director at Signet, George joined at a critical time. Who here remembers the days of Y2K – the two or three years running up to year 2000 when IT gurus around the world were deeply concerned that computer systems were not going to be able to cope with the date change and there would be massive system failure around the world? Never mind Y2K: at that time our own computer system was creaking and was in desperate need of a complete change. Joining the Committee at that time, George acted as a sounding board for our own IT team but also helped the Committee to gain assurance over our shift to a new IT provider.
'George was appointed Deputy Chairman in 2009, at the same time that I was appointed Chairman. Throughout that time he has been my rock: a sounding board, always supportive and definitely challenging when he needed to be. He has attended every meeting over the last eight years in which we have been assessing potential co-optees and so has been hugely influential in the composition of the Committee. He continues to liaise closely with David Marsh, our head of IT, in relation to the IT systems. In addition he is a member of four sub committees and attends monthly meetings with the CEO. George has worked consistently hard in all his years with The Society but never more so than as Deputy Chairman and I am going to miss his support immensely. George – thank you...
The Society remains strong & in good financial health
'I'll bring this address to a close by confirming that despite the issues with the pension scheme and our comments about needing to attract more younger and female members, the trading of The Society remains very strong and it is in good financial health. We have a good inflow of new members, we are regarded highly in the industry and by our suppliers, our costs are under control and we have an active and vocal membership who are interested and engaged in the future and success of The Society.'
Thank you for your support.
Questions and comments from the floor
The following is a summary of some of the questions and comments made on the night – a full account will be made available in the Minutes of the meeting.
Q – The cost of withdrawing from Montreuil?
A – Robin McMillan said that in total it had cost The Society around £80 thousand and that we had been keen to make sure the staff and our French partner were looked after in an appropriate fashion given the excellent service they had provided for our members for many years.
Q – How can members put forward a resolution to the Committee?
A – Sarah Evans stated that our Rules do not allow for this but that she is more than happy for members to submit questions prior to the meeting and will look into the process. The Rules do allow for members to propose a Special General Meeting, but this is actually quite an onerous and expensive undertaking.
Q – Have we considered improving our App particularly in view of appealing to younger people?
A – SE replied that the App had not been viewed as high a priority for investment as making sure the website was mobile optimised, but constantly evolving technologies and changing demands and preferences will mean that we will revisit our digital channels, including the App, on an ongoing basis.
Q – What is the impact of Brexit on predictions for the future for The Society?
A – SE responded that we are able to be confident in our ability to respond quickly to an ever-changing situation and that we had taken what precautions we could to make sure that we are not as negatively impacted by currency fluctuations by hedging our currency purchases. However we do not have a crystal ball! RM reassured members that the WSTA (Wine & Spirit Trade Association) was actively involved in monitoring the situation and that we are receiving regular updates from them.
Q – What feedback has there been on tastings from the last year, particularly those focused on younger people?
A – RM responded saying that some like the new approach, some don't but on the whole, the new-format tastings had been extremely well received. Even some more 'traditional' members who had perhaps stumbled in to tastings unaware that they would be different, had enjoyed them. Feedback has been great and we need to be braver about what we do.
There were positive comments about our new-look South Africa publication, feedback from growers visited by a member in Tasmania who were highly complementary about The Wine Society and our set-up, a request for clarification on the pension issue, that it was an accounting adjustment and that the money was not physically being paid out. A member pointed out that it was not necessarily that young members think we are old-fashioned, but rather, they just haven't heard about us, so what are we doing about that. There was a question about the returning of empty boxes in the vans and a query regarding cost-cutting.
'Item 3 is for the members at the AGM to consider the remuneration of the Committee. The Rules say that the Committee members, other than the Chief Executive, shall be paid fees from time to time decided by The Society in General Meeting.
'In recent years we have introduced a new system which means that the amount agreed here by the members is only distributed in proportion to the meetings attended by members of the Committee.
'Therefore, if during the year only 80% of meetings were attended, only 80% of the fees which you approved would be distributed to members of the Committee. We will follow the same process this year.
'In practice we have found that it is helpful if we propose to you a figure, based on what has been paid in the previous year. However, you are not bound by this and can choose any other amounts that you think appropriate.
'The sheet on your seats shows suggested position for the Officers and the Elected members of the Committee for the year ending 31st January 2018. Last year, with inflation so low, we suggested no increase to the Honoraria. This year inflation is now at around 2.6% per annum. 'We suggest an increase of 1.4% which would make the remuneration as follows:
- Chairman: £36,000 per annum.
- Deputy Chairman: £18,000 per annum.
- The other Elected Members: £43,800 per annum in aggregate subject to a reduction if meetings are not attended as I have already described.
'Co-opted Members (other than the Chief Executive), are to be paid at the same rate per meeting as calculated for the Elected Members.
'Please could I have your approval for this proposal.'
Members approved this proposal.
Election to the Committee
'This year, as I have already announced, George Jeffrey is retiring from the Committee.
'To fill the vacancy created by his retirement, the Committee has asked Paula Carter to stand for election and I am delighted that she has accepted. Paula was co-opted in June 2016 and I reported her proposed co-option at the AGM last year. Paula is an advisor to and was previously Director of Planning and Board Secretary at Channel 4 where she was responsible for all corporate planning as well as the reporting to the Board and external stakeholders. Previously she held senior policy and management roles at the BBC and ITV and worked as an advisor to various government departments, regulators and agencies on communications matters. In her spare time, she is a magistrate, Chair of Governors of a school and sits on the RFU Disciplinary Committee in London. Paula has impressed us all with her strategic vision, her focus on stakeholders and the clarity with which she sees the wood for the trees.
'The Society Rules says that each year two elected members must retire from the Committee and can offer themselves for re-election. I am the second Committee member retiring this year and, with your support and the support of the Committee, would be delighted to stand again.
'In the event that no other member has put themselves forward for election and, in accordance with Rule 25.1 I therefore declare that Paula and I are duly elected.
Co-options to the Committee
'Rule 27.3 requires that every co-option to the Committee must be approved at the next AGM following the co-option. This year we have four co-optees for you to consider each of whom brings us something quite unique:
'Paula Carter, Paul Powell, Ken Brown and Michael Findlay. I have just been through Paula's cv and will not repeat it here.
'Paul was co-opted to the Committee in December 2015 and his co-option was extended in December 2016. First and foremost, Paul's focus is on the art of communication and in his day job he is a television scriptwriter. He is also a director of an independent production company and a non-executive director of the Authors' Licensing and Collecting Society.
'Ken Brown was co-opted in September 2016. He is chartered accountant and spent more than ten years in the accountancy profession [with pwc] in London and New York before moving into investment banking. He is currently the head of Global Finance EMEA at Nomura, and a member of Nomura's Global Investment Banking Executive Committee. Ken brings significant financial experience and is a member of the Society's Finance Sub-Committee.
'Michael Findlay was co-opted in January 2017. He spent 27 years in investment banking, mostly at Bank of America Merrill Lynch where he was responsible for advising the boards of many leading UK companies on a wide range of strategic, financing and governance issues. He is also an experienced non-executive director having sat on the board of the logistics group UK Mail Group PLC for 7 years and is currently non-executive Chairman of Morgan Sindall Group PLC. Michael is also a member of the finance sub-committee.
'Both Ken and Michael responded to our search last year for members with financial and commercial expertise and we are delighted to have them on the Committee.
'Please could I have your approval for those co-options?'
Members approved these co-options.
'Ladies and Gentlemen, that concludes the formal part of the meeting. Thank you for your attendance and your attention.'
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