ANNUAL REPORT OF THE AUDIT AND CONTROL COMMITTEE OF NH HOTEL GROUP, S.A. FOR THE YEAR 2016
1) Composition, competence and operation of the Audit and Control Committee
The essential function of the Audit and Control Committee is to serve as support to the Board of Directors in its supervision and control functions, the most important manifestation of these being the duty to ensure the efficiency of the Company’s internal control and supervise the process of drawing up and presenting regulatory financial information.
The composition, competences and operation of the Audit and Control Committee are regulated in article 48 of the Articles of Association and article 25 of the Board Regulations.
During 2016 the above-mentioned regulation has undergone a modification, approved by the Board of Directors on 21st June 2016, whereby the members of the Board of Directors who are not members of the Committee are expressly empowered, at the prior invitation of its Chairman, to attend the meetings of the Audit and Control Committee occasionally.
In accordance with the provisions of the internal regulations of NH Hotel Group, S.A. the composition, competences and operation of the Audit and Control Committee can basically be summarized as follows:
a) Composition.
In accordance with the provisions of the Articles of Association (article 48) and the Regulations of the Board of Directors (article 25), the Audit and Control Committee will be made up of a minimum of three and a maximum of six Directors appointed by the Board of Directors. All the members of this Committee should be External or Non-Executive Directors, at least a majority of whom must be Independent Directors, and one of them will be appointed taking into account his/her knowledge and experience in the field of accounting, auditing or both.
The Chairman of the Audit and Control Committee shall be appointed out of the Independent Directors who form part of the Committee and must be replaced every four years, and may be re-elected once after one year has elapsed since being replaced.
b) Competences.
The Audit Committee is assigned at least the following competences:
1. Report to the General Meeting on matters raised within its sphere of competence.
2. Supervise the efficiency of the Company’s internal control, internal audit, as the case may be, and the risk management systems, including tax risks, and discuss with the accounts auditors or audit firms any significant weaknesses in the internal control system that may have been detected in the course of the audit.
3. Supervise the process of drawing up and presenting regulatory financial information.
4. Make proposals to the Board of Directors for the selection, appointment, re-election and replacement of the external auditor, as well as the contracting conditions, and obtain information regularly from the external auditor concerning the audit plan and its execution, as well as preserving its independence in exercising its functions.
5. Establish the pertinent relations with the accounts auditors or audit firms in order to receive information on any matters that may put their independence at risk, so that they can be examined by the Committee, and any other matters related to the audit process, and other matters established in auditing legislation and auditing standards. In any case, it must receive written confirmation each year from the accounts auditors or audit firms of their independence of the Company or companies related to it directly or indirectly, and information on the additional services of any kind provided to and the corresponding fees received from such companies by the aforesaid auditors or companies, or by persons or entities related to them in accordance with the provisions of legislation on auditing.
6. Issue each year, prior to the issue of the auditors’ report, a report in which an opinion will be expressed on the independence of the accounts auditors or audit firms. This report must, in any case, contain a valuation of the provision of additional services as referred to in the preceding section, individually considered and regarded as a whole, other than statutory audit and in relation to the regime of independence or to auditing legislation.
7. Report, in advance, to the Board of Directors on all the matters established by Law, the Articles of Association and the Board Regulations, in particular, on:
1. the financial information which the company must publish periodically,
2. the creation or acquisition of shares in entities with a special purpose or domiciled in countries or territories considered to be tax havens and
3. operations with related parties.
8. Oversee the independence and efficacy of the internal audit function; propose the selection, appointment, re-election and removal of the head of the internal audit service; receive periodic information on its activities; and verify that senior management takes into account the conclusions and recommendations of its reports.
9. Establish and supervise a mechanism that will allow employees to report, confidentially and anonymously, any breaches of the Code of Conduct.
10. Supervise compliance with internal codes of conduct and corporate governance rules.
c) Operation.
The Audit and Control Committee will meet at least once a quarter, and as often as is appropriate, on being convened by its Chairman, at his/her own decision or in response to the request of two of its members or of the Board of Directors.
The Audit and Control Committee may require the attendance at its meetings of any employee or executive of the company, as well as the Company’s Auditor.
Through its Chairman, the Audit and Control Committee will report to the Board on its activity and the work carried out, at the meetings established for this purpose or at the immediately following meeting when the Chairman of the Audit and Control Committee considers it necessary. The minutes of its meetings will be available to any member of the Board who requests them.
Following the modification of the Board Regulations approved by the Board on 21st June 2016 referred to above, the members of the Board of Directors who are not members of the Committee may, at the prior invitation of its Chairman, attend the meetings of the Audit and Control Committee occasionally.
2) Composition of the Audit Committee
The composition of the Audit and Control Committee respects the regulation imposed by the Articles of Association and the Regulations of the Board of Directors of NH Hotel Group, S.A. which is a faithful reflection of the Recommendations of the Unified Good Governance Code.
During 2016 there has been a change in the composition of the Audit Committee, as a result of the departure from the Board of Directors of Mr Xianyi Miu following the General Shareholders’ Meeting of 21st June 2016 and, as a result of this, his departure from his post on the Audit Committee, and the appointment at the same General Meeting of Mr Fernando Lacadena Azpeitia, who has replaced him as a member of the Audit Committee.
By virtue of the above, the composition of the Audit and Control Committee at 31st December 2016 is as follows:
Chair:Ms Koro Usarraga Unsain (Independent)
Members:
Mr Carlos González Fernández (Independent)
Mr Francisco Javier Illa (Representative)
Mr Fernando Lacadena Azpeitia (Other External)
Mr Francisco Román Riechmann (Independent)
Secretary:
Mr Carlos Ulecia Palacios
On 7th February 2017, Mr Francisco Javier Illa ceased in his functions due to his decease.
Thus the provisions of the legislation are fulfilled with regard to the requirement that all the members of the Committee must be External Directors, at least the majority of whom must be Independent Directors, at least one of whom must be appointed taking into account his or her knowledge and experience in accounting, auditing or both. Furthermore, the Chair of the Audit Committee is an Independent Director, thus also complying with the provisions of the Companies Act, recently amended first by the provisions of Act 31/2014, of 3rd December, amending the Companies Act for the improvement of corporate governance, and subsequently by Account Audit Act 22/2015, of 20th July.
3) Relations with External Auditors
The parent company of the NH Hotel Group has been audited since 1986 by audit firms of renowned prestige. From 1986-1992 it was covered by Peat Marwick, and from 1993-2001 by Arthur Andersen. Since 2002 the audit has been carried out by Deloitte.
The Consolidated Annual Accounts for 2016 have been audited by six independent firms.Deloitte is the main auditor and issues therefore its report for the Consolidated Annual Accounts
The mentioned audit firm has performed the verification of the accounts of the companies included in Spain (except Burgos and Tenerife), as well as for Benelux, Italy, Germany, Austria and Switzerland, Mexico and MERCOSUR (except Brasil), that represent 95,7% of the consolidated assets and 98,4% of the net turnover.
During fiscal year 2016 and 2015, the fees for audit services and other additional services that have been rendered by Deloitte, S.L., as well as the fees for services rendered by other companies controlled by Deloitte are the following:
In thousands Euros
2016 / 2015
For audit services / 478 / 472
Other verification services / 412 / 263
Total audit and related services / 890 / 735
Tax advice services / 598 / 471
Other services / 216 / 398
Total other services / 814 / 869
Total professional services / 1.704 / 1.604
In addition, related entities to Deloitte have invoiced to the Group the following services:
In thousands Euro
2016 / 2015
For audit services / 1.171 / 1.208
Other verification services / 89 / 20
Total audit and related services / 1.260 / 1.228
Tax advice services / 115 / 131
Other services / 6 / 3
Total other services / 121 / 134
Total / 1.381 / 1.362
During fiscal year 2016, otras firmas de auditoría distintas a Deloitte, S.L. o entidades vinculadas a esta sociedad por control, propiedad común o gestión, han prestado servicios de auditoría de cuentas a las sociedades que componen el Grupo cuyos honorarios han ascendido a 83 miles de euros (130 miles de euros en 2015). Asimismo, los honorarios devengados en el ejercicio 2016 por dichas firmas relativos a servicios de asesoramiento fiscal han sido de 384 miles de euros (221 miles de euros en 2015) y a otros servicios de 461 miles de euros (372 miles de euros en 2015).
4) Content and results of the work of the Audit Committee
The Audit Committee held 8 meetings during 2016 at which it dealt with the following matters:
a) Analysis and evaluation, together with the external auditors, of the Financial Statements and Annual Report corresponding to the year 2015, checking that their audit opinion had been issued under conditions of absolute independence.
b) Review of information on matters that could endanger the auditors’ independence. Issue of the Report on the auditors’ independence.
c) Review of periodic public financial information for 2016 prior to its analysis and approval by the Board of Directors to ensure that it is reliable, transparent and prepared by applying uniform accounting principles and policies.
d) Approval of the External Auditor’s fees for the 2016 audit.
e) Supervision of the Internal Audit strategic plan.
f) Monitoring of the Internal Audit Plan for 2016, examining its conclusions and implementing, as the case may be, the necessary corrective measures.
g) Supervision of the tasks carried out by the Compliance Committee.
h) Monitoring of the most significant projects carried out by the Internal Audit team.
i) Supervision of the Update of the Group’s Risk Map and monitoring of the Risk Map.
j) Supervision of risks related to the Financial Reporting Control System.
k) Examination of the Annual Corporate Governance Report, prior to sending it to the Board of Directors for its study and approval, with special emphasis on the analysis of the register of situations of directors and executives (posts held on other management bodies, involvement in legal proceedings, related-party operations, etc.).
l) Analysis of the Company’s tax organization and determination of the tax policy.
m) Analysis of certain corporate restructuring operations.
n) Inform and submit to the Board of Directors the approval of the new Internal Regulations of Conduct on Securities Markets of NH Hotel Group, S.A. and its group companies.
5) Analysis of related-party operations
During 2016 the Audit and Control Committee has analysed the following operations with related parties:
- Agreement between NH Hotel Group, S.A and Grupo Inversor Hesperia, S.A. on the billing of sales generated for GIHSA Hotels through the website, the “Web Media Expenses”. The agreement was signed, following information and deliberation by the Audit Committee and the Board of Directors on 24th and 25th February 2016.
- Non-binding Memorandum of Understanding signed between NH Hotel Group, S.A and Grupo Inversor Hesperia on 5th December 2016, with the aim of establishing a new framework for the management by NH of 28 hotels in the portfolio of hotels owned by the Grupo Inversor Hesperia, S.A. group. The terms and conditions of the MoU have been approved unanimously by the Board of Directors of NH, following a favourable report issued by the Audit and Control Committee.