Corporate governance

While the group is not subject to the provisions of the revised Combined Code on Corporate Governance – June 2006 (The Combined Code), the directors have decided to provide corporate governance disclosures. The directors have also considered the guidance set out in Guidance on Audit Committees (The Smith Guidance).

Section 1 of the Combined Code, as appended to the Listing Rules, sets out Principles of Good Corporate Governance and Code provisions which are applicable to listed companies incorporated in Great Britain.

A narrative statement on how the company has applied the Principles and a statement explaining the extent to which the provisions in the Code have been complied with appear below.

Narrative Statement

Section 1 of the Code establishes 14 Principles of Good Governance which are split into the four areas described below.

Directors

The company is controlled through the Board of directors which comprises four executive (three between 1 July 2007 and 14 January 2008) and four independent non-executive directors. There is a separation of the roles and responsibilities of the Chairman and the Chief Executive. As the Non-Executive Chairman is mainly responsible for the running of the Board, he has to ensure that all directors receive sufficient relevant information on financial, business and corporate issues prior to meetings. The Chief Executive’s responsibilities focus on running the group’s businesses and implementing group strategy. All directors are able to take independent professional advice in furtherance of their duties if necessary.

During the year there were 13 Board meetings, four Audit Committee meetings and seven Remuneration Committee meetings. Attendance by the directors was as follows:

^*Appointed on the 14 January 2008

The Chairman also regularly meets with the non-executive directors without the executive directors present to discuss the performance of the group and any other matters as they arise.

The Board has a formal schedule of matters reserved to it which includes:

• approval of annual budgets and corporate business plans
• approval of contracts exceeding prescribed thresholds
• acquisitions and disposals
• approval of all capital expenditure projects not covered by budget

It is responsible for overall group strategy, acquisition and divestment policy, approval of major capital expenditure projects and consideration of significant financing matters. It monitors the exposure to key business risks and reviews the strategic direction of individual trading subsidiaries, their codes of conduct, their annual budgets, their progress towards achievement of those budgets and their capital expenditure programmes. The Board also considers environmental and employee issues and key appointments. It ensures that all directors receive appropriate training on appointment and then subsequently as appropriate. A budget is established for this purpose. All directors, in accordance with the Code, will submit themselves for re-election at least once every three years.

The Board has two committees, the Audit Committee and the Remuneration Committee. The Audit Committee meets regularly with the company’s senior management and with the external auditors to review the financial statements, the accounting policies of the company and its internal management and financial controls. The members of the Audit Committee are R M Dantzic (Chairman), J L Jeremy and J R Stevenson. The minutes of the meetings of the Audit Committee and the Remuneration Committee are circulated to and reviewed by the Board.

Directors' remuneration

The Remuneration Committee measures the performance of the executive directors and key members of senior management as a prelude to recommending their annual remuneration, bonus awards and awards of share options to the Board for final determination. The report of the Board to the shareholders on directors’ remuneration is set out on pages 30 to 32. The Remuneration Committee’s terms of reference are available from the Secretary and will be available for inspection at the Annual General Meeting.

Relations with shareholders

The Board encourages two way communication with both its institutional and private investors and responds quickly to all queries received. The executive directors have met with analysts and institutional shareholders on a regular basis in the year ended 30 June 2008. Non-executive directors are fully briefed by the executive directors on the views of major shareholders about the company and are available for meetings with major shareholders. All shareholders have at least twenty working days’ notice of the Annual General Meeting at which all directors and Committee chairs are introduced and available for questions.

Accountability and audit

Financial reporting
A review of the performance and financial position of the group is included in the Financial Review. The Board uses this, together with the Chairman’s Statement, the Chief Executive’s Statement and the Directors’ Report, to present a balanced and understandable assessment of the company’s position and prospects. The statement of directors’ responsibilities for the financial statements is described on page 36.

Internal control
An ongoing process for identifying, evaluating, and managing the significant risks faced by the group has been established and that process is regularly reviewed by the Board and accords with the revised version of Internal Control Guidance for Directors on the Combined Code produced by the Turnbull working party. Following the latest review, the significant risks faced by the group now total twenty seven, of which four are considered principal risks as described on page 27. Steps continue to be taken to embed internal control and risk management further into the operations of the business and deal with areas of improvement coming to management and Board attention. As part of this process, a Corporate Governance Manual setting out the principle business policies and procedures operating within the group has been produced and adopted by all businesses across the group. Furthermore, a series of risk management seminars has been held for the group's senior management.

The reporting systems include formal consideration of all significant business risks at the monthly Board meetings and are still subject to continuous review by the Board throughout the year. The monthly management information includes some key risk indicators with the emphasis on early warning systems. Risk management principles are embedded within all significant projects.

The directors are responsible for the system of internal control and reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can provide only reasonable but not absolute assurance against material misstatement or loss.

The key risk management activities are described under the following headings:

• Strategic control
  The Board reviews the group’s strategic plans each year. On a regular basis, the group’s significant risks are updated and appropriate control strategies and accountabilities are agreed.
• Allocation of responsibilities and control environment
  The Board has set clear terms of reference for each of its committees and the group has an organisational structure with clearly defined and documented delegation of authority to executive management and reporting systems for financial results, risk exposure and control assessment.
• Financial control
  The group has a comprehensive system for reporting financial results to the Board; each operating unit prepares monthly results with a comparison against budget. The Board reviews these for the group as a whole and determines appropriate action.
• Quality and integrity of personnel
  The group is committed to competence and integrity of management and staff at all levels, through its values statement, comprehensive recruitment, training and appraisal programmes.
• IT systems
  The group has established controls and procedures over the security of data held on computer systems and has put in place suitable disaster recovery arrangements.
• Controls over central functions
  A number of the group’s key functions, including treasury and taxation, are dealt with centrally. Each function is required to report to the Board on a regular basis.
• Operating unit controls
  Key controls over major business risks include reviews against performance indicators and exception reporting. Each operating unit’s senior management is responsible for identifying, evaluating and managing major business risks. They make regular assessments of their exposure to major business risks and the extent to which these risks are controlled, which are reported to the Board.
• Internal audit
  While there is no dedicated internal audit function, internal audit resources are provided by the central functions, including a group Commercial Compliance Director, which are considered sufficient for the group. They support the risk management activities and help to identify key risk areas across the group. Any significant issues are reported to the Board via monthly reports from the central finance and commercial and systems departments.
• Role of the Executive Committee
  Day-to-day management of the group’s activities is delegated by the Board to the Executive Committee. It monitors the effectiveness of the operating units in meeting group objectives and controlling major business risks and makes recommendations to the Board.
• Risk management reporting and Board review
  The Board has overall responsibility for identifying, evaluating and managing major business risks facing the group. It regularly reviews all operating unit assessments of business risk exposure and control, including compliance assessments, and determines appropriate action, taking into account the recommendations of the Executive Committee.

An ongoing review of the effectiveness of the system of internal control for the year ended 30 June 2008 has been maintained and has taken account of any material developments since the year end.

Audit Committee

A summary of the process the Board (where applicable, through its committees) has applied in reviewing the effectiveness of the system of internal control is set out as follows.

During the year, the Audit Committee of the Board:

1. meets regularly with the external auditors and executive directors attending by invitation;
2. receives and considers reports relating to the monitoring of the adequacy of the group's internal controls, the suitability of its accounting policies and financial reporting, the integrity of the financial statements and matters arising from the external auditors' work;
3. monitors the nature and extent of non-audit work undertaken by the external auditors; and
4. makes recommendations to the Board on these matters.

In forming their opinion of the independence and objectivity of the external auditors, the Audit Committee takes into account the safeguards operating within the external auditors and that the level of audit fee is sufficient to enable them to fulfil their obligations in accordance with the audit Letter of Engagement.

The chairman of the Audit Committee makes a report to the Board following each Committee meeting and the Board receives the minutes of all Audit Committee meetings.

The Audit Committee’s terms of reference are available from the Secretary and will be available for inspection at the Annual General Meeting.

Going concern basis

After making enquiries, the directors have formed a judgement, at the time of approving the financial statements, that there is a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. For this reason the directors continue to adopt the going concern basis in preparing the financial statements. This statement also forms part of the Financial Review.

Compliance Statement

Although not required to, the Board reports on compliance with the forty eight code provisions throughout the accounting period. Save for the exceptions outlined below, the company has complied throughout the accounting period ended 30 June 2008 with the provisions set out in Section 1 of the Code. The exceptions to the Code were as follows:

A.4.1 The directors have not constituted a Nomination Committee because they consider that it is preferable for elections to the Board to be dealt with by the Board as a whole.

A.6 The Board has not undertaken a formal evaluation of its own performance and that of its committees and individual directors in 2008. A satisfactory evaluation was undertaken in 2007. The directors believe that a formal evaluation every two years is sufficient. The next formal evaluation will be undertaken in 2009.