While the Group is not subject to the provisions of the UK Corporate Governance Code (formerly known as 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 (formerly known as The Smith Guidance).
The UK Corporate Governance Code (the 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.
The Code establishes 18 Principles of Good Governance which are split into five areas which are covered below and in the Directors' Report on pages 15 to 22 of the Annual Report for the financial year ended 30 June 2011 (the "Annual Report") and in the Report of the Board to the Shareholders on Directors' Remuneration on pages 23 to 29 of the Annual Report.
The company is controlled through the Board of directors which comprises three executive directors and five independent non-executive directors. There is a separation of the roles and responsibilities of the Chairman and the Chief Executive Officer. The Non-Executive Chairman leads the Board and ensures that the directors have sufficient relevant information to enable them to make informed decisions on the strategy of the business and to assess the performance of the various business units. The Chief Executive Officer's responsibilities focus on running the Group's businesses and implementing Group strategy. The Board has considered and confirmed the independence of its non-executive directors. All directors are able to take independent professional advice in furtherance of their duties if necessary. They also have access to the advice and services of the Company Secretary.
J L Jeremy will retire as a director of the company at the conclusion of the Annual General Meeting. He will be succeeded as the Senior Independent Director by M J Barnes and as Chairman of the Remuneration Committee by J R Stevenson.
During the year there were ten Board meetings, three Audit Committee meetings and six Remuneration Committee meetings. Attendance by the directors was as follows:
| Board | Audit Committee | Remuneration Committee | |
|---|---|---|---|
| G V Aldridge | 10 | N/A | N/A |
| M J Barnes | 10 | N/A | 5 |
| R M Dantzic | 10 | 3 | N/A |
| J C B Houlton | 9 | N/A | N/A |
| J L Jeremy | 9 | 3 | 6 |
| S D Lawther | 10 | N/A | N/A |
| J R Stevenson | 9 | 3 | 6 |
| R G Whittington | 2* | N/A | N/A |
*number attended since joining the Board on 27 May 2011
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:
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. All directors submit themselves for re-election at least once every three years.
The Board has two committees, the Audit Committee and the Remuneration Committee. Details of the Remuneration Committee can be found in the Report of the Board to the Shareholders on Directors' Remuneration on pages 23 to 29 of the Annual Report. The members of the Audit Committee are R G Whittington (Chairman), R M Dantzic, J L Jeremy and J R Stevenson. R G Whittington is a qualified accountant. He recently retired as a senior partner from KPMG and he is considered to be the non-executive member of the Board with the most recent experience necessary for the role of Chairman of the Audit Committee.
During the year, the Audit Committee of the Board:
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 ensures that the level of audit fee is sufficient to enable them to fulfil their obligations in accordance with the audit Letter of Engagement. Fees for non-audit work are reviewed by the Group Finance Director and then passed to the Audit Committee for approval.
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.
An evaluation of the Board, the Audit Committee, the Remuneration Committee and the individual directors was conducted during the year by the Chairman and the Secretary (and by the Senior Independent Director and the Secretary in the case of the Chairman's evaluation) by means of questionnaires followed by meetings on a one to one basis to review the results. The results of the evaluation were considered satisfactory and provided evidence of a healthy culture that encourages candid discussion and rigorous decision-making.
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 23 to 29 of the Annual Report. The Remuneration Committee's terms of reference are available from the Secretary and will be available for inspection at the Annual General Meeting.
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 2011. 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.
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 Officer's Statement and the Directors' Report on pages 15 to 22 of the Annual 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 34 of the Annual Report.
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 UK Corporate Governance Code produced by the Turnbull working party. Following the latest review, the significant risks faced by the Group now total 31, of which six are considered principal risks as described on pages 16 and 19 of the Annual Report. 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 previously and adopted by all businesses across the Group.
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 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:
An ongoing review of the effectiveness of the system of internal control for the year ended 30 June 2011 has been maintained and has taken account of any material developments since the year end.
Although not required to, the Board reports on compliance with the fifty two code provisions throughout the accounting period. Save for the exceptions outlined below, the company has complied throughout the accounting period ended 30 June 2011 with the provisions set out in the Code. The exceptions to the Code were as follows:
B.2.1 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. As a result, B.2.2 and B.2.4 do not apply and therefore have also not been complied with.
B.6.2 Not applicable.
C.3.1 Until May 2011 the Chairman of the company, who is a qualified accountant, was also Chairman of the Audit Committee. Thereafter, R G Whittington, also a qualified accountant, became Chairman of the Audit Committee and therefore the company now complies with this provision.