While the group is not subject to the provisions of the revised Combined Code on Corporate Governance - June 2008 (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.
Section 1 of the Code establishes 14 Principles of Good Governance which are split into the four areas described below.
The company is controlled through the Board of directors which comprises three executive (four during the financial year ended 30 June 2009) 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.
The Board has considered and confirmed the independence of its non-executive directors. Although J L Jeremy has been a director of the company since 1995, the Board believes that he continues to be independent in character and judgement; he has extensive experience as a non-executive director in sectors other than construction and, furthermore, during his directorship the management team of the company has changed and, therefore, he is not considered to be too closely connected with the incumbent executive directors.
During the year there were eleven Board meetings, two Audit Committee meetings and five Remuneration Committee meetings. Attendance by the directors was as follows:
| Board | Audit Committee | Remuneration Committee | |
|---|---|---|---|
| G V Aldridge | 11 | N/A | N/A |
| M J Barnes | 10 | N/A | 5 |
| R M Dantzic | 10 | 2 | N/A |
| J C B Houlton | 11 | N/A | N/A |
| J L Jeremy | 11 | 2 | 5 |
| S D Lawther | 11 | N/A | N/A |
| J R Stevenson | 11 | 2 | 4 |
| I S Trotter | 10 | N/A | N/A |
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, 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. Details of the Remuneration Committee can be found in the Report of the Board to the Shareholders on Directors' Remuneration on pages 40 to 45. The members of the Audit Committee are R M Dantzic (Chairman), J L Jeremy and J R Stevenson. R M Dantzic is a qualified accountant, he has been a finance director of two public companies 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 40 to 45. 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 2009. 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's Statement and the Directors' Report on pages 34 to 39, 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 50.
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 nine, of which six are considered principal risks as described on page 36. 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 have 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 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 2009 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 forty eight code provisions throughout the accounting period. Save for the exception outlined below, the company has complied throughout the accounting period ended 30 June 2009 with the provisions set out in Section 1 of the Code. The exception to the Code was 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.