Corporate Governance (p1)

The Listing Rules require a company to include in its annual report and accounts a statement of how it has applied the main and supporting principles set out in the Combined Code (the ‘Code’). The Listing Rules also require a company to include a statement as to whether or not it has complied throughout the accounting period with the Code provisions. A company that has not complied with the Code provisions, or complied with only some of the Code provisions or (in the case of provisions whose requirements are of a continuing nature) complied for only part of an accounting period, must specify the Code provisions with which it has not complied, and (where relevant) for what part of the period such non-compliance continued, and give reasons for such non-compliance.

Statement of compliance

The Board considers that it has complied with the Code throughout the year ended 31 December 2005. The Company regularly reviews and revises its procedures, as necessary, to take account of the requirements of the Code.

The Board

The Board met six times during the year and there is a formal schedule of matters and levels of authority which are delegated to the executive directors, all other matters and powers being reserved to the Board or to its Committees.

Throughout the year the Board comprised two executive directors and five non-executive directors. Gareth Rhys Williams was a director and the Chief Executive throughout the year. Alastair Hewgill was the Finance Director throughout the year. During 2005 all the directors attended all the Board meetings except for Sir David Bell who was unable to attend the August and December Board meetings due to unavoidable absences abroad on business. On the day of the June Board meeting, immediately prior to its commencement, the Directors received presentations relating to strategy from various parts of the Group. Sir David was in attendance for those presentations, but had to leave prior to commencement of the Board meeting itself to attend a funeral and, consequently, was not present at that meeting.

The directors bring independent character and judgement to bear on strategic matters, the performance of the Group, the adequacy of resources and standards of conduct. The roles of the Chairman (who is non-executive) and of the Chief Executive are separate and they each have a clear written division of responsibilities approved by the Board. Sir David Bell, who completes nine years as a non-executive director on 13 March 2006, will, after that date, no longer be considered independent. Consequently, he stood down, on 1 March 2006, as Senior Independent Director and Will Wyatt assumed that role.

Directors, having notified the Chairman, are able to take independent professional advice at the Company’s expense in furtherance of their duties. All new directors are given an extensive introduction to the Group, including meeting with senior executives and visiting the Group’s principal operations both in the UK and overseas. All directors have access to the advice and services of the Group Company Secretary.

The papers supplied for consideration by the Board are provided on the basis that it gives all Board members adequate time to read and, where appropriate, ask questions prior to the meeting about the information supplied. The information includes budgets, strategy papers, reviews of the Group’s financial position and operating performance and annual and interim reports and accounts. Further information is supplied from time to time as and when requested by the Board.

The Board has an Audit Committee, a Remuneration Committee and a Nominations Committee. Each Committee has formal terms of reference which are available by request from the Company Secretary or can be viewed on the Company’s website. The terms of reference and the effectiveness of the Board and of each Committee are regularly reviewed and changes made where necessary. Points arising from the reviews of effectiveness are summarised and tabled at subsequent Board meetings at which they are discussed and action plans agreed.

Individual director performance evaluation has also taken place. In the case of the executive directors this evaluation takes place by the non-executive directors regularly throughout the year against achievement of specific objectives. Evaluation of the Chairman was carried out by the Senior Independent Director. Evaluation of each of the other non-executive directors was carried out by the Chairman. Each evaluation was carried out by using written questionnaires and the results were discussed individually with each of the relevant non-executive directors. Evaluations are planned to take place each year in the future.

Audit Committee

The Committee is chaired by Nigel Moore. The other members of the Committee are Simon Beresford-Wylie, John Potter and Will Wyatt. Sir David Bell stepped down as a member of the Committee on 1 March 2006. Each member of the Committee is independent. The Company’s external auditors are invited to attend meetings of the Committee on a regular basis. During 2005 the Committee met three times and all the members attended all the Committee meetings except for Sir David Bell who was unable to attend the August Committee meeting due to unavoidable absence abroad on business. At two of the meetings the executive directors were not present for part of the meeting so that members of the Committee could meet with the external auditors in private. The practice of the Committee meeting in private with the external auditors will continue in the future.

Duties of the Committee:

Financial Reporting

Monitoring the integrity of the financial statements of the Company, including its annual and interim reports, preliminary results’ announcements and any other formal announcement relating to its financial performance, reviewing significant financial reporting issues and judgements which they contain. The annual financial statements of the pension funds were not reviewed by the Board as a whole.

Internal Controls and Risk Management Systems

Keeping under review the effectiveness of the Company’s internal controls and risk management systems; and reviewing and approving the statements to be included in the annual report concerning internal controls and risk management.

Whistleblowing

Reviewing the Company’s arrangements for its employees to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters. The Committee ensures that these arrangements allow proportionate and independent investigation of such matters and appropriate follow up action.

Internal Audit

The Company does not have its own internal audit function. However, the need for such a function is regularly reviewed and considered by the Committee. (The use of third party audit consultants is explained more fully in the final paragraph of Internal Control and Risk Management).

External Audit

Considering and making recommendations to the Board, to be put to shareholders for approval at the annual general meeting, in relation to the appointment, re-appointment and removal of the Company’s external auditors. The Committee oversees the selection process for new auditors and, if the auditors resign, the Committee is required to investigate the issues leading to this and decide whether any action is required.

Overseeing the relationship with the external auditors including, but not limited to:

  • approving its remuneration, whether fees for audit or non audit services and that the level of fees is appropriate to enable an adequate audit to be conducted;
  • approving its terms of engagement, including any engagement letter issued at the start of each audit and the scope of the audit;
  • assessing annually its independence and objectivity taking into account relevant professional and regulatory requirements and the relationship with the auditors as a whole, including the provision of any non audit services;
  • satisfying itself that there are no relationships (such as family, employment, investment, financial or business) between the auditors and the Company (other than in the ordinary course of business);
  • agreeing with the Board a policy on the employment of former employees of the Company’s auditors, then monitoring the implementation of this policy;
  • monitoring the auditors’ compliance with relevant ethical and professional guidance on the rotation of audit partners, the level of fees paid by the Company compared to the overall fee income of the firm, office and partner and other related requirements;
  • assessing annually the external auditors’ qualifications, expertise and resources and the effectiveness of the audit process which shall include a report from the external auditors on their own internal quality procedures;
  • meeting regularly with the external auditors, including at the planning stage before the audit and after the audit at the reporting stage. The Committee meets the external auditors at least once a year, without executive directors being present, to discuss their remit and any issues arising from the audit;
  • reviewing and approving the annual audit plan and ensuring that it is consistent with the scope of the audit engagement;
  • reviewing the findings of the audit with the external auditors. This includes but is not limited to the following;
  • a discussion of any major issues that arose during the audit,
  • accounting and audit judgements, and levels of errors identified during the audit.
  • reviewing the effectiveness of the audit and reviewing any representation letter requested by the external auditors before it is signed by management;
  • reviewing the management letter and management’s response to the auditors’ findings and recommendations;
  • developing and implementing a policy on the supply of non audit services by the external auditors, taking into account any relevant ethical guidance on the matter.

Reporting Responsibilities

  • The Committee Chairman reports to the Board on its proceedings after each meeting on all matters within its duties and responsibilities.
  • The Committee makes whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed.

Other Matters

The Committee has access to sufficient resources in order to carry out its duties, including access to the Company Secretary for assistance as required;

The Committee members are provided with training as and when required, both in the form of an induction programme for new members and on an ongoing basis for all members;

The Committee may oversee any investigation of activities which are within its terms of reference and act as a court of the last resort; and

At least once a year, reviewing its own performance, constitution and terms of reference to ensure it is operating at maximum effectiveness and recommending any changes it considers necessary to the Board for approval.

Authority

The Committee is authorised to seek any information it requires from any employee of the Company in order to perform its duties and to obtain, at the Company’s expense, outside legal or other professional advice on any matter within its terms of reference. It is also authorised to call any employee to be questioned at a meeting of the Committee as and when required.

Information correct at 03/05/2006