corporate governance/responsibility

The company remains committed to the highest standards of corporate governance for which the board is accountable. The company has complied throughout the year with the main provisions of the 2012 UK Corporate Governance Code (the “Code”) issued by the Financial Reporting Council. This statement, together with the directors’ remuneration report, describes how the company has applied the main principles of the Code.

The Board

During the year the board comprised the non-executive chairman, the chief executive, the executive finance director and two other non-executive directors. One non-executive director retired at the end of the year and two new non-executive directors were appointed on 1 April 2015. Under the company’s articles of association, all directors must offer themselves for re-election at least once every three years. However, in accordance with developing best governance practice, this year all directors are again retiring and seeking re-election as appropriate. The biographies of all the directors appear on page 32. The roles of chairman and chief executive are held by separate directors with a clear division of responsibilities between them. The chairman has primary responsibility for leading the board and ensuring its effectiveness. He sets the board’s agenda and ensures that all directors can make an effective contribution. The chief executive has responsibility for all operational matters and the development and implementation of group strategy approved by the board.

The chairman and each non-executive director were independent on appointment and the board considers each non-executive director to be independent in accordance with the Code. The board appointed W Tame as senior independent non-executive director who is available to shareholders if they have concerns which have not been resolved through the normal channels of chairman or chief executive until his retirement on 31 March 2015. Since this date the board have appointed P Slabbert as senior independent non-executive director. The board meets regularly (at least nine times each year) and there is contact between meetings to progress the company’s business. During the year attendance by directors at meetings of the board and the various Committees is set out below.

Board Meetings Remuneration Audit
No.
Held
No.
Attended
No.
Held
No.
Attended
No.
Held
No.
Attended
M J C Derbyshire 10 10 4 4 3 3
W Tame 10 9 4 4 3 3
RJ Rickman 10 10 4 4 3 3
CJ Malley 10 10 - - - -
R J Brooksbank 10 10 - - - -

The board has a formal schedule of matters specifically reserved to it for decision (including the development of corporate strategy and the approval of annual budgets, major capital expenditure and potential acquisitions and disposals). Briefing papers are distributed by the secretary to all directors in advance of board meetings. All directors participate in a full induction process on joining the board and subsequently receive training and briefing as appropriate. The directors are authorised to obtain independent advice as required.

Conflicts of interest

Under the requirements of the Companies Act 2006 each director must seek authorisation before taking up any position that may conflict with the interests of the company. The board has not identified any actual conflict of interest in relation to existing external appointments for each director which have been authorised by the board in accordance with its powers. A register is maintained by the company secretary and reviewed on an annual basis.

Board evaluation

This year the chairman supervised an internal evaluation of the board’s performance and that of its three principal Committees. In addition, an evaluation of the performance of individual directors was undertaken. The evaluation process was based on a series of questions devised for the purpose and circulated to the directors. The process reviewed issues such as: the assessment and monitoring of the company’s strategy; the monthly board meeting agenda and information flow, the evaluation of risk and social responsibilities including anti-bribery policies and environmental risks. There was also a review of the role and performance of the board Committees. The results of the evaluation were collated by the chairman and will form the basis of board objectives for 2015, including:

  • refining the group’s technology business strategy
  • discussion of management and board succession
  • further evaluation of business risks
  • development of environmental policies including energy minimisation strategies

The Nomination Committee recognises the benefits to the group of diversity in the workforce and in the composition of the board itself and supports the Davies Report’s aspiration to provide a greater female representation on listed company boards. While the company will continue to make all appointments based on the best candidate for the role, we will look to follow the procedures recommended by the Davies Report and by the Code when new board appointments are made.

Board Committees

The board has three Committees, Nomination, Remuneration and Audit all of which have terms of reference which deal specifically with their authorities and duties. The terms of reference may be viewed on the company’s website. All Committee appointments are made by the board. Only the Committee chairmen and members of the Committees are entitled to be present at Committee meetings, but others may attend by invitation.

Nomination Committee

The Nomination Committee comprises the non-executive directors. The Committee is chaired by the group chairman and is responsible for proposing candidates for appointment to the board, having regard to the balance and structure of the board. In considering an appointment the Committee evaluates the balance of skills, knowledge and experience of the board and prepares a description of the role and capabilities required for a particular candidate. In the last year the full Committee has met once to discuss succession planning, board performance and appointment of new non-executive directors.

A rigorous and transparent process was in place for the appointment of the two new non-executive directors. An external search consultant, Korn Ferry, which has no other connection with the group assisted with the process.

Remuneration Committee

The company has established a Remuneration Committee consisting entirely of independent non-executive directors including the group chairman. The Remuneration Committee met four times during the year and is chaired by R Rickman. The Committee recommends to the full board the company’s policy on executive director and executive management remuneration and continues to determine individual remuneration packages for executive directors.

The Remuneration Committee is authorised by the board to obtain independent professional advice if it considers this necessary. The directors’ remuneration report on pages 40 to 56 sets out the group’s remuneration objectives and policy and includes full details of directors’ remuneration in accordance with the provisions of the Code.

Audit Committee

The Audit Committee comprises all the non-executive directors including the group chairman and meets not less than three times annually. During the year the Committee was chaired by W Tame who, as finance director of Babcock International Group plc until his appointment as the chief executive of Babcock’s international division in August 2014, had both recent and relevant financial experience. Following his retirement on 31 March 2015 the Committee will be chaired by P Slabbert who is a Chartered Accountant and who was the former group finance director of Avon Rubber plc until his appointment as chief executive in April 2008. The Committee provides a forum for discussions with the group’s external and internal auditors. Meetings are also attended, by invitation, by the chief executive and finance director.

The Audit Committee has terms of reference which follow closely the recommendations of the Code and include the following main roles and responsibilities:

  • To monitor the financial reporting process.
  • To review the effectiveness of the group’s internal financial controls, internal control and risk management systems and internal audit function.
  • To review the independence and effectiveness of the external auditor, including the provision of non-audit services.

The Committee has reviewed whistleblowing arrangements whereby employees can report concerns about financial irregularities, health and safety and environmental or legal matters. A dedicated whistleblower email address has been set up, details of which are included in new employee induction material and advertised at operating sites.

The Audit Committee assists the board in observing its responsibility for ensuring that the group’s financial systems provide accurate information which is properly reflected in the published accounts. It reviews half year and annual accounts before their submission to the board and reviews reports from the internal auditors and computer department. The Audit Committee report is set out on pages 38 to 39.

Certain operational and administrative matters are delegated by the board to the following executive Committees:

Group Executive Committee

The Group Executive Committee is chaired by the chief executive and comprises all the executive directors together with the company secretary and selected managing directors from operating companies. The Committee meets each month and is responsible to the board for running the ongoing operations of the group’s businesses.

Finance, administration and risk management committee

The finance, administration and risk management committee is chaired by the finance director and comprises the company secretary, deputy group financial controller and group project accountant. The Committee meets at least quarterly and is custodian of the group finance manual and is responsible for setting accounting and risk management policies and ensuring overall compliance with Turnbull guidance on internal controls.

Accountability and audit

Internal control

The board confirms that it has established the procedures necessary to implement the guidance “Internal Control: Guidance for Directors on the Combined Code”. These procedures provide for a continuous process for identifying, evaluating and managing the principal material business risks faced by the group. This process has been in place throughout the year under review and up to the date of approval of the annual report and accounts. The process has been reviewed by the board and is in accordance with the guidance given in the Turnbull Report.

For the year ended 31 March 2015, the board has reviewed the effectiveness of the group’s system of internal control and risk management, for which it retains overall responsibility. Responsibility for operating the system is delegated to the group executive committee and responsibility for monitoring the system is delegated to the finance, administration and risk management Committee. The audit Committee reviews the effectiveness of the group’s internal control system, the scope of work undertaken by the internal auditors and its findings, the group’s accounts and the scope of work undertaken by the external auditors. Reviews are undertaken regularly and cover each accounting year and the period up to the date of approval of the accounts.

The internal control system is designed to manage rather than eliminate the risk of failure to achieve business objectives. Although no system of internal control can provide absolute assurance against material misstatement or loss, the group’s system is designed to provide reasonable assurance that problems are identified on a timely basis and dealt with appropriately. The principal features of the group’s internal control structures can be summarised as follows –

a) Matters reserved for the board

The board holds regular meetings and has a number of matters reserved for its approval, including major capital expenditure, treasury and dividend policy. The board is responsible for overall group strategy and for approving all group budgets and plans. Certain key areas are subject to regular reporting to the board including treasury operations, capital expenditure, corporate taxation and legal matters. The Audit Committee assists the board in its duties regarding the group’s financial statements and liaises with the external auditors.

b) Organisational structure

There is a clearly defined organisational structure with lines of responsibility and delegation of authority to divisional executive management. Divisional responsibility is supplemented by a group finance manual which dictates policies and practices applicable across the group and includes accounting, purchasing, capital expenditure and codes of business conduct. These are reviewed by the internal auditor and are reported to the Audit Committee. This process forms part of the Audit Committee’s review of the effectiveness of the group’s system of internal control.

c) Financial control and reporting

There is a comprehensive group wide system of planning and budgeting with frequent reporting of results to each level of management as appropriate, including monthly reporting to the board. Reviews involving executive directors and divisional executives include the annual identification and assessment of business and financial risks inherent in each division.

d) Internal auditor

Mazars LLP continues to provide the outsourced internal audit function. The internal auditor monitors and reports on the system of internal control. The internal auditor reports to the Audit Committee and works to an agreed programme.

Relations with shareholders

The company recognises the importance of communication with its shareholders. Regular meetings are held between directors of the company and major institutional shareholders including presentations after the company’s preliminary announcements of the half year and full year results and discussions on performance and strategy. Major shareholders have been advised that the chairman and the non-executive directors are available for separate discussions if required. The chairman held meetings with several major shareholders during the year. The board uses the annual general meeting to communicate with private and institutional investors and welcomes their participation. Shareholders have the opportunity to raise questions with the board during the meeting. Directors also make themselves available before and after the annual general meeting to talk informally to shareholders, should they wish to do so. The level of proxies received for each annual general meeting resolution is declared after the resolution has been dealt with on a show of hands providing no poll has been called for. Details of the resolutions to be proposed at the annual general meeting on 3 September 2015 can be found in the notice of meeting on pages 106 to 108.

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