Combined Code
The company remains committed to the highest standards of corporate governance and manages its affairs in accordance with the 2003 FRC Combined Code on Corporate Governance (“the Combined Code”) published in July 2003 and as revised in July 2006. The company has complied throughout the year with the provisions set out in the Combined Code except where noted on page 27. This statement, together with the directors’ remuneration report, describes how the company has applied the main principles of the Combined Code. The FRC issued the new UK Corporate Governance Code in June 2010 which applies to accounting periods beginning on or after 29 June 2010. The company will report on its compliance with the specific provisions of the new code in next year’s annual report.
The board
The board comprises the non executive chairman, the chief executive, the executive finance director and two other non executive directors, including W Tame who has been nominated as senior independent director. It is the board’s opinion that all the non executive directors were independent in accordance with the Code. Under the company’s articles of association, all directors must offer themselves for re-election at least once every three years. However, there are no directors retiring by rotation in 2011. The biographies of all the directors appear on page 16.
The roles of chairman and chief executive are held by separate directors with a clear division of responsibilities between them. All directors have access to the advice and services of the secretary, E Cook, who is responsible to the board for ensuring the proper conduct of board procedures and compliance with appropriate regulations. The appointment and removal of the secretary is a matter for the board as a whole. 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 |
| C G Ross |
9 |
9 |
4 |
4 |
3 |
3 |
| M J C Derbyshire |
9 |
9 |
4 |
4 |
3 |
3 |
| W Tame |
9 |
9 |
4 |
4 |
3 |
3 |
| I Williamson |
9 |
9 |
- |
- |
- |
- |
| R J Brooksbank |
9 |
9 |
- |
- |
- |
- |
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). The chairman together with the chief executive establish the agenda for each board meeting. Briefing papers are distributed by the secretary to
all directors in advance of board meetings. All directors receive training and briefing on joining the board and subsequently as appropriate. The directors are authorised to obtain independent advice as required.
Where appropriate, matters are delegated to the following board and executive committees. The terms of reference of the board committees are posted on the company’s website.
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. The nomination committee is assisted by recruitment consultants as appropriate and meets candidates shortlisted for appointment before recommending an appointment to the board.
In the last year the full committee has met twice to discuss succession planning and board performance.
Terms of reference for the Nomination Committee (PDF 8KB) >
Remuneration committee
As required by the Combined Code, the company has established a remuneration committee consisting entirely of independent non executive directors including the group chairman. The remuneration committee meets at least three times a year and is chaired by M J C Derbyshire. 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 29 to 35 sets out the group’s remuneration objectives and policy and includes full details of directors’ remuneration in accordance with the provisions of Schedule B to the Combined Code.
A resolution will be proposed at the annual general meeting to approve the directors’ remuneration report.
Terms of reference for the Remuneration Committee (PDF 9KB) >
Audit committee
The audit committee comprises all the non executive directors including the group chairman and meets not less than three times annually. The committee is chaired by W Tame who, as current finance director of Babcock International Group plc, has both recent and relevant financial experience. 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 Combined Code and include reviewing the scope and results of the audit and the cost effectiveness, independence and objectivity of the auditors. It also reviews the level of audit and non audit fees to ensure that the external auditors’ independence and objectivity is safeguarded. The committee assists the board in observing its responsibility for ensuring that the group’s financial systems provide accurate information which is properly reflected in 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.
Terms of reference for the Audit Committee (PDF 12KB) >
Group executive committee
The group executive committee is chaired by the chief executive and comprises all the executive directors together with the secretary, group financial controller 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 secretary, group financial controller and group 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.
Investor relations
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. Major shareholders have been advised that the chairman and the non executive directors are available for separate discussions if required.
The board uses the annual general meeting to communicate with private and institutional investors and welcomes their participation. 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 16 September 2011 can be found in the notice of meeting on pages 72 to 74.
Accountability and audit
Directors' responsibilities
The directors are responsible for preparing the annual report and the group and parent company financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare group and parent company financial statements for each financial year. Under that law they are required to prepare the group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).
Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and parent company and of their profit or loss for that period. In preparing each of the group and parent company financial statements, the directors are required to –
- select suitable accounting policies and then apply them consistently;
- make judgments and estimates that are reasonable and prudent;
- for the group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;
- for the parent company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the parent company financial statements; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the parent company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company's transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the directors are also responsible for preparing a directors' report, directors' remuneration report and corporate governance statement that complies with that law and those regulations. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
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” (the Turnbull Report). These procedures provide for a continuous process for identifying, evaluating and managing the 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 2011, the board has reviewed the effectiveness of the group’s system of internal control, 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.
Compliance with the Combined Code
The information in this report demonstrates how the company has complied with the Combined Code throughout the year with the following exception (references in brackets are to the relevant Combined Code provision) -
In order to comply with the requirement for the audit (C.3.1) and remuneration (B.2.1) committees to comprise a minimum of three independent non executive directors, the group chairman has remained a member (although not chairman) of these committees. For the purposes of the Combined Code, the group chairman is not deemed to be an independent director.
It should be noted that the new UK Corporate Governance Code states that in smaller companies the group chairman may be a member of, but not chair, these committees provided he was considered independent on appointment as chairman (as is the case for Carclo).
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