Extract from 2009 Annual Report
The Board has reviewed the procedures to comply with the provisions of Section 1 of the Combined Code (2008) and is committed to the principles of corporate governance.
Compliance
As a company trading on AIM, the Company is not required to comply with the Combined Code nor state the areas in which it does not comply. However, the Company has complied with the provisions of the Combined Code throughout the period ending 31st December 2009, other than the provisions in relation to the non-attendance by the Senior Independent Director at meetings with major Shareholders and the division of responsibility of Chairman and Chief Executive.
The Executive Chairman and Finance Director regularly meet with the Company’s major Shareholders and the Board is of the opinion that additional regular meetings, other than those specifically requested by Shareholders, with the Senior Independent Director would not assist further in the dialogue with Shareholders. The Senior Independent Director is available to meet with Shareholders, at their request, and the Board believes this arrangement to be sufficient.
Since the 8th September 2008, Mr. J. Talbot has held the role of Executive Chairman. The Board, having carefully considered the position, believes that each of the Group’s three business divisions has a strong management team given the experience and sector knowledge of the divisional Managing Directors, who all sit on the Board. Accordingly, the Board considers that it is unnecessary for the Company to retain a Chief Executive Officer and considers that it is therefore appropriate for the role of chairman to carry executive responsibility.
The Company’s compliance with the Combined Code (2008) has been reviewed by the Auditors and their report is given on page 33.
The Board
The Directors, who are detailed on page 16, all held office throughout the year, with the exception of Mr. W. M. F. C. Shannon, who was appointed to the Board with effect from 8th May 2009. Baroness Wilcox held office until retiring from the Board on 30th September 2009.
The Board met formally seven times during 2009. Additionally, the Directors met informally on one other occasion. Individual attendance at the formal meetings is set out in the table below. Where N/A appears in the table, the Director is not a Committee member.
|
Name |
Board
(Scheduled) |
Audit
Committee |
Nomination
Committee |
Remuneration
Committee |
|
John Talbot |
7 |
N/A |
1 |
N/A |
|
Yvonne Monaghan |
7 |
N/A |
N/A |
N/A |
|
Kevin Elliott |
6 |
N/A |
N/A |
N/A |
|
Paul Ogle |
7 |
N/A |
N/A |
N/A |
|
Christopher Sander |
6 |
N/A |
N/A |
N/A |
|
Michael Gatenby |
6 |
3 |
1 |
6 |
|
Michael Del Mar |
7 |
3 |
1 |
6 |
|
William Shannon (note 1)
|
4 |
1 |
0 |
3 |
|
Number of Meetings |
7 |
3 |
1 |
6 |
Note 1 – There have been four Board meetings, two Audit Committee meetings, no Nomination Committee meetings and four Remuneration Committee meetings since appointment on 8th May 2009.
In addition, the Non-Executive Directors have met during the year without their Executive colleagues and additionally without the Executive Chairman. A performance evaluation of Mr. J. Talbot, in his role of Executive Chairman, was conducted in respect of 2009 by the Non-Executive Directors. In addition, the Executive Chairman has conducted an appraisal of each member of the Board, Board composition and the format and effectiveness of the Board meetings in respect of 2009.
During the year a formal evaluation of the Audit Committee was conducted by means of a questionnaire being sent to members of the Audit Committee. The responses were reviewed by the Chairman of the Committee and, where appropriate, actions to improve the effectiveness of the Committee are agreed and implemented accordingly. The results of these reviews were discussed by the Board as a whole, with action taken as appropriate.
The Board currently consists of an Executive Chairman, four Executive Directors and three Non-Executive Directors. The Non-Executive Directors are considered to be independent in character and judgement. The Non-Executive Directors are a strong element within the Board with their views carrying significant weight in the decision making process. All Directors are subject to re-election at the Annual General Meeting if appointed to the Board since the last Annual General Meeting or if it is the third annual general meeting following the annual general meeting at which he was elected or last re-elected. Appropriate training is available to Directors upon appointment and as required on an ongoing basis. Furthermore, on appointment, Directors participate in a customised induction programme to familiarise them with the Group.
Until 8th September 2008, there had been a clear division of responsibility, as set out in writing and agreed by the Board, between the Chairman and the Chief Executive, each of which has clearly defined roles. The Chairman was responsible for the effective running of the Board whilst the Chief Executive was responsible for operating the business and implementing the Board’s strategies and policies. For the period from 8th September 2008 the roles of Chairman and Chief Executive have been combined. The Board believes that each of the Group’s three business divisions has a strong management team, each with representation on the Board, and therefore considers it appropriate for the roles of Chairman to carry executive responsibility. The commitments of the Executive Chairman are disclosed within the Directors’ Biographies on page 16. The overall commitments have not changed during the year.
The Board, in addition to routine consideration of both financial and operational matters, determines the strategic direction of the Group. The Board has a formal schedule of matters specifically reserved for its decision which can only be amended by the Board itself. The specific responsibilities reserved for the Board include: approval of the Group’s long-term objectives and overall strategy; approval and monitoring of the annual operating budget; approval of major acquisitions, disposals and capital expenditure; dividend policy; approval of appointments to the Board and of the Company Secretary; approval of policies relating to Directors’ remuneration; consideration of succession planning for key members of the management team; and determining the terms of reference for the Board committees.
To assist the Board in performing these responsibilities, information appropriate in quality and timeliness, is received in an agreed format, for each full Board meeting.
The following responsibilities have been delegated to Executive management: the development of strategic plans that reflect the longer term objectives and priorities established by the Board; implementation of strategies and policies as determined by the Board; monitoring of operational and financial performance against plans and budgets; and developing and implementing risk management systems.
The Directors have access to the advice and services of the Company Secretary and it is acknowledged that individual Directors may wish to seek independent professional advice in connection with their responsibilities and duties. The Company will meet reasonable expenses incurred in this regard.
The Committees of the Board are the Audit Committee, Remuneration Committee and the Nomination Committee. Both the Audit Committee and the Remuneration Committee consist wholly of the Non-Executive Directors, whilst the Nomination Committee consists of the Executive Chairman and the Non-Executive Directors. Board appointments are subject to approval by the Board as a whole. Members of the Committees are shown on page 92. Each Committee has written terms of reference which are available on the Company’s website.
Audit Committee
The Audit Committee meets at least three times per year, and, where appropriate, meets, in private, with the external Auditors. The Board has satisfied itself that the composition of the Audit Committee is in compliance with the Combined Code.
The main responsibilities of the Committee include: monitoring the financial reporting process and the integrity of the financial statements; review of the financial statements and announcements relating to financial performance and recommending them to the Board; monitoring and reviewing the system of internal control including the work of internal audit; ensuring the maintenance of a control environment and the appropriate management of risk; recommendation of appointment of and liaison with the external Auditors; annual review and monitoring of external Auditors’ independence and objectivity and the effectiveness of the audit process; development and implementation of policy on the engagement of the external Auditors to supply non-audit services;
and review of arrangements under which employees may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters ensuring that arrangements are in place for the proportionate and independent investigation and appropriate follow-up action.
In 2009 the Audit Committee discharged its responsibilities by: reviewing the Group’s draft financial statements and interim results statement prior to Board approval and reviewing the external Auditors’ report thereon; reviewing the external Auditors’ plan for the audit of the Group accounts, confirmations of auditor independence and proposed audit fee and approving terms of engagement for the audit; reviewing internal audit’s work programme and reports on its work during the year; review of the risk management programme; review of Group Directors’ expenses; and monitoring of reporting and follow up of items reported on the employee hotline established in line with the Code of Ethics.
The Committee also regularly monitors the non-audit services being provided by the external Auditors. Note 4 details fees relating to non-audit services, summarised according to the type of services provided. A policy regarding the provision of non-audit services is in place, such that non-audit work has been categorised into 3 areas: normally performed by the Auditors; may be performed by the Auditors; and that normally performed by another provider. With reference to this policy, the selection of professional service firms for non-audit work is at the discretion of the management, taking into account which firm is best placed to perform such work to meet the interests of the Company and Shareholders and with regard to ensuring that independence is not compromised.
The Committee confirms it is satisfied with the independence, objectivity and effectiveness of the external Auditors, PricewaterhouseCoopers LLP, and accordingly a resolution to re-appoint PricewaterhouseCoopers LLP as Auditors will be proposed at the forthcoming Annual General Meeting.
The work undertaken by the Audit Committee, supported by the internal audit function, helps to enable the Board to make the statements relating to internal control on page 23 and the going concern basis on page 20.
Remuneration Committee
The responsibilities of the Remuneration Committee are outlined in the Board Report on Remuneration, page 24.
Nomination Committee
The responsibilities of the Nomination Committee include: reviewing the Board structure, size and composition; identifying and nominating candidates to fill vacancies; keeping up to date and fully aware of the strategic and commercial changes affecting the Group and the markets in which it operates; keeping under review the leadership needs of the business with a view to ensuring the continued ability to compete effectively in the marketplace; considering the continuing service of a Director; and providing recommendations for reappointment of Directors retiring by rotation.
The Committee meets as required and met during the year to review the structure and composition of the Board. As set out on page 18, the Committee appointed a Non-Executive Director, William Shannon, to the Board during the year to replace Baroness Wilcox, who retired at the end of her term.
Relations with Shareholders
The Company has an active investor relations programme with the Executive Chairman and the Finance Director meeting key institutions, both Shareholders and prospective Shareholders, in the periods following the announcement of the annual and interim results and at other appropriate times during the year.
The Board is of the opinion that additional routine meetings with the Senior Independent Director would not assist further in the dialogue with Shareholders. However, the Senior Independent Director is available to meet with Shareholders, at their request. Feedback is provided to the Board on any issues raised at these meetings. External brokers’ reports are circulated to the Directors.
The Shareholders’ views of the investor meetings following the interim and final results are obtained by the Group’s brokers and circulated to the Board.
The Board welcomes private and Institutional Shareholders to the Annual General Meeting, which is normally attended by all Directors, to discuss appropriate topics during the meeting or with the Directors after the formal proceedings have ended. The Board considers that the Preliminary Announcement, the Annual Report including the Chairman’s Statement and the Financial Review which are contained therein, the Interim Report and trading update statements made during the year present a balanced and clear assessment of the Group’s position and prospects.
Internal Control
The Board is responsible for the Group’s system of internal control and for reviewing its effectiveness which has been undertaken during the year. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. There is an on-going process for identifying, evaluating and managing the Group’s significant risks that has been in place throughout the year ended 31st December 2009 and up to the date of approval of the financial statements. This process has been regularly reviewed by the Board and accords with the internal control guidance of the Combined Code for Directors. The Audit Committee receives reports setting out key performance and risk indicators and considers possible control issues brought to its attention by early warning mechanisms which are embedded within the operational units and reinforced by risk awareness training.
The Audit Committee also receives regular reports from the internal audit function and, where appropriate, recommendations for improvement are considered. The Audit Committee’s role in this area is confined to a high level review of the arrangements for internal control.
The Board’s agenda includes a bi-annual consideration of risk and control and it receives reports thereon from the Audit Committee. The emphasis is on obtaining the relevant degree of assurance and not merely reporting by exception. The main features of the internal financial control framework are detailed below.
Financial Reporting
The Board reviews the strategies of the Group and of the subsidiary undertakings. There is a detailed budgeting system with an annual budget both challenged and approved by the Board. Monthly results are reported against the corresponding figures for the budget and the previous year with corrective action initiated by the Board as appropriate.
Treasury Management
The Group’s treasury activities are operated within Board approved guidelines. Facilities are approved by the Board and all transactions are controlled and monitored. Monthly summaries of treasury management activities are prepared for the Board. Speculative transactions are not undertaken.
Risk Management
The identification of major business risks is carried out in conjunction with operating management and reviewed by the Audit Committee and the Board. The Board regularly assesses the financial implications and effectiveness of the control process in place to mitigate or eliminate these risks. The Group has insurance cover where it is considered appropriate and cost effective.
Financial Control
Each business maintains financial controls and procedures appropriate to its own operating environment.
The Group has a centralised internal audit function, based at Head Office, which can second additional resources from operating companies, and which reviews the systems and procedures in all operating companies and reports regularly to the Audit Committee. A review of control procedures is undertaken in respect of all new acquisitions, within the first three months of ownership, and action taken where necessary to bring the controls up to the level required by the Group.
The Group has clearly defined guidelines for the review and approval of capital expenditure projects. These include annual budgets and designated levels of authority.
Code of Ethics
The Group has a written code on business ethics, which is reviewed regularly by the Board and which sets out guidelines for all staff to enable the Group to meet the highest standards of conduct in business dealings including those with overseas suppliers. New acquisitions are made aware of these standards on joining the Group and plans are put in place to ensure compliance is achieved.
Senior employees are required to sign an annual statement of compliance with the Code. A confidential hotline service is available to employees should anyone wish to report perceived improprieties. Arrangements are in place to ensure any reports are followed up and the appropriate action taken.
Environmental Matters
The Board is aware of its responsibilities with regard to the environment, receives regular reports on all environmental matters and has nominated the Managing Director of the Textile Rental Division responsible for such matters. Potential areas of risk are identified through the Group’s risk assessment programme and mitigated wherever possible. Key operating divisions undertake quantitative audits which enable a measure of environmental improvement to be made. Several of the Group’s operating companies have achieved or are working towards ISO 14001:2004 Environmental Management System Certification.
By order of the Board
Yvonne Monaghan
Secretary
9th March 2010