Corporate Governance

for the year ended 31 January 2011

The Group supports the Principles of Good Governance and Code of Best Practice as set out in the FRC Combined Code issued in June 2008. The Board has considered the implications of the revised Combined Code on the Group’s governance and will comply with those provisions considered appropriate for the size of the Group; these are explained below.

Application of Principles of Good Governance

Board of Directors

During the year the Board of Directors comprised three Executive and four Non-Executive Directors. A list of Director biographies together with their roles is given on page 17 of the 2011 Annual Report. Ian Davies, who is considered to be independent, was appointed as a Non-Executive Director during the year. Tom Crawford is not considered independent owing to the fact that he is a significant shareholder.. The Group has an Independent Chairman (Ian Kirkpatrick) and Senior Independent Non-Executive Director (Gus Moore) who are both members of the Audit, Remuneration and Nomination Committees. The Executive Board members were the Chief Executive Officer, Group Finance Director and European Managing Director.

The Board meets at least 10 times per annum and has a fixed schedule for reviewing the Group’s operating performance. In addition other meetings are arranged as required to deal with specific issues or transactions. The Board also has a schedule of matters and responsibilities specifically reserved to itself, the main items of which include:

approval of the published financial results and other statements;
appointments to the Board and other Board Committees;
approval of the annual Group Strategic Plan and Budget;
approval for acquisitions, mergers and disposals;
approval for new businesses which require start up capital;
approval of capital expenditure and leasehold agreements over certain thresholds;
approval of material contracts over certain thresholds and those not in the ordinary course of business; and
approval of treasury policy and significant financing arrangements.

During the year attendance at the pre-arranged meetings was 100% for all Board members. There were 11 Board meetings in the 12 months to 31 January 2011.

The Executive Directors are responsible for the overall operational and financial management of the Group within the framework set out by the Board. The Executive Council sits below the Group Board and executes the day to day running of operations. The Executive Council is made up of senior operational management, including the executive directors. Outside the formal schedule of matters reserved for the Board, the Chairman and Non-Executive Directors make themselves available for consultation with the Executive team as often as necessary.

Procedural compliance is monitored by the Chairman and the Group Finance Director (who is also the Company Secretary) and Directors’ appointment and removal is a matter for the Board as a whole. Independent professional advice and training are available to all the Directors. The Senior Non-Executive Director is available for consultation with shareholders, through the Company Secretary. The Executive Directors have met with the Company’s major shareholders and other potential investors on a regular basis and have reported to the Board on those meetings.

On joining the Board, a new Director receives appropriate induction including meeting with other Directors and senior management, visiting the Group’s key operations and meeting the Group’s principal advisers.

The Board has a policy of providing reasonable funding for independent professional advice for all Directors in furtherance of their duties as Directors of the Company.

In relation to non-reserved matters the Board is assisted by a number of committees with delegated authority.

The board discusses and reviews its performance and membership regularly, both individually and as a whole, and continues to consider that it is operating effectively. In the year, a formal survey was conducted to allow the board to provide confidential feedback on its performance.

Audit Committee

The Audit Committee meets at least twice a year with the Group’s senior financial management and external auditors to review the interim and annual financial statements, the accounting policies of the Group, its internal financial control procedures and compliance with accounting standards. The members of the Committee are Ian Kirkpatrick, Ian Davies and Gus Moore, all three of whom are independent Non-Executive Directors. The Chairman of the Audit Committee was Ian Kirkpatrick until the appointment of Ian Davies who took over the Chairman role. The Audit Committee met three times in the year to 31 January 2011 with full attendance by its members at the time.

The Board considers that the membership of the Committee as a whole has sufficient recent and relevant financial experience to discharge its function. The Committee has a formal agenda, timetable and terms of reference.

During the course of the year ended 31 January 2011 the Committee has:

reviewed the financial statements and the financial reporting judgements contained within those statements for the Group and any formal announcements relating to the Group’s financial performance;
reviewed the Group’s internal control system and risk controls;
reviewed various reports and recommendations from the Group’s internal audit function;
made a recommendation to the Board in relation to the appointment, terms of engagement and remuneration of the external auditors whilst monitoring their independence and objectivity;
reported to the Board any matters, which it considered needs action or improvements together with recommended actions;
made itself available to hear any concerns from staff, in confidence; and
reviewed the effectiveness of the audit process.

The Committee’s full terms of reference are available from the Company Secretary on request.

The Audit Committee applies a policy which governs the provision of audit and non-audit services provided by the auditors and, in summary, requires significant non-audit services other than tax and other compliance services to be subjected to a competitive tendering process.

The Committee is authorised to engage the services of external advisers, as it deems necessary and at the company’s expense in order to carry out its function.

Remuneration Committee

The Remuneration Committee meets at least twice a year. The members of the Committee are Ian Kirkpatrick (Chairman) and Gus Moore, both of whom are independent Non-Executive Directors. The Committee’s full terms of reference are available from the Company Secretary on request. The Remuneration Committee met eight times in the year to 31 January 2011 with full attendance by its members.

The Remuneration Committee determines and approves the broad policy and specific remuneration and long term incentive arrangements of the Company’s Executive Directors and certain of the senior management. The Chief Executive Officer may be invited to attend and speak at meetings of the Committee, but does not participate in any matter which impacts upon his own remuneration arrangements.

The remuneration of the Non-Executive Directors including the Chairman is set by the Executive Directors.

The Directors’ Remuneration Report on pages 29 to 33 of the 2011 Annual Report includes details of remuneration policy, practices and the remuneration of the Directors.

Nomination Committee

The Company has a Nomination Committee, which provides a transparent process and procedure for the appointment of new Directors to the Board. The members of the Committee are Ian Kirkpatrick (Chairman), Gus Moore (Senior Independent Non-Executive) and Albert Ellis (Chief Executive). The Committee’s terms of reference, which are available from the Company Secretary on request include:

responsibility for identifying and nominating candidates for appointment to the Board;
evaluating the balance of skills, knowledge and experience required on the Board; and
succession planning.

Directors’ Remuneration

Details of Directors’ remuneration and the procedures for developing policy on executive remuneration and for fixing the remuneration of the Board are contained in the Remuneration Report set out on pages 29 to 33 of the 2011 Annual Report

Relations with Shareholders

The Board maintains regular dialogue with its institutional shareholders and City analysts by conducting formal presentations, being readily available for discussion and providing information as required. Shareholder attendance and participation at the AGM is welcomed. Amendments to the Company’s articles require shareholder approval at the AGM.

Accountability and Audit

The Board made every effort to ensure that this report represents a balanced understandable assessment of the Group’s position and prospects.

The means by which the Board maintains a sound system of internal financial control is set out below.

Internal Control

The Directors have overall responsibility for ensuring that the Group maintains a system of internal controls, for monitoring their effectiveness to provide them with reasonable assurance regarding the reliability of financial information used within the business and for publication, and that assets are safeguarded. There are inherent limitations in any system of internal control and accordingly even the most effective system can only provide reasonable, and not absolute, assurance against misstatement or loss.

The Board identifies and appraises risks, and maintains control and direction over appropriate strategic, financial, and organisational structure matters with formally defined lines of responsibility and delegation of authority. There are established procedures for planning and capital expenditure, for information and reporting systems, and for monitoring the Group’s business and its performance. The Board has delegated to executive management the implementation of the systems of internal financial control within an established framework that applies throughout the Group, and is responsible for reviewing the Group’s whistle blowing procedures.

The Directors believe the following to be the key procedures established to provide internal financial control:

The operation of authorisation procedures.
Clearly delegated responsibilities.
Close involvement of senior management in day to day activities.
Setting of detailed annual budgets with detailed reporting of variance analysis on a monthly basis.
The operation of an Audit Committee, supported by an internal audit function.

During the year, the internal audit function was reviewed by the audit committee. Whilst there were no significant concerns raised, all actions required as a result of the findings were discussed and agreed as part of an Audit Committee meeting.