corporate governance report
The Board of Directors is responsible to shareholders for the strategic direction and management and control of the Group's activities and is committed to high standards of Corporate Governance in achieving these goals. The Board confirms that the Group has complied throughout the period since admission to the London Stock Exchange on 29 October 2007 to the year end (the 'Period') with the recommendations of the Combined Code on Corporate Governance issued in July 2006 (the 'Combined Code') in all respects other than as set out below in the 'Areas of non-compliance' section. The following summary of the Company's compliance with Section 1 of the Combined Code relates to the period after 29 October 2007.
Composition of the Board
In preparation for the Company's admission to the London Stock Exchange, the Company altered the membership of its Board and in particular appointed a new non-executive Chairman, and two new, independent non-executive Directors. Accordingly, during the Period, the Board comprised the non-executive Chairman, two executive Directors and five non-executive Directors. The Board considers that two of the non-executive Directors, Simon Batey and John O'Reilly, are independent and free from any business or other relationship which could materially interfere with the exercise of their independent judgement. In addition, the Chairman was considered independent at the date of his appointment as Chairman, although for the purposes of the Combined Code he is excluded from the calculation of the Group's number of independent non-executive Directors.
The Board is satisfied with the balance between executive and non-executive Directors which allows it to exercise objectivity in decision-making and proper control of the Group's business. The Board considers that its composition is appropriate at the Group's current stage of development in view of the size and requirements of the Group's business and the need to maintain a practical balance between executives and non-executive Directors.
The Group has a highly committed and experienced Board, which is supported by a senior management team, with the qualifications and experience for the running of the Group. Each of the executive Directors is expected to act in accordance with ethical principles, including those of any professional body of which they are a member. The non-executive Directors are of high calibre and contribute wide-ranging business and financial experience to the Board's decision making process. Biographies of each member of the Board are set out in the Board of Directors section and their terms of appointment are available for inspection at the Company's registered office.
At every Annual General Meeting after the 2008 Annual General Meeting one-third, or the whole number nearest to but not exceeding one third, of the Directors shall retire from office and may be proposed for re-election. The Directors to retire by rotation shall be, first, those who wish to retire and not be re appointed and, second, those who have been longest in office since their last appointment or reappointment. Any Director appointed by the Board since the previous Annual General Meeting retires at that meeting. All Directors will retire no later than the third AGM following their last appointment or reappointment at a general meeting. Any term of a non-executive Director beyond six years will be subject to particularly rigorous review by the Board. Any Director serving longer than nine years would be subject to annual re-election.
The Chairman, John Hughes, holds a number of other directorships as set-out in the Board of Directos section. The Board considers that the time commitment required by his other roles does not impact on his Chairmanship of the Group. Neither of the executive Directors has held any non-executive directorships of a FTSE 100 company or the chairmanship of such a company.
The roles of Chairman and Chief Executive are split. The Chairman is responsible for the leadership of the Board and for ensuring its effectiveness. The Chief Executive has responsibility for the management of the Group's day-to-day operations. A formal statement of the division of responsibilities between the Chairman and Chief Executive has been adopted by the Board.
The Board has a Senior Independent Director, Simon Batey, whose role includes being available to shareholders if required.
The Nominations Committee recognises that succession planning is important to the future continuing performance of the Group and it will consider succession planning for the Board on a regular basis.top
Functioning of the Board
The Board's role includes determination of strategy, consideration and approval of business plans, budgets and significant transactions, and monitoring operational and financial performance. This is achieved in part through the regular reviews by the Board and its committees of operations, monthly financial reporting and forecast updates, and of risks and internal controls.
In addition to Board meetings, there is regular communication between executive and non-executive Directors to ensure that the non-executive Directors are fully aware of all significant aspects of the Group's operations. The non-executive Directors will meet at least annually without executive Directors present and, separately, also without the Chairman present.
The Chairman is responsible for ensuring that all the Directors continually update their skills and their knowledge and familiarity with the Group in order to fulfil their role on the Board and the Board's Committees. Technical updates dealing with changes in legislation and regulation relevant to the Group's business are provided regularly to the Board by the Company Secretary and Group Finance Director.
There is a formal schedule of matters reserved for the Board for decision which includes, inter alia, approval of Group strategy, budgets and business plans, annual reports and interim statements, and significant financing and capital expenditure plans. The day-to-day operation of the Group's business is delegated to management, subject to defined authority limits.
All Directors have access to the Company Secretary, who is responsible to the Board for ensuring that Board procedures are properly complied with, and that discussions and decisions are appropriately recorded. The Company Secretary is also responsible under the direction of the Chairman, for ensuring good information flow within the Board and its committees, and for advising the Board, through the Chairman, on governance matters. Directors may seek independent professional advice at the Group's expense in furtherance of their duties as Directors.
Training in matters relevant to their role on the Board is available to all Board Directors. New Directors are provided with an induction in order to introduce them to the operations and management of the business. Data centre visits are also arranged as appropriate so that Directors may familiarise themselves with the Group's operations.top
Board Committees
The Board has established three committees to deal with specific aspects of the Group's affairs: Audit, Remuneration and Nominations. The terms of reference of these Committees are available on the Group's website. The Company Secretary acts as Secretary to each of the Committees and the minutes are generally circulated to all Directors.top
Audit Committee
The Audit Committee's role is to assist the Board with the discharge of its responsibilities in relation to internal and external audits and controls, including reviewing and monitoring:
- annual and half-year financial information including consideration of the appropriateness of accounting policies and material assumptions and estimates adopted by management;
- management reports to the Board on risk and internal controls and the Group's public statements on these matters;
- internal audit reports;
- the Group's whistle-blowing policy, which was adopted during the year;
- developments in accounting and reporting requirements;
- the Committee's effectiveness;
- the performance and independence of the external auditors concluding in a recommendation to the Board on the reappointment of the auditors by shareholders at the Annual General Meeting. The auditors provide annually a letter to the Committee confirming their independence and stating the methods they employ to safeguard their independence;
- the audit and non-audit fees charged by the external auditors; and
- the formal engagement terms entered into with the external auditors.
The Audit Committee has also implemented procedures relating to the provision of non-audit services by the Company's auditors, which require non-audit work and the fees involved to be approved in advance by the Chairman of the Audit Committee above a de minimis level of £25,000.
The Audit Committee will normally meet at least three times a year. The Audit Committee is chaired by Simon Batey and its other members are John O'Reilly and Robert Morse. The Chairman of the Committee has recent and relevant financial experience.top
Remuneration Committee
The Remuneration Committee recommends what policy the Company should adopt on executive remuneration, determines the levels of remuneration for each of the executive Directors and recommends and monitors the structure of the remuneration of other members of senior management. This committee also considers and approves the Directors' Remuneration Report to be submitted for approval by the members of the Company at the Annual General Meeting. The Remuneration Committee will normally meet at least twice a year. The Directors' Remuneration Report is contained in the Directors' Rumuneration Report. The Remuneration Committee is chaired by John O'Reilly and its other members are Simon Batey, John Hughes and Ian Nolan. It is envisaged that Michael Tobin, as Chief Executive Officer, may from time to time be invited to attend meetings of the Committee, save where the Committee is dealing with matters relating to him.top
Nominations Committee
The Nominations Committee assists the Board in determining the composition and make-up of the Board. It is also responsible for periodically reviewing the Board's structure and identifying potential candidates to be appointed as Directors, as the need may arise. The Nominations Committee also determines succession plans for the Chairman and Chief Executive Officer.
Before recommending the appointment of a non-executive Director the Committee establishes that the prospective Director can give the time and commitment necessary to fulfil their duties, in terms of availability both to prepare for and attend meetings and to discuss matters at other times.
This Committee will meet when appropriate. It is chaired by John Hughes and its other members are Simon Batey and Sergei Riabtsov. It is envisaged that Michael Tobin, as Chief Executive Officer, will normally be invited to attend meetings of this Committee, save where it is dealing with matters relating to him or with the appointment of his successor.top
Attendance at meetings
Directors' attendance at Board and Committee meetings convened in the Period, along with the number of meetings that they were invited to attend is set out below:
Board |
Audit Committee |
Remuneration Committee |
|
| Number of meetings in period | 2 |
1 |
1 |
Attended |
Attended |
Attended |
|
| Executive Directors | |||
| Michael Tobin | 2/2 |
1/1 |
1/1 |
| Brian McArthur Muscroft | 2/2 |
1/1 |
— |
| Non-executive Directors | |||
| John Hughes | 2/2 |
— |
1/1 |
| Simon Batey | 2/2 |
1/1 |
1/1 |
| John O'Reilly | 2/2 |
1/1 |
1/1 |
| Robert Morse | 2/2 |
1/1 |
— |
| Ian Nolan | 2/2 |
— |
1/1 |
| Sergei Riabstov | 2/2 |
— |
— |
In addition, during the preceeding period from 1 January 2007 to 28 October 2007 the previous Board met 15 times.top
Board performance
The Board will carry out a review of its performance and effectiveness during 2008.
Relations with shareholders
The Group encourages dialogue with all shareholders at the Annual General Meeting and during the year. The Chairman and Committee Chairmen will be present at the Annual General Meeting to deal with any matters raised by shareholders and all other Directors are encouraged to attend.
The Chief Executive Officer and Group Finance Director meet or speak with investor representatives regularly during the year to discuss strategic and other issues within the constraints imposed by the Disclosure and Transparency Rules of the UK Listing Authority. On the announcement of the Group's annual and half year results, the Chief Executive Officer and Group Finance Director will give presentations to institutional investors and analysts and hold a series of one-to-one briefings with key shareholders. Copies of the presentations will be made available on the Group's website. The Board receives regular reports on meetings with shareholders from the Chief Executive Officer in order to ensure that members of the Board, and in particular the non-executive Directors, develop an understanding of the views of major shareholders about the Company. The Senior Independent Director is available to shareholders as an alternative channel of communication with the Board.top
Internal control
The Directors are responsible for the Group's systems of internal controls and for reviewing their effectiveness. Such systems are designed to manage, rather than eliminate, the risks faced by the business and can provide only reasonable and not absolute assurance against material misstatement or loss.
Executive Directors and staff meet to review both the risks facing the business and the controls established to minimise those risks and their effectiveness in operation on an ongoing basis. The aim of these reviews is to provide reasonable assurance that material risks and problems are identified and appropriate action taken at an early stage. Reports on this review process have been submitted to the Audit Committee and the Board to enable them to assess the effectiveness of the process and ensure that the Group complies with the Revised Turnbull Guidance. The Board has not identified, nor been advised of, any failings or weaknesses which it has determined to be significant. Therefore a confirmation in respect of necessary actions is not considered appropriate.
The key risks identified in these review processes are summarised in the Business Review.
The Board confirms that procedures to identify, evaluate and manage the significant risks faced by the Group have been in place throughout the period and up to the date of approval of this Annual Report.
The key elements of the Group's procedures and internal financial control framework, which are reviewed annually, are:
- the close involvement of the executive Directors, including regular meetings with the Senior Management Team to review all operational aspects of the business;
- clearly defined responsibilities and limits of authority. The Board has responsibility for strategy and has adopted a schedule of matters which are required to be brought to it for decision;
- a comprehensive Group-wide system of financial reporting, budgeting and cash forecasting and control. Financial accounts are prepared monthly and submitted to the Board. Profit and cash flow forecasts are prepared at least annually, and revised when necessary, to monitor actual performance; and
- regular meetings of the Board and Audit Committee at which financial information is reviewed and business risks are identified and monitored.
During December 2007 the Group introduced internal audit arrangements. The internal audit arrangements are coordinated by the Head of Financial Reporting and operate through a system of peer reviews performed by the regional Finance Managers. Due to the short length of time from the establishment of the internal audit arrangements to the year end, the Board has not received any formal reports in relation to such arrangements. The main aims of the internal audit arrangements are to ensure that:
- an effective system of internal control is being maintained at a divisional and Group level;
- the financial information produced by the divisions is accurate, relevant and is produced on a timely basis;
- the Group's assets are safeguarded;
- statutory and legal requirements are being met;
- controls are in place to mitigate known risks; and
- the divisions are consistently applying the Group's policies and procedures.
Going concern
Comprehensive financial forecasts have been prepared and submitted to the Board for review. Based on the information contained in these forecasts, the Directors have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.top
Areas of non-compliance
Three non-executive Directors are considered non-independent due to personal interest in the shares of the Company either directly, or as a partner, shareholder, Director or senior employee of a body that has such a relationship with the Company. As such the Company does not currently comply fully with the Combined Code provisions in respect of the composition of the Board and its Committees. Two of these Directors are nominated under the terms of the Relationship Agreement entered into at the time of the Company's IPO, the terms of which are explained in note 28 of the financial statements. The Board considers that the appointment of a sufficient number of independent non-executive Directors to achieve full compliance with the Combined Code at this time would make the Board unwieldy, and that there is adequate independent representation on the Board for the time being. The Company intends to move to full compliance with the Combined Code in due course as the requirements under the Relationship Agreement change.
Although no senior independent non-executive Director had been appointed during the period, Simon Batey has been appointed to this role since the year end.
Due to the short length of time since admission to the London Stock Exchange to the year end, the non-executive Directors did not meet without executive Directors present nor separately also without the Chairman present. For the same reason, the Board did not conduct a review of its performance and effectiveness during the Period nor a review of the performance and effectiveness for individual Directors for the period. It is intended that the Company will comply with these provisions during 2008.top
On behalf of the Board
Simon Batey
Chairman of the Audit Committee
7 March 2008