Statement of appliance of corporate governance policies and the combined code
The directors believe as a Board that their principal function is to
deliver sustainable wealth to the Group’s shareholders, and that this
objective should be achieved within a framework of robust corporate
governance policies. The Board confirm that they have continued to
ensure that the Group applies and maintains the principles of good
corporate governance, in so far as is practicable and appropriate for a
public company of its size.
The Board have summarised below the application of corporate governance
procedures within the Group and the extent of compliance with the
Listing Rules of the UK Listing Authority (12.43A) relating to the
provisions of the Principles of Good Governance and Code of Best
Practice 2003 (the ‘Combined Code’).
A Directors
A1 The Board
The Board currently comprises a non-executive chairman, two executive
directors and three non-executive directors. On 28 April 2006, John
Heywood retired from the Board as a non-executive director. On the same
date, David Hollywood joined the Board as a nonexecutive director,
becoming a member of both the Audit and Remuneration and Nomination
Committees.
Terms
of Reference - Remuneration Committee and Audit Committee
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1.1 The directors currently comprising the Board provide the Group
with a range of industry, financial and commercial knowledge and
experience. This combination of skills and interests assists the Board
in any decision making process and facilitates the development of
business strategy, allowing all directors to make a significant and
individual contribution. Biographical details of each director,
including current directorships held in other non-Group companies, are
detailed on page 28 of the financial statements.
The Group
maintains a schedule of matters reserved for decisions by the Board,
including the release of a number of corporate and statutory
disclosures, approval of major operating strategies, composition of
relevant Committees and management structures, and matters relating to
ethical, health and safety concerns.
The directors provide
effective leadership and control of the Group by means of regular
Board meetings throughout the year. Relevant papers are circulated to
all members of the Board on a timely basis and in advance of each
meeting and the quantity and focus of such information is reviewed on
an ongoing basis. Directors provide feedback to management to enable
the reporting formats and content of Board papers to be enhanced, and
make individual enquiries of management for clarification on issues
whenever necessary.
The Group appoints employees in key
executive positions throughout the business to provide strong
management teams in its main countries of trade. These management
teams comprise both local directors and senior management whose aim is
to deliver expected financial performance and to develop and implement
both operational and non-operational improvements within their
businesses. These management teams report directly to executive Board
directors and a formal Group Executive Committee meets on a regular
basis to discuss key operational issues and monitor business unit
performance. This structure facilitates the day-to-day management of
the operations by supporting a devolved process of decision-making
which in turn allows the Group Board to focus resources more
efficiently within the Group.
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1.2 The roles of Chairman and Chief Executive Officer are separated,
with John Gordon holding the office of Chairman and Kevin Appleton the
position of Chief Executive Officer.
John Standen has been
designated the Senior Independent Director.
The Remuneration
and Nomination Committee comprises the three non-executive directors
and its remit includes responsibility for nominating and appointing
new directors together with the determination of the remuneration
packages for the executive directors. Timothy Ross is the Chairman of
the Remuneration and Nomination Committee.
The Audit Committee
comprises the three non-executive directors and its remit includes
responsibility relating to the appointment of auditors, policy on
procurement of other non-audit services and internal monitoring and
reporting procedures. John Standen is currently the Chairman of the
Audit Committee, but with effect from the Company’s Annual General
Meeting, to be held on 25 April 2007, David Hollywood will assume this
role.
During 2006, the Board held 10 formal meetings. The
attendance of each director at these meetings is shown in the table
below:
| Director | K A Appleton | J E Gordon | J A Heywood | D J Hollywood | A S Merrell | T S Ross | J F Standen |
|---|
| Attended in person | 10 | 10 | 2 | 7 | 10 | 10 | 10 |
|---|
| Apologies given | - | - | 1 | - | - | - | - |
|---|
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1.3 The Chairman holds separate meetings, at least annually, with the
non-executive directors in order to review the contributions and
performance of all individuals comprising the Board. Further details
of this process are given in A.6.1 below.
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1.4 Minutes of Board meetings are agreed by all directors, ensuring
that an accurate record is made of all relevant matters.
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1.5 The Company reviews conduct and liability issues as part of its
annual risk review and mitigates these exposures wherever possible.
A2 Segregation of duties
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2.1 The Board has a Non Executive Chairman and a Chief Executive
Officer enabling separation of shareholder interests from the
day-to-day operational requirements of the business. Each has clear
lines of responsibilities and reporting which have been agreed by the
Board.
A3 Board balance and independence
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3.1 The three non-executive directors constitute in excess of one
third of the total Board members. The non-executive directors are
considered to provide a strong and independent monitor on the
performance of both the Group and its executive management, thereby
performing an essential role in safeguarding shareholders’ interests.
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3.2 The Board believes that the non-executive directors are
independent within the guidance of the Combined Code as they have no
conflicting business interests with the Group, they are remunerated on
a fixed fee basis only and have adequate and unfettered access to
internal management and external professional advisors to the Group.
Their backgrounds in industry and finance make them suitably qualified
to provide sufficient input and guidance to adequately perform their
duties to the Board, and as members of both the Audit, and
Remuneration and Nomination Committees.
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3.3 Major shareholders in the Company are offered the opportunity to
meet annually with the Senior Independent Director, to allow any
concerns to be raised independently from the Board. In addition, the
non-executive directors ensure that they are available for questions
from individual shareholders on the day of the Annual General Meeting.
A4 Appointments to the Board
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4.1 The Remuneration and Nomination Committee comprises the three
non-executive directors of the Group and has written terms of
reference. These terms of reference are published on the Group’s
website (www.lavendongroup.com).
All Committee members are considered to be independent.
During
2006, the Remuneration and Nomination Committee held 6 formal
meetings. The attendance of each director at these meetings is shown
in the table below:
| Director | J A Heywood | D J Hollywood | T S Ross | J F Standen |
|---|
| Attended in person | 2 | 3 | 6 | 6 |
|---|
| Apologies given | 1 | - | - | - |
|---|
David
Hollywood was appointed as a member of the Remuneration and Nomination
Committee following his appointment as a nonexecutive director of the
Board on 28 April 2006.
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4.2 Non-executive directors hold appointments for a term period of
three years. John Heywood’s third three-year appointment, which ended
on 9 October 2005, was extended to 28 April 2006, as part of the
Board’s transition process following the appointment to the Board of
three new non-executive directors. On 28 April 2006, John Heywood
retired from the Board. Fees for the non-executive directors are
determined by the Board. The reappointment or rotation of
non-executive directors is addressed after giving due consideration to
their qualifications, continuing independence, performance and
willingness to accept reappointment.
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4.3 The Chairman currently holds no other roles which are considered
to impair or conflict with his abilities to serve the Company
appropriately.
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4.4 The terms and conditions of appointment of the non-executive
directors are available for inspection at the Company’s registered
office and during the Annual General Meeting each year.
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4.5 The work of the Remuneration and Nomination Committee is detailed
in a separate Remuneration Report on pages 18 to 22 of the financial
statements.
A5 Information and professional development
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5.1 The Group allows directors to take any professional and
independent advice as may be necessary in carrying out their duties.
Directors also attend training courses, when appropriate, to ensure
they remain up to date with the latest developments and legal
requirements which impact their individual responsibilities.
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5.2 The joint role of Finance Director and Company Secretary, held by
Alan Merrell, ensures that the directors have ready access to the
Company Secretary in all relevant matters and that compliance with
Board procedures is maintained.
A6 Performance evaluation
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6.1 Following the recommendations introduced in the Combined Code, the
Board undertakes an annual review of its performance. The directors
complete detailed appraisals on matters relevant to the Board, its
Committees and director performance, from which action plans are
developed to address areas identified for improvement.
A7 Re-election
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7.1 In accordance with the Articles of the Company a maximum of one
third of the directors offer themselves for re-election each year,
provided that each director shall stand for re-election within a time
period not exceeding three years from the date of their previous
re-election. This year David Hollywood will seek re-election, as he
was appointed to the Board during the year. Biographical details and
the Annual General Meeting particulars are detailed on page 28 and on
pages 77 to 84 of the financial statements respectively.
B Remuneration
The Remuneration and Nomination Committee considers it is currently
complying in full with the relevant provisions of the Combined Code and
outlines its procedures and guidelines in a separate Remuneration Report
on pages 18 to 22 of the financial statements. Details of the directors’
remuneration and interests in shares during 2006 are included within
this report. In addition, the Committee, in line with best practice,
annually invite shareholders to vote on the Remuneration Report at the
Company’s Annual General Meeting.
C Accountability and audit
C1 Financial reporting
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1.1 The directors and auditors set out their respective
responsibilities for preparing and reviewing the financial statements
in the Statement of directors’ responsibilities on page 27 and in the
Independent auditors’ report on pages 36 and 37 of the financial
statements.
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1.2 The directors have acknowledged the latest guidance on going
concern and have formed a judgement at the time of approving the
financial statements, having made all relevant enquiries, that the
Group has adequate resources at its disposal to continue its
operations for the foreseeable future.
C2 Internal control
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2.1 The Board operates a system of internal controls within the Group
to minimise or control business risks in order to safeguard
shareholders’ interests. The Board’s overall objective is to maintain
a system of internal controls that will provide them with reasonable,
but not absolute, assurance of the reliability of the financial
information used both within the business and for external
publication, as well as safeguarding the assets of the Group against
unauthorised use or disposition.
Although no system of internal
controls can provide absolute assurance against material misstatement,
loss or mismanagement of the Group’s assets, the systems in place are
designed to identify to the Board matters which require attention on a
timely basis so that they may be considered and dealt with
appropriately.
The Board has reviewed the effectiveness of the
systems of internal control that were in operation during the past
financial year, and these are summarised under the following headings:
Control
environment
There is a clearly defined organisational structure
that allows the Group’s objectives to be planned, communicated,
executed, controlled and monitored. The Group employs suitably
qualified staff so that the appropriate level of authority can be
delegated to ensure the efficient management of the business. The main
UK operating subsidiary is accredited with the Investors in People
award in recognition of its achievements in supporting a culture of
ability and progression for its staff.
Identification and
evaluation of business risks and control objectives
The
identification and evaluation of both financial and non financial
business risks facing the Group is reviewed annually by the Board as
part of the approval of the annual operating budget for the
forthcoming year. During this process the effectiveness of its
internal controls in safeguarding against these risks is considered,
and where necessary additional controls are introduced or existing
controls are enhanced.
Information systems
The
management information systems provide the Group with relevant and
timely reports from which both the Board and senior management can
monitor the performance of the business. Budgets and prior year data
provide the Board and senior management with comparative information
with which to assess and monitor the performance of the various
activities of the Group. Operational performance statistics are
reviewed against a range of measures including competitive benchmarks
and historical trends. The Group has continued to invest substantially
in developing and enhancing these information systems during the year,
to ensure that the information is provided in the most efficient
manner.
Main control procedures
Defined controls and
procedures are embedded throughout the organisation and have been
recognised with the ISO EN 9002 Quality accreditation of Nationwide
Access Limited in May 1995, of Rapid Access LLC in the United Arab
Emirates in 2001 and Zooom (Deutschland) GmbH in 2006. Controls
include the review of financial information, the setting of
appropriate authority levels, the segregation of duties and the
defining of procedures for seeking and obtaining approval for major
transactions and organisational changes.
Monitoring
The
executive directors have a significant involvement in the day-to-day
management of the Group’s activities and are, therefore, able to
monitor the control procedures at an operational and financial level.
A Group Executive Committee, comprising two executive directors and
direct reports from the major operating subsidiaries and business
functional units within the Group, also meets regularly to ensure the
efficient communication and control of information and processes.
The
Group has no formal internal audit function but the Group’s operations
are subject to regular Quality and Health & Safety audits. In
addition, regular financial reviews are conducted by both internal
staff and external bodies to assess compliance with the Group’s
internal control procedures and to monitor performance levels within
the business. Issues arising from these audits and reviews are
analysed, to ensure that the monitoring procedures remain appropriate
and to aid development of working practices within the Group.
In
addition to the monitoring of controls by the executive directors, any
reportable control weaknesses identified by the Group's external
auditors are discussed with the Audit Committee, and reports
circulated to the relevant executive directors.
C3 Audit Committee and Auditors
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3.1 The Audit Committee comprises the three independent non-executive
directors of the Company and has written terms of reference. These
terms of reference are published on the Group’s website
(www.lavendongroup.com).
During 2006 the Audit Committee held 3
formal meetings. The attendance of each director at these meetings
(and the occasions at which the Group’s external auditors were invited
to attend) is shown in the table below:
| Director | J A Heywood | D J Hollywood | T S Ross | J F Standen | Group's external auditors |
|---|
| Attended in person | 1 | 2 | 3 | 3 | 2 |
|---|
| Apologies given | - | - | - | - | - |
|---|
David
Hollywood was appointed a member of the Audit Committee following his
appointment as a non-executive director of the Board on 28 April 2006.
With effect from the Company’s Annual General Meeting, to be held on
25 April 2007, David Hollywood will assume the role of Chairman of the
Audit Committee.
The Audit Committee considers it is currently
complying in full with the relevant provisions of the Combined Code
and outlines its procedures and guidelines in a separate Audit
Committee Report on page 35 of the financial statements. Details of
the Committee’s responsibility relating to appointment.
D Relations with shareholders
D1 Dialogue with institutional shareholders
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1.1 The Board recognises the benefits of maintaining regular dialogue
with institutional investors, thereby providing an efficient
communication channel for both the Group and investors. The directors
hold a series of meetings with institutional investors after the
publication of the Group’s annual and interim financial results each
year. Meetings are also held during the year for both existing and
prospective shareholders, to provide the opportunity to understand the
Group’s operations in greater detail.
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1.2 The Board retains a Stockbroker to ensure a regular flow of relevant
information is made available to both current and prospective shareholders
and to facilitate feedback to assist the Board in understanding the issues
and concerns of the major shareholders.
D2 The Annual General Meeting and shareholder communications
The majority of the Company's share capital continues to be held by
institutional investors. Whilst the Company does not include a formal
Group presentation at the Annual General Meeting for smaller private
shareholders, the Company maintains a website: www.lavendongroup.com,
which publishes financial results, formal announcements, and a number of
corporate governance documents for review by current and potential
shareholders.
Analysis of shareholders at 31 December
| Number Of Shareholders | Number Of Shares Held |
|---|
| 2006 No. | 2005 No. | 2006 No. '000 | 2005 No. '000 |
|---|
| <5,000 | 780 | 876 | 864 | 1,008 |
|---|
| 5,001 to 50,000 | 130 | 131 | 1,947 | 1,866 |
|---|
| >50,000 | 56 | 50 | 37,839 | 34,155 |
|---|
| | 966 | 1,057 | 40,650 | 37,029 |
|---|
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2.1 The directors announce the proxy vote on the respective
resolutions at the Annual General Meeting for enhanced shareholder
information, in line with Combined Code guidelines. Proxy voting
numbers are announced following the show of hands for each resolution.
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2.2 It continues to be the Company’s policy to ensure that Annual
General Meeting resolution proposals remain segregated when voting
issues are substantially separate issues. In particular a separate
resolution relating to the annual report and accounts will continue to
be included. Details of the Annual General Meeting date, venue and the
agenda are disclosed on pages 77 to 84.
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2.3 The Company believes that private shareholders gain a benefit from
having the full Board, including the Chairmen of the Audit, and
Remuneration and Nomination Committees, available at the Annual
General Meeting to answer individual questions or concerns about the
Group’s performance and strategy.
Statement of compliance with the combined code under listing rule
12.43A
In accordance with the guidance of the UK Listing Authority, the Board
has formally reviewed its internal control procedures as required by the
Combined Code.
The directors believe that the Group is complying with all current areas
of best practice as detailed in the Combined Code.