Corporate Governance

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

• 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.

• 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	-	-	-	-

  
  
• 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.
• 1.4 Minutes of Board meetings are agreed by all directors, ensuring that an accurate record is made of all relevant matters.
• 1.5 The Company reviews conduct and liability issues as part of its annual risk review and mitigates these exposures wherever possible.

• 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.

• 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.
• 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.
• 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.

• 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.
  
  
• 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.
• 4.3 The Chairman currently holds no other roles which are considered to impair or conflict with his abilities to serve the Company appropriately.
• 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.
• 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.

• 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.
• 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.

• 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.

• 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

• 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.
• 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

• 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

• 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

• 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.
  
• 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

• 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.
• 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.
• 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.