The Company is listed on AIM. Although the rules of AIM do not require the Company to comply with the Combined Code on Corporate Governance (‘the Code’) that was issued by the Financial Reporting Council in 2006, the board has nevertheless resolved to do so having regard to the size and specific requirements of the Company. Accordingly it does not seek to comply with provisions D.1.1 and D.1.2 which deal with communication between major shareholders and non-executive directors including the Chairman.
The board
The Company has appointed non-executive directors to bring an independent view to the board and to provide a balance to the executive directors. The board of directors comprises two executive directors and three non-executive directors, one of whom is the chairman, Gordon Page, and another is the senior independent director, Alan Frost. The board considers that each of the non-executive directors is independent within the meaning of the Code. The Chairman meets with the non-executive directors without the executive directors present at least once each year. The board meets every two months and in advance of each regular meeting, receives a board pack with the information necessary for it to discharge its duties. These packs include financial data, reporting on health and safety, controls and risk assessments and detailed individual reports from each executive director. The board has responsibility for formulating, reviewing and approving the Group’s strategy, budgets, major items of expenditure, acquisitions and the directors’ report and annual and interim financial statements. All directors have access to the advice and services of the Company Secretary and are able to take professional advice at the Company’s expense.
The Company maintains appropriate insurance cover in respect of legal actions against directors as well as against material loss or claims against the Group, and reviews the adequacy of cover regularly. The Company has also entered an agreement with each of its directors whereby the director is indemnified against certain liabilities to third parties which might be incurred in the course of carrying out his duties as a director. These arrangements constitute a qualifying third party indemnity provision for the purposes of the Companies Act 2006. There is a formal schedule of matters, decisions on which are reserved to the board. There is also a schedule of the division of responsibilities between the Chairman and the Chief Executive. Both schedules are reviewed by the board at least annually.
During 2008 the board carried out a formal assessment of its performance and effectiveness using the services of an outside consultant (Edis-Bates Associates). As a result a number of process improvements have been introduced to the conduct of the board and its committees and further actions are planned. It is proposed to hold a further review within the next 12 months.
Board committees
The board has established three committees: audit, remuneration and nominations. Each has written terms of delegated responsibilities and each is chaired by a different non-executive director. The Company Secretary is secretary to each committee. Audit committee The audit committee consists of Gordon Page, Alan Frost and James Wilding and is chaired by Alan Frost. It meets at least three times a year with attendance from the external auditors and internal personnel as required. The committee is responsible for:
– ensuring that the appropriate financial reporting procedures are properly maintained and reported on;
– meeting the auditors and reviewing their reports relating to the Group’s accounts and internal control systems;
– reviewing and monitoring the independence of the external auditor and the objectives and effectiveness of the audit process;
– receiving and reviewing all internal operational review reports; and
– reviewing arrangements by which staff may in confidence raise concerns about possible improprieties in matters of financial reporting or otherwise and receiving and dealing with matters reported under the Group’s whistleblowing policy.
The Group, because of its size and organisation, does not operate an internal audit function responsible to the committee. The internal audit and review function is integrated with the central finance team. The committee has full access to the work of this function and the relevant members of the central team have formal reporting processes to the committee on a regular basis. The external auditor has carried out non-audit services to the Group during the year. The committee have considered the effect of this work on the objectivity and independence of the external auditor. Having regard to the scale and nature of these services, the committee concludes that the auditor’s objectivity and independence are not impaired.
Remuneration committee
The remuneration committee consists of Gordon Page, Alan Frost, and James Wilding and is chaired by James Wilding. It meets at least twice a year and is responsible for reviewing the performance of the executive directors and other senior executives and for determining appropriate levels of remuneration. The Chief Executive is invited to participate in the committee’s deliberations on all matters except consideration of his own compensation.
Nominations committee
The nominations committee consists of Gordon Page, Alan Frost, James Wilding and Joe Oatley and is chaired by Gordon Page. The committee reviews the size, structure and composition of the board and makes recommendations on changes, as appropriate. It also gives consideration to succession planning in the light of developments in the business. In 2007 the committee organised and led the search process for a new Chief Executive for the Company.
Shareholder relations
The Company meets with institutional shareholders and analysts as appropriate and uses its website to encourage communication with private, existing and prospective shareholders. Hamworthy plc welcomes feedback from investors about its published reports and website. Please address your feedback to our investor relations team by e-mail to investor@hamworthy.com or in writing to Hamworthy plc, Fleets Corner, Poole, Dorset BH17 0JT
Internal control and risk management
The Group operates a system of internal control and intends to develop and review that system in accordance with the guidance published by the Institute of Chartered Accountants in England and Wales. The internal control system is designed to manage rather than eliminate the risk of failure to achieve business objectives. The board is responsible for the system of internal control and for reviewing its effectiveness. It can only provide reasonable, but not absolute, assurance against material misstatement or loss.
The board operates a formal process of risk assessment and reporting. Each major business unit carries out formal risk assessments annually and regularly updates these during the year. The assessments are carried out using, where appropriate, a standard categorisation of risk. Reports on the assessments and mitigation actions of all significant risks are provided to the board.
As a result of the overstatement of historic inventory value in the Group’s Inert Gas Systems business, the board carried out a comprehensive review including the commissioning of a forensic investigation by Ernst & Young. The result of that review has led to the strengthening of its control processes during the year with both additional resources and formal documenting of controls. A detailed programme of testing those controls will be carried out during 2009 in conjunction with the external auditors. The function of internal auditing is integrated with the central finance team but with independent reporting access to the chairman of the audit committee to whom the function reports regularly.
The Company undertakes a programme of operational reviews designed to visit all major businesses on a regular basis. The finance director is responsible for that programme and its reporting to the audit committee and it is integrated into the risk assessment programme. The board recognises that an essential part of its responsibility is the effective safeguarding of assets, the proper recognition of liabilities and the accurate reporting of results. The Group has a comprehensive system for regular reporting to the board. This includes an annual planning and budgeting system with budgets approved by the board. The financial reporting system compares against budget and prior year and reconsiders its financial year forecast all on a monthly basis.
The board has established a formal policy of authorisation setting out matters which require its expressed approval and certain authorities delegated to the executive directors.
