The Group remains committed to maintaining high standards of corporate governance as set out in the Combined Code on Corporate Governance ("Combined Code"), revised in June 2008. A copy of the Combined Code is available from the Financial Reporting Council or online at www.frc.org.uk.
Compliance with the Combined Code
The Group has complied with the provisions of the Combined Code during the year ended 31 August 2009 and this statement explains how the Principles of Corporate Governance are applied within the Group. It should be read in conjunction with the Business Review and the Board Remuneration Report on pages 4 to 15 and pages 27 to 33 respectively.
The Board
As at 31 August 2009, the Board comprised a non-executive Chairman, two executive directors and two non-executive directors and is collectively responsible to shareholders for the proper management of the Group. Biographical details of the directors are set out on page 16.
The roles of the Chairman and Chief Executive Officer are separate and distinct from one another in accordance with best practice.
The Board is satisfied that it has met the Combined Code's requirements for its effective operation. Specific matters are reserved for the Board's consideration under a formal schedule. These include developing Group strategy, reviewing trading performance, considering senior management appointments, formulating policy on key issues (including the approval of significant capital expenditure, acquisitions and disposals) and reporting to shareholders. The schedule is reviewed at least annually. Various other matters are delegated to duly authorised sub-committees of the Board consisting of directors and senior executives. Details of their composition and purpose are outlined below. In addition, the Chairman and non-executive directors meet several times a year without the executive directors being present.
All directors are subject to election by shareholders at the first Annual General Meeting ("AGM") following their appointment and to re-election thereafter at intervals of no more than three years. Due to his length of tenure, the Chairman seeks annual re-election in accordance with best practice.
The Group holds appropriate Director's and Officer's liability insurance.
Board balance and independence
The Board is satisfied that the current balance of skills and experience continues to be appropriate for the requirements of the business. Over half of the Board comprises non-executive directors, inclusive of the Chairman, and they are deemed by the Board to be independent of management and do not have any business relationships which could interfere with the exercise of their judgement.
The Senior Independent Director is David Buttfield.
Information and professional development
Prior to each Board, Committee or General Meeting, the Board is provided with timely, appropriate and sufficient information to enable it to discharge its duties proficiently. The Board also receives appropriate documentation, financial information, regulatory updates and briefing notes on a regular basis to ensure it is kept fully informed and up to date.
Non-executive directors receive an induction to the Group and its operations when they are appointed to the Board. They are also encouraged to visit the Group's offices and factories whenever the opportunity presents itself, where they meet management and are briefed on local business operations. At least one Board meeting during the year is held at an operational site outside of the UK, although this was deemed inappropriate in the year under review whilst the operations were rationalising costs in response to the global economic downturn.
All directors have access to the Company Secretary, who is responsible for ensuring that Board procedures are followed and that the Group complies with all applicable rules, regulations and obligations governing its operations. A procedure exists for directors to take independent professional advice, if necessary, at the Group's expense, in the furtherance of their duties.
Performance evaluation
A Board performance evaluation was carried out in the year which comprised of a questionnaire. The review looked at Board responsibilities, duties, strategy, information flows, monitoring, Board structure including sucession planning and the effectiveness of the whole Board and its committees. The performance of the Chairman was also evaluated by the Senior Independent Director after a review with the other members of the Board. The Chairman evaluated the performance of the individual directors as part of the review. It was concluded that the composition, experience and effectiveness of the Board was appropriate and robust and no significant issues were raised during the evaluation.
Conflicts
The Company amended its Articles in January 2009 to deal with, amongst other things, the provisions on conflicts of interest in the Companies Act 2006 which came into force in October 2008. No conflicts arose during the year and the Board continues to monitor events with a view to ensuring any conflicts are handled appropriately.
Audit Committee
The Audit Committee comprises the two non-executive directors and is chaired by David Buttfield, who has recent and relevant financial experience. The Company Secretary acts as a secretary to the Committee. In undertaking its duties, the Committee has access to the services of the Group Finance Director and the Company Secretary as well as access to external professional advice. The Committee has the power to request the attendance at meetings of any director, external auditor, internal auditor or Group employee as considered appropriate. The Committee also meets external auditors without the executive directors being present.
The principal duties of the Committee are to monitor the integrity of the financial statements, to review the internal controls and risk management systems, to review the work of internal audit and to consider all aspects of the relationship with the external auditors. The Committee has the authority to obtain external legal or other professional advice on any matter within its terms of reference.
The work of the Audit Committee
During the year, the Committee carried out the following work:
- review, prior to Board approval, of the Preliminary and Half Year Results, the Annual Report and the Half Yearly Financial Report;
- consideration of the Group's key business risks, including the arrangements for the identification and management of risk;
- overseeing the implementation of a Group-wide risk management system;
- receive the reports on internal control and review the effectiveness of the internal control function and arrangements, monitor progress and evaluate the internal control reports at least twice a year, including a meeting with the Head of Internal Control;
- meet with the external auditors, both with and without the executive management being present, to discuss audit issues;
- approve the external auditors' terms of engagement and associated fees;
- monitor the level of non-audit work of the external auditors;
- review the terms of reference of the Audit Committee and the Whistleblowing Policy; and
- review the financial statements of the UK Fenner Pension Scheme.
No non-routine matters of concern were drawn to the Committee's attention by either the external or internal auditors during the year. Matters of material concern are immediately drawn to the Committee's attention if and when they arise.
There is a policy on the provision of non-audit services by the external auditors. Certain services such as due diligence in relation to acquisitions and disposals, taxation services and actuarial advice are permitted but others, for example, internal audit, information technology and HR consultancy are generally considered inappropriate. Non-audit fees are reported to the Committee.
The Committee has received and reviewed written confirmation from the external auditors on all relationships that, in their judgement, may bear on their independence. The external auditors have also confirmed that they consider themselves independent within the meaning of UK regulatory and professional requirements.
Audit Committee and internal control
The Audit Committee reviews the effectiveness of the Group's system of internal control and receives a report on internal control at least twice a year. This review covers all controls, including operational, financial, compliance and risk management.
In accordance with the requirements of the Combined Code and the recommendations of the Turnbull Guidance on internal control, the directors have reviewed the effectiveness of the internal control system and arrangements. During the period under review, no significant changes to the material risks were identified and no control failings or weaknesses were identified that resulted in unforeseen material losses.
The directors are responsible for the Group's system of internal control which, like any system of internal control, can only provide reasonable and not absolute assurance against material misstatement or loss.
The key procedures within the control structure are:
- the identification of major business and insurance risks faced by the Group's operations, by both the Board and senior management, and the determination of the most appropriate course of action to deal with these risks;
- central review and approval procedures in respect of major areas of risk such as acquisitions and disposals, litigation, treasury management, taxation and environmental issues;
- a clear management structure with well defined lines of responsibility and the appropriate levels of delegation;
- regular review of the Group's business units by operational and executive management and monthly reports from the Divisional Directors;
- a structured process for appraising and authorising capital projects, which includes clearly defined authorisation levels.
Projects are subject to post-investment appraisals; - well established consolidation and reporting systems for both the statutory and monthly management accounts, with all Board members receiving a monthly statement of the financial results;
- comprehensive budgeting systems with an annual budget approved by the Board. Monthly results are reported against budget and revised forecasts for the year are prepared regularly;
- an internal programme of monitoring visits by the internal audit team, as agreed with the Audit Committee, reviews the compliance of each business unit with the Group's standard internal financial control procedures;
- competition compliance programmes are in place in several jurisdictions and the Group-wide Whistleblowing Policy continues to be applied; and
- a programme of business risk reviews with operational management focusing on non-financial controls and risk management.
Remuneration Committee
The Remuneration Committee comprises the Chairman and the non-executive directors and is chaired by David Campbell. The Chief Executive Officer also attends the meetings by invitation but does not participate in any decision in relation to his own remuneration. The Committee has the power to request the attendance at meetings of any director or Group employee as considered appropriate.
The Committee is responsible to the Board for determining the remuneration packages of the executive directors and other senior executives and advises on executive remuneration policy issues. The Committee administers the long term Performance Share Plan ("PSP") and the expired Long Term Share Incentive Plan ("LTIP"). It also approves the granting to certain employees of a long term Shadow Performance Share Plan which is a cash incentive scheme with performance aligned to the PSP.
The Remuneration Committee received advice during the year from Hewitt New Bridge Street Consultants LLP ("HNBSC"), who advised the Committee in relation to director and senior executive remuneration and the PSP. MM&K Ltd assisted the Committee in consideration of matters in relation to the expired LTIP which ended in November 2008.
Terms of Reference of the Remuneration Committee June 2009
Nomination Committee
The Nomination Committee comprises the Chairman, the non-executive directors and the Chief Executive Officer. The Committee is chaired by the Chairman and generally meets at least annually and/or as required. The Committee has the power to request the attendance at meetings of any director or Group employee as considered appropriate.
Terms of reference set out the Committee's role and duties which include reviewing the composition of the Board, having responsibility for the identification and nomination of candidates to fill Board vacancies and considering succession planning for all Board positions and senior executives.
Candidates for appointment to the Board are considered by the Committee, taking advice from external consultants where appropriate.
Terms of Reference of the Nomination Committee June 2009
Meetings of the Board
The attendance of each director at Board, Audit Committee, Remuneration Committee and Nomination Committee meetings is set out below.
| Board | Audit Committee | Remuneration Committee | Nomination Committee | |
| Number of meetings during the year | 6 | 3 | 2 | 1 |
| Chairman | ||||
| C I Cooke | 6 | 3* | 2 | 1 |
| Executive directors | ||||
| M S Abrahams | 6 | 3* | 2* | 1 |
| R J Perry | 6 | 3* | 0 | 1* |
| Non-executive directors | ||||
| D F Buttfield | 6 | 3 | 2 | 1 |
| D A Campbell | 6 | 3 | 2 | 1 |
* By invitation
Terms of reference
The terms of reference of the Audit, Remuneration and Nomination Committees are reviewed at least annually and are available to view on the Group's website at www.fenner.com or upon request to the Company Secretary.
Executive Committee
The Executive Committee is chaired by the Chief Executive Officer and consists of the two executive directors, the Company Secretary and five members of the Group's senior management including senior executives from the operations. The Executive Committee meets at least six times a year and deals with the daily management of the Group through powers delegated to it by the Board. Two strategic planning days were held in the year in addition to the routine Executive Committee meetings.
Directors' remuneration
Policy and procedure are set out in the Board Remuneration Report on pages 27 to 33.
Relations with shareholders
The Company encourages regular dialogue with its institutional shareholders inclusive of client brokers and also with private investors at the AGM. The Chief Executive Officer and Group Finance Director hold update meetings with institutional shareholders and private client brokers following the announcement of Preliminary and Half Yearly Results and as requested throughout the year. The Chairman and non-executive directors are offered the opportunity to attend meetings with major shareholders and attend if requested. There were no requests received from shareholders for meetings with the Chairman or non-executive directors in the year.
The Board is provided with broker reports and feedback from shareholder meetings on a regular basis.
The Group's website provides comprehensive investor relations information for shareholders to view. The website includes analyst presentations, the current share price, regulatory announcements, financial performance information, shareholder information and an investor relations contact address.
Annual General Meeting
In relation to the Company's AGM:
- proxy forms allow for voting either for a resolution, against a resolution or for a vote to be withheld;
- a separate resolution is proposed for each substantially separate issue, including the receipt of the Annual Report;
- the proxy count in respect of each resolution is announced after it has been dealt with on a show of hands;
- all executive and non-executive Board members normally attend the meeting;
- the Notice of Meeting, the Annual Report and any other related papers are normally sent to shareholders more than one month before the meeting; and
- shareholders are invited to ask questions during the AGM and have an opportunity to meet the Board directors before and after the formal meeting.
Statement of directors' responsibilities
The directors are responsible for preparing the Annual Report, the Board Remuneration Report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and accounting estimates that are reasonable and prudent;
- state whether IFRS as adopted by the European Union and applicable United Kingdom Accounting Standards have been followed, subject to any material departures disclosed and explained in the Group and parent company financial statements respectively; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the Board Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the directors, whose names and functions are listed in The Board on page 16 confirm that, to the best of their knowledge:
- the Group financial statements, which have been prepared in accordance with IFRS as adopted by the European Union give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
- the Business Review contained on pages 4 to 15 includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.
Going concern
After making enquiries, the directors have formed a judgment at the time of approving the financial statements that there is a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, the directors continue to adopt the going concern basis in preparing the financial statements.
C I Cooke
Chairman
11 November 2009
