Corporate Governance

The Acal Group is committed to effective corporate governance and continues to operate principles and procedures that are appropriate to its business. This statement describes how Acal applies the principles of the Financial Reporting Council’s Combined Code on Corporate Governance (2008 edition) (the ‘Code’) by considering each of the main headings included within the Code. Acal complied with all provisions of the Code throughout the year to 31 March 2011.

The board
Acal is led by a strong and experienced Board with a broad range of business and financial skills. Throughout the year under review it consisted of Mr R J Moon as Non-Executive Chairman, together with Messrs E A Barton, G J Williams and I R Fraser as Non-Executive Directors, and Mr N J Jefferies as Group Chief Executive.

Mr S M Gibbins was appointed as Group Finance Director of the Company on 20 July 2010. The size and composition of the Board is considered to be appropriate to the Group’s business at present although this is kept under review by the Nomination Committee.

The Board operates within a framework of controls used to minimise the adverse impact of any risks, including a formal schedule of matters reserved for its decision. These are important matters and include the determination of the Group’s overall strategy and management, the approval of financial statements, dividends, business plans, financing and treasury matters, major capital expenditure and any litigation of a material nature. The schedule is reviewed on a regular basis. The Non-Executive Directors challenge management proposals where appropriate and carefully monitor management performance and reporting throughout the year.

As detailed below, certain matters are delegated to the Group Executive Committee and to the Audit, Remuneration and Nomination Committees. The Board also has a General Purposes Committee consisting of any two Directors of the Company which has delegated authority to approve certain defined and routine matters between Board meetings. There were fourteen meetings of the full Board during the year to 31 March 2011, with all Directors attending all meetings with the exception of one meeting which Mr G J Williams was unable to attend and one meeting which Mr I R Fraser was unable to attend. All Directors attended the meetings of all Committees on which they served, with the exception of one meeting of the Audit Committee and one meeting of the Nomination Committee which Mr G J Williams was unable to attend.

The Group maintains appropriate Directors’ and Officers’ Liability insurance.

Chairman and group chief executive
The Company has both a Chairman and a Group Chief Executive. There is a clear division of responsibilities which has been agreed by the Board and is available from the Company on request. The Chairman is responsible for running the Board which includes the operation of the Board’s overall procedures, providing a forum for constructive discussion and ensuring receipt of clear and timely information. The Group Chief Executive is responsible for the management of the Group’s businesses and reporting their progress to the Board. Major decisions have to be made by the Board as a whole, and no one individual has unfettered power of discretion.

Board balance and independence
As noted above the Board currently comprises two Executive Directors and, including the Chairman, four Non-Executive Directors. Each Director has a role, and no individual or small group of individuals determines the Board’s decision-making.

No Non-Executive Director who served during the year:
• has been an employee of the Group within the last five years;
• has, or has had within the last three years, a material business relationship with the Company, either directly or indirectly;
• receives remuneration, other than a Director’s fee, participates in the Companys share incentive schemes or is a member
• of the Company’s pension scheme;
• has close family ties with any of the Group’s advisers, Directors or senior employees;
• holds cross-directorships or has significant links with other Directors through involvement in other companies or bodies;
• represents a significant shareholder; or
• has served on the Board for more than nine years from the date of their appointment to the Board.

The Non-Executive Directors of the Company are, therefore, considered to be independent.

Mr E A Barton is the Senior Independent Director and is available to shareholders should they have concerns that cannot be resolved through other channels.

The Chairman meets with the Non-Executive Directors, but without Executive Directors present, as and when required. The Non-Executive Directors meet when required without the Chairman present and, as stated below, the Senior Independent Director leads the process of appraising the Chairman’s performance in conjunction with the other Non-Executive Directors.

Appointments to the board
The Nomination Committee has a duty to ensure that an appropriate balance of skills is retained on the Board and appropriate succession planning is in place.

The Nomination Committee is chaired by Mr R J Moon. Messrs E A Barton and G J Williams, as Non-Executive Directors, and Mr N J Jefferies, as Group Chief Executive, are the other members of the Committee.

Before any appointment to the Board is considered, a job specification is prepared and agreed by the Nomination Committee. Unless the appointment is as an Executive Director for which a suitable candidate is available from within the Group, appropriate executive search or other organisations with databases of candidates are consulted before a short-list of suitable candidates is produced for agreement by the Nomination Committee. Candidates meet all members of the Nomination Committee which then makes recommendations to the Board. All members of the Board would usually meet with the relevant candidate before an appointment is finally made.

On the appointment of Mr R J Moon as Chairman an assessment was made of the time commitment expected and of Mr Moon’s other significant commitments. Mr Moon continues to hold non-executive Chairman positions with Planit Holdings Limited and OBS Medical Limited. He is also a Director of Synergie Business Limited.

The Nomination Committee met formally three times during the year. The terms of reference for the Nomination Committee are available on request and are on the Company’s website at www.acalplc.co.uk.

Information and professional development
Papers are circulated in advance of Board and Committee meetings, and Directors are invited to request such further information as they may require, thereby ensuring that proper consideration can be given to all matters. Between meetings, Directors are kept abreast of progress by the circulation of monthly reports together with ad hoc meetings and briefings as and when required. A procedure is in place whereby Directors may have access to independent professional advice at the Company’s expense and Directors have access to the advice and services of the Company Secretary. The appointment or removal of the Company Secretary would be a matter for the Board as a whole. An induction process is in place for any new Director joining the Board which includes meeting with the Group’s senior management and visits to key locations as well as a comprehensive briefing pack.

Performance evaluation
During the year the Board repeated the process of evaluating its own performance, together with that of its Committees and individual Directors, including the Chairman. Each Director is asked to prepare an appraisal of each of these areas. The Chairman co-ordinates discussion with individual Directors on their performance and the Senior Independent Director co-ordinates discussion with the Chairman on the Chairman’s performance. The results of the process are then summarised for presentation to and discussion by the Board and the actions to be taken (if any) are identified.

Election and re-election of directors
The Company’s Articles of Association require that, at every Annual General Meeting, each Director who (a) was appointed since the previous Annual General Meeting or (b) was appointed or last re-appointed at or before the Annual General Meeting held at least three years before the current year or (c) being a Non-Executive Director, as at the date of the Meeting, has held office with the Company for a continuous period of nine years or more, must retire from office.

At the next Annual General Meeting of the Company, resolutions will be proposed for the election of Mr S M Gibbins and for the re-election of Mr E A Barton. Having taken into account the formal evaluation of their performance, the Board believes that each makes an effective contribution to the Board, demonstrates commitment to their role and can be recommended for election and re-election respectively. Biographical details are shown on page 4.

The level and make-up of directors’ remuneration
The level and make-up of the Directors’ remuneration is set out in the Directors’ Remuneration Report. As this shows, a proportion of an Executive Director’s overall remuneration is performance-related through annual bonus and share incentive schemes.

Procedure on board remuneration
The remuneration of Executive Directors is the responsibility of the Executive Directors’ Remuneration Committee, as is more fully described in the Directors’ Remuneration Report. The remuneration of the Non-Executive Directors is determined by the Non-Executive Directors’ Remuneration Committee which consists of the Executive Directors. No Director is involved in deciding his own remuneration.

Financial reporting
The Directors have acknowledged in the Statement of Directors’ Responsibilities their responsibility for preparing the financial statements of the Company and the Group. The Auditors have included in their report a statement of their responsibilities.

The Directors are also responsible for the publication of the interim report of the Group, covering the first six months of the year, which in their opinion provides a balanced and understandable assessment of the Group’s financial performance and position. In accordance with the requirements of The Financial Services Authority’s Disclosure Rules and Transparency Rules, the Directors also issue an Interim Management Statement twice in each financial year.

Internal controls
The Code includes a requirement that the Board maintains a sound system of internal control to safeguard shareholders’ investment and the Company’s assets. This requirement covers all controls including operational, compliance and risk management as well as financial controls. Formal guidance for Directors on internal controls was published by the Institute of Chartered Accountants in England & Wales in September 1999 and subsequently revised in October 2005 by The Financial Reporting Council, following which the Board approved a framework for the implementation of this guidance. The relevant procedures have been in place throughout the year ended 31 March 2011 and up to the date of this Annual Report.

The Board has overall responsibility for the Group’s system of internal controls and for reviewing its effectiveness.

While no system of controls can provide absolute assurance against material misstatement or loss, the Group’s system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. In establishing and reviewing the system of internal controls, the Audit Committee, on behalf of the Board, has regard to the significance of the risks involved, the likelihood and severity of a loss being incurred and the costs of the relevant controls.

The foundation of the Group’s system of internal controls is the value which it places on the quality and integrity of its employees. Its principal components are:
• a clearly defined organisation structure with short and clear reporting lines;
• an ongoing process for the identification, regular review and management of the principal risks and issues affecting the business, both at Group and operating levels;
• a regular review of the principal suppliers and customers of the Group, and how each impacts upon the Group’s business;
• a comprehensive planning process which starts with a strategic plan and culminates in an annual budget and a long term plan;
• regular forecasting throughout the year of orders, sales, profitability, cash flow, working capital and balance sheets;
• a regular review of actual performance against budget and forecasts;
• clearly defined procedures for the authorisation of major new investments and commitments;
• a requirement for each operating company to maintain a system of internal controls appropriate to its own local business environment.

The Finance Department is responsible for ensuring that the process for producing financial information delivers accuracy and is in accordance with applicable laws and regulations. In addition, it is responsible for the timely distribution of financial information, both internally and externally. Key financial and operational performance is reported on a weekly and/or monthly basis and measured against both budget and rolling forecasts approved by the Board and/or management. A review of the financial statements is completed by management to ensure that the financial position and results of the Group are appropriately reflected. All financial information published externally by the Group is approved by the Board.

In addition to the above, and on an annual basis, all operating companies undertake a comprehensive review of the effectiveness of their internal controls. The results of these reviews are then consolidated before being considered by the Audit Committee and the Board.

The above procedures encompass Acal plc and its subsidiary companies.

The Board receives regular submissions from management concerning the matters set out above and other matters relevant to internal controls and the identification, evaluation and management of risk. In addition, the Audit Committee, on behalf of the Board, has conducted a specific annual review of the effectiveness of the Group’s system of internal controls, including financial, operational and compliance controls and risk management systems. The Group has embedded internal control and risk management into the operations of the business and continues to deal with areas of improvement which come to the attention of management and the Board.

The Company has effective procedures in place to deal with conflict situations.

Audit committee and auditors
The Audit Committee is comprised of Mr E A Barton, who is the Chairman, together with Mr G J Williams and Mr I R Fraser. The Group Finance Director attends meetings although no Executive Director has a right of attendance. The Board is satisfied that the members of the Committee have recent and relevant financial experience. In addition, Mr G J Williams is a qualified chartered accountant.

The Committee is responsible for reviewing the scope and results of the audit, the accounting policies and systems of internal control of the Group as well as the effectiveness and cost-efficiency of the audit. In addition, it considers and monitors the independence and objectivity of the auditors as well as the extent of any non-audit services provided by the auditors and the need or otherwise for an internal audit function. The interim statement, the preliminary announcement of results and the annual financial statements are considered by the Audit Committee prior to their approval by the Board. The Chairman of the Audit Committee maintains direct communication with the external auditors, independently of the management of the Company.

The Audit Committee met three times during the year and its principal activities during the period included:
• a review of the interim and full year results;
• a review of the internal control and risk management systems of the Company;
• a review of the scope and results of the external audit;
• ensuring the continued independence and objectivity of the external auditors, including an understanding of the external auditors’ own standards and procedures for maintaining their independence and reviewing the level of non-audit services provided by the auditors in order to ensure that these were not significant enough to prejudice their independence and objectivity;
• a review of the need for an internal audit function;
• reviewing the performance of the external auditors and making a recommendation as to their re-appointment;
• a review of arrangements whereby staff may raise, in confidence, any concern they may have about possible improprieties.

With regard to recommending the re-appointment of the external auditors, the Audit Committee has recommended that the Board presents a resolution to shareholders at the 2011 Annual General Meeting for the re-appointment of the external auditors. This followed an assessment of the quality of service provided, including the qualification of the external auditors, the expertise and resources made available to the Group, auditor independence and the effectiveness of the audit process. The decision was based on the consideration of reports issued by the external auditors and feedback from executive management.

Part of at least one Audit Committee meeting a year is held with only representatives from the external auditors present providing an opportunity for any concerns to be raised without executive management present.

The Chairman of the Audit Committee reports to the Board on any significant matters arising from the activities of the Committee.

Tax advice is provided by KPMG LLP, Deloitte LLP and PricewaterhouseCoopers LLP.

The Audit Committee has written terms of reference which are available on request and are on the Company’s website at www.acalplc.co.uk.

Group executive committee
The Group Executive Committee is comprised of Mr N J Jefferies, who is the Chairman, together with Mr S M Gibbins, Mr P R Gruson, Mr M F Pangels, Mr P H Neville and Mr G P Shillinglaw, who is also the Secretary. For their biographies see page 16. During the year to 31 March 2011 the Committee met monthly, except in August and December. Other senior managers attend the Committee’s meetings for specific topics.

The Committee is responsible for developing and implementing the Group’s medium-term strategy and for driving its overall performance. The powers delegated to the Committee are contained in its written terms of reference which are available on request and are on the Company’s website at www.acalplc.co.uk

Dialogue with institutional shareholders
The Board believes that it is an important part of its responsibilities to maintain effective and timely communications with the Company’s shareholders and institutional investors. The Company’s Annual Report includes a statement from the Chairman, plus reviews by the Group Chief Executive and by the Group Finance Director. At the half year an Interim Report is published.

Throughout the year meetings are held with institutional shareholders as well as stockbroking analysts. These meetings include discussion of governance and strategy as required. It is the responsibility of the Chairman to ensure that shareholder views are communicated to the Board as a whole. Investor relations information, as well as presentations and news releases, are made available on the Company’s website (address: www.acalplc.co.uk). Members of the Board and the Chairmen of the Remuneration and Audit Committees are available at the Annual General Meeting to answer any questions. The Company responds to any questions from shareholders generally as they arise.

In order to ensure that members of the Board develop an understanding of the views of major shareholders about the Company, any feedback received by the Company from meetings with institutional shareholders and stockbroking analysts is discussed internally and raised with the Board, as appropriate. Periodically, the Company’s stockbrokers and public relations advisers follow up meetings held with institutional investors and stockbroking analysts in order to try and obtain feedback on these meetings which may not have been provided directly to the Company. The results of such follow-up discussions are circulated to the Board.

Annual general meeting
The level of proxy voting, together with the number of votes cast for and against each resolution and abstention, will be made available at the AGM after voting is completed on a show of hands and will be published on the Company’s website. A separate resolution has been presented on each substantially separate issue and the Chairman of each Board Committee will attend the AGM. The proxy form relating to the AGM includes an option for votes to be withheld. Notice of the Meeting will be sent to shareholders at least 20 working days before the Meeting.