Corporate Governance

The Board recognises the importance of corporate governance and is committed to conducting its operations in accordance with the best principles of corporate governance, as required by the provisions of the Combined Code published by the Financial Reporting Council.

The Board

The Board's role is to provide effective leadership of the Company.

The Board will consist of an appropriate balance of executive and independent non-executive directors to ensure that no individual and/or small group of individuals can dominate the Board's decision taking.  The number of independent non-executive directors excluding the Chairman, will amount to at least one third of the Board.

There shall be a formal, rigorous and transparent procedure for the appointment of new Directors to the Board. Appointments of non-executive directors will normally be for periods of three years, subject to possible renewal.  Any possible renewal beyond a six year term will be subject to particularly rigorous review.

The Chairman of the Board will on appointment be independent.

The executive directors will be responsible to the Chief Executive.

The Board shall appoint one of its independent non-executive directors to be senior independent director.  Such senior independent director will be given the opportunity, as appropriate, to attend sufficient meetings with shareholders so as to understand their views.

It is recognised that there are two key tasks at the head of a public Company - the running of the Board and the executive responsibility for the running of the Company's business.  The duties of the Chairman and the Chief Executive are shown in Appendix 1 and are designed to ensure that there is a clear division of responsibility at the head of the Company which will ensure a balance of power and authority.

The Board shall appoint Audit, Remuneration and Nominations Committees. The composition of and terms of reference for such committees are set out in Appendices 3-5 respectively and will be made available on the Company's website. The Board will ensure that all committees of the Board are provided with sufficient resources to enable them to undertake their duties.

All new directors will be provided with appropriate training and with an induction programme to enable them to undertake their duties as a director of a public company.  The Board will also receive training from time to time on apposite issues, to ensure that each Director is able to carry out his/her duties effectively.

All directors, including the Chief Executive, will submit themselves for re-election at least every three years at the Annual General Meeting of the Company.

Operation of the Board

The Board shall be collectively responsible for the success of the Company.  All Directors must take decisions objectively in the interests of the Company.

The Board will meet on a regular basis and at least six times each year.  The dates and location of the meetings for the following calendar year will be circulated by the Company Secretary by November in each year.  In addition, the Board will meet once each year to review its performance and agree any changes to the operation of the Board and the information provided to the Board.

The Chairman will ensure that the performance of all directors is evaluated on an annual basis.  Led by the senior independent director, the non-executive directors will meet without the Chairman present at least annually to appraise the Chairman's performance and on such other occasions as are deemed appropriate.

The Chairman will hold meetings with the non-executive directors without the executives present at least annually.

Board members should notify the Company Secretary fourteen days before the meeting of any items to be included in the Agenda.  The Company Secretary will agree the Agenda with the Chairman ten days before the meeting.

The Company Secretary will issue papers, including a copy of the Agenda, to each director at least five days before the meeting.

The Company Secretary will issue the minutes of each Board Meeting within fourteen days of the appropriate meeting.  These minutes will be approved at the next meeting of the Board.

All directors and all committees of the Board will have access to the advice and services of the Company Secretary.  The Company Secretary will be responsible for advising the Board, through the Chairman, on all governance issues.

All directors have the right to take independent professional advice where they consider it necessary in the furtherance of their duties.  The procedure to be adopted is shown in Appendix 6.

Corporate Responsibilities

The Board recognises its corporate responsibilities to:-

• appoint the Chairman and Chief Executive;
• maintain a system of internal control to safeguard shareholders' investments and the assets of the Company;
• maintain a dialogue with shareholders to understand issues and concerns;
• select appropriate accounting policies;
• prepare an annual report which provides a balanced and understandable assessment of the Company's position and prospects;
• maintain an appropriate relationship with the Company's auditors;
• report that the business is a going concern;
• review annually the effectiveness of the Group's system of internal control and report to the shareholders that they have done so:
• ensure compliance with health and safety regulations;
• ensure compliance with all statutory requirements;
• ensure compliance with the Group's environmental policy;
• ensure all long term incentive plans are approved by shareholders;
• review the AGM agenda to ensure that a separate resolution is proposed for each substantive separate issue;
• ensure the proxy votes, including abstentions, are counted and reported in the AGM after each resolution has been dealt with by a show of hands.

Matters Reserved for the Approval of the Board

A schedule of matters reserved to the Board for decision is attached as Appendix 2.  The matters contained in that schedule will be reviewed annually by the Board.

Annual Report

The annual report shall include a statement of how the Board operates, including a high level statement of which types of decisions are taken by the Board and which are delegated to management.  The annual report shall also refer to the number of meetings of the Board and its committees held during the year and to individual attendance by directors.

The annual report will contain separate sections describing the work of the Audit, Remuneration and Nominations Committees.

The annual report will state how performance evaluation of the Board, its committees and its individual directors has been conducted.

Terms of Reference

• Audit Committee - see Appendix 3
• Remuneration Committee - see Appendix 4
• Nominations Committee - see Appendix 5

Appendix 1

Duties of the Chairman and Chief Executive

The Chairman

1. To establish, with the Chief Executive, the strategic objectives of the Company, for approval of the Board.
2. To organise, in conjunction with the Company Secretary, the business of the Board and to ensure that all directors are properly briefed before each meeting.
3. To ensure that any necessary Board Committees are properly established.
4. To recommend, in conjunction with the Nominations Committee, the appointment and dismissal of the Chief Executive.
5. To recommend, in conjunction with the Nominations Committee, the appointment and
   dismissal of the other executive directors.
6. To ensure that the performance of the executive Directors is regularly reviewed with the Remuneration Committee and the Nominations Committee, as appropriate.
7. To keep under review the performance of the non-executive directors.
8. To ensure that all new directors receive a full, formal and tailored induction on joining the Board.  The Company will offer to major shareholders the opportunity to meet new non-executive directors.
9. To ensure the Board fulfils its functions and annually reviews its own performance.
10. To be responsible for meeting, in conjunction with the Chief Executive, with institutional investors and enhancing the standing of the Company by communicating with shareholders, the financial community, the broad mass of customers and the outside world generally.
11. To ensure that the views of shareholders are communicated to the Board as a whole.
12. To discuss governance and strategy with major shareholders.
13. To ensure, in conjunction with the Chief Executive, that proper control mechanisms exist within the Company to protect its assets.
14. To assist and guide the Chief Executive in the performance of his duties.
15. To maintain, in conjunction with the Chief Executive and advisers, a defence manual for the Company.
16. To review the Company Values, including the Code of Ethics, with the Chief Executive.
17. To ensure that non-executive directors receive timely and appropriate management information.
18. If considered appropriate, to ascertain the views of the members on any questions before shareholder meetings.
19. To ensure that the Company communicates efficiently with its shareholders about remuneration issues.
     

The Chief Executive

1. To establish with the Chairman, for approval by the Board, the strategic objectives of the Company.
2. To prepare, with the support of the Chairman, for approval by the Board, a business plan to achieve these objectives.
3. To prepare an annual budget consistent with the business plan, for approval by the Board.
4. To implement the business plan and annual budget.
5. To be responsible for meeting, in conjunction with the Chairman, with institutional investors and enhancing the standing of the Company by communication with shareholders, the financial community, the broad mass of customers and the outside world generally.
6. To submit major investment, acquisition, merger and divestment proposals for approval by the Board.
7. To submit the overall financial policies of the Company for approval by the Board.
8. To submit recommendations to the Board in respect of the fees of the non- executive directors, including the Chairman.
9. To establish the senior management and organisational structure and the arrangements for succession planning and management development, for discussion with the Nominations Committee.
10. To be responsible for the operations of the Company.
11. To be responsible for the financial performance of the Company.
12. To set acceptable standards for, and to provide leadership to, co-directors and executives throughout the Company.
13. To ensure that the Company is properly administered within the policies and practices approved by the Board.
14. To ensure effective communication throughout the organisation.
15. To approve any contracts or arrangements in which members of the Company's senior management have an interest.
16. To establish an Environmental policy.
17. To monitor and report on adherence to the Environmental policy and the Company Values, including the Code of Ethics.
18. To be responsible for compliance with health and safety regulations.
19. To produce Executive Directors' annual objectives for the approval of the Remunerations Committee and to report on performance against those objectives.
20. To establish and implement a policy for dealing with Corporate Social Responsibility.

Appendix 2

Matters Reserved for the Approval of the Board

1. Directors and Officers:-

• To appoint and dismiss the Chairman;
• To appoint and dismiss, on the recommendation of the Nominations Committee, the Chief Executive;
• On the recommendation of the Nominations Committee, to appoint and dismiss other executive directors;
• On the recommendation of the Nominations Committee, to appoint and dismiss other non-executive directors;
• To determine, when a non-executive is to retire by rotation, whether the director should continue in office or resign;
• To determine, to the extent permitted by the Company's articles of association, the level of fees payable to the Chairman and other non-executive directors, following a recommendation from the Chief Executive (taking account of the time commitments and responsibilities of the relevant roles);
• To appoint and dismiss the Company Secretary.

2. To approve:-

• the strategic objectives of the Company;
• the business plan to achieve these objectives, including the five year financial plan;
• an annual budget consistent with the business plan;
• all investments, acquisitions, mergers and divestments;
• the overall financial policies of the Company (e.g. capital structure, borrowing levels, dividend policy, finance facilities);
• schemes or projects which have a total expenditure exceeding £15 million;
• all property leases for accommodation within the Group.

3. To review each year the strategic and financial performance of the Company against the business plan and the annual budget and forecasts.

4. To approve the interim and annual results and reports for submission to the shareholders.

5. To recommend the interim and final dividends.

6. To approve the senior management and organisational structure.

7. To approve the arrangements for succession planning and management development.

8. To approve the corporate advisers to the Company (i.e. auditors, merchant bankers, brokers, bankers, corporate lawyers, registrars).

9. To approve a defence manual for the Company.

10. To approve an environmental policy and monitor adherence to that policy.

11. To establish, and ensure compliance with, the Code of Ethics.

12. To approve any applications for loans from the Company in excess of £1,000.

13. To approve any contributions to any political party.

14. To approve any changes to the model code in respect of dealings in the Company's shares.

15. To approve all contracts or arrangements in which a Group Board Director has an interest.

16. To approve any application for guarantee or indemnities in respect of the liabilities of any person other than the Company or its subsidiaries.

17. To approve an annual charitable donations allocation.

18. To approve grants under the Company's Approved Share and Unapproved Option Share Schemes and its Long Term Incentive plan.

19. To approve the accounting policies of the Group.

20. To approve and report to the shareholders each year on the recommendations of the Remuneration Committee.  To invite shareholders to approve the policy set out in the Directors' Remuneration Report at the Annual General Meeting.

21. To approve decisions relating to the conduct (including the settlement) of material legal proceedings to which a member of the Group is a party (potential liability, or a claim, in excess of £100,000 being regarded as material for these purposes).

22. To approve the creation of any mortgage, charge, encumbrance or any other security interest of whatsoever nature in respect of all or any material part of the undertaking, property or assets of the Company.

Appendix 3

Terms of Reference of the Audit Committee

Membership

The Committee shall be appointed by the Board and shall consist of not less than three members, all of whom shall be independent Non-Executive Directors.  A quorum of the Committee shall be two members.

The Chairman of the Committee shall be appointed by the Board from amongst the independent Non-Executive Directors.  At least one member of the Committee shall have significant, recent and relevant financial experience.

Secretary

The Secretary of the Company shall be the Secretary of the Committee.

Attendance at Meetings

No one other than the members of the Committee shall be entitled to attend meetings of the Committee.  The Chairman of the Company, the CEO, the CFO, representatives of the external Auditor and such other persons as the Committee may consider appropriate shall attend meetings at the invitation of the Committee.

There shall be at least one meeting a year where the Audit Committee meets the external Auditor without Executive Board members present.

Frequency of Meetings

Not less than three meetings a year shall be held (to coincide with key dates in the Company's financial reporting cycle).

The external Auditor may request additional meetings if it considers them necessary.

Authority

The Committee is authorised by the Board to:

• investigate any activity within its terms of reference;
• seek any information it requires from any employee of the Company;
• obtain outside legal or independent professional advice and secure the attendance of outsiders with relevant experience and expertise to the extent considered necessary.
   

Duties

The duties of the Committee shall be:

• to consider and make recommendations on the appointment, re-appointment and removal of the external Auditor;
• to approve the terms of engagement and the remuneration to be paid to the external Auditor in respect of audit services provided;
• to assess the qualification, expertise and resources, effectiveness and independence of the external Auditor annually;
• to devise procedures to ensure that the independence and objectivity of the external Auditor is assessed annually, taking into consideration relevant professional and regulatory requirements;
• to seek from the audit firm, on an annual basis, information about policies and processes for maintaining independence and monitoring compliance with relevant requirements, including current requirements regarding the rotation of audit partners and staff;
• to agree with the Board and monitor the Company's policy for the employment of former employees of the external Auditor;
• to develop and recommend to the Board the Company's policy in relation to the provision of non-audit services by the external Auditor and ensure that the provision of such services does not impair the external Auditor's independence or objectivity;
• to set and apply a formal policy specifying the types of non-audit work:
  • from which the external Auditor is excluded;
  • for which the external Auditor can be engaged without referral to the Audit Committee;  and
  • for which a case by case decision is necessary;
• to discuss with the external Auditor, before the audit commences, the nature and scope of the audit;
• to review with the external Auditor the findings of its work, including any major issues that arise during the course of the audit;
• to review key accounting and audit judgements;
• to review the audit representation letters before signature by Management and give particular consideration to matters where representation has been requested that relate to non-standard issues;
• to review and monitor the content of the external Auditor's management letter in order to establish whether recommendations have been acted upon and, if not, the reasons why they have not been acted upon;
• to consider annually whether there is a need for an internal audit function where there currently is no such function;
• to the extent there is an internal audit function, to review the internal audit programme and ensure that the internal audit function is adequately resourced;
• to review the Company's procedures for 'whistle-blowing' and ensure that arrangements are in place by which staff may, in confidence, raise concerns about possible improprieties in matters of financial reporting, financial control, or any other matter;
• to review Management's reports on the effectiveness of the systems for internal financial control, financial reporting and risk management;
• to review, and where necessary, challenge the actions and judgements of management in relation to the Company's financial statements, operating and financial reviews, interim reports, preliminary announcements and related formal statements before submission to the Auditor and Board, paying particular attention to:
• • critical accounting policies and practices, and any changes in them;
  • decisions requiring a significant element of judgement;
  • the extent to which the financial statements are effected by any unusual transactions in the year and how they are disclosed;
  • the clarity of disclosure;
  • significant adjustments resulting from the audit;
  • the going concern assumption;
  • compliance with accounting standards;
  • compliance with stock exchange and other legal requirements;
  • reviewing the Company's statement on internal control and risk management;
     

Reporting

The Secretary shall circulate draft minutes of all meetings of the Committee to all members of the Board within 7 days of the relevant meeting having been held.

The Committee shall annually review its terms of reference and its own effectiveness and recommend any necessary changes to the Board.

The role and responsibilities of the Committee and the actions taken by the Committee to discharge those responsibilities shall be disclosed in the Annual Report and Accounts.  Such a report shall specifically include:

• a summary of the role of the Committee;
• the names and qualifications of all members of the Committee during the period ;
• the number of Audit Committee meetings and attendance by each member;  and
• the way the Audit Committee has discharged its responsibilities.

Where disagreements between the Committee and the Board cannot be resolved, the Committee shall report the issue to the shareholders as part of the report on its activities in the Company's annual report.

If the Board does not accept the Committee's recommendation regarding the appointment, re-appointment or removal of the external Auditor, the Committee shall include a statement explaining its recommendation and reasons why the Board has taken a different stance in the Annual Report.

The Chairman of the Committee shall attend the AGM and shall answer questions, through the Chairman of the Board, on the Committee's activities and its responsibilities.

Appendix 4

Terms of Reference of the Remuneration Committee

The committee will consist of at least three members, all of whom shall be independent non-executive directors.  provided that, if he was deemed independent on appointment and continues to meet the standards of independence, the Chairman of the Board may be an additional member of the Committee.  No executive director may be a member of the Committee.  The Chairman of the Committee shall be appointed by the Board from amongst the independent non-executive directors.

It is the responsibility of the Committee to determine remuneration packages (including pension rights and compensation payments) for the executive directors, the Chairman of the Board (unless he is a member of the Committee) and, so as to maintain and assure their independence, the company secretary.  The remuneration of non-executive directors and, if he shall be a member of the Committee, the Chairman of the Board, shall be a matter for the executive members of the Board.  If the Chairman of the Board is not a member of the Committee, the remuneration of the non-executive directors shall also be a matter for the Chairman of the Board.

It is also the responsibility of the Committee to meet its obligations as set out in the terms of reference, as well as to monitor the level and structure of remuneration for senior management.

The policy of the Remuneration Committee is to reward directors competitively and on the broad principle that their remunerations should be in line with the remuneration paid to senior management of comparable public companies.

The terms of reference for the Committee are as follows:-

1. To provide packages necessary to attract, retain and motivate executive directors of the quality required.  The notice period for directors will be a maximum of one year for new appointees, except in exceptional circumstances.
2. To make itself aware of packages available in comparable companies.
3. To determine the balance between basic pay and performance related elements of the package to align directors' interests to those of the shareholders.  A significant proportion of executive directors' remuneration shall be structured so as to link rewards to corporate and individual performance.
4. In designing any performance-related remuneration, the Committee will take account of Schedule A of the "Combined Code" and any Companies Act legislation.
5. To recommend the Company's framework for executive remuneration and its cost for the approval of the Board.
6. To consider and determine specific remuneration packages for the executive directors.  No director will take part in the discussions concerning his own remuneration.
7. To approve the annual bonus payments to executive directors.
8. To consider and determine compensation payments for early termination of contracts of service.  The broad aim will be to avoid rewarding poor performance while dealing fairly where departure is not for poor performance and to take a robust line on director's obligations to mitigate loss.
9. To ensure that shareholders are invited to approve all long term incentive plans.
10. To maintain contact with shareholders on remuneration issues.
11. To review, recommend and monitor the level and structure of remuneration for senior management.
12. To approve the Remuneration report contained in the Company's annual report.
13. To approve contracts of service for all new executive directors.  The Committee will consider the advantages and disadvantages of providing explicit compensation commitments, except in the case of misconduct, in that initial contract.
    

Appendix 5

Terms of Reference of the Nominations Committee

The Committee will consist of a majority of independent non-executive directors.  The Chairman of the Committee shall be the Chairman of the Board, save when dealing with the appointment of a successor to the Chairman.

The terms of reference for the Committee are as follows:

1. To lead the process for Board appointments, which shall be formal vigorous and transparent, using external search and consultancy services and/or open advertising where appropriate, but particularly in the case of appointments of the Chairman or non-executive directors.
2. To make recommendations for Board appointments based on merit, against objective criteria.
3. To ensure plans are in place for orderly succession of appointments to Board and senior management, taking account of the challenges and opportunities facing the Company, so as to maintain an appropriate balance of skills and experience within the Company and on the Board.
4. To prepare descriptions of role and capabilities for particular appointments, having evaluated the balance of skills and experience on the Board.
5. In relation to the appointment of a new Chairman, to prepare a job specification, including an assessment of the time commitment expected.
6. To establish policy for executive directors becoming non-executive directors of other companies.
7. To make recommendations to the Board concerning any matters relating to the continuation in office of any director at any time.
8. To regularly review the structure, size and composition of the Board and make recommendations to the Board with regard to any proposed changes.

Appendix 6

procedure for the Appointment of Independent professional
Advisers for Directors

Introduction

The Board has adopted the procedure set out below for circumstances where a director of the Company considers it necessary to take independent professional legal, accounting or financial advice in the furtherance of his duties as such, at the Company's expense.

The procedure applies to both executive and non-executive directors of the Company but is not intended, in any way, to restrict use by the executive directors of the Company's professional advisers in the ordinary course of its business.

The procedure

1. Where a director considers it necessary to take professional advice in furtherance of his duties in addition to that already provided by the Company's existing professional advisers, he should first consult with those advisers through the Company Secretary to clarify their advice and to identify his concerns with them directly unless, in the circumstances, he reasonably considers that such consultations would be inappropriate.
2. If:-
   1. a director considers it may be necessary to take professional advice in the furtherance of his duties from independent advisers and not from the Company's existing professional advisers;  or
   2. following consultations with the Company's advisers or where consultation is considered to be inappropriate as outlined in 1. above, the director considers it necessary to take independent professional advice,

he should discuss his concerns with the Chairman and/or Chief Executive (together with any of his other fellow directors) and explain why, in his reasonable opinion, he considers such advice necessary.

   3.   Following discussions with the director, the Chairman and/or Chief Executive of the Company shall either:-

1. 1. authorise in writing the payment by the Company of the fees of any one or  more of the independent advisers as the Chief Executive and/or Chairman and the director shall agree up to a maximum sum of £10,000 (or such higher figure as shall be determined from time to time by the Board of Directors), to advise the director on such of those matters raised by that director as the Chief Executive and/or Chairman considers appropriate; or
   2. set out in writing the reasons why the Chief Executive and/or Chairman consider that it would be inappropriate in the circumstances for the Company to pay the cost of obtaining the independent professional advice in question, in which event the director may convene a meeting of the Board of Directors, in accordance with the Company's Articles of Association, at which the Board shall determine whether or not the director should obtain such advice at the Company's expense.

Notes

1. In circumstance where this procedure conflicts, in any way, with the Company's Articles of Association, the Articles of Association shall prevail.
2. The procedure shall not, in any way, amend, or otherwise form part of, the terms of employment or service of any of the directors of the Company.
3. An independent professional adviser should only be instructed in a field in which that adviser is considered an expert.  Such an adviser should be completely independent from both the Company and the director.
4. An independent professional adviser's advice should be made available to both the director concerned and the Company.