NCC Group is committed and is accountable to shareholders for high standards of corporate governance.
In respect of the year ended 31 May 2009, NCC Group has been in full compliance with the provisions of section 1 of the June 2008 (revised) Combined Code on Corporate Governance.
This statement describes how principles of corporate governance are applied to the Group.
The Board
The Board comprises two executive and four non executive directors.
The Non Executive Chairman, Paul Mitchell, is responsible for the running of the Board. Executive responsibility for the running of the Group's business rests with the two executive directors, Rob Cotton and Paul Edwards, who are supported in this by the Operational Board of NCC Group UK.
The Board normally meets on a monthly basis. During the year, the Board met on twelve scheduled occasions.
The Board conducted a self evaluation on its effectiveness in February 2009 and has concluded no significant amendments are required to its operating procedures of the Board as a result of the review. In addition a review of Chairman’s performance was conducted in January 2009 by the other Non Executive Directors and no actions were felt necessary to improve the Chairman’s effectiveness.
After careful review, the Board has again concluded that James Wallace, Eurfyl ap Gwilym and Debbie Hewitt were independent. In coming to this assessment the Board considered the character of the individuals concerned and the fact that none of them:
- has ever been an employee of the Group;
- has ever had a material business relationship with the Group;
- receives any remuneration other than their fees;
- has close family ties with advisors, other directors or senior management of the Group that could reasonably be expected to cause a conflict;
- has significant links with other directors through involvement with other companies;
- represents a significant shareholder; or
- has served on the NCC Group Board for more than nine years.
The Board is responsible to shareholders for the proper management of the Group and for its system of corporate governance. It receives information on (at least) a monthly basis to enable it to review trading performance, forecasts and strategy and it has a schedule of matters specifically reserved for its decision. The most significant of these are:
- changes to the structure, size and composition of the Board;
- consideration of the independence of non executive directors;
- review of management structure and senior management responsibilities;
- with the assistance of the Remuneration Committee, approval of remuneration policies across the Group;
- approval of strategic plans, profit plans and budgets and any material changes to them;
- oversight of the Group's operations ensuring competent and prudent management, sound planning, an adequate system of internal control and adequate accounting and other records;
- final approval of annual accounts and accounting policies;
- approval of the dividend policy;
- approval of the acquisition or disposal of subsidiaries and major investments and capital projects;
- delegation of the Board's powers and authorities, including the division of responsibilities between the Chairman, the Chief Executive and other executive directors; and
- receiving reports on the views of the Company's shareholders.
Operational management of the Group is delegated to the operating Board of NCC Group.
Procedures exist to allow the directors to seek independent legal and professional advice in respect of their duties at the Company's expense where the circumstances are appropriate. During the year a training course was run to remind the Directors of their responsibilities as well as to the changes made by the Companies Act 2006. In addition, all of the directors have access to the Company Secretary for advice.
All directors are required to submit themselves for re-election at regular intervals and at least every three years.
The following formally constituted committees deal with specific aspects of the Group's affairs in accordance with their written terms of reference, which are reviewed regularly.
Audit Committee
The Audit Committee, which is chaired by James Wallace, who is a member and former Chairman of other pIc audit committees, comprises of the three independent Non Executive Directors and meets at least three times a year. The Chairman, Chief Executive, Finance Director and external auditors attend these meetings as required by the Committee.
The purpose of the Committee is to assist the Board in the discharge of its responsibilities for financial reporting and corporate control and to provide a forum for reporting by the external auditors. The responsibilities of the Committee include:
- to consider liquidity risk and the going concern of the Group
- to monitor the integrity of the financial statements and review significant financial reporting judgements contained in them;
- to review the Company's internal financial control system and risk management systems;
- to make recommendations to the Board in relation to the appointment of the external auditor and to approve the remuneration and terms of engagement of the external auditors;
- to review and monitor the external auditors' independence, objectivity and effectiveness;
- to develop and implement policy on the engagement of the external auditors to supply non-audit services;
- to monitor the Company's whistle-blowing procedures; and
- to review regularly the need for an internal audit function.
During the year, the Audit Committee considered the following issues:
- the appropriate valuation techniques to be utilised in valuing share options under IFRS;
- the areas of judgement in the financial statements including the valuation of intangible assets and goodwill impairment;
- the requirement for a formal internal audit function;
- the independence of Rickitt Mitchell as corporate finance advisors
- the level of fees payable to KPMG Audit plc in respect of non-audit work;
- the separation of the audit, non audit and tax work and appointment of the appropriate advisors
- various tax issues within the Group; and
- corporate governance issues.
Remuneration Committee
The Remuneration Committee, which is chaired by Eurfyl ap Gwilym and comprises the Non Executive Directors, meets at least three times a year and additionally as required. It is responsible for reviewing remuneration arrangements for members of the Board and other senior employees of the Group and for providing general guidance on aspects of remuneration policy throughout the Group.
Nomination Committee
The Nomination Committee is chaired by Paul Mitchell and comprises of the Chief Executive and the Non Executive Directors. The Committee is responsible for proposing candidates to the Board, having regard to the balance and structure of the Board. The committee met three times in the year, in particular to discuss and plan succession for all key senior executives in the business.
Internal control
The Board is responsible for establishing and maintaining the Group's system of internal control. Internal control systems are designed to meet the particular needs of the Group and the risks to which it is exposed. By their nature however, internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material misstatement or loss.
Key elements of the internal control system are described below. These have all been in place throughout the year and up to the date of this report and are reviewed regularly by the Board:
- clearly defined management structure and delegation of authority to Committees of the Board, subsidiary boards and associated business units;
- clearly documented internal procedures set out in the Group's ISO 9001:2000 accredited quality manual;
- high recruitment standards and formal career development and training to ensure the integrity and competence of staff;
- regular and comprehensive information provided to management, covering financial performance and key performance indicators, including non-financial measures;
- a detailed budgeting process where business units prepare budgets for the coming years and rolling three-year strategic plans, which are approved by the Board;
- procedures for the approval of capital expenditure and investments and acquisitions;
- monthly monitoring and re-forecasting of results against budget, with major variances followed up and management action taken where appropriate;
- regular internal audits of key processes and procedures under the Group's ISO 9001 accredited quality assurance process;
- ongoing procedures to identify, evaluate and manage significant risks faced by the business in accordance with the guidance of the Turnbull Committee on Internal Controls and procedures to monitor the control systems in place to reduce these risks to an acceptable level; and
- formal consideration of progress made against significant business risks at monthly operational board meetings.
NCC Group does not have a dedicated internal audit function, although regular internal audits are conducted under the Group's ISO 9001 accredited quality assurance process and at the request of the Audit Committee. The Board has considered the need for an internal audit function and believes that current arrangements are adequate given the structure of the Group's accounting function and the size of the Group.
Auditor independence
The Company operates a rigorous policy designed to ensure that the auditors' independence is not compromised by their undertaking inappropriate non-audit work. Every five years, the audit is put out to formal tender to ensure that independence is maintained, the last time this took place was 2006. The next formal date for tender will be in 2011.
All significant pieces of non audit work are put to informal tender to suitable parties. Upon review as to suitability and price the work will then be placed to the provider recommended after approval by the Audit committee. The Audit Committee has delegated the placing of financial non audit work under £25,000 to the discretion of the Executive Directors.
The Audit Committee has undertaken its annual review of the nature and amount of non-audit work undertaken by the external auditors to satisfy itself that there is no effect on their independence.
Going concern
The directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future, a period of not less than 12 months from the date of this report. For this reason, they continue to adopt the going concern basis in preparing the financial statements. See page 45 for the note on the Basis of Preparation.
Communication with shareholders
The Company values the views of shareholders and recognises their interests in the Group's strategy and performance. It holds briefings with institutional fund managers, analysts and other investors, including staff shareholders, primarily following the announcement of interim and preliminary results, as well as at other times during the year as may be appropriate.
The Company's programme of investor relations activities is designed to ensure that the investing community receives a balanced and consistent view of the Group's performance. All shareholders are welcomed to the Annual General Meeting, at which the Board of Directors are available to answer questions from shareholders.
Communication is also provided through the Annual Report, the Interim Report and the investor relations area on the Company's web site, www.nccgroup.com on which financial and other information is available and regularly updated.
The Board receives reports from the Group’s broker twice a year that communicate feedback from institutional shareholders, reviews analyst coverage of the Group every month and receives reports twice a year from its financial public relations advisors regarding the views of analysts. There were no meeting between the investors and Non Executive Directors, as none were requested or required.