Investor relations
corporate governance statement
Compliance
The Board is firmly committed to ensuring that high standards of corporate governance are maintained by the Group. Throughout the year ended 31 December 2010, the Group complied with the provisions set out in Section 1 of the Combined Code 2008 (Principles of Good Governance and Code of Best Practice) except that the Group did not comply with provisions A.3.2. and C.3.1. during the year.
Section A.3.2 states that at least half of the Board, excluding the Chairman, should comprise non-executive directors determined by the Board to be independent. The Board recognises that during the year, the Group, having three executive directors and three non-executive directors including the Chairman, did not have a majority of independent non-executive directors. The appointment of Michael Parker as non-executive director on 1 January 2010 improved the balance of the Board from its previous composition. The directors consider the current structure appropriate having regard to the size of the organisational structure of the Group and its current stage of development. The Chairman is a non-executive director and was deemed independent on appointment in 2007.
Section C.3.1. states that the audit committee should have at least three independent non-executive directors. Michael Parker was appointed to the committee at the first Board meeting in 2010 which increased the membership of the committee to all three non-executive directors of which two are considered independent under the Combined Code. The Chairman is one of the members and was considered to be independent on appointment but is not considered to be independent thereafter under the Combined Code. The directors at present consider the current structure appropriate having regard to the size of the organisational structure of the Group and its current stage of development.
Board of directors
The Board is primarily responsible for the success of the Group by providing leadership within a framework of prudent and effective controls which enables risk to be assessed and managed. The Board sets the Group’s strategic aims, ensures that the necessary financial and human resources are in place for the Group to meet its objectives and reviews management performance. The Board sets the Group’s values and standards and ensures that its obligations to its shareholders and others are understood and met.
The Board has a formal schedule of matters reserved to it for its decision. This schedule is reviewed annually and includes approval of:
- Group objectives, strategy and policies;
- business planning;
- substantial transactions, contracts and commitments;
- review of performance;
- risk assessment;
- dividends;
- appointments to the Board and as Group Secretary; and
- senior management appointments and succession plans.
Other specific responsibilities are delegated to Board committees, which operate within clearly defined terms of reference. Details of the responsibilities delegated to Board committees are given on pages 26 to 37 of the 2010 Annual Report.
The Board meets at least six times per annum. The Board has reviewed the number of meetings it holds each year and, in light of the increased maturity of the Group and the improved levels of governance, has decided to reduce the minimum number of meetings to six per annum. Meetings are held in central London and at the Group’s operating subsidiaries: at Abingdon in the United Kingdom; and at Erfurt and Bitterfeld in Germany. When the Board meets at the Group’s operating subsidiaries the Board will have a detailed presentation from the subsidiary directors at that location and an opportunity to review the operation and to meet local management. During 2010 the number of Board and committee meetings with individual attendances was as follows:
| Board | Audit | Remuneration | Nomination | |
Hubert Aulich |
10 | — | — | — |
Iain Dorrity |
10 | — | — | — |
Peter Finnegan |
10 | 3 | — | — |
Maarten Henderson* |
10 | 3 | 5 | 2 |
Michael Parker* |
10 | 3 | 5 | 2 |
John Sleeman* |
10 | 3 | 5 | 2 |
* Non-executive directors.
In addition to the meetings detailed above the Board met offsite over two days in June 2010 to consider the Group’s strategy and to review key business issues.
The Board receives appropriate and timely information and the directors are free to seek any further information they consider necessary. All directors have access to advice from the Group Secretary and independent professionals at the Group’s expense. Appropriate training is available for new directors and other directors as necessary. The Group Secretary was responsible for advising the Board on all governance matters, ensuring Board procedures were followed and applicable rules and regulations were complied with.
The Board comprises the non-executive Chairman, two independent non-executive directors and three executive directors. Brief biographical details of all members of the Board are set out on page 19 of the 2010 Annual Report and further information concerning the appointments is set out in the Directors’ Report in the 2010 Annual Report. John Sleeman is the recognised Senior Independent Director who is available to shareholders if they have any relevant issues or concerns.
The non-executive directors bring a wide range of commercial and financial experience and knowledge and are independent of management and any business or other relationship that could interfere with the exercise of their judgement. This provides a balance whereby an individual or small group cannot dominate the Board’s decision-making.
Maarten Henderson and John Sleeman entered into an arrangement for an initial three year period from the date of listing on the London Stock Exchange (11 June 2007) subject to six months’ notice in writing from either party. Following the completion of their initial three year period and their re-election at the 2010 AGM their appointments continue subject to six months’ notice in writing from either party. Michael Parker has entered into an arrangement for an initial three year period commencing 1 January 2010 subject to six months’ notice in writing from either party.
The Board has established a separate nomination committee, comprising the non-executive directors, which is responsible for making recommendations for appointments to the Board and to senior management positions.
Chairman and Chief Executive
The roles of Chairman and Chief Executive Officer are separated and their responsibilities are clearly established. The Chairman is responsible for the leadership and workings of the Board and ensuring its effectiveness, and the Chief Executive Officer together with the executive directors are responsible for the implementation of strategy and policies and the day-to-day decision-making and administration.
Other significant commitments of the Chairman, Maarten Henderson, are set out in the Directors and Advisors section on page 19 of the 2010 Annual Report. The Board is satisfied that these commitments do not restrict him from carrying out his duties as Chairman effectively.
Performance evaluation
The directors believe that an effective Board is vital to the success of the Group and, as a result, undertake a thorough evaluation each year in order to assess how well the Board, its committees, the directors and the Chairman are performing. The aim is to improve the effectiveness of the Board, its committees and ultimately the Group’s performance. The process is led by the Chairman and is supported by the Group Secretary and the Senior Independent Director. The Board believes that a combination of external reviews every third year with internal reviews in the other two years is the most appropriate method for evaluating effectiveness. The Board conducted an external evaluation for the 2008 Annual Report and will look to conduct an external annual review for the 2011 Annual Report.
The performance of individual directors was evaluated by the Chairman, the Chief Executive Officer and the other non-executive directors. Following the review process, the Chairman concluded that each director continues to make an effective contribution to the work of the Board, is well prepared and informed concerning items to be considered by the Board, has a good understanding of the Group’s businesses and that their commitment to the role remains strong.
The Senior Independent Director together with Michael Parker and the Chief Executive Officer evaluated the performance of the Chairman and concluded that the Chairman operated effectively in his role.
The Board carried out an internal evaluation of its effectiveness during January and February 2011. The process was led by the Chairman with the assistance of the Group Secretary. A detailed questionnaire focusing on: the Board’s roles and responsibilities; the Board’s culture and dynamics; the Board’s processes; and the role of the Chairman, was circulated to individual Board members. The responses were collated by the Group Secretary and the results were presented to the Board as a whole for discussion in February 2011. The review concluded that the Board was operating in an effective manner. It identified a number of significant strengths and it also identified some areas where changes could be made to improve longer-term effectiveness. These areas identified in the review are to be addressed in 2011 by an action plan developed by the Board.
The audit, nomination and remuneration committees carried out internal evaluations of their effectiveness during January, February and March 2011. The process for each review was similar to that used for the Board’s effectiveness review. A detailed questionnaire covering activities of each committee was circulated to each director. The responses were collated by the Group Secretary and the results were presented to each committee for discussion in February and March 2011. The reviews concluded that each committee was operating in an effective manner. Each review identified a number of strengths and some areas where changes could be made to improve longer-term effectiveness.
Relations with shareholders
The Board values the views of its shareholders and recognises their interest in the Group’s strategy and performance, Board membership and quality of management.
The AGM is used to communicate with investors and documents are sent to shareholders at least 20 working days before the meeting. The Chief Executive makes a presentation there on the Group’s progress. The Chairman, Chief Executive, Chief Financial Officer and the chairmen of the audit committee and remuneration committee are available to answer relevant questions. Separate resolutions are proposed on each substantial issue so that they can be given proper consideration and there is a resolution to receive and consider the Annual Report and financial statements. The Group counts all proxy votes and will indicate the level of proxies lodged on each resolution, after it has been dealt with by a show of hands.
The totals of proxy votes on each resolution, including details of any votes withheld, are announced at the meeting after each resolution has been dealt with on a show of hands and the full proxy voting results are announced through a regulatory news service and on the Company’s website. In the event of a close result as indicated by the proxies held by the chairman of the meeting, the chairman would call a poll but this has not proved necessary at any of the AGMs to date. The Board believes that the immediacy of voting on a show of hands with the proxy votes immediately being announced, rather than a laborious process of conducting a formal poll on every resolution, is appreciated by the shareholders who attend the meeting.
During the year the Chief Executive Officer and the Chief Financial Officer maintained a regular programme of visits and presentations to major institutional shareholders both in the United Kingdom and overseas. The Chairman and Dr Aulich are also involved in the programme.
There were formal presentations following the preliminary and interim results. The Group hosted a Capital Markets day for analysts and investors in November 2010 which included: a presentation on the highlights from the interim management statement announced on 19 November 2010; further details on the Company’s operations; a PV market update; strategy; expansion plans including capital expenditure; and cost reduction measures announced at that time.
Key announcements, financial reports, the presentations referred to above and other information about the Group can be found on this website: www.pvcrystalox.com.
Accountability
The Board aims to present a balanced and understandable assessment of the Group’s position and prospects in all reports and other price sensitive disclosures, reports to regulators and information required to be presented by statute. The responsibilities of the directors as regards the financial statements are described on page 38 and that of the auditor on page 39 of the 2010 Annual Report. A statement on going concern appears on pages 22 and 23 of the 2010 Annual Report.
Remuneration committee
The Directors’ Remuneration Report and details of the activities of the remuneration committee are on pages 31 to 37 of the 2010 Annual Report. It sets out the Group’s policy and the full details of all elements of the remuneration package of each individual director.
Nomination committee
The nomination committee of the Board is chaired by Maarten Henderson. It is appointed by the Board and is made up of at least three members, a majority of whom should be independent non-executive directors. Michael Parker was appointed to the committee at the first Board meeting of 2010. The Chief Executive Officer, the Chief Financial Officer, other directors and external advisors may be invited to attend meetings as and when appropriate. The Group Secretary acts as the Secretary of the committee. The terms of reference of the nomination committee are available to members of the public upon request and are available on this website: www.pvcrystalox.com. The nomination committee meets not less than twice a year and is required to report formally to the Board on its proceedings.
The main responsibilities of the nomination committee are to:
- review regularly the structure, size and composition (including the skills, knowledge and experience) required of the Board compared to its current position and make recommendations to the Board with regard to any changes;
- give full consideration to succession planning for directors and other senior executives in the course of its work, taking into account the challenges and opportunities facing the Group and what skills and expertise are therefore needed on the Board in the future;
- be responsible for identifying and nominating for the approval of the Board, candidates to fill Board vacancies as and when they arise;
- before appointment is made by the Board, evaluate the balance of skills, knowledge and experience on the Board and, in the light of this evaluation, prepare a description of the role and capabilities required for a particular appointment;
- keep under review the leadership needs of the Group, both executive and non-executive, with a view to ensuring the continued ability of the organisation to compete effectively in the marketplace;
- keep up to date and fully informed about strategic issues and commercial changes affecting the Group and the market in which it operates;
- review annually the time required from non-executive directors. Performance evaluation is used to assess whether the non-executive directors are spending enough time to fulfil their duties; and
- ensure that on appointment to the Board, non-executive directors receive a formal letter of appointment setting out clearly what is expected of them in terms of time commitment, committee service and involvement outside Board meetings.
The nomination committee is also required to make recommendations to the Board concerning:
- the formulation of plans for succession for both executive and non-executive directors and in particular for the key roles of Chairman and Chief Executive Officer;
- suitable candidates for the role of Senior Independent Director;
- membership of the audit and remuneration committees, in consultation with the chairmen of those committees;
- the re-appointment of any non-executive director having given due regard to their performance and ability to continue to contribute to the Board in the light of the knowledge, skills and experience required;
- any matters relating to the continuation in office of any director at any time including the suspension or termination of service of an executive director as an employee of the Company subject to the provisions of the law and their service contract; and
- the appointment of any director to executive or other office other than to the positions of Chairman and Chief Executive Officer.
The nomination committee met twice during the year. Details of attendance are shown in the Corporate Governance Statement on page 24 of the 2010 Annual Report.
During the year the main items considered were:
- review of the structure, size and composition of the Board;
- organisational changes and senior appointments within the Group;
- succession planning for directors and senior managers within the Group;
- the nomination committee effectiveness review;
- a review and recommendation of changes to the terms of reference of the nomination committee to the Board;
- a proposal to adopt the UK Corporate Governance Code recommendations concerning the annual re-election of directors; and
- a review of the knowledge, skills and experience of the directors proposed for re-election at the AGM.
Audit committee
The audit committee of the Board is chaired by John Sleeman and is to be made up of a minimum of two members where a majority of the members shall be independent non-executive directors, at least one of whom shall have recent and relevant financial experience. Following the appointment of Michael Parker to the committee at the first Board meeting in 2010, the committee is made up of three members, the two independent non-executive directors and Maarten Henderson, the Chairman of the Board, who was considered to be independent on appointment. John Sleeman is a Chartered Accountant and a Chartered Banker who since 2006 has been a founding partner of S.P. Angel Corporate Finance LLP. Maarten Henderson is a finance professional who has held several CFO roles. He is currently chairman of the audit committee of freenet AG and his most recent executive role as a CFO ended in October 2007. The Board considers that these two members have recent and relevant financial experience. Michael Parker, a former CEO of both The Dow Chemical Company and BNFL, was appointed to the committee at the first Board meeting of 2010 and brings many years of international commercial experience to the committee. The Board believes that this combination of professional experience is appropriate to fulfil the duties of the committee.
The Chief Financial Officer, the other directors and the external auditor may be invited to attend audit committee meetings as and when appropriate. The Group Secretary acts as the Secretary of the committee. The terms of reference of the audit committee are available to members of the public upon request and are available on this website: www.pvcrystalox.com. The audit committee meets not less than three times a year and is required to report formally to the Board on its proceedings.
The main responsibilities of the audit committee are to:
Financial reporting
- review the scope and findings of the auditor’s work on audit and non-audit issues;
- monitor the integrity of the financial statements of the Group including the Interim and Annual Reports prior to their publication; and
- review and challenge, where necessary, the application of the Group’s accounting policies and any changes to the financial reporting requirements.
Internal controls and risk management systems
- keep under review the effectiveness of the Group’s internal controls and risk management systems; and
- review and approve the statements to be included in the Annual Report concerning internal controls and risk management.
Whistleblowing
- review the Group’s arrangements for its employees to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters. The audit committee ensures that these arrangements allow proportionate and independent investigation of such matters and appropriate follow up action.
Internal audit
- for so long as the Group does not have an internal audit function, consider annually whether there should be one and make recommendations to the Board accordingly. The absence of such a function to be explained in the Annual Report.
External audit
- consider and make recommendations to the Board, to be put to shareholders for approval at the AGM, in relation to the appointment, re-appointment and removal of the Company’s external auditor. The committee shall oversee the selection process for new auditors and if an auditor resigns the committee shall investigate the issues leading to this and decide whether any action is required;
- oversee the relationship with the external auditor including (but not limited to):
- — approval of their remuneration, whether fees for audit or non-audit services, and determine whether the
level of feesis appropriate to enable an adequate audit to be conducted; - — approval of non-audit services in advance, with the requirement that on an annual basis the total
fees for non-audit services do not exceed the total annual fees for audit services; - — approval of their terms of engagement, including any engagement letter issued at the start of each
audit and the scope of the audit; - — assessing annually their independence and objectivity taking into account relevant UK
professional and regulatory requirements and the relationship with the auditor as a whole, including
the provision of any non-audit services; - — satisfying itself that there are no relationships (such as family, employment, investment, financial
or business) between the auditor and the Company (other than in the ordinary course of business); - — agreeing with the Board a policy on the employment of former employees of the Company’s
auditor, then monitoring the implementation of this policy; - — monitoring the auditor’s compliance with relevant ethical and professional guidance on the rotation
of audit partners, the level of fees paid by the Company compared to the overall fee income of the
firm, office and partner; - — assessing annually their qualifications, expertise and resources and the effectiveness of the audit
process which shall include a report from the external auditor on their own internal quality procedures; - — meet regularly with the external auditor, including once at the planning stage before the audit and
once after the audit at the reporting stage. The committee shall meet the external auditor at least
once a year, without management being present, to discuss their remit and any issues arising from
the audit; and - — review and approve the annual audit plan and ensure that it is consistent with the scope of the audit
engagement, - review the findings of the audit with the external auditor. This shall include, but not be limited to, the following:
- — a discussion of any major issues which arose during the audit;
- — any accounting and audit judgements; and
- — levels of errors identified during the audit.
The committee shall:
- review the effectiveness of the audit;
- review any representation letters requested by the external auditor before they are signed by management;
- review the management letter and management’s response to the auditor’s findings and recommendations; and
- develop and implement a policy on the supply of non-audit services by the external auditor, taking into account any relevant ethical guidance on the matter.
The audit committee met three times during the year. Details of attendance are shown in the Corporate Governance Statement on page 24 of the 2010 Annual Report.
During the year the main items considered were:
- discussions with the auditor on the audit approach and strategy, the audit process, key issues arising out of the audit and discussions on the audit report;
- approval of the audit fees and the auditor’s letter of engagement;
- considering the independence and objectivity of the external auditor;
- an update on corporate governance developments, presented by Grant Thornton UK LLP;
- consideration of the requirement for the Group to have an internal audit function;
- detailed reviews of the Group’s preliminary announcement, Annual Report, Interim Reports and interim management statements;
- the audit committee effectiveness review;
- a review and recommendation of changes to the terms of reference of the audit committee to the Board; and
- carrying out a selection process and making a recommendation on the appointment of the external auditor for the audit of the Company and its subsidiaries for the year ending 31 December 2011.
The audit committee conducted a rigorous, competitive selection process involving three audit firms: Grant Thornton UK LLP; PricewaterhouseCoopers LLP; and another "big four" firm. The process involved:
- sending out a formal invitation to tender and information pack;
- allowing the tendering firms to have access to management in the United Kingdom, Germany and Japan;
- reviewing the written proposals from the tendering firms;
- an oral presentation with a question and answer session to the audit committee, the Chief Financial Officer and the Group’s UK and German financial controllers; and
- the audit committee discussing the merits of the tendering firms and making a recommendation to the Board.
The key selection criteria used by the committee in arriving at its recommendation included: understanding of the business and industry; quality of the team proposed for the Group’s account; the strength of the firms in each country where the Group operates; and the added value that each of the firms would be able to provide to the Group. The recommendation of the audit committee was that PricewaterhouseCoopers LLP be appointed as the Group’s external auditor for the financial year ending 31 December 2011. The Board approved the recommendation and a resolution to appoint PricewaterhouseCoopers LLP as auditors will be proposed at the AGM to be held on 26 May 2011.
The committee was grateful to all three firms involved in the selection process, and particularly to Grant Thornton who have served the Group with diligence and skill since their appointment as Group auditor in 2007 and for many years as auditor of Crystalox Ltd.
Internal controls and risk management systems
The Board has overall responsibly for the Group’s system of internal control and risk management systems and for reviewing its effectiveness. The Board delegates to executive management the responsibility for designing, operating and monitoring both the systems and the maintenance of effective internal control in each of the Group’s operating subsidiaries. The internal controls and risk management systems are designed to meet the particular needs of the Group and the risks to which it is exposed and are designed to manage rather than eliminate risk. Accordingly they can provide only reasonable and not absolute assurance against material misstatement, losses, fraud or breaches of laws or regulations.
Executive management is responsible for establishing and maintaining adequate internal control and risk management systems relating to the financial reporting process. The systems and controls in place include policies and procedures that relate to the maintenance of records that accurately and fairly reflect transactions and accurately record and control the Group’s assets; provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with International Financial Reporting Standards (IFRS); require representatives of the operating subsidiaries to confirm that their reported information gives a true and fair view of the state of affairs of the subsidiary and the results for the period; and review and reconcile reported results.
The internal controls and risk management systems were in place for the period under review up to the date of approving the accounts. There is an ongoing process to identify, evaluate and manage the risks facing the business. The entire system of internal controls and risk management systems was reviewed during the year. The Group Secretary, who is a Chartered Accountant, led the review. This review involved visits to the German sites in Erfurt and Bitterfeld and the United Kingdom site at Abingdon and discussions with the finance directors of each of the subsidiaries about the controls and risk management systems in operation. The review was summarised into a report which was discussed by the audit committee in March 2011.
The key procedures, which exist to provide effective internal controls and risk management systems, are as follows:
- clear limits of authority;
- a comprehensive system for consolidating financial results from Group companies and reporting these financial results to the Board;
- annual revenue, cash flow and capital forecasts, reviewed regularly during the year, monthly monitoring of management accounts and capital expenditure reported to the Board and monthly comparisons with forecasts;
- financial controls and procedures;
- clear guidelines for the authorisation of significant transactions including capital expenditure and disposals under defined levels of authority;
- regular meetings of the executive directors;
- an audit committee, which approves audit plans and published financial information and reviews reports from external auditors arising from the audit and deals with significant control matters raised;
- regular Board meetings to monitor continuously any areas of concern;
- annual review of risks and internal controls; and
- annual review of compliance with the Combined Code.
The Board has considered the need for an internal audit function but has decided that the size of the Group does not justify it at present. The Board will keep the decision under annual review.
The Board has reviewed the operation and effectiveness of the Group’s system of internal control, including financial, operational and compliance controls and risk management for the financial year ended 31 December 2010 and the period up to the date of approval of the financial statements.
By order of the Board
Matthew Wethey
Group Secretary
23 March 2011