The maintenance of effective corporate governance remains a key priority for the Board. The statement below describes how the directors have applied the principles of corporate governance and complied with the spirit of the Combined Code provisions throughout the year.

Board of Directors

The directors are listed on page 24. The Board meets regularly throughout the year. It has a formal schedule of matters reserved to it for decision but otherwise delegates specific responsibilities. The non-executive directors are independent of the Group.

Board Committees

The principal standing committees appointed by the Board are:

The Audit Committee – chaired by Mr J M Gourlay, comprises the non-executive directors. It meets twice a year to review the interim and annual accounts, and it considers any matters raised by the internal and external auditors.

The Remuneration Committee – chaired by Mr J M Gourlay, comprises the non-executive directors. The Committee determines the remuneration of the executive directors and assists in the formulation of remuneration policy for other senior executives.

Internal Control

The Board is ultimately responsible for the Group’s system of internal control and for reviewing its effectiveness. However, such a system is 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. Following publication of guidance for directors on internal control Internal Control: Guidance for Directors on the Combined Code (the Turnbull guidance), the Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group, that has been in place for the year under review and up to the date of approval of the annual report and accounts, and that this process is regularly reviewed by the Board and accords with the guidance. The Board has reviewed the effectiveness of the system of internal control. In particular, it has reviewed and updated the process for identifying and evaluating the significant risks affecting the business and the policies and procedures by which these risks are managed.

Management are responsible for the identification and evaluation of significant risks applicable to their areas of business together with the design and operation of suitable internal controls. These risks are assessed on a continuous basis and may be associated with a variety of internal or external sources including market changes, control breakdowns, disruption in information systems, competition and regulatory requirements.

Management provide regular updates of significant risks affecting their businesses to the Board together with details of key internal controls and risk management initiatives. This process is facilitated by internal audit who also provide assurance as to the operation and validity of the system of internal control and review corrective action plans. Management report regularly on their review of risks and how they are managed to the Audit Committee who review, on behalf of the Board, the key risks inherent in the business and the system of control necessary to manage such risks, and present their findings to the Board. Internal audit independently review the risk identification procedures and control processes implemented by management, and report to the Audit Committee on a half yearly basis. The Audit Committee reviews the assurance procedures, ensuring that an appropriate mix of techniques is used to obtain the level of assurance required by the Board.

The Group Chief Executive also reports to the Board on behalf of the Executive Team on significant changes in the business and the external environment which affect significant risks.

The Finance Director provides the Board with monthly financial information which includes key performance and risk indicators. Where areas for improvement in the system are identified, the Board considers the recommendations made by the Executive Team and the Audit Committee.

Going Concern

The directors have reviewed the latest budget and strategy projections. They have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason the accounts have been prepared on the going concern basis.

Statement of Directors’ Responsibilities

Company law requires the directors to prepare accounts for each financial year which give a true and fair view of the state of affairs of the company and Group and of the profit or loss for that period. In preparing those accounts, the directors are required to:

• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the accounts;
• prepare the accounts on the going concern basis unless it is inappropriate to presume that the Group will continue in business.

The directors are responsible for keeping proper records which disclose with reasonable accuracy at any time the financial position of the company and to enable the directors to ensure that the accounts comply with the Companies Act 1985. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.