Statement of Compliance with the UK Corporate Governance Code
In the opinion of the Directors, the Company has complied with the provisions of the UK Corporate Governance Code issued by the Financial Reporting Council in 2010 save in respect of the following provisions:
B.2.1 The Composition of the Nomination Committee
Jorge Cosmen, who is a member of the Nomination Committee, is not considered to be independent. However, as Deputy Chairman and the representative of one of the Company's largest shareholders, the Board considers Mr Cosmen should be a member of the Nomination Committee in order to be involved in the recruitment process for Board appointments.
C.3.1 The Composition of the Audit Committee and D.2.1 The Composition of the Remuneration Committee
Following the resignation of Roger Devlin the Audit Committee and the Remuneration Committee consisted of two Non-Executive Directors for a short period until the appointment of Chris Muntwyler to the Audit Committee and Lee Sander to the Remuneration Committee in November 2011.
Re-election of Directors
In accordance with the Company's Articles of Association, and the principles of the UK Corporate Governance Code published by the Financial Reporting Council in 2010, Directors of the Company will offer themselves for re-election at this year's AGM. Non-Executive Directors are appointed for specific terms, subject to reelection. Non-Executive Directors will only be put forward for re-election if, following performance evaluation, the Board believes the Director's performance continues to be effective and demonstrates commitment to the role.
Remuneration and service contracts of Directors
The Directors' Remuneration Report, including details of remuneration policy and service contracts, is set out here.
Directors' conflicts of interest
The Board has a procedure in place to deal with a situation where a Director has a conflict of interest, as required by the Companies Act 2006. As part of this process, the members of the Board prepare a list of other positions held and all other conflict situations that may need authorising either in relation to the Director concerned or his/her connected persons. The Board considers each Director's situation and decides whether to approve any conflict situations, taking into consideration what is in the best interests of the Company and whether the Director's ability to act in accordance with his or her wider duties is affected. Each Director is required to notify the Company Secretary of any potential or actual conflict situations that will need authorising by the Board. Authorisations given by the Board are reviewed annually.
Accountability and audit
Statements of the respective responsibilities of the Directors and auditors are set out in the Directors' Responsibilities Statement and the Group Auditor's Report.
Directors' and Officers' Liability Insurance
The Company purchases Directors' and Officers' Liability Insurance for the Company and its subsidiaries, which gives appropriate cover for any legal action brought against its Directors.
Internal control statement
The Board's responsibilities
The Board has overall responsibility for the Group's system of internal control and for reviewing its effectiveness. The Board maintains full control and direction over appropriate strategic, financial, operational and compliance issues and has put in place an organisational structure with formally defined lines of responsibility, delegated authorities and clear operating processes. The systems that the Board has established are designed to safeguard both the shareholders' investment and the assets of the Group, and are described as follows.
Key elements of the control framework
Financial reporting process – management and specialists within the Finance Department are responsible for ensuring the appropriate maintenance of financial records and processes to ensure that all information is relevant, reliable and in accordance with the applicable laws and regulations, and distributed both internally and externally in a timely manner. A review of the consolidation and financial statements is completed by management to ensure that the financial position and results of the Group are appropriately reflected. All financial information published by the Group is subject to the approval of the Audit Committee.
Performance management – the performance of each division and operating company against its plan is closely monitored by a formal monthly reporting process and by the attendance of the relevant Executive Directors at monthly divisional executive meetings.
Annual fitness check process – internal audit undertake an annual review at each operating company to assess the integrity of the balance sheet and to check the effective operation of key financial reporting and information systems controls. The results of the reviews are presented to both divisional and Group finance with any required actions agreed with the relevant divisional Finance Director.
Strategic and financial planning – an annual budgeting and strategic planning process has been established whereby each division and constituent operating company assesses its competitive position and goals, taking account of the strategic risks faced. This strategy is translated into a financial plan with clear milestones and performance indicators.
Capital investment – a clear process is in place for the approval of capital expenditure, which includes detailed appraisal of the benefits of the proposed investment and any associated key risks. Material capital expenditure requires Board approval.
Health and safety – health and safety standards and benchmarks have been established in all our businesses and the performance of operating companies in meeting these standards is closely monitored.
Risk management reporting process – each division and operating company evaluates its internal control environment and key risks, and the results are reviewed at management level and passed to the Audit Committee before being presented to the Board. This process is reviewed on a regular basis to ensure the validity and relevance of the key risks included in reports. The review covers strategic, financial, compliance and risk management controls. These procedures are mandated and designed to manage the risk in order to ensure that the operations achieve their business objectives.
Internal audit – the internal control system is independently monitored and supported by a Group internal audit function. The internal audit function reports to management and the Audit Committee on the Group's financial and operational controls, and monitors and reviews the extent to which its recommendations have been implemented.
Board-level reporting on internal control – during the year the Audit Committee reviews regular reports from the internal audit function, the external auditors and executive management on matters relating to internal control, financial reporting and risk management. The Audit Committee provides the Board with an independent assessment of the Group's financial position, accounting affairs and control systems. In addition, the Board receives regular reports on how specific risks that are assessed as material to the Group are being managed.
Review of internal control effectiveness
The system of internal control and risk management, described above, has been in place for the year under review and up to the date of approval of this Annual Report and Accounts. Such a system is designed to manage, rather than to eliminate, the risks inherent in achieving the Group's business objectives, and can therefore provide only reasonable and not absolute assurance against material misstatement or loss. The effectiveness of this system has been regularly reviewed by the Directors in line with the Guidance on Audit Committees, published by the Financial Reporting Council in December 2010. Where significant control failings or weaknesses have been identified, appropriate corrective action has been taken.
Whistle blowing policy
‘Whistle blowing' policies are in place in each of the Group's businesses and are also available on the Group's website www.nationalexpressgroup.com. The Board supports the highest standards of corporate governance and ethical practices within all its operations and continues to review its policies on an ongoing basis. The Board has endorsed a set of principles which establish the framework for how its businesses operate. Key to these is working in an open and honest manner. The Group is committed to the highest standards of quality, honesty, openness and accountability. Employees are encouraged to raise genuine concerns under the policy either by contacting their line manager or telephoning a dedicated external helpline. Any concerns raised are investigated carefully and thoroughly to assess what action, if any, should be taken and confidential records are maintained. The Company Secretary reports any matters of significance to the appropriate committee. In 2011 no issues of significance were raised.
A Group Anti-Bribery policy has been established and issued to all Group companies and is also available on the Group's website at www.nationalexpressgroup.com. The policy prohibits any inducement which results in a personal gain or advantage to the recipient or any person or body associated with them, and which is intended to influence them to take action which may not be solely in the interests of the Group or of the person or body employing them or which they represent. The prevention, detection and reporting of bribery is the responsibility of all employees throughout the Group. Employees can report confidentially any suspicion of bribery via an externally facilitated whistleblower hotline.
Information about the share capital of the Company is included in the Directors' report.