Statemet of compliace with the UK Corporate Goverace Code The Board of Directors believes i high stadards of corporate goverace, otwithstadig the Compay s size ad status as a member of the FTSE SmallCap idex, ad is accoutable to shareholders for the Group s performace i this area. This statemet describes how the Group is applyig the relevat priciples of goverace, as set out i the UK Corporate Goverace Code (the Code) which is available o the website of the Fiacial Reportig Coucil (FRC). The Compay is a smaller compay for the purposes of the Code ad i cosequece certai provisios of the Code either do ot apply to the Compay or may be judged to be disproportioate or less relevat i its case. The Board cosiders that throughout 2016, Avo has complied with the Code, save i the followig three respects. Firstly, the Seior Idepedet Director does ot atted meetigs with the major shareholders to liste to their views (which is explaied further below). Secodly, the aual performace review of the Board has bee postpoed to take place i March 2017, outside the curret fiacial year to allow the ew Board members sufficiet time i their roles before udertakig a formal evaluatio. Fially, our ew Chief Executive, Mr R. Reie, was appoited o 1 December 2015. Uder the Code, Directors are required to retire ad be re-appoited at the first AGM after their appoitmet. As Mr R. Reie was appoited after the otice of AGM had bee circulated, Mr R. Reie did ot retire ad offer himself for reappoitmet ad will istead retire at this year s AGM. This statemet will address the mai subject areas of the Code amely leadership, effectiveess, accoutability ad relatios with shareholders. Remueratio is dealt with i the Remueratio Report o pages 55 to 73. The Board has a established framework of iteral cotrols coverig both fiacial ad o-fiacial cotrols. I additio, there is a ogoig process for idetifyig, evaluatig ad maagig sigificat busiess risks faced by the Group. This process was i place throughout the 2016 fiacial year ad accords with the Revised Guidace for Directors o Iteral Cotrol (formerly called the Turbull Guidace). The Board Durig the year there have bee three chages to the membership of the Board. Mr R. Reie assumed the role of Chief Executive o 1 December 2015 followig the retiremet of Mr P. Slabbert o 30 September 2015. Mr R. Wood retired from the Board with effect from the coclusio of the AGM o 26 Jauary 2016 ad Miss C. Posoby was appoited as his replacemet as Director ad Chair of the Remueratio Committee o 1 March 2016. The Board comprises the Chairma, two No-Executive Directors ad two Executive Directors who are the Chief Executive ad the Group Fiace Director. The Board treats the two No-Executive Directors as idepedet. Followig the retiremet of Mr R. Wood from the Board at the coclusio of last year s AGM, Mr P. Vervaat was appoited Seior Idepedet Director. Rules cocerig the appoitmet ad replacemet of Directors of the Compay are cotaied i the Articles of Associatio. Amedmets to the Articles must be approved by a special resolutio of shareholders. Uder the Articles all Directors are subject to electio by shareholders at the first aual geeral meetig followig their appoitmet, ad to re-electio thereafter at itervals of o more tha three years. The Board is aware of the FRC s suggestio that compaies outside the FTSE 350 should cosider the aual re-electio of all Directors. O the basis that this is ot a requiremet of the Code ad it has ot bee raised as a issue by ay shareholders the Board has chose ot to chage its existig practice. No-Executive Directors submit themselves for aual re-electio if they have served for more tha ie years sice first electio. Additioally, the No-Executive Directors are appoited by the Board o terms which allow for termiatio o three moths otice. Biographies of the Directors appear o page 42. These illustrate the rage of busiess ad fiacial experiece upo which the Board is able to call. The itetio of the Board is that its membership should be balaced betwee executives ad o-executives ad have the appropriate skills ad experiece. The special positio ad role of the Chairma uder the Code is recogised by the Board ad a writte statemet of the divisio of resposibilities of the Chairma ad Chief Executive has bee agreed. The Chairma is resposible for the leadership of the Board ad esurig its effectiveess o all aspects of its role ad the Chief Executive maages the Group ad has the prime role, with the assistace of the Board, of developig ad implemetig busiess strategy. Oe of the roles of the No-Executive Directors uder the leadership of the Chairma is to udertake detailed examiatio ad discussio of strategies proposed by the Executive Directors, so as to esure that decisios are i the best log-term iterests of shareholders ad take proper accout of the iterests of the Group s other stakeholders. The Chairma esures that meetigs of No-Executive Directors without the Executive Directors are held. ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 47
How the Board operates The Chairma esures through the Compay Secretary that the Board ageda ad all relevat iformatio is provided to the Board sufficietly i advace of meetigs ad that adequate time is available for discussio of all ageda items, i particular strategic issues. The Chief Executive ad the Compay Secretary discuss the ageda ahead of every meetig. At meetigs the Chairma esures that all Directors are able to make a effective cotributio throughout meetigs ad every Director is ecouraged to participate ad provide opiios for each ageda item. The Chairma always seeks to achieve uaimous decisios of the Board followig due discussio of ageda items. The No-Executive Directors fully review the Group s operatioal performace ad the Board as a whole has, with a view to reiforcig its oversight ad cotrol, reserved a list of powers solely to itself which are ot to be delegated to maagemet. This list icludes appropriate strategic, fiacial, orgaisatioal ad compliace issues, icludig the approval of high level aoucemets, circulars ad the report ad accouts ad certai strategic ad maagemet issues. Examples of strategic ad maagemet issues iclude the followig: Approval of the aual operatig budget ad the three year pla The extesio of the Group s activities ito ew busiess ad geographic areas (or their cessatio) Chages to the corporate or capital structure Fiacial issues, icludig chages i accoutig policy, the approval of divideds, bak facilities ad guaratees Each Director has full ad timely access to all relevat iformatio ad the Board meets regularly with appropriate cotact betwee meetigs. All Directors receive a tailored iductio to the Group from the Compay Secretary o joiig the Board. Whe appoited, No-Executive Directors are made aware of ad ackowledge their ability to meet the time commitmets ecessary to fulfil their Board ad Committee duties. Procedures are i place, which have bee agreed by the Board, for Directors, where ecessary i the furtherace of their duties, to take idepedet professioal advice at the Compay s expese ad all Directors have access to the Compay Secretary. The Compay Secretary is resposible to the Board for esurig that all Board procedures are complied with. The removal of the Compay Secretary is a decisio for the Board as a whole. Committees of the Board Of particular importace i a goverace cotext are the three committees of the Board, amely the Remueratio Committee, the Nomiatios Committee ad the Audit Committee. The members of the Committees comprise the Chairma ad all the No-Executive Directors. The No-Executive Directors cotiue to regard the Chairma as addig sigificat value to the deliberatios of the Audit Committee ad his membership is ratified by Provisio C.3.1. of the Code, which permits listed compaies outside the FTSE 350 to allow the Chairma to sit o the audit committee where he or she was cosidered idepedet o appoitmet as Chairma. Mr P. Vervaat is Chairma of the Audit Committee. The Board is satisfied that Mr P. Vervaat has recet relevat fiacial experiece ad his profile appears o page 42. Mr D. Evas is Chairma of the Nomiatios Committee ad Miss C. Posoby is Chairma of the Remueratio Committee. Chages to the costitutio of the Board The approval of sigificat cotracts, for example the acquisitio or disposal of assets worth more tha 1,000,000 or the exposure of the Compay or the Group to a risk greater tha 1,000,000 The approval of ubudgeted capital expediture exceedig 250,000 The approval of quotatios ad sale cotracts where the sales commissio payable to a itermediary exceeds 10% of the et ivoice price Cosideratio ad approval of all proposed acquisitios ad mergers The Remueratio Committee s pricipal resposibilities are to decide o remueratio policy o behalf of the Board ad to determie remueratio packages ad other terms ad coditios of employmet, icludig appropriate performace related beefits for the Executive Directors ad other seior executives. The Chief Executive ad the Compay Secretary atted meetigs of the Committee by ivitatio, but are abset whe issues relatig to each of them are discussed. More details of the activities of the Remueratio Committee are set out i the Remueratio Report o pages 55 to 73. Copies of the terms of referece of the Nomiatios, Remueratio ad Audit Committees ad the terms ad coditios of appoitmet of the No-Executive Directors are available o the Compay s website or from the Compay Secretary. 48 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH
Attedace at meetigs The Board schedules eight regular meetigs per year. This year two further meetigs were held o a ad hoc basis, by telephoe coferece, i coectio with the timig of the release of the Compay s 2015 results ad to provide a update to the 2016 tradig positio. All Committee ad Board meetigs held i the year were quorate. Directors attedace durig the year eded 30 September 2016 was as follows: Meetigs durig year eded 30 September 2016 Board Audit Remueratio Nomiatios Committee Committee Committee D. Evas 8 3 4 2 R. Wood** 2 1 2 - R. Reie *** 6 2* 2* 2* A. Lewis 7 3* 2* - P. Vervaat 8 3 4 2 C. Posoby **** 5 2 2 - * Attedace by ivitatio ** R. Wood retired from the Board o 26 Jauary 2016 *** R. Reie was appoited to the Board o 1 December 2015 **** C. Posoby was appoited to the Board o 1 March 2016 Performace evaluatio The formal performace evaluatio of the Board is scheduled to take place i March 2017, fallig outside the fiacial year uder review. The review was delayed util after the ed of the fiacial year to eable the ew appoitees to the Board, Mr R. Reie (appoited 1 December 2015) ad Miss C. Posoby (appoited 1 March 2016) to have sufficiet time i their roles before takig part i a formal evaluatio. Relatios with shareholders The Directors regard regular commuicatios with shareholders as extremely importat. All members of the Board receive copies of aalysts reports of which the Compay is made aware. The Board reports formally to its shareholders i a umber of ways, icludig: regulatory ews aoucemets or press releases i respose to evets or routie reportig obligatios, issuig a detailed Aual Report ad Accouts ad, at the half year, a iterim report. Regular dialogue takes place with istitutioal shareholders icludig presetatios after the Compay s prelimiary aoucemets of the half ad full year results. The Board receives commets from aalyst meetigs ad shareholder meetigs after both iterim ad fial results ad at other times durig the year. Shareholders have the opportuity to ask questios at the AGM ad also have the opportuity to leave writte questios with the Compay Secretary for the respose of the Directors. The Directors also make themselves available after the AGM to talk iformally to shareholders, should they wish to do so ad respod throughout the year to ay correspodece from idividual shareholders. At the AGM o 2 February 2017, the Board will be followig the recommedatios i the Code regardig the costructive use of aual geeral meetigs; as usual, the ageda will iclude a presetatio by the Chief Executive o aspects of the Group s busiess ad a opportuity for shareholders to ask questios. The level of proxies received for each AGM resolutio is declared after the resolutio has bee dealt with o a show of hads providig o poll has bee called for. The Board has o plas to itroduce poll votig o all busiess at geeral meetigs as a substitute for usig proxy votes, as this is ot a requiremet of the Code. The No-Executive Directors, havig cosidered the Code with regard to relatios with shareholders, are of the view that it is most appropriate for the shareholders to have regular dialogue with the Executive Directors. The results of all dialogue with shareholders are commuicated to the Board ad reviewed by all No-Executive Directors. However, should shareholders have cocers, which they feel caot be resolved through ormal shareholder meetigs, the Chairma, Seior Idepedet No- Executive Director ad the remaiig No-Executive Director may be cotacted through the Compay Secretary. Accoutability ad audit The Code requires that Directors review the effectiveess of the Group s system of iteral cotrols o a cotiuig basis. The scope of this review covers all cotrols icludig fiacial, operatioal ad compliace cotrols as well as risk maagemet. As idicated earlier, the Board has put i place a framework of iteral cotrols ad the Audit Committee has resposibility to review, moitor ad make policy ad recommedatios to the Board upo all such matters. The Directors ackowledge their resposibility for the Group s system of iteral cotrol. The Board, through the Audit Committee, keeps this system uder cotiuous review ad formally cosiders its cotet ad its effectiveess o a aual basis. Such a system ca provide oly reasoable, ad ot absolute, assurace agaist material misstatemets or losses. 152% OF OPERATING PROFIT CONVERTED TO CASH ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 49
The sectio o iteral cotrol i the Audit Committee Report o pages 53 to 54 ad the followig paragraphs describe relevat key procedures withi the Group s systems of iteral cotrol ad the process by which the Directors have reviewed their effectiveess. Systems exist throughout the Group which provide for the creatio of three year plas ad aual budgets; mothly reports eable the Board to compare performace agaist budget ad to take actio where appropriate. Procedures are i place to idetify all major busiess risks ad to evaluate their potetial impact o the Group. These risks are described withi the Strategic Report o pages 28 to 31. OPERATING Risk maagemet PROFIT UP 8% Risk is maaged by the Group Executive team durig the year, led by the Compay Secretary ad the Chief Executive. The Group Executive team sets its key priorities for successfully maagig the Group s busiesses. This process iheretly addresses risk ad the Compay Secretary sposors a exercise that esures the kow risks to the busiesses, together with ay ewly idetified risks, are assessed ad aalysed effectively ad that the priorities elimiate, miimise, cotrol or trasfer risk (or the effect thereof) as appropriate. The Compay Secretary also sposors a review of the cotiuig effectiveess of other aspects of the cotrol eviromet by the executive team. The risk maagemet process There is a clearly defied delegatio of authority from the Board to the busiess uits, with appropriate reportig lies to idividual Executive Directors. There are procedures for the authorisatio of capital expediture ad ivestmet, together with procedures for post-completio appraisal. Iteral cotrols are i existece which provide reasoable assurace of the maiteace of proper accoutig records ad the reliability of fiacial iformatio used withi the busiess or for publicatio. The Group fiace departmet maages the fiacial reportig process to esure that there is appropriate cotrol ad review of the fiacial iformatio icludig the productio of the cosolidated aual accouts. Group Fiace is supported by the operatioal fiace maagers throughout the Group, who have the resposibility ad accoutability for providig iformatio i keepig with our policies, procedures ad iteral best practices as documeted i the iteral cotrol maual. The Board has issued a Code of Coduct which reiforces the importace of a robust iteral cotrol framework throughout the Group. The Board recogises that a ope ad hoest culture is key to uderstadig cocers withi the busiess ad to ucoverig ad ivestigatig ay potetial wrogdoig. The Code sets out the procedure whereby idividuals may raise cocers i matters of fiacial reportig or ay other matter of cocer with maagemet ad directly with the Chairma of the Audit Committee to esure idepedet ivestigatio ad appropriate follow up actio. The Code is reviewed aually. ASSESSMENT IDENTIFICATION AND ANALYSIS The Board carried out quarterly reviews of the key risks facig the Group durig the year, followig the quarterly reviews coducted by the Group Executive maagemet team. The Board also carried out a aual review of the major busiess risks affectig the Group, icludig the macro risks. I the year uder review, the risk assessmets carried out both at busiess level ad at Board level cotiue to be reviewed ad stregtheed as part of the Board s ogoig respose to the FRC s Revised Guidace o Iteral Cotrol: Guidace to Directors. REVIEW OF EFFECTIVENESS OF CONTROL RISK REGISTER ELIMINATION / MINIMISE / CONTROL OR TRANSFER 50 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH
Although the Board itself retais the ultimate power ad authority i relatio to decisio makig, the Audit Committee meets at least three times a year with maagemet ad, o two occasios, exteral auditors to review specific accoutig, reportig ad fiacial cotrol matters. This Committee also reviews the iterim, prelimiary ad aual statemets ad has primary resposibility for makig a recommedatio o the appoitmet, reappoitmet ad removal of exteral auditors. Disclosure ad trasparecy rules ( DTR ) Disclosures i respect of the DTR requiremets uder DTR 7.2.6 are give i the Directors Report o pages 43 to 46 ad have bee icluded by referece. Goig cocer After makig appropriate equiries, the Directors have, at the time of approvig the fiacial statemets, formed a judgemet that there is a reasoable expectatio that the Compay ad Group have adequate resources to cotiue i operatioal existece for the foreseeable future. For this reaso, the Directors cotiue to adopt the goig cocer basis i preparig the fiacial statemets. This coclusio is based o a review of the resources available to the Group, takig accout of the Group s fiacial projectios together with available cash ad committed borrowig facilities. I reachig this coclusio, the Board has cosidered the magitude of potetial impacts resultig from ucertai future evets or chages i coditios, the likelihood of their occurrece ad the likely effectiveess of mitigatig actios that the Directors would cosider udertakig. Log-term viability statemet The Directors have assessed the viability of the Group over a three year period to September 2019, takig accout of the Group s curret positio ad the potetial impact of the pricipal risks documeted i the Strategic Report. Based o this assessmet, the Directors have a reasoable expectatio that the Compay will be able to cotiue i operatio ad meet its liabilities as they fall due over the period to September 2019. I makig this statemet the Directors have cosidered the resiliece of the Group, takig accout of its curret positio, the pricipal risks facig the busiess i severe but reasoable scearios, ad the effectiveess of ay mitigatig actios. This assessmet has cosidered the potetial impacts of these risks o the busiess model, future performace, solvecy ad liquidity over the period. The Directors have determied that the three-year period to September 2019 is a appropriate period over which to provide its viability statemet. I makig their assessmet, the Directors have take accout of the Group s et cash positio (see ote 19), its ability to raise ew fiace i most market coditios ad other potetial mitigatig actios such as restrictig divided paymets. Pim Vervaat Chairma of the Audit Committee 16 November 2016 ANNUAL REPORT AND ACCOUNTS 2016 DELIVERING AND BUILDING GROWTH 51