CORPORATE GOVERNANCE

The Listing Rules of the Financial Services Authority require listed companies to disclose, in relation to section 1 of the Combined Code 1998 (the Combined Code), how they have applied its principles and whether they have complied with its provisions throughout the accounting period.

This statement, together with the remuneration report, explains how the Company has applied the principles and complied with the provisions set out in the Code.

The Company is aware of the requirements introduced in the new Combined Code (the New Code), which applies for reporting years beginning on or after 1 November 2003.

Some measures have already been taken, including the adoption of new terms of reference for the board committees (as set out below) and the schedule of matters reserved for decision by the board and/or its committees, all of which have been revised in light of the New Code. Where appropriate, these documents are available on the Company’s web site. The Company will continue to review its compliance throughout the current financial year.

The board
The board comprises the chairman and chief executive, one further executive director and three independent non-executive directors. It is chaired by the chairman and chief executive, T H F Kirby. The senior independent non-executive director is C J Myatt. The three non-executive directors have a breadth of successful commercial and professional experience and are considered by the board to be independent of the Group as explained in the Chairman's preamble from the 2003 annual report.

Following the return of T H F Kirby to executive responsibilities in September 2000, the board considers it appropriate, for the time being, for the roles of the chairman and chief executive to be combined. This situation will be kept under review by the board.

The board operates primarily through its committees and is responsible for leading and controlling the Group and monitoring executive management. It meets at least four times a year.

All directors bring an independent judgment to bear on issues of strategy, performance, resources, including key appointments, and standards of conduct. In 2004 the board and its committees had 11 scheduled meetings. There is a procedure for directors to take independent professional advice at the Company’s expense where relevant to the execution of their duties. The board considers that it has been supplied with sufficient timely and accurate information to enable it to discharge its duties.

All members of the board have access to the services and advice of the company secretary.

During the current financial year the board intends to introduce a process for the evaluation of its own performance and that of its committees.

Board committees
The board has four principal committees, all with written terms of reference which are published on the Company’s web site and which are available on application to the company secretary at the Company’s registered office. The company secretary serves as secretary to all four committees. The chairmen of the audit, and remuneration and nomination committees are expected to be available to answer questions at the Company’s annual general meeting.

Audit committee
The audit committee comprises the three non-executive directors under the chairmanship of A J H Stewart who is a chartered accountant (CA(SA)) and has significant relevant financial and accounting knowledge and experience. The audit committee’s terms of reference include monitoring the appropriateness of accounting policies, financial reporting, internal control and risk assessment and keeping under review the scope, results and cost-effectiveness of the external and internal audits and the independence of the Group’s external auditors.

The committee calls upon the external auditors, the internal auditors and the executive directors to attend formal meetings as required. These meetings are held at least three times a year. The external and internal auditors are given the opportunity to raise any matters or concerns they may have in the absence of the executive directors at separate meetings with the audit committee or its chairman. The audit committee held five meetings during the year, each of which was attended by all members of the committee.

Business committee
The business committee comprises all directors and is chaired by C J Myatt. It meets not less than nine times a year and is responsible for examining and reviewing many aspects of the Group’s activity including operational and financial performance, capital expenditure proposals, human resource issues and the planning and forecasting processes. The business committee held 11 meetings in the year, each of which was attended by all members of the committee.

City committee
The city committee comprises the non-executive directors and is chaired by N J Donaldson. It meets not less than twice a year and is responsible for corporate governance, investor relations, city presentations and liaison with city advisers. The city committee held three meetings in the year, each of which was attended by all members of the committee.

Remuneration and nomination committee
The remuneration and nomination committee comprises the non-executive directors and is chaired by C J Myatt. It meets not less than twice a year and is responsible for making recommendations to the board on remuneration policy for senior executives and all directors (including determining specific remuneration packages, terms of employment and performance incentive arrangements). It is also responsible for nominating, for approval by the board, candidates for appointment to the board, and for vetting and approving the appointment of senior executives. The procedures and guidelines used by the remuneration and nomination committee in determining remuneration are outlined in the separate remuneration report. The remuneration and nomination committee held two meetings in the year, each of which was attended by all members of the committee.

Communication with shareholders
The Company encourages two way communication with its institutional and private investors and responds promptly to all queries received verbally, in writing or directly through its investor relations web site (the ‘Talk to Tom’ section). The interim and final results are presented publicly to analysts and other meetings with shareholders are arranged as appropriate and these, together with the institutional presentation documents, are also posted simultaneously on the web site.

The Company has an established investor relations programme in the course of which the chairman and chief executive and the finance director have regular meetings with major shareholders to update them on the Company’s progress and to discuss any issues which investors may have. Any issues arising at such meetings are reported and considered by the board. In addition, the Company’s stockbrokers, Baird, obtain shareholder feedback on a confidential basis from major investors following the meetings and this is reported in summary and considered at board meetings.

The Company offers shareholders the opportunity to receive all communication from the Company electronically. Information on how to sign up is available on the web site.

Remuneration report
The Company’s policy on executive remuneration and details of the executive directors’ salaries, annual bonuses, long-term incentives and pensions, and fees for the non-executive directors, are set out in the board report on remuneration.

Internal control
Detailed reviews of the performance of the Group’s main business activities are included in the operating review and the financial review. The board presents these reviews, together with the directors’ report, to give a balanced and understandable assessment of the Company’s position and prospects.

The directors recognise that they have overall responsibility for ensuring that the Group maintains a sound system of internal control to safeguard shareholders’ investment and the Group’s assets, and for reviewing its effectiveness. The system is designed to manage risks that may prevent the Group from achieving its business objectives, rather than to eliminate these risks. However, even the most effective system can provide only reasonable, and not absolute, assurance against material misstatement or loss.

The directors have established an ongoing process for identifying, evaluating and managing the significant risks faced by the Group, which has been in place from the start of the year until the date of approval of this report. This process is regularly reviewed by the board, in accordance with the document ‘Internal Control: Guidance for Directors on the Combined Code’, the Turnbull report, issued in September 1999. Steps are also being taken to embed internal control in the business processes of the Group.

The effectiveness of the Group’s system of internal control is continuously reviewed by the board. The review covers all controls, including financial, operational and compliance controls and risk management. The monitoring of control procedures is achieved through regular review by the finance director, reporting to the board. This review process considers whether significant risks have been identified, evaluated and controlled. Regular reporting by senior management ensures that, as far as possible, the controls and safeguards are being operated appropriately. This process is considered by the audit committee, alongside the independent auditors’ reports.

The Group has continued its programme of internal audit reviews during the year. The audit committee agrees an annual internal audit plan, focussing on business specific issues. Elements of this programme are outsourced to external advisers. Actions agreed by management in response to recommendations made are followed up.

The board, with advice from the audit committee, has completed its annual review of the system of internal control in accordance with the guidance as set out in the Turnbull report, and is satisfied that it has acted appropriately and in accordance with that guidance.

Auditors’ independence
The audit committee has reviewed a report from the Company’s auditors confirming their independence. The review included the audit, audit related and tax services provided by Deloitte & Touche LLP, and compliance with the Group policy which prescribes the types of engagements for which external auditors may be used. The audit committee concluded that there are sufficient controls and processes in place to ensure the required level of independence.

Statement of compliance with the Combined Code
Provision A.6.1 of the Combined Code requires that non-executive directors should be appointed for specified terms. However, the board has decided that it is preferable to retain the flexibility of rolling contracts which can be terminated without notice or compensation, but which, under normal circumstances, operate with a maximum of six months’ notice. The board believes that the requirement for at least one third of the directors to seek re-election by rotation at each annual general meeting adequately ensures that appointment periods are not excessive.

Save as set out above, the Company has complied throughout the year with the provisions set out in section 1 of the Combined Code.

By order of the board

M Sherwin
Secretary
26 July 2004

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