Also in Corporate governance:
Delivering value for institutions, staff and individuals
General information
The directors present their report and financial statements for the year ended 31 August 2009. This report includes the Company’s Statement in relation to corporate governance, while the Directors’ Remuneration Report is set out on pages 40 to 49. The review of the business set out on pages 4 to 31 is incorporated by reference, as is all other information in the 2009 Annual Report to which this Report of the Directors specifically cross references.
Principal activity
The principal activity of the Group continues to be the provision of integrated asset services to the public and private sectors.
Review of operations, current positions and future prospects
Group revenue rose by £107m to £660m, representing an increase of 19%. Group profit before tax increased by £5m to £26.7m.
Details of the Group’s operations for the year ending 31 August 2009, its current position and future prospects can be found in the review of the business which is set out on pages 4 to 31. This includes an analysis of the main trends and factors likely to affect the development, performance and position of the business, including environmental, employee, social and community issues, the Group’s Key Performance Indicators (KPIs) and a description of the principal risks and uncertainties facing the business.
Dividends
The directors recommend the payment of a final dividend of 2.07p per ordinary share, to be paid on 5 March 2010 to members on the Register at the close of business on 5 February 2010. Together with the interim dividend of 1.09p per ordinary share paid in July 2009, the total dividend for the year will be 3.16p compared with 2.68p for the previous year, an increase of 18%.
Acquisitions
The Group made four acquisitions during the year, for the purpose of expanding geographic scope within specific service streams.
- Lowe Group – an electrical compliance business acquired in September 2008 for £7.5 million;
- Predator – a pest prevention business acquired in November 2008 for £0.6 million;
- UK Fire – a fire safety business acquired in July 2009 for £12.5 million; and
- Igrox – a pest prevention business acquired in July 2009 for £3.9 million plus deferred consideration of up to £3m.
Share capital, voting rights and control
At the date of this report, 138,779,811 ordinary shares of 2p each have been issued and are fully paid up. All shares have the same rights. During the year to 31 August 2009, the Company undertook a vendor placing, issuing eight million new ordinary shares of 2p each; options were also exercised pursuant to the Company’s share option schemes resulting in the allotment of 340,376 new ordinary shares. As at the date of this report a further 4,147,957 have been allotted pursuant to the Company share schemes, on 3 September 2009 3,573,568 shares were allotted in a share for share purchase of Fountains plc.
During the year the Company purchased 105,223 shares in the open market to satisfy the matched share element of the Company all employee share incentive plan (“SIP”). As at 31 August 2009, the Company held 260,454 shares on behalf of employees in relation to this scheme.
Shares are also held by the Company’s Employee Benefit Trust for the satisfaction of awards under the Company’s Long-Term Incentive Plan (“LTIP”). These rank pari passu with the other shares in issue and have no special voting rights, but the voting rights and acceptance of any offer relating to the shares held in the Trust rests with the Trustees of the Trust rather than with the employee or the Company.
As at the close of 28 October 2009 (being the latest practical date prior to the signing of this report) the Company had received the following notifications of interest in accordance with DTR 5:
| Shareholder | Number of shares | % of ISC at 28 October 2009 | No of shares direct | No of shares indirect | No of financial instruments* |
| BlackRock Inc | 13,440,242 | 9.7% | - | 10,656,666 | 2,783,576 |
| Co-operative Asset Management | 12,359,453 | 8.9% | 12,359,453 | - | - |
| Parvis Asset Management | 9,897,828 | 7.1% | 1,603,005 | - | 8,294,823 |
| * held as Contracts for Difference (CFD) or equity swaps |
The Company is not party to any significant agreements that would take effect, alter or terminate following a change of control of the Company. The Company does not have agreements with any director or officer that would provide for compensation for loss of office or employment resulting from a takeover, except that provisions of the Company’s share plans may result in options and awards granted under such plans to vest on a takeover.
Rights and restrictions attaching to shares
Under the Company’s Articles of Association (the “Articles”), holders of ordinary shares are entitled to receive a dividend in accordance with their holding. The Board may propose and pay an interim dividend, and make a recommendation in relation to the payment of a final dividend, taking heed of the profits legally available for distribution. A final dividend is approved by shareholders in the Annual General Meeting, but no dividend may be approved in excess of the amount recommended by the Board.
At any General Meeting, a resolution put to the vote at the meeting shall be decided on a show of hands unless a poll is properly demanded. On a show of hands every member who is present in person, or by proxy shall have one vote. On a poll, every member present in person, or by proxy, shall have one vote for every share they hold.
Shareholder engagement
The Company is committed to maintaining an open dialogue with all shareholders. This is achieved through presentations, individual and group meetings and responses to shareholder questions.
During the year the executive directors met with all of the leading shareholders to discuss matters relating to the Group and its strategy.
Communication with private shareholders is primarily via the Annual Report and Accounts, Interim Accounts and the Annual General Meeting. In addition, responses are provided to questions posted on the Company website or received directly by the Company.
It is normal that contact with institutional shareholders may be more frequent than with private shareholders, but care is exercised to ensure that any price sensitive information is released to all shareholders simultaneously in accordance with required legislation and best practice.
Re-appointment and removal of directors
In accordance with the Company’s Articles and the best practice identified in the 2008 Combined Code, a maximum of one third of the directors offer themselves for re-election at the Annual General Meeting, subject to no director holding office for more than three years without standing for election. Mark Tincknell and Caroline Price will retire from the Board by rotation at the forthcoming Annual General Meeting, and being eligible, offer themselves for re-election. Tim Ross, stands for re-election annually as detailed on page 36. All directors standing for re-election do so with the full support of the other members of the Board. Details of directors’ interests in the Company are provided in the Remuneration Report on pages 40 to 49.
Conflicts policy
In accordance with the Companies Act 2006, directors are required to avoid situations in which their interests can, or may conflict with those of the Company. During the year, a comprehensive review was undertaken in relation to conflicts which exist or may exist across the group and a Conflicts Policy introduced. Accordingly, Caroline Price refrains from participating in the discussion or vote regarding the re-appointment and fees of the auditors PricewaterhouseCoopers LLP. This review will be undertaken annually.
Employment policies
The Group depends on the skills and commitment of its employees in order to achieve its objectives. The Group’s selection, training and development processes ensure equal opportunities are given to all, regardless of sex, ethnic origin, religion or disability. It is the Group’s policy to give full consideration to applications for employment of disabled persons, and as employees they are eligible to participate in all development and promotion opportunities. In the event of a staff member becoming disabled, opportunities exist for them to continue their employment including re-training if required.
Training programmes are made available to staff at all levels of the organisation. The Group has a dedicated training facility, the Connaught Academy, focused on the delivery of practical training programmes. Where appropriate, field-based staff are encouraged to work towards NVQ qualifications.
The Group encourages participation in the business through open dialogue, and internal communications are designed to inform employees about the business of the Group. The Company uses a comprehensive intranet, email and quarterly magazine to supplement regular management briefings. There are dedicated email addresses in place to facilitate comments by staff to senior management.
Employees are encouraged to participate in the financial performance of the Company through the operation of a SIP which provides a 1 for 2 Company match. Approximately 13% of staff currently participate in this scheme.
Whistleblowing
The Group operates a whistleblowing policy and has appointed a third party to operate the service. This service is available to all staff where they are able to report concerns regarding potential malpractice within the organisation. Complaints are directed to the relevant management team, but can be escalated to the Group Company Secretary if appropriate.
Charitable and political donations
Cash donations to charities totalled £20,110 (2008: £20,878). Staff are also encouraged to participate in the donation of time to worthy causes, particularly focused on the communities in which they work. There were no political donations (2008: nil).
Creditor payment policy
Payment terms and conditions are agreed with suppliers in advance and it is the Company policy to pay within terms. At 31 August 2009, 54 days purchases to suppliers were outstanding (2008: 49 days). The Group is not dependent on any key supplier contracts.
Going concern
Details of the Group’s business and future development together with the financial position of the Company are set out on pages 4 to 31. The Group aims to secure long-term contracts with a wide range of public and private sector clients, and has raised additional long-term funding during the year. As a consequence despite the continuing economic uncertainty, the directors consider the Group and the Company have adequate resources to remain in operation for the foreseeable future and have therefore continued to adopt the going concern basis in preparing the financial statements.
Post balance sheet events
On 3 September 2009, the Group acquired the entire share capital of Fountains plc for a total cost of £13.3m via a scheme of arrangement.
On 22 September 2009, the Office of Fair Trading (“OFT”) published its report on anti-competitive practices in the construction industry, and issued fines for 103 companies totalling £129m. As part of this process the Group was fined £5.6m, an exceptional charge has been taken in the 2009 accounts.
Auditors and disclosure of information to auditors
A resolution to re-appoint PricewaterhouseCoopers LLP as auditors of the Company and Group will be proposed at the forthcoming Annual General Meeting.
Having made the requisite enquiries, the directors in office at the date of this Annual Report and Accounts, have each confirmed that, having taken appropriate steps to make themselves aware of any relevant audit information (as defined by Section 418 of the Companies Act 2006), so far as they are aware, there is no relevant information which has not been made available to the auditors.
Annual General Meeting
The Annual General Meeting of the Company will be held at the offices of PricewaterhouseCoopers, 31 Great George Street, Bristol, BS1 5QD on 15 December 2009. At the meeting a number of resolutions will be proposed, the details of which are set out in the Notice of Meeting (the “Notice”) which accompanies this Annual Report and Accounts. There is one resolution being proposed outside the normal course of business, which is to amend the Articles to reflect changes required by the Companies Act 2006. A summary of the principal changes from the existing Articles can be found with the Notice. Detailed notes in relation to each proposal also accompany the Notice.
Corporate governance
Connaught plc and its subsidiaries (the “Group”) are committed to adhering to the principles of good governance contained in the Combined Code Principles of Good Governance and Code of Best Practice as updated in June 2008 (the “2008 Code”) which it considers fundamental to the integrity of the business and maintaining investors’ trust and value to shareholders. The Board expects all its directors, officers and employees to act with honesty, integrity and fairness and in accordance with all of the relevant laws and customs.
Compliance with the Combined Code
Throughout the year the Group has complied with all the provisions of Section 1 of the 2008 Code, except in respect of the role of Executive Chairman. Following Mark Tincknell's appointment as Chief Executive, Tim Ross is acting as Non-Executive Chairman on an interim basis while the Board actively seeks a new, permanent Non-Executive Chairman.
The role of the Board
The Board is responsible for the overall conduct of the Group’s business and has the powers, authorities and duties vested in it by the Company’s Articles and the relevant laws and regulations governing its operations. The Board has final responsibility – for the management, direction and performance of the Group; it exercises objective judgement on all corporate matters, independent from executive management; is accountable to shareholders for the proper conduct of the business; and is responsible for the Group’s overall Corporate Governance arrangements including the independence of directors, review of the Board and its committees’ performance and approval of Group policies.
The Board consists of two executive directors; Mark Tincknell and Stephen Hill, together with three non-executive directors; Tim Ross; Robert Alcock and Caroline Price. The roles of the Chairman and Chief Executive are separate, with clear accountability and responsibilities defined for each position. The Chairman has primary responsibility for the Board, whilst the Chief Executive has responsibility for the operations and results of the Group.
The non-executive directors are regarded as independent and free from any business or other relationship that could materially impact their judgement. Tim Ross as the Deputy Chairman and Senior Independent Director chairs the Company Board meetings and is available where necessary to meet shareholders and investors. The non-executive directors meet without the executive directors at least once a year. All directors are expected to attend each meeting and attendance during the year is set out on page 37.
Tim Ross has served on the Board for 11 years. Notwithstanding his length of service, Mr Ross is still considered to be independent in terms of Code 3.1 due to his robust judgement and character. In addition, his legal training and considerable corporate experience at George Wimpey plc, Lavendon Group plc and Enstone plc remain invaluable to the Company at this stage of its development. It is therefore the Board’s intention to retain the services of Mr Ross, but he will submit himself for re-election annually at the Company’s Annual General Meeting.
During the year, David Wells resigned as the Company Secretary and was replaced by Julia Cavanagh. The Board wishes to register its thanks to David for his services as Company Secretary over the past 4 years. There were no other changes to the Board.
Board responsibilities and effectiveness
The Board is responsible for managing the Company on behalf of its shareholders, and each director must act in a way that he or she considers appropriate in determining the long-term success of the Company and value for shareholders. The Board considers strategic matters relating to the long-term growth of the Company, and matters in relation to the short-term delivery of its business objectives. Day-to-day management of the Group is delegated to the Chief Executive who has the responsibility for ensuring the business operates effectively. The Chief Executive is supported by the Group Executive Board, comprising the executive directors, divisional executives and the Group HR director. The Board has a schedule of matters reserved for its attention; the key components are as follows:
- Approval of the Group’s strategy and its medium and short-term plans;
- Approval of interim and final financial statements, dividends and any significant change in accounting policies or practice;
- Remuneration of the auditors and recommendations for removal or appointment of auditors;
- Internal controls and risk management;
- Major acquisitions or disposals;
- Board appointments and removals;
- Approval of non-executive remuneration;
- Approval of Board and Board committees’ performance evaluation process.
The Board has meetings scheduled eight times a year and also meets on an adhoc basis as required. Meetings are held in various locations around the business to facilitate the Board’s understanding of the detailed operation of the operating divisions. Meeting dates are set annually in advance. The Board also held an offsite meeting to consider the ongoing strategy for the Group.
Regular reports are received from the Chief Executive; Finance Director and the Health & Safety Director. The Company Secretary works to ensure information communicated is accurate, timely and clear. Support from the Company Secretary is available to all directors, and any director may seek independent professional advice on request, at the Company’s expense.
The attendance of each director at Board meetings and those of the Audit and Remuneration Committees is shown in the table below.
| Board | Audit | Remuneration | ||||
| Eligible to attend | Attended | Eligible to attend | Attended | Eligible to attend | Attended | |
|
Mark Tincknell |
8 |
8 |
- |
- |
- |
- |
|
Mark Davies |
8 |
8 |
- |
- |
- |
- |
|
Stephen Hill |
8 |
8 |
- |
- |
- |
- |
|
Tim Ross |
8 |
8 |
3 |
3 |
3 |
3 |
|
Robert Alcock |
8 |
8 |
3 |
3 |
3 |
3 |
|
Caroline Price |
8 |
8 |
3 |
3 |
3 |
3 |
Induction and professional development
On joining the Board, all members including the Company Secretary participate in an induction programme including site visits, meetings with senior management and reviewing appropriate documentation. Julia Cavanagh undertook an appropriate induction programme post her appointment.
During the year the directors received professional briefings, including updates on governance and regulatory matters and financial reporting changes.
Board performance evaluation
An evaluation of Board and Committee effectiveness was undertaken during 2009. Each director completed a questionnaire relating to the operation of the Board and any relevant sub committees of which they were a member. The results of the evaluation were discussed by the Board, and it was concluded that it continued to operate effectively.
The non-executive directors also held separate meetings with each of the executive directors in relation to their individual performance. This will be undertaken annually.
Membership of the committees
The Board has delegated responsibility for certain matters to the following standing committees; nomination; remuneration and audit.
Nomination Committee
The Nomination Committee is chaired by the Senior Independent Director, Tim Ross. The other members are Mark Tincknell and Caroline Price. The Committee reviews the composition of the Board and makes recommendations in relation to changes, both in the nomination of new directors and the continuation of the appointment of existing directors. It is also responsible for the Board’s succession planning.
Remuneration Committee
The Remuneration Committee comprises the three non-executive directors and is chaired by Caroline Price. Details of the activities of the Remuneration Committee are provided in the Directors’ Remuneration Report on pages 40 to 49. The Chair of the Committee reports back to the Board on the Committee’s findings after each meeting.
Audit Committee
The Audit Committee comprises the three non-executive directors and is chaired by Robert Alcock. Both Robert Alcock and Caroline Price have significant accounting experience having previously held positions as company finance directors.
The Committee met three times during the year, with each meeting agenda determined by the financial reporting cycle. The Committee reviewed a wide range of financial reporting and related matters, including the half year and annual accounts prior to their submission to the Board. Particular attention was paid to critical accounting policies and practices adopted by the Group and any significant areas of judgement that materially impact on the reported results.
The Committee provides a forum for the Group auditors to report on the nature, scope and timing of the statutory audit. It also undertakes an annual review of the continued independence, suitability and performance of the auditors, making its recommendation to the Board regarding fees and re-appointment of the auditors. The Committee met with the Group Finance Director to discuss the re-appointment of the auditors and their performance over the period. This provided an opportunity for a detailed discussion before the Committee made its recommendation to the Board. The Committee also considered the policy regarding the provision of non audit services by the auditors.
In accordance with its terms of reference the Committee has considered the Group’s internal financial controls.
The Committee invited the Group Finance Director to attend the meetings as required.
The Chair of the Committee reports back to the Board on the Committee’s findings after each meeting.
Risk management and internal controls
Acceptance of risk is an inherent part of undertaking business and the Group’s risk management framework is designed to provide assurance that risk is both understood and managed whilst not discouraging the entrepreneurial spirit of the staff. The Board has overall responsibility for risk management and internal controls and for regularly reviewing their effectiveness. Senior management are responsible for implementing and maintaining the necessary control systems. Key internal control procedures include:
- The setting of Group policies which are then communicated and monitored for application across the business. Policies include financial, commercial, human resources, health and safety and information technology;
- Authority to operate the business within certain parameters is delegated by the Board to the divisional managing directors, and then further cascaded through the organisation.
- Comprehensive annual financial plans are prepared at the business unit level and then consolidated to form the divisional and Group budgets. Divisional managing directors are required to present their budgets to the Board as part of the review and approval process. There is a monthly review process of divisional performance by the executive directors, who also attend divisional board meetings;
- Key risks and mitigation actions are identified as part of the bidding and acquisition process. These form part of the integration plan post bid award or business acquisition;
- A risk register is in place to identify the key risks to the Group including financial; operations; people; health and safety. The Group register summarises the critical risks arising out of the divisional risk reviews.
The Group has a risk director who reports to the Company Secretary.
During the period the Group has appointed a business continuity director with responsibility for ensuring the robustness of the business continuity processes within the Group. Reviews have been undertaken of a number of key sites and remedial action plans produced where required.
The Board oversees the monitoring system and has delegated responsibility for the review of internal financial controls to the Audit Committee. The external auditors provide a role in supporting the Audit Committee in their review.
Whilst it is recognised that this system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss, by following the risk management processes the Board can provide a reasonable assurance in relation to these matters.
The Board considers that due to the size of the Group and the effectiveness of existing control and review procedures, a separate internal audit function is not required.
