The Board is accountable to the Company's Shareholders for good governance. The following statement describes the key corporate governance policies that have been adopted by the Company. The Company is not required to follow, and does not comply with, the UK Corporate Governance Code. Nevertheless, the Board is committed to high standards of corporate governance which it considers are critical to business integrity and to maintaining investors' trust. The Board is currently reviewing which corporate governance code to adopt as required from 28 September 2018.
At the date of signing these accounts, the Board has two Executive Directors and two Non-Executive Directors including the Chairman.
Biographical information for each of the Directors is set out in the Group management section. The Board confirms that, having taken into consideration the results of the performance evaluation undertaken in the year, the Director being proposed for re-election has demonstrated commitment to his responsibilities and continues to perform effectively.
Role of the Board
During the year the Board has met formally on 11 occasions and undertaken several telephone discussions to cover specific matters such as acquisitions, strategy, fundraising and appointment of advisers. At the Board meeting, the CEO reports on the overall business performance and any matters which need to be brought to the attention of the Board. The CFO reports on the financial performance and any other secretarial matters. Health and safety compliance is reviewed at every meeting. Specific topics covered this year have been acquisitions, funding, IT resilience, group accounting systems and management below board level. Minutes of the previous Board meeting are approved.
There are four Board committees: the Audit, Remuneration, Nomination and the AIM Compliance and Corporate Governance Committees.
Collectively and individually, the Directors monitor the performance of the Board and its members on a range of measures. Due to its small size and the cost of the process, a formal evaluation of Board performance by an outside agency is not thought to be appropriate. All Directors have access to independent advice at Company expense if it is felt it is required.
The Nomination Committee
The Nomination Committee reviews the size, structure and composition of the Board and ensures adequate succession planning for both the Board and senior management team. The Committee meets as required. No meetings were required in the year.
The Remuneration Committee
The Remuneration Committee meets at least once a year to determine and agree remuneration packages and other employee benefits. Details of Directors' remuneration are set out in the Directors' remuneration report.
The AIM compliance and corporate governance committee
The AIM Compliance and Corporate Governance Committee meets twice a year. It is responsible for establishing, reviewing and monitoring the Group's procedures and controls for ensuring compliance with the AIM Rules and the timely disclosure of information to satisfy the Group's legal and regulatory obligations.
The Audit Committee
The Audit Committee meets at least twice a year with the Group's Auditor and as otherwise required. Its duties are to:
- Monitor the integrity of the financial statements;
- Review the quality of the Group's internal controls, ethical standards and risk management systems;
- Review the Group's procedures for detecting and preventing bribery and fraud;
- Ensure that the financial performance of the Group is properly reported on and monitored, including reviews of the annual and interim accounts, results announcements and accounting policies; and
- Oversee the relationship with the Group's external Auditor.
During the year the Audit Committee discharged its responsibilities by:
- reviewing the Group's draft financial statements, preliminary announcements and interim results statement prior to Board approval and reviewing the external Auditor's reports thereon;
- reviewing the external Auditor's plan for the audit of the Group financial statements, confirmations of auditor independence and proposed audit fee and approving terms of engagement for the audit;
- considering the effectiveness and independence of the external Auditor and recommending to the Board the reappointment of Grant Thornton UK LLP as external Auditor;
- considering the review of material business risks;
- monitoring of reporting and follow up of items reported by employees;
- considering the significant risks and issues in relation to the financial statements and how these were addressed including:
- impairment reviews of goodwill
- valuation of intangibles and share-based payments
- fraud risk
- going concern, covenants and cash headroom;
- considering the adequacy of accounting resource and the development of appropriate systems and controls;
- reviewing the risk register with specific focus on cyber exposure and approving an employee training programme on cyber risks;
- review of progress in introducing best practice systems and procedures Group-wide
- reviewing the plans and progress to interface and integrate IT systems post acquisition; and
- considering policies on non-audit engagements for the Company's Auditor.
The Directors are responsible for the Group's system of internal control. However, such a system is designed to manage, rather than eliminate the risk of failures to achieve business objectives and can provide only reasonable and not absolute assurance against misstatement or loss. The key elements within the Group's system of internal control are as follows:
- regular Board meetings to consider matters reserved for Directors' consideration;
- regular management reporting;
- an annual Board review of corporate strategy, including a review of material risks and uncertainties facing the business;
- established organisational structure with clearly defined lines of responsibility and levels of authority;
- documented policies and procedures;
- regular review by the Board of financial budgets, forecasts and covenants with performance reported to the Board monthly;
- detailed investment process for major projects, including capital investment coupled with post investment appraisal analysis.
The Audit Committee considered the need to establish a formal internal audit function. It was decided that it was not appropriate at present due the centralised control structure and daily monitoring of results, stock levels and cash balances. This matter will be revisited as the Group expands. There are adequate resources to conduct ad hoc investigations should the Audit Committee so require.
Communication with Shareholders
Presentations by the Executive Directors of interim and full year results are offered to all major Shareholders. Other Shareholders are welcome to make contact with the Company and wherever possible their concerns or questions are responded to by a Director in person.
The Group's website www.flowtechfluidpower.com is the primary source of information for the Group and includes an overview of the activities of the Group and details of all recent announcements.