Statement of compliance with the UK Corporate Governance Code
We are pleased to confirm that the Board has complied with all provisions of the Code throughout 2020, with the exception of the following:
Provision 19: David Evans has been appointed Chair for over nine years, the maximum tenure permitted under the Code. However, this period can be extended for a limited period of time to facilitate effective succession planning or a diverse board, particularly where the Chair was an existing Non-Executive Director when appointed, as David was. During the last year, two Non-Executive Directors have been appointed, resulting in Avon Rubber's most diverse board to date. David is stepping down from the Board on the 2nd December 2020.
Provision 24: The Chair of the Board was a member of the Audit Committee, which is not permitted under the Code. It was considered that the Chair should remain a member of the Committee for a further limited period, in order to ensure continuity and facilitate a smooth transition following the appointment of two new Non-Executive Directors. On Bruce Thompson's appointment as Chair of the Board, he will step down from the Audit Committee.
Provision 36: The Code states that the Remuneration Committee should develop a formal policy for post-employment shareholding requirements encompassing both unvested and vested shares. Post-cessation shareholding requirements have been introduced for Executive Directors this year. Our approach to this is further detailed on p.73 of the 2021 Remuneration Policy in the annual report.
Provision 38: The Code stipulates that pension contribution rates for Executive Directors should be aligned with those available to the workforce. Pension contributions for new Executive Directors are aligned with the rate available to the workforce and current Executive Directors will be aligned by the start of the 2023/24 financial year.
Following the retirement of David Evans from the Board, the Board will comprise two Executive Directors and five Non-Executive Directors (including the new Chair, Bruce Thompson). The Board regularly reviews its composition to ensure it has the necessary breadth and depth of skills to support the ongoing development of the Group. We believe that the Board continues to have a strong mix of experienced individuals who provide a unique perspective on Company matters and bring specific skills to the Board. With the exception of Pim Vervaat, who will step down from the Board, all Directors will stand for reappointment by shareholders at the 2021 AGM.
The Board has determined that the Company’s purpose is to create sustainable value for all our stakeholders and holds itself accountable to this in all its decision making. Our purpose unites us, guides our decisions and inspires us wherever we operate.
The Chair ensures, through the Company Secretary, that the Board agenda and all relevant information is provided sufficiently in advance of meetings and that adequate time is available for discussion of all agenda items, in particular strategic issues. The Chief Executive Officer and the Company Secretary discuss the agenda ahead of every meeting. At meetings, the Chair ensures that all Directors are able to make an effective contribution and every Director is encouraged to participate and provide opinions on each agenda item. The Chair always seeks to achieve unanimous decisions of the Board following due discussion of agenda items.
The Non-Executive Directors fully review the Group’s operational performance and the Board as a whole has, with a view to reinforcing its oversight and control, reserved a list of powers solely to itself which are not to be delegated to management.
This list includes appropriate strategic, financial, organisational and compliance issues, including the approval of high-level announcements, circulars, the Annual Report and Accounts and certain strategic and management issues, which include:
- Approval of the annual operating budget and the three-year strategic plan.
- The extension of the Group's activities into new areas of business and/or geographical areas (or their cessation).
- Changes to the corporate or capital.
- Financial issues, including changes in accounting policy, the approval of dividends, bank facilities and,
- Changes to the constitution of the Board.
- The approval of significant contracts, for example the acquisition or disposal of assets worth more than £1,000,000 or the exposure of the Company or the Group to a risk greater than £1,000,000.
- The approval of unbudgeted capital expenditure exceeding £250,000.
- The approval of quotations and sale contracts where the sales commission payable to an intermediary exceeds 10% of the net invoice.
- Consideration and approval of all proposed acquisitions and mergers.
Each Director has full and timely access to all relevant information and the Board meets regularly with appropriate contact between meetings. All Directors receive a tailored induction to the Group from the Company Secretary on joining the Board. When appointed, Non- Executive Directors are made aware of and acknowledge their ability to meet the time commitments necessary to fulfil their Board and Committee duties. Procedures are in place, which have been agreed by the Board, for Directors, where necessary in the furtherance of their duties, to take independent professional advice at the Company’s expense and all Directors have access to the Company Secretary.
The Company Secretary is responsible to the Board for ensuring that all Board procedures and governance requirements are complied with. The removal of the Company Secretary is a decision for the Board as a whole.
Of particular importance in a governance context are the three committees of the Board, namely the Remuneration Committee, the Nomination Committee and the Audit Committee. Each Committee operates under clear terms of reference, copies of which are available on our website. Detail of the operation of each Committee are provided within the relevant Committee report.
Pim Vervaat is Chair of the Audit Committee. The Board is satisfied that Mr Vervaat has recent relevant financial experience and his profile appears under the Leadership page. Following the appointment of Bruce Thompson as Chair of the Board, he will step down from the Audit Committee. Bindi Foyle will succeed Pim as Chair of the Audit Committee following the 2021 Annual General Meeting.
Bruce Thompson is Chair of the Nomination Committee but, in accordance with the Committee’s terms of reference, is not permitted to chair meetings when the Committee is dealing with matters relating to the Board Chair’s position.
Chloe Ponsonby is Chair of the Remuneration Committee. The Remuneration Committee’s principal responsibilities are to decide on remuneration policy on behalf of the Board and to determine remuneration packages and other terms and conditions of employment, including appropriate performance-related benefits for the Executive Directors and other senior executives. The Remuneration Committee also has regard to the remuneration of the wider workforce. More details of the activities of the Remuneration Committee are set out in the Remuneration Report on pages 71 to 97.
All Committee and Board meetings held in the year were quorate. Directors’ attendance during the year ended 30 September 2020 was as follows:
The maximum number of meetings which each Director could have attended is shown in brackets.
- In addition to the scheduled meetings, four ad hoc Board meetings were convened to deal with matters arising between the scheduled meetings. Following the COVID-19 outbreak, the Board met on a weekly basis by telephone for 8 weeks from March with all members present, these meetings are not included in the above
- Joined the Board on 1 March 2020
- Joined the Board on 1 May 2020
The Board continually strives to improve its effectiveness and conducts an annual review of its performance and that of its Committees and the individual Directors to enhance overall Board effectiveness.
The 2020 Board evaluation process was conducted internally using questionnaires and interviews, led by the Chair and facilitated by the Company Secretary. The questionnaire, completed by all Board members and the Company Secretary, was structured to provide Directors with the opportunity to express views on a variety of topics including: Board remit and responsibilities, skills and dynamics of the Board, meetings and content, Group strategy, internal control and risk management, decision making and communication.
A detailed discussion of the findings from the performance evaluation took place at the September Board meeting. Overall, the evaluation concluded that the Board, its Committees and individual Directors performed effectively during 2020, both individually and as a collective unit.
The following areas have been identified by the Board as areas of focus for 2021 and beyond: increasing opportunities for interaction between the Board and the wider management team, succession planning to support the Group’s growth and increased focus on risk management. It was also agreed that the Board evaluation for the 2021 financial year would be externally facilitated.
The Board has an established framework of internal controls covering both financial and non-financial controls. In addition, there is an ongoing process for identifying, evaluating and managing significant business risks, including emerging risks, faced by the Group. This process was in place throughout the 2020 financial year.
The Code requires that Directors establish procedures to manage risk, oversee the internal control framework and determine the nature and extent of the principal risks the company is willing to take in order to achieve its long-term strategic objectives.
The Board, through the Audit Committee, review the effectiveness of the Group’s system of internal controls on a continuing basis. The scope of this review covers all controls including financial, operational and compliance controls, as well as risk management. The Audit Committee has responsibility to review, monitor and make policy recommendations to the Board upon all such matters.
The Audit Committee keeps this system under continuous review and formally considers its content and its effectiveness on an annual basis. Such a system can provide only reasonable, and not absolute, assurance against material misstatements or losses. The section on internal control in the Audit Committee Report on pages 66 to 70 and the following paragraphs describe relevant key procedures within the Group’s systems of internal control and the process by which the Directors have reviewed their effectiveness.
Systems exist throughout the Group which provide for the creation of three-year plans and annual budgets; monthly reports enable the Board to compare performance against budget and to take action where appropriate. Procedures are in place to identify all major and emerging business risks and to evaluate their potential impact on the Group. These risks are described within the Strategic Report on pages 40 to 45.
Risk is managed by the Group Executive team during the year, led by the Company Secretary and the Deputy Chief Financial Officer. The Group Executive team sets its key priorities for successfully managing the Group’s businesses. This process inherently addresses risk and the Company Secretary leads an exercise that ensures the known risks to the businesses, together with any newly identified and emerging risks, are assessed and analysed effectively and that the priorities eliminate, minimise, control or transfer risk (or the effect thereof) as appropriate. There is also a review of the continuing effectiveness of other aspects of the control environment by the Group and Divisional Executive teams to ensure these controls are mitigating risk to the fullest extent in practice.
The Board carried out quarterly reviews of the key risks facing the Group and risk management activities undertaken during the year, following the quarterly reviews conducted by the Group Executive management team. The Board also carried out a robust annual assessment of the major business risks and emerging risks affecting the Group, including macro risks. In the year under review, the risk assessments carried out both at business level and at Board level continued to be reviewed and strengthened.
There is a clearly defined delegation of authority from the Board to the business units, with appropriate reporting lines to individual Executive Directors. There are procedures for the authorisation of capital expenditure and investment, together with procedures for post-completion appraisal.
Internal controls are in existence which provide reasonable assurance of the maintenance of proper accounting records and the reliability of financial information used within the business or for publication. The Group finance department manages the financial reporting process to ensure that there is appropriate control and review of the financial information including the production of the consolidated annual accounts. Group Finance is supported by the operational financial managers throughout the Group, who have responsibility for providing information in keeping with the policies, procedures and internal best practices as documented in the internal control manual, and are accountable under these.
The Board has issued a Code of Conduct which reinforces the importance of a robust internal control framework throughout the Group. The Board recognises that an open and honest culture is key to understanding concerns within the business and to uncovering and investigating any potential wrongdoing. The Code of Conduct sets out the procedure whereby individuals may raise concerns in matters of financial reporting or any other matter of concern with management or directly with the Chair of the Audit Committee, or anonymously through our ‘Speak Up’ process, to ensure independent investigation and appropriate follow-up action. The Code of Conduct is reviewed annually.
Although the Board itself retains the ultimate power and authority in relation to decision making, the Audit Committee meets at least three times a year with management and external auditors to review specific accounting, reporting and financial control matters. This Committee also reviews the interim, preliminary and annual statements and has primary responsibility for making a recommendation on the appointment, reappointment and removal of external auditors.
The Directors regard regular communications with shareholders as extremely important. All members of the Board receive copies of analysts’ reports of which the Company is made aware and receive an investor relations report from the Chief Financial Officer at every Board meeting. The Board reports formally to its shareholders in a number of ways, including via regulatory news announcements, press releases, routine reporting obligations, a detailed Annual Report and Accounts and, at the half year, an interim report.
Regular dialogue takes place with institutional shareholders, including presentations after the Company’s preliminary announcements of the half and full year results. The Board receives comments from analyst meetings and shareholder meetings
after both interim and final results and at other times during the year. The Annual General Meeting includes a presentation by the Chief Executive Officer on aspects of the Group's business and shareholders have the opportunity to both ask questions and to leave written questions with the Company Secretary for the response of the Directors. Under normal circumstances, Directors also make themselves available after the Annual General Meeting to talk informally to shareholders, should they wish to do so, and respond throughout the year to any correspondence from individual shareholders. This will not be possible for the 2021 AGM, which will be held as a closed meeting in light of the COVID-19 pandemic.
Disclosures in respect of the DTR requirements under DTR 7.2.6 are given in the Directors’ Report on pages 96 to 99 and have been included by reference.
The financial statements have been prepared on a going concern basis, which the Directors believe to be appropriate for the following reasons.
The Directors have prepared a going concern assessment covering a period of 3 years from the balance sheet date which indicates that, taking account of reasonably possible downsides and the anticipated impact of COVID-19 on the operations and its financial resources, the Group will have sufficient funds to meet its liabilities as they fall due for that period. On this basis, and on their assessment of the Group’s financial position, the Directors are confident that the Group will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the approval of these financial statements. Accordingly the Group continues to adopt the going concern basis preparing its financial statements.
The Directors have assessed the viability of the Group over a three-year period to September 2023, taking account of the Group’s current position and the potential impact of the principal risks documented in the Strategic Report. Based on this assessment, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period to September 2023.
In making this statement, the Directors have considered the resilience of the Group, taking account of its current position, the principal risks facing the business in severe but plausible downside scenarios, and the effectiveness of any mitigating actions. This assessment has considered the potential impacts of these risks on the business model, future performance, solvency and liquidity over the period. In making their assessment, the Directors have taken account of the Group’s strong net cash position and the increase during the year of the Group’s revolving credit facility which covers the three-year lookout period. During the year the Group has complied with all covenant requirements attached to its financing facilities.
The Directors consider the three-year lookout period to be the most appropriate as this aligns with the Group’s own strategic planning period. The Group has developed an annual business planning process, which comprises a Strategic Plan, a financial forecast for the current year and a financial projection for the forthcoming three years. This plan is reviewed each year by the Board as part of its strategy setting process. Once approved by the Board, the plan provides a basis for setting all detailed financial budgets and strategic actions that are subsequently used by the Board to monitor performance. The forecast performance outlook is also used by the Remuneration Committee to establish the targets for both the annual and longer-term incentive schemes.