"The Board of Directors' primary responsibility is to provide direction to help shape the strategy of the Group and ensure it is being executed effectively within a structure that mitigates risk and is well controlled. Good corporate governance provides the basis for this structure which is why the Board have placed a greater emphasis on this during the year."
I am pleased to report that Polly Williams joined the Board as an Independent Non-Executive with effect from 1 January 2016. As a chartered accountant and former Partner at KPMG, Polly's financial background will add further strength to the Board and to the Audit Committee. In addition, Polly's experience in governance and compliance acquired through her various Non-Executive roles will be invaluable to our continuing efforts to strive for excellence in this area.
Polly has also been appointed Chair of the Remuneration Committee. Combined with Terry Twigger's appointment during the year and the continuing involvement of Peter Bucher, the Committee has revamped the Group's remuneration policy to align the variable pay elements to the longer term interests of shareholders. The inclusion of clawback and malus provisions together with the introduction of minimum shareholdings for Executive Directors are further enhancements to the policy.
Other changes made to the Group's committees include Terry Twigger's appointment to the Nomination Committee and Peter Bucher joining the Audit Committee. As well as offering new opinion to these Committees they also promote greater independence. John Dyson will not be offering himself for re-election at the forthcoming Annual General Meeting. His contribution to the Group during his tenure on the Board has been invaluable to both management and shareholders.
With fresh perspectives from three Non-Executive Directors that have joined over the past two years, each of whom bring a wealth of skills and experience, the Board now comprises eight members, four of whom are qualified accountants and five that have technical and commercial experience in the power converter industry. Terry Twigger and Polly Williams both have considerable public company experience at board level.
In the following pages we set out our approach to corporate governance. Under the Singapore Companies Act, Chapter 50, the Company is not required to follow the Singapore Corporate Governance Code. The Company has voluntarily agreed to the principles of corporate governance contained in the UK Corporate Governance Code (the "Code") as required under the Listing Rules of the Financial Services Authority of the United Kingdom.
We have tried to clearly lay out how we meet the five sections of the Code, namely leadership, effectiveness, accountability, remuneration and relations with shareholders. For the benefit of shareholders who are not familiar with the Code we have set out the main principles of the Code in detail and have stated how we have addressed them in this report.
I am pleased to report that throughout the year ended 31 December 2015 the Company has made every effort to be in full compliance with the provisions of the Code.
22 February 2016
Corporate Governance Report
Every company should be headed by an effective Board which is collectively responsible for the long-term success of the company.
The Directors have considered the composition and structure of the Board and have concluded that it is appropriate for a Company of the size and complexity of XP Power. Despite not being considered independent by the Corporate Governance guidelines, the involvement of James Peters (Non-Executive Chairman) as a founder with a substantial shareholding is considered of benefit to shareholders, aligning the interests of shareholders with the Board.
The following matters are specifically reserved for the Board's decision:
There should be a clear division of responsibilities at the head of the company between the running of the board and the executive responsibility for the running of the Company's business. No one individual should have unfettered power of decision.
The roles of Non-Executive Chairman (James Peters) and Chief Executive (Duncan Penny) are separate and clearly defined.
The Chairman is responsible for the running of Board Meetings as well as taking the lead on strategy. The Chief Executive is responsible for the day to day running of the Company and the execution of the strategy.
The Chairman is responsible for the leadership of the Board and ensuring its effectiveness on all aspects of its role.
The Chairman sets the calendar and agenda of the Board and facilitates the discussions. The Chairman also initiates and coordinates the processes defined below which evaluate the effectiveness of the Board and of the individual Directors.
As part of their role as members of a unitary board, Non-Executive Directors should constructively challenge and help develop proposals on strategy.
Other than their normal attendance and participation in discussions at Board meetings, the Non-Executive Directors actively participate in the Company's strategy meetings and are able to question, challenge and coach the managers attending these meetings.
During the year the Non-Executive Directors reviewed the executive management team's three year organic growth projections; received a presentation on the environmental and sustainability policy to review achievements and objectives; received an update on the Company's ethics policy; and received metrics updates on health and safety and diversity.
Terry Twigger is the Senior Independent Non-Executive Director.
The Board and its Committees should have the appropriate balance of skills, experience, independence and knowledge of the company to enable them to discharge their respective duties and responsibilities effectively.
The Directors consider that the Board and Committees have the appropriate balance of skills, experience, independence and knowledge to discharge their duties effectively.
The Board considers Peter Bucher, Terry Twigger and Polly Williams to be independent.
The Corporate Governance guidelines do not consider James Peters to be independent by virtue of his previous executive roles. However, as a founder and substantial shareholder his membership of the Board is considered beneficial to shareholders as a whole.
There should be a formal, rigorous and transparent procedure for the appointment of new Directors to the Board.
The Nomination Committee consists of James Peters (Chair) and Terry Twigger (appointed 24 July 2015). John Dyson will not be offering himself for re-election at the forthcoming Annual General Meeting. The Committee reviews and considers the appointment of new Directors. All Non-Executive Directors are given the opportunity to interview any proposed candidates. Any appointment of a new Director is voted on by the whole Board.
The Nomination Committee met once during the year. The attendees were as follows:
|24 July 2015||All and Peter Bucher (guest), Duncan Penny (guest).|
The Terms of Reference of the Nomination Committee are available in the Corporate Governance section of the Company's website www.xppower.com
All Directors should be able to allocate sufficient time to the Company to discharge their responsibilities effectively.
There were six Board Meetings during the year. The attendees were as follows:
|20 February 2015||All|
|9 April 2015||All|
|20 May 2015||All|
|24 July 2015||All|
|8 October 2015||All|
|16 December 2015||All|
All Directors should receive induction on joining the Board and should regularly update and refresh their knowledge and skills.
Directors receive an induction on joining the Board. Presentations and training were carried out during the year on corporate social responsibility and environmental matters. Non-Executive Directors are introduced to Senior Managers below board level and participate in strategy meetings. They are also able to meet with managers on an informal basis to help them gain a deeper understanding of the business and contribute ideas.
The Board should be supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its duties.
The Board receives “flash” reports, detailed management accounts and detailed financial forecasts on a monthly basis to enable it to review trading performance, forecasts and strategy implementation. Board meeting materials are provided in advance of Board meetings to allow Directors sufficient time to prepare adequately. The Board has also requested and received specific presentations and information from management during the year covering areas such as organic growth projections over a three year period, a detailed tax and treasury review, the Company's approach to environmental matters, results and actions arising from an employee survey, a cyber security review, whistle blowing procedures and health and safety metrics and actions.
The Board should undertake a formal and rigorous annual evaluation of its own performance and that of its Committees and individual directors.
The Board has a process for performance evaluation that has been applied to the Board and its Committees for 2015. This process was based on completion of a questionnaire by the Directors in relation to the Board and each of the committees of which they were members and to the performance of individual Directors. The responses were collated and reviewed by the Chairman and distributed to all Directors for discussion at a Board Meeting. This review considers the effectiveness and diversity of the Board as well as succession.
All Directors should be submitted for re-election at regular intervals, subject to continued satisfactory performance.
The Company's Articles of Association require Directors to seek election at the first AGM following their appointment. Thereafter, Directors are required to retire and offer themselves for re-election at least every three years. Rather than retire by rotation to seek re-election, all Directors now voluntarily offer themselves for re-election annually.
The Board should present a balanced and understandable assessment of the Company's position and prospects.
The Board considers that both the Interim Report and Annual Report and Accounts, supported by quarterly trading updates which are timetabled at the beginning of each year, comprehensively fulfil this requirement. The Annual Report includes a detailed description of the Group's strategy and business model which has enabled it to generate significant value over a prolonged period of time. It also details the significant risks that the Group faces and how these are mitigated and includes the Board's assessment of the longer term viability of the Group.
The Company also makes available a number of videos on its investor relations website at the time of its interim and annual reporting as well as investor videos describing products, markets, strategy, business model, growth drivers and its investment proposition.
The Directors, after making enquiries, are of the view, as at the time of approving the accounts, that there is a reasonable expectation that the Company will have adequate resources to continue operating for the foreseeable future and therefore the going concern basis has been adopted in preparing these accounts. In addition, in accordance with C.2.2 of the revision of the Code, the Directors have considered the prospects of the Company over the longer term and provided a Viability Statement.
The Board is responsible for determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives. The Board should maintain sound risk management and internal control systems.
The Board acknowledges that it is responsible for the Group's internal controls and for reviewing their effectiveness. The Group's internal controls are designed to manage rather than eliminate the risk of failure to meet business objectives, and can only provide reasonable not absolute assurance against material misstatement or loss.
An ongoing process for identifying, evaluating and managing the significant risks faced by the Group was in place during the entire financial year and has remained in place up to the approval date of the Annual Report and Financial Statements. The identified risks and the processes by which these are addressed are documented, reviewed and updated at Board meetings. The Directors confirm that an assessment of the principal risks facing the Group was reviewed, further details of which are included in the Managing Our Risks and Viability Statement sections within the Strategic Report.
As might be expected in a group of this size, a key control procedure is the day to day supervision of the business by the Executive Directors supported by managers within the Group companies. Examples of key controls with respect to ongoing processes include:
The Board should establish formal and transparent arrangements for considering how it should apply the corporate reporting and risk management and internal control principles, and for maintaining an appropriate relationship with the Company's auditor.
The Report of the Audit Committee sets out in detail the Group's arrangements to ensure corporate reporting complies with legal and accounting standards together with effective risk management and internal control processes and appropriate supervision and performance of the external auditor.
The Terms of Reference of the Audit Committee are available in the Corporate Governance section of the Company's website www.xppower.com.
Levels of remuneration should be sufficient to attract, retain and motivate Directors of the quality required to run the Company successfully, but a Company should avoid paying more than is necessary for this purpose. A significant proportion of executive Directors' remuneration should be structured so as to link rewards to corporate and individual performance.
Our approach to remuneration is set out in detail in the Report of the Remuneration Committee of the latest Annual Report.
There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual Directors. No Director should be involved in deciding his or her own remuneration.
Our policy regarding remuneration is set out in detail in the Report of the Remuneration Committee. No Director participates in the deciding of their own remuneration. Polly Williams (appointed 1 January 2016) is Chair of the Remuneration Committee.
The Terms of Reference of the Remuneration Committee are available in the Corporate Governance section of the Company's website www.xppower.com.
There should be a dialogue with shareholders based on the mutual understanding of objectives. The Board as a whole has responsibility for ensuring that a satisfactory dialogue with shareholders takes place.
The Group engages in two-way communication with both its institutional and private investors and responds quickly to all queries received. The Group uses its website www.xppower.com to give private investors access to the same information that institutional investors receive in terms of investor presentations and research where it is permitted to be distributed. This includes video interviews with the Chief Executive and Finance Director available on the morning of the day that the interim and annual results are published. The Company also makes available a number of informational videos on its investor relations website which cover products, markets, strategy, business model, growth drivers and its investment proposition.
Interested parties are also able to register for the Group's email alert service on this website to receive timely announcements and other information published from time to time.
The Board members receive any feedback prepared by brokers or our financial PR company following meetings with shareholders in order to keep in touch with shareholder opinion.
The Board should use the Annual General Meeting to communicate with investors and to encourage their participation.
The AGM is used as an opportunity to communicate with shareholders and certain Directors are available to answer any questions.