Our Governance

Chairman's introduction to Governance

James Peters

In addition to directing the Group's strategy and effectiveness, the Board remains mindful of its role in dealing with challenges and issues relating to corporate governance, corporate social responsibility and ethics. The Group's culture emanates from the top which is why the Board gives continued prominence to this area. The experience and injection of fresh ideas from the newer members of the Board has been instrumental in driving further progress in corporate governance.

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 2016 the Company has made every effort to be in full compliance with the provisions of the Code.

James Peters
Non-Executive Chairman

Corporate Governance Report

Board of Directors

Leadership

A.1 The Role of the Board

Main principle:

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 benefits to Shareholders, aligning the interests of Shareholders with the Board.

The following matters are specifically reserved for the Board's decision:

  • Opinion of the Group's viability and going concern
  • Approval of strategic plans, financial plans and budgets and any material changes to them
  • Oversight of the Group's operations, ensuring competent and prudent management, sound planning, an adequate system of internal control and adequate accounting and other records
  • Changes to the structure, size and composition of the Board
  • Consideration of the independence of Non-Executive Directors
  • Review of management structure and senior management responsibilities
  • With the assistance of the Remuneration Committee, approval of remuneration policies across the Group
  • Final approval of annual financial statements and accounting policies
  • Approval of the dividend policy
  • Approval of the acquisition or disposal of subsidiaries and major investments and capital projects
  • Delegation of the Board's powers and authorities including the division of responsibilities between the Chairman, Chief Executive and the other Executive Directors

A.2 Division of Responsibilities

Main principle:

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.

A.3 The Chairman

Main principle:

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 processes defined below which evaluate effectiveness of the Board and of the individual Directors.

A.4 Non-Executive Directors

Main Principle:

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 convened to assess:

  • The refinements to the long term strategy of the Group that the Executive Management team had proposed; and
  • Succession planning for the Executive Directors and senior management team.

Going forward there will be more frequent interaction and presentations from the senior management team to the Non- Executive Directors in order to further challenge and develop the next layer and generation of management.

Terry Twigger is the Senior Independent Non-Executive Director.

 

 

Effectiveness

B.1 The Composition of the Board

Main principle:

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.

B.2 Appointments to the Board

Main principle:

There should be a formal, rigorous and transparent procedure for the appointment of new Directors to the Board.

Nomination Committee

Polly Williams was appointed to the Nomination Committee during the year following John Dyson's decision not to stand for re-election at the last Annual General Meeting. The majority of the Nomination Committee is now independent comprising James Peters (Chair), Terry Twigger and Polly Williams (appointed 21 July 2016). 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 on 21 July 2016. All Committee members were present.

The Terms of Reference of the Nomination Committee are available in the Corporate Governance section of the Company's website www.xppower.com

B.3 Commitment

Main principle:

All Directors should be able to allocate sufficient time to the Company to discharge their responsibilities effectively.

There were five Board Meetings during the year attended by all Board members. These meetings took place on:

19 February 2016
8 April 2016
21 July 2016
6 October 2016
13 December 2016

B.4 Development

Main principle:

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. Non-Executive Directors are exposed to senior managers below Board level.

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.

During the year, the Directors received presentations from the three regional Vice-Presidents of Sales; North America, Europe and Asia and from the Head of Product Development. As well as providing the latest business overview, these presentations focussed on the challenges and opportunities over the next three years in these key areas.

B.5 Information and Support

Main principle:

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 prepared 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 also received specific presentations and information from management during the year covering areas such as cyber security, internal audit and risk assurance reviews, the results of an external audit by the Electronics Industry Citizenship Coalition, the Executive Management's three-year strategic review, and actions arising from an employee survey.

B.6 Evaluation

Main principle:

The Board should undertake a formal and rigorous annual evaluation of its own performance and that of its Committees and individual Directors.

The Board's evaluation of its own performance and that of its Committees is conducted annually using a Board effectiveness questionnaire.

The questionnaire was revamped and updated during the year with the help of an independent external consultant.

The Board approved the questionnaire to ensure that it covered all aspects of effectiveness; capabilities and communication, culture and practice, process and organisation and meeting rigour and relationships. With respect to continually improving Board effectiveness; the questionnaire also asked Directors to comment on what it should stop doing, start doing and continue doing.

The independent consultant circulated the questionnaire to each Board Director collating each response into an anonymous report for the Board to consider and discuss at a Board meeting.

There were no significant issues of concern raised in the report.

B.7 Re-election

Main principle:

All Directors should be submitted for reelection at regular intervals, subject to continued satisfactory performance.

All Directors voluntarily offer themselves for re-election annually. This is in spite of the Company's Articles of Association which require Directors to retire and offer themselves for re-election on a rotation basis and at least every three years.

 

Accountability

C.1 Financial and Business Reporting

Main principle:

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.

Going Concern

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.

C.2 Risk Management and Internal Control

Main principle:

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 on-going 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 on pages 32 to 35 of the Annual 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:

  • Authority matrices are in place to clearly define who is able to authorise particular transactions, transfer funds, commit Company resources and enter into particular agreements.
  • Monthly reporting of management accounts and key metrics to senior management with performance measured to budget and material variances reported to the Board.
  • Quality control checks throughout our manufacturing process, burn in, electrical testing to detect early failures, 100% functional testing, and quality inspection.
  • Disaster recovery and business continuity plans are in place at all facilities, documented and communicated to key personnel to help cope with unexpected events.
  • The Audit Committee reviews the effectiveness of internal controls.
  • Internal audit function has been set up.

C.3 Audit Committee and Auditor

Main principle:

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 Audit Committee report on pages 44 to 47 of the Annual Report 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.

 

Remuneration

D.1 The Level and Components of Remuneration

Main principle:

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.

The Remuneration Committee report in the latest Annual Report sets out in detail the Group's approach to remuneration.

D.2 Procedure

Main principle:

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 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.

 

Relations with shareholders

E.1 Dialogue with Shareholders

Main principle:

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 xppower.com to give private investors access to the same information that institutional investors receive in terms of investor presentations. This includes video interviews with the Chief Executive and Finance Director available on the morning of the day 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 Chairman and Senior Independent Director are available to meet Shareholders if required.

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 Shareholders' opinion.

Website

E.2 Constructive Use of the Annual General Meeting

Main principle:

The Board should use the Annual General Meeting to communicate with investors and to encourage their participation.

The Annual General Meeting is an opportunity to communicate with Shareholders and certain Directors are available to answer any questions.