" THE BOARD OF DIRECTORS' PRIMARY REMIT IS TO PROVIDE DIRECTION TO HELP SHAPE THE STRATEGY OF THE GROUP AND ENSURE THAT THIS IS BEING EXECUTED EFFECTIVELY WITHIN A STRUCTURE THAT IS WELL CONTROLLED, MITIGATES RISK AND IS COMPLIANT WITH CORPORATE AND SOCIAL RESPONSIBILITY."
The Board of Directors' primary remit is to provide direction to help shape the strategy of the Group and ensure that this is being executed effectively within a structure that is well controlled, mitigates risk and is compliant with corporate and social responsibility. Good corporate governance emanates from the top which is why the Board gives continued prominence to this area.
I am pleased to welcome Gavin Griggs to the Board who joined us on 31 October 2017 as Chief Financial Officer. Gavin is a CIMA qualified accountant and has worked in a range of acquisitive businesses with an international footprint, most recently Daisy Group Ltd, where he was Group Finance Director. Gavin's wide-ranging financial, commercial and M&A experience, gained within a number of international businesses, will be an asset to XP Power in the next phase of our development. Jonathan Rhodes stepped down from the Board on Gavin's appointment, but will remain with the Group in a senior finance position.
On pages 46 to 49 of the 2017 Annual Report 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.
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 Senior Non-Executive Director is an independent Director.
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 Officer (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 Officer 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 convened to assess the roles and responsibilities of the senior management team with effective succession plans.
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), Terry Twigger and Polly Williams. 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 twice during the year. The attendees were as follows:
|27 July 2017||All and
Duncan Penny (guest)
|07 December 2017||All|
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 five Board meetings during the year. The attendees were as follows:
|7 March 2017||All|
|15 May 2017||All except Polly Williams. By invite: Operations Director and VP Global Manufacturing.|
|28 July 2017||All|
|6 October 2017||All|
|8 December 2017||All|
Polly Williams was unable to attend the May meeting due to a prior commitment.
All Directors should receive induction on joining the Board and should regularly update and refresh their knowledge and skills.
Directors receive a full induction on joining the Board. The programme is tailored to the individual needs of each Director.
A visit to the Group's North American facilities is planned in 2018. Non-Executive Directors will be able to update and refresh their knowledge of the business first-hand and will be able to interact with the management team and employees helping them gain a deeper understanding of the business and allowing them to contribute ideas.
During the year, the Directors also received presentations from the Operations Director and the Executive VP, Global Manufacturing. These presentations reported on systems security and the plans for expanding the Vietnam manufacturing facility, respectively.
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 the results and actions of the employee survey, the results of a strengths, weaknesses, opportunities and threats review by the executive management team, compliance exception reports, insurance coverage and the sustainability policy and metrics.
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 in 2016 with the help of an independent external consultant to ensure that it covered all aspects of effectiveness: capabilities and communication; culture and practice; process and organisation; as well as 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 questionnaire was circulated to each Director in relation to the Board and the Committees on which they serve. The independent consultant collated the responses into an anonymous report for the Board to consider and discuss at a Board meeting.
There were no significant issues or concerns raised in the report.
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.
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 on page 31 of the 2017 Annual Report.
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 28 to 31 of the 2017 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:
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 50 to 53 of the 2017 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.
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 on pages 54 to 68 of the 2017 Annual Report sets out in detail the Group's approach to remuneration.
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.
The Report of the Remuneration Committee on pages 54 to 68 of the 2017 Annual Report sets out in detail the Group's policy on remuneration and the remuneration packages for the Board. 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.
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. This includes video interviews with the Chief Executive Officer and Chief Financial Officer 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 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' opinions.
The Remuneration Committee consulted with major Shareholders in respect of significant decisions on Executive remuneration.
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.