Board report on corporate governance (continued)

Performance evaluation of the Board, its Committees and individual directors
During the year, the Board initiated the process of evaluating its own performance and that of its committees and the individual directors. The Board intends to complete this evaluation in 2005 with the assistance of an external specialist and repeat the process on an annual basis thereafter.

The non-executive directors intend to hold at least one meeting in 2005 without the Chairman present to appraise the Chairman's performance and the Chairman of the Company will during 2005 meet with the other nonexecutive directors without the executive directors present.

Re-election of directors
The Articles of the Company require the directors to retire from office and submit themselves for re-election on a date which is no more than three years from the date of their appointment or last re-appointment. The directors retiring at the next Annual General Meeting and submitting themselves for re-election are Geoff Gaywood and Brian Taylorson. In addition, Keith Hopkins and Kevin Matthews, who were appointed by the Board, will retire at the Annual General Meeting and submit themselves for election. Biographical details and reasons why the Board is proposing the reelections will be included in the Notice convening the Annual General Meeting to enable shareholders to make an informed decision.

The level and make-up of directors' remuneration
The level and make-up of remuneration is set out in the Directors' remuneration report. As that report shows, a proportion of executive directors' remuneration is linked to corporate performance through the Performance Share Plan, the Executive Share Option Scheme and the Annual Bonus Scheme.

Procedure on Board remuneration
The remuneration of the executive directors is the responsibility of the Remuneration Committee which is more fully described in the Directors' remuneration report. The responsibilities of the Committee include the determination of (i) the Company's policy on remuneration of executive directors and (ii) the specific remuneration in all its forms and all other terms of service of executive directors. The Remuneration Committee comprises all the non-executive directors with the exception of Keith Hopkins and is chaired by Edward Wilson. None of the executive directors are members of the Remuneration Committee and no director is involved in deciding his own remuneration.

The remuneration of the non-executive directors is the responsibility of the Board as a whole but no director may vote on his own remuneration.

Financial reporting
The directors have acknowledged, in the Directors' responsibilities statement, their responsibility for preparing the financial statements of the Company and the Group. The auditors have included, in the Independent auditor's report, a statement about their reporting responsibilities. The directors are also responsible for the publication of an un-audited interim report of the Group which provides balanced and understandable assessments of the Group's financial position for the first six months of each account period.

The same standards are applied to other price sensitive public reports and reports to regulators, as well as to information provided to satisfy statutory requirements.

After making appropriate enquiries, the directors have a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements.

Internal controls
The Board has overall responsibility for the Group's system of internal control and risk management and for reviewing the effectiveness of this system. Such a system can only be designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can therefore only provide reasonable, and not absolute, assurance against material misstatement or loss.

The Board is of the view that an ongoing process for identifying, evaluating and managing sufficient risks faced by the Group was in place throughout 2004 and up to the date that the Annual Report 2004 was approved. This process is regularly reviewed by the Board and accords with the internal control guidance for directors as required by the Code.

A Risk Management Committee consisting of senior functional managers exists to enhance management's ability to review and monitor the effectiveness of this process on a regular basis. The terms of reference of the Committee include supporting corporate governance requirements, recommending business risk strategy and developing policies and procedures for risk management and internal controls. They also include the monitoring of the effectiveness of internal controls and the design of processes to test the effectiveness of control.

Board report on corporate governance continues on the next page >
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