Corporate Governance

Chairman's Introduction

The Board of Consort Medical considers strong Corporate Governance to be a key element to the success of the business and I am pleased to report that we have complied with the UK Corporate Governance Code (2012) throughout the year.

Our Board and committees have continued to perform effectively and during the year we have reviewed the terms of reference for each committee, the matters reserved for the Board and the roles of the Chairman and Chief Executive to ensure that these continue to reflect best practice. The work of our committees is outlined later in this report.

Our governance framework is supported by our core values of Integrity, Respect, Team Work, Results Driven and Customer Focus which govern the way we work and conduct business. These values have been relaunched during the year and everyone throughout the Group will be expected to adopt these values and to challenge behaviour that is not consistent with the values.

We will continue to adhere to the Code, monitor developments and implement improvements in our governance in the year ahead.

Dr. Peter Fellner
Chairman

The UK Corporate Governance Code

The Group is committed to practising good corporate governance of its affairs as part of its management of relationships with its shareholders and other stakeholders. The Group seeks to uphold and to report on compliance in accordance with best practice in corporate governance.

Compliance Statement

The directors are satisfied that the Group has complied with the principles and provisions set out in the UK Corporate Governance Code (the Code) which was published in September 2012 (available from www.frc.org.uk) and was compliant throughout the financial year under review.

The principles of the Code cover five areas: leadership, effectiveness, accountability, remuneration and relations with shareholders. With the exception of the directors' remuneration (which is dealt with separately under the Remuneration Report) the following sets out how the Board has applied the principles.

The Board is committed to establishing and maintaining high standards of corporate governance. Its policy is to appoint directors with appropriate skills who have sufficient time to carry out their duties adequately. The Board provides opportunities through site visits and regular access to senior management to permit directors to familiarise themselves with the Company and the markets in which it operates.

Leadership

The Role of the Board

The Board is responsible for the long-term success of the Company. Individual members of the Board have equal responsibility for the overall stewardship, management and performance of the Group and for the approval of its long-term objectives and strategic plans.

Division of Responsibilities

There is a clear division of responsibilities between the role of the Chairman and that of the Chief Executive of the Company and the roles are clearly set out in writing and reviewed by the Board. The latest review took place in March 2014. The primary responsibility of the Chairman is to lead and manage the Board and to promote high standards of corporate governance, and that of the Chief Executive is to manage the business of the Group.

The Chairman

Peter Fellner was appointed non-executive Chairman of the Company with effect from 1 May 2009. The Chairman is responsible for leading and managing the Board and ensuring its effectiveness in all aspects of its role. He works closely with the Chief Executive on developing Group strategy, and provides general advice and support as well as participating in the dialogue between the Company and its major shareholders. Dr Fellner has attended all but one of the Board meetings held during the year and continues to commit substantial time to fulfilling his role.

During the year Dr Fellner has stepped down from his directorships at UCB SA, Biotie Therapies Corp. and Astex Pharmaceuticals, Inc. His other significant commitments are listed in his biography in the Board of Directors.

The Chairman was considered to be independent on his appointment.

The Chief Executive

Jonathan Glenn is the Company's Chief Executive. His principal responsibility is to manage the Group's business and to lead the senior management team in delivering the Company's strategic and operational objectives.

The Senior Independent Director

Dr William Jenkins was appointed the Senior Independent Director with effect from 1 September 2011 and is responsible for the chairing of meetings of non executive directors if and when required. Where the Chairman is not present, the Senior Independent Director chairs meetings of the Board. He is available to meet with shareholders.

The Non-Executive Directors

Independence

Each of the non-executive directors (other than Ian Nicholson) is free from any relationship with the executive management of the Company and is free from any business or other relationship that could affect or appear to affect the exercise of their independent judgement. The Board considers that all of the Company's non-executive directors including Ian Nicholson are independent directors, in both character and judgement, in accordance with the recommendations of the Code. Following his appointment, the Board has recognised Mr Nicholson's valuable experience in the pharma industry and has sought his advice and guidance on business development matters in support of the Company's strategic objectives. The Board has therefore approved the appointment of Mr Nicholson as a consultant in addition to his role as a non executive director. Mindful of the Code's requirements for independence, Mr Nicholson has resigned his membership of both the Remuneration Committee and the Audit Committee.

The Operation of the Board

Reserved Matters and Delegated Authorities

The Board has the authority for ensuring that the Group is appropriately managed and achieves the strategic objectives it sets. To achieve this, the Board reserves certain matters for its own determination including matters relating to Group strategy, approval of interim and annual financial results, dividend policy, major capital expenditure, treasury policy, risk management and the effectiveness of the systems of internal control. The full schedule of matters reserved to the Board was reviewed during the year and is published on the Company's website.

The Board performs its responsibilities through an annual programme of meetings, and by continuous monitoring of the performance of the Group as a whole.

Matters considered by the Board in FY2014 include:

  • Finance and operations review
  • Annual budget
  • Risk review
  • Strategic plans
  • Potential merger and acquisition targets
  • Monthly broker reports
  • Group insurance review
  • Receiving reports from the Board Committees
  • Board evaluation

The Board also delegates a number of its responsibilities to committees and management as described below.

Board Meetings and Attendance

The Board has allocated its time generally to strategy; finance and operations; risk; governance; and succession planning.

The Board has eight scheduled meetings per year, with other meetings convened for specific matters. The attendance of each of the directors, whether in person or by telephone, at the scheduled Board and Board sub-committee meetings where appropriate, is shown below:

NameBoard
meetings
Nomination
Committee
meetings
Remuneration
Committee
meetings
Audit
Committee
meetings
P. Fellner7
W. Jenkins85
L. Drummond83
S. Crummett853
I. Nicholson74*2*
J. Glenn8
R. Cotton8

* Mr Nicholson attended all meetings of the Remuneration and Audit Committees until he resigned on his appointment as a consultant.

In addition, the Company operates a Scientific Advisory Board, a Corporate Responsibility Committee, a Group Executive Committee, a Risk Committee and a divisional operating board. For details please see below.

Effectiveness

The Board's Composition

As of 30 April 2014 the Board of the Company consisted of the non-executive Chairman, two executive directors and four non-executive directors. The profiles of the Board members are set out in the Board of Directors. No individual or group of individuals dominates the Board's decision-making process. The non-executive directors occupy, or have occupied, senior positions in industry. Together they constitute a valuable body of relevant industry experience and expertise.

Board Diversity

The Board believes in the importance of diversity (including but not limited to gender) and the benefits that it can bring to the operation of an effective Board. The female representation on the Board constitutes 14.3%.

Appointments to the Board continue to be made on merit.

Appointment of Non-Executive Directors

Non-executive directors are appointed to the Board following a formal, rigorous and transparent process, where appropriate, involving external recruitment agencies, to select individuals who have a depth of relevant experience, thus ensuring that the selected candidates will be capable of making a considerable contribution to the Board. The process for the appointment of non-executive directors is managed by the Nomination Committee, whose responsibilities are outlined below.

Terms of Appointment and Time Commitment

All non-executive directors are appointed for an initial term of three years subject to satisfactory performance. After this time they may serve additional three-year terms following review by the Board. All non-executive directors are expected to devote such time as is necessary for the proper performance of their duties. Directors are expected to attend all Board meetings and committee meetings of which they are members and any additional meetings as required. Further details of their terms and conditions are summarised in the Remuneration Report and the terms and conditions of appointment of the non-executive directors are available at the Company's Registered Office.

Board Tenure

as at 30 April 2014

Board tenure

Induction and Professional Development

Upon joining the Board, newly appointed directors receive a tailored induction comprising background information on the operation and activities of the Group, the role of the Board and its committees and those matters reserved for the Board's decision, and the latest financial information on the Group. Training and development needs of directors are reviewed regularly. The directors are kept appraised of developments in legal, regulatory and financial matters affecting the Group from the Chief Financial Officer, the Company Secretary, the Group's external auditors and advisers.

Information and Support

Board members are provided with appropriate documentation in advance of each Board and committee meeting. Senior executives are invited to attend Board meetings periodically for the purpose of making presentations on their areas of responsibility. In addition to formal Board meetings, the Chairman and Chief Executive meet frequently and make regular contact with other Board members. The Board and the senior executives meet formally once during each financial year to discuss corporate strategy.

Independent Professional Advice

The Board has approved a procedure whereby directors may consult the Company's advisers and, if necessary, take independent professional advice at the Company's expense, although not in respect of a director's personal interests. Before seeking advice, the director concerned must notify the Chairman, or in his absence, the Senior Independent Director. No such advice was sought by any director during the year.

Company Secretary

Board members have access to the Company Secretary who attends all Board meetings. The appointment and removal of the Company Secretary is subject to the approval of the Board.

During the year the Board has focused on the recruitment of a Group General Counsel and Company Secretary. Using the services of Heidrick & Struggles a number of potential candidates were identified for the position of Group General Counsel and Company Secretary and we are delighted that Iain Ward will be joining the Company on 14 July 2014 from Shire plc.

Board Evaluation

An evaluation of the Board is carried out each year. As for previous years, a Board evaluation was carried out during the year ended 30 April 2014. A rigorous and formal review required completion of a questionnaire relating to the performance of the Board and its committees and with regard to compliance with the Code. The evaluation focused on the role of the directors and the Board; the non-executive directors; the executive directors; Board meetings; committees of the Board; monitoring performance; leadership and culture; corporate governance; and the facilitation of meetings. The results of the questionnaire were reported to the Board in a manner that did not identify any individual responses. The evaluation concluded that there were no areas of significant weakness and that overall the Board worked well as a team with a clear understanding of the role and objectives of the Board. Information provided to the Board was considered to be comprehensive and of high quality.

It was considered that the Company operated to standards of corporate governance required of a listed company and that the Board, led by its Chairman, was fully aware of shareholder views and provided effective leadership.

For the year ahead the Board is committed to:

  • enhancement of training and development opportunities for directors;
  • further engagement with senior management;
  • continued consideration of Board composition to ensure an appropriate balance of skills and experience; and the
  • introduction of electronic management of Board papers.

Election and Re-election of Directors

The Company's Articles of Association require all directors to retire and submit themselves for re-election at the first Annual General Meeting after appointment and thereafter at least every three years. The Notice of Annual General Meeting will give details of those directors seeking re-election.

Meetings of Non-Executive Directors

Led by the Senior Independent Director, the non-executive directors meet informally, without the Chairman being present, principally to appraise the Chairman's performance and to review his remuneration. The Chairman holds meetings at least annually with the non-executive directors without the executive directors present.

Board Committees

The Board has the three main committees listed below. The current terms of reference of each committee may be obtained from the Company's website.

Remuneration Committee

During the year members of this committee were William Jenkins (Chairman), Steve Crummett and Ian Nicholson until his resignation on 14 February 2014. The Chairman is invited to attend all meetings, but does not attend any part of any meeting at which his own service contract is discussed. The Chief Executive attends by invitation where appropriate except where his own remuneration is being considered.

The Remuneration Committee is primarily responsible for determining the structure, components (including pension rights and compensation payments) and level of the remuneration packages of the Chairman, the executive directors and designated members of the senior management team. Details of the role of the Remuneration Committee and attendance of Committee members are set out in the Annual Remuneration Report. The Remuneration Committee met five times during this year.

The activities of the Committee during the year are set out in the separate Directors' Remuneration Report.

Nomination Committee

Members during the year were Peter Fellner (Chairman), William Jenkins, Lynn Drummond, Steve Crummett, Ian Nicholson and Jonathan Glenn.

The Nomination Committee is primarily responsible for reviewing the membership of the Board and identifying suitable candidates for appointment and reappointment as directors. In addition, the Board has delegated responsibility to the Nomination Committee for succession planning both at Board and senior management level. The inclusion of the Chief Executive in the membership of the Nomination Committee ensures that a balanced view is taken regarding the needs of the Group as a whole. The Committee ensures that the search for Board members is undertaken against objective criteria and with due regard to the benefits of diversity including gender. Appointments are made on merit taking into account the importance of maintaining a balance of skills, experience, independence and knowledge.

Currently, a recruitment search for an additional non-executive director is taking place following Dr Lynn Drummond's decision to step down from the Board. Ridgeway Partners are assisting with this search.

Neither Ridgeway Partners nor Heidrick & Struggles has any other connection with the Company.

Audit Committee

The Audit Committee is comprised entirely of independent non-executive directors. Members during the year have been Steve Crummett as Chairman, Lynn Drummond and Ian Nicholson until his resignation on 14 February 2014. Steve Crummett is the individual who the Board considers has recent and relevant financial experience and is a chartered accountant.

The external auditors' lead partner and the Chief Financial Officer attend each meeting as requested by the Committee. The Chief Executive Officer attends the interim and year end meetings.

The Audit Committee met three times during the year. The meetings were attended by all members. At each meeting the members of the Committee took the opportunity of meeting the external auditors without management being present.

During the year the Audit Committee discussed the following key items:

  • Risk assurance
  • Treasury
  • Accounting policies
  • Financial results and budgets
  • Engagement and review of external auditors
  • Review of audit and non-audit services and fees
  • Review of reimbursed expenses
  • Committee terms of reference
  • Key developments in accounting, corporate reporting and taxation.

The Audit Committee is responsible for reviewing on behalf of the Board the Group's financial and reporting practices and disclosures, reviewing the integrity of the financial statements, the Group's system of internal controls, the work of the external auditors and Group compliance with financial policies, laws and regulations. The Audit Committee terms of reference may be obtained from the Company's website.

The annual and half-yearly financial reports are reviewed by the Committee through a process which includes discussion with the Chief Financial Officer and the external auditors. The external auditors prepare reports to the Committee on significant accounting policies and issues and judgements applied in the preparation of the financial reports. The Audit Committee gives its recommendation to the Board concerning the adoption and publication of all financial reports to shareholders.

In addition to the Board, the Audit Committee has conducted its annual review of the system of internal controls based on a review of significant risks identified, internal reviews, external audits and reports from management.

Financial Reporting and Significant Financial Matters

In carrying out its duties, the Committee is required to assess whether suitable accounting policies have been adopted and to challenge the robustness of significant management judgements reflected in the financial results. This process involves reviewing relevant papers prepared by management in support of the policies adopted and judgements made. These papers are discussed with management and the external auditors. In addition, the Committee reviews the year end report to the Audit Committee from the external auditors based upon its work performed and findings from the annual audit.

The significant accounting issues considered by the Committee during the year were areas where management is required to use significant judgement. These issues are listed below:

Goodwill Impairment

The value of goodwill is supported by a value in use model prepared by management. This is based on cash flows extracted from the Group's budget and strategic plan, which have both been approved by the Board. The Committee has reviewed the model and assessed the assumptions used by management in discussion with management and the external auditors.

Contingent Consideration on the Disposal of King Systems

The contingent consideration due on the disposal of King Systems is recorded at fair value, a calculation which requires judgement around the level of expected sales of the King Vision product for three years post disposal. The Committee has reviewed the fair value calculation and assessed the assumptions used by management in discussion with management and the external auditors.

The Treatment of Special Items and their Presentation in the Consolidated Financial Statements

Special items have been separately disclosed within the Group's consolidated financial statements. The Committee has reviewed papers prepared by management showing how these costs have been identified and calculated. It has challenged both the quantum of the charge and its presentation in the consolidated income statement and is satisfied that these costs have been treated appropriately.

Revenue Recognition

The Group's policy for revenue recognition is set out in note 1 to the financial statements. Management prepares a paper for the Committee setting out any key judgements applied in respect of revenue recognition and in the accounting for major manufacturing contracts. The Committee has reviewed the papers presented and challenged management on the judgements applied ensuring they are in line with the Group policy.

The Committee has additionally discussed each issue with the external auditor and sought its opinion based upon the work they have performed during the audit. Based upon its review and discussions with both management and the Group's external and internal auditors, the Committee is satisfied that, after raising appropriate challenge, the judgements outlined above are reasonable and that the appropriate disclosures have been included in the Group's consolidated financial statements.

Non-Audit Services

In accordance with its policy on non-audit services provided by the Company's auditors, the Committee reviews and approves the award of any such work. The Audit Committee refers to the Board for approval of any work comprising non-audit services where the fees for such work will represent a significant proportion of the annual audit fee.

Ernst & Young LLP have handled the Group's tax compliance programme and specifically advised on the Patent Box regime and Above the Line R&D claims. Deloitte LLP have provided remuneration advice and valuation service in respect of Long-term Incentive Plan grants. KPMG LLP have provided risk assurance audit services.

Details of non-audit services provided to the Company by the external auditors are shown in note 3 to the financial statements.

Auditor Independence

The Audit Committee keeps under review the scope and results of the external audit work, its cost and the independence and objectivity of the auditors. The independent auditors operate procedures to safeguard against the possibility that their objectivity and independence could be compromised. This includes the use of quality review partners, a technical review board (where appropriate) and annual independence review procedures. The auditors are required to rotate the lead audit partner to the Group every five years. The Committee has considered the reappointment of the auditors of the Group and recommended to the Board that PricewaterhouseCoopers LLP be proposed for reappointment, having noted the scope and results of their work in relation to this year's audit as well as their objectivity, effectiveness and independence. The Board endorsed this recommendation.

Reappointment of External Auditor

The Audit Committee is also monitoring developments at the European Union level regarding mandatory audit rotation and will factor any legislative requirements into its future plans around audit tendering.

Internal Audit

The Audit Committee annually considers the need for a separate dedicated internal audit function and has again concluded that in its opinion, given the scale and nature of the Group's operations, this is not required. Instead the Group conducts appropriate internal audit activities through both the deployment of independent Group employees, and through the engagement of internal audit services from suitably qualified external providers. The Audit Committee keeps this under review.

Whistle-blowing

The Audit Committee has reviewed and approved the internal procedures whereby employees can raise concerns about possible financial or other irregularities. The policy gives guidance on the type of matters that staff may wish to disclose, and a means of doing so via an independent organisation in the event that any staff member feels that he or she cannot make a disclosure via the usual management channels.

The Group is committed to the highest standards of openness, integrity and accountability and the prevention of bribery and corruption. The Group operates a whistle-blowing policy so that employees can report confidentially any matter giving rise to concerns about the operation of the Group's business.

Other Committees

The Executive Committee

This Committee is responsible for the executive management of the Group. It comprises the Chief Executive, the Chief Financial Officer, the Company Secretary/General Counsel, the Bespak General Manager, and the Director of Human Resources. This Committee meets monthly to review and make decisions on operational matters not reserved for Board decisions.

The Corporate Responsibility Committee

The Corporate Responsibility Committee is responsible for reviewing and prioritising the Group's Corporate Responsibility activities, further details of which can be found in the Corporate Responsibility Review of this report. The Committee is chaired by non-executive director Ian Nicholson. Other members include the Chief Executive Officer, the General Manager of Bespak, the Director of Human Resources and the Bespak Continuous Improvement Director. The Company Secretary acts as secretary to the Committee.

Scientific Advisory Board

The role of the Scientific Advisory Board is to provide an expert independent view on the current portfolio of products and programmes together with advice and guidance on the external environment in the specific therapeutic areas in which Consort operates in.

Risk Committee

The role and responsibilities of the Risk Committee are outlined under the Risk Management section.

Accountability

Internal Controls Review

The Board acknowledges that it is responsible for the Group's system of internal controls and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable, but not absolute assurance against material misstatement or loss. The Board has received regular reports on areas of any significant risk and on the related internal controls. The Board reviews the framework of internal controls annually and has reviewed the effectiveness of its internal systems of control as they have been operated within the year in accordance with the Turnbull Guidance (2005). This system has been in place for the year under review and up to the date of approval of the Annual Report and accounts.

The review covers all material controls including financial and financial reporting processes, operational, compliance and risk management systems.

Controls over the financial reporting process and preparation of the consolidated accounts consist of extensive reviews by qualified and experienced individuals that ensure that all elements of the financial statements and appropriate disclosure are considered and accurately stated.

Risk Management

The Board accepts responsibility for determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives.

There is an on-going internal process for identifying, evaluating and managing significant risks faced by the Company that is regularly reviewed by the Risk Committee, the Executive Committee and then by the Board. This process has been in place throughout the year and up to the date of this report.

The Risk Committee is responsible for advising the Executive Committee on the co-ordination and prioritisation of risk management issues throughout the Group and developing a risk management strategy; ensuring that the Board's risk policy is implemented throughout the Group through effective development and review of risk registers, mitigation plans and insurance policies; and promoting risk awareness at all levels.

A risk management strategy encompassing risk assessment and risk treatment has been adopted with the key objective to ensure that risk management is an integral part of the strategic and operational management decision-making, planning and implementation process. Risk appetite and tolerance has been reviewed and agreed by the Board and will be considered annually and monitored as appropriate.

The Company's strategic plan is reviewed annually at an off-site meeting involving the Board and the Executive Committee. An annual budget is prepared by each of the operating divisions of the Company and this is consolidated into a Group Plan, which is reviewed and approved by the Board.

Further information on how we manage our business risks is set out in the Risk section, which contains a list of the principal risks and uncertainties.

Control Procedures

Progress against budget is monitored at operating business and Group levels throughout the Company via monthly reporting of actual financial performance against budget and prior period actual results. The Executive Committee also reviews monthly the key measures of operating performance.

The Group has clear authority limits deriving from the list of matters reserved for decision by the Board, including capital expenditure approval procedures.

Financial Reporting

The directors' responsibility for preparing the accounts is set out in the Statement of Directors' Responsibilities.

Going Concern

The directors have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future as the Group has net cash of £25.8m at 30 April 2014 and banking facilities of £74.3m which are currently undrawn that are available up until November 2016. The Company has therefore adopted the going concern basis in preparing the accounts.

Remuneration

Our Remuneration Report, which describes the level and components of the remuneration of the directors, is set out in the Annual Remuneration Report.

Relations with Shareholders

The Board regards relationships with shareholders as very important and it aims to encourage open dialogue with them through regular meetings with the Group's institutional shareholders, including regular meetings following the announcement of the Company's interim and annual results. Meetings are also held at other times with institutional investors and other shareholders at their request. Shareholders may meet with any new non-executive director if they wish. The Chairman ensures that views expressed at these meetings are reported to the Board as a whole. The Company's brokers also attend Board meetings at the request of the Chairman to provide feedback on shareholder opinion.

The Senior Independent Director is available to meet with shareholders as required.

The Annual General Meeting

All shareholders have the opportunity of discussing the Group's performance and development at its Annual General Meeting (AGM), which provides a forum for shareholders to raise issues with the Board. Members of the Remuneration, Nomination, Audit and Corporate Responsibility Committees will also be available at the Annual General Meeting so that shareholders may discuss any queries they may have.

Our previous AGM was held in Hemel Hempstead on 2 September 2013 and the full voting results on each of the resolutions are published on our website. Our 2014 AGM will be held on 4 September 2014 at the Company's registered office in Hemel Hempstead. The Notice of the Meeting sets out each of the resolutions to be proposed and a copy of the Notice can be downloaded from the Company's website at www.consortmedical.com.