Governance

• Principles statement
• Board of Directors
• Board committees
• Audit Committee
• Remuneration Committee
• Internal control

Principles statement

The Board recognises its accountability to shareholders and is committed to maintaining high standards of corporate governance. While the Company is not required as a listed company on the AIM to fully comply with the current version of the Combined Code on Corporate Governance, the Board has requested the Company be in compliance to the extent it is appropriate.

The Combined Code, as published by the Financial Reporting Council in July 2003 (the 2003 FRC Code) applies to the Company in respect of its 2006 and 2005 financial years. The Board has reviewed its processes and procedures and reviewed compliance with the Provisions of the Code. It has also identified those areas where compliance with the Code Provisions is not considered appropriate for XL TechGroup as a smaller company. The report on the application of the principles of the Code set out below has been extended to include an explanation of the Board's view on these rules.

Board of Directors

The Board comprises five Directors, three Non-Executive Directors and two Executive Directors. The size of the Board and the balance between Executives and Non-Executives is considered appropriate to the Company's size and scope of activities and provides for effective operation.

A schedule of formal meetings of the Board, the Audit Committee and the Remuneration Committee is arranged during each year in line with the Company's management reporting, and interim and annual reporting. During the year to December 31, 2006, the Company's Board met formally on six occasions. In addition, the Board held discussions with the Executive Directors and senior operational managers on strategy, business development, and other topics important to the Company's progress. During the year to December 31, 2006, the Directors had a 100% attendance record in respect of Board meetings and meetings of the committees of which they were members.

The Board has reserved for itself powers relating to matters that it considers significant to the Group's business, operational and financial risks. These include the approval of corporate policies, strategy, plans and budgets; major acquisitions and disposals of companies or businesses; major investment and financial decisions; appointments to the Board; executive remuneration policy and major management or organisational changes.

The Board conducts an annual review of its performance and effectiveness, and did not identify any weakness.

The Chairman and Chief Executive have defined roles, providing for a division of responsibilities between them, which have been documented and approved by the Board.

The Board considers that two of the Non-Executive Directors, namely Dr. Vernon and Dr. Heath, are independent of management and free of any business or other relationship that could materially interfere with the exercise of their independent judgement.

Board committees

The Board has two standing committees – Audit and Remuneration. The Board has reviewed membership of these committees and has confirmed its view that, as a smaller company, it is appropriate that all the independent Non-Executives should participate as members of these committees, so that they are fully involved in monitoring the governance issues affecting the Company, including executive remuneration, succession planning and risk management.

Audit Committee

The Audit Committee comprises Dr. Vernon (Committee Chairman), Dr. Heath and Mr. Szostak. Responsibilities of the Audit Committee encompass a wide range of activities, including:

• reviewing the effectiveness of the Company's financial reporting, internal controls and risk management systems for the identification, assessment and reporting of risk;
• considering and making recommendations to the Board on the appointment of external Auditors;
• keeping the relationship with external auditors under review, including the terms of their engagement and fees, their independence and their expertise, resources and qualifications;
• monitoring the integrity of the Company's financial statements;
• reviewing the annual and interim reports in detail to ensure that they present a balanced assessment of the Company's position; and
• reviewing significant financial reporting issues and judgements.

With a 100% attendance record, the Audit Committee held seven formal meetings in the year to December 31, 2006, including a discussion with external auditors exclusive of the Executive Director member and Company management.

Remuneration Committee

The Remuneration Committee comprises Dr. Heath (Committee Chairman), Dr. Vernon and Mr. Haskell. The Remuneration Committee held four formal meetings in the year to December 31, 2006.

The report of the Board of Directors' remuneration, which include details of the Directors' remuneration and Directors' interests held and in options, together with responsibilities of the Remuneration Committee, are set out on pages 33 and 34 of the 2006 report and accounts.

Internal control

The Board is responsible for the Company's system of internal control which aims to: safeguard the Company's assets; ensure that proper accounting records are maintained; ensure compliance with statutory and regulatory requirements; and ensure the effectiveness and efficiency of operations, including the assessment and management of risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance, particularly against misstatement or loss.

The goal is to establish and embed a framework of internal financial and operational control for identifying, evaluating and managing the risks faced by the Company. The key elements of the review process, which include a specific assessment by the Board for the purpose of the annual report and accounts, and complies with the Turnbull guidance, “Internal Control Guidance for Directors on the Combined Code” published in September 1999, are as follows:

• Directors have responsibility for reviewing the strategy and monitoring the conduct of the Company. The Directors and the Executive management of the Company are accountable for their conduct and performance within the agreed strategies. A management structure exists with clearly defined lines of responsibility and the appropriate levels of delegation; and
• the Company and its operations are subject to a detailed annual budget process and ongoing capital investment process. Actual performance during the year is monitored monthly against budget and full year forecasts are updated at regular intervals during the year.

As described in Note 2 of the 2006 accounts, a restatement has been made to the 2005 and 2004 financial statements. Management has reviewed the circumstances around these changes and considers the factors leading to these adjustments to be principally the result of application of highly technical accounting principles against complex transactions. Management has identified procedures which would highlight the most appropriate accounting required on a going forward basis. As part of this review process, management has also reviewed with the Board and Audit Committee all relevant accounting policies in relation to XL TechGroup and its portfolio companies. The management and Board believe these changes will provide greater transparency and understanding of the financial statements. Further details to these changes are set out in Note 2 to the 2006 accounts.

 

 

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