This statement outlines the main corporate governance practices in place throughout the financial year, which comply with the ASX Corporate Governance Council recommendations, unless otherwise stated.
Board of directors
Role of the board
The board’s primary role is the protection and enhancement of long-term shareholder value.
To fulfil this role, the board is responsible for the overall corporate governance of the consolidated entity including formulating its strategic direction, approving and monitoring capital expenditure, setting remuneration, appointing, removing and creating succession policies for directors and senior executives, establishing and monitoring the achievement of management’s goals and ensuring the integrity of internal control and management information systems.
It is also responsible for approving and monitoring financial and other reporting. The board has not implemented a board charter as the corporate governance policy is regarded as sufficient to maintain ethical behavior.
The board has delegated responsibility for operation and administration of the Company to the Chief Executive Officer and executive management. Responsibilities are delineated by formal authority delegations.
To assist in the execution of its responsibilities, the board has established a number of board committees including a Nomination Committee, a Remuneration Committee, a Disclosure Committee and an Audit Committee. These committees have written mandates and operating procedures, which are reviewed on a regular basis. The board has also established a framework for the management of the consolidated entity including a system of internal control, a business risk management process and the establishment of appropriate ethical standards.
The full board currently holds twelve scheduled meetings each year, plus strategy meetings and any extraordinary meetings at such other times as may be necessary to address any specific significant matters that may arise.
The agenda for meetings is prepared in conjunction with the chairman/chief executive officer and company secretary. Standing items include the chief executive officer’s report, financial reports, operational reports, strategic matters, governance and compliance. Submissions are circulated in advance. Executives are regularly involved in board discussions and directors have other opportunities, including visits to business operations, for contact with a wider group of employees.
The consolidated entity ensures that new directors are appropriately informed about the nature of the business, current issues, the corporate strategy and the expectations of the consolidated entity concerning performance of directors. Directors also have the opportunity to visit consolidated entity facilities and meet with management to gain a better understanding of business operations. Directors are given access to continuing education opportunities to update and enhance their skills and knowledge.
Independent professional advice and access to company information
Each director has the right of access to all relevant Company information and to the Company’s executives and, subject to prior consultation with the chairman, may seek independent professional advice from a suitably qualified adviser at the consolidated entity’s expense. The director must consult with an advisor suitably qualified in the relevant field, and obtain the chairman’s approval of the fee payable for the advice before proceeding with the consultation. A copy of the advice received by the director is made available to all other members of the board.
Composition of the board
The composition of the board is determined using the following principles:
- a minimum of three directors, with a broad range of expertise
- at least one non-executive director
- a majority of directors having extensive knowledge of the Company’s industries, and those which do not, have reasonable experience in significant aspects of auditing and financial reporting, or risk management of large companies
- enough directors to serve on various committees without overburdening the directors or making it difficult for them to fully discharge their responsibilities
- although there is no limitation on the number of years a director may serve, a third of the directors (except for the Chief Executive Officer) must resign by rotation each year.
An independent director is a director who is not a member of management (a non-executive director) and who:
- holds less than five per cent of the voting shares of the Company and is not an officer of, or otherwise associated, directly or indirectly, with a shareholder of more than five per cent of the voting shares of the Company
- has not within the last two years been employed in an executive capacity by the Company or another group member, or been a director after ceasing to hold any such employment
- within the last two years has not been a principal or employee of a material* professional adviser or a material* consultant to the Company or another group member
- is not a material* supplier or customer of the Company or another group member, or an officer of or otherwise associated, directly or indirectly, with a material* supplier or customer
- has no material* contractual relationship with the Company or another group member other than as a director of the Company
- is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially* interfere with the director’s ability to act in the best interests of the Company.
- the board considers, ‘material’, in this context, to be where any director-related business relationship has represented, or is likely in future to represent the lesser of at least 5 per cent of the relevant segment’s or the director-related business’s revenue. The board considered the nature of the relevant industries’ competition and the size and nature of each director-related business relationship, in arriving at this threshold.
The Chairman currently fills the position of CEO and the non-executive director may not be perceived as independent.
The nomination committee oversees the appointment and induction process for directors and committee members, and the selection, appointment and succession planning process of the Company’s chief executive officer ‘CEO’. The committee makes recommendations to the board on the appropriate skill mix, personal qualities, expertise and diversity of each position. When a vacancy exists or there is a need for particular skills, the committee in consultation with the board determines the selection criteria based on the skills deemed necessary and identifies potential candidates with, where necessary, advice from an external consultant. The board then appoints the most suitable candidate however formal letters of appointment have not been issued.
The committee’s nomination of existing directors for reappointment is not automatic and is contingent on their past performance, contribution to the Company and the current and future needs of the board and the Company. Directors displaying unsatisfactory performance are required to retire.
In view of the size of the board, the whole board acts as the nomination committee.
The nomination committee meets as and when it is required. The terms and conditions of the appointment and retirement of non-executive directors are set out in the Corporate Governance Policy, including expectations of attendance and preparation for all board meetings, appointments to other boards, the procedures for dealing with conflicts of interest, and the availability of independent professional advice.
The nomination committee’s charter and policies, including those for appointing directors and senior executives, are available to all Members and directors, but are not published on the Company’s website.
The remuneration committee reviews and makes recommendations to the board on remuneration packages and policies applicable to the executive officers and directors themselves of the Company and of other group executives for the consolidated entity. It is also responsible for share option schemes, incentive performance packages, superannuation entitlements, retirement and termination entitlements, fringe benefits policies and professional indemnity and liability insurance policies.
The members of the remuneration committee during the year were:
- Jason Crage – Non-Executive.
- Tom Crage – Executive.
The remuneration committee will not comprise entirely of non-executive directors due to the limited structure of the board.
The remuneration committee meets as required.
Principles of compensation – audited
Remuneration is referred to as compensation throughout this report.
Key management personnel have authority and responsibility for planning, directing and controlling the activities of the Company and the consolidated entity, including directors of the Company and other executives. Key management personnel include the five most highly remunerated S300A directors and executives for the Company and the consolidated entity.
Compensation levels for key management personnel and secretaries of the Company, and relevant key management personnel of the consolidated entity are competitively set to attract and retain appropriately qualified and experienced directors and executives. The remuneration committee obtains independent advice on the appropriateness of compensation packages of both the Company and consolidated group given trends in comparative companies both locally and internationally and the objectives of the Company’s compensation strategy.
The compensation structures explained below are designed to attract suitably qualified candidates, reward the achievement of strategic objectives, and achieve the broader outcome of creation of value for shareholders.
The compensation structures take into account
- the capability and experience of the key management personnel
- the amount of incentives within each key management person’s compensation
- the key management personnel’s ability to control the relevant segments performance
- Compensation packages include a mix of fixed and variable compensation.
Fixed compensation consists of base compensation (which is calculated on a total cost basis and includes any FBT charges related to employee benefits), as well as employer contributions to superannuation funds.
Compensation levels are reviewed annually by the remuneration committee through a process that considers individual, segment and overall performance of the consolidated entity. In addition external information is reviewed to ensure the directors’ and senior executives’ compensation is competitive in the market place.
Performance linked compensation are designed to reward key management personnel for meeting or exceeding their financial and personal objectives. The short-term incentive is an ‘at risk’ bonus provided in the form of cash.
Short-term and long-term incentive structure
The remuneration committee considers that the above performance-linked compensation structure is generating the desired outcome. The evidence for this is the growth in profits in recent years.
It is the consolidated entity’s policy that service contracts for key management personnel, excluding the CEO, are unlimited in term but capable of termination on 2 to 4 weeks notice and that the consolidated entity retains the right to terminate the contract immediately, by making payment equal to 2 to 4 weeks pay in lieu of notice.
Principles of compensation – audited
Total compensation for all non-executive directors, last voted upon by shareholders at the 2001 AGM, is not to exceed $180,000 per annum and is set based on advice from external advisors with reference to fees paid to other non-executive directors of comparable companies. Directors’ base fees are presently up to $34,396 per annum.
The Chairman does not receive a fee for being the Chairman. The Executive Director does not receive a fee for being a director. Non-executive directors do not receive performance related compensation. Directors’ fees cover all main board activities and membership of committees.
The audit committee has a documented charter, approved by the board. All members must be non-executive directors with a majority being independent. The Chairman may not be the Chairman of the board. The committee advises on the establishment and maintenance of a framework of internal control and appropriate ethical standards for the management of the consolidated entity.
The members of the audit committee during the year were:
- Jason Crage (appointed 22 December 2005) – Non-Executive.
- Keegan Crage (appointed 2 December 2005) – Executive.
The external auditors and the chief executive officer, are invited to audit committee meetings at the discretion of the committee.
The external auditors met with the audit committee and the board of directors twice during the year.
The responsibilities of the audit committee include:
- reviewing the annual and half-year financial reports and other financial information distributed externally. This includes approving new accounting policies to ensure compliance with Australian Equivalents to International Reporting Standards (AIFRS), and assessing whether the financial information is adequate for shareholder needs
- assessing corporate risk assessment processes
- assessing the performance and objectivity of the internal audit function
- assessing whether non-audit services provided by the external auditor are consistent with maintaining the external auditor’s independence. Each reporting period the external auditor provides an independence declaration in relation to the audit or review
- providing advice to the board in respect of whether the provision of the non-audit services by the external auditor is compatible with the general standard of independence of auditors imposed by the Corporations Act 2001
- assessing the adequacy of the internal control framework and the Company’s code of ethical standards.
- organising, reviewing and reporting on any special reviews or investigations deemed necessary by the board
- monitoring the procedures to ensure compliance with the Corporations Act 2001 and the ASX Listing Rules and all other regulatory requirements
- addressing any matters outstanding with auditors, Australian Taxation Office, Australian Securities and Investments Commission, ASX and financial institutions.
The audit committee reviews the performance of the external auditors on an annual basis and normally meets with them during the year to:
- discuss the external audit, identifying any significant changes in structure, operations, internal controls or accounting policies likely to impact the financial statements and to review the fees proposed for the audit work to be performed. There is no formal internal audit procedure however the functions are covered by the CEO and the Group GM Sales.
- review the half-year and preliminary final report prior to lodgement with the ASX, and any significant adjustments required as a result of the auditor’s findings, and to recommend board approval of these documents, prior to announcement of results.
- review the draft annual and half-year financial report, and recommend board approval of the financial report.
- review the results and findings of the auditor, the adequacy of accounting and financial controls, and to monitor the implementation of any recommendations made.
Oversight of the risk management system
The board oversees the establishment, implementation, and annual review of the Company’s Risk Management System. Management has established and implemented the Risk Management System for assessing, monitoring and managing operational, financial reporting, and compliance risks for the consolidated entity. The Chief Executive Officer has declared, in writing to the board, that the financial reporting risk management and associated compliance and controls have been assessed and found to be operating efficiently and effectively. The operational and other risk management compliance and controls have also been assessed and found to be operating efficiently and effectively. All risk assessments covered the whole financial year and the period up to the signing of the annual financial report for all material operations in the consolidated entity.
The audit committee reports to the board as and when required which reports are aimed at ensuring risks are identified, assessed and appropriately managed.
Each business operational unit is responsible and accountable for implementing and managing the standards required by the operations manual.
Major risks arise from such matters as actions by competitors, government policy changes, the impact of exchange rate movements, difficulties in sourcing equipment, environment, occupational health and safety, financial reporting, and the purchase, development and use of information systems
Risk management and compliance and control
The consolidated entity strives to ensure that its products are of the highest standard. The board is responsible for the overall internal control framework, but recognises that no cost-effective internal control system will preclude all errors and irregularities.
Comprehensive practices have been established to ensure:
- capital expenditure and revenue commitments above a certain size obtain prior board approval
- occupational health and safety standards and management systems are monitored and reviewed to achieve high standards of performance and compliance with regulations
- business transactions are properly authorised and executed
- the quality and integrity of personnel
- financial reporting accuracy and compliance with the financial reporting regulatory framework (see below)
- environmental regulation compliance.
Quality and integrity of personnel
Written confirmation of compliance with policies in the Ethical Standards Manual is not obtained from all operating units. Formal appraisals are conducted at least annually for all employees. An appropriate succession plan, given the size of the business, is also in place to ensure competent and knowledgeable employees fill senior positions when retirements or resignations occur.
Monthly actual results are reported against budgets approved by the directors and revised forecasts for the year are prepared regularly.
Based on the results of inquiries made, the board is not aware of any significant breaches during the period covered by this report.
All directors, managers and employees are expected to act with the utmost integrity and objectivity, striving at all times to enhance the reputation and performance of the consolidated entity. The board reviews the Employee Handbook manual as required and processes are in place to promote and communicate these policies.
Conflict of interest
Directors must keep the board advised, on an ongoing basis, of any interest that could potentially conflict with those of the Company. The board has developed procedures to assist directors to disclose potential conflicts of interest.
Where the board believes that a significant conflict exists for a director on a board matter, the director concerned does not receive the relevant board papers and is not present at the meeting whilst the item is considered.
Code of conduct
The consolidated entity has advised each director, manager and employee that they must comply with the policies outlined in the Employee Handbook.
Trading in general Company securities by directors and employees
The Constitution permits directors to acquire shares in the Company. Company policy prohibits directors from dealing in Company shares:
- in the three weeks prior to the release of the Company’s half year and annual results to the Australian Stock Exchange and in the two weeks prior to the annual general meeting of the Company except where the purchases are associated with a privatisation bid that has been the subject of an Independent Experts’ Report
- where the dealing is of a short-term nature except where they advise other directors in advance of predetermined buy and sell prices that must be at least 20% apart; or
- where it is unlawful to do so.
Except where the above applies, there should be no objection to dealings in the period between one and 28 days after either the release of the Company’s half-year and annual results to the Australian Stock Exchange and after the conclusion of the annual general meeting.
At times other than as set out above, or if there is any overlap between prohibited and permitted trading periods, directors should advise the Chairman, or in the case of the Chairman, advise the Board of Directors, through the Company Secretary before they sell or buy shares in the Company. Generally, there should be no objection to dealing in securities notified in accordance with this procedure providing that the Company is in compliance with its continuous disclosure requirements, the Company is not withholding any information from disclosure by reason of the exceptions to Listing Rule 3.1 and the directors do not otherwise possess any price sensitive information in relation to the Company’s securities. In accordance with the provisions of the Corporations Act 2001 and the Listing Rules of the Australian Stock Exchange, the directors have undertaken to advise the Company of any transactions conducted by them in shares in the Company. The Company must then advise the Australian Stock Exchange of directors’ dealings in Company shares.
Communication with shareholders
The board provides shareholders with information using a Continuous Disclosure Policy which includes identifying matters that may have a material effect on the price of the Company’s securities, notifying them to the ASX, posting them on the Company’s website, and issuing media releases.
In summary, the Continuous Disclosure Policy operates as follows:
- the chief executive officer and the company secretary are responsible for interpreting the company’s policy and where necessary informing the board. The company secretary is responsible for all communications with the ASX. Such matters are advised to the ASX on the day they are discovered, and all senior executives must follow a ‘Weekly Continuous Disclosure Discovery’ process, which involves monitoring all areas of the group’s internal and external environment
- the full annual financial report is distributed to all shareholders (unless a shareholder has specifically requested not to receive the document), including relevant information about the operations of the consolidated entity during the year, changes in the state of affairs and details of future developments
- the half-yearly report contains summarised financial information and a review of the operations of the consolidated entity during the period. The half-year reviewed financial report is lodged with the Australian Securities and Investments Commission and the ASX, and sent to any shareholder who requests it
- the external auditor attends the annual general meetings to answer questions concerning the conduct of the audit, the preparation and content of the auditor’s report, accounting policies adopted by the Company and the independence of the auditor in relation to the conduct of the audit.
- All of the above information, including that of the previous three years, is made available on the Company’s website.
The board encourages full participation of shareholders at the Annual General Meeting, to ensure a high level of accountability and identification with the consolidated entity’s strategy and goals. Important issues are presented to the shareholders as single resolutions.
The shareholders are requested to vote on the appointment and aggregate remuneration of directors, the granting of options and shares to directors, the Remuneration report and changes to the Constitution. Copies of the Constitution are available to any shareholder who requests it.