STATEMENT OF COMPLIANCE WITH THE 2018 CORPORATE GOVERNANCE CODE
THIS INFORMATION WAS LAST REVIEWED AND UPDATED in 6 January 2021
STATEMENT OF COMPLIANCE WITH THE 2018 CORPORATE GOVERNANCE CODE
The Board recognise that high standards of corporate governance underpin our continuing success and as a Board we acknowledge our responsibility in leading this process.
We continually review the framework within which we operate and the processes implemented to ensure that they reflect the complexities of our business and, whilst acknowledging our size, are also capable of adding value as the business grows. In line with the London Stock Exchange’s recent changes to the AIM Rules requiring all AIM-listed companies to adopt and comply with a recognised corporate governance code, the Board has adopted the 2018 Quoted Companies Alliance Corporate Governance Code (the “QCA Code”) as the basis of the Group’s governance framework.
We are not fully compliant with all of the requirements of the QCA Code; the posts of Chairman and Chief Executive Office are presently held by the same individual as this currently suits the Company’s strategic plans and while we considers our non-executive directors to be independent in character and judgement; neither are technically independent as defined by the QCA Code because both participate in the Company’s share option schemes.
Within Image Scan, we promote a culture of good governance in dealing with all key stakeholders: our employees, our customers, our suppliers and our shareholders. This section of the annual report alongside the disclosure on our website describes our corporate governance structures and processes and how they have been applied throughout the year ended 30th September 2020.
WR Mawer
Chairman, Image Scan Holdings plc
CORPORATE GOVERNANCE STATEMENT
The Board ensures that the Company adopts proper standards of corporate governance and that the principles of best practice, as set out in the QCA Corporate Governance Code, are followed so far as is practicable and appropriate to the size and nature of the Group and the constitution of the Board. Set out below is a summary of how, the Group is applying the key requirements of the Code and an explanation of where it has chosen not to comply.
- Establish a strategy and business model which promote long-term value for shareholders
The strategy and business operations of the Group are set out in the Strategic Report on pages 8 to 11 of the annual report. The Group’s strategy and business model are developed and approved by the Board. The management team is responsible for implementing the strategy and managing the business at an operational level. The Group’s overall strategic objective is focused on the development and commercialisation of market leading X-ray solutions for use in the global security and industrial inspection markets.
- Seek to understand and meet shareholder needs and expectations
The Board recognises that Image Scan communicates with its shareholders principally through its website and the Annual Report. Shareholders can also sign up to receive news releases directly from the Company by email. The Chairman makes himself available to major shareholders on request and periodically attends meetings and gives presentations to shareholders.
The Annual General Meeting of the Company, normally attended by all directors, gives the directors the opportunity to report to shareholders on current and proposed operations and enables the shareholders to express their views of the Group’s business activities. Shareholders are invited to ask questions during the meeting and to meet with directors after the formal proceedings have ended.
- Take into account wider stakeholder and social responsibilities and their implications for long-term success
The Board believes that, in addition to its shareholders, its main stakeholder groups are its employees, customers, suppliers and relevant Statutory Authorities in its areas of operation.
The Group’s operations and working methodologies take account of the need to balance the needs of all of these stakeholder groups while maintaining focus on the Board’s primary responsibility to promote the success of the Group for the benefit of its members as a whole. The Group endeavours to take account of feedback received from stakeholders, making amendments to working arrangements and operational plans where appropriate and where such amendments are is consistent with the Group’s longer term strategy.
Through the various procedures and systems it operates, the Group ensures full compliance with health and safety and environmental legislation relevant to its activities as well as maintain quality certification ISO9001:2015.
Further details are set out on in the s172 Stakeholder Engagement Impact Statement of this report.
- Embed effective risk management, considering both opportunities and threats, throughout the organisation
The Board is responsible for the Group’s internal control and risk management systems and for monitoring their effectiveness. The Board maintains a system of internal controls to safeguard shareholders’ investment and the Group’s assets, and has established a continuous process for identifying, evaluating and managing the significant risks the Group faces.
Details of the principal risks and how they are mitigated alongside side the Group’s internal control and risk management process are set out in the Strategic Report on pages 8 to 11 of the annual report.
The Board considers risk to the business on an ongoing basis and the Group formally reviews and documents the principal risks at least annually. The Board is responsible for reviewing and evaluating risk in the business.
- Maintain the Board as a well-functioning, balanced team led by the Chair
Throughout the year the Board of Image Scan comprised a combined Chairman/CEO, two further Executive Directors and two Non-Executive Directors. At every AGM, one-third of the Directors must retire by rotation. The Board’s role is to establish the strategic objectives and policies; oversee all aspects of the Group’s finances; continuously review performance and controls; manage risk; decide on key business transactions and manage the interests of stakeholder groups.
The Board reserves for itself a range of key decisions such as strategy, acquisitions, significant contracts and internal controls, to ensure it retains proper direction and control of the Group, whilst delegating authority to individual Directors who are responsible for the executive management of the business.
The QCA Code recommends that the role of Chairman and Chief Executive should not be exercised by the same individual. The role of Executive Chairman is held by Bill Mawer. In light of Bill’s significant, unique and proven expertise, knowledge and industry relationships the Board continues to believe that combining the roles of Chairman and Chief Executive remains the right approach at this stage in the Group’s development.
Under the QCA code, all Non-Executive Directors are not considered independent by virtue of their participation in a share option scheme, as a result the Group is not compliant with the requirement for companies below the FTSE 350 to have least two independent directors. At the same time, the Board considers that all Non-Executive Directors act independently of the Executive and are well placed to appropriately police adherence to the Group’s strategy.
The Group does not have a director designated as a Senior Independent Director. In light of the size of the Board, and the Company’s stage of development, the Board does not consider it necessary to appoint a Senior Independent Director at this stage, but will nevertheless keep this under review as part of the Board’s evaluation on Board effectiveness.
Attendance at Board and its Committee meetings
The following meetings were held during the year.
|
Number of Meetings |
Attendance |
|||||
|
W Mawer |
R Leaver |
T Jackson |
V Deery |
S Atwell King |
||
|
Board |
14 |
→14 |
14 |
14 |
13 |
14 |
|
Audit Committee |
2 |
2 |
2 |
→2 |
– |
– |
|
Remuneration Committee |
3 |
3 |
→3 |
3 |
– |
– |
|
Nomination Committee |
1 |
→1 |
1 |
1 |
– |
– |
→Indicates the Chair of the committee
The terms of reference of the Audit Committee stipulate that three meetings per year should be held, however given the size of the board, some of the Audit Committee business was conducted by the full Board including review of the Risk Management system and Internal Controls.
6. Ensure that between them, the directors have the necessary up-to-date experience, skills and capabilities
The Board is composed of three executive and two non-executive directors who regularly meet throughout the year and receive timely information in a form and of a quality appropriate to enable it to discharge their duties.
The structure of the Board is subject to continual review to ensure that it is appropriate for the Group. The Directors’ varied backgrounds and experience give Image Scan a good mix of the knowledge and expertise necessary to manage the business effectively.
The skills and experience of the Board are set out in their biographical details on the Investor Relations website https://www.3dx-ray.com/investor-relations/board-of-directors. The experience and knowledge of each of the Directors gives them the ability to constructively challenge the strategy and to scrutinise performance. The Board also has access to external advisors where necessary.
- Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement
The Board undertakes an annual evaluation under a formal, self-evaluation process which was put in place in 2018. This process has led to a number of actions, including improvements to information that the Board receives and the creation of Board led initiatives reviewed regularly at Board meetings. The process focuses closely on objectives and targets for improving performance.
- Promote a corporate culture that is based on ethical values and behaviours
The Group is committed to a culture of equal opportunities for all employees. The Board aims to be diverse in terms of its range of culture, nationality and international experience. In November 2018, Ms Atwell King was appointed as Finance Director, improving the gender balance of the Board, which had previously been all male. If it is agreed to further expand the Board (or if new replacement directors are sought in the future), the Board will, subject to identifying appropriate candidates, consider the balance of the Board in making further appointments.
The Board is acting to strengthen the culture of the business through a process that develops a set of values consistent with the vision and objectives of the Group and flows these down though a set of specific initiatives. These initiatives are driven personally by the Chief Executive and a report on the progress against each initiative is given to the Board each month.
- Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board
The Board has twelve scheduled meetings a year, but meets more frequently if required, and, together with the Audit, Remuneration and Nominations Committees, deals with all important aspects of the Group’s affairs. The Board receives timely information in a form and of a quality appropriate to enable it to discharge its duties. All Board Committees have their own terms of reference, which are available from the Company Secretary.
Audit Committee
The Audit Committee comprises Tim Jackson, who acts as the Chairman, Richard Leaver and Bill Mawer. Tim Jackson is considered to have recent and relevant financial and legal knowledge and experience.
The Audit Committee has three scheduled meetings per year.
The Audit Committee report can be found on page 22 and 23 of the annual report.
Remuneration Committee
The Remuneration Committee comprises Richard Leaver, who acts as the Chairman, Tim Jackson and Bill Mawer.
The Remuneration Committee normally meets at least once a year.
The Remuneration Committee report can be found on pages 25 of the annual report.
Nominations Committee
The Nominations Committee compromises of Bill Mawer, who acts as the Chairman, Tim Jackson and Richard Leaver.
The Nominations Committee normally meets at least once a year.
The Nomination Committee report can be found on page 24 of the annual report.
- Communicate how the Group is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders
The Board recognises that Image Scan communicates with its shareholders principally through its website and the Annual Report. Shareholders can also sign up to receive news releases directly from the Company by email. The Chairman makes himself available to major shareholders on request and periodically attends meetings and gives presentations to shareholders.
The Annual General Meeting of the Company, normally attended by all directors, gives the directors the opportunity to report to shareholders on current and proposed operations and enables the shareholders to express their views of the Group’s business activities. Shareholders are invited to ask questions during the meeting and to meet with directors after the formal proceedings have ended.
The results of voting on all resolutions in future general meetings will be posted to the Group’s website.
The Group communicates with its staff in a number of ways including annual appraisals and monthly staff briefings which have increased to bi- weekly while some staff work from home.
s172 STAKEHOLDER ENGAGEMENT IMPACT STATEMENT
The following disclosure describes how the Directors have acted to promote the success of the company for the benefit of its members as a whole, with regard to the factors set out in section 172(1)(a) to (f) of the Companies Act. When performing their duties under the Act, they have considered the long-term consequences of decisions, matters affecting the Company’s employees and other stakeholder relationships, and the need to act fairly between members of the Company. Furthermore, they have recognised that while companies are run for the benefit of their shareholders, the long-term success of a business is dependent on maintaining relationships with all significant stakeholders. The Board continuously reviews relationships that support the generation and preservation of value in the Company, including those with employees, suppliers, customers and distribution partners, and the Company’s shareholders.
How the Group engages with its key shareholders
|
Stakeholder |
Examples of engagement |
|
Employees |
· Comprehensive induction plan for new joiners · Annual employee review process · Promote engagement through regular company-wide staff briefings (Currently twice a month and include input on Covid 19 mitigation) · Recognition scheme rewarding individual staff for contributions to the Group (instant awards, quarterly awards, annual award) · Workplace improvement scheme |
|
Suppliers |
· Comprehensive and ongoing assessment of all suppliers · Share manufacturing forecasts with key suppliers and set up call-off agreements · Regular engagement with key suppliers to discuss performance · Regular discussions of Covid 19 impact with suppliers |
|
Customers and distribution partners |
· Regular communications of product and pricing information · Comprehensive support and training for partners · Field support services, including 24-hour help-line offered for all products · Periodic customer and partner satisfaction surveys · Targeted marketing campaigns to support partner sales campaigns |
|
Shareholders |
· Biannual reporting of results · Detailed presentation at the Annual General meeting (the most recent meeting included product demonstrations) · Important developments reported through RNS releases · Visits by individual shareholders to the company premises |
Principal decisions linked to our strategy and the stakeholders impacted
|
Decision |
Considerations |
Stakeholders impacted |
|
Setting annual financial budget and periodic updating of forecasts of profit and working capital. |
The Board wanted to set a budget that would deliver good shareholder returns and set a challenging, but realistic, target for staff. The budget set targets for investment in new products and markets, balanced with a conservative approach to the management of cash.
Despite Covid 19, the Board felt it had sufficient confidence in trading to publish a year-end forecast with the interim results, which was updated as the year-end approached.
It was decided, in the light of uncertainty caused by Covid 19, to temporarily suspend guidance for future financial years. These decisions were driven by a desire to be as open as possible with shareholders about the Company’s performance while wanting to avoid constantly changing forecasts as the pandemic developed.
|
Shareholders, employees |
|
New product investments |
The Board focussed on the need to reduce dependence on portable X-ray systems and maximise the benefit of the Company’s extensive route to market. The Board wanted to increase service revenues, which are higher when security screening equipment, such as cabinet and conveyor X-ray systems, are placed in public facilities, as compared with portable X-ray systems which are typically used by specialist bomb squads.
|
All |
|
Signature of partner agreement with Security X-ray company |
Given that it has limited resources at its disposal, the Board chose to pursue a blend of internal product development, and external partnerships to expand its product range. Internal R and D spend would be maintained at a similar level to previous years, with additional products sourced through other means. The agreement announced in the year is with a company with a diverse and competitive security product range, that has experience of working in collaborative relationships. The first product created under the agreement will soon be taken to market. In the longer term additional products will be sourced through this relationship.
|
All |
|
Appointment of sales consultant for North America |
The Board wanted to develop the North American market while bringing in a high level of specialist bomb technician expertise to support the development of both product and market strategy. The costs of this programme have been reduced during the Covid 19 outbreak.
|
All |
|
Response to Covid 19 |
The Board wanted to continue, as far as possible, to deliver systems to its customers, in order to maintain revenue and conserve cash, while protecting staff from infection.
We worked closely with staff, customers, and suppliers to make this possible, creating a Covid-safe environment at the site and having most staff work from home. We selectively used the Government Furlough scheme to support staff salaries in quiet periods and protect jobs. This effort has, so far, been successful. Online staff briefings have been held fortnightly, where both operational and welfare matters have been discussed.
The product development programme has also continued to move forwards, with development staff working partly from home and partly on-site.
We have continued to support our supply chain, working closely with suppliers and paying them on normal terms through this period. |
All |
|
Brexit |
Europe represents a relatively small part of both the Company’s export market and its supply chain. The Board considers the potential implications of Brexit regularly. A significant machined component in the Company’s portable X-ray systems, previously sourced from an EU country has been re-sourced from a UK supplier.
|
All |
|
Appointment of WH Ireland as broker and Nomad |
The decision to change provider was prompted by Cantor Fitzgerald Europe closing its European broker/Nomad operations. The Board wanted to work with a company with real enthusiasm for our business, that was both small enough to focus on us but large enough to help us grow. WHI met these requirements and, so far, the Board is happy with its selection.
|
Shareholders |
|
AGM location |
For the first time, the Board chose to hold the AGM on-site in Barrow rather than in London.
This allowed shareholders to engage with individual staff members, form a deeper overall impression of the Company and see demonstrations of both current and in-development products. Staff benefitted from meeting shareholders and understanding their perspective of the Company. |
Shareholders. Employees |
SHARE DEALING CODE
The Company has adopted a share dealing code for the Directors and certain employees, which is appropriate for a company whose shares are admitted to trading on AIM (including relating to the restrictions on dealings during close periods in accordance with MAR and with Rule 21 of the AIM Rules for Companies) and the Company takes all reasonable steps to ensure compliance with the share dealing code by the Directors and any relevant employees.
ANTI-BRIBERY POLICY
The Group believes that it has robust policies and procedures for combating bribery and corruption which are periodically reviewed.