Corporate Governance

THE QUOTED COMPANY ALLIANCE (QCA) CODE

The Directors recognise the importance of high standards of corporate governance and have chosen to adopt and apply the 2018 Quoted Companies Alliance Corporate Governance Code (the ‘QCA Code’). The QCA Code was developed by the QCA in consultation with a number of significant institutional small company investors, as an alternative corporate governance code applicable to AIM companies. The underlying principle of the QCA Code is that “the purpose of good corporate governance is to ensure that the company is managed in an efficient, effective and entrepreneurial manner for the benefit of all shareholders over the longer term”.

To determine how the Company addresses the key governance principles defined in the QCA Code please refer to the below table which at this stage only highlights the website disclosure requirements. The annual report and accounts disclosures required by the QCA code are not included in the Company’s last annual report and accounts, being the annual report and accounts for the year ended 30 June 2017, as these accounts were published prior to the publication of the QCA Code. The Company intends to include the annual report and accounts disclosures required by the Code in the Company’s next annual report and accounts for the year ended 30 June 2018, which is due to be released in mid-October 2018.

Further information on compliance with the QCA Code will be provided in our next annual report which is due to be released in mid October, 2018

Pat Elliott, Non-executive Chairman

This disclosure was last reviewed and updated on 27 September 2018

THE PRINCIPLES OF THE QUOTED COMPANY ALLIANCE (QCA) CODE

DELIVER GROWTH

QCA Code Principle
Explanation (as set out by QCA)
CAP-XX Compliance

QCA Code Principle

2. Seek to understand and meet shareholder needs and expectations

Explanation (as set out by QCA)

Directors must develop a good understanding of the needs and expectations of all elements of the company’s shareholder base.

The board must manage shareholders’ expectations and should seek to understand the motivations behind shareholder voting decisions.

CAP-XX Compliance

The CAP-XX Board is aware of the need to protect the interests of all shareholders, balancing the interest of minority shareholders with those of institutional shareholders.

The Board regards regular communications with shareholders as one of its key responsibilities. CAP-XX is committed to engaging with shareholders and this effort is led by the Chief Executive Officer.

In order to gauge shareholder sentiment, CAP-XX meets with key institutional shareholders typically every six months and when necessary solicits feedback from its larger shareholders via its broker. CAP-XX welcomes shareholder contact at any time and communications should be sent in the first instance to mailto:investor.relations@cap-xx.com. CAP-XX will generally exercise discretion responding to individual shareholders correspondence but will update the market via regulatory and non-regulatory announcements and via its annual and interim financial reports.

CAP-XX holds an open Q&A session at every Annual General Meeting and attends investor events to engage with retail shareholders.

This communication allows the CAP-XX board to understand the shareholder’s views and to ensure that the strategies and objectives of the Company are aligned with shareholders. In its decision-making, the Board will have regard to the ascertained expectations and needs of its shareholders (as appropriate and in accordance with its statutory and fiduciary duties).

The Board believes the Company’s mode of engaging with shareholders is adequate and effective.

QCA Code Principle

3. Take into account wider stakeholder and social responsibilities and their implications for long-term success

Explanation (as set out by QCA)

Long-term success relies upon good relations with a range of different stakeholder groups both internal (workforce) and external (suppliers, customers, regulators and others). The board needs to identify the company’s stakeholders and understand their needs, interests and expectations.

Where matters that relate to the company’s impact on society, the communities within which it operates or the environment have the potential to affect the company’s ability to deliver shareholder value over the medium to long-term, then those matters must be integrated into the company’s strategy and business model.

Feedback is an essential part of all control mechanisms. Systems need to be in place to solicit, consider and act on feedback from all stakeholder groups.

CAP-XX Compliance

The Directors are aware of its corporate social responsibilities and the impact the CAP-XX business activities have on the communities in which CAP-XX’s businesses operate.

Based on the Director’s business experience and their operational knowledge of the Company, The Directors believe that the key resources and relationships on which the Company relies are the Company’s employees, partners, suppliers, regulatory authorities and contractors. The Company’s operations and working methodologies take into account the need to balance the requirements of all these stakeholder groups while maintaining focus on the Board’s primary responsibility to promote the success of the Company for the benefits of its shareholders.

The executive member of the Board and executive team members holds regular staff group and individual update meetings in order to communicate CAP-XX’s strategy, its progress in achieving targets and to receive feedback and solicit opinion.

The Company endeavors to take account of feedback received from stakeholders, making necessary amendments to working arrangements and operational plans where appropriate and where such amendments are consistent with the Company’s long-term strategy. The CAP-XX board considers the feedback of relevant stakeholders in its decision-making and in the formulation of strategy.

The Company takes due account of any impact that its activities may have on the environment and seeks to minimise this impact whenever possible. Through various procedures and systems that the Company operates, especially in the manufacturing process, the Company ensures full compliance with health and safety and environmental legislation relevant to its activities. CAP-XX is certified to IOS9001:2015

QCA Code Principle

7. Evaluate board performance based on clear and relevant objectives, seeking continuous improvement

Explanation (as set out by QCA)

The board should regularly review the effectiveness of its performance as a unit, as well as that of its committees and the individual directors.

The board performance review may be carried out internally or, ideally, externally facilitated from time to time. The review should identify development or mentoring needs of individual directors or the wider senior management team.

It is healthy for membership of the board to be periodically refreshed. Succession planning is a vital task for boards. No member of the board should become indispensable.

CAP-XX Compliance

At the highest level, the CAP-XX Board judges its own performance by reference to the Company’s progress against targets set out in the Company’s strategic plan. The Board formally evaluates its own performance at least once a year with an assessment of its effectiveness. Areas are identified where improvements can be made, and active steps are taken to make improvements accordingly. This assessment is led by CAP-XX Chairman.

The performance of individual Directors including the Chairman are monitored on an ongoing basis. On an annual basis, the Remuneration Committee evaluates the individual Director’s performance as part of the review of remuneration and share equity grants.

Currently, given the scale and scope of the current CAP-XX operation and the associated risk management framework, the Directors are of the view that a formal evaluation process of the effectiveness of both the Audit and Remuneration Committees is not required at this stage. The need for an evaluation process is to be monitored on an annual basis.

The Board and the Remuneration Committee will also regularly discuss the Board’s balance, the Boards current skills set and remuneration to ensure that the Board structure is fit for purpose and is appropriate for the next phase of CAP-XX’s development and growth.

The Company’s Board including individual directors have not changed materially over the previous years on the basis that the Board are of the view that the above processes are appropriate for the Company’s requirements, given the given the size and nature of the CAP-XX business.

QCA Code Principle

8. Promote a corporate culture that is based on ethical values and behaviours

Explanation (as set out by QCA)

The board should embody and promote a corporate culture that is based on sound ethical values and behaviours and use it as an asset and a source of competitive advantage.

The policy set by the board should be visible in the actions and decisions of the chief executive and the rest of the management team.

Corporate values should guide the objectives and strategy of the company.

The culture should be visible in every aspect of the business, including recruitment, nominations, training and engagement. The performance and reward system should endorse the desired ethical behaviours across all levels of the company.

The corporate culture should be recognisable throughout the disclosures in the annual report, website and any other statements issued by the company.

CAP-XX Compliance

The CAP-XX Board considers that confidence in its integrity can only achieved if its employees and officers conduct themselves ethically in all of their commercial dealings on CAP-XX’s behalf. CAP-XX has therefore recognised that it should actively promote ethical conduct amongst its employees, officers and contractors. CAP-XX has adopted, amongst other policies to promote ethical and responsible decision making, a code of conduct which applies to all directors, officers, employees, consultants and contractors of CAP-XX.

The CAP-XX board and management conduct themselves ethically at all times and promote a culture that is in line with standards set out on the website. CAP-XX values its reputation for ethical behaviour and has a set of values that are at the core of its business philosophy.

QCA Code Principle

9. Maintain governance structures and processes that are fit for purpose and support good decision- making by the board

Explanation (as set out by QCA)

The company should maintain governance structures and processes in line with its corporate culture and appropriate to its:

  • size and complexity; and
  • capacity, appetite and tolerance for risk.

The governance structures should evolve over time in parallel with its objectives, strategy and business model to reflect the development of the company.

CAP-XX Compliance

CAP-XX’s Corporate Governance Statement on page 16 of the Company’s Annual Report for the year ended 30 June 2017 explains the structures which are in place at Board and Committee level and how these interact, including the roles which individual Directors fulfill on the Board. The Company will provide an updated Corporate Governance Statement in its Annual Report for the year ended 30 June 2018. At present, the Board is satisfied with the Company’s corporate governance, given the Company’s size and the nature of its operations, and as such there are no specific plans for changes to the Company’s corporate governance arrangements in the shorter term.

There is a clear separation of the roles of Chief Executive Officer and Non-executive Chairman. The Chairman has overall responsibility for corporate governance matters in the Company, leadership of the board and ensuring its effectiveness on all aspects of its role. The Chief Executive Officer leads the executive team and is responsible for implementing those actions required to deliver on the agreed strategy.

The matters reserved as the responsibilities of the CAP-XX board include:-
• Developing, providing input into and final approval of the Company’s strategic plan;
• Evaluating, approving and monitoring the strategic and financial plans and performance objectives of the Company
• Reviewing, ratifying and monitoring systems of risk management and internal compliance and control, codes of conduct and legal compliance;
• Evaluating and monitoring annual budgets and business plans;
• Ensuring appropriate resources are available to senior management;
• Approving all accounting policies, financial reports and external communications by the Company;
• Appointing, re-appointing or removing CAP-XX’s external auditors; and
• Appointing, monitoring and managing the performance and remuneration of executive directors and senior executives.

Details of the Company’s audit and remuneration committees, including their terms of reference can be found here ,Audit Committee, pdf (756Kb) >

and Remuneration Committee, pdf (462Kb)

Given the Company’s size, the Company has not formed a dedicated nomination committee, as this is a matter that is considered by the Remuneration Committee.

Beneath the Board there is an operational governance framework which facilitates the effective management of the business by an Executive Committee. This organisation structure is kept under continual review and evolves as the needs and requirements of the business changes as it grows and develops.

QCA Code Principle

10. Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders.

Explanation (as set out by QCA)

A healthy dialogue should exist between the board and all of its stakeholders, including shareholders, to enable all interested parties to come to informed decisions about the company.

In particular, appropriate communication and reporting structure should exist between the board and all constituent parts of its shareholder base. This will assist:

  • the communication of shareholders’ views to the board; and
  • the shareholders’ understanding of the unique circumstances and constraints faced by the company.

It should be clear where these communication practices are described (annual report or website).

CAP-XX Compliance

The Company’s governance structure is explained through the Corporate Governance Statement which is available on the CAP-XX website and is supplemented by the disclosures provided in this compliance statement and explanations set out in the “Corporate Governance” section of the CAP-XX Annual Report for the year ended 30 June 2018

The communication and interaction between CAP-XX and its shareholders are explained in the disclosure above (see principle 2).

Audit and Remuneration Committee’s membership and responsibilities are included in the CAP-XX Annual Report for the year ended 30 June 2018 as well as the full disclosure of CAP-XX Directors remuneration.

Historical Annual and Interim Reports with all notices, circulars and results of resolutions since the Company’s ordinary shares were admitted to trading in April 2006 can also be found on the CAP-XX website (available here https://www.cap-xx.com/investors/financial-performance/).

The Board does not intend to post detailed voting results from general meetings on the website. If specific voting results are required by stakeholders, requests should be directed to the Board for their consideration.

Terms and references