The Board recognises that the highest standards of corporate governance are key to managing Pennon Group successfully in the best interests of its shareholders and other stakeholders.
The Annual Report continues to be the principal means of reporting to our shareholders on the Boards governance policies. This Report sets out how the main and supporting principles of good corporate governance set out in the UK Corporate Governance Code (2010 Edition) have been applied in practice. The Code is publicly available on the Financial Reporting Council (FRC) website www.frcpublications.com.
Chairman's introduction to Corporate Governance
Role of the Board and its effectiveness
My primary role as Chairman is to provide leadership to the Board and to provide the right environment to enable the Directors and the Board as a whole to perform effectively to promote the success of the Company for the benefit of its shareholders. In doing so we take account of the interests of our customers, employees, suppliers, communities in which we operate and other interested stakeholders.
I continue to firmly believe that we have good governance in place and that we operate effectively as a Board. However there is always room for improvement and each year we carry out a detailed performance evaluation of the Board and each of the Committees as well as of the Directors and the Group General Counsel & Company Secretary. Further details of the review, which was again facilitated by an external governance consultancy, are set out below. I remain mindful of the need to ensure that the Non-executive Directors continue to have appropriate up to date knowledge and understanding of both South West Water and Viridor as they develop and pursue new initiatives.
In 2012/13 the Board has received presentations from senior management on material developments in the businesses including waste and renewable energy policy developments; our energy from waste plant projects; and regulatory and legislative changes proposed by Ofwat and Government. The Board has also visited new plants under construction in the Greater Manchester area to obtain first hand knowledge of the projects.
The Board and the Remuneration Committee remain mindful of shareholder and Government concerns regarding companies' remuneration practices.
We have always pursued a remuneration policy of setting pay at a level which is adequate to attract and retain high calibre management and providing incentives which are fully aligned with creating shareholder value. We have reviewed our pay and benefits practice again this year and are satisfied that no changes are necessary to this policy.
The Directors and I recognise the importance and value of regular communications with our shareholders.
This ensures that we understand their needs and wishes and hopefully that we provide them with confidence that we have the right governance structures, processes and systems in place to assist us in achieving our stated objectives.
A regular dialogue with the Company's institutional shareholders is maintained through a comprehensive investor relations programme. During the year some 70 meetings with institutional shareholders and prospective shareholders were held and attended by the Group Director of Finance and the Company's Investor Relations Manager. The Chief Executive of South West Water and the Chief Executive of Viridor also participated when appropriate. The Group Director of Finance continues to report to the Board regularly on major shareholders views about the Group and every six months the Company's brokers give a presentation to the Board on equity market developments and shareholder perceptions.I also actively encourage the participation of shareholders at our Annual General Meeting.
Compliance with UK Corporate Governance Code and other requirements
I am pleased to report that throughout 2012/13 the Company complied with the provisions and applied the main principles set out in the UK Corporate Governance Code (2010 Edition) with no exceptions to report. The Code was revised in September 2012 to apply to companies financial years beginning on or after 1 October 2012. We believe we are also compliant with the revised Code but it will not formally apply to our reporting to shareholders until 2013/14.
The Directors, their independence and responsibilities
The Board of Directors at the end of 2012/13 comprised the Chairman, three Executive Directors and four Non-executive Directors. All of the Non-executive Directors were considered by the Board to be independent throughout the year. None of the relationships or circumstances set out in provision B.1.1 of the UK Corporate Governance Code (2010 Edition) (the Code) applied to them other than in respect of Dinah Nichols who, following the Annual General Meeting last year, had served on the Board for more than nine years since her first election. Following the 2013 Annual General Meeting and subject to re-election, Gerard Connell will also have served on the Board for more than nine years since his first election. However Dinah and Gerard have been determined by the Board to be independent. The Board is satisfied that they do and will continue to demonstrate independence of character and judgement in the performance of their roles on the Board.
In accordance with the Boards planned succession process, as reported in 2011/12, Dinah Nichols will be retiring from the Board at the close of the 2013 Annual General Meeting and Gerard Connell will retire at the close of the Annual General Meeting in 2014.
All of the Non-executive Directors are considered to have the appropriate skills, experience in their respective disciplines and personality to bring independent and objective judgement to the Board's deliberations. Their biographies on pages 62 and 63 of the Pennon Annual Report and Accounts 2013 (AR 2013) demonstrate collectively a broad range of business, financial and other relevant experience. Gerard Connell is the Senior Independent Non-executive Director. His duties include leading the annual evaluation of the performance of the Chairman by the Non-executive Directors and being available as an additional point of contact on the Board for shareholders. Gerard is also chairman of the Audit Committee and in accordance with the Codes principles relating to audit committee membership he has recent and relevant financial experience (as set out in his biography). Martin Angle is also a member of the Audit Committee and he has relevant financial experience as set out in his biography.
There is a clear division of responsibilities between the roles of Chairman and the Chief Executives of South West Water and Viridor as recorded in the descriptions of the roles approved by the Board. All Directors are now subject to re-election each year in accordance with provision B.7.1 of the Code.
All Directors are equally accountable for the proper stewardship of the Group's affairs with the Non-executive Directors having a particular responsibility for ensuring that strategies proposed for the development of the business are critically reviewed. The Non-executive Directors also critically examine the operational and financial performance of the Group and fulfil a key role in corporate accountability through their membership of the Committees of the Board. In addition the Chairman holds meetings with the Non-executive Directors, without the Executive Directors present, to discuss performance and strategic issues.
How the Board operates
In accordance with Group policies the Board has a schedule of matters reserved for its decision and delegates more detailed consideration of certain matters to Board Committees; to the subsidiary boards of South West Water and Viridor; to the Executive Directors; and to the Group General Counsel & Company Secretary, as appropriate. The matters reserved to the Board include the approval of financial statements; acquisitions and disposals; major items of capital expenditure; authority levels for other expenditure; risk management; and approval of the strategic plan and annual operating budgets.
The Board operates by receiving written reports circulated in advance of its meetings from the Executive Directors and the Group General Counsel & Company Secretary on matters within their respective business areas in the Group.
Under the guidance of the Chairman all matters before the Board are discussed openly and presentations and advice are received frequently from other senior executives within the Group and from external advisers.
Directors have access to the advice and services of the Group General Counsel & Company Secretary and the Board has established a procedure whereby Directors, in order to fulfil their duties, may seek independent professional advice at the Company's expense.
The training needs of Directors are reviewed as part of the Boards performance evaluation process each year.
The Board has well developed internal procedures to evaluate the performance of the whole Board, each Committee, the Chairman, each individual Director and the Group General Counsel & Company Secretary. The evaluation procedure relating to the Board and its Committees was once again administered by an external governance consultancy, Lintstock. All participants views were sought via an online questionnaire on a range of questions which were specifically designed by the Chairman and the Group General Counsel and Company Secretary in conjunction with Lintstock to ensure objective evaluation of performance. Responses were then summarised and evaluated by Lintstock for the Board and each Committee to consider and determine whether any changes should be made to be more effective.
The Board considered the findings of the evaluation and, while performance was again considered to be satisfactory overall, a number of areas were identified where enhancements to Board practice could be made. These included more liaison with subsidiary boards and allocating more time for strategic discussion and presentations from management on key business issues. The Board will be monitoring implementation of these enhancements over the coming months to ensure that they are successfully implemented.
The Chairman's performance was evaluated separately by the Non-executive Directors, led by the Senior Independent Non-executive Director. The Chairman's other significant commitments outside the Group did not change during 2012/13 and the Board was satisfied that such commitments did not prejudice the Chairman's performance in relation to his Group role. He will be relinquishing his non-executive directorship on the Board of National Grid.
Dealing with Directors' conflicts of interest
The Board has in place a procedure for the consideration and authorisation of Directors conflicts or possible conflicts with the Company's interests. This is in accordance with the Directors' interests provisions of the Companies Act 2006 and the Companys Articles of Association which grants to Directors authority to approve such conflicts subject to appropriate conditions.
Group policies allocate the tasks of giving detailed consideration to specified matters, to monitoring executive actions and to assessing reward, to the Board Committees as set out in the remaining sections of this corporate governance report.
Board Committees' Terms of Reference
The Terms of Reference of each of the Audit, Remuneration, Nomination and Sustainability Committees are set out on the Companys website www.pennon-group.co.uk or available upon request to the Group Company Secretary.
The Audit Committee
Our activities during 2012/13
A continuing focus has been reviewing the systems and controls in place in Viridor to manage its complex and regionalised businesses across the UK. Viridor has been re-assessing and enhancing its processes and controls, including planning for the development of a new suite of IT systems, to manage the strong growth expected from its energy from waste plants, its recycling businesses and its major contracts with waste authorities. The Committee was pleased to note, for example, that audit review of the self-assessment processes implemented at site level and a focus on the control responsibilities of local business managers have together contributed to an enhancement of the quality of the risk assessment and monitoring within Viridors regional activities.
Towards the year-end there was particular focus on the impairment review in Viridor. The Committee reviewed and challenged the key assumptions on which cashflow projections were based and considered a number of alternative scenarios with appropriate sensitivity analysis, to test the appropriateness and prudence of management estimates. Key issues debated included discount rates and the determination of cash generating units.
At Group level the going concern position was reviewed and it was concluded that there was a reasonable expectation that the Group had adequate resources to continue its operations for the foreseeable future.
In South West Water the emphasis has been on continuing to improve the efficiency of its systems whilst ensuring that risks are being appropriately assessed and controls in place are operating satisfactorily. The Committee was pleased to note that South West Water reviewed and refreshed its risk assessment and internal control processes during the year in preparation for revised reporting protocols to Ofwat and its next Periodic Review in 2015.
We also re-assessed our overall Group risk review processes during the year bearing in mind that it was 12 years since the Group introduced detailed risk management policies and procedures in accordance with the Turnbull Recommendations. Deloitte undertook a full review and, whilst concluding that the Groups risk culture and processes were generally satisfactory, made a number of recommendations to enable more focused attention on key risks at Board level. As part of the Groups risk review process the key areas of sensitivity to the Group have been reassessed and these are set out on pages 36 to 47. We have concentrated on the high level key risks to the Group and have, where appropriate, provided an indication of how the level of risk has changed over the past year.
As reported in previous Annual Reports we continue to monitor carefully the effectiveness of our external auditors as well as their independence, bearing in mind that it is recognised there is an ongoing need to use our auditors firm for non-audit services.
We have full regard to the Auditing Practices Boards Ethical Standards and ensure that our procedures and safeguards meet these standards.
Periodically a detailed review of the provision of external auditors is undertaken in accordance with best practice and in line with the latest edition (September 2012) UK Corporate Governance Code it is now our policy to review the external auditor appointment by putting it out to tender at least every 10 years. The last such review was undertaken in 2006 when the current auditors were appointed following a comprehensive competitive tender process. In addition the auditors' appointment is reviewed annually by the Committee. As part of this annual review the Committee considers the tenure, quality and fees of the auditors.
Our policy for the engagement of the auditors firm for non-audit work involves the Group Director of Finance setting out in a report to the Committee the reasons for appointing the auditors firm for any material work and obtaining the approval of the Committee. We carefully review whether it is necessary for the auditors firm to carry out such work and we will only grant approval for their appointment if we are satisfied that the auditors independence and objectivity are fully safeguarded.
The Company's auditors assist in this process by ensuring that the senior partner responsible for the external audit of the Group remains responsible for such audit for no more than five years and that there is a Quality Review Partner who is involved in planning the audit and in the reviewing of the final accounts of the Company including assessing any critical matters which may be identified in the audit.
The auditors have also confirmed to the Committee that they have complied with all relevant guidance issued by the Auditing Practices Board and have implemented appropriate safeguards including:
- All non-audit related services, where necessary, being performed by personnel independent of the audit engagement team
- No work being undertaken that would require the auditors to act in a capacity as an advocate
- No aspect of the auditing engagement partners performance being assessed on the level of non-audit fees charged to the Company
- The Committee Chairman meeting with the auditors independent senior partner periodically to discuss the scope and performance of their work.
- Set out on page 103 of the AR 2013 is the level of fees paid to the Company's auditors firm for audit services, or audit-related services and non-audit services, following the guidance proposed by the Auditing Practices Boards Ethical Standards Guidance for Auditors.
It is recognised that the level of non-audit fees payable to the Company's auditors firm in the past year was in excess of the audit fee paid. This was primarily due to fees paid to the corporate finance arm of the auditors firm in relation to the major new PPP contract gains by Viridor. We considered carefully the reasons for the engagement of the auditors firm in accordance with the process described above. Of paramount importance was the continuing independence of the auditors which the Committee was satisfied was maintained due to the safeguards followed by the auditors firm as described above.
We were also satisfied that it was appropriate to appoint the auditors firm to undertake such work because of their specialist knowledge and the limited number of consultants with the expertise to undertake such engagements.
These PPP contracts are of vital importance to the long-term strategic development of Viridor and it is critical that Viridor should be able to benefit from the best advice available in the market. The number of PPP contract opportunities is now declining which should lead to a corresponding decline in corporate finance fees payable.
Another area of particular importance to the Committee is the internal audit activities of the Group. The Group has a longstanding and effective centralised internal audit function led by an experienced head of function who makes a significant contribution to the ability of the Audit Committee to deliver its responsibilities.
A Group Internal Audit Plan is approved in September each year. It takes account of the activities to be undertaken by the external auditor and also the Group's annual and ongoing risk management reviews. This approach seeks to ensure that there is a programme of internal and external audit reviews focused on key risk areas throughout the Group.
The Group Audit Manager reports quarterly to the Committee on audit reviews undertaken and their findings and there are regular informal discussions and meetings between the Group Audit Manager and the Audit Committee Chairman.
The areas of the business that received attention from Group Internal Audit over the past year included:
- Pennon - group treasury and group insurance
- Viridor - acquisitions and due diligence; recycling including trading and foreign exchange management; Lakeside EfW; core sales processes including landfill and collections; and environmental provisions
- South West Water - core income and billing processes; bank payment processes; developer services and new connections; business development & sales ledger; reactive maintenance; and credit management.
We have also considered a range of matters during the year in accordance with our established calendar of business and Terms of Reference including in particular:
- Reviewing the accounting policies and reporting judgements adopted by the Group in preparing the financial statements. We were satisfied that they were appropriate to provide a fair assessment of the financial performance of the Group
- Agreeing the external auditors strategy for carrying out the audit during the past financial year
- Carrying out a review of the Half Yearly Report with the external auditors
- Considering a report from the external auditors on the review of the financial year-end and meeting them in the absence of management to discuss their remit and any issues arising from the audit, including managements treatment of significant judgements which the auditors had confirmed (following discussion with management) were considered to be satisfactory
- Reviewing the effectiveness of the Groups internal controls, including all material financial, operational and compliance controls and risk management systems
- Monitoring and reviewing the effectiveness of the Groups internal audit function and approving the annual internal audit plan
- Reviewing the findings of the internal audit function and reviewing and monitoring managements responsiveness to such findings
- Overseeing the relationship with the external auditors including their appointment, remuneration, re-appointment and the monitoring of their independence and objectivity particularly having regard to the supply of any non-audit services by the auditors firm
- Reviewing the level of audit and non-audit fees paid.
After consideration of the reports provided by the external auditors, and our assessment of the performance and independence of the auditors during the year in conjunction with the Group Director of Finance, we consider that it is appropriate that the external auditors be re-appointed and will make an appropriate recommendation to shareholders at the Annual General Meeting.
It is our practice as an additional assurance, at the end of meetings of the Committee, to hold separate meetings with the external auditors and the internal Group Audit Manager without management present to discuss their respective areas of activity during the previous period and any issues arising from their respective audits.
The Sustainability Committee
The Sustainability Committees duties, in the context of the requirement for companies to conduct their business in a responsible manner (in relation to environmental, social and governance (ESG) matters), are to review the strategies, policies, management, initiatives, targets and performance of the Pennon Group of companies in the areas of occupational health and safety and security; environment; workplace policies; non-financial regulatory compliance and the role of the Group in society.
During 2012/13 the Committee considered a wide range of matters in accordance with its Terms of Reference including:
- developments and progress in carbon management and reduction
- driving sustainability through the Groups supply chains
- increasing the sustainability of the Groups transport fleet and operations
- the impact of the Groups charitable donations and community support
- the Groups health and safety performance and plans
- the Groups workplace policies and performance, including diversity and equality of opportunity, employee training and development, opportunities including apprenticeship schemes and the Viridor in-house degree.
In addition the Committee considered:
- The 2012/13 Group, South West Water and Viridor sustainability reports; and the associated verifiers reports for 2012/13 and his recommendations for the 2013/14 Reports
- Progress against the sustainability targets for 2012/13
- Sustainability targets for 2013/14
- The annual review of the coverage and appropriateness of Group policies.
In reporting on sustainability, the Company has sought to comply with the Association of British Insurers Guidelines on Responsible Investment Disclosure. The business review on pages 48 to 57 of the AR 2013 contains the Group's 2013 annual sustainability report.
The Nomination Committee
The Nomination Committee meets as and when required to select and recommend to the Board suitable candidates for appointment as Executive and Non-executive Directors to the Board and to the Viridor and South West Water boards, determine the nomination process and review succession plans. It is the practice of the Committee, led by the Chairman, to appoint an external search consultancy to assist in any Board appointments.
During 2012/13 the Committee considered the annual performance evaluation results for the Committee; considered and approved the appointment of an executive director to the Viridor board and a non-executive director to the Board, both with the assistance of external search consultants (KORN/FERRY Whitehead Mann and Norman Broadbent respectively) who have no other connection with the Company; reviewed succession plans throughout the Group; and commenced the process, with the assistance of an external search consultant, (Zygos) which has no other connection with the Company, for the appointment of a successor to the Chief Executive, Viridor, who is due to retire from his post when an appointment has been made (currently expected to be September 2013).
The Board's diversity policy
In accordance with the UK Corporate Governance Code (2010 edition) the Committee is pleased to report that the Board has a Boardroom Diversity Policy which confirms that the Board is committed to:
The search for Board candidates being conducted, and appointments made, on merit, against objective criteria and with due regard for the benefits of diversity on the Board, including gender
Satisfying itself that plans are in place for orderly succession of appointments to the Board and to senior management to maintain an appropriate balance of skills and experience within the Group and on the Board and to ensure progressive refreshing of the Board. In addition, within the spirit of Principle B.2 of the Code, the Board will endeavour to achieve and subsequently maintain:
- A minimum of 25% female representation on the Board by 2015
- A minimum of 25% female representation on the Groups senior management team by 2015.
Currently the Group has 25% female representation at Board level although this will reduce to 14% when Dinah Nichols retires from the Board after this years Annual General Meeting. In a workforce of around 4,500 at 31 March 2013 around 16% were women. In senior/middle management executive positions the female representation was around 16%.
As well as its Boardroom Diversity Policy the Group has a number of policies embracing workplace matters, including non-discrimination and equal opportunities policies.
The Committee is required by the Board to review and monitor compliance with the Boardroom Diversity Policy and report on the targets, achievement against those targets and overall compliance in the Annual Report each year.
The Remuneration Committee
The Committees Terms of Reference include:
- Advising the Board on the framework of executive remuneration for the Group
- Determining the remuneration and terms of engagement of the Chairman, the Executive Directors and senior management of the Group.
No Director or any other attendee participates in any discussion on, or determination of, his or her own remuneration.
During 2012/13 the Committee received advice or services which materially assisted the Committee in the consideration of remuneration matters from Ken Harvey, Chairman of the Company, and from the following advisors who were appointed directly by the Committee:
Ken Woodier, Group General Counsel & Company Secretary, on remuneration and share scheme matters. He also provides legal advice and company secretarial services to the Company
Deloitte LLP, remuneration consultants, on calculating the Company's total shareholder return compared with two comparator groups for the Company's Performance and Co-investment Plan and subsequent to the year-end Deloitte provided advice to the Committee on the form of the Directors remuneration report and on remuneration trends. Deloitte also provided tax and corporate structure and risk management review advice to the Company during the year
Aon Hewitt Limited, pensions and remuneration consultants, on providing advice on pension benefits. Aon Hewitt also provided actuarial advice to the Company and to the Trustees of the Groups pension schemes.
Wider aspects of internal control
The Board is responsible for maintaining the Groups system of internal control to safeguard shareholders investment and the Groups assets and for reviewing its effectiveness. The system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. There is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group that has been in place throughout 2012/13 and up to the date of the approval of this Annual Report and Accounts.
The Board confirms that it continues to apply procedures in accordance with the UK Corporate Governance Code and the Guidance on Internal Control (The Turnbull Guidance) which suggests means of applying the internal control part of the Code. As part of these procedures the Board has a Group Risk Management Policy which provides for the identification of key risks in relation to the achievement of the business objectives of the Group, monitoring of such risks and annual evaluation of the overall process, as described in more detail below. The Policy is applied by all business units within the Group in accordance with an annual timetable.
A full risk and control assessment is undertaken annually by the management of each business to identify financial and non-financial risks which are then regularly updated. Each business compiles (as part of regular management reports) an enhanced and focused assessment of key risks against corporate objectives. At each meeting the Board receives from the Executive Directors details of any new high-level risks identified and how they are to be managed, together with details of any changes to existing risks and their management. The subsidiary boards of South West Water and Viridor also receive at each meeting similar reports in respect of their own areas of responsibility. In addition the Group Director of Finance is responsible for monitoring the Group Risk Register and for reporting on key risks and how they are managed at regular intervals to the Audit Committee and to the Board.
All Executive Directors and senior managers are required to certify on an annual basis that they have effective controls in place to manage risks and to operate in compliance with legislation and Group procedures.
We also have a Whistleblowing Policy and we thoroughly investigate any allegations of misconduct and irregularity and consider the implications for our control environment. In the normal course of business investigations into irregularities may be ongoing as of the date of the approval of the financial statements.
All of these processes serve to ensure that a culture of effective control and risk management is embedded within the organisation and that the Group is in a position to react appropriately to new risks as they arise. Details of key risks affecting the Group are set out in the business review on pages 36 to 47 of the AR 2013.
Internal control framework
The Group also has a well established internal control framework which is operated and which applies in relation to the process for preparing the Groups consolidated accounts.
This framework comprises:
- A clearly defined structure which delegates an appropriate level of authority, responsibility and accountability, including responsibility for internal financial control, to management of operating units
- A comprehensive budgeting and reporting function with an annual budget approved by the Board of Directors, which also monitors the financial reporting process, monthly results and updated forecasts for the year against budget
- Documented financial control procedures. Managers of operating units are required to confirm annually that they have adequate financial controls in operation and to report all material areas of financial risk. Compliance with procedures is reviewed and tested by the Company's internal audit function
- An investment appraisal process for evaluating proposals for all major capital expenditure and acquisitions, with defined levels of approval and a system for monitoring the progress of capital projects
- A post-investment evaluation process for major capital expenditure and acquisitions to assess the success of the project and learn any lessons to be applied to future projects.
Internal control review
An evaluation of the effectiveness of overall internal control compliance by the Group is undertaken in respect of each financial year (and subsequently up to the date of this report) to assist the Audit Committee in considering the Group internal audit plan for the forthcoming financial year and also the business review for the Annual Report. The Group General Counsel & Company Secretary initially carries out the evaluation with Directors and senior management for consideration by the Audit Committee and subsequently for final evaluation by the Board.
In addition the Audit committee regularly reviews the operation and effectiveness of the internal control framework and annually reviews the scope of work, authority and resources of the Company's internal audit function. The Committee reports and makes recommendations to the Board on such reviews. For 2012/13 and up to the date of the approval of the Annual Report and Accounts, both the Audit Committee and the Board were satisfied with the effectiveness of the Group Risk Management Policy and the internal control framework and their operation within the Group.
Further information on the internal control review is set out above in the section on the Audit Committee.
Having considered the Groups funding position and financial projections the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements.
Directors' responsibilities statements
The Directors are responsible for preparing the Annual Report, the Directors remuneration report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for the year.
In preparing these financial statements the Directors are required to:
- Select suitable accounting policies and then apply them consistently
- Make judgements and accounting estimates which are reasonable and prudent
- State whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements.
- The Directors confirm that they have complied with the above requirements in preparing the financial statements.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the financial statements and the Directors remuneration report comply with the Companies Act 2006 and, as regards the Group financial statements, article 4 of the International Accounting Standards (IAS) Regulation. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Each of the Directors, whose names and functions are listed on pages 62 and 63 of the AR 2013, confirms that, to the best of his or her knowledge:
a) The financial statements, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group and of the Company, and
b) The Directors report contained on pages 4 to 59 includes a fair review of the development and performance of the business and position of the Company and the Group, together with a description of the principal risks and uncertainties they face.
The Directors are responsible for the maintenance and integrity of the Company's website pennon-group.co.uk Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Corporate governance statements
The following disclosures are made pursuant to Part 6 of Schedule 7 of the Large and Medium-sized Companies and Groups (Accounts & Reports) Regulations 2008 and Rule 7.2.3.R of the UK Listing Authoritys Disclosure and Transparency Rules (DTR).
As at 31 March 2013:
a) Details of the Company's issued share capital, which consists of Ordinary shares of nominal value 40.7 pence each, are set out in note 33 to the financial statements on pages 131 to 133 of the AR 2013. All of the Company's issued shares are fully paid up, rank equally in all respects and are listed on the Official List and traded on the London Stock Exchange. The rights and obligations attaching to the Company's shares, in addition to those conferred on their holders by law, are set out in the Company's Articles of Association (Articles), copies of which can be obtained from Companies House in the UK or by writing to the Group Company Secretary at the Company's registered office.
The holders of the Company's shares are entitled to receive the Company's reports and accounts and in relation to general meetings of the Company they have the right to attend and speak, exercise voting rights and appoint proxies;
b) There are no restrictions on the transfer of issued shares of the Company or on the exercise of voting rights attached to them, except where the Company has exercised its right to suspend their voting rights or to prohibit their transfer following the omission of their holder or any person interested in them to provide the Company with information requested by it in accordance with Part 22 of the Companies Act 2006 or where their holder is precluded from exercising voting rights by the Financial Conduct Authority's Listing Rules or the City Code on Takeovers and Mergers;
c) Details of significant direct or indirect holdings of securities of the Company are set out in the shareholder analysis on page 144 of the AR 2013;
d) The Company's rules about the appointment and replacement of Directors are contained in the Articles and accord with usual English company law provisions. The powers of directors are determined by UK legislation and the Articles in force from time to time. Changes to the Articles must be approved by the Company's shareholders by passing a special resolution;
e) The Directors have the power to make purchases of the Companys own shares in issue as set out in the Directors report on page 59 'Purchase of own Ordinary shares.' No such purchases have been made during the year. The Directors also have the authority to allot shares up to an aggregate nominal value of: (i) 49,141,234 (such amount to be reduced by any shares allotted or rights granted under (ii) below in excess of 49,141,234) or; (ii) 98,282,468 by way of rights issue (such amount to be reduced by any shares allotted or rights granted from (i)) above) which were approved by shareholders at the 2012 Annual General Meeting (AGM). In addition, shareholders approved a resolution giving the Directors a limited authority to allot shares for cash other than pro rata to existing shareholders. These resolutions remain valid until the conclusion of this year's AGM. Similar resolutions will be proposed at this year's AGM. The Directors have no present intention to issue Ordinary shares other than pursuant to the Company's employee share schemes and Scrip Dividend Alternative; and
f) There are a number of agreements which take effect, alter or terminate upon a change of control of the Company following a takeover bid, such as bank loan agreements, Eurobond documentation, hybrid capital securities documentation, private placement debt and employees share plans. None of these is considered to be significant in terms of their potential impact on the business of the Group as a whole.