CHAIRMAN'S CORPORATE GOVERNANCE STATEMENT
9 March 2020
As Chairman of the Board of Directors of Haydale Graphene Industries Plc (Haydale or the Company/Group as the context requires), it is my responsibility to ensure that Haydale has both sound corporate governance and an effective Board. This is achieved by maintaining a corporate governance framework that includes regular meetings of the Board and its committees, with informative, relevant and timely management information flow. We have introduced effective Board evaluation practices and will carry out a regular review of our governance processes to ensure we are constantly improving. The Board members have extensive experience of managing AIM Companies, including detailed knowledge of the AIM Rules and the Market Abuse Regulations. Haydale has decided to adopt the Quoted Companies Alliance Corporate Governance Code (QCA Code) and this report follows the structure of these guidelines and explains how we have applied the guidance. The Board considers that the Group complies with the QCA Code in all respects. A full overview of the Company's compliance with the QCA Code is provided below.
The Board believes that corporate governance is more than just a set of guidelines; rather it is a framework for running the business which is underpinned by the core values in which we believe, including a commitment to open and transparent communications with stakeholders. We believe that good corporate governance improves long-term success and performance, whilst reducing or mitigating risks.
Changes that have been made to the Board's composition that have had an impact on our corporate governance framework in the last 12 months, include:
- The appointment of Laura Redman-Thomas as Chief Financial Officer in December 2018 and subsequent resignation in November 2019; and
- The appointment of Mark Chapman as Group Chief Financial Officer in November 2019.
Board changes are discussed with the Company's major shareholders in advance, where possible. The members of the Nominations Committee are myself (David Banks), as Chair, Graham Eves and Roger Humm. As part of our adoption of the QCA Code, we are in the planning stages of adopting a Group-wide employee evaluation process, including the Board, and an employee engagement survey. This is now expected to commence before the end of our current financial year, being 30 June 2020.
Below are the Company's explanations of how it complies with the 10 principles of the QCA.
1. Establish a strategy and business model which promotes long-term value for shareholders
The Board has concluded that the highest medium and long-term value can be delivered to its shareholders by the adoption of a single strategy for the Company: To use our knowledge of advanced materials and dispersion to be one of the World's foremost creators of material change, enabling our customers to improve the performance of their products. To achieve this vision, the Company aims to grow organically and, if necessary, by acquisition to extend the Group's client base and geographical penetration and use its existing expertise and global reach to generate synergies in the high growth advanced materials industry. Haydale's business model is set out with the Strategic Report on pages 3-10 of its 2019 Annual Report.
The Company intends to deliver shareholder returns initially through capital appreciation and eventually through distributions via dividends. Challenges to the execution of the Company's strategy are set out within the Strategic Report contained in the Company's 2019 Annual Report and its principal risks are set out on pages 9-10 of that report.
2. Seek to understand and meet shareholder needs and expectations
The Board is committed to maintaining good communication and having constructive dialogue with its shareholders by providing effective communications through our Interim and Annual Reports along with Regulatory News Service announcements. We also use the Company's website www.haydale.com for both financial and general news relevant to shareholders.
The Directors meet shareholders and other investors or potential investors at regular intervals during the year, especially during the Annual and Interim Results cycles. The Company also hosts broker and analyst meetings. David Banks is the Director appointed as the main point of contact for shareholder liaison. The Directors respond to all shareholder requests for meetings and take on board shareholder views. Roger Humm, the Senior Independent Non-executive Director (SID), will carry out shareholder liaison if the Chairman is not available or as an alternative.
The Board keeps in mind the proportions of direct, nominee and institutional shareholders, and distributes communications accordingly. The whole Board attends the AGM. The AGM is regarded as an opportunity to meet, listen and present to shareholders and shareholders are encouraged to attend. In addition, the Company seeks feedback from key stakeholders, taking action where appropriate.
The Company's broker and nominated advisor, Arden Partners, is briefed regularly and updates the Board during the year on shareholders’ expectations.
In addition, the Company has engaged Hardman & Co to publish research on the Company that can be distributed to both private and institutional existing and potential shareholders.
3. Take into account wider stakeholder and social responsibilities and their implications for long-term success
The Board recognises that the long-term success of the Company is reliant upon the efforts of the employees of the Company and its collaboration partners, suppliers, regulators and other stakeholders. The Board has put in place a range of processes and systems to ensure that there is close oversight and contact with its key resources and relationships. The Company prepares a detailed budget annually which takes into account the Group's long-term strategy and its available key resources including staffing, working capital, production capacity and functionalisation capabilities.
Everyone within the Group is a valued member of the team, and our aim is to help every individual achieve their full potential. We offer equal opportunities regardless of race, gender, gender identity or reassignment, age, disability, religion or sexual orientation. The Group is in the process of implementing a Company-wide policy to conduct employee engagement surveys, commencing before the end of June 2020, which will seek to understand any issues within the workforce.
In depth analysis and reviews of each business units budgeted business plans are agreed at the start of each financial year, with contributions from all involved parties which facilitates a two-way communication channel with agreement on goals, targets and aspirations of the Company and its related parties. This provides each strategic business unit with the opportunity to raise issues and provide feedback to the Board. These feedback processes help to ensure that the Company can respond to new issues and opportunities that arise to further the success of the Group.
The Company has close ongoing relationships with a broad range of its stakeholders and provides them with the opportunity to raise issues and provide feedback to the Company. The Company seeks regular feedback from industries' participants, such as customers, graphene producers, R&D facilities, including universities and academic institutions which broadens communication and the opportunity for feedback whilst simultaneously embracing influential movers within the advanced materials industry, and determining Company perception. Feedback received from stakeholders is reviewed, considered, and if changes are required, actioned appropriately.
The Directors believe that the Group does not have a significant environmental or community impact and will continue to monitor and will take action if this changes in the future.
4. Embed effective risk management, considering both opportunities and threats, throughout the organisation
The Board recognises the need for an effective and well-defined risk management process, and whilst it oversees and regularly reviews the current risk management and internal control mechanisms, has delegated this responsibility primarily to the Audit Committee and senior management. The Company has adopted a risk register, which is reviewed regularly by senior management and the Audit Committee. The 2019 Annual Report also outlines the key risks to the business, see pages 9-10. The status of the key risks to the Company will be shared regularly with the Board, and the Board intends to thoroughly review the Company's risk register to the Company on an annual basis.
The review process involves the identification of risks, assessment to determine the relative likelihood of them impacting the business and the potential severity of the impact and determination of what needs to be done to manage them effectively. Risk management is integral to the ability of the Group to deliver on its strategic objectives.
The system of internal control is structured around an assessment of the various risks to the business and is designed to address those risks that the Board considers to be material, to safeguard assets against unauthorised use or disposition and to maintain proper accounting records which produce reliable financial and management information. The Board has established appropriate reporting and control mechanisms to ensure the effectiveness of its control systems.
The risk assessment matrix below sets out these risks, categorises said risks, and outlines the controls that are in place. This matrix is updated as changes arise in the nature of risks or the controls that are implemented to mitigate them. The Audit Committee reviews the risk matrix and the effectiveness of scenario testing on a regular basis. The following principal risks and controls to mitigate them, have been identified:
|Internal Risk||Slower adoption by customers than expected of the Group's newly developed advanced materials||Lower than expected cash inflows and consequently lower revenues and profits||The Company has recently restructured its senior management team to split out business development from operations with the intention of improving management information to enable improved business decisions. Considerable customer facing and operational experience exists at Board level.|
|Internal Risk||Contractual Liabilities risk||Uncapped liability or consequential losses (unquantifiable) exist||The Group delegated authority matrix ensures senior executives review all contracts, and any high-risk contracts are approved at Board level.|
|Internal Risk||Inadequate insurance cover||P&L Exposure||There is an annual review of insurance policies and risks. The insurance risk is also assessed when there is any material change in the business and its operations.|
|Internal Risk||Dependence on Key Personnel||The loss of services of any existing key executives could adversely impact on the business, development, financial condition, and results of operations||The Group provides well-structured and competitive reward and benefit packages that ensure our ability to attract and retain key employees.|
|Internal Risk||Health and Safety risk||The Company's products could theoretically be a danger to health if an individual is exposed to and/or inhales/ingests some of the Group's products||The Group takes health and safety very seriously and manages the potential health and safety risk by regular staff training and restricting activities to only certain qualified individuals.|
|External Risk||Client concentration risk||The Company's top two clients accounted for 50% of the Group's revenue in FY2019 (FY2018: 48%) and any breakdown in these relationships could damage the business||The Company has in place long term contracts with its key customers. Furthermore, it has significantly increased the number of its active customers and its expansion continues to reduce its exposure to any single large client.|
|External Risk||Market's acceptance of advanced materials technology||Potential for targeted customer base to not purchase the Group's products||The Group carries out extensive market and product research to assess the likelihood of acceptance of the Group's products.|
|External Risk||Unforeseen delays in forecasting the commencement of sales, possibly due to regulatory hurdles||Cessation of product development||Improved relationships with customers and more experience of the requirements of customers launching new products has improved the Group's budgeting process.|
|External Risk||Brexit||Brexit is likely to bring uncertainty in areas such as materiality, regulations and grant income||The Group is aware of the challenges that Brexit may bring and continues to review imports and exports to and from Europe and monitors legislation accordingly.|
|Government Regulation||Up to date with government regulation for nanoparticles and potential restrictions in use||Fines, penalties, inability to sell product||The Group maintains a vigilant watch on the market and regulatory changes or debates in all territories of trade and manufacture.|
|Intellectual Property Risk||Ability to maintain adequate protection of the Company's IP portfolio||Risk that any of the Group's patents will not be held valid if challenged||The Company conducts regular international IP searches as well as monitoring activities and regulations for developments in copyright/intellectual property law and enforcement|
|Growth Risk||Expansion of the Business||Expansion may place additional demands on the Group's management administrative, technological resources, marketing capabilities, and may require additional capital expenditure||The Group monitors the additional demands on resources on a regular basis and strengthens resources as necessary|
|Competition Risk||Competitors may have greater financial resources||Competition could potentially render the Group's products non-competitive or obsolete.||Management regularly reviews the competitive landscape|
|IT/Data Risk||Cyber Risk||Loss of data, resulting in a reduced confidence from our customers and suppliers. Fines, penalties||The Company maintains a GDPR policy, a third party manages the IT security, regular system backups and disaster recovery.|
|Financial Risk||Company runs out of funds prior reaching profitability||Closure of business due to lack of funds to continue in operation||Regular review of management accounts, P&L forecasts and cashflow forecast. Information provided to the Board to ensure accurate knowledge with key sensitivities and various options available to ensure a going concern.|
|Financial Risk||Adequate financial and operational controls||Error or fraud, leading to a loss in reputation, business partners and customers||The Company has invested and continues to invest in its financial reporting functions to facilitate strong reporting and management control as it grows|
The Board does not currently deem it necessary for an internal audit function, having put in place experienced financial controllers in each of its key operational entities and jurisdictions. The Board believes that it has in place effective governance and risk management processes and internal control mechanisms, however, it will continue to monitor closely and regularly, assessing their effectiveness and will implement any changes that it deems appropriate.
5. Maintain the board as a well-functioning, balanced team led by the Chair
The Board comprises two executive directors and three non-executive directors as follows:
- Chief Executive Officer: Keith Broadbent;
- Chief Financial Officer: Mark Chapman;
- Non-executive Chairman: David Banks;
- Senior Independent Non-executive: Roger Humm; and
- Independent Non-executive: Graham Eves.
Biographical details of the Directors can be found here at www.haydale.com.
All the Non-Executive Directors are expected to dedicate at least 24 days per annum to the Company. Mr Broadbent and Mr Chapman are expected to dedicate 227 days per annum to the Company. One third of Board are subject to re-election at each AGM.
Meetings are open and constructive, with every Director participating fully. Senior management can also be invited to meetings, providing the Board with a thorough overview of the Company.
The full Board meets at least eight times in the year according to the schedule of future meetings agreed at the beginning of each year, and also as and when required. In order to be efficient, the Directors meet formally and informally both in person and by telephone. Board and Committee document authors are made aware of proposed monthly deadlines through the schedule of meetings agreed at the beginning of the year. Board papers are prepared by the relevant personal (Chair, CEO, CFO) and circulated to the Board at least 48 hours before meetings, allowing time for consideration and necessary clarifications before the meetings. Directors are free to seek any further information they consider necessary.
During the year ended 30 June 2019, the Company held 27 board meetings (FY2018: 12), with each member's attendance as follows:
|Number of board meetings attended|
|Keith Broadbent (appointed September 2018)||24||-|
|Raymond Gibbs (stepped down December 2018)||12||12|
|Matthew Wood (stepped down December 2018)||14||12|
|Laura Redman-Thomas (appointed December 2018, resigned November 2019)||13||-|
|Roger Smith (stepped down January 2019)||13||12|
Attendance at the Company's audit, remuneration and nomination committee meetings during the year ended 30 June 2019 was as follows:
|Number of committee meetings attended|
Terms of reference for the each of the Company's Committees are published on the Group's website, see www.haydale.com. The Committees have the necessary skills and knowledge to discharge their duties effectively.
6. Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities
The Non-executive Directors have both a breadth and depth of skills and experience to fulfil their roles. The Company believes that the current balance of skills in the Board as a whole, reflects a very broad range of personal, commercial and professional skills across geographies and industries and the Board has experience of public markets. Details of the Directors' experience and areas of expertise are outlined on pages 11-13 of the 2019 Annual Report. The Non-executive Directors meet without the presence of the Executive Directors during the year, and also maintain ongoing communications with Executives between formal Board meetings.
In addition to their general board responsibilities, Non-executive Directors are encouraged to be involved in specific workshops or meetings, in line with their individual areas of expertise.
The Company has employed the services of ONE Advisory Limited to provide assistance to the Company in its Company Secretarial and MAR compliance needs. Matt Wood, a former director of the Company and its Company Secretary, is a director of ONE Advisory Limited.
If required, the Directors are entitled to take independent legal advice and, if the Board is informed in advance, the cost of the advice will be reimbursed by the Company.
The Board shall review annually the appropriateness and opportunity for continuing professional development whether formal or informal.
7. Evaluate board performance based on clear and relevant objectives, seeking continuous improvement
Every other year the Board expects to carry out an internal Board and Committee evaluation exercise, including that of the Chairman. The exercise will be led by Roger Humm, the SID. The areas of evaluation covered include Board structure and knowledge, operating effectiveness, operating efficiency, quality of information and ongoing professional development. Individual reviews of Non-executive Director performance will also be carried out by the SID, and the Chairman will undertake a review of the performance of the SID. The SID will also chair meetings of the non-executive directors, where necessary.
Responses will be received and recorded and circulated in a timely fashion, identifying positive areas and areas for improvement to ensure that it is functioning at its full potential. The results and recommendations that come out of the appraisals for the Directors shall identify the key corporate and financial targets that are relevant to each Director and their personal targets in terms of career development and training. Targets will be addressed during the FY20 financial year and will be used to assess the progress of the Board in future evaluation exercises.
The Nominations Committee, comprised entirely of the Non-executive Directors, regularly reviews the structure, size and composition required of the Board compared to its current position, makes recommendations to the Board, considers succession planning and oversees the process to fill Board vacancies. The Nominations Committee also keeps key positions outside the main board and other personnel considered critical to the business under review; such positions include that of regional site managers and SBU MDs. Going forward, findings from the Company's evaluation exercises will inform the Nominations Committee's succession planning discussions.
8. Promote a corporate culture that is based on ethical values and behaviours
The Board recognises that its decisions regarding strategy and risk will impact the corporate culture of the Company as a whole and that this will impact the performance of the Company. The Board is very aware that the tone and culture set by the Board will greatly impact all aspects of the Company as a whole and the way that employees behave. The corporate governance arrangements that the Board has adopted are designed to ensure that the Company delivers long-term value to its shareholders, and that shareholders have the opportunity to express their views and expectations for the Company in a manner that encourages open dialogue with the Board.
Our culture acts as the glue that binds our staff around the world together - relaxed, professional and humble with a focus on doing the very best we can for each project entrusted to us. Group culture is at the centre of everything we do and to ensure and assist all of our employees across our five operational/sales sites to be aligned with the Haydale culture is important in improving operations and ultimately our performance. We are in the process of developing a set of seven guidelines which sets out our culture.
- We communicate openly
- We focus on delivering on our projects
- We empower our people
- We are passionate about making material change
- We will make a difference for our customers
- We have a "can do" attitude
- We learn at every opportunity
A large part of the Company's activities is centred upon what needs to be an open and respectful dialogue with employees, clients and other stakeholders. Therefore, the importance of sound ethical values and behaviours is crucial to the ability of the Company to successfully achieve its corporate objectives. The Board places great importance on this aspect of corporate life and seeks to ensure that this flows through all that the Company does. The Directors consider that at present the Company is moving towards its objective of having an open culture across each of our regions of operation facilitating comprehensive dialogue and feedback and enabling positive and constructive challenge.
The Company intends to carry out a Group-wide employee engagement survey every other year, to commence before 30 June 2020, being the end of the current financial year, that will determine if ethical values and the Company's corporate culture are recognised and respected, and seek to understand any underlying issues with the workforce.
9. Maintain governance structures and processes that are fit for purpose and support good decision-making by the board
The Board is committed to, and ultimately responsible for, high standards of corporate governance, and has chosen to adopt the QCA Corporate Governance Code. We review our corporate governance arrangements regularly and expect to evolve these over time, in line with the Company's growth. The Board delegates responsibilities to Committees and individuals as it sees fit, with the Chairman being responsible for the effectiveness of the Board, and the Executive Directors being accountable for the management of the Company's business and primary contact with stakeholders.
The Chairman is responsible for the leadership of the Board and ensuring its effectiveness in all aspects of its role. He is also responsible for creating the right Board dynamic and for ensuring that all important matters, in particular strategic decisions, receive adequate time and attention at Board meetings. The Executive Directors are responsible for the day-to-day running of the business: Keith Broadbent (CEO) and Mark Chapman (CFO); as well as developing corporate strategy while the Non-Executive Directors are tasked with constructively challenging the decisions of executive management and satisfying themselves that the systems of business risk management and internal financial controls are robust.
The role of the SID is to serve as a sounding board for the Chairman and act as an intermediary for other Directors. They are also available to shareholders if they have reason for concern that contact through the normal channels of the Executive Directors has failed to resolve. They are responsible for holding annual meetings with non-executives, without the Chairman present, to appraise the Chairman's performance.
The Board has adopted appropriate delegations of authority which sets out matters which are reserved to the Board as set out below:
- The Group's strategy and vision
- Determining management's performance and changes in senior personnel
- Approval of major capital expenditure
- Financial reporting, risk management and internal controls
- Contracts, including potential acquisitions or investments in new projects or products
- Corporate governance
- Approval of annual budgets
- Approval of annual and interim reports
- Approval of changes in equity or debt funding
- Dividend recommendations and policy
The Board delegates authority to three Committees to assist in meeting its business objectives whilst ensuring a sound system of internal control and risk management. The Committees meet independently of Board meetings.
The Audit Committee has three members, Roger Humm (Chair), Graham Eves and David Banks. The CFO, Group FC and external auditors attend meetings by invitation. The Audit Committee is responsible for assisting the Board in fulfilling its financial and risk responsibilities. The Audit Committee oversees the financial reporting, risk management and internal control procedures. The Audit Committee advises the Board on the appointment and removal of the external auditor and discusses the nature, scope and results of the audit with the auditors. The Audit Committee reviews the extent of non-audit services provided by the auditors and reviews with them their independence and objectivity. The Audit Committee intend to meet not less than twice in each financial year.
The Directors' Remuneration Report is set out on pages 23-26 of the 2019 Annual Report. The members are all Independent Non-executive Directors. Other members of the Board may attend the Committee's meetings at the request of the Committee Chairman.
The remit of the Committee is primarily to determine and agree with the Board the framework or broad policy for the remuneration of the Company's Executive Directors and the Senior Management of the Group. The Remuneration Committee reviews the performance of the Executive Directors and makes recommendations to the Board on matters relating to their terms of employment and remuneration, including short term bonus and long-term incentives. The Remuneration Committee also considers the granting of share options pursuant to the Company's share option schemes. The Remuneration Committee shall meet not less than twice a year and will meet on other occasions and as and when required.
The Nominations Committee has three members, Graham Eves (Chair), Roger Humm and David Banks. The Nominations Committee reviews the structure, size and composition required of the Board compared to its current position and make recommendations to the Board, considers succession planning and nominates candidates to fill Board vacancies. The Nominations Committee shall meet at least once per year, and otherwise as necessary to consider proposals for Board appointments and other matters.
Terms of Reference for each of the Committees can be found here:
In accordance with the Companies Act 2006, the Board complies with: a duty to act within their powers; a duty to promote the success of the Company; a duty to exercise independent judgement; a duty to exercise reasonable care, skill and diligence; a duty to avoid conflicts of interest; a duty not to accept benefits from third parties and a duty to declare any interest in a proposed transaction or arrangement.
As the company expands it expects its corporate governance requirements to expand, for example see employee engagement evaluation/adoption of risk register.
10. Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders
The Board is committed to maintaining effective communication and having constructive dialogue with its shareholders. The Company intends to have close ongoing relationships with its private shareholders. Institutional shareholders and analysts and for them to have the opportunity to discuss issues and provide feedback at meetings with the Company. The Company receives reports from its corporate registrar and from Argus Vickers. In addition, all shareholders are encouraged to attend the Company's Annual General Meeting. All 2019 AGM resolutions were passed by the requisite majority. The Board maintains that, if there is a resolution passed at a GM with 20% votes against, the Company will seek to understand the reason for the result and, where appropriate, take suitable action.
The latest Corporate Documents (including Annual Reports and Notices of AGMs) can be found on the Company’s website: www.haydale.com.
Investors also will have access to current information about the Group which is set out on the Company’s website at www.haydale.com. The Company uses electronic communications with shareholders, where possible, in order to maximise efficiency.
Going forwards a summary of work carried out by board committees during the year will be included in the Company's Annual Report.