Corporate Governance

Combined Code

The Board of Directors (Board) remains committed to ensuring high standards of corporate governance are maintained and continues to manage the Company’s affairs in accordance with the principles and provisions of The UK Corporate Governance Code (the Code) (June 2010).

Statement of Compliance

The Board considers that the Company has complied with the principles and provisions set out in the Code throughout the year ended 30 September 2012.

Board of Directors

The principal duty of the Board is to represent and protect the interests of the Company’s shareholders by ensuring that the Company is well managed and operated in a way which is in the interests of its shareholders. The Board is responsible for oversight of the formulation and implementation of the strategy of the Company. The Board is also responsible for oversight of the Company’s operations and has an obligation to keep informed of the Company’s activities and appropriate policies and procedures in order to assist management in formulating, developing and implementing plans and serves as a body to review and provide advice to management on the operations of the Company. The Board is committed to reviewing its membership on a regular basis. The Chairman ensures that Board discussions are conducted taking all views into account so that no one individual Director or small group of Directors dominate the proceedings.

Chairman and Chief Executive Officer

There is a distinct and defined division of responsibilities between the Chairman and the Chief Executive Officer (CEO). The Chairman is primarily responsible for the effective working of the Board and the CEO is responsible for the operational management of the business and for the implementation of strategy as agreed by the Board. The division of responsibilities is reviewed annually by the Board.

Board Balance and Independence

During the accounting period, the Board comprised two Executive Directors: Roy Davis, Chief Executive Officer (CEO); and Christine Soden, Chief Financial Officer (CFO) until 26 June 2012 and Louisa Burdett (CFO) from 26 June 2012. The Non-executive Directors comprised Dr Peter Fellner, Barry Rose, John Goddard, Dr Peter Kehoe, David Wilson and Rosalyn Wilton.

As at 30 September 2012, all of the Non-executive Directors were independent as provided for by the Code.

Role of Non-Executive Directors

The Company’s Non-executive Directors provide input to the business by contributing to the oversight function of the Board and to the development of the Company’s strategy. Non-executive Directors are required to be satisfied that the financial information is accurate and that the internal controls and policies and procedures governing risk management are effective and appropriate. The Company’s Non-executive Directors are available to shareholders. The Non-executive Directors met as a group on two occasions during the financial year ended 30 September 2012 without the presence of Executive Directors.

Board Process and Information

The Board met ten times during the year, including once over a two-day period with senior management to focus on strategy and business planning. Dialogue occurs regularly between Directors outside of scheduled meetings. Meeting agendas include review and approval of Minutes recorded of the previous meeting, matters arising, items for discussion, special items, items for note and any other business. Board materials are distributed by the Company Secretary normally not less than seven days in advance of meeting dates to allow Directors to adequately prepare for meetings. Minutes of Board and Committee meetings are normally distributed within fourteen days following each meeting.

The Board receives operational and financial information to assist in monitoring and assessing the ongoing performance of the business on a monthly basis. This includes reports from the CEO, CFO and Company Secretary. The Board also schedules and reviews special items covering business critical areas during the year. The Executive with responsibility for the special item submits a written report covering the item, which is included in the Board materials, and attends the Board meeting by invitation for that part of the agenda to discuss the report in detail.

No one other than Directors and the Company Secretary is entitled to be present at Board meetings unless specifically invited to attend. In those instances when a Director has been unable to attend Board or Committee meetings, his or her comments on the papers for that meeting are communicated to the Chairman in advance so that they can be duly considered.

Functions of the Board

The Board acknowledges and accepts its statutory duties and in doing so encourages the long-term success of the Company by exercising independent judgement with respect to material strategic and operational issues; safeguarding corporate assets by reviewing the financial policies and affairs of the Company and overseeing the Company’s financial reporting process and internal controls; reviewing of the adequacy of the Company’s systems for compliance with all applicable laws and regulations; overseeing the Company’s risk management process and ensuring that the Company has appropriate procedures in place to manage risks; and evaluating the effectiveness of the Board and its Committees at least annually. The Board delegates to the Company’s Operating Board (which is chaired by the CEO and comprised of the Company’s senior management and meets on a monthly basis) certain decisions, including implementing the strategy, operational plans and policies of the Company and the Company’s subsidiary companies as determined by the Board; delivering the operating and financial results against budgets; and managing and controlling the allocation of capital, human and technical resources.

Senior Independent Director

The Code recommends that the Board should appoint one of its independent Non-executive Directors to serve as the Company’s senior independent director (SID). Barry Rose is the SID for the Company. Mr Rose is available to shareholders. Employees can contact the SID under the provisions set out in the Group’s Whistle-Blowing Policy if they have concerns that have not been resolved through normal channels or for which contact through the normal channels is inappropriate.

Accountability and Audit

All Directors have accepted a duty of care and accountability to act in the interests of the Company. The Audit Committee has a particular role, acting independently from management, to ensure that the interests of shareholders are properly protected relative to financial reporting and internal control.

Risk Management and Internal Control

The Board confirms that there is an ongoing process for identifying, monitoring, evaluating and managing the Company’s significant risks, that such a process has been in place for the year ended 30 September 2012 and up to the date of approval of the annual report and accounts, that it is regularly reviewed by the Board and that it accords with the internal control guidance for Directors relative to the Code.

The Directors acknowledge that they have overall responsibility for the Company’s system of internal control and for reviewing its effectiveness. The Board continued to apply C.2 of the Code by establishing a continual process for identifying, evaluating and managing the risks that are considered significant. Its system is designed to manage the risk and can only be a reasonable and not absolute assurance against material misstatement or loss.

A Group Risk and Control Framework has been established and includes a range of controls, including financial, operational and compliance. It is based principally on reviewing reports from management and considering whether significant risks are identified, evaluated, classified and controlled and ensuring that any significant weaknesses are promptly and properly remedied. This includes manuals of policies and procedures applicable to all material aspects of the business, a budgetary control system which includes monitoring actual performance against pre-determined plans, and the appointment of suitably qualified and experienced staff to execute their agreed responsibilities.

External audit risk assessment and planning is in place. The Audit Committee considers and determines relevant action in respect of any control issues raised by either the Executive Directors or the external auditors.

There is currently no dedicated internal audit function. The Directors review and determine the requirement for a dedicated internal audit function on an annual basis. The Directors have determined, based on the size and complexity of the Group, that a dedicated internal audit function is not currently required. If any specific internal control weakness is either perceived or identified, the Directors will engage an independent third party to carry out additional tests.

Performance Evaluation

The Board undertakes an evaluation of its own performance and that of its Committees and individual Directors, including an assessment of the effectiveness of the Chairman, Executive and Non-executive Directors and Company Secretary.

A meeting in the financial year ended 30 September 2012 of the Company’s Non-executive Directors under the leadership of the SID without the presence of the Chairman and Executive Directors to conduct a performance evaluation of the Chairman took place. The SID discussed the feedback with the Chairman.

Board and Committee Meeting Attendance

The Board and its Committees meet on a regular basis to discuss and agree matters which are specifically reserved to them for review and decision. Contact between Board and Committee meeting dates is carried out by the Directors as and when required to discuss and agree matters arising relative to addressing and advancing the business of the Company.

Appointments and Resignations

Louisa Burdett was appointed to the Board as Chief Financial Officer on 26 June 2012. Christine Soden resigned from the Board as Chief Financial Officer on 26 June 2012.

Board Committees

The Board appoints the members of the Audit, Remuneration and Nomination Committees, each of which has the responsibility to assist the Board in its oversight capacity. The Committees meet at regularly scheduled times throughout the year and at any other time that may be necessary to assist the Board in executing its responsibilities.

Certain other individuals are invited to attend the Committee meetings when required and relevant to the proceedings. The written Terms of Reference setting out the duties and responsibilities of the Board and its Committees are reviewed and revised as may be necessary on an annual basis.

Committee Terms of Reference are available from the Company Secretary or on the Company’s website at www.optos.com

Board and Committee meeting attendance

Audit Committee

The Audit Committee has responsibility for planning and reviewing the Company’s interim and preliminary reports and accounts and in engaging the Company’s auditors in that process. The ultimate responsibility for reviewing and approving the Company’s interim and preliminary reports and accounts remains with the Board on the recommendation from the Committee.

The Audit Committee is chaired by Barry Rose and its other members included Dr Peter Fellner, John Goddard and Rosalyn Wilton (until 19 January 2012). The Company Secretary serves as secretary to the Audit Committee.

Mr Rose, Mr Goddard and Mrs Wilton are independent within the meaning of the Code. The Code states that the test of independence is inappropriate to the Chairman of the Board. The Code provides for the chairman of a listed company below the FTSE 350 to be a member of, but not chair, the audit committee provided that he or she was independent upon appointment. Dr Fellner was independent within the meaning of the Code on his appointment. The Board considered all members of the Audit Committee throughout the year ended 30 September 2012 to be independent in character and judgement and in possession of the relevant business experience and requisite financial expertise.

The main activities of the Audit Committee during the financial year ended 30 September 2012 included: completing the review of the Company’s financial results for the year ended 30 September 2011; reviewing the interim and full-year results for the year ended 30 September 2012; receiving the reports of the external auditors on those results and reviewing that the continued adoption of the going concern basis is justified; considering the audit work carried out by the external auditors and any significant judgemental and reporting issues identified in the auditors’ reports; reviewing and discussing the Risk Register that is prepared and monitored by the Operating Board, which consists of the Company’s senior management, that sets out the likelihood and potential impact of the significant risks faced by the Company; reviewing the Group’s controls; reviewing and agreeing the need for an internal audit function; confirming the adequacy of the Company’s Whistle-Blowing Policy; and undertaking a specific review of the Company’s sales contracts procedures and reviewing the collection of revenue.

In accordance with the Code, the Company maintains a policy on the engagement of the external auditors with respect to the performance of non-audit related work. The policy also provides that any non-audit work involving a single expenditure of more than $0.2m must be assigned to tender. The amount paid for non-audit work during the year is set out in Note 5 to the financial statements.

Remuneration Committee

A description of the role, composition and responsibilities of the Remuneration Committee can be found on in the Directors’ Remuneration Report.

Nomination Committee

The Nomination Committee has responsibility to assist the Board with succession planning and with the selection process for the appointment of a new Director or Chairman. The Nomination Committee is chaired by the Chairman of the Board and is composed of all Non-executive Directors. The Chairman of the Board serves as Secretary to the Committee.

All members of the Committee are independent within the meaning of the Code. The Code states that the test of independence is inappropriate to the Chairman of the Board. Dr Fellner fulfilled the independence criteria at the time of his appointment.

The principal responsibilities of the Nomination Committee are as follows: evaluate the balance of skills, knowledge and experience on the Board and following this evaluation prepare a description of the role and requisite capabilities required for a particular appointment; assess the time commitment expected on the part of the Chairman of the Company and to require Non-executive Directors to undertake that they will have sufficient time to meet their commitments to the Company; oversee the search process for suitably qualified Non-executive Directors as and when required, using outside advisers as the Nomination Committee may determine as appropriate; and arrange for all members of the Nomination Committee to meet the preferred candidate prior to making a formal recommendation to the Board.

The main activities of the Nomination Committee during the financial year ended 30 September 2012 included leading the selection process for and recommending to the Board the appointment of Louisa Burdett as Chief Financial Officer; and considering the contribution and commitment of the Directors standing for re-election.

The number of meetings held during the financial year ended 30 September 2012 and the attendance record at these meetings is set out above.

Communication with Shareholders

The Company believes in having an open and regular dialogue with shareholders to ensure that the goals, objectives and overall business strategy of the Company are communicated and understood. The Board supports the use of the Company’s Annual General Meeting as a means for communicating with shareholders and encourages their participation.

The CEO and CFO make twice yearly presentations following the Company’s interim and preliminary results announcements. Hosting site visits and investor information days provides the investment community and shareholders with the opportunity to improve their understanding of the Company and its strategy.

During the year the Company issued interim management statements and pre-close trading statements relating to performance for a specified period of time and disclosed relevant business news through the Regulatory News Service. In accordance with the DTRs, the Company notifies the market of its total voting rights and issued share capital at the beginning of every month, covering the previous month, where an increase or decrease has occurred.

All Directors can be reached by contacting the Company Secretary at:

Optos plc
Queensferry House
Carnegie Campus
Enterprise Way
Dunfermline, Scotland
KY11 8GR

Company information is available from www.optos.com