Corporate Governance

Combined Code

The Board of Directors (the “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 2011.

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 (the “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.

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.

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 judgment 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 M. 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 2011 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 to apply C.2 of the Code by establishing a continuous 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 have been established and include 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 on 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 2011 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 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 web site at www.optos.com.

Communication with Shareholders

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.