The Directors support the highest standards of corporate governance in accordance with the principles and code of best practice as set out in the Combined Code on Corporate Governance issued in June 2008 (the Combined Code). The Board considers that it has complied throughout the year ended 30 September 2010 with the provisions for companies set out in Section 1 of the Combined Code, to the extent that they apply to the Company.
The Board of Directors
The Board comprises three Non-executive Directors, all of whom are considered independent of management, and one part-time Executive Director. As set out in their biographies, the Directors have significant experience of the management and development of a biopharmaceutical group and of pharmaceutical research and development. There is a strong independent non-executive element to the Board, which maintains independent judgement in respect of strategy, performance and standards of conduct. As in the prior year, certain Non-executive Directors hold shares in the Company.
In accordance with the Articles of Association and with the current composition of the Board being four members, one director must retire by rotation at each AGM. This number will comprise any Director who has served for three years and any Director appointed since the last AGM.
In accordance with Combined Code provision A.6, the performance of the Board and the Committees is reviewed annually.
The Board retains overall responsibility for, and control of, the Group. Management is conducted by the Chief Financial Officer.
The roles of the Chairman and Chief Financial Officer
There is a clear division of responsibilities between the Chairman and Chief Financial Officer. The Chairman, Prof Mark Ferguson, is primarily responsible for the workings of the Board. The Chief Financial Officer, Mr David Blain, has responsibility for implementing the strategy of the Board and managing the day-to-day business activities of the Group.
The role of the Senior Independent Director
The Combined Code recommends that the Board of Directors should appoint one of its Independent Non-executive Directors to be the Senior Independent Non-executive Director. The Senior Independent Non-executive Director should be available to shareholders if they have concerns that contact through the normal channels has failed to resolve or for which such contact is inappropriate. Mr Jamie Brooke has been designated as the Senior Independent Non-executive Director. In addition he chairs the Nomination Committee and the Remuneration Committee.
The role of Chief Financial Officer and Company Secretary
The Board annually reviews the effectiveness of the historic combination of these two roles into one appointment. In view of the current size of both the Board and the Company, the Board believes that it is well served by the advice received in company secretarial matters by using:
• Mr David Blain (CFO) who has acted as a Company Secretary to various public liability companies for the past 13 years;
• the Company’s counsel (Morrison and Foerster);
• the Company’s registrars (Capita Registrars); and
• the Audit Committee to oversee risk management.
Board meetings
The Board meets regularly with meeting dates agreed for each year in advance. There is a formal schedule of matters reserved for Board consideration and approval, as appropriate. The schedule covers senior appointments, business strategy, budgets, corporate governance issues, substantial transactions, contracts and commitments, financing, health and safety, treasury and risk policies and the approval of certain documents and announcements including the Annual Report. There is frequent contact between Executive and Non-executive Directors and each Director is supplied on a timely basis with financial and operational information sufficient for the Board to discharge its duties. All Directors have access, as required, to independent professional advice.
In accordance with the requirements of the Combined Code, the Board has established and delegated certain responsibilities to three Board Committees, which all comprise solely of Non-executive Directors and operate within defined terms of reference and constitution. These Committees have written terms of reference which are available on the Renovo website (www.renovo.com).
The Remuneration Committee
Following the restructuring exercise, the Remuneration Committee comprises all three Non-executive Directors with Mr Jamie Brooke acting as Chairman. The Company considers that all members of the Committee are independent and free from any business or other relationship which could interfere with the exercise of their independent judgement.
The Committee has responsibility for determining the remuneration packages of the Executive Director and ensuring that levels of remuneration are sufficient to attract, retain and motivate Directors of the quality required to run the Company successfully. The Committee is asked to consider that a significant proportion of Executive Directors’ remuneration should be structured so as to link rewards to corporate and individual performance.
The Audit Committee
The Audit Committee comprises all three Non-executive Directors with Mr Max Royde acting as Chirman. The Chief Financial Officer of the Company is invited to attend meetings of the Committee when the Committee Chairman deems it appropriate. The Group considers that the members of the Committee possess relevant recent financial experience.
The Committee monitors the integrity of the Group financial statements and any formal announcements relating to the Group’s financial performance, and reviews significant financial reporting judgements contained therein. The Committee also reviews the Group’s internal financial controls and risk management systems and reports to the Board any matters where it considers action or improvement is needed and makes recommendations as to the steps to be taken.
In line with best practice, the Group periodically considers how the audit requirements of the Group are best served in the context of the business need and the prevailing external environment and, against the background of this review, will from time to time undertake a formal tendering programme. The Audit Committee has unanimously recommended to the Board that a resolution for the re-appointment of Deloitte LLP as the Group’s external auditors be proposed to shareholders at the forthcoming AGM. The Audit Committee is satisfied that, notwithstanding the length of tenure of Deloitte LLP, the firm meets the independence criteria under the relevant statutory, regulatory and accounting standards. As Deloitte LLP has been the external auditors since the Company’s admission to the Official List in 2006, this decision will be reviewed in the forthcoming year.
The Committee approves all non-audit services provided by the Group’s auditors. As part of this approval process, the Committee ensures that any provision of non-audit services does not impact the auditors’ objectivity and independence, however the overall fees paid to Deloitte LLP in the year are not deemed to be of such significance to them as to be likely to impair their independence.
The Nomination Committee
The Nomination Committee comprises all three Non-executive Directors with Mr Jamie Brooke acting as Chairman.
The Committee has responsibility for considering the composition and performance of the Board of Directors, retirements and appointments of Directors and making appropriate recommendations to the Board. The Committee is also tasked with ensuring that plans are in place for orderly succession to Board and senior management positions, so as to maintain an appropriate balance of skills and experience within the Company.
Attendance at Board meetings and committees
For the year ended 30 September 2010, the Directors attended the following formal Board meetings and committees:
Board/Committee member
Board meetings
Remuneration Committee
Audit Committee
Nomination Committee
Mr Rodger Pannone 5/5 n/a n/a 3/3
Prof Mark Ferguson 5/5 n/a n/a n/a
Dr John Hutchison 4/5 n/a n/a n/a
Mr David Blain 4/5 n/a n/a n/a
Dr Barrie Thorpe 5/5 4/4 n/a 3/3
Lord Leslie Turnberg 3/5 n/a 3/4 2/3
Mr John Goddard 5/5 4/4 4/4 n/a
Mrs Susan Taylor 5/5 3/4 3/3 n/a
Dr Sharon O’Kane* 2/2 n/a n/a n/a
Dr David Ebsworth* 2/2 2/2 0/1 n/a
Dr Arthur Rosenthal* 1/2 2/2 n/a n/a
* In respect of their period as Board members from 1 October 2009 to 10 February 2010.
The Board carefully considers the time commitment required by each member to fulfil their duties both prior to appointment to committees and during annual appraisals.
Conflicts of interest
During the year no director notified the Board of any conflicts of interest.
Relations with shareholders
Renovo attaches a high priority to effective communication with both private and institutional shareholders. The Annual Report contains a full Business Review and a description of the candidate products and of the research and development portfolio. An interim Business Review is also provided with the Interim Report sent to all shareholders. With these documents and the Group’s press releases, the Board seeks to present a balanced and understandable assessment of the Group’s position and prospects. The Group’s website (www.renovo.com) provides extensive further information about the Group.
The AGM is the principal forum for dialogue with private shareholders. A business presentation is made by the Chief Executive Officer and there is an opportunity for shareholders to put questions to the Directors. Renovo maintains regular contact with institutional shareholders through a programme of one-to-one visits, Group meetings and briefings. The Chairman and Non-executive Directors also meet with major shareholders, in the absence of Executive Directors, to obtain feedback, if appropriate.
Internal control
The Board has applied Principle C.2 of the Combined Code by establishing a continuous process for identifying, evaluating and managing the significant risks the Group faces. The Board regularly reviews the process, which has been in place from the start of the year to the date of approval of this report and which is in accordance with revised guidance on internal control published in October 2005 (the Turnbull Guidance).
The Board is responsible for the Group’s system of internal control and for reviewing its effectiveness. Such a 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.
In compliance with Provision C.2.1 of the Combined Code, the Board regularly reviews the effectiveness of the Group’s system of internal control. The Board’s monitoring covers all controls, including financial, operational and compliance controls and risk management. It is based principally on reviewing reports from management to consider whether significant risks are identified, evaluated, managed and controlled and whether any significant weaknesses are promptly remedied and indicate a need for more extensive monitoring. The Audit Committee assists the Board in discharging its review responsibilities.
During the course of its review of the system of internal control, the Board has not identified nor been advised of any failings or weaknesses which it has determined to be significant. Therefore a confirmation in respect of necessary actions has not been considered appropriate.
A separate Audit Committee statement provides details of the role and activities of the Committee and its relationship with external auditors.
Internal audit
The Group does not consider that an internal audit function is appropriate given the current scale and structure of its operations. As required by the Combined Code, the Board reviews the need for an internal audit function each year.
Business risk
Although the Group’s drug development programme is progressing well, all of its drug candidates remain subject to further clinical testing and regulatory approval. Management actions to mitigate this risk include liaison with the regulatory authorities and careful planning of the trials as described in the Chief Executive Officer’s Review.
Financial risk factors
The Group’s relatively simple structure, principally operating in the UK, and the lack of debt financing, reduces the range of financial risks to which it is exposed. Monitoring of financial risk is part of the Board’s ongoing risk management, the effectiveness of which is reviewed annually. The Group’s agreed policies are implemented by the Chief Financial Officer, who submits reports at each Board meeting. The Group has not, to date, used derivative transactions and it is the Group’s policy not to undertake any trading in financial instruments.
Foreign exchange risk
An element of the Group’s expenditures is in foreign currency, mainly US Dollars and Euros. While the Group has had net outflows of foreign currency it has managed short-term fluctuations in exchange rates by holding, where appropriate, US Dollars and Euros in interest bearing deposits. As the Group’s business matures, the amount of foreign currency income and expenditure is expected to increase and more sophisticated hedging of foreign currency transactions may be introduced.
Interest rate risk
The Group does not have any committed borrowing facilities, as its cash balances are sufficient to finance its current operations. Consequently, there is no material exposure to interest rate risk.
Credit risks
The Group’s policy is to place funds with financial institutions rated at least AA long-term (Fitch IBCA/Standard & Poors) or Aa (Moodys) and A1/Prime 1/F1 short-term (Standard & Poors/Moodys/Fitch IBCA). The Group does not allocate a quota to individual institutions but seeks to diversify its investments, where this is consistent with achieving competitive rates of return.
Cash flow and liquidity risk
The Group presently relies on its invested funds rather than trading receipts to meet its commitments. The maturity profile of its investments is structured to ensure that sufficient liquid funds are available to meet current operating requirements. The Directors do not consider that there is presently a material cash flow or liquidity risk.
Derivative financial instruments and hedging
The Company has no derivatives at 30 September 2010 or 30 September 2009.
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