13 Oct 2008 07:30
13 October 2008
FIRST ARTIST CORPORATION PLC
('First Artist' or 'the Company' or 'the Group')
Acquisition of Spot and Company of Manhattan, Inc
Notice of General Meeting
Re-admission of trading on AIM
It was announced on 11 August 2008 that First Artist has agreed, through its wholly owned subsidiary First Artist Corporation, Inc. and subject to Shareholder approval, to acquire Spot and Company of Manhattan, Inc. ("SpotCo"), for a maximum consideration of $18.86 million. SpotCo is a leading US-based live entertainment advertising agency and is a natural strategic fit with Dewynters, the Company's full-service agency which provides marketing, design, advertising, promotions, digital media services, publishing and merchandising to the UK entertainment industry, together with signage and front of house display expertise through its subsidiary, Newman Displays Limited. Dewynters also has a merchandising operation in the US. The consideration for and expenses relating to the Acquisition are to be funded by a new committed banking facility of £16.428 million.
The Acquisition constitutes a reverse takeover under the AIM Rules and, as such, requires the approval of Shareholders for the purposes of the AIM Rules and this is being sought at a General Meeting of the Company to be held at 11.00am on 29 October 2008 at the offices of Daniel Stewart & Company Plc, Becket House, 36 Old Jewry, London, EC2R 8DD. If the Resolution is passed by Shareholders, it is expected that Admission will take place and that trading in the Ordinary Shares of the Enlarged Group on AIM will commence on 30 October 2008.
Commenting on the acquisition, Jon Smith, Chief Executive of First Artist, said:
"Over the last decade Drew Hodges and his team, through their creativity and talent, their understanding of contemporary branding and imagery, and their involvement in productions from the earliest stages, have grown SpotCo into one of Broadway's foremost entertainment advertising agencies. We are delighted that SpotCo now joins the First Artist Group where, working alongside Dewynters, there will be significant opportunities to enhance our services to clients and increase our presence on both sides of the Atlantic.
"First Artist remains committed to its vision to become the UK's leading integrated media, events and entertainment management group and the acquisition of SpotCo demonstrates our commitment to this strategy. We look forward to providing all our clients with the most comprehensive range of services available and our shareholders with enhanced shareholder value."
The associated admission document is available for one month, free of charge, at the offices of Daniel Stewart & Company plc, Becket House, 36 Old Jewry, London EC2R 8DD or on the Company's website at www.firstartist.com. Definitions used in this announcement shall have the meanings ascribed to them in the admission document.
| First Artist Corporation plc Jon Smith, Chief Executive Julianne Coutts, Company Secretary | www.firstartist.com tel: 020 7993 0000 |
| Daniel Stewart & Company plc, Nominated Adviser and Broker Graham Webster/Stewart Dick | tel: 020 7776 6550 |
| Redleaf Communications Emma Kane/Samantha Robbins/Sanna Sumner | firstartist@redleafpr.com Tel: 020 7822 0200 |
Further information on the Acquisition and First Artist is shown below.
Daniel Stewart & Co. plc, which is regulated by the Financial Services Authority, is acting as nominated adviser and broker to the Company. It will not be responsible to any person other than the Company for providing the protections afforded to its customers or for advising any other person on the contents of any part of this announcement. The responsibilities of Daniel Stewart & Co. plc as the Company's nominated adviser under the AIM Rules are owed solely to the London Stock Exchange and are not owed to the Company or any Director or Shareholder or to any other person, in respect of any decision to acquire Ordinary Shares in reliance on any part of this announcement or otherwise. Daniel Stewart & Co. plc is not making any representation or warranty, express or implied, as to the contents of this announcement.
INFORMATION ON FIRST ARTIST AND SPOTCO
First Artist
First Artist is an AIM listed media, events and entertainment/sport group operating in the UK, Europe and the US. Founded by Jon Smith in 1986 and admitted to trading on AIM in 2001, the Group has grown since then both organically and through acquisitions. The three divisions are distinct but wholly complementary and many of the First Artist group companies are leading brands in their fields.
Across the three business divisions of media, events and entertainment, the Group's activities are as follows:
Media
The media division comprises Dewynters Limited and Dewynters Advertising Inc, Newman Displays Limited, Sponsorship Consulting Limited (SCL) and First Rights Limited. Dewynters is one of the leading full service agencies to the UK's live entertainment industry. Newman Displays is a signage and display company providing specialist products for its clients in theatre production, cinema and retail. SCL is a high-end strategic sponsorship and corporate responsibility consultancy with a range of blue-chip clients. First Rights was established in May 2007 to develop sponsorship opportunities on behalf of rights holders.
Entertainment
The entertainment division, which includes sports and wealth management, comprises First Artist Management Limited, First Artist Sport and Optimal Wealth Management Limited. FAM is a celebrity and media agency, representing actors, sport and TV presenters and other media personalities, with a strong track record of talent development. First Artist Sport is one of the world's leading player representation agency groups both in terms of numbers of represented players and also experience and has offices in London, Milan (Promosport) and Copenhagen (First Artist Scandinavia). Optimal Wealth Management is an Independent Financial Advisory firm providing a comprehensive range of financial services and advice to a list of high net worth clients drawn from the music, entertainment, media, sports and other industries.
Events
The Finishing Touch manages over 800 events per year, including conferences, Christmas and summer parties, family-fun days and corporate team building events, in addition to operating a long term contract to provide conferencing, venue finding and delegate management services to a major public sector client.
SpotCo
SpotCo is a leading US-based live entertainment advertising agency with offices in New York. Founded in 1997 by Drew Hodges, today its work at any given time spans approximately half the shows on Broadway.
BUSINESS DESCRIPTION & OPERATIONAL OVERVIEW OF FIRST ARTIST AND SPOTCO
First Artist
Media
Dewynters
Dewynters was acquired by the Group in December 2006. Based in London's Leicester Square, Dewynters is a full service agency which provides marketing, design, advertising, promotions, digital media services, publishing and merchandising to its theatre, tourism, arts and culture clients in the UK. Dewynters also has a merchandising operation in the US through its subsidiary, Dewynters Advertising Inc.
Dewynters' first major success was the global branding of the musical Cats which became one of the longest running shows in musical theatre history. It has pioneered a wealth of innovative campaigns including The Phantom of the Opera, Les Miserables, and more recently Mamma Mia!, The Lion King, We Will Rock You, Wicked, Joseph And His Amazing Technicolor Dreamcoat, Spamalot, The Sound of Music, The Lord of the Rings, Avenue Q and Equus. Dewynters is currently supporting the newly opened stage production of Girl with a Pearl Earring and is working on the campaigns for Oliver! and Treasure Island, both opening in December 2008, and Priscilla Queen of the Desert which opens in London in March 2009. It is expected that SpotCo will provide services to the production of Priscilla Queen of the Desert which is planned to open on Broadway in 2010.
The key driver for revenue is the overall popularity of London's West End, with producers typically spending up to £1 million on pre-opening marketing for a new show and a further spend ranging between £15,000 to £30,000 per week when the show is running. Over the past year Dewynters has expanded its new media offering and also continues to strengthen its outdoor positioning with its exclusive deal with JCDecaux for digital display advertising at Heathrow Terminal 5.
Anthony Pye-Jeary has remained as Managing Director of Dewynters following the acquisition and has confirmed that he will be extending his service agreement. He has key contacts within the theatre and entertainment industry and plays a major role in obtaining and developing client relationships.
Dewynters Advertising Inc operates as a merchandising and souvenir programme business in the lucrative US theatre market from its offices in New York and Las Vegas.
Newman Displays Limited
Newman Displays Limited (a wholly owned subsidiary of Dewynters) is a specialist sign and display company which designs, manufactures and installs a wide range of signage, from fascia display and theatre and cinema front-of-house design to retail outlet refurbishment, exhibitions and outdoor advertising.
Whilst Newman Displays Limited provides production and signage services to Dewynters this represents less than 20 per cent. of the total turnover and the majority of its income is derived from other sources, including Dewynters' competitors, the cinema industry and the retail sector.
During the 2007-2008 financial year, Newman Displays Limited undertook many front-of-house displays, including signage for the West-End musical Jersey Boys and numerous film events, in particular the BAFTA Film Awards at the Royal Opera House, The Other Boleyn Girl, Atonement and Sweeney Todd, along with the London and Cannes Film Festivals.
In the last year Newman Displays Limited has continued its expansion into new business areas, winning the signage business in the retail sector and working with the lead contractor for the Department for Children, Schools and Families.
Sponsorship Consulting Limited
Acquired by the Group in August 2006, SCL is a highly respected sponsorship strategy and corporate responsibility consultancy. Led by Chairman Wendy Stephenson and Managing Director Pippa Collett, the company offers its clients a full range of sponsorship related services including strategic advice on sponsorship matters, reviews of existing or proposed sponsorship programmes, and full project implementation services. It works across the spectrum of sport, arts, entertainment, community, environment, and education to ensure that sponsorship is an effective part of a client's integrated marketing and communications strategy.
SCL mainly advises sponsors, developing their sponsorship strategy and negotiating sponsorship contracts or implementing sponsorship arrangements selected by their clients. SCL also undertakes some strategic work on behalf of major rights holders, assisting them in re-positioning themselves to be more attractive as a sponsorship opportunity for brands. SCL works with each client's senior management to create an appropriate sponsorship strategy reflecting that company's marketing and corporate responsibility agenda.
A key differentiator of SCL's services is that they do not sell specific sponsorships, enabling them at all times to take a rational and objective approach to a client's specific needs. Its major competitors are diverse and include divisions of advertising agencies, public relations consultancies and rights-marketing firms.
New term contracts have been signed with existing multinational clients, including Unilever and Shell, and several new business gains have been developed to fruition. In particular SCL worked with Deloitte on their new sponsorship of the Deloitte Ignite Festival at the Royal Opera House and are currently working to deliver an employee-focussed indoor rowing regatta for Siemens to leverage the success of the Siemens-sponsored GB Rowing team at the Beijing Olympics.
First Rights Limited ("First Rights")
First Rights was established in January 2007 to work in partnership with rights holders to develop and market their sponsorship rights. It has succeeded in building a strong portfolio of clients including the Special Olympics GB National Summer Games 2009 and 'The Simpsons ART', an exhibition of the popular TV series to be hosted by a major London venue. In addition, First Rights has secured a presenting sponsor for a high profile West End production which is based on one of the most iconic films in cinema history.
Entertainment and Sport Management
First Artist Management Limited
First Artist Management (formerly known as called N.C.I. Management Limited) was acquired by the Group in July 2006. Led by the company's founder, Nicola Ibison, FAM is a celebrity and media agency, representing sport and TV presenters and other media personalities, with a strong track record of talent development. Its recent activities include successfully promoting clients in programmes such as Natalie Pinkham in ITV's Dancing on Ice, Andrea McLean as the main anchor for ITV's Loose Women and Kris Murrin for Channel 4's The Woman Who Stops Traffic. The company has recently completed a new two book deal on behalf of Gillian McKeith and developed a new programme format for her in the US.
FAM has recently acquired a number of new clients including West End theatre star Ruthie Henshall, Michael Obiora who stars in Hotel Babylon, antiques fakes and forgeries expert Curtis Dowling, and Marc Abraham, the vet and animal trauma surgeon. In addition FAM has recently secured the services of a highly respected agent, formerly at Princess Talent, who has brought in Jeremy Edwards (ex Holby City, Hollyoaks and Cooking the Books), Carol Machin (LK Today, How to Look Good Naked, Euro Millions) and Emma Willis, who will be presenting the next series of ITV2's I'm a celebrity - get me out of here now!
Sports presenters include Mark Chapman, who presents Five Live's 606 weekly phone-in, Paul Merson, a key pundit on Sky Sports' Soccer Saturday, Andy Gray, Martin Tyler and Andy Townsend.
First Artist Sport, Promosport (Italy), First Artist Scandinavia (Denmark)
First Artist Sport is one of the world's leading player representation agency groups with offices in London, Milan (Promosport) and Copenhagen (First Artist Scandinavia). It is widely recognised as one of the world's foremost football management teams and is a highly regarded and respected voice within the industry due in part to its involvement with the Football Agents' Association, a body set up to ensure best practice within the industry of which it is a founder member.
First Artist Sport's success in maintaining revenues in a challenging environment for player representation services demonstrates the core strength of its business model and the credibility that comes from a leadership role within the industry.
In the UK First Artist Sport manages a roster of players. The company also works for clubs directly in their transfer market dealings and in addition holds licences from FIFA and UEFA to organise football matches, tours and other events.
In 2002, First Artist acquired the Milan agency, Promosport, which manages a pan-European roster of some 100 players. The majority of these players are based in Italy with others in Spain, Germany, France and Eastern Europe and, as in the UK, works with clubs directly on their transfer market deals.
In July 2006 First Artist acquired a Danish football agency, Proactive Scandinavia, now renamed First Artist Scandinavia A/S. The company has a player roster of some 90 players including some a number of the Danish full international squad and several U-21 internationals with players representing clubs throughout Europe, including the UK Premiership. The integration of First Artist Scandinavia established a truly pan-European network covering Northern and Southern Europe as well as the UK.
A significant number of football agents are based in the UK, many being sole traders and small businesses. There is a small number of larger firms of which very few have an international network and offices outside the UK. UK competitors are Formation Group Plc, Wasserman (who recently acquired SFX), SEM Group and Stellar Promotions. Players are attracted to First Artist Sport because of its international reach and strong relationships with football clubs.
Optimal Wealth Management Limited
Acquired by First Artist in July 2005 and led by Joint Managing Directors Sean Scahill and Peter Kelsey, Optimal Wealth Management is an Independent Financial Advisory firm providing a comprehensive range of financial services and advice to a list of high net worth clients drawn from the music, entertainment, media, sports and other industries.
Optimal is committed to offering wholly independent advice on areas such as investment strategy, tax and inheritance planning, offshore investments and pensions, and prides itself on proactive client relationships that are long term rather than transaction led. Investment portfolios are constantly monitored, updated and benchmarked and clients are regularly appraised of their financial situation. Through the Third Life directive, Optimal Wealth Management is able to give investment advice across Europe.
In October 2006, Optimal Wealth Management announced a joint venture with the Top 25 audit firm, HW Fisher, called Fisher Family Office LLP. At the same time the company changed its name to reflect the increasing diversity of its client base and the products available. It is hoped that this joint venture provides a new business pipeline through extending Optimal's offering across HW Fisher's client base. The expansion of First Artist Entertainment's client roster will also result in increased opportunities for cross referral of business over the coming years.
The wealth management sector is diverse with international investment firms and small independent financial advisers ("IFAs"). Optimal is focussed on high net worth individuals and rather than managing its own funds, it selects investment products managed by the better performing fund managers tailored to the needs of individual clients. Accordingly it competes with other IFAs rather than with major investment institutions.
In January 2008, Optimal gained chartered status from the Chartered Insurance Institute. This is an exclusive title only awarded to firms that meet appropriate quality and compliance criteria relating to professionalism and capability.
Events
The Finishing Touch
The Finishing Touch, led by Mel Atkins, is the Group's event management business. Established in 1989 and acquired in September 2005, it is one of the most established and most respected companies in its field.
Corporate events currently account for approximately 42 per cent. by turnover of TFT's core business including long term relationships with many leading FTSE and global businesses. Corporate clients include Accenture, American Express, Royal Bank of Scotland, Electronic Arts and a significant new business win to launch both Debenhams' Spring/Summer 2008 collection preview to the fashion press and also their Autumn/Winter 2008 collection, which previewed in May 2008. Debenhams have also recently confirmed their third press event to be staged in central London with TFT in November 2008.
Following its successful tender in August 2007 for a three year contract to supply event management services to the Training Development Agency for Schools, The Finishing Touch has gone on to deliver over 600 events in the last year for the TDA at venues around the country. Public sector business represents approximately 58 per cent. by turnover of TFT's business.
Continued investment in the development of The Finishing Touch's systems and personnel enabled the business to successfully launch a new venue finding service, now branded as "VenuesFirst" in February 2008. This has gone from strength to strength since its launch, delivering in excess of 100 venues to date to existing and new clients including BNP Paribas.
In April 2007,Yell Communications Limited, an event and delegate management business specialising in clients in the financial services industry, was acquired by the Group. The acquisition has enabled TFT to further expand its corporate events business with the addition of an event management contract for Prudential UK Ltd and to enhance its own delivery of multi-site delegate and conference management services. Yell has been successfully integrated into TFT, having managed a nationwide road show for a major blue chip company whilst continuing to deliver events for Prudential.
Spot Co
SpotCo was founded in 1997 by Drew Hodges, its President and Chief Executive Officer, who is remaining with the business, together with his executive team.
The agency is known for creating innovatively conceived, strategically inspired and elegantly designed campaigns which both attract attention and deliver results.
SpotCo was credited with breathing new life into Broadway advertising with its first theatre campaign - a contemporary photomontage for the musical Rent. Today, it is a live entertainment advertising agency whose work at any given time spans around half the shows on Broadway. The agency is currently working on DreamWorks Theatrical's first musical, Shrek; the stage adaptation of 9 to 5; with Universal's Working Title on the acclaimed Billy Elliot, already a box-office hit in Britain and Australia; on a stage adaptation of the film Priscilla Queen of the Desert (in collaboration with Dewynters in London); and a revival of West Side Story. Beyond Broadway, SpotCo has worked on Cirque du Soleil's Zumanity and Avenue Q in Las Vegas, and as shows go on tour, its campaigns appear worldwide from Las Vegas to London, Melbourne to Moscow.
Demonstrating the calibre of the shows the agency attracts, over the last decade SpotCo's clients have won numerous Tony awards and an impressive six Pulitzer Prizes.
In addition to its theatre specialisation, SpotCo's work spans film and cable television, publishing and music. The agency employs approximately 55 staff at its offices on Seventh Avenue, New York.
BACKGROUND TO AND REASONS FOR THE ACQUISITION
The Group's stated strategy is to grow both organically and by acquisition in its three core areas of business.
The Group's media activities, with their emphasis on the marketing of live entertainment, particularly theatre, currently represent 69 per cent. of Group turnover and 51 per cent. of gross profit. The acquisition of SpotCo presents the Group with a unique opportunity to reinforce its position as one of the leading agencies in the marketing of live entertainment in the world's two most important markets - London's West End and New York's Broadway.
The Directors are confident about the future prospects of the Enlarged Group following the acquisition of SpotCo because it is believed that the increased collaboration between the Enlarged Group and Dewynters will deliver greater opportunities to increase combined revenue.
The acquisition of SpotCo will enable the Group to:
offer a seamless service to its live entertainment clients in their two most important markets;
benefit from SpotCo's position in its market and the opportunity that presents to considerably increase its share of that market; and
follow its clients into the new emerging markets for live entertainment (e.g. in China and Eastern Europe) through the enlarged footprint the acquisition gives in one of the Group's core areas of business (post acquisition this will represent 78 per cent. of turnover and 59 per cent. of gross profit).
TERMS OF THE ACQUISITION
The acquisition of SpotCo is to be funded through a new committed banking facility totalling £16.428 million, provided by Allied Irish Bank, whose support the Company continues to enjoy.
The Company has agreed to acquire the whole of the issued share capital of SpotCo (through its wholly owned subsidiary First Artist Corporation, Inc.) for up to $18.86 million (subject to adjustment by reference to its net asset value as at Completion). The initial consideration is $5.5 million in cash. This is followed by three guaranteed cash payments of $1.5 million on the first three anniversaries of the date of Completion if the EBITDA exceeds certain thresholds.
The annual deferred cash payments in respect of any one year are limited to $2.5 million with any excess cash consideration due being carried forward to the ensuing year and then continuing to roll over subject to the maximum annual payment of $2.5 million. In order to exceed the maximum deferred consideration, EBITDA for the three years post completion must total $9.8 million.
FINANCING THE ACQUISITION
The initial cash consideration of $5.5 million together with associated costs is being financed by a new facility from AIB. The total facility amounts to £16.428 million, which includes the refinancing of the Enlarged Group's existing borrowings and provides for its working capital needs.
The deferred cash consideration for SpotCo is expected to be largely financed out of the profits which give rise to the earn-out obligations.
CURRENT TRADING AND FUTURE PROSPECTS FOR THE ENLARGED GROUP
Current trading of First Artist
First Artist's performance in difficult market conditions remains robust although slightly behind internal expectations. This was indicated in its interim results for period ended 29 February 2008 and more recently in a trading update made to the capital markets in July 2008.
Whilst there is scope for further material transactions in the football transfer market the Board expects EBITDA to be below current market expectations. As revenues are heavily weighted towards the financial year end the Board anticipates an EBITDA level of between £3.5 and £3.7 million for the financial year ended 31 August 2008.
The continuing global banking crisis and credit crunch are expected to bring uncertainty to the financial markets which may affect Optimal's business.
The run up to Christmas and the New Year period have historically been a busy period for the Group; notably the football transfer window opens on 1 January and December is a key opportunity for the Events side of the business.
As disclosed above, Dewynters is involved with several new shows that have recently opened or are opening soon. Due to a recent restructuring, it is hoped that the expenses of the football division will begin to diminish.
Current trading of Spot Co
SpotCo's revenue performance for the six months to 30 June 2008 was 18 per cent. higher than the corresponding six months of the previous year. This is equivalent to 62 per cent. of the revenue for the whole of 2007 compared to 52 per cent. for the corresponding six months period in 2007.
Future prospects for the Enlarged Group
The Directors are optimistic as to the Enlarged Group's prospects. In particular, they believe that there are a number of opportunities and synergies for the Enlarged Group to exploit. These include:
increasing revenues with the Enlarged Group's existing clients;
winning new clients with the Enlarged Group's existing services;
expanding the Enlarged Group's services into new product and service offerings;
building increased scale and investigating geographical diversification; and
minimising duplication and reducing the Enlarged Group's cost-base.
DIRECTORS AND EMPLOYEES
On Admission, the Board will comprise four directors, brief biographical details of whom are summarised below.
Directors
Jarvis Astaire OBE (Non-Executive Chairman), aged 85, had an extensive career in the international sporting industry. As Deputy Chairman of Wembley Stadium Limited from 1984-1999, Jarvis was responsible for dealing with The Football League, The Football Association, Euro 96 and the many clubs involved in playing matches at the stadium. Prior to Wembley, Jarvis was a leading promoter for boxers including Mohammed Ali, and then, through his company ViewSport, a pioneer in using closed circuit TV to broadcast major sporting events. As Chairman of GRA Limited (1997-2005), he was responsible for introducing greyhound racing onto Sky. In 2004, Jarvis Astaire received an OBE for services to young people in London.
Jon Smith (Chief Executive), aged 56, founded First Artist in 1986. Jon is a Fellow of the Institute of Directors, and is one of only a handful of football agents in the world licensed to perform not only football transfers but also to stage global events under the auspices of FIFA worldwide. Jon was involved in staging many of Britain's biggest sporting events, including the UK visits of the major US sporting bodies: NFL, NBA and NHL. Jon was also CEO of The London Monarchs during their inaugural World Bowl winning season at Wembley. He is a well-recognised spokesperson for UK football and has been involved in fund raising in various forms for sport in the UK over the last few years. Jon is a patron of the British Stammering Association and trustee of the Lee Smith Research Foundation.
Phil Smith (Chief Operating Officer), aged 49, joined First Artist in 1992 as head of its UK football management operation and since then has managed and developed its business. He also started the media personality division, now First Artist Management, as a natural progression for former sports players. Phil and his team manage the players' day-to-day activities and work with FAM and Optimal to exploit the commercial interests and maximise the earnings of the clients he represents.
David Noble MBA, ACCA (Non-Executive Director), aged 52, has extensive experience of corporate finance and operations across the global media sector and in 2007 he co-founded QV Partners, a business which provides consultancy services in deal origination and all aspects of traditional and digital media. From 1998 to 2007, he was at 3i plc, latterly as the Media Sector Partner, where he contributed to the successful execution of many high value and high profile investments.
Senior Management
The Directors are supported by a senior management team:
Julianne Coutts FCIS Associate CIPD (Group Company Secretary & Head of Human Resources), aged 49
Julianne joined First Artist in September 2006. Prior to that she was Company Secretary of Anite plc, and was formerly the Assistant Secretary of Unilever plc, a role she held for 10 years. Julianne is a Fellow of the Institute of Chartered Secretaries and Administrators and an Associate of the Chartered Institute of Personnel and Development.
Simon Bent ACA (Group Finance Director Designate), aged 32.
Simon qualified as a chartered accountant in 2001. He joined First Artist in September 2005 as the Group Financial Controller, and in January 2007 was appointed Group Finance Director Designate, with particular focus on internal systems and risk management. Prior to joining the Company, Simon held finance roles at Armani, Mulberry, The Metropolitan Hotel and Nobu Restaurants.
DIVIDEND POLICY
The Group did not pay an interim or final dividend in the last financial year. However the Directors intend to commence the payment of dividends when it becomes commercially prudent to do so, having regard to the resources needed for the Group's growth.
SHARE OPTION SCHEME
The Company operates the following employee share option schemes:
EMI share option scheme;
Company Share Option Scheme (approved and unapproved share options); and
Savings Related Share Option Scheme (Sharesave Scheme).
Awards under both the EMI and the CSOP schemes are made at the discretion of the Remuneration Committee. The Sharesave scheme is a tax advantaged share option scheme in which all eligible employees may participate, subject to HRMC limits and the scheme rules. To date one invitation has been made under the Sharesave Scheme. This was in May 2007 and was taken up by 51 per cent. of eligible employees.
CORPORATE GOVERNANCE
The Board supports the provisions of the Code of Best Practice embodied in Section I of the Combined Code and the Company complies with the Combined Code as far as is practicable given the size and nature of its business. The statements below set out how the principles are applied to the Group.
The Board is collectively responsible for the success of the Company, and entrepreneurial leadership is balanced by the scrutiny and oversight provided by the independent Non-Executive Directors. There is a clear division of responsibilities between Board members, and all Directors have access to the advice and services of the Company Secretary, who is responsible for ensuring compliance with Board procedures and with applicable regulation and legislation.
All Directors are subject to re-election by shareholders at intervals of no more than three years.
The Board meets formally on a regular basis. In addition, ad hoc meetings are called to address specific issues requiring board approval. At formal meetings the Board receives detailed reports from the Chief Executive on operational matters, from the Group Finance Director Designate on financial performance and from the Company Secretary on legal, compliance, human resources and corporate responsibility issues. The Board also sets and monitors Group strategy, approves the annual budget and examines acquisition possibilities. To enable the Board to discharge its duties, all Directors receive appropriate and timely information. Independent professional advice is taken as required.
There is a formal schedule of matters reserved for the Board, and routine business may be delegated to a committee of two Directors or one Director and either the Group Company Secretary or the Group Finance Director Designate.
BOARD COMMITTEES
The Board has established three Board Committees, as follows:
Audit Committee
All members of the Committee are required to be independent Non-Executive Directors. The Committee currently comprises Jarvis Astaire (Chairman of the Committee) and David Noble. The Committee meets at least three times a year at appropriate times in the reporting and audit cycle, and otherwise as required by the Chairman of the Committee. Its remit includes monitoring the integrity of the financial statements, reviewing internal controls and risk management systems. In addition, the Committee considers matters relating to the appointment, independence and objectivity of the Auditors and reviews the results and effectiveness of the audit. Only members of the Committee have the right to attend its meetings. However, other Directors and executives may be invited to attend all or part of any meeting, and the external auditors are invited to attend meetings on a regular basis. The Audit Committee terms of reference are available on the Company's website.
Remuneration Committee
All members of the Committee are required to be independent Non-Executive Directors. The Committee currently comprises Jarvis Astaire, (Chairman of the Committee), and David Noble.
The Committee is responsible for determining and agreeing with the Board the remuneration policy for the Executive Directors and Officers and for approving their remuneration packages and contract terms. The Committee's remit also includes approving the design of performance related pay schemes and share incentive plans, and the remuneration packages of the directors of the subsidiary companies. The Remuneration Committee terms of reference are available on the Company's website.
Nomination Committee
A majority of the members of the Committee are required to be independent Non-Executive Directors. The Committee currently comprises Jarvis Astaire (Chairman of the Committee), David Noble and Jon Smith. The Committee's responsibilities include reviewing the size, structure and composition of the Board; identifying and nominating suitable candidates for appointment to the Board; board succession planning; and making recommendations for appointments to board committees.
The Nomination Committee terms of reference are available on the Company's website.
Relations with Shareholders
The Board recognises the importance of communications with shareholders. There is regular dialogue with institutional shareholders including presentations following the announcement of the Company's interim and full year results. The Board uses the Annual General Meeting to communicate with private and institutional investors and welcomes their participation.
Internal Control and Risk Management
The Board is responsible for the Group's systems of internal control and risk management and for reviewing the effectiveness of those systems. Such systems are designed to manage, rather than eliminate the risk of failure to achieve business objectives; any system can provide only reasonable and not absolute assurance against material misstatement or loss.
The following controls have continued in place throughout the period:
defined organisational structure with appropriate delegation of authority
regular Board meetings
regular Board Committee meetings
clear responsibilities on the part of financial management for the maintenance of good financial controls and the production and review of detailed, accurate and timely financial management information
authorisation levels and proper segregation of accounting duties
a comprehensive financial review cycle, which includes an annual budget approved by the main Board;
detailed monthly variances against budget at subsidiary level with, where necessary, remedial action.
Annual performance is reforecast quarterly; and
provision to the Board of relevant, accurate and timely management information.
A manual of policies and procedures has been issued to all directors, financial controllers and other relevant employees throughout the Group. The manual provides a framework of rules, controls and processes to enable the Group to operate efficiently, legally and effectively within its marketplace.
The internal control environment will continue to be monitored and reviewed by the Board and, where necessary, it will ensure improvements are implemented.