Directors Report 4
Directors' Report for the year ended 31 December 1998
The directors have pleasure in presenting to shareholders their report with the audited Accounts for the year ended 31 December 1998.
Principal Activities The Group continues to provide relevant personal financial services across the three areas of lending, investing and protecting. The Group operates principally in the UK and has a deposit taking subsidiary in Guernsey and banking subsidiaries in France and Italy focused on housing finance. The Business Review and the Group Finance Director's Review on pages 6 to 23, contain a review of the business during the year and an indication of future developments.
Financial Results and Dividends The consolidated profit and loss account of the Group appears on page 39 and shows a profit attributable to shareholders for the year ended 31 December 1998 of ?328.2 million (1997 ?250.1 million). An interim dividend of 3.5p per ordinary share was paid on 12 October 1998 (1997 3.0p). The directors are recommending that, subject to approval at the forthcoming Annual General Meeting on 15 April 1999, a final dividend of 7.1p (1997 6.5p) and a special dividend of 15.0p (1997 6.5p) per ordinary share be paid on 10 May 1999 to those shareholders registered on 26 March 1999. The dividends for 1998 will absorb 2403.1 million, creating a retained deficit for the year of ?74.9 million (1997 retained deficit of ?5.9 million).
Directors The current composition of the Board of directors is shown on page 24. Brief biographical details of each are shown on page 25 and particulars of their emoluments and interests in shares in the Company, including details of options granted and allocations of shares made to directors during the year, are given in the Remuneration Report on pages 31 to 35. Mrs S B S Homersham and Mr J B Solandt retired as non-executive directors of the Company at the conclusion of the 1998 Annual General Meeting and Mr BC Hines retired as a non-executive director of the Company on 30 September 1998. As referred to in last year's report, Mr J F Nelson, Mr S G Russell and Mr D G Ure were appointed non-executive directors of the Company on 27 January 1998 and were duly elected at the 1998 Annual General Meeting. Mrs J M Baddeley was appointed an executive director of the Company on 1 July 1998 and Sir Peter Gregson was appointed a non-executive director on 3 November 1998 and, in accordance with the Company's Articles of Association, they will each offer themselves for election at the forthcoming Annual General Meeting. In addition, Mrs L M Peacock and Mr J M Stewart will retire by rotation at the forthcoming Annual General Meeting and, being eligible, offer themselves for re-election. Mr J H Bushell will also be retiring by rotation at the Annual General Meeting but will not be seeking re-election. Mrs Baddeley, Mrs Peacock and Mr Stewart each have a service agreement with the Company, details of which are given in the Remuneration Report on page 33. As a non-executive director, Sir Peter Gregson does not have a service agreement with the Company.
Share Capital Details of the authorised and issued share capital of the Company (as at the year-end) are given in note 31 on page 60. During the year 1,138,994 ordinary shares of 10p each were issued to eligible qualifying persons under the terms of the transfer of the business of Woolwich Building Society to Woolwich plc. The Company was authorised at its Annual General Meeting held on 22 April 1998 to purchase up to 10% of its issued share capital as at the end of 1997. During the year, the Company has purchased in the market for cancellation 30,846,295 of its ordinary shares of 10p each at a total cost of 2104 million as part of its programme of returning excess capital to shareholders. These purchases, in aggregate, represented approximately 1.9% of the Company's issued share capital as at the end of 1997. As at 31 December 1998, the Company has an unexpired authority to repurchase further shares. At the Annual General Meeting being held on 15 April 1999, the Company will be seeking to renew its authority to make further market purchases. The resolutions being proposed to shareholders seeking authority for the purchase of shares and also for the allotment of shares are contained in the Notice of Annual General Meeting on page 70 and a brief explanation of each is included in the Annual General Meeting section of this report on pages 29 and 30.
27 Woolwich plc Annual Report and Accounts 1998
Directors' Report continued
In November 1998, 2,837,000 ordinary shares were issued to the Company's Qualifying Employee Share Ownership Trust ('QUEST), which is operated in conjunction with the Company's Sharesave Scheme, at a price of 366.5p per share for the purpose of enabling the QUEST to satisfy future exercises of options under that scheme.
Employee Share Schemes Authority was given at the Company's 1998 Annual General Meeting for the introduction and adoption of various employee share schemes. In accordance with the rules of the Company's Sharesave Scheme, on 28 May 1998, 4,520 employees were granted options over 8,603,148 ordinary shares at a price of 22.68 per share. During the year, options granted under the rules of the Sharesave Scheme were exercised over 4,711 shares. Since 31 December 1998 a further 3,748 options have been exercised under the Sharesave Scheme. In addition, under the rules of the Company's Executive Share Option Plan, in April 1998, 2,683,231 ordinary shares were placed under option to 489 senior executives and managers at a subscription price of 23.35 per share and in September 1998, 172,415 ordinary shares were placed under option to 19 senior executives and managers at a subscription price of 23.20 per share. The April 1998 options are ordinarily first exercisable on 28 April 2001 and the September 1998 options on 1 September 2001, being the third anniversary of the respective date of each grant. In each case, options cannot normally be exercised unless the performance target associated with each grant has also been satisfied. 35 senior executives of the Company were additionally granted allocations over 509,437 shares under the Company's Performance Share Plan on 28 April 1998 and 2 senior executives over 54,375 shares on 1 September 1998 in the form of a right to an award of shares in the Company valued at 23.20 per share, subject to the extent to which a performance target is satisfied over a three year performance period. A full statement on the Company's policy on the granting of options and allocations of shares under its employee share schemes, together with details of the related performance targets, is included in the Remuneration Report on pages 31 to 32. As at 31 December 1998, there were in aggregate options over 10,929,334 ordinary shares outstanding under the Company's employee share option schemes and awards over 563,812 ordinary shares allocated under the Company's Performance Share Plan, details of which are set out in note 31 on page 60.
Substantial Shareholdings The Company's Articles of Association restrict the maximum proportion of ordinary shares in which any person may be interested to 15 per cent. As at 9 February 1999, no disclosable interest in the issued share capital of the Company had been notified either pursuant to the Articles of Association or in accordance with sections 198 to 208 of the Companies Act 1985.
Acquisitions and Disposals On 16 October 1998, Woolwich Personal Finance Limited, a subsidiary of the Company, acquired FirstPlus Financial Group PLC, the Cardiff-based subsidiary of FirstPlus Financial Group Inc. of the United States, for a consideration of 28 million. This company operates in the partially secured loan market selling via direct response television and intermediaries. On 10 November 1998, the Company sold its 167 branch estate agency, operating as Woolwich Property Services Limited, for 223 million. A net loss of 29 million is included in the Profit and Loss Account for the year.
Corporate Governance A report on corporate governance is set out on pages 36 and 37.
Employees The Group is committed to employment policies which follow best practice, based on equal opportunities for all employees irrespective of sex, marital status, age, religious belief, race, ethnic origin or disability. The Company is a member of the Employer's Forum on Disability which is concerned exclusively with promoting the employment of people with disabilities, and the Company uses the Employment Service's 'Double Tick' symbol, indicating its commitment to the disabled. The Company's policy is to give full consideration to all applications for employment from disabled people. Disabled people are given the same consideration as other employees for career development, training and promotion where their abilities allow. In the event of staff becoming disabled, every effort is made to retain them in suitable employment. The Company is also a member of Opportunity 2000 which is a group of leading employers committed to promoting employment opportunities for women. The Company has also signed a Joint Declaration of Protection in recognition of its moral and legal obligations under the Fair Employment legislation in Northern Ireland. The Company's commitment to staff training and development is reflected in its 'Investor in People' accreditation for the period 1997-2000. The Company operates formal performance reviews and personal development processes to better focus all its staff on achieving objectives and strengthening the link between performance and reward. During 1998 the Company introduced formal succession planning and high potential development schemes to ensure the continued availability of high calibre employees. The Company is committed to effective communication with its staff to keep them informed of developments and objectives. This is done regularly through the issue of audio-tapes and an in-house journal 'Woolwich World' and other information circulars. The Company also conducts regular staff opinion surveys and has introduced schemes to encourage and recognise ideas and innovations from staff. During the year the Company negotiated a new recognition and procedure agreement with the Woolwich Independent Staff Association and re-affirmed its commitment to the collective bargaining process.
Environmental Policy Environmental Management is a corporate priority, and as such must be integrated into normal business practices. The Company has actively promoted regard for the environment as a core element of its business strategy since 1994. This ensures that concern for the environment is an accepted part of corporate culture and is recognised at every level throughout the Group. With a Woolwich Environmental Management Unit in place and environmental champions in all areas of the Group the Woolwich will continue to seek opportunities to improve its environmental performance. The Group's policy is one of continuous environmental impact reduction, and further details relating to the Group's policy are set out on page 19 of the Business Review.
Policy In Respect of Supplier Payments Businesses within the Group are responsible for agreeing terms of payment with their suppliers. Unless otherwise agreed, the Group policy on payment of creditors is for all invoices to be paid within 28 days of receipt of an invoice, provided that all trading terms and conditions have been complied with. At the year end, the Company had trade creditors outstanding representing an average of 26 days purchases.
Donations During the year, the sum of ?544,000 (1997 ?452,000) was donated to charitable and community organisations within the UK. The Company recognises its responsibilities to the community and is conscious of the part it can play. It invests time, money and expertise in a range of cultural, educational and environmental activities, both locally and nationally. No payments were made to political parties.
Annual General Meeting The Annual General Meeting of the Company will be held at The Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London SW1P SEE on Thursday, 15 April 1999 at 2.30 pm. The Notice of Annual General Meeting is set out on pages 70 and 71. The business to be conducted at the meeting will cover the receipt of the report and accounts, approval of the payment of a final and special dividend, the election and re-election of directors and the re-appointment and remuneration of the auditors. The directors will also be seeking the annual renewal by shareholders of the authority to allot unissued shares pursuant to section 80 of the Companies Act 1985 ('the Act'). In accordance with the Investment Protection Committee ('IPC') guidelines, this authority will be restricted to a maximum nominal amount equal to ?52,687,030, which represents 33.49% of the total issued ordinary share capital of the Company as at 9 February 1999 and will expire on 15 July 2000, although the directors intend to seek renewal of this power at each Annual General Meeting. As was the case last year, the directors have no present intention of exercising this authority save for the purposes of allotting shares under the terms of the Company's employee share schemes and to qualifying persons under the terms of the share distribution scheme relating to the transfer of the business of Woolwich Building Society to the Company in July 1997.
Directors' Report continued
Similarly, the directors will be seeking the annual renewal by shareholders of their authority, pursuant to section 95 of the Act, to allot shares for cash without first offering them to sharehdders. In accordance with the IPC guidelines, this authority is limited to the issue of equity securities or otherwise up to a maximum nominal amount of ?7,865,648, representing approximately 5% of the issued ordinary share capital of the Company as at 9 February 1999 and will also expire on 15 July 2000, or, it earlier, the date of the next Annual General Meeting. As mentioned in the Share Capital section above, the directors are also seeking new authority for the Company to purchase up to 10% of its issued share capital as at the end of 1998. As for last year, this authority will only be exercised if the directors believe that to do so would result in an increase in earnings per share and would be in the best interests of shareholders generally.
Auditors Resolutions to re-appoint KPMG Audit Plc as auditors to the Company and to authorise the directors to determine their remuneration will be proposed at the Annual General Meeti.ng,
By Order of the Board
C Fletcher Smith MIS Secretary 1999-02-16 00:00:00
Remuneration Report for the year ended 31 December 1998
The Constitution and Responsibility of the Remuneration Committee The Remuneration Committee is composed entirely of independent non-executive directors, namely: Mr W H Yates (chairman), Mr S G Russell and Sir Peter Gregson. Mr B C Hines resigned as chairman and as a member of the Committee on his retirement from the Board on 30 September 1998. On that date, Mr Yates assumed the chairmanship and Sir Brian Jenkins joined the Committee pro tem until Sir Peter Gregson was appointed to the Board and joined the Committee on 3 November 1998. The Committee is responsible for determining the Company's general policy and framework for executive director and senior executive remuneration and for approving individual salaries and other terms of the remuneration package for each executive director. The Committee is assisted by the Head of Human Resources and has access to detailed external research on market trends and independent professional advice from Towers Pen-in. The Committee also consults, as appropriate, with both the Company's Chairman and Group Chief Executive,
Compliance The Board has complied throughout the year with the provisions relating to directors' remuneration set out in the Principles of Good Governance and Code of Best Practice (the 'Combined Code') published by the London Stock Exchange in June 1998. In preparing this remuneration report, the Board has followed the provisions set out in Schedule B to the Combined Code.
Policy The aim of the Committee is to provide competitive packages to attract, retain and motivate high calibre individuals who will provide the right strategic direction and leadership, deliver sustained improvement in business performance and customer service and enhance shareholders' returns, whilst at the same time being sensitive to the pay and employment conditions of all employees in the Group. A significant proportion of the total remuneration package for executive directors is made up of performance-related elements of remuneration and is subject to challenging performance criteria which reflect the Company's objectives of increasing earnings per share and total shareholder return. The remuneration of executive directors during 1998 comprised basic salary; annual bonus scheme; share option grants and allocations under the Company's long-term incentive schemes; pension benefits (which also provide for the payment of four times salary and dependants' pension in the event of death in service) and medical health insurance and car benefits. Each element is considered in the context of the individual's overall reward package.
Basic Salary The salaries of all executive directors are reviewed annually, having regard to corporate and individual performance and external market data. Evidence is provided by Towers Perrin on salary rates of appropriate comparator companies operating in ihe financial services sector and also in the non-financial services sector. The group comprising the financial services sector consists of banks and insurance companies with which the Company competes. The aim is that basic salary should be around the market median for the financial sector. The remuneration of the directors is set out in the table on page 33. No director is involved in deciding his or her own remuneration.
Annual Bonus Scheme During 1998, the executive directors participated in an annual cash bonus scheme, which formed the short-term element of their remuneration packages. Under the scheme, a cash bonus of up to 50% of an executive director's base salary as at 1 January 1998, or as at the date of appointment if later, may be awarded. The actual level of bonus payments made under that scheme is determined by the Committee and calculated by reference to the achievement of delivering key strategic objectives contained in the business plan for 1998 and achievement of profit and cost to income targets set at the beginning of that year by the Committee. In addition qualitative objectives, such as customer and employee satisfaction, were also taken into account in assessing the actual bonus payments paid to each executive director. Details of the payments made to individual executive directors, which reflect both corporate and individual performance, are contained in the table on page 33. Such payments are not pensionable.
Share Schemes At the 1998 Annual General Meeting of the Company, approval was given to the introduction and adoption of a sharesave scheme, executive share option plan and performance share plan. The latter two plans were introduced to put in place long- term incentive arrangements for senior executives in the Company and to align their interests with those of shareholders. In designing the Company's schemes for performance-related remuneration, the Committee had regard to the provisions set out in Schedule A to the Combined Code. The annual bonus scheme and the long-term incentive arrangements which have been put in place form part of a well considered overall plan in the total remuneration packages for executive directors and senior
31 Woolwich plc Annual Repel and Accounts 1998
Remuneration Report continued
managers. The Committee's current policy is to operate the executive share option plan and performance share plan in tandem when making grants under each of those plans to executive directors and selected senior managers.
Sharesave Scheme In common with other eligible employees, executive directors may participate in the Company's Inland Revenue approved sharesave scheme. This scheme enables employees to save up to 2250 per month for a fixed period of up to three or five years. At the end of that fixed term, they have the opportunity of using those savings to purchase shares in the Company at a discount. Currently the discount is 20% of the market value of a share at the time the invitation to participate in the scheme is made.
1998 Executive Share Option Plan This plan, which is operated and administered by the Committee, allows executive directors to receive annual grants of share options. It is the current policy of the Committee to grant options annually under this plan to executive directors up to 75% of their salary prevailing at the beginning of the financial year or, if later, on the date of their appointment. Options are granted at the market value at the time of the grant, with no discount. Options granted in 1998 will only be exercisable to the extent that the Company's earnings per share is equal to the rate of increase in the Retail Prices Index plus 9% over three consecutive financial years. An option will be exercisable in whole or part at any time between three years and ten years from the date of grant subject to the prior satisfaction of the performance target. Any option not exercised will lapse on the tenth anniversary of the date of its grant.
1998 Performance Share Plan This plan is administered by the Committee in conjunction with an employee share ownership trust. Senior employees, including executive directors, who are required by their contracts of employment to devote substantially the whole of their working time to their duties are eligible to be nominated by the Committee to participate in the plan at the discretion of the trustee. The plan provides for participants, if the performance target described below is satisfied, to be granted a right to acquire ordinary shares in the capital of the Company in the form of an award for a nominal sum of 91. The number of shares, if any, awarded will depend upon the extent to which the performance target is satisfied over a period of three years (the 'performance period') and will also be at the discretion of the trustee. Awards will only be exercisable for a period of seven years. The performance target for the first cycle, which runs from 1 January 1998 to 31 December 2000, will measure the Company's performance in respect of its Total Shareholder Return ('TSR') relative to the TSR performance of a comparator group of companies in the retail banking sector. For the first awards, the comparator group will consist of the Company and Abbey National, Alliance & Leicester, Bank of Scotland, Barclays, Halifax, HSBC Holdings, Lloyds TSB, National Westminster, Northern Rock and Royal Bank of Scotland. No awards will be granted unless the Company's TSR performance is at least at the 50th percentile relative to the comparator group. The number of shares over which awards may be granted rises on a straight line basis from a TSR performance at the 50th percentile, when awards over the minimum number of shares may be made, to a TSR performance at the 75th percentile of the comparator group when awards over the maximum number available may be made. The Committee will keep the performance measure under review and will alter it and the composition of the comparator group from time to time to ensure that the performance targets remain suitably stretching. For the 1998 cycle, share allocations to executive directors were based on 50% of their base salary as at 1 January 1998 or the date of their appointment, if later. The allocation price for determining such share allocations was based on the average of the middle market closing price quotations for a share in the Company on the London Stock Exchange for the five consecutive dealing days, as derived from the Daily Official List of the London Stock Exchange, immediately prior to the commencement of the performance period. The interests of the executive directors in share options and share allocations are shown in the table on page 35. Non- executive directors do not participate in any of the Company's share schemes.
Pension Benefits Mrs L M Peacock and Mr J M Stewart are members of the Woolwich Pension Fund ('the Pension Fund') and are entitled to the enhanced benefits of a two-thirds pensionable salary at their normal retirement age of 60. Details of executive directors' pensions and the value of such benefits are set out in the table on page 34. Mrs J M Baddeley and Mr R C H Jeans are entitled to an annual supplement of 25% of their basic salary in lieu of joining the Pension Fund. Prior to October 1990, non-executive directors of the former Woolwich Building Society were eligible to receive an ex-grata pension upon their retirement based upon the length of service and offices held. This policy ceased in October 1990 and does not apply to non-executive directors appointed after that date. During the year, under the pre-1990 policy, an ex-gratia pension of 219,000 per annum was awarded to Mr B C Hines following his retirement on 30 September 1998. Following that award, only one other non-executive director remains eligible to receive such a pension under the pre-1990 policy.
Other Benefits Executive directors also receive benefits in kind, including the use of a vehicle and medical health insurance. The value of these benefits is shown in the table below.
Service Agreements Each of the executive directors has a service agreement, which may be terminated by the Company on not less than twelve months notice and on six months notice by directors. Although the service agreements do not provide for a predetermined payment to be made in the event of early termination of such agreements, the Committee will take appropriate legal advice in dealing with any such termination and support, where appropriate, the principle of mitigation of damages. Non-executive directors do not have service agreements.
Non-Executive Directors Non-executive directors (save for the Chairman and Deputy Chairman, whose fees are set out in the table below) during 1998 received a basic annual fee of ?25,000. This reflects their expected commitments to the Group and amounts paid to non-executive directors in comparable companies. The Board determines the fees of non-executive directors.
Directors' Remuneration The emoluments of the directors of the Company in respect of 1998 excluding pensions, details of which are set out separately below, were: Sheet7 1 Appointed 1 July 1998. 2 The 1997 comparative figures exclude ?350,000 paid to Mr P C Burton in respect of compensation for early termination of his service contract with the Company on 17 December 1997. 3 Appointed 3 November 1998. 4 Retired 30 September 1998. 5 Retired 22 April 1998. 6 Appointed 27 January 1998.
33 Woolwich plc Annual Report and Accounts 1998
Remuneration Report continued
Directors' Pensions The following table provides an analysis of the pension benefits of executive directors participating in the Pension Fund: Transfer value of the Contributions from Increase in accrued increase in accrued Total accrued Total accrued directors pensions during pensions during pensions as at penstons as at during 1998 1998 1998 31 December 1998 31 December 1397 ?000 ?000 ?000 ?000 9000 L M Peacock 7 23 288 80 56 J M Stewart 11 39 583 160 118 Total 18 62 871 240 174
Notes 1 The increase in accrued pensions during 1998 represents the increase in the annual pension, which each director would be entitled to receive from normal pension age if leaving service at the end of the financial year. This increase has arisen as a result of changes during the year in pensionable earnings and increases in pensionable service, and has been calculated to exclude inflation. 2 The transfer value of the increase in accrued pensions represents the amount of capital, which would be required to produce the reported increase in accrued pensions. It has been calculated on the basis of actuarial advice, and is stated after deducting each director's contributions. 3 The accrued pensions as at 31 December 1998 represents the annual pension, which each director would be entitled to receive from age 60 if leaving service at the end of the financial year. The total accrued pension figures as at 31 December 1997 and 31 December 1998 have been calculated to include inflation. 4 Members of the scheme have the option to pay Additional Voluntary Contributions; neither the contributions nor the resulting benefits are included in the above table. 5 Mrs J M Baddeley and Mr R C H Jeens are paid a salary supplement in lieu of membership of the Pension Fund. The amounts paid in 1998 amounted to 230,972 and 263,087 respectively (1997 nil and 258,823).
Directors' Share Interests According to the register of directors' interests kept by the Company under section 325 of the Companies Act 1985, the directors of the Company at the year end and at the beginning of the year, or date of appointment, if later, including where applicable their family, had the following interests in the share capital of Woolwich plc: Sheet8 1 Appointed 1 July 1998. 2 Appointed 3 November 1998. 3 Appointed 27 January 1998. Directors' Interests in Share Options and Allocations Details of options to subscribe for ordinary shares and allocations of shares made to directors during 1998 are set out below:
At 1 January 1998 Market (or date of At price at Date from appointment No. of options 31 December Exercise date of which Expiry it later) Granted Exercised 1998 price E exercise E exercisable date Sheet9 SS = Options granted under the Company's Sharesave Scheme ESOP = Options granted under the Company's 1998 Executive Share Option Plan
In addition, executive directors were allocated the following shares during the year under the Company's 1998 Performance Share Plan at a value of 23.20 per share:
Sheet10 1 No options or share allocations granted to executive directors lapsed during the year. The market price of shares at 31 December 1998 was 362p and the range during 1998 was 315p to 395.75p. 2 As at 31 December 1998, the market price for options granted under the Sharesave Scheme and Executive Share Option Plan exceeded the exercise price. 3 In May 1998, the Company established a Qualifying Employee Share Ownership Trust ('QUEST') which is operated in conjunction with the Company's Sharesave Scheme. The trustee of the QUEST is Woolwich Qualifying Employee Share Ownership Trustee Limited, a subsidiary of the Company. As at 31 December 1998, 2,836,479 shares were held by the QUEST Under the terms of the trust deed establishing the QUEST, all employees and executive directors who participate in the Sharesave Scheme are deemed to have an interest in those shares as potential discretionary beneficiaries.
No director had a beneficial interest in the shares or debentures of any subsidiary of the Company during the year. No director had a material interest in any contract of significance, other than a service agreement, with the Company or any of its subsidiarieS at any time during the year. There has been no change in the directors' interests in the period 1 January 1999 to 9 February 1999. By Order of the Board
W H Yates Remuneration Committee Chairman 1999-02-16 00:00:00
35 Woolwich plc Annual Report and Accounts 1998
Corporate Governance
The Board of directors continues to support the highest standards in corporate governance and this statement explains the Company's policies in the fight of the principles of good governance and code of best practice prepared by the Committee on Corporate Governance, chaired by Sir Ronald Hampel, and, following consultation by the London Stock Exchange, published in June 1998 and appended to the Listing Rules as the 'Combined Code'.
The Board The Board comprises the Chairman, Group Chief Executive, three other executive directors and, in addition to the Chairman, six other independent non-executive directors, one of whom, Mr W H Yates, the Deputy Chairman, is recognised as the senior independent non-executive director to whom concerns can be conveyed independently of the Chairman. Mr J F Nelson is also a non-executive director of the Company but, since his appointment to the Credit Suisse First Boston Group (which includes the Company's stockbrokers) in January 1999, he is not considered to be an independent non-executive director. Whilst not actively involved in the day-to-day management of the Company, the non-executive directors play an important role in bringing their independent judgement and considerable knowledge and experience to the Board's deliberations. The directors' biographies appear on page 25. The Board meets 11 times a year and is responsible for overall Group strategy and competent management of the affairs of the Group. To enable the Board to discharge its duties, all directors are provided with appropriate and timely information and, where necessary, have direct access to management to make such further enquiries as they consider appropriate. A formal schedule of matters covering key areas of the Group's affairs, which include its acquisition and divestment policy, approval of budgets, major capital expenditure projects and treasury and risk management policies, is reserved for the decision of the Board. All directors have access to the advice and services of the Company Secretary who is responsible to the Board for ensuring that Board procedures are followed and all applicable rules and regulations are complied with. The removal of the Company Secretary is a matter for the Board as a whole. The Board also has a procedure whereby directors, wishing to do so in the furtherance of their duties, may take independent professional advice at the Company's expense. At the time of a director's appointment to the Board, an internal induction course is provided by senior management on the Group's strategic and business plans and developments to date. The content of this induction course and, where appropriate any additional training which may be required by the director, is kept under review by the Group Chief Executive. All directors are subject to election by shareholders at the first opportunity after their appointment and thereafter will seek re-election at least every three years. Non-executive directors are appointed for a fixed period, terminating at the third annual general meeting following their election by shareholders (subject to re-election and the provisions relating to the removal of a director). Further periods of office for non-executive directors are recommended to the Board, as appropriate, by the Nomination Committee. In order to broaden their experience, and where it is beneficial for both the individual concerned and the Company, executive directors are permitted to accept external appointments as non-executive directors of other companies. Executive directors normally would be permitted to take on no more than two such appointments and any such appointment must first be agreed by the Board before acceptance. Fees received in respect of any such appointments must be paid to the Company.
Board Committees The Board has a number of standing committees comprising certain directors and specialist staff members. Each committee operates within defined terms of reference. Minutes of meetings are formally recorded and reported to the Board by the respective committee chairman. The principal committees are the Audit Committee, the Remuneration Committee, the Nomination Committee and the Group Management Committee. The membership of each of these committees is set out below.
The Audit Committee, which is chaired by Lord Borne, monitors the adequacy of the Group's internal controls, accounting policies and financial reporting. It also reviews the half-yearly and annual accounts before they are presented to the Board. The Committee also maintains a liaison with the internal and external auditors and keeps under review the scope and results of the audit and its cost effectiveness and the independence and objectivity of the auditors, taking into account where necessary any non-audit services provided to the Company by the auditors. The Committee meets four times a year, which includes part of one meeting being held between the Committee members and the external auditors in private. The other members of the Committee are Mr J H Bushell and Mr J F Nelson.
The Remuneration Committee, which is chaired by Mr W H Yates, is responsible for determining the remuneration policy and for fixing the remuneration packages of each of the executive directors with the help of appropriate professional advice from both inside and outside the Company. The Remuneration Report is set out on pages 31 to 35. The other members of the Committee are Sir Peter Gregson and Mr S G Russell.
The Nomination Committee, which is chaired by Sir Brian Jenkins, is responsible for nominating and recommending candidates for the approval of the Board to fill vacancies on the Board. The other members of the Committee are Mr W H Yates and Mr J M Stewart.
The Group Chief Executive, together with his senior executive team, comprising the other executive directors and five general managers, is responsible for the executive day-to-day running of the Company. He chairs the Group Management Committee which is responsible for the preparation and maintenance of corporate and strategic plans for the Group as a whole and for the prudent management and control of all parts of the Group.
Internal Financial Control The Board of directors has overall responsibility for the Group's system of internal financial control. Although no system of internal financial control can provide absolute assurance against material misstatement or loss, the Group's systems are designed to provide the directors with reasonable assurance that physical and financial assets are safeguarded, transactions are authorised and recorded properly and material errors and irregularities are either prevented or will be detected without undue delay. Key elements of the internal financial control system include: ?a planning framework which includes the Board approving a five year business plan and annual budget covering all the Group's activities. ?a comprehensive system of financial reporting to the Board, based on the annual budget with monthly reports against actual results, review of variances and key performance indicators, plus regular forecasting. .a Group Risk Committee which is responsible for the establishment and monitoring of effective financial risk management practices across the Group and ensuring that control limits for financial risks, including credit, market, liquidity and funding, are strictly adhered to. ?the existence of controls and procedures to limit the Group's exposure to loss of assets and to fraud and other irregularities. ?the use of control manuals for documenting key controls against identified risks within the business units. .the regular review by the internal audit function of all business activities to verify the existence and effective operation of appropriate controls. Monitoring of the effectiveness of internal financial control is undertaken by the Audit Committee, which receives regular reports from the internal audit function and, where relevant, from external auditors. The Audit Committee has reviewed the effectiveness of the system of internal financial control which operated during 1998. Until formal guidance has been issued on internal control reporting under the Combined Code, the Company has reported on its existing arrangements based on the guidance for directors on internal controls and financial reporting issued by the Rutteman Working Group in December 1994.
Investor Relations The Group Chief Executive and the Group Finance Director regularly meet with institutional shareholders and analysts and the Company's Annual General Meeting is used as an opportunity to communicate with private investors. The Company is committed to on-going development of open and effective communications between the Company and all of its shareholders.
Going Concern The directors, after due consideration, are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the directors continue to adopt the going concern basis in the preparation of the Accounts.
Combined Code Throughout the year ended 31 December 1998, the Company has complied with the Code provisions set out in Section 1 of the Combined Code, published by the London Stock Exchange in June 1998, except that a senior independent director was not appointed until November 1998 and the Company did not at its 1998 Annual General Meeting announce the number of proxy votes cast on each resolution at that meeting following its vote on a show of hands. The Company will do so in future. The ways in which the Company applies the other relevant principles are described in the appropriate sections of this statement and in the Remuneration Report,
37 Woolwich plc Annual Report and Accounts 1998
Statement of Directors' Responsibilities
The following statement, which should be read in conjunction with the Auditors' Report shown below, in relation to the Accounts, is made with a view to distinguishing for shareholders the respective responsibilities of the directors from those of the Auditors. The directors are required by the Companies Act 1985 to prepare Accounts for each financial year which give a true and fair view of the state of affairs of the Company and the Group as at the end of the financial year and of the profit or loss of the Group for the financial year. The directors consider that in preparing the Accounts on pages 39 to 67, the Group has used appropriate accounting policies, consistently applied and supported by reasonable and prudent judgements and estimates, and that all accounting standards which they consider to be applicable have been followed. The directors have responsibility for ensuring that the Company and the Group keep accounting records which disclose with reasonable accuracy the financial position of the Company and the Group and which enable them to ensure that the Accounts comply with the Companies Act 1985. The directors have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Report of the Auditors to the Members of Woolwich plc
We have audited the Accounts on pages 39 to 67.
Respective responsibilities of directors and auditors The directors are responsible for preparing the Annual Report as described above. Our responsibilities, as independent auditors, are established by statute, the Auditing Practices Board, the Listing Rules of the London Stock Exchange, and by our profession's ethical guidance. We report to you our opinion as to whether the Accounts give a true and fair view and are properly prepared in accordance with the Companies Act. We also report to you if, in our opinion, the directors' report is not consistent with the Accounts, if the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law or the Listing Rules regarding directors' remuneration and transactions with the company is not disclosed. We review whether the statement on page 37 reflects the Company's compliance with those provisions of the Combined Code specified for our review by the Stock Exchange, and we report if it does not. We are not required to form an opinion on the effectiveness of the Company's corporate governance procedures or its internal controls. We read the other information contained in the Annual Report, including the corporate governance statement, and consider whether it is consistent with the audited Accounts. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the Accounts.
Basis of opinion We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the Accounts. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the Accounts, and of whether the accounting policies are appropriate to the Group's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Accounts are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall presentation of information in the Accounts.
Opinion I In our opinion the Accounts de a true and fair view of the state of affair f the Company and the Group as at go 31 December 1998, and of the ofit he Group for the year then ended and e been properly prepared in accordance with the Companies Act 1985.
KPMG Audit Plc Chartered Accountants Registered Auditor London 1999-02-16 00:00:00
