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Michelmersh Brick Holdings PLC Corporate Governance

The Company’s shares are traded on the AIM Market of the London Stock Exchange and the Company is not therefore required to report on compliance with the Combined Code (“The Code”). However the Board of Directors supports The Code, and also the recommendations of the Quoted Companies Alliance (“QCA”) in its bulletin “Corporate Governance Code for Small and Mid-sized entities 2013” (the “QCA Code”). The QCA Code provides a series of recommendations for smaller quoted companies in approaching the question of corporate governance. The Company is not however formally compliant with any specific corporate governance code.

The Directors are committed to delivering high standards of corporate governance to the Company’s shareholders and other stakeholders including employees, suppliers and the wider community. The Board of Directors operates within the framework described below.

The Board.

The Board sets the Company’s strategic aims and ensures that necessary resources are in place in order for the Company to meet its objectives. All members of the Board take collective responsibility for the performance of the Company and all decisions are taken in the interests of the Company.

Whilst the Board has delegated the normal operational management of the Company to the Executive Directors and other senior management, there are detailed specific matters subject to decision by the Board of Directors. These include acquisitions and disposals, joint ventures and investments and projects of a capital nature. The Non-executive Director has a particular responsibility to challenge constructively the strategy proposed by the Chairman and Executive Directors; to scrutinise and challenge performance; to ensure appropriate remuneration and that succession planning arrangements are in place in relation to Executive Directors and other senior members of the management team. The Chairman holds informal meetings with the Non-executive Director without the Executives present. The senior Executives enjoy open access to the Non-executive Director with or without the Chairman being present. In short the Directors talk to each other.

The Board is responsible for ensuring that a sound system of internal control exists to safeguard shareholders’ interests and the Group’s assets. It is responsible for the regular review of the effectiveness of the systems of internal control. Internal controls are designed to manage rather than eliminate risk and therefore even the most effective system cannot provide assurance that each and every risk, present and future, has been addressed. The key features of the system that operated during the year are described below.

Organisational structure and control environment.

The Board of Directors meets at least five times a year to review the performance of the Group. It seeks to foster a strong ethical climate across the Group. There are clearly defined lines of responsibility and delegation of authority from the Board to the operating subsidiaries. The Directors of each trading subsidiary meet on a monthly basis with normally at least two members of the Group Board in attendance.

Internal control.

The key procedures which the Directors have established with a view to providing effective internal control are as follows:

Regular Board meetings to consider the schedule of matters reserved for Directors’ consideration; A risk management process (see below); An established organisation with clearly nal structure defined lines of responsibility and delegation of authority; Appointment of staff of the necessary calibre to fulfil their allotted responsibilities; Comprehensive budgets, forecasts and business plans, approved by the Board, reviewed on a regular basis, with performance monitored against them and explanations – obtained for material variances (see below); An Audit Committee of the Board considers significant financial control matters as appropriate; Documented whistle-blowing policies and procedures.

There is currently no internal audit function, although this is kept under annual review.

Risk management.

The Board has the primary responsibility for identifying the major risks facing the Group. The Board has adopted a schedule of matters which are required to be brought to it for decision, thus ensuring that it maintains full and effective control over appropriate strategic, financial, organisational and compliance issues. The Board has identified a number of key areas which are subject to regular reporting to the Board. The policies include defined procedures for seeking and obtaining approval for major transactions and organisational changes. Risk reviews carried out by each subsidiary were updated as part of an ongoing risk assessment process. The focus of the reviews is to identify the circumstances, both internally and externally, where risks might affect the Group’s ability to achieve its business objectives. An overall risk assessment for the Group is prepared. The management of each subsidiary reports periodically to the Board any new risks. In addition to risk assessment, the Board believes that the management structure within the Group facilitates free and rapid communication across the subsidiaries and between the Group Board and those subsidiaries and consequently allows a consistent approach to managing risks. Certain key functions are centralised, enabling the Group to address risks to the business present in those functions quickly and efficiently.

Financial planning, budgeting and monitoring.

The Group operates a planning and budgeting system with an annual Budget approved by the Board. There is a financial reporting system which compares results with the budget and the previous year on a monthly basis to identify any variances from approved plans. Rolling cash flow forecasts form part of the reporting system. The Group remains alert to react to other business opportunities as they arise.

Audit and Remuneration Committees.

Audit and remuneration committees, each comprised of the non-executive directors, Eric Gadsden and Bob Carlton-Porter and the Deputy Chairman Martin Warner. The audit committee meets at least twice a year and is responsible for ensuring that the financial performance, position and prospects of the Group are properly monitored and reported on, meeting the auditors and reviewing their reports relating to accounts and internal controls. The remuneration committee reviews the performance of executive directors and set the scale and structure of their remuneration and the terms of their service agreements with due regards to the interests of shareholders. The remuneration committee also determines the payment of bonuses to executive directors and the allocation of share options to employees.



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