In accordance with the revised Turnbull Guidance, the Directors are responsible for the Group’s system of internal control, which covers financial, operational and compliance controls together with risk management. The system has been in place throughout 2010 and up until the date of this report, except that it did not apply to the Group’s material joint ventures.
The use of our standard accounting manual by finance teams throughout the Group ensures that transactions and balances are recognised and measured in accordance with prescribed accounting policies and that information is appropriately reviewed and reconciled as part of the reporting process. The use of a standard reporting pack by all entities in the Group ensures that information is gathered and presented in a consistent way that facilitates the production of the consolidated financial statements.
Whilst no system can provide absolute guarantee and protection against material loss, the system is designed to give the Directors reasonable assurance that problems can be identified promptly and remedial action taken as appropriate. The Directors, through the Board’s review of risk and the work of the Audit Committee, have reviewed the effectiveness of the system of internal control for the accounting period under review and consider that it accords with guidance. There were no material weaknesses in the Group’s system of internal control relating to financial control during the year.
The key features of the Group’s internal control system are:
Control Environment
A key factor in the Group’s approach to internal control is the recognition of the need for risk awareness and the ownership of risk management by Executives at all levels. Each division has its own Operating Board. A Statement of Group Policies and Procedures sets out the responsibilities of these Operating Boards, including authority levels, reporting disciplines and responsibility for risk management and internal control. Each Operating Board has also adopted a Corporate Governance Manual detailing its controls in implementing these Policies and Procedures. Certain activities, including treasury, taxation, insurance, pension and legal matters are controlled centrally with reports reviewed by the Board as appropriate.
Risk Identification and Review
Key identified risks, both financial and non-financial (the latter including environmental, social and governance risks), are reviewed by the Board as well as at Operating Board level on an ongoing basis, with a formal six-monthly review of risks and controls taking place, supported by the Group’s Controls Assurance provider. The Divisional Operating Boards also review each division’s performance, strategy and risk management. Annual compliance statements on internal control are certified by each Divisional Board. A Treasury Review Committee meets regularly to review the adequacy of the Group’s facilities against potential utilisation and commitments, as well as to monitor and manage the Group’s exposure to interest rate and currency movements.
Financial reporting
There is a comprehensive Group-wide system of financial reporting. Figures reported include profit, cash flows, capital expenditure, balance sheet and relevant performance indicators. Each operating division prepares an annual budget which is approved by the Board. Thereafter a formal re-forecasting exercise is undertaken at least twice during the year. Actual monthly results are monitored against budget, forecasts and the previous year’s results. Any significant variances are investigated and acted upon as appropriate. Both divisions have implemented new financial management and reporting systems, Menzies Aviation having selected Oracle Hyperion and Menzies Distribution SAP Financials. These packages are allowing for far greater, quicker and more accurate analysis of the financial information within the Company.
Investment appraisal
There are clearly defined investment guidelines for capital expenditure. All such expenditure is subject to formal authorisation procedures. An Investment Review Committee meets as required to review investment applications, with major proposals being considered by the Board. Post-investment appraisals are also regularly conducted for all material capital projects.
Significant agreements - change of control
The Company’s divisions, Menzies Aviation and Menzies Distribution, have agreements in place with suppliers and customers, some of which contain change of control clauses giving rights to these suppliers and customers on a takeover bid for the Company. A change of control of the Company following a takeover bid may cause a number of other agreements to which the Company or its subsidiaries are party, such as banking arrangements, property leases and licence agreements to take effect, alter or terminate. In addition, the Directors’ service agreements and employee share plans would be similarly affected on a change of control.