Statement of compliance with the Code of Best Practice

The Board has reviewed the Group's compliance with the Code of Best Practice as set out in Section 1 of the Combined Code annexed to the Listing Rules of the Financial Services Authority ("the Code"). In the opinion of the Directors the Group has complied with the Code throughout the year.

Application of principles of good governance

The Board and its committees

The Directors believe it is essential for the Group to be led and controlled by an effective Board. The Directors are responsible for the Group's activities and its system of corporate governance. The Board meets frequently throughout the year and the Directors receive information to enable them to discharge their duties. There is a formal schedule of matters reserved for the Board's decision and a procedure in place for any Director to take independent professional advice where considered necessary. The Company Secretary is responsible for ensuring that Board procedures are followed and applicable rules and regulations are complied with. All Directors are encouraged to keep abreast of matters affecting their duties as a Director and to attend training courses relevant to their role.

The Board comprises three Executive and five independent Non Executive Directors. The offices of Chairman and Chief Executive are held separately. Tim Stevenson is the Senior Independent Director. The Non Executive Directors bring strong independent judgment and considerable knowledge and experience to Board deliberations. Non Executive Directors do not participate in any of the Company's share option or bonus schemes and their service is non pensionable. Short biographies of the Directors are to be found on page 35.

All new appointments to the Board are made by the Board on the recommendation of the Remuneration and Nomination Committee. All Directors submit themselves for election at the Annual General Meeting following their appointment and thereafter by rotation at least once every three years.

The Board has established a number of committees with defined terms of reference and receives reports of their proceedings. The principal committees are the combined Remuneration and Nomination Committee (Chairman Michael Davies), the Audit Committee (Chairman Tim Stevenson) and the Safety Committee (Chairman Michael Davies). The membership of these committees is comprised solely of the Non Executive Directors: Michael Davies, Barry Gibson, Sue Lyons, David Ross and Tim Stevenson.

Remuneration and Nomination Committee

The Remuneration and Nomination Committee is responsible for determining the contract terms, remuneration, pensions and other benefits of the Executive Directors and it reviews the Group's policies in relation to the remuneration of other senior managers, including performance related incentive schemes and executive share option schemes. It also considers eligible candidates for senior appointments. The Chairman does not attend Committee discussions concerning the review of his own remuneration. The report on Directors' remuneration is set out on pages 40 to 43.

Audit Committee

The Audit Committee is responsible for reviewing the half year and full year results, the Interim Report and the Annual Report and Accounts. It reviews the accounting policies and procedures of the Group, its internal control systems and its compliance with statutory requirements, and considers any matters raised by the external or internal auditors. The Committee is responsible for maintaining an appropriate relationship with the external auditors.

Safety Committee

The Safety Committee reviews the Group's safety practices, procedures and safety record and meets quarterly during the year.

Relations with shareholders

The Company maintains a regular dialogue with its institutional shareholders and fund managers with a variety of meetings and presentations throughout the year. The Annual General Meeting provides an opportunity for all shareholders to question the Chairman and Directors on a variety of topics, and information is provided at the Annual General Meeting on different aspects of the Groupfs activities. During the year written responses are given to correspondence received from shareholders and all shareholders receive copies of the Interim Report and the Annual Report and Accounts.

Accountability and audit

The Combined Code has extended the requirement that the Board reviews the effectiveness of the Group's system of internal financial control to cover all controls including financial, operational, compliance and risk management. The Company has established procedures to ensure full compliance with this requirement.

The Board has established an ongoing process for identifying, evaluating and managing the significant risks faced by the Group. This system has been in place for the year under review and up to the date of approval of this annual report and is reviewed regularly by the Board of Directors. Such a system is designed to manage rather than to eliminate the risks inherent in achieving the Group's business objectives and can therefore provide only reasonable and not absolute assurance against material misstatement or loss. The procedures in place accord with the Guidance for Directors on the Combined Code published by the Institute of Chartered Accountants in England and Wales.

The Board maintains full control and direction over appropriate strategic, financial, organisational and compliance issues and has put in place an organisational structure with formally defined lines of responsibility, delegated authorities and clear operating processes.

In particular, there are clear procedures for:

• managing business risks, with key risks identified and classified in conjunction with operational management and steps taken to mitigate or eliminate these where appropriate;
• financial reporting, within comprehensive financial planning and accounting frameworks; and
• capital investment, with detailed appraisal and authorisation.

In addition there is an extensive programme in place to review and address risk management and safety issues throughout the Group. This programme is applied to all new businesses acquired by the Group as part of the process of integration. The Board receives regular reports on progress during the year.

The internal control system is monitored and supported by an outsourced internal audit function which reports to management and the Audit Committee on the Groupfs financial and operational controls and reviews the extent to which its recommendations have been implemented. The Audit Committee, alongside its other responsibilities, reviews a summary of the reports of the internal audit function on the internal control systems of the Group. The Audit Committee provides the Board with an independent assessment of the Groupfs financial position, accounting affairs and control systems.

The Board is responsible for, and has reviewed the effectiveness of, the Group's system of internal control in operation during the year covered by this report. The systems are designed to safeguard both shareholders' investments and the assets of the Group. This year its review comprised a number of specific internal control audits of many of the Group's operating companies and a continuous monitoring process supported by regular reports from management on the risks applicable to their areas of business. In addition, bi-annual returns on control measures from local management are reviewed by the Group's internal auditors and provide further assurance to the Board in its review. A formal programme also exists to prioritise the key business risks facing each of the Group's various businesses, to seek to ensure that appropriately focused controls and monitoring procedures are in place to manage and, where appropriate, reduce those risks and to deal with areas for improvement which come to management's or the Board's attention. This programme includes reviews of any changes in those risks and the controls in place to manage them and is used by management in the subsidiary companies in managing their businesses and by the Group in its review.

Statements of the respective responsibilities of the Directors and Auditors are set out on pages 44 and 45. 39