Corporate governance    
 
The Principles of Good Governance and Code of Best Practice (the “Combined Code”) drafted by the Hampel Committee on corporate governance was issued in June 1998 encompassing principles previously addressed by the Cadbury and Greenbury Committees.

Section 1 of the Combined Code contains broad principles and further detailed provisions covering four main issues which all companies listed on the London Stock Exchange are expected to follow.

The directors consider that the Group has been in compliance throughout the year with the code provisions set out in Section 1 of the Combined Code issued by the Stock Exchange.

Directors
Throughout the year, the board comprised two executive and at least four non-executive directors. Since the end of the year, Mr Lopez Jimenez was appointed as a non-executive director on 14 January 2003 and Mr Rubright and Mr Ewan were appointed as executive directors on 6 March 2003, increasing to four the number of executive directors and increasing to five the number of non-executive directors.

Mr Brown, Mr Payne, Mr Lopez Jimenez and Mr Scholes
are considered by the board to be independent of management. Mr Scholes has, within the last three years, had a business relationship with the Company as a director of Dresdner Kleinwort Wasserstein, the Company’s stockbroker and financial adviser. Mr Lopez Jimenez is associated with Terratest, a shareholder in Keller-Terra. The board takes the view that these business relationships are not material in the context of Keller’s operations and that the independence of Mr Scholes and Mr Lopez Jimenez is evidenced in board meetings by their objective judgement and willingness to challenge. Mr Payne is the senior independent director. There is an agreed procedure for individual directors to obtain independent legal advice and all directors have unrestricted access to the company secretary and chairman.

There is a clear division of responsibilities between
Dr West as non-executive chairman and Mr Dobson who, as chief executive, is the director ultimately responsible for the running of the Group’s business. The board normally meets at least ten times throughout the year to monitor the Group’s performance and to take decisions based upon a schedule of matters specifically reserved for its approval. Board papers and other relevant information are supplied to the board members in advance of the meetings to enable directors to be properly briefed on topics to be discussed at these meetings. Site visits are arranged periodically for non-executive directors to develop and refresh their understanding of the business.

The Nomination Committee is chaired by Dr West, the
other members during the year being Mr Payne and Mr Dobson. This Committee monitors the composition and balance of the board and recommends to the board the appointment of new directors.

Directors’ remuneration
The Remuneration Committee is chaired by Mr Brown, the
other members during the year, all of whom are independent of management, are shown above. This Committee is responsible for agreeing with the board the framework and policy for the remuneration of the Group’s executive management and for determining the remuneration packages of the executive directors. The remuneration for the non-executive directors is determined by the board. The directors’ remuneration report is set out in the Remuneration report.

Relations with shareholders
Where practicable throughout the year, with the exception of closed periods, the Company meets with and makes presentations to institutional investors. All directors of the Group are available to answer questions at the Annual General Meeting, which is considered to be the most effective way of keeping private investors informed of the Group’s progress. The notice of the Annual General Meeting, detailing all proposed resolutions, will be posted to shareholders at least 20 working days prior to the meeting.

Accountability and audit
The membership of the Audit Committee comprises Mr Brown, Mr Payne, Mr Scholes and Dr West. Dr Bond and Dr Peipers were members of the Committee until their retirement on 9 May 2002. The Committee is chaired by Mr Payne. This Committee meets at least three times a year and the Company’s auditors attend at least two of these meetings. The Committee assists the board in observing its responsibility for ensuring that the Group’s financial systems provide accurate and up to date information on its financial position and that the Group’s published financial statements represent a true and fair reflection of this position.

During the year, the Committee considered the need for an internal audit function. The Committee concluded that the nature of the business risks and the effectiveness of existing controls were such that an internal audit function was unlikely to add value.
 
 
 
 
 

Internal control
The board is ultimately responsible for the Group’s system of internal control and for reviewing its effectiveness. However, such a system is designed to manage, rather than eliminate, the risk of failure to achieve business objectives, and can provide only reasonable and not absolute assurance against material misstatement or loss.

Following publication of guidance for directors on internal control Internal Control: Guidance for directors on the Combined Code (the Turnbull Guidance), the board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Group, that has been in place for the year under review and up to the date of approval of the annual report and accounts, and that this process is regularly reviewed by the board and accords with the guidance.

The principal elements of the internal control framework are
as follows:

(a) Contract appraisal
A risk analysis covering technical, operational and financial issues is performed as part of the bidding process. The bidding of contracts is approved at the appropriate level. The performance of contracts is monitored by each business unit on a weekly basis.

(b) Budgeting and forecasting
There is a comprehensive budgeting system with an annual budget approved by the directors. This budget includes monthly profit and loss accounts, balance sheets and cash flows. Forecasts for the full year are updated as considered necessary. In addition, detailed quarterly forecasts are prepared for the two subsequent years.

(c) Financial reporting
Detailed monthly management accounts are prepared which compare profit and loss accounts, balance sheets, cash flows
and other information with budget, and significant variances
are investigated.

(d) Cash control
A rolling 12 week cash forecast is prepared each week to monitor the Group’s short term cash positions and to control immediate borrowing requirements.

(e) Investments and capital expenditure
All significant investment decisions, including capital expenditure, are referred to the appropriate divisional or Group authority level.

On behalf of the board, the Audit Committee has reviewed the effectiveness of the system of internal control. In particular,
it has reviewed and updated the process for identifying and evaluating the significant risks affecting the business and the policies and procedures by which these risks are managed.

Management are responsible for the identification and evaluation of significant risks applicable to their areas of business together with the design and operation of suitable internal controls. These risks are assessed on a continual basis and may be associated with a variety of internal or external sources including control breakdowns, disruptions in information systems, markets and competition, natural catastrophe and regulatory requirements.

A process of control self-assessment and hierarchical reporting has been established which provides for a documented and auditable trail of accountability. These procedures are relevant across Group operations and provide for successive assurances to be given at increasingly higher levels of management and, finally, to the board.

Management report on their review of risks and how they
are managed to the Audit Committee. One of the roles of the
Audit Committee is to review, on behalf of the board, the key risks inherent in the business and the system of control necessary to manage such risks, and to present their findings to the board. The Audit Committee reviews the assurance procedures, ensuring that an appropriate mix of techniques is used to obtain the level of assurance required by the board. The Audit Committee presents its findings to the board twice yearly.

The chief executive reports to the board on significant changes in the business and the external environment that affect significant risks. The finance director provides the board with monthly financial information that includes key performance and risk indicators.

Where areas for improvement are identified, the board considers the recommendations made by the Audit Committee.

Directors’ responsibilities in relation to the financial statements
Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and Group and of the profit or loss for that period. In preparing those financial statements, the directors are required to:

(a) select suitable accounting policies and then apply
them consistently;

(b) make judgements and estimates that are reasonable
and prudent;

(c) state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

(d) prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company and Group will continue in business.

The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 1985. They 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.