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.

Directors
At the start of the year, the board comprised two executive and four non-executive directors. Two additional non-executive directors were appointed during the year, Mr Lopez Jimenez on 14 January 2003 and Dr Bond on 30 October 2003. Mr Rubright and Mr Ewen were appointed as executive directors on 6 March 2003 and Mr Hind was appointed as an executive director on 15 July 2003. Mr Ewen stood down from the board and Dr Sondermann was appointed to the board on 28 November 2003. At the end of the year, the board comprised five executive and six non-executive directors.

All the non-executive directors, with the exception of Dr West
and Mr Lopez Jimenez, 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, from which Mr Scholes retired in December 2001. The board takes the view that this business relationship was not material in the context of Keller’s operations. Dr West was chief executive from 1982 to 1995 and is not, therefore, considered to be independent of management. Mr Lopez Jimenez is associated with Terratest Tecnicas Espéciales SA (Terratest), a 49% shareholder in Keller-Terra S.L. and an 8% shareholder in Keller Group plc. Whilst the board considers Mr Lopez Jimenez to be independent in character and judgement, in view of the increase in Terratest’s shareholding in Keller Group plc during 2003, Mr Lopez Jimenez is no longer considered to be independent of management.

The board is comfortable that the size of the board, its balance of skills and experience and the strong presence of both executive and non-executive directors meet the needs of the business.

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 chairman is responsible for the following matters:
– Leadership of the board:
– Ensuring appropriate board composition
– Ensuring effective board processes
– Setting the board’s agenda
– Ensuring that directors are properly briefed in order to take
   a full and constructive part in board and board committee    discussions
– Ensuring effective communication with shareholders
– Ensuring constructive relations between executive and
   non-executive directors.

The chief executive is responsible for the following matters:
– Formulating strategy proposals for the board
– Formulating annual and medium-term plans charting how
    this strategy will be delivered
– Apprising the board of all matters which materially affect    the Group and its performance, including any significantly    under-performing business activities.
– Leadership of executive management to enable the    Group’s businesses to deliver the requirements of    shareholders:
– Ensuring adequate, well motivated and incentivised    management resources
– Ensuring succession planning
– Ensuring appropriate business processes.

The board normally meets at least nine 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 directors in advance of the meetings to enable them to be properly briefed on topics to be discussed at these meetings. Site visits and management presentations are arranged periodically for non-executive directors to develop and refresh their understanding of the business.

Board Committees
Remuneration Committee
The Remuneration Committee is chaired by Mr Brown, the
other members during the year, all of whom are independent
of management, are shown in Remuneration report. 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 Remuneration report.

Audit Committee
Throughout the year Mr Brown, Mr Payne, Mr Scholes and
Dr West were members of the Committee and Dr Bond was appointed to the Committee on 30 October 2003. Dr West
stood down from the Committee with effect from 1 January
2004. 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, which are predominantly technical and operational, and the effectiveness of existing controls are such that an internal audit function is unlikely to add value. The Committee will regularly review this matter.

Nomination Committee
The Nomination Committee is chaired by Dr West, except if
the Committee is dealing with succession to the chairmanship of the board. The other members during the year were Mr Payne and Mr Dobson. With effect from 1 January 2004, Mr Dobson resigned from the Nomination Committee and Mr Brown, Mr Scholes, Dr Bond and Mr Atkinson were appointed to the Committee. The Nomination Committee monitors the composition and balance of the board and recommends to the board the appointment of new directors.

The terms of reference for the Remuneration, Audit and Nomination Committees were updated with effect from
1 January 2004 and are available on the Company’s website.
 

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. On a regular basis the board is apprised of shareholders’ views through the circulation of investor perception audit reports and brokers’ feedback notes.

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.

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 prior year, and significant variances are investigated.

(d) Cash control
Regular cash forecasts are prepared to monitor the Group’s
short and medium 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.

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 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.

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.

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.

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.