Corporate Governance Statement

Overview

The Chairman of the Board of Directors of Surface Transforms plc (Surface Transforms, We, or the Company as the context requires) has the responsibility to ensure that Surface Transforms has both sound corporate governance and an effective Board. His duties include leading the Board effectively, overseeing the Company’s corporate governance model, and ensuring that good information flows freely between Executives and Non-executives in a timely manner.

Surface Transforms has adopted the principles of the Quoted Companies Alliance Corporate Governance Code (the “QCA Code”). The QCA Code identifies ten principles to be followed in order for companies to deliver growth in long term shareholder value, encompassing an efficient and effective management framework accompanied by good communication to promote confidence and trust.  This statement follows the structure of these guidelines and explains how the Company has applied the guidance as well as any areas of non-compliance.

The Company sets out in the following sections how it applies the ten principles to deliver medium to long term shareholder growth.

1. Establish a strategy and business model which promote long-term value for shareholders

The Company’s strategy, objectives and business model and any amendments to these are developed by the Executive Directors along with their senior management team and are approved by the Board. The Executive Directors and the senior management team are responsible for the implementation of the strategy and for the operational management of the business.

The primary focus of the Company in the short term is to be nominated by a large automotive OEM for the supply of carbon ceramic brake rotors. Accordingly, the Company is currently deploying its financial and engineering resources wholly to deliver this nomination through product research and development in order to deliver a product that meets the stringent safety and performance criteria required by the mainstream automotive manufacturers.

The nature of the Company’s operations are such that it operates in an inherently risky environment and as such decisions around the strategy and direction of the Company are taken so as to offer as balanced an outcome as possible within that context.

The medium to long term strategy of the company is to increase the number of OEM’s being supplied by the Company in UK, Europe and the USA and to develop the capacity of the Knowsley site to reach a 100,000 disc per annum capacity. In addition the Company continues to be focussed on winning long term contracts within the aerospace sector.

2. Seek to understand and meet shareholder needs and expectations

Surface Transforms place a great deal of importance on communication with its stakeholders and is committed to establishing constructive relationships with investors and potential investors in order to assist it in developing an understanding of the views of its shareholders. Beyond the Annual General Meeting, the Chairman, Chief Executive Officer and the Chief Financial Officer meet regularly with investors and analysts to provide them with updates on the business and to obtain feedback regarding the market’s expectations of the Company.

The Company’s Investor Relations activities encompass dialogue with both institutional and private investors.  In addition, the Company communicates with its shareholders through its website, RNS and RNS Reach announcements, Proactive Investor interviews and the Company’s Annual Report and Accounts.

The Board supports the availability of independent third party research to ensure information is disseminated effectively.  Surface Transforms also pays for research [to help keep all its shareholders and potential shareholders informed on the Company’s positioning and prospects,] which is available on the Company’s website: [insert link]

The Annual General Meeting of the Company, normally attended by all the Directors and other members of the senior management team, provides the Directors the opportunity to report to shareholders on current and proposed operations, and enables the shareholders to express their views of the Company’s business activities.  Shareholders are invited to ask questions during the meeting and to meet with Directors after the formal proceedings have ended. The CEO is considered the key contact for shareholder liaison.

The Company has not historically announced the detailed results of shareholder voting to the market.  However, the Board intends to do so going forward. 

Information on the Investor Relations section of the Company’s website, www.surfacetransforms.com/investor-information/, is kept updated and contains details of relevant financial reports, presentations and other key information.

 

3.Take into account wider stakeholder and social responsibilities and their implications for long-term success

The Company is aware of its corporate social responsibilities and the need to maintain effective working relationships across a range of stakeholder groups. These include the Company’s employees, customers, partners, suppliers, regulatory authorities and the automotive manufacturers involved in the Company’s product development activities. The Company’s operations and working methodologies take account of the need to balance the needs of these stakeholder groups while maintaining focus on the Board’s primary responsibility to promote the success of the Company for the benefit of its members as a whole. The Company endeavours to take account of feedback received from stakeholders, making changes to working arrangements and operational plans where appropriate and where such changes are consistent with the Company’s [longer-term] strategy.

The Company takes due account of any impact that its activities may have on the environment and seeks to minimise this impact wherever possible. Through the various procedures and systems it operates, the Company ensures full compliance with health and safety and environmental legislation relevant to its activities.   The Company is ISO9001, AS9100 and IATF 16949 certified.

4.Embed effective risk management, considering both opportunities and threats, throughout the organisation

The Board is responsible for the systems of risk management and internal control and for reviewing their effectiveness. The internal controls are designed to manage rather than eliminate risk and provide reasonable but not absolute assurance against material misstatement or loss. Through the activities of the Audit Committee, the effectiveness of these internal controls is reviewed annually.

The Board recognises the need for an effective and well-defined risk management process and it oversees and regularly reviews the current risk management and internal control mechanisms.  A summary of the principal risks and uncertainties facing the Group, as well as mitigating actions, are set out in pages 10 & 13 of  the Company’s Annual Report.

The Executive Directors are responsible for identifying, monitoring and reviewing the Company’s risks, and assessing the systems of external control for effectiveness. They are also responsible for updating and maintaining the Company’s risk register, which evaluates the frequency and impact of identified risks, as well as their mitigations. The Executive Directors and senior management team meet at least twice monthly to consider new risks and opportunities presented to the Company, making recommendations to the Board and/or Audit Committee as appropriate. 

The Board is satisfied that the procedures in place meet the particular needs of the Company in managing the risks to which it is exposed. The Board is satisfied with the effectiveness of the system of internal controls, but by their very nature, these procedures can provide reasonable, not absolute, assurance against material misstatement or loss.

The Board has reviewed the need for an internal audit function and has decided that, given the nature of the Company’s business and assets and the overall size of the Company, the systems and procedures currently employed provide sufficient assurance that a sound system of internal controls are in place, which safeguards the shareholders’ investment and the Company’s assets.  An internal audit function is therefore considered unnecessary. However, the Board will continue to monitor the need for this function.

A comprehensive budgeting process is completed once a year and is reviewed and approved by the Board. The Company’s results, compared with the budget, are reported to the Board on a monthly basis. In addition the Company re-forecasts monthly to identify the impact of monthly movements on the full year outcomes.

The Company maintains appropriate insurance cover against material loss or claims against the Company. The insured values and type of cover are comprehensively reviewed on a bi-annual basis.

5. Maintain the Board as a well-functioning, balanced team led by the Chair

The Board comprises two Executive Directors, Kevin Johnson and Michael Cunningham and three Non-executive Directors, of which David Bundred and Kevin D’Silva are considered to be independent, whilst Richard Gledhill is not considered to be independent.  David Bundred is the Company’s chair.  The Non-executive Directors devote such time as is necessary for the proper performance of their duties.

David Bundred and Kevin D’Sila are each regarded as Independent Directors by the Board notwithstanding that they hold a small number of shares and also hold options over Ordinary Shares. The Board considers that both David Bundred and Kevin D’Silva have demonstrated the utmost regard for independence, appropriately challenging the Board and maintaining high standards of corporate governance on the Board. Neither David or Kevin represent any shareholder on the Board. Accordingly, the Board believes that both David and Kevin exercise independent judgement in all matters relating to the Company.

Richard Gledhill is interested in more than 10% of Surface Transforms’ total issued share capital. Accordingly, he is not considered independent from a corporate governance perspective. However, Richard has extensive knowledge of industrial businesses and finance and provides, in the opinion of the Board, a valuable contribution to the Board and the Company. The Board is satisfied it has a suitable balance between independence on the one hand, and knowledge of the Company on the other.

Meetings are open and constructive, with every Director participating fully. Senior management are also invited to meetings when required, providing the Board with a thorough overview of the Company. The Board aims to meet at least twelve times in the year and, together with the Audit and Remuneration Committees, deals with all important aspects of the Company’s affairs. The Committees have the necessary skills and knowledge to discharge their duties effectively. The Board considers that, at this stage of its development and given the current size of its Board, it is not necessary to establish a formal Nominations Committee.  Instead, appointments to the Board are made by the Board as a whole.  This position however, is reviewed on a regular basis by the Board.

In order to be efficient, the Directors meet formally and informally both in person and by telephone. The Board receives timely information in a form and of a quality appropriate to enable it to discharge its duties. Board and Committee papers are collated into one document, compiled into a Board/Committee Pack, and circulated electronically, where possible, a week in advance, allowing time for full consideration and necessary clarifications before the meetings. Hard copies are made available at the physical meetings.

All of the Directors are subject to election by shareholders at the first Annual General Meeting after their appointment to the Board and not more than one third of the Directors will seek re-election at each Annual General Meeting on a rotational basis.

Directors biographies are available on the Company’s website: https://surfacetransforms.com/our-team/.

 

The Board is responsible to the shareholders for the proper management of the Company and meets twelve times a year to set the overall direction and strategy of the Company, to review research and development progress, quality, operational and financial performance and to advise on company appointments. All key operational and investment decisions are subject to Board approval.

 

Non-executive Directors receive their fees in the form of a basic cash fee. Non- Executive Directors may from time to time be incentivised by participation in the Company share option scheme. The option grants concerned are not deemed to be significant, either for any individual Non-executive Director or in aggregate. The current remuneration structure for the Board’s Non-executive Directors is deemed to be proportionate.

 

6.Ensure that between them, the directors have the necessary up-to-date experience, skills and capabilities

The Board considers that all of the Non-executive Directors are of sufficient competence and calibre to add strength and objectivity to its activities, and bring considerable experience in scientific, operational and financial development of automotive products and companies.

Biographical details of the Directors can be found on the Company’s website: https://surfacetransforms.com/our-team/.

The Board regularly reviews the composition of the Board to ensure that it has the necessary breadth and depth of skills to support the ongoing development of the Group.

The Chairman, in conjunction with Michael Cunningham, the Company Secretary, ensures that the Directors’ knowledge is kept up to date on key issues and developments pertaining to the Company, its operational environment and to the Directors’ responsibilities as members of the Board.  

There are processes in place enabling Directors to take independent advice at the Company’s expense in the furtherance of their duties, and to have access to the advice and services of the Company Secretary.

In order to keep Director skill-sets up to date, the Board uses third parties to advise the Directors of their responsibilities as a Director of an AIM company, including receiving advice from the Company’s nominated adviser and external lawyers. The Board proposes to introduce a facility for Directors to receive training on relevant developments on a more regular basis. The Board reviews the appropriateness and opportunity for continuing professional development in order to keep each Director’s skillset up-to-date.

The Board will seek to take into account any Board imbalances for future nominations. The Company is committed to a culture of equal opportunities for all employees regardless of gender. The Board aims to be diverse in terms of its range of culture, nationality and international experience. All five Board members are currently male. If it is agreed to expand the Board, the Board will, subject to identifying suitable candidates, look to fill at least one of the vacancies with a female Director.

 

7. Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement

The Board has identified a process for evaluation of its own performance, that of its committees and individual Directors, including the Chairman. This process will be conducted annually, or more often if required with the first review in Q1 2019.  The process is a survey, developed in-house, seeking the individual views of directors on Board composition and effectiveness, business leadership, QCA code compliance and other matters.   Evaluation criteria include Controls and Procedures, Strategic Aims, Entrepreneurial Leadership and Communications and Relationships.

Whilst the Board considers this evaluation process is currently best carried out internally, the Board will keep this under review and may consider independent external evaluation reviews in the future

The Board may utilise the results of the evaluation process when considering the adequacy of the composition of the Board and for succession planning.    

 

8. Promote a corporate culture that is based on ethical values and behaviours

The Board seeks to maintain the highest standards of integrity and probity in the conduct of the Company’s operations. These values are enshrined in the written policies and working practices adopted by all employees in the Company. An open culture is encouraged within the Company, with regular communications to staff regarding progress and staff feedback regularly sought. The Executive Directors and senior management regularly monitor the Company’s cultural environment and seek to address any concerns than may arise, escalating these to Board level as necessary.

Furthermore, Surface Transforms has a number of policies in place aimed to protect its staff, such as Anti-corruption and Health and Safety, as well as an Environmental policy. As stated above, Surface Transforms is also ISO9001, AS9100 and IATF 16949 certified and is in the process of certifying to ISO14001.

The Company operates a Health and Safety Committee which meets regularly to monitor, review and make decisions concerning health and safety matters. The Company’s health and safety policies and procedures are enshrined in the Company’s documented quality systems, which encompass all aspects of the Company’s day-to-day operations.

The Company has adopted a Share Dealing Policy which is intended to assist the Company and its staff in complying with their obligations under the Market Abuse Regulation. The Policy addresses the share dealing restrictions set out in MAR and reflects the requirements for a securities dealing policy set out in the AIM Rules.

 

9. Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board

The Board has overall responsibility for promoting the success of the Company. The Executive Directors have day-to-day responsibility for the operational management of the Company’s activities. The Non-executive Directors are responsible for bringing independent and objective judgment to Board decisions.

There is a clear separation of the roles of Chief Executive Officer and Non-executive Chairman. The Chairman is responsible for overseeing the running of the Board, ensuring that no individual or group dominates the Board’s decision-making and ensuring the Non-executive Directors are properly briefed on matters. The Chairman has overall responsibility for corporate governance matters in the Company. The Chief Executive Officer has the responsibility for implementing the strategy of the Board and managing the day-to-day business activities of the Company. The Company Secretary is responsible for ensuring that Board procedures are followed and applicable rules and regulations are complied with.

The Board has established an Audit Committee and Remuneration Committee with formally delegated duties and responsibilities. Mr Kevin D’Silva chairs the Audit Committee and the Remuneration Committee.

The Audit Committee normally meets twice a year and at other times if necessary and has responsibility for, amongst other things, planning and reviewing the annual report and accounts and interim statements involving, where appropriate, the external auditors. The Committee also approves external auditors’ fees and ensures the auditors’ independence as well as focusing on compliance with legal requirements and accounting standards. It is also responsible for ensuring that an effective system of internal control is maintained. The ultimate responsibility for reviewing and approving the annual financial statements and interim statements remains with the Board.  The Company’s external auditors are invited to attend meetings of the Committee on a regular basis.

The Remuneration Committee, which meets as required, but at least once a year, has responsibility for making recommendations to the Board on the compensation of senior executives and determining, within agreed terms of reference, the specific remuneration packages for each of the Executive Directors. It also supervises the Company’s share incentive schemes and sets performance conditions for share options granted under the schemes.

The Remuneration Report for the year ended 31 May 2017 is set out on pages 15 and 16 of the Company’s 2017 Annual Report.

The Directors believe that the above disclosures constitute sufficient disclosure to meet the QCA Code’s requirement for a Remuneration Committee Report. Consequently, a separate Remuneration Committee Report is not presented in the Group’s Annual Report.

10. Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders

The Board is committed to maintaining effective communication and having constructive dialogue with its shareholders and other relevant stakeholders. The Company intends to have ongoing relationships with both its private and institutional shareholders (through meetings and presentations) as well with shareholder analysts, and for them to have the opportunity to discuss issues and provide feedback at meetings with the Directors.

In addition, all shareholders are encouraged to attend the Company’s Annual General Meeting.  All 2017 AGM resolutions passed comfortably. The Company discloses the result of general meetings by way of announcement and discloses the proxy voting numbers to those attending the meetings. The Company has not historically announced the detailed results of shareholder voting to the market but it intends to do so for future General Meetings. The Board intends that, if there is a resolution passed at a GM with 20% or more votes against, the Company will seek to understand the reason for the result and, where appropriate, take suitable action.

 

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