The Company is committed to the principles of the revised UK Corporate Governance Code ('the Code') which was published by the Financial Reporting Council in May 2010 and which replaced the 2008 Combined Code during the year. The Code is publicly available on the Financial Reporting Council's website at: www.frc.org.uk.
JKX has a diverse Board comprising directors drawn from a wide range of professional backgrounds.
The Board comprises eight directors: a Non-Executive Chairman, four executive directors, and three independent Non-Executive Directors. During 2011 there were three new appointments to the Board and three retirements. Details of each of the current directors are provided on Our Board page.
The planned succession to the Board of the Non-Executive Chairman resulted in the appointment of Sir Ian Prosser on 1 March 2011. Sir Ian resigned from the Board on 16 July 2012 and Nigel Moore was apointed as the new Chairman.
Following the retirement of the Finance Director in 2011 and an evaluation of the skills and experience sought by the Board, an external advisory firm was appointed to undertake the search for a replacement. Subsequently, as a result of this search, Cynthia Dubin was appointed as Finance Director on 14 November 2011.
In addition on 1 November 2011 Alastair Ferguson joined the Board as a Non-Executive Director. Alastair has an in-depth knowledge and considerable experience of working in the Russian gas market.
The range of skills, experience and expertise brought to JKX by the new appointments during 2011 has brought new perspective and balance to the Board.
The Board is responsible to shareholders for leading, developing and protecting the interests of the Company and delivery of sustainable financial performance and long-term shareholder value.
Matters reserved specifically for the Board are clearly laid down. Key matters reserved for the consideration and the approval of the Board are:
- setting and monitoring Company strategy
- review of Company business plans, trading performance and overhead costs
- approval of major capital investment projects across the Group
- setting any interim dividend and recommendation of the final dividend
- examination of acquisition opportunities, divestment possibilities and significant financial and operational issues
- review and approval of the Company’s financial statements
- review and approval of the annual operating and capital expenditure budgets
- ensuring that the major business risks are actively monitored and managed using robust control and risk management systems (supported by the Audit Committee).
All other authorities are delegated by the Board, supported by appropriate controls, to the Chief Executive Officer on behalf of senior management.
The Chairman, in consultation with the Executive Directors, sets the agenda for Board meetings. All directors receive comprehensive documentation prior to each meeting on the matters to be discussed to enable them to exercise their judgement in the discharge of their duties.
All directors are encouraged to participate in site visits to the Group’s operations and to meet local employees. All of the current Board members have visited both our operations in Ukraine and Russia during the past 12 months.
As well as appropriate training and briefings and access to the Company Secretary, all directors may obtain independent professional advice in respect of their duties to the board and to its committees at the Company’s expense. The Company maintains liability insurance for its directors and officers.
Chairman and Chief Executive Officer
A clear division of responsibilities at the head of the Company is demonstrated in the separation of positions of the Non-Executive Chairman, Nigel Moore, and the Chief Executive Officer, Dr Paul Davies. Nigel is responsible for the leadership of the Board and for ensuring effective communication with shareholders, Paul is responsible for leading and managing the business.
The Non-Executive Directors bring a broad range of business and commercial experience to the Company which allows them to effectively, independently and constructively challenge the performance of the Executive Board and their strategy and monitor the performance of the senior management team in the delivery of the agreed objectives and targets.
In addition to Board meetings, the Non-Executive Directors meet in private session, both as a group and without the Chairman, at least once annually to discuss current issues affecting the Group.
Evaluation of the performance of Directors, the Board and its committees is undertaken as follows:
- the Executive Directors are evaluated by the Non-Executive Directors in informal session
- the Chairman is evaluated by the other Non-Executive Directors taking into account the views of the Executive Directors
- the Committees are evaluated by the Non-Executive Directors along with the Chief Executive, taking into account the views of the other Executive Directors
- the Non-Executive Directors, excluding the Chairman, are evaluated by the Chairman and Chief Executive, taking into account the views of the other Executive Directors and
- the Board as a whole evaluates its own performance by consolidating and discussing the reviews set out above.
The Company has maintained policies and procedures that ensured compliance with the Code and the related Financial Services Authority Listing Rule disclosure requirements. The Listing Rules of the UK Listing Authority require that companies report on the extent to which they comply with the Principles of Good Governance and Code of Best Practice.
The Board believes the Company has been in full compliance with the provisions set out in the Code with the following exceptions:
- B.2.3 The terms of appointment of the Non-Executive Directors are set out in their service contracts, for Lord Oxford is dated 1 January 2002, for Nigel Moore is dated 12 July 2007, for Dipesh Shah is dated 1 June 2008 and for Alastair Ferguson is dated 1 November 2011 and includes a termination notice of three months by either party. However, the service contracts are for an indefinite term, not a finite term, subject to re-election on an as required basis. The Board continues to believe this is appropriate given the company size, Non-Executive skill set, and evaluation of performance and independence on an ongoing basis with regards to Non-Executives. The Company continues to believe the unspecified term is reasonable.
- B.7.1 of the new Code recommends that, in the interests of greater accountability, all directors of FTSE 350 companies should be subject to annual re-election. All other directors should be subject to election by shareholders at the first Annual General Meeting after their appointment, and to re-election thereafter at intervals of no more than three years. Non-Executive Directors who have served longer than nine years should be subject to annual re-election. The Board considers that the annual re-election is not appropriate at this time due to the number of changes to the Board during the year. The Board will consider the relevance of this requirement during 2012.
- B.6.2 Evaluation of the Board of FTSE 350 companies should be externally facilitated at least every three years which has not currently been the case. An evaluation of the full Board and Chairman was carried out during 2011 by Michael Kayser, the Interim Director of Finance, at the end of his tenure, and overseen by Nigel Moore prior to his appointment as Chairman.
In considering that the Company is, other than as noted above, in full compliance, the Board notes that excluding the Chairman, independent Non-Executive Directors comprise less than 50% of the Board. The Board considers that the three other Non-Executive Directors are wholly independent.
The Executive Directors have undertaken a review of the independence of each of the Non-Executive Directors and Chairman. The review addressed the matters highlighted at Section B.1.1 of the Code, which could appear to affect a Director’s judgment. In undertaking the review, one specific matter addressed was that Lord Oxford has served on the Board for more than nine years. Following the review, the Executive Directors do not consider that this matter in any way influences the independent judgment of Lord Oxford. Accordingly the Executive Directors believe each of the Non-Executive Directors and Chairman to be independent in accordance with Section B 1.1 of the Code both during the period under review and subsequently.
In addition the Board supports the continued appointment of Lord Oxford as a Non-Executive Director because of his unrivalled knowledge and experience of doing business in Ukraine.
It is the Board’s view that the Non-Executive Directors have sufficient time to fulfil their commitments to the Company and that no Executive Director holds a Non-Executive Directorship, nor Chairmanship, in a FTSE 100 company. None of the Non-Executive Directors who have served during the year had any material business or other relationship with the Group, and there were no other matters that were likely to affect their independence of character and judgement.
The Board has established the following standing committees:
||Nigel Moore (as Chairman), Dipesh Shah and Alastair Ferguson
||Dipesh Shah (as Chairman), Lord Oxford and Alastair Ferguson
||Nigel Moore (as Chairman) and Lord Oxford
The Audit Committee is chaired by Nigel Moore, who as a former audit partner with Ernst & Young LLP possesses relevant financial experience. Nigel also chairs the Audit Committee of four other UK listed companies, and maintains a regular pattern of attendance at relevant seminars and courses.
The Audit Committee has Terms of Reference agreed by the Board and available to shareholders on request. On an on-going basis the Audit Committee:
- reviews the Company’s accounting policies
- monitors the integrity of the financial statements of the Company and any announcements relating to the Company’s financial performance, reviewing significant financial reporting judgements contained in them
- reviews the Company’s internal financial controls
- reviews internal control and risk management systems and compliance procedures
- reports to the Board any matters upon which it considers actions or improvement are required, with associated recommendations as to steps to be taken and
- makes recommendations to the Board, for it to put to shareholders for their approval in general meeting, in relation to the appointment, re-appointment and removal of the external auditor and to approve the remuneration and terms of engagement of the external auditor.
The meetings may, by invitation, be attended by the Group Chief Executive Officer, Finance Director, the group financial controller and representatives from the external auditors. Nigel maintains contact with those other attendees throughout the year.
The Audit Committee maintains an objective and professional relationship with the Company’s auditors, PricewaterhouseCoopers LLP, who have been auditors to the Group since 2006, and meets in private session with them on a periodic basis. Following a competitive tender process in June 2011, PricewaterhouseCoopers LLP were reappointed as the Company’s auditors.
From time to time, the auditor is requested to perform non-audit engagements for the Group. In such instances the continued objectivity and independence of the auditors in their capacity of auditor is an objective of the Group. To meet this objective the Audit Committee is delegated the role of vetting the appointment of the auditor on specific engagements including considerations of materiality and, where necessary, requiring a competitive tender for such work.
The Company promotes a culture of openness and encourages staff to raise any concerns of possible improprieties in matters of financial reporting or other matters, if necessary in confidence. The Audit Committee has reviewed arrangements for such concerns to be raised, investigated and if necessary followed up.
The Remuneration Committee currently comprises the three Non-Executive Directors and is chaired by Dipesh Shah. The Chief Executive Officer may attend meetings by invitation.
The Remuneration Committee, which has terms of reference agreed by the Board and available to shareholders on request, meets at least twice a year, to assist the Board in determining the remuneration arrangements and contracts of the Directors and senior employees.
The Remuneration Committee employs the services of Kepler as remuneration consultants on an as required basis. Kepler have no other connection with the Company.
No Director is involved in deciding his own remuneration.
The Remuneration Committee has reviewed the Code, specifically Section D that addresses the level, make up and procedural aspects of remuneration. The Remuneration Committee considers that it complies with all the provisions and practices identified.
The members of the Nomination Committee are Nigel Moore as Chairman and Lord Oxford. The Committee meets at least once a year and more frequently if required and is responsible for reviewing and recommending to the Board suitable candidates for appointment as Directors of the Company.
The Committee regularly reviews the structure, size and composition (including the skills, knowledge and experience) required on the Board. There is a formal, rigorous and transparent procedure, which is based on merit and against objective criteria, for the appointment of new directors to the Board. Proposals for new Board members are submitted to the full Board for approval.
In making appointments to the Board, the Nomination Committee considers the skills, experience and knowledge of the existing Directors and assesses which of the potential candidates would most benefit the Board with due regard to the benefits of diversity, including gender diversity. It considers the potential candidate’s knowledge and experience of eastern and central European markets, the oil and gas industry in that region, capital markets and the regulatory environment, and in the case of Non-Executive Director appointments, they have sufficient time to devote to the role.
The Chairman ensures that any new Directors are provided with a full induction on joining the Board. The letters of appointment of each Non-Executive Director are available for inspection at the registered office of the Company.
Separate to the Nomination Committee, the Board discusses the skill set and experience of the individual Board members, the need for additional appointments, succession planning and the need for progressive refreshing of the Board.
Attendance at meetings
The number of meetings of the Board and its committees during 2011 and individual attendance by director is shown below:
|Number of meetings
|Sir Ian Prosser
The Board is responsible for identifying and evaluating the major business risks faced by the Company and for determining and monitoring the appropriate course of action to manage these risks. The Audit Committee monitors the integrity of the financial statements and announcements, reviews the Company’s internal control processes and risk management systems and reports its conclusions to the Board.
A system of internal control is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material miss-statement or loss.
The Board is responsible for the Company’s systems of internal control and risk management.
The Company’s procedures, policies and systems are appropriate and suitable to enable the Board to safeguard shareholders’ investment and the Company’s assets, and comply with Turnbull Guidance.
The Audit Committee annually reviews the need for a dedicated internal audit function. Following the growth in the size of the Group’s operations during 2011 the Audit Committee has recommended that a group internal audit function is implemented during 2012.
A process is in place to enable the Board to identify the major business, operational, financial and compliance risks faced by the Company and to determine the appropriate course of action to manage and monitor these risks. This process is regularly reviewed by the Audit Committee and reported to the Board as appropriate.
The Company identifies and distinguishes ‘High Profile Events’, i.e. those risks that could have material effect on the Company’s financial position or reputation, from other business risks that it assesses and considers to be acceptable for the Company to bear taking into account the industry and the markets in which it operates.
The Audit Committee reviews annually the Company’s subsidiaries and investments from a business, operational and financial risk perspective to ensure that the system of internal control and accountability is embedded in the operations of the Group. Members of the Audit Committee visit subsidiaries and operations on a regular basis.
The Audit Committee considers that managers are conscious of the need to identify and assess risks in their operations and the effect of changes in the business environment, to respond quickly and appropriately and to report immediately any significant control failings and weaknesses that are identified, together with details of corrective action.
The Board has overall responsibility for the Group and there is a formal schedule of matters specifically reserved for decision by the Board. Each executive has been given responsibility and is accountable for specific aspects of the Group’s affairs.
The Company maintains an effective and reliable accounting and management information system. The Board receives a monthly report that monitors: actual performance against budget and forecast for oil and gas production; sales and costs; and provides the Board with information on issues including debtors, the cash position, cash flow forecasting and the financial implications of key sensitivities including changes in commodity prices, production and exchange rates.
In light of the recent challenging economic times our continued focus on good corporate governance helps us to identify and resolve any issues before they become major problems.
Each year the Board approves the Group’s annual budget with key risk areas identified. The preparation of the annual Group budget is a multi-stage comprehensive process led by the Finance Director assisted by the group financial controller who works closely with local finance directors for operating subsidiaries in Russia and Ukraine and other senior management with specific responsibilities for our Hungarian, Slovakian and other operations.
Performance is monitored through the monthly reporting to the Board of variances from the budget. Relevant action is taken by the Board throughout the year based on updated forecasts which are prepared using current information on the key risk areas and sensitivities.
Corporate accounting and procedures manual
Responsibility levels are communicated throughout the Group as part of the corporate accounting and procedures manual. This sets out, inter alia, the general ethos of the Group, delegation of authority and authorisation levels, segregation of duties and control procedures together with accounting policies and procedures. The manual, which includes policies common to all Group companies along with company specific procedures and controls is reviewed regularly and updated as required.
The application of internal financial control and operational procedures in our overseas operations are reviewed regularly and updated as necessary during frequent visits to the overseas offices by Head Office staff.
Quality and integrity of personnel
The integrity and competence of personnel is ensured through high recruitment standards and subsequent training courses. High quality personnel are seen as an essential part of the Group’s control environment. The ethical standards expected of staff are communicated through the corporate accounting and procedures manual.
For each capital intensive project there is a rigorous project analysis and risk and return appraisal completed using technical, financial, commercial, and operational specialists across the Group.
We employ a sub-surface technical team in our London Head Office to monitor, assess, appraise and oversee all on-going Group projects and potential opportunities. This has improved our ability to identify the potential risks, rewards and value in new capital intensive opportunities and to efficiently utilise the available resources to maximise returns from our existing portfolio of oil and gas assets.
Capital investment is regulated by the budgetary process and pre-defined authorisation levels.
For expenditure beyond specified levels, detailed written proposals are required to be submitted to the Board. Capital expenditures are reviewed with major overruns in terms of cost and time being investigated.
The authority of the directors is required for key treasury matters including changes to equity and loan financing, interest rate and foreign currency policy including foreign currency hedging, oil price hedging, cheque signatories and opening of bank accounts.
The internal financial control situation is reported to the Audit Committee, which reviews the effectiveness of the system of internal financial controls as it operates and reports its conclusions to the Board.
Communication with shareholders
The Board places considerable importance on communication with shareholders and is proactive in obtaining an understanding of shareholder preferences. A number of formal communication channels are used to account to shareholders for the performance of the Group, which include the Annual Report and Accounts, AGMs and periodic reports to the London Stock Exchange. Presentations given at appropriate intervals to representatives of the investor community are available to all shareholders to download from the Group’s website (www.jkx.co.uk).
Extensive information about the Group’s activities is provided in the Annual Report and Accounts and the Half-yearly Report which are sent to shareholders. Enquiries from individuals on matters relating to their shareholding and the business of the Group are welcomed and are dealt with in an informative and timely manner. Shareholders are encouraged to attend the Annual General Meeting to discuss the progress of the Group.
Conflicts of Interest
The Company complies with the provisions on conflicts of interest in the Companies Act 2006. The Company has in place procedures for the disclosure and review of any conflicts, or potential conflicts, of interest which the Directors may have and for the authorisation of such conflict matters by the Board. In deciding whether to authorise a conflict or potential conflict the Directors must have regard to their general duties under the Companies Act 2006. The procedure operates to ensure the disclosure of conflicts, and for the consideration and if appropriate, the authorisation of them by Non-Conflicted Directors.
The authorisation of a conflict matter, and the terms of authorisation, may be reviewed at any time by the Board. The Nomination Committee supports the Board in this process, both by reviewing requests from Directors for authorisations of situations of actual or potential conflict and making recommendations to the Board and by reviewing any situations of actual or potential conflict that have been previously authorised by the Board, and making recommendations regarding whether the authorisation remains appropriate.
Following the appointment of Cynthia Dubin 13% of the Board members are women.
The Board supports the longer term aspirations of Lord Davies’s report regarding gender diversity on appointment of directors to boards. Gender is only one aspect of diversity, and there are many other attributes and experience that can improve the board’s ability to act effectively. We will continue to search for the highest quality people with the most appropriate experience for the requirements of the business, be they men or women.
The Board closely monitors and manages its liquidity risk. Cash flow forecasts are regularly produced and sensitivities run for different scenarios including, but not limited to, changes in commodity prices, different production and tax rates in relation to the Group’s producing assets and delays to development projects.