Terms of reference for the Audit Committee

1. Constitution
   
   
   1. 1.1

      The Audit Committee was established by resolution of the Board in January 1995. These terms of reference were adopted by the Board on 31 October 2007 and may be amended from time to time, subject to the approval of the Board.

       
2. Membership
   
   
   1. 2.1

      The members of the Audit Committee shall be appointed by the Board on the recommendation of the Nomination Committee in consultation with the Audit Committee chairman from amongst the independent, non-executive directors of the Company and shall consist of not less than three independent non-executive directors.

       
   2. 2.2

      A quorum shall be two members. A duly convened meeting of the Audit Committee at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretions vested in or exercisable by the Audit Committee.

       
   3. 2.3

      The chairman of the Company shall not be an Audit Committee member.

       
   4. 2.4

      The chairman of the Audit Committee shall be an independent non‑executive director of the Board and the Board shall decide his or her period of office. In the absence of the Audit Committee chairman and/or an appointed deputy, the remaining members present shall elect one of the independent non-executive members present to chair the meeting.

       
   5. 2.5

      Subject to paragraph 2.7, the members of the Audit Committee shall serve an initial term of three years after which their appointments shall be subject to annual review, extendable by additional three-year periods, so long as members continue to be independent. The Board shall ensure that the membership of the Audit Committee is refreshed and no undue reliance is placed on particular individuals when deciding its chairman and membership.

       
   6. 2.6

      The Board shall aim to ensure that at least one member of the Audit Committee has significant, recent and relevant financial experience and members of the Audit Committee shall be entitled to receive an induction on first joining the Audit Committee and thereafter to receive training on an ongoing and timely basis.

       
   7. 2.7

      The Board shall have the power at any time to remove any member of the Audit Committee and to fill any vacancies so created in accordance with the above conditions (as amended from time to time).

       
   8. 2.8

      The Company Secretary shall act as secretary of the Audit Committee and shall be entitled to delegate this role from time to time to a person approved by the Committee.

       
   9. 2.9

      Executive Board Directors, other members of management and the head of Internal Audit shall not be members of the Audit Committee.

       
3. Attendance at meetings
   
   
   1. 3.1

      The Finance Director and the auditors shall be given notice of all meetings of the Audit Committee and may be invited to attend and speak at the meetings.

       
   2. 3.2

      The Audit Committee may also give notice of and invite the chairman of the Board and other Board members and executives to attend and be heard at meetings as necessary.

       
   3. 3.3

      Only the Audit Committee chairman and the other members of the Audit Committee are entitled to attend and vote at an Audit Committee meeting. Board members and other persons who are not also Audit Committee members will not have the right to attend or vote at Audit Committee meetings.

       
   4. 3.4

      The Audit Committee may request that any party, other than Audit Committee members, attending meetings of the Audit Committee leave the meetings for particular agenda items.

       
   5. 3.5

      In conjunction with the chairman, the secretary of the Audit Committee will draw up and circulate an agenda, generally in the week prior to each meeting, to the members of the Audit Committee, the external auditors, the Finance Director, and to any such person(s) that the Audit Committee invite to the meeting pursuant to paragraphs 3.1 and 3.2. Where a meeting is called on short notice, the agenda shall be circulated as soon as possible before the meeting.

       
4. Frequency of meetings
   
   
   1. 4.1

      The Audit Committee chairman shall, in consultation with the Company Secretary, decide the frequency and timing of the Audit Committee Meetings in particular to allow a sufficient interval between meetings of the Audit Committee and meetings of the Board to allow any work arising from the Audit Committee to be carried out and reported to the Board as appropriate.

       
   2. 4.2

      Meetings of the Audit Committee will be held at least three times a year and one such meeting shall be held prior to the submission of the preliminary financial statements to the Board for approval.

       
   3. 4.3

      The Audit Committee shall meet at least once a year with the external auditors without any executive member of the Board in attendance.

       
   4. 4.4

      The Audit Committee chairman shall, at least once a year, meet with the Finance Director and the Group Financial Controller without any other executive members of the Board in attendance.

       
   5. 4.5

      External or internal auditors may request a meeting independently during the year without the presence of management if they consider that one is necessary.

       
   6. 4.6

      Further meetings may be called by the Board or any member thereof, including any members of the Audit Committee, or by the external auditors or Group Financial Controller, if they consider that one is necessary.

       
5. Authority
   
   
   1. 5.1

      The Audit Committee is authorised by the Board to investigate any activity within its terms of reference and specifically any matters relating to the financial affairs of the Company and its subsidiaries and any matters relating to the audit that it considers desirable, and shall have access to the services of the company secretariat on all Audit Committee members including: assisting the chairman in planning the Audit Committee’s work, drawing up meeting agendas; maintenance of minutes, drafting of material about its activities for the annual report; collection and distribution of information and provision of any necessary practical support and sufficient resources to undertake the Audit Committee’s duties in general.

       
   2. 5.2

      The Audit Committee is authorised to seek any information it requires from any employee including, without limitation, the Finance Director and all executives and managers responsible for finance of the Company and its subsidiaries. All employees are directed to co-operate with any request made by the Audit Committee, including requests to attend meetings or parts of meetings, and the Company Secretary shall ensure that the Audit Committee receives information and papers in a timely manner.

       
   3. 5.3

      The Audit Committee is authorised to require any or all of the Finance Director, the Group Financial Controller, the head of internal audit and a representative of the external auditors to attend meetings or parts of meetings.

       
   4. 5.4

      The Audit Committee is authorised by the Board at the expense of the Company to obtain outside legal or other independent professional advice and to secure the attendance of outsiders with relevant experience and expertise if it considers this necessary.

       
   5. 5.5

      The Audit Committee is authorised by the Board to report to shareholders (as part of its report on its activities included in the annual report), any issue that has not been resolved with the Board after adequate time has been made available to discuss that issue with the Board with a view to its resolution.

       
   6. 5.6

      These terms of reference may be amended from time to time as required, subject to Board approval.

       
6. Duties
   
   
   1. 6.1

      The duties of the Audit Committee shall be to have regard to section C (Accountability and Audit) of the Combined Code, and in particular, shall be:

      1. 6.1.1

         to review the scope and results of the annual audit, its cost effectiveness and to review and monitor the independence and objectivity of the external auditors, particularly in relation to the provision of non-audit services , and to seek from the audit firm, on an annual basis, information about policies and processes for maintaining independence and monitoring compliance with relevant UK professional and regulatory requirements, including current requirements regarding the rotation of audit partners and staff;

          
      2. 6.1.2

         to consider and make recommendations about the appointment of the external auditors, the audit fee, and any questions of resignation or dismissal and to approve the remuneration and terms of engagement of the external auditor;

          
      3. 6.1.3

         to keep under review the overall financial relationship between the Company and its external auditors and in particular the ratio of audit to non-audit services and the desirability of putting non-audit work out to tender, to ensure the maintenance of objectivity and independence;

          
      4. 6.1.4

         to discuss with the external auditors before the audit commences the auditors' engagement letter, the nature and scope of the audit, and other relevant matters and, where more than one audit firm is involved, to ensure co-ordination between them;

          
      5. 6.1.5

         to ensure that appropriate plans are in place for the audit at the start of each annual audit cycle and to assess the effectiveness of the audit process at the end of the audit cycle;

          
      6. 6.1.6

         to review, and challenge where necessary, the actions and judgments of management in relation to the interim and financial statements, including profit forecasts, working capital statements or other financial information included in any bid document, listing particulars, the half year and annual financial statements including the chairman’s statement, any reports to shareholders, the preliminary announcement of results and any other announcement regarding the Group's results or other financial information before submission to the Board, and including any related information presented with the financial statements, focusing particularly on:

         (A) the quality and acceptability of the accounting policies and practices and financial reporting disclosures and changes thereto;

         (B) areas involving significant judgment, estimate or uncertainty;

         (C) significant adjustments resulting from the audit and material misstatements detected by the auditors that individually or in aggregate have not been corrected and management's explanation as to why they have not been adjusted;

         (D) the basis for the going concern statement,

         (E) internal financial control,

         (F) compliance with accounting standards, local and international,

         (G) compliance with Listing Rules and other regulatory and legal requirements;

         (H) compliance with governance reporting requirements as laid out in the Combined Code (or other authoritative guidance);

         (I) reviewing the company's statement on internal control systems prior to endorsement by the Board;

       

      1. 6.1.7
         to review the audit representation letters before signature by management, in particular relating to non-standard issues, and consider whether the information provided is complete and appropriate based on its own knowledge and includes all relevant audit information, and to review the management letter or equivalent document as part of the ongoing monitoring and review process in respect of management’s responsiveness to the external auditor’s findings and recommendation;
          
      2. 6.1.8

         to meet with the external auditors at least once a year to discuss any issues which the members of the Committee or auditors consider relevant arising from the audit, and any matters the auditor may wish to discuss (in the absence of any executive directors or employees where necessary);

          
      3. 6.1.9

         to consider whether any action is required in the event of the external auditors’ resignation, having investigated the issues giving rise to such resignation;

          
      4. 6.1.10

         to review the auditors' management letter and management's response;

          
      5. 6.1.11

         to approve the appointment of the head of internal audit;

          
      6. 6.1.12

         to consider the disclosure about the role of the Audit Committee included in the annual report and in particular to ensure that proper disclosure is made of how the Audit Committee’s policy in relation to non-audit fees paid to auditors adequately safeguards the independence of the auditor and that proper disclosure is made of all fees paid to the external auditor;

          
      7. 6.1.13

         periodically to review and update its own terms of reference and make them publicly available, requesting Board approval for all proposed changes and, at appropriate intervals, evaluate its own performance against its terms of reference and best practice;

          
      8. 6.1.14

         to report to the Board summarising the activities of the Audit Committee and any related significant matters, findings and recommendations and in particular annually to assist the Board in producing any explanations it may require in discharging its obligations under the Combined Code;

          
      9. 6.1.15

         to consider other relevant matters, as referred to it by the Board;

          
      10. 6.1.16

          to review the Group’s procedures for handling allegations from whistleblowers, in particular;

          (A) to review arrangements by which staff may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters; and

          (B) to ensure that arrangements are in place for the proportionate and independent investigation and appropriate follow-up action of matters raised in relation to 6.1.16(A); and

           
      11. 6.1.17

          to review management's and the internal auditor's reports on the effectiveness of systems for internal financial control and financial reporting.

           

       
7. Internal financial control
   
   
   1. 7.1

      Regarding internal financial control and internal audit the Audit Committee shall:

      1. 7.1.1
         review the Company's annual statement on its systems of internal financial controls prior to endorsement by the Board, and in particular review:

         (A) the procedures for identifying, assessing, managing and monitoring financial risks and their operational effectiveness;

         (B) the actions taken to remedy any significant failings or weaknesses, including their timeliness in these procedures;

         (C) the Group's policies for preventing or detecting fraud;

         (D) the Group's policies for ensuring that the Group complies with relevant regulatory and legal requirements relating to these procedures;

         (E) the effectiveness of the Company's public reporting processes;

         (F) the scope and quality of management's ongoing monitoring of financial risks and of the system of internal financial control, and the work of its internal audit function and other providers of assurance;

         (G) the extent and frequency of the communication of the results of the monitoring to the Audit Committee, which enables it to build up a cumulative assessment of the state of financial control in the Group and the effectiveness with which risk is being managed;

         (H) the incidence of significant financial control failings or weaknesses that have been identified at any time during the period and the extent to which they have resulted in unforeseen outcomes or contingencies that have had, could have had, or may in the future have, a material impact on the Group's financial performance or condition; and

         (I) the changes since the last annual assessment in the nature and extent of significant risks, and the Group's ability to respond to changes in its business and the external environment;

          
      2. 7.1.2

         ensure that the annual report and accounts include such meaningful, high-level information as the Audit Committee considers necessary to assist shareholders' understanding of the main features of the Group's risk management processes and system of internal financial control, and avoid giving a misleading impression;

          
      3. 7.1.3

         consider whether the objectives, organisation, staffing plans, financial budgets, audit plans and standing of any internal audit function provide adequate support to enable the Audit Committee to meet its objectives;

          
      4. 7.1.4

         review the results of work performed by internal audit, external audit and others in relation to financial reporting and internal financial control, and any significant investigations and management's response;

          
      5. 7.1.5

         review co‑ordination between the Group Financial Controller, the Director of Financial Control, the Finance Director, and the external auditors;

          
      6. 7.1.6

         review such significant transactions not directly related to the Group's normal business as the Audit Committee might deem appropriate;

          
      7. 7.1.7

         review significant cases of employee conflicts of interest, misconduct or fraud, or any other unethical activity by employees or the Group;

          

       
   2. 7.2

      As the Board takes ultimate responsibility for the disclosures on internal financial control in the annual report and accounts, to the extent that the Audit Committee carries out work on behalf of the Board, the results of such work shall be reported to the Board for its consideration.

       
   3. 7.3

      Where, following its review, the Audit Committee is not satisfied with any aspect of the proposed financial reporting by the Group, it shall report its views to the Board.

       
   4. 7.4

      When reviewing reports during the year, the Audit Committee shall:

      1. 7.4.1

         consider what the significant financial risks are and assess how they have been identified, evaluated and managed;

          
      2. 7.4.2

         assess the effectiveness of the related system of internal financial control in managing the significant risks, having regard in particular to any significant failings or weaknesses in internal financial control that have been reported;

          
      3. 7.4.3

         consider whether necessary actions are being taken promptly to remedy any significant failings or weaknesses; and

          
      4. 7.4.4

         consider whether the findings indicate a need for more extensive monitoring of the system of internal financial control.

          

       
   5. 7.5

      For the purpose of maintaining a sound system of internal financial control, the Audit Committee shall:

      1. 7.5.1

         ensure that appropriate policies on internal financial control have been established and seek regular assurance that will enable it to satisfy itself that the system is functioning effectively;

          
      2. 7.5.2

         ensure that the system of internal financial control is effective in managing the risks referred to in paragraph 7.4, in the manner which it has approved;

          
      3. 7.5.3
         when assessing what constitutes a sound system of internal financial control in the particular circumstances of the Group, the Audit Committee's deliberations shall include consideration of the following factors:

         (A) the nature and extent of the risks facing the Group;

         (B) the extent and categories of risk which it regards as acceptable for the Group to bear;

         (C) the likelihood of the risks concerned materialising;

         (D) the Group's ability to reduce the incidence and impact on the business of risks that do materialise; and

         (E) the costs of operating particular controls relative to the benefit thereby obtained in managing the related risks;

          
      4. 7.5.4

         disseminate the necessary information to all relevant employees in order to allow a collective understanding of and contribution to the Group's internal financial control systems;

          
      5. 7.5.5

         further ensure the quality of internal and external reporting through the maintenance of proper records and encompass information and communications processes;

          
      6. 7.5.6

         review the effectiveness of the Group's internal financial controls on an ongoing basis, including receiving and reviewing regular reports on internal financial control.

          

       
   6. 7.6

      In assessing the effectiveness of the Group's risk and control processes the Audit Committee is to have regard to the Financial Reporting Council publication "Internal Control: Revised Guidance for Directors on the Combined Code".

       
8. Annual general meeting
   
   
   1. 8.1

      The chairman of the Audit Committee shall be available at the Annual General Meeting to answer questions on the Audit Committee's activities.

       
9. Proceedings
   
   
   1. 9.1

      Unless varied by these terms of reference, meetings and proceedings of the Audit Committee will be governed by the Company's Articles of Association regarding the meetings and proceedings of directors.

       
   2. 9.2

      At least one week’s notice shall be given of a meeting of the Audit Committee. Such notice will include the agenda. Supporting papers will be provided in sufficient time to give members of the Audit Committee appropriate opportunity to consider them before the meeting.

       
   3. 9.3

      The Secretary of the Audit Committee shall circulate the minutes of the meetings of the Audit Committee to all members of the Committee to the auditors and, if the chairman so decides, to all members of the Board as soon as practicable after each meeting.

       
   4. 9.4

      The Secretary of the Audit Committee shall call Audit Committee meetings at the request of the chairman of the Company or as otherwise provided by these terms of reference.

       

October 2007

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