Corporate Governance

Chairman’s Statement on Corporate Governance

All members of the Board believe strongly in the value and importance of good corporate governance and in our accountability to all of the Company’s stakeholders, including shareholders, staff, customers and suppliers. In the statement below, we explain our approach to governance, and how the Board and its committees operate.

Changes to AIM rules on 30 March 2018 require AIM companies to apply a recognised corporate governance code by 28 September 2018. The corporate governance framework which the Company operates, including Board leadership and effectiveness, Board remuneration, and internal control is based upon practices which the Board believes are proportional to the size, risks, complexity and operations of the business and is reflective of the Group’s values. Of the two widely recognised formal codes, we have therefore decided to adhere to the Quoted Companies Alliance’s (QCA) Corporate Governance Code for small and mid-size quoted companies (revised in April 2018 to meet the new requirements of AIM Rule 26).

The QCA Code is constructed around ten broad principles and a set of disclosures. The QCA has stated what it considers to be appropriate arrangements for growing companies and asks companies to provide an explanation about how they are meeting the principles through the prescribed disclosures. We have considered how we apply each principle to the extent that the Board judges these to be appropriate in the circumstances. The Board considers that it does not depart from any of the principles of the QCA Code.

Establishing a strategy and business model which promotes long-term value for shareholders

The purpose of the Group is to unlock the enormous potential of its proprietary technologies, the Affimer and pre|CISION platforms.

The Group has established two ways of addressing these opportunities through shorter-term and longer-term opportunities.

The first shorter-term area is the building of a profitable business through licensing of Affimer reagents to developers of research tools and diagnostic tests in order that they can power their products with Affimers.

The second longer-term opportunity is to develop a pipeline of therapeutic candidates for in-house development and licensing. There are two main value drivers:

  1. Proof of concept of the pre|CISION tumour targeting technology in humans to improve the therapeutic index for chemotherapies using Doxorubicin as a first example. This could lead to a significant license deal potentially with a substantial non-dilutive upfront
  2. The progression of the first Affimer into the clinic to demonstrate safety and tolerability in man. This will validate the Affimer platform technology and provide the opportunity to develop higher value partnering and license deals with large pharmaceutical company across the world.

The Board believes it has the right strategy in place and the support of shareholders, as demonstrated by the recent fund-raise to deliver the significant value growth over the next few years.

Board structure, skills and compliance

The Board has a collective responsibility and legal obligation to promote the interests of the Company and to define the corporate governance arrangements. At 31 July 2018, the Board comprised four Non-executive Directors and two Executive Directors. The profiles of the Directors can be found here.

The division of responsibilities between the Chairman and the Chief Executive Officer is clearly defined. The Chairman’s primary responsibility is ensuring the effectiveness of the Board and setting its agenda. The Chairman has no involvement in the day-to-day business of the Group. The Chief Executive has direct charge of the Group on a day-to-day basis and is accountable to the Board for the financial and operational performance of the Group.

The Chairman, Dr Eliot Forster, was appointed as Chairman to the Board in June 2018. Prior to his appointment to the Board, he had no involvement with any part of the Avacta Group and has been considered to be independent since his appointment. Eliot has significant experience within Life Science companies, in particular in the therapeutics area where the Group has a significant focus. Eliot’s time commitment is 1-2 days per month.

The Chief Executive Officer, Dr Alastair Smith, was appointed to the Board in September 2007. Alastair has 12 years’ experience as Chief Executive Officer of an AIM listed business, having founded the business and has been responsible for the strategic development of the Group, leading fund-raising and M&A activities during this time. Alastair’s time commitment if full time.

Dr Mike Owen was appointed as a Non-executive Director in September 2015 and has undertaken the role of Senior Independent Director since September 2017. The Board determines him to be independent of the executive management and free from any relationship that could materially affect the exercise of his independent judgement. Mike also chairs the Avacta Life Sciences Scientific Advisory Board, which comprises independent key opinion leaders who provide a challenging review of the ongoing therapeutic programmes and areas such as immuno-oncology target selection. Mike has significant experience within large pharmaceutical companies and a broad range of experience as a non-executive within Life Science companies. Mike’s time commitment is 1-2 days per month.

Dr Trevor Nicholls, was appointed as Non-executive Director in August 2013 and was Chairman from August 2013 to June 2018. Prior to his appointment to the Board, he was not involved with any part of the Avacta Group and has been considered to be independent since his appointment. Trevor has a vast experience with Life Science and reagents companies and has provided significant oversight into the development of the Affimer reagents and diagnostics proposition. Trevor’s time commitment is 1-2 days per month.

Tony Gardiner was appointed as an Executive Director in January 2016 and fulfils the role of Chief Financial Officer for the Group. Tony has over 20 years’ experience in senior financial and operational roles across small and large organisations and has previously served as CFO in an AIM listed business. In addition to this role, Tony is also Company Secretary and provides advice and guidance to the Board and Non-executive Directors. The Board acknowledges that best corporate governance practice would not combine the role of an Executive Director and Company Secretary; however, given the relative size of the Group at this stage the Board is comfortable with Tony performing both roles but will review the position as the Group grows. Tony’s time commitment is full time.

The Board is in the process of recruiting another Non-executive Director with an extensive financial background within the Life Sciences sector who will become the Chairman of the Audit Committee.

The Board meets regularly throughout the year with ad hoc meetings also being held. The role of the Board is to provide leadership of the Company and to set strategic aims but within a framework of prudent and effective controls which enable risk to be managed to acceptable levels. The Board has agreed the Schedule of Matters reserved for its decision, which includes ensuring that the necessary financial and human resources are in place to meet its obligations to its shareholders and others. It also approves acquisitions and disposals of businesses, major capital expenditure, annual financial budgets and recommends interim and final dividends. It receives recommendations from the Audit Committee in relation to the appointment of auditors, their remuneration and the policy relating to non-audit services. The Board agrees the framework for Executive Directors’ remuneration with the Remuneration Committee and determines fees paid to Non-executive Directors. Given the relative size of the Company, there is currently no separate Nomination Committee and the Board, with advice from the Remuneration Committee, take responsibility for any recruitment of Executive and Non-executive Directors together with succession planning. Board papers are circulated before Board meetings in sufficient time to allow meaningful review and preparation by all Board members.

Board evaluation and performance

The performance of the Board is evaluated on an ongoing basis informally with reference to all aspects of its operation including, but not limited to: the appropriateness of its skill level; the way its meetings are conducted and administered (including the content of those meetings); the effectiveness of the various Committees; whether Corporate Governance issues are handled in a satisfactory manner; and, whether there is a clear strategy and objectives.

A new Director, on appointment, is briefed on the activities of the Company. Professional induction training is also given as appropriate. The Chairman briefs Non-executive Directors on issues arising at Board meetings if required and Non-executive Directors have access to the Chairman at any time. Ongoing training is provided as needed. Directors are continually updated on the Group’s business by means of Board presentations on insurance as well as issues covering pensions, social, ethical, environmental and health and safety.

In the furtherance of his duties or in relation to acts carried out by the Board or the Company, each Director has been informed that he is entitled to seek independent professional advice at the expense of the Company. The Company maintains appropriate cover under a Directors and Officers insurance policy in the event of legal action being taken against any Director.
Each Director is appraised through the normal appraisal process. The Chief Executive is appraised by the Chairman, the executive Board members by the Chief Executive and the non-executive Board members by the Chairman. The Senior Independent Director seeks the views of all the Directors on the performance of the Chairman and discusses their combined views with him. Each Director has access to the services of the Company Secretary if required.

The Non-executive Directors are considered by the Board to be independent of management and are free to exercise independence of judgement. The Non-executive Directors have never been employees of the Company nor do they participate in any of the Company’s pension schemes or bonus arrangements. They receive no remuneration from the Company other than the Directors’ fees.

Directors are subject to re-election at the Annual General Meeting following their appointment. In addition, at each Annual General Meeting one third (or whole number less than one third) of the directors will retire by rotation.

The list below shows the number of Board meetings and Committee meetings held during the year ended 31 July 2018 and the attendance of each Director.

Trevor Nicholls
  • Attended 6/6 board meetings as non-executive Chairman.
  • Attended 1/1 audit committee meetings as member.
  • Attended 1/1 remuneration committee meetings as Chairman.
Mike Owen
  • Attended 6/6 board meetings as non-executive.
  • Attended 1/1 audit committee meetings as member.
  • Attended 1/1 remuneration committee meetings as member.
Alastair Smith
  • Attended 6/6 board meetings as executive CEO
  • Attended 1/1 audit committee meetings.
  • Attended 1/1 remuneration committee meetings.
Tony Gardiner
  • Attended 6/6 board meetings as executive CFO
  • Attended 1/1 audit committee meetings.
  • Attended 1/1 remuneration committee meetings.
* Eliot Forster was appointed as Non-executive Chairman on 11 June 2018 and there were no Board or Committee meetings between his appointment and 31 July 2018.

Audit Committee

The Audit Committee (‘the Committee’) is established by and is responsible to the Board. The terms of reference of the Audit Committee include the following responsibilities:

  • To monitor and be satisfied with the truth and fairness of the Company’s financial statements before submission to the Board for approval, ensuring their compliance with the appropriate accounting standards, the law and the Listing Rules of the Financial Services Authority
  • To monitor and review the effectiveness of the Company’s system of internal control
  • To make recommendations to the Board in relation to the appointment of the external auditors and their remuneration, following appointment by the shareholders in general meeting, and to review and be satisfied with the auditors’ independence, objectivity and effectiveness on an ongoing basis
  • To implement the policy relating to any non-audit services performed by the external auditors

Trevor Nicholls was appointed the Interim Chair of the Audit Committee on 21 January 2019, following the retirement of Alan Aubrey. Trevor has a significant amount of experience of financial, regulatory and operational matters across a broad range of companies, including the AIM listed hVIVO plc. The Board is in the process of recruiting a new independent Non-executive Director who will become the permanent Chair of the Audit Committee on their appointment. The other members of the Committee, Eliot Forster, Mike Owen and Alan Aubrey (up to his retirement on 21 January 2019), all of whom are Non-executive Directors, have gained wide experience in regulatory, commercial and risk issues.

The Committee is authorised by the Board to seek and obtain any information it requires from any officer or employee of the Company and to obtain external legal or other independent professional advice as is deemed necessary by it.

Meetings of the Committee are held once per year (usually during September) to coincide with the review of the scope of the external audit and observations arising from their work in relation to internal control and to review the financial statements. The external auditors are invited to these meetings and meet with the Audit Committee at least once a year. At its meeting, the Committee carries out a full review of the year-end financial statements and of the audit, using as a basis the Report to the Audit Committee prepared by the external auditors and taking into account any significant accounting policies, any changes to them and any significant estimates or judgements. Questions are asked of management of any significant or unusual transactions where the accounting treatment could be open to different interpretations.

The external auditors are required to give the Committee information about policies and processes for maintaining their independence and compliance regarding the rotation of audit partners and staff. The Committee considers all relationships between the external auditors and the Company to ensure that they do not compromise the auditors’ judgement or independence, particularly with the provision of non-audit services.

The Audit Committee considers that the Company’s relationship with the Group’s auditors is working well and the Committee remains satisfied with the effectiveness of the auditors. Accordingly, the Company does not consider it necessary to put the audit out to tender. There are no contractual obligations restricting the Company’s choice of external auditors.
Due to its size and structure, the Group does not have an internal audit function. This is a matter which the Committee reviews annually.

Remuneration Committee

The Remuneration Committee is chaired by Trevor Nicholls and the other members of the Committee are Eliot Forster, Mike Owen, and Alan Aubrey (up to his retirement on 21 January 2019), all of whom are Non-executive Directors. The Committee meets at least once a year with the Chief Executive in attendance as appropriate.

The terms of reference of the Remuneration Committee include the following responsibilities:

  • To determine the framework and policy, together with the individual packages of the remuneration of the executive directors and certain other senior executives of the Group
  • To determine targets for performance-related pay schemes
  • To review employee benefit structures
  • To produce an annual report of the Committee’s remuneration policy

Risk management

The Board is responsible for risk management and reviewing the internal controls systems. The internal control systems 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 misstatement or loss. Given the relative size of the Group there is not currently a separate internal audit function.

The Group highlights potential financial and non-financial risks which may impact on the business as part of the risk management procedures in the form of a Risk Register. The Board receives these regular reports and monitors the position at Board meetings. There are ongoing processes for identifying, evaluating and mitigating the significant risks faced by the Group, which are reviewed on a regular basis. The review process involves a review of each area of the business to identify material risks and the controls in place to manage these risks. The process is undertaken by the Chief Financial Officer and senior managers with responsibility for specific controls. Where any significant weakness or failing is identified, implementation of appropriate remedial action is completed following approval by the Board.

The Group maintains appropriate insurance cover in respect of actions taken against the Directors because of their roles, as well as against material loss or claims against the Group. The insured values and type of cover are comprehensively reviewed on a periodic basis.

Shareholder communications and engagement

Responsibility for investor relations sits with the Chief Executive Officer, supported by the Chief Financial Officer and input from other members of the Senior Management Team as required.

The Company is committed to communicating openly with its shareholders to ensure that its strategy and performance are clearly understood. We communicate with shareholders through the Annual Report and Accounts, full-year and half-year announcements, trading updates and the annual general meeting (AGM), and we encourage shareholders’ participation in face-to-face meetings.

A range of corporate information (including the Annual Report & Accounts) is also available to shareholders, investors and the public on our website, www.avacta.com. The Company uses intermediaries such as Proactive Investors and Hardman Research to ensure that key updates provided via RNS releases are relayed to as many shareholders as possible.  The Directors encourage the participation of all shareholders, including private investors, at the Annual General Meeting and as a matter of policy the level of proxy votes (for, against and vote withheld) lodged on each resolution is declared at the meeting and published on the Company’s website.

The Chief Executive Officer and Chief Financial Officer meet regularly meet with institutional shareholders to foster a mutual understanding of objectives and communicate back to the Board. The Chairman and Senior Independent Director are also available to discuss governance and other matters directly with major shareholders.
During the year, the Company also held a private shareholder day, where private shareholders and interested investors were provided with an update on the Group’s activities including technical and commercial progress by members of the Board and Senior Management Team.

Share dealing code

The Company has adopted a code on dealings in relation to the securities of the Group. The Company requires the Directors and other relevant employees of the Group to comply with the Share Dealing Code and takes proper and reasonable steps to secure their compliance.

Corporate culture and social responsibility

The Executive Directors provide regular updates to staff, most of whom are either shareholders or holders of share options, on the progress of the Group. These updates follow key events within the financial reporting calendar and aim to give staff the same level of insight provided to institutional shareholders and analysts, providing details of the business objectives, strategy and business model, together with sharing of technical progress across the various teams within the Group. Senior management work across all the Group’s facilities and actively seek regular feedback from staff to ensure that the strategy and aims of the Group are readily understood.

The Board recognises the importance of taking into account corporate social responsibility in operating the business and in particular the impact of its activities relating to health, safety and environmental issues.
The Group has well defined health and safety policies and procedures, complying with current legislation and safeguarding staff, contractors and visitors. Alastair Smith is the Executive Director responsible for health and safety, chairing quarterly Group meetings and reporting on health and safety matters to the Board. The Group’s policies and procedures form a part of staff induction and training programmes. Regular internal safety audits are carried out and no significant issues have been identified by these audits.

Dr Eliot Forster
Chairman
28 January 2019