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Standard Chartered PLC.

BSE: 580001 Sector: Financials
NSE: STAN ISIN Code: INE028L21018
BSE LIVE 15:43 | 23 Oct 62.10 1.95
(3.24%)
OPEN

56.55

HIGH

63.40

LOW

56.55

NSE 05:30 | 01 Jan Stock Is Not Traded.
OPEN 56.55
PREVIOUS CLOSE 60.15
VOLUME 10266
52-Week high 71.90
52-Week low 48.00
P/E 1.42
Mkt Cap.(Rs cr) 4,197
Buy Price 62.10
Buy Qty 289.00
Sell Price 0.00
Sell Qty 0.00
OPEN 56.55
CLOSE 60.15
VOLUME 10266
52-Week high 71.90
52-Week low 48.00
P/E 1.42
Mkt Cap.(Rs cr) 4,197
Buy Price 62.10
Buy Qty 289.00
Sell Price 0.00
Sell Qty 0.00

Standard Chartered PLC. (STAN) - Director Report

Company director report

Director's Report

The directors have pleasure in submitting their report and the financial statements ofthe Company and its subsidiaries for the year ended 31 December 2011.

Business review

We are required to present a fair review of our business during the financial yearended 31 December 2011 our position at year-end and a description of the principal risksand uncertainties that we face. This review enables shareholders to assess how thedirectors have performed their duty under the Companies Act 2006 to promote the successof the Company. The information that fulfils the requirements of the Business review canbe found in the Chairman’s statement on pages 4 and 5 the Group ChiefExecutive’s review on pages 6 to 11 the Group Consumer Banking and WholesaleBanking sections of the Business review on pages 20 to 41 the Risk review on pages 50 to86 and the Key performance indicators on pages 12 and 13 all of which are incorporatedinto this report by reference.

Principal activities

The Company is the holding company for the Group. The Group operates globally and isprincipally engaged in the business of retail and commercial banking and the provision ofother financial services.

Areas of operation

Our Group comprises a network of more than 1500 branches and outlets in 71 markets.Further details on the branches can be found on our website www.standardchartered.com.

Results and dividends

We recommend a final dividend of 51.25 cents (2010: 46.65 cents) on 29 February 2012for the year ended 31 December 2011. This together with the interim dividend alreadypaid makes a total dividend for 2011 of 76.00 cents (2010: 70.00 cents). The impact ofthe rights issue in 2010 has been explained in note 13 to the financial statements. Thefinal dividend if approved at the 2012 Annual General Meeting (AGM) will be paid ineither sterling Hong Kong dollars or US dollars on 15 May 2012 to shareholders on the UKregister of members at the close of business in the UK (10.00pm London time) on 9 March2012 and to shareholders on the Hong Kong branch register of members at the opening ofbusiness in Hong Kong (9.00am Hong Kong time) on 9 March 2012. The final dividend will bepaid in Indian rupees on 15 May 2012 to Indian Depository Receipt holders on the Indianregister at the close of business in India on 9 March 2012 in accordance with the DepositAgreement.

It is intended that shareholders on the UK register and Hong Kong branch register willbe able to elect to receive shares credited as fully paid instead of all or part of thefinal cash dividend. Details of the dividend arrangements will be sent to shareholders onor around 23 March 2012. Indian Depository Receipt holders will receive their dividend inIndian rupees only.

Share capital

The issued ordinary share capital of the Company was increased by 35896222 during theyear. 11425223 ordinary shares were issued under the Company’s employee share plansat prices between nil and 1436.42 pence. 24470999 ordinary shares were issued under theCompany’s share dividend scheme. Further details can be found in note 35 to thefinancial statements.

The Company has one class of ordinary shares that carries no rights to fixed income. Ona show of hands each member present has the right to one vote at our general meetings. Ona poll each member is entitled to one vote for every $2 nominal value of share capitalheld. The issued nominal value of the ordinary shares represents 79.58 per cent of thetotal issued nominal value of all share capital. There are no specific restrictions on thesize of a holding nor on the transfer of shares which are both governed by the generalprovisions of the articles of association and prevailing legislation. The directors arenot aware of any agreements between holders of the Company’s shares that may resultin restrictions on the transfer of securities or on voting rights. No person has anyspecial rights of control over the Company’s share capital and all issued shares arefully paid.

Authority to purchase own shares

At the Annual General Meeting (AGM) held in May 2011 our shareholders renewed theCompany’s authority to make market purchases of up to 235072287 ordinary sharesequivalent to approximately 10 per cent of issued ordinary shares as at 17 March 2011 andup to all of the issued preference share capital. These authorities were not used duringthe year and remained in force at 31 December 2011. In accordance with the terms of awaiver granted by The Stock Exchange of Hong Kong Limited on 16 April 2008 as supplementedby modifications agreed by The Stock Exchange of Hong Kong Limited on 30 April 2009 and 25July 2011 respectively the Company will comply with the applicable law and regulation inthe UK in relation to holding of any shares in treasury and with the conditions of thewaiver in connection with any shares it may hold in treasury. Shareholders will be askedto renew these authorities at the forthcoming AGM and will receive details within theNotice of AGM. No treasury shares were held during the year. Further details can be foundin note 35 to the financial statements.

Relevant audit information

As far as the directors are aware there is no relevant audit information of which theGroup statutory auditor (KPMG Audit Plc) is unaware. The directors have taken allreasonable steps to ascertain any relevant audit information and ensure that the Groupstatutory auditors are aware of such information.

Going concern

Having made appropriate enquiries we consider that the Company and the Group as awhole have adequate resources to continue operational businesses for the foreseeablefuture and therefore continued to adopt the going concern basis in preparing the financialstatements.

Sufficiency of public float

As at the date of this report the Company has maintained the prescribed public floatunder the Rules Governing the Listing of Securities on The Stock Exchange of Hong KongLimited (the Hong Kong Listing Rules) based on the information publicly available to theCompany and within the knowledge of the directors.

Fixed assets

Details of additions to fixed assets are presented in note 26 to the financialstatements.

Major interests in shares and voting rights

As far as the directors are aware as at 29 February 2012 Temasek Holdings (Private)Limited (Temasek) is the only shareholder that had an interest of more than 10 per cent inthe Company’s issued ordinary share capital carrying a right to vote at any generalmeeting. The Company has been notified by the following companies of their interests inthe total voting rights of the Company:

Shareholder Number of ordinary shares Percentage of voting rights direct Percentage of voting rights indirect
Temasek Holdings (Private) Limited* 432746145 18.152
Aberdeen Asset Management PLC’s Fund Management Operating Subsidiaries 163774076 6.87
Black Rock Inc 165824190 6.96
Legal & General Group Plc (L&G) 81652322 3.425

*Temasek Holdings (Private) Limited’s interests is held indirectly through DoverInvestments Pte. Ltd

Loan capital

Details of the loan capital of the Company and its subsidiaries are set out in note 32to the financial statements.

Board members

The present members of the Board together with their biographical details are shownon pages 94 to 96. V. Shankar joined the Board as an executive director on 1 January 2012.

Re-election of directors

At our AGM to be held on Wednesday 9 May 2012 all of our Board of directors will standfor re-election.

Directors’ induction and ongoing development

To ensure that directors have the requisite knowledge and understanding to enable themto challenge effectively we provide them a personalised approach to induction trainingand development. Further details of this can be found in the Corporate governance reporton page 101.

Our Board receives regular updates on the views of our institutional shareholders andstakeholders. Our Board openly seeks the views of our shareholders and during the yearthe Chairman Group Chief Executive Officer Group Finance Director all of our executivedirectors and two of our non-executive directors met with 21 of our top 25 investors. RudyMarkham is the Senior Independent Director. Shareholders may discuss any issues orconcerns with the Senior Independent Director where they have been unable to resolve themthrough existing channels for investor communications.

Directors’ interests

The directors’ beneficial interests in the ordinary shares of the Company as at 31December 2011 are shown in the directors’ remuneration report on pages 126 to 151.

Confirmation of Independence

The Company considers all of the non-executive directors to be independent and hasreceived from each of them an annual confirmation of independence pursuant to Rule 3.13 ofthe Hong Kong Listing Rules.

Compensation for loss of office

Details concerning the provisions for providing compensation to directors for loss ofoffice or employment can be found on page 144 of the directors’ remuneration report.

Qualifying third-party indemnities

The Company has granted indemnities to all of its directors on terms consistent withthe applicable statutory provisions. Qualifying third-party indemnity provisions for thepurposes of section 234 of the Companies Act 2006 were accordingly in force during thecourse of the financial year ended 31 December 2011 and remain in force at the date ofthis report.

Risk management

An ongoing process for identifying evaluating and managing the significant risks thatwe face is in place. Its objectives policies and procedures including the policy forhedging risk our exposure to credit risk liquidity risk and market risk are covered inthe Risk review on pages 50 to 86 of this report. Company-only risks are managed as a partof overall Group risks.

Significant contracts and agreements

At no time during the year did any director hold a material interest in any contractsof significance with the Company or any of its subsidiary undertakings. The Company is notparty to any significant agreements that would take effect alter or terminate following achange of control of the Company.

Related party transactions

Details of transactions with directors and officers and other related parties are setout in note 47 to the financial statements.

Connected/continuing connected transactions

By virtue of its shareholding of more than 10 per cent in the Company Temasek and itsassociates are related parties and connected persons of the Company for the purposes ofthe UK Listing Rules and the Listing Rules of The Stock Exchange of Hong Kong Limitedrespectively (together known as the Rules). Neither Temasek nor its associates are relatedparties for the purposes of IAS 24 Related Party Disclosures (IAS 24). The Rulesare intended to ensure that there is no favourable treatment to Temasek or its associates(as defined under the Rules) as a result of such shareholding to the detriment of othershareholders in the Company. Unless transactions that the Company and its subsidiariesundertake with Temasek or its associates are specifically exempt under the Rules or aresubject to a specific waiver they may require a combination of announcements reportingand independent shareholders’ approval.

One of the most significant changes to the Hong Kong Listing Rules from theCompany’s perspective was the introduction on 3 June 2010 of a new exemption (thePassive Investor Exemption) from the connected transaction and continuing transactionrequirements for ‘transactions with associates of a passive investor’ (Rules14A.31(10) and 14A.33(5)). The Company considers that Temasek meets the criteria for apassive investor under Rule 14A.31(10)(b). Therefore any connected transactions orcontinuing connected transactions of a revenue nature in the ordinary and usual course ofbusiness and on normal commercial terms with an associate of Temasek are exempt from theannouncement reporting annual review and independent shareholders’ approvalrequirements of the Hong Kong Listing Rules.

In addition in 2010 The Stock Exchange of Hong Kong Limited granted the Company anumber of waivers from strict compliance with the reporting and annual review requirementsin respect of Ongoing Banking Transactions with Temasek associates that the Company hasnot been able to identify and the requirements to enter into a fixed-term writtenagreement and set a maximum aggregate annual value in relation to the Ongoing BankingTransactions with Temasek or any of its associates (the Ongoing Banking TransactionsWaivers). The independent shareholders approved the Ongoing Banking Transactions Waiversat the 2010 AGM for a period of three years until 7 May 2013.

In addition in 2011 The Stock Exchange of Hong Kong Limited granted the Company awaiver (the 2011 Waiver) from strict compliance with the reporting and annual reviewrequirements for the years ended 31 December 2011 and 2012 in respect of the OngoingBanking Transactions between Temasek itself and the Company on the conditions that:

• the nature and magnitude of the Ongoing Banking Transactions with Temasek itselfremains insignificant in 2011 and 2012

• the Company will inform The Stock Exchange of Hong Kong Limited if thetransactions are no longer insignificant or there is any significant change incircumstances at which time The Stock Exchange of Hong Kong Limited will reassess whetherto continue the waiver By operation of the above exemptions and waivers the Companyconfirms that to the best of its knowledge and belief after due inquiry the Company doesnot have any transactions with Temasek or its associates that would require announcementsreporting annual review or independent shareholders’ approval in 2011.

If none of the exemptions under the Hong Kong Listing Rules or the waivers obtainedfrom The Stock Exchange of Hong Kong Limited is applicable in relation to a transactionwith Temasek or its associates the Company will continue to comply with the applicableannouncement reporting annual review and independent shareholders’ approvalrequirements.

Pursuant to the conditions attached to the 2011 Waiver the Company will continue tomonitor the aggregate amount of the Ongoing Banking Transactions with Temasek itselfthrough the transaction processing systems and notify The Stock Exchange of Hong KongLimited if the magnitude increases significantly.

The Group has internal systems processes and procedures in place to identify andmonitor the non-exempt connected and continuing connected transactions. These are reviewedand updated periodically and their adequacy and effectiveness is assessed by GroupInternal Audit.

Compliance and regulatory matters

On 8 April 2011 the Group acquired a 100 per cent interest in GE Money Pte Limited aleading specialist in auto and unsecured personal loans in Singapore for a total cashconsideration of $695 million recognising goodwill of $199 million.

On 2 September 2011 the Group acquired a 100 per cent interest in Gryphon PartnersAdvisory Pty Ltd and Gryphon Partners Canada Inc for a total consideration of $53 million.Under International Financial Reporting Standard 3 however only $28 million of thisconsideration is deemed to relate to the cost of investment; for accounting purposes thebalance is deemed to represent remuneration and is charged to the income statement overthe period to 2015. Goodwill of $11 million was recognised on this transaction.

Further details are given in note 24 to the financial statements.

Conflicts of interest

In accordance with the Companies Act 2006 we have established a robust processrequiring directors to disclose proposed outside business interests before any are enteredinto. This enables prior assessment of any conflict or potential conflict of interest andany impact on time commitment. The Nomination Committee reviews actual or potentialconflicts of interest and recommendations on authorisation are made to the Board.Authorisations are reviewed twice a year by the Nomination Committee to consider if theycontinue to be appropriate and also to revisit the terms upon which they were provided.

Internal control

The effectiveness of our internal control system is reviewed regularly by the Boardits committees the Group Management Committee and Group Internal Audit. The AuditCommittee has reviewed the effectiveness of the Group’s system of internal controlduring the year ended 31 December 2011 and reported on its review to the Board. TheCommittee’s review was supported by an annual business self-certification processwhich was managed by Group Internal Audit.

Group Internal Audit monitors compliance with policies and standards and theeffectiveness of internal control structures across the Group through its programme ofbusiness audits. The work of Group Internal Audit is focused on the areas of greatest riskas determined by a risk-based assessment methodology.

Group Internal Audit reports regularly to the Audit Committee the Chairman and to theGroup Chief Executive. The findings of all adverse audits are reported to the AuditCommittee the Chairman and to the Group Chief Executive where immediate corrective actionis required.

The Board Risk Committee has responsibility for overseeing the management of theCompany’s fundamental prudential risks as well as reviewing the effectiveness of theCompany’s risk management framework. The Audit Committee monitors the integrity ofthe Company’s financial reporting compliance and internal control environment.

The Risk review on pages 50 to 86 describes the Group’s risk management structure.Our business is conducted within a developed control framework underpinned by policystatements written procedures and control manuals. This ensures that there are writtenpolicies and procedures to identify and manage risk including operational risk countryrisk liquidity risk regulatory risk legal risk reputational risk market risk andcredit risk. The Board has established a management structure that clearly defines rolesresponsibilities and reporting lines. Delegated authorities are documented andcommunicated. Executive risk committees regularly review the Group’s risk profile.

The performance of the Group’s businesses is reported regularly to senior linemanagement and the Board. Performance trends and forecasts as well as actual performanceagainst budgets and prior periods are monitored closely. Financial information isprepared using appropriate accounting policies which are applied consistently.Operational procedures and controls have been established to facilitate complete accurateand timely processing of transactions and the safeguarding of assets. These controlsinclude appropriate segregation of duties the regular reconciliation of accounts and thevaluation of assets and positions.

Employee policies and engagement

We are committed to open honest and productive relationships with our employees. Theyreceive clear and timely communications from senior management to ensure that theyunderstand the financial and economic factors that affect our performance.

We employ nearly 87000 people from 130 nationalities across 71 markets. As part of ourapproach to employee engagement we operate Group share plans. All employees are invitedto participate in our all-employee Sharesave schemes and share in our success. Furtherdetails of the Sharesave schemes are given in the Directors’ remuneration report onpage 139 and in note 37 to the financial statements.

Our employment policies are designed to accommodate the relevant social statutory andmarket conditions and practices prevailing in each country in which we operate. We arecommitted to equality of opportunities and diversity for all regardless of gender raceage physical ability religion or sexual orientation. This applies equally to recruitmentand to the promotion development and training of people whom we already employ.

We recognise our social and statutory duty to employ disabled people and have followeda policy in the United Kingdom by providing wherever possible the same employmentopportunities for disabled people as for others. If employees become disabled everyeffort is made to ensure their employment continues with appropriate training wherenecessary. We have measured employee engagement for the last 11 years using the annualemployee engagement survey. This survey provides important feedback to managers and teamsand internal research has demonstrated a strong relationship between high engagement andincreased business performance. In 2011 95 per cent of employees participated in thesurvey and this reflects the strong commitment of our employees to voice their opinionsand demonstrate trust in the process.

Major customers

Our five largest customers together accounted for 3.2 per cent of our total interestincome and other operating income in the year ended 31 December 2011.

Creditor payment policy

Operating businesses are responsible for agreeing and then bringing attention toterms and conditions with their suppliers in the economies in which they operate. Ourpolicy is to pay creditors in accordance with these agreed terms and conditions providedthe supplier has complied with them.

The Company is a holding company and does not trade. Therefore it is not consideredmeaningful to give a number of days’ purchases outstanding for the Company as at 31December 2011. For our operation in the United Kingdom there were 34 days’ purchasesoutstanding as at 31 December 2011.

Code for Financial Reporting Disclosure

The Group’s 2011 financial statements have been prepared in accordance with theprinciples of the British Bankers’ Association Code for Financial ReportingDisclosure.

Group code of conduct

The Board has adopted a Group code of conduct relating to the lawful and ethicalconduct of business and this is supported by the Group’s core values. The Group codeof conduct has been communicated to all directors and employees all of whom are expectedto observe high standards of integrity and fair dealing in relation to customers staffand regulators in the communities in which the Group operates.

Environmental social and governance responsibilities

The Group complies with the guidelines issued by the Association of British Insurers onresponsible investment disclosure and is committed to the communities and environments inwhich it operates. The Board is responsible for ensuring that high standards ofresponsible business are maintained and that an effective control framework is in place.We have established and maintained policies and procedures in relation to environmentalsocial and governance (ESG) risks. Details of these procedures can be found on ourwebsite.

Through our risk management structure and control framework the Board receives regularand adequate information to identify and assess significant risks and opportunitiesarising from ESG matters. Specifically the Brand and Values Committee (BVC) which isappointed by the Board and includes the Chairman of the Board and Group Chief Executivereviews the Group’s sustainable business priorities and oversees the Group’sdevelopment of and delivery against public commitments regarding which activities and orbusinesses it will and will not encourage in line with the Here for good brand promise.

The BVC is informed by the Group Risk Committee and Group Head of Corporate Affairswho is the risk control owner for reputational risk including those associated with ESGmatters. At the country level the Country Head of Corporate Affairs is the risk controlowner and the risk committee (RC) or where there is no RC the management committee isthe governance oversight committee. All employees are responsible for day-to-dayidentification and management of reputational risk. Quarterly reviews of risks andreporting are carried out at country regional and Group levels. Where a reputational riskis identified the risk is escalated in accordance with clearly documented internalreporting procedures.

Key areas of risk are those associated with customers’ operations and theirpotential impact on the environment and local communities. The Board recognises itsresponsibility to manage these risks and that failure to manage them adequately would havean adverse impact on our business. These risks are recognised in reaching financingdecisions explicitly identified in our credit policies and in the provision of advisoryand other financial services. We have developed a series of position statements coveringhigh-impact sectors and key issues outlining the environmental and social standards weencourage our clients to observe. We have adopted the Equator Principles that setprocedures based on the International Finance Corporation guidelines for recognising andmitigating the environmental and social impacts associated with Project Finance andrelated advisory services. The principles have been embedded in the Group’s policyand procedures on Environmental and Social Risk in Project Finance – Application ofthe Equator Principles.

We continue to review and where appropriate strengthen our financial crime riskpolicies procedures and training. In 2011 due to the coming into force of the UK BriberyAct on 1 July new Anti-Bribery policy procedures and training were rolled out to theentire Group. There was also considerable change partly attributable to the ‘ArabSpring’ in the number and type of sanctions imposed by the UK and US governmentswhich required a prompt and comprehensive response from the Group to ensure compliance.

The Board is not aware of any material exceptions to its policies.

Community investment

We are committed to building a sustainable business and a more sustainable society andrecognise our responsibility to invest in the communities in which we operate. We made atotal investment of $54.4 million to charities community organisations and causes acrossour footprint during the year. This sum included direct financial support of $17.8 millionand indirect contributions such as employees’ time the donation of non-monetarygoods and donations worth $37.8 million raised by our employees. In order to furtherincrease our transparency around this data in 2010 we introduced an online datacollection tool along with some standard charity on-boarding guidelines across allmarkets in order to collate quality-assured data about the types of initiatives we areinvolved in.

Community investment activity focuses on a number of major programmes – Livingwith HIV Seeing is Believing Nets for Life and Goal (Women’s Empowerment) – aswell as a range of local initiatives. These are underpinned by employee volunteeringactivities. Further details of community projects can be found on page 49.

HIV/AIDS policy

We are committed to addressing the social and health issues that confront ouremployees their families and the communities in which we operate. HIV/AIDS directly andindirectly impacts our staff and therefore our business. Our HIV/AIDS policy has beenadopted across all the countries in which we operate and applies to all staff and theirfamilies in a manner consistent with existing medical cover. As of the end of 2010 we hadexceeded our commitment to the Clinton Global Initiative to educate one million people onHIV and AIDS with total education pledges of 1.6 million. In 2011 we focused onsupporting our partner organisations and sharing our HIV education materials with otherorganisations free of charge. A copy of our HIV/AIDS policy is available on our website.

Environment and climate change policy

We understand that without a stable climate energy food and water security becomeincreasingly difficult to achieve which in turn can have a detrimental impact to ourbusiness. Our environment and climate change strategy emphasises the interconnectedness ofissues around food energy and water security against a backdrop of climate change. OurEnvironment and Climate Change (ECC) Policy was developed in 2009 and focuses on fourcentral themes:

• operational impacts – minimising the direct impact of our operationsincluding air travel paper use water and energy consumption

• commercial opportunities and sustainable finance – managing environmentaland social risks in our financing; developing new business in renewable energy andenvironmental finance

• engagement – ensuring that internal and external stakeholders are fullyengaged to embed our strategy

• reporting – ensuring the continual efficacy of the ECC policy and strategythrough providing delivery assurance

Further details of our policies can be found on our website.

Electronic communication

The Board recognises the importance of good communications with all shareholders.

Our directors are in regular contact with our institutional shareholders and generalpresentations are made when we announce our financial results. The AGM presents anopportunity to communicate with all shareholders. Our shareholders are encouraged toreceive our corporate documents electronically. The annual and interim financialstatements notice of AGM and dividend circulars are all available electronically. If youdo not already receive your corporate documents electronically and would like to do so infuture please contact our registrars at the address on page 254.

Shareholders are also able to vote electronically on the resolutions being put to theAGM through our registrars’ website at www.investorcentre.com

Annual General Meeting

Our AGM will be held at 12.00pm (London time) (7.00pm Hong Kong time) on Wednesday 9May 2012 at The Honourable Artillery Company Armoury House City Road London EC1Y 2BQ.Details of the business to be conducted are contained in the notice of meeting.

Non-audit services

The non-audit services policy (the policy) was reviewed and approved by the AuditCommittee in 2011. The policy is based on a number of core principles. The overridingprinciple is to ensure that our Group Statutory Auditor KPMG Audit Plc’s (KPMG)independence and/or objectivity as the audit firm is not (or could not be seen to be)compromised by the appointment of KPMG to provide particular non-audit services. Subjectto this overriding principle the Audit Committee’s view is that KPMG can be of valuein a wider range of activities than just financial statement audit and KPMG should beallowed to tender subject to the Accounting Principles Board’s (APB) ethicalstandards and the terms of the policy. However the policy makes it clear that KPMG shouldnot be regarded as the automatic or first firm of choice for non-audit services andconsideration should always be given to the use of other firms. The policy requires aconservative approach to be taken to the assessment of requests for KPMG to providenon-audit services.

The APB sets out various threats to audit independence including self-interest selfreview familiarity taking of a management role or conducting advocacy. In particularmaintaining KPMG’s independence from the Group requires it to avoid taking decisionson the Group’s behalf. It is also recognised as essential that management retain thedecision making capability as to whether to act on advice given by KPMG as part of anon-audit service. This means not just the ability to action the advice given but to havesufficient knowledge of the subject matter to be able to make a reasoned and independentjudgement as to its validity. Accordingly the Group is required take a conservativeapproach to interpreting the potential threats to auditor independence and requirecommensurately robust safeguards against them if a non-audit service is to be permitted.

After due consideration the Audit Committee decided not to reduce the policy to aprescribed list of non-audit services that KPMG is permitted to provide. Rather eachrequest for KPMG to provide non-audit services will be assessed on its own merits. TheAudit Committee believes that such a case-by-case approach best accommodates (i) the needfor the appropriate rigour and challenge to be applied to each request for KPMG to providenon audit services whilst (ii) preserving sufficient flexibility for the Group to engageKPMG to provide non-audit services where it is able to deliver particular value to theGroup and where the proposed services can be provided without compromising KPMG’sobjectivity and independence. KPMG’s objectivity is of particular value to the Groupin the context of providing non-audit services which relate to the provision of anindependent view benchmarked either against external laws regulations or requirements orthe audit firm’s own knowledge of best practices. The policy also specificallyincorporates the APB’s recommended prohibitions and restrictions on the types ofnon-audit services that are able to be provided by the audit firm.

By way of (non-exhaustive) illustration of the application of the principles set out inthe policy the following types of non-audit services are:

• likely to be permissible under the policy:

- audit related services as defined by the APB – the Group would also extend thisto work on investor circulars in most foreseeable circumstances

- an objective view as to whether the Group has applied external laws and regulationsappropriately such as checks over regulatory compliance

- testing the robustness of controls infrastructure

- due diligence over potential purchases or sales

• not permissible under the policy:

- any services that are prohibited (or to the extent they are restricted) by theAuditing Practices Board’s published guidance from time to time

- aggressive tax or regulatory structuring proposals;

- any services where fees are paid on a contingent basis (in whole or in part)

- consulting services which actively assist in running the business in place ofmanagement as opposed to providing or validating information which management thenutilises in the operation of the business

Details relating to KPMG’s remuneration as the Group statutory auditor and adescription of the broad categories of the types of non-audit services provided by KPMGare given in note 8 to the financial statements on page 185. The two significantengagements of KPMG to provide non-audit services are described on page 111 and 112.

Auditor

The Audit Committee reviews the appointment of the Group statutory auditor itseffectiveness and its relationship with the Group which includes monitoring our use ofthe auditor for non-audit services and the balance of audit and non-audit fees paid.Following a review of the independence and effectiveness of our Group statutory auditor aresolution will be proposed at the 2012 Annual General Meeting to reappoint KPMG. Eachdirector believes that there is no relevant information of which our Group statutoryauditor is unaware. Each has taken all steps necessary as a director to be aware of anyrelevant audit information and to establish that KPMG is made aware of any pertinentinformation.

By order of the Board

Annemarie Durbin

Group Company Secretary

29 February 2012

Statement of directors’ responsibilities

The directors are responsible for preparing the Annual Report and the Group and Companyfinancial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare Group and Company financial statementsfor each financial year. Under that law they are required to prepare the group financialstatements in accordance with IFRS as adopted by the EU and applicable law and haveelected to prepare the parent company financial statements on the same basis.

Under company law the directors must not approve the financial statements unless theyare satisfied that they give a true and fair view of the state of affairs of the group andparent company and of their profit or loss for that period. In preparing each of the Groupand Company financial statements the directors are required to:

Select suitable accounting policies and then apply them consistently

Make judgments and estimates that are reasonable and prudent

State whether they have been prepared in accordance with IFRSs as adopted by the EU

Prepare the financial statements on the going concern basis unless it is inappropriateto presume that the Group and the Company will continue in business The directors areresponsible for keeping adequate accounting records that are sufficient to show andexplain the parent company’s transactions and disclose with reasonable accuracy atany time the financial position of the parent company and enable them to ensure that itsfinancial statements comply with the Companies Act 2006. They have general responsibilityfor taking such steps as are reasonably open to them to safeguard the assets of the Groupand to prevent and detect fraud and other irregularities.

Under applicable law and regulations the directors are also responsible for preparinga Report of the directors Directors’ remuneration report and Corporate governancestatement that complies with that law and those regulations.

The directors are responsible for the maintenance and integrity of the corporate andfinancial information included on the company’s website. Legislation in the UKgoverning the preparation and dissemination of financial statements may differ fromlegislation in other jurisdictions.

Directors’ responsibility statement

We confirm that to the best of our knowledge:

• The financial statements prepared in accordance with the applicable set ofaccounting standards give a true and fair view of the assets liabilities financialposition and profit or loss of the Company and the undertakings included in theconsolidation taken as a whole

• The Report of the directors includes a fair review of the development andperformance of the business and the position of the issuer and the undertakings includedin the consolidation taken as a whole together with a description of the principal risksand uncertainties that they face By order of the Board

R H Meddings

Group Finance Director

29 February 2012