Corporate governance

The directors believe that good governance is about helping to run the Company well, whilst promoting its success for the benefit of all its shareholders. The Board has reviewed its internal corporate governance procedures, financial controls and reporting procedures and policies and consider these to be appropriate given the size and structure of the Company.

New rules on corporate governance for AIM companies mean that from 28 September 2018, each AIM company must disclose on its website the recognised corporate governance code that its board has decided to adopt.

Having compared the provisions of the Quoted Companies Alliance Code 2018 (“the QCA Code”) to the FCA UK Code on Corporate Governance 2016 (“the UK Combined Code”), the Filtronic Board has decided to apply the QCA Code, starting with the financial year ending 31 May 2019. The Board considers that the updated QCA code embodies the key principles of the UK Combined Code but in a more flexible and outcome-orientated manner more suited to the needs of the Company. The Board has been advised that over 90% of AIM listed companies are expected to adopt the QCA Code. The Board does not envisage any material change to the comprehensive governance policies and procedures developed and implemented over the years, and it intends to maintain the same high standards of governance. As required by the new AIM rules, certain prescribed disclosures in relation to the QCA Code have been added to the Company’s website and can be found at: www.filtronic.com/investors/corporate-governance/QCA

‍The Company will maintain its existing Share Dealing Code for Directors’ dealings, which is MAR compliant. The Share Dealing Code is intended to prevent the Directors and applicable employees from dealing in Ordinary Shares during close periods.

The Company intends to continue to hold timely board meetings as issues arise which require the attention of the Board. The Board will continue to be responsible for the management of the business of the Company, setting the strategic direction of the Company and establishing the policies of the Company. It will continue to be the Directors’ responsibility to oversee the financial position of the Company and monitor the business and affairs of the Company.

(This section was last reviewed on 26 September 2018)

QCA

THE PRINCIPLES OF THE QUOTED COMPANY ALLIANCE (QCA) CODE

Filtronic plc (“The Company”) QCA Code Disclosures

DELIVER GROWTH

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

Application (as set out by the QCA)

The Board must be able to express a shared view of the Company’s purpose, business model and strategy.

It should go beyond a simple description of products and corporate structures and set out how the company intends to deliver shareholder value in the medium term and long term.

It should demonstrate that the delivery of long-term growth is underpinned by a clear set of values aimed at protecting the company from unnecessary risk and securing its long-term future.

What we do and why

The Filtronic Group’s strategy is explained within the Objective and Strategy section of the 2020 Annual Report and Accounts.

Our core objective is to grow our business profitably and this is to be achieved by; offering a growing range of technically advanced RF, mmWave and microwave communications products to the telecommunication infrastructure, aerospace & defence and critical communications markets; expanding our customer base within our target markets; and, widening the number of markets that we address.

2. Seek to understand and meet shareholder needs and expectations.

Application (as set out by the QCA)

Directors must develop a good understanding of the needs and expectations of all elements of the company’s shareholder base.

The Board must manage shareholders’ expectations and should seek to understand the motivations behind shareholder voting decisions.

What we do and why

The Board places great value on maintaining open relationships with shareholders and the primary point of contact in the Company for this function is the CEO, supported by the FD and guided by the Chairman. The CEO and FD undertake an extensive programme of meetings with shareholders at least twice a year, following the announcement of the financial results. The Chairman will attend some of these meetings and is available to speak with shareholders at their request. The senior independent director is also available as an alternative communication channel for shareholders who may wish to raise any concerns. Presentations are also made to analysts at these times to present the Group’s results. This assists with the promotion of knowledge of the Group in the investment marketplace and with shareholders.

The Board believes that the Annual General Meeting provides an excellent opportunity to communicate directly with shareholders.

Where voting decisions are not in line with the Company’s expectations, the Board will engage with those shareholders to understand and address any issues. The Company Secretary is the main point of contact for such matters.

We also aim to communicate with smaller shareholders by making copies of investor presentations available on our website. In addition, we have launched a YouTube Channel, where video presentations of our results and strategy are available to view.

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

Application (as set out by the QCA)

Long-term success relies upon good relations with a range of different stakeholder groups both internal (workforce) and external (suppliers, customers, regulators and others). The Board needs to identify the company’s stakeholders and understand their needs, interests and expectations.

Where matters that relate to the company’s impact on society, the communities within which it operates, or the environment have the potential to affect the company’s ability to deliver shareholder value over the medium to long-term, then those matters must be integrated into the company’s strategy and business model.

Feedback is an essential part of all control mechanisms. Systems need to be in place to solicit, consider and act on feedback from all stakeholder groups.

What we do and why

Acting with integrity and behaving responsibly is central to the execution of our strategy and underpins our business model.

Care for our employees, the environment, our customers, our supply chain and the communities in which we operate is integral to the way Filtronic operates.

Please see further details in the Corporate Social Responsibility Report section of the 2019 Annual Report and Accounts

The main direct stakeholders of Filtronic are our employees, shareholders, customers and suppliers.

Filtronic holds staff communications sessions throughout the Group on a regular basis, where management meet employees face to face or via Teams to update them on developments relating to the business and where there is an opportunity to take questions, as well as to explore and address issues, large and small, that crop up from time to time. The CEO also circulates a bi-monthly blog to inform employees on developments and updates in the business.

Please see the previous website disclosure in relation to communications with shareholders.

Filtronic supplies customers (or their specified contract partners) directly with its products. The products are frequently custom built to customer specifications. The nature of the supply relationship requires a close relationship between the customer and Filtronic throughout the product development and supply phases. In parallel Filtronic nurtures close relationships with its own suppliers reflecting the standards required by our customers. Because of Filtronic’s close relationships with its customers, there is a flow-down of the latest regulatory requirements, including those relating to environmental, packaging and other matters from customer to Filtronic and into the supply chain thus improving the quality of the supply chain over time.

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

Application (as set out by the QCA)

The Board needs to ensure that the company’s risk management framework identifies and addresses all relevant risks in order to execute and deliver strategy; companies need to consider their extended business, including the Company’s supply chain, from key suppliers to end-customer.

Setting strategy includes determining the extent of exposure to the identified risks that the Company is able to bear and willing to take (risk tolerance and risk appetite).

What we do and why

The Board recognises that risk is inherent in any business and seeks to manage risk in the Group in a controlled way.

The Risk management section of the 2020 Annual Report and Accounts sets out the key risks facing the business, the nature of those risks, the mitigation systems and actions that have been put in place.

The directors have established a continuous process for identifying evaluating and managing the significant risks faced by the Company and in addition regularly review the effectiveness of the Group’s system of internal controls.

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

Application (as set out by the QCA)

The Board members have a collective responsibility and legal obligation to promote the interests of the Company and are collectively responsible for defining corporate governance arrangements. Ultimate responsibility for the quality of, and approach to, corporate governance lies with the Chair of the Board.

The Board (and any Committees) should be provided with high-quality information in a timely manner to facilitate proper assessment of the matters requiring a decision or insight.

The Board should have an appropriate balance between Executive and Non-Executive Directors and should have at least two independent Non-Executive Directors. Independence is a Board judgement.

The Board should be supported by Committees (e.g. audit, remuneration, nomination) that have the necessary skills and knowledge to discharge their duties and responsibilities effectively.

Directors must commit the time necessary to fulfil their roles.

What we do and why

The Board of directors is responsible for promoting the success of the Company within a responsible governance framework. Details of that framework, the Board’s composition, its Committees, their function and the remit of each is set out in the Governance Framework section of the Governance report in the 2019 Annual Report and Accounts.

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

Application (as set out by the QCA)

The Board must have an appropriate balance of sector, financial and public markets skills and experience, as well as an appropriate balance of personal qualities and capabilities. The Board should understand and challenge its own diversity, including gender balance, as part of its composition.

The Board should not be dominated by one person or a group of people. Strong personal bonds can be important but can also divide a Board.

As companies evolve, the mix of skills and experience required on the Board will change, and Board composition will need to evolve to reflect this change.

What we do and why

The Board undertakes an evaluation of its performance annually. The evaluation is based on the FRC’s guidance on Board effectiveness.

The Chairman is supported by the Company Secretary in addressing the development and training needs of the Board and of individual members.

Succession planning and the process of appointments to the Board is overseen by the Nominations Committee and is led by the Chairman.

Where new appointments are considered, the search and the appointment are made on merit against objective criteria and with due regard to the benefits of diversity.

MAINTAINING A DYNAMIC FRAMEWORK

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

Application (as set out by the QCA)

The Board should regularly review the effectiveness of its performance as a unit, as well as that of its Committees and the individual directors.

The Board performance review may be carried out internally or, ideally, externally facilitated from time to time. The review should identify development or mentoring needs of individual directors or the wider senior management team.

It is healthy for membership of the Board to be periodically refreshed. Succession planning is a vital task for Boards. No member of the Board should become indispensable.

What we do and why

The Board carries out an evaluation of its performance annually (as well as that of its committees and of individual directors) in the light of the Financial Reporting Council’s Guidance on Board Effectiveness.

The Board evaluation process is directly linked to succession planning and all directors undergo performance evaluation before being proposed for re-election to ensure that their performance continues to be effective and demonstrate their continued commitment to the role.

Appraisals are conducted annually with the Executive Directors where objectives are set to align with the Company’s objective and strategy.

Please refer to the Governance framework section of the Governance report in the 2020 Annual Report and Accounts.

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

Application (as set out by the QCA)

The Board should embody and promote a corporate culture that is based on sound ethical values and behaviours and use it as an asset and a source of competitive advantage.

The policy set by the Board should be visible in the actions and decisions of the Chief Executive and the rest of the management team. Corporate values should guide the objectives and strategy of the Company.

The culture should be visible in every aspect of the business, including recruitment, nominations, training and engagement. The performance and reward system should endorse the desired ethical behaviours across all levels of the Company.

The corporate culture should be recognisable throughout the disclosures in the Annual Report, website and any other statements issued by the Company.

What we do and why

The Company has in place a comprehensive suite of Group policies that are endorsed by the Board and communicated to all employees. This is done, firstly, as part of the employee’s initial induction process and subsequently as each new policy is adopted. These policies are available to view and download below. The policies are infused with the core values of Filtronic: Integrity, respect for others, seeking to always deliver quality products (and services) that meet and exceed customer expectations. Additionally, the Company has adopted a Procedures and Authorisations Manual (“PAM”) (updated when required) which sets out among other matters the approved authority levels within the Filtronic Group.

To reinforce the values and cultures of Filtronic, training on the Group policies and PAM is periodically provided at all sites where each employee is reminded of the essence of each policy and its objective. During the most recent training sessions, employees were reminded of the existence of the whistleblowing policy so that employees who have concerns about ethical issues or matters of integrity can raise their concerns in confidence directly to Board Members.

To emphasise to all employees the central role that the policies play in the day to day management and

operation of the business, employee handbooks were amended and updated during the across the Group to identify the key role the policies play in the culture of the Company, the Group and its business enterprises.

Recently, an exercise to define the core values of Filtronic which should help to support the vision and objectives of the company has been initiated.

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

Application (as set out by the QCA)

The Company should maintain governance structures and processes in line with its corporate culture and appropriate to its:

  • size and complexity; and
  • capacity, appetite and tolerance for risk.

The governance structures should evolve over time in parallel with its objectives, strategy and business model to reflect the development of the Company.

What we do and why

The Filtronic Group Governance Report in the 2020 Annual Report and Accounts sets out the Company’s governance framework and why it is appropriate for Filtronic, at present.

BUILD TRUST

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

Application (as set out by the QCA)

A healthy dialogue should exist between the board and all of its stakeholders, including shareholders, to enable all interested parties to come to informed decisions about the Company.

In particular, appropriate communication and reporting structures should exist between the Board and all constituent parts of its shareholder base. This will assist:

  • the communication of shareholders’ views to the Board; and,
  • the shareholders’ understanding of the unique circumstances and constraints faced by the Company.

It should be clear where these communication practices are described (Annual Report or website).

What we do and why

The Filtronic Group encourages two-way communication with shareholders (both private and institutional) and responds quickly to the inputs received.

The Chairman talks to the Group’s major shareholders and ensures that their views are communicated to the Board.

The Board recognises that the AGM is an important opportunity to meet private shareholders. The directors are available to listen to the views of shareholders informally immediately following the meeting.

The results of all general meeting resolutions are announced promptly after the meeting has taken place. The results of all general meeting resolutions (as well as the corresponding notice of general meeting/annual general meeting) issued in the last five years are available on the Company’s website at: www.filtronic.com/investors

Historical Annual Reports and the unaudited half-year results for the past five years are available at: www.filtronic.com/investors

Constitution of the Board and of Board Committees

The Board considers that its constitution brings both independence and an appropriate balance of experience in judging matters of strategy, performance, resources, investor relations, internal control and corporate governance. The Board will comprise of at least three Directors as follows: the non-executive chairman, one executive and one non-executive director, and will continue to reflect a blend of different experience and backgrounds. The Board will continue to consider two directors to be independent.

Each of the directors is proposed for re-election at the Annual General Meeting at least every three years. Non-executive directors who have served longer than nine years on the Board are subject to annual re-election. A formal performance review of the Board, its committees and the directors is undertaken annually. This has been implemented in the year by way of a written questionnaire completed by all Board members.

Board committees

‍The Board has a Nominations Committee, a Remuneration Committee and an Audit Committee. The Remuneration and Audit Committees comprise all of the independent Non-Executive Directors. Each of these committees operates under terms of reference which have been established by the Board.

The Audit Committee

The primary function of the Audit Committee is to assist the board in fulfilling its financial and risk oversight responsibilities.

The committee meets four times during the year and reviews items such as the half and full year results, and then makes a recommendation to the Board.

The Audit Committee is comprised of all of the Non-Executive Directors.

Download our terms of reference below.

The Nominations Committee

The Nominations Committee’s duties are confined to the nomination of appointments, re-appointments and termination of employment or engagement of Directors and the Company Secretary.

The Nominations Committee is chaired by Reg Gott, and is comprised of all of the Non-Executive Directors.

Download our terms of reference below.

The Remuneration Committee

The Remuneration Committee’s responsibilities include ensuring that the remuneration policy of the Company and its implementation are appropriate.

The members of the committee have no personal interest in the matters considered other than as shareholders. No potential conflicts of interest exist in relation to any of the member of the committee and their duties.

The Remuneration Committee meets four times during the year, and it ensures that levels of remuneration are sufficient to attract, retain and motivate directors of the quality required to run the Company successfully whilst avoiding paying more than is necessary for this purpose.

The Remuneration Committee is chaired by Pete Magowan and is comprised of all of the Non-Executive Directors.

Download our terms of reference below.

Executive Committee

The Chief Executive has established an Executive Committee.

The committee aims to meet monthly either by teleconference or face to face. The routine matters on the agenda include operational matters (trading, customers, suppliers), site specific issues in the UK, China and the USA, risk management, health and safety, human resources and environmental matters.

Corporate and Social Responsibility

Filtronic plc takes its corporate and social responsibilities very seriously and recognises the important contributions to the business made by the wider community of stakeholders, in particular employees, clients, suppliers and the local communities.

(i) Health and safety

‍The Board is committed to ensuring the health and safety of the group’s employees and applies high standards throughout the group in the control and management of its operations. The group analyses its practices and processes using systematic health and safety management techniques and auditing regimes. As part of the group’s continued implementation of an occupational health, safety and management system, the group has put preventative measures in place that aim to continue to reduce major injuries and lost time accidents.

‍(ii) Employee development

‍Employee development has been established as one of the group’s key objectives. The group has an education and training policy in place to implement continuous improvement where beneficial to the group and employee, thus underlying the group’s commitment to ongoing employee development and training.

‍(iii) Employee communications

‍The group believes in keeping employees fully informed on matters which affect them through communication procedures including staff meetings and a culture which encourages openness and interaction between all members of staff. The group operates a UK-wide staff forum for information and consultation (‘ICON forum’). The ICON forum is designed to be a gathering at which employee representatives can review group progress and raise, share and discuss specific issues and concerns that affect employees with senior management.

(iv) The environment

‍Care for the environment is an integral part of the group’s business activities. It is the group’s policy to ensure that its facilities are safe and the group is committed to ensuring that its impact on the environment is minimised. The group supports and trains its personnel to act responsibly in matters relating to the environment. The group takes account of relevant legislation and regulations and analyses its practices, processes and products to reduce their environmental impact, and works with its customers and suppliers to achieve a high standard of product stewardship. The group’s in-house manufacturing sites have established environmental management systems and have achieved ISO 14001 certification.

Wherever possible, components and materials are reused or recycled. The reuse, utilisation and recycling of packaging is subject to monitoring. The group continues to work with its customers to implement programmes to design products for disassembly and recycling, and in particular so as to ensure compliance with the European Union directive on waste electrical and electronic equipment and the European Union initiatives in relation to the restriction of certain hazardous substances in electrical and electronic equipment. The group has introduced focused management teams throughout its business to ensure that compliance with these requirements is achieved within the required implementation timescales. The group continues to work with major suppliers, contractors and customers to assist them in improving their environmental, health and safety performance.

(v) Supplier payment policy

‍It is the group’s policy to abide by the terms of payment agreed with suppliers in respect of the goods and services properly invoiced to the group. At 31 May 2011 trade payables of £5.5m represented 103 days’ purchases, calculated in accordance with the requirements of the Companies Act.

Group Values and Policies

The Filtronic group (which includes Filtronic plc, its subsidiaries and their business units) recognises its Corporate Governance Responsibilities and is committed to achieving best practice throughout its business activities. To access them please click here