Nuplex 2008 Annual Report

Corporate Governance

Role of Board of Directors

The Board of Directors (the Board) of Nuplex Industries Limited (the Company) is elected by shareholders to direct and supervise the management of the Company.

The Board establishes the strategic direction and objectives of the Company and sets the policy framework within which the Company will operate. The Board appoints the Managing Director, delegates appropriate authority for the management of the Company, and monitors management’s performance on a regular basis.

A Board of Directors Charter that includes a list of functions reserved as Board responsibilities is available in the Investors section of the Company’s web site (www.nuplex.co.nz).

Governance Principles

The Company is listed on the New Zealand and Australian Stock Exchanges. The Board has adopted the governance principles of the ASX Corporate Governance Council Principles of Good Corporate Governance and Best Practice Recommendations, the NZX Corporate Governance and Best Practice Code and the New Zealand Securities Commission’s Governance Principles and Guidelines (the principles).

Code of Conduct

The Board has prepared a policy to give guidance to its employees and Directors on how it expects them to conduct themselves when undertaking business on behalf of the Company. During the year the Board reviewed and updated the policy and the Company conducted training sessions for management and staff.

The Board has established a “Whistleblower” Policy to provide guidance and assistance to employees who may wish to disclose information that relates to a “serious wrongdoing” in the workplace.

The revised Code of Conduct and Ethics Policy is available in the Investors section of the Company’s web site (www.nuplex.co.nz).

Trading in the Company’s Shares

During the year the Board approved a new policy and procedure for the guidance of Directors and senior managers on the laws governing share trading (Securities Trading Policy and Guidelines).

Under the policy, Directors and senior managers are advised that it is illegal to buy or sell ordinary shares, capital notes or other listed securities if they have material information that is not generally available to the market and if it were generally available to the market, a reasonable person would expect it to have a material effect on the price of the Company’s listed securities. Directors and senior managers are only able to buy or sell listed securities during the following periods:

The policy also covers the notification procedures that must be adopted by Directors and senior managers before they buy or sell the Company’s listed securities.

Directors and senior managers who must comply with this policy have been notified of the requirements of this policy.

Board Size and Structure

At 30 June 2008 the Board was comprised of five non-executive Directors. The Managing Director, John Hirst, is the only Executive Director. Non-executive Directors are selected to ensure that a broad range of skills and experience are available. One of the Directors is appointed as Chairman.

The Board meets in accordance with a schedule prepared in advance of the start of each calendar year, rotating between the Auckland office and other overseas facilities. This enables Directors to become familiar with the Group’s market environment and manufacturing operations and to meet employees, customers and suppliers. Board meetings follow procedures that ensure that all Directors have the necessary information to participate in an informed discussion on all agenda items. Senior managers make direct presentations to the Board on a rotational basis to give the Directors a broad exposure to management philosophies, capabilities and the key issues facing each business and actions taken to address them.

Any Director is entitled to obtain professional advice relating to the affairs of the Company or to his or her other responsibilities as a Director. The full provisions in this regard are set out in the Board of Directors Charter, the Audit Committee Charter and the Remuneration Committee Charter.

The Board has established that all non-executive Directors are independent after taking into consideration their associations as shareholders of the Company and directors or officers of other organisations. Directors’ interests are disclosed in the Statutory Information section of this report.

The Board has instituted a formal system to review annually the performance of the Board and of the individual Directors. The Board meets each year to review the Company’s Corporate Governance Policy and on a second occasion to review the Company’s strategic direction.

Board Succession

During the year the Board appointed Barbara Gibson as a Director effective 1 September 2008. Barbara will stand for election at the Annual Meeting on 31 October 2008.

Fred Holland of Auckland has been a Director since 1981. He has also served as Chief Executive and Chairman of the Board. Fred will not be seeking re-election at the next Annual Meeting.

The Board has resolved to appoint Rob Aitken as Chairman of the Board following the Annual Meeting on 31 October 2008.

Board Committees

The Chairman, Fred Holland, is an ex-officio member of all Board committees.

The Board has the following standing committees:

Audit Committee

The Audit Committee comprises two non-executive Directors, one of whom is appointed as Chairman. The Committee meets a minimum of four times each year; the Managing Director and the Chief Financial Officer and the external auditors attend by invitation of the Chairman.

The Committee has direct communication with and unrestricted access to the Group’s auditors and internal accounting staff.

The Committee’s responsibilities are:

The Committee reports the proceedings of each meeting to the Board.

The Charter of the Audit Committee is available in the Investors section of the Company’s web site (www.nuplex.co.nz).

The composition of the Committee during the last financial year was Bryan Kensington (Chair) and
David Jackson.

Remuneration Committee

The Remuneration Committee comprises two non-executive Directors and the Managing Director and meets as required to review the remuneration packages of the non-executive Directors, Managing Director and the group of executives reporting directly to the Managing Director before making recommendations to the Board.

Remuneration packages are reviewed annually and independent external advice is used to ensure that remuneration is competitive with like organisations within the jurisdiction in which an employee resides.

The policy of the Company is to reward the Managing Director and senior managers with competitive remuneration packages that are aligned with the objectives of the Company and its shareholders and comprise:

Executive Salaries

The remuneration of the four highest paid officers of the Company for year ended 30 June 2008 was as follows:

Name
Position Held
Total Employment Cost
Bonuses
Total Remuneration
John Hirst  
Managing Director
A$800,000
A$230,000
A$1,030,000
Graeme Storey  
Chief Financial Officer
NZ$405,000
NZ$56,100
NZ$461,100
Tony Cooke  
Group General Manager, Operations
A$385,000
A$71,179
A$456,179
Rob Harmsen  
Group General Manager,
Coating Resins
€73,711
+A$362,248
+A$63,811
€73,711
+A$426,059

Total Employment Cost (TEC) includes the following components:

  1. Cash salary
  2. The cost of the provision of a motor vehicle to a standard nominated by the Officer and approved by the Board
  3. Superannuation including compulsory and voluntary contributions
  4. Other non-cash benefits nominated by the Officer and approved by the Board
  5. Fringe benefits tax payable in respect to any component of TEC

The bonus of A$230,000 paid to the Managing Director, John Hirst, was awarded for achievement of specific performance targets for year ended 30 June 2007 and partly for year ended 30 June 2008.

The Board also approved an additional payment of A$180,000 to the Managing Director for achievement of specific performance targets during the year which was paid after the end of the financial year.

Managing Director’s Remuneration

During the year the Board approved the following remuneration package for the Managing Director for the year ended 30 June 2009:

Upon retirement and/or giving three months written notice of termination, the Managing Director will be entitled to receive the following payments:

2004 Senior Managers’ Incentive Scheme

Performance Share Rights (PSRs) have been allocated to the Managing Director, John Hirst, and other senior managers in accordance with the 2004 Senior Managers’ Incentive Scheme as follows:

  Total Allocations
John Hirst
180,000
Senior Managers
386,770

PSRs of 155,400 allocated on 1 July 2004 were re-tested during the year ended 30 June 2008 and the vesting criterion was not satisfied. These PSRs will continue to be tested against the vesting criteria for the next year.

On 1 July 2005, 199,797 PSRs were allocated to senior managers. With adjustments for senior managers who have left the Nuplex Group, the number of PSRs was reduced to 185,802. The first testing date for these PSRs was 1 July 2008 and the Company’s TSR performance has been tested against the Comparator Group. Nuplex’s performance is at the 54th percentile (with the median TSR being at 126.55 and Nuplex’s TSR being at 139.84). Under the conditions of the scheme, 58 per cent of the PSRs vest with senior managers. Nuplex has therefore purchased 107,765 Nuplex shares on market to satisfy the vested PSRs. Shareholders were advised of details of the vesting by disclosure letter dated 25 August 2008.

Taking into consideration the PSRs that have been cancelled and those PSRs that have vested as shares, the following is the current status of outstanding PSRs:

  Total Allocations
John Hirst
145,000
Senior Managers
293,239

2007 Senior Managers’ Incentive Scheme

At the last Annual Meeting shareholders approved the adoption of the 2007 Senior Managers’ Incentive Scheme. The Board decided to change the long-term incentive scheme to a full-recourse loan scheme to expose management to the full risks and rewards of share ownership and thereby better align their financial interests with the interests of shareholders. The Managing Director and senior managers have been provided with an interest-free loan to purchase shares in the Company as part of their total reward under the Company’s performance based remuneration system. If certain performance hurdles are met, repayment of portions of the loan may be waived by the Company. Details of the scheme and loans provided to the Managing Director and senior managers were sent to shareholders in a disclosure letter dated 30 November 2007.

Details of the 2004 Senior Managers’ Incentive Scheme and the 2007 Senior Managers’ Incentive Scheme are available in the Investors section of the Company’s web site (www.nuplex.co.nz) under Remuneration Committee.

The Charter of the Remuneration Committee is available in the Investor Relations section of the Company’s web site (www.nuplex.co.nz).

The composition of the Committee is Rob Aitken (Chairman), Michael Wynter and John Hirst. The Chairman, Fred Holland, replaces John Hirst on the Committee for purposes of reviewing the remuneration of the Managing Director.

Nomination Committee

The Nomination Committee was convened during the year to consider the appointment of a replacement director, culminating in the appointment of Barbara Gibson as a Director effective 1 September 2008.

The full Board constitutes the Nomination Committee. The Nomination Committee Charter is available in the Investors section of the Company’s web site (www.nuplex.co.nz).

Directors’ Remuneration

Annual Fees

Fees paid to non-executive Directors are fixed based on service during the year and do not include any Short Term or Long Term Incentives.

The total fees payable to non-executive Directors was set at $1,000,000 by Ordinary Resolution of Shareholders at the Annual Meeting held on 2 November 2007.

During the year the Board resolved that the base fee per Director for year ended 30 June 2009 would be increased from $90,000 to $98,000 per annum plus allowances of $20,000 for the Chairman of the Audit Committee, $15,000 for the Chairman of the Remuneration Committee, $10,000 for other members of the Audit Committee and $7,500 for other members of the Remuneration Committee. The Board also resolved that the fee payable to the Board Chairman be increased from $180,000 to $196,000 per annum.

Directors are to be paid the above amounts in the currency of their country of residence.

Remuneration paid to Directors during the year ended 30 June 2008 is disclosed in the Statutory Information section of this report.

Retirement Allowances

The Board has resolved that payments under clause 12.4 of the Constitution will be crystallised at the average of the last three years' total remuneration up to 30 June 2004 plus an allowance for cost of living (CPI) adjustments. Retiring allowances will be paid to the non-executive Directors serving at that time on retirement in full, provided they have served at least six years as a Director and on a pro-rata basis for service less than six years.

The Company has accrued for the cost of Director retirement allowances as follows:

    NZ$,000
Accrual at 1 July 2007   715
Payment to David Newton   -174
Indexation adjustment   50
Accrual at 30 June 2008   591
Payable to the following Directors:
Fred Holland   187
Bryan Kensington   188
Michael Wynter   216
     

 

Directors appointed to the Board after 30 June 2004 are not eligible to a retirement allowance.

Organisational Structure

The Board has delegated to the Managing Director the conduct of the affairs and management responsibilities of the Company. Delegation is subject to matters reserved for Board approval as detailed in the Board of Directors Charter.

The business of the Company is organised into clearly defined operating divisions under the management of a profit-responsible General Manager reporting to the Managing Director. The operating performance of each division is separately reported to the Board each month to facilitate monitoring the health of each business.

Group operations are managed by an executive group as follows:
Graeme Storey
 Chief Financial Officer
Tony Cooke
 Group General Manager, Operations
Rob Harmsen
 Group General Manager, Resins
- responsible for global coatings and adhesive markets plus raw material purchasing.
Sam Bastounas
 Group General Manager, Functional Materials
- responsible for composites, paper chemicals, construction products and Masterbatch business units plus Australian general management.
Charles Northcote
 Group General Manager, Specialty Products
- responsible for agency and distribution business units plus support to the Managing Director with investor relations and strategic planning.

Internal Financial Control and Risk Management

The Board, advised by the Audit Committee, monitors and approves the Company’s system of internal financial control which includes clearly defined policies controlling treasury operations, capital expenditure authorisation and risk management.

The Chief Financial Officer is responsible to the Managing Director for ensuring that all operations within the Company adhere to the Board-approved financial control policies.

The Managing Director and Chief Financial Officer have signed a declaration:

  1. That Financial Statements for year ended 30 June 2008 present a true and fair view, in all material respects, of the Group’s financial condition and operational results and are in accordance with NZIFRS
  2. That the above statement is founded on a sound system of risk management and control which implements policies adopted by the Board of Directors
    and
  3. The Group’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects

During the year the Chief Financial Officer and Group Financial Controller conducted a series of internal audit visits to subsidiary operations in The Netherlands, UK, New Zealand and USA. A report was presented to the Audit Committee that covered:

  1. Adequacy of accounting resources and IT systems
  2. Segregation of duties
  3. Controls over inventory, receivables and cash
  4. Payroll controls
  5. Implementation of Group Delegation of Authority Policy

The Audit Committee reviews the Internal Audit reports and responses from management and ensures that any weaknesses in policies and practises are rectified.

The Board participates in the development of strategic plans, approves budgets and monitors performance monthly.

The Board monitors the engagement of the Company’s auditors for additional professional advice, and will ensure that alternative advisors are appointed where appropriate.

The Board ensures that recommendations made by auditors and other independent advisers are critically evaluated and applied where appropriate.

The Board satisfies itself that adequate external insurance cover is in place appropriate for the Company’s size and risk profile.

The Board satisfies itself that adequate Health, Safety and Environmental Protection Policies and hazard assessments are in place and monitors performance.

Communications and Disclosure

The Board has adopted a Communications and Disclosure Policy covering continuous disclosure obligations and the Board’s policy in respect of communications with shareholders, analysts, media and other third parties. The Communications and Disclosure Policy is available in the Investors section of the Company’s web site (www.nuplex.co.nz).

Information is communicated to shareholders through the Annual and Interim Reports which are available in the Investors section of the Company’s web site (www.nuplex.co.nz).

The Board complies with the continuous disclosure requirements of NZX and ASX.

The Board encourages full participation by shareholders at the Annual Meeting of the Company.

Governance Practices

The Board has reviewed its governance practices against the ASX Corporate Governance – Best Practice Guidelines, NZX Corporate Governance Best Practice Code and the NZ Securities Commission Principles and Guidelines of Corporate Governance and is compliant with these codes with the following exceptions:

ASX Principle 9.1 Disclosure of the salary of each of the five highest paid officers of the Company.

Salaries of the four highest paid officers of the Company have been disclosed. Salaries of the next highest paid executives have not been disclosed to protect the confidentiality of remuneration paid to operational management.