Corporate Governance

CORPORATE GOVERNANCE STATEMENT

Aveo Healthcare Limited’s Board of Directors (Board) is responsible for the corporate governance of the Consolidated Entity, and is accountable to the shareholders for the overall business performance of the Consolidated Entity.

Aveo Healthcare Limited is committed to implementing and maintaining sound governance practices.

This statement outlines the main corporate governance practices in place and the extent to which the Consolidated Entity has followed the recommendations of the ASX Corporate Governance Council (‘Council’) throughout the year, including the Council’s revised Corporate Governance Principles and Recommendations (2nd edition) published in August 2007 as amended in 2010 (‘Guidelines’).    

Areas where the corporate governance practices do not follow the Council’s Guidelines arise due to FKP Limited’s 85.45 per cent ownership and the management, direction and services provided by FKP Limited.  As outlined below, the Board considers that appropriate measures have been applied throughout the financial year to take into account the size of the Board and current ownership structure. 

Principle 1: Lay Solid Foundations for Management and Oversight

The Board has developed and implemented policies and practices which ensure that the Consolidated Entity complies with the recommendations, principles and spirit set out in the Guidelines.

The role and responsibilities of the Board, Board Committees, management and operating subsidiaries have been established through Board approved charters and policies all of which are available on the Aveo Healthcare website.  The most significant responsibilities of the Board remain the provision of strategic guidance for the Consolidated Entity, including contributing to the effective development of the corporate strategy, and authorising and monitoring major investment and strategic commitments.

The Board has delegated to the Executive Director, Justin Laboo, responsibility for the overall operational, business management and financial performance of the Consolidated Entity, implementation of agreed corporate strategies, risk management and keeping the Board and market fully informed of material developments.

The Consolidated Entity does not directly employ any corporate staff (including senior executives) but has entered into an Operating Agreement with FKP Limited for the supply of operational and administrative support services including Human Resources, Finance, Treasury, Legal, Premises and IT.  The support services have been provided by FKP Limited since April 2004 and are reimbursed on an arms-length basis pursuant to the terms of the Operating Agreement which was last renewed in July 2009.  Mr Laboo is responsible for the effective operation of services under the agreement and is assisted by senior managers of FKP Limited who report to Mr Laboo.

The Board has established an approval process for monitoring the performance of the Board, its Committees, individual Directors and key executives appropriate for the size and structure of the Consolidated Entity.

Principle 2: Structure the Board to add value

The names, skills and experience of the Directors who held office during the financial year and as at the date of this statement, and the period of office of each director, are included in the Directors’ Report.

Independence of Directors
In assessing the independence of Non-Executive Directors, the Board considered each Director’s previous and current relationships with Aveo Healthcare Limited’s customers, suppliers, consultants, professional advisors and substantial shareholders.  The Board considers that the following Non-Executive Directors are independent:  Ian Fraser, Michael Palavidis and Don Mackenzie.  Non-Executive Director Phil Parker and Executive Directors, Geoff Grady (Chairman) and Justin Laboo, are nominees of the Company’s major shareholder, FKP Limited. 

It is acknowledged that the Board does not consist of a majority of independent directors in accordance with recommendation 2.1 of the Council’s Guidelines.  The composition of the Board recognises FKP Limited’s 85.45 per cent shareholding and the Board considers it appropriate that several directors associated with the major shareholder have a presence on the Board.  Given the small size of the Consolidated Entity, and the safeguards established internally primarily through the operation of the Contract Review Committee, the appointment of additional independent directors so as to reach a majority of independent directors is not considered necessary or cost effective, nor is it believed that such action would derive any benefit to shareholders.

During the financial year the Board, with the exception of the period from 22 August to 1 November 2011, comprised three Non-Executive Directors (two of whom were independent) and two Executive Directors.  During this period, the Company only had one independent Non-Executive Director, an exception which was rectified on 1 November 2011.  

The Contract Review Committee exists to review agreements and any significant contractual commitments between the Consolidated Entity and related parties.  The Committee comprises the independent Non-Executive members of the Board and, when required, external parties.  The Committee considers, for new agreements, whether the terms and conditions are appropriate and on an arms-length basis, and once agreements are in place, reviews compliance with and the continuing suitability of those arrangements for the needs of the Consolidated Entity.

The Committee applies a high standard of scrutiny and rigor to all of the matters it considers and decides and is acutely aware that is has a significant role in protecting the rights of all shareholders particularly those which are not associated with the majority shareholder FKP Limited.

In doing so, the independence of the Committee effectively operates as an internal mechanism of control to ensure the decision making process of the Aveo Healthcare Limited’s Board is consistent with the governance demands of all shareholders.

Role of Chairman
Geoff Grady was appointed as Chairman of the Consolidated Entity on 24 May 2011.  Mr Grady is not an independent director for the purposes of the Guidelines as he is an executive of FKP Limited, the major shareholder.  While this in not in compliance with recommendation 2.2 of the Council’s Guidelines, the Board considers the appointment is appropriate given FKP Limited’s current ownership structure.

Mr Justin Laboo (an executive of FKP Limited) holds the position of Executive Director.  This is consistent with recommendation 2.3 of the Council’s Guidelines that the managing director and chairman be different people.

The Board distinguishes between the concept of independence and the issues of conflict of interest or material personal interests which may arise from time to time.  Wherever there is an actual or potential conflict of interest or a material personal interest, the Board’s policies and procedures ensure:
•    that the interest is fully disclosed and the disclosure is recorded in the register of directors’ interests and in the Board minutes;
•    the relevant director is excluded from all considerations of the matter by the Board; and
•    where appropriate, the matter is delegated to an appropriate committee of the Board which comprises only the independent directors of the Company. 

Directors of the Company are considered to be independent when they are independent of management and free from any business or other relationship that could materially interfere with, or could be perceived to materially interfere with, the exercise of their unfettered and independent judgment.  As the determination of independence remains a matter for the Board’s judgment, the Board confirms that all Directors considered to be independent meet the stated requirements for independence as recommended in the Guidelines.

Each Director has the right, at the Company’s expense, to seek independent professional advice in relation to the execution of Board responsibilities. Prior approval of the Chairman, which will not be unreasonably withheld, is required.  Where appropriate, Directors share such advice with the other directors.

Given the current ownership structure of the Consolidated Entity, the Consolidated Entity does not intend to establish a separate nomination committee.  This function will continue to be performed by the full Board.  The Board acknowledges that this is not in compliance with recommendation 2.4 of the Council’s Guidelines however the Board considers that its existing practices are appropriate given the size of the Board and FKP Limited’s current ownership structure.

Principle 3: Promote Ethical and Responsible Decision-Making

The Consolidated Entity has well-established policies and procedures which seek to promote throughout the Consolidated Entity a culture of compliance with legal requirements and ethical standards. The Board has established a Code of Conduct with the objective of enhancing the Consolidated Entity’s reputation for fair and reasonable dealing and to help maintain high standards of corporate and individual behaviour throughout the Consolidated Entity.  The Code of Conduct promotes ethical and responsible decision making by Directors and employees of FKP Limited. 

The Code of Conduct is published on Aveo Healthcare Limited’s website.  Company policy during the financial year prohibited directors and employees of FKP Limited from dealing in Company shares when in possession of price sensitive information that is not known to the market.

The Board has established written guidelines, detailed in its Securities Trading Policy, that restrict dealings by Directors and employees in the Consolidated Entity’s securities and in securities of customers and other entities with which Directors or employees may deal in the course of their duties.

The Securities Trading Policy complies with Listing Rules 12.9 and 12.12. It identifies certain periods when, in the absence of knowledge of unpublished price-sensitive information, Directors and all employees may not buy or sell securities. These periods are 1 January and 1 July each year and expiring one day following the release of half year and full year results respectively.

Diversity
The Consolidated Entity is committed to diversity and equality in the workplace as it adds value to the organisation by actively creating opportunities for all employees to use their knowledge, skills and abilities. The Board has adopted a Diversity Policy which is available on Aveo Healthcare’s website. The Board has adopted measurable objectives for achieving gender diversity and which are disclosed in the Diversity Policy. Reporting in respect of the Diversity Policy will be a periodic item on the Board agenda. 
 

As of 30 June 2012 the proportion of women employees in the whole Consolidated Entity, women in senior executive positions and women on the Board is as follows:

* Senior Executives would be supplied by FKP under the Operating Agreement.

Principle 4: Safeguard Integrity in Financial Reporting

The Executive Director and General Manager Finance, state in writing to the Board each reporting period that the Consolidated Entity’s financial reports present a true and fair view, in all material respects, of the Consolidated Entity’s financial condition and operational results and are in accordance with relevant accounting standards.

The Board has established an Audit Committee which operates under a charter approved by the Board.  The Audit Committee Charter determines the Committee’s function and responsibilities and a copy of the charter is available on the Aveo Healthcare website.

The Committee comprises two independent non-executive members.  The Chairman of the Committee is an independent Non-Executive Director who is not chair of the Board.  Whilst the Committee does not consist of three members in accordance with ASX recommendations, the Board is satisfied that given the financial and public company experience of the Audit Committee members and the size of the Consolidated Entity, it is not necessary for an additional member to be appointed to the Audit Committee or that such action would derive any benefit to the shareholders.

The names and qualifications of the Audit Committee members are set out in the Directors’ Report. Meetings of the Committee are attended, by invitation, by the Executive Director, assisted by the General Manager Finance, Company Secretary, the engagement partner from the Consolidated Entity’s external auditor and such other senior staff or professional people as may be appropriate from time to time.
 
The number of meetings of the Committee held during the year is set out in the Directors’ Report.

Minutes of all Committee meetings are available to the Board and the Chairman of the Committee reports to the Board after each Committee meeting.

The auditor, Ernst & Young has declared its independence to the Board.  The Committee has examined detailed material provided by the external auditor and by management and has satisfied itself that the standards for auditor independence and associated issues are fully complied with.

Principle 5: Make Timely and Balanced Disclosure

A continuous disclosure regime operates throughout the Company and policies and procedures are in place to ensure timely, open and accurate information to all stakeholders, including shareholders, regulators and investors.

The Company Secretary has primary responsibility for communications with the Australian Securities Exchange including responsibility for ensuring compliance with the continuous disclosure requirements in the ASX Listing Rules and overseeing information going to the ASX, shareholders and other interested parties.  The Company Secretary reports to the Board at each meeting on matters notified to the ASX.

Principle 6: Respect the Right of Shareholders

The Company aims to keep shareholders informed of the Company’s performance and all major developments in an ongoing manner. Information is communicated to shareholders through:
•    the annual report which is distributed to all shareholders (unless specifically requested otherwise);
•    other correspondence regarding matters impacting on shareholders as required.

All documents that are released publicly are made available on Aveo Healthcare’s website.

Shareholders are also encouraged to participate in the Annual General Meeting to ensure a high level of accountability and identification with the Company’s strategies and goals. Important issues are presented to shareholders as single resolutions. In this regard, Annual General Meetings are held on site at villages. Shareholders can also register on Aveo Healthcare’s website to receive email notification of when the above details including Company Announcements are posted on the Aveo Healthcare website.

The engagement partner of the Consolidated Entity’s external auditor, Ernst & Young, attends the Company’s Annual General Meeting and is available to answer questions from shareholders about the audit.  The Chairman advises the shareholders of this at the commencement of each Annual General Meeting.

Principle 7: Recognise and Manage Risk

The Board has developed and implemented policies and practices which ensure that the material business risks facing the Consolidated Entity are adequately identified, assessed, monitored and managed throughout the whole organisation.  These include:

•   preparation of annual budgets and the Consolidated Entity’s strategic plan for approval by Directors;
•   presentation of actual trading results for the Consolidated Entity to the Board at each Board Meeting, compared against budget and forecast, with revised forecasts if required;
•   preparation of comprehensive Board papers containing relevant operational, strategic, financial and legal information by each senior manager and circulated to directors before each meeting;
•   the establishment and implementation of financial authority limits by the Board to delegate the Board’s approval process of such matters. Where the cost is above those delegated authorities’ approval of the full Board is 
     required; 
•   maintenance of insurance cover appropriate to the size and nature of the Consolidated Entity’s operations to reduce the financial impact of any significant insurable losses; and
•   establishment of a risk register which identifies the material risks facing the Consolidated Entity and which is regularly reviewed and updated.

The Board is responsible for oversight of the Consolidated Entity’s risk management and control framework.  The active identification of risks and implementation of mitigation measures is the responsibility of the Executive Director, Justin Laboo and delegated executive management who provide services to the Company under the Operating Agreement with FKP Limited. 

In view of its size and operational structure, the Consolidated Entity relies on the FKP Limited financial management team, led by the General Manager Finance to perform internal audit functions.  The General Manager Finance reports in writing to all Board meetings and attends when requested.  The General Manager Finance also attends all meetings of the Audit Committee and provides written reports to that Committee.

In conjunction with the certification of financial reports provided under Principle 4, the Executive Director and General Manager Finance state in writing to the Board each reporting period that:
•   the statements made with regard to the integrity of the Consolidated Entity’s financial reports are founded on a sound system of risk management and internal controls which, in all material respects, implements the policies 
     adopted by the Board; and
•   the Consolidated Entity’s risk management and internal compliance and control systems to the extent they relate to financial reporting are operating efficiently and effectively in all material respects and nothing has occurred 
    since the end of the reporting period that would materially change the position.

Principle 8: Remunerate Fairly and Responsibly

The independent Non–Executive Directors have determined that as the Consolidated Entity does not directly employ any corporate staff (including senior executive staff) it is not necessary to establish a separate Remuneration Committee.  In this regard, the Consolidated Entity has entered into an Operating Agreement with FKP Limited for the supply of services which are reimbursed on an arms-length basis.  The basis of service fees charged under the agreement are reviewed and approved by the Contract Review Committee. 

The Board acknowledges that this is not in compliance with recommendation 8.1 of the Council’s Guidelines however the Board considers that this is appropriate given the employment structure of the Consolidated Entity and the operation of the Contract Review Committee.

Only independent Non-Executive Directors receive remuneration, the levels of which are set to attract and retain appropriately qualified and experienced Directors and which reflect current remunerative trends in the corporate sphere both locally and internationally.

Independent Non-Executive Directors remuneration consists of a fixed salary including superannuation with no performance related components.  The Chairman of the Board is responsible for reviewing and recommending the remuneration arrangements for Directors and assessing the appropriateness of the nature and amount of remuneration for each Independent Non-Executive Director on a periodic basis by reference to the overall objective of ensuring maximum shareholder benefit. 

No alteration to the level of remuneration payable to Directors has been made during the financial year.

Details of the nature and amount of each element of the remuneration of each Director of the Company and each of the executive officers of the Company for the financial year are disclosed in the relevant section of the Directors’ Report.  There are no Directors’ retirement benefits and no share and option plans for directors and officers.

Directors, executives and non-executives, appointed as nominees of FKP Limited currently receive no remuneration from Aveo Healthcare Limited.