Audit and Risk Committee – Terms of Reference
Principles from the UK Corporate Governance Code
M. The board should establish formal and transparent policies and procedures to ensure
the independence and effectiveness of internal and external audit functions and satisfy
itself on the integrity of financial and narrative statements.
N. The board should present a fair, balanced and understandable assessment of thecompany’s position and prospects.
O. The board should establish procedures to manage risk, oversee the internal control
framework, and determine the nature and extent of the principal risks the company iswilling to take in order to achieve its long-term strategic objectives.
1.

Membership

1.1 The committee shall comprise at least three members, all of whom shall be independent non-executive
directors. At least one member shall have recent and relevant financial experience and the committee
as a whole shall have competence relevant to the sector in which the company operates. The chair of
the board shall not be a member of the committee.

1.2 Members of the committee shall be appointed by the board, on the recommendation of the nominationcommittee in consultation with the chair of the audit and risk committee and will be subject toreappointment annually as part of the Committee and Board effectiveness process.

1.3 Only members of the committee have the right to attend committee meetings. However, the financedirector, director of accounting, treasury and tax, head of internal audit and external audit lead partner will
be invited to attend meetings of the committee on a regular basis and other individuals may be invited
to attend all or part of any meeting as and when appropriate.

1.4 The board shall appoint the committee chair. In the absence of the committee chair and/or an appointed
deputy at a committee meeting, the remaining members present shall elect one of themselves to chairthe meeting.

2.

Secretary
The company secretary, or their nominee, shall act as the secretary of the committee and will ensurethat the committee receives information and papers in a timely manner to enable full and properconsideration to be given to issues.

3.

QuorumThe quorum necessary for the transaction of business shall be two members.

4.

Frequency of meetings

4.1 The committee shall meet at least three times a year at appropriate intervals in the financial reporting andaudit cycle and otherwise as required.

4.2 Outside of the formal meeting programme, the committee chair will maintain a dialogue with key
individuals involved in the company’s governance, including the board chair, the chief executive, thefinance director, the external audit lead partner and the head of internal audit.

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Audit and Risk Committee – Terms of Reference5.

Notice of meetings

5.1 Meetings of the committee shall be called by the secretary of the committee at the request of thecommittee chair or any of its members, or at the request of the external audit lead partner or head ofinternal audit if they consider it necessary.

5.2 Unless otherwise agreed, notice of each meeting confirming the venue, time and date together with anagenda of items to be discussed, shall be forwarded to each member of the committee and any otherperson required to attend no later than five days before the date of the meeting. Supporting papers shallbe sent to committee members and to other attendees, as appropriate, at the same time.

6.

Minutes of meetings

6.1 The secretary shall minute the proceedings and decisions of all committee meetings, including recording
the names of those present and in attendance.

6.2 Draft minutes of committee meetings shall be circulated to all members of the committee. Onceapproved, minutes should be circulated to all other members of the board and the company secretary
unless, exceptionally, it would be inappropriate to do so.

7.

Engagement with shareholders
The committee chair should attend the annual general meeting to answer any shareholder questions on
the committee’s activities. In addition the committee chair should seek engagement with shareholders
on significant matters related to the committee’s areas of responsibility.

8.

Duties
The committee should have oversight of the group as a whole and, unless required otherwise by
regulation, carry out the duties below for the parent company, major subsidiary undertakings and thegroup as a whole, as appropriate.

8.1 Financial reporting
8.1.1 The committee shall monitor the integrity of the financial statements of the company, including
its annual and half-yearly reports, preliminary announcements and any other formal statements
relating to its financial performance, and review and report to the board on significant financial
reporting issues and judgements which those statements contain having regard to matterscommunicated to it by the auditor.

8.1.2 In particular, the committee shall review and challenge where necessary:
8.1.2.1 the application of significant accounting policies and any changes to these;
8.1.2.2 the methods used to account for significant or unusual transactions where different
approaches are possible;

8.1.2.3 whether the company has adopted appropriate accounting policies and madeappropriate estimates and judgements, taking into account the external auditor’sviews on the financial statements;

8.1.2.4 the clarity and completeness of disclosures in the financial statements and the context
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Audit and Risk Committee – Terms of Reference
8.1.2.5 all material information presented with the financial statements, including the strategic
report and the corporate governance statements relating to the audit and to risk
management.

8.1.3 The committee shall review any other statements requiring board approval which containfinancial information first, where to carry out a review prior to board approval would be practicableand consistent with any prompt reporting requirements under any law or regulation including the
Listing Rules, Prospectus Rules and Disclosure Guidance and Transparency Rules sourcebook.

8.1.4 Where the committee is not satisfied with any aspect of the proposed financial reporting by thecompany, it shall report its views to the board.

8.2 Narrative reporting: Where requested by the board, the committee should review the content of the annual
report and accounts and advise the board on whether, taken as a whole, it is fair, balanced andunderstandable and provides the information necessary for shareholders to assess the company’s
performance, business model and strategy and whether it informs the board’s statement in the annual
report on these matters that is required under the Code.

8.3 Internal controls and risk management systems
The committee shall:

8.3.1 keep under review the company’s internal financial controls systems that identify, assess,manage and monitor financial risks, and other internal control and risk management systems;
and

8.3.2 review and approve the statements to be included in the annual report concerning internal
control, risk management, including the assessment of principal risks and emerging risks, andthe viability statement.

8.4 Compliance, speaking up and fraud
The committee shall:

8.4.1 review the adequacy and security of the company’s arrangements for its employees, contractors
and external parties to raise concerns, in confidence, about possible wrongdoing in financial
reporting or other matters. The committee shall ensure that these arrangements allow
proportionate and independent investigation of such matters and appropriate follow up action;

8.4.2 review the company’s procedures for detecting fraud; and8.4.3 review the company’s systems and controls for the prevention of bribery and receive reports on
non-compliance.

8.5 Internal audit
The committee shall:

8.5.1 approve the appointment or termination of appointment of the head of internal audit ;8.5.2 review and approve the role and mandate of internal audit, monitor and review the effectivenessof its work, ensuring it is appropriate for the current needs of the organisation;

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Audit and Risk Committee – Terms of Reference
8.5.3 review and approve the annual internal audit plan to ensure it is aligned to the key risks of thebusiness, and receive regular reports on work carried out;

8.5.4 ensure internal audit has unrestricted scope, the necessary resources and access to information
to enable it to fulfil its mandate, ensure there is open communication between different functions
and that the internal audit function evaluates the effectiveness of these functions as part of its
internal audit plan, and ensure that the internal audit function is equipped to perform inaccordance with appropriate professional standards for internal auditors;

8.5.5 ensure the internal auditor has direct access to the board chair and to the committee chair,providing independence from the executive and accountability to the committee;

8.5.6 carry out an annual assessment of the effectiveness of the internal audit function and as part ofthis assessment:

8.5.6.1 the committee chair to meet with the head of internal audit to discuss the effectivenessof the function;

8.5.6.2 review and assess the annual internal audit work plan;
8.5.6.3 receive a report on the results of the internal auditor’s work;
8.5.6.4 determine whether it is satisfied that the quality, experience and expertise of internal
audit is appropriate for the business; and8.5.6.5 review the actions taken by management to implement the recommendations of internal
audit and to support the effective working of the internal audit function.

8.5.7 monitor and assess the role and effectiveness of the internal audit function in the overall context

of the company’s risk management system and the work of compliance, finance and the external
auditor; and8.5.8 consider whether an independent, third party review of processes is appropriate.
8.6 External Audit
The committee shall:

8.6.1 consider and make recommendations to the board, to be put to shareholders for approval at theAGM, in relation to the appointment, re-appointment and removal of the company’s external
auditor;

8.6.2 develop and oversee the selection procedure for the appointment of the audit firm in accordancewith applicable Code and regulatory requirements, ensuring that all tendering firms have accessto all necessary information and individuals during the tendering process;8.6.3 if an external auditor resigns, investigate the issues leading to this and decide whether any action
is required;

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Audit and Risk Committee – Terms of Reference
8.6.4.1 approve their remuneration, including both fees for audit and non-audit services, andensure that the level of fees is appropriate to enable an effective and high-quality audit
to be conducted; and8.6.4.2 approve their terms of engagement, including any engagement letter issued at thestart of each audit and the scope of the audit.

8.6.5 assess annually the external auditor’s independence and objectivity taking into accountrelevant law, regulation, the Ethical Standard and other professional requirements and thegroup’s relationship with the auditor as a whole, including any threats to the auditor’s
independence and the safeguards applied to mitigate those threats including the provision of
any non-audit services;

8.6.6 satisfy itself that there are no relationships between the auditor and the company (other than in
the ordinary course of business) which could adversely affect the auditor’s independence andobjectivity;

8.6.7 agree with the board a policy on the employment of former employees of the company’s auditor,
taking into account the Ethical Standard and legal requirements, and monitor the application ofthis policy;

8.6.8 monitor the auditor’s processes for maintaining independence, its compliance with relevant law,regulation, other professional requirements and the Ethical Standard, including the guidance on
the rotation of audit partner and staff;

8.6.9 monitor the level of fees paid by the company to the external auditor compared to the overall fee
income of the firm, office and partner and assess these in the context of relevant legal,
professional and regulatory requirements, guidance and the Ethical Standard;

8.6.10 assess annually the qualifications, expertise and resources, and independence of the external
auditor and the effectiveness of the external audit process, which shall include a report from theexternal auditor on their own internal quality procedures;

8.6.11 seek to ensure coordination of the external audit with the activities of the internal audit function;
8.6.12 evaluate the risks to the quality and effectiveness of the financial reporting process in the light ofthe external auditor’s communications with the committee;

8.6.13 develop and recommend to the board the company’s formal policy on the provision of non-audit
services by the auditor, including prior approval of non-audit services by the committee andspecifying the types of non-audit service to be pre-approved, and assessment of whether nonaudit services have a direct or material effect on the audited financial statements. The policy
should include consideration of the following matters:

8.6.13.1 threats to the independence and objectivity of the external auditor and any safeguards
in place;

8.6.13.2 the nature of the non-audit services;
8.6.13.3 whether the external audit firm is the most suitable supplier of the non- audit service

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8.6.13.4 the fees for the non-audit services, both individually and in aggregate, relative to theaudit fee; and8.6.13.5 the criteria governing compensation.
8.6.14 meet regularly with the external auditor (including once at the planning stage before the audit
and once after the audit at the reporting stage) and, at least once a year, meet with the external
auditor without management being present, to discuss the auditor’s remit and any issues arisingfrom the audit;

8.6.15 discuss with the external auditor the factors that could affect audit quality and review and approve
the annual audit plan, ensuring it is consistent with the scope of the audit engagement, having
regard to the seniority, expertise and experience of the audit team;

8.6.16 review the findings of the audit with the external auditor. This shall include but not be limited to,the following:

8.6.16.1 a discussion of any major issues which arose during the audit;
8.6.16.2 the auditor’s explanation of how the risks to audit quality were addressed;
8.6.16.3 key accounting and audit judgements;
8.6.16.4 the auditor’s view of their interactions with senior management; and8.6.16.5 levels of errors identified during the audit.
8.6.17 review any representation letter(s) requested by the external auditor before it is (they are) signed
by management;

8.6.18 review the management letter and management’s response to the auditor’s findings andrecommendations; and8.6.19 review the effectiveness of the audit process, including an assessment of the quality of the audit,
the handling of key judgements by the auditor, and the auditor’s response to questions from thecommittee.

9.

Reporting responsibilities

9.1 The committee chair shall report formally to the board on its proceedings after each meeting as requiredon all matters within its duties and responsibilities and shall also formally report to the board on how it
has discharged its responsibilities. This report shall include:

9.1.1 the significant issues that it considered in relation to the financial statements (required underparagraph 8.1.1) and how these were addressed;

9.1.2 its assessment of the effectiveness of the external audit process (required under paragraph8.6.10), the approach taken to the appointment or reappointment of the external auditor, lengthof tenure of audit firm, when a tender was last conducted and advance notice of any retenderingplans;

9.1.3 any other issues on which the board has requested the committee’s opinion;

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Audit and Risk Committee – Terms of Reference
9.2 The committee shall make whatever recommendations to the board it deems appropriate on any area
within its remit where action or improvement is needed.

9.3 The committee shall compile a report on its activities to be included in the company’s annual report. The
report should describe the work of the audit and risk committee, including:

9.3.1 the significant issues that the committee considered in relation to the financial statements andhow these issues were addressed;

9.3.2 an explanation of how the committee has assessed the independence and effectiveness of theexternal audit process and the approach taken to the appointment or reappointment of theexternal auditor, information on the length of tenure of the current audit firm, when a tender waslast conducted and advance notice of any retendering plans; and9.3.3 an explanation of how auditor independence and objectivity are safeguarded if the external
auditor provides non-audit services, having regard to matters communicated to it by the auditor
and all other information requirements set out in the Code.

9.4 In compiling the reports referred to in 9.1 and 9.3, the committee should exercise judgement in deciding
which of the issues it considers in relation to the financial statements are significant, but should include
at least those matters that have informed the board’s assessment of whether the company is a going
concern and the inputs to the board’s viability statement. The report to shareholders need not repeat
information disclosed elsewhere in the annual report and accounts but could provide cross-references tothat information.

10. Other matters
The committee shall:

10.1 Have access to sufficient resources in order to carry out its duties, including access to the company
secretariat for advice and assistance as required;10.2 Be provided with appropriate and timely training, both in the form of an induction programme for new
members and on an ongoing basis for all members;

10.3 Give due consideration to all relevant laws and regulations, the provisions of the Code and publishedguidance, the requirements of the FCA’s Listing Rules, Prospectus Rules and Disclosure Guidance andTransparency Rules sourcebook and any other applicable rules, as appropriate;10.4 Be responsible for oversight of the coordination of the internal and external auditors;
10.5 Oversee any investigation of activities which are within its terms of reference;
10.6 Work and liaise as necessary with all other board committees ensuring interaction between committees
and with the board is reviewed regularly, taking particular account of the impact of risk management
and internal controls being delegated to different committees;

10.7 Ensure that a periodic evaluation of the committee’s performance is carried out;
10.8 At least annually, review its constitution and terms of reference to ensure it is operating at maximum
effectiveness and recommend any changes it considers necessary to the board for approval.

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11. Authority
The committee is authorised to:11.1 Seek any information it requires from any employee of the company in order to perform its duties;
11.2 Obtain, at the company’s expense, independent legal, accounting or other professional advice on any
matter if it believes it necessary to do so;

11.3 Call any employee to be questioned at a meeting of the committee as and when required; and11.4 Have the right to publish in the company’s annual report, details of any issues that cannot be resolved

between the committee and the board. If the board has not accepted the committee’s recommendationon the external auditor appointment, reappointment or removal, the annual report should include astatement explaining the committee’s recommendation and the reasons why the board has taken adifferent position.

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