Corporate Governance

Introduction
Directors' Dealings in Company Shares
Independent Professional Advice
Half Year and Annual Reporting
Australian Stock Exchange
Internal Control Frameworks
Ethical Standards
Risk Management
Role of Shareholders

Introduction

This statement outlines the main corporate governance practices in place throughout the year, which comply with Australian Stock Exchange Corporate Governance Council recommendations unless otherwise stated.

The board of directors is committed to the principles of good corporate governance consistent with the prudent management of shareholders funds. The board supports the principles of self regulation.

The board is responsible for the overall governance of the Company including the establishment of its goals and strategies and monitoring the achievements. Each subsidiary has its own board and business plan and at least two main board directors sit on each subsidiary board.

Lemarne has a relatively small board of five directors in keeping with its size, four of whom including the Chairman are non executive directors. As two of the non-executive directors hold more than 5% of the voting shares of the Company, they do not fit the definition of an independent director. The board believes that the non-executive directors’ interests are closely aligned with all other shareholders by virtue of their substantial shareholdings and believes this has considerable merit and does not interfere with their ability to act in the best interest of the Company. As a result of the majority of the board being substantial shareholders it does not comply with best practice recommendations 2.1, 2.2 and 4.3. The board is of the opinion that the maintenance of a stable and experienced board is important. The board does not believe that the tenure of a director necessarily interferes with the director’s ability to act in the best interests of the Company.

The term of office for each director (apart from the Managing Director), is 3 years in accordance with the Company’s Constitution.

Details of directors are set out in the Directors' Report. There are three board sub-committees, consisting of the non-executive directors, namely Audit, Remuneration and Succession Planning and Corporate Governance. The role of the Remuneration and Succession Planning Committee also includes Nomination. Its other responsibilities include:

• reviewing board composition and the requisite competencies of members;
• reviewing the performance of the managing director;
• evaluating and identifying future needs of the board, and
• making recommendations on appointments to the board.

No non-executive director of the board had, during the year, any association or relationship with the Company that required assessments of their independence.

The Audit Committee reviews the performance of the external auditors on an annual basis and meets with them during the year as appropriate. The Company’s external auditor, KPMG has a policy of regularly rotating the primary audit partner and undertakes a thorough second partner review. As Lemarne is an international group it only engages reputable international audit firms and any change in auditor is subject to shareholder approval.

DIRECTORS' DEALINGS IN COMPANY SHARES

The Constitution permits directors to acquire shares in the Company and most directors have significant shareholdings.

Company policy prohibits directors and officers from dealing in Company shares whilst in possession of price sensitive information. Share dealings are only permitted in the one month following the release of the Company's half year and annual results to the Australian Stock Exchange and the Annual General Meeting, or when the board deems the market to be fully informed following an announcement. Directors must notify the Chairman when they intend to buy or sell Company shares.

INDEPENDENT PROFESSIONAL ADVICE

Each director has the right to seek independent professional advice at the Company’s expense. However, prior approval of the Chairman is required, which is not unreasonably withheld.

HALF YEAR AND ANNUAL REPORTING

The board and the Audit Committee:

• reviews the half year and preliminary final statement prior to lodgement of those documents with the Australian Stock Exchange, and any significant adjustments required as a result of the audit;
  
• reviews the results and findings of the audit, the adequacy of accounting and financial controls, and monitors the implementation of any recommendations made; and
  
• reviews the draft financial statements and the audit report prior to the approval of the financial statements.

AUSTRALIAN STOCK EXCHANGE

The Company Secretary, Kathy Kotsiopoulos, acts as the Company’s ASX Liaison Officer, and in conjunction with the Company’s Solicitors, Minter Ellison, is responsible for ensuring that the Company complies with ASX Listing Rules disclosure requirements.

INTERNAL CONTROL FRAMEWORKS

The board acknowledges that it is responsible for the overall internal control framework, but recognises that no cost effective internal control system will preclude all errors and irregularities. To assist in discharging this responsibility, the board has instigated an internal control framework that can be described under six headings:

• Financial reporting - there is a comprehensive budgeting system with an annual budget approved by the directors. Monthly actual results are reported against budget and revised forecasts for the year are prepared regularly. The consolidated entity reports to shareholders half yearly. Procedures are also in place to ensure that price sensitive information is reported to the Australian Stock Exchange in accordance with Continuous Disclosure Requirements.
  
• Quality and integrity of personnel - the consolidated entity's policies are detailed in Employee Manuals. Confirmation of compliance with policies is obtained from all operating units. Formal appraisals are conducted at least annually for employees.
  
• The board has in place a process for its performance evaluation. The performance of the Managing Director is assessed each year by the Chairman and the Remuneration Committee.
  
• Operating unit controls - factory controls and procedures including health and safety policies in most instances are detailed in procedures manuals. Most operating units prepare Self Certification Questionnaires confirming compliance with these procedures and as appropriate, arrange external audits.
  
• Functional speciality reporting - the consolidated entity has identified a number of key areas which are subject to regular reporting to the board such as treasury operations, environmental, legal, tax and insurance matters.
  
• Investment appraisal - the consolidated entity has clearly defined guidelines for capital expenditure and acquisition prospects. These include annual budgets, detailed appraisal and review procedures, levels of authority and due diligence requirements where businesses are being acquired or divested.

Internal Audit

The board, in conjunction with the Audit Committee, is responsible for approving the program of internal audit visits to be conducted each financial year by the Group Financial Controller and for the scope of the work to be performed at each location.

Australian and International Quality Standards

The consolidated entity strives to ensure that its products are of the highest standard. Towards this aim it has now achieved AS 3902/ISO 9002 accreditation for each of its manufacturing businesses.

ETHICAL STANDARDS

Each subsidiary has an employee manual which sets out the ethical standards an employee of the consolidated entity is expected to comply with.

All directors, managers and employees are expected to act with the utmost integrity and objectivity, striving at all times to enhance the reputation and performance of the consolidated entity. Every employee has a nominated supervisor to whom they may refer any issues arising from their employment.

RISK MANAGEMENT

A risk management programme has been well established. The programme requires each business to systematically identify sources of risk, to qualify the impact of those risks and adopt strategies to manage the Company's exposure in a cost effective manner. External consultants are also used and the board receives statistics and periodic reports and presentations as considered appropriate.

The Managing Director has the formal responsibility for monitoring this function and preparing an audit report to the board for each subsidiary at least annually. This report covers matters such as environmental risks, occupational health and safety, trade practices compliance, equal opportunity, workplace practices, employment issues, treasury, insurance and operating risks.

Both the Managing Director and the Financial Controller have stated to the board in writing that the financial statements are founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the board, and that the Company’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects.

AUDIT COMMITTEE CHARTER

The Audit Risk Management and Compliance Committee adopted this charter on 24 Aug 2004.

ROLE OF SHAREHOLDERS

The board of directors aims to ensure that the shareholders are informed of all major developments affecting the consolidated entity's state of affairs. Information is communicated to shareholders as follows:

• the audited annual report is distributed to all shareholders except those who elect not to receive it. The board ensures that the annual report includes relevant information about the operations of the consolidated entity during the year, changes in the state of affairs of the consolidated entity and details of future developments, in addition to the other disclosures required by the Corporations Act 2001;
  
• the half yearly financial report is subject to independent review by the auditors and contains summarised financial information including a review of the operations of the consolidated entity during the period. The half yearly financial report (Appendix 4D) is prepared in accordance with the requirements of Australian Accounting Standards and the Corporations Act 2001 and is lodged with the Australian Securities and Investments Commission and the Australian Stock Exchange. The financial report is sent to any shareholder who requests it and a summary of the results and a brief review of trading for the half year is posted on the web site and/or distributed to all shareholders;
  
• copies of releases to the Australian Stock Exchange are generally sent to shareholders and are posted on our web site;
  
• proposed major changes in the consolidated entity which may impact on share ownership rights are submitted to a vote of shareholders; and
  
• the Company maintains an updated web site for reference by shareholders and the investment community in general.
  

The board encourages full participation of shareholders at the Annual General Meeting to ensure a high level of accountability and identification with the consolidated entity's strategy and goals. Important issues are presented to the shareholders as single resolutions.

It is company policy for the external auditor (KPMG) to attend the Annual General Meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report.

The shareholders are requested to vote on the aggregate remuneration of directors, the granting of options and shares to directors, and changes to the Company’s Constitution.