PORT OF TYNE ANNUAL REPORT AND ACCOUNTS 2011

12/ANNUAL REPORT AND ACCOUNTS 2011
REPORT OF THE BOARD/13
REPORT OF
THE BOARD
THE DIRECTORS OF
THE PORT OF TYNE
PRESENT THEIR
ANNUAL REPORT
AND THE FINANCIAL
STATEMENTS FOR
THE YEAR ENDED
31 DECEMBER 2011.
The Board
The Board meets on a monthly basis to
review financial information and matters
reserved for the Board and to exercise
full control over the business. The roles of
Chairman and Chief Executive Officer are
separate and clearly defined. The Chairman
and Non-executive Directors, who comprise
the majority of the Board, are appointed by
the Secretary of State for the Department
for Transport and are subject to the process
laid down in the Nolan Committee Report.
The term of office is for a specified period,
normally three years.
Board committees
The Board operates a number of
permanent committees:
(i) The Audit Committee comprises:
Neil Mundy
(Chairman until 31 August 2011)
Christopher Robson
(Chairman from 1 September 2011)
Simon Beechinor
Colin Fitzpatrick
Dr Alan Rutherford
(appointed November 2011)
The Audit Committee assists the Board in
discharging its responsibilities to maintain
the integrity of the financial statements
and the effectiveness of the systems of
internal control including risk management.
It monitors the effectiveness of the internal
and external auditors and the objectivity
of the external auditor. Colin Fitzpatrick is
an independent member of this committee
and is not a member of the Authority.
(ii) The Remuneration Committee comprises
the Non-executive Directors of the Finance
Committee. Its duties are detailed further
under the heading ‘Board Remuneration’.
(iii) The Finance Committee comprises:
Sir Les Elton (Chairman)
Sir Ian Wrigglesworth
Christopher Robson (until 31 August 2011)
Maxine Pott (from 1 September 2011)
Hilary Florek
Andrew Moffat
Dr John Hudson
The Finance Committee assists the
Board in fulfilling its oversight
responsibilities by reviewing financial
information, financial plans, the annual
operating and capital budgets and
investment management activities.
Corporate Governance
The directors are committed to high
standards of corporate governance and
have implemented systems of corporate
governance compliant with the principles
of Modernising Trust Ports II and the
relevant sections of the UK Corporate
Governance Code.
In 2001 the Port of Tyne was classified as a
‘public corporation’ by the Office of National
Statistics and as a result, since that date,
the Port’s borrowings, albeit an insignificant
part of the total, have been included within
the Public Sector Borrowing Requirements.
The Department for Transport issues
regulatory guidance for Trust Ports and this
was most recently updated in 2009 via
issue of Modernising Trust Ports II which
suggested best practice constitution and
reporting. This guidance also introduced
the concept of master plans, disclosure
and stakeholder benefits. The Board has
reviewed the recommendations contained
therein and has put in place procedures
to ensure adoption of these guidelines.
In fulfilling its duties the Board has also
had regard to the requirements of the Port
Marine Safety Code, last updated in 2009.
The Board has also carried out a formal
risk review and has maintained a
programme of reviews to enable the Board
to monitor and manage significant risks.
Internal Control and
Risk Management
The directors are responsible for the
business’s system of internal control. Such
a system provides reasonable but not
absolute assurance against material loss
or misstatement.
Key procedures that have been established
include an organisational structure with
clear operating procedures, lines of
responsibility and delegated authority. In
particular, there are defined procedures for:
– Capital investment covering appraisal
and authorisation
– Financial reporting within a
comprehensive financial planning
and accounting framework
– Internal audit to monitor the system of
internal control and risk management
– The procurement of goods and services
The directors have reviewed the
effectiveness of the system of internal
control for the accounting year and the
period to the date of the approval of the
financial statements in accordance with
the principles included in the Combined
Code and other relevant guidance.
Principal Risks and
Uncertainties
Risk management system
The Port operates an internal risk
management system that captures
material commercial, operational, financial,
regulatory and people risks. Mitigating
controls are designed for all material risks
identified with resulting actions incorporated
into business area business plans and
extended to senior management personal
objectives as appropriate. Material risks
are formally reviewed, scored and ranked
each year with monthly updates given to
the Board of any changes to these risks
during the year. The assessment of new
risks arising is a standing item on the
monthly Board agenda.
Key risks and uncertainties
Key risks and uncertainties identified, and
constantly reviewed by the Board, are
categorised as Regulatory, Commercial,
Operational, Financial and People based.
Regulatory risks associated with
Government Energy policy and Port policy
are constantly reviewed. Policy relating to
energy has a material impact upon the
Port, which handles significant quantities
of coal and biomass on behalf of power
generation customers. Further renewable
energy opportunities are being pursued
by the Port, including business development
relating to offshore wind power generation.
These opportunities will be significantly
influenced by future Government policy.
Competitive risks are connected with
the strategies of both direct and indirect
competitors. This could include the
application of predatory pricing in an
attempt to attract existing Port customers,
and the provision of services already
offered by the Port of Tyne.
Despite having diverse business interests
covering Conventional and Bulk, Cargo
handling, Car Terminals, Cruise and Ferry,
Logistics and Estates, activity levels are
impacted by movements in global
commodity pricing and changes in the level
of national and international demand for
products and services, with the latter being
strongly influenced by the relative strength
of sterling against other major currencies.
Operational risk mitigations have been
identified, through the risk management
process, relating to Health & Safety,
operational capacity, condition of
infrastructure and handling of new
cargo types and their associated
environmental impact.
Financial risk includes being able to access
appropriate funding to allow business
expansion. In 2008 a Harbour Revision
Order granted the Port of Tyne unlimited
borrowing powers. Currently the business
has three separate facilities totalling £36.2
million: a £15.7 million revolving credit
facility with Barclays that runs until 2013,
a £16.3 million fixed term facility also with
Barclays that runs until 2019 and a £4.2
million fixed term loan with Dexia that
matures in 2013. Borrowings under these
facilities at 31 December 2011 totalled
£18.5 million.
People are a hugely important element
of the Port’s current and future success.
Organisational structure, skills availability,
succession planning and employee
engagement are also subject to constant
review through the Port’s risk
management process.
Pension Schemes
The Port operates two defined benefit
pension schemes and whilst these schemes
were both closed to new members in 2001,
risks remain regarding the performance
of the associated investment portfolios
relative to the cost of providing ongoing
pension benefits. Further details can be
found in note 21 to the financial statements.
Furthermore, in respect of industry wide
pension schemes, the Pilots National
Pension Fund (PNPF) and the Former
Registered Dock Workers Pension Scheme
(FRDWPS), the Port has no control over or
clear forward visibility on the quantification
of contributions. There is a risk that these
future contributions may be substantial
costs for the Port.