Business review

We are required to present a fair review of our business during the financial year ended 31 December 2011, our position at year-end and a description of the principal risks and uncertainties that we face. This review enables shareholders to assess how the directors have performed their duty under the Companies Act 2006, to promote the success of the Company. The information that fulfils the requirements of the Business review can be found in the Chairman’s statement on pages 4 and 5, the Group Chief Executive’s review on pages 6 to 11, the Group, Consumer Banking and Wholesale Banking sections of the Business review on pages 20 to 41, the Risk review on pages 50 to 86 and the Key performance indicators on pages 12 and 13, all of which are incorporated into this report by reference.

Principal activities

The Company is the holding company for the Group. The Group operates globally and is principally engaged in the business of retail and commercial banking and the provision of other financial services.

Areas of operation

Our Group comprises a network of more than 1,500 branches and outlets in 71 markets. Further details on the branches can be found on our website www.standardchartered.com.

Results and dividends

We recommend a final dividend of 51.25 cents (2010: 46.65 cents) on 29 February 2012 for the year ended 31 December 2011. This, together with the interim dividend already paid, makes a total dividend for 2011 of 76.00 cents (2010: 70.00 cents). The impact of the rights issue in 2010 has been explained in note 13 to the financial statements. The final dividend, if approved at the 2012 Annual General Meeting (AGM), will be paid in either sterling, Hong Kong dollars or US dollars on 15 May 2012 to shareholders on the UK register of members at the close of business in the UK (10.00pm London time) on 9 March 2012, and to shareholders on the Hong Kong branch register of members at the opening of business in Hong Kong (9.00am Hong Kong time) on 9 March 2012. The final dividend will be paid in Indian rupees on 15 May 2012 to Indian Depository Receipt holders on the Indian register at the close of business in India on 9 March 2012, in accordance with the Deposit Agreement.

It is intended that shareholders on the UK register and Hong Kong branch register will be able to elect to receive shares credited as fully paid instead of all or part of the final cash dividend. Details of the dividend arrangements will be sent to shareholders on or around 23 March 2012. Indian Depository Receipt holders will receive their dividend in Indian rupees only.

Share capital

The issued ordinary share capital of the Company was increased by 35,896,222 during the year. 11,425,223 ordinary shares were issued under the Company’s employee share plans at prices between nil and 1,436.42 pence. 24,470,999 ordinary shares were issued under the Company’s share dividend scheme. Further details can be found in note 35 to the financial statements.

The Company has one class of ordinary shares that carries no rights to fixed income. On a show of hands, each member present has the right to one vote at our general meetings. On a poll, each member is entitled to one vote for every $2 nominal value of share capital held. The issued nominal value of the ordinary shares represents 79.58 per cent of the total issued nominal value of all share capital. There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions of the articles of association and prevailing legislation. The directors are not aware of any agreements between holders of the Company’s shares that may result in restrictions on the transfer of securities or on voting rights. No person has any special rights of control over the Company’s share capital and all issued shares are fully paid.

Authority to purchase own shares

At the Annual General Meeting (AGM) held in May 2011, our shareholders renewed the Company’s authority to make market purchases of up to 235,072,287 ordinary shares, equivalent to approximately 10 per cent of issued ordinary shares as at 17 March 2011, and up to all of the issued preference share capital. These authorities were not used during the year and remained in force at 31 December 2011. In accordance with the terms of a waiver granted by The Stock Exchange of Hong Kong Limited on 16 April 2008 as supplemented by modifications agreed by The Stock Exchange of Hong Kong Limited on 30 April 2009 and 25 July 2011 respectively, the Company will comply with the applicable law and regulation in the UK in relation to holding of any shares in treasury and with the conditions of the waiver, in connection with any shares it may hold in treasury. Shareholders will be asked to renew these authorities at the forthcoming AGM, and will receive details within the Notice of AGM. No treasury shares were held during the year. Further details can be found in note 35 to the financial statements.

Relevant audit information

As far as the directors are aware, there is no relevant audit information of which the Group statutory auditor (KPMG Audit Plc) is unaware. The directors have taken all reasonable steps to ascertain any relevant audit information and ensure that the Group statutory auditors are aware of such information.

Going concern

Having made appropriate enquiries, we consider that the Company and the Group as a whole have adequate resources to continue operational businesses for the foreseeable future and therefore continued to adopt the going concern basis in preparing the financial statements.

Sufficiency of public float

As at the date of this report, the Company has maintained the prescribed public float under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the Hong Kong Listing Rules) based on the information publicly available to the Company and within the knowledge of the directors.

Fixed assets

Details of additions to fixed assets are presented in note 26 to the financial statements.

Major interests in shares and voting rights

As far as the directors are aware as at 29 February 2012, Temasek Holdings (Private) Limited (Temasek) is the only shareholder that had an interest of more than 10 per cent in the Company’s issued ordinary share capital carrying a right to vote at any general meeting. The Company has been notified by the following companies of their interests in the total voting rights of the Company:

*Temasek Holdings (Private) Limited’s interests is held indirectly through Dover Investments Pte. Ltd

Loan capital

Details of the loan capital of the Company and its subsidiaries are set out in note 32 to the financial statements.

Board members

The present members of the Board, together with their biographical details, are shown on pages 94 to 96. V. Shankar joined the Board as an executive director on 1 January 2012.

Re-election of directors

At our AGM to be held on Wednesday 9 May 2012, all of our Board of directors will stand for re-election.

Directors’ induction and ongoing development

To ensure that directors have the requisite knowledge and understanding to enable them to challenge effectively, we provide them a personalised approach to induction, training and development. Further details of this can be found in the Corporate governance report on page 101.

Our Board receives regular updates on the views of our institutional shareholders and stakeholders. Our Board openly seeks the views of our shareholders and during the year, the Chairman, Group Chief Executive Officer, Group Finance Director, all of our executive directors and two of our non-executive directors met with 21 of our top 25 investors. Rudy Markham is the Senior Independent Director. Shareholders may discuss any issues or concerns with the Senior Independent Director where they have been unable to resolve them through existing channels for investor communications.

Directors’ interests

The directors’ beneficial interests in the ordinary shares of the Company as at 31 December 2011 are shown in the directors’ remuneration report on pages 126 to 151.

Confirmation of Independence

The Company considers all of the non-executive directors to be independent and has received from each of them an annual confirmation of independence pursuant to Rule 3.13 of the Hong Kong Listing Rules.

Compensation for loss of office

Details concerning the provisions for providing compensation to directors for loss of office or employment can be found on page 144 of the directors’ remuneration report.

Qualifying third-party indemnities

The Company has granted indemnities to all of its directors on terms consistent with the applicable statutory provisions. Qualifying third-party indemnity provisions for the purposes of section 234 of the Companies Act 2006 were accordingly in force during the course of the financial year ended 31 December 2011, and remain in force at the date of this report.

Risk management

An ongoing process for identifying, evaluating and managing the significant risks that we face is in place. Its objectives, policies and procedures, including the policy for hedging risk, our exposure to credit risk, liquidity risk and market risk, are covered in the Risk review on pages 50 to 86 of this report. Company-only risks are managed as a part of overall Group risks.

Significant contracts and agreements

At no time during the year did any director hold a material interest in any contracts of significance with the Company or any of its subsidiary undertakings. The Company is not party to any significant agreements that would take effect, alter or terminate following a change of control of the Company.

Related party transactions

Details of transactions with directors and officers and other related parties are set out in note 47 to the financial statements.

Connected/continuing connected transactions

By virtue of its shareholding of more than 10 per cent in the Company, Temasek and its associates are related parties and connected persons of the Company for the purposes of the UK Listing Rules and the Listing Rules of The Stock Exchange of Hong Kong Limited respectively (together known as the Rules). Neither Temasek nor its associates are related parties for the purposes of IAS 24 Related Party Disclosures (IAS 24). The Rules are intended to ensure that there is no favourable treatment to Temasek or its associates (as defined under the Rules) as a result of such shareholding to the detriment of other shareholders in the Company. Unless transactions that the Company and its subsidiaries undertake with Temasek or its associates are specifically exempt under the Rules or are subject to a specific waiver, they may require a combination of announcements, reporting and independent shareholders’ approval.

One of the most significant changes to the Hong Kong Listing Rules from the Company’s perspective was the introduction on 3 June 2010 of a new exemption (the Passive Investor Exemption) from the connected transaction and continuing transaction requirements for ‘transactions with associates of a passive investor’ (Rules 14A.31(10) and 14A.33(5)). The Company considers that Temasek meets the criteria for a passive investor under Rule 14A.31(10)(b). Therefore, any connected transactions or continuing connected transactions of a revenue nature in the ordinary and usual course of business and on normal commercial terms with an associate of Temasek are exempt from the announcement, reporting, annual review and independent shareholders’ approval requirements of the Hong Kong Listing Rules.

In addition, in 2010 The Stock Exchange of Hong Kong Limited granted the Company a number of waivers from strict compliance with the reporting and annual review requirements in respect of Ongoing Banking Transactions with Temasek associates that the Company has not been able to identify and the requirements to enter into a fixed-term written agreement and set a maximum aggregate annual value in relation to the Ongoing Banking Transactions with Temasek or any of its associates (the Ongoing Banking Transactions Waivers). The independent shareholders approved the Ongoing Banking Transactions Waivers at the 2010 AGM for a period of three years until 7 May 2013.

In addition, in 2011 The Stock Exchange of Hong Kong Limited granted the Company a waiver (the 2011 Waiver) from strict compliance with the reporting and annual review requirements for the years ended 31 December 2011 and 2012 in respect of the Ongoing Banking Transactions between Temasek itself and the Company on the conditions that:

• the nature and magnitude of the Ongoing Banking Transactions with Temasek itself remains insignificant in 2011 and 2012

• the Company will inform The Stock Exchange of Hong Kong Limited if the transactions are no longer insignificant or there is any significant change in circumstances, at which time The Stock Exchange of Hong Kong Limited will reassess whether to continue the waiver By operation of the above exemptions and waivers, the Company confirms that to the best of its knowledge and belief after due inquiry, the Company does not have any transactions with Temasek or its associates that would require announcements, reporting, annual review or independent shareholders’ approval in 2011.

If none of the exemptions under the Hong Kong Listing Rules or the waivers obtained from The Stock Exchange of Hong Kong Limited is applicable in relation to a transaction with Temasek or its associates, the Company will continue to comply with the applicable announcement, reporting, annual review and independent shareholders’ approval requirements.

Pursuant to the conditions attached to the 2011 Waiver, the Company will continue to monitor the aggregate amount of the Ongoing Banking Transactions with Temasek itself through the transaction processing systems and notify The Stock Exchange of Hong Kong Limited if the magnitude increases significantly.

The Group has internal systems, processes and procedures in place to identify and monitor the non-exempt connected and continuing connected transactions. These are reviewed and updated periodically and their adequacy and effectiveness is assessed by Group Internal Audit.

Compliance and regulatory matters

On 8 April 2011, the Group acquired a 100 per cent interest in GE Money Pte Limited, a leading specialist in auto and unsecured personal loans in Singapore, for a total cash consideration of $695 million, recognising goodwill of $199 million.

On 2 September 2011, the Group acquired a 100 per cent interest in Gryphon Partners Advisory Pty Ltd and Gryphon Partners Canada Inc for a total consideration of $53 million. Under International Financial Reporting Standard 3, however, only $28 million of this consideration is deemed to relate to the cost of investment; for accounting purposes the balance is deemed to represent remuneration and is charged to the income statement over the period to 2015. Goodwill of $11 million was recognised on this transaction.

Further details are given in note 24 to the financial statements.

Conflicts of interest

In accordance with the Companies Act 2006, we have established a robust process requiring directors to disclose proposed outside business interests before any are entered into. This enables prior assessment of any conflict or potential conflict of interest and any impact on time commitment. The Nomination Committee reviews actual or potential conflicts of interest, and recommendations on authorisation are made to the Board. Authorisations are reviewed twice a year by the Nomination Committee to consider if they continue to be appropriate, and also to revisit the terms upon which they were provided.

Internal control

The effectiveness of our internal control system is reviewed regularly by the Board, its committees, the Group Management Committee, and Group Internal Audit. The Audit Committee has reviewed the effectiveness of the Group’s system of internal control during the year ended 31 December 2011 and reported on its review to the Board. The Committee’s review was supported by an annual business self-certification process, which was managed by Group Internal Audit.

Group Internal Audit monitors compliance with policies and standards and the effectiveness of internal control structures across the Group through its programme of business audits. The work of Group Internal Audit is focused on the areas of greatest risk as determined by a risk-based assessment methodology.

Group Internal Audit reports regularly to the Audit Committee, the Chairman and to the Group Chief Executive. The findings of all adverse audits are reported to the Audit Committee, the Chairman and to the Group Chief Executive where immediate corrective action is required.

The Board Risk Committee has responsibility for overseeing the management of the Company’s fundamental prudential risks as well as reviewing the effectiveness of the Company’s risk management framework. The Audit Committee monitors the integrity of the Company’s financial reporting, compliance and internal control environment.

The Risk review on pages 50 to 86 describes the Group’s risk management structure. Our business is conducted within a developed control framework, underpinned by policy statements, written procedures and control manuals. This ensures that there are written policies and procedures to identify and manage risk, including operational risk, country risk, liquidity risk, regulatory risk, legal risk, reputational risk, market risk and credit risk. The Board has established a management structure that clearly defines roles, responsibilities and reporting lines. Delegated authorities are documented and communicated. Executive risk committees regularly review the Group’s risk profile.

The performance of the Group’s businesses is reported regularly to senior line management and the Board. Performance trends and forecasts, as well as actual performance against budgets and prior periods, are monitored closely. Financial information is prepared using appropriate accounting policies, which are applied consistently. Operational procedures and controls have been established to facilitate complete, accurate and timely processing of transactions and the safeguarding of assets. These controls include appropriate segregation of duties, the regular reconciliation of accounts and the valuation of assets and positions.

Employee policies and engagement

We are committed to open, honest and productive relationships with our employees. They receive clear and timely communications from senior management to ensure that they understand the financial and economic factors that affect our performance.

We employ nearly 87,000 people from 130 nationalities across 71 markets. As part of our approach to employee engagement, we operate Group share plans. All employees are invited to participate in our all-employee Sharesave schemes and share in our success. Further details of the Sharesave schemes are given in the Directors’ remuneration report on page 139 and in note 37 to the financial statements.

Our employment policies are designed to accommodate the relevant social, statutory and market conditions and practices prevailing in each country in which we operate. We are committed to equality of opportunities and diversity for all regardless of gender, race, age, physical ability, religion or sexual orientation. This applies equally to recruitment and to the promotion, development and training of people whom we already employ.

We recognise our social and statutory duty to employ disabled people and have followed a policy in the United Kingdom by providing, wherever possible, the same employment opportunities for disabled people as for others. If employees become disabled, every effort is made to ensure their employment continues, with appropriate training where necessary. We have measured employee engagement for the last 11 years using the annual employee engagement survey. This survey provides important feedback to managers and teams and internal research has demonstrated a strong relationship between high engagement and increased business performance. In 2011, 95 per cent of employees participated in the survey and this reflects the strong commitment of our employees to voice their opinions and demonstrate trust in the process.

Major customers

Our five largest customers together accounted for 3.2 per cent of our total interest income and other operating income in the year ended 31 December 2011.

Creditor payment policy

Operating businesses are responsible for agreeing, and then bringing attention to, terms and conditions with their suppliers in the economies in which they operate. Our policy is to pay creditors in accordance with these agreed terms and conditions, provided the supplier has complied with them.

The Company is a holding company and does not trade. Therefore, it is not considered meaningful to give a number of days’ purchases outstanding for the Company as at 31 December 2011. For our operation in the United Kingdom, there were 34 days’ purchases outstanding as at 31 December 2011.

Code for Financial Reporting Disclosure

The Group’s 2011 financial statements have been prepared in accordance with the principles of the British Bankers’ Association Code for Financial Reporting Disclosure.

Group code of conduct

The Board has adopted a Group code of conduct relating to the lawful and ethical conduct of business and this is supported by the Group’s core values. The Group code of conduct has been communicated to all directors and employees, all of whom are expected to observe high standards of integrity and fair dealing in relation to customers, staff and regulators in the communities in which the Group operates.

Environmental, social and governance responsibilities

The Group complies with the guidelines issued by the Association of British Insurers on responsible investment disclosure and is committed to the communities and environments in which it operates. The Board is responsible for ensuring that high standards of responsible business are maintained and that an effective control framework is in place. We have established and maintained policies and procedures in relation to environmental, social and governance (ESG) risks. Details of these procedures can be found on our website.

Through our risk management structure and control framework, the Board receives regular and adequate information to identify and assess significant risks and opportunities arising from ESG matters. Specifically, the Brand and Values Committee (BVC), which is appointed by the Board and includes the Chairman of the Board and Group Chief Executive, reviews the Group’s sustainable business priorities, and oversees the Group’s development of and delivery against public commitments regarding which activities and or businesses it will and will not encourage in line with the Here for good brand promise.

The BVC is informed by the Group Risk Committee and Group Head of Corporate Affairs, who is the risk control owner for reputational risk, including those associated with ESG matters. At the country level, the Country Head of Corporate Affairs is the risk control owner and the risk committee (RC) or, where there is no RC, the management committee is the governance oversight committee. All employees are responsible for day-to-day identification and management of reputational risk. Quarterly reviews of risks and reporting are carried out at country, regional and Group levels. Where a reputational risk is identified, the risk is escalated in accordance with clearly documented internal reporting procedures.

Key areas of risk are those associated with customers’ operations and their potential impact on the environment and local communities. The Board recognises its responsibility to manage these risks and that failure to manage them adequately would have an adverse impact on our business. These risks are recognised in reaching financing decisions explicitly identified in our credit policies, and in the provision of advisory and other financial services. We have developed a series of position statements covering high-impact sectors and key issues, outlining the environmental and social standards we encourage our clients to observe. We have adopted the Equator Principles that set procedures, based on the International Finance Corporation guidelines, for recognising and mitigating the environmental and social impacts associated with Project Finance and related advisory services. The principles have been embedded in the Group’s policy and procedures on Environmental and Social Risk in Project Finance – Application of the Equator Principles.

We continue to review and, where appropriate, strengthen our financial crime risk policies, procedures and training. In 2011, due to the coming into force of the UK Bribery Act on 1 July, new Anti-Bribery policy, procedures and training were rolled out to the entire Group. There was also considerable change, partly attributable to the ‘Arab Spring’, in the number and type of sanctions imposed by the UK and US governments, which required a prompt and comprehensive response from the Group to ensure compliance.

The Board is not aware of any material exceptions to its policies.

Community investment

We are committed to building a sustainable business and a more sustainable society, and recognise our responsibility to invest in the communities in which we operate. We made a total investment of $54.4 million to charities, community organisations and causes across our footprint during the year. This sum included direct financial support of $17.8 million and indirect contributions, such as employees’ time, the donation of non-monetary goods and donations worth $37.8 million raised by our employees. In order to further increase our transparency around this data, in 2010 we introduced an online data collection tool, along with some standard charity on-boarding guidelines across all markets in order to collate quality-assured data about the types of initiatives we are involved in.

Community investment activity focuses on a number of major programmes – Living with HIV, Seeing is Believing, Nets for Life and Goal (Women’s Empowerment) – as well as a range of local initiatives. These are underpinned by employee volunteering activities. Further details of community projects can be found on page 49.

HIV/AIDS policy

We are committed to addressing the social and health issues that confront our employees, their families and the communities in which we operate. HIV/AIDS directly and indirectly impacts our staff and, therefore, our business. Our HIV/AIDS policy has been adopted across all the countries in which we operate and applies to all staff and their families in a manner consistent with existing medical cover. As of the end of 2010, we had exceeded our commitment to the Clinton Global Initiative to educate one million people on HIV and AIDS, with total education pledges of 1.6 million. In 2011, we focused on supporting our partner organisations and sharing our HIV education materials with other organisations free of charge. A copy of our HIV/AIDS policy is available on our website.

Environment and climate change policy

We understand that without a stable climate, energy, food and water security become increasingly difficult to achieve, which in turn can have a detrimental impact to our business. Our environment and climate change strategy emphasises the interconnectedness of issues around food, energy and water security, against a backdrop of climate change. Our Environment and Climate Change (ECC) Policy was developed in 2009 and focuses on four central themes:

• operational impacts – minimising the direct impact of our operations, including air travel, paper use, water and energy consumption

• commercial opportunities and sustainable finance – managing environmental and social risks in our financing; developing new business in renewable energy and environmental finance

• engagement – ensuring that internal and external stakeholders are fully engaged to embed our strategy

• reporting – ensuring the continual efficacy of the ECC policy and strategy through providing delivery assurance

Further details of our policies can be found on our website.

Electronic communication

The Board recognises the importance of good communications with all shareholders.

Our directors are in regular contact with our institutional shareholders and general presentations are made when we announce our financial results. The AGM presents an opportunity to communicate with all shareholders. Our shareholders are encouraged to receive our corporate documents electronically. The annual and interim financial statements, notice of AGM and dividend circulars are all available electronically. If you do not already receive your corporate documents electronically and would like to do so in future please contact our registrars at the address on page 254.

Shareholders are also able to vote electronically on the resolutions being put to the AGM through our registrars’ website at www.investorcentre.com

Annual General Meeting

Our AGM will be held at 12.00pm (London time) (7.00pm Hong Kong time) on Wednesday 9 May 2012 at The Honourable Artillery Company, Armoury House, City Road, London, EC1Y 2BQ. Details of the business to be conducted are contained in the notice of meeting.

Non-audit services

The non-audit services policy (the policy) was reviewed and approved by the Audit Committee in 2011. The policy is based on a number of core principles. The overriding principle is to ensure that our Group Statutory Auditor, KPMG Audit Plc’s (KPMG), independence and/or objectivity as the audit firm is not (or could not be seen to be) compromised by the appointment of KPMG to provide particular non-audit services. Subject to this overriding principle, the Audit Committee’s view is that KPMG can be of value in a wider range of activities than just financial statement audit, and KPMG should be allowed to tender, subject to the Accounting Principles Board’s (APB) ethical standards and the terms of the policy. However, the policy makes it clear that KPMG should not be regarded as the automatic or first firm of choice for non-audit services and consideration should always be given to the use of other firms. The policy requires a conservative approach to be taken to the assessment of requests for KPMG to provide non-audit services.

The APB sets out various threats to audit independence including self-interest, self review, familiarity, taking of a management role or conducting advocacy. In particular, maintaining KPMG’s independence from the Group requires it to avoid taking decisions on the Group’s behalf. It is also recognised as essential that management retain the decision making capability as to whether to act on advice given by KPMG as part of a non-audit service. This means not just the ability to action the advice given, but to have sufficient knowledge of the subject matter to be able to make a reasoned and independent judgement as to its validity. Accordingly, the Group is required take a conservative approach to interpreting the potential threats to auditor independence and require commensurately robust safeguards against them, if a non-audit service is to be permitted.

After due consideration, the Audit Committee decided not to reduce the policy to a prescribed list of non-audit services that KPMG is permitted to provide. Rather, each request for KPMG to provide non-audit services will be assessed on its own merits. The Audit Committee believes that such a case-by-case approach best accommodates (i) the need for the appropriate rigour and challenge to be applied to each request for KPMG to provide non audit services whilst (ii) preserving sufficient flexibility for the Group to engage KPMG to provide non-audit services where it is able to deliver particular value to the Group and where the proposed services can be provided without compromising KPMG’s objectivity and independence. KPMG’s objectivity is of particular value to the Group in the context of providing non-audit services which relate to the provision of an independent view, benchmarked either against external laws, regulations or requirements or the audit firm’s own knowledge of best practices. The policy also specifically incorporates the APB’s recommended prohibitions and restrictions on the types of non-audit services that are able to be provided by the audit firm.

By way of (non-exhaustive) illustration of the application of the principles set out in the policy, the following types of non-audit services are:

• likely to be permissible under the policy:

- audit related services as defined by the APB – the Group would also extend this to work on investor circulars in most foreseeable circumstances

- an objective view as to whether the Group has applied external laws and regulations appropriately, such as checks over regulatory compliance

- testing the robustness of controls infrastructure

- due diligence over potential purchases or sales

• not permissible under the policy:

- any services that are prohibited (or to the extent they are restricted) by the Auditing Practices Board’s published guidance from time to time

- aggressive tax or regulatory structuring proposals;

- any services where fees are paid on a contingent basis (in whole or in part)

- consulting services, which actively assist in running the business in place of management as opposed to providing or validating information, which management then utilises in the operation of the business

Details relating to KPMG’s remuneration as the Group statutory auditor and a description of the broad categories of the types of non-audit services provided by KPMG are given in note 8 to the financial statements on page 185. The two significant engagements of KPMG to provide non-audit services are described on page 111 and 112.

Auditor

The Audit Committee reviews the appointment of the Group statutory auditor, its effectiveness and its relationship with the Group, which includes monitoring our use of the auditor for non-audit services and the balance of audit and non-audit fees paid. Following a review of the independence and effectiveness of our Group statutory auditor, a resolution will be proposed at the 2012 Annual General Meeting to reappoint KPMG. Each director believes that there is no relevant information of which our Group statutory auditor is unaware. Each has taken all steps necessary as a director to be aware of any relevant audit information and to establish that KPMG is made aware of any pertinent information.

By order of the Board

Annemarie Durbin

Group Company Secretary

29 February 2012

Statement of directors’ responsibilities

The directors are responsible for preparing the Annual Report and the Group and Company financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare Group and Company financial statements for each financial year. Under that law they are required to prepare the group financial statements in accordance with IFRS as adopted by the EU and applicable law and have elected to prepare the parent company financial statements on the same basis.

Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and parent company and of their profit or loss for that period. In preparing each of the Group and Company financial statements, the directors are required to:

Select suitable accounting policies and then apply them consistently

Make judgments and estimates that are reasonable and prudent

State whether they have been prepared in accordance with IFRSs as adopted by the EU

Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the directors are also responsible for preparing a Report of the directors, Directors’ remuneration report and Corporate governance statement that complies with that law and those regulations.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors’ responsibility statement

We confirm that to the best of our knowledge:

• The financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole

• The Report of the directors includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face By order of the Board

R H Meddings

Group Finance Director

29 February 2012