QCA Code

The first version of the UK Corporate Governance Code was produced in 1992 by the Cadbury Committee. It is still the classic definition of the context of the Code:

“Corporate governance is the system by which companies are directed and controlled. Boards of Directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place. The responsibilities of the Board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship. The Board’s actions are subject to laws, regulations and the shareholders in general meeting.”

As an AIM listed company, IDS is not obliged to comply with the UK Corporate Governance Code, the latest version of which was published in 2016 (‘Code’). IDS use the provisions of the Code as a guideline, but reserves the right to deviate from it where it finds this appropriate.

In adopting the principles of good governance, the Directors have also taken into consideration the Quoted Companies Alliance Corporate Governance Code for Small and Mid-Size Quoted Companies 2013 (the ‘QCA Code’). The QCA Code adopts key elements of the Code, current policy initiatives and other relevant guidance and then applies these to the needs and particular circumstances of small and mid-size quoted companies on a public market. The QCA Code identifies 12 principles that will enable companies to deliver growth in long-term shareholder value by maintaining a flexible, efficient and effective management framework within an entrepreneurial environment. Our compliance with these 12 principles is set out below.

The Company strategy is shaped and formulated by the Chief Executive Officer and Executive Team in regular discussions with the Board. The final strategy is approved by the full Board. The Executive Team, led by the Chief Executive Officer, is responsible for implementing this strategy and for generally managing and developing the business. Changes in strategy require approval from the Board. The strategy of the Group is set out within the 2017 Annual Report.

Ultimate responsibility for the process by which risk in the business is managed rests with the Board. The principal risks and uncertainties facing the Group, as well as mitigating actions, are set out within the 2017 Annual Report. These risks are reviewed by the Audit Committee at least biannually, which will report its findings to the Board.

The Board is committed to maintaining an open dialogue with shareholders. Communication with shareholders is co-ordinated by the Chairman, Chief Executive Officer and Group Finance Director.

Throughout the year, the Board maintains a regular dialogue with institutional investors, providing them with such information on the Company’s progress as is permitted within the guidelines of the AIM rules, MAR and requirements of the relevant legislation. Twice a year, at the time of announcing the Group’s half and full-year results, the Company does a round of visits to its major shareholders to update them on developments and to receive feedback and suggestions from them.

The Board believes that the Annual Report and Accounts, and the Interim Report published at the half-year, play an important part in presenting all shareholders with an assessment of the Group’s position and prospects. All reports and press releases are published on the Group’s website (www3.idsplc.com).

The Annual General Meeting (‘AGM’) is the principal opportunity for private shareholders to meet and discuss the Group’s business with the Directors. There is an open question and answer session during which shareholders may ask questions both about the resolutions being proposed and the business in general. The Directors are also available after the meeting for an informal discussion with shareholders.

The business model of the Company is based on long-term commitments to both Research & Development and the placement of instruments based on multi-year contracts. The Company believes that shareholders understand the long-term nature of the Group’s business model and have a long-term orientation.

The Board recognises its prime responsibility under UK corporate law is to promote the success of the Company for the benefit of its members as a whole. The Board also understands that it has a responsibility towards employees, partners, customers, suppliers and the patients who ultimately benefit from its diagnostic tests. Our corporate social responsibility approach continues to meet these expectations. The Board also understands that it has a responsibility to take into account, where practicable, the social, environmental and economic impact of its approach.

The Board designs the Group’s systems of internal control in order to provide the Directors with reasonable assurance that its assets are safeguarded, that transactions are authorised and properly recorded and that material errors and irregularities are either prevented, or will be detected within a timely period. However, no system of internal control can eliminate the risk of failure to achieve business objectives or provide absolute assurance against misstatement or loss.

The Board has overall responsibility for the Group’s systems of internal control and for reviewing their effectiveness. The Group’s systems of internal control include regular meetings of management to discuss operational, strategic and risk issues, designed to ensure that the possibility of misstatement is kept to a minimum.

The system in place for financial reporting is designed to ensure that the Board receives management accounts, forecast variance analysis and other ad hoc reports on a timely basis.

The Group has not implemented an internal audit function because the Directors have, in the past, believed the controls in place have been appropriate for the size and complexity of the Group’s activities. The Board intends to keep this under review.

The Executive and Non-executive Directors are collectively responsible for promoting the success of the Company. However, their respective roles are strictly delineated. The Executive Directors have day-to-day responsibility for the business operations of the Company and the Non-executive Directors are responsible for bringing independent and objective judgement to Board decisions. The Chairman is primarily responsible for focusing the Board discussions on the key levers for value creation and risk management as well as the effective running of the Board process. In addition to shaping such a Board culture he is responsible for making sure that all members are fully informed and qualified to take the required decisions. For this purpose, Non-executive Directors spend time with the Executive Team between Board meetings, covering certain aspects of the business where they have special expertise.

In the furtherance of their duties, the Directors have access to the advice and service of the Company Secretary and are permitted to take independent professional advice and to undertake any relevant training (both at the Company’s expense, where appropriate).

The Board has a number of matters specifically reserved for its decision or approval. These include the approval of the interim and annual financial statements, setting strategic direction, budgets and long-term plans.

IDS’s compliance structure is based upon the following three principles:

The Board is responsible for determining the strategy of the Company. The Chief Executive Officer and his Executive Team implement that strategy. While all Directors share collective responsibility for the activities of the Board, some roles have been defined in greater detail. In particular, the roles and responsibilities of the Chairman and Chief Executive Officer are clearly defined. The Chairman’s primary role is to lead the Board, and to ensure that it is independent, effective and complementary. The Chief Executive Officer’s primary role is to provide the overall management and leadership of the Company. It is the responsibility of both the Chairman and the Chief Executive Officer to uphold and promote the highest standards of integrity and probity within the Company.

As at 31 March 2017, the Board comprised two Executive Directors, a Non-executive Chairman and four other Non-executive Directors. Details of the current Directors are set out within the 2017 Annual Report. The Board will continue to review its structure in order to provide what it considers to be an appropriate balance of executive and non-executive experience and skills. The Board look to meet in a formal manner on a bi-monthly basis, with additional meetings held as required.

Six formal Board meetings were held in the year to 31 March 2017.

A summary of Board and Committee meetings attended in the 12 months to 31 March 2017 is set out below:

The Board regularly reviews the composition of the Board to ensure it has the necessary skills to support the development of the business.

The Board has established the following Committees:

Audit Committee

The Audit Committee comprises three Non-executive Directors, Mr R Sackers (a qualified accountant with relevant financial experience and Chairman of the Committee), Mr P J Williamson and Dr B Wittek. The Audit Committee is responsible for the relationship with the Group’s external auditor, the review of the Group’s financial reporting and the Group’s internal controls.

The Committee will normally meet at least three times a year and is responsible for monitoring the quality of internal control, ensuring that the financial performance of the Company is properly measured and reported on, meeting with the external auditor and reviewing reports from the external auditor. It meets with the external auditor at least twice a year.

The Audit Committee has undertaken an assessment of the auditor’s independence, including:

• A review of non-audit services provided to the Group and related fees;
• Discussion with the auditor of a written report detailing all relationships with the Company and any other parties that could affect independence or the perception of independence;
• A review of the auditor’s own procedures for ensuring the independence of the audit firm and partners and staff involved in the audit, including regular rotation of the audit partner; and
• Obtaining written confirmation from the auditor that, in their professional judgement, they are independent.

An analysis of fees payable to the external audit firm in respect of both audit and non-audit services during the year is set out in Note 4 to the financial statements.

The Board is satisfied that the external auditor is independent in the discharge of their audit responsibilities.

Remuneration Committee

The Remuneration Committee comprises three Non-executive Directors, Mr P J Williamson (Chairman), Mr T B Campe and

Dr K P Kaspar.

It reviews the performance of the Executive Directors, sets the scale and structure of their remuneration and reviews the basis of their service agreements with due regard to the interests of shareholders and the policy set by the Board (on the recommendation of the Committee). The Board itself determines the remuneration of the Non-executive Directors.

The Remuneration Committee also makes recommendations to the Board concerning the allocation of share options to employees. No Director is permitted to participate in discussions or decisions concerning his or her own remuneration. The details of Directors’ remuneration and share options are contained within the Directors’ remuneration report.

Nomination Committee

The Nomination Committee comprises three Non-executive Directors, Dr B Wittek, Mr R Sackers and Mr P J Williamson. The

Nomination Committee is responsible for reviewing the size, structure and composition of the Board, establishing appropriate succession plans for the Executive Directors and other senior executives in the Group and for the nomination of candidates to fill Board vacancies, where required. The Committee will meet on an occasional basis, as matters arise.

The IDS Board meetings are held on a rotational basis among the IDS facilities within Europe – as a result the whole Board has the opportunity to meet the IDS team ‘on the ground’ to ensure they continue to develop their knowledge and understanding of the business. In addition, during the year, Non-Executive Board members have partnered with member of the Executive Management Team to assist in specific projects relevant to their area of expertise.

The Chairman believes the Board has performed effectively during the year. Key strategic issues and risks are discussed in an open and forthright issue, with decisions being made based on the factual data available.

During the course of the year, the Directors received updates and training from the Company Secretary and various external advisers on a number of corporate governance matters.

The Chairman ensures that all Directors are properly briefed to enable them to discharge their duties. In particular, detailed management accounts are prepared and copies sent to all Board members every month. In advance of each Board meeting, appropriate documentation on all items to be discussed is circulated to all Directors. The agenda for each Board meeting is agreed in advance between the Directors. Agenda items focus on the key matters and risks facing the business, along with items related to the strategic direction of the business.

The Chairman, in conjunction with the Company Secretary, ensures that the Directors’ knowledge is refreshed through ongoing training.

It is recognised that situations may arise when a Director may legitimately wish to seek personal advice as to his/her duties and responsibilities. It will normally be appropriate for that advice to be provided by or through the Company Secretary. Where, for whatever reason, the normal arrangements are inappropriate, any Director may take separate external advice at the Company’s expense provided that he/she shall first have agreed the need for this with the Chairman (or in the case of the Chairman, with a Non-executive Director or the Chief Executive Officer) as well as agreeing the identity of the adviser to be approached and a budget for the cost of the advice.

The Board has considered the applicability of the going concern basis in the preparation of these financial statements. This included the review of internal budgets and financial results. The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operation for the foreseeable future. For this reason they have adopted the going concern basis in the preparation of the financial statements.

By order of the Board,

Paul Martin

Company Secretary

20 June 2017