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Statement of compliance with QCA Corporate Governance Code

The Sanderson Group plc Board has decided to apply the Quoted Companies Alliance (QCA) corporate governance code following the recent changes to the AIM rules which require all AIM companies to comply with a recognised corporate governance code.

Details of our compliance with the code are set out below.

Christopher Winn
24 September 2018

1. Establish a strategy and business model which promote long-term value for

Sanderson Group plc is a well-established, profitable, software and IT services business specialising in digital retail technology and enterprise software for businesses operating in the manufacturing, wholesale distribution and logistics sectors. Operating primarily in the UK and Northern Ireland, the Group provides its customers with enterprise systems designed to help them grow and run their businesses efficiently and profitably. Sanderson maintains a strong market position due to the quality of its products and services and its successful track record.

The Group has a strong revenue model, with typically 50% of revenue arising from recurring licence, support and maintenance contracts. A further 40% is derived from the existing customer base, with the balance represented by revenue from new customers.

The Group’s continuing strong cash generation enables the Board to maintain a progressive dividend policy whilst continuing to invest in the further development of the Group’s businesses.

Further details are available in our annual report.

2. Seek to understand and meet shareholder needs and expectations

Sanderson highly values regular two-way engagement with shareholders to discuss strategy and performance levels. Our Executive Directors invest considerable time in ensuring both current and potential future investors have opportunity to fully understand our business alongside being able to understand what investors and analysts think about us.

We meet with all institutional investors that wish to do so at least twice a year in the results period. These meetings include a presentation of our latest financial performance, a wider business update, and discussion on our longer-term plan. These meetings are normally attended by our Chairman, Group Chief Executive Officer and Group Finance Director. We also welcome engagement with our key shareholders throughout the year.

We answer and respond to any shareholder calls or correspondence on an individual / personal basis as they are received and then endeavour to keep in contact with the shareholder.

Our AGM presents the main opportunity for engagement with private shareholders. This meeting is typically well attended by our full Board and often several senior managers from across the business.

Any initial enquiries can be sent to investorrelations@sanderson.com.

3. Take into account wider stakeholder and social responsibilities and their
     implications for long-term success

Our main mechanisms for wider stakeholder engagement and feedback can be summarised as follows:

We have dedicated staff in each of our business that are responsible for our customer relationships. In addition, our technical support and development teams will regularly engage with customers as a fundamental part of delivering ongoing services. Through these well-established channels we can ensure that the needs of our customers are fully understood. We are then well positioned to initiate appropriate actions in response.

Recent actions have included updating some of our websites to ensure they are easy for our customers to understand & navigate, and considerable investment in developing new products / solutions to address customers’ ever evolving needs.

We hold regular staff briefings at all our main offices which are normally attended by at least one Executive Director. These serve not only as a valuable opportunity to keep staff up to speed with the overall Group, but also as an important mechanism for staff to provide feedback.

As a result, recent actions include initiating a refurbishment project on one of our key offices, implementing an online solution for expense claim processing and also introducing secure electronic payslips.

Sanderson actively engages with our local communities where practical. For example, our marketing team have provided additional support to the Tiny Tim’s Children’s Centre that provides free treatments to children and young people with disabilities, health problems and special needs. Our team spent time working on social media marketing and promotional ideas to increase visitor numbers.

In addition, the Group makes donations to local community organisations, for example to allow them to continue running specific events that would otherwise be too costly.

We are firm believers in supporting the local economies in which we operate in and therefore always look to employ local people and engage local trades where possible.

4. Embed effective risk management, considering both opportunities and threats,
     throughout the organisation

Financial Control
The Group has an established framework of financial controls, the effectiveness of which is reviewed regularly by senior management, the Board and the Audit Committee. Key areas of control are as follows:

• The Board has responsibility for approving all annual budgets, longer term strategy and plan, dividend policy, financial / funding structure of the company, and any material investments.
• Key performance metrics are reported to the Executive Directors daily, including invoicing, sales orders, order book and cash.
• Financial performance on a monthly basis is reported to the Board comparing to forecast, budget and prior year.
• There is a comprehensive forecast process in place providing the Board with an updated view of the likely performance for the financial year on a monthly basis (in the absence of ad hoc material events), including revenue, profit and cash.
• Monthly management meetings are held with each business in the group, chaired by the Group Chief Executive.
• A robust system of controls exists to cover all types of cost including recruitment, promotions / salary costs and capital expenditure. All payments are approved by senior Finance staff.
• A Group wide process is in place for the approval of all bids & tenders.
• Return on investment and payback are tracked for all prior acquisitions as well as other types of investments. These are reported to the Board on a monthly basis.

Other Controls
The Board continually reviews whether the system of controls and risk management in place is appropriate for the size, complexity and risk profile of the Group. The controls currently in place include:

• Monthly management meetings for each business, chaired by the Group Chief Executive and attended by the Group Finance Director, provide the mechanism for reporting any identified risk and setting required actions to mitigate. Any risks of a material nature are then reported to the Board through the monthly Board meeting.
• A quarterly health & safety review meeting is attended by the Group Finance Director in which each site responsible officer reports on current status against set criteria. A monthly health & safety dashboard is also reported to the Board. These mechanisms facilitate ensuring each site has appropriate roles and processes in place including first aiders, fire wardens, regular fire alarm tests and regular health & safety checks.
• All contracts are approved by the Group Finance Director prior to signing.
• Dedicated resource and appropriate tools are in place that proactively monitor our IT infrastructure to ensure high levels of security are maintained, as well as looking to continuously improve. This is reviewed at regular intervals with the Group Finance Director.

A summary of the Group’s principal risks, potential impact and mitigations are included in the annual report.

5. Maintain the board as a well-functioning, balanced team led by the chair

The Board is broadly balanced with three executive and two non-executive directors. The Board considers that the non-executive directors operate in an independent manner. Consequently, the Board believes it has a suitable balance of independence and detailed company knowledge to discharge its duties and responsibilities effectively.

Whilst John Paterson has been a non-executive director since 2004, he remains well positioned to act independently and challenge the executive directors by utilising the knowledge he has gained on both Sanderson and the wider market which is well complemented by his extensive City experience.

Ian Newcombe, Group Chief Executive, is responsible for the day to day running of the business allowing Christopher Winn, Chairman, to be well positioned to have independence in his decision making as he leads the Board.

The Board has established three committees (Audit Committee, Remuneration Committee and Nominations Committee) each consisting of, as a minimum, the two non-executive directors. Each committee has defined terms of reference.

Further detail on the directors and meeting attendance will be included in our annual report.

6. Ensure that between them the directors have the necessary up-to-date
     experience, skills and capabilities

All executive directors are subject to election by shareholders at the first opportunity after their appointment and to re-election every three years thereafter. Non-executive directors are also subject to re-election every three years.

The Board is satisfied that the five Directors bring a good balance of skills and experience to bear, with particular bias towards IT & software given the nature of the business.

All Directors receive regular updates on company activity, relevant market information and other relevant information to facilitate them in fully carrying out their roles.

All Directors are able to seek independent professional advice if necessary to fulfil their duties and responsibilities at the expense of the company.

7. Evaluate board performance based on clear and relevant objectives, seeking
     continuous improvement

The Chairman at least annually will review the individual contributions, commitment and independence (where relevant) of each member of the board to ensure the team remains as effective and relevant as possible.

The collective performance of the board is ultimately measured against a number of strategic objectives, typically set over a three-year period, and agreed with all board members following consultation with key shareholders.

8. Promote a corporate culture that is based on ethical values and behaviours

The Group has a number of policies in place covering areas such as anti-bribery, data security, environment & sustainability, data security, whistle-blowing and quality. These, together with the culture emphasised through regular staff briefs, provide the platform for senior management to promote a common set of values, behaviours and culture across the Group.

All employees receive an induction pack on commencement of employment which includes a purpose and values statement.

The Board also monitors the Group’s position with regard to gender pay gap.

9. Maintain governance structures and processes that are fit for purpose and support
     good decision-making by the board

The Board meets on a monthly basis and retains full and effective control of the Group. Additional meetings are arranged as appropriate to consider Group strategy, acquisition and disposal strategies, internal controls and risk analysis, and the annual budget. Day-to-day management of the Group is delegated to the executive directors and senior management team.

The Board has established three committees each consisting of, as a minimum, the two non-executive directors. Each committee has defined terms of reference.

The Audit Committee is chaired by David Gutteridge and meets at least twice a year with the executive directors and representatives of the external auditor in attendance. The Committee’s duties include the review of interim and preliminary announcements, compliance with accounting standards, consideration of the Annual Report and Accounts prior to submission to the Board for approval, the appointment and remuneration of the external auditor together with their scope of work and consideration of their findings, and the review of internal controls.

The Group adheres to the principles of good governance when deciding remuneration strategy and has delegated responsibility for the remuneration policy to the Remuneration Committee. The Remuneration Committee meets at least once a year and its broad responsibility is to ensure the remuneration packages of the executive directors and senior management are competitive and designed to attract, retain and motivate individuals of high quality. The Remuneration Committee is made up of the two non-executive directors and is chaired by John Paterson.

The Nominations Committee comprises the non-executive directors and Christopher Winn and is responsible for making recommendations on the appointment of additional directors and for reviewing the composition of the Board and the Board committees. It is chaired by Christopher Winn.

10. Communicate how the company is governed and is performing by maintaining a
       dialogue with shareholders and other relevant stakeholders

Alongside the annual & interim reports, the AGM, and various announcements to the market as methods for communicating with shareholders, the Executive Directors also meet with institutional investors twice a year in the results period and remain available for meetings, as requested, throughout the year.

All relevant company information is available on our corporate web site www.sanderson.com.

The Board has visibility of all analysis, articles and commentary produced on Sanderson to ensure a wide understanding of investors’ views.

Feedback from customers is continually sought through our ongoing account management structure in each business and staff are encouraged to provide feedback at any point to local management but with specific opportunity at regular staff briefings held at each site.