Annual Report 2015

6 Supervision and Risk Management

6.1 The Supervisory Board

The Supervisory Board comprises of the following members:

Mr. A.J. (Ab) Pasman (1950)
Chairman

Mr. Pasman (Dutch nationality) was appointed to the Supervisory Board on 22 April 2010 and became chairman as of that date. Mr. Pasman was a member of the Board of Directors of Koninklijke Grolsch N.V. from 2003 to 2008 and was appointed chairman of said board in 2004. He is a member of the Supervisory Board at the following non-listed companies: Berenschot Holding B.V. and Westland Kaas Groep B.V. Mr. Pasman’s term of office runs until the Annual General Meeting of Shareholders due to be held in the spring of 2018.




Mr. J. (Jan) van den Belt (1946)
Deputy Chairman

Mr. Van den Belt (Dutch nationality) was appointed to the Supervisory Board on 20 April 2006. He was CFO and member of the Board of Directors of Océ N.V. until the end of October 2008. Mr. Van den Belt is a member of the Supervisory Boards of Groeneveld Groep B.V., Attero Holding N.V., N.V. Holmatro, the Advisory Board of the Bosal Council, as well as a member of the Executive Board of Stichting Ahold Continuïteit. In addition he is Council (substitute) at the Enterprise Chamber of the Amsterdam Court of Appeals in Amsterdam. Mr. Van den Belt qualifies as the financial expert referred to in the best practice Article III.3.2 of the Dutch Corporate Governance Code. Mr. Van den Belt’s term of office runs until the Annual General Meeting of Shareholders due to be held in the spring of 2018.




Mr. P.B. (Peter) Ernsting (1958)

Mr. Ernsting (Dutch nationality) was appointed to the Supervisory Board at the General Meeting of Shareholders of 28 April 2011. Mr. Ernsting was appointed at the proposal of the Supervisory Board after a recommendation from the Central Works Council. As from June 2011, Mr. Ernsting is senior Vice President, Group Supply Chain, and member of the Executive Committee at Carlsberg. Mr. Ernsting previously held a number of management positions at Unilever N.V., both in the Netherlands and abroad. Mr. Ernsting’s term of office runs until the Annual General Meeting of Shareholders due to be held in the spring of 2019.

 

Mr. A. (Aad) Kuiper (1960)

Mr. Kuiper (Dutch nationality) was appointed to the Supervisory Board at the General Meeting of Shareholders of 25 April 2013. Mr. Kuiper is Vice President and President & CEO of Hunter Douglas EMEA (Europe, Middle East and Africa) and has worked at Hunter Douglas N.V. since 1997. Mr. Kuiper has worked in various management positions at Akzo Nobel between 1987 and 1997, both in the Netherlands and abroad. Mr. Kuiper was Chairman of the Advisory Board of Scheuten S.A.R.L. until end of 2014 and is a member of the Supervisory Board of Bonarius Holding B.V. and per 1 February 2015 chairman of the Supervisory Board of Infotheek International. Mr. Kuiper’s term of office runs until the Annual General Meeting of Shareholders due to held in the spring of 2017.
 

6.2 Report of the Supervisory Board

6.2.1 Message from the Chairman of the Supervisory Board

Accell Group once again reported clearly improved results this year. Accell operates in a market that is becoming more and more dynamic, with increasing competition and constantly changing patterns of consumer demand. These developments place ever increasing demands on the capabilities of the organization to be successful. We look back on the positive revenue and profit development of the past year with a good feeling. Accell Group has shown to be able to respond to change and have the scale, strength and innovative capacity to excel in these markets. The development of working capital and in particular the development of inventories in the last months of the year, has been a constant source of concern and attention. Further improvements in the company’s supply chain processes will have a positive impact on this.

In the year under review, the Supervisory Board devoted particular attention to the process of consistent development of the strategy. The increased scale and complexity of the organisation requires specific attention and a professional approach from the HR function. The appointment of a new HR Director marks the start of the continued professionalization of the HR policy. Other items high on the agenda included improving the efficiency and optimisation of the Supply Chain and monitoring operations in various countries, especially the United States.

To maintain its position as a leading player in the development and sale of sustainable consumer goods such as bikes, it remains important for Accell to effectively integrate acquired companies or subsidiaries in existing operations, and where possible to expand those operations or to enter new markets. To achieve this, it is necessary to stay ahead of the field in terms of technological developments. This is particularly true for the electric bicycles segment, for high-end sports bikes, and for the combination of the two, the performance E-mountain bikes, which is a relatively new and special category of electric bikes. The Accell organisation devotes continuous attention to innovation and encourages its employees to come up with good and new ideas.

In addition to the continuous focus on innovation, Accell has in the past year taken some solid steps in the continued development and optimisation of its Supply Chain. The appointment of Mr. J.J. Both as a member of the board and Chief Supply Chain Officer, has fulfilled the wish to make the Supply Chain a more central part of the company’s operations. In the year under review, Mr. J.J. Both took stock of the Supply Chain and we have made a start on tightening the cooperation between the Accell Group companies and realise synergy benefits as a result.

Despite the solid financial results in the year under review, Accell will, in view of its leading position, devote attention to a number of strategic choices in order to expand and strengthen its position in the constantly changing playing field. For instance, the company will devote attention to restructuring its Supply Chain and to the continued expansion of its international HR function. The activities in the various countries in which Accell is active were discussed and evaluated on a continuous basis and the progress was monitored. In this context, a great deal of attention was devoted to the activities in the United States. Although we are convinced of the potential of the United States and for instance that the market for electric bicycles is slowly gathering momentum, it has become clear that we will have to change our proposition to operate successfully in the American market. In the year ahead, the Supervisory Board will once again devote a great deal of attention to the process of improving returns from the activities in the United States.

One item that is always high on our agenda, but one that will require additional attention in the year ahead, is internal control procedures. Early this year, Accell was confronted with a serious case of theft by one of its employees in Taiwan. The Supervisory Board – responding quickly – commissioned an international forensic accountancy firm to set up an independent investigation. Based on the outcome of this investigation, the company has drawn up a recovery plan to further tighten the internal control procedures, to diminish the possibility of such cases occurring in the future.
 Looking back at the past year, we can say that the year 2015 saw on the one hand growth in turnover and profit and on the other hand the acceleration of a number of change processes aimed at enabling Accell to expand its leading position in the years ahead. Obviously, we could not have achieved this without the tireless efforts, expertise and dedication of the Accell employees. My thanks therefore go to everybody who contributed to these results. I assume that given all the positive steps we took in the year under review and which will be continued in the year ahead, the year 2016 will also deliver.

Heerenveen, March 14, 2016

On behalf of the Supervisory Board,

A.J. Pasman
Chairman
 

6.2.2 Tasks of the Supervisory Board

In the year under review, the Supervisory Board fulfilled its tasks in line with the regulations that govern the Supervisory Board, which can be viewed on Accell Group’s website (www.accell-group.com) under the Corporate Governance section.

The Supervisory Board appointed an audit committee and a selection & remuneration committee. These committees are also subject to the regulations that are available for viewing and download on the corporate website. The task of these committees is to support and advise the Supervisory Board with respect to their designated activities and to lay the ground for the Supervisory Board’s decision-making. The Supervisory Board as a whole remains responsible for the way it exercises its tasks, including the preparatory activities carried out by the audit committee and the selection & remuneration committee.

In 2015, the Supervisory Board supervised the management of the Board of Directors and the general course of business within the Accell Group. The Supervisory Board also advised the Board of Directors in its capacity as a supervisory body.

The Supervisory Board is also responsible for such items as legally stipulated and incorporated in the Accell Group articles of association. Pursuant to same, the Board of Directors submitted important decisions to the Supervisory Board for approval.
 

6.2.3 Meetings of the Supervisory Board and subcommittees

Plenary meetings of the Supervisory Board in 2015
In 2015, the Supervisory Board met five times in a regular combined meeting with the Board of Directors. The meetings took place in the months March, April, July, October and December. During the meetings of the Supervisory Board in the year under review, the Board addressed a number of important themes, such as the strategy, marketing and distribution, quality and brand companies, the quality of control systems, the realisation of synergy benefits within and between companies, the more efficient organisation of the supply chain, HR policy and the better utilisation of know-how and innovation. In the joint meetings of the Board of Directors and the Supervisory Board, as they do every year, the members of same devoted a great deal of attention to the strategy, also against the background of the general global economic situation, continually changing market and consumer demands, shifts in the competitive field and speed of technological developments. Looking at the longer term perspective, clear priorities were also placed in growth realisation and value creation in these discussions. In this context, in the year under review the two boards looked primarily at opportunities to make the organisation more efficient and generate benefits by restructuring the supply chain. The full Supervisory Board also had two meetings with the external auditor in the presence of the Board of Directors and subsequently in the absence of the Board of Directors. These meetings with the external auditor did not yield any information that required immediate attention or action. With regard to the functioning of the Supervisory Board, it was agreed in the past that a third party would evaluate this in detail and professionally once every three years. In the intervening years, the functioning of the Supervisory Board will be evaluated internally on an annual basis. In 2015, there was an internal evaluation which explored subjects such as expertise, cooperation within the board, the relationship with the Board of Directors, the functioning of the chairman and the overall functioning of the board as a whole. The conclusion of this evaluation was that each of the members of the Supervisory Board functioned well and that the Supervisory Board as a whole functioned as it should. In 2016, there will be a detailed evaluation involving an external party.

Meetings of the audit committee in 2015
The audit committee consists of Mr. Van den Belt (chairman) and Mr. Ernsting. The composition of the audit committee is in accordance with the provisions of the Dutch Corporate Governance Code. The audit committee supports the Supervisory Board in the execution of its tasks, including on the financial administration front, and makes preparations for the decision-making in this field.

The audit committee met five times in 2015, each time in the presence of the external auditor. The following subjects were addressed in the meetings of the audit committee: the quarterly results, the internal control framework, risk management (including risk of fraud), the internal audit plan, report of the auditor 2014 and the management letter 2015, the One Finance Programme and the organisation of the finance function, financing (including the possibility of supply chain financing) and the covenants of the outstanding debt of Accell Group, the budget 2016, tax and IT. In the analysis of the results, the margins and overhead costs have been reviewed as well as the changes in working capital. In addition to the topics mentioned the members of the audit committee participated actively in the selection of the new external auditor, this is a result of mandatory change in accountant. The long discussion with the AFM, that resulted in a change of the valuations of the British Pensionfund was closely followed by the audit committee. The committee also participated with an on line survey of the AFM about the role of the Audit Committee. And the audit committee participated in the Controllers’ Meeting, this is a meeting where the Controllers of the bigger Accell Group companies come together. During this meeting the necessity of continuing increase of internal controls have been discussed and events at other companies are shared to learn from each other.

As usual, the audit committee devoted attention to the quality and integrity of the financial results. To this end, the committee discusses the results of the group companies and the group as a whole [in the presence of the external auditor] on a quarterly basis. The committee also discusses the auditor’s report at length, explicitly addressing the integrity of the reported results.

Accell Group spends a lot of attention to internal controls. The findings of the internal audit and the progress of the One Finance Programme are discussed during all audit committee meetings. Despite this, there was a theft case by an employee in Taiwan this year. Internal control measures were apparently not sufficient to prevent this. The Supervisory Board assigned an international forensic auditor to investigate this incident. The outcome of the investigation made it clear that this was an isolated case by an individual employee. The necessary measures (among which the report of the crime to the police and dismissal of the employee) are taken and tightening measures of the controls in Taiwan and the whole Group are part of the recovery plan which is executed with the highest priority. Considering the emphasis on continuously improving and tightening the internal control framework it is rather disappointing to see that this incident could take place.

In 2015, the Internal Auditor visited a number of companies. Meanwhile, almost all companies of the Group have been reviewed regarding their internal control framework. The findings have been reported to the audit committee and have been discussed with the Supervisory Board. The company in Taiwan was audited end of 2015 and the findings pointed to a certain risks. These findings contributed, amongst others, to the discovery of the described theft in Taiwan.

The Management Letter of the external auditor has been discussed in detail. No irregularities or serious shortcomings were reported. A number of topics were reviewed: improvements have been reported in the closing process, documentation, and monitoring of derivatives. The emphasis of internal audit on fraud is seen as an excellent start. This year, recommendation on the field of IT focused on change management and access rights and regular change of the access rights. At one subsidiary of the Group there were comments on the segregation of duties within the procurement function and at two subsidiaries there were comments on the description of processes and procedures. Accell Group will deal with the comments at short notice. Also the non-integrated stock systems at one of the companies and the existence of mitigating controls are part of the management letter.

Each year, the external auditor, in consultation with the Supervisory Board and the Board of Directors, devotes specific attention to a number of subjects that are relevant to the expression of an opinion on the financial statements and to subjects that are relevant at that point in time. With regard to the 2015 financial statements, particular attention was devoted to the following subjects:

• Incident in Taiwan and the impact on the financial statements 2015
• Accuracy of revenue recognition
• Pensions in the UK
• Tax accounting including valuation of deferred tax assets
• Management override of control
• Valuation of goodwill and rights related to brands
• Financial instruments and foreign exchange risks
• Financing and the related covenants

Meetings of the selection & remuneration committee in 2015
The selection & remuneration committee comprises Mr. Kuiper (chairman) and Mr. Pasman. The composition of the committee is in line with the provisions of the Dutch Corporate Governance Code. The tasks of the selection & remuneration committee include submitting proposals to the Supervisory Board regarding the selection criteria and appointment procedures for members of the Supervisory Board and the Board of Directors, the remuneration policy and the level of remuneration and the employment terms and conditions of the members of the Board of Directors.

The selection & remuneration committee met two times in 2015. The committee’s activities included the recruitment of a fourth member for the Board of Directors, which resulted in the appointment of Mr. J.J. Both as Chief Supply Chain Officer during the Annual General Meeting of shareholders in May 2015. The selection & remuneration committee also discussed the following subjects during its meetings: preparations for the assessment of the members of the Board of Directors, the functioning of the members of the Board of Directors, the submission of a proposal regarding the fixed and variable remuneration of the members of the Board of Directors, evaluation of the remuneration of the members of the Board of Directors and preparations for the evaluation of the functioning of the members of the Supervisory Board.
 

6.2.4 Remuneration Board of Directors

The Supervisory Board has drawn up a remuneration report for 2015 related to the application of the remuneration policy for the Board of Directors. The full report is available on the Accell Group website. The remuneration for the Board of Directors is in line with the policy established by the General Meeting of Shareholders of 24 April 2008 and most recently amended on 22 April 2010.

In a meeting held on 4 March 2015, in the absence of the Board of Directors, the Supervisory Board discussed the functioning of the Board of Directors as a whole and the members individually. The remuneration for the members of the Board of Directors for 2016 was discussed on 24 February 2016,as well as the bonus payments for the 2015 financial year as presented in the financial statements for 2015.

The aim of the remuneration policy is to enable Accell Group to recruit and retain qualified people for the Board of Directors. The level and structure of the remuneration are based in part on factors such as profit development, share price developments and other developments relevant to the company. The aim of the remuneration policy is to position the remuneration packages at a competitive level in the Dutch remuneration market for people with comparable levels of responsibility on the boards of larger companies.

An explanation of the various components of the remuneration for the Board of Directors is available in the 2015 remuneration report on the company website. For the exact amounts of the remuneration of the members of the Board of Directors, we refer to the notes to the financial statements on page 129 of this annual report.

 

6.2.5 Financial Statements

The Supervisory Board has approved the 2015 financial statements in its meeting of 14 March 2016. Deloitte has issued an unqualified auditor’s report. The financial statements will be submitted for adoption to the General Meeting of Shareholders on 26 April 2016.

6.3 Governance & Compliance

 
Corporate Governance

Accell Group finds good corporate governance very important. The Board of Directors and Supervisory Board are responsible for the corporate governance structure of Accell Group and for compliance with the Dutch Corporate Governance Code.

This section of the annual report first describes the corporate governance structure of Accell Group and subsequently explains where and why Accell Group deviates from the principles and best practice provisions of the Code.
 

Corporate governance structure

General
Accell Group is a statutory two-tier company. The corporate governance structure of Accell Group is partly laid down in the company’s articles of association and partly in the legal rules of the Dutch two-tier company regime. The full text of the articles of association can be found on Accell group’s corporate website (www.accell.com) in the ‘Corporate Governance/Articles of Association’ section.


Board of Directors
The Board of Directors is responsible for managing Accell Group and thus for ensuring that the company achieves its goals, for the strategy and accompanying risk profile, the result development and the social aspects of entrepreneurship relevant to Accell Group. The Board of Directors is accountable to the Supervisory Board and the Annual General Meeting (‘General Meeting’) of Shareholders on these issues. In the performance of its duties, the Board of Directors focuses on the interests of the company and its associated enterprise and in doing so weighs the relevant interests of the parties involved in the company. The Board of Directors provides the Supervisory Board with all the information that the Supervisory Board may need to fulfil its duties.

The Board of Directors is responsible for compliance with all relevant laws and regulations, for the management of the risks associated with the company’s business operations and for the financing of the company. The Board of Directors reports on same and discusses the internal risk management and control system with the Supervisory Board. One of the risk management tools Accell Group uses is the Code of Conduct posted on the website (under ‘Corporate Governance’). This annual report includes a chapter titled ‘Risks and Risk Management’ (page 99 and beyond), which describes the internal risk management and internal control systems in more detail.

Certain important decisions of the Board of Directors require the approval of the Supervisory Board, such as decisions on important investments, share issues and the establishment and/or termination of long-term alliances between Accell Group and other companies. The General Meeting of Shareholders’ approval is required for decisions of the Board of Directors regarding significant changes to the identity or character of the company or the enterprise.

On 23 April 2015, the General Meeting granted the Board of Directors a mandate to acquire shares in the company’s own capital. The mandate was granted under the following conditions:

• the mandate would remain in effect for 18 months (1 November 2016);
• the Supervisory Board’s approval would be required for the acquisition of shares in the company’s own capital;
• the number of shares would not exceed 10% of the issued share capital; and
• the acquisition price would not exceed 110% of the average price on the preceding five trading days.

The agenda for the General Meeting of 26 April 2016 includes a proposal to again grant the Board of Directors a mandate to acquire shares in the company’s own capital under the same conditions as those set out above (on the understanding that the mandate applies till 1 November 2017).

Decisions to issue shares are taken by the General Meeting, insofar as and as long as it has not appointed another company body to do so. The preferential right can be limited or excluded by the company body authorised to pass resolutions on issuing shares, provided that said right is assigned expressly to that company body.

A resolution of the General Meeting of 23 April 2015 has extended the period in which the Board of Directors is empowered with the approval of the Supervisory Board to:

• issue ordinary shares up to a maximum of 10% of the outstanding share capital; and
• limit or exclude the preferential right upon the issuance of ordinary shares;
• extended to 1 November 2016.

The agenda for the Annual General Meeting of Shareholders of 26 April 2016 includes a motion to extend this term to 1 November 2017.

The Board of Directors represents the company insofar as the law does not stipulate otherwise. Each member of the Board of Directors has the authority to represent the company.

The Supervisory Board determines the number of the members of the Board of Directors and appoints and dismisses the members of the Board of Directors. The Board of Directors currently comprises four members. The Supervisory Board has appointed one of the members as chairman of the Board of Directors.

The Supervisory Board determines the remuneration of the individual members of the Board of Directors, using the policy adopted by the General Meeting most recently on 22 April 2010. The Supervisory Board also compiles an annual remuneration report, which contains an explanation of the remuneration of the individual members of the Board of Directors.

The main point of the remuneration report of the Supervisory Board in 2015 are included in the ‘Report of the Supervisory Board’ in this annual report.

Supervisory Board
It is the responsibility of the Supervisory Board to supervise the policy of the Board of Directors and the general developments in Accell Group and its affiliates. In addition, the Supervisory Board provides the Board of Directors with advice and support. In the fulfilment of its duties, the Supervisory Board is guided by the interests of Accell Group and its affiliates. Accordingly, it takes into account the interests of all those involved in Accell Group, as well as the social aspects of entrepreneurship that are relevant to Accell Group. The Supervisory Board receives all the information required for the performance of its duties from the Board of Directors in a timely manner.

The Supervisory Board has drawn up regulations which include the distribution of its tasks and its operating methods. The regulations include a section on its interaction with the Board of Directors and the General Meeting of Shareholders. The regulations were most recently amended in a decision of the Supervisory Board dated 4 March 2015. The regulations can be found on the Accell Group website (under ‘Corporate Governance/Supervisory Board’).

The Supervisory Board comprises at least three members (currently four). The General Meeting appoints the members of the Supervisory Board based on nominations submitted by the Supervisory Board. The General Meeting can reject the nomination with an absolute majority of the votes cast, these representing at least one-third of the issued and paid-up capital. If the nomination is rejected, the Supervisory Board shall draw up a new nomination. In the event that the General Meeting fails to appoint the nominated person and also fails to reject the nomination, the Supervisory Board shall appoint the nominated person. The Supervisory Board announces the recommendations simultaneously to the General Meeting and the Works Council of Accell Nederland B.V. The General Meeting and the Works Council are entitled to recommend candidates for membership of the Supervisory Board. The Supervisory Board will fill the nominations for one-third of the positions on the Supervisory Board with persons recommended by the Works Council, unless the Supervisory Board objects to said recommendation and provides grounds for same.

A member of the Supervisory Board shall retire no later than the date of the first Annual General Meeting held four years after his or her initial appointment to that position and in such instance immediately at the end of said meeting. Members of the Supervisory Board may be appointed to the Supervisory Board for a maximum of three four-year terms. The members of the Supervisory Board receive a remuneration to be determined by the General Meeting.

The Supervisory Board has drawn up a retirement schedule, which is published on the Accell Group website (under ‘Corporate Governance/Supervisory Board’).

The Supervisory Board has appointed from its midst an audit committee comprising Mr. J. Van den Belt (chairman) and Mr. P.B. Ernsting, and a selection/remuneration committee, comprising Mr. A. Kuiper (chairman) and Mr. A.J. Pasman.

These committees are charged with preparatory activities as part of the decision-making process of the Supervisory Board. In a decision dated 21 July 2011, the Supervisory Board established regulations for the audit committee and the selection/remuneration committee. These regulations can be found on the website (under ‘Corporate Governance/Supervisory Board’).

The Supervisory Board has drawn up a profile of its size and composition, taking into account the nature and operations of Accell Group and the desired expertise and background of the members of the Supervisory Board. The profile was most recently revised in a Supervisory Board decision dated 21 July 2011 and is available on the Accell Group website under ‘Corporate Governance/Supervisory Board’. The Supervisory Board elects a chairman and a deputy chairman from among its members. The Supervisory Board aims to attune the experience and expertise of its members effectively to the nature, activities and strategy of Accell Group. The Supervisory Board’s composition is such that the members are able to operate independently and critically, vis-à-vis each other, the Board of Directors and any company interest whatsoever.

Composition of the Board of Directors and the Supervisory Board
Although the Supervisory Board strives for a balanced distribution of seats on the Board of Directors and the Supervisory Board between women and men, it has proven difficult to find suitable female candidates for open vacancies. In one case, the company initially succeeded in finding a suitable woman, but it turned out that this candidate was ultimately not available. In any future appointments of directors, Accell Group will continue to strive for a balanced composition of the Board of Directors. Accell Group will also continue to aim for a mixed composition of the Supervisory Board in terms of age and gender, as is laid down in the profile outline for the Supervisory Board.


General Meeting of Shareholders
Key authorisations reside with the General Meeting, such as powers regarding decisions to amend the articles of association and rules and regulations, legal mergers and spin-offs, and the adoption of the financial statements. In addition, the General Meeting determines the remuneration policy for the members of the Board of Directors. A General Meeting is convened at least once a year.

The General Meeting is chaired by the chairman of the Supervisory Board. All matters discussed and resolved in the General Meeting are recorded in the official minutes of the meeting. Accell Group considers it important that as many shareholders as possible participate in the decision-making processes of the General Meeting.

Shareholders and others entitled to vote are therefore given the opportunity to appoint proxies or to extend voting instructions ahead of the General Meeting of Shareholders. The Board of Directors is pleased with the high level of attendance at the shareholder meetings in recent years. For instance, at the General Meeting of Shareholders held on 23 April 2015, 64.9% of the total number of outstanding share capital was either present or represented.


External auditor
The General Meeting appoints the external auditor. The external auditor reports their findings with respect to the audit of the annual accounts simultaneously to the Board of Directors and the Supervisory Board and records the results of their findings in a statement. The General Meeting may question the external auditor about their statements regarding the accuracy of the annual accounts and the external auditor attends said meeting and is authorised to speak at same for that reason. The Supervisory Board did not put forward the company’s current auditor, Deloitte Accountants B.V., for reappointment due to the mandatory auditor rotation. The Supervisory Board proposes to appoint KPMG Accountants N.V. as external auditor for the auditing of the financial statements for the financial year 2016. The appointment of the external auditor is on the agenda for the General Meeting of Shareholders of 26 April 2016.


Code of conduct
The Board of Directors has drawn up an internal code of conduct incorporating the basic principles that apply to the way in which employees of Accell Group and all of its group companies should conduct themselves. The complete text of this internal code of conduct is available on the Accell Group website (under ‘Corporate Governance’).

Accell Group has laid down its requirements for parties involved in the production and sourcing process in a code of conduct for suppliers. These requirements relate to issues including the prohibition of child labour, involuntary labour and discrimination, safety requirements, environmental requirements and labour conditions. The code of conduct for suppliers is available via the Accell Group website (under ‘Corporate Governance’).


Whistleblower policy
The Board of Directors has laid down a whistleblower regulation and published same on the Accell Group website (under ‘Corporate Governance’), so employees are able to report on alleged irregularities within Accell Group and its associated companies without harming their legal position.


Insider trading regulation
The Insider Trading Regulation established by the Board of Directors aims to provide rules to support the legal stipulations to prevent insider trading. The basic premise of the Insider Trading Regulation is that people should not enter into or recommend transactions in Accell Group shares and other financial instruments within the meaning of the Law on financial supervision if they have insider knowledge. Under the Insider Trading Regulation, members of the Board of Directors, Supervisory Board and so-called designated persons at Accell Group are subject to various closed trading periods, announced by the Board of Directors or the compliance officer, in which they are not allowed to conduct any transactions, regardless of whether they have insider knowledge or not. In line with the Insider Trading Regulation, people with a reporting obligation must report transactions they have conducted to the compliance officer. The members of the Board of Directors and the Supervisory Board also have to report their transactions to the Dutch Financial Markets Authority AFM.

On 12 December 2014, the Supervisory Board introduced a regulation in the sense of best practice provision III.6.5 of the Dutch Corporate Governance Code. This regulation includes a number of provisions related to the possession of and transactions in securities by members of the Board of Directors and of the Supervisory Board, other than those issued by their ‘own’ company.


Protective measures
To protect the interest of Accell Group and its stakeholders, in May 2015 Accell Group entered into an option agreement with Stichting Preferente Aandelen Accell Group. This agreement replaced the previous agreement dating from December 1998, which was later amended in April 2009.

Pursuant to the option agreement, the Stichting Preferente Aandelen Accell Group shall have the right at any time to acquire the number of cumulative preference shares B required to make the Stichting Preferente Aandelen Accell Group, after taking said shares, the holder of one half, less one share, of the (increased) issued and paid up capital. The Stichting Preferente Aandelen Accell Group can avail itself of this right at any time in the event that the foundation believes there is a threat to the independence and/or the identity and/or the continuity of (the strategy of) the company, the companies affiliated with same and any parties involved in same. The option can be exercised, among other things, to 1) prevent or delay (the threat of) a public bid on the shares in the capital of the company that may be deemed hostile, and/or 2) to prevent or oppose an unwanted concentration of voting rights in the General Meeting of Shareholders, and/or 3) to resist any unwanted influence or pressure from shareholders that wish to change the strategy of the Board of Directors. In these cases, the issuance of cumulative preference shares B enables the company and its Board of Directors and Supervisory Board to determine their standpoint vis-a-vis the bidder/hostile shareholder and any plans they may have, to investigate alternatives and to defend the interests of the company and those of its stakeholders. Within 6 months after a possible issue of cumulative preference shares B the Board of Directors shall convene a General Meeting to inform the shareholders about the state of affairs.

Pursuant to the new option agreement, the Stichting Preferente Aandelen Accell Group has been granted the right to submit a request for an inquiry (as meant in article 2:345 of the Dutch Civil Code) to the Corporate Chamber of the Amsterdam district court.

The main aim of the Stichting Preferente Aandelen Accell Group, which has its registered offices in Heerenveen, is to represent the interests of Accell Group and its associated enterprise, such including enterprises which are maintained by the companies with which it is affiliated in a group and all parties involved in same. In doing so, the Stichting Preferente Aandelen Accell Group safeguards to the greatest possible extent the interests of Accell Group and its associated enterprise and all parties involved in same, while at the same time resisting as much as possible any influences which may affect the independence and/or continuity and/or identity of the company and its associated enterprise in conflict with those interests. The board of the Stichting Preferente Aandelen Accell Group consists of three board members, namely Mr. M.P. Nieuwe Weme, Mr. B. van der Meer, and Mr. A.J.M.van der Ven. In the opinion of the company and in the opinion of the Stichting Preferente Aandelen Accell Group, the Stichting Preferente Aandelen Accell Group is independent from the company within the meaning of Section 5:71, paragraph 1c of the Financial Supervision Act.


Compliance with the Code
Accell Group has in the past complied with and currently complies with most of the principles and best practice provisions of the Dutch Corporate Governance Code, insofar as these are applicable to the company. In view of the nature, size and character of the Accell Group organisation, the company believes that it is in its own best interest to deviate from the best practice provisions listed below. The following explains why and to what extent Accell Group deviates from said provisions:

Best practice provision II.1.1

This provision includes a system that stipulates terms of appointment for board members of a maximum of four years. However, three of the current members of the Board of Directors were appointed – before 2005 – for an unlimited period. Accell Group has decided to respect the contractual status quo of the current members of the Board of Directors. The appointment of the new member of the Board of Directors – Mr. J.J. Both – will be for a term of four years.

Best practice provision II.2.5

The regulation for share options stipulates a three-year reference period before the unconditional allocation of shares. Following definitive allocation, the shares must be held for at least two years. Although formally the period between conditional and unconditional allocation is two years, the reference period for allocation is three years and the Supervisory Board believes the term stipulated by the entire arrangement is sufficient to secure the commitment of the members of the Board of Directors to the company and its interests.

Best practice provision III.4.3

Accell Group has a secretary to the Board of Directors. His role is limited to supporting the Board of Directors. The tasks of the secretary as outlined in the Best practice provision III.4.3 are performed by the deputy chairman of the Supervisory Board.

Best practice provision IV.3.1

Best practice provision IV.3.1 requires that analyst meetings, analyst presentations, presentations to investors and press conferences be externally accessible via webcasting, telephone lines or other means. In view of the organisation entailed by the aforementioned types of broadcasts and the current size of the company, Accell Group has decided not to comply with this provision for the time being. Share price sensitive information is published on the website www.accell-group.com and presentations given during analyst and press meetings are published afterwards on the website.

Best practice provision IV.3.13

Accell Group has not so far outlined a policy in principle with respect to bilateral contacts with shareholders. The company plans to develop and lay down such a policy this year.


Transactions involving conflicts of interest
There were no transactions involving a conflict of interest as stipulated in best practice provision II.3.4, III.6.3 and III.6.4 of the Code in the 2015 financial year. The regulations for the Supervisory Board include rules on how to deal with (potential) conflicts of interest involving the members of the Board of Directors, the Supervisory Board and the external auditor in relation to Accell Group and stipulate which transactions require the approval of the Supervisory Board.

Regulation article 10 of the Takeover Directive
The following is an overview of the information required under article 1 of the Regulation article 10 of the Takeover Directive:

a. The company’s share capital is € 1,200,000 divided into 120,000,000 ordinary shares with a nominal value of € 0.01 each, divided into 55,000,000 ordinary shares, 5,000,000 cumulative preference shares F, and 60,000,000 cumulative preference shares B. The agenda for the Annual General Meeting of 21 April 2015 includes a motion to amend the articles of association; this amendment includes an increase in the company’s share capital. As per 5 January 2016, the issued and paid-up capital of Accell Group amounts to € 252,703.27 divided into 25,270,327 ordinary shares with a nominal value of € 0.01 each.

b. The company has no statutory or contractual limitation on the transfer of shares, with the exception of the statutory blocking provision with respect to the transfer of cumulative preference shares F.

c. An overview of substantial participations in Accell Group is included on page 139 of this annual report.

d. There are no extraordinary voting rights attached to the shares issued by the company.

e. Accell Group does not have a monitoring mechanism for an employee share scheme.

f. There are no limitations on the execution of the voting rights attached to ordinary shares.

g. The company is not aware of any agreements in which a shareholder of the company is involved and which may cause limitations on the transfer of shares or limitation of the voting rights.

h. The provisions for the appointment and dismissal of members of the Board of Directors and the Supervisory Board and changes to the articles of association are incorporated in the articles of association of the company, which can be consulted on the Accell Group website (under ‘Corporate Governance’).

i. The powers of the Board of Directors and in particular their right to issue shares in the company and acquire shares in the company are described on page 164 in this annual report.

j. A number of agreements between the company and its financiers include the provision that the financiers have the right to dissolve the agreements and reclaim the loans issued prematurely in the event of a substantial change to the control over the company following a public bid as meant in article 5:70 of the Financial Supervision Act.

k. The company is not aware of any agreements with directors or employees which provide for a payment in the event of the employment being terminated following a public bid as meant in article 5:70 of the Financial Supervision Act.
 

6.4 Risks and Risk Management

6.4.1 Introduction

There are inherent risks related to Accell Group’s business activities and organisation. Strategic, operational and financial objectives may not be met in full and the company also faces risks in the field of financial reporting and the application of laws and regulations. The extent to which the company is willing to run these risks in trying to achieve its goals differs per risk category. Accell Group has a relatively high risk appetite related to innovation, development and marketing. At the same time, the company has a low level of risk appetite when this relates to product safety. The risks the company is not willing to take on independently have as much as possible been transferred to an insurance company. The management of risk is an important part of the tasks of the company management, aimed at having a positive impact on the extent to which the company’s objectives are realised. Below you will find an explanation of the main risks the company faces and the way in which Accell Group has organised its risk management.
 

6.4.2 Risk management system

The risk management system comprises the following components:

• Identifying and assessing the risks associated with the various strategic alternatives and formulating realistic objectives and associated control mechanisms.
• Identifying and evaluating the main strategic, operational and financial risks and the potential impact of same on the company.
• Developing a coherent system of measures to control, limit, avoid or transfer risks. The risk management system is tailored to the size and decentralised structure
• of the company.

Despite the risk management and control system, material errors, fraud or violations of the regulations may occur. The system therefore provides no absolute certainty that objectives will be realised, but was developed to achieve a reasonable level of assurance with regard to the effectiveness of internal controls pertaining to financial and operational risks that may affect the organisation’s objectives.


Organisation
The Board of Directors is responsible for the set-up and operation of the internal risk management and control system. Market and operational risk management is, in principle, organised at operating company level. Management and control measures relating to acquisitions, treasury, financial reporting, tax and legal issues are centralised at group level. Accell Group has a decentralised management philosophy, in which the local targets are determined in consultation between the Board of Directors and management of the subsidiaries. Progress is monitored through the financial planning cycle and management information, the risk analysis and regular visits by the Board of Directors and other employees of the Group to the subsidiaries. The Supervisory Board is responsible for supervising the performance of the Board of Directors, and specifically monitors the strategic risks and the set-up and operation of the risk management and internal control systems.

Taiwan incident
In order to investigate the nature, cause and impact of the detected theft, Accell Group assigned an international forensic accountancy firm. Accell Group immediately asked for legal support and reported the theft to the local police. After careful analysis, the investigation concluded that the theft has to be considered as an isolated case, which only occurred at AAT in Taiwan. Additionally, it can be concluded that the theft could occur because of an unfortunate combination of events, in which the employee involved has been able to circumvent and misuse the availability of certain payment facilities by misappropriation of systems, processes and trust. The investigation also resulted in a recovery plan in which Accell Group explains the measures taken to undo the effects of the theft and to tighten the system of internal controls and includes systems, procedures and organization. The recovery plan also comprises a project plan in which further measures are worked out. The findings from the investigation are analyzed numerically as well as qualitatively.

Risk analysis
The Board of Directors and the management of the subsidiaries draw up periodical analyses of the strategic, operational and financial risks. For the purpose of the risk analysis an extended inventory was conducted of internal and external risks which are reviewed by the members of the Board of Directors and management of the subsidiaries individually on possible effects on the company. The control measures of the main risks are also assessed. The Board of Directors aims to constantly assess the system and improve them where necessary. The outcome relating to the risk analysis and the main risks are discussed periodically with the Supervisory Board.


Financial planning cycle and management information
The various subsidiaries draw up a strategic plan each year based on the main development in the company’s operating environment. Once harmonised and approved, these plans are translated into annual budgets. The consolidated strategic plan and budget are discussed with the Supervisory Board. Management information reports are compiled on a daily, weekly and monthly basis. Latest estimates are drawn up at least three times a year. The budgets and latest estimates are reviewed against the actual results on a monthly basis and the outcome is reported to the Board of Directors.


Internal risk management and control system
To ensure the quality of the company’s financial reporting and operational audits, Accell Group uses an extensive system of administrative organisation and internal controls. The internal control system is largely anchored in the company’s information systems.


Financial administration guidelines
The personnel of the financial departments are provided with directives and instructions pertaining to the set-up and maintenance of the financial administration and reporting systems. Details of these are provided in a reference document. The directives and instructions comply with the prevailing IFRS standards.


Internal audit
The Internal Auditor carries out his tasks on the basis of a detailed internal audit plan, a predetermined assessment framework and the Accell Group Internal Control Framework. The Accell Group Internal Control Framework outlines the inherent risks for each process and the related internal control measures. The findings and recommendations of the Internal Audit are used to strengthen the internal controls. The findings and recommendation are then shared with the members of the Board of Directors and are subject to fixed follow-up deadlines. The findings with high priority are reported directly to the Audit Committee. This also applies to the follow-up on previous high-priority findings.
 The Accell Group Internal Control Framework also includes embedded internal procedures, guidelines and management regulations that can have a financial impact. The company has drawn up management regulations to involve the Board of Directors in important decentralised decisions and to grant approval for such decisions, frequently in writing.

In recent years, internal audits were conducted at various Accell Group subsidiaries and attention was devoted to group-wide control measures. The subject of fraud is discussed with the local management and in regular consultations with the CFO, as part of the internal audits. This also draws attention to the responsibility for the prevention and detection of fraud risk and shares same with the local management.

In 2016, the company will continue to develop the Accell Group Internal Control Framework and the group-wide control measures. The responsibility for maintaining the Accell Group Internal Control Framework will be vested in the Accell Group subsidiaries. In addition, the internal auditor will review the risk management system and facilitate the 2016 risk analysis.

In addition to the previously mentioned regular internal audits, the Board of Directors or the audit committee may request specific ad hoc audits.


External auditor
An annual audit plan is drawn up by the external auditor. In the context of the audit of the annual financial statements by the external auditor an assessment is carried out regarding the set-up and presence of the most important internal controls of the business processes. This is reported in a formal letter to the management. The most important findings are discussed with the plenary Board of Directors and also with the Audit Committee of the Supervisory Board.


Letter of Representation
he directors of subsidiaries each year sign a Letter of Representation, which is a detailed declaration, related to financial annual reports and the presence and functioning of the internal control systems. For this detailed statement, the company has drawn up a checklist of subjects that is signed annually by other members of the management of the Accell Group subsidiaries as well.


Other risk management measures :

• Accell has a Code of Conduct that has been updated by the Board of Directors of Accell Group and approved by the Supervisory Board in 2013. The Code of Conduct applies to all personnel of Accell Group and its subsidiaries and is published on the Accell Group corporate website;
• The basic premises for the directors of Accell Group’s operating companies are provided by management regulations. These include detailed regulations on the subjects of internal decision making and communications;
• Accell has a Whistle blower procedure that has been updated by the Board of Directors of Accell Group and approved by the Supervisory Board in 2013. The Whistleblower procedure has been published on the corporate website of Accell Group and ensures that possible violations of existing policy and procedures can be reported without any negative consequences for the person reporting the violation;
• In 2013 it was decided to coordinate the inventory management on a central level in such a way to gain more control on the effects of the decentralized structure of the logistics organisation with regard to the level of inventories.
  
  
  
  
  
  

6.4.3 Risk analysis and mitigation

The results of Accell Group are affected by the general economic conditions and the economic outlook of the countries in which the company is active. The conditions in the key purchasing markets also play a role. The following overview is not an exhaustive list of risks to which the company is exposed.

Strategic risks

Changes in the market
Behaviour in the market may change. Reduced consumer confidence may inspire consumers to postpone large expenditures, while dealers may reduce their stocks by postponing purchases when faced with more limited financing opportunities.

Mitigation

Accell Group devotes considerable attention to brand positioning and innovation to inspire consumer preferences for our products. Active dealer management ensures that dealers have the tools to increase their turnover of Accell Group products. The Accell Group organisation must be flexible, so it can respond quickly to changing market demands.


Acquisitions
Accell Group’s growth strategy is partly dependent on acquisitions. However, it is possible that acquisitions may not meet expectations and the goals set. This pertains to estimates and assessments made during the acquisition process and also to integration following the acquisition. Secondly, it is possible that Accell Group cannot execute its acquisition strategy because it is not sufficiently successful in acquiring suitable companies.

Mitigation
Accell Group uses varying internal know-how and experience, and also hires external experts. The Board of Directors is always directly involved in an acquisition project. The Supervisory Board is an active partner in the acquisition process and must approve acquisitions. Also in some cases the bank consortium must approve acquisitions.

New companies are generally integrated into the group in the short term. Accell Group is constantly looking for and in contact with potential acquisition candidates

The changing conditions in the worldwide economy and changing financing opportunities may make it more difficult or even impossible to finance acquisitions. Acquisition parties with greater capital strength may be at an advantage in those situations.

Operational risks

Marketing and development
The brand strategy of Accell Group demands continuous innovation and development of attractive products, due in part to developments at its competitors. This challenge must also be met in the long term. There is a risk that Accell Group will fail to develop and market sufficiently innovative products. Changes in consumer awareness of brands and products also play a role in this.

Mitigation

Accell Group continuously invests in the development of its brands and products. The availability of talented and motivated managers and staff is a key factor in this respect. The management teams of the companies are assessed periodically.


Competition
The bicycle sector is characterized by intense competition between existing providers, while at the same time new providers and sector related products enter the market. There is a risk that Accell Group is not sufficiently able to predict the behaviour of (potential) competitors or to respond to it adequately.

Mitigation

Accell Group spends a lot of time and money on market research, the outcome of which is used in the decision making process.


Seasonal sales and logistical risks
Turnover is subject to a great extent to seasonal influences. Bicycles are sold primarily in the spring and summer. There is a risk that the company will not be able to adapt quickly enough, which could put pressure on timely deliveries. The weather may also affect seasonal sales. Poor weather in the spring and/or particularly hot or bad weather in the summer may have a negative impact on the demand for bicycles.

Mitigation

Accell Group uses seasonal production and sales plans and aims to constantly improve the predictability of its sales. Long supply lines combined with the unpredictability of the weather and the sales can result in higher stock levels. The company therefore aims to be as flexible as possible in its response to supply and demand during the season. Accell Group does not use hedging products to cover the impact of the weather.

6.5 Statement of the Board of the Directors

In view of the breach of the system of internal control measures at Accell Asia Taiwan, which resulted in a major theft of money (see page 44 of the annual report), the Board of Directors cannot conclude that the overall risk management and control system was adequately effective in the year under review. With respect to Accell Asia Taiwan, the thorough investigation concluded that this was an isolated incident. Accell Group has incorporated the findings of the investigation in a recovery plan to further tighten the risk management and control system. Taking into account the effective execution of this recovery plan, the Board of Directors expects the risk management and control system to function effectively in the current financial year.

The Board of Directors wishes to note in this respect that the internal risk management and control system is intended to identify and control significant risks to which the company is exposed, taking into account the nature and scope of the organisation. Such a system cannot provide absolute certainty that objectives will be realised. Nor can it prevent with certainty the occurrence of potential material errors, damage, fraud or violations of statutory regulations. The actual effectiveness of the system can only be assessed on the basis of the results over an extended period of time.

With reference to article 5:25c, section 2, of the Financial Supervision Act and with due observance of the above, and based on the audit of the financial statements by the external auditor, the Board of Directors states that:

• the financial statements as included on pages 109 to 174 of this report provide a true representation of the assets, liabilities and the financial position as at the balance sheet date, as well as the profit for the financial year of Accell Group N.V. and the companies included jointly in the consolidation;
• the board report as included on pages 2 to 107 of this report provides a true representation of the situation as at 31 December 2015, and the course of business at the company and at companies included in the joint consolidation during the 2015 financial year. This annual report includes a description of the material risks Accell Group N.V. faces.