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.
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.