Corporate governance

 

Chairman’s Corporate Governance Statement

The Board recognises the importance of strong corporate governance and we set out below and in our annual report the principles and provisions in the Quoted Companies Alliance (QCA) Corporate Governance Code (the Code) which have been applied.

The Code sets out principles and specific provisions on how a company should be directed and controlled to achieve standards of good corporate governance and it provides a guide to a number of key components of effective board practice.

The Board is committed to the principles of corporate governance and corporate social responsibility, specifically including those contained in the Code.

The Board recognises that good governance helps the business to deliver the strategy, generate shareholder value and safeguard shareholders’ long-term interests, and is committed to high standards of corporate governance.

The Company is controlled through the Board of Directors which comprises three executive Directors and three independent non-executive Directors including the Chairman.

As Chairman I report to the Board and am not responsible for executive matters regarding the Group’s business.  My principal responsibility as Chairman is the effective running of the Board. In addition, I endeavour to:

  1. uphold the highest standard of integrity and probity;
  2. build an effective and complementary board, and with the Nomination Committee, initiate change and plan succession in Board appointments (except that of a successor Chairman) subject to Board and shareholder approval;
  3. provide coherent leadership of the Group, in conjunction with the Chief Executive Officer; and
  4. ensure clear structure for, and the effective running of, Board committees.

As Chairman, I provide coherent leadership of the Group, I am responsible for ensuring that the Board as a whole plays a full and constructive part in the development and determination of the Group’s strategy and overall commercial objectives and as required will represent the Group to customers, suppliers, shareholders, financial institutions, the media, the community and the public, as appropriate.

I am also the guardian of the Board’s decision-making processes, providing a clear structure for the effective running of board committees and effective implementation of all decisions.

The Group encourages two-way communication and attend meetings with both its institutional and private investors and responds quickly to all queries received verbally or in writing.

The Group has a comprehensive system for reporting financial results to the Board.  Each operating unit prepares monthly results with a comparison against budget.  Towards the end of each financial year the operating units prepare detailed budgets for the following year.  Budgets and plans are reviewed by the Board before being formally adopted.

Quality and integrity of personnel is regarded as vital to the maintenance of the Group’s system of internal control.  Due to the relatively small number of key employees within the business, the Board has first hand knowledge of their performance.

The executive management has defined the financial controls and procedures with which each operating unit is required to comply.  Key controls over major business risks include reviews against performance indicators and exception reporting.  The operating units make regular assessments of the extent of their compliance with these controls and procedures.

Much of the Group’s financial and management information is processed by and stored on computer systems.  Accordingly, the Group has established controls and procedures over the security of data held on computer systems.  Also, the Group has put in place arrangements for computer processing to continue and data to be retained in the event of the complete failure of the Group’s own data processing facility.

With a substantial part of purchases in United States dollars, hedging against foreign exchange fluctuations in this currency is recognised by the Directors as a key responsibility.  The prudent use of various financial instruments minimises vulnerability to the volatility of the US dollar that may affect this net exposure.

A number of the Group’s key functions, including treasury, taxation and insurance, are dealt with centrally by the Group Finance Director who reports to the Board on a monthly basis.

The Group meets its day to day working capital requirements through certain overdraft facilities.  The bank facilities were renewed in October 2017 for a further 12 months and the Group expects to operate within the facilities currently agreed.  Based on the Group’s plans, and after making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue operations for the foreseeable future.  For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements.

The Group does not use Social Media for the dissemination of Inside Information which is released only through notifications issued through a regulatory news service after discussion with the Nominated Adviser.  Subsidiary companies do use Social Media for trading and operational purposes provided that such information does not involve inside information. Any releases to Social Media are reviewed in advance by a Director of the Group to ensure this policy is being complied with.

Mervyn Keene
Non-Executive Chairman

  

 

QCA Principles

 Principle 1

“Establish a strategy and business model which promotes long-term value for shareholders.”

 

The Group strategy is formulated by the Chief Executive Officer, Group Finance Director and Group Commercial Director in regular discussions with the non-executive Board. The final strategy is approved by the full Board. The executive team, led by the Chief Executive Officer, is responsible for implementing this strategy and for generally managing and developing the business. Changes in strategy require approval from the Board. The strategy and the key challenges of the Group was set out in the 2017 Strategic Report and will be expanded in the forthcoming 2018 Annual Report.

 

Principle 2

“Seek to understand and meet shareholder needs and expectations.”

 

The Board recognises the importance of providing shareholders with as much clear and transparent information on the Group’s activities, strategy and financial position as is commercially possible and as permitted within the guidelines of the AIM rules, MAR and requirements of the relevant legislation.

The Board believes that the Annual Report and Accounts and the Interim Report play an important part in presenting all shareholders with an assessment of the Group’s position and prospects.

Details of all shareholder notifications and announcements are provided here.

The Board typically holds meetings with large shareholders following the release of annual and interim financial results and regards the Annual General Meeting as the principal opportunity for private shareholders to meet and discuss the Group’s business with the Directors. There is an open question and answer session during which shareholders may ask questions both about the resolutions being proposed and the business in general. The Directors are also available after the meeting for an informal discussion with shareholders.

The Group discloses contact details on its website and on all announcements released via RNS, should shareholders wish to communicate with the Board.  There is a dedicated email address which shareholders can use to contact the Group which is prominently displayed on its website together with the Group’s address and phone number.

Although the Group is too small to have a dedicated investor relations department, the executive Board are responsible for reviewing all communications received from shareholders and determining the most appropriate response.

 

Principle 3

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

 

The Board recognises its prime responsibility under UK corporate law is to promote the success of the Group for the benefit of its shareholders as a whole. The Board also understands that it has a responsibility towards other stakeholders, including but not limited to its employees, pensions schemes, lenders, customers and suppliers.  Regular meetings are held with each of these stakeholder groups to discuss salient matters which may range from employee schemes to recycle more within the office to reducing the level of packaging required by customers to strict adherence by suppliers to toy safety directives.

In addition, the Group recognises its responsibility to protect the environment.  The Group strives to manage its operations in ways that are environmentally sustainable and economically feasible and provides appropriate educational programs for staff and other stakeholders.

All Directors and managers of the Group are committed to ensuring that environmental issues are carefully considered during all planning and operational decision making.

The Group’s environmental policy applies to all land, premises and activities within its control. The Group promotes the use of sustainable resources and discourages wasteful or damaging practices. Subsidiary companies within the Group develop their own local policies and arrangements for implementing and monitoring the Group’s objectives.

As a major supplier of bicycles and wheeled toys in the UK the Group believes that it is contributing to a sustainable transport strategy, improving the environment by providing an emission free transport alternative and encouraging better health and fitness of the nation.

The Group has a Corporate Social Responsibility Committee (CSRC) which is responsible for ensuring that each business in the Group operates to the same broad guidelines defined in the Group policy statement issued by the CSRC.  This statement deals with health and safety, employee wellbeing, the Group’s impact on the environment and its social responsibility.

Every new or prospective supplier must satisfactorily complete an audit before being validated by the Group.  Follow up audits are undertaken on a regular basis once suppliers are accepted.  With the benefits of language and location, the Group’s Hong Kong office is able to control the audits of the suppliers in Asia.  Other supplier audits are controlled from the UK.

 

Principle 4

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

 

The Board has mechanisms in place by which the business and the financial risks facing the Group are managed and reported to the Board. The principal business and financial risks have been identified as follows:

Suppliers

In order to achieve competitively priced products the Group has outsourced production, mainly to countries in Asia.  Risks and uncertainties of this strategy include management issues at the factories, the possibility of changes in import duties and shipping delays.  We manage this risk by having a local office in Hong Kong with a team that works closely with the factories and we develop contingency plans should the need arise to make changes.

Fluctuations in currency exchange rates

A significant amount of the Group’s purchases are made in US dollars.  As a Group, we are therefore exposed to foreign currency fluctuations.  The Group manages its foreign exchange risk with forward foreign exchange contracts to reduce the exposure and does not adopt formal hedge accounting.  If these activities do not mitigate the exposure, then the results and the financial condition of the Group may be adversely impacted.

Licences

A number of the Group’s brands are used under licence from global licensors.  The licences are generally for between two and three years.  If the licences are not renewed the Group would have to seek alternative licences in order to avoid a reduction in revenue.

Competition

The companies in the Group operate in highly competitive markets.  As a result there is constant pressure on margins and the additional risk of being unable to meet customers’ expectations.  Policies of supply chain management and product development are in place to mitigate such risks.

Volatility in financial markets may require further cash contributions to our pension fund

The Group has commitments under defined benefit pension schemes.  The Group is obliged to make contributions to the schemes based on actuarial valuations, which in turn are based on long-term assumptions to calculate scheme liabilities.  Volatility of the financial markets can also affect the value of the assets in the schemes.  This may lead to a requirement to increase the cash contributed by the Group to the schemes.  If the Group is required to make significant additional contributions, the financial position of the Group may be materially affected with a significant reduction in operating cash flows.  In turn, this may adversely impact future developments of the business.

Financial risks

The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, credit risk and foreign currency risk.  The Board reviews and agrees policies for managing each of these risks.

The Board acknowledges its ongoing responsibility for reviewing the effectiveness of the systems that are in place to manage risk.

 

Principle 5

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

 

As set out in the Chairman’s Corporate Governance Statement, the Group is controlled through the Board of Directors which comprises three executive Directors and three independent non-executive Directors.  None of the non-executive Directors have served in a non-executive role for more than nine years.  The Board do not consider that there is any impairment of independence of character or judgement and that there has been no hindrance in the ability to be objective.

The Board sets the Group’s strategic aims and ensures that necessary resources are in place in order for the Group to meet its objectives. All members of the Board take collective responsibility for the performance of the Group and all decisions are taken in the interests of the Group.

The service contracts of the three executive Directors may be terminated by either party giving 12 months’ written notice.  The remuneration and other emoluments of executive Directors and senior managers are determined by the Remuneration Committee, of which A Q Bestwick (Chairman), M P J Keene and J S T Morris are members.  Executive remuneration packages are subject to an annual review and are designed to attract, motivate and retain Directors and senior managers of a high calibre.

The Board has a formal schedule of matters reserved to it and meets monthly.  It is responsible for overall Group strategy, acquisition and divestment policy, approval of major capital expenditure projects and consideration of significant financing matters.  It monitors the exposure to key business risks and reviews the strategic direction of its trading businesses, their annual budgets, their progress towards achievement of those budgets and their capital expenditure programmes.  The Board also considers environmental and employee issues and key appointments.  All Directors will submit themselves for re-election at least once every three years.

The Board has established three committees.  The Audit Committee meets as appropriate to review the Group’s accounting policies, reporting procedures and financial matters, with the Finance Director and the external auditors in attendance.  The Nominations Committee meets when applicable to consider and recommend to the Board changes in the Board’s composition.  The Remuneration Committee reviews the terms and conditions of employment of the Directors and senior managers.  M P J Keene, J S T Morris (Chairman – Audit Committee) and A Q Bestwick (Chairman – Remuneration and Nominations Committee) are members of these committees and take independent external advice when appropriate.

In the year ended 31 December 2017 there were eleven formal board meetings held.  All Directors were in attendance for all eleven meetings except P Ratcliffe who was in attendance for ten meetings.  In addition there were two Audit Committee meetings and two Remuneration Committee meetings held during the year.

The Group has a comprehensive system for reporting financial results to the Board.  Each operating unit prepares monthly results with a comparison against budget.  Towards the end of each financial year the operating units prepare detailed budgets for the following year.  Budgets and plans are reviewed by the Board before being formally adopted.

Quality and integrity of personnel is regarded as vital to the maintenance of the Group’s system of internal control.  Due to the relatively small number of key employees within the business, the Board has first hand knowledge of their performance.

The executive management has defined the financial controls and procedures with which each operating unit is required to comply.  Key controls over major business risks include reviews against performance indicators and exception reporting.  The operating units make regular assessments of the extent of their compliance with these controls and procedures.

 

Principle 6

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

Please click here for Director’s profiles which detail skills, experiences and capabilities.

 

Principle 7

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

 

The Group undertakes regular informal evaluations of the performance and effectiveness of the Board and that of each Director and its Committees. Suggestions regarding the strategic direction of the Group are covered during monthly Board meetings.

Responsibility for assessing and monitoring the performance of the executive directors lies with the independent non-executive directors.  External advice is taken as appropriate.

The Company Secretary, Jim Shears, ensures that all Directors are updated with changes in relevant legislation and regulation.  External advice is also taken as appropriate.

 

Principle 8

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

 

The Board believes that the promotion of a corporate culture based on sound ethical values and behaviours is essential to maximise shareholder value.  The Group maintains and annually reviews an employee handbook that includes clear guidance on what is expected of every employee.  Adherence to these standards is a key factor in the evaluation of performance within the Group, including during annual performance reviews.

The Group is also aware of its responsibilities for ensuring adherence to key internal and external policies including those relating to slavery, diversity, anti-corruption, bribery and whistleblowing.

 

Principle 9

“Maintain Governance structures and processes that are fit for purpose and support good decision making by the board.”

 

There is a clear division of the responsibilities of the Chairman and the Chief Executive Officer.  The principal role of the Chairman of the Board is to manage and to provide leadership to the Board of Directors of the Company. The Chairman is accountable to the Board and acts as a direct liaison between the Board and the management of the Company, through the Chief Executive Officer. The Chairman acts as the communicator for Board decisions where appropriate.  The key responsibilities of the Chairman are:

1. To provide leadership and governance of the Board so as to create the conditions for overall Board’s and individual Director’s effectiveness, and ensures that all key and appropriate issues are discussed by the Board in a timely manner;
2. To promote effective relationships and open communication, and create an environment that allows constructive debates and challenges, both inside and outside the boardroom, between Non-executive Directors and the management;
3. To ensure that the Board as a whole plays a full and constructive part in the development and determination of the Group’s strategies and policies, and that Board decisions taken are in the Group’s best interests and fairly reflect Board’s consensus;
4. To ensure that the strategies and policies agreed by the Board are effectively implemented by the Chief Executive and the management;
5. To ensure that the Board is properly briefed on issues arising at Board meetings and receives, in a timely manner, adequate information which must be accurate, clear, complete and reliable, to fulfill its duties, such as reports on the Group’s performance, the issues, challenges and opportunities facing the Group, and matters reserved for it to make decision;
6. To arrange informal meetings of the Directors at least annually, including meetings of the Non-executive Directors at which the Chief Executive is not present, and ensure that sufficient time and consideration is given to complex, contentious or sensitive issues;
7. To ensure that there is effective communication with shareholders, and that each Director develops and maintains an understanding of the stakeholders’ views; and
8. To establish good corporate governance practices and procedures and promote the highest standards of integrity, probity and corporate governance throughout the Group and particularly at Board level.

 

The key responsibilities of the Chief Executive Officer are:

1. To lead the management in the day-to-day running of the Group’s business in accordance with the business plans and within the budgets approved by the Board;
2. To lead the management to ensure effective working relationships with the Chairman and the Board by meeting or communicating with the Chairman on a regular basis to review key developments, issues, opportunities and concerns;
3. To develop and propose the Group’s strategies and policies for the Board’s consideration;
4. To implement, with the support of the management, the strategies and policies as approved by the Board and its committees in pursuit of the Group’s objectives;
5. To maintain regular dialogue with the Chairman on important and strategic issues facing the Group, and to ensure that these issues are brought to the Board’s attention;
6. To ensure that the management gives appropriate priority to providing reports to the Board which contain relevant, accurate, timely and clear information necessary for the Board to fulfill its duties;
7. To ensure that the Board, especially the Chairman, is alerted to forthcoming complex, contentious or sensitive issues affecting the Group;
8. To lead the communication programme with stakeholders including shareholders; and
9. To conduct the affairs of the Group in accordance with the practices and procedures adopted by the Board and promote the highest standards of integrity, probity and corporate governance within the Group.

As discussed in Principle 5 the Board has a formal schedule of matters reserved to it and meets monthly.  It is responsible for overall Group strategy, acquisition and divestment policy, approval of major capital expenditure projects and consideration of significant financing matters.  It monitors the exposure to key business risks and reviews the strategic direction of its trading businesses, their annual budgets, their progress towards achievement of those budgets and their capital expenditure programmes.  The Board also considers environmental and employee issues and key appointments.

The Board has established three committees as discussed in Principle 5.  The Audit Committee meets as appropriate to review the Group’s accounting policies, reporting procedures and financial matters, with the Finance Director and the external auditors in attendance.  The Nominations Committee meets when applicable to consider and recommend to the Board changes in the Board’s composition.  The Remuneration Committee reviews the terms and conditions of employment of the Directors and senior managers.  M P J Keene, J S T Morris and A Q Bestwick are members of these committees and take independent external advice when appropriate.

 

Principle 10

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

 

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

Throughout the year, the Board maintains a regular dialogue with its major institutional investor, providing them with such information on the Group’s progress as is permitted within the guidelines of the AIM rules, MAR and requirements of the relevant legislation.

The Board believes that the Annual Report and Accounts, and the Interim Report published at the half-year, play an important part in presenting all shareholders with an assessment of the Group’s position and prospects.

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

Historical Annual Reports and AGM notices are published on the Group’s website here.  The Board plans to disclose in detail the outcomes of all votes in any resolution.