Gear4Music

Gear4music (Holdings) plc

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Gear4music (Holdings) plc

Investors
Corporate Governance

Corporate governance

Statement of Compliance with the QCA Corporate Governance Code

Chairman's Introduction

It is the Board’s responsibility to ensure that the Gear4music Group (‘Gear4music’ or ‘Group’) is managed for the long-term benefit of all shareholders. A corporate governance framework that is effective whilst dynamic is one of the foundations of a sustainable growth strategy and identifying, evaluating and managing risks and opportunities will underpin long-term value creation.

The Directors have chosen to apply the Quoted Companies Alliance Corporate Governance Code (the ‘QCA Code’). The latest version of the QCA Code was developed by the QCA in consultation with a working group comprising leading individuals from across the small & mid-size quoted company ecosystem, as a pragmatic and practical corporate governance code relevant to AIM companies. The QCA Code is a proportionate, principles-based approach constructed around ten broad principles with accompanying guidance, and this Statement outlines how the Group operates in each of these key areas.

By following the QCA code, my Board colleagues and I seek to ensure that the Group operates efficiently and effectively and communicates well, to promote confidence and trust in the Group’s Board and management.  The Board aims to balance the interests and expectations of the Group’s many shareholders and stakeholders by observing a transparent set of rules, practices and processes.  I believe that by adhering to this clear set of guidelines, the Group is well placed to deliver medium and long-term success.

 

Ken Ford
Chairman and Non-Executive Director
26 September 2018

Gear4music is the largest UK based online retailer of musical instruments and music equipment, selling own-brand musical instruments and music equipment alongside premium third-party brands such as Fender, Yamaha and Roland, to customers ranging from beginners to musical enthusiasts and professionals, in the UK, Europe and the Rest of the World.

Our ambition is to become a leading global retailer of musical instruments and equipment. We will achieve this by making quality music gear more accessible and affordable for all musicians, through a progressive e-commerce strategy built around four pillars of growth:

  • E-commerce excellence;
  • Bespoke platform development;
  • International expansion; and
  • Supply chain evolution.

The Group’s strategy is explained in detail in our Strategic Report on pages 14-15 of our 2018 Annual Report and Accounts available here: http://www.gear4musicplc.com/investors/results-reports-and-presentations/.

Our strategy is formally reviewed at least annually and the supporting tactical plans considered at every Board meeting.

The key risks and uncertainties facing the business and how these are mitigated is detailed on pages 28-32 of our 2018 Annual Report and Accounts.

The Group seeks to maintain a regular dialogue with both existing and potential investors to ensure that its strategy, business model and performance are clearly understood. Understanding what investors and analysts think about us and helping these audiences understand our business, is an important part of driving our business forward.

The Chief Executive Officer and Chief Financial Officer regularly meet with investors and analysts to provide them with updates on the Group’s business and to obtain feedback regarding the market’s expectations of the Group. The Group’s NOMAD and public relations advisor provide written feedback after these presentations and meetings, and this feedback is shared with the Board.

The Group invites all shareholders to attend its Annual General Meeting where they can meet and question the Directors, and express ideas or concerns. The Notice of the Meeting is sent to shareholders at least 21 days before the meeting and the chairs of the Board and all committees together with all other Directors, routinely attend the AGM and are available to answer questions raised by shareholders.

Where voting decisions are not in line with the Group’s expectations the Board will engage with those shareholders to understand and address any issues.

The Board receives copies of all articles relating to the Group that are published in the financial press, via its public relations advisors.

The Group is aware of its corporate social responsibilities and the need to maintain effective working relationships across a range of stakeholder groups, both internal (employees and shareholders) and external (customers, suppliers, and advisors etc.).

The Board strives to balance the needs of all of these stakeholder groups while maintaining focus on the Board’s primary responsibility to promote the success of the Group and deliver long-term shareholder value.

Internal – Our people

We believe that assembling and motivating a team of talented individuals is a cornerstone of a successful entrepreneurial business.

As a high-growth, profitable business with a rapidly increasing headcount we phase investments in our people. In September 2018 we launched an Employee Assistance Programme to help support the wellbeing of our employees. In the calendar year 2019 we commit to launching an employee survey to get broader and more formal feedback from across our teams.

We conduct annual appraisals with reference to specific, measurable, pre-agreed goals and the Group’s values and behaviours that are consistent across all of its team.

Our Gender pay gap reporting shows that our mean gender pay gap (12.6%) is better than the national average (17.4%), and our median rate shows that the women’s average hourly rate is higher than the men’s reflecting that there are proportionally more females in the upper middle quartile and proportionally less females in the lower quartile.

Our flat management structure and close day to day interactions across the business aids open communication and fosters good relations with and between employees.  The Board’s assessment is that the Group’s culture is positive, engaged and energetic, which is reflected in its achievement of its strategic goals. We know there is more we can do and we retain employee engagement as an on-going priority.

External

We believe that achieving a very high degree of customer satisfaction is fundamental to sustained long-term growth, and we are committed to continually improving the service experienced by our customers. Customer feedback is encouraged through Trustpilot, and all reviews are considered and lessons learnt.

An appropriate and positive relationship with suppliers is a pre-requisite to the success of the Group. The Group benefits from regular interactions with account managers of the branded suppliers, and our own-brand team visits our manufacturing partners in the Far East several times each year.

Modern Slavery

Gear4music is committed to adopting and improving practices that ensure there is no slavery and human trafficking in our supply chains or any other part of our business. To achieve this, we are committed to identifying and assessing areas of our business where there could be potential risks of modern slavery, be that directly or indirectly within our supply chain. Our full policy is available here: https://www.gear4music.com/modern-slavery-statement.

The Board is responsible for risk management and for reviewing and ensuring the effectiveness of the Group’s system of internal controls.

There are ongoing processes for identifying, evaluating and mitigating the significant risks faced by the Group and these processes are designed to manage rather than eliminate the risk of failure to achieve business objectives.  The Group regularly reviews its systems of internal control to ensure compliance with better and best practice, whilst having due regard to its size and the resources available.

The key risks and uncertainties facing the business and how these are mitigated is detailed on pages 28-32 of our 2018 Annual Report and Accounts.

In March 2017 the Group formed an Operational Board to support the Plc Board and focus in detail on operational and commercial matters, and identify any material matters to escalate to the Plc Board. The Operational Board comprises the three Executive Directors and three further Directors of the trading subsidiary, Gear4music Limited, each with line responsibility for one of the key strategic areas. The Operational Board met seven times in the financial year ended 28 February 2018.

The Group highlights potential financial and non-financial risks which may impact on the business as part of the monthly management reporting procedures. The Plc Board receives these monthly reports and monitors the position at Board meetings.

The Group’s internal financial control and monitoring procedures include:

  • clear responsibility on the part of line and financial management for the maintenance of good financial controls and the production of accurate and timely financial management information;
  • the control of key financial risks through appropriate authorisation levels and segregation of accounting duties;
  • a comprehensive budgeting process completed once a year that is reviewed and approved by the Plc Board;
  • detailed monthly reporting of trading results including detailed profit and loss accounts, balance sheets and cash flows, with supporting variance analysis;
  • reporting on any non-compliance with internal financial controls and procedures; and
  • review of reports issued by the external auditor.

The Audit Committee, on behalf of the Board, reviews the reports of the external auditor together with management’s responses and with regard to any proposed actions.

Code of Conduct

Our ‘Employee Handbook’ includes guidance on all risk matters facing our employees, including business integrity, anti-bribery, gifts, intellectual property and design rights.

Contingency planning

A disaster recovery plan is in place and reviewed annually.  The Group maintains appropriate insurance cover to protect against material loss or claims against the Group. The insured values and type of cover are comprehensively reviewed on an annual basis in conjunction with the Group’s insurance broker.

The Group is controlled by the Board of Directors. The Board is headed by the Chairman, comprises five Directors, of which three are Executive and two are Non-Executive, meeting the QCA code’s guidance that a board should have at least two independent Non-Executive Directors. It is recognised that the CEO, being a major shareholder, risks individual dominance of the Board but the Board’s view is that the independent NEDs and committees mitigate this risk.

The Board is satisfied that the five directors collectively provide a broad range of relevant skills and experiences, and that the composition strikes a good balance between independence and knowledge of the business, to enable it to effectively discharge its duties and responsibilities. At an appropriate stage in the development of the business the Board commits to appoint another a third Non-Executive Director to match the number of independent Non-Executives to the number of Executives, and gender balance will be a key criterion in this appointment.

The division of responsibilities between the Chairman and the Chief Executive Officer is clearly defined. The Chairman is responsible for ensuring the effectiveness of the Board and setting its agenda. The Chairman is not involved in the day-to-day running of the business. The Chief Executive Officer has direct charge of the Group on a day-to-day basis, and the Executive team has collective responsibility for the implementation of the Group’s strategies and is accountable to the Board for the financial and operational performance of the Group.

The Board meets regularly with additional ad hoc meetings as and when required. In the financial year end 28 February 2018, the Board met nine times with all Directors present at all meetings. The Board is supported by Audit and Remuneration Committees, and an Operational Board.

All Directors receive regular and timely information of the commercial, operational and financial performance of the Group, to enable a robust assessment of relevant matters. Information is circulated to the Directors in good time ahead of meetings. The Board also receives the report and minutes of the Operational Board meetings.

The Board also receives detailed weekly trading KPIs highlighting evolving trends across the business.

There are certain matters that are reserved for the Board’s consideration and these include matters of strategy, key commercial developments, risk management, the consideration and approval of budgets, significant capital expenditure and recruitment, acquisitions and disposals, and the approval of financial statements.

Conflicts of Interest

The Non-Executive Directors have no personal financial interest in the Group except for fees in relation to their holding of office and their shareholdings as disclosed, with no potential conflict of interests and no day-to-day involvement of the Group.

The Group has effective procedures in place to monitor and deal with conflicts of interest. The Board is aware of the other commitments and interests of its Directors, and changes to these commitments and interests are reported to and agreed with the rest of the Board.

The Board is satisfied that, between the Directors, it has an effective and appropriate balance of skills and experience, including in the areas of e-commerce, retailing, procurement, software development, marketing, and finance.

An up to date outline of the relevant skills and experience that each Director brings to the Board is detailed within the Director Biographies on pages 38-39 of our 2018 Annual Report and Accounts. Each Director keeps their skillset up to date by attending external training, interactions with experts in their field, and reading relevant publications.

Director performance is reviewed through an annual appraisal process. The Chief Executive Officer is appraised by the Chairman, the Executive Board members by the Chief Executive Officer, and the Non-Executive Board members by the Chairman. Each Director has access to the services of the Company Secretary if required.

All Directors retire by rotation at regular intervals in accordance with the Company’s Articles of Association, with one-third (or whole number less than one-third) retiring at each Annual General Meeting. In addition, new Directors are subject to re-election at the Annual General Meeting following their appointment.

A Nomination Committee will be formed ahead of any new Board appointments, to ensure that the search for candidates is conducted, and appointments are made, on merit, against objective criteria and with due regard for the benefits of diversity on the Board.

The Board and its committees seek external expertise and advice where required.

Independent advice

All Directors are able to take independent professional advice in the furtherance of the duties, if necessary, at the Group’s expense.

The Board considers evaluation of its performance and that of individual directors to be an integral part of corporate governance to ensure it has the necessary skills, experience and abilities to fulfil its responsibilities. The goal of the Board evaluation process is to identify and address opportunities for improving the performance of the board.

The performance of the Board is evaluated on an ongoing basis with reference to achievement of its strategic goals, and the way in which it operates including, but not limited to, the appropriateness of its skill level, the way its meetings are conducted and administered (including the content of those meetings), the effectiveness of the various Committees, whether Corporate Governance issues are handled in a satisfactory manner, and whether there is a clear strategy and objectives.

Training is available should a Director request it, or if the Chairman or CEO consider it necessary.

All Directors stand for re-election on a biennial basis.

The Group aims to conduct its business in an ethical, professional and responsible manner, treating our employees, customers, and suppliers with courtesy and respect at all times.

The Board promotes a corporate culture that is based on sound ethical values and behaviour and aims to lead by example to ensure that these values are apparent and understood in every part of the business. We support these values in the annual appraisal process with performance measured relative the values and behaviours we expect of our team, as well as with reference to pre-agreed goals.

Our size and flat management structure helps the Board immerse itself in the Group’s culture, which it considers to be positive, engaged and energetic at present. An open culture is encouraged within the Group and to support this during continuing periods of high growth and rapidly increasing headcount, we will be launching an employee survey in 2019 to more formally collate comprehensive feedback from across our teams.

The Board sets the Group’s strategy and ensures that resources are in place in order for the Group to meet its objectives. The Board takes responsibility for the performance of the Group and delegates operational management to the Executive Directors, Operational Board and other senior management. As outlined in Section 5 above, there are specific matters reserved for the attention of the Board.

The Board seeks to achieve good and effective governance through structures and processes that are flexible enough to promote strong, timely decision making.  This is achieved by the Directors being sufficiently well informed and appropriately equipped through their skills, experiences and personality to make good business decisions.

Our Corporate Governance report on pages 34–37 of our 2018 Annual Report and Accounts details the Group’s governance structures and why the Board considers it appropriate and suitable for the Group.

Board operation

The Board meets at least eight times each year in accordance with a scheduled meeting calendar. These meetings are supplemented by additional meetings as and when required, and weekly KPI reporting to provide early insight into evolving trends in the business.

The Board receives appropriate and timely information prior to each meeting including a formal agenda, minutes of the previous meeting, and an Executive’s report outlining the key commercial, operational, and financial matters for consideration. The Chief Executive Officer reports to the Board on issues, progress and recommendations for change.

Decisions are taken democratically after discussion and any concerns remaining unresolved are noted in the minutes of the meeting, which are circulated to all Directors. Actions agreed in the meetings are recorded and followed up.

The Board is supported by Audit and Remuneration committees. Each committee has access to such resources, information and advice as it deems necessary, at the cost of the Group, to enable the committee to discharge its duties.

Audit Committee

The Audit Committee has formally delegated duties and responsibilities and has written terms of reference. The main responsibilities are outlined on page 36 of our 2018 Annual Report and Accounts and include:

  • being satisfied with the truth and fairness of the Group’s financial statements before submission to the Board for approval;
  • monitoring and reviewing the effectiveness of the Group’s system of internal control; and
  • making recommendations to the Board in relation to the external auditor.

Dean Murray is the Chairperson of the Committee and Ken Ford is the other member. Both are independent Non-Executive Directors and have wide experience in regulatory and risk issues.

Meetings of the Committee are held at least twice per year and the auditor is invited to these meetings. The Committee receives reports on the effectiveness of the system of internal controls and a report from the external auditors documenting matters arising during the course of the audit.

Remuneration Committee

Ken Ford is the Chairperson of the Committee and Dean Murray is the other member. The Committee reviews the performance of the Executive Directors and makes recommendations to the Board on matters relating to remuneration, terms of service, granting of share options and other equity incentives. The Committee meets at least twice a year.

A Nomination Committee will be formed ahead of any new Board appointments, to ensure that the search for candidates is conducted, and appointments are made, on merit, against objective criteria and with due regard for the benefits of diversity on the Board.

The Board is committed to maintaining good communication and having constructive dialogue with all of its stakeholders, including shareholders, providing them with access to clear, fair and accurate information.

The Group’s Investor website (http://www.gear4musicplc.com/) is regularly updated and includes useful, detailed information on the strategy and operation of the Group, as well as providing all the required regulatory information. Users can register to be alerted when announcements or details of presentations and events are posted onto our Investor website.

In May 2018 the Group added an Investor Presentation alongside the publication of the Preliminary results.

The Group communicates with shareholders through the Annual Report and Accounts, full-year and half-year announcements, the Annual General Meeting (AGM), and meetings with existing or potential new shareholders and analysts. The Board recognises the AGM as an important opportunity to meet private shareholders. The Directors are available to listen to the views of shareholders informally immediately following the AGM.

In addition to research published by the Group’s brokers, the Group pays Equity Development to produce and publish independent research that is available on their website (https://www.equitydevelopment.co.uk) and the Group’s Investor website.

The Board receives regular updates on the views of shareholders through briefings and reports from the Chief Executive Officer, Chief Financial Officer, and the Group’s brokers and public relations advisors.