Corporate governance statement
FOR THE YEAR ENDED 31 MARCH 2023
The Board has determined that the Quoted Companies Alliance’s (“QCA”) Corporate Governance Code for small and mid-size quoted companies (revised in April 2018 to meet the new requirements of AIM Rule 26) is the most appropriate for the Group to adhere to. The information on Corporate Governance is set out below.
The QCA Code is constructed around ten broad principles and a set of disclosures. The QCA has stated what it considers to be appropriate arrangements for growing companies and asks companies to provide an explanation about how they are meeting the principles through the prescribed disclosures. We have considered how we apply each principle to the extent that the Board judges these to be appropriate in the circumstances, and below we provide an explanation of the approach taken in relation to each. The Board considers that it did not depart from any of the principles of the QCA Code during the period under review.
The following paragraphs set out the Group’s compliance with the ten principles of the QCA Code.
- ESTABLISH A STRATEGY AND BUSINESS MODEL WHICH PROMOTE LONG TERM VALUE FOR SHAREHOLDERS
In the summer and early autumn of 2022, the Board ran a strategy exercise to establish the right operating model and leadership structure for the Group going forward. Our aim was first shared with our shareholders at the 2022 AGM. It puts our acquisition strategy at the centre of our focus to drive long term shareholder value, and is as follows:
“To be a leading serial acquirer and operator of VMS businesses. A permanent home for software leaders, teams and customers.”
Our strategy to achieve this is to build our acquisition ‘flywheel’, deploying capital to buy VMS businesses that meet our criteria and to operate those in a decentralised way to accelerate our growth.
Our strategy and business operations are set out more fully in the Strategic Report section of the Group’s Annual Report.
The Group’s principal risks and uncertainties and the systems and internal controls developed to mitigate them are set out in the disclosure to principle 4 of the code.
- SEEK TO UNDERSTAND AND MEET SHAREHOLDER NEEDS AND EXPECTATIONS
The Company believes strongly in transparency and an open door policy towards shareholder communications. It aims to provide fair and objective reporting and seeks to ensure its strategy, business model and performance are clearly communicated and understood through its half year and full year reports. Past and present versions can be found here.
Given the stage of the Company’s development its AGM provides the key opportunity for dialogue with shareholders. All members of the Board attend the AGM. A Notice of AGM is circulated to all shareholders on the register at least 21 days in advance of the AGM.
The Chairman and Company Secretary go to additional lengths to identify and communicate with major shareholders whose holding is via nominee accounts and encourage attendance at the AGM, voting and shareholder feedback and engagement. Both the Chairman and CEO also meet on an adhoc basis with significant and major shareholders and provide feedback to the Board.
The number of proxy votes received for each vote are announced at the AGM and the results of the AGM are announced and published below.
The Company does not presently have significant representation from traditional institutional investors. However, at an appropriate juncture it will seek to develop this area with the support of its broker Allenby Capital.
- TAKE INTO ACCOUNT WIDER STAKEHOLDER AND SOCIAL RESPONSIBILITIES AND THEIR IMPLICATIONS FOR LONG-TERM SUCCESS
The Company actively seeks to engage with its wider stakeholder base in order to maximise decision making, ensure alignment of interests and balance the needs of all stakeholders, whilst meeting its primary responsibility to promote the success of the Company for the benefit of its members as a whole via the execution of its strategy and business model set out in the disclosures to principle 1 of the code.
The Company regularly engages with its employees via a number of practices and procedures. Team members are able to give valued feedback on the working environment and other stakeholder insights through, for example:
- on-line message boards and forums as well as third party applications and business communication platforms. Use of such platforms came into sharp focus during the pandemic and now continue to support homeworking; and
- regular virtual meetings bringing together our customer facing operational senior management and team leaders.
Customers and Suppliers
The Group invests in customer service software and infrastructure to support feedback from these stakeholder groups and monitors and measures internal targets for response times and quality.
The Group’s business units operate in different sectors and are run in a decentralised way by their own senior management teams who are responsible for engaging with customers and suppliers through events such as exhibitions, roadshows, conferences, on site visits and remote sessions. Direct feedback and responses to initiatives such as on-line polls and votes have shaped key strategic and operational decisions around important aspects of our businesses, ranging from pricing to environmental policies and considerations.
The Company is conscious of the environmental impact of the industries that its business units operate in. We seek to mitigate and minimise the Company’s impact on the environment through practices and procedures appropriate to each business unit. Nettl Systems for example offers biodegradable products and recycled options to its customers and previously invested in technologies to reduce its energy consumption such as voltage optimisation equipment.
- EMBED EFFECTIVE RISK MANAGEMENT, CONSIDERING BOTH OPPORTUNITIES AND THREATS, THROUGHOUT THE ORGANISATION
Principal risks and uncertainties faced by the Group are set out in the Financial Review.
The Board is responsible for establishing and maintaining the Company’s system of internal control, which is designed to meet the particular needs of the Company and mitigate the risks to which it is exposed. Such a system is designed to manage these risks, to provide reasonable, but not absolute, assurance against material misstatement or loss, and to maintain proper accounting records to ensure the integrity of the financial information used within the business and for external publication.
The Board reviews the effectiveness of the system of internal control and considers whether the Company’s internal controls processes would be significantly enhanced by an internal audit function and has taken the view that at the Company’s current stage of development, this is not required. The Board will continue to review this matter each year.
The Board considers that the internal controls in place are appropriate for its size and resources, its activities and the risk profile. The key elements of the control system in operation are:
- The Board meets regularly to consider matters reserved to it and has put in place an organisational structure with clear lines of defined responsibility and with appropriate delegation of authority to manage risk. Board papers include a comprehensive CEO’s report covering a wide range of KPIs consistently applied across all business units, Red Amber Green (RAG) reporting against valuations models and pre acquisition expectations and Return On Sales (ROS) benchmarking that dictates the operational focus for each business unit, that in turn forms the basis of the operational focus set out in a ‘Playbook’ for each business units senior management team to then execute.
- The Executive Directors meet prior to each full Board to discuss risks and opportunities facing the Group’s various business units.
- The CEO meets regularly, sometimes daily and at least bi-weekly, with the senior management teams of each business unit providing an opportunity to consider operational risks faced and provide stakeholder feedback from across the Group’s operations.
- An organisational structure exists with defined roles and accountability and a culture is fostered which encourages entrepreneurial decision making while minimising risks. A key component of this is a comprehensive onboarding programme undertaken with the senior management team of each business acquired which includes:
- the development of a 100 day plan to address, amongst other things, due diligence findings.
- preparation of a financial budget and the plumbing in of the business unit’s accounting platform to the Group’s central reporting platform.
- building reporting processes, procedures and infrastructure for benchmarking KPI’s and Monthly Recurring Revenue (MRR) metrics that the Group applies consistently across all business units to measure operational performance.
- development of a ‘Playbook’ based on a RASCI model (setting out who is Responsible, Accountable, Supporting, Consulted and Informed for particular ‘Milestones/Tasks’) which sets Objectives and Key Results (OKRs) agreed with the Management teams to measure the success of a financial year, align future objectives, identify operational efficiencies, evaluate pricing and determine where organic investment should go.
- The Company has information systems for monitoring its financial performance against approved budgets and forecasts.
- Documented quality systems include relevant health and safety policies and procedures for each of the Group’s business units. A risk register is maintained and the Executive Directors report to the Board on any health and safety issues at every Board meeting.
- The Audit Committee receives reports from the external auditors on a regular basis and from Executive Directors of the Company. The Board receives periodic reports from all Committees.
- The Group retains an insurance broker and maintains appropriate insurance cover in respect of actions taken against Directors and in respect of materials loss or claims against the Group and the risks it faces. The types of cover and insured values are reviewed annually.
- MAINTAIN THE BOARD AS A WELL-FUNCTIONING, BALANCED TEAM LED BY THE CHAIR
The make-up of the Board is reviewed on an ongoing basis in light of the Company’s development, requirements and resources.
Matthias Riechert joined the Board during the year. The Board currently comprises four Non-Executive Directors (including the Chairman) and three Executive Directors.
All of the Directors are subject to election by shareholders at the first Annual General Meeting after their appointment and article 32 of the Company’s articles of association requires anyone who has been in office for three years without re appointment to seek re-election.
During the year the Company raised bond funds of £4m (at face value) from Chapters Group AG of which the Company’s Chairman, Jan-Hendrik Mohr, is also minority shareholder and CEO. In addition, Matthias Riechert was appointed to the Board. Matthias is founder owner and Managing Director of P&R Investment Management Limited, which is a sub advisor to Axxion SA. Axxion is a significant shareholder in the Company with 4.29% / 5,634,919 shares and also a bond investor (having invested £4.25m / £5m face value). Given their respective positions with Chapters Group and P&R Investment Management the Board does not consider Mr Mohr and Mr Riechert to be independent for the purposes of Principle 5 of the QCA Code.
To ensure transparency, disclosure, and independent oversight into matters relating to Chapters Group or Axxion’s investments in the Company, a sub-committee of the Board, excluding Mr Mohr and Mr Riechert is formed to make decisions regarding the Company’s bonds and any other relevant matters. All other Non-Executive Directors are considered independent on the basis that they receive a fixed fee for their services, do not participate in any performance-related remuneration schemes, do not have any interest in a company share option scheme and have no material financial relationships with the Company.
All Board members are required to review their affiliations, relationships, and business interests on an ongoing basis and report to the Board any matter which may compromise their objectivity or impartiality in decision-making or affect their independence.
To enable the Board to discharge its duties, all Directors have full and timely access to all relevant information. A rolling programme of Board meetings is maintained throughout the year together with adhoc meetings as the Company’s requirements demand. The director’s attendance records in the year under review (excluding directors who have ceased to be directors in the period), is as follows:
|Audit Committee meetings
|Remuneration Committee meetings
|Investment Committee meetings
|Jan-Hendrik Mohr (Chairman)
|Conrad Bona (Non-Executive Director)
|Simon Barrell (Non-Executive Director)
|Matthias Riechert (Non-Executive Director) *
|Gavin Cockerill (CEO)
|Richard Lightfoot (Director & Company Secretary)
|Iain Brown (Group Finance Director)
* appointed on 31 October 2022
The Company Secretary reports directly to the Chairman on governance matters. The Board believes that Richard Lightfoot’s appointment as Director and Company Secretary is appropriate at this stage of the Company’s development and given its requirements and resources. This arrangement is assessed on an ongoing basis and separation of duties will be implemented as appropriate.
- ENSURE THAT BETWEEN THEM THE DIRECTORS HAVE THE NECESSARY UP-TO-DATE EXPERIENCE, SKILLS AND CAPABILITIES
The Board considers that all of its directors are of sufficient competence and calibre and between them provide an appropriate and effective balance of skills and experience, including in the areas of retailing, wholesaling, marketing, print production, software development, ecommerce, finance and mergers and acquisitions. Directors’ biographies are set out on the website and the names, qualifications and backgrounds of each of the directors are disclosed within the Directors section of the Group’s annual report.
The Directors all ensure that their skills are kept up to date by the attendance of courses, briefings from professional advisors and reading relevant industry and professional publications.
The Board is supported where necessary by its external professional advisers. The Board continually reviews the performance of third party advisers to ensure they are the most effective business partners for the Group. Our Auditors were last changed in July 2017. Directors have access to advice and services of the Company Secretary and there is a procedure for all Directors, in furtherance of their duties, to take independent professional advice, if necessary, at the expense of the Group.
Whilst the Board presently consists of two German nationals, and one member with both Canadian and British citizenship we are mindful of the absence of ethnic diversity and gender balance. The Board is committed to continual assessment of its composition as the Company evolves.
The Company Secretary provides all new Directors with a comprehensive onboarding pack and on an ongoing basis Directors are provided with updates on key developments relating to the Company and legal and governance matters including advice from the Company’s nomad, lawyers and other advisors.
- EVALUATE BOARD PERFORMANCE BASED ON CLEAR AND RELEVANT OBJECTIVES, SEEKING CONTINUOUS IMPROVEMENT
The Chairman assesses the individual contributions of each of the members of the team to ensure that:
- they are performing their roles and carrying out their responsibilities to the highest standards;
- their contribution is relevant and effective; and
- where relevant, they have maintained their independence.
Appraisals are carried out each year for all Executive Directors and to assess overall Board composition. The appraisal process is an ongoing consideration of the Board as a whole.
The Chairman Jan-Hendrik Mohr conducts an annual review of the Board’s effectiveness, in accordance with Principle 7 of our Corporate Governance Statement. The objective of this evaluation process is to bring to light possible changes which could make the Board’s activities and administration more effective and efficient.
Board Evaluation covers the following areas:
- the manner in which the Board is run, and operates as a team;
- the skills, experience and independence of the Board;
- the strategy of the business;
- the risks of the business;
- the Company’s ethical values and behaviours; and
- engagement with shareholders and other stakeholders.
The exercise identified a number of positive areas particularly relating to the skills and experience and independence of the Board and the level of engagement with shareholders. The main area for improvement identified in the previous years’ evaluation was formal succession planning and lack of diversity. The Company has made considerable progress on succession planning after going through the CEO transition in the last financial year. To improve the diversity of the board is an ongoing review item in a review process led by a non-executive Board member who was appointed by the Chairman.
|Manner in which the Board is run
|The level of engagement between NEDs and executives is high. The Board drastically increased the cadence of meetings during the pandemic to a weekly schedule which proved to be informative and allow for quick decision making. More recently Board cadence has reverted to fewer, but more in-depth sessions to allow for complex discussions.
|Skills, independence and experience
The current makeup of the Board reflects a broad perspective of different skills.A core area of improvement in the Board is diversity. The current Board doesn’t appropriately reflect the level of diversity we have in our organisation and future recruiting decisions should clearly take diversity into consideration.
During the financial year, the Company has successfully managed through a CEO transition. During the evaluation period, the relevant skill sets of both executive and non-executive directors were thoroughly discussed in the board and with external advisers.
In addition, a non-executive Board member was tasked with a review of the overall Board effectiveness and skill sets needed for the new strategy of the Company. That review was ongoing at the time this report was published.
|Strategy of the business
|In August 2020, the Board started a dedicated “Post-Covid” evaluation of strategy to ensure viability of the business model even in significantly reduced sales environments. Ultimately we took the decision to market our manufacturing business, Works Manchester, and that culminated in its sale to PFI Group on 31 May 2022. The Board held a detailed strategic review in early autumn 2022 and whilst our strategy remains to build, buy and license our acquisition strategy has a renewed focus “To be a leading serial acquirer and operator of VMS businesses. A permanent home for software leaders, teams and customers.”.
|Risk of the business
|Risk of the business is evaluated in-lieu of strategy as the Board perceives risk to be a core influence on strategy. When setting strategy, we reflect on the interdependencies for our risk appetite.
|Ethical values and behaviours
|Critical developments are monitored in the risk awareness section of every Board meeting.
|Engagement with shareholders
|The Board keeps an open and constructive dialogue with its shareholders. In particular, the largest 5-6 shareholders engage in fairly frequent discussions after RNS announcements. We have used our AGM as a platform to communicate strategy and invite shareholders to ask questions in a friendly, constructive and inclusive environment.
Presently no formal Nomination Committee exists in view of the stage of growth of the Company. Appointments to the Board and succession planning are considered by the Board as a whole and are made on merit against objective criteria relating to the skills, knowledge and expertise required, and with due regard for the benefits of diversity on the Board and requirements of the Company.
- PROMOTE A CORPORATE CULTURE THAT IS BASED ON ETHICAL VALUES AND BEHAVIOURS
The Board firmly believes that culture is driven from the top and through sound Corporate governance, it takes ultimate responsibility for the culture that is developed and evolves under its leadership and guidance. The Company has documented its Leadership Values which sit at the centre of its operating values and ethics and are disseminated to all team members.
The Group’s individual business units have staff manuals which set out, amongst other things, policies and procedures for Equality & Diversity, Modern Slavery, Anti Bribery, Anti Tax Evasion and Whistleblowing.
- MAINTAIN GOVERNANCE STRUCTURES AND PROCESSES THAT ARE FIT FOR PURPOSE AND SUPPORT GOOD DECISION- MAKING BY THE BOARD
The Board is responsible to shareholders for the proper management of the Group. The Board is responsible for overall Group strategy, approval of major capital expenditure projects and consideration of significant financing matters and approval of Annual and Interim results and budgets.
The Executive Directors have responsibility for the day-to-day operational management of the Group’s activities. The Non-Executive Directors are responsible for bringing independent objective judgement to Board decisions.
All directors are supplied with the Company’s Continuing Obligations memorandum which is reviewed and updated as required. The memorandum sets out and explains the Director’s responsibilities and obligations under the AIM Rules, the Market Abuse Regulation and other wider applicable legislation.
A formal schedule of all matters reserved for Board decision is maintained and reviewed regularly (last update February 2017) covering:
- Setting and Review of Strategy and Performance;
- Structure and Capital;
- Maintenance of Financial Reporting and Controls;
- Maintenance of Internal Control and Risk Management systems;
- Material Contracts;
- Investor Relations and Regulatory communications;
- Constitution of Board Membership and other appointments;
- Setting of Directors and Senior Management Remuneration;
- Delegation of Authority amongst the Board and its Committees;
- Implementation of Corporate Governance; and
- Approval of Policies.
The Board maintains a rolling scheduled programme of Board meetings each year aligned with relevant events in the Company’s financial and trading calendar. Additional meetings are held as and when required.
A formal agenda is prepared for each meeting noting any unresolved matters from prior meetings, Board papers including a CEO’s report and KPIs, and FD’s report are circulated in advance and minutes are circulated following each meeting recording actions arising.
Non Board members are also invited to attend on occasion to participate in relevant Board discussions.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
The differing roles of Chairman and Chief Executive are acknowledged and there is a clear division of responsibility at the head of the Company.
The key functions of the Chairman are, to oversee the adoption, delivery and communication of the Company’s Corporate Governance model, the effective conduct of Board Meetings and meetings of shareholders, to ensure that all Directors are properly briefed in order to take a full and constructive part in Board discussions, and to ensure the Group has appropriate strategic focus and direction.
The Chief Executive has responsibility for leading the implementation of agreed strategy and managing the day-to-day operations of the Group.
The Board has established an Audit Committee, a Remuneration Committee and an Investment Committee. In view of the stage of growth of the Company there are no formal Nomination Committee or Corporate Governance Committees, however these arrangements will remain under review.
The Audit Committee, Remuneration Committee and Investment Committee presently comprise the Company’s Chairman and all Non-executive Directors, it is the Company’s present policy for any new Non-executive Directors to join all Committees. During the year Simon Barrell was appointed Chairman of the Audit Committee and Matthias Riechert was appointed Chairman of the Remuneration Committee.
The Audit Committee’s principal tasks are to review the scope of external audit, to receive regular reports from the auditors, and to review the half-yearly and annual accounts before they are presented to the Board, focusing in particular on legal requirements and accounting standards as well as areas of management judgement and estimation.
The Audit Committee is responsible for monitoring the controls which are in force to ensure the integrity of the information reported to the shareholders. The Audit Committee acts as a forum for discussion of internal control issues and contributes to the Board’s review of the effectiveness of the Group’s internal control and risk management systems and processes.
The Audit Committee meets at least twice a year including immediately before the submission of the Annual and Interim Financial Statements to the Board.
The Audit Committee also undertakes a formal assessment of the auditors’ independence each year which includes:
- a review of the non-audit services provided to the Company and related fees;
- discussion with the auditors of a written report detailing all relationships with the Company and any other parties that could affect independence or the perception of independence;
- A review of the auditors’ own procedures for ensuring the independence of the audit firm and partners and staff involved in the audit, including the regular rotation of the audit partner;
- Obtaining written confirmation from the auditors that, in their professional judgement, they are independent.
An analysis of the fees payable to the external audit firm in respect of both audit and non-audit services during the year is set out in the Group’s Annual Report.
The Audit Committee advises the Board on the appointment of external auditors and on their remuneration for both audit and non-audit work.
Ultimate responsibility for reviewing and approving the Annual and Interim financial statements remains with the Board and a statement of directors’ responsibilities in respect of the accounts is set out in the Group’s Annual Report.
The Remuneration Committee meets at least once a year and is responsible for making recommendations to the Board on the Company’s framework of Executive remuneration and its cost. The Committee determines the contract terms, remuneration and other benefits for each of the Executive Directors, including performance related bonus schemes, pension rights and compensation payments. It also considers and oversees the implementation of any share incentive schemes.
The Board itself determines the remuneration of the Non-Executive Directors.
A Directors’ Remuneration report is set out in the Group’s Annual Report.
The Investment Committee provides quality control, mentoring and leadership to the Executive Directors in relation to acquisition opportunities. It is responsible for reviewing deal summaries and valuation models prepared by the Executive Directors and ensuring that investments fall within pre-determined ‘Guardrails’.
The Investment Committee meets on an adhoc basis as the Company’s dealflow requires.
- COMMUNICATE HOW THE COMPANY IS GOVERNED AND IS PERFORMING BY MAINTAINING A DIALOGUE WITH SHAREHOLDERS AND OTHER RELEVANT STAKEHOLDERS
The Board places a high priority on clear, fair and objective reporting with its various stakeholder groups.
The Company is presently of a size that it attracts limited analyst attention and does not support having a dedicated investor relations department, to that end Company announcements are the main source of information. The CEO’s mobile phone number is provided on all announcements and the Company Secretary’s contact details are set out on the company information page of this website for shareholder enquiries.
Both the Chairman and CEO also communicate directly on an adhoc basis with major shareholders.
Internally the Company’s governance and performance is disseminated to business units through regular meetings between the CEO and senior management of all business units.
Our website is regularly updated and, in addition to this Corporate Governance Statement, sets out past and present Annual and Interim Reports and Accounts, Shareholder Circulars and Notices and all Company Announcements.
|The result of voting in the 2023 AGM is presented as follows:Resolutions
|1. To receive the Report and Accounts of the Company for the year to 31 March 2023
|2. To re-elect Iain Stewart Brown as a Director of the Company
|3. To re-elect Matthias Siegfried Riechert as a director of the Company
|4. To re-appoint RSM UK Audit LLP as auditors of the Company
|5. To authorise the directors to replace the existing authority to allot shares in the Company in connection with s 551 of the Companies Act 2006
|6. To authorise the directors to allot Relevant Securities as if s 561 of the Companies Act 2006 did not apply
|7. To authorise the Company to make market purchases of ordinary shares in the Company
|8. To change the name of the Company to Software Circle Plc
- including any votes giving discretion to the Chair.
02 OCTOBER 2023