Corporate Governance Report 2017

AS Harju Elekter complies, in all material respects, with the provisions of CGC. Explanations for departures from CGC are provided below. In addition, our corporate governance report contains information on the annual general meeting of 2017, the Supervisory Board, the Management Board and explains AS Harju Elekter’s governance structure and processes.

CGC Article 1.3.3
An issuer shall make attendance and participation in the general meeting possible by means of commu­nication equipment (e.g. the Internet) if the technical equipment is available and where doing so is not too cost prohibitive for the issuer.
Since AS Harju Elekter does not have the required technical equipment and since acquisition of such equipment is not been under consideration yet, currently attendance and participation in general meetings is not possible by means of communication equipment.

CGC Article 2.2.7
The basic salary, performance pay, severance pay, other payable benefits and reward systems of each member of the Management Board, as well as their significant characteristics are presented in a clear and unambiguous form on the issuer’s website and in the CGC report. The presented data are considered clear and unambiguous if they directly express the extent of the expenses to the issuer or the extent of the likely expenses as of the day of disclosure.
The remuneration of a member of the Management Board and the procedure for its payment is determined by the decision of the Supervisory Board and shall not be disclosed to the public under an agreement between the parties. The chairman of the Board is entitled to receive a severance payment in the amount of 10 months’ and two members in the amount of 8 months’ remuneration of a member of the Management Board.

Performance pay is paid to the members of the Management Board on an equal basis with the Parent company’s administrative. The performance pay is distributed according to the basic salary and work performance and the performance pay of the members of the Management Board is approved by the Chairman of the Supervisory Board. 80% of the performance pay is paid by quarter; the remaining 20% is paid after the results of the financial year have been determined.

The management, incl. members of the Management Board are paid an annual bonus of 0.8% of the consolidated net profit in total. The annual bonus is approved by the chairman of the Supervisory Board and is paid after the group’s annual statement has been audited.

CGC Article 3.1.3
The Supervisory Board shall regularly assess the activities of the Management Board and its implementation of the Issuer’s strategy, financial condition, risk management system, the lawfulness of the Management Board activities and whether essential information concerning the Issuer has been communicated to the Supervisory Board and the public as required. Upon the establishment of committees (audit committee, remuneration committee etc.) by the Supervisory Board, the Issuer shall publish on its website their existence, duties, membership and position in the organization. Upon change of the committee structures, the Issuer shall publish the content of such changes and the period during which the procedures are in effect.
In June 2010 the Supervisory Board of AS Harju Elekter formed the Audit Committee of the Company following the relevant requirement provided for by the Authorised Public Accountants Act, affirmed its Statutes. In 2017, members of the Supervisory Board of AS Harju Elekter, Triinu Tombak and Andres Toome act as members of the Committee. Details of the Audit Committee and its position in the organisation will be available on the Company’s website.

CGC Article 3.2.5
The rate of the member of the Supervisory Board pay and the payment procedure established by the general meeting shall be presented in the issuer’s CGC report, separately pointing out the basic salary and additional remuneration (including severance pay and other payable benefits).
The shareholders’ general meeting of AS Harju Elekter has the competence to elect and approve the membership of the Supervisory Board and the term of its appointment. The AGM which was held on 27 April 2017 appointed the membership of the Supervisory Board for the following 5 years, setting 1,000 euros a month as the pay rate for a member of the Supervisory Board and 1,600 euros a month for the Chairman of the Supervisory Board, while the Chairman of the Supervisory Board working in Company’s management shall be subject to the reward system used in AS Harju Elekter (see also CGC explanation for CGC Article 2.2.7). In addition to that, 200 euros was set as a payment for the member of the Supervisory Board for participating in a meeting. However, it will not be paid to the member of the Supervisory Board if they participate in the meeting over the phone. No severance pay is allotted to members of the Supervisory Board. The next elections of the Supervisory Board will take place at the AGM in 2022.

CGC Article 3.3.2
A member of the supervisory council shall promptly inform the chairman of the supervisory council and the management board of any business offer related to the business activity of the issuer made to the member of the supervisory council or a person close or connected to the member of the supervisory council. All conflicts of interests that have arisen during the reporting year shall be disclosed in the Corporate Governance Report along with their resolutions.
Members of the Supervisory Board must avoid any conflict of interest and follow the requirements of prohibition on competition. The Supervisory Board and the Management Board work in close co-operation, acting according to the laws and Articles of Association, in the best interests of the Company and its shareholders. In 2017, no conflicts of interests occurred.

CGC Article 5.3
Among other things, the issuer’s general strategic trends approved by the Supervisory Board are available for shareholders on the issuer’s website.
The Company’s Management Board believes that strategy is a business secret and should not be made public. However, the general trends and significant topics have been included in the Management Report.

CGC Article 5.6
The issuer discloses the times and places of meetings with analysts and of presentations and press conferences for analysts and investors or institutional investors on the issuer’s website. The issuer enables shareholders to participate in these events and makes presentations available on its website. The issuer shall not hold meetings with analysts or presentations for investors immediately before the dates of disclosure of financial reporting.
The Company’s activities are always based on the principle of fair treatment of shareholders. Mandatory, significant and price sensitive information is first disclosed in the system of the Nasdaq Tallinn and then on the Company’s website. In addition, each shareholder has the right to request additional information from the Company if necessary and to arrange meetings. The Company’s Management Board does not consider it important to keep a time and agenda schedule of meetings with different shareholders. This rule applies to all meetings, including those immediately preceding the disclosure of financial reporting.

CGC Article 6.2
Electing the auditor and auditing the consolidated financial statements.
The general meeting of the shareholders of Harju Elekter of 14 May 2015 elected the auditing company KPMG Baltics OÜ as an auditor for the Company for the period 2015−2017. Information on the auditor is available at the Company’s website on the Internet. The auditor will receive remuneration according to a contract and the amount of the remuneration will not be disclosed under an agreement between the parties. The next elections of the auditing company will take place at the AGM in 2018.

Governance principles and additional information

A public limited company’s AS Harju Elekter governing bodies are the shareholders’ general meeting, the Supervisory and the Management Boards. AS Harju Elekter has not established documented diversity policy. However, people have been elected and appointed to higher ranking management positions, first of all, on the basis of the possible added value that they could offer to the Group with their knowledge and skills, and on the basis of their suitability to the position.

General meeting

The general meeting is the Company’s highest governing body who have competence for amending the Articles of Association and approving new ones, changing the amount of share capital, removal of members from the Supervisory Board and the termination of the activities of the Company, making decisions on the division, merging and transformation of the Company with the precondition that at least 2/3 of the shareholders represented at the general meeting approve such decisions. General meetings may be annual or extraordinary. The annual general meeting convenes once a year within six months after the end of the Company’s financial year. An extraordinary general meeting is called by the Management Board when the Company’s net assets have declined below the level required by the law or when calling of a meeting is demanded by the Supervisory Board, the auditor, or shareholders whose voting power represents at least one tenth of the Company’s share capital. A general meeting may adopt resolutions when more than half of the votes represented by shares are present. The set of shareholders entitled to participate in a general meeting is determined 7 days before at the date of the general meeting.

The annual general meeting of 2017 was held on 27 April at Keskväljak 12 in Keila, Estonia. 97 shareholders and a total of 73.2% of the voting stock were represented. Presentations were made by the chairman of the Management Board, chairman of the Supervisory Board and auditor.

The general meeting approved the 2016 annual report and profit distribution and decided to pay dividends amounting to 0.18 euros per share, totally 3.2 million euros. The AGM extended the credentials of a member of the Supervisory Board, appointed a new member of the Supervisory Board and approved a pay deal for members of the Supervisory Board.

Supervisory Board

According to the Articles of Association, AS Harju Elekter’s Supervisory Board has 3-5 members. The members are elected by the general meeting for a period of five years. The Supervisory Board plans the activities of the Company, organises the management of the Company and supervises the activities of the Management Board. The Supervisory Board meets according to need but not less frequently than once every three months. A meeting of the Supervisory Board has a quorum when more than half of the members participate. In 2017, the Supervisory Board met 10 times. All members of the Supervisory Board attended most of the meetings.

On 27 April 2017, the AGM assigned a five-member Supervisory Board for the next five-year period as follows: Endel Palla (chairman) and members Arvi Hamburg, Aare Kirsme, Triinu Tombak and Andres Toome. Mr Palla has been working in AS Harju Elekter since 1969 (1985 -1999 as managing director) and keeps Company’s R&D manager position since 1999. The newly elected member of the Supervisory Board, Mr Hamburg, who is a member of the Advisory Board and a visiting professor from the Tallinn Technical University, adds some scientific competence to the Board. Mr Kirsme is a member of Supervisory Board of AS Harju KEK, the biggest shareholder of AS Harju Elekter (holding 31.39% of the shares of the Company on 31.12.2017). Mr Toome (chairman of OÜ Tradematic) complements the Board with investment experience since 2007. In 2012 was appointed a member of the Supervisory Board Mrs Tombak (chairman of TH Consulting OÜ), to include more financial knowledge to the Board. Two of the five members of the Supervisory Board – Triinu Tombak and Arvi Hamburg - are independent.

The Group does not give the members of the Supervisory Board any benefits related to pension, more than provided by the law. Only exception is Chairman of the Supervisory Board, who is entitled to termination benefits that may extend to 6 monthly remuneration of a development manager. At 31 December 2017, the members of the Supervisory Board owned in accordance with their direct and indirect ownerships totally 9.3% (2016: 9.2%) of AS Harju Elekter shares (Note 22).

Management Board

The Management Board is a governing body which represents and manages the Company in its daily activity in accordance with the law and the Articles of Association. The Management Board has to act in the best economic interests of the Company. According to the Articles of Association, Harju Elekter’s Management Board may have 1-5 members who are elected by the Supervisory Board for a period of three years. The Supervisory Board appoint also the chairman and the members as well as remove a member of the Management Board. Every member of the Management Board may represent the Company in all legal acts.

 

 

The Company has a three-member Management Board. Andres Allikmäe, the Chairman of the Managing Board and CEO of the Company, will continue work on the basis of the 3-years contract of service agreed on the 05.05.2017 and the mandate given to him. In addition to him the CFO of the AS Harju Elekter, Tiit Atso, and the Head of Real Estate and Energy Services, Aron Kuhi-Thalfeldt, were appointed as members of the Managing Board. The mandate of the new members of the Managing Board started on 01.11.2016 and it will end on 31.10.2019.

The competence and authority of the Management Board are listed in the Articles of Association and there are no specialities nor agreements concluded which state otherwise. The member of the Board is remunerated according to the contract of service. The chairman of the Board is entitled to receive a severance payment in the amount of 10 months’ and two members in the amount of 8 months’ remuneration of a member of the Management Board.

The everyday business activities of the Group are managed by the Chairman of the Management Board /CEO. The Chief Financial Officer and the Head of Real Estate and Energy Services of the Group are responsible for managing their domains in the whole Group. The members of the Managing Board participate in the work of the management and control bodies of the Group’s subsidiaries. Outside of Estonia compliance with good corporate governance is ensured by the local managements of the companies.

At 31 December 2017, the members of the Management Board owned in accordance with their direct and indirect ownerships totally 1.3% of AS Harju Elekter shares (Note 22).

More specific information about the education and career of the members of the Management and Supervisory Boards, as well as their membership in the management bodies of companies and their shareholdings, have been published on the home page of the Company at www.harjuelekter.ee.

Additional management bodies and special committees

The necessary procedures are regulated by rules and the need for additional management bodies has not occurred. For better risk management of the Group an internal auditor has been established which regularly reports to the management of the Group. In 2010 the Supervisory Board of AS Harju Elekter following the relevant requirement provided for by the Authorised Public Accountants Act formed the Audit Committee of the Company. The Audit Committee has the following tasks: observe and analyse the processing of financial information; the efficiency of risk management and internal audit; the process of audit control of consolidated financial statements; the independence of the audit company and the auditor who represents the firm of auditors on the basis of law; as well as to submit proposals and recommendations to the Supervisory Board in issues provided by law. In 2012, the members of the Supervisory Board of AS Harju Elekter – Triinu Tombak and Andres Toome - were appointed as members of the Committee.

Information management

As a publicly traded company AS Harju Elekter follows the principles of openness and equal treatment of investors. The information requested by the rules and regulations of the stock exchange is published regularly on the due dates. AS Harju Elekter therefore follows the principle of not publishing estimates but communicates and comments only information concerning events which have actually happened.

In order to keep investors and the public informed AS Harju Elekter administers a home page which includes all stock exchange notices, business reports and an overview of the Company’s background, products and other important issues. All subsidiaries of the Group also have home pages.

Auditors

According to the decision of the general meeting of the shareholders (14.5.2015) the audits of AS Harju Elekter for the years 2015–2017 are carried out by KPMG Baltics OÜ. Audits in subsidiaries outside of Estonia are carried out by KPMG Baltics UAB in Lithuania and KPMG Oy in Finland (not included Telesilta Oy, where audit is carried by Nexia Oy).