CORPORATE GOVERNANCE
Kitron’s corporate governance principles clarify the division of roles between shareholders, the board of directors and the corporate management. The principles are also intended to help safeguard the interests of shareholders, employees and other stakeholders, such as customers and suppliers, as well as society at large. The primary intention is to increase predictability and transparency, and thereby reduce uncertainties associated with the business.
It is Kitron’s intent to practise good corporate governance in accordance with laws and regulations and the recommendations of Oslo Børs under the ‘comply or explain’ concept. This review has been prepared by the board of Kitron, and it is the board’s intention to comply with the Norwegian Code of Practice for Corporate Governance dated 23 October 2012 (“the Code”). The code is available at www.nues.no
Basic values and ethical guidelines
The board has stated Kitron’s purpose and core values as presented in the annual report, and the board has prepared and implemented ethical guidelines which reflect these values. The ethical guidelines also include guidelines for corporate social responsibility.
Business
Kitron’s business purpose clause is stated in the company’s articles of association:
Kitron’s business purpose is manufacturing and development activities related to electronics. The business includes purchase and sale of shares and companies in the same or related business sectors. The business may also include related consultancy activities and other activities associated with the operation.
The company’s main goals and strategies are presented in the annual report. It is the board’s opinion that these objectives and strategies are within the scope of the business purpose clause.
Equity and dividends
The parent company’s share capital at 31 December 2011 amounted to NOK 173 million. Total equity for the group at the same date was NOK 469.9 million, corresponding to an equity ratio of 46.2 per cent. Considering the nature and scope of Kitron’s business, the board considers that the company has adequate equity.
Existing mandates granted to the board to issue shares and to acquire treasury shares are presented in the shareholder information section of the annual report. The mandates are in accordance with the Code.
Kitron’s dividend policy implies an objective to pay a dividend of 30-50 per cent of net profit for the year, provided that the company’s equity and liquidity position remains adequate after the dividend payment.
Equal treatment of shareholders and transactions with close associates
The shares are freely negotiable. The articles of association include no form of restriction on negotiability. All shares have equal voting rights and there is only one class of shares. No new shares were issued in 2012.
Kitron has issued an insider manual with guidelines and control procedures. According to the company’s ethical guidelines, board members and the executive management must notify the board if they have any direct or indirect material interest in any transaction contemplated or entered into by the company.
All transactions with close associates are disclosed in the notes to the annual accounts. Kitron has a long-term supplier relationship with Kongsberg Gruppen ASA, who is also a significant shareholder in Kitron. All business activities are based on arm’s length terms. In the event of transactions with insiders or close associates, such transactions will be carried out in accordance with the relevant recommendations in the Code.
General meetings
Shareholders exercise the ultimate authority in Kitron through the annual general meeting. All shareholders are entitled to attend a general meeting as long as they are recorded in the company’s share register no later than the fifth business day before the date of the general meeting. Representatives of the board, the nomination committee, and the auditor are present.
The notice of the meeting, the agenda and detailed and comprehensive supporting information, including the nomination committee’s justified recommendations, are made available on Kitron’s website at least 21 days before a general meeting takes place. At the same time the notice and agenda is distributed to all shareholders. For administrative purposes, the shareholders must give notice of their attendance at the meeting minimum two working days before the meeting.
The general meeting deals with such matters as required by Norwegian law. Shareholders who cannot attend the meeting in person can vote by proxy, and voting instructions can be given on each item on the agenda. In addition shareholders may vote in advance, either in writing or by electronic means, up to 2 days prior to the general meeting.
The general meetings are opened by the chair of the board. Normally, the board proposes that the chair of the board shall also chair the general meetings. The board will propose an independent chair for the general meeting if any of the matters to be considered calls for such arrangement.
The notices and minutes of the general meetings are published in Oslo Børs’ information system (www. newsweb.no, ticker: KIT) and on Kitron’s website.
Nomination committee
Kitron’s nomination committee is stated in the articles of association. The committee shall have three members, including the head of the committee. At the composition of the nomination committee, the interests of the shareholders will be taken into account, as well as the members’ independence of the board and of the executive management. The general meeting elects the head and the members of the nomination committee and determines its remuneration. The general meeting has resolved a mandate and stipulated guidelines for the duties of the nomination committee that is compliant with the Code. The members of the nomination committee are elected for a period of two years. For the sake of continuity, one or two members stand for election each year.
The nomination committee shall propose and present to the general meeting: Candidates for election to the board, remuneration of the board, and new members of the nomination committee.
Board of directors: composition and independence
According to the articles of association, the board shall consist of seven to eleven members as resolved by the general meeting. The annual general meeting in 2012 resolved that the board shall have eleven members. It follows from the rules for employee representation that the board thus consists of seven shareholder-elected members and four members elected by and among the employees. Board members are elected for a period of two years. There is no corporate assembly in Kitron, and the board elects its own chair.
The board’s composition shall ensure that it can effectively and proactively perform its supervisory and strategic functions. Furthermore, the board is composed to enable it to always act independently of special interests. The three major shareholders are represented by four board members; Sievi Capital plc. by two members, Kongsberg Gruppen ASA by one member and Amber Trust II by one member. The remaining three shareholder-elected board members are independent of the major shareholders. The representation of shareholders was proposed by the nomination committee and unanimously resolved by the general meeting.
During 2012 Harri Takanen, board member for Sievi Capital plc., resigned from the board and consequently the total board was reduced to ten members and one representative for Sievi Capital plc.
All the shareholder-elected board members are independent of the executive management. Further information about the board members is presented in the annual report and on the company’s website.
The work of the board of directors
The board has an overall responsibility for safeguarding the interests of all shareholders and other stakeholders. Furthermore, it is the board’s duty and responsibility to exercise overall control of the company, and to supervise the management and the company’s operations. The division of roles between board and management is specified in Kitron’s rules of procedure for the board. The board has approved an annual meeting plan for its work, which includes meetings with a special focus on strategy and budgeting. The board conducts a self evaluation one time per year.
Kitron’s board shall also serve as a constructive and qualified discussion partner for the executive management. One of the board’s key duties is to establish appropriate strategies for the group. It is important in this context that the board, in cooperation with the management, ensures that the strategies are implemented, the results are measured and evaluated and that the strategies are developed in the most appropriate way. Kitron has defined performance parameters for the strategies and can thus measure its performance.
The board receives financial reports on a monthly basis from the administration. The underlying data for these reports are prepared at each reporting unit. The information is checked, consolidated, and processed by the group’s corporate financial staff to produce the consolidated reports that are submitted to the board. The reports also include relevant operational matters. The group does not have a separate internal audit function. Account controls are exercised through segregation of duties, guidelines and approval procedures. The corporate financial staff is responsible for establishing guidelines and principles. The corporate financial staff handles the group’s financial transactions. Each profit centre is responsible for the commercial benefit of manufacturing contracts. Responsibility for the commercial content of significant procurement contracts rests with the corporate sourcing organisation.
The board conducts annual evaluations of the executive managers and their performance. These evaluations also cover an assessment of cooperation between the board and the management. The results of these evaluations represent an important element in the remuneration and incentive programmes, which are described in the notes to the financial statements.
The board’s audit committee
The board’s audit committee is appointed by Kitron ASA’s board of directors and is a sub-committee of the board. The audit committee will on behalf of the board supervise the financial reporting process to ensure the integrity of the financial statements. The audit committee will also go through: the company’s internal supervisory/control routines and risk management system, the external audit process including a recommendation in the choice of an external auditor, the company’s routines regarding compliance with laws and regulations affecting the financial reporting and the company’s code of conduct.
The role of the audit committee is to prepare matters for consideration by the Board, to support the Board in its supervisory responsibilities and to ensure that the requirements made of the company in connection with its listing on the stock exchange are complied with.
The committee consists of two shareholder elected board members and one employee-elected board member. The independent auditor usually attends the meetings. During 2012 there were five audit committee meetings.
The board’s remuneration committee
The Remuneration Committee is appointed by Kitron ASA’s board of directors and is a sub-committee of the Board. The committee consists of three members elected among the members of the board.
The remuneration committee will on behalf of the board supervise remuneration and incentive schemes, mainly related to the CEO and the Corporate Management Team (CMT).
Risk management and internal control
Kitron’s business model is to provide manufacturing and assembly of electronics and industrial products containing electronics, including development, industrialisation, purchasing, logistics, maintenance/ repair and redesign. The board sees no unusual risks beyond normal business risks that any light industry operation is exposed to.
EMS is a highly competitive industry, presenting the company with an inherent business risk related to Kitron’s ability, firstly, to attract and retain customers who are and who will be predictable and successful in their respective markets and, secondly, to make a fair profit margin on its business. The group’s customer portfolio consists of reputable companies operating in various segments. Several of the group’s customers are world leaders in their respective fields. It is Kitron’s perception that the customer portfolio is robust and well balanced. Kitron’s value proposition to its customers includes flexibility, competence, quality, closeness and full value chain capability. The board is confident that Kitron is able to maintain a viable, leading and adaptive business. Kitron is organised in distinct manufacturing sites, each fully accountable for its own revenues, profitability and level of capital employed. The structure facilitates closeness between management and the operation, which in turn provides good oversight and adequate internal business control.
Kitron’s cost base for operations consists of material cost, employee cost and plant and machinery cost. The material cost is to a large degree priced in international currencies, with prices set or derived from global raw material and component markets. Employee and plant costs are incurred in respective local currencies, mainly NOK, SEK and LTL. Machinery investments are predominantly internationally priced. Kitron’s revenues are mainly booked in NOK and SEK, but also in USD and EUR, with currency fluctuation and raw material price clauses included when appropriate. The company considers the mix as reasonably balanced.
To balance the financial risk and shareholders’ interests, the equity ratio should be above 25per cent.
Kitron’s equity ratio was 46.2 per cent at the end of 2012. Kitron’s debt is predominantly short-term. The equity ratio and liquidity has been stable and on a satisfactory level in the past year.
Kitron does not employ any off balance sheet financial instruments for hedging or leverage, or for funding. The company has entered into conventional financial leasing agreements, which are reported in the financial statements.
The health, safety, and environmental risks are limited and well managed, and Kitron’s ISO quality systems are certified by certification agencies and also inspected and approved by several of the group’s customers.
Kitron’s customers are professional product-owning companies, which purchase the manufacturing and related services from Kitron. Kitron is not the product owner and the group’s product liability risk is thus negligible.
Remuneration of the board of directors
The remuneration of the board members reflects responsibility, expertise, time spent and the character of Kitron’s business. The remuneration is not linked to the company’s performance or share price.
Board members may perform special assignments for the company in addition to their directorship. Such assignments, if any, are reported to the full board and disclosed in the annual report. Information about each director’s remuneration, including shares and subscription rights, is provided in the notes to the annual financial statements.
Remuneration of senior executives
The board has resolved guidelines to the CEO for remuneration to senior executives. The salary and other remuneration of the CEO shall be decided by a convened meeting of the board.
At present Kitron does not have any outstanding share option schemes or other arrangements to award shares to employees.
Kitron reports all forms of remuneration received by the chief executive and each of the other members of the executive management. For one or more executives, the remuneration may include performance related cash bonus. Details about remuneration of the executive management are provided in the notes to the annual financial statements.
Information and communication
Kitron wants to maintain good communication with its shareholders and other stakeholders. The information practice is based on openness and will help to ensure that Kitron’s shareholders and other stakeholders are able to make a realistic assessment of the company and its prospects. Guidelines have been established to ensure a flow of relevant and reliable financial and other information. The group endeavor to ensure that all shareholders have equal access to the same information. Kitron comply with Oslo Børs’ recommendation on reporting of IR information.
All information distributed to the shareholders is published on Kitron’s website (www.kitron.com) at the same time as it is sent to the shareholders. Furthermore, all announcements to the market are posted on Kitron’s website following publication in Oslo Børs’ company disclosure system www.newsweb.no, ticker: KIT. Public, webcasted presentations are held quarterly in connection with the interim reporting. Kitron presents a financial calendar every year with dates for important events. Kitron’s guidelines for reporting of financial and other information as well as guidelines for the company’s contact with shareholders, other than through the general meeting, are presented in the shareholder information section in the annual report.
Kitron has established contingency plans for information management in the case of issues or situations that could impact the company’s reputation.
Takeovers
There are no authorisations or other measures in place with the intention to prevent possible takeovers. In the event of a takeover bid, the fundamental principle for the board of Kitron will be equal treatment of all shareholders. If such a situation should arise, the board will comply with the recommendations on takeovers in the Code.
Auditor
PricewaterhouseCoopers AS (PwC) has been the company��s auditor since 2005. PwC has issued a written confirmation that PWC continues to satisfy the requirements for independence. As part of the 2012 audit, PwC submitted the main features of the plan for the audit to the board. In addition, the auditor participated in the meeting of the board that dealt with the annual financial statements.
The board and the auditor will meet at least once a year without the CEO or any other members of the executive management are present.
The board of Kitron has established guidelines in respect of the use of the auditor by the company’s executive management for services other than mandatory audit. PwC has provided the board with a summary of all services that have been undertaken for Kitron for the accounting year 2012. The fees paid for audit work and fees paid for other specific assignments are specified in the notes to the financial statements.