2014

Corporate Governance Report

AS PRFoods has observed the Corporate Governance Code (CGC) promulgated by the NASDAQ OMX Tallinn Stock Exchange since the flotation of its shares on the NASDAQ OMX Tallinn Stock Exchange on 5 May 2010. This report provides an overview of the governance of AS PRFoods in 2014 and its compliance with CGC. It is recommended that an issuer comply with CGC or explain any non-compliance in its corporate governance report. In 2014, AS PRFoods observed CGC unless indicated otherwise in this report.

General Meetings of PRFoods shareholders
During the financial year ended on 31 December 2014 there were two General Meetings of shareholders. One was ordinary and the other was extraordinary. The ordinary General Meeting of shareholders of the Group was held on 29 May 2014. The agenda of the ordinary General Meeting of shareholders included, in addition to approving the annual report for the financial year 2013 and resolving the distribution of profit, to decide on the repurchase of own shares and determination of the conditions of the share repurchase programme, appointing the auditor for the financial year 2014 and resolving remuneration payable to the auditor.

Altogether 27 shareholders attended the ordinary General Meeting of shareholders of the Group, the shares of which represented altogether 30,583,232 votes, which represented 79.06% of the entire share capital. Hence, the ordinary General Meeting of shareholders was authorised to adopt resolutions in respect of all the items in the agenda of the ordinary General Meeting of shareholders. In respect of all the items in the agenda of the extraordinary meeting, the resolutions were adopted in accordance with the proposals made by the Supervisory Board. The information on adopting the resolutions and on the content of the resolutions was published after the end of the meeting via the information system of the NASDAQ OMX Tallinn Stock Exchange without delay.
  
The ordinary General Meeting of shareholders was convened duly and timely. The notices on convening the General Meeting of shareholders were published in accordance with applicable law and the requirements of the Rules of the NASDAQ OMX Tallinn Stock Exchange in one daily newspaper, on the web-page of PRFoods and via the information system of the NASDAQ OMX Tallinn Stock Exchange.

All materials containing information on the items in the agenda of the General Meeting of shareholders were made available to all the shareholders before the meeting in electronic format, at the same time all the shareholders were provided with an opportunity to examine the materials of the General Meeting of shareholders at the location of PRFoods. The notice of convening the General Meetings of shareholders contained, among other information, an overview of the rights of the shareholders to ask questions and to get additional information along with the contact details for exercising those rights. The General Meeting of shareholders was conducted in the manner enabling all the shareholders to participate at the meeting, ask questions and make proposals. The shareholders were provided with an opportunity to make speeches. The Group provides the shareholders with access to the information related to the General Meeting of shareholders also after the meeting – all minutes and resolutions of the General Meeting of shareholders are available on the web-page of PRFoods. The documents of the General Meeting of shareholders are available via the information system of the NASDAQ OMX Tallinn Stock Exchange.

The extraordinary General Meeting of shareholders of the Group was held on 30 October 2014. The agenda of the ordinary meeting of shareholders consisted of two items: sale of a major subsidiary and the amendment to the Articles of Association, where the only amendment was the change in business name.

Altogether 33 shareholders attended the extraordinary General Meeting of shareholders of the Group, the shares of which represented altogether 31,203,962 votes, which represented 80.80% of the entire share capital. Hence, the ordinary General Meeting of shareholders was authorised to adopt resolutions in respect of all the items in the agenda of the ordinary General Meeting of shareholders. In respect of all the items in the agenda of the extraordinary meeting, the resolutions were adopted in accordance with the proposals made by the Supervisory Board. The information on adopting the resolutions and on the content of the resolutions was published after the end of the meeting via the information system of the NASDAQ OMX Tallinn Stock Exchange without delay.

According to the opinion of the management, the Group has during the financial year ended on 31 December 2014 duly complied with all the requirements arising from law, the Rules of the NASDAQ OMX Tallinn Stock Exchange and CGR aiming to ensure that all the shareholders of PRFoods were enabled to get information in respect of the issues placed into the competence of the General Meeting of shareholders, to attend the General Meeting of shareholders and vote at the General Meeting of shareholders. The General Meetings were conducted in a timely and efficient manner. The language of the General Meetings of shareholders was Estonian. The distribution of profit was resolved as a separate issue as required by Section 1.3.4 of CGR.

During the financial year ended on 31 December 2014, the Group did not comply with the requirements set forth in Sections 1.3.2 and 1.3.3 of CGR in the full extent.

Pursuant to Section 1.3.2 of CGR, the General Meeting of shareholders is attended by the members of the Management Board, the Chairman of the Supervisory Board, if possible also members of the Supervisory Board and at least one of the auditors of the company. The ordinary General Meeting of shareholders was attended by members of the Management Board Katre Kõvask, Silver Kaur and Erik Haavamäe. All members of the Supervisory Board attended the ordinary General Meeting of shareholders as representatives of the Supervisory Board: Chairman Indrek Kasela, Vice-Chairman Lauri Kustaa Äimä and members of the Supervisory Board Aavo Kokk, Arko Kadajane, Harvey Sawikin, Jaakko Karo. The auditor of PRFoods did not attend the ordinary General Meeting of shareholders.

In the opinion of the management of the Group, the failure to attend the General Meeting by the auditor has no adverse effect on the interests of the shareholders as prior to the meetings the Supervisory Board had provided the shareholders with its proposals in respect of each item in the agenda of the General Meeting and all the shareholders were granted the opportunity to get additional information in respect of the items in the agenda of the General Meeting prior to the meeting. None of the shareholders took advantage of those rights, which is an evidence of the fact that the shareholders deemed the information and materials made available to them before the meeting to be sufficient and that there was no need for additional information.
 
According to Section 1.3.3 of CGR, an issuer enables electronic participation at the meeting provided that it has respective technical means and that it is not too cost intensive. It was not possible to attend the ordinary General Meeting of PRFoods via electronic devices for two main reasons. First of all, PRFoods has not used the opportunity to conduct the General Meetings also in an electronic format. Secondly, PRFoods lacks the adequate technical equipment, which would enable to conduct a reliable personal identification of shareholders, transfer of the General Meetings without technical errors and electronic voting to ensure that all shareholders have equal access conditions. None of the shareholders of PRFoods has ever been interested in the possibility to attend the General Meeting of shareholders in an electronic format. The Management Board of PRFoods will analyse the demand on enabling the shareholders to attend the General Meetings of shareholders via electronic devices and if in the opinion of the Management Board there is indeed interest and demand for such possibility and if creating such possibility is not too cost intensive, the Management Board will consider creating a possibility to attend the General Meetings of shareholders via electronic channels.

Supervisory Board of PRFoods
At the report preparation moment, the Supervisory Board of PRFoods is comprised of the following members: Lauri Kustaa Äimä (since incorporation), Kuldar Leis (elected on 29 May 2013), Aavo Kokk (elected on 5 May 2009), Harvey Sawikin (elected on 5 May 2009), Vesa Jaakko Karo (elected on 17 August 2009) and Arko Kadajane (elected on 29 May 2012). The terms of office of all the current members of the Supervisory Board will end on 29 May 2018. The Supervisory Board of PRFoods includes four independent members – Aavo Kokk, Vesa Jaakko Karo; Kuldar Leis and Arko Kadajane.

The Chairman of the Supervisory Board is Lauri Kustaa Äimä and the Vice-Chairman of the Supervisory Board is Kuldar Leis.

The total amount of remuneration paid to the members of the Supervisory Board in 2014 was 59 thousand euros. Remuneration paid to the audit committee consisting of two members is also included in the amount of remuneration paid to the members of the Supervisory Board. In addition to the above-referred remuneration, all the members of the Supervisory Board were reimbursed for their actual and justified costs related to the performing their working assignments.

In accordance with law and the Articles of Association of PRFoods, the meetings of the Supervisory Board are held as frequently as necessary but in any case not less frequently than once in the calendar quarter. In 2014, the Supervisory Board held 7 meetings. In addition to the meetings, the Supervisory Board adopted resolutions without convening a meeting if it was necessary. The Management Board informed the Supervisory Board on a regular basis of the operations and financial status of PRFoods and the Supervisory Board provided the Management Board with necessary directions and support in conducting the everyday business activities of the company.

The members of the Supervisory Board of PRFoods are elected in accordance with the principles of CGR and comply with the requirements applicable in respect of them. All the members of the Supervisory Board perform their duties arising from law and CGR with due care.

The co-operation and information exchange between the members of the Management Board and the Supervisory Board complies with the requirements of CGR. The Management Board of PRFoods in not aware of any conflict of interests between the interests of the members of the Supervisory Board and the company.


Management Board of PRFoods
Since 01.02.2015 the day-to-day business operations of AS PRFoods are managed by its member of the Management Board Indrek Kasela.

The Management Board of PRFoods has fully complied with their obligations arising from law and CGR. The Management Board has always acted and is currently acting in the best interests of the company (and its shareholders).

The Management Board has established inside rules for ensuring the confidentiality of undisclosed inside information and acts in strict compliance with those in conducting its everyday business activities. Further, the Management Board assesses business risks of the company on daily basis and takes all necessary steps in order to avoid any adverse effect to the company.

The Management Board acts in compliance with the lawful resolutions of the Supervisory Board. Information Exchange between the Management Board and the Supervisory Board may be described as extensive.

The member of the Management Board does not compete with the company. There is no conflict between the interests of the member of the Management Board (and any person related to the latter) and the company. In 2014, there were no transactions between a member of the Management Board and a person related to the latter, which would have been subject to the consent of the Supervisory Board.

PRFoods does not comply with the requirement to publish the remuneration, bonus system and other payments and benefits received by the members of the Management Board on the web-page of the company (Section 2.2.7 of CGR). PRFoods is of the opinion that such disclosure may impair the rights and interests of the members of the Management Board and the company itself. In 2014, the total gross amount of remuneration paid to the members of the Management Board amounted to 322 thousand euros. Further, breakdown of all amounts paid to the members of the managing bodies is indicated in the Note 30 to the consolidated financial statements of the company. Despite the partial compliance with the named CGR Section, the management of PRFoods is of the opinion that the remuneration paid to the members of the Management Board are in compliance with the tasks and work load of the members of the Management Board and with the economic situation of PRFoods.

Qualifying Holding
The shareholders of PRFoods with a qualifying holding within the meaning of the Securities Market Act are Amber Trust II S.C.A (as at 31.12.2014: 38.29%), Amber Trust S.C.A (13.91%) and KJK Fund SICAV:SIF (10.50%). The shares of PRFoods owned by the aforementioned three shareholders are held in the nominee account of ING Luxembourg S.A.
  
The share of PRFoods grants the shareholder uniform rights, none of the shareholders has securities of PRFoods granting specific rights of control. According to the knowledge of the management of PRFoods, there are no restrictions of voting rights or agreements that do not arise from law or have not been stipulated in the Articles of Association of PRFoods.

Audit committee
According to the Auditing Activities Act, PRFoods as a public company is under the obligation to have an audit committee. Audit Committee is an advisory body to the Supervisory Board in respect of accounting, auditing, risk management, internal auditing, general supervision, budgeting and legal compliance with the activities of the Supervisory Board.

The Supervisory Board of PRFoods resolved to elect Aavo Kokk as the Chairman of the audit committee and Mairi Paiste as the member of the audit committee.

In 2014, the audit committee has been acting effectively and efficiently and has advised the Management Board and the Supervisory Board in respect of accounting, auditing, risk management, internal auditing, general supervision and budgeting in accordance with the actual necessity.

In 2014, the total gross amount paid as remunerations to the members of the audit committee amounted to 4 thousand euros.

Disclosure of information
PRFoods complies with the CGR rules on disclosure of information and treats the all shareholders equally.

Information is published on website of the NASDAQ OMX Tallinn Stock Exchange and the website of PRFoods (www.prfoods.ee) which is clear in structure and where published information is easy to find. The information is published both in Estonian and English language.

PRFoods has published the financial calendar (Section 5.2 of CGR) as well as all other information which must be accessible to the shareholders on its website (Section 5.3. of CGR).

Reporting
PRFoods prepares financial statements in accordance with International Financial Reporting Standards as adopted by the European Union.

According to the requirements of the Commercial Code, PRFoods prepares and discloses the Supervisory Board’s report on the annual report.

In disclosing financial information, PRFoods observes the requirements of Estonian legislation and the rules of the NASDAQ OMX Tallinn Stock Exchange.

According to the Commercial Code and the Article of Association of PRFoods, electing the auditor is in the competence of the General Meeting. The General Meeting of PRFoods which was held on 29 May 2014 elected AS PriceWaterhouseCoopers to carry out the audit of the financial year of 2014. According to the contract Ago Vilu acts as the leading auditor of PRFoods and Lauri Past acts as the auditor performing the client contract. AS PricewaterhouseCoopers has been the auditor of PRFoods since 2011. Previously the auditor of PRFoods was Grant Thornton Rimess OÜ.

PRFoods ensures the independence of the auditor by arranging rotation of the leading auditor and the auditor performing the client contract according to the valid requirements and good practice.

The auditor is remunerated in accordance with the agreement concluded with the auditing company. PRFoods publishes in the notice on convening the General Meeting of shareholders the information and data required by law and the Articles of Association of PRFoods. According to Section 6.2.1. of CGR, the Supervisory Board discloses the auditor’s fee that the issuer has paid or intends to pay to auditor for auditing services. PRFoods has not complied with the aforementioned requirement in the full extent because it is considered as the auditing company’s business secret, disclosure of which could substantially damage the competition position of the auditing company.

AS PricewaterhouseCoopers has not submitted a note to the Supervisory Board and the General Meeting of PRFoods concerning the failure to follow the CGR requirements by the Management Board or the Supervisory Board. Therefore, the requirements set forth in Section 6.2.4 of the CGR have not been followed in the full extent. There are two reasons for that – firstly, AS PricewaterhouseCoopers does not have an contractual obligation to submit such note; and, secondly, the auditing company has not in the course of its work detected any circumstances which would be considered failure to comply with the requirements of CGR but that have not been covered in this report.

The Supervisory Board of PRFoods has not identified any deficiencies in the work of the auditor.