Corporate Governance Report
The Corporate Governance (CG) is a set of guidelines and recommended rules, which is intended to be observed mainly by publicly traded companies. Tallinna Kaubamaja Group follows largely the Corporate Governance Code despite their indicative nature. Below is a description of the management principles of Tallinna Kaubamaja Group and general meetings held in 2018 and justification is given in the events when some clauses of the Code are not followed.
Exercise of shareholders’ rights
The general meeting of shareholders is the highest governing body of Tallinna Kaubamaja Group. The annual general meeting is held once a year and extraordinary general meetings may be convened by the Management Board in the events prescribed by law. The general meeting is competent to change the articles of association and share capital, elect members of the Supervisory Board and decide on their remuneration, appoint an auditor, approve the annual report and allocate profit, as well as decide on other matters stipulated by the articles of association and laws.
Convening the general meeting and disclosures
Tallinna Kaubamaja Group published a notice convening the general meeting through information system of the NASDAQ Tallinn Stock Exchange as well as on its website on 26 February 2018 and through a daily newspaper Eesti Päevaleht on 27 February 2018. The Group enabled its shareholders to ask questions on the topics specified in the agenda by using the e-mail address and phone specified in the notice, and examines the annual report on its website and in its office at Kaubamaja 1, Tallinn, starting from 26 February 2018.
The general meeting of shareholders of Tallinna Kaubamaja Group was held in the conference centre of Nordic Hotel Forum, Viru väljak 3, Tallinn, on 22 March 2018 beginning at 11.00 a.m. The resolutions made at the general meeting are published in the press releases on the website of NASDAQ Tallinn Stock Exchange and on the website of Tallinna Kaubamaja Group.
At the choice of a member of the Supervisory Board, data of a candidate with regard to his or her participation in the work of the Supervisory Boards, Management Boards or executive managements of other companies have been disclosed.
Holding of the general meeting
A general meeting can adopt resolutions if over one-half of the votes represented by shares are present. A resolution of general meeting is adopted if over one-half of the votes represented at the meeting are in favour unless a larger majority is required by law.
The language of the general meeting held in 2018 was Estonian and the meeting was chaired by the general lawyer of the Tallinna Kaubamaja Group Helen Tulve. The meeting was also attended by members of Supervisory Board Andres Järving and Gunnar Kraft, Management Board member Raul Puusepp and auditors Eva Jansen-Diener and Lembi Uett from PricewaterhouseCoopers AS. 80.38% of the votes represented by shares were present at the general meeting. At the general meeting, allocation of profit was discussed as a separate topic and a separate resolution was adopted with regard to it.
The articles of association of Tallinna Kaubamaja Group do not provide it expedient to use the internet to organise its monitoring and participation in the general meeting, as shareholders of the company have not considered it necessary so far. The general meeting of Tallinna Kaubamaja Group must take part in person and, in accordance with the articles of association, the general meeting may adopt resolutions if the general meeting is attended by shareholders who hold more than half of the votes represented by shares.
Considering the aforementioned descriptions of general meetings held in 2018, the Group has largely complied with the Corporate Governance Code in informing the shareholders, convening and holding the general meeting.
The Management Board is a governing body of Tallinna Kaubamaja Group that represents and directs the Group on a daily basis. In accordance with the articles of association, the Management Board may have one to six members. In accordance with the Commercial Code, members of the Management Board of Tallinna Kaubamaja Grupp AS are elected by the Supervisory Board. The member of the Management Board of Tallinna Kaubamaja Group is selected on the basis of gender neutrality and evaluating the actual competence of the persons. In order to elect a member of the Management Board, his or her consent is required. According to the articles of association, a member of the Management Board shall be elected for a specified term of up to three years. Extension of the term of office of a member of the Management Board shall not be decided earlier than one year before the planned date of expiry of the term of office, and not for a period longer than the maximum term of office prescribed by the articles of association. Currently, the Management Board of Tallinna Kaubamaja Grupp AS has one member. The term of office of the Management Board member Raul Puusepp was extended on 17 February 2017 and his term of office will expire on 6 March 2020.
The duties and remuneration of the Chairman of the Management Board Raul Puusepp are specified in the board member contract concluded with the Chairman. In accordance with the contract, the Chairman of the Management Board is paid a membership fee and he may receive performance pay once in a year accordance with the specific, comparable and predefined objectives of the Group's economic results for the previous year. The remuneration, including social security taxes and performance pay for the previous year, paid for 2018 to the Chairman of the Management Board amounted to 278 thousand euros (in 2017, 262 thousand euros) and the calculated fees, including social security taxes, amounted to 140 thousand euros (for 2017 the performance pay, including social security taxes, in amount of 131 thousand euros was paid).
Unlike clause 2.2.1 of the Corporate Governance Code, the Management Board of Tallinna Kaubamaja Grupp AS consists of one member. It is a historical tradition, but at the same time the management team of the parent company has three members. All resolutions are adopted by the Management Board in collaboration with the parent’s company management and Supervisory Board of the company. Under the direction of the Tallinna Kaubamaja Grupp, close cooperation is carried out with the leaders of subsidiaries and the people responsible for respective areas. The Group believes that such a division protects the best the interests of all shareholders and ensures sustainability of the Group.
The Supervisory Board plans the activities of Tallinna Kaubamaja Group, organises its management and supervises the activities of the Management Board in the period between the meetings of shareholders. The Supervisory Board notifies the general meeting of the result of such supervision. The Supervisory Board decides on the development strategy and investment policy of the Group, conclusion of real estate transactions, adoption of the investment budget and annual budget prepared by the Management Board. The meetings of the Supervisory Board are regularly held and additionally extraordinary if necessary, but not less than once every three months. In 2018, 12 scheduled meetings and 1 extraordinary meeting of the Supervisory Board were held and in 2017, 12 scheduled meetings and 1 extraordinary meeting was held.
The Supervisory Board has three to six members according to the resolution of the general meeting and the member is elected for up to three years. The work of the Supervisory Board is organised by the Chairman of the Supervisory Board.
By the resolution of the general meeting held on 22 March 2018, Andres Järving, Jüri Käo, Enn Kunila, Meelis Milder and Gunnar Kraft were elected as the members of the Supervisory Board. Authorities of the current members of the Supervisory Board will expire on 19 May 2021. By the decision of the Supervisory Board, Jüri Käo continued as the Chairman of the Supervisory Board, he has been a member of the Supervisory Board of Tallinna Kaubamaja Group from 1997 and has been a Chairman of the Supervisory Board continuously since 2009. He has also been a Chairman of the Supervisory Board in 2000-2001.
According to the decision of the annual general meeting held on 22 March 2018, the monthly remuneration of the Supervisory Board member of Tallinna Kaubamaja Grupp AS is 2,000 euros; the Chairman of the Supervisory Board receives 2,400 euros monthly. In the year 2018, the remuneration for the members of the Supervisory Board, payroll tax included, was 134 thousand euros, of which the remuneration of the Chairman of the Supervisory Board was 31 thousand euros (in 2017, 83 thousand euros, of which the remuneration of the Chairman of the Supervisory Board was 19 thousand euros).
Cooperation between the Management Board and Supervisory Board
The Management Board and Supervisory Board closely collaborate to achieve the purpose of better protection of the interests of Tallinna Kaubamaja Group. The Management Board, management and the Supervisory Board jointly participate in development of the strategy of the Group. In making management decisions, the Management Board and management are guided by the strategic instructions supplied by the Supervisory Board.
The Management Board regularly notifies the Supervisory Board of any important circumstances concerning the planning and business activities of the Group’s activities, and separately draws attention to any important changes in the business activities of Tallinna Kaubamaja Group. The Management Board submits the information, including financial statements to the Supervisory Board, in advance before the holding of a meeting of the Supervisory Board. Management of the Group shall be based on the legislation, articles of association, resolutions of meetings of shareholders and Supervisory Board, and the set objectives.
Changes in Articles of Association
Amendments to the articles of association shall be made in accordance with the Commercial Code, under which a resolution on amending the articles of association is adopted if at least 2/3 of the votes represented at a general meeting of shareholders are in favour, unless a larger majority is required by articles of association. The articles of association of Tallinna Kaubamaja Grupp AS do not provide for a larger majority requirement. A resolution on amending the articles of association shall enter into force as of the making of a respective entry in the commercial register.
Shareholders with a significant shareholding
As of 31.12.2018 the share capital of Tallinna Kaubamaja Group in amount of 16,292 thousand euros consists of 40,729,200 registered shares, each with the nominal value of 0.40 euros. All issued shares have been paid.
The shareholder with a significant shareholding is OÜ NG Investeeringud owning 67.0% of the Group's shares.
Shares granting special rights to their owners and would lead to unequal treatment of shareholders in voting, have not been issued.
Disclosure of information
Tallinna Kaubamaja Group treats all shareholders equally and notifies all shareholders of important circumstances equally, by using its own website as well as the information system of the Tallinn Stock Exchange.
Tallinna Kaubamaja Group’s website www.tkmgroup.ee contains general introduction of the Group and key employees, press releases and reports. The annual and interim reports include information on the strategy and financial results of the Group as well as the Corporate Governance Report. In the subsection of press releases, information is disclosed with regard to the membership of the Supervisory Board and auditor, resolutions of the general meeting, and other important information.
Financial reporting and auditing
It is the duty of the Executive Board of Tallinna Kaubamaja Grupp to organise the internal control and risk management of the Group in a manner that ensures the accuracy of the published financial reports. Each year, the Group publishes the consolidated audited annual reports and quarterly interim reports consolidated during the financial year, which have been disclosed through the NASDAQ Tallinn Stock Exchange information system and are publicly available on the Group’s website. In addition to the disclosed financial reports, management information is gathered in symbiosis with high-quality and accurate financial indicators, and management reports are prepared to ensure adequate governance of the Group’s companies.
The purpose of the internal control and risk management systems connected with the financial reporting process is to ensure harmonised and trustworthy reporting of the Group’s financial performance in conformity with the applicable laws, regulations, adopted accounting policies and the reporting principles approved by the Group. The principles of risk management and internal control have been defined in the Group’s risk management framework, which describes the more important activities for risk management relating to identification, assessment, prioritisation and mitigation of risks and the definitions, roles and areas of responsibility related to the field. In addition, the risk management and internal control activities are organised with the work organisation rules of the Group and its subsidiaries, which describe the functioning of various processes.
The Group’s financial area together with accounting and management reporting is the area of responsibility of the Group’s chief financial officer (CFO) being responsible for the identification and assessment of risks in financial reporting, arranging the principles in relation to financial reporting, organises the tools that are required for accounting and reporting and prepares the officially published financial reports of the Group. The financial reporting processes and systems are developed on a continuous basis. Risk analysis is conducted annually. This risk analysis serves as a basis for the further development of supervision and control measures and checkpoints in reporting to prevent the realisation of risks. The Group’s internal audit supervises the operation of the internal control system, including, among other things, financial reporting processes. The Group’s accounting, funding, IT administration and insuring have been centralised.
The Group’s financial processes and reports are subject to an annual financial audit, conducted generally by an auditor selected by the Board of Directors as a result of a competition and approved by the general meeting. The audit of consolidated financial report is conducted by following the accordance with the Auditors Activities Standards International Standards on Auditing. With the resolution of the general meeting from 2018, the financial auditor of the financial year 2018 was AS PricewaterhouseCoopers (PwC).
During 2018, the auditor of the Group has provided to the Group a limited assurance engagement in respect of packaging report, tax advice and some other advisory services that are permissible in accordance with the Auditors Activities Act of the Republic of Estonia. In our opinion, the financial audit conducted in 2018 has been in conformity with the regulatory provisions, international standards and the set expectations. PwC has introduced the results of the work during the interim audit and for the final audit before issuing the auditor’s report.
The Audit Committee is a body established by the Supervisory Board, the task of which is advising the Supervisory Board in supervision issues. For this purpose, the Audit Committee exercises supervision in the following areas:
- adherence to accounting principles;
- preparation and approval of the financial budget and reporting;
- independence, sufficiency and legality of performing an external audit;
- effectiveness of an internal control system and risk management;
- monitoring of the legality of the Group’s operations.
In performing its tasks, the Audit Committee collaborates with the Supervisory Board, the Management Board, internal and external auditors and if necessary, external experts.
The Audit Committee has 5 members, who are appointed by the Supervisory Board for three years. In 2018, the members of the audit committee were Andres Järving (the Chairman), Gunnar Kraft, Jüri Käo, Kaia Salumets and Kristo Anton.
The Audit Committee prepares an annual summary report about meeting the goals sets in the statutes and presents it to the Supervisory Board.
Based on its duties, the Audit Committee provides ongoing evaluations and makes proposals to the Supervisory Board, the Management Board, the internal audit and/or an external audit provider. In 2018, the Audit Committee proposed, among other things, to the Supervisory Board on the appointment of an audit company.
10 planned Audit Committee meetings were held during the accounting period.