Corporate Governance Policies

EXTERNAL AUDIT

According to the Articles of Association, the Annual General Meeting of shareholders elects the Company’s auditor, which must be a firm authorised by the Finnish Central Chamber of Commerce; otherwise the Company will have one main auditor and one deputy auditor. The auditor’s term is for one year and finishes at the end of the first General Meeting following election.

During Afarak’s General Meeting held in June 2022, Authorized Public Accountant Firm Tietotili Audit Oy was elected as auditor, with Authorised Public Accountant Urpo Salo having the principal responsibility. Tietotili Audit Oy is also the local auditor of all of the Group companies.

In 2021, the Company paid EUR 389,000 for audit fees (2020: to EY EUR 878,000) and EUR 42,000 for non-audit services (2020: to EY EUR 67,000) to Tietotili Audit Oy.

The members of the EMT are:

Mr Guy Konsbruck, Chief Executive Officer

Internal control

The principles of internal control are confirmed by the Board. The Group’s Executive Management Team members are in charge of the day-to-day business management and administrative control in their respective responsibility areas.

Main Principles of Risk Management and Internal Control

The purpose of risk management is to identify, evaluate and mitigate the potential risks that could impact the Group’s business and the implementation of its strategy, and to ensure that risks are proportional to the Group’s risk-bearing capacity.

The Group’s risk management policy is approved by the Board of Directors and defines the objectives, approaches and areas of responsibility of risk management activities. The Group’s key risks are reviewed and assessed by the Board on regular basis. The Group’s business segments, and the business units within those segments, are primarily responsible for their risks, their financial performance and their compliance with the Group’s risk management policies.

The Board of Directors is responsible for organising and maintaining adequate and effective internal control performed by the senior and executive management as well as other Afarak personnel, and as assisted by third-party experts when appropriate.

The Board of Directors decides on the Group’s management system and the corporate and organisational structure required by each business unit with a view to providing solid foundations for effective internal control. Internal control and risk management related to financial reporting at the Group level are performed in a coordinated way by a function independent of the business areas. Each subsidiary’s executive management is responsible for the implementation of internal control and risk management to the agreed Group principles and guidelines.

The system of internal control provides reasonable rather than absolute assurance that Afarak’s business objectives will be achieved within the risk tolerance levels defined by the Board.

Internal control refers to elements of financial and operational management which are designed to ensure:

• Achievement of defined performance targets;
• Efficient use of resources and protection of assets;
• Effective management of risks;
• Accurate, timely and continuous delivery of financial and operational information;
• Full compliance with laws and regulations as well as internal policies; and
• Business continuity through secure systems and stable operating procedures.

The Structure of Internal Control Systems

The main structural elements of the Group’s internal control system are:

• The risk management and internal control policies and principles defined by the Board;
• Implementation of the policies and principles under the supervision of Group management;
• Supervision of the efficiency and functionality of the business operations by Group management;
• Supervision of the quality and compliance of the financial reporting by the Group finance department;
• An effective control environment within all organisational levels and business units, including tailored controls for each business process; and
• Internal audits conducted as and when needed.

The Internal Control of Financial Reporting Process

The Group’s financial organisation is structured so that each business unit has its own finance function, but overall financial management including accounting, taxation and financing is centralised within the Group’s parent company.

The Group finance department is responsible for ensuring the compliance, quality and timeliness of the Group’s external and internal financial reporting. The internal control mechanisms are based on the policies, procedures and authorisations established and approved by the Board. In addition to control mechanisms, training and sharing of knowledge are also significant tools of internal control.

Each business unit has its own finance function which reports to the Group Finance. The business unit’s finance function is responsible for the unit’s accounting and daily financial operations and internal reporting. The finance function and administration is overseen by the unit’s management team and reports to the head of the business unit’s segment.

The tasks of the Group Finance consist, among other things, of monthly consolidation of the Group’s accounts, preparation of the quarterly interim reports and consolidated financial statements, financing of the Group, and tax planning.

Consolidated financial statements are prepared by using consolidation software. The accounting of the Company’s subsidiaries is carried out by accounting systems and the accountants within each subsidiary enter the accounting information directly into the consolidation system, or in some cases send the information in a predefined format to the Group’s financial administration to be consolidated.

Roles and Responsibilities Regarding Risk Management and Internal Control

Board of Directors

The Board of Directors is ultimately responsible for the administration and the proper organisation of the Group’s operations and approves all internal control, risk management and corporate governance policies. The Board establishes the risk-taking level and risk-bearing capacity of the Group and reassess them on a regular basis as part of the Group’s strategy and goal-setting process. The Board reports to the shareholders of the Company.

Audit and Risk Management Committee

The Audit and Risk Management Committee is responsible for the following internal control related activities:

• Monitoring the reporting process of the financial statements;
• Supervising the financial reporting process;
• Monitoring the efficiency of the Group’s internal control, internal audit and risk management systems; and
• Monitoring the statutory audit of the financial statements and consolidated financial statements.

Group Management

The Group’s management is in charge of the day-to-day management of the Group in accordance with the instructions and orders given by the Board. It sets the framework of the internal control environment and is in charge of the Group’s risk management process and its continuous development. This includes allocation of resources to the work and continuous review of the risk management policies, as well as defining the principles of operation and overall processes.

The Chief Commercial Officer (CFO) ensures that the Group’s accounting and financial reporting practices comply with the law, and that all financial matters are handled effectively. The Corporate Affairs Officer (CAO) ensures that the Group’s corporate governance practices comply with the law and that all legal matters of the Group are handled appropriately.

Executive management

Chief Executive Officer

The Board appoints the Chief Executive Officer (CEO), who leads the executive management of the Group in accordance with the Board’s instructions. It is the responsibility of the CEO to lead and steer the Group and to act as the spokesperson for the Group both internally and externally. The CEO manages, develops, guides and supervises the Group’s activities. In these duties, the CEO is assisted by the Executive Management Team and the personnel at the Group’s headquarters. The CEO reports to the Board of Directors and prepares presentations and documentation for the Board. The focus of the CEO role is on major strategic activities, where his or her direct involvement and commitment are essential, whether concerning acquisitions, capitalisation, listing or other special projects.

The CEO’s ongoing responsibilities include the following:

• Providing leadership to the Group and determining its priorities and operating practices;
• Preparing and developing the Group’s strategy for the Board’s approval;
• Implementing the Group’s strategy and delivering performance in line with targets;
• Planning and managing the organisational structure, capital structure, investments, mergers and acquisitions, demergers, credits, guarantees and other substantial commitments for the Board’s approval;
• Organising the Group’s finance, bookkeeping and internal control matters; and
• Coordinating communications to shareholders, the investment community and the media.

Executive Management Team

The Group’s Executive Management Team (“EMT”) assists the Group CEO in effectively accomplishing his duties. The EMT is an advisory body which was set up by the Board of Directors in November 2009. It has neither authority, based on laws or the Articles of Association, nor any independent decision-making rights. Decisions on matters discussed by the EMT are taken by the CEO, the EMT member responsible for the matter in question or the Group’s Board of Directors, as appropriate.

The members of the EMT are:

• Mr Guy Konsbruck, Chief Executive Officer

Please click the following link to view https://afarak.com/our-management-team/.

Disclosure policy

Afarak Group SE (“Afarak” or the “Company”) is domiciled in Helsinki, Finland and is dual listed on the NASDAQ OMX Helsinki (AFAGR) and on the London Stock Exchange (AFRK). Afarak complies with Finnish legislation, including the Finnish Companies Act and the Securities Markets Act, the rules and guidelines of the NASDAQ OMX Helsinki Ltd and London Stock Exchange Group Plc, the regulations of the Finnish Financial Supervisory Authority (the “FSA”) and the principles set out in the Company’s Corporate Governance Statement.

This disclosure policy was approved by Afarak’s Board of Directors on 12 July 2013.

A copy of this policy has been made available to all of Afarak’s senior managers.

1. Disclosure Policy Objective(s)

The key principles of Afarak’s external communications, and specifically its investor relations, are: timely, accurate and complete disclosure of material information to shareholders, the investment community, media and the general public that is widely and simultaneously disseminated on both its listed stock exchanges in a consistent and appropriate manner.

This policy covers all external communications including, but not limited to:

• Formal stock exchange releases
• Written statements made by senior management in annual and quarterly reports, the Company and the Company’s subsidiary websites and investor, media or conference presentations
• Verbal statements made in meetings and/or telephone calls with the investment community, interviews with media, speeches, news conferences and conference calls.

2. Designated Company Spokespeople

The Company has designated the following senior executives to be official spokespeople on behalf of Afarak and they are responsible for communications to the investment community, the media and the general public:

• CEO;
• Chairman of the Board of Directors and
• EMT member separately designated by the Board

On specific occasions, senior managers may be designated as a temporary spokesperson on a particular issue.

Employees who are not authorised spokespeople must not respond to enquiries from the investment community or the media under any circumstance and must refer the enquiry to the CEO.

3. Stock exchange releases

Matters which, according to FSA’s and in Afarak’s own assessment, may have a material impact on the value of the Company’s securities and are potentially price sensitive in nature must be disclosed as a stock exchange release without undue delay.

Guidelines for publishing a stock exchange release to be applied unless other specific reasons exist:

• Transactions, such as acquisitions, divestments, joint ventures or partnerships;
• Orders and sales contracts with a value of 10% or more of the Company’s net sales;
• Other strategically important transactions;
• Share issues;
• Appointments in the Board of Directors or the Executive Management Team

All of Afarak’s stock exchange releases are published in both Finnish and in English and disseminated simultaneously to the NASDAQ OMX Helsinki and London Stock Exchange, the main newswires and made available on the Company’s website, www.afarak.com.

4. Financial reports

Afarak announces its strategy, financial targets and financial statements in annual and interim reports. The Company publishes three interim reports and a financial statements bulletin annually. The financial statements of Afarak can only be disclosed to the internal or external audiences after the Company has issued a stock exchange release of the corresponding information.

5. Future outlook

Afarak provides quarterly updates on the Company’s future outlook as part of its annual and interim reports, including significant market or economic conditions that could have an impact on the Company’s business as well as the significant risks related to these estimates.

6. Profit warnings

According to the disclosure rules, a profit warning must be issued if the Company’s result, balance sheet or financial position shows either a less favourable or a better performance than expected. The profit warning represents an adjustment of a previous outlook and guidance given by the Company.

Profit warnings are disclosed without undue delay, if the Company estimates that its results are likely to materially differ from the guidance given. Profit warnings are published as stock exchange releases.

7. Approval process

All stock exchange releases, as well as other key corporate materials such as company presentations and the Company’s website content, are approved by at least one of the following:

• CEO;
• Chairman of the Board;
• EMT member separately designated by the Board for approval process and
• A Finnish speaking member of the Board separately designated by the Board for the approval process

Finnish language versions of all documents and texts listed above are approved by a Finnish speaking member of the Board.

8. Insider guidelines

On issues related to insider information Afarak complies with Finnish legislation, the applicable parts of UK and London Stock Exchange regulations, NASDAQ OMX Helsinki Ltd’s guidelines for insiders and the standards of the FSA

The Company publishes a regularly updated list of public insiders on its website. The public insider register comprise the statutory insiders, i.e. the Board of Directors, the Principal Auditor and the Executive Management Team.

Certain members of the Corporate Management and other employees, as required by their duties, also belong to the Company’s own non-public insider register. When significant projects are at the preparation stage, the Company also draws up insider registers for the projects concerned. These insiders are given written notification of their status as insiders and instructions on the obligations that apply to insiders. The CEO resolves the parties that are included in the company specific insider register and establishes project specific insider registers.

9. Rumours

Afarak will not, as a general policy, comment on any public rumours unless the rumours contain major errors that could have or have had a significant impact on either the Company’s ability to do business and/or the Company’s share price. In such cases where a response is required, the Company will publish a stock exchange announcement.

10. Crisis situations

Afarak has a crisis communications framework in place at each of its operations and for the Company as a whole. If a crisis occurs, the Company’s Executive Management Team will be immediately informed. The CEO is responsible for crisis communications.

Depending on the extent and nature of the crisis, the Company’s Board of Directors or the CEO may appoint a crisis management team to handle the crisis communications with both employees and external parties; stakeholders, shareholders, investors, general media, local/regional/national government departments and business partners.