Governance Information • Apr 1, 2015
Governance Information
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Sonae Indústria, SGPS, SA
Publicly Listed Company Share Capital € 812 107 574.17 Maia Commercial Registry and Tax Number 506 035 034
26 February 2015
| A. | SHAREHOLDER STRUCTURE 3 | |
|---|---|---|
| I. | Capital Structure 3 | |
| II. | Shareholdings and Bonds Held 4 | |
| B. | GOVERNING BODIES AND COMMITTEES 5 | |
| I. | General Meeting 5 | |
| a) | Composition of the general meeting board 5 | |
| b) | Exercise of Voting rights 5 | |
| II. | Management and Supervision 6 | |
| a) | Composition 6 | |
| b) | Functioning 10 | |
| c) | Committees within the Management and Supervisory bodies and board delegates 14 | |
| III. | Supervision 17 | |
| a) | Composition 17 | |
| b) | Functioning 19 | |
| c) | Responsibilities and functions 20 | |
| IV. | Statutory External Auditor 21 | |
| V. | External Auditor 21 | |
| C. | INTERNAL ORGANISATION 23 | |
| I. | Articles of Association 23 | |
| II. | Reporting of irregularities 23 | |
| III. | Internal Control and Risk Management 25 | |
| IV. | Investor Relations 34 | |
| V. | Website 34 | |
| D. | REMUNERATIONS 36 | |
| I. | Competencies for approval of remunerations 36 | |
| II. | Remunerations Committee 36 | |
| III. | Remuneration structure 37 | |
| IV. | Disclosure of Remuneration 42 | |
| V. | Agreements with impact on Remuneration 43 | |
| VI. | Share plans or stock options plans 43 | |
| E. | TRANSACTIONS WITH RELATED PARTIES 45 | |
| I. | Control mechanisms and procedures 45 | |
| II. | Information concerning transactions 46 | |
| PART II – ASSESSMENT OF THE CORPORATE GOVERNANCE 47 | ||
| 1. | Identification of the corporate governance code adopted 47 | |
| 2. | Analysis of compliance with the Corporate Governance Code adopted 47 | |
Sonae Indústria's share capital amounts to 812,107,574.17 Euros and is represented by 11,350,757,417 ordinary nominal shares without nominal value. All shares are admitted to trading on the NYSE Euronext Lisbon.
During the year 2014, Sonae Indústria increased its Share Capital from 700,000,000 euros to 812,107,574.17 euros, through a Public Offering and through a private placement for Institutional Investors, with the emission of 11,210,757,417 shares with an issue price of 0.01€ per share. The shares issued under the scope of the capital increase process were admitted to trading on 3rd December 2014.
No restrictions are in place regarding the transfer and sale of the company's shares.
The company at the date of 31st December 2014 did not own any of its own shares.
As of 31 December 2014, loans from financial institutions, amounted to a total circa 392 million Euros (69% of the consolidated net debt), relative to which the respective creditors have the option to consider the debt due in the event of a change in shareholder ownership.
| Summary | Million € | N. Contracts |
|---|---|---|
| Commercial Paper | 126 | 4 |
| Bonds | 150 | 1 |
| Bank Loans | 112 | 4 |
| Overdrafts | 4 | 2 |
| Total | 392 | 11 |
Nevertheless, such agreements do not harm the free trading of the company shares, nor they interfere with the shareholders evaluation on the management bodies' performance, as these defend the social interests, aiming to ensure the sustainability of the business in the long term under the current market conditions.
No other relevant agreements were established in relation to changes or cessation, in the event of a transfer in the control of the company.
There are no statutory constraints regarding the number of votes that may be cast by a single shareholder.
The company is unaware of the existence of a shareholders' agreement, which may restrict the transfer of securities or voting rights.
II. SHAREHOLDINGS AND BONDS HELD
| Shareholder | No. of shares % Share Capital | % Voting rights | |
|---|---|---|---|
| Efanor Investimentos, SGPS, SA (1) | |||
| Directly | 4,842,637,142 | 42.6636% | 42.6636% |
| By Pareuro, BV ( controlled by Efanor) | 2,932,687,752 | 25.8369% | 25.8369% |
| By Maria Margarida Carvalhais Teixeira de Azevedo (Director of Efanor) |
1,010 | 0.000009% | 0.000009% |
| By Migracom, SGPS,SA (Company controlled by Efanor´s Director, Paulo Azevedo) |
9,732,857 | 0.0857% | 0.0857% |
| By Linhacom, SGPS,SA (Company controlled by Efanor´s Director, Cláudia Azevedo) |
2,507,400 | 0.0221% | 0.0221% |
| Total allocation | 7,787,566,161 | 68.6083% | 68.6083% |
(1) Under the terms of paragraph b) of no. 1 of Article 20 and of no. 1 of Article 21 of the Portuguese Securities Code, Belmiro Mendes de Azevedo is the ultimate beneficial owner, since he holds around 99% of the share capital and voting rights of Efanor Investimentos SGPS, SA, which, in her turn, is the dominant company of Pareuro BV.
The Sonae Indústria directors detained the following company shares as of 31 December 2014:
| Number of Shares | Number of Shares | ||
|---|---|---|---|
| Belmiro Mendes de Azevedo | (1) Efanor Investimentos, SGPS, SA | ||
| Efanor Investimentos, SGPS, SA (1) | 49,999,997 | Sonae Indústria, SGPS, SA | 4,842,637,142 |
| (1 share is held by the spouse) | Pareuro, BV (2) | 5,583,100 | |
| Sonae Indústria, SGPS, SA | 1,010 | ||
| (held by the spouse) | |||
| Duarte Paulo Teixeira de Azevedo | (2) Pareuro, BV | ||
| Efanor Investimentos, SGPS, SA (1) | 1 | Sonae Indústria, SGPS, SA | 2,932,687,752 |
| Migracom, SGPS, SA (3) | 1,999,996 | ||
| (3) Migracom, SGPS, SA | |||
| Sonae Indústria, SGPS, SA | 9,732,857 | ||
| Rui Manuel Gonçalves Correia | Imparfin, SGPS, SA (4) | 150,000 | |
| Sonae Indústria, SGPS, SA | 6807809 | ||
| (4) Imparfin, SGPS, SA | |||
| Sonae Indústria, SGPS, SA | 30,098,752 | ||
The Sonae Indústria Board of Directors may decide to increase the company's share capital up to the amount of one thousand and two hundred million Euros, one of more times, through cash injections under the terms established by law. These powers were renewed in the General Meeting held on 4 April 2014 and may be
exercised over a period of five years from that date, notwithstanding the general meeting decision to renew these powers again.
The Board of Directors under the use of the powers that were attributed has decided in 2014, with the favourable opinion of the Supervisory Board to proceed with a share capital increase in an amount up to 150 million euros, limited to the subscriptions collected, which were in an amount of 112,107,574.17 euros, being this capital increase stated in the item 1 of this report.
There are no significant commercial relationships between the owners of the qualified shareholdings and the company.
| I. GENERAL MEETING |
||
|---|---|---|
| a) | Composition of the general meeting board |
The Board of the Shareholders' General Meeting was elected at the Shareholders' Annual General Meeting of Sonae Indústria held on 4 th April 2014, for the mandate 2012-2014 and is composed by:
António Agostinho Guedes served until March 2014 as Secretary of the General meeting Board.
| b) | Exercise of Voting rights | |
|---|---|---|
| ---- | --------------------------- | -- |
Under the terms of Sonae Indústria's Articles of Association, the Shareholders' General Meeting is composed only of shareholders with voting rights who provide evidence of their ownership, according to the terms established by law.
The Article 23º-C of the Securities Code, added, establishes that, who is entitled to participate, discuss and vote in the Shareholders' General Meeting, are shareholders who at the record date, which corresponds to 0 hours of the 5th trading day prior to the date of the meeting, hold at least one vote, according to law and the statutes.
Under the terms of Sonae Indústria's Articles of Association, shareholders may be represented at Shareholders' General Meetings under the terms established by the law and by the respective notice of the meeting.
Under Sonae Indústria's Articles of Association, Shareholders' General Meetings can meet at the first session, as long as shareholders representing over fifty percent of the Company's share capital are present or represented.
The Company's Articles of Association stipulate that, while the Company is regarded as a listed and "publicly traded company", shareholders are allowed to vote by post in relation to all items on the agenda of the Shareholders' General Meeting, following the rules for the exercise of voting by post. The Company's Articles of Association establish that votes can only be considered when sent to the headquarters of the Company by
registered post with notification of receipt addressed to the Chairman of the Shareholders' General Meeting. These votes should be received at least three days before the date of the General Meeting and are subject to the normal rules regarding evidence of share ownership. Postal votes are considered negative votes in relation to any proposals presented after the date on which they were issued. A standard form for postal voting is available at Sonae Indústria's corporate website www.sonaeindustria.com and at its head offices.
Sonae Indústria Articles of Association stipulate that the postal voting may be exercised by electronic means if this medium is made available to shareholders and is included in the notice of the meeting. This possibility has not been used yet. Nevertheless, the company is currently developing a system to implement the electronic vote, which is expected to be available for the Shareholder's General Meeting of 2016.
The preliminary information for the General Meeting and the proposals submitted by the Board of Directors are available at the time of disclosure of the notice of meeting.
The company has not adopted any mechanism that causes a time lag between the entitlement to receive dividends or the subscription of new securities and the right to vote of each share.
Each share corresponds to one vote, with no limitation.
The decisions are taken by simple majority, apart from when law stipulates otherwise.
| II. | MANAGEMENT AND SUPERVISION | |
|---|---|---|
| a) | Composition |
The Sonae Indústria's Articles of Association define a corporate governance model of the company composed by a Board of Directors, a Statutory Audit Board and a Statutory External Auditor.
The Board of Directors examines annually the advantages and possible disadvantages of adopting this model.
The Board of Directors believes that the model favours the interests of the company and its shareholders, being effective and having not faced any constraints to its operation.
Under the terms of the Articles of Association, the Board of Directors may consist of an even or odd number of members, with a minimum of five and a maximum of nine, elected by the General Meeting for three-year mandates.
Members of the Board of Directors are elected by the Shareholders' General Meeting. Groups of shareholders representing between 10% and 20% of the Company's share capital, may submit a stand-alone proposal to nominate a Director in advance of the Shareholders' General Meeting. Such shareholder cannot support more than one list of Directors and each list must identify at least two eligible persons to fill each position on the Board. If lists are submitted by more than one group of shareholders, the voting will be based on all of these lists.
In the event of death, resignation or temporary or permanent inability of any of the Directors, the Board of Directors is responsible for his or her replacement. If the Director in question was nominated by minority shareholders, a new separate election must be held.
The Sonae Indústria Board of Directors on 31 December 2014 comprised 8 directors, all elected in the Annual General Meeting held on 29 March 2012 for the 2012-2014 mandate, apart from George Christopher Lawrie, who was elected in the Annual General Meeting held on 12 April 2013 and of Carlos António da Rocha Moreira da Silva which was co-opted on the Board of Directors meeting of 12 November 2014, having both been elected until the end of the current mandate.
Date of the Sonae Indústia Directors first appointment:
On 31st December 2014 the Board of Directors of Sonae Indústria was composed of:
Among the eight (8) directors, three (3) are executive members and five (5) are non-executive members.
Among the non-executive Directors, three (3) are independent. As for the director Albrecht Olof Lothar Ehlers, it is deemed that the annual payment of 12,300 Euros, which he receives from the subsidiary Glunz, AG for his role as part of its Supervisory Board, does not compromise his independence.
Belmiro de Azevedo (Chairman of the Board of Directors): obtained a degree in Chemical Engineering at the University of Oporto, a PMD from Harvard Business School, participation in the Financial Management Programme from Stanford University and has occupied a diverse number of positions in the Efanor/Sonae Group from an early stage. Mr Belmiro de Azevedo is today Chairman of the Board of Sonae, SGPS, SA, Chairman of the Board of Sonae Capital, SGPS S.A., and member of the European Union Hong Kong Business Cooperation Committee, of the International Advisory Board of Allianz AG and of the Harvard Business School International Advisory Board. He has been awarded on a number of occasions, some of the most prominent being the "Encomienda de Numero de la Ordem del Mérito Civil" from His Majesty D.Juan Carlos, King of Spain, the "Ordem of the Cruzeiro do Sul" from the President of the Brazilian Federal Republic, the "Grã Cruz da Ordem do Infante D. Henrique" from the President of the Portuguese Republic, nomination as "Honorary Fellow" of the London Business School and member of the "Order of Outstanding Contributors to Sustainable Development" from the World Business Council for Sustainable Development.
Javier Vega (Independent): obtained a degree in Mining Engineering by the Escuela Técnica Superior de Ingenieros of Minas of Madrid and in Business Management from Glasgow Business School (UK). He was a member of the Board of Directors of several companies such as Robert Bosch, Red Electrica de España, SEAT and Grupo Ferrovial. Currently performs other Board positions.
Paulo Azevedo: Holds a degree in Chemical Engineering from the Lausanne Polytechnic School (Switzerland) and a post-graduate degree in Business Studies (MBA) from the Oporto Business School (ex-EGP). Was CEO of Optimus – Telecomunicações S.A. between 1998 and 2000; CEO of Sonaecom between 2000 and 2007 and is CEO of Sonae SGPS, S.A. since May 2007. Holds a number of managerial and directorship roles in the Efanor/Sonae Group. Paulo Azevedo is Belmiro de Azevedo's son.
Albrecht Ehlers (Independent): lawyer; law degree from the University of Münster (Germany). From 1987 to 2000 held various positions in the legal and human resources departments of Glunz AG, having been appointed in 1995 to join the Executive Board (Vorstand) of that company, with responsibilities in several areas including human resources and legal department. Between 2000 and 2004 he was senior vice president of Hochtief AG (Germany) with particular responsibility in the areas of human resources and corporate services. From 2004 until 2009 he joined the Executive Board (Vorstand) of that company. Since the year 2010 he holds functions of chancellor at the Technical University of Dortmund (Germany).
Carlos Moreira da Silva (Independent): Degree in Mechanical Engineering – Universidade do Porto, MSc in Management Sci. and Operational Research (University of Warwick – UK) and PhD in Management Sciences (University of Warwick – UK). Auxiliary professor of Faculdade de Engenharia of U.P. between November 1982 and March 1987, director of EDP, Electricidade de Portugal, E.P. (March 1987 and August 1988), occupied several positions in companies of Sonae Group / Sonae Indústria Group between September 1988 and January 2000, having, thereafter, in 2003, occupied the position of CEO of Sonae Indústria, SGPS, SA until April 2005, as well as in other companies of Sonae Indústria Group. Was member of Advisory Board of 3i Spain (2005-2012), member of the Supervisory Board of Jeronimo Martins Dystrybucja, SA (2009 to 2012) and Chairman of the Board of Directors of La Seda de Barcelona (2010-2014). Currently exercises position of Chairman of BA Group, is member of the Board of Directors of Banco BPI and member of the Management of Cotec Portugal."
Rui Correia (CEO): holds a degree in Economics from the University of Oporto and a post graduate degree in Business Management from the Oporto Institute of Business Studies. Having exercised functions in the Efanor/Sonae Group since 1994, he was head of the Finance Department of Sonae SGPS from 2000 and since 2001, he has also held a number of managerial and directorship roles in the Efanor/Sonae Group. He was appointed as Sonae Indústria CFO in 2005 and Sonae Indústria CEO in February 2013.
Christopher Lawrie (CFO): BA (Honours) Degree in Business Studies and Finance of Greenwich University (UK). He has broad experience in investment banking, having worked with Schroders, BZW and Credit Suisse where he was Director of the Corporate Finance Division covering specifically Southern European Telecoms markets. In 2001, he joined Sonae/Efanor Group as CFO of Sonaecom and, later, he was appointed CEO of Sonae Retail Properties. In 2013, he was appointed CFO of Sonae Indústria.
Jan Bergmann (CITO): obtained a degree in Engineering by Berlin University (Germany), "Dr.-ING" Technical University of Berlin, Business Administration and Finance for Technical Managers – European School of Management and Technology. Held various positions within the Group DuPont and joined Glunz AG in January 2011.
The non-executive director Belmiro de Azevedo is the majority shareholder of Efanor Investimentos, SGPS, SA and the non-executive director Paulo Azevedo is the son of Belmiro de Azevedo.
21. Organisational charts with distribution of competencies of the various statutory bodies, committees and/or departments of the company, including information regarding delegation of competencies, particularly in what concerns the delegation of day-to-day company business
The responsibilities of the different governing bodies and committees of the company is split as follows:
The Board of Directors has delegated powers to the Executive Committee to manage day-to-day operations of the Company except:
c) convening Shareholders' General Meetings;
d) approving the Annual Report and Accounts;
| b) Functioning |
||
|---|---|---|
The Board of Directors and the Executive Committee are regulated by the functioning rules that can be read at the company website www.sonaeindustria.com.
The Board of Directors convened 10 times in 2014, with the respective minutes recording all the deliberations made. All the meetings were attended by all the board members 100% of the time, apart from Jan Bergmann who attended 90% of the meetings.
The company's Remuneration Committee, in connection with the Board of Nomination and Remuneration Committee assessed the performance of the executive directors.
The performance assessment criteria of the executive directors are predefined, based on the performance indicators of the company, the working teams under their responsibility and their own individual performance. These criteria are further explained in the Remunerations section of this report.
The pre-determined criteria for evaluation of the executive directors are as follows: objective criteria related to the degree of successful implementation of initiatives and actions that were agreed for implementation in the year in question; and subjective criteria related to the contribution in terms of experience and knowledge to the discussions by the Board of Directors, the quality of preparation of meetings and the contribution to discussions of the Board of Directors and Committees as well as the commitment to the success of the company, among others.
The members of the Executive Committee work full time on the management of Sonae Indústria and its subsidiaries.
The other members of the Board of Directors currently perform their roles of members as of the Board of Directors and the Supervisory bodies of other companies, as listed below.
Agloma Investimentos, SGPS, S.A.
Tableros Tradema, SL
Tafiber, Tableros de Fibras Ibéricos, SL
Glunz AG (Supervisory Board Chairman – "Aufsichtsrat")
Imoassets-Sociedade Imobiliária, SA (Chairman)
Erich-Brost-Institut für Journalismus in Europa GmbH
Ydilo Voice Solutions, SA
c) Committees within the Management and Supervisory bodies and board delegates
To improve the operational efficiency of the Board of Directors and in line with the best practices for company governance, the Board of Directors appointed an Executive Committee, as well as 3 Specialised Committees.
The rules regulating the functioning of the Executive Committee can be read on the company website: www.sonaeindustria.com.
The Executive Committee is appointed by the members of the Board of Directors and comprises 3 members allocated the following areas of responsibility:
| Executive Committee | |||||
|---|---|---|---|---|---|
| Rui Correia (CEO) |
|||||
| Christopher Lawrie (CFO) |
|||||
| Jan Bergmann (CITO) |
The fields of responsibility of the Executive Committee are split as follows:
| Executive Committee | ||||||
|---|---|---|---|---|---|---|
| Southern Northern North America South Africa Non-Board Europe Europe Business |
||||||
| CEO | HUMAN RESOURCES & COMPETITIVENESS, SALES AND MARKETING | |||||
| CFO | FINANCE, PLANNING & CONTROL, ADMINISTRATIVE, INTERNAL AUDIT | |||||
| CITO | INDUSTRIAL & TECHNOLOGY, ENVIRONMENT, HEALTH & SAFETY | |||||
| MATRIX ORGANIZATION FUNCTIONALORGANIZATION |
The Executive Committee normally meets at least once every month, excluding August and additionally whenever the Chairman of the Executive Committee calls a meeting. Meetings can only take place if the majority of the members are present or represented. The Chairman of the Executive Committee presides the meeting.
In 2014 the Executive Committee convened 26 times, with the respective minutes recording the deliberations made. The attendance level of the Executive members to the meetings was as follows: 100% for Rui Correia, 92.3% for Christopher Lawrie and 65.4% for Jan Bergmann.
Decisions made by the Executive Committee are taken with the favourable votes of the majority of the members present or represented, including those voting by post. In the absence of quorum, the Executive Committee must submit the matter under consideration to the Board of Directors for deliberation.
In order to keep the Board of Directors and the Statutory Audit Board constantly updated of the decisions made by the Executive Committee, the Chairman of the Executive Committee provides the minutes of the Executive Committee's meetings to all the members of both the Board of Directors and the Supervisory Audit Board. At the end of each year, the Executive Committee drew up the schedule of its meetings for the following year, informing the Board of Directors and the Statutory Audit Board of this schedule.
The members of the Executive Committee provided all the information requested by other members of the governing bodies on time and appropriately.
The Board of Directors also appointed three committees with specialised expertise.
The BAFC is composed of the following Non-Executive Directors:
The BAFC normally meets at least 5 times yearly and is responsible for:
Over the course of 2014, the BAFC held 5 meetings with the respective minutes having been drafted.
Responsibilities attributed to BAFC as a specialised committee of the Board of Directors, are developed in terms of company management and do not override the functions of the Statutory Audit Board, as a supervisory board. The BAFC is a Committee within the Board of Directors and according to its empowerment is responsible for an in-depth analysis of the financial statements, analysis of internal and external audit works, risk management processes and the performance of the key financial ratio, among other areas. It also issues recommendations for final deliberation at the Board of Directors, thereby improving its operational functioning.
The SREEC is composed of the following Non-executive Members:
This Committee is responsible for:
This Committee has an Ethics sub-committee composed by an independent non-executive member of the Board of Directors, by the Internal Auditor and by the Global Human Resources Director, which have the function to advise the SREEC. The Ethics sub-committee prepares at least one annual report to the Board of Directors, and when appropriate also the auditing bodies of the related country, issues related with the corporate governance or business ethics.
The current members of the Ethics sub-committee are:
SREEC met once during 2014 and recorder in the minutes their deliberations.
The Ethics Sub Committee met once.
The BNRC is composed of the following Non-Executive Members:
Committee meetings are normally held at least twice a year. The BNRC's main functions are to review and submit proposals and recommendations on behalf of the Board of Directors to the Shareholder's Remuneration Committee in relation to the remuneration and other compensations of Board members. Additionally, it analyses and approves proposals and recommendations on behalf of the Board of Directors in relation to the remuneration and other compensations for other senior executives of the Sonae Indústria Group, depending on the activity performed by them. BNRC is also responsible for finding potential candidates with a profile to be a Board Member both for the company itself and for its affiliated companies.
The BNRC liaises with the Sonae Indústria Shareholders' Remuneration Committee since this is the only means through which to guarantee that the Shareholders' Remuneration Committee has the necessary knowledge on the performance of every director throughout the year. This is particularly important in the case of the Executive Directors, given that the Shareholders' Remuneration Committee does not closely shadow the performance of every Director and therefore does not have the necessary knowledge that enables them to perform their functions in the best way. The BNRC may also be assisted by external entities provided absolute confidentiality is ensured in relation to the information obtained arising from that cooperation.
Over the course of 2014, the BNRC met on two occasions with the respective minutes having been drafted.
| III. | SUPERVISION |
|---|---|
| a) | Composition |
The Statutory Audit Board may comprise an even or odd number of members, with a minimum of three and a maximum of five with one or two substitutes appointed, depending on the number of members being either three or more, respectively. The members are elected for three-year mandates.
The Statutory Audit Board was elected at the 2012 Shareholders' Annual General Meeting for the 2012-2014 mandate and has the following composition:
Armando Luís Vieira de Magalhães -Member
Jorge Manuel Felizes Morgado Member
The current members of the Statutory Audit Board were elected for the first time on the following dates:
All members of the Statutory Audit Board comply with the rules of incompatibilities referred to in paragraph 1 of art. 414-A and the criteria of independence set out in paragraph 5 of art. 414, both of the Companies Law.
To ensure at all times the independence of members of the Statutory Audit Board prior to their appointment, such members issued statements attesting that: (i) not to incur in any of the incompatibilities provided in Article 414º-A of the Companies Law as well as they were not in any situation that affects their independence in accordance with paragraph 5 of Article 414º of the same law; (ii) committed themselves to immediately notify the company of anything that may lead to their loss of independence or to any incompatibility during their mandate.
The Statutory Audit Board Regulation also states that if, during the course of their term of office, any situation related to loss of independence or incompatibility regarding any member of the Statutory Audit Board arises, the respective member should immediately communicate this to the Chairman of the Board of Directors. Any situation of legal incompatibility shall lead to forfeiture of the term of office of the Statutory Audit Board member.
MANUEL HELENO SISMEIRO (Chairman of the Statutory Audit Board): Degree in Finance, SCEF (Portugal), Accountant, ICL (Portugal). Currently he is a specialist consultant in the areas of internal audit and internal control and is Chairman of the Statutory Audit Board of OCP Portugal Produtos Farmacêuticos SA, Sonae Industria, SGPS, SA and Sonae Capital, SGPS, SA. Prior to this he was a partner at Coopers & Lybrand and Bernardes, Sismeiro & Associados and from 1998 to 2008 at PricewaterwhouseCoopers - auditors and Statutory External Auditor and responsible for the Audit and official review in various activity sectors. He was also responsible for managing the office of those companies at Porto and Director of Audit Division in the period of 1998 – 2002 as well as member of the management board at PricewaterhouseCoopers.
ARMANDO LUÍS VIEIRA DE MAGALHÃES (Statutory Audit Board Member): Bachelor of Accounting (former-ICP and current ESCAP), Degree in Economics (University of Porto), Executive-MBA European Management (IESF / IFG). He performed various functions in a credit institution (1964-1989) and since 1989 has practiced as an external auditor, first on a stand-alone basis but subsequently as partner of Santos Carvalho & Associados, SROC and currently of Armando Magalhães, Carlos Silva & Associados, SROC, Lda.
JORGE MANUEL FELIZES MORGADO (Statutory Audit Board Member): Management Degree (ISEG, Technical University of Lisbon), MBA in Finance-IEDE Madrid, MBA in Management and Information Systems (Catholic University), Official External Auditor. Mr. Morgado held various roles as auditor in Coopers & Lybrand (1980- 1989), responsible for Management Control and Internal Audit of the Coelima Group (1989-1991) before becoming a partner of Deloitte (1991-2004). From 2004 he has been an Official Statutory Auditor and Partner of Econotopia-Consultoria e Gestão, SA.
OSCAR ALÇADA DA QUINTA (Statutory Audit Board Substitute-Member): Degree in Economics (University of Porto). He has held various functions in both the administrative and financial departments of different companies (1982-1986) and since 1986 has provided services within the external audit of the Official Statutory Auditors Association. Through this activity in 1990 he was included in the List of Official External Auditors, a function which he works on exclusivity, initially on a stand-alone basis but subsequently as partner of Óscar Quinta, Canedo da Mota & Pires Fernandes, SROC.
All members of the Supervisory Audit Board have adequate competencies o exercise their respective functions.
b) Functioning
The rules regulating how the Statutory Audit Board functions can be read at the company website: www.sonaeindustria.com.
In 2014 the Statutory Audit Board convened 8 times. The minutes were drawn up recording the respective deliberations. All the members attended 100% of the meetings.
36. Availability of each member of the Statutory Audit Board, indicating offices held in other companies, inside and outside the group, as well as other relevant activities held by those members during the financial year.
The Statutory Audit Board members exercised their roles in conjunction with the functions listed below, as outlined in section 33.
Functions exercised by Statutory Audit Board members as of 31 December 2014:
Sonae Capital, SGPS, SA (Chairman of the Statutory Audit Board)
Sonaecom - SGPS, S.A. (Statutory Audit Board)
| c) Responsibilities and functions |
|---|
| -------------------------------------- |
If the company or any of its subsidiaries has the intention to hire the services of the external auditor or any entities with which they have joint shareholdings or which are part of the same network, other than auditing services, the Statutory Audit Board must previously approve such hiring.
The Statutory Audit Board main responsibilities are as follows:
k) appointing and hiring services from experts to help one or more members in the exercise of their duties. The hiring of and fees for these experts should bear in mind the complexity of the matters involved and the financial position of the Company;
l) overseeing the process of preparation and disclosure of financial information;
Besides those responsibilities the Statutory Audit Board must issue prior opinion on any transaction with shareholders or entities with whom they are in any relationship, under Article 20 of the Securities Code (reference shareholders), in the terms set forth in section 91.
The Statutory Audit Board's Report, available on the company website together with the other accounting documents, details the supervisory activity carried out, with no constraints detected.
| IV. | STATUTORY EXTERNAL AUDITOR |
|---|---|
The Statutory External Auditor is PriceWaterHouseCoopers & Associados, SROC, Lda, represented by Hermínio António Paulos Afonso.
PriceWaterhouseCoopers has been the statutory external auditor of the company since the Annual General Meeting of 2006, and is currently undertaking its third three-year mandate.
In 2014 PriceWaterHouseCoopers provided other compliance and assurance services.
V. EXTERNAL AUDITOR
The external auditor of the company is PriceWaterHouseCoopers & Associados, SROC, Lda, represented by Hermínio António Paulos Afonso, registered in the CMVM under no. 9077.
PriceWaterhouseCoopers has been the external auditor of the company since 2006. Its current representative, Hermínio Afonso, has represented it since 20 September 2011.
Sonae Indústria has adopted the principle of not proceeding with the rotation of the external auditor at the end of its third mandate, only if the Statutory Audit Board concludes that, if the external auditor is kept in functions beyond the before mentioned period, it will not collide with its independence, and if the cost-benefit analysis of this replacement are in favour of the renewal of this mandate.
As for the Statutory External Auditor representative, on top of ensuring compliance with the legal stipulations, it must also be conducted an evaluation to ensure its independence.
The Statutory Audit Board monitors the performance and execution of the works conducted by the external auditor throughout each period, meeting with him whenever it deems fit. Moreover, the Statutory Audit Board evaluates, on a yearly basis, the global performance of the external auditor, including an appraisal on its independence.
During 2014 a subsidiary of Sonae Indústria hired other services of Human Capital, so as to perform an assessment on its commercial team, benchmarking with current market practices, in the amount of 4,500 euros, representing 0.74% of the total amount paid by Sonae Indústria group. The Statutory Audit Board approved the hiring of these services.
Sonae Indústria and its subsidiaries paid PriceWaterhouseCoopers the following amounts in 2014:
| By the Company | |
|---|---|
| Auditing Services (€) | 13,730 € / 2.25% |
| Other reliability guarantee services (€) | 87,696 € / 14.37% |
| By other group entities | |
| Auditing Services (€) | 374,683€ / 61.38% |
| Other reliability guarantee services (€) | 129,790 € / 21.26% |
| Other services other than auditing services (€) | 4,500 € / 0.74% |
The rules applicable to amendments of the Articles of Association are established by law. It is up to the Shareholders' General Meeting to decide on the amendment of the Articles of Association. However, the Board of Directors can decide to change the registered office within the national territory, as well as deliberate on increases in the Company's share capital through new cash injections up to one thousand and two hundred million Euros, on one or more times.
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Sonae Indústria has a Code of Conduct that includes the irregularities communication policy, which is available at the website www.sonaeindustria.com. Sonae Indústria's Code of Conduct and irregularities communication policy aims to create the climate and means for its employees and service providers to express their concerns about any behaviour or decision that they believe does not respect the company's ethics or Code of Conduct.
Any information on a suspected irregularity should be sent via e-mail or post to one of the following addresses:
By e-mail: [email protected]
By post: Sonae Industria SGPS, S.A.
Subcomissão de Ética da Comissão de Responsabilidade Social, Ambiente e Ética Lugar do Espido, Via Norte Apartado 1096 4470-177 Maia Codex Portugal
A meeting to clarify the alleged irregularity can then be arranged with the Ethics Subcommittee of the Social Responsibility, Environment and Ethics Committee, when required.
Each irregularity report will be received by the Ethics Subcommittee, who is responsible for initiating and supervising the investigation into all reports. Once the research is concluded and if the irregularity reported corresponds to wrongful conduct, the Ethics Subcommittee of the Social Responsibility, Environment and Ethics Committee, shall notify the situation to the superior of the employee or the Service Provider's employer in order to apply corrective actions and / or initiate disciplinary proceedings.
As the Company wishes to encourage good faith reporting of any alleged irregularity while avoiding damage to the reputation of innocent persons initially indicated as allegedly suspected of wrongful misconduct, anonymous reports are not accepted.
The investigation will be conducted in a confidential manner and the Company ensures that there will be no discriminatory or retaliatory action against any employee or service provider who reports an alleged irregularity in good faith. If any employee or service provider believes that he or she has been retaliated against for reporting or participating in an investigation, he/she should immediately report such perceived retaliation to the Ethics Subcommittee of the Social Responsibility, Environment and Ethics Committee.
The company provides a means by which to report irregularities on its intranet
The Ethics Subcommittee shall inform the Statutory Audit Board about any report of non-ethical behaviour received.
The company maintains a record of all complaints and cases investigated as well as their findings which is be available for consultation by the statutory bodies and external auditor.
The Code of Conduct of Sonae Indústria contains a set of standards based on our shared values that govern the activities of Sonae Indústria. It applies to everyone employed by the Group, including members of the statutory bodies of Group companies, managing directors, senior executives, employees and people whose status is equivalent to that of employees, such as temporary staff and service providers. The Code sets out guidance on those matters of business ethics to be complied with by all employees and service providers when carrying out their professional duties.
Sonae Indústria adheres to and actively promotes the highest ethical standards of professional conduct at all levels of the Group. Commitment to standards of conduct must emanate from the top. Therefore, Sonae Indústria's top managers are expected to set an example for the rest of the organisation through their actions, by actively leading the adoption and by monitoring the enforcement of these standards. As such, the senior managers must guarantee, in their area of responsibility, strict compliance with the law, permanently monitoring such compliance, and clearly explaining to their employees that the transgression of any law will have both legal and disciplinary consequences.
It is particularly important that a commitment to these standards of conduct is accepted by all employees and service providers at all Group companies, wherever they operate. Country operations are also required to adopt appropriate principles and actions to deal with specific ethical issues that may arise in their own countries.
The Code of Conduct of Sonae Indústria was defined in such a way that clearly explains the conduct to be followed with all stakeholders, as well as to connect it with the company's values. The code of conduct is structured in the following way:
Transparency
The complete code of conduct can be found at the company site www.sonaeindustria.com.
Both Internal Control and Risk Management are important parts of Sonae Indústria culture, being present in the management processes and responsibilities of all group employees, at the different levels of the organization. This is supported by the Group transversal functions, notably the Risk Management, Internal Audit and Planning and Management Control departments, with specialized teams that report hierarchically to the Board of Directors.
The Risk Management department's mission is to support the companies in achieving their business objectives through a structured and systematic approach of identifying and managing risks and opportunities. It has also the objective to promote the consistency of principles, concepts, methodologies and tools to evaluate and manage the risks of all business units of the Group.
The Internal Audit department's mission is to identify and evaluate, in a systematic and independent way, the correct functioning of the risk management and internal control systems, as well as the implementation effectiveness and efficiency of the controls and mitigation actions. It must also inform and alert, on a regular basis, the Board of Directors and the Statutory Audit Board of the more relevant observations and recommendations, identifying improvement opportunities.
The Planning and Management Control (PMC) department promotes and supports the integration of the risk management activities in the planning and management control processes of the companies. This department, supported by robust information systems, produces reports containing operational, financial and compliancerelated information. Through its Procedural Manual, defines and implements a set of rules and procedures relative to the planning processes, reporting, management accounts and investment approval process.
Sonae Indústria has integrated a Skills Centre into the framework of its Global Business Processes and Systems, which works with the local operations and corporate departments as a centre of excellence to achieve key objectives, such as: prioritisation, development and implementation of processes and systems (including control activities); definition of the best practices and assessment of the performance of the processes, establishing the connection between the business needs and the system application component.
Ongoing monitoring activities of control are in place, namely: approvals, authorisations, verifications, reconciliations, reviews of operating performance, security of assets and segregation of duties. Pertinent information is identified, captured and communicated within a form and timeframe which enables employees to fulfil their responsibilities.
The centralised accounting back-office, Shared Service Centre (SSC) performs the accounting of all subsidiaries, with the exception of the Canadian, thus helping to guarantee alignment of policies and strengthening of procedures and controls.
The reliability and integrity risks of the accounting and financial information are also evaluated and reported by the External Audit activity.
Sonae Indústria has a reasonable level of confidence in the internal control framework which is currently in place. Communication of the Vision, Values and Principles throughout the organization reinforces the importance in
terms of ethical behaviour. The existence of the Code of Conduct, of the Whistle-blower (reporting of irregularities) tool and the Ethics Subcommittee, enhance the control culture of the organisation.
It is the responsibility of the Board of Directors to create the necessary structures and services to ensure that the internal control and risk management system works properly. For this purpose, the Board of Directors, though the Board Audit and Finance Committee, monitors the activities of Internal Audit and Risk Management.
The Internal Audit and Risk Management departments report functionally to and meet the Statutory Audit Board at least twice a year as well as the Board Audit and Finance Committee, whose chairman is an Independent Director. Both Governing Bodies can request information or clarifications whenever they wish.
The competences of the Statutory Audit Boards include reviewing the effectiveness of the risk management system as well as that of the internal control and audit systems. The Statutory Audit Board has access to all the information whenever it deems necessary and can liaise with the heads of the respective departments, receiving the reports related to those activities.
The Statutory Audit Board is presented with the internal audit and risk management plan of activities, and may issue its opinion on it, in addition to the suitability of the resources allocated to the different activities.
The External Auditor reviews the effectiveness and operation of the internal control mechanisms according to work plan aligned with the Statutory Audit Board, to whom it also reports its findings.
Sonae Indústria is based on integrity and ethical values, as outlined in the company's Code of Conduct, which emanate from the top down with the example then being set by management.
The different governing bodies have been born from a management philosophy and operating style based on a strong organizational structure with adequate assignment of authority and responsibilities. Sound Human Resource policies and procedures and the existence of the Code of Conduct are enshrined in such structure.
Sonae Indústria faces a variety of risks from external and internal sources which must be assessed and we have installed in our company a culture of prevention and early detection. As you will see subsequently, an Enterprise-Wide Risk Management Framework was developed and is updated periodically. Additionally, it is also each functional area of the Group the responsibility of controlling and monitoring of the risks inherent to each function.
Sonae Indústria's activity is reliant upon the macroeconomic environment and the profile of the markets in which it operates. Sonae Indústria's subsidiaries' products are fundamentally commodities, having the nature of durable goods, and are mainly intended for the construction and furniture sectors. The Group's operational activity is, therefore, cyclical, being positively correlated with general economic cycles and, in particular, with the evolution of the sectors mentioned. Thus, Sonae Indústria's and its subsidiaries' businesses can be negatively affected by periods of economic recession, in particular by a drop in household consumption levels which, in turn, are influenced, among other things, by wage policies and unemployment levels, as well as prevailing confidence and social protection levels. The availability of credit in the economy is also relevant for Sonae Indústria Group's business due to its potential impact on the property market. Sonae Indústria, through its subsidiaries, has a strong presence in international markets, where it produces and sells, contributing almost 90% of its consolidated turnover. Its most important markets are the Eurozone, North America (namely Canada and the United States) and South Africa. These markets have different macroeconomic, political and social profiles and, as such, are reacting differently to the global economic and financial crisis. In fact, the rate at which the various markets emerge from the current crisis depends on variables outside of Group's control. Equally,
possible political and/or social and/or religious tensions in any of the markets may have a material impact on Sonae Indústria Group's operations and financial situation that is impossible to estimate.
The activity developed by Sonae Indústria through its subsidiaries faces stiff competition in all the markets in which it is present (namely in Iberian Peninsula, Germany, Canada and South Africa),which could have adverse effects on the Group's financial situation and results to the extent that new competing factories and/or the adoption of a more aggressive pricing policy by these competitors, could lead to a reduction in turnover and/or the need to review prices by Sonae Indústria's subsidiaries, with a knock-on effect on the profitability and sustainability of its operations. Based on Sonae Indústria's diversified assets and geographical exposure to various European markets, but also the North American and South African markets, and also others through exports, as well as the initiatives taken with respect to resizing the industrial presence by closing and selling the least profitable units, the increased focus on higher added value products as a way of differentiating, and the effort to contain costs as part of a strategy already being implemented, could protect the competitive position of the Company and allow it to achieve its objectives of being recognised as a reference player in the wood-based panels sector. It must also be mentioned that the potential closure or sale of industrial units by Sonae Indústria as part of the ongoing Strategic Plan may affect its market position, where it has a presence, since such closures and/or sales may mean a reduction in installed production capacity and a loss of market position compared to its competitors. This loss of market position may have adverse effects on the Group's profitability, since competing companies may adopt a more aggressive strategy in terms of pricing and supply policy within these markets, with consequences for the sustainability of the Group's turnover and cost structure.
Some of the businesses developed by Sonae Indústria may require additional investment, the conditions of which could depend on the financial framework, on its current indebtedness level and by the evolutions of its activity and that of its subsidiaries. Financing of the additional component may be obtained through its own and/or external capital. Sonae Indústria cannot guarantee that these funds, if necessary, will be obtained, or that they will be subject to the predicted conditions. If there is a need for external capital, the current macroeconomic and financial framework involves a set of constraints, namely a lack of liquidity and the resulting increase in spreads charged to the companies, which may affect or preclude access to bank credit and/or issues of commercial paper. Even under a recovery context, the speed and manner in which this takes place is subject to considerable uncertainty, meaning the financing of Sonae Indústria and/or of its subsidiaries possible future investments cannot be guaranteed.
Since industrial activity in the sector is dependent on considerably large factory units, Sonae Indústria's consolidated cost structure has a significant fixed component, i.e. not dependent on sales volume and upon which the Group can only act through restructuring or efficiency increase initiatives. An insufficient turnover or gross margin on sales to offset fixed costs could determine losses that could be sustained by Sonae Indústria and its subsidiaries.
On the other hand. the variable cost structure of the subsidiaries of Sonae Indústria, notably in the case of raw materials, mainly wood, chemicals and air-dried paper, is exposed to external factors (that are outside the company´s control), with a positive or negative impact on the availability of such raw materials and their purchase price. In particular, the risk associated with access to wood, the raw material essential to the production process, in terms of suitable quantity, type, quality and price, could have ramifications not only for the subsidiaries ability to provide its customers with products according to agreed time frames and conditions, but could also affect expected profitability when it comes to setting a sale price for its products. In an extreme scenario, the inability to access wood in sufficient quantities could lead to a temporary interruption in production at the industrial unit in question, with knock-on effects for operational profitability. To mitigate this risk, Sonae Indústria's subsidiaries have diversified their supply sources and the types of wood used, namely through recycling waste, and introducing different types of wood and alternative by-products.
The ability of Sonae Indústria and its subsidiaries to develop and offer higher added value products on competitive terms at global level is an increasingly crucial objective in the current context of the wood-based
materials sector. This is dependent on technological developments, which may be difficult to predict and monitor. Failure by Sonae Indústria to monitor and anticipate technological advances, or to predict the receptiveness of new products, could affect its business and the results of its operations.
Sonae Indústria's activities are subject to certain operational risks, especially with respect to industrial production of its subsidiaries. There are multiple factors, not directly controllable by Sonae Indústria nor by its subsidiaries, which may interrupt production and have potentially negative effects on operations and, consequently, its financial situation and results. The manufacture of wood-based panels is an industrial activity that entails high operational risk due to the possibility of accidents involving fire or explosions. As a result, the management of operational risk is a central concern of the Company, which takes an active stance in terms of implementing regulations and best practice, as well as selecting systems capable of reducing industrial risks. In addition, flawed policies for the management and control of operational risks could affect the Group's business and operational results.
The main financial risk that Sonae Indústria is exposed to is the risks associated with its customer portfolio, namely credit risk. The credit risk is related to receivables from customers, i.e. the risk that a customer is late in paying or does not pay for the goods and services acquired, basically due to a lack of liquidity. Sonae Indústria Group's credit risk control systems are, above all, related to receivables from customers, having as main purpose to guarantee the effective collection of the receivables from customers in accordance with the agreed conditions. Among other procedures implemented by Sonae Indústria to mitigate this risk, Sonae Indústria makes use of credit insurance, as a mandatory tool to mitigate this risk, in all regions where it is present and such insurance is available. In specific situations where we are not able to contract credit insurance to mitigate this risk, alternative and/or complementary solutions (like bank guarantees, letters of credit and confirming, among others) are explored together with our clients in order to achieve the largest possible turnover volumes in an environment of minimum and controlled risk. In the limit situation where we are not able to obtain risk coverage for a specific customer or operation, we develop a detailed internal process with the objective of analysing every particular aspect of such business, so an informed and complete decision can be taken over a possible own risk-taking situation.
It should be noted that none of Sonae Indústria Group's customers represent more than around 6% of its consolidated turnover. Sonae Indústria has been signing multi-annual supply contracts with its largest customers, being the most recent one in place until 31 August 2017. Despite the greater spread of the customers' base, the possible non-renewal of these agreements could impact upon the profitability of Sonae Indústria's business.
The second financial risk is related with the existence of financial covenants in Sonae Indústria financing agreements.
The refinancing agreements signed during 2014 with the two main creditor banks include one financial covenant. Sonae Indústria undertakes to maintain a Financial Autonomy Ratio, calculated annually from 31 December 2015 onwards, higher than 6.97%. The non-compliance with this financial autonomy ratio requirement may lead to an event of default of the contractual obligations assumed in the before mentioned refinancing agreements, which could lead to its termination, including the early repayment of the associated financial debt.
The economic risks that Sonae Indústria is exposed to include: Interest Rate Risk, Foreign Exchange Risk and Liquidity Risk.
Interest Rate Risk depends on the proportion of floating rate debt on Sonae Indústria's consolidated Statements of Financial Position and the consequent cash flows related to interest payments. As a general rule, Sonae Indústria does not hedge its exposure to floating interest rates through financial derivatives. This approach is based on the principle of the existence of a positive correlation between the interest rate levels and the "operating cash flow before net interest charges" which creates a natural hedge on the "operating cash flow after net interest charges" for Sonae Indústria. As such, and as an exception to its general rule, Sonae Indústria Group may engage into interest rates derivatives, and is this case, the following principles should be observed: (i) derivatives should not be used for trading, profit making, or speculative purposes; (ii) engage preferably in derivative transactions with Investment Grade financial institutions; (iii) match exact periods, settlement dates
and base interest rate of the underlying exposures; and (iv) maximum financial charges (aggregate of the derivative and the underlying exposure) should be known and limited on the inception of the hedging period. The inefficiencies, whenever they exist, are booked under the financial results item of the consolidated income statement
Foreign Exchange Risk exposure is due to the fact that it is a geographically diversified group, with subsidiaries located in three different continents, and as such it is subject to transactions and balances denominated in pound sterling, South African rand, Canadian dollar, American dollar, Swiss franc and polish zloty. The Consolidated Statements of Financial Position and Income Statement are exposed to the risk of a change in exchange rates (risk relative to the value of capital invested in subsidiaries outside the Eurozone) and Sonae Indústria's subsidiaries are exposed to the risk of a change in both exchange and transaction rates (risk associated with commercial transactions made in currencies other than the euro). Transaction risk arises when there is exchange risk related to a cash flow in other than a subsidiary local currency. The Group company cash flows are largely denominated in the subsidiary local currency. This is valid independently of the nature of the cash flows, i.e.: operating or financial, and provides a degree of natural hedging, reducing the Group's transaction risk. In line with this reasoning, Sonae Indústria's subsidiaries only contract debt that is denominated in the respective local currency. Also, in situations where there is a relevant exchange risk as a result of operational activity involving currencies other than the local currency of each subsidiary, the exchange risk must, as a general rule, be mitigated by the subsidiary exposed to the exchange rate risk contracting foreign exchange derivatives. In turn, the currency conversion risk emerges from the fact that, when preparing the Group's consolidated accounts, the financial statements of the subsidiaries denominated in currencies other than that of the consolidated accounts (euro), must be converted into euros. As exchange rates vary between accounting periods and as the value of the subsidiaries' assets do not match their liabilities, volatility in the consolidated accounts arise as a result of conversion in different periods at different exchange rates.
Liquidity Risk aims mainly to ensure that the company can obtain the financing required to properly carry on its business activities on time, implement its strategy and meet its payment obligations when due, while avoiding the need for having to obtain funding under unfavourable terms. For this purpose, liquidity management at Sonae Indústria mainly comprises consistent financial planning, diversification of financing sources and diversification of debt maturities issued.
The potential disposal of assets and/or companies considered to be non-core, or less profitable, with the aim of strengthening the profitability and the capital structure of Sonae Indústria as part of the ongoing Strategic Plan could lead to the posting of losses or gains from the difference between the sale price and the contribution to the business when determining the consolidated value of Sonae Indústria. The booking of such gains or losses will have an impact on the value of Sonae Indústria's equity that could be negative in the case of the posting of losses.
Also, within the scope of the implementation of the Strategic Plan by Sonae Indústria Group, a decision of closure of manufacturing units, which have been registering consecutive losses, could lead to the booking of impairment losses in the net book value of the closed assets and the booking of non-recurring shut-down costs, with a consequent impact on Sonae Indústria's economic and financial situation
Regarding Legal Risks, the main risk of the Group's business relates to legislative changes that may occur at the level of the activity (environmental law and labour, among others) that can encumber the activity to such an extent that its profitability may be affected.
The activities of Sonae Indústria and its subsidiaries are, as industrial activities, subject to regulatory frameworks in a number of areas, including national regulations, European Union directives and international agreements, by which Sonae Indústria is bound and which may influence its management and strategic decisions. Indeed, Sonae Indústria, through its subsidiaries, is subject not only to different legal frameworks in countries as diverse as Canada, South Africa, Germany, Spain, Portugal or France, but also to legislation in different areas, such as industrial and forestry, environmental, labour, hazardous materials transportation, health and safety, construction and housing, urban planning, among others. The non-compliance with such regulations could lead to operational restrictions, investment needs or even the revocation of licences, authorization or permits or in sanctions. Possible changes to regulations, legislation, or changes in interpretation on the part of competent
authorities, the position of authorities or difficulties in complying with new laws and regulations could lead to increased adjustment costs, namely industrial and operational, or, in the limit, constricting the respective operating income, which could have an adverse impact on Sonae Indústria and its subsidiaries activity and operating results. It should be highlighted the on-going regulatory changes of both REACH1 , on the reclassification of formaldehyde as dangerous substance and of the European Industrial Emissions Directive2 in the definition of the best practices in the wood based panels sector. In the reclassification of formaldehyde – substance used in the manufacturing process of urea-formaldehyde resins, which are the bonding agent of the vast majority of the products manufactured by the Sonae Indústria – there is already a recommendation to reclassify this substance as "category 1B carcinogen" (presumed to have carcinogenic potential for humans, classification largely based on animal evidence)3 , which is expected to enter into force from 2015 onwards. This reclassification may have consequences both in the definition of the emission standards of Sonae Indústria's industrial operations, and on the restrictive levels of concentration of formaldehyde in the workplace environments. These changes may lead to additional investments needs in Sonae Indústria's manufacturing units. Although a general ban on the utilization of formaldehyde may be a possible theoretical scenario, it is not considered a likely one, being more foreseeable that such regulatory changes result in restrictions as the ones previously described. As for the definition of the best possible practices in the wood based panels sector, Sonae Indústria considers that additional investment may be required to comply with such practices, in a period between two to five years, with the aim of incorporating some of those practices in the activities where they are not currently considered.
Internal Audit is an independent and objective activity, which aims helping Sonae Industria to achieve their goals by participating in the process of value creation. Uses a systematic and structured approach to evaluate and improve the effectiveness of risk management, internal control procedures and corporate governance.
Internal Audit operates in accordance with International Standards for the Professional Practice of Internal Auditing, established by the Institute of Internal Auditors, including its Code of Ethics.
In fulfilling its responsibilities, Internal Audit has access to any persons, records, information, systems and assets deemed necessary.
Internal Audit reports functionally to the Board Audit and Finance Committee (BAFC) and to the Statutory Audit Board.
The planning of the activity of Internal Audit is essentially developed based on a prior assessment of the systematic business risks of Sonae Indústria. The annual plan of Internal Audit activity is approved in advance by the Executive Committee and submitted to the Board Audit and Finance Committee (BAFC) and to the Statutory Audit Board.
Descriptive reports of the activity of Internal Audit are periodically prepared and sent to the Executive Committee, the Board Audit and Finance Committee (BAFC) and to the Statutory Audit Board of Sonae Industria, which includes the summary of significant internal control deficiencies and shortcomings in procedures and policies set by Company.
The reporting system implemented ensures regular feedback, a proper review of the activities and the possibility to adjust the plan of activities to emerging needs.
Board Audit and Finance Committee (BAFC) and the Statutory Audit Board are responsible for overseeing the effectiveness of the internal audit function. Accordingly, Internal Audit has developed a quality assurance and quality promotion, which includes ongoing analysis and regular and periodic evaluations of the quality conducted internally and externally.
3 In experiences performance on animals in relation to which there are enough evidence to support carcinogenicity consequences to animals (presumed carcinogenic for humans).
1 Registration, Evaluation, Authorisation and Restriction of Chemicals; Regulation (CE) n. 1907/2006, of 18 December or Decree-law n. 293/2009, of 13 October.
2 Directive n. 2010/75/EU.
Risk Management is a key concern within the Sonae Indústria culture and is present in all management processes, forming part of the delegated responsibility of managers and employees at all levels within the Sonae Indústria Group.
Risk Management comprises the process of identifying potential risks, analysing their possible impact on the organisation's strategic goals and seeking ways to minimise the probability of their materialisation, in order to determine the best procedures to manage exposure to them.
A global approach is in place to assure a suitable and balanced coverage of the operational risk through its transfer to our reinsurance panel. Sonae Indústria developed various insurance programs to place the risk, aiming to cover:
Sonae Indústria adopts global and local insurance policies as a support to its processes of risk management that better approach specific risks and topics and is committed to improve its assets protection and prevention levels to reinforce the partnership with the insurance market.
The production of wood-based panels is an industrial activity with a significant operational risk arising from fire and explosion. Consequently, the operational risk management is active in the implementation of standards and the choice of systems that are capable of reducing industrial unit risks.
The Risk Management Area is separated in two responsibilities to guarantee a more focused and specialized approach - Operational Risk Management and Integrated Risk Management (which includes the area of Insurance Management).
Operational Risk Management reports directly to the company Industrial Manager, in order to be focused on developing and implementing measures to mitigate risks in industrial operations.
A formally coordinated network of Country Risk Officers exists and at each of the sites there is a dedicated Plant Risk Officer.
The Operational Risk Management is also related to the Corporate Department IndBest ("Industrial Best Practices"). This department is responsible for the implementation and sharing of industrial best practices and procedures, through an effective coordination with local teams, namely the Plant Managers, and support to the implementation of industrial investments. This team is also responsible for the promotion of several actions to optimise energy efficiency and to ensure a global coordination of the maintenance works carried out at the plants.
Sonae Indústria has also established an autonomous Continuous Improvement team, which promotes the implementation of continuous improvement best practices, which lead to higher efficiency and productivity levels in the group, gradually implementing a cultural change in the company's employees. Its objective is to promote throughout all people a faster and more efficient way of work, not only in the industrial areas, but also in commercial and support activities of the company.
The integrated risk management is encompassed into the Internal Audit & Risk Management area.
The goal of the insurance management, which is included in the Integrated Risk management area, is to bring about more efficient and effective management of the Group's different insurance policies, in order to mitigate
insurance risks. It is responsible for drawing up and implementing procedures that minimize exposure to risk, reducing the likelihood of risk situations occurring and ensuring maximum coverage.
This Department is also responsible for implementing the Enterprise Wide Risk Management (EWRM) methodology, detecting, assessing and prioritising the risks and their potential impact on the organisation's activities.
The company Risk model, aggregates the business risks into three categories (Business Division Risk, Business Process Risks and Risk Information for Decision Making) and contains the quantification of the relevance (impact on EBITDA and operating efficiency) as well as probability (frequency of the event or scenario occurring) of the critical risks for Sonae Indústria.
The management of financial risks, incorporated into the business process risks is carried out and monitored within the ambit of the finance function.
Sonae Indústria aims to improve its industrial process by implementing more efficient and sustainable practices. The operational risks are assessed and mitigated in order to raise awareness about the new risks and change behaviour in relation to the current risks.
Operational risk management activities were carried out in 2014 to achieve the goals set as regards risk control environment.
Taking into account all the risks an industrial activity such as ours entails, the protection of the key assets, as well as the loss prevention activities, are ongoing concerns of the Group, and have been defined as priorities for 2014.
The CORS were developed with reference to international standards such as NFPA4 and/or FM5 data sheets, bringing together the best engineering protective practices against fire at Sonae Indústria, and in the wood industry. These standards were validated with external experts and specialists from the risk management and insurance market fields. They aim to ensure standardisation of processes and procedures in all geographies in an effort to improve operational risk management by leaving little or no room for uncertainty.
The Corporate Operational Risk Standards (CORS) are divided into three areas:
World class developed knowledge in fire detection and protection inherent to the wood based panels industry: wet and dry particle handling and transport, dryers, hot presses;
4 National Fire Protection Association
5 Factory Mutual
Specific issues such as, thermal and hydraulic oil installations, electrical cabinets, and rooms, or transformers.
Under the scope of the risk reduction plan adopted by Sonae Indústria, namely prevention of risk of explosions, a specialized company has been hired to conduct an analysis of the several systems installed in the different industrial units. The potential improvements will be followed through an action plan prepared by each unit.
In 2014, a new procedure was implemented that determines, as mandatory, the report of all incidents that occur at Sonae Indústria. On top of ensuring consistency in the information provided it will allow a benchmark between all industrial units.
The topic "Lessons Learned", included in this new procedure, collects all relevant data from the investigation, as well as the real root causes of the incidents. The analysis of this information will allow to focus on the reduction of the level of incidents in all Group.
The CORS have become the processes and procedures by which the audit risks are oriented to check the exposure of each plant. This permits greater transparency and harmonisation in the audit process.
In 2014, following the change in the Insurance program of Sonae Indústria's assets, a significant change was made to the external auditing process.
Sonae Indústria was insured through a Global Insurance program until end of April 2014, and from May onwards through Local Insurance policies.
For the Global Program, the Quality Index Number of previous years was kept (QIN of 7.2), however there no longer exists a unique classification as the insurance companies contracted are different in each geography. Due to this change some industrial units had inspections under the scope of two programs. As such, six audits were performed under the scope of the Global Program, being their results reflected in the before mentioned QIN, at the end of April, and eleven audits were performed under the scope of the different Local Programs. The results of these new audits are followed taking into consideration the indications of each geography insurance company.
Following the organisational changes made in 2014, the internal visits were focused in monitoring the visits performed by the different insurance companies that are part of the Local Programs, as well as on compliance with the Corporate Operational Risk Standards.
The result of the visits is reported and the implementation of the recommendations is tracked.
Each individual plant plan (which is updated annually) defines a set of measures to be taken towards achieving full compliance with the Corporate Operational Risk Standards and corporate directives published. The main objectives encompass:
In 2014, following the previously mentioned changes, the follow up of the recommendations, was performed according to the existing model, but not on a regular quarterly basis.
| IV. INVESTOR RELATIONS |
|
|---|---|
Sonae Indústria has its own Investor Relations' Department, responsible for managing the relationship between the Company and shareholders, investors, analysts and market authorities including the CMVM (the Portuguese Securities Exchange Regulator).
Each quarter, the Investor Relations Department is responsible for coordinating the preparation of an earnings announcement to be issued to the market and provides statements whenever necessary to disclose or clarify any relevant fact or event that could affect the share price. The Investor Relations Department is available at all times to respond to any general questions posed by the market. The Company is available to meet investors, either at road shows or in one-to-one meetings upon request, or by participating at conferences.
Sonae Indústria's Investor Relations Department comprises two staff members. Its manager is António Castro. The Department may be contacted,
by e-mail: [email protected] or by telephone: +351 220 100 655.
Sonae Indústria's legal Representative for Relations with Capital Markets is its executive director George Christopher Lawrie, who can be contacted via the Investor Relations Department or alternatively, directly by email: [email protected]
The company keeps a record of the requests made to the Investor Relations Department and how each request was dealt with. In 2014 the Department received contacts and requests for clarification from 83 investors, of which 15 were non-resident. In overall terms, the average response time to the information requests from investors was less than 48 hours. No information requests from earlier years are pending.
V. WEBSITE
The company's website is www.sonaeindustria.com.
Information on the company's firm, the quality of publicly traded company, headquarters and other elements mentioned in Article 171 of the Companies Code is available at:
http://www.sonaeindustria.com/page.php?ctx=2,0,27 (Portuguese version) http://www.sonaeindustria.com/page.php?ctx=1,0,27 (English version)
The company's Articles of Association are available at:
http://www.sonaeindustria.com/page.php?ctx=2,0,31 (Portuguese version) http://www.sonaeindustria.com/page.php?ctx=1,0,31 (English version)
The functioning regulations of the Board of Directors, Executive Committee and Statutory Audit Board are available at:
http://www.sonaeindustria.com/page.php?ctx=2,0,109 (Portuguese version) http://www.sonaeindustria.com/page.php?ctx=1,0,109 (English version)
62. Place where information regarding the identification of the members of the governing bodies, the Representative for the Relations with the Capital Markets, the Investor Relations Department or its equivalent, respective roles and contact details is available
The identity of the members of the company's governing bodies is available at:
http://www.sonaeindustria.com/page.php?ctx=2,0,29 (Portuguese version) http://www.sonaeindustria.com/page.php?ctx=1,0,29 (English version)
Information about the Representative for the Relations with the Capital Markets is available at:
http://www.sonaeindustria.com/page.php?ctx=2,0,30 (Portuguese version) http://www.sonaeindustria.com/page.php?ctx=1,0,30 (English version)
Information about the Investor Relations Department is available at:
http://www.sonaeindustria.com/page.php?ctx=2,0,55 (Portuguese version) http://www.sonaeindustria.com/page.php?ctx=1,0,55 (English version)
The company's accounting documents are available at:
http://www.sonaeindustria.com/page.php?ctx=2,0,42 (Portuguese version) http://www.sonaeindustria.com/page.php?ctx=1,0,42 (English version) http://web3.cmvm.pt/sdi2004/emitentes/emit\_contas.cfm?num\_ent=%25%23D%3FT%21%3D%3C%20%0A
The half-yearly schedule of company events is available at:
http://www.sonaeindustria.com/page.php?ctx=2,0,53 (Portuguese version) http://www.sonaeindustria.com/page.php?ctx=1,0,53 (English version)
The notifications convening the general meetings and all the preparatory information and information subsequent to the meetings are available at:
http://www.sonaeindustria.com/page.php?ctx=2,0,32 (Portuguese version) http://www.sonaeindustria.com/page.php?ctx=1,0,32 (English version) http://web3.cmvm.pt/sdi2004/emitentes/emit\_convocatorias.cfm?num\_ent=%25%23D%3FT%21%3D%3C%20 %0A
The record of the deliberations made in the general meetings, capital represented and the results of the votes are available at:
http://www.sonaeindustria.com/page.php?ctx=1,0,32 (Portuguese version) http://www.sonaeindustria.com/page.php?ctx=1,0,32 (English version)
I. COMPETENCIES FOR APPROVAL OF REMUNERATIONS
As defined in the Articles of Association of the company, the Shareholders' General Meeting is responsible for establishing the remuneration of the members of the governing bodies or for electing a committee for this purpose. As for the members of the Board of Directors, the Remuneration Committee talks to the Board Nomination and Remuneration Committee. Only as such can the Remuneration Committee gain the necessary knowledge about the performance of each director, and especially the executive directors, throughout the year.
|--|
Sonae Indústria's Shareholders' Remuneration Committee is appointed by the Shareholders' General Meeting for a three-year term and was elected at the Shareholders' General Meeting held in March 2012 for the mandate 2012-2014. Currently this committee is composed by Efanor Investimentos - SGPS, SA, represented by Belmiro Mendes de Azevedo, by, Imparfin - SGPS, SA, represented by José Fernando Oliveira de Almeida Côrte-Real and by the Professor José Manuel Neves Adelino.
Professor José Manuel Neves Adelino is an independent member of the Remuneration Committee.
The participation of Belmiro de Azevedo at the Shareholders' Remuneration Committee, who is also Chairman of the Board of Directors, corresponds to the representation of shareholder interests in the Shareholders' Remuneration Committee, as he intervenes in that capacity. Belmiro de Azevedo does not participate in the discussion nor is present in the moment of the meeting in which his own payment is discussed therefore ensuring the necessary impartiality and transparency.
No company was hired to assist the Shareholders' Remuneration Committee nor the Board Nomination and Remuneration Committee. For the benchmark salary level of Board of Directors members, these Committees use multi-company studies prepared by international consultants present in Portugal which are available in the market.
The representative of Imparfin, José Corte Real, works for the Efanor Group on Human Resources' area; his extensive knowledge and vast experience in Human Resources, namely in regard to remuneration policy contribute very positively to the work of the Shareholders' Remuneration Committee.
| III. | REMUNERATION STRUCTURE |
|---|---|
At the General Meeting held in 2014 the Remuneration Committee approved a declaration concerning the remuneration and compensation policy of the governing bodies and the managers, and a share attribution plan.
The remuneration and compensation policy to be applied to the Statutory Governing Bodies of Sonae Indústria and other Senior Management complies with European guidelines, Portuguese law and the recommendations of the Portuguese Securities Market Commission (CMVM) and is based on the understanding that initiative, competence and commitment are the essential foundations for good performance and that the latter should be aligned with the medium and long term interests of the Company, in order to achieve sustainability.
In determining the remuneration policy comparisons are made with market studies available in Portugal and other European markets, including those prepared by the specialised consultant Hay Group. Comparisons are also made with remuneration practice of comparable companies issuers of securities listed at the stock market.
The fixed remuneration of the Directors is fixed in function of their level of responsibility, is subject to annual review and is placed in the median position in comparable circumstances.
Besides the fixed remuneration, the executive directors participate on an incentives plan, also named by variable bonus. The total remuneration is placed in the third quartile in comparable circumstances.
The fixed remuneration and the incentives plan are decided by the Shareholders' Remuneration Committee in coordination with the Board Nomination and Remuneration Committee.
The incentives plan, awarded to Executive Directors, is subject to maximum percentage limits and is determined by pre-established and measurable performance criteria - performance indicators - agreed with each executive director for each financial year.
The variable bonus is assessed by evaluating performance using a set of performance indicators, both business indicators mainly of an economic and financial nature "Key Performance Indicators of Business Activity" (Business KPIs), and individual indicators, combining the latter performance indicators mainly quantified "Personal Key Performance Indicators" (Personal KPIs). The content of the performance indicators and their specific weight in determining actual remuneration awarded, ensure the alignment of Executive Directors with the strategic objectives defined and compliance with the laws that apply to the Company's activities.
The variable component of remuneration to be awarded is based on an individual performance assessment, which is made by the Shareholders' Remuneration Committee, in coordination with the Board Nomination and Remuneration Committee. This assessment takes place after the results of the Company are known.
Thus, for each financial year, an evaluation is made of business activity and of the performance and individual contributions to the collective success, which, obviously, impacts the awards of the fixed and variable components of the remuneration package of each Executive Director.
In each financial year, the effective payment of at least fifty per cent of the value of the variable bonus awarded to an Executive Director in result of the individual and company' performance assessments is deferred for a period of three years. This deferred component of variable bonus (the "Medium Term Variable Bonus") is determined based on the company's shares, being applied the plan of the Medium Term Variable Bonus under the terms of the respective "Characteristics and Regulation", attached as an Appendix to this Proposal.
In applying the Remuneration and Compensation Policy consideration is given to roles and responsibilities performed in affiliated companies.
The Company's Remuneration and Compensation Policy incorporates the principle of not contemplating any compensation to members of the Board of Director, or to members of other Statutory Governing Bodies, related with the termination of a mandate, whether such termination occurs at the end of the respective mandate, or there is an early termination for any reason or on any basis, without prejudice of the Company's obligation to comply with the applicable law.
The Remuneration and Compensation Policy does not include any additional benefits system, particularly retirement benefits, in favour of the members of the governing bodies or other "Senior Management", without prejudice of the Shareholders' Remuneration Committee having the option to proceed with the payment of part of the amounts due through the attribution of retirement saving plans.
To ensure the effectiveness and transparency of the objectives of the Remuneration and Compensation Policy, the Executive Directors have not, and will not, enter into agreements with the Company or third parties that have the effect of mitigating the risk inherent in the variability of their remuneration awarded by the Company.
the definition of the remuneration and compensation policy of members of the Company's statutory bodies, the main objective is to seize talent with high performance level, which represent a relevant and material contribution to the sustainability of the Company's businesses. With that in mind, remuneration parameters of statutory bodies are set and periodically reviewed in accordance with remuneration practices of comparable national and international companies, aligning, in individual and aggregate terms, the maximum target amounts to be paid to members of the statutory bodies, with market practices, differentiating on an individual and positive manner the members of statutory bodies according to, amongst others, the respective profile and curriculum, the nature and job description and the responsibilities of the relevant statutory body and of the member itself, and the direct correlation degree between individual performance and businesses performance.
To determine the global market reference values is considered the average of values applicable to top management in Europe. The companies considered as peers for remuneration purposes are those included in the group of companies which are listed in Euronext Lisbon, being the maximum potential amounts to be paid to members of the statutory bodies the following, according to market references:
| Board of Directors |
Components | Market Positioning |
Circumstances when the amounts are due |
|
|---|---|---|---|---|
| Executive Directors |
Fixed | Base Remuneration |
Median | N/A |
| Variable | Short Term Variable Bonus (STVB) |
Third Quartile | Compliance with objective and subjective KPIs |
|
| Medium Term Variable Bonus (MTVB) |
Third Quartile | Compliance with objective and subjective KPIs |
||
| Non-Executive Directors |
Fixed | Remuneration | Median | N/A |
| Statutory Audit Board |
Fixed | Remuneration | Median | N/A |
| Statutory External Auditor |
Fixed | Remuneration | Median | N/A |
The Company will not assume any contractual responsibilities which are based on and have as effect the enforceability of any payments regarding dismissal or termination of functions of directors, notwithstanding the legal responsibility regime applicable to the dismissal of directors without due cause
As for the Company's Statutory Governing Bodies, the approved policy establishes the following:
The remuneration and compensation policy for the Executive Directors (EDs) includes, in the way it is structured, control mechanisms, taking into account the connection to personal and collective performance, to prevent
behaviours that involves excessive risk-taking. This objective is also reinforced by the fact that each Key Performance Indicator is limited to a maximum value.
The remuneration of EDs normally includes two components: (i) a fixed component, which includes a Base Remuneration paid with reference to one year period (remuneration is paid in 12 months) and an annual responsibility allowance, (ii) a variable bonus, awarded in the first half of the year following the year to which it relates (the "Performance Year") and subject to the accomplishment of the targets and objectives fixed for the Performance Year. The variable component is divided into two parts (a) a Short Term Variable Bonus which is paid immediately after it is awarded, and (b) a Medium Term Variable Bonus which vests and is paid after a 3 years deferral period, considering that the exposure of EDs to fluctuations in the share price is the most appropriate way to align the interests of EDs with those of shareholders.
(i) The fixed remuneration of an ED is based on the personal competences and level of responsibility of the function exercised by each ED and is reviewed annually. Each ED is attributed a classification named internally as Management Level ("Grupo Funcional"). EDs are classified under one of the following Management Levels: "Group Leader", "Group Senior Executive" and "Senior Executive". The Management Levels are structured according to Hay's international model for the classification of corporate functions, thereby facilitating market comparisons as well as helping to promote internal equity.
(ii) The variable bonus is designed to motivate and reward the EDs to achieve predetermined targets and objectives, which are based on indicators of Company performance, of working teams under their responsibility and of their own personal performance. Variable remuneration is awarded after the annual accounts are closed and after their performance evaluation has been completed.
The amount of the variable bonus of EDs without a specific geographic responsibility is based on the Company KPI's, at 100%, resulting 70% from the Operational Cash Flow and 30% from Fixed Costs. Thereafter, a multiplication factor will be applied. This multiplication factor results from the performance assessment and can range between 0 and 150% according with the individual performance classification attributed to the relevant ED. Regarding EDs with geographic responsibility, the calculation is similar to the previously described but the combine result of the Company's Operational Cash Flow and Fixed Costs has a weight of 70%, 50% for the Operational Cash Flow and 20% for Fixed Costs, and the weight of the relevant geography represents the remaining 30%, of which 20% is allocated to the Operational Cash Flow and 10% to Fixed Costs. The multiplication factor resultant from the performance assessment is applied in the same way. As the determination of the respective amount is subject to the accomplishment of targets and objectives, there is no guarantee that any payment will be made.
The Short Term Variable Bonus corresponds to a maximum of 50% of the amount of the total variable bonus. This bonus is paid in cash in the first half of the year following the year to which it relates, unless the Shareholders' Remuneration Committee decides that this bonus is paid, within the same term, in shares, in the terms and conditions set forth in the Medium Term Variable Bonus.
This bonus is designed to enhance the connection of the EDs with the Company, aligning their interests with the interests of shareholders, and increasing their awareness of the importance of their performance on the overall success of the organisation. The value awarded corresponds to at least 50% of the total variable bonus.
The value awarded in euros is divided by the average of the share prices to determine the number of shares it corresponds to. The amount converted into shares is adjusted for any changes to the share capital that occurred or any dividends distributed (Total Shareholder Return) during the 3 years deferral period. During this deferral period, the value of the bonus converted into shares may also be adjusted by the level of compliance of the long term KPIs to be defined by the Shareholders' Remuneration Committee to reinforce the alignment with the long term sustainability business objectives.
In line with the statement of a policy that strengthens the alignment of the executive directors with the company long term interests, the Shareholders' Remuneration Committee can, at its discretion, determine that the executive director contributes to the acquisition of shares up to a percentage that cannot exceed 5% of its share price at the date of the share transmission.
On the vesting date, the company has the choice to settle in cash instead of shares.
Taking the two variable components together, the target values set in advance range between 40% and 60% of the total annual remuneration (fixed remuneration and target variable bonus).
In respect to the calculation of the results the value awarded is limited to the minimum 0% and the maximum of 120% of the target value set in advance.
The payments may be made by any of the forms of termination of an obligation as set forth in the law and in the Company's articles of association.
The remuneration of the Non-Executive Members of the Board of Directors (NEDs) shall be based on market comparables, and be structured as follows: (1) a Fixed Remuneration (of which approximately 15% depends on attendance at Board of Directors and Board Committee meetings); (2) an Annual Responsibility Allowance. Fixed Remuneration may be increased by up to 5% for those NEDs serving as Chairman of any Board Committee. There is no remuneration as variable bonus.
The remuneration of the members of the Company's Statutory Audit Board shall be based exclusively on fixed amounts, which include an Annual Responsibility Allowance. The levels of remuneration are determined by taking into consideration the Company's situation and by benchmarking against the market.
The Company's Statutory External Auditor shall be remunerated in accordance with normal fee levels for similar services, benchmarked against the market, under the supervision of the Statutory Audit Board and the Board Audit and Finance Committee.
The remuneration of the members of the Board of the Shareholders' General Meeting shall correspond to a fixed amount, based on the Company's situation and benchmarked against the market.
Under the terms of Paragraph 3 of Article 248.º - B of the Portuguese Securities Code, in addition to the members of the Statutory Governing Bodies mentioned above, Senior Management also includes individuals who have regular access to Privileged Information and are involved in taking management and business strategy decisions at the Company.
The remuneration policy applicable to other individuals who, under the terms of the law, are considered to be Senior Management, shall be equivalent to the one adopted for other managers with the same level of function and responsibility, without awarding of any other additional benefits in addition to those which result from the respective Management Level
With regard to the non-executive directors, the attribution of only a fixed remuneration, as explained in the previous point, allows the interests of these directors to be matched to the long-term interests of the company.
As for the executive directors, the attribution of remuneration comprising a fixed component and a variable component, the latter calculated in line with a series of specifically weighted performance indicators, ensures that the executive directors' interests are aligned with the long-term interests of the company and discourages risk taking. The result of the performance assessment of each of the executive directors serves as a multiplier factor of the other defined KPIs (for a more detailed explanation of how the different KPIs work, see the previous point).
As mentioned in the two previous points, the remuneration of the executive directors comprises a variable component, whereby the performance assessment impacts on this part of the remuneration (for more detailed explanation of the impact of the performance assessment on the variable remuneration component see point 69).
The Medium-Term Variable Bonus is deferred for a 3-year period.
The criteria regulating the variable remuneration in shares, the maintenance of these shares, the possible signing of contracts relative to these shares, as well as their proportion of the total annual remuneration, are detailed in the remuneration policy in point 69 and the share attribution plan in point 86.
The company does not attribute options.
The parameters and explanation of the annual bonus system are outlined in the remuneration policy in point 69.
The company has not implemented any supplementary pension or early retirement regime.
| 2014 | Total Fixed Annual Remuneration |
Total Short term Variable Bonus |
Total Medium term Variable Bonus |
Total | ||||
|---|---|---|---|---|---|---|---|---|
| 2013 | 2014 | 2013 (a) | 2014 (b) | 2013 (c) | 2014 (d) | 2013 | 2014 | |
| Belmiro de Azevedo (Chaiman) | 182,010 | 182,200 | 182,010 | 182,200 | ||||
| Paulo Azevedo | 28,110 | 28,300 | 28,110 | 28,300 | ||||
| Javier Veja | 30,200 | 31,000 | 30,200 | 31,000 | ||||
| Albrecht Ehlers(e) | 40,800 | 41,400 | 40,800 | 41,400 | ||||
| Carlos Moreira da Silva | 0 | 0 | 0 | |||||
| Rui Correia | 277,010 | 276,880 | 28,985 (i) | 99,838 (iv) | 43,512 (vii) | 149,757 (x) | 349,507 | 526,475 |
| Cristopher Lawrie (f) | 149,267 | 222,905 | 94,681 (ii) | 89,990 (v) | 94,681 (viii) | 89,990 (xi) | 338,629 | 402,885 |
| Jan Bergmann (g) | 250,000 | 250,000 | 27,966 (iii) | 93,264 (vi) | 42,012 (ix) | 139,896 (xii) | 319,978 | 483,160 |
| Total of Board of Directors | 957,397 1,032,685 | 151,632 | 283,092 | 180,205 | 379,643 | 1,289,234 1,695,420 |
(a) Relative to 2013, amount approved and paid in 2014.
(b) Relative to 2014, estimated value subject to real KPI achievement and to subsequent approval by the Shareholder's Remuneration Committee. (c)Relative to 2013, approved in 2014, deferred for the three-year vesting period until 2017.
(d) Relative to 2014, estimated value subject to real KPI achievement and to subsequent approval by the Shareholder's Remuneration Committee. The initial amount, to be attributed in 2015 and linked to the share price performance, is deferred for a three-year vesting period until 2018 and will be booked linearly over that three-year period.
(e) Out of the amount paid in 2013, 28,500 Euros were paid by Sonae Indústria, SGPS, SA and 12,300 by Glunz AG.
Out of the amount earned in 2014, 29,100 Euros were paid by Sonae Indústria, SGPS, SA and 12,300 Euros by Glunz AG.
(f) Relative to eight months in 2013.
(g) Amounts paid in their entirety by Glunz AG.
(i) Fixed from the target value of the year in the amount of 110,000 Euros.
(ii) Fixed from the target value of the year in the amount of 108,258 Euros.
(iii) Fixed from the target value of the year in the amount of 100,000 Euros.
(iv) Fixed as from the target value of the year in the amount of 110,000 Euros.
(v) Fixed from the target value of the year in the amount of 108,258 Euros.
(vi) Fixed from the target value of the year in the amount of 100,000 Euros.
(vii) Fixed from the target value of the year in the amount of 165,000 Euros. (viii) Fixed from the target value of the year in the amount of 108,258 Euros.
(ix) Fixed from the target value of the year in the amount of 150,000 Euros.
(x) Fixed from the target value of the year in the amount of 165,000 Euros.
(xi) Fixed from the target value of the year in the amount of 108,258 Euros.
(xii) Fixed from the target value of the year in the amount of 150,000 Euros.
The amounts paid by other companies in the group are shown in the table in point 77.
The bonuses paid to the executive directors are outlined in the table in point 77.
No indemnity was paid to the former executive directors upon termination of their functions during the year.
In 2014 the members of the Statutory Audit Board earned a total remuneration of 26,600 Euros. Its Chairman earned 10,200 Euros and each of the two members 8,200 Euros.
In 2014 the Chairman of the Board of the General Meeting earned the total remuneration of 4,125 Euros. It should be noted that the actual Chairman of the Board of the General Meeting was only elected at the Shareholder's General meeting of April 2014, holding until that time the position of Secretary.
The Remuneration and Compensation Policy approved in the General Meeting maintains its principle of not awarding compensation to the directors upon termination of their mandate, notwithstanding mandatory compliance by the company with the legal stipulations in force concerning this matter.
No agreements were signed between the company and the directors that stipulated indemnity in the event of resignation, dismissal without justification or termination of the employment relationship following a change in the control of the company.
| VI. | SHARE PLANS OR STOCK OPTIONS PLANS |
|---|---|
| ----- | ------------------------------------ |
As mentioned earlier, the Share Attribution Plan (Plan) is applicable to the Medium-Term Variable Bonus (MTVB) which the executive directors are entitled to, and which was subject to deliberation by the General Meeting.
The regulations of the Plan establish the following:
MTVB is one of the components of SONAE INDÚSTRIA's Remuneration Policy. This component differs from the others, as it has a restricted and casuistic character, being subject to the eligibility rules set out in this document.
MTVB allows the eligible persons to share with shareholders, the value that is created as a result of their direct influence on the strategy definition and management of the underlying businesses, in the proper measurement of the annual assessment of their performance.
The MTVB constitutes a way of aligning the executive directors' interests with the company interests, reinforcing their commitment and strengthening the perception of the importance of their performance for the success of Sonae Indústria, reflected in the market capitalisation of the share.
The executive directors of Sonae Indústria and of its subsidiary companies are eligible to be awarded the MTVB.
According with the remuneration policy approved by the Board of Directors, employees who, through that policy, are entitled to the present plan are also eligible for the award of the MTVB.
| Eligible Members | Reference value for the Medium Term Variable Bonus (% of the total variable Bonus target) |
|---|---|
| Sonae Indústria Executive Directors | at least 50% |
| Executive Directors of Business Units | at least 50% |
| Employees | under terms to be defined by the Board of Directors of each company |
MTVB is set on an annual basis, for periods of three years. From the beginning of the third consecutive plan will occur, at each moment, the coexistence of three plans of three years each.
The MTVB is valued at the date of attribution using prices which represent the price of the share, in the Portuguese stock market, considering for this effect the most favourable of the following: closing share price of the first day of trading after the General Meeting of Shareholders or the average closing share price (regarding the thirty-day period of trading prior to the General Meeting of Shareholders).
Members entitled to MTVB have the right to acquire a number of shares corresponding to the division between the amount of MTVB granted and the price of the share at the date of attribution calculated under the terms of the previous paragraph. Such right can be exercised three years after attribution, which may be adjusted, through the deferral period by the completion level of long term KPIs to be defined by the Shareholders' Remuneration Committee, in order to reinforce the alignment with the long term sustainability business objectives.
In line with the statement of a strengthens policy of the alignment of executive directors with the company's long term interests, the Shareholders' Remuneration Committee can, at its discretion, determine that the executive director contributes to the acquisition of shares up to a percentage that cannot exceed 5% of its share price at the date of the share transmission.
If, after the granting date and before its exercise, dividends are distributed, changes in the nominal value of shares or in the share capital of the company occur or any other change in equity with impact in the economic value of the attributed rights, the number of shares attributed will be adjusted to an equivalent figure considering the effect of the mentioned changes.
On the vesting date of the MTVB, the company reserves the right to deliver, instead of shares, cash in the amount the equivalent to its market value at exercise date.
The acquisition right of the shares attributed by the MTVB become due three years after its attribution.
The right to exercise the acquisition right of shares granted under the plan expires if the contractual link between the member and the company ceases before the three year period subsequent to its attribution, notwithstanding situations included in the following paragraphs.
The right will remain valid in case of permanent incapacity or death of the member, in which case the payment is made to the member himself or to his/her heirs on the vesting date.
In case of retirement of the member, the attributed right can be exercised in the respective vesting date.
The current policy is extensive to all active plans regarding which shares have not yet been transmitted.
The company does not have plans to attribute share purchase options.
No control mechanisms are in place regarding an employee participation system in the company's share capital.
| I. CONTROL MECHANISMS AND PROCEDURES |
|---|
| ----------------------------------------- |
The mechanisms implemented by the company for the purposes of controlling transactions with related parties are thorough, transparent and in strict compliance with the market's competition rules. Such transactions are subject to specific administrative procedures that are regulated by rules, namely rules governing transfer prices or the voluntary adoption of internal verification and control systems.
Sonae Indústria did not carry out any transactions with members of the Board of Directors nor with the Statutory Audit Board members.
All transactions with holding or other related companies represent normal operational activity and were made under "open market" conditions and at prices that comply with transfer pricing regulations.
Any transaction with shareholders or entities with whom they are in any relationship, under Article 20 of the Securities Code (reference shareholders), greater than 10 million Euros, should be subject to prior opinion of the Statutory Audit Board. The request for an opinion must be accompanied by all the elements required to allow a comparative analysis with the market and how potential conflicts of interest will be managed.
Transactions that have been contracted with reference shareholders shall be a result of a competitive process and when lower than 10 million Euros will be exempt from the prior opinion of the Statutory Audit Board but will need to be reported to the Statutory Audit Board under the procedures mentioned below.
The Sonae Indústria CFO is responsible for reporting to the Statutory Audit Board:
In 2014 the Statutory Audit Board gave its favourable opinion to the financing agreement celebrated between Sonae Indústria and the shareholder Pareuro, BV (company fully controlled by Efanor Investimentos SGPS, SA) in the amount of sixteen million six hundred and sixty six thousand and sixty six euros.
II. INFORMATION CONCERNING TRANSACTIONS
The information relative to related parties' transactions may be found in Note No 36 of the Notes to the Consolidated Financial Statements.
Sonae Indústria, SGPS, SA adopted the Corporate Governance Code published by CMVM (the Portuguese Securities Market Commission) in 2013, which is posted at www.cmvm.pt.
The decision to select the Corporate Governance Code of the CMVM is justified by the fact that it guarantees a suitable degree of shareholder protection and corporate governance transparency, and is also the Governance Code that the investors are most familiar with.
Sonae Indústria complied with all recommendations of the Corporate Governance Code aforementioned during the 2014 exercise. Besides fulfilling the legal requirements and recommendations of the referred Code, Sonae Industria, being aware of the importance of good corporate governance for business and for its shareholders, constantly seeks to adopt best practices in all areas in which operates, and as such prepared its own Code of Conduct, which can be found on the company's website www.sonaeindustria.com.
| RECOMMENDATION | Degree of compliance |
Corporate Governance report |
|---|---|---|
| I. VOTING AND CORPORATE CONTROL |
||
| I.1 Companies should encourage their shareholders to attend and vote at general meeting sand shall not set na excessively large number of shares required for the entitlement of one vote, and implement the means necessary to exercise the right to vote by mail and electronically. |
Comply | 12 and 13 |
| I.2 Companies shall not adopt mechanisms that hinder the passing of resolutions by shareholders, including fixing a quorum for resolutions greater than that provided for by law. |
Comply | 14 |
| I.3 Companies shall not establish mechanisms intended to cause mismatching between the right to receive dividends or the subscription of new securities and the voting right of each common share, unless duly justified in terms of long-term interests of shareholders. |
Comply | 12 |
| I.4 The company's Articles of Association that provide for the restriction of the number of votes that may be held or exercised by a single shareholder, either individually or in concert with other shareholders, shall also foresee for a resolution by the General Assembly (five years interval), on whether that statutory provision is to be amended or prevails - without super quorum requirements as to the one legally in force - and that in said |
Comply | 13 |
| RECOMMENDATION | Degree of compliance |
Corporate Governance report |
|---|---|---|
| resolution, all votes issued be counted, without applying said restriction. I.5 Measures that require payments or assumption of fees by the company in the event of change of control or change in the composition of the Board and that which appear likely to impair the free transfer of shares and the free assessment by shareholders of the performance of Board members, shall not be |
Comply | 4 |
| adopted. II. SUPERVISION, MANAGEMENT AND AUDITING |
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| II.1 Supervision and Management | ||
| II.1.1. Within the limits established by Law, and except for the small size of the company, the Board of Directors shall delegate the daily management of the company and said delegated powers shall be identified in the Annual Report on Corporate Governance. |
Comply | 27 and 28 |
| II.1.2. The Board of Directors shall ensure that the Company acts in accordance with its objectives, and shall not delegate its own responsibilities as regards the following: i) definition of the strategy and general policies of the company; ii) definition of the business structure of the Group; iii) decisions considered strategic due to the amount, risk and particular characteristics involved. |
Comply | 28 |
| II.1.3 The General and Supervisory Board, in addition to its supervisory duties, shall take full responsibility at corporate governance level, whereby through the statutory provision or by equivalent means, shall enshrine the requirement for this body to decide on the strategy and major policies of the company, the definition of the corporate structure of the group and the decisions that shall be considered strategic due to the amount or risk involved. This body shall also assess compliance with the strategic plan and the implementation of key policies of the company. |
Not applicable | |
| II.1.4. Except for small-sized companies, the Board of Directors and the General and Supervisory Board, depending on the model adopted, shall create the necessary committees in order to: |
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| a) Ensure a competent and independent assessment of the performance of the executive directors and its own overall performance, as well as of other committees; |
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| b) Reflect on the system structure and governance practices adopted, verify its efficiency and propose to the competent bodies, measures to be implemented with a view to their improvement. |
Comply | 15 and 27 to 29 |
| II.1.5. The Board of Directors or the General Supervisory Board, depending on the applicable model, should set goals in terms of risk-taking and create systems for their control to ensure that the risks effectively incurred are consistent with those goals. |
Comply | 50 to 52 |
| RECOMMENDATION | Degree of compliance |
Corporate Governance report |
|
|---|---|---|---|
| II.1.6 The Board of Directors shall include a number of non-executive members ensuring effective assessment of the activity of the remaining members of the Board. |
Comply | 17 and 18 | |
| II.1.7. Non-executive directors shall include an appropriate number of independent members, taking into account the adopted governance model, the size of the company, its shareholder structure and the respective free float .The independence of the members of the General and Supervisory Board and members of the Audit Committee shall be assessed as per the law in force. The other members of the Board of Directors are considered independent the member is not associated with any group with specific interests in the company nor is under any circumstance likely to affect an exempt analysis or decision, particularly due to: |
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| a. company |
Having been an employee at the company or at a holding a controlling or group relationship, in the past three years; |
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| b. | Having, in the past three years, provided services or established a commercial relationship with the company or company with which it is in a controlling or group relationship, either directly or as a partner, board member, manager or director of a legal person; |
Comply | 18 |
| c. | Being paid by the company or by a company with which it is in a controlling or group relationship other than the remuneration arising from the exercise of the role of a board member; |
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| d. | Living with a partner or a spouse, relative or any first degree next of kin up to and including the third degree of collateral affinity of board members or individuals who are, directly or indirectly, holders of qualifying holdings; |
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| e. Being a |
qualifying shareholder or a representative of a qualifying shareholder. |
||
| the request. | II.1.8. When Board members that carry out executive duties are requested by other Board Members shall provide the information requested in a timely and appropriate manner to |
Comply | 28 |
| minutes of the respective meetings. | II.1.9. The Chairman of the Executive Board or of the Executive Committee shall submit, as applicable, to the Chairman of the Board of the Directors, the Chairman of the Statutory Audit Board, the Chairman of the Audit Committee, the Chairman of the General and Supervisory Board and the Chairman of the Financial Matters Committee, the convening notices and |
Comply | 28 |
| II.1.10 If the Chairman of the Board of Directors has an executive role, said body shall appoint, from amongst its members, an independent member to ensure the coordination of the work of |
Not applicable |
| RECOMMENDATION | Degree of compliance |
Corporate Governance report |
|---|---|---|
| other non-executive members and the conditions so that body can make independent and informed decisions or to ensure the existence of an equivalent mechanism for such coordination. |
||
| II.2. Auditing | ||
| II.2.1 Depending on the applicable model, the Chairman of Statutory Audit Board, the Chairman of the Audit Committee or the Chairman of the Financial Matters Committee shall be independent in accordance with the applicable legal standard and shall have the necessary skills to carry out the respective duties. |
Comply | 32 and 33 |
| II.2.2 The Auditing Body shall be the main interface between the external auditor and the first recipient of the relevant reports, and is responsible, inter alia, for proposing the respective remuneration and ensuring that proper conditions for the provision of services are provided within the company. |
Comply | 45 |
| II.2.3 The Auditing Body shall assess the external auditor on na annual basis and propose to the competent body its dismissal or termination of the contract as to the provision of their services when there is a valid basis for said dismissal. |
Comply | 45 |
| II.2.4. The Auditing Body shall assess the functioning of the internal control systems and risk management and propose adjustments as may be deemed necessary. |
Comply | 51 |
| II.2.5. The Audit Committee, the General and Supervisory Board and the Statutory Audit Board decide on the work plans and resources concerning the internal audit services and services that ensure compliance with the rules applicable to the company (compliance services), and should be recipients of reports made by these services at least in what concerns matters related to accounting, identification or resolution of conflicts of interest and detection of potential improprieties |
Comply | 51 |
| II.3 Remuneration Setting | ||
| II.3.1 All members of the Remuneration Committee or alike shall be independent from the executive board members and shall include at least one member with knowledge and experience in matters of remuneration policy. |
Comply | 67 and 68 |
| II.3.2 Any natural or legal person that provides or has provided services in the past three years to any structure under the Board of Directors, to the Board of Directors itself, or who has a current relationship with the company or a company consultant shall not be hired to assist the Remuneration Committee in the performance of its duties. This recommendation also applies to any natural or legal person that is related by employment contract or provision of services with the above. |
Comply | 67 |
| II.3.3 A statement on the remuneration policy of the management and supervisory bodies referred to in Article 2 of Law No. 28/2009 dated 19 June, shall also include the following: |
Comply | 69 |
| RECOMMENDATION | Degree of compliance |
Corporate Governance report |
|---|---|---|
| a) Identification and details of the criteria for determining the remuneration paid to the members of the governing bodies; |
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| b) Information regarding the maximum potential, in individual terms, and the maximum potential, in aggregate form, to be paid to the members of corporate bodies, and identify the circumstances whereby these maximum amounts may be payable; |
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| c) Information regarding the enforceability or unenforceability of payments for the dismissal or termination of appointment of board members. |
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| II.3.4 The Approval of plans for the allotment of shares and/or options to acquire shares based on share price variation to board members shall be submitted to the General Meeting. The proposal shall contain all the necessary information in order to correctly assess said plan. |
Comply | 85 and 86 |
| II.3.5 Approval of any retirement benefit scheme established for members of corporate bodies shall be submitted to the General Meeting. The proposal shall contain all the necessary information in order to correctly assess said system. |
Not applicable | |
| III. REMUNERATIONS |
||
| III.1 The remuneration of the executive board members shall be based on actual performance and shall discourage taking on excessive risk. |
Comply | 69 |
| III.2 The remuneration of non-executive board members and the remuneration of the members of the Auditing Body shall not include any component dependent on the company performance or of its value. |
Comply | 69 |
| III.3 The variable component of the remuneration shall be reasonable overall in relation to the fixed component of the remuneration and maximum limits shall be set for all components. |
Comply | 69 |
| III.4 A significant part of the variable remuneration shall be deferred for a period not less than three years and its payment shall depend on the continued positive performance of the company during said period. |
Comply | 69 and 72 |
| III.5 Members of the Board of Directors shall not enter into contracts with the company or with third parties which intend to mitigate the risk inherent to the remuneration variability set by the company. |
Comply | 69 |
| III.6 The Executive Directors shall keep the company's shares that were allotted by virtue of variable remuneration schemes, up to twice the value of total annual remuneration, except for those shares that must be sold for the payment of taxes on the gains of said |
Comply | 69 |
shares, until the end of their mandate.
| RECOMMENDATION | Degree of compliance |
Corporate Governance report |
|---|---|---|
| III.7 When the variable remuneration includes stock options, the beginning of the exercise period shall be deferred for a period of not less than three years. |
Not applicable | |
| III.8 When the dismissal of a board member is not due to serious breach of duties nor to the unfitness for the normal exercise of the functions but, yet, is due to an inadequate performance, the company shall be endowed with the adequate and necessary legal instruments so that any damages or compensation beyond that which is legally due, is unenforceable. |
Comply | 83 |
| IV. AUDIT | ||
| IV.1 The external auditor, within the scope of its duties, shall verify the implementation of remuneration policies and systems of the corporate bodies, as well as the efficiency and effectiveness of the internal control mechanisms and report any shortcomings to the company's Supervisory Board. |
Comply | 51 |
| IV.2 The company or any entity with which it maintains a controlling relationship shall not engage the external auditor or any entity with which it finds itself in a group relationship or that incorporates the same network, for services other than audit services. If there are reasons for hiring such services - which must be approved by the Auditing body and must be explained in the Annual Corporate Governance Report - said services should not exceed 30% of the total value of services rendered to the company. |
Comply | 46 and 47 |
| IIV.3 Companies shall support the rotation of auditors after two or three terms whether these are four or three year mandates, respectively. The continuance beyond this period must be based on a specific opinion of the Supervisory Board that explicitly considers the conditions of auditor independence and the benefits and costs of replacement. |
Comply | 44 |
| V. CONFLICTS OF INTEREST AND RELATED PARTY TRANSACTIONS |
||
| V.1 The company's business with holders of qualifying holdings or entities with which they are in any type of relationship pursuant to Article 20 of the Portuguese Securities Code shall be conducted during normal market conditions. |
Comply | 90 |
| V.2 The Supervisory Body or the Auditing Body shall establish procedures and criteria that are required to define the relevant level of significance of business with holders of qualifying holdings - or entities with which they are in any of the relationships described in Article 20/1 of the Portuguese Securities Code - thus significant relevant business is dependent upon prior opinion of that body. |
Comply | 91 |
| VI. INFORMATION |
| RECOMMENDATION | Degree of compliance |
Corporate Governance report |
|---|---|---|
| VI.1 Companies shall provide, via their websites, in both Portuguese and English languages, access to information on their progress as regards the economic, financial and governance state of play. |
Comply | 59 to 65 |
| VI.2 Companies shall ensure the existence of an investor support and market liaison office which responds to requests from investors in a timely manner and which keeps record of the submitted requests and their processing. |
Comply | 56 and 58 |
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