AI assistant
Litgrid AB Annual Report 2010
2262_rns_2012-04-06_284f115e-c0d4-4f63-a08b-ec88fd8ffed9.pdf
Annual Report
Open in viewerOpens in your device viewer
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
CONSOLIDATED ANNUAL REPORT OF LITGRID AB AND ITS SUBSIDIARIES FOR 2011
I. General information about the group of undertakings
The consolidated annual report has been prepared for the financial year 2011.
The issuer and its contact information is as follows:
| Name | LITGRID AB (hereinafter Litgrid or the Company) |
|---|---|
| Legal form | Public limited liability company |
| Date and place of registration | 16-11-2010, Register of Legal Entities of the Republic of Lithuania |
| Company code | 302564383 |
| Address of registered office | A. Juozapavičiaus g. 13, LT-09311, Vilnius |
| Telephone | +370 5 278 2777 |
| Fax | +370 5 272 3986 |
| [email protected]; www.litgrid.eu |
Litgrid activities
Litgrid represents electricity transmission system operator (hereinafter TSO), managing electricity flows in Lithuania and supporting steady operation of national electric energy system. Litgrid is responsible for infrastructure of Lithuanian energy transmission grid and its connection to the electric energy infrastructure in North and West Europe. Kay strategic projects underway by electricity transmission system operator include development of interconnections with Sweden (NordBalt) and Poland (LitPol Link), development of Lithuanian electricity market and integration thereof into common European electricity market, preparation of national electric energy system to become full member of electricity transmission infrastructure, market and system of continental Europe.
Litgrid mission is to ensure a reliable transmission of electricity and provide competitive environment in an open electricity market.
Litgrid vision provides for complete integration of Lithuanian electricity system into European electricity infrastructure and common electricity market.
Litgrid values include responsibility, professionalism, co-operation, initiative and respect.
Litgrid strategy 2020 provides for responsibility to control national electricity system
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
Having regained the national independence for over twenty years and being a member of European Union for almost a decade, Lithuanian electricity sector still remains part of a non-European energy system, under central control from a neighbour state. Together with Latvia and Estonia, the Baltic region remains an isolated island within the electricity system of the continental Europe. Litgrid, being the back-bone of the Lithuanian electricity sector, is responsible for balance of electricity consumption and generation in the system and reliable transmission of electricity; the company is also responsible for reliable operation of the national electricity system and complete integration thereof to the European electricity network and system. In implementing objectives of the National Energy Strategy in the field of electricity, Litgrid takes active and responsible steps in key fields as follows:
Taking over control for the national power system 2020
Once Lithuania becomes a full and equal participant of European electricity system, electricity sector will see introduction of European system management standards, electricity flows shall be managed based on market principles and system frequency level will involve participation.
Common European electricity market by 2016
Development of electricity market in Lithuania, its integration to the Scandinavian electricity market, and subsequent participation in development of common European electricity market shall ensure competition and freedom of choice to all market players and equal trade in electricity with agents of electricity market of the East European states.
Integration of electricity transmission market to European electricity infrastructure by 2015
Lithuania can boast a solid and well developed electricity transmission, with excellent connections to electricity transmission infrastructure of the East neighbour states; once electricity connections to Sweden (NordBalt) and Poland (LitPol Link) are laid by late 2015, the national transmission grid will have first connecting lines to electricity grids in North and West Europe. Direct current insertion, intended to provide interim connection between Lithuanian and Polish electricity arteries, will allow for trade in electricity between different energy systems, whereas optimum investment into the national grid shall ensure integration of new electricity generators, secure transmission of electricity and reliable system operation. Together with Latvia and Estonia, we shall become a region, offering excellent infrastructure, with reliable connections to neighbour states.
Innovation-based organization
Litgrid is a pro-European, project-focused undertaking, employing best practices of modern management and social responsibility. The company, implementing energy projects of utmost scale and strategic importance to the entire national economy, retains key competencies only: system management and reliable transmission of electricity, maintenance of national electricity balance, maintenance of infrastructure and project management. Litgrid, specialised undertaking of electricity sector, employs energy professionals of top qualification; technical policy of transmission grid focuses on innovations supporting development of smart grids, regional and common European electricity market and integration of national power system into the infrastructure and system of Continental European Net. Litgrid co-operates with country's technical universities, takes active part in international organisations, responsible for planning of electricity infrastructure, markets and system.
Key works in implementation of strategic electricity sector works in 2011
On 26 May 2011, detailed plan on expansion of Alytus transformer substation was approved. Plot of land formed by the detailed plan shall be used for reconstruction of the substation and construction of direct current insertion. The reconstruction is necessary for project of LitPol Link, international electricity connection.
On 30 August 2011, special plan of LitPol Link electricity line in Lithuania was approved and planning stage of the same international electricity connection in the territory of Lithuania was completed. The special plan is the key document, prescribing the route of the connection.
On 8 September 2011, an international public procurement was published for technical project of LitPol Link electricity line. Estimated completion of works is the first semester 2013.
On 23 September 2011, a special plan on construction of Nordbalt connection in Klaipėda county was presented to the Ministry of Energy. The document was subject to public discussion, agreed with authorities issuing planning conditions and verified by the State Territorial Planning and Construction Inspectorate. In accordance with the Law on the Coastal Area, special plan shall be approved by the Government of the Republic of Lithuania.
On 30 September 2011, Litgrid started payment of compensations under contracts on establishment of easement. The first part of compensations, of almost LTL 2.5 million, was paid to owners of 209 plots of land. Contracts on establishment of easement are now signed with owners of plots of land in Alytus and Lazdijai areas, where LitPol Link international electricity transmission line shall be laid over their land. Connection electricity line shall be laid over plots of land of 500 owners.
55
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
In 2011, Litgrid and Svenska Kraftnat, Lithuanian and Swedish transmission system operators respectively, and Nordstream AG signed a contract regarding intersection of NordBalt connection and Nord Stream gas pipeline in the Baltic Sea. Exact location of intersection of NordBalt cable and gas pipeline was established based on detailed study of Baltic Sea seabed and approval of a safe route to lay the cable; the location is in the exclusive economic area of Sweden, at approximately 70 km from the shore.
On 19 December 2011, production of NordBalt marine cable of electricity connection was launched in Sweden. Total length of cable to be produced is 900 km; laying of the cable on the sea bed shall commence in the early 2015.
On 28 December 2011, international public procurements was published for a reparation of a feasibility study, "Integration of the Baltic states into the EU internal electricity market. Feasibility study of installation of possible connections". This is a first step and a pre-condition to ensure complete integration of Lithuanian, Latvian and Estonian energy systems to grids of the continental Europe.
On 30 December 2011, contracts on funding and works for Klaipėda-Telšiai electricity transmission line project were signed. Litgrid, the Ministry of Economy and the Lithuanian Business Support Agency signed a tripartite agreement on funding and administration of construction of an electricity line. Funding from EU structural funds shall cover 40% of the project value, LTL 22.7 million. On 30 December, contract of works was signed with A. Žilinskio ir ko UAB. Estimated completion of construction of Klaipėda-Telšiai electricity transmission line is due by late 2014.
Litgrid is a member of ENTSO-E (European Network of Transmission System Operators for Electricity). The organisation, established in 2008, unites electricity transmission system operators from 34 countries in Europe. Litgrid takes active part in the process of pan-European planning of electricity infrastructure development projects and common European electricity market development, coordinated by ENTSO-E.
On 27-28 June 2011, Vilnius hosted annual assembly of ENTSO-E, involving CEOs of 54 transmission system operators in Europe.
56
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
Litgrid subsidiaries and nature of their activities
As of 31 December 2011 the Litgrid group of undertakings included Litgrid AB, Baltpool UAB and Tetas UAB.
| Name | BALTPOOL UAB |
|---|---|
| Legal form | Private limited liability company |
| Date and place of registration | 11-12-2009, Register of Legal Entities of the Republic of Lithuania |
| Company code | 302464881 |
| Address of registered office | A. Juozapavičiaus g. 13, LT-09311, Vilnius |
| Telephone | +370 5 278 2260 |
| Fax | +370 5 278 2707 |
| [email protected]; www.baltpool.lt | |
| Nature of activities | Electricity market operator |
| Shareholding interest held by Litgrid | 67% |
| Name | Tetas |
| Legal form | Private limited liability company |
| Date and place of registration | 08-12-2005, Register of Legal Entities of the Republic of Lithuania |
| Company code | 300513148 |
| Address of registered office | Senamiesčio g. 102B, LT-35116, Panevėžys |
| Telephone | +370 45 504 618 |
| Fax | +370 45 504 684 |
| Type of activities | Specialised services of technical maintenance, repair and installation of transformer substations, distribution stations, testing and trial work, design of energy objects |
| Shareholding interest held by Litgrid | 61.13% |
Litgrid Group also controls shares of the following undertakings:
| LitPol Link Sp.z.o.o (Poland) | 50% of shares and granted votes |
|---|---|
| Elektros tinklo paslaugos UAB | 28.87% of shares and granted votes |
| Technologijų ir inovacijų centras UAB | 35.14% of shares and granted votes |
| NT Valdos UAB | 0.35% of shares and granted votes |
The extraordinary general meeting of shareholders of the company, convened on 24 January 2011, approved reorganisation conditions of the Company (until 14 March 2011, the company was called Litgrid turtas AB) and Litgrid AB, its subsidiary, by merging Litgrid AB to Litgrid turtas AB. On 1 March 2011, the entire asset and liabilities of Litgrid AB were taken over by Litgrid turtas AB. On 2 March 2011, Litgrid AB was removed from the Register of Legal Entities. On 14 March 2011, articles of association (as amended) of Litgrid AB were registered with the Register of Legal Entities (with name of Litgrid turtas AB changed to Litgrid AB).
During on-going reorganisation of electric energy undertakings, and in order to ensure efficient management of asset and human resources of Energetikos pajėgos UAB and Tetas UAB, on 1 April 2011 Energetikos pajėgos UAB was merged to Tetas UAB. On 1 April 2011, 1 d. new articles of association of Tetas UAB were registered with the Register of Legal Entities, and on 6 April 2011 Energetikos pajėgos UAB was removed from the Register of Legal Entities.
On 31 December 2011, Litgrid held 67% shares of Baltpool. The remaining 33% of Baltpool shares were held by Klaipėdos nafta AB. On 18 May 2011, articles of association of Baltpool (as amended after an increase in the authorised capital) were registered. After registration of the articles of association of Baltpool (as amended), Klaipėdos nafta now holds 156 627 (one hundred and fifty-six thousand six-hundred twenty-seven) ordinary registered shares of Baltpool of LTL 1 (one) face value.
Services provided by Litgrid group of undertakings
Litgrid, electricity transmission system operator, provides the following services:
- transmission of electricity,
- capacity reserve,
- trade in balancing/regulating electricity,
- public obligation services (hereinafter POS) and administration of POS funds.
Transmission of electricity
Electricity transmission service is transmission of electricity via high-voltage (330-110 kilovolts, kV) facilities. Transmission system operator (hereinafter the TSO) transmits electricity from generators to users or suppliers. Transmission of electricity is a regulated activity. On 24 February 2011, for the purposes of transmission activities,
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
the National Control Commission for Prices and Energy (hereinafter the Commission) granted an open-ended licence for transmission of electricity to Litgrid public limited liability company, effective as of 1 March 2011.
Key objective of SOP activities is to reliable, efficient, quality, transparent and safe transmission of electricity.
Capacity reserve service
Litgrid warrants the reliable operation of the system and for this purpose it buys from energy generators capacity reserve service in electricity generation facilities and provides to the users capacity reserve services. Capacity reserve is necessary, in case of an unexpected reduction in electricity generation or increase in consumption.
Trade in balancing/regulating electricity
Litgrid ensures balance of the national electricity generation and consumption. Balancing electricity is electricity, consumed or generated not in compliance with electricity consumption or generation schedules. Litgrid organizes the trade of the balancing electricity, purchases and/or sells the balancing electricity necessary to maintain the national balance of the electricity generation and consumption.
Regulating electricity is electricity bought and/or sold on instruction of TSO, required to perform balancing function national electricity consumption and generation. The trade is carried out at the regulating electricity auction organized by Litgrid. The auction is used by the regulating electricity suppliers and transmission system operators from other countries, provided they are technically capable to promptly change electricity generation and consumption modes and have entered into a respective contract with Litgrid.
Public obligation services and administration of POS funds
Public interests in electricity sector include services, that ensure and enhance national energy security, as well as integration and use of electricity using renewable sources. List of public obligation services, providers and procedure of provision shall be approved by the Government of the Republic of Lithuania or its authorised authority, in line with public interests in electric energy sector. POS funds are funds payable to providers of POS services.
Litgrid provides the following POS services:
- preparation and implementation strategic projects, related to enhancement of energy security (Lithuania-Sweden and Lithuania-Poland international electricity interconnections, integration of Lithuanian electric energy system in the grid of continental Europe);
- connection of electricity generation facilities, using wind, biomass, solar energy or hydro energy, to transmission grid, optimising, development and/or reconstruction of transmission grid, related to acceptance and transmission of electricity, generated by generators using renewable energy sources;
- balancing of electricity, generated using renewable energy sources;
- administration of POS funds.
Procedure of POS provision procedure is prescribed by the description of provision procedure of public obligation services, approved by the order of the Ministry of Energy of the Republic of Lithuania dated 8 October 2010 No 1-283. POS funds administration procedure is prescribed by the description of administration procedure of funds of public obligation services, approved by resolution of the Commission dated 17 December 2010 No O3-328. The POS provision description provides, that Litgrid, transmission system operator, shall be administrator of POS funds, i.e. it shall collect POS funds and pay the same to beneficiaries of POS funds, as designated by the Government of the Republic of Lithuania.
Technical maintenance and repair of transmission grid
Tetas UAB, subsidiary of Litgrid, provides the following technical maintenance and repair services of transmission grid facilities:
- performs technical maintenance and repair of electricity grid facilities;
- provides construction services of new energy objects and reconstruction services of the existing energy objects;
- provides designing services of the electric facilities.
The activity of Tetas UAB complies with the requirements of ISO 9001:2008 and ISO 14001:2004. The Quality and Environment Protection Management System, implemented in the company in 2007, is applied for the operation of the electric facilities up to $400\mathrm{V}$ and the performance of the designing and construction works of the building part of the special designation constructions.
58
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
Services of electricity market operator
The electricity transmission system operator, acting as an independent participant of electricity system, is responsible for development of national electricity market. Such practice is also met elsewhere in Europe.
On 28 December 2009, Commission granted a licence to pursue the activity of market operator to Baltpool, a subsidiary of Litgrid. Since 1 January 2010, electricity market is functioning in Lithuania; its participants include electricity generators and independent energy suppliers from Lithuania and other electric energy systems.
Baltic Energy Markets Interconnection Plan (BEMIP) provides for interconnection of electricity markets in the Baltic region states. The objective of the BEMIP is complete integration of Lithuanian, Latvian and Estonian electricity markets to the Nordic states electricity market in 2015. Lithuanian electricity market is based on principles of Nord Pool Spot, North European electricity market and is completely ready to join the single electricity market of Baltic states.
Environmental protection
Environmental impact assessment or selection procedures are performed for the electricity transmission lines and transformer substations to be built, the finding whereof will be taken into consideration where preparing technical designs. Designing of new structures or reconstruction of the old ones is subject to environmental requirements. In any case it is endeavored to select such equipment that would be less harmful to the environment. Where procuring services, the demand is that the contractors would have introduced the Environmental Management Systems as per LST EN ISO 14001 standard; contractors are committed to manage waste produced during construction and provide the Company with the supporting documentation.
Litgrid operates in accordance with administrative documents governing waste and waste-water treatment and safe use of chemical substances by establishing environmental requirements to objects to be built or being reconstructed.
The main hazardous waste produced includes insulating oil and waste related to the use of such oil, accumulators, luminescent lamps, remains of various chemical substances, etc. Litgrid has liability insurance relating to damage, caused to environment.
Transmission system operator's customers
Direct customers of Litgrid are users of electricity transmission grid and balancing and regulating energy suppliers.
Users of transmission grid:
- Distribution networks operator Lesto,
- Electric power consumers having their facilities connected to the transmission grid of the transmission system operator and buying electricity for their consumption needs,
- Electric power generators;
Balancing and regulating energy suppliers are electric power generators and suppliers.
Employees
There were 623 employees employed in Litgrid Group for the year ended 31 December 2011: Litgrid - 205 employees, Tetas - 405 employees, Baltpool - 13 employees (whereof three - Litgrid employees, working in the secondary position in Baltpool). In 2011 the staff turnover in Litgrid was 5.9 percent.
The payroll fund in the reporting year amounted to 26,081 thousand litas.
| Number of employees for the year ended 31 December 2011 | Average monthly salary, LTL | |
|---|---|---|
| Workers | 221 | 2,228 |
| Specialists | 387 | 3,654 |
| Executive personnel | 15 | 13,074 |
| Total | 623 | 3,375 |
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
Education of employees by group at the end of the period
| For the year ended 31 December 2011 | For the year ended 31 December 2010 | |
|---|---|---|
| Number of employees | 623 | 627 |
| of which have: | ||
| University education | 358 | 351 |
| College education | 144 | 145 |
| Secondary and post-secondary education | 121 | 131 |
In 2011 Litgrid signed a frame agreement with the labor union. This agreement defined and ensured a fair payroll policy, regulated socio-economic relations between the employer and the employee.
Principles of social responsibility policy of Litgrid
Litgrid activities are based on the principles of social responsibility, cohesive development, transparency, as well as progressive environmental protection. The Company's activity is a prerequisite for successful functioning of national economy, whereas long-term strategic objectives as well as strategic energy projects contribute to security and establishment of energy independence of the country. The scope and importance of projects implemented encourages the Company and its personnel as well as management to follow the highest professional and ethical standards as well as assume responsibility in nourishing and educating consciousness, responsibility, as well as willingness of society and individual groups thereof to be actively involved in creating the welfare of the country.
Implementing social responsibility policy, Litgrid gives most of its attention to ensuring honest and motivating work conditions, educating responsibility and public spirit, helping the society to grow and develop.
Information about research and development activities of the Company Group
Litgrid, on the annual basis, draws up research and development programs for development of the electricity system and improvement of the effectiveness of the transmission network. One of the main tasks is to reconstruct energy objects by replacing old equipment with the new and modern one and implementing the modern relay protection, systemic automation, control, information collection and transfer systems. The plans for construction and reconstruction of the objects, with reference to scientific research and studies, are drawn for the period of ten years and updated annually.
In 2011 Litgrid in cooperation with Latvian and Estonian transmission system operators announced the tender "Full integration of the three Baltic States into the European energy market for the performance of feasibility study of installation of available connections". This study is co-funded by the European Union program Trans-European Energy Network for Electricity (TEN-E).
Principal features of internal control and risk management systems
Consolidated financial statements of Litgrid Group are prepared as per EU certified International Financial Reporting Standards. Litgrid internal control process covers the process control of preparation of service provision related business processes, information system operation, and financial accounts.
Preparation of consolidated financial statement is determined by Litgrid accounting policy and description of procedures that ensure the performance of accounting as per EU certified International Financial Reporting Standards and laws of the Republic of Lithuania. Litgrid description of procedures provides for eventual risks relevant to accounting and preparation of financial statement, methods and control thereof, evidentiary material of control, and employees in charge of control.
The Company has appointed the persons in charge of risk management. The Department of Internal Audit and Prevention continually assesses the activity process of the Company and related risks as well as gives recommendations to the management on management of risks observed.
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
II. Financial information
The performance results of the Group's and the Company's of undertakings for the year ended 2011 are given in the table below. The Company started-up business on 1 December 2010, therefore, the comparative financial results of 2010 are not provided.
| Group | Company | |
|---|---|---|
| Financial results (in thousands of litas) | ||
| Electricity related sales revenue | 383,193 | 383,052 |
| Other operating income | 51,613 | 5,892 |
| EBITDA | 111,338 | 106,605 |
| EBITDA margin (%) | 25.6 | 27.4 |
| Operating profit (loss) | (24,389) | (25,878) |
| Net profit (loss) | (16,779) | (20,324) |
| Cash flow from ordinary activities | 101,832 | 104,256 |
| Relative indicators | ||
| Average return on equity (%) | (0.9) | (1.1) |
| Average return on assets (%) | (0.7) | (0.9) |
| Owner's equity/assets (%) | 75.9 | 76.5 |
| Liabilities/owner's equity (%) | 22.2 | 21.1 |
| Financial liabilities/owner's equity (%) | 0.0 | 0.0 |
| Free cash flow (FCF)/revenue (%) | 19.5 | 22.4 |
| TSO performance indicators | 2011 | 2010 |
| Volume of electricity transmitted, million kWh | 9,279 | 9,260 |
| Technological expenses in the transmission network (%) | 2.17 | 2.09 |
| END, MWh (volume of electricity not transmitted due to loss of connections)* | 7.55 | 11.62 |
| AIT, in minutes (average interruption time)* | 0.35 | 0.49 |
- Only for reasons attributable to the operator's liability and non-identified reasons.
Income
Income of the Group for the year ended 2011 totaled 434.8 million litas.
Electric power transmission income totaled 204.7 million litas or 47.1 percent of total income. In 2011 Litgrid transmitted 9 279 million kWh of electric power through high voltage electricity networks for the needs of the country or 0.2 percent more than transmitted in 2010. Distribution networks operator Lesto was transmitted 8 161 million kWh - 0.4 percent less than in 2010, other consumers - 1 118 million kWh - 5.2 percent more. Actual electric power transmission price was 2.21 ct/kWh, ceiling price of transmission service, approved by the Commission for 2011, was 2.32 ct/kWh.
Income from balancing-regulating electric power totaled 86.8 million litas (20 percent of total income of the Group), income from power reservation - 55.5 million litas (12.8 percent), income from admittance to the network (partnership in the Inter-transmission system operators compensation mechanism) - 14.7 million litas (3.4 percent), income from public service obligations - 10.2 million litas (2.4 percent), other income relevant to electric power (income from reactive power, transit, connection of new consumers) - 11.3 million litas (2.6 percent).
Income from design, technical service, repair works, and investment projects totaled 46.1 million litas or 10.6 percent of total income of the Group.
61
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
Expenses
The expenses of the Group for the year ended 2011 totaled 459.2 million litas.
The expenses of purchase of electricity and related services accounted for the major part of the expenses of the Group - 201.3 million litas or 43.8 percent, whereof expenses of balancing-regulating electricity totaled 67 million litas (14.6 percent of total expenses of the Group), expenses of power reservation - 64.2 million litas (14 percent), expenses of purchase of electricity for compensation of technological losses in the network - 42.1 million litas (9.2 percent), expenses of transit (partnership in the Inter-transmission system operators compensation mechanism) - 18.2 million litas (4 percent), expenses of provision of public service obligations - 9.8 million litas (2.1 percent).
Profit (loss)
The Group's profit before tax for the year ended 2011 totaled 19.7 million litas, net loss - 16.8 million litas.
The main reason for the Group's loss is that the expenses of depreciation and amortization of transmission network for the year ended 2011 in Litgrid financial statement totaled 132.5 million litas and were significantly higher than expenses of depreciation and amortization, estimated by the Commission when setting the transmission rate (53.7 million litas).
The Group's EBITDA totaled 111.3 million litas, EBITDA margin - 25.6 percent.
Balance sheet and cash flow
For the year ended 31 December 2011 the Group's asset totaled 2.503 million LTL. Long-term asset of the Group totaled 84 percent of total asset of the Group, equity totaled 75.9 percent of the asset of the Group.
For the year ended 2011 the Group had no financial liabilities to credit institutions, its cash, cash equivalents, and investments, kept until redemption, amounted to 201.8 million litas, whereof 61.1 million litas was funds of administered public service obligations.
Net cash flow from the main activities of the Group for the year ended 2011 totaled 101.8 million litas, payments for acquired long-term tangible and intangible asset totaled 160.8 million litas.
Net cash flow excluding cash flow into investments, kept until redemption (which was equal 93.6 million litas) totaled 84.8 million litas.
Transmission system operator's performance indicators
According to the requirements for electricity transmission reliability and quality of services approved by the National Control Commission for Prices and Energy, the following indicators are used for establishing the electricity transmission reliability level: END, i.e. volume of electricity not transmitted, which shows the volume of electricity that was not transmitted due to loss of connections during the reporting period, and AIT, i.e. the average interruption time.
The minimum level of reliability determined by the Commission for 2011 was as follows: END - 5 MWh (actually it was 7.55 MWh), AIT - 0.26 min (actually it was 0.35 min).
Other essential information
On 29 July 2011 the National Control Commission for Prices and Energy coordinated the investment project "Lithuania - Sweden Interconnection" and for implementation of the project for the period of 2011 - 2016 determined 479 million litas for public service obligations. The funds of public service obligations, allocated by the Commission and received by the Company in 2011, totaled 92 million litas, the amount of funds, allocated for 2012, totals 85 million litas.
Investment into long-term asset
Litgrid's investment in the property to be used in the transmission activity in 2011 amounted to 159.9 million LTL. The major portion of the investment was allocated for the implementation of strategic objects - 94.1 million LTL (59 percent of total investment). Investment into reconstruction and expansion of the transmission grid totaled 65.8 million LTL (41 percent of total investment).
62
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
Risk factors
Political risk factors
Electricity sector is a particularly important area of economy that highly influences national political and economic interests. The management, structure and functioning of the power sector in the Republic of Lithuania is under the regulation of the Law on Energy and the legal instruments. Any amendments of the legal instruments regulating the power sector either at the European Union or national level may result in the changes of Litgrid Group operation.
The prices of electricity services are regulated and ceiling of prices are set by the National Control Commission for Prices and Energy. Results of Litgrid activities are directly dependent on these decisions.
Financial risk management
At the performance of the activity Litgrid Group companies may encounter the financial risk, i.e. credit risk, liquidity risk and market risk (foreign currency risk, interest rate risk with respect of the true value and cash flow, securities price risk). At managing such risks the Group companies seek to mitigate the influence of the factors that may have negative impact on the financial results of the Group activity. Risk management is performed by the Finance Planning and Treasury Department of the Company pursuant to the description of treasury management procedure of Litgrid Group, approved by Litgrid Board.
Information on the Company's financial risk and management thereof is given under Note 30 of Consolidated and Company's financial account of Litgrid, AB for the year ended 2011.
Technical risk factors
The Lithuanian power system has many interconnecting system lines with the neighboring power systems. The available power and balancing facilities are rather scarce therefore the management of the capacity and power balancing is quite complicated.
About 50 percent of all the equipment in transformer substations is older than 25 years. 35 percent of all the 110 kV overhead lines and 24 percent of all 330 kV overhead lines are older than 45 years. Failures and breakdowns of the most important technological facilities used in the activities can have a negative effect on the activities and financial results of Litgrid.
Ecological risk factors
The companies of the Group follow environmental protection rules providing for proper marking, use and storage of hazardous substances used by it, ensures that the facilities operated by it meet the requirements applicable to their use. The work in operated objects, where there is more risk of environmental damage due to the volumes of emitted pollutants or production of waste, is carried out in accordance with Integrated Pollution Prevention and Control (IPPC) permits issued to the Company by regional environmental protection departments.
References and additional explanatory notes regarding the data provided in the consolidated financial statements
The explanatory note of financial statements for the year 2011 explains the financial information in more detail.
Dividend policy
The Government of the Republic of Lithuania, that indirectly (through Visagino Atominė Elektrinė UAB) holds 97.5 percent of Litgrid's shares, by its Resolution No. 20 of 14 January 1997 (version of Resolution No. 1451 of 3 December 2001) has set principles of distribution of dividend for state-owned shares.
63
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
III. Information on share capital and shareholders
Litgrid has not acquired own shares; the Company did not acquire and did not assign own shares over the accounting period. Daughter-enterprises of the Company have not acquired the Company's shares either.
The authorized capital of the Company registered in the Register of Legal Entities on 16 November 2010 amounts to LTL 504,331,380. It is divided into 504,331,380 ordinary registered shares of one Litas nominal value each. All the shares are fully paid up and grant equal rights to the shareholders. As of 22 December 2010 Litgrid's shares have been included in Subsidiary trade list of NASDAQ OMX Vilnius Stock Exchange, issue ISIN code LT0000128415.
The number of shareholders of the Company for the year ended 31 December 2011 was 5955 (five thousand nine hundred fifty five). For the year ended 31 December 2011 Visagino Atominė Elektrinė UAB (Žvejų g. 14, LT-09310 Vilnius, organization identification number 301844044) owned 491,736,153 ordinary registered shares of the Company, i.e. 97.5 percent of Litgrid's authorized capital.
On 25 October 2011 Litgrid signed a contract with AB SEB bankas on the Company's securities accounting and services related to securities accounting. The contract is valid until 1 November 2012.
Securities of daughter-enterprises of the Company are not traded on stock exchange.
Articles of Association
Articles of Association of Litgrid are amended in the manner prescribed by the Law on Companies of the Republic of Lithuania. The decision is made by 2/3 majority vote of the shareholders attending the meeting.
General Meeting of Shareholders
The General Meeting of Shareholders is the supreme body of the Company.
The competence of the General Meeting of Shareholders and the procedure for convening the meeting and adopting decisions are governed by laws, other legal acts and the Articles of Association.
Board of the Company
The Board, constituting five members, is elected for the term of office of four years. The term of office of the Board starts after the end of the General Meeting of Shareholders that has elected the Board and ends on the day of the General Meeting of Shareholders that is held during the year of the end of the term of office of the Board.
If the Board or the member of the Board is withdrawn, resigns, or abandons the office due to some other reasons before the end of term of office, a new Board or a member of the Board is elected for the remaining term of office. Shareholder of the Company or his representative, where suggesting the candidacies to the members of the Board, must provide information in writing on qualification, experience, and eligibility of suggested member to hold the office of a member of the Board. Candidates to the members of the Board must submit a written consent to hold the office and the declaration of interests.
The Board shall elect the chairman of the Board from among its members.
The Board follows the laws, other legal acts, Articles of Association, decisions of the General Meeting of Shareholders, as well as regulation of work of the Board.
The Board is a collegial management body of the Company.
Powers of the Board, procedure of decision-making as well as election and revocation of the members is established by the laws, other legal acts, and Articles of Association.
The Board is subordinate to the General Meeting of Shareholders.
Activities of the Board
The Board considers and approves the strategy of the Company's activities, its budget, as well as the organizational structure of the Company, employee positions, and total number thereof, establishes the terms and conditions of employment contract of the manager of internal audit subdivision, approves his job description, provides incentives for and imposes penalties against him. The Board makes decisions on assignment of shares or rights granted by shares to other persons, issuance of debenture bonds, allocation of assistance, involvement of the Company in the activities of various associations, establishment of daughter-enterprises and subsidiaries as well as activities thereof.
64
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
Moreover, the Board takes the decision on the transactions of the value higher than 10 million litas and disposal of facilities of strategic significance to national safety.
The Board also resolves the issues in respect of which the Board is addressed by the Managing Director. If the decisions of the Board require the approval of the General Meeting of Shareholders, the Board decisions may be implemented only upon approval of the General Meeting of Shareholders.
Activities of the Manager
The Managing Director is a one-person managing body of the Company. The Managing Director organises the Company's activities, manage the Company, act on behalf of the Company and unilaterally conclude transactions.
The competence of the Managing Director and the procedure for election and recall thereof are governed by laws, other legal acts and the Articles of Association.
Litgrid's Members of the Board, Managing Director, and Chief Financier:
| Position | Name, surname | Beginning date | End date | Number of issuer's shares held |
|---|---|---|---|---|
| Board | ||||
| Chairman of the Board | Arvydas Darulis | 03/11/2011 | - | |
| Member of the Board | Romas Švedas | 28/10/2010 | 12/09/2011 | - |
| Member of the Board | Violeta Greičiuvienė | 28/10/2010 | - | |
| Member of the Board | Renatas Šumskis | 28/10/2010 | 01/04/2011 | - |
| Member of the Board | Vidmantas Grušas | 28/10/2010 | 01/04/2011 | - |
| Member of the Board | Virgilijus Poderys | 08/12/2010 | ||
| Member of the Board | Gintaras Labutis | 01/04/2011 | 02/11/2011 | |
| Member of the Board | Viktorija Sankauskaitė | 03/11/2011 | - | |
| Member of the Board | Valentinas Pranas | 01/04/2011 | - | |
| Milaknis | - | |||
| Managing Director | Virgilijus Poderys | 08/12/2010 | ||
| Chief Financier | Tatjana Didikienė | 17/11/2010 |
Litgrid's Members of the Board
Arvydas Darulis, Vice-Minister of Energy, Chairman of the Board
Born in 1965; in 1986-1991 studied in Vilnius University – Department of Industrial Economics and Management and acquired the Economist's qualification degree. Completed Baltic Economic Management training program in Dalhousie University (Canada) – Baltic Institute of Corporate Governance. In 1991-1994 worked as a Head of Commercial Privatization Department of the Ministry of Economy of the Republic of Lithuania, in 1994-1996 – Auditor of KPMG Lietuva, in 1996-2007 – Director of Public Organization Lithuanian SME Development Agency, in 2007-2009 – Director of Territorial Network Management Department of AB bankas Snoras, in 2009-2010 – Head of Strategic Project Department of the Ministry of Energy of the Republic of Lithuania, since 2010 – Vice-Minister of Energy.
Violeta Greičiuvienė, Member of the Board
Born in 1972; in 1990-1996 studied in Vilnius Gediminas Technical University – Department of Business Management; in 1997-2004 worked as the Chief Specialist of Nuclear Energy Division of Energy Development Department of the Ministry of Economy of the Republic of Lithuania, in 2004-2005 – Manager of Ignalina NPP Problems Co-ordination Division of Energy Development Department of the Ministry of Economy of the Republic of Lithuania, in 2005-2010 – Nuclear Energy Attaché of the Republic of Lithuania at Permanent Representation of the Republic of Lithuania under International Organizations in Vienna.
Valentinas Pranas Milaknis, Member of the Board
Born in 1947; in 1970 graduated from Kaunas University of Technology, Vilnius Branch – Department of Device Manufacturing and acquired the specialty of a Radio Engineer; in 1971-1989 worked as the Engineer and Assistant to Chief Engineer of Municipal Economy Design Institute, in 1989-1999 – Director of AB Alna, in 1999-2000 – Minister of Economy of the Republic of Lithuania, in 2001-2003 – General Manager of Lithuanian National Radio and Television, in 2003-2007 – President of Alnos biuro sistemas, in 2007-2009 – Chairman of the Board of Alna Group, in 2009-2010 – Advisor to the Prime Minister of the Republic of Lithuania and Chairman of the Commission for Improvement of State's Governing, since 2011 – Member of the Board of UAB Alna.
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
Virgilijus Poderys, Member of the Board ir Managing Director of Litgrid
Born in 1961; in 1979-1984 studied in Vilnius University – Faculty of Physics, in 1999-2000 – Baltic Management Institute and Vytautas Magnus University; in 1997-2006 worked as the Chairman of the Lithuanian Securities Commission, in 2006-2007 – Adviser to the Prime Minister of the Republic of Lithuania on financial matters, in 2007-2009 – Chairman of the National Control Commission for Prices and Energy.
Viktorija Sankauskaitė, Member of the Board
Born in 1979; in 1997-2005 studied in Kaunas University of Technology and acquired the Master's qualification degree in Energy. In 2007-2008 worked as the Chief Specialist of Division of Strategic Projects of Energy of Energy Department of the Ministry of Economy of the Republic of Lithuania, in 2008-2009 – Head of Division of Strategic Projects of Energy of Energy Department of the Ministry of Economy of the Republic of Lithuania, in 2009-2010 – Chief Specialist of Energy Efficiency Division of the Ministry of Energy of the Republic of Lithuania, since 2010 – Head of Division for Renewable Energy Resources of the Ministry of Energy of the Republic of Lithuania.
Benefits for the work in the Board of the Company are not paid to the manager of the Company and other members of the Board. Total amount of salary, calculated for the managing director and chief financier of the company over the accounting period, was 363,862; average amount of calculated salary per person (for managing director and chief financier) was 181,931.
Information on major transactions of affiliated parties, amounts thereof, nature of relations between affiliated persons, and such other information on transactions, which is necessary in order to understand the financial status of the company, is given in the explanatory note to the financial accounts under Note 28.
Information on compliance with the management code of companies is given in the appendix hereto.
Transparency
The Company complies with all provisions of Sections IV-VIII of the Transparency Guidelines, except for the following:
- The Company has not published monthly salary of Company Managers and employees;
- The Company has not indicated in the annual report the average salary by divisions.
In 2011 Litgrid made the following announcements on the essential events:
| 30/12/2011 | Litgrid invests into electricity transmission grid |
|---|---|
| 30/11/2011 | Intermediate (nine months) financial results of Litgrid Group of 2011 |
| 08/11/2011 | Re: Election of the Chairman of the Board |
| 03/11/2011 | Decisions made by Litgrid at the Extraordinary General Meeting of Shareholders held on 3 November 2011 |
| 27/10/2011 | Information on the decisions of the National Control Commission for Prices and Energy |
| 07/10/2011 | Extraordinary General Meeting of Shareholders of Litgrid is convened |
| 07/10/2011 | Information on notification of resignation |
| 07/10/2011 | Litgrid announcement at Vilnius Invest 2011 Conference |
| 30/09/2011 | Information on ceiling of the price of transmission service through high voltage networks for 2012 |
| 13/09/2011 | Information on notification of resignation |
| 31/08/2011 | Financial results of Litgrid Group of the first six months of 2011 |
| 25/07/2011 | Coordinated sources of financing of NordBalt |
| 10/06/2011 | Re: Difference of preliminary and audited results of LITGRID turtas AB of 2010 |
| 31/05/2011 | Litgrid's consolidated and Company's concise intermediate financial information |
| 20/05/2011 | Re: Registration of Articles of Association of Baltpool |
| 03/05/2011 | Notification of contract concluded |
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
| 29/04/2011 | Annual information for the year ended 2010 |
|---|---|
| 29/04/2011 | Decisions made by Litgrid at the Ordinary General Meeting of Shareholders held on 29 April 2011 |
| 27/04/2011 | Re: Announcement of electricity transmission service prices, rates, and procedure for application thereof as revised |
| 13/04/2011 | Re: Supplements to the agenda of the Ordinary General Meeting of Shareholders of Litgrid to be convened and approval of draft decision |
| 01/04/2011 | Decisions made by Litgrid at the Extraordinary General Meeting of Shareholders held on 1 April 2011 |
| 01/04/2011 | Announcement of financial indicators, suggested by the Ministry of Finance of the Republic of Lithuania to Litgrid to aspire after in 2011 |
| 30/03/2011 | Announcement of the assessment of shares of Baltpool UAB |
| 30/03/2011 | CORRECTION: Ordinary General Meeting of Shareholders of Litgrid is convened |
| 29/03/2011 | Ordinary General Meeting of Shareholders of Litgrid is convened |
| 15/03/2011 | The name of Litgrid turtas AB is changed to Litgrid AB |
| 10/03/2011 | Extraordinary General Meeting of Shareholders of LITGRID turtas AB is convened |
| 04/03/2011 | Decisions made by LITGRID turtas AB at the Extraordinary General Meeting of Shareholders held on 4 March 2011 |
| 04/03/2011 | Announcement of withdrawal of Litgrid AB from the Register of Legal Entities |
| 01/03/2011 | LITGRID turtas AB takes over of Litgrid's assets, rights, and obligations |
| 28/02/2011 | Preliminary consolidated non-audited results of activities of LITGRID turtas AB Group for the year ended 2010 |
| 25/02/2011 | Announcement of electricity transmission license, granted to LITGRID turtas AB |
| 09/02/2011 | Extraordinary General Meeting of Shareholders of LITGRID turtas AB is convened |
| 31/01/2011 | Re: Appeal to the National Control Commission for Prices and Energy |
| 25/01/2011 | Decisions made by LITGRID turtas AB at the Extraordinary General Meeting of Shareholders held on 24 January 2011 |
| 20/01/2011 | Re: Information on consideration of terms and conditions of dissociation to be equivalent to the prospect |
| 11/01/2011 | Income of LITGRID turtas AB for the year ended 2010 may total 900 million litas |
| 11/01/2011 | Presentation of LITGRID turtas AB to investors |
| 04/01/2011 | Invitation to presentation of LITGRID turtas AB |
All information on material events that took place during the first six months in 2011 is available on the website of NASDAQ OMX Vilnius at www.nasdaqomxbaltic.com/market/?pg=news and on the website of the Company at www.litgrid.eu.
67
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
"Litgrid" notice regarding compliance with the Corporate Governance Code for the Companies Listed on AB NASDAQ OMX Vilnius Stock Exchange
In accordance with Article 21, paragraph 3 of the Republic of Lithuania Law on Securities and item 20.5 of the Trade Rules of public limited liability company Vilnius Stock Exchange, "Litgrid" hereunder discloses its compliance with the Corporate Governance Code for the companies whose securities are traded on the regulated market, approved by AB NASDAQ OMX Vilnius Stock Exchange, and the specific provisions. In the event of non-compliance with the Code or certain provisions, it should be indicated which specific provisions are not complied with and for what reasons.
| PRINCIPLES/RECOMMENDATIONS | YES/NO | COMMENT |
|---|---|---|
| Principle I: Basic Provisions | ||
| The overriding objective of a company should be to operate in common interests of all the shareholders by optimizing over time shareholder value. | ||
| 1.1. A company should adopt and make public the company's development strategy and objectives by clearly declaring how the company intends to meet the interests of its shareholders and optimize shareholder value. | YES | Main trends of development and strategy of the Company are published on the Company's website www.litgrid.eu as well as annual and interim reports. |
| 1.2. All management bodies of a company should act in furtherance of the declared strategic objectives in view of the need to optimize shareholder value. | YES | The Company's board takes fundamental strategic decisions that determine the increase of equity (optimization of Company's activity functions and structure, other operations, increasing the efficiency of Company's activities and decreasing cost). |
| The manager of the Company and advisory body set up by him – board of directors – organizes and performs economic and financial activities of the Company. | ||
| 1.3. A company's supervisory and management bodies should act in close co-operation in order to attain maximum benefit for the company and its shareholders. | YES | Collegial supervisory body – supervisory board – is not set up in the Company. |
| The board to represent the shareholders' interests is set up in the Company. Board meetings are regularly held in the Company, where the board members are regularly furnished with information on activities of the Company. | ||
| 1.4. A company's supervisory and management bodies should ensure that the rights and interests of persons other than the company's shareholders (e.g. employees, creditors, suppliers, clients, local community), participating in or connected with the company's operation, are duly respected. | YES | The bodies of the Company respect the rights and interests of the persons, who are involved in the activities of the Company and associated with the activities of the Company. |
| 1. Since the establishment, the Company has been cooperating and engaged in social partnership with the representatives of the employees of the Company (collective agreement is drawn in the Company). | ||
| 2. The Company performs |
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
| | | financial and such other obligations, assumed against the creditors.
3. The Company organizes social projects, involving children, youth, local communities, and other social groups. Further information on the initiatives, performed by the Company, is given on the Company's website and annual report. |
| --- | --- | --- |
| Principle II: The corporate governance framework
The corporate governance framework should ensure the strategic guidance of the company, the effective oversight of the company's management bodies, an appropriate balance and distribution of functions between the company's bodies, protection of the shareholders' interests. | | |
| 2.1. Besides obligatory bodies provided for in the Law on Companies of the Republic of Lithuania – a general shareholders' meeting and the chief executive officer, it is recommended that a company should set up both a collegial supervisory body and a collegial management body. The setting up of collegial bodies for supervision and management facilitates clear separation of management and supervisory functions in the company, accountability and control on the part of the chief executive officer, which, in its turn, facilitate a more efficient and transparent management process. | NO | Collegial supervisory body – supervisory board – is not set up in the Company.
The board and the manager of the Company act in the Company.
With a view to assist the manager of the Company to organize and perform economic and financial activities of the Company, the Company has an advisory body – board of directors. The board of directors constitutes general manager, directors of departments of the Company, and manager of legal department. |
| 2.2. A collegial management body is responsible for the strategic management of the company and performs other key functions of corporate governance.
A collegial supervisory body is responsible for the effective supervision of the company's management bodies. | YES
NO | Collegial supervisory body – supervisory board – is not set up in the Company. |
| 2.3. Where a company chooses to form only one collegial body, it is recommended that it should be a supervisory body, i.e. the supervisory board. In such a case, the supervisory board is responsible for the effective monitoring of the functions performed by the company's chief executive officer. | NO | Collegial supervisory body – supervisory board – is not set up in the Company. |
| 2.4. The collegial supervisory body to be elected by the general shareholders' meeting should be set up and should act in the manner defined in Principles III and IV. Where a company should decide not to set up a collegial supervisory body but rather a collegial management body, i.e. the board, Principles III and IV should apply to the board as long as that does not contradict the essence and purpose of this body. | YES/
No | Recommendations, set forth in Principles III and IV, are not implemented in the Company in full scope; however, the Company complies with any and all requirements, provided in legal acts, raised for formation of collegial body.
It should be noted that the Company performs electricity transmission activities, therefore, the activities thereof are strictly governed by legal acts and monitored by respective state institutions (National Control |
69
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
| | | Commission for Prices and Energy, etc.). Moreover, the Company ensures transparency and expedition of taking of such decisions as well as implements the principles of non-discrimination of consumers of the Company, reduction of cost of the Company, and such other principles.
Collegial supervisory body - supervisory board - is not set up in the Company. |
| --- | --- | --- |
| 2.5. Company's management and supervisory bodies should comprise such number of board (executive directors) and supervisory (non-executive directors) board members that no individual or small group of individuals can dominate decision-making on the part of these bodies. | YES | In accordance with Article 34 of the Articles of Association of the Company, the board of the Company constitutes 5 (five) members. According to the Company, such number of board members is sufficient, since it ensures expeditious and efficient decision-making.
The board takes decisions at the board meetings. The board meeting is deemed to have been held and the board has the right to take decision, when the meeting is attended at least 4 (four) members. The decision of the board is deemed to have been accepted, when there are more votes "for" than "against".
Collegial supervisory body - supervisory board - is not set up in the Company. |
| 2.6. Non-executive directors or members of the supervisory board should be appointed for specified terms subject to individual re-election, at maximum intervals provided for in the Lithuanian legislation with a view to ensuring necessary development of professional experience and sufficiently frequent reconfirmation of their status. A possibility to remove them should also be stipulated however this procedure should not be easier than the removal procedure for an executive director or a member of the management board. | Not applicable | Collegial supervisory body - supervisory board - is not set up in the Company.
The board of the company is elected for the period of 4 (four) years. The length of the term of office of the board members of the Company is maximum allowed in accordance with the Law on Companies of the Republic of Lithuania.
Both the entire board and single members thereof may be revoked at the general meeting of shareholders before the expiration of term of office thereof. |
| 2.7. Chairman of the collegial body elected by the general shareholders' meeting may be a person whose current or past office constitutes no | YES | The board of the Company and the chairman of the |
70
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
| obstacle to conduct independent and impartial supervision. Where a company should decide not to set up a supervisory board but rather the board, it is recommended that the chairman of the board and chief executive officer of the company should be a different person. Former company's chief executive officer should not be immediately nominated as the chairman of the collegial body elected by the general shareholders' meeting. When a company chooses to departure from these recommendations, it should furnish information on the measures it has taken to ensure impartiality of the supervision. | board are elected pursuant to the requirements, established by the Law on Companies of the Republic of Lithuania. The manager of the Company is not elected as the chairman of the board. | |
|---|---|---|
| Principle III: The order of the formation of a collegial body to be elected by a general shareholders' meeting | ||
| The order of the formation a collegial body to be elected by a general shareholders' meeting should ensure representation of minority shareholders, accountability of this body to the shareholders and objective monitoring of the company's operation and its management bodies. | ||
| 3.1. The mechanism of the formation of a collegial body to be elected by a general shareholders' meeting (hereinafter in this Principle referred to as the 'collegial body') should ensure objective and fair monitoring of the company's management bodies as well as representation of minority shareholders. | YES | The board of the Company is elected by the general meeting of shareholders of the Company pursuant to the requirements, established in the Law on Companies of the Republic of Lithuania. |
| 3.2. Names and surnames of the candidates to become members of a collegial body, information about their education, qualification, professional background, positions taken and potential conflicts of interest should be disclosed early enough before the general shareholders' meeting so that the shareholders would have sufficient time to make an informed voting decision. All factors affecting the candidate's independence, the sample list of which is set out in Recommendation 3.7, should be also disclosed. The collegial body should also be informed on any subsequent changes in the provided information. The collegial body should, on yearly basis, collect data provided in this item on its members and disclose this in the company's annual report. | YES/No | Information on the candidates to the board members of the Company is usually provided to the shareholders in the manner prescribed by the Law on Companies of the Republic of Lithuania at the general meeting of shareholders, the agenda whereof covers the matter of discussion of election of the board members, which is not announced beforehand. In accordance with Article 38 of the Articles of Association of the Company, every candidate to the board members must provide the general meeting of shareholders with the declaration of interests of the candidate, specifying any and all circumstances that could cause the interest conflict between the candidate and the Company. In the event of new circumstances that could cause the interest conflict between the board member and the Company, the board member must immediately inform the Company and the board of such new circumstances in writing. |
Information on the office held by the board members or involvement in the activities of other companies is continually collected, compiled, and presented in the annual report and on the Company's website. |
71
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
| 3.3. Should a person be nominated for members of a collegial body, such nomination should be followed by the disclosure of information on candidate's particular competences relevant to his/her service on the collegial body. In order shareholders and investors are able to ascertain whether member's competence is further relevant, the collegial body should, in its annual report, disclose the information on its composition and particular competences of individual members which are relevant to their service on the collegial body. | YES/No | Information on the candidates to the board members of the Company is usually presented to the general meeting of shareholders in the manner prescribed by the Law on Companies of the Republic of Lithuania at the general meeting of shareholders (See comment of Clause 3.2). Information on work experience and office held by the candidates to the board members as well as such other information describing the competences of the candidate is presented at the general meeting of shareholders.
Information on the office held by the board members or involvement in the activities of other companies is continually collected, compiled, and presented in the annual report and on the Company's website. |
| --- | --- | --- |
| 3.4. In order to maintain a proper balance in terms of the current qualifications possessed by its members, the desired composition of the collegial body shall be determined with regard to the company's structure and activities, and have this periodically evaluated. The collegial body should ensure that it is composed of members who, as a whole, have the required diversity of knowledge, judgment and experience to complete their tasks properly.
The members of the audit committee, collectively, should have a recent knowledge and relevant experience in the fields of finance, accounting and/or audit for the stock exchange listed companies.
At least one of the members of the remuneration committee should have knowledge of and experience in the field of remuneration policy. | NO
YES
NO | In accordance with the Law on Companies of the Republic of Lithuania, in case, where the supervisory board is not set up, the board is elected and qualification of the members is assessed at the general meeting of shareholders. The board does not have any right to set its own constitution.
The remuneration committee is not set up in the Company. |
| 3.5. All new members of the collegial body should be offered a tailored program focused on introducing a member with his/her duties, corporate organization and activities. The collegial body should conduct an annual review to identify fields where its members need to update their skills and knowledge. | YES | Newly elected board members of the Company are enabled to meet with the managers of structural subdivisions of the Company and familiarize with the activities of the Company.
It should be noted that the board members are regularly informed of the Company's activities at the board meetings and individually at the members' request. |
| 3.6. In order to ensure that all material conflicts of interest related with a member of the collegial body are resolved properly, the collegial body should comprise a sufficient number of independent members. | YES | The articles of association of the Company do not contain the provision that a certain number of independent members shall be elected as the board members; |
72
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
| however, one out of five board members of the Company is independent. Formation of the board (and election of independent members to the board) is within the scope of powers of the members of the general meeting of shareholders. | ||
|---|---|---|
| 3.7. A member of the collegial body should be considered to be independent only if he is free of any business, family or other relationship with the company, its controlling shareholder or the management of either, that creates a conflict of interest such as to impair his judgment. Since all cases when member of the collegial body is likely to become dependant are impossible to list, moreover, relationships and circumstances associated with the determination of independence may vary amongst companies and the best practices of solving this problem are yet to evolve in the course of time, assessment of independence of a member of the collegial body should be based on the contents of the relationship and circumstances rather than their form. The key criteria for identifying whether a member of the collegial body can be considered to be independent are the following: | NO | The board of the Company has not set any specific criteria for assessment of independence, since there has never been any need for that. Also see the comment of Clause 3.6. |
| 1) He/she is not an executive director or member of the board (if a collegial body elected by the general shareholders’ meeting is the supervisory board) of the company or any associated company and has not been such during the last five years; | ||
| 2) He/she is not an employee of the company or some any company and has not been such during the last three years, except for cases when a member of the collegial body does not belong to the senior management and was elected to the collegial body as a representative of the employees; | ||
| 3) He/she is not receiving or has been not receiving significant additional remuneration from the company or associated company other than remuneration for the office in the collegial body. Such additional remuneration includes participation in share options or some other performance-based pay systems; it does not include compensation payments for the previous office in the company (provided that such payment is no way related with later position) as per pension plans (inclusive of deferred compensations); | ||
| 4) He/she is not a controlling shareholder or representative of such shareholder (control as defined in the Council Directive 83/349/EEC Article 1 Part 1); | ||
| 5) He/she does not have and did not have any material business relations with the company or associated company within the past year directly or as a partner, shareholder, director or superior employee of the subject having such relationship. A subject is considered to have business relations when it is a major supplier or service provider (inclusive of financial, legal, counseling and consulting services), major client or organization receiving significant payments from the company or its group; | ||
| 6) He/she is not and has not been, during the last three years, partner or employee of the current or former external audit company of the company or associated company; | ||
| 7) He/she is not an executive director or member of the board in some other company where executive director of the company or member of the board (if a collegial body elected by the general shareholders’ meeting is the supervisory board) is non-executive director or member of the supervisory board, he/she may not also have any other material relationships with executive directors of the company that arise from their participation in activities of other companies or bodies; | ||
| 8) He/she has not been in the position of a member of the collegial body for over than 12 years; | ||
| 9) He/she is not a close relative to an executive director or member of the board (if a collegial body elected by the general shareholders’ meeting is the supervisory board) or to any person listed in above items 1 to 8. Close relative is considered to be a spouse (common-law spouse), children and parents. |
73
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
| 3.8. The determination of what constitutes independence is fundamentally an issue for the collegial body itself to determine. The collegial body may decide that, despite a particular member meets all the criteria of independence laid down in this Code, he cannot be considered independent due to special personal or company-related circumstances. | NO | See comment of Clause 3.6. |
|---|---|---|
| 3.9. Necessary information on conclusions the collegial body has come to in its determination of whether a particular member of the body should be considered to be independent should be disclosed. When a person is nominated to become a member of the collegial body, the company should disclose whether it considers the person to be independent. When a particular member of the collegial body does not meet one or more criteria of independence set out in this Code, the company should disclose its reasons for nevertheless considering the member to be independent. In addition, the company should annually disclose which members of the collegial body it considers to be independent. | NO | The practice of publishing the assessment of independence of the members of collegial management body has so far not been applied in the Company. |
| 3.10. When one or more criteria of independence set out in this Code has not been met throughout the year, the company should disclose its reasons for considering a particular member of the collegial body to be independent. To ensure accuracy of the information disclosed in relation with the independence of the members of the collegial body, the company should require independent members to have their independence periodically re-confirmed. | NO | The practice of assessment of independence of the members of collegial management body has so far not been applied in the Company. |
| 3.11. In order to remunerate members of a collegial body for their work and participation in the meetings of the collegial body, they may be remunerated from the company's funds. The general shareholders' meeting should approve the amount of such remuneration. | NO | The board members of the Company are not remunerated from the Company's funds; therefore, this provision is not relevant for the Company. |
| Principle IV: The duties and liabilities of a collegial body elected by the general shareholders' meeting | ||
| The corporate governance framework should ensure proper and effective functioning of the collegial body elected by the general shareholders' meeting, and the powers granted to the collegial body should ensure effective monitoring of the company's management bodies and protection of interests of all the company's shareholders. | ||
| 4.1. The collegial body elected by the general shareholders' meeting (hereinafter in this Principle referred to as the 'collegial body') should ensure integrity and transparency of the company's financial statements and the control system. The collegial body should issue recommendations to the company's management bodies and monitor and control the company's management performance. | YES | The board, elected in the Company, provides the general meeting of shareholders with feedback and suggestions on the Company's annual financial statement, draft allocation of profits, annual report, and activities of the manager of the Company, as well as performs such other functions, attributed to the scope of powers of the board. |
| 4.2. Members of the collegial body should act in good faith, with care and responsibility for the benefit and in the interests of the company and its shareholders with due regard to the interests of employees and public welfare. Independent members of the collegial body should (a) under all circumstances maintain independence of their analysis, decision-making and actions, (b) do not seek and accept any unjustified privileges that might compromise their independence, and (c) clearly express their objections should a member consider that decision of the collegial body is against the interests of the company. | YES | Any and all board members act in good will in regard to the Company, follow the interests of the Company in view of the society's welfare. It should be noted that in accordance with Article 48 of the Articles of Association of the Company, a board member shall be entitled to express his opinion on any and all matters, provided in the agenda of the meeting, which is indicated in the minutes of the board meeting. |
74
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
| Should a collegial body have passed decisions independent member has serious doubts about, the member should make adequate conclusions. Should an independent member resign from his office, he should explain the reasons in a letter addressed to the collegial body or audit committee and, if necessary, respective company not – pertaining body (institution). | NO | Independence of the board members is not assessed; see comments of Clauses 3.6 and 3.7. |
|---|---|---|
| 4.3. Each member should devote sufficient time and attention to perform his duties as a member of the collegial body. Each member of the collegial body should limit other professional obligations of his (in particular any directorships held in other companies) in such a manner they do not interfere with proper performance of duties of a member of the collegial body. In the event a member of the collegial body should be present in less than a half9 of the meetings of the collegial body throughout the financial year of the company, shareholders of the company should be notified. | YES | The board members of the Company actively attend the meetings of collegial body and grant sufficient time as a member of collegial body to perform his duties. The board members attending the meeting are indicated in the minutes of the meeting. |
| 4.4. Where decisions of a collegial body may have a different effect on the company's shareholders, the collegial body should treat all shareholders impartially and fairly. It should ensure that shareholders are properly informed on the company's affairs, strategies, risk management and resolution of conflicts of interest. The company should have a clearly established role of members of the collegial body when communicating with and committing to shareholders. | YES | The shareholders are informed of the Company's strategy, risk management, and solution of conflict of interests in the manner prescribed by legal acts. Communication of the board members with the shareholders and obligations to them are established pursuant to the requirements of the Law on Companies of the Republic of Lithuania. |
| 4.5. It is recommended that transactions (except insignificant ones due to their low value or concluded when carrying out routine operations in the company under usual conditions), concluded between the company and its shareholders, members of the supervisory or managing bodies or other natural or legal persons that exert or may exert influence on the company's management should be subject to approval of the collegial body. The decision concerning approval of such transactions should be deemed adopted only provided the majority of the independent members of the collegial body voted for such a decision. | YES/NO | The management bodies of the Company enter into and approve the transactions pursuant to the requirements of legal acts and articles of association of the Company. It is established in Clause 17.2 of the Articles of Association of the Company that the general meeting of shareholders takes decisions on the agreements with the board members and chairman of the board as concerning the activities in the board, if they are concluded by the decision of the general meeting of shareholders, establishment of standard terms and conditions of such agreements, as well as appointment of a person, authorized to sign such agreements. Independence of the board members is not assessed; see comment of Clause 3.6. |
75
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
| 4.6. The collegial body should be independent in passing decisions that are significant for the company's operations and strategy. Taken separately, the collegial body should be independent of the company's management bodies.
Members of the collegial body should act and pass decisions without an outside influence from the persons who have elected it. Companies should ensure that the collegial body and its committees are provided with sufficient administrative and financial resources to discharge their duties, including the right to obtain, in particular from employees of the company, all the necessary information or to seek independent legal, accounting or any other advice on issues pertaining to the competence of the collegial body and its committees.
When using the services of a consultant with a view to obtaining information on market standards for remuneration systems, the remuneration committee should ensure that the consultant concerned does not at the same time advise the human resources department, executive directors or collegial management organs of the company concerned. | YES
NO
YES | The board of the Company, where taking decisions that are significant for the activities and strategy of the Company, acts independently.
The Company ensures the provision of the board with the resources that are necessary for the activities thereof (technical supervision of the board meetings, provision of any necessary information).
The remuneration committee is not set up in the Company. |
| --- | --- | --- |
| 4.7. Activities of the collegial body should be organized in a manner that independent members of the collegial body could have major influence in relevant areas where chances of occurrence of conflicts of interest are very high. Such areas to be considered as highly relevant are issues of nomination of company's directors, determination of directors' remuneration and control and assessment of company's audit.
Therefore when the mentioned issues are attributable to the competence of the collegial body, it is recommended that the collegial body should establish nomination, remuneration, and audit committees. Companies should ensure that the functions attributable to the nomination, remuneration, and audit committees are carried out. However they may decide to merge these functions and set up less than three committees. In such case a company should explain in detail reasons behind the selection of alternative approach and how the selected approach complies with the objectives set forth for the three different committees. Should the collegial body of the company comprise small number of members, the functions assigned to the three committees may be performed by the collegial body itself, provided that it meets composition requirements advocated for the committees and that adequate information is provided in this respect. In such case provisions of this Code relating to the committees of the collegial body (in particular with respect to their role, operation, and transparency) should apply, where relevant, to the collegial body as a whole. | NO
YES/NO | Independence of the board members is not assessed; see comment of Clause 3.6.
The audit committee is set up in the Company. Nominating and remuneration committees are not set up.
According to the Company, the work of the board is sufficiently efficient and well organized; therefore, the board is able to perform any and all functions, attributed to the nominating and remuneration committees, on its own. |
| 4.8. The key objective of the committees is to increase efficiency of the activities of the collegial body by ensuring that decisions are based on due consideration, and to help organize its work with a view to ensuring that the decisions it takes are free of material conflicts of interest. Committees should exercise independent judgement and integrity when exercising its functions as well as present the collegial body with recommendations concerning the decisions of the collegial body. Nevertheless the final decision shall be adopted by the collegial body. The recommendation on creation of committees is not intended, in principle, to constrict the competence of the collegial body or to remove the matters considered from the purview of the collegial body itself, which remains fully responsible for the decisions taken in its field of competence. | YES/NO | The audit committee is set up in the Company. Nominating and remuneration committees are not set up. |
| 4.9. Committees established by the collegial body should normally be composed of at least three members.
In companies with small number of members of the collegial body, they could exceptionally be composed of two members. Majority of the members of each committee should be constituted from independent members of the collegial body. In cases when the company chooses not | YES
NO | The audit committee constitutes three members.
The audit committee constitutes one independent member. |
76
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
| to set up a supervisory board, remuneration and audit committees should be entirely comprised of non-executive directors. Chairmanship and membership of the committees should be decided with due regard to the need to ensure that committee membership is refreshed and that undue reliance is not placed on particular individuals. | ||
|---|---|---|
| 4.10. Authority of each of the committees should be determined by the collegial body. Committees should perform their duties in line with authority delegated to them and inform the collegial body on their activities and performance on regular basis. Authority of every committee stipulating the role and rights and duties of the committee should be made public at least once a year (as part of the information disclosed by the company annually on its corporate governance structures and practices). Companies should also make public annually a statement by existing committees on their composition, number of meetings and attendance over the year, and their main activities. Audit committee should confirm that it is satisfied with the independence of the audit process and describe briefly the actions it has taken to reach this conclusion. | YES | The powers of the audit committee are established by the general meeting of shareholders of the Company. See comment of Clause 3.6. |
| 4.11. In order to ensure independence and impartiality of the committees, members of the collegial body that are not members of the committee should commonly have a right to participate in the meetings of the committee only if invited by the committee. A committee may invite or demand participation in the meeting of particular officers or experts. Chairman of each of the committees should have a possibility to maintain direct communication with the shareholders. Events when such are to be performed should be specified in the regulations for committee activities. | YES | |
| 4.12. Nomination Committee. | ||
| 4.12.1. Key functions of the nomination committee should be the following: | ||
| 1) Identify and recommend, for the approval of the collegial body, candidates to fill board vacancies. The nomination committee should evaluate the balance of skills, knowledge and experience on the management body, prepare a description of the roles and capabilities required to assume a particular office, and assess the time commitment expected. Nomination committee can also consider candidates to members of the collegial body delegated by the shareholders of the company; | ||
| 2) Assess on regular basis the structure, size, composition and performance of the supervisory and management bodies, and make recommendations to the collegial body regarding the means of achieving necessary changes; | ||
| 3) Assess on regular basis the skills, knowledge and experience of individual directors and report on this tothe collegial body; | ||
| 4) Properly consider issues related to succession planning; | ||
| 5) Review the policy of the management bodies for selection and appointment of senior management. | ||
| 4.12.2. Nomination committee should consider proposals by other parties, including management and shareholders. When dealing with issues related to executive directors or members of the board (if a collegial body elected by the general shareholders’ meeting is the supervisory board) and senior management, chief executive officer of the company should be consulted by, and entitled to submit proposals to the nomination committee. | NO | There is no Nomination committee formation practice in the collegial bodies. |
| 4.13. Remuneration Committee. | ||
| 4.13.1. Key functions of the remuneration committee should be the following: | ||
| 1) Make proposals, for the approval of the collegial body, on the remuneration policy for members of management bodies and executive directors. Such policy should address all forms of compensation, including the fixed remuneration, performance-based remuneration schemes, pension arrangements, and termination payments. Proposals considering performance-based remuneration schemes should be accompanied with recommendations on the related objectives and evaluation criteria, with a view to properly aligning the pay of executive director and members of the management bodies with the long-term interests of the shareholders and the objectives set by the collegial body; | NO | There is no Remuneration committee formation practice in the collegial bodies. |
77
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
| 2) Make proposals to the collegial body on the individual remuneration for executive directors and member of management bodies in order their remunerations are consistent with company's remuneration policy and the evaluation of the performance of these persons concerned. In doing so, the committee should be properly informed on the total compensation obtained by executive directors and members of the management bodies from the affiliated companies;
3) Ensure that remuneration of individual executive directors or members of management body is proportionate to the remuneration of other executive directors or members of management body and other staff members of the company.
4) Periodically review the remuneration policy for executive directors or members of management body, including the policy regarding share-based remuneration, and its implementation.
5) Make proposals to the collegial body on suitable forms of contracts for executive directors and members of the management bodies;
6) Assist the collegial body in overseeing how the company complies with applicable provisions regarding the remuneration-related information disclosure (in particular the remuneration policy applied and individual remuneration of directors);
7) Make general recommendations to the executive directors and members of the management bodies on the level and structure of remuneration for senior management (as defined by the collegial body) with regard to the respective information provided by the executive directors and members of the management bodies.
4.13.2. With respect to stock options and other share-based incentives which may be granted to directors or other employees, the committee should:
1) Consider general policy regarding the granting of the above mentioned schemes, in particular stock options, and make any related proposals to the collegial body;
2) Examine the related information that is given in the company's annual report and documents intended for the use during the shareholders meeting;
3) Make proposals to the collegial body regarding the choice between granting options to subscribe shares or granting options to purchase shares, specifying the reasons for its choice as well as the consequences that this choice has.
4.13.3. Upon resolution of the issues attributable to the competence of the remuneration committee, the committee should at least address the chairman of the collegial body and/or chief executive officer of the company for their opinion on the remuneration of other executive directors or members of the management bodies.
4.13.4. The remuneration committee should report on the exercise of its functions to the shareholders and be present at the annual general meeting for this purpose. | | |
| --- | --- | --- |
| 4.14. Audit Committee.
4.14.1. Key functions of the audit committee should be the following:
1) Observe the integrity of the financial information provided by the company, in particular by reviewing the relevance and consistency of the accounting methods used by the company and its group (including the criteria for the consolidation of the accounts of companies in the group);
2) At least once a year review the systems of internal control and risk management to ensure that the key risks (inclusive of the risks in relation with compliance with existing laws and regulations) are properly identified, managed and reflected in the information provided;
3) Ensure the efficiency of the internal audit function, among other things, by making recommendations on the selection, appointment, reappointment and removal of the head of the internal audit department and on the budget of the department, and by monitoring the responsiveness of the management to its findings and recommendations. Should there be no internal audit authority in the company, the need for one should be reviewed at least annually;
4) Make recommendations to the collegial body related with selection, appointment, reappointment and removal of the external auditor (to be done by the general shareholders' meeting) and with the terms and conditions of his engagement. The committee should investigate situations that lead to a resignation of the audit company or auditor and make recommendations on required actions in such situations; | YES | Audit committee is set up in the Company. Also the audit committee is set up in the patronizing company UAB Visagino atominė elektrine. |
78
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
| 5) Monitor independence and impartiality of the external auditor, in particular by reviewing the audit company's compliance with applicable guidance relating to the rotation of audit partners, the level of fees paid by the company, and similar issues. In order to prevent occurrence of material conflicts of interest, the committee, based on the auditor's disclosed inter alia data on all remunerations paid by the company to the auditor and network, should at all times monitor nature and extent of the non-audit services. Having regard to the principals and guidelines established in the 16 May 2002 Commission Recommendation 2002/590/EC, the committee should determine and apply a formal policy establishing types of non-audit services that are (a) excluded, (b) permissible only after review by the committee, and (c) permissible without referral to the committee; | ||
|---|---|---|
| 6) Review efficiency of the external audit process and responsiveness of management to recommendations made in the external auditor's management letter. | ||
| 4.14.2. All members of the committee should be furnished with complete information on particulars of accounting, financial and other operations of the company. Company's management should inform the audit committee of the methods used to account for significant and unusual transactions where the accounting treatment may be open to different approaches. In such case a special consideration should be given to company's operations in offshore centers and/or activities carried out through special purpose vehicles (organizations) and justification of such operations. | ||
| 4.14.3. The audit committee should decide whether participation of the chairman of the collegial body, chief executive officer of the company, chief financial officer (or superior employees in charge of finances, treasury and accounting), or internal and external auditors in the meetings of the committee is required (if required, when). The committee should be entitled, when needed, to meet with any relevant person without executive directors and members of the management bodies present. | ||
| 4.14.4. Internal and external auditors should be secured with not only effective working relationship with management, but also with free access to the collegial body. For this purpose the audit committee should act as the principal contact person for the internal and external auditors. 4.14.5. The audit committee should be informed of the internal auditor's work program, and should be furnished with internal audit's reports or periodic summaries. The audit committee should also be informed of the work program of the external auditor and should be furnished with report disclosing all relationships between the independent auditor and the company and its group. The committee should be timely furnished information on all issues arising from the audit. | ||
| 4.14.6. The audit committee should examine whether the company is following applicable provisions regarding the possibility for employees to report alleged significant irregularities in the company, by way of complaints or through anonymous submissions (normally to an independent member of the collegial body), and should ensure that there is a procedure established for proportionate and independent investigation of these issues and for appropriate follow-up action. | ||
| 4.14.7. The audit committee should report on its activities to the collegial body at least once in every six months, at the time the yearly and half-yearly statements are approved. | NO | The Company does not perform the assessment of activities of collegial body and does not have practice of publishing respective information. |
| 4.15. Every year the collegial body should conduct the assessment of its activities. The assessment should include evaluation of collegial body's structure, work organization and ability to act as a group, evaluation of each of the collegial body member's and committee's competence and work efficiency and assessment whether the collegial body has achieved its objectives. The collegial body should, at least once a year, make public (as part of the information the company annually discloses on its management structures and practices) respective information on its internal organization and working procedures, and specify what material changes were made as a result of the assessment of the collegial body of its own activities. | NO | The Company does not perform the assessment of activities of collegial body and does not have practice of publishing respective information. |
| Principle V: The working procedure of the company's collegial bodies | ||
| The working procedure of supervisory and management bodies established in the company should ensure efficient operation of these bodies and decision-making and encourage active co-operation between the company's bodies. |
79
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
| 5.1. The company's supervisory and management bodies (hereinafter in this Principle the concept 'collegial bodies' covers both the collegial bodies of supervision and the collegial bodies of management) should be chaired by chairpersons of these bodies. The chairperson of a collegial body is responsible for proper convocation of the collegial body meetings. The chairperson should ensure that information about the meeting being convened and its agenda are communicated to all members of the body. The chairperson of a collegial body should ensure appropriate conducting of the meetings of the collegial body. The chairperson should ensure order and working atmosphere during the meeting. | YES | |
|---|---|---|
| 5.2. It is recommended that meetings of the company's collegial bodies should be carried out according to the schedule approved in advance at certain intervals of time. Each company is free to decide how often to convene meetings of the collegial bodies, but it is recommended that these meetings should be convened at such intervals, which would guarantee an interrupted resolution of the essential corporate governance issues. Meetings of the company's supervisory board should be convened at least once in a quarter, and the company's board should meet at least once a month. | YES | In the Company the board meetings in accordance with Article 45 of the Articles of Association of the Company are held at least once every calendar quarter of the year. Pursuant to the work regulation of the board, in the beginning of calendar year the board makes a timetable of ordinary board meetings. |
| 5.3. Members of a collegial body should be notified about the meeting being convened in advance in order to allow sufficient time for proper preparation for the issues on the agenda of the meeting and to ensure fruitful discussion and adoption of appropriate decisions. Alongside with the notice about the meeting being convened, all the documents relevant to the issues on the agenda of the meeting should be submitted to the members of the collegial body. The agenda of the meeting should not be changed or supplemented during the meeting, unless all members of the collegial body are present or certain issues of great importance to the company require immediate resolution. | YES | Pursuant to the work regulation of the board, the board members and persons invited to the meeting are informed of the meeting convened 5 (five) working days in advance; they are also furnished with any and all necessary material relevant to the matters to be discussed, provided in the agenda of the meeting. |
| 5.4. In order to co-ordinate operation of the company's collegial bodies and ensure effective decision making process, chairpersons of the company's collegial bodies of supervision and management should closely co-operate by co-coordinating dates of the meetings, their agendas and resolving other issues of corporate governance. Members of the company's board should be free to attend meetings of the company's supervisory board, especially where issues concerning removal of the board members, their liability or remuneration are discussed. | NOT APPLICABLE | Only the board is set up in the Company, which assembles as per approved timetable and work plan. |
| Principle VI: The equitable treatment of shareholders and shareholder rights | ||
| The corporate governance framework should ensure the equitable treatment of all shareholders, including minority and foreign shareholders. The corporate governance framework should protect the rights of the shareholders. | ||
| 6.1. It is recommended that the company's capital should consist only of the shares that grant the same rights to voting, ownership, dividend and other rights to all their holders. | YES | In the Company total authorized capital comprises of 1 litas denomination ordinary registered shares, which grant equal property and non-property rights to any and all holders thereof. |
| 6.2. It is recommended that investors should have access to the information concerning the rights attached to the shares of the new issue or those issued earlier in advance, i.e. before they purchase shares. | YES | The articles of association of the Company, which are published on the Company's website, cover the rights granted by shares. |
| 6.3. Transactions that are important to the company and its shareholders, such as transfer, investment, and pledge of the company's assets or any other type of encumbrance should be subject to approval of the general shareholders' meeting.13 All shareholders should be furnished with equal | YES | Clauses 17, 30, and 31 of the Articles of Association of the Company establish the criteria of important |
80
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
| opportunity to familiarize with and participate in the decision-making process when significant corporate issues, including approval of transactions referred to above, are discussed. | transactions to establish transactions that require the consent of the general meeting of shareholders. | |
|---|---|---|
| 6.4. Procedures of convening and conducting a general shareholders' meeting should ensure equal opportunities for the shareholders to effectively participate at the meetings and should not prejudice the rights and interests of the shareholders. The venue, date, and time of the shareholders' meeting should not hinder wide attendance of the shareholders. | YES | The Company convenes the general meeting of shareholders and implements such other procedures of the meeting in the manner prescribed by the Law on Companies of the Republic of Lithuania. |
| 6.5. If is possible, in order to ensure shareholders living abroad the right to access to the information, it is recommended that documents on the course of the general shareholders' meeting should be placed on the publicly accessible website of the company not only in Lithuanian language, but in English and/or other foreign languages in advance. It is recommended that the minutes of the general shareholders' meeting after signing them and/or adopted resolutions should be also placed on the publicly accessible website of the company. Seeking to ensure the right of foreigners to familiarize with the information, whenever feasible, documents referred to in this recommendation should be published in Lithuanian, English and/or other foreign languages. Documents referred to in this recommendation may be published on the publicly accessible website of the company to the extent that publishing of these documents is not detrimental to the company or the company's commercial secrets are not revealed. | YES | Pursuant to the Law on Companies, the Company publishes draft decisions of the general meeting of shareholders beforehand on publicly accessible Company's website in Lithuanian and English languages. |
The decisions of the general meeting of shareholders that are taken are published on the Company's website in Lithuanian and English languages.
This information, pursuant to the articles of association of the Company and other legal acts, is also published with NASDAQ OMX Vilnius as well as electronic publication, distributed by the Center of Registers. |
| 6.6. Shareholders should be furnished with the opportunity to vote in the general shareholders' meeting in person and in absentia. Shareholders should not be prevented from voting in writing in advance by completing the general voting ballot. | YES | The Company's shareholders have the right to implement their right to attend the general meeting of shareholders both in person and through representative, if a person has a due power of attorney or has concluded an agreement of assignment of voting right in the manner prescribed by legal acts. The Company enables the shareholders to vote by filling in the general ballot paper, as provided by the Law on Companies of the Republic of Lithuania. |
| 6.7. With a view to increasing the shareholders' opportunities to participate effectively at shareholders' meetings, the companies are recommended to expand use of modern technologies by allowing the shareholders to participate and vote in general meetings via electronic means of communication. In such cases security of transmitted information and a possibility to identify the identity of the participating and voting person should be guaranteed. Moreover, companies could furnish its shareholders, especially shareholders living abroad, with the opportunity to watch shareholder meetings by means of modern technologies. | NO | There is no practice of voting by means of electronic communications. |
81
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
| Principle VII: The avoidance of conflicts of interest and their disclosure
The corporate governance framework should encourage members of the corporate bodies to avoid conflicts of interest and assure transparent and effective mechanism of disclosure of conflicts of interest regarding members of the corporate bodies. | | |
| --- | --- | --- |
| 7.1. Any member of the company’s supervisory and management body should avoid a situation, in which his/her personal interests are in conflict or may be in conflict with the company’s interests. In case such a situation did occur, a member of the company’s supervisory and management body should, within reasonable time, inform other members of the same collegial body or the company’s body that has elected him/her, or to the company’s shareholders about a situation of a conflict of interest, indicate the nature of the conflict and value, where possible. | YES | |
| 7.2. Any member of the company’s supervisory and management body may not mix the company’s assets, the use of which has not been mutually agreed upon, with his/her personal assets or use them or the information which he/she learns by virtue of his/her position as a member of a corporate body for his/her personal benefit or for the benefit of any third person without a prior agreement of the general shareholders’ meeting or any other corporate body authorized by the meeting. | YES | |
| 7.3. Any member of the company’s supervisory and management body may conclude a transaction with the company, a member of a corporate body of which he/she is. Such a transaction (except insignificant ones due to their low value or concluded when carrying out routine operations in the company under usual conditions) must be immediately reported in writing or orally, by recording this in the minutes of the meeting, to other members of the same corporate body or to the corporate body that has elected him/her or to the company’s shareholders. Transactions specified in this recommendation are also subject to recommendation 4.5. | YES | |
| 7.4. Any member of the company’s supervisory and management body should abstain from voting when decisions concerning transactions or other issues of personal or business interest are voted on. | YES | Pursuant to Article 35(6) of the Law on Companies of the Republic of Lithuania, the board member of the Company is not entitled to vote, when the board meeting solves the matter relevant to his activities in the board or his responsibilities.
Moreover, in accordance with legal acts, the members of the bodies of the Company must avoid the situation, where private interests thereof conflict with or may conflict with the Company’s interests. |
| Principle VIII: Company’s remuneration policy
Remuneration policy and procedure for approval, revision and disclosure of directors’ remuneration established in the company should prevent potential conflicts of interest and abuse in determining remuneration of directors, in addition it should ensure publicity and transparency both of company’s remuneration policy and remuneration of directors. | | |
| 8.1. A company should make a public statement of the company’s remuneration policy (hereinafter the remuneration statement) which should be clear and easily understandable. This remuneration statement should be published as a part of the company’s annual statement as well as posted on the company’s website. | NO | The procedure for approving, revising, and publishing of remuneration policy and salaries for directors, as well as report on remuneration policy of the Company according to the practice in the Company is not prepared. Such requirement is not established by legal acts. General information on the remuneration policy of the Company and average |
82
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
| salaries of individual groups of employees are published in the annual report of the Company. Pursuant to Article 25(5) of the Law on Energy of the Republic of Lithuania, the Company publishes wages set for the members of management bodies of the Company and such other benefits relevant to the functions of the members of management bodies. | ||
|---|---|---|
| 8.2. Remuneration statement should mainly focus on directors' remuneration policy for the following year and, if appropriate, the subsequent years. The statement should contain a summary of the implementation of the remuneration policy in the previous financial year. Special attention should be given to any significant changes in company's remuneration policy as compared to the previous financial year. | NO | The annual report does not cover the policy of remuneration for the directors of the Company for the next and coming years. The annual report covers the information on the amounts of money, calculated for the members of the bodies of the Company (salaries, other benefits, bonus, and other benefits from profit). |
| 8.3. Remuneration statement should leastwise include the following information: | ||
| 1) Explanation of the relative importance of the variable and non-variable components of directors' remuneration; | ||
| 2) Sufficient information on performance criteria that entitles directors to share options, shares or variable components of remuneration; | ||
| 3) An explanation how the choice of performance criteria contributes to the long-term interests of the company; | ||
| 4) An explanation of the methods, applied in order to determine whether performance criteria have been fulfilled; | ||
| 5) Sufficient information on deferment periods with regard to variable components of remuneration; | ||
| 6) Sufficient information on the linkage between the remuneration and performance; | ||
| 7) The main parameters and rationale for any annual bonus scheme and any other non-cash benefits; | ||
| 8) Sufficient information on the policy regarding termination payments; | ||
| 9) Sufficient information with regard to vesting periods for share-based remuneration, as referred to in point 8.13 of this Code; | ||
| 10) Sufficient information on the policy regarding retention of shares after vesting, as referred to in point 8.15 of this Code; | ||
| 11) Sufficient information on the composition of peer groups of companies the remuneration policy of which has been examined in relation to the establishment of the remuneration policy of the company concerned; | ||
| 12) A description of the main characteristics of supplementary pension or early retirement schemes for directors; | ||
| 13) Remuneration statement should not include commercially sensitive information. | NO | The annual report covers the information on the amounts of money, calculated for the members of the bodies of the Company (salaries, other benefits, bonus, and other benefits from profit), information on the asset assigned and guarantees granted to the members of the bodies, as well as such other information relevant to reward to the members of the bodies. See comment of Clause 8.1. |
| 8.4. Remuneration statement should also summarize and explain company's policy regarding the terms of the contracts executed with executive directors and members of the management bodies. It should include, inter alia, information on the duration of contracts with executive directors and members of the management bodies, the applicable notice periods and details of provisions for termination payments linked to early termination under contracts for executive directors and members of the management bodies. | NO | There is no practice to publish respective information. |
| 8.5. Remuneration statement should also contain detailed information on the entire amount of remuneration, inclusive of other benefits, that was | NO | There is no practice to publish respective |
83
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
| paid to individual directors over the relevant financial year. This document should list at least the information set out in items 8.5.1 to 8.5.4 for each person who has served as a director of the company at any time during the relevant financial year.
8.5.1. The following remuneration and/or emoluments-related information should be disclosed: | | information. |
| --- | --- | --- |
| 1) The total amount of remuneration paid or due to the director for services performed during the relevant financial year, inclusive of, where relevant, attendance fees fixed by the annual general shareholders meeting;
2) The remuneration and advantages received from any Entitie belonging to the same group;
3) The remuneration paid in the form of profit sharing and/or bonus payments and the reasons why such bonus payments and/or profit sharing were granted;
4) If permissible by the law, any significant additional remuneration paid to directors for special services outside the scope of the usual functions of a director;
5) Compensation receivable or paid to each former executive director or member of the management body as a result of his resignation from the office during the previous financial year;
6) Total estimated value of non-cash benefits considered as remuneration, other than the items covered in the above points.
8.5.2. As regards shares and/or rights to acquire share options and/or all other share-incentive schemes, the following information should be disclosed: | | |
| 1) The number of share options offered or shares granted by the company during the relevant financial year and their conditions of application;
2) The number of shares options exercised during the relevant financial year and, for each of them, the number of shares involved and the exercise price or the value of the interest in the share incentive scheme at the end of the financial year;
3) The number of share options unexercised at the end of the financial year; their exercise price, the exercise date and the main conditions for the exercise of the rights;
4) All changes in the terms and conditions of existing share options occurring during the financial year.
8.5.3. The following supplementary pension schemes-related information should be disclosed:
1) When the pension scheme is a defined-benefit scheme, changes in the directors' accrued benefits under that scheme during the relevant financial year;
2) When the pension scheme is defined-contribution scheme, detailed information on contributions paid or payable by the company in respect of that director during the relevant financial year.
8.5.4. The statement should also state amounts that the company or any subsidiary company or entity included in the consolidated annual financial report of the company has paid to each person who has served as a director in the company at any time during the relevant financial year in the form of loans, advance payments or guarantees, including the amount outstanding and the interest rate. | | |
| 8.6. Where the remuneration policy includes variable components of remuneration, companies should set limits on the variable component(s). The non-variable component of remuneration should be sufficient to allow the company to withhold variable components of remuneration when performance criteria are not met. | NO | There is no practice to publish respective information. |
| 8.7. Award of variable components of remuneration should be subject to predetermined and measurable performance criteria. | NO | There is no practice to publish respective information. |
| 8.8. Where a variable component of remuneration is awarded, a major part of the variable component should be deferred for a minimum period of time. The part of the variable component subject to deferment should be determined in relation to the relative weight of the variable component compared to the non-variable component of remuneration. | NO | There is no practice to publish respective information. |
84
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
| 8.9. Contractual arrangements with executive or managing directors should include provisions that permit the company to reclaim variable components of remuneration that were awarded on the basis of data which subsequently proved to be manifestly misstated. | NO | There is no practice to publish respective information. |
|---|---|---|
| 8.10. Termination payments should not exceed a fixed amount or fixed number of years of annual remuneration, which should, in general, not be higher than two years of the non-variable component of remuneration or the equivalent thereof. | YES | |
| 8.11. Termination payments should not be paid if the termination is due to inadequate performance. | YES | |
| 8.12. The information on preparatory and decision-making processes, during which a policy of remuneration of directors is being established, should also be disclosed. Information should include data, if applicable, on authorities and composition of the remuneration committee, names and surnames of external consultants whose services have been used in determination of the remuneration policy as well as the role of shareholders' annual general meeting. | NO | There is no practice to publish respective information. |
| 8.13. Shares should not vest for at least three years after their award. | YES | N/A |
| 8.14. Share options or any other right to acquire shares or to be remunerated on the basis of share price movements should not be exercisable for at least three years after their award. Vesting of shares and the right to exercise share options or any other right to acquire shares or to be remunerated on the basis of share price movements, should be subject to predetermined and measurable performance criteria. | YES | N/A |
| 8.15. After vesting, directors should retain a number of shares, until the end of their mandate, subject to the need to finance any costs related to acquisition of the shares. The number of shares to be retained should be fixed, for example, twice the value of total annual remuneration (the non-variable plus the variable components). | YES | N/A |
| 8.16. Remuneration of non-executive or supervisory directors should not include share options. | ||
| 8.17. Shareholders, in particular institutional shareholders, should be encouraged to attend general meetings where appropriate and make considered use of their votes regarding directors' remuneration. | YES | |
| 8.18. Without prejudice to the role and organization of the relevant bodies responsible for setting directors' remunerations, the remuneration policy or any other significant change in remuneration policy should be included into the agenda of the shareholders' annual general meeting. Remuneration statement should be put for voting in shareholders' annual general meeting. The vote may be either mandatory or advisory. | YES | |
| 8.19. Schemes anticipating remuneration of directors in shares, share options or any other right to purchase shares or be remunerated on the basis of share price movements should be subject to the prior approval of shareholders' annual general meeting by way of a resolution prior to their adoption. The approval of scheme should be related with the scheme itself and not to the grant of such share-based benefits under that scheme to individual directors. All significant changes in scheme provisions should also be subject to shareholders' approval prior to their adoption; the approval decision should be made in shareholders' annual general meeting. In such case shareholders should be notified on all terms of suggested changes and get an explanation on the impact of the suggested changes. | NO | The company does not apply such schemes and does not have practice of publishing respective information. |
| 8.20. The following issues should be subject to approval by the shareholders' annual general meeting: | ||
| 1) Grant of share-based schemes, including share options, to directors; | ||
| 2) Determination of maximum number of shares and main conditions of share granting; | ||
| 3) The term within which options can be exercised; | ||
| 4) The conditions for any subsequent change in the exercise of the options, if permissible by law; | NO | The company does not apply such schemes and does not have practice of publishing respective information. |
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
| 5) All other long-term incentive schemes for which directors are eligible and which are not available to other employees of the company under similar terms.
Annual general meeting should also set the deadline within which the body responsible for remuneration of directors may award compensations listed in this article to individual directors. | | |
| --- | --- | --- |
| 8.21. Should national law or company’s Articles of Association allow, any discounted option arrangement under which any rights are granted to subscribe to shares at a price lower than the market value of the share prevailing on the day of the price determination, or the average of the market values over a number of days preceding the date when the exercise price is determined, should also be subject to the shareholders’ approval. | NO | The company does not apply such schemes and does not have practice of publishing respective information. |
| 8.22. Provisions of Articles 8.19 and 8.20 should not be applicable to schemes allowing for participation under similar conditions to company’s employees or employees of any subsidiary company whose employees are eligible to participate in the scheme and which has been approved in the shareholders’ annual general meeting. | NO | The company does not apply such schemes and does not have practice of publishing respective information. |
| 8.23. Prior to the annual general meeting that is intended to consider decision stipulated in Article 8.19, the shareholders must be provided an opportunity to familiarize with draft resolution and project-related notice (the documents should be posted on the company’s website). The notice should contain the full text of the share-based remuneration schemes or a description of their key terms, as well as full names of the participants in the schemes. Notice should also specify the relationship of the schemes and the overall remuneration policy of the directors. Draft resolution must have a clear reference to the scheme itself or to the summary of its key terms. Shareholders must also be presented with information on how the company intends to provide for the shares required to meet its obligations under incentive schemes. It should be clearly stated whether the company intends to buy shares in the market, hold the shares in reserve or issue new ones. There should also be a summary on scheme-related expenses the company will suffer due to the anticipated application of the scheme. All information given in this article must be posted on the company’s website. | NO | The company does not apply such schemes and does not have practice of publishing respective information. |
| Principle IX: The role of stakeholders in corporate governance
The corporate governance framework should recognize the rights of stakeholders as established by law and encourage active co-operation between companies and stakeholders in creating the company value, jobs and financial sustainability. For the purposes of this Principle, the concept “stakeholders” includes investors, employees, creditors, suppliers, clients, local community and other persons having certain interest in the company concerned. | | |
| 9.1. The corporate governance framework should assure that the rights of stakeholders that are protected by law are respected. | YES | |
| 9.2. The corporate governance framework should create conditions for the stakeholders to participate in corporate governance in the manner prescribed by law. Examples of mechanisms of stakeholder participation in corporate governance include: employee participation in adoption of certain key decisions for the company; consulting the employees on corporate governance and other important issues; employee participation in the company’s share capital; creditor involvement in governance in the context of the company’s insolvency, etc. | YES | The Company follows these recommendations.
For example, consultations, negotiations, discussions take place with the representatives of employees of the Company as concerning the activity optimization processes, performed in the Company. In accordance with the collective agreement of the Company, signed with the representatives of employees of the Company, the Company informs the representatives of labor unions of changes, expected in the Company, financial status of the Company, etc. |
86
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
| Interest holders have the right to be involved in the management of the Company to the extent, provided by the laws. | ||
|---|---|---|
| 9.3. Where stakeholders participate in the corporate governance process, they should have access to relevant information. | YES | |
| Principle X: Information disclosure and transparency | ||
| The corporate governance framework should ensure that timely and accurate disclosure is made on all material information regarding the company, including the financial situation, performance and governance of the company. | ||
| 10.1. The company should disclose information on: | ||
| 1) The financial and operating results of the company; | ||
| 2) Company objectives; | ||
| 3) Persons holding by the right of ownership or in control of a block of shares in the company; | ||
| 4) Members of the company’s supervisory and management bodies, chief executive officer of the company and their remuneration; | ||
| 5) Material foreseeable risk factors; | ||
| 6) Transactions between the company and connected persons, as well as transactions concluded outside the course of the company’s regular operations; | ||
| 7) Material issues regarding employees and other stakeholders; | ||
| 8) Governance structures and strategy. | ||
| This list should be deemed as a minimum recommendation, while the companies are encouraged not to limit themselves to disclosure of the information specified in this list. | YES (excl. items 4 and 7) | |
| 10.2. It is recommended to the company, which is the parent of other companies, that consolidated results of the whole group to which the company belongs should be disclosed when information specified in item 1 of Recommendation 10.1 is under disclosure. | YES | |
| 10.3. It is recommended that information on the professional background, qualifications of the members of supervisory and management bodies, chief executive officer of the company should be disclosed as well as potential conflicts of interest that may have an effect on their decisions when information specified in item 4 of Recommendation 10.1 about the members of the company’s supervisory and management bodies is under disclosure. It is also recommended that information about the amount of remuneration received from the company and other income should be disclosed with regard to members of the company’s supervisory and management bodies and chief executive officer as per Principle VIII. | NO | There is no practice to publish respective information. |
| 10.4. It is recommended that information about the links between the company and its stakeholders, including employees, creditors, suppliers, local community, as well as the company’s policy with regard to human resources, employee participation schemes in the company’s share capital, etc. should be disclosed when information specified in item 7 of Recommendation 10.1 is under disclosure. | NO | There is no practice to publish respective information. |
| 10.5. Information should be disclosed in such a way that neither shareholders nor investors are discriminated with regard to the manner or scope of access to information. Information should be disclosed to all simultaneously. It is recommended that notices about material events should be announced before or after a trading session on NASDAQ OMX Vilnius, so that all the company’s shareholders and investors should have equal access to the information and make informed investing decisions. | YES | |
| 10.6. Channels for disseminating information should provide for fair, timely and cost-efficient or in cases provided by the legal acts free of charge access to relevant information by users. It is recommended that information technologies should be employed for wider dissemination of information, for instance, by placing the information on the company’s website. It is recommended that information should be published and placed on the company’s website not only in Lithuanian, but also in English, and, whenever possible and necessary, in other languages as well. | YES |
87
LITGRID AB
Company code: 302564383 A. Juozapavičiaus g. 13, LT-09311 Vilnius
CONSOLIDATED ANNUAL REPORT
AS AT 31 DECEMBER 2010
(All amounts in LTL thousands unless otherwise stated)
| 10.7. It is recommended that the company's annual reports and other periodical accounts prepared by the company should be placed on the company's website. It is recommended that the company should announce information about material events and changes in the price of the company's shares on the Stock Exchange on the company's website too. | YES | |
|---|---|---|
| Principle XI: The selection of the company's auditor | ||
| The mechanism of the selection of the company's auditor should ensure independence of the firm of auditor's conclusion and opinion. | ||
| 11.1. An annual audit of the company's financial reports and interim reports should be conducted by an independent firm of auditors in order to provide an external and objective opinion on the company's financial statements. | YES | |
| 11.2. It is recommended that the company's supervisory board and, where it is not set up, the company's board should propose a candidate firm of auditors to the general shareholders' meeting. | YES | After selecting an audit company, it is presented at the general meeting of shareholders by the board of the Company. |
| 11.3. It is recommended that the company should disclose to its shareholders the level of fees paid to the firm of auditors for non-audit services rendered to the company. This information should be also known to the company's supervisory board and, where it is not formed, the company's board upon their consideration which firm of auditors to propose for the general shareholders' meeting. | YES |
88