CORPORATE GOVERNANCE. 22 annual report Repower group 2014

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1 22 annual report Repower group 2014 CORPORATE GOVERNANCE This section complies with the structure of the SIX Corporate Governance Directive, the transparency rules laid down in the Ordinance against Excessive Compensation in Listed Stock Companies (OaEC) and the principles set down in the Swiss Code of Best Practice for Corporate Governance, and contains key information on corporate governance in the Repower Group. The information is also available at Grid, Market, Italy, and Finance plus four administrative units reporting direct to the CEO. As a result of these efforts to streamline structures, the Executive Board was also reorganised and reduced in size. For this reason Alfred Janka, Head of Market CH and Services, left the Repower Group on 28 February In July 2014, the group also decided to withdraw from the sales business in Germany. BASIC PRINCIPLES The principles of corporate governance are laid down in the Articles of Association and in the Organisational Regulations and related Assignment of Authority and Responsibility (available at The Board of Directors and Executive Board regularly review these principles and revise them as and when required. GROUP STRUCTURE AND SHAREHOLDERS The Repower Group consists of Repower AG and its holdings. The registered office of Repower AG is in Brusio in Canton Graubünden, and its postal address is Via da Clalt 307, 7742 Poschiavo. Repower AG is an international energy company based in Switzerland. The group operates along the entire electricity value chain (generation, trading, transmission, sales and distribution). In Italy and Germany it is also involved in the gas business. The Repower Group employs around 700 people. On 1 April 2014 the corporate structure of the Repower Group was further modified as part of systematic endeavours to implement efficiency measures. The Market CH and Services division was dissolved and the departments contained in it were assigned to the other divisions. The operational group structure thus now comprises four divisions Generation/ The Generation/Grid division coordinates the management and maintenance of assets for the generation, transmission and distribution of electricity in Switzerland, implements and evaluates new power generation assets, operates and develops merchant lines, and devotes its activities to the general development and expansion of generation facilities for the Repower Group. The Generation/Grid division is also responsible for operating, maintaining and expanding distribution grids in the company s supply area. The Market division manages European energy trading and market analysis. It is also in charge of expanding energy trading activities in Switzerland, Italy and selected European markets, managing and further developing the sales business in Romania, and overseeing related projects. Beyond this the Market division coordinates sales activities in the Italian, Romanian and Swiss markets. In Switzerland it is also responsible for sales of electricity and green power certificates to end-consumers. The Italy division is in charge of sales of electricity, natural gas and green power certificates to end-consumers and the operation and maintainance of generation facilities in Italy.

2 annual report Repower group 2014 SPECTACULAR NATURE The rising sun is reflected in the frozen surface of Lago Bianco on the Bernina Pass. The ice starts to melt in the warmth of spring, continuing the eternal cycle that makes it possible to harness water to generate electricity. The Finance division manages accounting, controlling and IT activities. The Treasury, Real Estate and Procurement departments also operate within this division. The Communications, Human Resources and Legal & Risk units, plus the NewTech unit (established in 2014), report directly to the CEO. The Repower Group s NewTech unit focuses on innovative solutions and new technologies, addressing challenges that arise in the market with the aim of developing new fields of business. The individual operations are managed centrally by Repower AG and are not organised into separate legal structures. However, if management by Repower AG is deemed impossible or inefficient for legal, fiscal or regulatory reasons, or if new legal entities are added (for example through acquisition), management is handled by legally independent subsidiaries. An overview of shareholdings is shown on pages 79 to 85. Here particular attention should be paid to the simplification of the Repower Group s legal structures in Switzerland in spring 2014 (see structure below). RECHTESTRUKTUR REPOWER 2013 Repower AG shares and participation certificates are listed on the SIX Swiss Exchange. Canton Graubünden currently holds 58.3 per cent and Axpo Holding AG (Axpo) 33.7 per cent of the shares; together they thus hold 92 per cent of the voting rights. The principal shareholders are committed to one another through a shareholders agreement. As a core provision of this agreement, the parties agree that in future Repower AG must continue to operate as a private, independent Graubünden company managed according to business principles. The shareholders agreement also contains limitations on transferability as well as detailed provisions governing corporate governance. In particular, the shareholders agreement obliges the parties to reach a decision by consensus (right of veto) on issues of strategic importance. Consequently, under Swiss securities law Canton Graubünden and Axpo constitute a shareholder group controlling 92 per cent of the capital. Repower AG 100% 10% 100% 49% Repower Schweiz AG Ovras Electricas Frisal SA aurax connecta AG Ovra electrica Ferrera SA, OEFT 23

3 24 annual report Repower group 2014 This shareholding structure is a transitional structure. In the planned definitive structure, Canton Graubünden will hold up to 55 per cent and Axpo up to 21.4 per cent of the shares in Repower AG, while a suitable strategic investor will hold at least 15.6 per cent. The intention is to implement this target structure in the short to medium term. Detailed information on completed and planned transactions is published on the homepage of the Takeover Commission; see in particular Takeover Commission rulings 521/01 and 521/02 dated 13 November 2012 and 27 March 2013 respectively. No cross-shareholdings exist. The remaining 8 per cent of the shares are in free float. CAPITAL STRUCTURE The share capital of Repower AG (information on the share capital is given on pages 5 and 88 of the Annual Report) consists of 2,783,115 bearer shares (Swiss securities no ) and 625,000 participation certificates (Swiss securities no ), each with a par value of CHF 1. Each bearer share entitles the holder to one vote at the Annual General Meeting. Each share has a dividend entitlement of equal value. There are no preferential rights or restrictions on voting rights. No authorised or conditional capital exists. Repower AG has no outstanding participation certificates. Repower AG has issued no convertible bonds, options or other securities that entitle the holders to shares or participation certificates in Repower AG. Based on the stock exchange prices for shares and participation certificates, the company had a market capitalisation of CHF 376 million at the end of BOARD OF DIRECTORS MEMBERS The members of the Board of Directors are listed on pages 28 to 31 of the Annual Report. No member of the Board of Directors of Repower AG performs operational management tasks for the company. Members of the Board of Directors do not sit on the Executive Board of Repower AG or on that of any other Group company. In the three financial years preceding the year under review, no member of the Board of Directors was entrusted with any executive functions within the Repower Group. Some members of the Board of Directors perform executive functions for Axpo Holding AG (one of the principal shareholders) or its affiliated companies. Normal business relations exist with these companies. Since the provisions governing the number of permissible mandates as per Art. 12 para 1 subpara 1 of the Ordinance against Excessive Compensation in Listed Stock Companies (OaEC) will not be approved until the Annual General Meeting on 29 April 2015, the Articles of Association contained no rules to this effect in REPOWER ORGANISATION 2014 CEO Human Resources New Tech Communications Legal & Risk Generation / Grid Market Italy Finance Grid Trading CWE / NWE Power Generation ITA Accounting Generation CH Trading CEE Trading ITA Controlling GuD Leverkusen Sales & Marketing Sales ITA IT Lagobianco Market DE Finance ITA Project Development Market RO Strategy & Business Development ITA

4 annual report Repower group 2014 ELECTION AND TERM OF OFFICE The members and chairman of the Board of Directors are elected by the Annual General Meeting on an individual basis. The term of office ends with the completion of the next Annual General Meeting. Newly elected members complete the terms of office of their predecessors. The Board of Directors currently comprises twelve members, the maximum permissible number under the Articles of Association. Re-election is possible. According to the Organisational Regulations, members of the Board of Directors must give up their seats on the board as a rule at the Annual General Meeting following the end of the year in which they reach 70 years of age. The Board of Directors may make exceptions to this rule. The rules governing the appointment of the members of the Compensation Committee are detailed in the Compensation Report on page 34. The independent proxy is elected by the Annual General Meeting for a term of office ending with the completion of the next Annual General Meeting; re-election is possible. The Annual General Meeting held on 14 May 2014 elected Dr Peter Philipp (Chur) as independent proxy. INTERNAL ORGANISATION Apart from the election of the Chairman, the Board of Directors organises itself. It elects its vice chairman and secretary; the Secretary need not be a member of the Board of Directors. There is also a Board Committee that performs the duties of a Nomination and Audit Committee, in addition to other responsibilities. The Board of Directors appoints the Board Committee from among its own members. The Chairman and Vice Chairman automatically serve on the Board Committee by virtue of their office. Members of the Board Committee are elected for the same term of office as the Board of Directors. The four members of the Board Committee are listed on pages 29 and 30 of the Annual Report. In addition to its duties as Nomination and Audit Committee, the Board Committee advises the Board of Directors on business that comes before it, and issues recommendations. It also has the authority to make final decisions on certain types of business (see Assignment of Authority and Responsibility for the Board of Directors and Executive Board). The organisation of the Compensation Committee is described in the Compensation Report on page 34. Together with the Secretary and the CEO, the Chairman of the Board of Directors draws up the agenda for meetings of the Board of Directors and Board Committee. Members of the Board of Directors generally receive proposals relating to each agenda item eight days in advance of meetings. These proposals include background documentation as well as an evaluation and a motion by the Executive Board and for meetings of the Board of Directors by the Board Committee. The Board of Directors meets at the invitation of the Chairman or, if the latter is not available, of the Vice Chairman, as often as required to conduct its business, but at least twice a year. The Board of Directors generally meets at least once a quarter. The Board of Directors must be convened whenever one of its members or the CEO makes a written request to this effect, stating the reason. The CEO and CFO generally attend every meeting of the Board of Directors. The other members of the Executive Board attend the meetings as and when required in order to explain the proposals. The Board of Directors basically constitutes a quorum if the majority of its members are present. The Board of Directors passes resolutions by a majority vote. The Chairman does not have a casting vote. Minutes are taken of the business and resolutions of the Board of Directors and are submitted to the Board for approval at its next meeting. The Board Committee and Board of Directors follow the same procedures in terms of convocation, procedure of the meetings and decisionmaking. In the year under review the Board of Directors met seven times, the Board Committee five times and the Compensation Committee once. The Board Committee convened five times in its capacity as Audit Committee. Meetings of the bodies normally last half a day. BOARD COMMITTEE IN ITS CAPACITY AS AUDIT COMMITTEE The Board Committee, in its capacity as Audit Committee, evaluates the efficacy of the external audit and the functional effectiveness of the risk management processes. It can engage the external auditor or other external advisers to perform special audits for the purpose of internal control. The Board Committee also reviews the status of company compliance with various standards (annual compliance report). The committee critically reviews the individual and consolidated financial statements and the interim financial statements intended for publication; it discusses the financial statements with the CFO and, insofar as this is deemed necessary, with the head of the external auditors. Finally, it also decides whether the individual and consolidated financial statements can be recommended to the Board of Directors for submission to the Annual General Meeting. It evaluates the services and fees of the external auditors and verifies their independence. It also determines whether the auditing role is compatible with any consulting mandates. BOARD COMMITTEE IN ITS CAPACITY AS NOMINATION COMMITTEE In its capacity as Nomination Committee the Board Committee prepares re-elections and new elections within the Board of Directors and the election of the CEO of the Repower Group, their deputy and the other Executive Board members. ASSIGNMENT OF AUTHORITY AND RESPONSIBILITY TO THE BOARD OF DIRECTORS AND EXECUTIVE BOARD Types of authority granted to the Board of Directors and the Executive Board are defined in the Organisational Regulations and the related Assignment of Authority and Responsibility. The Board of Directors is responsible for the overall direction and strategic orientation of the Repower Group and for supervising the Executive Board. It reviews and determines on an annual basis the objectives and strategy of the Repower Group as well as the corporate policy in all sectors, and makes decisions regarding short- and long-term corporate planning. It also deals with the organisational structure, accounting structure, internal control system and financial planning, the appointment and discharge of the persons entrusted with management and representation (namely the CEO, deputy CEO and the other members of the Executive Board), preparation of the Annual Report, preparations for the Annual General Meeting and implementation of its resolutions, and making decisions on compensation policy and drawing up the Compensation Report. The Board of Directors has delegated the entire operational management of the Repower Group to the CEO. The CEO has delegated certain management functions to the members of the Executive Board. Some types of business or 25

5 26 annual report Repower group 2014 transactions must be presented to the Board of Directors and/or the Board Committee for a decision in accordance with the Assignment of Authority and Responsibility (Annex to the Organisational Regulations). the Executive Board (name, age, position, nationality, date of joining the company, professional background, and other activities and interests). No management tasks were transferred to third parties. INFORMATION AND CONTROL INSTRUMENTS VIS-À-VIS THE EXECUTIVE BOARD At each meeting of the Board of Directors and the Board Committee, the CEO and the members of the Executive Board report on current business developments, important business transactions and the status of major projects. Aside from these meetings, any member of the Board of Directors may ask the CEO to provide information about the course of business and also, if the Chairman agrees, about individual transactions. Supervision and control of the Executive Board is handled by approving the annual planning and on the basis of detailed quarterly reporting comparing actual and target figures. Quarterly reporting includes data on the volumes of energy sold and procured, the income statement and balance sheet (including expected values for the most important key figures, namely energy sales, total operating revenue, operating income, profit, cash flow, capital expenditure, property, plant and equipment, total assets, equity, economic value added), energy trading risks (market risks and counterparty risks) and key projects. Important key figures on the individual markets (in particular the Swiss and Italian markets), trading and the Corporate Centre also form part of the quarterly reporting. Repower also does segment reporting in accordance with IFRS 8 (for more information, see page 55 Segment reporting and page 104 ff.). The Board of Directors also receives quarterly progress reports and final performance reports on key projects, as well as if specifically requested status reports on individual business activities. Annual and long-term planning covers corporate objectives, key projects and financial planning. In addition there are risk management and auditors reports to facilitate the assessment of management and the risk situation. Repower Group has a risk management system which is described in detail in a policy issued by the Board of Directors. At the end of each year the Board of Directors defines the risk strategy for the following financial year. Significant risks must be brought to the attention of the Board of Directors at least once a year, with quarterly updates to advise the Board of Directors of any changes in these risks. A description of the risk and financial risk management policies of the Repower Group can be found on pages 62 to 67. The auditors draw up a comprehensive report once a year documenting the key findings of their audit. EXECUTIVE BOARD OF THE REPOWER GROUP Kurt Bobst CEO (Chairman of the Executive Board of the Repower Group) Felix Vontobel Head of Generation/Grid, Deputy CEO Stefan Kessler CFO (Head of Finance) Giovanni Jochum Head of Market Fabio Bocchiola Head of Italy The list on pages 32 and 33 provides detailed information on members of Since the provisions governing the number of permissible mandates as per Art. 12 para 1 subpara 1 of the Ordinance against Excessive Compensation in Listed Stock Companies (OaEC) will not be approved until the Annual General Meeting on 29 April 2015, the Articles of Association contained no rules to this effect in SHAREHOLDERS' RIGHTS OF PARTICIPATION Shareholders rights to assets and participation are in accordance with the law and the Articles of Association. None of the provisions of the Articles of Association deviate from statutory provisions, with the exception of the placement of an item of business on the agenda of the Annual General Meeting. To do so, a shareholder or several shareholders must hold at least CHF 100,000 of share capital and submit a written request at least 50 days prior to the Annual General Meeting. One shareholder or several shareholders who together hold at least 10 per cent of the share capital may request in writing that an Extraordinary General Meeting be convened, provided that the request states the proposals and the item of business. An ordinary General Meeting of Shareholders takes place every year, no more than six months after the end of the financial year. Each shareholder may be represented at the Annual General Meeting by another shareholder by proxy by granting them written authority or by the independent proxy by granting them written or electronic authority. Each share entitles the holder to one vote at the Annual General Meeting. CHANGE OF CONTROL AND DEFENSIVE MEASURES The mandatory offer requirement under Swiss securities law applies, since the Articles of Association do not include any provision in this regard. No clauses pertaining to change of control exist either for members of the Executive Board or for members of the Board of Directors. AUDITOR Since 1996, PricewaterhouseCoopers, Chur, Switzerland, has been appointed annually by the Annual General Meeting as the statutory auditor and Group auditor. The auditor-in-charge, Beat Inauen, has been responsible for the engagement since PricewaterhouseCoopers was paid a total fee of CHF 1,013,000 for its auditing services for the Group in the 2014 financial year and CHF 300,000 for other consulting services. The fees for other consulting services comprise the following: CHF 262,000 for tax consulting, CHF 19,000 for project-related consulting and CHF 19,000 for other consulting services. SUPERVISION AND CONTROL INSTRUMENTS VIS-À-VIS THE AUDITORS The Board Committee, in its capacity as Audit Committee and on behalf of the Board of Directors, monitors the credentials, independence and performance of the auditor and its audit experts. It obtains information at least once a year from the audit managers and the Executive Board concerning the planning, execution and findings of the audit work. The Board Committee asks the auditors to provide the audit plans and any proposals for

6 annual report Repower group 2014 improving internal controls. The auditors draw up for the Board of Directors a comprehensive report with findings on accounting practices, internal controls, the execution and results of the audit. The items and improvements discussed in the report are reviewed by the auditors in an interim audit and the results are presented to the Board Committee. In 2014 representatives of the external auditor participated in three meetings of the Board Committee in its capacity as Audit Committee. INFORMATION POLICY Repower AG provides its shareholders, potential investors and other stakeholders with comprehensive, timely and regular information in the form of annual and semi-annual reports, at the annual press conference and the Annual General Meeting of Shareholders. Important developments are communicated via news releases (link to request news releases by The website which is regularly updated, serves as an additional source of information. IMPLEMENTATION OF THE ORDINANCE AGAINST EXCESSIVE COMPENSATION IN LISTED STOCK COMPANIES The Ordinance against Excessive Compensation in Listed Stock Companies (OaEC), which came into force on 1 January 2014, will be fully implemented at the 2015 Annual General Meeting. This means that there will be a motion to amend the Articles of Association as laid down in the OaEC and a vote on the compensation paid to members of the Board of Directors and the Executive Board for the 2015 financial year. In addition, a Compensation Report has been drawn up for the 2014 financial year (to be found on pages 34 to 36). The Compensation Report will be submitted to the 2015 Annual General Meeting for an advisory vote. The other requirements of the law were already implemented at the 2014 Annual General Meeting. EVENTS AFTER THE BALANCE SHEET DATE At its meeting on 27 March 2015 the Board of Directors passed new remuneration rules for the Board of Directors valid as of 1 January An innovation in this connection is that a flat fee has been set according to the function of the respective member of the Board of Directors. Out-of-pocket expenses will also be reimbursed. The flat fee is calculated on the basis of the average estimated annual time involved as a percentage of full-time equivalent multiplied by an industry-standard salary appropriate to the qualifications required. The legal structure of the Repower Group in Switzerland is being streamlined again in early 2015 by merging Repower Schweiz AG with Repower AG retroactively with effect 1 January