Innofactor's Corporate Governance
Innofactor is a Finnish public limited company which, in its decision-making and administration, complies with the Finnish Companies Act, other regulations concerning public companies, and the company's Articles of Association.
Innofactor Plc complies with the Finnish Corporate Governance Code 2015 for listed companies, published by the Securities Market Association.
Innofactor Plc's Corporate Governance was last updated on March 4, 2019.
Corporate Governance statements
Innofactor Plc's annual statement on Corporate Governance can be found at:
Innofactor Group includes the following companies:
- Innofactor Plc, Finland (parent company)
- Innofactor Software Oy, Finland, Espoo, 100%
- Innofactor Business Solutions Oy, Finland, Espoo, 100%
- Innofactor CS Oy, Finland, Turku, 100%
- Innofactor Holding AB, Sweden, 100%
- Innofactor AB, Sweden, 100%
- Innofactor Cloud Platform AB, Sweden, 100%
- Lumagate Holding AB, Sweden, 100%
- Innofactor Holding ApS, Denmark, 100%
- Innofactor A/S, Denmark, 100%
- Innofactor Holding AS, Norway, 100%
- Innofactor AS, Norway, 100%
The General Meeting is the highest decision-making body in Innofactor Plc. Convened by the Board of Directors, the General Meeting is held in Espoo, the company's domicile, or alternatively in Helsinki or Vantaa, in accordance with the Articles of Association.
According to the Articles of Association, Annual General Meetings shall be held annually within six months of the end of each fiscal year on a date specified by the Board of Directors. Extraordinary General Meetings shall be held when this is considered necessary by the Board of Directors, if the auditors make a request in writing to allow the handling of a specific subject, or if a request is made by shareholders holding a minimum of 10% of the total number of shares issued.
Convening the General Meeting
Invitations to General Meetings are published on the Innofactor Plc website and conform to the requirements set for such invitations in the Companies Act in all other respects.
An invitation to a General Meeting states the matter or matters to be handled and discussed at that meeting. If these matter include, among others, amendment of the company's Articles of Association, an increase or decrease in the company's capital stock, a decision regarding acquisition of the company's own shares, a decision on a merger or company division, or a decision regarding liquidation, the main substance of such matters must be specified and described in the invitation.
If a General Meeting is to handle, for example, the company's annual accounts, a report on a special audit, an increase or decrease in the company's capital stock, the granting of collateral security, taking out a convertible loan, acquiring the company's own shares or a decision concerning a merger, company division or liquidation, documents relating to the matter or copies thereof are made available to shareholders at the Innofactor Plc head office for a period of one week prior to the date of the meeting and are sent to any shareholder who requests them.
Responsibilities of the Annual General Meeting
In accordance with the Companies Act and Innofactor Plc's Articles of Association, Annual General Meetings must decide on at least the following matters:
- Adoption of the income statement, the balance sheet, the consolidated income statement and the consolidated balance sheet.
- Measures which may arise from the income statement, balance sheet, consolidated income statement and consolidated balance sheet
- Amendments to the Articles of Association.
- The granting of a discharge from liability to members of the Board of Directors and the CEO.
- The number of members of the Board of Directors.
- Remuneration awarded to members of the Board of Directors and the basis on which compensation for expenses is provided.
- Any decision to raise the company's share capital, to issue share options, or take out a convertible loan, unless otherwise provided in the Companies Act.
The Annual General Meeting elects the members and any possible deputy members of the Board of Directors, an auditor, and if needed, a deputy auditor. The Annual General Meeting also elects the Chairman for the Annual General Meeting.
All shares in Innofactor Plc entitle their holders to equal rights in the company (an equal say in the company's affairs). Shareholders exercise their right to make decisions concerning the company at a General Meeting.
Shareholders may exercise their rights at a General Meeting either in person or through a representative. Representatives must present a dated proxy. Shareholders or their representatives have the right to bring an assistant to General Meetings.
Everyone attending a General Meeting has the right to exercise all the voting rights attached to the shares they represent. On the other hand, shareholders or their representatives may not vote in matters relating to the granting of a discharge to that shareholder, any action being taken against them, their discharge from liability or any other obligation towards the company. Also, shareholders may not vote in matters that relate to an action against another person or their discharge from liability if the shareholder concerned would gain material benefit that could be in conflict with the company's interests.
Shareholders are entitled to have a matter of their choice handled at a General Meeting if they present the Board of Directors with a written request to this effect and there is sufficient time before the General Meeting.
Shareholders have the right to obtain additional information at a General Meeting by presenting questions concerning the state of the company to the Board of Directors or the CEO. The right to ask questions is limited to issues that could affect Innofactor Plc's financial statements, financial status, or other matters being discussed in (on the agenda of the General Meeting. Questions of this nature must be asked by shareholders while the issue to which their question or questions relate is being discussed. The Board of Directors or the CEO is responsible for providing (has a duty to provide ???) a shareholder with more detailed information provided that that this can be done without causing the company substantial harm. The Board of Directors is responsible for deciding whether such an answer can be given without causing substantial harm to the company. If a question raised by a shareholder cannot be answered using information available at the meeting, a written answer will be provided within two weeks. The document containing the answer will be sent to the shareholder who raised the question and will also be made available at the company's head office.
The Innofactor Plc share register and register of shareholders are maintained by Euroclear Finland Oy (formerly Suomen Arvopaperikeskus Oy) and access to these documents is not restricted. Copies of the share register and shareholder register can be obtained against payment of a small fee to cover the cost of duplication.
Board of Directors
Innofactor Plc has a Board of Directors comprising at a minimum of four (4) and at a maximum of eight (8) members. The current Board of Directors has four (4) members and this is deemed adequate considering the size of the company and its level of activity.
Term of the Board of Directors
Members and deputy members of the Board of Directors are elected by the Annual General Meeting. Members serve a term which ends at the conclusion of the following Annual General Meeting unless a decision is made by an Extraordinary General Meeting to makes changes to the Board of Directors before this date.
Members of the Board of Directors may resign before their term of service ends. The Board of Directors must be notified of any premature resignation. A General Meeting can dismiss a member of the company's Board of Directors.
If the position of a member of the Board of Directors becomes vacant during a term of service and there is no deputy member, the remaining members of the Board of Directors have a duty to ensure that a new member is elected by the General Meeting for the remainder of that term. If the Board of Directors with its remaining members and deputy members is quorate, such election may be postponed until the following General Meeting, at which members of the Board of Directors would then be elected.
Meetings of the Board of Directors
The work of the Board of Directors, including the making of decisions, takes place at Board meetings, and these are held approximately once a month in accordance with the Board of Directors' meeting plan. Practical aspects connected with Board meetings are described in greater detail in the Board of Directors' rules of procedure.
Responsibilities of the Board of Directors
Responsibilities of the Board of Directors are based on the Finnish Companies Act and defined in Innofactor Plc's Articles of Association. The Board of Directors has general authority to decide and act in all matters not reserved for other corporate governing bodies by the Finnish Companies Act or the company's Articles of Association. The Board of Directors is responsible for organising the company in an effective manner and monitoring the company's management in accordance with the best interests of the company and its shareholders. Responsibilities of the Board of Directors and its members are described in greater detail in the rules of procedure for the Board of Directors.
The Board of Directors assesses its operations and working procedures on a regular basis by carrying out a self-assessment once a year.
Supply of information
Information regarding Innofactor Plc's operations is supplied to the Board of Directors in a timely manner and in a form and quality which enables the Board to discharge its duties. To ensure that the Board of Directors has appropriate financial information, the minutes of Executive Board meetings, including a financial report in accordance with the company's instructions, are delivered to the Board.
In matters of importance to Innofactor Plc, if necessary, individual Board members have the right to seek information and advice from independent sources with the cost of such enquiries being met by the company.
Board of Director's compensations and other benefits
The fees and other benefits of the Board of Directors are presented in the Statement on Salaries and Fees for the Financial Period.
Information about the members of the Board of Directors
Pekka Eloholma, born in 1960, M.Sc. (Tech.)
Chairman of the Board as of April 4, 2018. Mr. Eloholma's latest position was the CEO of Nebula Oy in 2014–2017. Before this, he was the CEO of the Nordic company Affecto Oyj in 2006–2013. Previously, he has worked in management positions in, for example, Setec Oy, Siemens Oy, FinnetCom Oy, and Helsingin Puhelin (current Elisa Oyj). Mr. Eloholma has experience from Boards of Directors of various companies and he was elected also as the Chairman of the Board for LeaseGreen Group and Sitowise in 2018. Mr. Eloholma has excellent understanding of arranging and developing operations of a Nordic IT company, and in taking into consideration the effects of new technologies, especially cloud technologies, in business operations. LinkedIn
Sami Ensio, born in 1971, M.Sc. (Tech.)
Mr. Ensio has been Innofactor Plc's CEO since December 27, 2010, and before that, he was the founder and CEO of Innofactor Ltd starting from January 1, 2000. He has been a member of Innofactor Plc's Board of Directors since 2010, and before that, he was a member of the Innofactor Ltd's Board of Directors starting from 2000. Mr. Ensio has been a member of the Microsoft Corporation's Partner Advisory Council since 2014. He holds several positions of trust in the Federation of Finnish Technology Industries and the Confederation of Finnish Industries since 2013. For example, he is a Chairman of the Board in Information Technology Industries Finland, Vice Chairman of the Board in Delegation of Entrepreneurs and Member of the Board in Technology Industries of Finland. Mr. Ensio has an extensive understanding of IT business in the Nordic Countries and of the Microsoft ecosystem. LinkedIn
Anna Lindén, born in 1973, M. Pol.Sc.
Member of the Board of Directors as of April 4, 2018. Ms. Lindén has extensive background in business leadership and information technology. Her most recent position was the COO of Nokia´s Mobile Networks business group until early 2019. Ms. Lindén started at Nokia in 1998 as the project leader for a digitalization project, after which she transferred to marketing and communications, where she worked in several management positions. Since 2010, she held several positions responsible for business operations in different units of Nokia. Ms. Lindén has strong know-how of management in a multi-national company as well as of taking technology changes into account in business. LinkedIn
Risto Linturi, born in 1957, M.Sc. (Tech.)
Member of the Board of Directors as of April 4, 2018 and acted in Innofactor Ltd's Board of Directors in 2000–2010. Mr. Linturi is currently the Chairman of the Board of Sovelto Oyj, which is partly owned by his family business, and a private consultant. In 2004–2014, Mr. Linturi was the programme director of Aalto University's Radical innovations program. Previously, he has been, for example, the technology director of Helsingin Puhelin (current Elisa Oyj) and President of the IT training company operating under his name (current Tieturi Oy). Mr. Linturi has also held several other Board memberships. Linturi's area of specialization is understanding the economic and societal effects of new and upcoming technologies. He is one of Finland's most prominent futurists and has drawn up reports, for example, for the parliament. LinkedIn
Share owning by the Board members
Pekka Eloholma, Board Chairman, Innofactor Plc: Ownership: 70,106 shares.
Sami Ensio, Board Member, Innofactor Plc: Ownership with related parties is 7,716,173 shares.
Anna Lindén, Board Member, Innofactor Plc: Ownership with related parties is 41,500 shares.
Risto Linturi, Board Memeber, Innofactor Plc: Ownership with related parties is 1,256,411 shares.
Innofactor Plc does not currently have an incentive programme under which members of the Board of Directors are rewarded by the allocation of company shares.
The independent status of Board members
Pekka Eloholma, Board Chairman, Innofactor Plc, is independent of the company and its main shareholders.
Sami Ensio, Board Member, Innofactor Plc, is not independent of the company as he is the CEO and, together with his under-age children, is the largest individual stakeholder (21.32% ownership).
Anna Lindén, Board Member, Innofactor Plc, is independent of the company and its main shareholders.
Risto Linturi, Board Member, Innofactor Plc, is independent of the company and its main shareholders.
The Board of Directors of Innofactor Plc has in its meeting of 2 May 2017 established a Remuneration Committee.
The Board of Directors has not set up any other Board committees.
Rules of Procedure for the Board of Directors of Innofactor Plc
The tasks and responsibilities of the Board of Directors are based on the Companies Act, Securities Market Act, other laws, Articles of Association, Corporate Governance for Finnish listed companies published by the Securities Market Association, NASDAQ Helsinki exchange's rules for communications and insider management, and the rules of procedure for the Board of Directors.
These rules of procedure were approved by the company's Board of Directors on May 2, 2017. The Board of Directors will update and change the rules as required.
2. Composition of the Board of Directors
In accordance with the Articles of Association, the company has a Board of Directors, which comprises at a minimum of four (4) and at a maximum of eight (8) members.
The Annual General Meeting elects the members for the Board of Directors. The term of the members ends at the end of the following Annual General Meeting, unless an Extraordinary General Meeting decides to change the Board of Directors before that. A member of the Board of Directors may resign from the task before the end of his/her term. The Board of Directors must be notified of the premature resignation. The General Meeting can dismiss a member of the Board of Directors. If the position of a member of the Board of Directors becomes vacant during the term and there is no deputy member, it is the duty of the remaining members of the Board of Directors to ensure that a new member is elected for the remainder of the term by the General Meeting. If the Board of Directors with its remaining members and deputy members has a quorum, the election may be postponed to the following General Meeting, in which the members of the Board of Directors would be elected in any case.
The Board members elect one of them as a Chairman for a term of one year. The tasks of the Chairman are described in section 6. No deputy chairman has been elected for the Board of Directors as it has been agreed on that the CEO will act as a deputy when the Chairman is absent.
The Board of Directors can name an outsider as a secretary or select a Board member as the secretary. The tasks of the secretary are described in section 7. Unless otherwise agreed on, the CEO will act as the secretary of the Board.
The Board of Directors of Innofactor Plc has in its meeting of 2 May 2017 established a Remuneration Committee from among its members. The Rules of procedure of the Committee is confirmed by the Board of Directors. The Board of Directors is responsible for the duties assigned to the Committee, and the Committee does not make independent decisions. The matters discussed by the Committee and the minutes of the meetings are presented to the Board of Directors, and the Committee reports to the Board at least two (2) times a year.
The Board of Directors has not set up any other Board committees.
4. Familiarization and independence of the Board members
The CEO explains the company's and group's business operations to the new Board members as soon after the selection as possible. As part of familiarizing the Board members, the company arranges training on securities market law and company law and other regulations concerning the company's operation as necessary.
The Board of Directors assesses the independence of its members as required and makes sure that any lack of impartiality is assessed when necessary.
5. Responsibilities of the Board of Directors
Responsibilities of the Board of Directors and its members are based on the Companies Act and the company's Articles of Association. The Board of Directors has general authority to decide and act in all such matters that are not reserved by the Companies Act or Articles of Association to other corporate governing bodies. The Board of Directors is responsible for the effective organizing of the company and the monitoring of the management of the company according to the best interests of the company and its shareholders.
The main responsibilities of the Board of Directors are as follows:
- Being responsible for the management and proper arrangement of the operation of the company.
- Defining the company's operational tasks and values and approving the company's strategic goals.
- Monitoring the implementation of the operational plan and controlling the company and the efficiency of its management.
- Deciding on major investments, acquisitions, and buying and selling of property.
- Being responsible for proper supervision of the book-keeping and controlling the financial matters of the company.
- Confirming the annual budget.
- Appointing the CEO (and his/her deputy) or ending his/her term.
- Monitoring the CEO's work and ensuring that the company's management system works.
- Appointing the Management Team members and deciding on their fees.
- Reviewing and approving interim reports, financial statements and corporate reviews.
- Accepting the company's principles of risk management.
- Taking care of the tasks defined for the appointment and auditing committee.
6. Responsibilities of the Chairman of the Board
The general responsibility of the Chairman of the Board is to lead the Board's work in such a manner that its responsibilities are carried out as efficiently and appropriately as possible. In this function, the Chairman's duty is
to ensure that the Board of Directors is operational and has a quorum;
to monitor the CEO's work and oversee that the CEO is able to perform his/her tasks;
- to convene the meetings in accordance with the meeting plan of the Board of Directors;
- to ensure that the Board of Directors also meets at other times, when necessary, or if a Board member or the CEO so demands;
- to draw up agendas for Board meetings together with the CEO;
- to lead and develop the Board's work, monitor meeting preparations, act as a chairman of a meeting, and ensure that minutes of meeting are written and signed;
- to ensure that statutory tasks and tasks specified in the Articles of Association and decisions related to these are made in time;
- to accept the CEO's representation expenses and other expenses, vacations and other days off;
- to keep in touch with the Board members and the CEO between meetings;
- to keep in touch with the owners and other interest groups as necessary;
- to monitor closely the company's operation and take care of internal control;
- to help create a good atmosphere for the Board of Directors to work in; and
- to ensure that the Board of Directors operates in accordance with the rules of procedure accepted by the Board of Directors.
The Chairman of the Board also approves the compensations paid by the company to the Board members for the expenses related to their work in the Board of Directors. The CEO approves the compensation paid by the company to the Chairman of the Board for the expenses related to the work in the Board of Directors.
7. The responsibilities of the secretary of the Board of Directors
The general responsibility of the Board secretary is to support the Chairman's work in such a manner that it is carried out as efficiently and appropriately as possible. In this function, the secretary's duties are:
- to collect issues to be discussed in a meeting into an agenda;
- to send the agenda to the Board members after the Chairman of the Board and the CEO have approved it;
- to maintain the minutes of Board meetings; and
- to ensure that the minutes of meeting are signed and archived in an appropriate manner.
8. Meetings of the Board of Directors
The Board of Directors makes its decisions in Board meetings.
The Board of Directors meets according to a predefined schedule approximately once a month and, if necessary, arranges additional meetings, which may also be held via conference calls.
For its operation, the Board of Directors draws up a meeting calendar, which includes at least the following meetings:
The Board's self-assessment concerning its operation during the previous year.
Review of the extensive personnel satisfaction report.
Meeting for reviewing business operations and updating strategy. In this meeting, the Board members report to the Board of Directors about the results of the previous quarter, customer and personnel satisfaction, changes made in the operation on the basis of these, situation in the current quarter, strategy and business changes to be made for the next quarter, and risks related to the business. For each Board member, 10–20 minutes is reserved for the presentation and 5–10 minutes is reserved for discussion after that. On the basis of the Management Team's presentation, the Board of Directors discusses about the possible changes in the company's strategy and operation and assesses the risks. The special theme on Q1 is personnel.
Annual accounts meeting in which the Board of Directors handles and approves the annual accounts and annual report. In the annual accounts meeting, the company's auditor is also present, except when the assessment of the auditing services, proposal for the auditor, and other possible issues belonging to the general operation of the Board of Directors are discussed.
Convening the General Meeting.
Regrouping meeting in which the Board of Directors elects one of its members as the Chairman and draws up a meeting calendar.
Handling the interim report for the first quarter.
Meeting for business review and strategy update in which the special theme on Q2 is customers, processes and quality.
Handling the interim report for the second quarter.
Meeting for business review and strategy update in which the special theme on Q3 is a more detailed annual review of the strategy.
Handling the interim report for the third quarter.
Meeting for business review and strategy update in which the special theme on Q4 is the next year's annual plans and budget.
Budget meeting in which the Board of Directors handles and approves the company's budget for the next financial period, the schedule for publishing the annual accounts and, if possible, the preliminary time of the General Meeting.
The meetings may also be held as conference calls or by using other technical devices.
9. Convening meetings
The Chairman of the Board is responsible for convening the meetings. The CEO, together with the Chairman of the Board and with the help of the secretary, takes care of preparing the agenda for a Board meeting. The Board secretary must be notified five business days before the meeting on any issues that are to be dealt with in the meeting.
An invitation to the meeting and materials for the meeting are delivered electronically in such a manner that the Board members receive them at least two business days before the meeting or, whenever possible, the materials for the meeting are delivered to the Board members by 15:00 on the Friday before the meeting.
The invitation includes the agenda, the minutes of the previous Board meeting, the latest monthly financial report, and other possible documents related to the handling of issues on the agenda.
The materials for the meeting and other confidential material relating to the company are not to be sent through unsecured email, unless it is absolutely necessary.
10. Handling issues and making decisions in the meetings
The Chairman of the Board, or if he/she is absent, the CEO, acts as the chairman in the Board meetings.
The Board of Directors handles the issues listed in the agenda of the meeting. In addition to the issues based on these rules of procedure, the Board meeting handles as standard issues the approval and signing of the minutes of the previous meeting, the financial review, and the CEO's situation review.
Other issues than those in the agenda may be handled on the initiative of either a Board member or the CEO. A decision on other issues can be made only, if all Board members accept it.
In addition to the Board members, the CEO, CFO (during issues concerning the financial reporting) and Board secretary are present in the meetings. An issue is presented to the Board of Directors by the CEO or some other person to whom the CEO, with the Board's approval, has delegated the making of the presentation.
The CEO has the right to be present in the meetings and the right to be heard, unless otherwise decided by the Board of Directors in a specific case. The auditor has the right to be present and the right to be heard at the Board meetings in which issues related to the auditor's tasks are discussed. If necessary, the Board of Directors discusses the company and its development without the operating management being present.
The Board of Directors has a quorum when over half of the Board members are present. Decisions are made by simple majority of votes. All Board members must be reserved an opportunity to participate in the handling of an issue, if possible, in order to ensure that the decision of the Board of Directors is made in an appropriate manner. If the votes are divided equally, the Chairman's vote decides.
If a Board member disagrees with a decision of the Board of Directors, he/she may state a dissenting opinion to be registered to the minutes of the meeting. The dissenting opinion must be stated immediately after the decision has been made.
A Board member or the CEO may not participate in the handling of a contract between him/herself and the company or in the handling of a contract between the company and a third party, if he/she may thereby receive a material benefit, which may be in contradiction with the interest of the company or which is related to a company or other organization in which he/she is a member of the operating management or governing body. The Board of Directors is responsible for taking any lack of impartiality into consideration when necessary. A Board member must also always assess and consider the need for recusing him/herself.
If a Board member is unable to attend, his/her deputy (if one has been elected) must be reserved the same opportunity to participate in handling the issue.
A quorum requires that the invitation has been delivered to all Board members in an appropriate manner. Any inadequacies in the invitation are considered corrected, if all Board members are present in the meeting or if the Board members afterwards accept the decisions, for example, by signing the minutes of meeting.
11. Minutes of meeting
Minutes of meeting with consecutive numbering according to the calendar year are drawn up for the Board meetings. The minutes of meeting must state the time and location of the meeting and the names of Board members present. The Chairman of the Board is responsible for maintaining the minutes of meeting. A person named by the Board of Directors acts as the Board secretary.
The minutes of meeting are kept in the form of a final protocol. For important issues, also the main grounds for the decision are entered into the minutes of meeting or an attachment thereof. Any dissenting opinions, votes and Board member's incompetence due to the likelihood of bias are entered into the minutes of meeting.
All Board members sign the minutes of meeting. The minutes of meeting for a phone meeting are signed by all Board members who took part in handling the issue.
The minutes of meeting without attachments are delivered to the Board members after each meeting when the Chairman of the Board and the CEO have approved the minutes. The goal is to deliver the minutes of meeting within five business days after the meeting. The minutes of meeting will be approved in the next meeting.
The minutes of meeting will be stored at the head office of the company for as long as the company shall exist.
12. Providing information for the Board of Directors between the meetings
The CEO is responsible for ensuring that the Board of Directors is notified of the minutes of the Management Team meetings. The secretary of the Management Team sends the minutes of meeting to the Board of Directors electronically without delay as soon as the CEO has approved the minutes. The goal is to deliver the minutes of meeting within five business days after the meeting.
It is the CEO's responsibility to keep the Chairman of the Board well informed of the company's daily situation.
The CEO also has the responsibility to inform the company's Board of Directors on his/her own initiative about important matters concerning the company's operation, such as development of sales, significant changes in liquidity and bearing, substantial credit losses, and significant purchases or other contracts.
If necessary, in matters of importance for the company, individual Board members have the right, at the cost of the company, to seek information and advice from independent sources.
13. Assessing the operation of the Board of Directors
The Board of Directors must assess its operation and working methods annually. The assessment is carried out as an internal self-assessment.
The purpose of the assessment is to find out how the operation of the Board of Directors has been carried out and how it can be developed.
Innofactor's Board of Directors has in its meeting of 2 May 2017 established a Remuneration Committee. The Remuneration Committee makes proposals to the Board of Directors in respect of remunerations of the company's CEO and other executives of the Group as well as on the principles and practices of the employee remunerations. The Remuneration Committee observes and evaluates the competitiveness of the incentive and compensation plans of the Group.
The members of the Remuneration Committee are
- Pekka Eloholma (Chairman)
- Anna Lindén
- Risto Linturi
All the members of the Remuneration Committee are independent of the company and its significant shareholders. When electing the members of the Remuneration Committee, the competence requirements applicable to the members have been taken into account.
The Committee convenes regularly, at least two times a year. The Committee's operations and key duties are described in the rules of procedure below.
The rules of procedure for Innofactor Plc's Remuneration Committee
Innofactor Plc's Remuneration Committee assists the company's Board of Directors by preparing matters that belong to the Board's duties, fall within the scope of the Committee's operations, and are defined in these rules of procedure. The Committee does not make independent decisions.
The composition of the Remuneration Committee
The Board of Directors elects the Committee Chairman and members from among the Board members. The minimum number of Committee members is three (3) and the members must be independent.
The meetings of the Remuneration Committee
In cooperation with the company's CEO and Executive Vice President, Human Resources, the Chairman prepares the matters to be discussed and advance materials for the meetings that are delivered by e-mail to the members of the Committee at the latest one day before the meeting.
The Remuneration Committee convenes during the calendar year at the invitation of the Chairman, and there are at least two (2) meetings a year.
In so far as the determination of the CEO's own benefits is not concerned, the company's CEO acts as the presenter for the Committee. The company's Executive Vice President, Human Resources acts as the Committee's Secretary. By the Chairman's decision, the Committee may also allow other persons to participate in the meeting.
The minutes are prepared by the Secretary and confirmed by the signatures of the Chairman and the Secretary.
The matters discussed by the Committee and the meeting minutes are presented to the Board of Directors.
The Committee and the Board of Directors evaluate the Committee's work annually in connection with the Board's self-evaluation.
The duties of the Remuneration Committee
The Remuneration Committee makes proposals to the Board of Directors in respect of remunerations of the company's CEO and other executives of the Group as well as on the principles and practices of the employee remunerations. The Remuneration Committee observes and evaluates the competitiveness of the incentive and compensation plans of the Group.
The Committee prepares the following matters for the Board of Directors' decision making:
1. Innofactor Plc's CEO's salary, pension terms and conditions, benefits, and other key terms and conditions of the service contract;
2. other Group executives' salary, pension terms and conditions as well as benefits, including the management's compensation plan;
3. share-based compensation plans; and
4. principles and practices of the employee remunerations.
Chief Executive Officer
Innofactor Plc's Chief Executive Officer (CEO) is appointed by the Board of Directors.
Responsibilities of the CEO
The CEO is responsible for day-to-day management of Innofactor Plc, which consists of managing and controlling the company's business in accordance with decisions and instructions issued by the Board of Directors.
The CEO may not engage in unusual or extensive actions without receiving specific approval for such activity from the Board of Directors, except in situations where failure to carry out such actions would result in significant damage to Innofactor Plc's operations and the approval of the Board of Directors cannot be obtained in time. The Board of Directors must be notified immediately of any actions taken without waiting for the Board's approval).
The main responsibilities of the CEO are:
- to be responsible for the day-to-day management of the company;
- to approve business plans and performance objectives and control their implementation;
- to actively protect the company's interests;
- to ensure the effective functioning of the Board of Directors and to ensure that the Board of Directors receives proper and adequate information;
- to see to it that the accounting and book-keeping of the company complies with the law and that the financial matters are being handled in a reliable manner;
- to report accurately and precisely following the instructions given by the Board of Directors;
- to implement decisions made by the Board of Directors and the General Meeting; and
- to ensure on his/her part that the company respects its legal obligations and regulations.Approving business plans and performance objectives and controlling their implementation
Even if the CEO is not a member of the Board of Directors, he/she has the right to be present and to be heard in the Board meetings, unless otherwise decided by the Board of Directors in a specific case.
The CEO may not participate in the handling of a contract between him/herself and the company or in the handling of an issue between the company and a third party, if he/she may thereby receive a material benefit, which may be in contradiction with the interest of the company.
Decisions on fees paid to the CEO and other possible rewards are made by the Board of Directors on an annual basis. Such fees and the CEO's terms of employment are described in the section concerning compensations.
Information about the CEO
Sami Ensio, born 1971, M.Sc. (Tech.)
Innofactor Plc's CEO since December 27, 2010, and before that, he was the founder and CEO of Innofactor Ltd starting from January 1, 2000. He has been a member of Innofactor Plc's Board of Directors since 2010, and before that, he was a member of the Innofactor Ltd's Board of Directors starting from 2000. Mr. Ensio has been a member of the Microsoft Corporation's Partner Advisory Council since 2014. He holds several positions of trust in the Federation of Finnish Technology Industries and the Confederation of Finnish Industries since 2013. For example, he is a Chairman of the Board in Information Technology Industries Finland, Vice Chairman of the Board in Delegation of Entrepreneurs and Member of the Board in Technology Industries of Finland. Mr. Ensio has an extensive understanding of IT business in the Nordic countries and of the Microsoft ecosystem.
Shares and options owned by the CEO
CEO Sami Ensio's ownership with related parties is 7,716,173 shares. Together with his under-age children, Ensio is the largest individual stakeholder (21.32% ownership).
The Executive Board and Other Management
Executive Board meetings
Decisions by the Innofactor Plc Executive Board are made at Executive Board meetings which are convened in accordance with a meeting programme drawn up by the Executive Board in advance.
The Executive Board is quorate when the CEO is present. If decisions by the Executive Board are not unanimous, decisions to which the CEO gives his/her support will taken as final. Additional information on the handling of matters at Executive Board meetings is provided in the Executive Board's rules of procedure.
Responsibilities of the Executive Board
The Executive Board's responsibilities include:
- Preparing matters for consideration by the Board of Directors
- Making important business decisions
- Monitoring the company's financial situation and reporting on this to the Board of Directors
- Handling critical sales, project and customer relationships
- Ensuring that adequate personnel resources and operating premises are available
- Ordering customer and workplace surveys analysing these and making proposals for related action
- Deciding on the Innofactor Plc quality system and connected processes
- Making detailed decisions concerning the company's organization
- Ensuring that all data to which Innofactor Plc has access is handled in a secure manner
Executive Board fees
Decisions on fees paid to the Executive Group and other rewards are made by the Board of Directors on an annual basis. Principles underlying rewards for members of the Executive Board are described in the compensations section.
Information about the Members of the Executive Board
Sami Ensio, b. 1971, M.Sc. (Tech.)
President and CEO, Country Manager Finland, and Country Manager Sweden (acting)
CEO of Innofactor Plc since December 27, 2010. Previously the founder-CEO of Innofactor Ltd since January 1, 2000. Member of the Innofactor Plc Board of Directors since 2010 (member of the Board of Directors of Innofactor Ltd since 2000). Member of the Board of Directors of Sovelto Plc since 2014. Member of Microsoft Corporation's Partner Advisory Council since 2014. Several positions of trust in Technology Industries and Confederation of Finnish Industries (EK) since 2013. President of IAMCP Finland since 2013.
Jørn Ellefsen, b. 1971, MBA
Managing Director, Country Manager, Innofactor Norway
Managing Director, Country Manager in Norway as of March 1, 2019. Jørn has a proven track record of success spanning over 25 years in the ICT industry in Norway in key management roles at Oracle and Computas, and most recently as Sales Director and VP Insight at Acando Norway. At the company, he also managed the Microsoft Alliance, built up a new business area on Microsoft Analytics, and successfully grew the Dynamics CRM business during the integration of the two units. Jørn is a business founder of StairPoint – a provider of secure and automated collaboration solutions. He also co-founded and led the growth of Comperio, which under him became a leading solution partner across five countries and awarded Microsoft Partner of the Year within Enterprise Search.
Janne Heikkinen, b. 1974, M.Sc. (Tech.)
Executive Vice President, Products and Services
In Innofactor since 2015. In charge of Products and Services Unit. Before joining Innofactor, Janne has worked for Microsoft in the global organization where his last position was Head of Product Management, Surface, based in San Diego. He has also worked at Nokia for 14 years and has held several roles in the product management and marketing for devices, SW and services. Moreover, he has worked at Nokia in technology strategies, business analysis and development roles.
Marko Lehtonen, b. 1972, M.Sc. (Econ.)
Chief Financial Officer (CFO)
CFO for Innofactor Group since 2018. Previously Northern Europe Region CFO of Inchcape Plc, and before that in various financial leadership positions at Siemens and Kesko. Member of the Board in Arc Technology Ltd.
Vesa Syrjäkari, b. 1960, M. Sc.
Executive Vice President, Business Development and Operational Excellence,
Country Manager, Denmark (acting)
Executive Vice President, Business Development and Operational Excellence since 2017. Vesa focuses on improving profitability and ensures that the already made plans for improving effectiveness in business units are implemented successfully. He has been one of the highest-ranking Finns ever in the Microsoft's international organization and his last job there was to be responsible globally for the effectiveness of Microsoft's sales to its major customers.
Shares and options owned by members of the Executive Board
As of July 3, 2016 Innofactor has published all transactions by managers by stock exchange release in line with the MAR. The releases can be found in Transactions of Managers section.
Arrangements for managing subsidiaries
The Board members for Innofactor Group's Finnish companies are the Group CEO Sami Ensio (Chairman) and Executive Vice President, Business Development and Operational Excellence Vesa Syrjäkari, with General Counsel Anna-Maria Palmroos as a deputy member.
The Board members for Innofactor Group's Swedish, Danish and Norwegian holding companies are the Group CEO Sami Ensio (Chairman) and Executive Vice President, Business Development and Operational Excellence Vesa Syrjäkari, with General Counsel Anna-Maria Palmroos as a deputy member in the Swedish and Danish companies.
The Board members for Innofactor Group's operative group companies are the Group CEO Sami Ensio (Chairman), Executive Vice President, Business Development and Operational Excellence Vesa Syrjäkari and the local Managing Directors of the country companies.
The Corporate Governance for Finnish listed companies requires that Innofactor Plc publishes information concerning its reward system on the company's website and publishes an annual report on salaries paid and other forms of compensation awarded. Remuneration statements for the financial periods can be found in the end of this page.
Compensation – Board of Directors
The Annual General Meeting decides the fees and compensation for costs to be paid to the members of the Board of Directors. Fees to the Board members are paid in the form of money and company's shares, based on the decision of the Annual General Meeting.
The General Meeting on April 4, 2018 decided that the Chairman of the Board of Directors shall be paid a fee totaling EUR 48,000 per year and the other members of the Board of Directors shall be paid a fee totaling EUR 24,000 per year. No separate fees for meetings shall be paid. Half of the fee (50%) shall be paid monthly in cash and the other half (50%) as shares of Innofactor Plc. The shares shall be handed over to the members of the Board of Directors and, if necessary, shall be acquired from public trading directly on behalf of the members within two weeks of publishing the interim report of Innofactor Plc for January 1–March 31, 2018. In case shares will not be acquired due to a reason arising from the company or the Board member, the entire fee will be paid in cash. Innofactor Plc requires the members of the Board of Directors to keep the shares, which they have received as part of the fees, for the duration of their membership in the Board of Directors.
No compensation is paid to members of the Boards of Directors of other companies in the Innofactor group.
The members of the Board of Directors receive no other financial benefits.
CEO Compensation and Terms of Employment
The CEO is paid a fixed monthly salary of EUR 21,500.
The CEO is entitled to a result-based bonus defined by the Board of Directors annually and, at the maximum, the bonus can equal the annual total of the fixed monthly salary. The bonus is based on the growth of the company's net sales, profitability, customer satisfaction, employee satisfaction, and earning per share (EPS) all of which affect significantly the long-term economic success of the company. The said indicators are part of Innofactor Plc's strategic Key Performance Indicators (KPI) and they are monitored by the Board of Directors on a monthly basis. Only business profit can be used for paying the bonus.
The CEO is entitled to a total of five weeks of vacation per year. The CEO is paid annually a holiday bonus, which is 50% of the amount corresponding to the salary for the vacation period.
The CEO is paid salary for a maximum of three months annually when he/she is prevented from working by an illness or an accident.
The CEO has the right to participate in the reward and incentive systems created by the company for the personnel in general or for the management in particular, such as share-based systems or option systems.
The CEO has the lunch benefit, health care in accordance with the company policy, mobile phone benefit, health insurance, life insurance, and pension insurance. Currently, the CEO has no other fringe benefits.
When the CEO is a member of the company's Board of Directors, he/she is entitled to the fee defined to be paid for the work in the Board, but no right to fees from any other governing bodies of the Group.
The CEO's retirement age and the basis for calculating the pension comply with the effective Employee Pensions Act.
The mutual term of notice of the CEO is 6 months. If the company terminates the CEO's contract, the CEO will be paid the salary for the period of notice and also, as a compensation for the termination, a one-time payment equaling to the CEO's 12 months' salary.
Basis for Compensation Paid to Member of the Executive Board and Other Management Personnel
The Executive Board members are paid a fixed total salary, which includes the monetary salary and a taxable mobile phone benefit.
The members of the Executive Board are entitled to a result-based bonus defined by the Board of Directors annually and, at the maximum, the bonus can equal the annual total of the fixed monthly salary. The bonus is based on the growth of the company's net sales, profitability, customer satisfaction, and employee satisfaction all of which affect significantly the long-term economic success of the company. The said indicators are part of Innofactor Plc's strategic Key Performance Indicators (KPI) and they are followed by the Board of Directors on a monthly basis. Only business profit can be used for paying the bonuses.
The Executive Board has no additional pension system, except for the Country Manager in Sweden, to whom is paid an additional pension on a monthly basis.
The Executive Board members have the lunch benefit, health care in accordance with the company policy, mobile phone benefit, health insurance, life insurance, and no other fringe benefits.
The Executive Board members' retirement age and the basis for calculating the pension comply with the effective Employee Pensions Act.
The mutual term of notice of the Executive Board members is 3-12 months, depending on the contract. If the company terminates the contract with an Executive Board member, no compensation for the termination will be paid.
The Board of Directors defines the principles for the salary and incentive systems for other management. The goals are set based on the company's result, sales goals and customer satisfaction.
Compensation – Auditor
The auditing fee is paid according to a reasonable invoice.
Description of Salaries and Compensation
Further details concerning salaries and compensation paid by Innofactor Plc can be found at:
Innofactor complies with the EU Market Abuse Regulation (MAR), rules and guidelines of the Financial Supervisory Authority, and the Helsinki Stock Exchange's insider guidelines for listed companies.
Innofactor maintains an insider list, as required by the MAR, of those company executives who are required to inform the company and the Financial Supervisory Authority of their transactions involving company's financial instruments.
The company's insider list includes the members of the Board of Directors, the Managing Director and the members of the Executive Board of Innofactor Plc. According to the MAR, those closely related to the above-mentioned persons are also included in the insider list.
Executives with a duty to disclose may not trade in the company's financial instruments during the 30-day closed window prior to the publication of the company's interim reports or financial statement releases, nor during insider projects.
Project-specific insider lists
The company maintains insider lists regarding all project-specific or event-specific insider information. The persons listed in the insider list may not trade in the company's securities for the duration of the project in question.
Extended closed window
According to the company's internal rules, persons participating in the company's financial reporting may not trade during the 30-day closed window prior to the publication of the company's interim reports or annual financial statement releases.
Trading in the company's shares
Company executives should time their trading in financial instruments issued by the company so that the trading does not undermine confidence in the securities markets. It is recommended that company executives engage only in long-term investments using securities released by the company.
Coordination and monitoring of insider matters
Coordination and monitoring of insider matters are the responsibility of Innofactor's General Counsel.
Innofactor Whistleblowing scheme
If an employee becomes aware of an issue or behaviour that is not in line with EU Market Abuse Regulation or company policy relating to insider trading, employee can report the matter to Innofactor Group General Counsel Anna-Maria Palmroos by email email@example.com.
All whistleblowing reports and discussions will be handled confidentially at all times. The whistleblower's identity will be kept confidential at all stages of the process and, in particular, will not be disclosed to the person specified in the report or his or her line manager, or any other third parties. In cases of alleged criminal offences, the whistleblower will be informed that his/her identity may need to be disclosed during judicial proceedings.
The rights of the individuals affected by reports under the whistleblowing scheme are subject to the relevant data protection laws.
Code of Conduct
Innofactor Plc together with all its affiliates ("Innofactor") commits to be a reliable employer and business partner and thus requires all members of the organization to adhere to the standards set by this Code of Conduct. In addition to the Code of Conduct, Innofactor follows applicable laws, certain international standards and its binding obligations. Innofactor also requires that all its suppliers, subcontractors and partners commit to similar level of compliance.
Innofactor has an appropriate management system in place to enable adherence to this Code of Conduct.
Innofactor reserves the right to change and update this Code of Conduct.
Conflict of interest
All employees, directors (jointly hereinafter "Employees") and Board Members must recognize possible sources of conflicts of interest and take appropriate actions to avoid such conflicts and situations that may be deemed as conflicting by third parties. Any potential conflict of interest shall be properly disclosed by the person subject to it as soon as it arises.
Anti-corruption and anti-trust
Innofactor condemns all forms of corruption, including bribery and unlawful restriction of fair competition. Transparency and fairness in business practices are key, especially when co-operating with government officials. Conformity with anti-trust laws is enforced.
Employees shall withhold from conducting any acts affecting competition that would be deemed to be unethical.
Abuse of insider information is forbidden. We take our utmost to follow the EU Market Abuse Regulation and national insider guidelines and emphasize in all occasions that insider information must be kept strictly confidential and may not be disclosed to any non-insider within or outside Innofactor, including family members.
Innofactor Whistleblowing scheme exists to ensure that violations are caught and made notifications may be dealt with confidentiality.
Confidentiality and data processing
Confidentiality and lawful processing of personal data must be respected. Confidential information shall be handled with care and vigilance, especially information regarding Innofactor's customers and business partners. Access to all confidential information must be limited.
All Employees are required to participate in information security trainings.
An accepting and welcoming work environment is essential for the well-being of our Employees. Innofactor offers each Employee equal opportunity to succeed and advance in their career regardless of gender, nationality, religion, race, age, disability, sexual orientation, political opinion, union membership, or social or ethnic origin. Employees are expected to act according to non-discrimination policies both within and outside the workplace.
Innofactor has a zero-tolerance policy regarding harassment and abuse. Employees are encouraged to report any disruptive behavior should they become aware of it.
Fair labor and wages
Innofactor acts in accordance to treaties composed by the International Labor Organization and does not utilize child labor nor forced labor. We respect our Employees' right of association.
All Employees shall be paid a fair wage in accordance to the law and applicable collective bargaining agreements.
Health and safety, training
The health and safety of our Employees is a priority. We provide our Employees with safe working conditions and sufficient training to conduct their work with minimal hazard. Employee health is supported through promoting healthy living habits and offering occupational health care. We value lifelong learning and education and encourage our Employees' active participation to various courses and training programs.
Innofactor abides by the principles of sustainable development. Our environmental policy ensures that important environmental factors are considered in our daily functions, projects and further development.
Innofactor does not condone diversions from the Code of Conduct. Employees who fail to abide by the Code of Conduct shall be held accountable. Avenues for reporting violations are upheld.
Risk Management and Control
Short term risks and uncertainty factors
Innofactor's operations and finances involve risks that may be significant for the company and its share value. These risks are assessed by Innofactor Plc's Board of Directors four times a year as part of the strategy and business planning process. The risks are published in their entirety in the financial statement and in the Annual Report of the Board of Directors. The interim reports only present the changes in short-term risks.
Risks related to operations
The risks related to the operation of the Innofactor Group are primarily business risks related to the group companies that carry on its business operations.
Skilled personnel and its availability: The development of Innofactor's operations and deliveries depends greatly on the Group having skilled personnel and being able to replace persons, who are leaving, with properly skilled persons. In Innofactor's field of business, there is a lack of and competition for certain personnel resources. If Innofactor fails at motivating its personnel, keeping the personnel's skills on a high level and keeping the personnel in its service, that could cause problems for the Group's business operations. The success of the Group depends heavily on the employed key personnel and their success in their work. Innofactor invests in continuous development of its personnel and in keeping the personnel satisfaction high.
Increase in personnel costs: The main part of Innofactor's costs consists of salaries and other personnel costs (in 2018, about 69% of the net sales, including depreciations). Currently, all of Innofactor's own employees work in the Nordic Countries, whereas some competitors rely heavily on workforce in countries with cheap labor. If the personnel costs continue rising in the Nordic Countries at the same rate as before, it will create a risk for Innofactor, if the prices paid for IT services will not rise correspondingly. Innofactor is monitoring the situation constantly and strives to affect the development of personnel costs via interest groups. It also aims at increasing the share of work done by subcontractors and abroad, when it makes sense from the point of view of business operations, for example, in large product development projects.
Profitability of projects: A large part of Innofactor's net sales comes from project business. Profitable implementation of Innofactor's delivery projects requires that project calculation and planning before submitting a tender are done successfully as regards the amount of work and the delivery schedule, and also that the deliveries can be made in a cost-effective manner. It is possible that Innofactor fails at correctly estimating the profitability of a project and, thus, the delivery could cause losses to the company. Correspondingly, it is possible that projects may have to be sold cheaper because of competition, which leads to lower profit margins. Innofactor pays special attention to the profitability of project business and has included it as a central part of the remuneration system.
Competition: Innofactor's main competitors are companies offering traditional information technology services and software in the Nordic Countries. Some competitors have larger financial resources, wider product selection, cheaper workforce and larger existing customer base than Innofactor does and also notable legal resources, and they can use these when competing with Innofactor for the same deliveries. Additionally, new, small startup companies increase competition in certain deliveries. The price competition in the field is expected to remain tough. If the competition becomes tougher, it may have an adverse effect on Innofactor's business, operating result and financial position. Innofactor continuously strives to improve its competitiveness. Regarding this, the company has published its long term financial goals.
Research and product development: In Innofactor's operation, research and product development play a central role. In 2018, approximately 4.5% of the net sales was used for it. Each research and product development project carries the risk that the end results are not as successful financially as planned and that the investment in the project does not pay itself back. In organizing its operations, Innofactor aims at minimizing the risks inherent in research and product development.
Changes in the technology and field of business: Fast development is characteristic for Innofactor's field of business. There can be quick changes in the customers' requirements and choices concerning software technology. Important changes under way include, for example, the transfer of software into cloud technologies, digitalization, artificial intelligence, blockchain and Internet of Things (IoT). If Innofactor cannot react to these changes, it may have an adverse effect on Innofactor's business, operating result and financial position. Innofactor strives to actively invest in new technologies and central areas of know-how.
Data protection: The enforcement of the new EU data protection regulation ("GDPR", regulation (EU) 2016/679) affects business operations of Innofactor and its customers. Neglecting the required actions or procedures may lead to losses in net sales or, in the worst case, penalty charges set by the supervising authority. Innofactor has invested in solutions related to GDPR and hired a data security manager, who the company calls the Data Protection Officer.
Data security: Innofactor operates as a system integrator through which the Innofactor system managers and developers have access to certain customer environments. Each access to a customer environment in itself includes a data security risk as concerns unlawful attempts at gaining information. Innofactor has implemented a data security management process based on standards, and its implementation is led by the company's Chief Information Security Officer.
Reaching the growth goals: Realizing the desired organic growth requires a growth rate that is clearly faster than the growth in the IT market in general. This has the risk that it cannot be realized in the future, although it has been done often in the past. It is possible that the IT market in Innofactor's market area will not grow or may even shrink. Ensuring growth has a central part in planning Innofactor's operations and setting its goals. Innofactor strives to lessen this operational risk by focusing on the growing Microsoft solution areas, which grow faster than the IT market in general, and by focusing on sales to keep the order book on a sufficient level as regards the business operations.
Globalization: In accordance with its strategy, Innofactor is seeking for more growth also in the global markets, especially in the Nordic Countries. Global operations typically always involve higher risks than operation at home. Innofactor strives to make sure that the investments in becoming a global player will not be so great that it would jeopardize the Group's ability to make profit and to grow. Additionally, the company strives to create a management model, common processes and information systems supporting these that will decrease the risks in global operations.
Uncertainties related to acquisitions: The growth has partly been based on acquisitions. With acquisitions, there are uncertainties about finding suitable companies to acquire and in making the acquisitions at the desired price level and schedule. If acquisitions cannot be made as planned, the growth goal may be jeopardized. In acquisitions, Innofactor focuses on high-level know-how and good processes.
Risks related to acquisitions: Each acquisition, after it has been made, carries some risks, which include the success of the integration, formation of the business value, and possible related needs for depreciations. Innofactor's strategy is primarily based on integrating the acquired companies in a fast schedule as part of the whole in the country in question. Innofactor invests in the integration process.
Success of the organizational changes: Rapid growth may occasionally require making significant changes in the organization. Starting a new organization typically includes challenges before the desired improvement in operation can be achieved. Typically, the operation can be at least restored to the previous level of efficiency within a few months from starting the new organization. If the improvement in operation for some parts does not take place within the planned schedule, there is a risk that it will not happen at all or that the delay may lead to extra costs or loss of net sales. The reasons for this include, for example, incorrect planning in placing units and personnel. Innofactor strives to pay attention to controlling organization changes and to prepare for them also financially.
General financial uncertainty and changes in the customers' financial situations affect customers' investment decisions and purchasing policies. It is possible that changes in the general financial situation will be reflected in Innofactor's customers' software purchases by delaying the decision-making or timing of purchases.
Financing risks: In its normal business operations, the Innofactor Group is susceptible to normal financing risks. In total at the end of the year, Innofactor had approximately EUR 15.4 million in interest bearing debts, which have been taken out to finance earlier acquisitions and working capital. Of the debts, approximately EUR 10 million is current liabilities consisting of loan installments of EUR 2.2 million in 2019 and a credit limit of approximately EUR 7.8 million. Innofactor has committed itself to the following covenants: equity ratio calculated every 6 months is at least of 40%, and interest bearing liabilities calculated every 6 months divided by the 12-month operating margin (EBITDA) is a maximum of 2.5, and certain other normal conditions for loans. The Innofactor Group's interest bearing liabilities divided by the 12-month operating margin (EBITDA) on December 31, 2018, exceeded the covenant limit of 2.5 agreed on with the financial institution. However, the financial institution issued a waiver on December 31, 2018, accepting this deviation. In addition to corrective actions related to business operations, Innofactor has renegotiated some loan conditions to enable more flexible financing. These together are believed to ensure Innofactor's financial standing also in the future.
The goal of managing the financing risks is to minimize the negative effects of the changes in the financial markets to the result of the Group. Risk management has been centralized to the CFO, who is responsible for the Group's financing and regularly reports to the company's Executive Board, CEO, and Board of Directors. It is possible that, in the future, the Group will not get the financing it needs and this will have a negative effect on the Group's business and its development, especially on making acquisitions.
Interest risk: An interest risk in mainly due to the Group's short term and long term loans and the derivatives used for protecting them. Loans with fluctuating rates pose an interest risk to the Group's cash flow. This risk is decreased, for example, by using interest rate swap agreements.
Exchange rate risk: The Innofactor Group operates globally and is susceptible to risks related to the currencies of the countries in which it operates. Changes in exchange rates, especially the rates of Swedish krona and Norwegian krone, affect the Group's net sales and profitability as Innofactor has significant operations based on Swedish krona and Norwegian krone. The exchange rate risk is mainly due to the assets and liabilities registered in the balance sheet and the net investments made in the subsidiaries abroad. Also the business contracts made by subsidiaries pose an exchange rate risk, although these contracts are mainly made in the currency the unit uses in its operation. The management of exchange rate risks in the Group aims at minimizing the uncertainty that changes in exchange rates cause in the result through cash flows and assessment of receivables and liabilities.
Risks related to the cash position: The Innofactor Group handles management of liquid assets with the help of centralized payments and cash management. The Group strives for continuous monitoring and assessment of the needed business financing in order to ensure that the Group has enough liquid assets in its use. Additionally, the Group has checking account limits with an overdraft facility in order to cover any seasonal variations in liquid assets. Excess cash balance is placed on savings accounts or funds with capital guarantee.
Risks related to receivables from projects: A large part of Innofactor's net sales comes from project business. A significant part of projects consists of long term projects in which scheduled payments and their terms are typically agreed on with the customer beforehand. When Innofactor performs work in customer projects, which is scheduled to be invoiced afterwards, project receivables are accrued. Especially in public administration projects, scheduled payments often take place nearer to the end of the project, which means increased project receivables and related risks. In customer negotiations, Innofactor pays special attention to scheduling the payments and the size of payments, and in customer projects, to project management and steering in accordance with the scheduled payments. Project receivables are monitored regularly.
Credit risk: Credit decisions related to sales receivables are monitored centrally by the Group's management. Large part of Innofactor's cash flow comes through established customer relationships as payments from the public sector and financially sound companies, which have not presented essential credit risks in the past, and the Group has not suffered any significant credit losses. Should credit risks realize, it would weaken the Group's financial standing and liquidity. Sales receivables are monitored regularly.
Risks related to deferred tax assets: Innofactor's balance sheet includes a significant amount of deferred tax assets that are based on previous financial periods. Should the company's profitability decrease significantly in the long run, it is possible that the Group would not be able to utilize in full the receivables currently activated in the balance sheet.
Auditors and Auditing
Innofactor Plc has one auditor and, should the auditor not be an accounting firm or an independent accountant as specified in the applicable law, one deputy auditor is elected. Auditors are elected by the Innofactor Plc General Meeting and their term ends at the close of the first Annual General Meeting following the date of their election. The auditor is responsible for revisionof the company's accounts and providing the General Meeting with an auditor's report. The auditor's report is delivered to the Board of Directors at least two weeks before the date of the General Meeting. Auditors' responsibilities are described in greater detail in the FinnishAuditing Act.
Innofactor Plc's auditors present the General Meeting with all information concerning the company provided that such presentation is not likely to cause the company substantial harm.Auditors are not permitted to disclose to outsiders or individual shareholders any information concerning Innofactor Plc that has been acquired during the auditing process if such disclosure could damage the company, with the exception of cases where applicable legislation requires such information to be disclosed.
Auditors have both the right to be present and the right to be heard at Board meetings in which issues related to auditing tasks are discussed.
The Annual General Meeting of Innofactor Plc elected on 4 April 2018 PriceWaterhouseCoopers Oy, authorised public accountants, as the company's auditor for the 1 January–31 December 2018 financial period. The principal auditor is Samuli Perälä.
The Innofactor Plc Annual General Meeting has decided to pay the auditing fee according to a reasonable invoice.
Innofactor Plc - Articles of Association
1 § The company's business name and domicile
The company's business name is Innofactor Oyj, Innofactor Plc in English, Innofactor Abp in Swedish, and its domicile is Espoo.
2 § Field of business
The company's field of business is consulting for management, marketing, finance and IT; import, export, manufacturing and trade of computer programs and equipment; and communications services. The company operates its business itself or through its subsidiaries. The company may own property and securities.
3 § Book-entry system
The company's shares belong to the book-entry system.
4 § Board of Directors and CEO
The company shall have a Board of Directors, which comprises at a minimum of four (4) and at a maximum of eight (8) members. The term of office of the members of the Board of Directors shall end at the close of the first Annual General Meeting following their election.
The company shall have a CEO who is elected by the Board of Directors.
5 § Company representation
Innofactor Plc can be represented by the Chairman of the Board of Directors or the company's CEO, or by two members of the Board of Directors acting together.
6 § Auditors
The company's accounts shall be audited by a certified accountant. If this auditor is not an authorised firm of public accountants, one deputy auditor shall be elected.
The auditors' term of office ends at the close of the first Annual General Meeting following their election.
7 § Financial period
The financial period of the company is a calendar year.
8 § Invitation to the General Meeting, participation in and location of the General Meeting
Invitations to General Meetings shall be published on the company's website in the Internet and shall conform to the requirements established for such invitations in Finland's Companies Act in all respects.
To participate in a General Meeting, shareholders must notify the company in the manner and (by the time stated in the invitation, such time being no earlier than ten (10) days prior to the date of the General Meeting General Meetings may be held at the company's domicile, in Helsinki or in Vantaa.
9 § Annual General Meeting
An Annual General Meeting shall be held each year no later than six (6) months after the end of the financial period on a day specified by the Board of Directors. At the Annual General Meeting, the following documents shall be presented:
1. The company's annual accounts, including the consolidated annual accounts, and the company's annual report, and
2. The auditor's report.
the following decisions shall be made:
3. Adoption of the annual accounts,
4. How the profit declared in the adopted balance sheet will be used,
5. The granting of discharge from liability to members of the Board of Directors and the CEO,
6. Remuneration of members of the Board of Directors and the auditors, and
7. The number of members and deputy members of the Board of Directors.
and the following elections will be made:
8. Members and deputy members of the Board of Directors, and
9. The Auditor and, if necessary, the Deputy Auditor.
The Articles of Association were updated in the Trade Register on April 23, 2013.