Good corporate governance is essential for the implementation of Billerud’s long-term business plans and everyday activities and is reflected in the company’s organisation and decision-making processes. It is important to provide players on financial markets and the company’s owners with clear information about how decisions are made on rational grounds and in line with the owners’ long-term expectations for good management of the company.
Introduction of the code
This report about corporate governance is organised in accordance with rules contained in the Swedish code of corporate governance. This code was introduced in stages by Billerud during the spring of 2005. The company also follows the rules contained in the listing requirements of the Stockholm Stock Exchange, which from 1 July 2005 require that companies must comply fully with the Swedish code of corporate governance. This report has not been checked by the company’s auditors.
The gradual implementation of the code during the spring of 2005 meant that the company’s website had not been updated in line with the code’s rules when notification of the 2005 AGM was distributed.
Corporate Governance Policy for Billerud
Deviations
Concerning the assurances made by the CEO and Board (point 3.6.2 of the code), the company considers that when the Board and CEO sign the annual report it indicates that the annual report reflects true conditions and that a special assurance to this effect does not contribute anything.
The report concerning internal controls for financial reporting (point 5.2.1 of the code) has been integrated with the corporate governance report because the Board consider that it belongs there. In accordance with the transition rules announced by the Swedish Corporate Governance Board on 15 December 2005, the report has been restricted to a description of how internal controls are organised.
Shares and ownership structure
At the end of 2005 the total number of shareholders in Billerud AB, according to the register kept by VPC (the Swedish Securities Register Centre), was 160,276. The portion of foreign ownership was 34% (excluding shares bought back and owned by the company). The other owners are private Swedish individual (around 47%) and Swedish legal entities (around 19%).
The ownership structure of the company altered in 2005 as Frapag Vermögensverwaltung GmbH became the largest owner of Billerud through a series of share acquisitions. Frapag is controlled by an Austrian family foundation that has led paper industry companies for over 100 years. Frapag has declared that it is a long-term owner and wishes to support the development of Billerud. At the end of 2005 Frapag owned 15.7% of Billerud’s share capital.
Further details about the company’s shares, shareholders, etc. are presented on page 88 in the annual report.
Read more about the Shares
Read more about the Shareholder structure
Annual General Meetings, etc.
Nomination and election process
At the 2002 AGM the Chairman of the Board announced that a nominations committee would be introduced. The committee was formed by the Chairman contacting larger shareholders during the autumn before the AGM to establish three shareholders willing to be members of the nominations committee. A committee set up according to this procedure worked ahead of the 2003, 2004 and 2005 AGMs and presented candidates for election to the Board and the position of auditor. They also proposed fees for Board members and auditors. Ahead of the 2005 AGM the name of the nominations committee was changed to elections committee.
The 2005 AGM decided to set up an elections committee ahead of the 2006 AGM. The procedures of the new committee would be similar to those of the former nominations committee. The elections committee would be appointed by the Chairman, who would contact the larger shareholders during the autumn of 2005. The elections committee would then make proposals regarding a chairman for the AGM, Board members, Chairman of the Board and fees for Board members and auditors.
2005 Annual General Meeting
The elections committee for the 2005 AGM comprised Sten L Kottmeier, AMF Pension, chairman, Torsten Johansson, Handelsbanken Kapitalförvaltning, and Björn Lind, SEB fonder and SEB Trygg Liv. Ingvar Petersson, Chairman of Billerud AB, was secretary and convenor, but not a member of the committee.
The elections committee has considered an internal survey of Board members and their work over the past year. They have also considered an assessment made by the audit committee of candidates for the position of company auditors for the period 2005-2008.
No special remuneration has been paid to the chairman or any other members of the elections committee for their work.
The Annual General Meeting of Billerud AB was held on 3 May 2005. Shareholders representing 8% of the share capital were present at the meeting. The meeting agreed upon a dividend of SEK 6.50 per share for the 2004 financial year. The meeting agreed to re-elect Ingvar Petersson, Björn Björnsson, Gunilla Jönson, Per Lundberg, Mats Pousette and Meg Tivéus as ordinary Board members and to elect Yngve Stade as a new Board member. Ingvar Petersson was re-elected as Chairman of the Board.
The meeting agreed to re-elect authorised public accountants Caj Nackstad and Owe Wallinder as auditors, and to re-elect Thomas Nilsson and Hans Åkervall as deputy auditors. Caj Nackstad and Owe Wallinder were first elected as auditors at the 2001 AGM. Thomas Nilsson and Hans Åkervall were first elected as deputy auditors by the 2003 AGM. All the auditors work for the public accountancy firm of KPMG.
The meeting decided finally to set up an elections committee ahead of the 2006 AGM and to authorise the Board to take a decision concerning the buy-back of the company’s own shares, and to take a decision concerning the transfer of the company’s own shares in connection with a company acquisition.
2005 Extraordinary General Meeting
In a letter to the Board, shareholder Frapag Vermögensverwaltung GmbH announced that it owned more than 10% of all shares and votes in Billerud AB and, as a result and in accordance with the Swedish companies act, proposed that the Board call an Extraordinary General Meeting in order to elect an additional Board member. Frapag proposed that the meeting should elect Michael M F Kaufmann as a new member of the Board for the period up to the next AGM.
Because an elections committee had not been appointed when the notification of the EGM was sent out, the Chairman of the Board, in accordance with the principles for appointing the elections committee established at the 2005 AGM, contacted some of the larger shareholders concerning the proposal made by Frapag. Shareholders representing around 22% (including Frapag’s holding) of all shares and votes indicated that they supported the proposal.
Michael M F Kaufmann is the CEO of Frapag Industrieholding AG and a member of the family that owns the foundation that controls Billerud AB’s largest shareholder, Frapag Vermögensverwaltung GmbH. At the Extraordinary General Meeting held on 7 September 2005, at which shareholders representing 23% of the share capital were present, the number of Board members elected by the AGM was raised from seven to eight and Michael M F Kaufmann was elected as a new Board member.
Ahead of the 2006 AGM
The 2005 AGM decided to set up a nomination committee assigned to make proposals regarding a chairman for the AGM, Board members, Chairman of the Board and fees for Board members (including committee work) and auditors.
The nominations committee will also make proposals for appointing the nominations committee for the 2007 AGM.
During the autumn of 2005, Ingvar Peterson, Chairman of the Billerud Board, contacted the major shareholders concerning the appointment of a nominations committee. On 28 October 2005 a nominations committee for the 2006 AGM was appointed comprising Cecilia Lager, SEB fonder and SEB Trygg Liv, chairwoman, Michael M F Kaufmann, Frapag Vermögensverwaltung, and Torsten Johansson, Handelsbanken Kapitalförvaltning.
Ingvar Petersson, Chairman of Billerud AB, is secretary and convenor, but not a member of the committee. No special remuneration will be paid to the chairman or any other members of the nominations committee for their work. Together, the three owner representatives represent around 20% of the votes in Billerud.
The Nominations Committee has held three meetings for which minutes were kept, and communication has also taken place via telephone and email. Shareholders can communicate with the Nominations Committee via the company’s website, where there is a special section, “Nominations Committee” under the heading “Corporate Governance”. The committee has however not yet received any proposals or opinions from other shareholders.
The committee has considered an internal survey of the work of the Board. Board members have been interviewed and given their views on the work of the Board during 2005.
The nominations committee has also made an assessment of which skills should be represented on the Board of a company such as Billerud, and made comparisons with the existing Board.
The 2006 AGM will take place on 3 May 2006 at Aula Magna, Stockholm University.
The Board of Directors
Composition
In accordance with the articles of association, the Board of Directors of Billerud AB comprises at least six members and at most ten members, with at most six deputies. In accordance with the law on Board representation for private employees, the trade unions have the right to appoint two members and two deputies. This limits the number of Board members appointed by the AGM to at most eight ordinary members. Board members are appointed for one year at a time. The company’s CEO is not a member of the Board.
Of Board members elected by the AGM, all except one member are independent of the company, senior executives and the larger shareholders. Michael M F Kaufmann is the CEO of of the parent company of Frapag Vermögensverwaltung GmbH, Billerud AB’s largest shareholder, and is thus, according to the definitions of the Swedish code of corporate governance and the listing agreement of the Stockholm Stock Exchange, dependent on the owners of the company.
The Board also includes four members, of whom two are deputies, who are appointed by the trade unions in accordance with the law on Board representation for private employees. These four Board members are employees of the company.
During 2005 the secretary of the Board has been Billerud’s CFO, Nils Lindholm.
All Board members except Michael M F Kaufmann (who was elected in September 2005) have completed training courses for Board members of listed companies arranged by the Stockholm Stock Exchange. A course has been planned for Michael M F Kaufmann in 2006.
Read more about the Billerud Board of Directors
How the work of the Board is organised
The work of the Board follows written instructions and a meetings schedule, which aims to ensure that the Board receives comprehensive information and that all aspects of the company’s activities are dealt with. The written instructions prescribe the information to be supplied to the Board.
The Board has also established a number of general policies for the company’s activities. These policies are revised as necessary. They include policies on corporate governance, finance and communications and a single policy covering quality, the environment and the community. The latter policy covers Billerud’s attitudes towards ethics and the environment.
The Board has two committees, an audit committee established in 2004 and a compensations committee established in 2001. The roles, composition and activities of these committees in 2005 are presented below.
The Board has also established instructions for the CEO which give the CEO authorisation to represent Billerud and sign on the company’s behalf concerning current activities, with exceptions for transactions of an extraordinary nature or of significant importance. These instructions are updated annually and are available on the company’s website.
Rules of Procedures for the Billerud Board of Directors
The work of the Board in 2005
In 2005 the Board met 16 times, including once at one of the company’s mills. Four of the meetings were held via telephone conference and one by written correspondence (per capsulam). Attendance at Board meetings is listed in the table below.
In addition to subjects included in the written instructions, the main issues addressed during 2005 were the change of CEO, a decision to implement an organisation review and cost savings, and a review of strategy.
During the first years following the formation of Billerud in 2001, the aim was to create a single company out of three mills with different backgrounds. In its current phase Billerud must focus on increased market segmentation. Against this background the Board decided during 2005 to change CEO. Peter Davidson took over as acting CEO and on 1 August 2005 Per Lindberg took over as the new President and CEO.
During the spring of 2005 the Board on several occasions addressed the issue of an organisation review in order to reduce staffing costs. In June it was announced that the Board had agreed a major programme of changes entailing a reduction of 450 full-time jobs. This programme will be completed primarily in 2006. At the end of the year the Board further decided to change the existing market and development organisation to an organisation based on business areas.
In addition to the above-mentioned issues a situation report for the Billerud Group was presented at each Board meeting and updated financial reports were addressed. The pre-determined items for each meeting according to the written instructions were also dealt with. These items include the audit plan and audit reports, a review of the corporate governance policy and finance policy, competition issues, the budget for 2006 and Billerud’s strategy. The chairmen of the Board’s audit and compensations committees reported regularly to the Board on their work.
According to rules established by the Board, decisions on all investment projects within Billerud amounting to more than MSEK 25 shall be taken by the Board. No decisions on new investments were decided by the Board in 2005. Instead the focus during the year was on concluding previously planned projects within the areas of external treatment and energy savings. A follow-up was performed for completed investments and acquisitions.
Audit committee
The Board is ultimately responsible for ensuring that satisfactory controls are in place for risk management, accounting, financial reporting and similar issues. To support the Board in their supervising role the Board decided in 2004 to set up a special audit committee. This committee reports to the Board.
The audit committee’s role is to contribute to a good standard of financial reporting and ensure that efficient and independent auditing of the company is performed by qualified, external auditors. The committee shall furthermore monitor the accounting principles, risk management and internal controls of the company. Finally, the committee shall organise the election of the auditors and their fees.
The audit committee comprises the following four members: Per Lundberg (chairman), Gösta Brink, Ingvar Petersson and Meg Tivéus. All the members except one are independent of the company. One of the members, Gösta Brink, is a Billerud employee and thus dependent on the company. During 2005 the secretary of the committee was Erika Åslund of the Cederquist legal firm.
Work instructions for the Audit committee
Work during 2005
The audit committee held seven meetings in 2005, two of which were via telephone. All members attended all meetings.
During the year the audit committee made an assessment of suitable candidates for the role of company auditors for the period 2005-2008.
Following a review by the Board, this assessment was presented to the elections committee ahead of the 2005 AGM, at which the company’s auditors were to be elected.
Other auditing issues addressed during the year included the introduction of IFRS, the audit plans for 2005, a risk analysis, internal controls, the introduction of the Swedish code of corporate governance and policy issues.
The committee also met ahead of the publication of each interim report and the financial statement and addressed the accounting and reporting issues relating to publication.
The chairman of the audit committee reports regularly to the Board concerning the audit committee meetings. Rules of procedure.
The Board’s work on internal controls concerning financial reporting is summarised in the annual report on page 85. The report also includes the Board’s assessment concerning the need for a special verification function.
Auditors
At the 2005 AGM authorised public accountants Caj Nackstad and Owe Wallinder were re-elected as auditors and Thomas Nilsson and Hans Åkervall were re-elected as deputy auditors. All four auditors are from the accountancy firm, KPMG. Caj Nackstad and Owe Wallinder have been Billerud’s auditors since 2001. Thomas Nilsson and Hans Åkervall have been deputy auditors since 2003. The auditors’ work for other companies is listed on page 81.
In 2005 Billerud’s auditors received around MSEK 6 in fees and payments for costs, of which MSEK 3 was specifically for the audit. Other assignments were primarily consultation on accounting and tax issues, and work connected with the adoption of IFRS. According to established guidelines, other accountancy firms should be commissioned for assignments not relating to the audit. Other accountancy firms have been commissioned in connection with discussions on acquisitions.
In order to ensure that the work of the Board and the audit committee is performed in a structured way, and to meet the Board’s information requirements, Billerud’s auditors report directly on at least three occasions per year to the Board and to the audit committee. In 2005 the auditors made reports on two occasions to the audit committee and on one occasion to the Board. These reports dealt with the audit plans, the results of the audit based on the September accounts, and the results of the audit of the annual accounts.
Read more about the Auditors of Billerud
Compensations committee
The Board has established a compensations committee charged with the task of proposing general policy for salaries, remuneration and other general employment terms within Billerud, and to approve the CEO’s proposal for salaries and remuneration for senior executives within the framework of the policy. The committee also makes proposals to the Board and takes decisions regarding the salary and remuneration to the CEO. The committee comprises Ingvar Petersson, (chairman), Per Lundberg and Björn Björnsson. The head of human resources, Anna-Lena Nyberg, is the secretary, but she is not a member of the committee. The committee met six times in 2005. All members attended all meetings.
Work instructions for the Compensations committee
Work in 2005
In 2005 discussions were held concerning profit-sharing principles, employment terms for the new CEO, CFO and purchasing director, bonus outcomes for 2004, a salary review for 2005 for senior executives and the bonus criteria for senior executives in 2006.
The principles for remuneration to the CEO and other senior executives, and the actual figures are contained in note 24 on page 67 in the annual report.
Rules of procedure for the compensations committee
CEO and senior executives
The CEO is responsible for the day-to-day management of the company in accordance with instructions established by the Board. The CEO also acts as the chairman of the senior management team.
Work instructions for the CEO
After 1 November 2005 the senior management team comprises the managers of the three Swedish mills, the CFO and the director for human resources and information.
Read more about the Senior Management Team
The senior management team normally meets once a week, with face-to-face meetings and telephone conferences in alternating weeks. During 2005 the senior management team discussed an organisation review and job lay-offs, energy issues and the ongoing energy project, market and pricing issues, environmental and licensing issues, investments and staff issues.
Executives also report on projects in their areas of responsibility. A situation report is also presented at each meeting for each unit within the Group, along with current financial reports.
At the end of 2005 the Board decided to introduce in stages an organisation based on business areas. The new organisation was presented internally at the start of February 2006 and will come into force from March 2006. The business will be divided into three business areas: Packaging & Speciality Paper, Packaging Boards and Market Pulp; with each business area being responsible for sales, marketing and development within their product area.
The business areas will also have responsibility for financial results, based on pre-calculated production costs. The Billerud mills will be responsible for production and production efficiency, upon which their responsibility for financial results will be based.
Illustration of Billerud’s organisation from March 2006
The options were emitted by Stora Enso and are described in note 24 on page 68 in the annual report.
The senior management team has organised a number of separate Groupwide networks, for which a member of the team is responsible as chairman and convenor. Representatives of all three Swedish mills are represented on all committees. During 2005 the following networks, or committees, were in existence.
Cross Mill committee: Anders Snell
Finance committee: Nils Lindholm
R&D committee: Stina Blombäck
Purchasing committee: Peter Davidson
IT committee: Nils Lindholm
Human resources committee: Anna-Lena Nyberg
Solna, 9 March 2006
Board of Directors
Report on internal controls
The report on internal controls is produced in accordance with the Swedish code of corporate governance and the transition rules announced by the Swedish Corporate Governance Board on 15 December 2005. This means that the report is limited to a description of how internal controls for financial reporting are organised. For practical reasons the report has been integrated with the report on corporate governance for 2005.
Control environment
Efficient internal controls are the basis for the proper functioning of the Board. The rules of procedure for the Board and Board committees, and the instructions for the CEO aim to establish clear division of roles and responsibility in order to ensure efficient management of the company’s risks. Furthermore the Board has established a series of guidelines for internal controls, such as accounting and reporting instructions, the finance policy, financial goals and decisions about a suitable organisation, including the senior management team. The senior management team reports regularly to the Board based on fixed procedures. In addition there are reports from the audit committee. The senior management team is responsible for ensuring that the necessary internal controls are performed for the management of significant risks in day-to-day activities. These include guidelines for how the individual employee shall understand his or her role in maintaining good internal controls.
Risk assessment and controls
The company uses a model for assessing the risk of errors in financial reporting. The company continually monitors items where there is special risk for error. This work was performed in 2005 and described in note 23 of this annual report. Special attention was paid to designing controls for preventing and discovering errors in these areas.
Information and communication
Key guidelines, manuals, etc. that are essential for financial reporting are kept up to date and communicated continually to the staff involved. Both formal and informal information channels to the senior management team and Board exist to ensure that important information is communicated by staff. Guidelines for external communication ensure that the company meets the strict requirements for accurate information placed by the financial markets.
Follow-up
The Board assesses the information that the senior management team and audit committee submits. The audit committee’s follow-up of the efficiency of the work of the senior management team is especially important in this area. The work includes ensuring that measures are implemented concerning errors and proposals identified in internal and external audits.
Internal audit
The Board has assessed the need for a special verification function (internal audit). Because the organisation for internal controls performed efficiently the Board has decided that the follow-up work as described above is sufficient and that a special internal verification function is not required.
Solna 9 March 2006
Board of Directors