Statutory Annual Corporate Governance Statement; see section 107b of the Danish Financial Statements Act

The report outlines the Company’s management structure, addresses the corporate governance recommendations that are not complied with and describes key elements of the Group’s internal control and risk management systems in relation to the financial reporting process.

Management structure

TK Development A/S is a listed Danish company with a two-tiered management system consisting of a Board of Directors and an Executive Board.

Management plans its work on the basis of the Danish Companies Act, the Financial Statements Act, the Securities Trading Act, Nasdaq Copenhagen’s rules and recommendations for issuers, the Company’s articles of association, etc. The distribution of duties and responsibilities between the Board of Directors and the Executive Board is regulated by the rules of procedure.

The chairman and the deputy chairman make up the Company’s chairmanship, and together with the Company’s Executive Board they plan the meetings of the Board of Directors. The special tasks, duties and responsibilities of the chairman and the deputy chairman are also set out in the rules of procedure.

The board committees comprise a formal audit committee, a nomination committee and a remuneration committee. The composition and terms of reference of each committee are disclosed on TK Development’s website, www.tk-development.com.

None of the committees have independent decision-making powers, and their duties are merely to prepare proposals to be considered and decided on by the Board of Directors. The Board of Directors is thus fully responsible for any decisions made on the committees’ recommendations.

Corporate governance

As a listed company, TK Development A/S is subject to the code on corporate governance. TK Development complies with the current recommendations. The recommendations are publicly available on the website of the Committee on Corporate Governance, www.corporategovernance.dk. Those of the Committee’s recommendations that are not complied with are listed below:

Corporate social responsibility

In light of the Company’s size and activities and the markets in which the Group operates, the Board of Directors has opted not to adopt policies on corporate social responsibility. The Board of Directors regularly reviews the need to adopt policies for this area.

Retirement age

Attaching greater importance to qualifications than to age, TK Development has not fixed an age of retirement for the members of the Board of Directors.

Remuneration policy

The Board of Directors has decided for the time being not to set limits for the portion of the total pay package that may be accounted for by variable pay components as bonus will only be paid if the return on equity is at least 8%.

The Board of Directors believes that the interests of the Executive Board and the shareholders are continually aligned due to the fact that bonus is paid only if the return on equity for a financial year is at least 8%. The Board has therefore not found it necessary to lay down criteria ensuring that qualifying periods for variable pay components extend beyond one financial year.

A detailed review of the Board of Directors’ position on each individual recommendation may be found on TK Development's website, www.tk-development.com, under Investor Relations/Governance/Corporate Governance.

Key elements of the Group’s internal control and risk management systems in relation to the financial reporting process

The overall responsibility for the Group’s risk management and internal controls in relation to financial reporting, including compliance with applicable legislation and other financial reporting regulations, rests with the Board of Directors and the Executive Board.

Management considers best practice risk management and internal controls essential and regularly emphasises this to the Group’s employees.

The Group’s risk management and internal controls in relation to the financial reporting process are designed with a view to effectively managing and thus minimising/eliminating the risk of errors and omissions in financial reporting.

The Group’s risk management and internal control systems in relation to the financial reporting process can provide reasonable, but not absolute, assurance that misappropriation of assets, losses and/or significant errors and omissions in the financial reporting are avoided.

The audit committee, and ultimately the Board of Directors, regularly assesses significant risks and internal controls in relation to the Group’s operations and their potential impact on its financial reporting process.

Control environment

Once a year, the Board of Directors reviews the Group’s organisational structure and the staffing in key areas, including in areas related to the financial reporting process. In addition, the Board assesses the risk of fraud and the appropriateness of the Group’s accounting principles, accounting policies and significant accounting estimates.

The Board of Directors has defined a number of general procedures in all key areas in relation to the financial reporting process, emphasising a clear organisational structure, clear reporting lines, approval procedures and segregation of duties.

The Group’s finance function is responsible for planning and managing the financial reporting process. The Group CFO and the associated staff members monitor compliance with agreed guidelines, continually reviewing the Group’s internal financial reporting from both domestic and foreign sources. This includes performing random checks of accounting records.

As part of its review of the internal control environment, the Board of Directors annually considers the appropriateness of internal control and risk management systems and the need to set up an internal audit function. Based on the Company’s size, complexity and accounting department organisation, the Board of Directors currently believes an internal audit function is not required.

Risk assessment

At least once a year, the Board of Directors, including the audit committee, and the Executive Board perform a general review of financial reporting risks.

Based on this review, the Board of Directors adopts a number of general procedures, including initiatives aimed at reducing/eliminating risk.

As part of the risk assessment, the Board of Directors and the Executive Board annually assess the risk of fraud and the measures to be taken to reduce such risks. In this connection, the Board of Directors also assesses the risk of the Executive Board bypassing controls and exercising undue influence on the financial reporting process.

Decisions regarding initiatives to reduce/eliminate risks are made based on an assessment of materiality.

The significant financial reporting risks are described in the management commentary and in the notes to the financial statements, to which reference is made.

Control activities

The risk assessment forms the basis of the Group’s control activities. The objective of such control activities is to ensure that the guidelines laid down by Management are complied with and to prevent, detect and correct any errors and omissions.

The controls are both manual and IT-based, and control procedures essentially comprise rules on powers, approval procedures, reconciliations, segregation of duties, follow-up on financial results, analytical procedures, verification of the existence of assets and other verification procedures.  

Standard formal procedures have been set up for preparing interim and annual reports. Checklists are used to ensure that each company submits correct and adequate information and to ensure compliance with relevant legislation, primarily IFRSs and additional disclosure requirements for listed companies.

Information for the purpose of compliance with any note or other disclosure requirements is obtained on an ongoing basis.

Information and communication

The Board of Directors has adopted an information and communication policy setting out general financial reporting requirements and external financial reporting requirements in accordance with applicable legislation.

The information and communication policy sets out to ensure, among other things, that applicable disclosure requirements are complied with and that disclosures are full, complete and accurate.

It is important to the Board of Directors that there is open communication within the Company within the scope of the rules applicable to listed companies, and that all employees are aware of their specific responsibilities in respect of the Company’s internal controls.

Monitoring

Risk management and internal control systems are monitored on an ongoing basis to ensure that they function effectively. Ongoing monitoring is an integral part of the day-to-day work at TK Development and forms part of the activities performed by both Management and employees in connection with their respective work routines.

Any identified weaknesses, control failures, non-compliance with framework conditions and/or transgression of powers are reported upwards in the organisation. Inadequacies in internal control systems are reported to the immediate superior, and serious errors are reported to the Executive Board and/or the Board of Directors.

The Executive Board reports to the Board of Directors on compliance with guidelines on a regular basis.

By way of their long-form audit report, the auditors appointed by the shareholders in general meeting report to the Board of Directors on any significant weaknesses in the Group’s internal control systems in relation to the financial reporting process. Less significant matters are reported to the Executive Board.

The Board of Directors monitors on an ongoing basis that the Executive Board implements agreed measures aimed at addressing identified financial reporting risks, performs necessary monitoring procedures and responds effectively to any weaknesses and/or omissions.