REMUNERATION REPORT 2021

for

Arendals Fossekompani ASA

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REMUNERATION OF DIRECTORS OF ARENDALS FOSSEKOMPANI ASA 2021

Approved by the board of directors on 30.03.2022. Advisory vote by the general meeting on 05.05.2022.

In accordance with the Norwegian Public Limited Liability Companies Act (the "Act") section 16-6 b, the board of directors of Arendals Fossekompani ASA ("AFK") has prepared a report on the salary and other remuneration of the CEO and senior executives of AFK awarded or due in 2021.

This report regards remuneration of the following executive management of 2021:

  • Chief Executive Officer (CEO) - position currently held Ørjan Svanevik
  • Chief Financial Officer (CFO) - position currently held by Lars Peder Fensli
  • Executive Vice President - position currently held by Morten Henriksen
  • Executive Vice President - position currently held by Torkil Mogstad
  • Chief Sustainability Officer (CSO)- position currently held by Ingunn Ettestøl

(Hereinafter collectively referred to as the "Executive Management" or separately as each "Executive".)

1. Introduction, scope, and purpose

This remuneration report 2021 provides an overview of remuneration of the Executive Management of AFK in 2021 in relation to the AFK Remuneration Policy adopted by the general meeting on 6 May 2021. This report has been prepared in accordance with the Norwegian Public Limited Liability Companies Act section 16-6 b and the draft Guidelines on the standardised presentation of the remuneration report under Directive 2007/36/EC, as amended by Directive (EU) 2017/828 from the EU Commission of 1 March 2019 (the "EU Draft Guidelines").

The AFK Remuneration Policy is designed to align with AFK's overall business strategy, long-term interests, and financial sustainability, taking into consideration the know-how, capital and engineering skills related to the production of hydropower that have laid the foundation for AFK to successfully own energy and technology related companies that help build a greener tomorrow. AFK shall offer remuneration that recognises the market value of an executive's role, skills, responsibilities, performance, and experience in order to attract and retain high-quality leaders to further develop our business in several dynamic portfolio companies internationally. The remuneration scheme for AFK's Executive Management shall be competitive and flexible, but neither appear complicated nor be wage leading.

The purpose of the Remuneration Policy is to set out remuneration components for the Executive Management structured to provide strong alignment between the interests of executives and shareholders, including a focus on delivering AFK's key strategic objectives, and to support the business strategy and long-term interests. The total remuneration of the Executive Management is therefore constructed as a combination of fixed salary and variable compensation. The fixed salary shall be competitive and provide predictability and ensure that AFK can retain excellent leaders. The variable compensation shall be motivating for our leaders to aspire to achieve exceptional results.

Further information on remuneration can be found in the Annual Report 2021. Information about the work of the compensation committee can be found in the Corporate Governance 2021 report available on AFK's webpage

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www.arendalsfosskompani.no. The remuneration of Executives in 2021 was in accordance with the AFK approved Remuneration Policy.

2. Overview of financial year 2021

Arendals Fossekompani (AFK) is an industrial investment company holding seven core investments and a portfolio of financial investments. These operations employ 2,100 people in 26 countries. AFK has proud traditions in power production and owns and operates two hydropower plants. In addition, AFK operates globally in many forward-looking industries including 3D printing, algo trading, satellite services, battery and solar technology, software, and digitalisation, as well as various green energy technologies.

In 2021 the AFK group of companies continued the solid operational performance delivering one of the best annual results in the group's 126-year history. The operating profit for the year was driven by significantly higher electricity prices in the Nordics and strong operational performance in all portfolio companies.

In 2021, the remuneration to Executives consisted in average of 64,8 % fixed salary and 35,2 % variable remuneration and was in line with the guidelines set out in the Remuneration Policy. In 2021, the fixed salary has been increased by 10 % compared to 2020 for the CEO, and 2,2 % compared to 2020 for the other Executives on average.

2.1 Highlights of 2021

(Figures in parentheses refer to the same period the previous year)

  • In 2021, Arendals Fossekompani reported an ordinary profit after tax of NOK 126 million (120 million), of which the AFK shareholders' share of the profit was NOK 107 million (62 million).
    Profit before tax was NOK 332 million (99 million). The operating profit amounted to NOK 450 million (161 million). Including currency differences, changes in the value of available-for-sale financial assets, minority interests, and other comprehensive income items, the Group's total comprehensive income was NOK 227 million (-40 million).
  • The AFK Parent Company's financial capacity remains solid. The company's net cash position as of 31 December amounted to NOK 1,411 million. In addition, the company has undrawn credit facilities of NOK 2,000 million, securing net available liquidity of NOK 3,411 million at year end.
  • AFK announced the agreement with European energy company MET Group for the sale of 100% of the shares in Cogen Energia España. Fully owned by AFK since 2011, Cogen Energia is recognized as a premier player in the Spanish cogeneration market. The sale of Cogen Energia is part of AFK's corporate strategy to exit all fossil fuel positions. With this divestment AFK Group reduced its total CO2 emissions with 98%.
  • Listing of Tekna Holding AS on Euronext Growth and Volue ASA on the main list of Oslo Børs
  • In 2021 we have taken great steps on our journey towards being a preeminent company within responsible investments and sustainability reporting. Inspired by GRI reporting framework we carried out a double materiality analysis. An initial assessment of the EU Taxonomy gave us an indication of the Taxonomy eligibility and alignment of our portfolio, and we are proud that three of total five of our portfolio companies publish their own sustainability reports.
  • There have been no changes to the composition of the Executive Management in 2021 compared to 2020.

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  • The AFK Remuneration Policy was established in 2021 and was adopted by the general meeting on 6 May 2021.
  • There have been no derogations from the Remuneration Policy during 2021.
  • Further information on financial results, key developments and investments can be found in the Annual Report 2021.

2.2 Sustainability and ESG

AFK has an established goal to increase the group focus on sustainability and ESG. AFK's expressed long-term goal is to integrate sustainability in the group's daily work processes by a range of improvements over the upcoming years. During 2021, there was in particular focus on:

  • Whistleblowing: After a revision of AFK's governing documentation on whistleblowing in 2020, the implementation of the policies and procedures throughout the group and the implementation of a whistleblowing channel was in focus in 2021.
  • The implementation and operationalization of a system for supplier onboarding and due diligence by setting up a framework and system for assessment and reporting of business ethics in supply chains. This process was inter alia guided by the upcoming legal requirement to perform due diligence assessments in accordance with the Norwegian Transparency Act (Åpenhetsloven).
  • AFK received a B rating in the CDP score report for 2021

In order to further strengthen the focus on ESG in line with our long-term goal to integrate sustainability in our daily work progress, AFK will in the upcoming year highlight ESG targets and further emphasize ESG as a personal target for Executives in the bonus assessment.

3. Total remuneration in 2021

3.1 Remuneration awarded or due in 2021

The Remuneration Policy states that the fixed salary shall constitute approximately 50- 75% of the total compensation, whereas variable compensation such as bonus payments shall constitute approximately 15- 40% of the total remuneration. The fixed salary will normally constitute at least 65% of the total remuneration.

In 2021, the remuneration to Executives consisted in average of 64,8 % fixed salary and 35,2 % variable remuneration and was in line with the guidelines set out in the Remuneration Policy. The bonus was mainly based on the financial results and non-financial targets linked to AFKs strategy and goals.

3.2 Fixed remuneration

The fixed base salaries are based on the following objective criteria: the business performance and current salary level relative to the market, whereas the exact amount is normally approved annually by the board upon suggestion from the compensation committee for the CEO. For the other members of the Executive Management, the exact amount is normally approved annually by the CEO upon advice from the board or the compensation committee. The fixed salary is determined during the first quarter of the new fiscal year and valid from 1 January the same year.

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The fixed salary may be increased annually in line with the range of increases awarded to other employees in AFK. Exceptions may apply in certain circumstances, such as:

  • Where there is a significant change in an Executive's scope or role.
  • Where it is considered necessary to reflect significant changes in market practice; or
  • Where there is, in the Board's opinion, a need to retain an executive in relation to a competitive offer from another potential employer.

In such events, the increase cannot exceed 50 % of the current fixed salary.

In 2021, the fixed salary has been increased by 10 % compared to 2020 for the CEO, and 2,2 % compared to 2020 for the other Executives on average, but with individual differences1. The fixed salary has not been increased further in line with the available option to make exceptions due to special circumstances. The fixed salary for the CEO constitutes 56 % of the total remuneration, and 67 % for the other Executives on average, which complies with the guidelines set out in the Remuneration Policy.

3.3 Variable remuneration

The variable remuneration of the Executive Management is structured in the form of a bonus program. The determination of the bonus is decided by an assessment of the achievement of pre-defined annual performance targets, financial as well as non-financial, qualitative, and quantitative. The performance based variable compensation shall contribute to growth and value creation for the shareholders and/or AFK's financial results over time which is further described for each element.

Bonus program

The board shall annually consider a bonus which is partly based on the group's annual results, and partly on other criteria described below. The bonus is not included in the holiday pay basis or the basis for calculating entitlement to pension.

The criteria for a bonus are:

  • Annual results: The bonus will be calculated from the previous year's financial results and current year performance against budget.
  • Other objectives: Objective made to support the business strategy.

The objective of the bonus program is that a bonus calculated from the financial results and from non-financial achievements shall motivate to achieve better results for AFK on the most essential areas of AFK's activities. The non-financial targets are personal and individual, but examples of personal targets for the Executive Management are linked to AFKs strategy and goals, growth in net asset value, specific ESG targets and successful accomplishment of plans for portfolio companies. The bonus will normally constitute 15-40 % of the total remuneration. The bonus for 2021 (paid out in 2022), has been set to 46 % for the CEO, due to delivering one of the best annual results in the group's history. Bonus for the other executives was set to 26 % on average, with individual differences (see Table 5).

1 Decrease in base salary for 2021 is due to a change in deduction of holiday pay for bonus.

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Arendals Fossekompani ASA published this content on 10 November 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 10 November 2022 09:16:05 UTC.