IRCE S p A : Corporate Governance year 2023

REPORT ON CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURE pursuant to art. 123-bis of the Consolidated Financial Act

(traditional administration and control model)

Report approval date: 15 March 2024

Year to which the Report refers: 2023

www.irce.it

TABLE OF CONTENTS

Glossary

• 1 Issuer profile

• 2 Information on the Ownership Structure (pursuant to art. 123-bis, paragraph 1 of the Consolidated Financial Act) as at 15 March 2022

  a)Structure of share capital (pursuant to art. 123-bis, paragraph 1, letter a) of the Consolidated Financial Act);

  b) Restrictions regarding the transfer of shares (pursuant to art. 123-bis, paragraph 1, letter b) of the Consolidated Financial Act);

  • c) Significant equity investments (pursuant to art. 123-bis, paragraph 1, letter c) of the Consolidated Financial Act);

  • d) Shares granting special rights (pursuant to art. 123-bis, paragraph 1, letter d) of the Consolidated Financial Act);

  • e) Employee stock ownership: mechanism for exercising voting rights (pursuant to art. 123-bis, paragraph 1, letter e) of the Consolidated Financial Act);

  • f) Restrictions on voting rights (pursuant to art. 123-bis, paragraph 1, letter f) of the Consolidated Financial Act);

  • g) Agreements among shareholders (pursuant to art. 123-bis, paragraph 1, letter g) of the Consolidated Financial Act);

  • h) Change of control clauses (pursuant to art. 123-bis, paragraph 1, letter h) of the Consolidated Financial Act) and statutory provisions on takeover bids (as per art. 104, paragraph 1-ter and art. 104-bis, paragraph 1) of the Consolidated Financial Act);

  • i) Delegated powers to increase share capital and authorisations to purchase treasury shares (pursuant to art. 123-bis, paragraph 1, letter m) of the Consolidated Financial Act);

  • j) Management and coordination activities (pursuant to art. 2497 et seq. of the Italian Civil Code).

• 3 Compliance (pursuant to art. 123-bis, paragraph 2, letter a), first section, of the Consolidated Financial Act)

• 4 Board of Directors

  • 4.1 Role of the Board of Directors

  • 4.2 Appointment and replacement (pursuant to art. 123-bis, paragraph 1, letter l) of the

  Consolidated Financial Act);

  4.3 Composition (pursuant to art. 123-bis, paragraph 2, letter d) and d)-bis of the Consolidated Financial Act);

  4.4 Functioning (pursuant to art. 123-bis, paragraph 2, letter d) of the Consolidated Financial Act);

  • 4.5 Role of the Chairman;

  • 4.6 Executive directors;

  • 4.7 Independent Directors;

  • 4.8 Lead Independent Director.

• 5 Management of corporate information

• 6 Committees within the Board (pursuant to art. 123-bis, paragraph 2, letter d) of the Consolidated Financial Act)

• 7 Directors' self-assessment and succession - Nomination Committee

  • 7.1 Director's self-assessment and succession;

  • 7.2 Nomination Committee

• 8 Directors' remuneration - Remuneration Committee

  • 8.1 Directors' remuneration;

  • 8.2 Remuneration Committee

• 9 Internal control and risk management system - Control and Risks Committee

  • 9.1 Director responsible for the internal control and risk management system;

  • 9.2 Control and Risks Committee;

  • 9.3 Internal Audit;

  • 9.4 Organisational Model pursuant to Italian Legislative Decree 231/2001;

  • 9.5 Independent Auditors;

  • 9.6 Manager responsible for preparing the corporate accounting documents and other company roles and functions;

  9.7 Coordination among the parties involved in the internal control and risk management system.

• 10 Director interests and related-party transactions

• 11 Board of Statutory Auditors

  • 11.1 Appointment;

  • 11.2 Composition and functioning (pursuant to art. 123-bis, paragraph 2, letter d) and d)-bis of the Consolidated Financial Act).

• 12 Relations with shareholders

• 13 Shareholders' Meetings (pursuant to art. 123-bis, paragraph 1, letter l) and paragraph 2, letter c) of the Consolidated Financial Act)

• 14 Further corporate governance procedures (pursuant to art. 123-bis, paragraph 2, letter a)

• 15 Changes since the end of the reporting period

• 16 Considerations on the letter of the Chair of the Corporate Governance Committee

TABLES

TABLE 1: INFORMATION ON THE OWNERSHIP STRUCTURE TABLE 2: COMPOSITION OF THE BOARD OF DIRECTORS TABLE 3: COMPOSITION OF THE BOARD COMMITTEES

TABLE 4: COMPOSITION OF THE BOARD OF STATUTORY AUDITORS

GLOSSARY

Code/Corporate Governance Code: the Corporate Governance Code of listed companies approved in January 2020 by the Corporate Governance Committee.

Civil Code. : the Italian Civil Code.

Committee/CG Committee/Corporate Governance Committee: the Italian Corporate Governance Committee for listed companies promoted by Borsa Italiana S.p.A., and by ABI, Ania, Assogestioni, Assonime and Confindustria.

Board: the Board of Directors of the Issuer.

Issuer: the issuer of securities to which the Report refers.

Year: the year to which the Report refers.

Consob Issuers' Regulations: Regulations issued by Consob with Resolution No. 11971 of 1999 (as subsequently amended) concerning issuers.

Consob Markets Regulations: Regulations issued by Consob with Resolution No. 20249 of 2017 (as subsequently amended) concerning markets.

Consob Regulations on related-party transactions: Regulations issued by Consob with Resolution No. 17221 of 12 March 2010 (as subsequently amended) concerning transactions with related parties.

Report: the report on corporate governance and ownership structure that companies shall prepare in compliance with art. 123-bis of the Consolidated Financial Act.

Remuneration Report: the report on the remuneration policy and on the fees paid that companies are required to prepare and disclose as per art. 123-ter of the Consolidated Financial Act, and art. 84-quater of Consob Issuers' Regulations.

Consolidated Financial Act: Italian Legislative Decree No. 58 of 24 February 1998.

1. Issuer profile

GOVERNANCE

The company's governance structure is based on the traditional model and consists of the Shareholders' Meeting, the Board of Directors and the Board of Statutory Auditors.

MISSION

The IRCE Group is an important industrial player of European significance, which manufactures and trades the following products:

• - Winding wires for electrical machines. This type of product is used in a wide range of applications such as engines and electric generators, transformers, inductors and relays, and its use has grown over the years mainly due to the constant expansion of automation. The production of wires accounts for around 80% of the group's total turnover.

• - Insulated electrical cables. This product is used in the production of residential and industrial electrical systems and for the supply and connection of electrical equipment. The production of insulated electrical cables represents around 20% of the group's total turnover.

CORPORATE RESPONSIBILITY

With Board of Directors' resolution of 28 March 2008, the company established its Code of Ethics (last updated on 15 March 2022) which states all the rights, duties and responsibilities of company bodies with respect to all stakeholders involved in achieving the business purpose (customers, debtors, suppliers, employees and/or external staff, shareholders, supervisory bodies, institutions). These conduct guidelines shall thus be taken into consideration in daily work and in compliance with the laws and regulations in force in all the Countries in which the company operates. The code establishes reference standards and rules of conduct aimed at strengthening company decision-making processes and guiding the conduct of all those working for the company.

The company promotes gender equality in treatment and opportunity and avoids any discrimination internally as expressly envisaged by the Code of Ethics adopted.

NON-FINANCIAL STATEMENT

The company falls within the scope of application of Italian Legislative Decree no. 254/2016, issued in implementation of Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014, which provides for the obligation to disclose non-financial information. The company therefore arranges the annual preparation and publication of the Non-financial statement which is integrated in the annual financial statements and included in the Directors' Report.

SME STATUS

The company falls within the definition of SME pursuant to art. 1, letter w-quater.1) of the Consolidated Financial Act, and pursuant to art. 2-ter) of Consob Issuers' Regulations. This is due to the fact that for three consecutive years the company has not exceeded either of the limits as per the aforesaid art.1, letter w-quater.1) of the Consolidated Financial Act.

The company notified Consob of its SME status.

The capitalisation and turnover shown in the SME list published by Consob on its website (art. 2-ter, paragraph 2 of Consob Issuers' Regulations) are as follows:

The company falls within the Code's definition of "concentrated ownership company". That is a company in which one or more shareholders who are part of a shareholders' voting agreement can call on, directly or indirectly (through subsidiaries, trustees or a third-party), the majority of votes that can be exercised at the ordinary shareholders' meeting.

2. Information on the Ownership Structure as at 15 March 2024 (pursuant to art. 123-bis, paragraph 1 of the Consolidated Financial Act)

a) Structure of share capital (pursuant to art. 123-bis, paragraph 1, letter a) of the Consolidated Financial Act)

The share capital consists of ordinary shares, ownership of which entails full observance of the Articles of Association and of the Shareholders' Meeting's resolutions; subscribed and paid-up share capital amounts to € 14,626,560 divided into 28,128,000 ordinary shares. The shares are fully subscribed and paid up and bear no rights, privileges or restrictions as far as dividend distribution and capital repayment are concerned.

The share categories which make up the share capital (and the existence of any other financial instruments that grant rights to subscribe to new shares) are shown in Table 1 of the Annex.

There are no share-based incentive plans (stock options and stock grants) which could result in an increase of the share capital, with consideration or otherwise.

b) Restrictions regarding the transfer of shares (pursuant to art. 123-bis, paragraph 1, letter b) of the Consolidated Financial Act)

There are no restrictions regarding the transfer of shares.

c) Significant equity investments (pursuant to art. 123-bis, paragraph 1, letter c) of the Consolidated Financial Act)

Significant equity investments, whether direct or indirect (for example through stock pyramids or cross-ownership), as emerging from communications provided pursuant to art. 120 of the Consolidated Financial Act and concerning shares with voting rights exceeding 3% of share capital, are shown in Table 1 of the Annex.

d) Shares granting special rights (pursuant to art. 123-bis, paragraph 1, letter d) of the Consolidated Financial Act)

No shares granting special control rights have been issued.

None of the special powers under Law 474/94 apply, nor are there any provisions in the Articles of Association for shares with multiple voting rights or increased voting rights.

e) Employee stock ownership: mechanism for exercising voting rights (pursuant to art. 123-bis, paragraph 1, letter e) of the Consolidated Financial Act)

There is no employee stock ownership plan.

f) Restrictions on voting rights (pursuant to art. 123-bis, paragraph 1, letter f) of the Consolidated Financial Act)

There are no restrictions on voting rights.

g) Agreements among shareholders (pursuant to art. 123-bis, paragraph 1, letter g) of the Consolidated Financial Act)

The company is not aware of any agreements among shareholders pursuant to art. 122 of the Consolidated Financial Act.

h) Change of control clauses (pursuant to art. 123-bis, paragraph 1, letter h) of the Consolidated Financial Act) and statutory provisions on takeover bids (as per art. 104, paragraph 1-ter and art. 104-bis, paragraph 1)

Neither the company nor its subsidiaries have entered into significant agreements that shall be effective, modified or terminated in the event of changes of control of the company signing such agreements.

The Articles of Association of IRCE S.p.A. do not depart from the provisions on the "passivity rule" laid down by art. 104, paragraphs 1 and 1-bis of the Consolidated Financial Act, nor do they envisage the application of the "neutrality rule" provided for by art. 104-bis, paragraphs 2 and 3 of the Consolidated Financial Act.

i) Delegated powers to increase share capital and authorisations to purchase treasury shares (pursuant to art. 123-bis, paragraph 1, letter m) of the Consolidated Financial Act)

No powers have been delegated to the Board in order to increase share capital in compliance with art. 2443 of the Italian Civil Code or to issue financial instruments with characteristics of equity.

On 28 April 2022 the Shareholders' Meeting resolved to authorise the purchase and disposal of treasury shares in compliance with art. 2357 et seq. of the Italian Civil Code; the authorisation has a duration of 18 months. The face value of the purchased shares cannot exceed one fifth of the capital. The number of treasury shares that can be purchased cannot exceed 5,625,600. The number of treasury shares held as at 31 December 2022 was 1,586,388, corresponding to 5.64 % of the share capital.

l) Management and coordination activities (pursuant to art. 2497 et seq. of the Italian Civil Code)

The majority shareholder Aequafin S.p.A. does not perform management and coordination activities in relation to IRCE S.p.A. in compliance with art. 2497 et seq. of the Italian Civil Code.

The following should be noted:

• - the information required by art. 123-bis, paragraph 1, letter i) of the Consolidated Financial Act ("agreements between the company and directors, on indemnities in the event of unfair dismissals or resignations or if the employment relationship ceases following a takeover bid") is not included in the Report on remuneration published in compliance with art. 123-ter of the Consolidated Financial Act since indemnities of this kind are not envisaged;

• - the information required by art. 123-bis, paragraph 1, letter l) of the Consolidated Financial Act ("provisions applicable to the nomination and replacement of directors … and to the amendment of the Articles of Association, if different from legislative and regulatory ones applicable as a supplementary measure") are illustrated in the section of the Report dedicated to the Board of Directors (Section 4.1).

3. Compliance (pursuant to art. 123-bis, paragraph 2, letter a), first section, of the Consolidated Financial Act)

IRCE S.p.A. has adopted an internal organisational structure and a standard system of corporate governance, which complies, in substance, with the Corporate Governance Code for listed companies approved in 2006 by the Corporate Governance Committee and promoted by Borsa Italiana S.p.A. (last update in January 2020).

The Corporate Governance Code is accessible to the public on the website of the Corporate Governance Committee:

https://www.borsaitaliana.it/comitato-corporate-governance/codice/codice.en.htm

The company and its subsidiaries are not subject to non-Italian legal provisions that influence their Corporate Governance structure.

4. Board of Directors

4.1 Role of the Board of Directors

The Board of Directors:

• - leads the company in pursuit of its sustainable success (Principle I) by examining and approving the company's business plan as well as that of its Group, also on the basis of the analysis of the key issues for the generation of long-term value (Recommendation 1.a) as well as assessing the general operating performance, periodically comparing the results achieved with those planned (Recommendation 1.b);

• - establishes the company's strategies and those of its Group, in keeping with the pursuit of sustainable success, monitoring their implementation (Principle II) by defining the nature and level of risk compatible with the company's strategic objectives, including in its assessments all the elements which may be important with a view to sustainable success (Recommendation 1.c);

• - establishes the corporate governance system which is best suited to carrying out the business and pursuing its strategies:

  • (i) taking account of the room for autonomy offered by the company organisation; and

  • (ii) if necessary, assessing and promoting the due changes, putting them, if relevant, to the shareholders' meeting (Principle III);

  • (iii) promoting, in the most suitable forms, dialogue with the shareholders and other key stakeholders for the company (Principle IV).

During the year the Board did not consider it necessary or opportune to draw up motivated proposals to put to the shareholders' meeting to define a form of corporate governance better suited to the needs of the company (Recommendation 2) as described in Section 13 and it implemented the policy for handling dialogue with all shareholders (Recommendation 3) as set out in Section 12.

The composition, operation, appointment and self-assessment of the Board are described in this Section, the remuneration policy in Section 8 and the internal control and risk management system in Section 9.

The Board of Directors has adopted policies on gender diversity in relation to the composition of management and control bodies, considering the company practice as consistent with the criteria of adequate balance with the main objective of ensuring adequate levels of competence and professionalism of its members. At least one third of the Board of Directors' members, and one third of the Board of Statutory Auditors' members, are of the less represented gender.

The Board of Directors has not defined any general criteria concerning the maximum number of management and control offices in other companies that can be considered compatible with an effective performance of the role of director, taking into account the participation of directors in the committees set up within the Board. The reason for not indicating the maximum number of offices is primarily to be found in the multitude of situations which are theoretically possible. Situations may vary depending on the characteristics of each individual Director, the type and size of company in which the Director holds other offices, and the complexity and specific features of the industry in which those companies operate. The situation also depends on the particular office held by the Director in those other companies (executive director, non-executive director, independent director, committee member, standing auditor, or chair of the board of statutory auditors). Because of this, rather than setting a maximum number of offices, the Board of Directors has deemed it preferable to opt for an assessment of the characteristics of each Director on a case-by-case basis (experience, characteristics, offices held).

In compliance with art. 20 of the Articles of Association, the Board of Directors is vested with the widest powers for ordinary and extraordinary management of the company, without limitations, with the authority to carry out all actions that it considers appropriate for achieving corporate purposes, except for those that are reserved by the law to the Shareholders' Meeting.

The Board of Directors is also responsible for mergers in the cases provided by art. 2505 and art. 2505-bis of the Italian Civil Code, for setting-up and closing branches, for updating the Articles of Association to regulatory provisions and for reducing share capital in the event of the withdrawal of a shareholder and in the case provided by art. 2446, last paragraph, of the Italian Civil Code. In such cases art. 2436 of the Italian Civil Code shall apply.

The Board of Directors may delegate part of its powers to the Chairman and/or to the Managing Directors and/or to the executive committee, if appointed, and/or to the Vice Chairman.

The Board of Directors may also appoint one or more special attorneys-in-fact for specific actions or categories of actions, establishing their remuneration and limits of representation.

In particular, among the topics specified in the Code, the Board has exclusive responsibility for the following issues:

in compliance with the provisions of the Articles of Association:

• - it establishes, after examining the proposals of the relevant Committee, the remuneration of the managing directors and of those with special offices;

• - it grants and repeals powers of directors, defining limitations and operating procedures;

in compliance within the principles of the Articles of Association regarding ordinary and extraordinary management:

• - it examines and approves the strategic, industrial and financial plans of the company and periodic monitoring of their implementation;

• - it examines and approves the strategic, industrial and financial plans of the group to which the company belongs, and periodic monitoring of their implementation;

• - it defines the corporate governance system;

• - it defines the structure of the group to which the company belongs;

• - it verifies the adequacy of the organisational, administrative and general accounting structure of the company and of the Group, with particular reference to the internal control and risk management system;

• - it assesses the general operating performance periodically comparing the results achieved with those planned;

• - it assesses the adequacy of the organisational, administrative and accounting structure of the subsidiaries with strategic importance, with particular reference to the internal control and risk management system.

With regard to the assessment and approval by the Board of transactions with significant economic, capital and financial importance, the following transactions are the exclusive decision-making responsibility of the Board, and therefore cannot be delegated: the acquisition of equity investments and/or companies or company branches by the company for an amount of, including financial debts comprised in the acquired equity investment and/or company or company branch, over € 10,000,000.00 and the sale of equity investments and/or companies or company branches the value of which, including financial debts comprised in the sold equity investment and/or company or company branch, is over € 10,000,000.00 and the issue of guarantees and sureties and rights in rem or similar obligations on company assets that are not deemed of interest to the company and/or connected to the ordinary management of amounts, of over € 10,000,000.00 and the prior approval of transactions with related parties.

When discussing the issues for which it is responsible, the Board also assesses the adequacy of the organisational, administrative and general accounting structure of the company.

4.2 Appointment and replacement (pursuant to art. 123-bis, paragraph 1, letter l), first section, of the Consolidated Financial Act)

In compliance with the Articles of Association, the company is managed by a Board of Directors composed of a minimum of three and a maximum of twelve members elected on the basis of lists of candidates presented by the shareholders that hold, in total, an interest not lower than that established by the Consob Issuers' Regulations, and who have the obligation of proving ownership of the number of shares necessary to submit the lists within the deadline of two days prior to the shareholders' meeting first call.

In compliance with the Consob Issuers' Regulations, the interest necessary for presenting the list is indicated in the notice of each Shareholders' Meeting convened to resolve on the appointment of directors.

Each shareholder, as well as the shareholders belonging to the same group (as defined pursuant to the relevant legal provisions and regulations) or subscribing to a shareholder agreement regarding company shares, shall not present or vote for, directly, through third parties, or via trust companies, more than one list.

The lists submitted shall comply with the criteria of art. 147-ter, paragraph 1-ter of the Consolidated Financial Act, so as to ensure that the composition of the board ensures gender balance.

At least one of the members of the Board of Directors is chosen from among a minority list, as prescribed by art. 147-ter, paragraph 3 of the Consolidated Financial Act.

10