Lagercrantz : Corporate governance report 2022/23

Corporate Governance Report 2022/23­

The Board of Directors of Lagercrantz Group AB (publ), corporate identity number 556282-4556, hereby submit the Corporate Governance Report for the 2022/23 financial year. The report is included in the 2022/23 Annual Report on pages 53-57 and 93-97. References in this report refer to the complete 2022/23 Annual Report.

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CORPORATE GOVERNANCE REPORT

Since the 2009/10 financial year, the Board of Directors of

­Lagercrantz Group has prepared a statutory corporate governance report in accordance with Chapter 6, Sections 6-9 of the Swedish Annual Accounts Act (1995:1554) which is subject to review by the company's auditor. In addition to this, Lagercrantz Group applies the Swedish Corporate Governance Code ("the Code") in accordance with the revised version of the Code that entered into force on 1 January 2020. Since the legislation and the Code partially overlap, Lagercrantz Group submits the following Corporate Governance Report, which takes account of the Swedish Annual Accounts Act as well as the Code.

The company complies with the Code in all material respects. In one respect (which is found in the Audit Committee ­section) an explanation is provided for the deviation. The report also ­contains an account of the work of the Election Committee ahead of the 2023 Annual General Meeting (AGM).

Corporate governance structure

Lagercrantz Group is a Swedish public limited liability company with its registered office in Stockholm. The company, through its subsidiaries, conducts technology trading and has been ­listed on the Nasdaq Stockholm exchange since 2001, and on its ­Large Cap list since January 2022. Governance and control of the

company­ is regulated through a combination of written ­rules and practices. In the first instance, the regulatory framework consists of the Swedish Companies Act and the Swedish ­Annual Accounts Act, but also the Swedish Corporate Governance ­ Code and the rules that apply to the regulated market where the company's shares are listed for trading.

The Companies Act contains basic rules regarding the company's organisation. The Swedish Companies Act ­stipulates that there should be three decision-making bodies: the ­General Meeting of Shareholders, the Board of Directors and the ­President and Chief Executive Officer, in a hierarchal relationship­ with each other. There must also be a monitoring ­body, the ­auditor, who is appointed by the General Meeting of ­Shareholders.

Shareholders

As of 31 March 2023, the number of shareholders was 11,340, compared to 10,354 at the beginning of the financial year. The combined shareholding of the ten largest shareholders was 59%

1. of the shares outstanding and 69% (69) of the votes. The above calculations are based on the number of shares outstand- ing, not including repurchased shares held by Lagercrantz Group. For detailed information about shareholders, see page 43.

General Meeting of Shareholders

and Articles of Association

The­ General Meeting of Shareholders is the highest decision- making body in Lagercrantz Group. Here, shareholders exercise their influence through discussions and resolutions. The General Meeting decides on all issues that do not expressly fall under the jurisdiction of another corporate body. Every shareholder has the right to participate in and to vote for their shares at the ­General Meeting in accordance with the provisions of the Articles of Association.

Lagercrantz Group's Annual General Meeting (AGM) shall be held in Stockholm within six months of the end of the ­financial year. The AGM appoints the company's Board of

Directors­ and the auditors and determines their fees. In ­addition, the AGM adopts the financial statements and ­determines the ­ appropriation of earnings and discharge from liability for

the Board of Directors and the President, and decides on

other­ matters­ that according to the Articles of Association or ­legislation should be considered by the General Meeting. The Articles of Association have been adopted by the ­General Meeting. This document prescribes that the company's shares

are issued in two classes, where Class A shares carry 10 votes and Class B shares carry one vote per share. The company's share capital shall be a minimum of SEK 25,000,000 and a maximum of SEK 100,000,000. The minimum number of shares outstand­ ing shall be 112,500,000 and the maximum number of shares outstanding shall be 450,000,000. Both classes of shares carry the same rights to share in the company's assets and profit. The Articles of Association allow for conversion of class A shares into class B shares. The Articles of Association also stipulate that the Company's Board of Directors shall consist of not less than three and not more than nine members, and regulates the forms of notice for General Meetings. The Articles of Association contain no limitations on how many votes each shareholder may cast at a General Meeting. For the entire Articles of Association, which in their current form were adopted on 30 August 2022, see the company's website, the section Corporate governance /Articles of Association.

Notice for Annual General Meetings, and notice for Extra­ ordinary General Meetings (EGMs), where an amendment of the Articles of Association will be on the agenda, shall be issued not more than six weeks and not less than four weeks before the Meeting. Notice for other EGMs shall be issued not more than six weeks and not less than two weeks before the Meeting. Notice convening a General Meeting shall be in the form of an announc­ ement in the Swedish Official Gazette and on the company's website. It shall also be concurrently announced in the news­ paper Dagens Industri that notice has been issued.

Shareholders who wish to participate in the General Meeting shall (i) be included in the print-out or other presentation of the entire share register showing the state of affairs five weekdays before the General Meeting, (ii) give notice to the company for himself/ herself and up to two assistants not later than 3:00 p.m. on the date specified in the notice for the General Meeting.

Annual General Meeting 2022

The 2022 AGM was held on 30 August in Stockholm. Notice for the Meeting was announced in the form of a press release on 26 July 2022, and was published on the company's website on the same day. On the same date, it was also announced in the newspaper Dagens Industri that notice had been issued. The notice was also published in the Swedish Official Gazette. At the AGM, shareholders representing 107 million shares and 189 million votes, respectively, were present. This is equivalent to 52% (55) of the number of shares outstanding and 64% (68) of the votes in the Company. Following a temporary change in the law, the Annual General Meeting was held with postal votes cast and a limited number of AGM participants on site.

Resolutions passed by the AGM included the following:

A dividend of SEK 1.30 per share was declared in accordance with the proposal of the Board of Directors

Discharge from liability was granted to the Board of Directors and the President for their administration during 2021/22.

All Board members that stood for re-election were re-elected and Fredrik Börjesson was elected as Chairman of the Board of Directors in accordance with the proposal of the Election Committee.

Fees for the Board of Directors and the auditors were determined.

Routines were established for appointment of an Election Committee ahead of the next AGM.

Principles for remuneration and other terms of employment for senior executives were resolved upon.

In accordance with the proposal of the Board of Directors, the AGM resolved that the company - in a departure from the pre-emptive rights of shareholders - invite managers and senior executives to acquire up to 800,000 call options on

repurchased­Class B shares.

The Board of Directors was authorised during the period

­until the next AGM, on one or more occasions, to acquire the

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­company's own Class B shares, representing up to 10% of the shares in the company

The Board of Directors was authorised during the period until the next AGM, on one or more occasions, to carry out a new issue of up to 10% of the number of B shares in the company for the purpose of adapting the Group's capital structure, payment in connection with acquisitions, to finance acquisitions or strengthen the balance sheet in connection with acquisitions.

Board of Directors

It is the duty of the Board of Directors to manage the affairs of the company in the best possible way and to safeguard the

interests­ of the shareholders.

Lagercrantz Group AB's Board of Directors consisted of six ordinary members. Together the members possess broad,

commercial,­ technical and public experience: Fredrik Börjesson, Chairman of the Board

Ulf Södergren

Anna Almlöf

Anna Marsell

Anders Claeson

Jörgen Wigh, President and CEO

A detailed presentation of the members of the Board of

Directors,­ including information about other assignments is ­provided under Board of Directors and Auditors on page 96. Other officers in the Group can participate in Board meetings as a reporting member or secretary.

Chairman of the Board of Directors

The Chairman of the Board of Directors leads the work of the Board and has a special responsibility to follow the company's development between Board meetings, and to ensure that the members of the Board are continually provided with the inform­ ation necessary to perform satisfactory work. The Chairman maintains regular contact with members of the Management team and holds meetings with them as required. The Chairman is also responsible for evaluating the work of the Board and for ensuring that the Election Committee is informed of the result of the evaluation.

The Board's work

The Board of Directors held fourteen recorded meetings during the 2022/23 financial year, one of which was the statutory meeting in conjunction with the AGM. The work of the Board follows ­rules of procedure that are adopted on an annual basis. These rules of procedure lay down the division of labour between the Board of Directors and the executive management, the respons­ ibility of the Chairman and the President, respectively, and the forms for the financial reporting.

The President is a member of the Board of Directors and

presents­ reports at Board meetings. The Board has appointed the Group's CFO to serve as secretary. The Board of Directors forms a quorum when at least four members are present and, where possible, decisions are made after discussion that leads to consensus. The Board was in full attendance at all meetings during the year, apart from one.

During regularly scheduled Board meetings, the company's economic and financial position are dealt with as well as risks

facing­ the company and internal control and one item on the agenda concerns acquisitions. The Board is kept continually ­informed by way of written information about the company's operations and other important information.

During 2022/23, the work of the Board was dominated by questions relating to acquisitions, market development and business models. One Board meeting was devoted solely to discussing the Group's position and strategy.

The work of the Board is evaluated annually which includes

discussions around:

Number of meetings, agenda and material for the Board of Directors

Strategic plan and direction

Auditing review

Overall responsibility

Competence

Work of the Chairman

The Board of Directors dealt with the most recent evaluation during a meeting in January 2022. The Board's views on the Board work are documented and presented for the Election Committee. In accordance with the Code, the Board of Directors evaluated the work of the President & CEO at a meeting where neither the President nor other senior executives were present.

Total fees to the Board of Directors of Lagercrantz Group

for 2022/23, including fees for the Remuneration Committee, amounted to SEK 2,880,000 (2,700,000). In accordance with an AGM resolution, the Chairman of the Board received SEK 1,000,000 (900,000), and the other ordinary members who are not employees of the company received SEK 420,000 (400,000) each. See also Note 5.

Remuneration Committee

The Board of Directors has internally appointed a ­Remuneration Committee tasked with preparing the Board's proposal to the Annual General Meeting regarding guidelines for ­remuneration to the President and CEO, and other senior executives. The

Committee­ also has the task of following up and implementing the AGM's resolutions with respect to principles of ­remuneration for senior executives. During 2022/23, the Remuneration ­Committee consisted of Chairman of the Board Fredrik Börjes- son and Ulf Södergren. The President & CEO presents reports but does not participate in matters concerning him. The Committee held one meeting during the year. All members of the Committee were present at this meeting. Compensation of SEK 100,000 is paid as fees to members of the Remuneration Committee.

Audit Committee

The Board has appointed an Audit Committee, which has the task of analysing and discussing the company's risk manage- ment, governance and internal control. During 2022/23, the Committee consisted of all Board members with the exception of the President & CEO. In the opinion of the Board of Directors, this is most appropriate in view of Lagercrantz Group's business. The Audit Committee maintains contact with the company's auditors to discuss the direction and scope of the audit work. In connection with the adoption of the annual accounts, the com- pany's auditors report on their observations from their audit and their assessment of the internal control. Because of the structure with an annual self-assessment of the internal control, which is performed by each company during the third quarter and whose results are received by the company's auditors, and the extensive work that a traditional examination by the company's auditors would entail, the Board of Directors has chosen to deviate from the Code's recommendation calling for a review of the half-yearly report or the interim report for the third quarter.

Auditors

At the 2022 AGM, the registered auditing firm KPMG AB was elected auditor for the period until the end of the 2023 AGM. The audit firm internally appointed Håkan Olsson Reising, Authorised Public Accountant, to serve as auditor in charge.

In order to ensure oversight and control by the Board of Directors, it is given an opportunity each year to provide its opinion on the auditors' planning of the audit's scope and focus. After completing their review of the internal control and accounting records, the auditors report on their findings at the Board meeting in May. In addition to this, the auditors are

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invited to attend Board meetings when the Board of Directors or the auditors feel that there is a need. The independence of the auditors is ensured by the audit firm's internal guidelines. Their independence has been confirmed to the Audit Committee.

Management

The Chief Executive Officer and Group Management draw up and implement Lagercrantz Group's overall strategies and deal with issues such as acquisitions, disposals and major capital

investments­ . Such issues are prepared by Group Management for decision by the Parent Company's Board of Directors. The ­President and CEO is responsible for day-to-day management of the company in accordance with the decisions and guidelines of the Board of Directors.

Lagercrantz Group's Group Management consists of the ­President & CEO, Executive Vice President, the Group's Chief

Financial­ Officer, the Group's Head of Acquisitions and the Head of Business Development, five persons in total. The management team consists of Group Management and division heads, in total nine persons who constitute the Group's senior executives. A detailed presentation of Group Management can be found ­under Management on page 97.

The Management team meets on a monthly basis to discuss the Group's and the subsidiaries' results and financial position, as well as issues pertaining to strategy, acquisitions, earnings follow-up, forecasts and the performance of the business. Other issues discussed include acquisitions, joint projects, ­consolidated financial reporting, communication with the stock market, ­internal and external information, sustainability issues as well as coordination and follow-up of security, environmental matters and quality.

Remuneration to senior executives

Lagercrantz Group's principles for remuneration of senior

­executives mean that compensation to the President & CEO and other persons in the Management team may consist of

basic­ ­salary, variable remuneration, pension, other benefits and financial instruments.

The guidelines for remuneration to senior executives resolved upon by the 2022 AGM and information about existing incentive programmes are presented in Note 7 of this annual report and are summarised below.

The overall remuneration must be market-related and ­competitive, and should be commensurate with responsibility and authority. The annual variable salary component should be maximised to about 40% of the fixed salary. The variable portion of the compensation should also be based on outcome relative to set goals and on individual performance.

The retirement age shall be 63 - 65 years and in addition to an ITP plan, only defined contribution pension plans will normally be offered. In the case of termination of employment, termination benefits equivalent to a maximum of one annual salary may be offered, in addition to salary during the period of notice.

Apart from existing incentive programmes and the

programme­ proposed to the AGM, no other share-based or ­share-price-related programmes will be offered.

In individual cases and where special circumstances exist, the Board may depart from the above guidelines.

The Board's proposal to the 2023 Annual General ­Meeting means that the same guidelines for remuneration to senior

executives­ are adopted. The proposal for guidelines is in line with the Company's existing application of remuneration to ­senior executives and should aim to provide a clear framework for remuneration and have the degree of flexibility that is ­deemed appropriate based on the levels of remuneration, and the ­design should benefit the Company's business strategy, long-term ­interests, including long-term value creation for shareholders and sustainability. The new guidelines are prepared against

the background of the new legal requirements that have been

implemented­as a result of the EU's Shareholder Rights ­Directive (Directive (EU) 2017/828 of the European Parliament and of the Council). The Board of Director's final proposal for guidelines will be presented in the notice convening the Annual General Meeting.

Operational control

The Group's operating activities are carried on in subsidiaries of the Lagercrantz Group. Active Board work is conducted in all subsidiaries under the management of division heads. The sub- sidiaries' Boards follow the day-to-day operations and establish business plans. Operations are conducted in accordance with the rules, guidelines and policies adopted by Group Management, and according to guidelines established by each subsidiary's Board of Directors. Subsidiary presidents have profit respons­ ibility for their respective companies, as well as responsibility to ensure growth and development in their companies. ­Allocation of investment capital in the Group is determined following a decision by the Parent Company Lagercrantz Group's Board

of Directors in accordance with an annually updated ­capital expenditure policy.

Operational control in the Lagercrantz Group is defined by clear demands from Group Management and freedom of action for each subsidiary to make decisions and to reach established goals.

Diversity policy

The guidelines adopted by the Group's Board of Directors for

business­ ethics (Code of Conduct) for how employees, suppliers, customers and other stakeholders should be treated in a lawful, fair and ethical manner, also contain guidelines on diversity.

Lagercrantz strives to ensure that employees in the Group shall be afforded equal opportunities for career advancement, train- ing, remuneration, work content and conditions of employment. The Group also works to achieve a more uniform gender breakdown in recruitment and offers equal employment opportunities regardless of race, religion, gender, age, disability, family circumstances or sexual orientation. By participating in the recruitment work, the Group's operational management ensures that the Board's guidelines are complied with and developed.

Internal control

The purpose of the internal control is to ensure that the company's strategies and goals are followed up and that ­shareholder investments are protected. A secondary purpose is to ensure ­accurate and relevant information to the stock market in accordance with generally accepted accounting principles in Sweden and that laws, regulations and other requirements on listed companies are complied with across the entire Group.

The Board of Directors of Lagercrantz Group has delegated the practical responsibility to the President & CEO, who in turn has allocated the responsibility to the other members of the ­Management team and to subsidiary presidents.

Control activities take place in the entire organisation at all levels. Follow-up is included as an integrated part of Management's day-to-day work.

For the financial reporting there are policies and guidelines, and also automatic controls in systems as well as reasonability

assessment­ of flows and amounts.

Management makes regular assessments of any new ­financial risks that may arise and the risk for errors in the ­existing­ ­financial reporting. At each Board meeting, Management ­reports its

assessment­ of existing risks and any other issues concerning

­internal control. The Board can then call for further ­measures if considered necessary. The Group's financial department ­under the management of the Group's CFO conducts an ­annual evaluation­ of the internal control in the companies. This is performed by each company as a self-assessment based on pre-defined ­questions, which are drawn up by the financial department in consultation with the Group's auditors. This evaluation­ aims to examine the

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Group's internal control routines and ­compliance with them.

The result is reviewed by the Group's ­financial ­department, which makes proposals on possible ­improvements to the companies concerned. The Group's auditors­ also ­receive the results, who in turn report their observations and ­recommendations to the Audit Committee and to the entire Board.

The Board evaluates if this procedure is still fit-for-purpose on an annual basis and calls for possible changes in the internal ­control work in consultation with the company's auditors.

Controls are made taking transaction flows, staffing and

control­ mechanisms into account. The focus is on significant income statement and balance sheet items and areas where there is a risk that the consequences of any errors would be significant.

The Board of Directors is of the opinion that a business of

Lagercrantz­ Group's scope, in a decentralised organisation, does not require a more extensive audit function in the form of an internal audit department. The Board of Directors reviews this issue on an annual basis. To ensure good communication with the capital market, the Board of Directors has adopted a ­communications policy. This policy determines what should be communicated, by whom and how. The basic premise is that

regular­ financial information is provided in the form of: Press releases about significant or price-sensitive events

Interim reports, year-end report and press release in conjunction with the Annual General Meeting Annual Report

Through openness and transparency, the Board of Directors and Management of Lagercrantz Group work to provide the company's owners and the stock market with relevant and accurate information.

Election Committee

The principal task of the Election Committee is to propose Board members, the Chairman of the Board of Directors and ­auditors and to propose fees for Board members, the Chairman and

auditors,­ so that the AGM can make well-founded decisions. At the AGM 2022, the principles for the Election Committee's mandate were determined, and how the Committee shall be appointed. This shall be valid until the AGM decides to change these principles. This means that the Chairman of the Board was tasked with contacting the largest shareholders in terms of votes as of 31 December 2022, and requesting them to appoint mem- bers, to form an Election Committee together with the Chairman of the Board. In accordance with this, an Election Committee was formed consisting of:

Fredrik Börjesson, Chairman of the Board

Anders Börjesson

(own ownership, and representing Tisenhult-gruppen AB)

Leif Almhorn

(appointed by SEB Investment Management AB) Marianne Nilsson

(appointed by Swedbank Robur Fonder) Johan Lannebo

(appointed by Lannebo Fonder)

The Election Committee has access to the evaluation ­performed by the Board of Directors of its work, and information about the company's business and strategic direction. The ­proposals of the Election Committee as well as its motives will be ­published in

connection­ with the notice convening the AGM and will ­also be made available on the company's website. The ­Election Com- mittee's term of office extends until a new Election Committee­ has been ­appointed. No fees are payable for Election Committee work.

The Board of Directors and the Election Committee are of the

opinion­ that a majority of the Board members are independent in relation to the company and corporate management, and that at least three of these members are also independent in relation to the company's major shareholders.

Incentive programme

Long-term incentive programmes have been in place since 2006 for managers and senior executives in the Group in ­accordance with an AGM resolution. The programmes aim to

increase­ ­motivation and create participation among managers and ­senior ­executives ­regarding the opportunities in the company's

development­. The programmes also aim to motivate ­managers and senior ­executives to remain employed in the Group.

The ­programmes ­consist of call options on repurchased Class B shares.

Options have been issued every year from 2006-2022, according to the resolution of the AGM each year. The 2020, 2021 and 2022 programmes are currently outstanding. A complete description of the outstanding option programmes is provided in Note 7.

POST-BALANCE SHEET EVENTS

In early April, Glova Rail A/S in Denmark was acquired for the International division. Glova Rail is a leading supplier of vacuum toilets for railway vehicles which generates annual revenue of around MDKK 58.

In late April, an agreement was signed to acquire 80% of the shares of Supply Plus Limited in the UK for the International Division. Supply Plus is a market leading manufacturer of fire rescue equipment, mainly fire ladders and hose reels, to the fire and rescue services, etc, which generates annual revenue of around MGBP 7. After British authority approval, the acquisition was completed in the month of June.

At the end of April/start of May, 95% of the shares of Fireco Ltd in the UK were acquired for the TecSec division. Fireco is a leading manufacturer of fire door hardware, primarily fire door retainers which generates annual revenue of approximately MGBP 7.

Otherwise, no significant events for the company have occurred after the balance sheet date on 31 March 2023.

FUTURE DEVELOPMENT

Lagercrantz operates in an international market where demand is affected by macroeconomic factors to a considerable extent. The Group's broad focus with companies operating in different, but carefully selected niches with a main emphasis on electrification and infrastructure as well as safety products, constitutes a strong base and ensures an equalising effect between sectors, geographical markets and customer segments. The Group's independent entrepreneur-led companies work continually on adapting to changes based on their market and competitive situation.

Lagercrantz's most important goal is to create strong and sustainable earnings growth of at least 15% per year, partly through organic growth and improvements in existing businesses and partly through value-creating acquisitions. This business concept has been successful for many years and historically Lagercrantz's continual pursuit of earnings growth, profitability and development has delivered good value growth. Our strong cash flow and strong financial position is a good foundation for continued stable, profitable and sustainable earnings growth with an unchanged business concept.

Through our strategic focus, we are well-positioned in areas with good structural growth, such as increased electrification, infrastructure and safety products. In crises, companies with stable business models and strong financial conditions can also take advantage of new opportunities that arise. Therefore, it is important that we continue to focus on our long-term goals.

Otherwise, the risk and uncertainty factors are the same as in previous periods. The Parent Company is indirectly impacted by risks and uncertainty factors through its function in the Group.

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