Report by the Supervisory Board Financial Year 2017
The SIMONA Group saw revenue increase by 7.5 per cent in the 2017 financial year. This represents encouraging organic growth that lies within the range targeted for the medium term. If it had not been for the effects of foreign exchange movements, which are beyond the scope of influence, earnings performance would have improved in line with revenue growth. When it comes to assessing the current situation and the future prospects of the SIMONA Group, however, the Supervisory Board considers operating profit to be of greater significance. This figure increased significantly in the period under review. With this in mind, the Supervisory Board is of the opinion that a dividend corresponding to that offered in the previous year would be appropriate. Therefore, it concurs with the proposal submitted by the Management Board.
Over the course of 2017, the company made further progress in its efforts to achieve its long-term strategic goals. However, it had to contend with the fact that many of the world's major market players are in search of profitable investment opportunities. Against this backdrop, it has become increasingly difficult to acquire interests in investees that are viable in the long term. For this reason, no new acquisitions were made during 2017.
The Supervisory Board is of the firm belief that SIMONA is well equipped for the future. One of the essential prerequisites in this context is the Group's solid financial position. At the same time, we draw confidence from the anticipated benefits associated with the Technology Centre, progress made in Asia after many years of effort, the success of our acquisitions in the United States, a new leadership structure and the clear legal separation of company divisions in support of greater transparency with regard to specific areas of responsibility within the Group.
Cooperation with the Management Board
Over the course of the 2017 financial year, the Supervisory Board discharged its duties under statutory provisions, the company's articles of association and terms of reference, advised the Management Board on a regular basis and evaluated and monitored management's activities in respect of legality, appropriateness and regularity. It also conducted an assessment of the company's risk management and compliance procedures and came to the conclusion that the system implemented meets the requirements to the fullest extent. The Management Board and Supervisory Board engaged in dialogue concerning the strategic direction of the company and regularly discussed the status of execution with regard to strategic initiatives. The Supervisory Board was directly involved in all decision-making processes of fundamental importance to the company. The Management Board informed the Supervisory Board as part of regular written and verbal reports, furnished in a timely and comprehensive manner. At the same time, the Management Board outlined any deviations between specified targets and the actual course of business, elucidated them in full and explained any countermeasures taken to rectify the situation. The content and scope of reports furnished by the Management Board met the requirements set out by the Supervisory Board. In addition to the above-mentioned reports, the Supervisory Board asked the Management Board to provide supplementary information relating to certain issues. In particular, the Management Board was available at Supervisory Board meetings for the purpose of discussing specific points and answering any questions put to it by the Supervisory Board. Transactions requiring the Supervisory Board's consent were discussed and examined in depth in cooperation with the Management Board. Where required, the Supervisory Board also convened without the Management Board being present.
The Chairman of the Supervisory Board was also kept fully informed by the CEO about current matters and circumstances in between meetings convened by the Supervisory Board and its committees. In the case of significant events in respect of the situation and performance of the company, this information was provided without delay. Additionally, the Chairman of the Supervisory Board conducted one-to-one meetings with the other members of the Management Board for the purpose of discussing specific issues relating to their remit.
In accordance with the provisions of the German Corporate Governance Code, the Supervisory Board assessed the efficiency of its activities with the help of a questionnaire during the 2017 financial year. There were no complaints with regard to its own work or its collaboration with the Management Board. Furthermore, no requests for changes were submitted.
Supervisory Board Meeting
The Supervisory Board convened four scheduled meetings over the course of 2017. Employee representative Markus Stein was not able to attend the meeting on 26 July 2017. The other meetings held over the course of 2017 were attended by all of the Supervisory Board members.
At its meeting on 23 February 2017, the Supervisory Board focused on the preliminary annual results for the 2016 financial year and the current business situation. Furthermore, the Supervisory Board discussed and approved the dividend proposal for the 2016 financial year. At this meeting, the Supervisory Board also passed the Declaration of Conformity with regard to the German Corporate Governance Code. Employee representatives Jörg Hoseus and Gerhard Flohr, who stepped down from the Supervisory Board at the end of February, were thanked for their work in the interests of SIMONA's employees and the company.
The meeting on 20 April 2017 was attended for the first time by the newly elected employee representatives on the Supervisory Board, Andy Hohlreiter and Markus Stein. The focus was on approving and adopting the consolidated financial statements, the separate financial statements of the parent company, the proposal by the Management Board for the appropriation of distributable profit generated in the financial year 2016, the report by the Supervisory Board for the financial year 2016 and the result of the year-end audit conducted by PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Frankfurt am Main. At this meeting, the Supervisory Board also approved the agenda for the 2017 Annual General Meeting. Additionally, the Supervisory Board informed itself about the current business situation and the outlook for the SIMONA Group. It also dealt with strategic issues relating to the United States and China, in addition to discussing the target figures set for female representation on the Management Board and Supervisory Board.
At its meeting on 26 July 2017, the Supervisory Board informed itself about the financial results of the first half of the year. The Supervisory Board also discussed the direction taken by foreign exchange rates and possible measures aimed at risk mitigation. It also focused on a strategy assessment for business relating to pipes and fittings, which also encompassed relevant conclusions. Additionally, the Supervisory Board decided not to prioritise any major relocation as part of the Simona-Home-2025 project.
At its meeting on 14 December 2017 the Supervisory Board focused on business performance in the first nine months of the financial year. It also held an in-depth discussion on the budget for 2018 and approved it. As in the previous meetings, one of the focal points was the planned separation of production units from SIMONA AG and their transfer to independent production companies as wholly-owned Group subsidiaries. The advantages and disadvantages of such a future structure were discussed extensively and the fundamental decision was taken to adopt a structure under corporate law that would benefit SIMONA when it comes to making it fit for the future and securing its competitiveness. At this meeting, the Supervisory Board discussed the routine adjustment of fixed Management Board compensation and resolved to extend the contract with Dirk Möller until 30 June 2019. Another focal point was the new concept for administration in Kirn with all the associated organisational improvements. Furthermore, the Supervisory Board discussed and passed the future governance concept.
The Supervisory Board is assisted by the Audit Committee and Personnel Committee. Both committees regularly provide the Supervisory Board with extensive information relating to their activities. The Audit Committee is responsible primarily for issues relating to the supervision of the accounting process, the efficacy of the internal control system and the internal auditing system, year-end auditing, with a particular focus on the independence of the auditor, the additional services provided by the independent auditor, the determination of auditing focal points and arrangements relating to fees as well as compliance and acquisitions. The principal duties of the Personnel Committee are centred around compensation as well as the conclusion, amendment and termination of Management Board members' employment contracts.
The Audit Committee convened on four occasions. It dealt primarily with the future prospects in the United States and China. The key focus was on the strategic positioning of Semi-Finished and Finished Parts as well as Pipes and Fittings, alongside the direction taken by foreign exchange rates. The Supervisory Board also discussed the documents presented by the Management Board with regard to the performance and cost of external consultants. The Audit Committee debated draft resolutions for the entire Supervisory Board as regards major internal projects, particularly the legal separation of the production companies.
The Personnel Committee met on five occasions. It discussed the personnel-related aspects of possible changes to the company's headquarters and in particular the future governance structure, especially in view of the increasingly international nature of the Group. A joint meeting with the entire Management Board was convened to discuss this topic.
Dealing with conflicts of interest
All members of the Supervisory Board are obliged to disclose conflicts of interest as soon as they occur. As in the previous years, there were no conflicts of interest during the 2017 financial year. Following our review, we ascertained that all members of our board are independent within the meaning of the German Corporate Governance Code.
Annual Financial and Consolidated Financial Statements
The accounts of SIMONA AG for the 2017 financial year were audited by PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Frankfurt am Main, appointed as auditor by the Annual General Meeting of Shareholders on 9 June 2017. Before proposing PricewaterhouseCoopers Aktiengesellschaft as auditor to the Annual General Meeting of Shareholders, the Chairman of the Supervisory Board had obtained confirmation from PricewaterhouseCoopers Aktiengesellschaft that there were no circumstances which might prejudice its independence as an auditor. The auditor conducted an audit and furnished an unqualified audit opinion with regard to the financial statements and management report of SIMONA AG and the consolidated financial statements and Group management report, which was combined with the management report of SIMONA AG, as well as the explanatory report by the Management Board in respect of disclosures under Section 289(4) and 315(4) HGB in conjunction with the accounting records.
The financial statements mentioned above, the audit reports and the Management Board's proposal for the appropriation of the unappropriated surplus were submitted to all Audit Committee and Supervisory Board members in good time. At the Supervisory Board meeting on 19 April 2018, the independent auditor furnished detailed information about all material conclusions of the audit and answered all questions put forward by the Supervisory Board in a detailed and comprehensive manner. The Supervisory Board independently examined the financial statements and management report of SIMONA AG as well as the consolidated financial statements and the Group management report, which has been combined with the management report of SIMONA AG, as prepared by the Management Board, in addition to the explanatory report by the Management Board in respect of disclosures required under Section 289(4) and Section 315(4) HGB, the audit reports issued by the independent auditor and the proposal put forward by the Management Board with regard to the appropriation of profit. The Supervisory Board raised no objections upon conclusion of this final examination. The Supervisory Board concurs with the findings of the audit conducted by the independent auditor and approved the company's financial statements, which are thereby adopted pursuant to Section 172 sentence 1 AktG, as well as the consolidated financial statements at its meeting on 19 April 2018; it also approved this Supervisory Board report. Furthermore, the Supervisory Board concurs with the Management Board's proposal for the appropriation of profit. The Supervisory Board conducted a thorough review of the non-financial statement issued by the company in accordance with Sections 289b and 289c HGB; it discussed it at its audit meeting on 19 April 2018 and adopted it accordingly. No voluntary review by the independent auditors was conducted in respect of the non-financial statement, as the Supervisory Board possesses the requisite expertise in this matter.
In the financial year under review many employees were involved in time-consuming projects and performed special tasks alongside their usual responsibilities. We would like to express our thanks for their commitment. Our gratitude also goes to the Management Board as well as our customers and business partners for the close rapport established with them.
Kirn, 19 April 2018
The Supervisory Board
Dr. Rolf Goessler, Chairman
This is a translation from German into English. Only the German document shall be considered authoritative.