Report by the Supervisory Board Financial Year 2018
SIMONA's global business activities generated growth in both revenues and earnings in 2018. Group sales revenue rose by 6 per cent year on year to €417.9 million, while profit before taxes improved by almost €8 million compared to the previous year, taking the figure to €32.3 million. At an operating level, the improvement in earnings had less of an impact, particularly as, compared with the previous year, we did not have to contend with significant foreign exchange losses. The individual markets developed along very different lines, which also applied to the situation within our two product categories.
As a result of the more pronounced political tensions that have now spread throughout the world, we are feeling a sense of uncertainty among our customers, who are generally more hesitant in terms of demand, resulting in more aggressive competitive behaviour.
Strengthening our position in Europe, above all through corresponding efficiency improvements, together with the successful expansion of our overseas activities, is therefore a priority for the near future.
Our dividend proposal of €14.00 reflects our confidence in the future of SIMONA.
Cooperation with the Management Board
Over the course of the 2018 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 immediately.
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 reviews the efficiency of its activities on a regular basis. The most recent review was conducted in 2017. No requests for changes were submitted.
Supervisory Board Meetings
The Supervisory Board convened four scheduled meetings over the course of 2018. Having left the Executive Board of Kreissparkasse Biberach, one of our principal shareholders, Joachim Trapp also resigned from the Supervisory Board effective from 31 May 2018. We would like to thank him for his constructive contribution and wish him all the best as he enters retirement. At the Annual General Meeting of 8 June 2018 Martin Bücher, Chairman of the Executive Board of Kreissparkasse Biberach, was elected onto the Supervisory Board of SIMONA AG as his replacement. With the exception of Martin Bücher and Dr. Roland Reber, who were unable to attend the meeting on 17 October 2018 and were duly excused, the members of the Supervisory Board attended all meetings during the 2018 reporting period.
At the meeting on 18 April 2018, 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 2017, the report by the Supervisory Board for the financial year 2017 and the result of the year-end audit conducted by PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, Frankfurt am Main. At this meeting, the Supervisory Board also approved the Non-Financial Statement pursuant to Section 289 b) - e) HGB, the agenda for the 2018 Annual General Meeting and the Corporate Governance Statement. In addition, the Supervisory Board discussed the execution of the company's strategic reorientation within the Pipes and Fittings division. The separation agreement in connection with the new legal structure of SIMONA AG and the implications of the new General Data Protection Regulation (GDPR) were also dealt with by the Supervisory Board. At this meeting the Supervisory Board approved an election proposal to be submitted to the Annual General Meeting as regards a successor to Joachim Trapp on the Supervisory Board.
At the meeting on 7 June 2018, the current business situation and the projected performance for the 2018 financial year were discussed and focal points for possible acquisition projects were defined. In addition, the Supervisory Board made preparations for the Annual General Meeting on 8 June 2018.
At the meeting on 17 October 2018, the Supervisory Board discussed the current situation with regard to the acquisition of US-based extrusion company PMC, the restructuring of the SIMONA AMERICA Group, the implementation of corporate restructuring at SIMONA AG and the general appeal of SIMONA AG as an employer. In addition, investments in the Pipe and Fittings product area as well as new regulations for resolutions by means of circulation were approved. In addition, the Management Board provided information on the current status of acquisition projects.
At its meeting on 11 December 2018, the Supervisory Board discussed and approved the budget for 2019. In addition, it was informed about the Group's business performance and received an outlook for the end of the year. The Supervisory Board also discussed the next steps relating to the planned refurbishment/construction of the administration building at the Group headquarters in Kirn. As part of the internal meeting, Dr. Jochen Hauck was appointed as an additional member of the Management Board of SIMONA AG effective from 1 January 2019.
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. Conclusions drawn from current business performance were regularly discussed by the Supervisory Board. At an international level, the direction taken by our overseas production companies were discussed in detail, the focus being on the United States and China. Opportunities and risks in other parts of the world were also discussed not only in the context of existing business relationships but also in particular as part of numerous presentations on possible acquisitions.
The Personnel Committee met on four occasions. Our deliberations were mainly centred on the leadership structure of the SIMONA Group, with a strong emphasis on specific changes within the Management Board. Fredy Hiltmann left the company effective from 30 June 2018. We would like to thank him for his committed contribution and wish him all the best for the future. Dirk Möller will hand over his responsibilities to Dr. Hauck as from 30 June 2019 and Wolfgang Moyses has decided not to extend his contract beyond 31 October 2019 for personal reasons. With this in mind, the Personnel Committee will discuss new appointments to the Management Board and will present its proposals to the Supervisory Board.
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 2018 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 2018 financial year were audited by PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, Frankfurt am Main. The firm was elected as auditor at the Annual General Meeting on 8 June 2018. Before proposing PricewaterhouseCoopers GmbH as auditor to the Annual General Meeting of Shareholders, the Chairman of the Supervisory Board had obtained confirmation from PricewaterhouseCoopers GmbH 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 12 April 2019, 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 12 April 2019. It also approved the report by the Supervisory Board. 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 - 289e HGB; it discussed it at its audit meeting on 19 April 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.
Our special thanks once again go to our employees worldwide. Our achievements are a tribute to their dedicated commitment. At the same time, we would like to thank our customers and business partners.
Kirn, 12 April 2019
The Supervisory Board
Dr. Rolf Goessler, Chairman
This is a translation from German into English. Only the German document shall be considered authoritative.