Report by the Supervisory Board Financial Year 2019
The performance of the SIMONA Group over the course of the 2019 financial year was influenced by the intensification of international trade conflicts. While Group revenue increased by 3.5% to €432.5 million, it should be noted that this gain was attributable almost entirely to the first-time inclusion of the acquiree SIMONA PMC, USA, for a full annual period.
Earnings were adversely affected in particular by sluggish demand within the Semi-Finished Parts division in Europe, as a result of which we were forced to introduce short-time work on a temporary basis during the second half of the year. By contrast, the Pipes and Fittings division recorded an encouraging performance with regard to both revenue and earnings. Overall, however, we failed to match the earnings improvements seen in recent years. The EBIT margin fell from 8% to 6.8%. EBIT totalled €29.4 million.
In consultation with the Supervisory Board, the Management Board initiated a number of strategic projects aimed primarily at strengthening SIMONA from a long-term perspective. Thus, we can look to the future with confidence. At the time of preparing this report, it was impossible for anyone to gauge the extent to which the corona crisis would prove detrimental to business.
As a precautionary measure, the Management Board has therefore, in agreement with the Supervisory Board, reduced its original proposal of 12 March 2020 for the appropriation of profits, which had orginally provided for the distribution of an unchanged dividend of €14.00 per share for the 2019 financial year, to €10.00 per share. In doing so, the Management Board and Supervisory Board would like to offer shareholders an adequate return on their investment, while also taking into account the impact of the coronavirus pandemic on liduidity required for the future.
During the period under review, Dirk Möller and Wolfgang Moyses left the Management Board on 30 June and 30 September respectively. We would like to thank both gentlemen sincerely for their many years of accomplished service at SIMONA. Dr. Jochen Hauck was appointed COO effective from 1 January 2019, while Matthias Schönberg and Michael Schmitz were appointed CEO and CFO respectively as of 15 August 2019. We would like to wish them the very best for their challenging roles.
Cooperation with the Management Board
Over the course of the 2019 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 requirements of the German Corporate Governance Code (GCGC), the Supervisory Board uses a self-evaluation questionnaire to regularly assess how effectively it as a whole and its committees perform their duties (efficiency review). The results are discussed on an anonymous basis at a meeting, including any potential for improvement. The last self-evaluation took place in 2019 and resulted in grades ranging from good to excellent in the individual categories that were subject to review.
The members of the Supervisory Board organise training and further training measures on their own initiative, with SIMONA AG supporting the members of the Supervisory Board in an appropriate manner where this is necessary. This is a requirement under the provisions of the new GCGC. In this context, no joint measures were implemented for the Supervisory Board.
Supervisory Board Meetings
The Supervisory Board convened four scheduled meetings over the course of 2019. Each member of the Supervisory Board attended all meetings in person.
At the meeting on 12 April 2019, 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 2018, the report by the Supervisory Board for the financial year 2018 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 and the Corporate Governance Statements in accordance with Section 289f HGB and Section 315d HGB as well as the agenda for the Annual General Meeting in 2019. The Supervisory Board also discussed the current business performance and the outlook for the 2019 financial year as a whole. It informed itself about the status of the strategic Semi-Finished Parts Europe project and the conversion of the administration building in Kirn. The Supervisory Board also dealt with various M&A projects and the strategic refinement of individual product areas. The Supervisory Board convened four scheduled meetings over the course of 2019. Each member of the Supervisory Board attended all meetings in person.
At the meeting on 12 April 2019, 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 2018, the report by the Supervisory Board for the financial year 2018 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 and the Corporate Governance Statements in accordance with Section 289f HGB and Section 315d HGB as well as the agenda for the Annual General Meeting in 2019. The Supervisory Board also discussed the current business performance and the outlook for the 2019 financial year as a whole. It informed itself about the status of the strategic Semi-Finished Parts Europe project and the conversion of the administration building in Kirn. The Supervisory Board also dealt with various M&A projects and the strategic refinement of individual product areas.
At its meeting on 6 June 2019, the Supervisory Board made preparations for the execution of the Annual General Meeting on 7 June 2019. It also dealt with current and future business performance, the status of the strategic Semi-Finished Parts Europe project and M&A issues. The German term for Audit Committee was changed from "Wirtschaftsausschuss" to "Prüfungsausschuss". The Supervisory Board also met on this date, without the Management Board being present, and discussed and decided on personnel matters relating to the members of the Management Board.
At the meeting on 30 October 2019, the agenda included business performance and measures to respond to sluggish order intake. In addition, the Supervisory Board discussed M&A projects and obtained information on the implementation of investments, in particular the conversion of the administrative building at the Kirn headquarters.
At its meeting on 5 December 2019, the Supervisory Board discussed and approved the budget for 2020. In addition, it was informed about the Group's business performance and received the outlook for the end of the year. Other topics included the results of the tax audit, the introduction of the Diligent Boards committee management program and the outcome of collective bargaining for employees in Germany.
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 2019 financial year were audited by PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, Frankfurt am Main. The firm was elected as auditor at the Annual General Meeting on 7 June 2019. 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 289a and 315a 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 23 April 2020, 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 289a and Section 315a 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 23 April 2020. 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 23 April 2020 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.
We would like to thank all employees around the globe for their committed contributions. In this context, we would like to make special mention of our employees at the site in Kirn. They were and in some cases still are faced by particular challenges relating to the storm damage to the administration building, temporary short-time work and a number of ongoing projects. Our sincere thanks to all of you.
Kirn, 23 April 2020
The Supervisory Board
Dr. Rolf Goessler, Chairman
This document is published in German and as an English translation. Only the German original shall be deemed authoritative.