Report by the Supervisory Board Financial Year 2021
It is a tremendous pleasure for me, as the new Chairman of the Supervisory Board, to report to you for the first time on the company's performance over the course of the financial year, our collaboration with the Management Board and our work within the Supervisory Board and its committees.
In June 2021, the Annual General Meeting (re-)elected all members of the Supervisory Board with a large majority. We consider this a vote of confidence as well as an obligation on our part to continue our work for the benefit of all stakeholders and for the further successful progression of SIMONA. Our thanks go to Dr. Rolf Goessler, who became a member of the Supervisory Board in 2008 and was appointed its Chairman in 2012. His accomplished leadership of this body and the constructive and critical dialogue he maintained with regard to the strategic development of our company – as required by the Supervisory Board – have made a decisive contribution to SIMONA's solid position and alignment today. As his successor as Chairman, I would like to continue the work of the supervisory body in the same spirit, while also drawing on my experience relating to several industrial companies, including some operating in the plastics industry, to provide fresh impetus – particularly in strategic terms.
The SIMONA Group managed to put in an exceptional performance in 2021. Revenue and earnings increased substantially. Indeed, Group revenue of almost €545 million and EBIT of close to €51 million represent an all-time record for SIMONA. Price-related effects played a role in this context, but the Group also saw solid growth in sales volumes on the back of high levels of capacity utilisation and a good product mix. All regions were able to contribute to revenue and earnings growth. Activities were driven by a high degree of flexibility and innovation in pursuit of ever-broader application orientation. This is particularly true for the Americas region, where new fields of application in mobility and construction were unlocked. In the EMEA region, meanwhile, the newly established business lines provided fresh impetus and stepped up their collaborative efforts with end users, for example in the growing market for equipment used in semiconductor fabrication. Managing the distortions seen within the commodity markets, buffeted by spiralling prices and scarce availability, proved challenging in the period under review – but successful.
Organisational efforts were directed largely at integrating the newly acquired entities in Turkey and Norway. At the same time, preparations were made for the acquisition of Peak Pipe Systems in the United Kingdom, a transaction that was completed at the beginning of 2022. The Supervisory Board fully supported this acquisition and is of the firm belief that organic growth in combination with expansion through acquisitions is integral to achieving SIMONA's ambitious growth targets.
Last but not least, the stock split approved by the General Meeting of Shareholders improved tradability and thus added to the appeal of SIMONA shares, which was reflected in a very favourable share performance over the course of the financial year just ended.
Cooperation with the Management Board
Over the course of the 2021 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 and its committees as a whole 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. In this context, no joint measures were implemented for the Supervisory Board in 2021 due to circumstances.
Supervisory Board meetings
The Supervisory Board convened four scheduled meetings in 2021, two of which were held as face-to-face meetings in compliance with hygiene and distancing rules and two of which were virtual.
In addition, the Supervisory Board met virtually on 2 June 2021 for a constituting meeting following the election of new Supervisory Board members at the Annual General Meeting of SIMONA AG. At this meeting, Dr. Klaus Erkes was elected Chairman and Dr. Roland Reber Deputy Chairman of the Supervisory Board. Furthermore, the members of the Personnel and Nomination Committee and the Audit Committee were elected.
Each member of the Supervisory Board attended all meetings in person during the 2021 financial year.
At its meeting on 25 February 2021, the Supervisory Board was briefed on the preliminary 2020 annual results of the SIMONA Group as well as its business performance during the current year and the impact of the COVID-19 pandemic. One of the focal points was the market strategy for the Asia-Pacific region. In addition, we discussed the global IT strategy and the status of integration of the acquired entities SIMONA Stadpipe and SIMONA PLASTECH.
At this meeting, the Supervisory Board adopted the "Corporate Targets" balanced scorecard for the year 2022. Other items on the agenda included issues relating to corporate governance, such as holding the 2021 Annual General Meeting as a virtual event. At the meeting, the rules of procedure of the Management Board were adapted to the new allocation of responsibilities after the new appointments.
At the meeting on 14 April 2021, the consolidated financial statements and the annual financial statements of the AG (parent company) were adopted and approved. The proposal by the Management Board for the appropriation of profit generated in the 2020 financial year, to be submitted to the Annual General Meeting, was discussed and approved.
Furthermore, the report by the Supervisory Board for the 2020 financial year was adopted and the result of the audit conducted by PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, Frankfurt am Main, was discussed. At this meeting, the Supervisory Board also approved the Non-Financial Statement pursuant to Section 289b and Section 315b 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 2021. The Supervisory Board also discussed the current business performance and the outlook for the 2021 financial year as a whole. It again informed itself about the status of the integration of the latest acquirees.
At the meeting on 23 September 2021, the Supervisory Board informed itself about the Group's current business performance worldwide and the outlook for the year as a whole. In addition, the distortions within the commodity markets – with spiralling prices – and measures aimed at limiting the effects of these developments on earnings were discussed. Other items on the agenda included the integration of the acquired entities and investment projects at the headquarters in Kirn.
The meeting on 3 December 2021 also focused on business performance and the impact of the COVID-19 pandemic in the individual regions. In addition, the Supervisory Board discussed and approved the budget for 2022. It also informed itself about M&A projects. In addition, the Supervisory Board adopted the financial calendar for 2022.
The Audit Committee and the Personnel and Nomination Committee are responsible for supporting the Supervisory Board. Both committees regularly provide the Supervisory Board with extensive information relating to their activities. The members of the Personnel and Nomination Committee were newly elected at the constituting meeting convened subsequent to the election of the new shareholder representatives to the Supervisory Board at the Annual General Meeting of SIMONA AG.
The Audit Committee is responsible primarily for issues relating to the supervision of the accounting process, the efficacy of the internal control system, the internal risk management system and the internal auditing system, year-end auditing, with a particular focus on the independence of the auditor, the quality of the audit, the additional services provided by the independent auditor, the determination of auditing focal points and arrangements relating to fees as well as compliance.
The principal duties of the Personnel and Nomination Committee are centred around compensation as well as the conclusion, amendment, extension and termination of Management Board members' employment contracts. In addition, its task is to nominate suitable candidates to the Supervisory Board for its proposals to the Annual General Meeting for the election of Supervisory Board members.
The Audit Committee convened on four occasions during the 2021 financial year. All committee members attended the meetings in person. The main topics of the meetings were the new Act to Strengthen Financial Market Integrity and its specific effects as well as the risk management system. Meetings with the auditors served to prepare the adoption of the annual financial statements and the focal points of the audit for the following year.
Personnel and Nomination Committee
The Personnel and Nomination Committee met on two occasions during the 2021 financial year. All committee members attended the meetings in person. The deliberations mainly concerned the adjusted compensation system for the Management Board, the preparation of those contracts of the Management Board members that were up for renewal and the definition of ESG criteria for variable Management Board remuneration.
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 2021 financial year. Following our review, we ascertained that all members of our board are independent within the meaning of the German Corporate Governance Code. In this context, please refer to the Corporate Governance Statement issued pursuant to Section 289f HGB and Section 315d HGB.
Annual financial and consolidated financial statements
The accounts of SIMONA AG for the 2021 financial year were audited by PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, Frankfurt am Main. The firm was elected as auditor at the Annual General Meeting on 2 June 2021. 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 12 and 13 April 2022, 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 13 April 2022. 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 and Section 315b HGB; it discussed it at its audit meeting on 13 April 2022 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.
Employees throughout the SIMONA Group continued to be exposed to the strains of the pandemic in 2021. The high levels of capacity utilisation and order backlog, the management of distortions within the commodity, energy and transport markets as well as the integration of acquired entities posed major challenges that were more than successfully overcome through considerable personal commitment. We would therefore like to express our particular gratitude to them for their exemplary efforts, which the Management Board has acknowledged in the form of a COVID-19 bonus, among other things. We would also like to thank our suppliers and business partners for their spirit of cooperation and the many exciting projects that we were able to pursue in 2021. Last but not least, we thank all our shareholders for placing their trust in our company.
Kirn, 13 April 2022
The Supervisory Board
Dr. Klaus F. Erkes, Chairman
This document is published in German and as an English translation. Only the German original shall be deemed authoritative.