Report by the Supervisory Board Financial Year 2016
Against the backdrop of intense competition the SIMONA Group managed to stand its ground over the course of the 2016 financial year. With sales revenue edging up slightly, earnings also improved in the period under review. The EBIT margin of 8.2 per cent recorded by the Group was up on the prior-year figure of 7.4 per cent and also exceeded the target set by management. Despite slight gains in efficiency, however, SIMONA was faced with a marginal decline in revenues and earnings within the fiercely competitive European market in particular. This was attributable largely to a weak performance of the Pipes and Fittings division. By contrast, the Group succeeded in cementing its position in the area of Semi-Finished Parts. After a tentative start, business in Asia picked up in the second half of the year. Encouraging revenue growth in the United States coincided with a visible improvement in earnings within this market.
The financial year just ended illustrates quite clearly that we are on the right track when it comes to pursuing the strategic route charted jointly by the Management Board and the Supervisory Board. If we are to succeed in asserting ourselves – and indeed expanding our business – within established markets, it is imperative that we continue to do everything in our power to fortify our position by developing innovative products, unlocking opportunities in new fields of application and, above all, raising productivity levels. At the same time, global partnerships will have to be developed and extended.
The Supervisory Board will continue to focus in particular on the direction taken by the SIMONA Group around the globe, its strategic positioning, its ability to innovate and its earnings performance. Embracing a spirit of partnership, we remain committed to a close and open dialogue with the Management Board.
Cooperation with the Management Board
Over the course of the 2016 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. 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. The reports focused in particular on issues relating to corporate planning, the strategy, the course of business and the position of SIMONA AG and its subsidiaries, including the risk situation, risk management, compliance and transactions of significant importance to the company. 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 in between meetings convened by the Supervisory Board and its committees. In this context, the CEO and the Chairman of the Supervisory Board met regularly to discuss SIMONA's strategy, current business performance and situation, risk management, risk exposure and compliance, as well as other key topics and decisions that arose. 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. The CEO informed the Chairman of the Supervisory Board without delay of all important events that were significant in the assessment of SIMONA's state of affairs and performance as well as for the management of the company.
Supervisory Board Meeting
The Supervisory Board convened four scheduled meetings over the course of 2016 and one constitutive meeting following the new appointment of the Board members to be elected by the shareholders at the Annual General Meeting of 10 June 2016. Supervisory Board member Gerhard Flohr was unable to attend this meeting due to family reasons. Supervisory Board member Joachim Trapp was unable to attend the Supervisory Board meeting on 19 April 2016 due to a prior appointment. The other meetings held over the course of 2016 were attended by all of the Supervisory Board members.
At the meeting on 23 February, the Supervisory Board focused on the preliminary annual results for the 2015 financial year and the current business situation as well as key topics concerning the United States, China and Russia. Furthermore, the Supervisory Board discussed and approved the dividend proposal for the 2015 financial year. It also debated the proposal by the Personnel Committee to restructure Supervisory Board compensation and adopted a draft resolution to be approved by the Annual General Meeting. At this meeting, the Supervisory Board also passed the Declaration of Conformity with the German Corporate Governance Code.
At the meeting on 14 April, 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 2015, the report by the Supervisory Board for the financial year 2015 and the result of the year-end audit conducted by PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Frankfurt am Main (please also refer to the section in this report dealing with the separate and consolidated financial statements). At this meeting the Supervisory Board also approved the proposal concerning elections to the Supervisory Board and the agenda for the 2016 Annual General Meeting. Additionally, the Supervisory Board informed itself about the current business situation and the outlook for the SIMONA Group, with a particular focus on the United States and Asia. The Supervisory Board also discussed matters relating to mergers and acquisitions.
The meeting convened on 4 August was held at the US plant in Archbald, PA. The Supervisory Board informed itself about SIMONA's performance in what is now the second-largest individual market served by the company. This meeting also focused on the direction taken by business in the first half of the year and the forecast for the second half of the year. At this meeting the Management Board also reported on the efficacy of the internal control system, the reporting process, risk management and internal auditing.
At its meeting on 1 December 2016, the Supervisory Board discussed the latest business situation in the first nine months and the outlook for the end of 2016. It also discussed and approved the budget for the 2017 financial year at this meeting. Another focal point of this meeting was the Group's performance within the sales region covering Asia-Pacific.
The Supervisory Board is assisted by the Audit Committee and the 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 in 2016. It discussed the overseas markets and the performance of Group companies in the United States as well as strategies and potential acquisitions in the Far East. The opportunities and risks associated with business in the European markets were also debated on a regular basis. Discussions also centred around possible changes to structures within the company for the purpose of accomplishing future tasks. The Audit Committee reviewed the half-yearly and quarterly results and prepared the proposal by the Supervisory Board for the appointment of the independent auditor for the 2016 financial year, to be put forward to the Annual General Meeting of Shareholders.
The Personnel Committee convened on four occasions in 2016. It discussed the issue of extending Mr. Hiltmann's appointment as a Management Board member up to the end of the 2018 Annual General Meeting and changes at the highest managerial levels. It drafted resolutions on future Supervisory Board compensation and new elections for the Supervisory Board as well as resolutions concerning the disclosure of Management Board compensation. It also discussed personnel-related issues, the focus being on unlocking future opportunities in defined growth markets. Resolutions required with regard to these issues were discussed and passed by the plenum of the Supervisory Board.
Annual Financial and Consolidated Financial Statements
The accounts of SIMONA AG for the 2016 financial year were audited by PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Frankfurt am Main, appointed as auditor by the Annual General Meeting of Shareholders on 10 June 2016. 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 20 April 2017, 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 20 April 2017. 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, which stipulates that the reported unappropriated surplus of €13,590,593.51 be appropriated as follows:
a) Payment of a dividend of €12.00 per share, payable on 14 June 2017: €7,200,000.00
b) Amount to be carried forward to new account: €6,390,593.51.
The Supervisory Board would like to thank the Management Board as well as all members of staff. Showing a tremendous sense of commitment in a highly competitive climate, they put in a strong performance that contributed directly to SIMONA's very solid performance in the annual period under review. At the same time, the Supervisory Board would like to thank the Group's customers and business partners for the trust placed in SIMONA and for the good working relationship maintained during this period.
Kirn, 20 April 2017
The Supervisory Board
Dr. Rolf Goessler, Chairman
This is a translation from German into English. Only the German document shall be considered authoritative.