Report by the Supervisory Board Financial Year 2020
The COVID-19 crisis also left its mark on the SIMONA Group in the 2020 financial year. The impact of the crisis-induced downturn in demand varied across the respective sales regions. At a global level, revenue declined by around 10 per cent to €390 million within the SIMONA Group. Thanks to significant improvements in profit margins and successful streamlining measures within the Group, SIMONA nevertheless managed to increase EBIT to €33.6 million. The EBIT margin rose from 6.8 per cent to 8.6 per cent.
The most severe downturn was seen at SIMONA Boltaron in the United States. There, business centred around the aviation industry literally collapsed from the second quarter onwards. However, these shortfalls were offset by initial improvements in bottom-line results due to key projects aimed at increasing efficiency and process orientation in the semi-finished products business in Europe. This was underpinned by a high degree of flexibility shown by our employees with regard to capacity management at the company's headquarters in Kirn and, above all, by the reduction of raw material costs.
We are confident that our recent acquisitions in the USA, Norway and Turkey will strengthen our position even more for the future. With this in mind, we consider the proposal to increase the dividend again to €12 per share appropriate, despite the fact that future developments remain unpredictable due to the COVID-19 crisis.
Cooperation with the Management Board
Over the course of the 2020 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. This is a requirement under the provisions of the new GCGC. In this context, no joint measures were implemented for the Supervisory Board in 2020.
Supervisory Board meetings
The Supervisory Board convened four scheduled meetings over the course of 2020. They were held as face-to-face meetings, while observing relevant hygiene and physical distancing rules. Each member of the Supervisory Board attended all meetings in person.
At the meeting on 23 April 2020, 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 the unappropriated surplus generated in the 2019 financial year, as amended due to the impact of the COVID-19 pandemic, with a dividend proposal to the Annual General Meeting reduced to €10, was discussed and approved. Furthermore, the report by the Supervisory Board for the 2019 financial year was adopted alongside the result of the audit conducted by PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, Frankfurt am Main. At this meeting, the Supervisory Board also approved the Non-Financial Statement pursuant to Section 289b HGB 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 virtual Annual General Meeting in 2020. The Supervisory Board also discussed the current business performance and the outlook for the 2020 financial year as a whole. It informed itself about the status of the strategy and M&A projects. Other items on the agenda included the status of succession planning at various management levels.
At the meeting on 4 June 2020, the Supervisory Board informed itself about the current business trend and the effects of the COVID-19 pandemic as well as measures to limit the impact on bottom-line performance. In addition, the purchase of interests in the Turkish PVC foam sheet manufacturer MT Plastik, which was still in the planning stage at the time, was on the agenda. At this meeting, the Supervisory Board was also informed about the status of plant optimisation at the headquarters in Kirn as well as other strategic projects. It also discussed improvements to the balanced scorecard target agreement and control system.
At the meeting on 27 August 2020, the Supervisory Board dealt with the impact of the COVID-19 pandemic on business activities in Europe, the USA and Asia. In addition, it was given a status update on strategic projects and was informed about the integration of the acquiree SIMONA Stadpipe as well as the status of the M&A project in Turkey.
The meeting on 2 December 2020 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 2021. It informed itself about M&A projects and the reorganisation of the management structure in North America due to the departure of the CEO there. Furthermore, the Supervisory Board adopted the financial calendar for 2021 and decided to propose a share split at a ratio of 1:10 to the Annual General Meeting in 2021.
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 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 and Nomination Committee are centred around compensation as well as the conclusion, amendment 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. All committee members attended the meetings in person. The possible impact of the COVID-19 crisis on liquidity and M&A projects was dealt with extensively, especially at the first meetings of the year. The discussions were also devoted to considerations on strengthening the Semi-Finished Products business line, the global search for further M&A candidates and the critical appraisal of existing commitments. 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 four occasions. All committee members attended the meetings in person. Deliberations were mainly centred on the leadership structure of the SIMONA Group, with a strong emphasis on specific changes within the Management Board, as well as long-term succession planning. At several meetings and discussions, the Nomination Committee drew up a model for the future composition of the Supervisory Board. Based on this model, the search for a successor for the chair of the Supervisory Board after the 2021 general meeting was conducted with the support of external consultants. As a result, the Supervisory Board will propose a successor for election at this Annual General Meeting.
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 2020 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 2020 financial year were audited by PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, Frankfurt am Main. The firm was elected as auditor at the Annual General Meeting on 5 June 2020. 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 14 April 2021, 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 14 April 2021. 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 Section 289b HGB and Section 315b HGB; it discussed it at its audit meeting on 14 April 2021 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.
Due to the COVID-19 crisis, our employees around the globe were exposed to considerable stress. In addition to the general restrictions, this was especially true with regard to the exceptional challenges at the workplace due to mobile working and lack of personal contact with customers, suppliers and other business partners. We would like to express our special thanks to all of them, especially for their exemplary efforts aimed at preventing direct COVID-19 infections at our plants.
Kirn, 14 April 2021
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.