Report of the Supervisory Board of KION GROUP AG
Dr John Feldmann
The main event of 2013 for KION GROUP AG was its successful initial public offering (IPO) on 28 June 2013. The business built strongly on the excellent results achieved last year and continued to perform at the same high level.
The tasks and responsibilities imposed on the Supervisory Board by the law, the Company’s articles of incorporation and the German Corporate Governance Code were fulfilled with dedication and great diligence. Because of KION GROUP AG’s IPO last year, there were many important decisions, transactions requiring approval and other matters to be discussed and resolved upon.
Any references to KION GROUP AG and its Executive Board in the following section also apply to KION Holding 1 GmbH and its Executive Board, which were in existence prior to the change in legal form to a German public limited company (Aktiengesellschaft).
Monitoring and advisory role in dialogue with the Executive Board
The Supervisory Board advised the Executive Board on all significant matters relating to managing the Company and monitored the Executive Board’s running of the Company. The Supervisory Board was fully involved in all major decisions affecting the Company from an early stage. There were particularly intensive discussions with the Executive Board on the subjects of funding, the IPO and corporate strategy. The Supervisory Board satisfied itself at all times that the Company was being managed lawfully and diligently.
At meetings of the full Supervisory Board, the performance of the business and decisions and transactions that were important for the Company were deliberated on and discussed extensively on the basis of the information provided to the Supervisory Board by the Executive Board. The Executive Board always notified the Supervisory Board of every significant aspect of these transactions promptly and in detail, providing both written and oral reports. As expected, the main issues covered in 2013 included the issues surrounding the Company’s planned IPO, as well as the Company’s ongoing business performance and financial position, planning of capital expenditure, the employment situation, risk management and the compliance programme. Other fundamental matters were corporate strategy and corporate planning, in particular in view of the new opportunities presented by the arrival of a new major shareholder, Weichai Power Co. Ltd.
The Executive Board gave the Supervisory Board sufficient notice of transactions that, according to the law, the Company’s articles of incorporation or the rules of procedure for the Executive Board of KION GROUP AG, require the Supervisory Board’s consent and presented them in good time for resolutions to be adopted. The Supervisory Board examined closely the resolutions proposed by the Executive Board and deliberated on them before adopting them. In urgent cases, written resolutions were also adopted.
The Executive Board informed the Supervisory Board about key financial data at regular intervals. Where there was a discrepancy between the actual figures and the business planning, the Executive Board always provided the Supervisory Board with a detailed oral and written explanation of what it considered the main reasons for the discrepancy. This enabled the Executive Board and Supervisory Board to discuss the reasons in detail and, if necessary, to take effective countermeasures.
In the periods between meetings of the Supervisory Board and between those of its committees, the chairman of the Supervisory Board, who is also chairman of the Executive Committee created following the change of legal form, remained in close contact at all times with the Chief Executive Officer. This ensured that the Supervisory Board was always kept up to date on the Company’s performance and any significant transactions.
Main focus areas discussed by the Supervisory Board
In the first half of the year under review, the work of the Supervisory Board focused on the wide-ranging preparations for the Company’s IPO. Its deliberations concentrated on general business conditions, economic conditions and financial parameters as well as corporate governance matters and, in particular, the areas of responsibility assigned to the Supervisory Board – such as Executive Board remuneration.
In 2013, the Supervisory Board and its committees dealt with these issues and made the necessary decisions at a total of 18 meetings (eight full Supervisory Board meetings and ten committee meetings). Some of the meetings were held in the form of conference calls. There were also several informal conference calls for the purpose of providing the members of the Supervisory Board or the relevant committees with advance information.
KION 2020 strategy
The Executive Board’s plans for the further development of the Company’s strategy, which are aggregated in the KION 2020 strategy, were a key area covered by the Supervisory Board’s deliberations in 2013. The Executive Board provided the Supervisory Board and its Executive Committee with an initial introduction to the strategy on 26 September 2013. A workshop with the Executive Committee devoted exclusively to this subject was then held on 14 October 2013, followed by an extraordinary meeting of the Supervisory Board on 17 October 2013 and a status report for the Supervisory Board and Executive Committee on 19 December 2013. The Supervisory Board provided constructive support on corporate governance considerations relating to the 2020 strategy and followed them with great interest. Irrespective of the Supervisory Board’s fundamental approval of the 2020 strategy, specific measures for implementing it still require the separate consent of the Supervisory Board as specified by the rules of procedure for the Executive Board.
Corporate governance and comply-or-explain statement
The regular reports by the Executive Board and some of the Company’s managers on corporate governance matters were a further important subject area discussed by the Supervisory Board and its committees. As part of its monitoring duties in this area required by stock company law, the Supervisory Board itself ensured that it was informed about corporate governance matters by means of appropriate reports covering the internal control system, risk management, internal auditing and compliance within the Group, in addition to its Audit Committee dealing with these matters on a regular basis. The focus was on the processes in place as well as on the content of the individual reports. As a result of these reviews, the Supervisory Board was able to gain an impression of the processes in place and to examine and comment on the proposed developments in these areas.
As part of the further development of its procedures, the Supervisory Board and Audit Committee have decided to hold an extra Audit Committee meeting in the first quarter of every year in addition to its regular meetings. The meeting will address the following matters: the internal control system, risk management, internal audit and compliance within the Group. A further meeting of the full Supervisory Board is to take place in the fourth quarter of every year covering corporate strategy and its further development. The size of the committees and their effectiveness are also to be reviewed in the course of 2014. The Supervisory Board will decide during the year whether a formal efficiency review should take place at the end of 2014.
In accordance with section 3.10 of the German Corporate Governance Code, the Executive Board and the Supervisory Board provide a detailed report on corporate governance in the KION Group in the corporate governance report. This is combined with the declaration on corporate governance pursuant to section 289a of the German Commercial Code (HGB) and can be found in the Corporate Governance Report section of the annual report. The report is also available on the KION GROUP AG website at kiongroup.com/GovernanceReport. For details of the remuneration paid to the Executive Board and the Supervisory Board for 2013, please refer to the remuneration report.
At its meeting on 19 December 2013, the Supervisory Board thoroughly discussed the KION Group’s compliance with the recommendations of the current version of the German Corporate Governance Code. The Supervisory Board keeps a close eye on changes to the Code and to governance standards at international level. The Executive Board and Supervisory Board submitted a comply-or-explain statement pursuant to section 161 of the German Stock Corporation Act (AktG) on 19 December 2013. It has been made permanently available to the public on the KION GROUP AG website. KION GROUP AG complied with all but one of the recommendations in the German Corporate Governance Code (version dated 13 May 2013) and intends to continue to do so in future. The only recommendation of the Code with which KION GROUP AG does not comply is the recommendation in section 3.8 (3) of the Code for an excess in the D&O insurance policies for members of the Supervisory Board. KION GROUP AG’s articles of incorporation do not provide for this type of excess. The Company believes that such an excess is not typical at international level and would therefore make it considerably more difficult to find independent candidates, in particular candidates from outside Germany.
Matters relating to the Executive Board
The Supervisory Board appointed Hostettler, Kramarsch & Partner (hkp), a leading consultancy firm specialising in executive remuneration, to devise the remuneration system. The chairman of the Supervisory Board was provided with technical and administrative assistance in this matter, mainly by the Company’s head of human resources and the head of the corporate office. The Executive Board exempted them from their obligation to report to the members of the Executive Board in order to perform this task. External, professional legal advisors were also consulted. Following the transformation of KION Holding 1 GmbH into a public limited company with an Executive Committee, a number of meetings were held between the chairman of the Supervisory Board and the members of the Human Resources Committee. During these meetings, the structure of the remuneration system, the individual components of the remuneration package, the vertical and horizontal appropriateness and content of the pension scheme for Executive Board members, including the provisions in the Executive Board service contracts, were discussed in detail and prepared for resolution. At the Supervisory Board meeting on 25 April 2013, the relevant decisions were made and the chairman of the Supervisory Board was authorised to conduct negotiations with the Executive Board members. The members of the Human Resources/Executive Committee and the full Supervisory Board were constantly updated on the progress of the negotiations and the agreement reached with the Executive Board members. At the end of the negotiations, when the Supervisory Board had acknowledged the outcome, the chairman of the Supervisory Board signed the Executive Board service contracts on behalf of the Company.
Work of the committees
During the period prior to the change of the Company’s legal form to a public limited company, KION Holding 1 GmbH had an audit committee, a human resources committee and a mediation committee pursuant to section 27 (3) of the German Codetermination Act (MitbestG).
On 29 May 2013, during the transformation of the Company into a public limited company, the Supervisory Board decided to maintain or create four committees at the future public limited company, the members of which were elected at a subsequent meeting of the Supervisory Board on 27 June 2013. The four committees were the Mediation Committee pursuant to section 27 (3) MitbestG, the Executive Committee, the Audit Committee and the Nomination Committee. These committees, but primarily the Executive Committee, prepare the matters to be discussed at the meetings of the full Supervisory Board. In individual cases, the Supervisory Board’s decision-making powers were delegated to committees within the scope permitted by law. The chairman of the Supervisory Board is also chairman of all committees except the Audit Committee. At the meetings of the full Supervisory Board, the committee chairmen report in detail on the discussions of the committees to ensure that the Supervisory Board as a whole is always fully informed.
The Executive Committee consists of four shareholder representatives and four employee representatives. It prepares the meetings of the Supervisory Board and is responsible for ongoing matters between Supervisory Board meetings. The Executive Committee prepares the Supervisory Board’s decisions relating to corporate governance, particularly amendments to the comply-or-explain statement pursuant to section 161 AktG reflecting changed circumstances and the checking of adherence to the comply-or-explain statement. It also prepares documents for the Supervisory Board when Executive Board members are to be appointed or removed and, if applicable, when a new Chief Executive Officer is to be appointed. Documents relating to any matters in connection with Executive Board remuneration are also compiled by the Executive Committee. The Executive Committee is also responsible for resolutions concerning the conclusion, amendment and termination of Executive Board employment contracts and agreements with Executive Board members governing pensions, severance packages, consultancy and other matters and for resolutions about any matters arising as a result of such contracts and agreements, unless they relate to remuneration. The responsibilities of the Executive Committee also include resolutions about the extension of loans to Executive Board members and parties related to them and to Supervisory Board members and parties related to them as well as resolutions to approve contracts with Supervisory Board members outside their Supervisory Board remit. The Executive Committee should – in consultation with the Executive Board – regularly deliberate on long-term succession planning for the Executive Board.
In 2013, the Executive Committee consisted of Dr John Feldmann (chairman), Dr Alexander Dibelius, Mr Joachim Hartig, Mr Denis Heljic, Mr Johannes P. Huth, Mr Thilo Kämmerer, Mr Jiang Kui and Mr Kay Pietsch. The Executive Committee met four times in 2013, including one conference call with the Audit Committee concerning the budget. The main topics discussed by the Executive Committee in 2013 were those concerning the Company’s IPO and the KION 2020 strategy.
The Mediation Committee comprises the chairman of the Supervisory Board, his deputy, an employee representative and a shareholder representative. If the majority required by section 27 (3) and section 31 (3) MitbestG is not reached in a vote by the Supervisory Board on the appointment of an Executive Board member, the Mediation Committee must propose candidates for the post to the Supervisory Board within a month. The chairman of the Supervisory Board does not have a second vote on the candidates proposed.
In 2013, the Mediation Committee consisted of Dr John Feldmann (chairman), Mr Joachim Hartig, Dr Alexander Dibelius (until 27 June 2013) Mr Johannes P. Huth (from 27 June 2013) and Mr Kay Pietsch. The Mediation Committee did not need to be convened in 2013.
The Audit Committee comprises four members. Its purpose is to assist the Supervisory Board in performing its task of monitoring accounting processes, compliance matters and reporting. These responsibilities encompass monitoring the quality and integrity of the consolidated and separate financial statements (as well as related disclosures), the internal control mechanisms, risk management and the internal audit system. The Audit Committee also reviews the other work carried out by the independent auditor in connection with the audit and checks that the independent auditor is qualified and independent. It is also responsible for engaging the independent auditor, determining the focus of the audit and agreeing the fee. In addition, the Audit Committee exercises the rights in investee companies set forth in section 32 (1) MitbestG.
In 2013, the Audit Committee consisted of Mr Hans-Peter Ring (chairman, from 27 June 2013), Dr Martin Hintze (chairman, until 27 June 2013), Dr John Feldmann (from 27 June 2013), Dr Roland Köstler (until 30 September 2013), Mr Kay Pietsch, Ms Alexandra Schädler (from 2 October 2013) and Ms Silke Scheiber (until 27 June 2013). Mr Hans-Peter Ring is an independent financial expert within the meaning of sections 100 (5) and 107 (4) AktG. The Audit Committee met seven times in 2013, including one conference call concerning the status of the annual financial statements and one conference call with the Executive Committee concerning the budget. The main topics discussed by the Audit Committee in 2013 were the 2013 annual financial statements, the budget and the regular subject of the key elements of corporate governance within the Company.
The Nomination Committee comprises four members, all of whom are shareholder representatives. The Nomination Committee’s only task is to propose candidates for the Supervisory Board to the Supervisory Board for proposal to the Company’s Annual General Meeting when Supervisory Board elections are due.
In 2013, the Nomination Committee consisted of Dr John Feldmann (chairman), Dr Martin Hintze, Mr Jiang Kui and Ms Silke Scheiber. The Nomination Committee did not meet in 2013.
In 2013, the Human Resources Committee, whose tasks were taken over by the Executive Committee following the change of legal form, consisted of Mr Johannes Huth (chairman), Mr Joachim Hartig, Dr Alexander Dibelius and Mr Thilo Kämmerer. The Human Resources Committee only met twice before it was replaced by the Executive Committee. At these meetings the Human Resources Committee discussed the future Executive Board service contracts and the remuneration of the members of the Executive Board of the future KION GROUP AG.
All members of the Supervisory Board attended the Supervisory Board meetings in 2013 apart from the following exceptions: at one meeting, three members sent their apologies, at four meetings, two members sent their apologies and at two meetings, one member sent apologies. With the exception of three committee meetings at each of which one member sent apologies, all the members of the committees attended all the meetings of each committee.
Audit of the separate and consolidated financial statements
The Company’s independent auditor, Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft, Frankfurt am Main, audited the Company’s separate financial statements and management report and the consolidated financial statements and group management report for the year ended 31 December 2013. Various meetings were held between the chairman of the Audit Committee and the auditors in preparation for the appointment of the auditors. They concerned the suitability and independence of the auditors, the regular rotation of the auditing staff responsible, which was already apparent at the time, and the question of fees. The forthcoming engagement of an auditing firm was discussed at the Audit Committee meeting on 13 March 2013 and there was an opportunity to speak to the auditors in person. The key audit issues were discussed and set out accordingly at the Audit Committee’s meetings on 13 March 2013 and 7 August 2013. The auditors were appointed by the chairman of the Supervisory Board on 11 December 2013.
The auditor issued an unqualified opinion for the separate financial statements, including the management report, for the year ended 31 December 2013 and the consolidated financial statements, including the group management report, for the year ended 31 December 2013.
In order to inform the Supervisory Board and its Audit Committee as soon as possible about the progress of the audit and the individual audit findings that were emerging, the members of both committees were offered two telephone briefings in which the Executive Board and the auditor took part. The auditor submitted his report and the documents relating to the financial statements to the members of the Audit Committee on 3 March 2014 and to the members of the Supervisory Board on 13 March 2014. The report was discussed in depth at the Audit Committee meeting on 10 March 2014 and at the full Supervisory Board meeting on 20 March 2014, both of which were attended by the auditor. At both of those meetings, the auditor reported in detail on the main findings of the audit and provided comprehensive answers to all questions asked by members of the Audit Committee and Supervisory Board.
Having itself scrutinised the Company’s separate financial statements, consolidated financial statements, management report and group management report for the year ended 31 December 2013, the Audit Committee then made one recommendation to the full Supervisory Board, which the chairman of the Audit Committee explained in more detail in his report to the meeting of the full Supervisory Board. On this basis, following further discussion of its own, the Supervisory Board approved the results of the independent audit at its meeting on 20 March 2014. Based on the final outcome of the Supervisory Board’s own review, no objections were raised. The Supervisory Board approved the Company’s separate financial statements and consolidated financial statements for the year ended 31 December 2013 prepared by the Executive Board. The annual financial statements were therefore adopted.
At its meeting on 20 March 2014, the Supervisory Board also discussed and approved the proposal made by the Executive Board that the distributable profit of KION GROUP AG be appropriated for the payment of a dividend of €0.35 per no-par-value share. In doing so, the Supervisory Board took account of the Company’s financial situation and performance, its medium-term financial and capital-expenditure planning and the interests of the shareholders. The Supervisory Board believes the proposed dividend is appropriate.
Review of the dependency report
The Supervisory Board also considered the report compiled by the Executive Board of KION GROUP AG concerning the Company’s relationships with affiliated entities (dependency report). The Company’s auditors, Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft, Frankfurt am Main, reviewed the dependency report, compiled an auditors’ report on it and issued the following unqualified opinion based on their completed audit:
Based on our audit and evaluation conducted in accordance with our professional duties, we hereby confirm that
- the factual information presented in the report is accurate,
- the consideration paid by the company in the legal transactions listed in the report was not inappropriately high,
- in respect of the transactions listed in the report, there are no circumstances that would support an assessment materially different from the assessment made by the Executive Board.
The dependency report and the auditors’ report about it were submitted to all the members of the Supervisory Board in good time and were discussed in detail in the presence of the auditor at the Supervisory Board meeting on 20 March 2014. The auditor reported on the main findings of his audit. The Supervisory Board agreed with the findings of the audit. Based on the final outcome of its own review, the Supervisory Board did not raise any objections to the Executive Board’s declaration at the end of the report concerning relationships with affiliated entities.
There were a number of changes to the membership of the KION GROUP AG and KION Holding I GmbH Executive Boards during 2013. Mr Klaus Hofer stepped down from the Executive Board of KION Holding 1 GmbH with effect from 10 January 2013. Mr Bert-Jan Knoef, Chief Executive Officer of STILL GmbH, Mr Theodor Maurer, Chief Executive Officer of Linde Material Handling GmbH, and Mr Ching Pong Quek, Chief Asia Pacific Officer joined the Executive Board of KION Holding 1 GmbH with effect from 11 January 2013.
There were also several changes on the Supervisory Board. Following the change of legal form, the size of the Supervisory Board was increased from twelve members to 16. At the Annual General Meeting on 5 June 2013, Mr Hans Peter Ring and Mr Tan Xuguang were also appointed as further shareholder representatives with effect from 9 June 2013. Mr Denis Heljic and Mr Özcan Pancarci were appointed as employee representatives by the courts, with effect from 12 June 2013. Ms Alexandra Schädler was appointed by the courts as an employee representative to replace Dr Roland Köstler on the Supervisory Board, with effect from 2 October 2013.
The details of this report were discussed thoroughly at the Supervisory Board meeting on 20 March 2014 when it was adopted.
My colleagues on the Supervisory Board and I would like to thank the members of the Executive Board, the employees of KION GROUP AG and the Group companies in Germany and abroad for their commitment and outstanding achievements in 2013.
Dr John Feldmann