Report of the Supervisory Board of KION GROUP AG
Dr John Feldmann
KION GROUP AG can look back on a successful 2014. It was the first full financial year following the Company’s initial public offering (IPO) in June 2013 and was dominated by the first concrete steps in implementing the Strategy 2020, which the Executive Board and Supervisory Board had adopted at the end of 2013. Business picked up strongly where the previous year left off, maintaining the same high level of momentum.
Last year, the Supervisory Board continued to fulfil the tasks and responsibilities imposed on it by the law, the Company’s articles of incorporation and the German Corporate Governance Code with dedication and great diligence. There were again many important decisions, transactions requiring approval and other matters to be discussed and resolved upon.
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.
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. The Supervisory Board satisfied itself at all times that the Company was being managed lawfully and diligently.
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, 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
Of particular importance in the Supervisory Board’s deliberations in the first half of 2014 were the first concrete steps in implementing the Strategy 2020, which had been developed and adopted in 2013 and aggregates the Executive Board’s plans for the Company’s further strategic development, as well as the preparations for the Company’s first Annual General Meeting since the IPO. In the second half of the year, the Supervisory Board closely followed the discussion about appropriate restructuring measures at Linde Hydraulics GmbH & Co. KG, in which the Company still holds a minority interest, and the decision on necessary contributions from the Company. Deliberations also focused on the Company’s ongoing business performance and financial position, planning of capital expenditure, the employment situation, risk management, individual aspects of corporate strategy and planning, corporate governance matters and, in particular, the areas of responsibility assigned to the Supervisory Board – such as Executive Board remuneration.
The main personnel matter, which the Supervisory Board had to deal with at the end of last year, were the changes made to the membership of the Executive Board at the start of this year. With effect from 15 January 2015, Executive Board members Theodor Maurer and Bert-Jan Knoef stepped down from the Executive Board and resigned from their roles as the CEOs of Linde Material Handling GmbH and STILL GmbH respectively at their own request. The departure of the two Executive Board members and the resulting organisational issues were discussed extensively by the Supervisory Board. As part of measures to improve the efficiency and effectiveness of KION GROUP AG, the Company’s Chief Executive Officer, Mr Gordon Riske, has taken over Mr Maurer’s and Mr Knoef’s functions in addition to his other management responsibilities. The Supervisory Board thanks Mr Maurer and Mr Knoef for their hard work and the outstanding contributions that they have made over the years to KION GROUP AG’s successful development and wishes them both all the best and every success in their new endeavours.
In 2014, the Supervisory Board and its committees dealt with these issues and made the necessary decisions at a total of 18 meetings (seven full Supervisory Board meetings and eleven 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 Strategy 2020
A key area covered by the Supervisory Board’s deliberations in 2014 had been the plans to implement the Strategy 2020, particularly the expansion of production at Linde Material Handling GmbH in Aschaffenburg and the accompanying relocation of reach truck production from Aschaffenburg to a new production facility in Střibro in the Czech Republic. The Supervisory Board approved this measure at its meeting on 20 March 2014. The Strategy 2020 was also discussed at the Supervisory Board meeting on 2 June 2014, at which the Executive Board delivered a progress report on the implementation of the measure, and at the Supervisory Board’s strategy meeting on 23 September 2014, when the focus was on opportunities and the product strategy in emerging markets. Last year, the Supervisory Board again followed the Executive Board’s considerations relating to the Strategy 2020 with great interest and provided constructive support.
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.
Owing to the changes to the membership of the Supervisory Board during the year, it was decided to postpone the review of the size and effectiveness of the Supervisory Board and its committees until 2015. The review, which had been planned for 2014, will now be combined with a formal efficiency review.
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 on pages 44 to 57 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 2014, please refer to the remuneration report, which can be found on pages 58 to 69 of the annual report.
At its meeting on 17 December 2014, 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 an updated comply-or-explain statement pursuant to section 161 of the German Stock Corporation Act (AktG) on 19 December 2014. 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 24 June 2014) and intends to continue to do so in future. As was the case in the previous year, 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.
Work of the committees
KION GROUP AG’s Supervisory Board had four committees last year: the Mediation Committee pursuant to section 27 (3) of the German Codetermination Act (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 also 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 prepared 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 2014, 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 (until 31 August 2014), Mr Jiang Kui, Mr Olaf Kunz (from 24 September 2014) and Mr Kay Pietsch. The Executive Committee met four times in 2014. The main topics discussed by the Executive Committee in 2014 were those concerning the Company’s first Annual General Meeting and the KION Strategy 2020. It also scrutinised the personnel changes on the Executive Board.
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 2014, the Mediation Committee consisted of Dr John Feldmann (chairman), Mr Joachim Hartig, Mr Johannes P. Huth and Mr Kay Pietsch. The Mediation Committee did not need to be convened in 2014.
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 auditors in connection with the audit and checks that the independent auditors are qualified and independent. It is also responsible for engaging the independent auditors, 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 2014, the Audit Committee consisted of Mr Hans Peter Ring (chairman), Dr John Feldmann, Mr Kay Pietsch and Ms Alexandra Schädler. Mr Hans Peter Ring is an independent financial expert within the meaning of sections 100 (5) and 107 (4) AktG. The Audit Committee met five times in 2014. The main topics discussed by the Audit Committee in 2014 were the 2014 annual financial statements, the interim reports, 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 2014, the Nomination Committee consisted of Dr John Feldmann (chairman), Dr Martin Hintze, Mr Jiang Kui and Ms Silke Scheiber. The Nomination Committee met twice in 2014. At these meetings, it concentrated on selecting suitable candidates to replace the departing members of the Supervisory Board. This culminated in the proposal of Ms Xu Ping and Ms Behrendt as new Supervisory Board members with effect from 1 January 2015.
All members of the Supervisory Board attended the Supervisory Board meetings in 2014 apart from the following exceptions: at one meeting, five members sent their apologies, at two meetings, three members sent their apologies, at two meetings, one member sent apologies and at one meeting, two members sent their apologies. With the exception of two committee meetings at each of which one member sent apologies, all committee meetings were attended by all members of the respective committee. Supervisory Board member Tan Xuguang participated in fewer than half of all Supervisory Board meetings.
Engagement of the auditors; audit of the separate and consolidated financial statements
The Company’s independent auditors, 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 2014. 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 and the question of fees. The forthcoming engagement of an auditing firm was discussed at the Audit Committee meeting on 10 March 2014 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 meeting on 10 March 2014. The auditors were appointed by the chairman of the Supervisory Board on 20 November 2014.
The auditors issued an unqualified opinion for the separate financial statements, including the management report, for the year ended 31 December 2014 and the consolidated financial statements, including the group management report, for the year ended 31 December 2014 on 10 March 2015.
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 auditors took part. The auditors submitted their report and the documents relating to the financial statements to the members of the Audit Committee on 2 March 2015 and to the members of the Supervisory Board on 10 March 2015. The report was discussed in depth at the Audit Committee meeting on 10 March 2015 and at the full Supervisory Board meeting on 18 March 2015, both of which were attended by the auditors. At both of those meetings, the auditors 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 2014, 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 18 March 2015. 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 2014 prepared by the Executive Board. The annual financial statements were therefore adopted.
At its meeting on 18 March 2015, 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 €0.55 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 on 10 March 2015:
Based on our audit and evaluation conducted in accordance with our professional duties, we hereby confirm that
1. the factual information presented in the report is accurate,
2. the consideration paid by the company in the legal transactions listed in the report was not inappropriately high,
3. 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 auditors at the Supervisory Board meeting on 18 March 2015. The auditors reported on the main findings of their 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 no changes on the Executive Board of KION GROUP AG during 2014.
However, there were several changes on the Supervisory Board in 2014. Mr Thilo Kämmerer stepped down from the Supervisory Board on 31 August 2014. He was succeeded by Mr Olaf Kunz as an employee representative with effect from 1 September 2014. Ms Silke Scheiber and Dr Martin Hintze stepped down from the Supervisory Board on 31 December 2014. Ms Xu Ping and Ms Birgit Behrendt were appointed by the courts as their successors with effect from 1 January 2015. The Supervisory Board would like to thank Ms Scheiber, Dr Hintze and Mr Kämmerer for the great dedication with which they have always carried out their work in the interests of the Company. Both appointments will be submitted for confirmation by the shareholders at the Annual General Meeting.
As preparation for their duties as members of the Company’s Supervisory Board, the new members were offered a comprehensive programme of information on the Company’s business and on the main governance-related processes put in place by the Company in relation to risk management, the internal control system, internal auditing and compliance.
The details of this report were discussed thoroughly at the Supervisory Board meeting on 18 March 2015 when it was adopted.
My colleagues on the Supervisory Board and I would like to thank the members of the Executive Board and the employees of KION GROUP AG and its Group companies in Germany and abroad for their commitment and outstanding achievements in 2014.
Dr John Feldmann