Report of the supervisory board
Chairman of the Supervisory Board
CLOSE COOPERATION BETWEEN SUPERVISORY BOARD AND BOARD OF MANAGEMENT
In 2017, the Supervisory Board of DEUTZ AG continued its ongoing monitoring of the management of the business in accordance with the requirements of the German Stock Corporation Act (AktG) and the German Corporate Governance Code and provided advice to the Board of Management on key decisions. The Supervisory Board was directly involved in all material decisions taken by the Board of Management. In particular, the Board of Management coordinated closely with the Supervisory Board on the Company’s corporate strategy.
Four ordinary and two extraordinary meetings of the Supervisory Board were held in 2017. Apologies for absence were received from one member for the meetings on 9 March 2017 and 26 July 2017; all members of the Supervisory Board participated in all the other meetings in 2017.
At each of the ordinary meetings of the Supervisory Board, the Board of Management reported on the general economic, market and competitive environment for the DEUTZ Group, presented a business update and sales report that included detailed information on the actual performance of the business over the immediately preceding period, submitted an up-to-date risk report, provided information on key operational issues and offered an overview of the results forecast for the year as a whole. These reports were made on the basis of the key performance indicators that were already familiar to the Supervisory Board members from the Company’s written monthly reports. These key performance indicators included new orders, orders on hand, revenue, unit sales, EBIT, research and development expenditure, capital expenditure, working capital, quality data and headcount data, in each case compared against the prior-year figures and budget. Reports from the Human Resources and Audit Committees presented by their chairperson were also a regular item on the agenda of the Supervisory Board meetings.
FOCUS OF SUPERVISORY BOARD DELIBERATIONS
The deliberations and discussions of the Supervisory Board in the year under review focused on the current business position and risk situation of the DEUTZ Group as well as on the operational and strategic development of the business. Particular attention was paid to the acquisition of Torqeedo GmbH, the alliance with Liebherr, the development of new business and the steps to bring about lasting quality improvements.
Other key decisions concerned the 2018 budget, the medium-term planning up to 2022 and the approval of capital expenditure and development projects. As is the case every year, the Supervisory Board also adopted resolutions concerning the achievement of targets by the Board of Management – and consequently its variable remuneration for the previous year – as well as the setting of its targets for the current year and its medium-term targets.
The Board of Management ensured that it provided the Supervisory Board with comprehensive, regular and timely information at all times. Between meetings, the Board of Management informed the members of the Supervisory Board in writing about all important events. In addition, the chairman of the Supervisory Board and the chairman of the Board of Management remained in close and regular contact to discuss all important transactions, imminent decisions and optimisation measures. All the decisions that the Supervisory Board was required to take in accordance with the law and Statutes were taken on the basis of the reports and draft resolutions submitted by the Board of Management and, where necessary, following preparation by the relevant committees of the Supervisory Board.
Composition of the Board of Management
On 22 September 2016, the Supervisory Board had appointed Dr Frank Hiller as a member and the Chairman of the Board of Management with effect from 1 January 2017 for a term of five years up to 31 December 2021. At the Supervisory Board meeting on 8 December 2017, following preparatory work by the Human Resources Committee, the Supervisory Board appointed Dr Andreas Strecker as a member of the Board of Management and as the Company’s Human Resources Director for the period from 1 March 2018 to 28 February 2021. He succeeds Dr Margarete Haase, whose term of appointment continues until 30 April 2018. The Supervisory Board would like to thank Dr Haase for her very successful work. By means of a resolution dated 31 January 2018, following preparatory work by the Human Resources Committee, the Supervisory Board extended Mr Wellenzohn’s appointment by five years for the period from 1 January 2019 to 31 December 2023.
Corporate governance: declaration of conformity with four exceptions
At its meeting on 21 September 2017, the Supervisory Board also held in-depth discussions on the German Corporate Governance Code as amended on 7 February 2017 and, together with the Board of Management, issued a declaration of conformity pursuant to section 161 AktG. This declaration includes just four variances from the Code and since 22 September 2017 has been available in the ‘Investor Relations/Corporate Governance’ section of the Company’s website at www.deutz.com, where it can be downloaded.
Matters handled efficiently by four committees
The Supervisory Board has created four committees to enable it to perform its duties effectively. These committees prepare various topics and resolutions for the full Supervisory Board. Details of all members of the Supervisory Board and its committees, as well as other directorships held by its members, are shown separately in the notes to the consolidated financial statements of this annual report.
The Human Resources Committee makes preparations for all Supervisory Board decisions concerning the appointment of members of the Board of Management and their contracts of employment, including the remuneration specified therein, and all issues arising in this connection. The committee met on six occasions in 2017. Among the main matters addressed were the preparation of the resolutions to be adopted by the full Supervisory Board in relation to Dr Strecker succeeding Dr Haase on the Board of Management, to the achievement of the Board of Management’s targets for 2016 and to the setting of Board of Management targets, including medium-term targets, for 2017.
The work of the Audit Committee in the year under review focused on monitoring the financial accounting process, on assessing the annual and consolidated financial statements and the combined management report of DEUTZ AG and the Group for 2016 and the corresponding auditors’ reports, the condensed consolidated financial statements for the six months to 30 June 2017 and their review by the auditors, the interim management statements for the periods ended 31 March and 30 September 2017, and the discussion of the audit engagement for the year ended 31 December 2017, including a review of auditor quality and independence. Other matters addressed by the committee included risk management, compliance, the internal control system, internal audit, strategic planning, key performance indicators as well as the non-financial report that had to be produced for the 2017 financial year for the first time and other obligations resulting from implementation of the CSR directive (2014/95/EU). In 2017, the Audit Committee held four meetings, three of which were also attended by the external auditors.
The Arbitration Committee set up pursuant to section 27 (3) of the German Codetermination Act (MitbestG) is responsible for the activities described in section 31 (3) of the Act. It did not need to be convened during the year under review.
The Nominations Committee is tasked with proposing to the Supervisory Board suitable candidates as shareholder representatives on the Supervisory Board. The Nominations Committee met once in 2017, during which it focused on preparations for the Supervisory Board election to be held in 2018.
The entire Supervisory Board was informed of the outcome of all discussions in the committees and gave its approval to the recommendations for board resolutions submitted by the committees.
ANNUAL AND CONSOLIDATED FINANCIAL STATEMENTS AUDITED IN DETAIL AND APPROVED
The annual financial statements of DEUTZ AG prepared by the Board of Management in accordance with the German Commercial Code (HGB), the consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS) and the combined management report for DEUTZ AG and the DEUTZ Group, in each case for the year ended 31 December 2017, were audited by PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, Cologne, Germany, the auditors appointed by the Annual General Meeting on 4 May 2017. The auditors issued unqualified opinions.
The annual financial statements of DEUTZ AG, the consolidated financial statements, the combined management report, the Board of Management’s proposal for the appropriation of profit and the auditors’ reports were made available to all members of the Supervisory Board and were examined by the Supervisory Board. The auditors explained their audit findings in detail to the Audit Committee meeting held on 27 February 2018 and to the Supervisory Board meeting held on 8 March 2018 and answered any supplementary questions raised.
The Supervisory Board approved the findings of the auditors’ reports on DEUTZ AG and the DEUTZ Group. The conclusive findings of the Supervisory Board’s own audit have not led to any reservations about either the annual financial statements or the consolidated financial statements, and the Supervisory Board has therefore approved them. The annual financial statements have thus been adopted. Finally, the Supervisory Board audited the separate combined non-financial report. This was the first time that it was required to fulfil this obligation pursuant to section 171 (1) sentence 4 AktG. It did not identify any issues.
The Supervisory Board also approved the Board of Management’s proposal to use the accumulated income reported as at December 31, 2017 to pay a dividend of €0.15 per dividend-bearing share.
Composition of the Supervisory Board and its committees
The changes in the composition of the Supervisory Board in 2017 are described below.
At the request of the Board of Management, the local court in Cologne on 19 May 2017 appointed Mr Gerhard Gehweiler as an employee representative on the Supervisory Board of DEUTZ AG with effect from 1 June 2017 for the remaining term of the current Supervisory Board membership cycle. The appointment became necessary when Dr Herbert Vossel stepped down from his post with effect from 31 May 2017. The Supervisory Board would like to thank Dr Vossel for his work and valuable contribution.
At its meeting on 9 March 2017, the Supervisory Board elected Ms Füssel to succeed Mr Paust as a member of the Arbitration Committee.
Conflicts of interest / independence of Supervisory Board members / thanks
No conflicts of interest between members of the Supervisory Board and DEUTZ AG arose in the year under review. The current members of the Supervisory Board of DEUTZ AG are all considered independent within the meaning of article 5.4.2 sentence 2 of the German Corporate Governance Code.
The Supervisory Board would like to express its thanks and appreciation to all employees of DEUTZ AG in Germany and abroad, to the elected employee representatives and to the Board of Management for their valuable efforts and the considerable dedication they showed in 2017.
Cologne, March 2018
The Supervisory Board