Report by the Supervisory Board
In this report the Supervisory Board gives an account of the performance of its functions and the key aspects of its work in fiscal 2010/2011. Its discussions focused on the business and financial situation of the Group, the major investment projects in Brazil and the USA, and the Strategic Way Forward for the Group.
- Monitoring and advising the Executive Board
- Effective work in the committees
- Executive Committee
- Personnel Committee
- Mediation Committee
- Audit Committee
- Strategy, Finance and Investment Committee
- Nomination Committee
- Main content of Supervisory Board meetings and resolutions
- Corporate governance and Declaration of Conformity
- Audit of the parent-company and consolidated financial statements
- Composition of the Supervisory Board and Executive Board
Monitoring and advising the Executive Board
In the reporting year the Supervisory Board again regularly advised the Executive Board on the management of the Company and continuously supervised its conduct of business. We satisfied ourselves that business complied with all legal and regulatory requirements. The Executive Board fulfilled its duty to inform and furnished us with regular written and verbal reports containing up-to-date and comprehensive information on all incidents and measures of relevance to the Company. In our committees and in full Supervisory Board meetings we always had ample opportunity to critically examine the reports, applications and resolution proposals of the Executive Board and contribute suggestions. In particular, all events of importance to the Company were discussed intensively by the committees and the full Supervisory Board on the basis of written and verbal reports by the Executive Board. Where required by law and the Articles of Association, we took a vote. In justified cases resolutions were passed outside meetings by written procedure.
In the periods between meetings, the Supervisory Board Chairman and the Chairman of the Audit Committee were in regular contact with the Executive Board and were informed about major developments. The shareholder and the employee representatives each held separate meetings before the Supervisory Board meetings to discuss items on the agenda.
In 2010/2011, four regular and one extraordinary Supervisory Board meetings were held. The average attendance at the meetings was 94%. No Supervisory Board members took part in fewer than half of the meetings. With two exceptions, the committee meetings were fully attended.
Signs of conflicts of interest of Executive Board and Supervisory Board members, which must be disclosed to the Supervisory Board immediately and reported to the Annual General Meeting, did not occur in the past fiscal year.
Effective work in the committees
To perform its functions efficiently, the Supervisory Board has formed six committees. The committees prepare the resolutions of the Supervisory Board as well as the issues to be dealt with at the full meetings. Where legally permissible, in suitable cases decision-making powers of the Supervisory Board were delegated to individual committees. All committees are chaired by the Supervisory Board Chairman, with the exception of the Audit Committee. The content and results of each committee meeting were immediately communicated to the Supervisory Board. The compositions of the individual committees are shown on page 21.
Executive Committee
The Executive Committee (Praesidium) met seven times and conducted one conference call in the reporting year. In my capacity as Chairman, I maintained close contact with the individual Executive Committee members between meetings to discuss projects of particular importance. In addition to preparing the full Supervisory Board meetings, our main subjects of deliberation were the earnings performance, financial position and ratings situation of the Group, the Executive Board's strategy for the Group going forward including the carve out of Stainless Global, the major investment projects in Brazil and the USA, the sale of treasury shares in July 2011, and in a meeting at the beginning of December 2011 impairment in the Steel Americas and Stainless Global business areas.
Personnel Committee
The Personnel Committee likewise met seven times and held one conference call. It dealt in detail with the structure of the Executive Board compensation system and the compensation for each Executive Board member and submitted corresponding resolution proposals to the full Supervisory Board. Details of the compensation system are presented in the compensation report on pages 33-37. Further key topics discussed were the appointment of Mr. Guido Kerkhoff to the Executive Board of ThyssenKrupp AG as well as amendments to the Executive Board organization chart. The Personnel Committee also gave its approval for the acceptance of external directorships by individual Executive Board members and the retention of the law firm Clifford Chance, for which Supervisory Board member Dr. Kersten v. Schenck works as Of Counsel.
Mediation Committee
Once again in fiscal 2010/2011 it was not necessary to convene the Mediation Committee in accordance with § 27 par. 3 German Codetermination Act (MitbestG).
Audit Committee
The Audit Committee held four meetings in 2010/2011. Alongside the committee members, the financial-statement auditors, the Chairman of the Executive Board, the Chief Financial Officer and the Executive Board member responsible for compliance regularly attended the meetings. For selected agenda items, further Executive Board members and the responsible senior vice presidents also took part. The committee mainly dealt with the parent-company and consolidated financial statements for 2009/2010, the monitoring of the accounting process, and the effectiveness of the internal control system, risk management system and internal auditing system. The 2010/2011 interim reports were discussed at length prior to their publication. The auditors reported in detail on all occurrences of significance to the work of the Supervisory Board identified in the course of the audit of the annual financial statements and the audit review of the interim reports.
Ahead of the Annual General Meeting on January 21, 2011, a proposal was submitted to the full Supervisory Board for the election of the auditors for the 2010/2011 fiscal year. After their election by the Annual General Meeting, the auditors were engaged by the Audit Committee to audit the parent-company and consolidated financial statements and to carry out audit reviews of the interim reports. A fee was agreed with the auditors. The auditors declared to the Audit Committee that no circumstances exist which could lead to the assumption of prejudice on their part, and reported on the non-audit services they had performed. The Audit Committee obtained the required auditors' statement of independence and monitored the qualification of the auditors. A further central issue was the preparation of the bidding process for the audit contract which was initiated in the past fiscal year.
In its meetings in November 2010 and May 2011 the committee was informed in detail about the Group's compliance activities, which were then also addressed in the full Supervisory Board meetings. The regular discussion of the investment projects in Brazil and the USA continued in the reporting year. In addition, the committee studied the audit plan and quality management system of the Group's internal auditing department, the results of audits carried out, and regular reports on legal risks. On this basis it satisfied itself that the management of the Company is in compliance with the law.
On the basis of an updated profitability analysis by Ernst & Young, the Audit Committee met on December 01, 2011 to discuss in detail the subject of impairment losses in the Steel Americas business area and its effects on the consolidated and parent-company financial statements. Impairment in the Stainless Global business area was also discussed in this meeting.
Strategy, Finance and Investment Committee
In two meetings in fiscal 2010/2011, the Strategy, Finance and Investment Committee dealt primarily with the Strategic Way Forward for the Group and the competitive position of the individual business areas. The Group's investment policy was reviewed taking into consideration the current ratings situation. Further key topics were the corporate and investment planning and preparation of corresponding Supervisory Board resolutions, the major investment projects in Brazil and the USA, and the planned divestment projects. In a meeting on December 01, 2011 this Committee also dealt in detail with impairment losses in the Steel Americas and Stainless Global business areas.
Nomination Committee
The Nomination Committee held one meeting in the reporting year and addressed the question of a successor for Dr. Henning Schulte-Noelle, who stood down from the Supervisory Board with effect from the close of the Annual General Meeting on January 21, 2011. The Nomination Committee concurred with the proposal of the Alfried Krupp von Bohlen und Halbach Foundation to propose to the Annual General Meeting that it elect Prof. Dr.-Ing. Ekkehard D. Schulz as successor.
Main content of Supervisory Board meetings and resolutions
The meeting on November 26, 2010 focused on the parent-company and consolidated financial statements for the year ended September 30, 2010, and the Executive Board's proposal for the appropriation of net income. We reported on this in detail in the last Annual Report. On the basis of a detailed report by the Executive Board and the deliberations of the Strategy, Finance and Investment Committee, we also discussed the corporate planning for the 2010/2011 fiscal year with the Executive Board; this included the plausibility of the expectations presented and the earnings opportunities and risks. Further matters discussed were the changeover of the Group's internal performance indicator from EBT to EBIT, the ratings situation, the planned disposals of the Metal Forming group and the Xervon group, as well as the position and opportunities of ThyssenKrupp in the BIC countries. Other key topics were the development of raw material costs and the framing of contracts with raw material suppliers, particularly in the steel sector. The Supervisory Board requested the Executive Board to examine all alternatives to safeguard supply security. We dealt in depth with ThyssenKrupp Forging Group's project to build a crankshaft production plant in China, which we then approved. The Supervisory Board also adopted the agenda for the Company's Annual General Meeting on January 21, 2011 together with the proposals for resolution. We supported the proposal of the Alfried Krupp von Bohlen und Halbach Foundation and the recommendation of the Nomination Committee to propose to the Annual General Meeting to elect Prof. Dr.-Ing. Schulz to the Supervisory Board. In our view, after the election of Prof. Dr.-Ing. Schulz the board continues to have an adequate number of independent members. Prof. Dr. Beatrice Weder di Mauro was elected to the Nomination Committee as an additional member.
Further, based on previous preparation by the Executive Committee, the Supervisory Board discussed the results of its efficiency review. In this connection we agreed with the Executive Board that in the future training events on special topics should be organized for the Supervisory Board.
In the Supervisory Board meeting immediately before the Annual General Meeting on January 21, 2011, the Executive Board reported to us on the current state of the Group and the development of the Steel Americas business area. At the recommendation of the Personnel Committee, the Supervisory Board approved in principle the parameters of an updated bonus scheme for the Executive Board. In view of the appointment of Dr. Heinrich Hiesinger as Executive Board Chairman and Dr. Jürgen Claassen as Executive Board member with effect from the close of the Annual General Meeting, we adopted a new organization chart for the Executive Board. In addition, we approved the premature termination of the appointment of Dr. Alan Hippe as Executive Board member effective March 31, 2011.
An extraordinary Supervisory Board meeting was held on March 04, 2011, at which Mr. Kerkhoff was appointed to succeed Dr. Hippe as member of the Executive Board of ThyssenKrupp AG for a period of five years with effect from April 01, 2011. The Executive Board reported on the current state of the Group and the status of various divestment projects.
A further Supervisory Board meeting was held on May 13, 2011. In addition to its regular report on the state of the Group, the Executive Board reported in detail on the development of Steel Americas as well as the financial position and ratings situation of the Group. A central topic was the Strategic Way Forward for the Group. The Executive Board presented in detail the main features of its strategy and the proposed measures. After thorough discussion the Supervisory Board approved the strategic plan in principle. In this meeting we focused our attention in particular on the Executive Board's report on the compliance system. In addition, the Supervisory Board was informed about the proposed bidding process for the financial-statement audit contract, which had previously been discussed in detail in the Audit Committee. We approved the disposal of the Metal Forming group to the Spanish company Gestamp Automoción S.L.; the status of the reorganization of the Marine Systems business area was discussed. In line with the proposal of the Personnel Committee, the Supervisory Board then adopted an updated bonus scheme for the Executive Board for the current fiscal year, the parameters of which had been resolved in the meeting on January 21, 2011. Dr. Olaf Berlien's appointment as member of the Executive Board of ThyssenKrupp AG was renewed for a further five years until March 31, 2017.
After prior discussion in the Executive Committee, in July 2011 the Supervisory Board approved by written procedure the sale of the treasury shares held by ThyssenKrupp AG in the amount of 9.6% of the capital stock. In the Supervisory Board meeting on September 02, 2011 the Executive Board reported in depth on the effects of the sale of this share package on the financial and accounting figures and the ratings situation. A further topic was the progress report on the implementation of the Group's strategy going forward including the accompanying corporate program ThyssenKrupp impact. The Executive Board also informed us about the status of the divestment projects; we discussed in particular the options for separating the activities of the Stainless Global business area. The Executive Board explained the opportunities and risks of the individual alternatives in the international marketplace. The Supervisory Board has every confidence that the Executive Board will successfully implement the strategy and the necessary change processes. We also approved the disposal of the Xervon group and the acquisition of two elevator companies in the USA and Europe. The meeting was followed by a training and discussion event on "M&A transaction models: IPO and spin-off".
Corporate governance and Declaration of Conformity
The Supervisory Board monitors on an ongoing basis the implementation of the provisions of the German Corporate Governance Code and the development of corporate governance standards. The Executive Board – also on behalf of the Supervisory Board – reports on corporate governance at ThyssenKrupp in the corporate governance report in accordance with section 3.10 of the German Corporate Governance Code.
The Executive Board and Supervisory Board issued an updated Declaration of Conformity in accordance with § 161 subs. 1 of the German Stock Corporation Act (AktG) on January 21, 2011 and again at October 01, 2011; both are permanently available to shareholders on the Company website. ThyssenKrupp AG complies with all the current recommendations of the Government Commission on the German Corporate Governance Code, and also follows all the Code's suggestions.
Audit of the parent-company and consolidated financial statements
KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin, audited the parent-company financial statements for the fiscal year October 01, 2010 to September 30, 2011 prepared by the Executive Board in accordance with HGB (German GAAP) rules, and the management report of ThyssenKrupp AG. The auditors issued an unqualified audit opinion. In accordance with § 315 a HGB, the consolidated financial statements of ThyssenKrupp AG for the fiscal year from October 01, 2010 to September 30, 2011 and the management report on the Group were prepared on the basis of International Financial Reporting Standards (IFRS) as applicable in the European Union. The consolidated financial statements and the management report on the Group were also given an unqualified audit opinion. The auditors also confirmed that the Executive Board has installed an appropriate reporting and monitoring system which is suitable in its design and handling to identify at an early stage developments which could place the continued existence of the Company at risk.
The Audit Committee and the auditors had selected the following focus themes for the reporting year: "Review of the functioning of the internal control systems at ThyssenKrupp CSA in the area of accounting, focusing in particular on the operating accounting and cost accounting processes". The final documents and audit reports were discussed at length in the Audit Committee meeting on December 01, 2011 and the meeting of the Supervisory Board on December 02, 2011. A central reporting item concerned the impairment losses in the Steel Americas and Stainless Global business areas, the causes and effects of which we discussed in detail in the full Supervisory Board meeting. The auditors reported on the main results of their review, addressing in particular the impairment losses in the Steel Americas and Stainless Global business areas. They also outlined their findings on the internal control and risk management systems in relation to the accounting process; they were also available to answer questions and provide supplementary information. The Chairman of the Audit Committee reported in depth at the full Supervisory Board meeting on the Audit Committee's examination of the parent-company and consolidated financial statements. Following our own examination and discussion of the parent-company financial statements, the consolidated financial statements, the management report and the management report on the Group, we accepted the result of the audit and approved the parent-company and consolidated financial statements. The parent-company financial statements are thus adopted. On the basis of our own examination and after weighing all the arguments, we concurred with the Executive Board's proposal for the appropriation of net income aimed at maintaining the dividend continuity practiced in previous years. We regard the proposed dividend as appropriate.
Composition of the Supervisory Board and Executive Board
At the close of the Annual General Meeting on January 21, 2011 Dr. Schulte-Noelle and Mr. Peter Scherrer stood down from the Supervisory Board. The Annual General Meeting elected Prof. Dr.-Ing. Schulz to succeed Dr. Schulte-Noelle. By court decision Ms. Sabine Maaßen was appointed to succeed Mr. Scherrer with effect from January 22, 2011. The Supervisory Board thanked Dr. Schulte-Noelle, the longest-serving member of the board, as well as Mr. Scherrer for their good work.
I have already reported on the personnel changes in the Executive Board of ThyssenKrupp AG in the 2010/2011 fiscal year; a summary is presented in the overview of the composition of the Executive Board on pages 18-19. In addition, in its meeting on December 02, 2011 the Supervisory Board extended the appointment of Mr. Edwin Eichler as Executive Board member until September 30, 2017. The Supervisory Board expressed thanks and recognition to the departing Executive Board members, Prof. Dr.-Ing. Schulz, who shaped the ThyssenKrupp Group over many years, and also Dr. Hippe.
On behalf of the entire Supervisory Board I thank the management, employees and employee representatives of all Group companies for their work in the past fiscal year.
The Supervisory Board
Dr. Gerhard Cromme
Chairman
Essen, December 02, 2011
Source: Annual Report 2010/2011, p. 22-28
