Report by the Supervisory Board
Before informing you about the work of the Supervisory Board and its committees in fiscal year 2017 / 2018, allow me to make one or two remarks on the past fiscal year: losing the chairman of the Executive Board and the chairman of the Supervisory Board within a short space of time were major events which we members of the Supervisory Board very much regret. In our responsibility for the Company and its employees, however, we now turn our attention to the future. On June 29, 2018 we decided to form a joint venture with Tata Steel for the steel business. In addition, on September 30, 2018 the Executive Board and Supervisory Board decided to separate thyssenkrupp into two new companies. We will now take this path together. The realignment makes economic sense and is borne out of responsibility to the Company, its employees and all its shareholders.
Cooperation between Supervisory Board and Executive Board
In fiscal year 2017 / 2018 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 the Executive Board’s work complied with all legal and regulatory requirements at all times. The Executive Board fulfilled its duty to inform. It furnished us with regular written and verbal reports containing up-to-date and comprehensive information on all issues of relevance to the Company and the Group relating to strategy, planning, business performance, the risk situation and compliance. This also included information on variances between actual performance and previously reported targets as well as on budget variances (follow-up reporting). In the committees and in full Supervisory Board meetings, the members of the Supervisory Board always had ample opportunity to critically examine the reports and resolution proposals submitted by the Executive Board and contribute suggestions. In particular, we discussed intensively and examined the plausibility of all transactions of importance to the Company on the basis of written and verbal reports by the Executive Board. On numerous occasions the Supervisory Board dealt at length with the risk situation of the Company, the liquidity planning and the equity situation. Thanks to an analysis of the value potential of the Group’s businesses and the opportunities and risks of strategic steps, critical operating issues were presented to the Supervisory Board in a clear and differentiated way. Where required by law, the Articles of Association or the rules of procedure for the Executive Board, the Supervisory Board provided its approval of individual business transactions. In the periods between meetings, the Chairmen of the Supervisory Board, Audit Committee and Strategy, Finance and Investment Committee engaged in a close and regular exchange of views and information with the Executive Board and were informed about major developments. Important facts were reported immediately to the following Supervisory Board or Committee meetings. Before the Supervisory Board meetings the shareholder and the employee representatives each held separate meetings to discuss the agenda items. The members of the Supervisory Board were regularly advised of the confidentiality of the content of all meetings. Conflicts of interest of Executive Board and Supervisory Board members, which must be disclosed to the Supervisory Board immediately, did not occur in the past fiscal year.
Supervisory Board meetings
Ten Supervisory Board meetings were held in the reporting year. The average attendance rate at the meetings of the Supervisory Board and its committees was 93%. No Supervisory Board member attended fewer than half the meetings of the Supervisory Board and the relevant committees. The members of the Executive Board took part in the Supervisory Board meetings unless otherwise determined by the Supervisory Board Chairman. The position of Supervisory Board Chairman was held by Prof. Dr. Ulrich Lehner until his departure on July 31, 2018. Until the election of Prof. Dr. Bernhard Pellens as Chairman in the meeting on September 30, 2018, the business of the Supervisory Board was conducted by Vice Chairman Markus Grolms.
The range of topics that the Supervisory Board dealt with in fiscal year 2017 / 2018 included the current business and earnings situation and the parent-company and consolidated financial statements for the year ended September 30, 2017. On the recommendation of the Audit Committee and after discussion with the auditors PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft (PwC) the Supervisory Board approved the parent-company and consolidated financial statements for the 2016 / 2017 fiscal year. At the end of the reporting year the Supervisory Board also discussed and approved the parent-company and consolidated financial statements for the year ended September 30, 2018. Further topics discussed by the Supervisory Board included the corporate and investment planning for fiscal year 2017 / 2018, the preparation of the Annual General Meeting on January 19, 2018, questions of Executive Board compensation and the diversity strategy for the Executive Board and Supervisory Board, which the Supervisory Board adopted. The Supervisory Board regularly received reports from the committees and on the subject of compliance. In addition the focus was on corporate governance, the thyssenkrupp Internal Control System (ICS) and the 2017 EMIR compliance audit pursuant to § 32 WpHG. In connection with the report on the state of the thyssenkrupp Group and the strategic way forward, the discussions on the planned establishment of a joint venture with Tata Steel Europe played a major role. The Supervisory Board dealt intensively with important topics – including pension obligations at Tata Steel UK, the sustainable profitability of Tata Steel UK, the environmental situation at the Port Talbot steel mill in Wales and the indebtedness and economic viability of the joint venture. External reports were commissioned for each of these topics. After intensive and in part fiercely debated discussions in the Supervisory Board, in its committees and in a working group – partly with the participation of external experts – the Supervisory Board approved the combination of the European flat steel activities of the thyssenkrupp Group and the Tata Steel Group in a 50 / 50 joint venture, called thyssenkrupp Tata Steel, on June 29, 2018. Shortly afterwards in its meeting on July 6, 2018 the Supervisory Board with great regret accepted Dr. Heinrich Hiesinger’s request for the termination by mutual consent of his appointment as Chairman and member of the Executive Board of thyssenkrupp AG with immediate effect. In the following meeting on July 13, 2018 the Supervisory Board appointed Guido Kerkhoff as Chairman of the Executive Board of thyssenkrupp AG and approved an amended organization chart. A short time later Prof. Dr. Ulrich Lehner announced his resignation as Chairman of the Supervisory Board effective July 31, 2018. From August 1, 2018 the Vice Chairman Markus Grolms took over the chair of the Supervisory Board.
The Supervisory Board dealt with the activities and strategy of the Industrial Solutions business area twice in the reporting year, namely on January 18 and September 11, 2018. In the second meeting the focus was on the status of the necessary restructuring measures and recent developments in the business area which had necessitated the replacement of members of the Industrial Solutions business area board and a reorganization of the Marine Systems business unit. The Supervisory Board decided to allocate Marine Systems directly to the Executive Board of thyssenkrupp AG. Since then this unit has been headed directly by Oliver Burkhard. In the last meeting of the Supervisory Board in the reporting year on September 30, 2018, Prof. Dr. Bernhard Pellens was elected as the new Chairman of the Supervisory Board of thyssenkrupp AG. In addition, the Supervisory Board approved the plan proposed by the Executive Board for the strategic development of the Group, separating the current thyssenkrupp AG into two listed companies (in the future: thyssenkrupp Materials and thyssenkrupp Industrials). Implementation will be carried out taking into account the general agreement made between the Executive Board of thyssenkrupp AG and IG Metall on September 29, 2018. In fiscal year 2017 / 2018 the Supervisory Board, after reviewing the recommendations and suggestions of the German Corporate Governance Code (GCGC) as amended on February 7, 2017, decided to issue and publish declarations of conformity – also during the year. The most recently issued joint declaration of conformity by the Executive Board and Supervisory Board has been available on the thyssenkrupp website since October 1, 2018. In addition, the Executive Board and Supervisory Board report on corporate governance at thyssenkrupp in the corporate governance report and the corporate governance statement. As part of its further education the Supervisory Board dealt on May 04, 2018 with the Materials Services business area and visited the TechCenter Additive Manufacturing (3D printing) in Mülheim/Ruhr and thyssenkrupp Materials Processing Europe GmbH in Krefeld in order to obtain a direct impression of production conditions and the work of management on site.
Report on the work of the committees
The primary task of the Supervisory Board’s six committees is to prepare decisions and topics for discussion at the full meetings. The Supervisory Board has delegated decision-making powers to the committees where this is legally permissible. The powers of the committees and the requirements on committee members are set out in the rules of procedure for the respective committees. The chairmen of the committees provided the Supervisory Board with regular detailed reports on the work of the committees in the reporting year. The compositions of the six committees are shown in the section “Supervisory Board”. The chairmen of the committees were also in close contact with the other members of their committees outside the regular meetings to coordinate special projects.
The Executive Committee (Praesidium) met eight times in the past fiscal year. In addition to preparing the full Supervisory Board meetings, the main subjects of deliberation were the financial position and earnings performance of the Group, the strategic development of the individual business areas, and the Groupwide projects to optimize effectiveness, efficiency and performance.
The Personnel Committee held twelve meetings in the 2017 / 2018 fiscal year to prepare personnel matters concerning the Executive Board for the Supervisory Board. Where required, resolutions were passed or recommendations for resolutions were made to the Supervisory Board. The meetings addressed general Executive Board matters and – in fulfilment of our duty of care – succession planning. In addition, proposals for establishing the performance bonus and additional bonus and the structuring of pensions for the members of the Executive Board were dealt with. Details of Executive Board compensation are presented in the compensation report.
The Audit Committee met seven times in the 2017 / 2018 fiscal year. Alongside Executive Board members, the meetings were also attended by representatives of the auditors PwC, who were elected by the 2018 Annual General Meeting and subsequently appointed by the Audit Committee. The auditors declared to the Audit Committee that no circumstances exist that could lead to the assumption of prejudice on their part. The Audit Committee obtained the required auditors’ statement of independence, reviewed their qualification, and concluded the fee agreement. In addition a Groupwide survey of auditing quality was carried out; the results of this as well as the additional services provided by PwC alongside the audit of the financial statements were discussed in the Audit Committee. The Chairman of the Audit Committee was also in regular contact with the auditors between meetings. Heads of corporate functions were also available to provide reports and take questions in committee meetings on individual agenda items. In the reporting year the committee’s work focused on examining the 2017 / 2018 parent-company and consolidated financial statements along with the combined management report, the proposal for the appropriation of net income and the auditors’ reports, and preparing the Supervisory Board resolution on these items. In addition, the interim financial reports (half-year and quarterly reports) were also discussed in detail and adopted, taking into account the auditors’ review report. With regard to PwC the catalogue of non-audit services by the financial statement auditor requiring approval was established, and the budget for the performance of non-audit services for the 2017 / 2018 fiscal year was set at a maximum amount of 30% of the agreed audit fee. In addition PwC reported in detail on the new rules for audit reports and on procedures and quality management in connection with the audit of the financial statements. In several meetings the Audit Committee monitored the accounting process and discussed the effectiveness of the internal control system and optimizations made to it, the risk management system and the internal auditing system. It also dealt in detail with the main legal disputes and compliance in the Group and discussed at length the strategic compliance measures at thyssenkrupp. In addition in the presence of the head of Corporate Internal Auditing the committee discussed the internal audit results, the audit processes and the audit planning of the Group internal auditing team for the 2017 / 2018 fiscal year. Further main topics were the determination of the key audit area for the financial statement audit (introduction of new IFRS 15 rules for complete and correct revenue recognition in accounting), the implementation of the CSR directive, the equity capital and rating situation, the EMIR compliance audit for the 2016 / 2017 fiscal year in accordance with § 20 WpHG, and the status of the tax inspections. Regular reports were provided on the status of the corporate initiatives. The committee members dealt in detail with governance matters in relation to the planned joint venture with Tata Steel.
The Strategy, Finance and Investment Committee held five meetings in the 2017 / 2018 fiscal year. Discussions focused on the strategic development of thyssenkrupp and portfolio optimization measures. The committee also discussed in detail reports presented to the Supervisory Board on the business activities and strategy of the individual business areas and corporate functions, in particular on the formation of a joint venture with Tata Steel Europe. Further, the Group’s corporate and investment planning for the reporting year was discussed, taking into account the Group’s current rating and financial situation, and corresponding Supervisory Board resolutions were prepared.
The members of the Nomination Committee convened for eleven meetings in the past fiscal year. Discussions focused in particular on preparing the appointments that had become necessary on the shareholder side of the Supervisory Board. Other main areas of discussion included succession planning for the Supervisory Board – taking into account the recommendations of the German Corporate Governance Code – and the preparation of a competency profile for the Supervisory Board as a whole and a diversity strategy for the Executive Board and Supervisory Board.
There was once again no cause to convene the Mediation Committee under § 27 (3) Codetermination Act in the reporting year.
Audit of the parent-company and consolidated financial statements
Elected by the Annual General Meeting on January 19, 2018 to audit the financial statements for the 2017 / 2018 fiscal year, PwC audited the parent-company financial statements for the fiscal year October 1, 2017 to September 30, 2018 prepared by the Executive Board in accordance with HGB (German GAAP) rules, and the management report on thyssenkrupp AG, which is combined with the management report on the Group. The auditors issued an unqualified audit opinion. In accordance with § 315a HGB, the consolidated financial statements of thyssenkrupp AG for the fiscal year from October 1, 2017 to September 30, 2018, and the management report on the Group, which is combined with the management report on the Company, were prepared on the basis of International Financial Reporting Standards (IFRS) as applicable in the European Union. The consolidated financial statements and the combined management report were also given an unqualified audit opinion by PwC. 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 financial statement documents and audit reports for the 2017 / 2018 fiscal year were discussed in detail in the meetings of the Audit Committee on November 15, 2018 and the Supervisory Board on November 20, 2018. The auditors reported on the main findings of their audit. They also outlined their findings on the internal control system and risk management in relation to the accounting process and were available to answer questions and provide additional 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 examination and discussion of the parent-company financial statements, the consolidated financial statements, and the combined management report by the Supervisory Board no objections were raised. In line with the recommendation by the Audit Committee, the Supervisory Board then approved the result of the audit by the financial statement auditors. Following completion of our examination we came to the conclusion that no objections were to be raised and we established the financial statements of thyssenkrupp AG and approved the consolidated financial statements. Following our own examination and taking the earnings and financial situation of the Group into account, the Supervisory Board concurred with the Executive Board’s proposal to allocate an amount from net income to other retained earnings and for the appropriation of the remaining unappropriated income including a dividend of € 0.15 per share for the 2017 / 2018 fiscal year.
Personnel changes on the Supervisory Board and Executive Board
The following changes took place on the shareholder side: Upon the close of the Annual General Meeting on January 19, 2018 Dr. Ralf Nentwig, who was delegated by the Alfried Krupp von Bohlen und Halbach Foundation, left the Supervisory Board. At the time of the close of the Annual General Meeting the Alfried Krupp von Bohlen und Halbach Foundation delegated Prof. Dr. Dr. h. c. Ursula Gather as a new member to the Supervisory Board. Prof. Dr. Ulrich Lehner left the Supervisory Board on July 31 and René Obermann on August 31 of the reporting year. On the employee side Wilhelm Segerath left the Supervisory Board at the end of fiscal year 2017 / 2018 after over 20 years of membership. Dirk Sievers was court-appointed as his successor with effect from October 2, 2018. The members of the Supervisory Board thanked all departing members for their good and constructive work over many years. The compositions of the committees at September 30, 2018 are shown in the Notes to the Annual Report. The two vacancies on the shareholder side will be filled in a structured process. The successors are to be initially appointed by court and put up for election at the Annual General Meeting on February 1, 2019.
The Supervisory Board thanks the Executive Board members, all employees of the Group worldwide and the employee representatives of all Group companies for their efforts and achievements in the 2017 / 2018 fiscal year.
The Supervisory Board
Prof. Dr. Bernhard Pellens
Essen, November 20, 2018
Source: Annual Report 2015/2016, p. 12-18