The Supervisory Board comprehensively fulfilled all tasks incumbent upon it under applicable law, the Articles of Incorporation and By-Laws in fiscal 2019. We closely supervised, carefully monitored and advised the Executive Board in the management of the company. We have satisfied ourselves of the legality and expediency of management. We were directly involved in a timely manner in all decisions of fundamental importance to the company.
The Executive Board provided the Supervisory Board with regular, timely and comprehensive updates at its meetings and in writing on all issues of relevance to the company. In particular, these include the business performance, planning, business strategy, significant business transactions in the company and the corporation, and the related risks and opportunities, as well as compliance issues. The members of the Supervisory Board were also available to the Executive Board for consultation outside the meetings. As chairman of the Supervisory Board, I had regular contact with the Executive Board and its chairman and discussed current company issues and developments with them.
Meetings of the Supervisory Board and the committees
The Supervisory Board held four ordinary meetings and two extraordinary meetings in 2019, as well as the strategy meeting. At three meetings, the Supervisory Board conferred part of the time in the absence of the Executive Board. The Chairman’s Committee held three meetings and one telephone conference in the year under review. The Audit Committee met four times and held one telephone conference in 2019. The Nomination Committee met once to discuss and approve the nominations for candidates for election as shareholder representatives to the Supervisory Board. The Mediation Committee in accordance with Section 27 (3) of the German Co-determination Act (Mitbestimmungsgesetz – MitbestG) was not required to meet in 2019. There are no other committees. All committees report to the plenary session on a regular basis. The corporate governance declaration starting on page 16 describes their responsibilities in more detail and names their members.
All members of the Supervisory Board attended more than half of the meetings of the plenary session and also of the committees to which they belonged in the past fiscal year. Most members of the Supervisory Board attended all meetings in person. A detailed account of each Supervisory Board member’s meeting attendance will be published in the Investors section of our website on March 23, 2020, with the invitation to the Annual Shareholders’ Meeting.
Key topics dealt with by the Supervisory Board and the Chairman’s Committee
At each meeting of the plenary session, the Executive Board informed the Supervisory Board in detail of the sales, results and employment development in the corporation and individual divisions as well as the financial situation of the company. Where the actual course of business deviated from the defined plans and targets, the Executive Board provided detailed explanations. It discussed the reasons for these deviations and the measures introduced in depth with the Supervisory Board. In addition, the Executive Board regularly informed us about the corporation’s main raw materials and sales markets and about Continental AG’s share price performance.
At the meeting to approve the annual financial statements on March 14, 2019, we discussed in detail and approved the reorganization of the company and in particular the creation of an Automotive Board for the Automotive Technologies group sector. In connection with this, we also made personnel changes in the Executive Board, which are explained in detail under “Personnel changes in the Supervisory Board and Executive Board.” Other topics of focus in this meeting were the company’s annual financial statements and the consolidated financial statements for 2018, which we discussed and approved in the presence of the auditor. In addition, we resolved to grant the 2019/2022 long-term incentive tranche to the members of the Executive Board. The Annual Shareholders’ Meeting on April 26, 2019, elected the shareholder representatives on the Supervisory Board. The election of employee representatives had already taken place on March 20, 2019. We also report on the personnel changes made as a result under “Personnel changes in the Supervisory Board and Executive Board.” In its meeting following the Annual Shareholders’ Meeting, the Supervisory Board was constituted and elected its vice chairwoman as well as the members of the committees. The discussions at this meeting were otherwise limited to the current business performance.
The Supervisory Board meetings in the second half of 2019 addressed in more detail the major challenges that the company must overcome due to further declining markets and the simultaneous, partially disruptive and dramatically accelerating transformation of the automotive industry. On July 30, 2019, an extraordinary Supervisory Board meeting was held to discuss the Executive Board’s strategy for maintaining Continental’s long-term financial strength, increasing its competitiveness and safeguarding its viability in this environment, as well as any action that may be required as a result. The Executive Board presented concrete measures in the Supervisory Board meeting on September 25, 2019. The Supervisory Board discussed these at length and declared that it would help to review the required structural adjustments. The Supervisory Board also noted and approved the Executive Board’s decision to examine the feasibility of not only a partial IPO of the Powertrain division but also its full spin-off with subsequent listing. This meeting was otherwise devoted for the most part to discussions without the Executive Board, in particular discussions relating to the succession plan for the Executive Board. Finally, the head of the Compliance department submitted its annual report to the plenary session on the department’s work and significant compliance cases.
At the full-day strategy meeting on September 24, 2019, the Executive Board and the Supervisory Board once again discussed at length the strategic objectives and strategic planning of the corporation and the divisions, as well as the HR strategy. The topics included in particular automated driving and connectivity, electrification, the Rubber Group’s growth strategy and, as a key theme, artificial intelligence. On November 20, 2019, another extraordinary meeting was held in which we again thoroughly reviewed the structural changes discussed in September and approved measures in the Interior division’s Instrumentation & Driver HMI business unit and in connection with the discontinuation of the Powertrain division’s hydraulics business.
At its meeting on December 11, 2019, the Supervisory Board discussed the annual planning for 2020 and long-term planning. It also approved the planning and the investment plans for fiscal 2020. In addition, we discussed at length proposed changes to the remuneration system for Executive Board members. After new regulations, which have implications for the remuneration system, were introduced to the German Act for the Implementation of the 2nd E.U. Shareholder Rights Directive (ARUG II) shortly before its approval in November 2019, we put off passing resolutions in this regard until early 2020.
At its meeting on March 14, 2019, the Chairman’s Committee approved the issuance of a promissory note bank loan and the granting of guarantees for the joint venture Osram Continental GmbH, Munich, Germany. In addition, this meeting and the meeting on December 11, 2019, involved in particular preparatory discussions regarding the plenary session’s decisions on remuneration for Executive Board members and on personnel matters relating to the Executive Board. In a telephone conference on June 19, 2019, the Chairman’s Committee approved the acquisition of Merlett Tecnoplastic S.p.A., Daverio, Italy, for the ContiTech business unit Industrial Fluid Solutions. At its meeting on September 24, 2019, it approved refinancing of the revolving credit line of up to €4 billion.
Key topics dealt with by the Audit Committee
The Audit Committee was also informed by the Executive Board in detail and on an ongoing basis about sales, results and employment development in the corporation and individual divisions as well as the financial situation of the company. The Executive Board is assisted by the heads of Accounting and Corporate Controlling, who can provide the Audit Committee directly with information at its meetings. In addition, the chairman of the Audit Committee is in contact with the chief financial officer and the auditor of the corporation outside of the meetings on a regular basis.
As a focus of each of its quarterly meetings, the Audit Committee talks with the Executive Board about the accounting as at the end of the previous quarter and the outlook for the year as a whole as well as the quarterly and half-year financial reports prior to their publication. At its meeting on February 27, 2019, and in a telephone conference on March 1, 2019, the Audit Committee discussed the company’s annual financial statements and the consolidated financial statements for 2018 with the Executive Board and the auditor and recommended their approval to the plenary session of the Supervisory Board. The interim financial statements as at June 30, 2019, were reviewed by KPMG AG Wirtschaftsprüfungsgesellschaft, Hanover (KPMG), on behalf of the Audit Committee. The work of the Compliance and Corporate Audit departments and reporting on significant incidents are also regular topics at each quarterly meeting. This included in particular the matters described in more detail in the report on risks and opportunities and in the notes to the consolidated financial statements. The head of the Compliance department and the head of Corporate Audit are also available to provide information directly to the Audit Committee and its chairman in coordination with the Executive Board. The chairman of the Audit Committee shares key information as part of his regular reporting to the plenary session. In addition, the Executive Board reports to the Audit Committee on the material risks covered by the risk management system and the corresponding measures resolved. The Audit Committee has satisfied itself of the effectiveness of the internal control system, the risk management system and the internal audit system.
In addition to these recurring topics, the Audit Committee also discussed cyber security at Continental and the selection process for the change of auditor required in 2021 at its meeting on May 7, 2019. On July 30, 2019, the Audit Committee heard information on the progress of major acquisition and investment projects, as it does regularly every year. In 2019, this related in particular to the acquisition of Bandvulc Group, United Kingdom, by the Tire division, and the establishment of the joint venture Osram Continental GmbH. At the meeting on November 5, 2019, the Audit Committee issued the mandate for the audit of the 2019 annual and consolidated financial statements and the dependent company report to the auditor appointed by the Annual Shareholders’ Meeting, KPMG, after obtaining the necessary dependent company report, and coordinated key audit matters with the auditor. KPMG was also commissioned to audit the combined corporate non-financial statement. In addition, the Audit Committee defined an approval framework for commissioning the auditor with permissible non-audit services in accordance with the E.U. Audit Regulation. The Executive Board regularly informs the Audit Committee about the use of this framework. In a next important step in the tender for the change of auditor, the two shortlisted candidates introduced themselves to the Audit Committee and were interviewed at length by its members.
At its meeting in December 2019, the Supervisory Board agreed to an updated declaration in accordance with Section 161 of the German Stock Corporation Act (Aktiengesetz – AktG) on the recommendations of the German Corporate Governance Code (Deutscher Corporate Governance Kodex). There were no conflicts of interest for members of the Supervisory Board in the reporting year. In its opinion, the Supervisory Board also had an appropriate number of independent members as defined in the German Corporate Governance Code at all times in the period under review. Further information on corporate governance is included in the corporate governance report starting on page 12.
Annual and consolidated financial statements; combined corporate non-financial statement for 2019
KPMG audited the annual financial statements as at December 31, 2019, prepared by the Executive Board in accordance with the provisions of the German Commercial Code (Handelsgesetzbuch – HGB), the 2019 consolidated financial statements and the combined management report for the corporation and Continental AG, including the accounts, the accounting-related internal control system and the system for early risk recognition. The 2019 consolidated financial statements of Continental AG were prepared in accordance with the International Financial Reporting Standards (IFRS). The auditor issued unqualified opinions. In terms of the system for early risk recognition, the auditor found that the Executive Board had taken the necessary measures under Section 91 (2) AktG and that the company’s system for early risk recognition is suitable for identifying developments at an early stage that pose a risk to the company as a going concern. In addition, KPMG audited the Executive Board’s report on relations with affiliated companies pursuant to Section 312 AktG (dependent company report). KPMG issued the following unqualified opinion on this report in accordance with Section 313 (3) AktG:
“Based on the results of our statutory audit and evaluation we confirm that:
- the actual information included in the report is correct,
- with respect to the transactions listed in the report, payments by the company were not unduly high or that detrimental effects had been compensated for, and
- there are no circumstances in favor of a significantly different assessment than that made by the Executive Board in regard to the measures listed in the report.”
The Audit Committee discussed the documents relating to the annual financial statements, including the dependent company report, and the auditor’s reports with the Executive Board and the auditor on March 3, 2020. Furthermore, the plenary session of the Supervisory Board discussed these at length at its meeting to approve the annual financial statements on March 17, 2020. The discussions also concerned the combined corporate non-financial statement for the Continental Corporation and for Continental AG according to Section 289b and Section 315b HGB. The required documents were distributed to all members of the Audit Committee and the Supervisory Board in good time before these meetings so that the members had sufficient opportunity to review them. The auditor was present at these discussions. The auditor reported on the main results of the audits and was available to provide additional information to the Audit Committee and the Supervisory Board. Based on its own review of the annual financial statements, the consolidated financial statements, the combined management report of Continental AG and of the corporation, as well as the dependent company report including the final declaration of the Executive Board, and based on the report and the recommendation of theAudit Committee, the Supervisory Board concurred with the results of the auditor’s audit. There were no objections. The Supervisory Board approved the annual financial statements and the consolidated financial statements. The annual financial statements are thereby adopted. KPMG issued an unqualified opinion for the combined corporate non-financial statement. Based on the Supervisory Board’s own review, the Audit Committee’s report on its preliminary examination and its recommendation, and KPMG’s audit and unqualified opinion on the combined corporate non-financial statement, the Supervisory Board finds that the combined corporate non-financial statement is correct and appropriate and was prepared in accordance with Sections 315b and 315c in conjunction with Sections 289c to 289e HGB.
The Supervisory Board together with the Executive Board will propose a dividend distribution of €4.00 per share for the past fiscal year at the Annual Shareholders’ Meeting on April 30, 2020.
Personnel changes in the Supervisory Board and Executive Board
As previously reported, the term of office of the previous Supervisory Board expired at the end of the Annual Shareholders’ Meeting on April 26, 2019. After the election of the shareholder representatives by the Annual Shareholders’ Meeting and the employee representatives on March 20, 2019, the following personnel changes were made: On the employee side, Gudrun Valten and Erwin Wörle left the Supervisory Board. On the shareholder side, Prof. Dr-Ing Peter Gutzmer and Prof. Dr Klaus Mangold did not stand for reelection. The Supervisory Board would like to thank them all once again for their valuable contributions – in some cases over many years – to the work of the Supervisory Board. The Annual Shareholders’ Meeting appointed Isabel Corinna Knauf, member of the group management committee at the Knauf Group, a leading manufacturer of building materials and construction systems, as well as Satish Khatu, management advisor and until 2013 senior executive of the IBM Group. The new members of the Supervisory Board on the employee side are Hasan Allak, chairman of the corporate works council of Continental AG and chairman of the works council of Continental Reifen Deutschland GmbH at the Stöcken site; and Lorenz Pfau, chairman of the central works council of Continental Automotive GmbH.
Further information on the members of the Supervisory Board and its committees who were in office in the year under review can be found starting on page 18, and on pages 208 and 209.
At its meeting on March 14, 2019, the Supervisory Board also approved a reorganization at the Executive Board level with key personnel decisions. Nikolai Setzer, who had been responsible for the Tire division and Corporate Purchasing, switched to the Automotive Group on April 1, 2019, where he assumed the new position of spokesman of the Automotive Board with responsibility for maintaining a unified business strategy in this area. On April 1, 2019, Nikolai Setzer was succeeded as head of the Tire division and Corporate Purchasing by new Executive Board member Christian Kötz, who was previously head of the Commercial Vehicle Tires business unit. His appointment will run for three years until the end of March 2022. At the same time, the Supervisory Board extended ahead of time until the end of March 2024 the appointment of Nikolai Setzer due to his new role, as well as the appointments of Frank Jourdan and Helmut Matschi due to the changes in the automotive business. The appointment of Wolfgang Schäfer, who is responsible for Finance as well as Controlling, Compliance, Legal and IT, was also extended by five years until the end of 2024.
The Supervisory Board would like to thank the Executive Board, all the employees and the employee representatives for their considerable dedication over the past year.
Hanover, March 17, 2020
For the Supervisory Board,
Prof. Dr.-Ing. Wolfgang Reitzle