Investor Relations

Corporate Governance

Supervisory Board (Financial Year 2020)

In line with German company law, Deutsche EuroShop has a dual management and control structure comprising two executive bodies, the Executive Board and the Supervisory Board.

The Supervisory Board as of 31 December 2020 consisted of nine members and was composed of the following people:

Supervisory Board and committees established by it

 

The Supervisory Board supervises and advises the Executive Board in its management activities in accordance with the provisions of German company law and its rules of procedure. It appoints members of the Executive Board, and significant bus ness transacted by the Executive Board is subject to its approval. The Supervisory Board is composed of nine members, who are elected by the Annual General Meeting.

The Supervisory Board has established the notification and reporting duties to be met by the Executive Board. In addition to a three-member Supervisory Board Executive Committee (which also functions as a nomination committee), an Audit Committee and a Capital Market Committee were established (each also consisting of three members).

Mr Strecker, Ms Dohm and Mr Eggers are members of the Supervisory Board Executive Committee. The Executive Committee is chaired by the Chairman of the Supervisory Board. The Committee discusses urgent business matters and passes relevant resolutions. Moreover, it is responsible for human resources issues concerning the Executive Board and for reviewing the Company’s corporate governance principles. The Executive Committee of the Supervisory Board also fulfils the role of a nomination committee.

The Audit Committee consists of Ms Dohm as Financial Expert and Chairwoman as well as Mr Strecker and Mr Eggers. It is responsible for issues relating to financial reporting, auditing and the preparation of the annual and consolidated financial statements. It supervises the audit and assesses the quality of the auditor’s work as well as the effectiveness of the internal control and risk management systems. Former members of the Company’s Executive Board and the Chairman of the Supervisory Board generally do not chair the Audit Committee, to avoid conflicts of interest.

Mr Eggers, Dr Kreke and Mr Strecker are members of the Capital Market Committee. The Capital Market Committee is chaired by Mr Eggers. The position of Deputy Chairman is held by Mr Strecker. The Supervisory Board’s powers relating to the utilisation of approved capital and conditional capital were transferred to the committee for decision-making and processing. In addition, decisions on the approval of the Superv sory Board for loan agreements are also delegated to this committee in individual cases if these meet the criteria of a transaction requiring approval.

Quota of women

The Supervisory Board and the Executive Board took into consideration the Act on the Equal Participation of Women and Men in Executive Positions in the Private and Public Sector that entered into force in 2015, and defined corresponding quotas. A quota of women of at least 30% was set for the Supervisory Board and the Executive Board. The Executive Board also set the same target for the management levels below the Executive Board. Given that there are five employees in total, there is only one management level.

Since the quota was established in 2015, the target for the nine-member Supervisory Board has been met with three female members.

The quota of women on the two-member Executive Board as of 31 December 2020 was 0%.

In March 2021, Mr Wellner’s term in office on the Executive Board, which ends on 31 December 2021, was extended until 30 June 2025 in view of his performance and qualifications. Continuity and experience gained with the business model are also important to the Company’s success, in particular during difficult periods. The expansion of the Executive Board to three members is neither appropriate nor reasonable due to the low number of employees and to the specifics of a holding company.

The quota of women in the first management level below the Executive Board, which consists of two people, also stood at 0% on 31 December 2020.

Supervisory Board Remuneration


In FY 2019 the remuneration of the members of the Supervisory Board amounted to €262.5 thousand, and is broken down as follows:


No advances or loans were granted to the members of the Supervisory Board.
Source: Financial Report 2020, page 29

Report by the Supervisory Board

 

During financial year 2020, the Supervisory Board performed the
duties incumbent on it according to the law and the Articles of Association and closely oversaw the performance of Deutsche Euro- Shop AG. The Executive Board coordinated the strategic orientation of the Company with the Supervisory Board, and discussed the status of implementing the strategy with us at regular intervals. The Supervisory Board monitored and advised the Executive Board on its management of the business, and the Executive Board informed us regularly, promptly and in detail of business developments.

As the Chairman of the Supervisory Board, I was kept up to date in timely fashion by the Executive Board on all important events of significance for assessing the Company’s situation, development and its management. I was also given ongoing, detailed briefings between meetings of the Supervisory Board and its committees in regular conference calls with the Executive Board. In 2020, the Executive Committee was kept continuously informed about current developments and notified in advance about intended, more far-reaching decisions of the Executive Board.

Focus of advisory activities

We conducted detailed examinations of our Company’s net assets,
financial position, results of operations and risk management at our regular meetings. In this context, we also checked that the formal conditions for implementing an efficient system of monitoring our Company were met and that the means of supervision at our disposal were effective.

We were informed on an ongoing basis of all significant factors affecting the business. We considered the development of the portfolio properties, specifically their sales and frequency trends, the accounts receivable and occupancy rates, and the Company’s liquidity position. Last year, we were also provided with prompt and continuous information about the payment patterns of our tenants. There were exte sive and ongoing discussions at the meetings held last year concerning the review and adjustment of Company strategy and the impact of the coronavirus pandemic and the government-mandated protective measures on our tenants and on our Company. Within this context, we also held regular consultations focussing on liquidity planning for different scenarios. The coronavirus pandemic has accelerated the growth of online retail due to the imposed lockdown measures. The ongoing integration of online and offline retail thus constituted a central component of consultations, and the further integration of our shopping centers into the rapidly developing omni-channel distribution network was once again assessed as strategically important for the positioning of our center portfolio. The development status of the corresponding digitalisation programme (“Digital Mall”) was discussed.

Regular discussions were conducted with the Executive Board regarding trends on the capital, credit, real estate and retail markets and the impact of these on the Company’s current and medium-term situation. The Executive Board and Supervisory Board examined various refinancing options. We received regular reports detailing the turnover trends of our tenants and banks’ lending policies. The Executive Board and Supervisory Board also held regular discussions on how the Company was valued by the stock market and its participants and made peer group comparisons. We also devoted a lot of attention last year to the expected and implemented legislative changes that affect our Company. These included, in particular, those changes to mitigate the impact of the pandemic. In accordance with the requirements of the new Corporate Governance Code and ARUG II (Act Implementing the Second Shareholders’ Rights Directive), we examined the creation of a new system of Executive Board remuneration.

The Chairman of the Supervisory Board and the Executive Committee of the Supervisory Board also discussed other topical issues with the Executive Board as required. Transactions requiring the approval of the Supervisory Board or a committee were discussed and decided on at the scheduled meetings. Where required, circular resolutions were passed in writing by the Supervisory Board or the responsible committee for transactions of the Executive Board requiring approval. All resolutions in the reporting period were passed unanimously. To avoid conflicts of interest, any parties affected abstained from voting. Some meetings were held without the Executive Board present.

Meetings / Telephone and Video Conferences

Financial year 2020 saw four regular meetings plus one special meeting due to the special challenges posed by the Covid-19 pandemic. Although it was possible to hold the September meeting in person, the other meetings took place as telephone or video conferences. The Executive Committee met for one regular and four extraordinary meetings by conference call. The Audit Committee held four regular and two extraordinary meetings by conference call.

No member of the Supervisory Board attended only half or fewer than half of the meetings of the Supervisory Board and the committees on which they serve during the reporting year. You can find the individual attendance record of members of the Supervisory Board in meetings of the Supervisory Board and its committees in the following overview:

We held an extraordinary conference call on 3 April 2020 to address the new circumstances during the first lockdown and the government- mandated closure of stores in our shopping centers beginning from mid-March 2020. The Executive Board explained the situation and outlined its assessment of the impact on our Company. The focus here was on the expected loss of rent due to the threat of tenant insolvencies, possible new legal regulations and the payment patterns of tenants. We discussed the liquidity situation and liquidity planning in various risk scenarios. Given the very dynamic developments in March 2020, we took advantage of this conference call to approve and adopt the 2019 annual financial statements in accordance with section 172 of the German Stock Corporation Act and approve the 2019 consolidated financial statements, which had originally been scheduled for 24 April 2020. The Executive Board provided us with the financial, accounting and tax aspects of the 2019 annual financial statements for this purpose. In addition, the auditors explained the results of their audit of the annual financial statements and referred to their supplementary audit in view of the significant change in circumstances in recent weeks.

In the first regular conference call on 24 April 2020, the Executive Board reported on current developments, including in particular on the lockdown measures taken by governments in the various countries, the interim insolvencies, visitor number trends, retail sales of our tenants and scope of rental payments. The Executive Board additionally provided information on the loans maturing over the next few years and the refinancing that had been arranged in the meantime. We devoted a lot of attention to updated liquidity planning on the part of the Executive Board as well as its scenario assumptions. The Executive Board reported in this context on postponing a substantial portion of the planned investments for the current financial year. We unanimously approved the proposed investment in the A10 Center to accommodate a major tenant. We discussed and approved the proposal by the Executive Committee to nominate Roland Werner forre-election as a member of the Supervisory Board at the AnnualGeneral Meeting. Finally, the agenda for the Annual General Meeting
was unanimously adopted. To avoid risks, we decided – also unanimously – to hold a virtual Annual General Meeting as proposed by the Executive Board.

We held an extraordinary conference call on 3 April 2020 to address the new circumstances during the first lockdown and the government- mandated closure of stores in our shopping centers beginning from mid-March 2020. The Executive Board explained the situation and outlined its assessment of the impact on our Company. The focus here was on the expected loss of rent due to the threat of tenant insolvencies, possible new legal regulations and the payment patterns of tenants. We discussed the liquidity situation and liquidity planning in various risk scenarios. Given the very dynamic developments in March 2020, we took advantage of this conference call to approve and adopt the 2019 annual financial statements in accordance with section 172 of the German Stock Corporation Act and approve the 2019 consolidated financial statements, which had originally been scheduled for 24 April 2020. The Executive Board provided us with the financial, accounting and tax aspects of the 2019 annual financial statements for this purpose. In addition, the auditors explained the results of their audit of the annual financial statements and referred to their supplementary audit in view of the significant change in circumstances in recent weeks.

In the first regular conference call on 24 April 2020, the Executive Board reported on current developments, including in particular on the lockdown measures taken by governments in the various countries, the interim insolvencies, visitor number trends, retail sales of our tenants and scope of rental payments. The Executive Board additionally provided information on the loans maturing over the next few years and the refinancing that had been arranged in the meantime. We devoted a lot of attention to updated liquidity planning on the part of the Executive Board as well as its scenario assumptions. The Executive Board reported in this context on postponing a substantial portion of the planned investments for the current financial year. We
unanimously approved the proposed investment in the A10 Center to accommodate a major tenant. We discussed and approved the proposal by the Executive Committee to nominate Roland Werner for re-election as a member of the Supervisory Board at the Annual General Meeting. Finally, the agenda for the Annual General Meeting was unanimously adopted. To avoid risks, we decided – also unanimously – to hold a virtual Annual General Meeting as proposed by the Executive Board.

After the virtual Annual General Meeting on 16 June 2020 had re-elected Roland We ner to the Supervisory Board, as proposed by the management, the Supervisory Board constituted itself in the subsequent conference call on the same day. As a result, the distribution of responsibilities on the Supervisory Board and in the committees remained unchanged. The Executive Board reported to us on current developments with regard to official pandemic-related regulations, visitor frequencies, retail sales and rental payments, as well as amounts outstanding. With the Executive Board we discussed the liquidity situation and a current projection, which was prepared on the basis of very simplified assumptions due to the high degree of uncertainty about how the pandemic will unfold. It was not possible to make a reliable forecast regarding the 2020 financial figures given the inability to estimate how the coronavirus pandemic will evolve or its impact on rental income and impairments in particular.

Our 25 September 2020 meeting was held at the Rhein-Neckar-Zentrum. We dealt in depth with the Company’s strategy and the measures derived from this. One of the mail focal points was the measures intended by the Executive Board to mitigate risks from events such as the coronavirus pandemic and to safeguard liquidity. It was again not possible to make a reliable forecast regarding the 2020 financial figures given the inability to estimate how the coronavirus pandemic will unfold and its impact on rental income and impairments in particular. The Executive Board reported to us on current developments in our portfolio and anticipated legal changes in the environment of our business activities. The Executive Committee – in the absence of the Executive Board – notified the Supervisory Board of the status of the measures to amend the Executive Board remuneration structure in accordance with ARUG II and the German Corporate Governance Code.

In a video conference on 27 November 2020, the Executive Board again reported to us on the current situation at the Company’s shopping centers. The Executive Board explained its projections for financial year 2020 and also presented its assumptions and planning for the years 2021 through to 2025. Both the projection and planning for subsequent years were subject to considerable uncertainties given the inability to estimate how the coronavirus pandemic will unfold. This outlook was exacerbated by the significant increase in the number of infections since the autumn and the associated lockdown measures in all of the Company’s markets. It was still not possible to make a reliable forecast regarding the 2020 financial figures. Together we discussed the current analysis of the financial covenants in the loan agreements and authorised the Capital Market Committee to vote on refinancing for the Phoenix-Center in Hamburg-Harburg. Finally, the Executive Board reported on the status of plans to e tend portfolio financing for City-Arkaden in Wuppertal, City-Galerie in Wolfsburg and the Billstedt-Center in Hamburg. Without the Executive Board being present, the Executive Committee notified us of the interim results regarding the change to the Executive Board remuneration system.

Committees

The Supervisory Board has established three committees: the Executive Committee, the Audit Committee and the Capital Market Committee. Each of the committees is made up of three members. The Executive Committee of the Supervisory Board functions simultaneously as a nomination committee. Given the size of the Company and the number of Supervisory Board members, we still consider the number of committees and committee members to be appropriate.

During the reporting period, the Executive Committee convened via a conference call in response to the pandemic on 17 March (extraordinary), 23 March (extraordinary), 30 March, 11 May (extraordinary) and 21 December 2020 (extraordinary). The Audit Committee met via a conference call in response to the pandemic on 19 March (extraordinary), 30 March and 3 April 2020 (extraordinary). In the extraordinary telephone conferences on 17 March (Executive Committee) and 19 March 2020 (Audit Committee), we held an intensive dialogue with the Executive Board on the possible ramifications of the coronavirus pandemic and the related uncertainties for the further development of our Company. The discussion also addressed the planned dividend for the 2019 financial year and thus the Executive Board’s proposal for the appropriation of profits for the 2019 annual financial statements. We reached the decision with the Executive Board to suspend the dividend payment due to the high level of uncertainty regarding the scope and duration of the pandemic. In the presence of the auditors and the Executive Board, the Audit Committee discussed the financial statements and the combined management report for Deutsche EuroShop AG and the Group in conference calls on 30 March and again on 3 April 2020 due to the rapidly changing coronavirus situation.

The Audit Committee also discussed the quarterly statements and the half-year financial report with the Executive Board in conference calls on 11 May, 12 August and 11 November 2020; at all of these calls the Executive Board reported on the current situation in our shopping centers and the associated operational and financial implications in these conferences as well.

The Audit Committee issued the audit mandate to the auditor elected by the Annual General Meeting, monitored the services provided by the auditor and discussed the controls on the quality of the audit.

Corporate Governance

In February 2020 and February 2021, together with the Executive Board, we issued updated declarations of conformity in relation to the recommendations of the Government Commission pursuant to section 161 of the Aktiengesetz (German Public Companies Act – AktG) and made this permanently available on the Deutsche EuroShop AG website. A separate report on the implementation of the German Corporate Governance Code (DCGK) is included in this Annual Report. The members of the Supervisory Board and the Executive Board declared in writing at the beginning of 2021 that no conflicts of interest had arisen during financial year 2020.

We have published a matrix of the powers of the members of the Supervisory Board in the “Declaration on Corporate Governance” in order to demonstrate transparency in this area as well. We regularly review the composition profile of the Supervisory Board and will adjust it if necessary.

The Supervisory Board decided in 2017 that the Chairman of the Supervisory Board can conduct talks with investors on topics of relevance to the Supervisory Board in accordance with the recommendations of the DCGK and the “Principles for Dialogue between Investor and Supervisory Board”. No investor requested a meeting in 2020.

Since the new election of the Supervisory Board on 12 June 2019, five of the total of nine members of the Supervisory Board have been independent.

Financial statements of Deutsche EuroShop AG and the Group for the period ending 31 December 2020

At the Audit Committee meeting on 1 April 2021 and the regular Supervisory Board meeting on 9 April 2021, the Audit Committee and the Supervisory Board respectively examined in detail the annual financial statements of Deutsche EuroShop AG in accordance with German commercial law, and the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS), each as at 31 December 2020, as well as the combined management report and Group management report for financial year 2020. The impact of the coronavirus pandemic on the future performance of Deutsche EuroShop AG, as explained in the supplementary report in the combined management report, were also discussed with the Executive Board. The auditor explained to us all matters which he regarded as being of particular significance for his audit of the consolidated financial statements, doing so in a manner that was easy to follow. The Supervisory Board shares the auditor’s assessment of the importance of these matters for the consolidated financial statements. You can find details of these matters in the auditor’s report.

The documents relating to the financial statements, the auditor’s reports and the Executive Board’s proposal for the utilisation of the unappropriated surplus were presented to us in good time. The auditor appointed by the Annual General Meeting on 16 June 2020 – BDO AG Wirtschaftsprüfungsgesellschaft, Hamburg – had already audited the financial statements and issued an unqualified audit opinion in
each case. The auditor also confirmed that the accounting policies, measurement methods and methods of consolidation in the consolidated financial statements complied with the relevant accounting provisions. In addition, the auditor determined in the course of its assessment of the risk management system that the Executive Board had undertaken all required measures pursuant to section 91 (2) AktG to promptly identify risks that could jeopardise the continued existence of the Company.

The auditor’s representatives took part in the discussion of the annual financial statements and the consolidated financial statements on the occasions of the Audit Committee meeting on 1 April 2021 and the regular Supervisory Board meeting on 9 April 2021 and explained the main findings.

The Supervisory Board has come to the conclusion that there are no objections to be raised against the annual financial statements or the audit conducted by the auditor. The combined management report meets statutory requirements in the opinion of the Supervisory Board. The Supervisory Board agrees with the statements in the management report on the further growth of the Company. The Supervisory Board has issued its agreement with the result of the audit of the annual financial statements and approved the annual financial statements of Deutsche EuroShop AG and the consolidated financial statements of the Deutsche EuroShop Group; the annual financial statements are therefore approved. In addition, the Supervisory Board endorsed the Executive Board’s proposal for the appropriation of profits only to pay a dividend amounting to 4% of share capital (equivalent to a total dividend of €2,471,343.76 or €0.04 per share) from the unappropriated surplus remaining after allocation to other retained earnings in accordance with section 254 (1) of the German Stock Corporation Act (AktG) and to carry forward the remaining amount of the unappropriated surplus of €41,311,535.80 to the new accounts. Notwithstanding the recent suspension of or limits on dividend payments due to the coronavirus, we intend to continue our dividend policy focused on continuity once this exceptional situation has stabilised.

The impact of the coronavirus poses a particular challenge in dayto- day work. At the beginning of the pandemic, the hygiene and distancing regulations were new to all of us. However, we managed very quickly to develop and implement secure operating concepts for the shopping centers and company administration. Together with the Executive Board, we are making intensive efforts in this extraordinary and ongoing pandemic situation to find the best possible solutions for all stakeholders of Deutsche EuroShop AG to address the challenges within our sphere of influence so together we can overcome the difficulties posed by the crisis and put ourselves on the right track.

The Supervisory Board would like to thank the Executive Board and all employees of Deutsche EuroShop AG for their reliability, hard work, dedication and commitment in light of these exceptional circumstances for all of us.

Hamburg, 9 April 2021

Reiner Strecker, Chairman

 

Source: Financial Report 2020, page 81-85

IR-Team