Investor Relations

Corporate Governance

Supervisory Board (Financial Year 2019)

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 2019 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 the members of the Executive Board, and significant transactions by the Executive Board are subject to its approval. The Supervisory Board comprises nine members, all of whom are elected by the Annual General Meeting.

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 consider the number of committees and committee members to be appropriate.

The Supervisory Board Executive Committee consists of Mr Strecker, Ms Dohm, Mr Armbrust (until 12 June 2019) and Mr Eggers (since 12 June 2019). 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 and Mr Armbrust (until 12 June 2019) Mr Strecker and Mr Eggers (since 12 June 2019). It is responsible for issues relating to financial reporting, auditing and the preparation of the annual and consolidated financial statements. In addition, this committee supervises the audit as well as the effectiveness of 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 Armbrust (until 12 June 2019), Mr Eggers (since 12 June 2019) Dr. Kreke and Mr Strecker are members of the Capital Market Committee. During the past year, it was chaired by Mr Armbrust (until 12 June 2019) and Mr Eggers (since 12 June 2019). 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.

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 2019 was 0%.

In December 2018, Mr Borkers’ term in office on the Executive Board, which was due to end on 30 September 2019, was extended until 30 September 2022 in view of his performance. Moreover, continuity and experience gained with the business model are important to the Company’s success. 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, was also at 0% on 31 December 2019

Supervisory Board Remuneration


In FY 2019 the remuneration of the members of the Supervisory Board amounted to €312 thousand, and is broken down as follows:


No advances or loans were granted to the members of the Supervisory Board.
Source: Financial Report 2019, page 25

Report by the Supervisory Board

 

During financial year 2019, 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 EuroShop 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.

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. At meetings held over the course of the year, in-depth discussions took place repeatedly on how the Company should act in an environment of an ongoing process of change in the retail sector, continuing low interest rates and a further decline in investor demand for retail property. The implementation of the extensive investment programme for the years 2018 to 2022 to increase the competitiveness of our shopping centers was intensively monitored and further discussed. In addition, the ongoing integration of online and offline trade and its effects on the retail sector were analysed. Further connecting our shopping centers to the rapidly developing omni-channel distribution system was seen as strategically important for the positioning of our centre portfolio. A corresponding digitisation programme (“Digital Mall”) and related investments were discussed and put into action. Regular discussions were conducted with the Executive Board regarding trends on the capital, credit, real estate and retail markets and the effects of these on the Company’s strategy. The Executive Board and Supervisory Board examined various investment and refinancing options. We received regular reports detailing the turnover trends and payment patterns 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. This year we also dealt intensively with the expected requirements of the new Corporate Governance Code and ARUG II (the Act Implementing the Second Shareholder Rights Directive), discussed the effects on our company with the Executive Board and monitored the preparatory measures taken by the Executive Board to implement ARUG II.

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 and 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

Four ordinary Supervisory Board meetings were held during financial year 2019. 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:

April meeting

At the first ordinary meeting held on 25 April 2019, the main focus was the Executive Board’s presentation of the financial, accounting and tax aspects of the 2018 annual financial statements. The auditor also provided an explanation of the results of his audit of the annual financial statements. During the subsequent discussion of the annual financial statements, we again attached great importance this year to the explanations of the Executive Board and those of the auditor concerning the real estate appraisals. We also discussed the Company’s dividend strategy with the Executive Board on the basis of longer-term planning scenarios. The Executive Board reported on the implementation of the restructuring and modernisation concepts for individual centers, as well as on the loans maturing over the next few years and the refinancing that has been arranged in the meantime. We dealt intensively with the expected legal changes in the environment for our company, including the reforms to land tax and land transfer tax. The focus of discussions was on ARUG II. We discussed the three candidates proposed by the Executive Committee for election at the Annual General Meeting and the selection process at the meeting and approved the Executive Committee’s proposal. Finally, the agenda for the Annual General Meeting was unanimously adopted.

June meeting

After the Annual General Meeting on 12 June 2019 elected Dr Anja Disput, Henning Eggers and Claudia Plath to the Supervisory Board, as proposed by the management, we reorganised the Supervisory Board at the subsequent meeting held the same day. As a result, there was a change in the allocation of responsibilities, with Mr Eggers taking over the responsibilities of Mr Armbrust in the Executive Committee, the Audit Committee and the Capital Markets Committee. The Executive Board reported to us on investments in the Rhein-Neckar-Zentrum and the lease renewal situation in the Saarpark-Center Neunkirchen and Stadt-Galerie Hameln, and also on the continuing low level of activity on the investment market for shopping centers.

September meeting

At our third meeting on 26 September 2019, we carried out the scheduled in-depth examination of the Company’s strategy and the measures and methods to be derived from it in view of the competition facing bricks-and-mortar retailing from online retailing, which continues to increase. The Executive Board reported on the preparations it had made and the measures it intended to take for the corporate restructuring of the Group with the aim of avoiding trade tax liability for various subsidiaries. In addition, the Executive Board presented to us the current letting situation in Stadt-Galerie Passau, the Main-Taunus-Zentrum and the Olympia-Center in Brno. Together we discussed the current status of the legislative procedure for ARUG II and the resulting preparations by the Executive Board. We delegated to our Executive Committee the change to our company’s remuneration system due to the anticipated requirements of ARUG II and the new Corporate Governance Code.

November meeting

At our meeting on 28 November 2019, the Executive Board reported to us on the letting activities in the Rhein-Neckar-Zentrum and investments to renovate the apartments above the Herold-Center in Norderstedt. We approved the investments in the Olympia Center planned and proposed by the Executive Board. The Executive Board explained the projection for 2019 and also presented its planning for the years 2020 to 2024; we approved the 2020 budget. Finally, the Executive Board reported on its negotiations on extending our credit line and the portfolio financing for City-Arkaden in Wuppertal, CityGalerie in Wolfsburg and the Billstedt-Center in Hamburg. 

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 consider the number of committees and committee members to be appropriate.

During the reporting period, the Executive Committee and the Audit Committee convened on 11 April 2019 for a regular meeting.

The Audit Committee also discussed the quarterly financial reports with the Executive Board in conference calls on 7 May, 14 August and 8 November 2019.

Corporate Governance

In September 2019, together with the Executive Board, we issued an updated declaration 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 2020 that no conflicts of interest had arisen during financial year 2019.

We have drawn up a clear matrix of the powers of the members of the Supervisory Board (see “Declaration on Corporate Governance”) in order to further increase 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 2019.

Klaus Striebich has been an independent member of the Supervisory Board since 1 April 2019 after terminating his business relationships with companies affiliated to the major shareholder Alexander Otto.

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

Financial statements of Deutsche EuroShop AG and the Group for the period ending 31 December 2019

At the Audit Committee meeting on 30 March 2020 and the extraordinary Supervisory Board meeting on 3 April 2020, 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 2019, as well as the combined management report and Group management report for 2019. The effects 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 12 June 2019 – 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 30 March 2020 and the extraordinary Supervisory Board meeting on 3 April 2020 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. The Supervisory Board also endorsed the Executive Board’s proposal for the appropriation of profits to carry forward the unappropriated surplus of €34,629 thousand.

The Supervisory Board would like to thank the Executive Board and all employees of Deutsche EuroShop AG for their good, reliable work and their consistent commitment in an environment that has become more difficult for our industry

Hamburg, 3 April 2020

Reiner Strecker, Chairman

 

Source: Financial Report 2019, page 73-76

IR-Team