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 2018 consisted of nine members and was composed of the following people:
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 business 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 Armbrust 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 Armbrust and Mr Strecker. 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, Dr Kreke and Mr Strecker were members of the Capital Market Committee. During the past year, it was chaired by Mr Armbrust. The position of Deputy Chairman was 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.
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 2018 was 0%. Mr Wellner’s term in office on the Executive Board, which ended on 30 June 2018, was extended until 31 December 2021 in view of his performance. In December 2018, Mr Borker’s term in office on the Executive Board, which ended on 30 September 2019, was likewise 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 2018. . The quota of women specified in 2015 at 50% was met until the leading female member left the Company at her own request on 31 March 2016. Her responsibilities were taken over by a new male employee whose professional training and experience made him the best choice.
During financial year 2018, 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 regularly regarding the Company’s strategy as well as the question of how the Company should operate in an environment of continuing low interest rates, declining interest on the part of investors in retail property in Germany during the course of the year with tenants reporting falling footfall and lower sales due to the growth of online retailing. The extensive investment programme for 2018 to 2022 aimed at enhancing the competitiveness of our shopping centers continued to be the subject of intensive discussions as were the opportunities open to operators going forward to drive the further integration of online and offline retailing. 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.
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.
Four ordinary Supervisory Board meetings were held during financial year 2018. 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.
At the first ordinary meeting held on 25 April 2018, the main focus was the Executive Board’s presentation of the financial, accounting and tax aspects of the 2017 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 corporate planning scenarios. The Executive Board presented current acquisition opportunities and reported on the implementation of restructuring and modernisation concepts for individual centers. ECE also presented further details of its concept for enhancing the attractiveness of the centers. Finally, the agenda item for the Annual General Meeting was unanimously adopted.
After the Annual General Meeting re-elected Dr. Henning Kreke and Alexander Otto to the Supervisory Board on 28 June 2018, we tackled the reorganisation of the Supervisory Board in the subsequent meeting on the same day. The distribution of responsibilities remained unchanged after the corresponding elections. The Executive Board then explained the current status of the project for extending Galeria Baltycka in Danzig as well as the noticeable decline in activity on the investment market for shopping centers in Germany. In addition, the Executive Board reported to us on the current follow-on financing for the shopping centers in Wildau and Neunkirchen.
At our third meeting on 28 September 2018, we carried out an 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. Possible sales scenarios for individual shopping centers were also discussed. It was agreed that ECE should present the digitisation options for our portfolio to our Company’s Supervisory Board. Finally, we discussed basic considerations with the Executive Board with regard to a share buyback. At this meeting, we decided to extend Mr. Borkers’ contract of employment until September 2022.
The final meeting of the year was held on 29 November 2018 in Brno in the Czech Republic after we had visited our shopping center “Olympia” the day before to find out the current situation and after viewing two further competitive centers. The Executive Board reported to us in the meeting on letting activity and on the implementation of investment measures, in particular the programmes “At your service” and “Mall beautification” in various centers. In addition, the Executive Board presented the latest developments in the shopping center investment market. We discussed the medium-term corporate planning presented by the Executive Board in some detail as well as current developments in the retail market. Finally, we discussed the results of an analysis of the Executive Board on the possible impact of a share buyback on the Company’s key indicators.
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 2018 for a regular meeting. The Executive Committee also met on 29 November 2018 for a meeting in connection with the extension of Mr. Borkers’ contract as Chairman of the Executive Board.
The Audit Committee also discussed the quarterly financial reports with the Executive Board in conference calls on 11 May, 12 August and 12 November 2018.
In November 2018, 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 2019 that no conflicts of interest had arisen during financial year 2018.
After the Supervisory Board decided as early as 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”, I conducted such talks for the first time on an occasional basis in 2018. These talks gave us further insights into the investors’ perspective of our corporate governance and the remuneration of the Executive Board.
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.
Six of the total of nine members of the Supervisory Board have therefore been independent since 1 April 2019.
Financial statements of Deutsche EuroShop AG and the Group for the period ending 31 December 2018
At the Audit Committee meeting on 11 April 2019 and the Supervisory Board meeting on 25 April 2019, 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 2018, as well as the management report and group management report for financial year 2018. 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 28 June 2018 – 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 11 April 2019 and the Supervisory Board meeting on 25 April 2019 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 followed the profit appropriation proposal of the Executive Board to distribute a dividend of € 1.50 per share.
The Supervisory Board thanks the Executive Board and all employees of Deutsche EuroShop AG for their great commitment and for their excellent performance once again in the 2018 financial year.
Hamburg, 25 April 2019
Reiner Strecker, Chairman
Source: Annual Report 2018, page 10-12