To the shareholders of the SINGULUS TECHNOLOGIES AG
Report of the Supervisory Board
Due to the stagnating optical disc market and the resulting investment restraint as well as a delay in the expected recovery of the solar market the business year 2014 was very problematic and resulted in a decline in sales and negative earnings.
SINGULUS TECHNOLOGIES has continuously improved technologically in the past couple of years. Today, the core competence of SINGULUS TECHNOLOGIES is the know-how in vacuum thin-film and plasma technology, wet-chemical processing as well as thermal process technology. The targeted expansion of the existing product portfolio through proprietary research and development was and remains in the spotlight. Details regarding the development of the company are extensively depicted in the Status Report.
The report of the Supervisory Board informs you about the focus of the activities of the Supervisory Board in the business year 2014. In the past business year the Supervisory Board attended to all legal and statutory duties and adhered to the guidelines of the bylaws of the Supervisory Board. The Supervisory Board extensively and regularly advised the Executive Board of the SINGULUS TECHNOLOGIES AG in managing the company and provided oversight over the activities of the Executive Board. The Executive Board of the SINGULUS TECHNOLOGIES AG involved the Supervisory Board in all significant decisions and processes and informed the Board about all relevant proceedings.
There were no objections on part of the Supervisory Board regarding the conduct of business by the Executive Board of the SINGULUS TECHNOLOGIES AG at any time.
CHANGES IN THE SUPERVISORY BOARD
There were no changes in the composition of the Supervisory Board in the business year 2014.
SUPERVISORY BOARD MEETINGS 2014
During the business year 2014 twelve meetings of the Supervisory Board were convened: There were seven meeting in presence and five conference calls. The Supervisory Board was completely represented in each of the meetings detailed below.
- Meeting in presence on January 23, 2014
- Meeting in presence on March 19, 2014
- Conference call on May 13, 2014
- Meeting in presence on May 28, 2014
- Conference call on August 11, 2014
- Meeting in presence on September 15 and 16, 2014
- Conference call on October 9, 2014
- Meeting in presence on October 16, 2014
- Meeting in presence on November 6, 2014
- Conference call on November 11, 2014
- Meeting in presence on November 28, 2014
- Conference call on December 18, 2014
ADVICE AND OVERSIGHT BY THE SUPERVISORY BOARD
The Supervisory Board dealt in detail with the course of business of the company in the business year 2014 during its meetings. The reporting by the Executive Board and in this respect predominantly the development of order intake, sales and profitability as well as the liquidity situation formed the basis. The actual course of business was compared with the company’s budgets and deviations and possibly required measures discussed.
The monthly reporting formed the basis of the information and monitoring activities of the Supervisory Board. Additional, written and oral reports of the Executive Board, by other employees, the auditors as well as by external consultants supplemented the monthly reporting. In its monthly reporting the Executive Board presented the Supervisory Board the current course of business of the individual segments and laid out the respective market conditions. The strategic positioning of the company was agreed between the Executive Board and the Supervisory Board and its implementation discussed at regular intervals. The required investment budgets were discussed and target companies for a potential corporate acquisition within the scope of the resolved strategy reviewed.
The Supervisory Board has assured itself of the legitimacy, expediency and compliance of the presented business events.
The Executive Board timely sent out all interim reports for the year 2014 to the Supervisory Board before publication. The Executive Board laid out to the Supervisory Board the reports and important key figures as well as statements in detail. The Supervisory Board had individual items of the profit-and-loss statement as well as specific balance sheet items explained. The recommendations of the Supervisory Board with regards to individual interim reports were implemented by the Executive Board. In addition, the performance of the shares and the corporate bond as well as the communication with the capital market were discussed. In this connection, the Executive Board reported on talks with various capital market participants.
In the past business year, the Supervisory Board was regularly informed about the course of business and the financial situation of the group of companies. The Supervisory Board was directly involved in all decisions, which were of fundamental importance to the company.
Furthermore, the Chairman of the Supervisory Board regularly discussed the situation of the company and its future development in individual talks with the Executive Board. At all times, the other members of the Supervisory Board were informed about these meetings thereafter.
Business activities that had to be approved or were required to be discussed by the Supervisory Board due to company interests were discussed and reviewed by the Supervisory Board. These also included new projects concerning the extension of the current range of products and services offered. The Supervisory Board discussed the new projects with the Executive Board in several meetings and was informed about potential risks by the Executive Board. On a case by case basis other management staff and external advisors were also included. The Supervisory Board made recommendations to the Executive Board with respect to several projects.
The Executive Board also reported on the facts of the litigation of Alster & Elbe Inkasso GmbH at the Regional Court Karlsruhe against the SINGULUS TECHNOLOGIES AG among others. After deliberations with the legal advisors of the company and a discussion regarding their legal assessment, the Executive Board adopts the assessment of the lawyers and expects that alleged claims of Alster & Elbe Inkasso GmbH expired and are without merit. SINGULUS TECHNOLOGIES is defending against the litigation and reserves the right to implement additional, suitable countermeasures. After an extensive review of the presented information, the Supervisory Board does not have cause for a differing assessment. Supervisory Board and Executive Board expect that from today’s point of view there is no visible threat of a negative impact on the company.
SINGULUS TECHNOLOGIES corporate bond
The corporate bond issued on March 23, 2012 was once again the topic of several meetings of the Supervisory Board in the business year 2014. The Supervisory Board approved an additional extension of the buyback program during its meeting on May 28, 2014. On June 23, 2014 the Executive Board resolved to once again extend the buyback program started at the end of 2012 until December 31, 2014. The buyback program was already extended on March 26, 2013, on June 26, 2013 as well as on December 12, 2013. The total volume with a maximum of € 5.0 million still remained.
During its meeting on November 28, 2014, the Supervisory Board approved an additional extension of the buyback program until June 30, 2015. This extension was announced by the Executive Board on December 9, 2014 by means of a press release. At the same time the volume of the buyback program was increased to a nominal value of € 7.0 million. The general conditions of the corporate bond and of the buyback program remain unchanged by the extension of this program.
economic Situation of the company
In the course of its meetings in the business year 2014 the Supervisory Board continuously discussed the situation of the company. In particular in the second half of the year, the difficult economic situation was in the spotlight. The background as well as the drop in volume sales for machines in the Optical Disc division, the sustained weakness in demand in the market for production equipment of solar cells as well as the disappointing volume sales of semiconductor machines were analyzed and deliberated. The Supervisory Board was informed about the planned cost savings and restructuring measures and discussed all key economic and financial data with the Executive Board.
Especially the liquidity situation of the company was deliberated and reviewed. The Supervisory Board is apprised of the detailed liquidity status as well as plans for the liquidity trends in the future months through a monthly reporting by the Executive Board. The development of shareholders’ equity pursuant to HGB was also routinely reviewed. The Executive Board provided information to the Supervisory Board in a timely manner about additionally requested information regarding the potential excessive indebtedness and the liquidity status of the company. Furthermore, the company commissioned PricewaterhouseCoopers AG Wirtschaftsprüfung, Frankfurt am Main, with a review of the liquidity situation and a continuous monitoring of the current developments. The economic situation of the company was also discussed and reviewed in extraordinary Supervisory Board meetings, such as those on November 6, 2014 and December 18, 2014.
Ongoing analysis and extensive monitoring of the Optical Disc and Solar segments
The Executive Board presented the Supervisory Board in all its meetings with the respective current analyses and insights for SINGULUS TECHNOLOGIES’ products in the markets for optical disc machines as well as for the photovoltaics markets.
Around half way through the business year 2014 it became evident that the expected growth for Blu-ray Disc production machines forecast by market studies would not materialize but that rather a decline in demand had to be expected. As a consequence, the Supervisory Board was regularly informed about the current status of talks with key customers and the market situation in the Optical Disc segment was critically questioned and impacting factors analyzed. In the course of the business year 2014 the situation in the Solar segment did not develop as anticipated in the planning stages, either. Here, the expected recovery of the solar market already projected for the previous year has not yet materialized. In the course of the Supervisory Board meetings the Executive Board apprised the Supervisory Board of current key figures from market research as well as key financial figures of comparable companies in this market.
Due to the significant deterioration of key financial figures by mid-September 2014 the company was forced to adjust the full-year forecast accordingly and to announce this immediately to the capital market. Against this background cost saving and restructuring programs were initiated, which the company communicated to the capital markets. The Supervisory Board was informed about the implementations of the respective programs during the further course of the year.
Status of the new work areas
In connection with the economic developments the Supervisory Board extensively discussed additional measures to respond to these market trends accordingly. The company has already been adapting to the structural changes for many years. These efforts should be further intensified and progressed even faster. In particular the strategic positioning towards new application and business areas as well as the reduction of the operating cost structure were analyzed as being most constructive.
The Executive Board presented the activities to tap new fields of applications and discussed them with the Supervisory Board.
Implementation of Ethics Code
The company has set up an Ethics Code as an internal guideline for the compliance within the company, which was a subject of the meetings on June 6, 2013 and September 5, 2013 and which was reviewed by the auditors KPMG AG with respect to completeness and implementability. During its meeting on January 23, 2014 the Ethics Code of the company was approved by the Supervisory Board. The Ethics Code is set up to safeguard the compliance with various legal and ethical standards within the company and with third parties. In the course of the business year 2014 the implementation was conducted in the entire company, amongst others by means of training of relevant management staff and employees. The Executive Board reported on the status of the implementation during the meeting on September 15/16, 2014. Against the background of tightening of exports to Russia the Executive Board informed about the processes of export monitoring within the company.
Conflicts of interest
In the past business year there were no conflicts of interest of members of the Executive or Supervisory Boards, which have to be disclosed to the Supervisory Board immediately and which the Annual General Meeting has to be informed about.
The SINGULUS TECHNOLOGIES AG and its Supervisory Board subscribe to the principles of proper and responsible corporate governance. The Executive Board and the Supervisory Board have made a declaration of conformity pursuant to Art. 161 AktG and Art. 3.10 of the German Corporate Governance Code (the “Code”), according to which the company adheres to the recommendations of the German Corporate Governance Code except for the mentioned and explained deviations.
Compared with the previous year there have been no changes in the declaration of conformity. Please refer to the detailed presentation in the Corporate Governance Report on page 24 to 31 of the Annual Report 2014, which also includes the current declaration of conformity.
Executive Board matters
In its meeting on January 23, 2014 the Supervisory Board discussed and approved agreements on objectives for the business year 2014 with the Executive Board. These target agreements form the basis for the determination of the variable compensation components of the Executive Board members. The Supervisory Board assessed the individual targets and reviewed the respective levels of achievement.
The Supervisory Board dealt with the extension of the contract with Mr. Markus Ehret, CFO, during the business year 2014, whose former work contract ends as of March 31, 2015. During its meeting on May 28, 2014 the Supervisory Board resolved the extension of the appointment of Mr. Markus Ehret as a member of the Executive Board from January 1, 2015 until December 31, 2019. The employment contract was concluded with an identical term. For details please refer to the Compensation Report on the pages 92 to 105 of the Annual Report 2014.
Due to the difficult economic situation of the company, a decrease of the fixed salary of both members of the Executive Board in a double-digit percentage range was resolved in the course of the Supervisory Board meeting on November 6, 2014. The Executive Board agreed to these measures. For details please refer to the Compensation Report on the pages 92 to 105 of the Annual Report 2014.
According to relevant regulations of stock corporation and commercial laws the SINGULUS TECHNOLOGIES AG is subject to special requirements with respect to internal risk management and has thus set up a corresponding monitoring system. They were once again updated in the previous year and accordingly adjusted to current developments. The Supervisory Board was assured of the efficiency of the system in the past business year. The difficult economic situation of the company was detected at an early stage and measures to improve the situation initiated. Amongst others, this included the communicated cost savings, the global reduction in headcount as well as measures to further improve the liquidity situation of the company. In the course of the assessment during the audit, the auditors KPMG AG, Wirtschaftsprüfungsgesellschaft arrive at the conclusion that the systems meet the legal requirements. After extensive presentation by the auditors and subsequent discussion of the audit in the course of the Supervisory Board meeting on January 23, 2014 the Supervisory Board currently has no reservations. The Supervisory Board regards the monitoring system of the SINGULUS TECHNOLOGIES AG as efficient and shares the risk assessment of the Executive Board (the Risk Report can be found on page 76 of the Annual Report 2014).
Shareholdings of the members of the Supervisory Board
The stock holdings of the Supervisory Board members are published in this Annual Report as well as on the internet (for a detailed presentation please refer to the annotations on page 105 of this Annual Report 2014).
Annual and consolidated financial statements as well as Status Report
During the meeting in presence on March 24, 2015 the annual results as of December 31, 2014 and the Status Report of the SINGULUS TECHNOLOGIES AG pursuant to HGB as well as the auditors’ report of the consolidated annual results as of December 31, 2014 pursuant to IFRS and the consolidated Status Report were discussed. The financial statements of the SINGULUS TECHNOLOGIES AG as well as the consolidated financial statements and the combined status report of the SINGULUS TECHNOLOGIES AG drawn up by the Executive Board as of December 31, 2014 were audited by the KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG), Frankfurt am Main.
The financial statements and the status report of the SINGULUS TECHNOLOGIES AG for the business year 2014 were drawn up pursuant to the regulations of the German Commercial Code (HGB) and the Stock Corporation Act (AktG). The consolidated financial statements were drawn up pursuant to the International Financial Reporting Standards (IFRS). The consolidated financial statements were supplemented by a consolidated status report, which was combined with the status report of the individual financial results pursuant to Art. 315 Para. 3 read in conjunction with Art. 298 Para. 3 Sent. 1 HGB. KPMG reviewed the financial statements and the consolidated financial statements as well as the combined status report considering the accounting principles and approved them without reservation.
The audited financial statements of the SINGULUS TECHNOLOGIES AG, the audited consolidated financial statements as well as the combined status report as of December 31, 2014 were presented to all Supervisory Board members for examination in a timely manner. The scope and focus of the audit by KPMG was presented by the Executive Board in the course of the Supervisory Board meeting on November 28, 2014 by means of presentation material provided by KPMG. Subsequently, the Executive Board and Supervisory Board diligently discussed and provisionally approved the respective subjects. The audited financial statements and the combined status report were the subject of the Supervisory Board meeting on March 24, 2015. During this meeting the responsible auditors were also present, who explained the extent, the course and the results of the audit and answered the questions of the Supervisory Board members in detail. The Supervisory Board extensively discussed the results of the audit of the financial statements and consolidated financial statements by the auditor and did not have any objections. There were no objections on part of the Supervisory Board regarding the annual accounts of the SINGULUS TECHNOLOGIES AG, the consolidated financial statements as well as the combined status report as of December 31, 2014.
In its meeting on March 24, 2015, the Supervisory Board approved the financial statements of the SINGULUS TECHNOLOGIES AG drawn up by the Executive Board, the consolidated financial statements and the combined status report. The annual accounts have thus been finalized.
The Supervisory Board expects that the SINGULUS TECHNOLOGIES AG will be able to achieve the forecast for the business year 2015 and the set goals. The Supervisory Board will continue to attend to and support the Executive Board and the company on this path.
The Supervisory Board would like to thank the Executive Board and all employees for their great commitment in the past business year 2014 and wishes success for the business year 2015.
Kahl am Main, in March 2015
Dr.-Ing. Wolfhard Leichnitz
Chairman of the Supervisory Board