To the shareholders of the SINGULUS TECHNOLOGIES AG
Report of the Supervisory Board
The business year 2015 was a difficult year for our company. The sustained weak market development has posed great financial challenges to us. At the same time we have laid the foundation for a successful restructuring of the company and thus look confidently towards the future.
The course of business in the past year was characterized by very different developments in the two segments Solar and Optical Disc. It can be summarized as follows: The segment Optical Disc was disappointing similar to the previous year. In contrast, the Solar division recorded a significant improvement, but has not quite reached the targeted level. Insofar, the favorable development in the Solar division was unable to compensate for the weakness in the Optical Disc segment, so that once again a negative net result was incurred in the business year 2015. Nevertheless, we still see great opportunities in the Solar division, which is the reason why the extensive efforts in the photovoltaic market as well as the targeted expansion of the existing product portfolio through proprietary research and development were still in the spotlight in the business year 2015. Details regarding the development of the company are depicted in detail in the Status Report.
Dhe report of the Supervisory Board informs about the focus of the activities of the Supervisory Board in the past business year. In 2015, the Supervisory Board attended to all legal and statutory duties and adhered to the guidelines of the bylaws of the Supervisory Board. In particular in light of the difficult business situation in the year 2015, the Supervisory Board extensively and regularly advised the Executive Board of the SINGULUS TECHNOLOGIES AG in managing the company and provided constant 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 in the course of the business year 2015 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 2015.
SUPERVISORY BOARD MEETINGS 2015
During the business year 2015 twelve meetings of the Supervisory Board were convened: There were six meetings in presence and six conference calls. The Supervisory Board was completely represented in each of the meetings detailed below.
- Meeting in presence on January 28, 2015
- Meeting in presence on March 24, 2015
- Conference call on April 14, 2015, continued on April 20, 2015
- Meeting in presence on May 12, 2015
- Meeting in presence on June 9, 2015
- Conference call on August 7, 2015
- Meeting in presence on September 29, 2015
- Conference call on November 13, 2015
- Meeting in presence on November 26, 2015
- Conference call on December 11, 2015
- Conference call on December 18, 2015
- Conference call on December 21, 2015
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 2015 during its meetings. The reporting by the Executive Board and in this respect predominantly the development of order intake, sales and earnings trends as well as the continuous reporting on the liquidity situation and the development of shareholders’ equity formed the basis. The actual course of business was compared with the company’s budgets and deviations and required measures discussed. Additional, written and oral reports of the Executive Board, by other employees, the auditors as well as by external consultants supplemented the reporting.
The strategic positioning of the company was agreed between the Executive Board and the Super-visory Board and its implementation discussed at regular intervals. The required capital expenditure plans were discussed and analyzed within the scope of the resolved strategy.
The Supervisory Board has assured itself of the legitimacy, expediency and compliance of the presented business events under the particular consideration of the economic situation of the company.
The Executive Board timely sent out all interim reports as well as half-year reports for the year 2015 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 in detail. The recommendations of the Supervisory Board with regards to individual interim reports were implemented by the Executive Board.
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. In monthly reports the Executive Board informed the Supervisory Board about the current course of business within the individual segments including the development of the market environment and explained order intake and backlog, financial key figures such as the development of the liquidity or the shareholders’ equity of the SINGULUS TECHNOLOGIES Group including a forecast.
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 made recommendations to the Executive Board with respect to several projects.
Economic situation of the company and restructuring concept
The difficult economic situation of the company and the possibilities of an organizational and balance sheet reorganization were in the spotlight of all of Supervisory Board meetings in the business year 2015. The background as well as reasons for the lack of orders for production machines in the Optical Disc division, the still not stabilized market for production machines for solar cells as well as the disappointing development in the Semiconductor segment were analyzed and discussed. The Supervisory Board discussed with the Executive Board the market situation in the individual segments and deliberated in detail all economic and financial key figures.
In the business year 2015 the Executive Board monitored the going-concern assumption of the company and reported to the Supervisory Board on this matter. The Executive Board provided information to the Supervisory Board in a timely manner about requested information regarding the potential excessive indebtedness and the liquidity status of the company. The company appointed the Price-waterhouseCoopers AG Wirtschaftsprüfungsgesellschaft, Frankfurt am Main (PwC) with the ongoing analysis of the liquidity situation at a Group-wide and company-specific level as well as with the continuous monitoring of the current developments. In addition, the Executive Board in cooperation with PwC regularly documented and reported to the Supervisory Board the development of the shareholders’ equity pursuant to HGB. The unaudited unconsolidated financial accounts of the company pursuant to HGB as of May 31, 2015 showed shareholders’ equity of around € 23.5 million with a nominal capital of the company of € 48,930,314.00. Hence, on June 8, 2015 the company reported a loss pursuant to Art. 92 Para. 1 Aktiengesetz by way of an ad-hoc release. The Executive Board gave account on the loss of half of the nominal capital at the Annual General Meeting on June 9, 2015 under agenda item 5.
In July 2015, the merger agreement between the SINGULUS STANGL SOLAR GmbH, whose entire shares were held by the SINGULUS TECHNOLOGIES AG, and the SINGULUS TECHNOLOGIES AG was approved by the Supervisory Board and concluded. Amongst others, the goals of the merger were the further simplification of the Group’s structure and the cost savings compared with keeping an additional legal unit. The merger enabled an improved integration of the activities and business processes of the SINGULUS STANGL SOLAR GmbH into the SINGULUS TECHNOLOGIES AG. The merger became effective with the entry into the Commercial Register of the SINGULUS TECHNOLOGIES AG on October 8, 2015 with a retroactive balance sheet effect as per May 1, 2015. The merger was performed on the basis of time values and further burdened the equity of the company.
In addition to the shareholders’ equity trend, the corporate bond issued on March 23, 2012, whose refinancing is due in March 2017, was an important topic in connection with the discussion of the economic situation of the company amongst the Supervisory Board.
Following negotiations with the joint representative of the bondholders, who was appointed by the bondholder meeting on October 29, 2015, the company reached an agreement on December 21, 2015 with respect to a concept for the financial restructuring of the company and published this in the course of an ad-hoc release on the same day. Furthermore, the company resolved to sell the 4,241 bonds held by the company itself to a third party, which supports the restructuring concept. The Supervisory Board approved the concept for the financial reorganization and the disposal of the bonds held by the company itself. In December 2015, the invitation to a bondholder meeting on January 18, 2016 as well as to an extraordinary general meeting of the company on February 16, 2016 was published in the German Federal Gazette. Since the first bondholder meeting on January 18, 2016 did not achieve the required quorum of 50 % of the outstanding bonds and was thus not quorate, the Executive Board invited the bondholders to a second bondholder meeting on February 15, 2016.
The restructuring concept is set out in detail here. Essentially, it provides for a capital reduction with a ratio of 160 : 1, the exchange of the bonds into new shares of the company as well as a newly issued, secured bond and a subsequent implementation of a cash capital increase.
It is the Supervisory Board’s conception that the drawn up and resolved restructuring concept is a good solution, which appropriately takes into account the interests of bondholders and shareholders, respectively, and which provides the company with a perspective to become successful in the market once again and to return to profitability.
FURTHER DEVELOPMENT OF THE COMPANY
The Executive Board presented the Supervisory Board in all its meetings in the business year 2015 with the respective current analyses and insights for SINGULUS TECHNOLOGIES’ products in the markets for Blu-ray Disc machines as well as for the photovoltaics markets.
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 particular, the potential introduction of the new Ultra HD-Blu-ray Disc with a storage capacity of up to 100 GB was observed and discussed as well as the impact on a delay into the year 2016. The expected recovery of the PV market only took place very slowly in 2015. The Executive Board presented during the Supervisory Board meetings current key figures from market studies as well as the financial key figures of comparable companies. Furthermore, the Executive Board set out all relevant major projects and discussed them with the Supervisory Board. The Supervisory Board was informed about the challenges in the Semiconductor segment and discussed with the Executive Board alternative actions as well as the further development of this division.
The company had to adjust its full-year forecasts due to the problems in the Optical Disc segments and the resulting negative impact on the key financial results following the availability of the preliminary key figures for the third quarter on October 7, 2015 and correspondingly informed the capital market about this development.
In connection with the economic development, the Supervisory Board extensively deliberated with the Executive Board the required structural changes of the company and emphasizes that the strategic positioning for new application and business areas still has a high priority. The Executive Board presented the Supervisory Board potential new application areas of the technologies and discussed these opportunities.
SUPERVISORY BOARD MATTERS
On the occasion of the general discussion of the Annual General Meeting of the SINGULUS TECHNOLOGIES AG on June 9, 2015 the Supervisory Board resolved to forgo 20 % of the Super-visory Board remuneration for the year 2015 due to the economically difficult situation of the company, the share price development and the reduction of the Executive Board’s remuneration.
EQUAL PARTICIPATION OF WOMEN AND MEN IN LEADERSHIP POSITIONS ACT
Lawmakers have added Art. 111 Para. 5 AktG concerning the equal participation of women and men in leadership positions act on April 24, 2015. Accordingly, the Supervisory Board of the SINGULUS TECHNOLOGIES AG was obligated to determine a target for the women’s share in the Supervisory and Executive Boards of the company by September 30, 2015. Currently, the Supervisory Board of the SINGULUS TECHNOLOGIES AG includes one woman among three Supervisory Board members in total. The Supervisory Board intends to maintain a women’s quota of 33 % and therefore determined the target for the women’s quota of the Supervisory Board to 33 % until June 30, 2017.
The two-person Executive Board of the SINGULUS TECHNOLOGIES AG does not include a woman. The Supervisory Board currently does not intend any changes in the personnel composition of the Executive Board or an increase in the number of members. Accordingly, the target for the women’s quota in the Executive Board is set at 0 % until June 30, 2017.
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.
SHAREHOLDINGS OF THE MEMBERS OF THE SUPERVISORY BOARD
The stock holdings of Supervisory Board members are published in this Annual Report as well as on the internet. For a detailed presentation please refer to the annotations.
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. The declaration of conformity was published on the company’s website in January 2016.
Please refer to the detailed presentation in the Corporate Governance Report, which also includes the current declaration of conformity.
ASSESSMENT OF EFFICIENCY OF THE SUPERVISORY BOARD
In the third quarter, the Supervisory performed an assessment of the efficiency of its work, in order to safeguard a high quality of company supervision and to identify areas of potential improvements, if required. Amongst others, the Board assessed topics such as reporting by the Executive Board, cooperation of Executive Board and Supervisory Board, Supervisory Board meetings, leadership by the Chairman of the Supervisory Board, remuneration of the Executive Board and corporate governance. The results of the evaluation were analyzed and discussed by the Supervisory Board. The cooperation within the Supervisory Board was evaluated as being open and constructive. The provision of information was assessed as being good. Nevertheless, the Supervisory Board suggested providing documents for the preparation of the Supervisory Board meetings even earlier by the Executive Board and to inform the Supervisory Board more proactively and also through informal conference calls, if necessary.
EXECUTIVE BOARD MATTERS
In its meeting on January 28, 2015 the Supervisory Board discussed and approved agreements on objectives for the business year 2015 with the Executive Board. These target agreements form the basis for the determination of the variable compensation components of the Executive Board members. In its meeting on March 3, 2016 the Supervisory Board resolved the level of target achievements for both members of the Executive Board on the basis of the preliminary results. For this purpose the Supervisory Board assessed the personal targets individually and reviewed therespective levels of target achievement. Overall, the Supervisory Board recognized the achievements of the Executive Board in the past business year and emphasized the dedication, the commitment and the qualitative results in an extremely difficult market environment for the company.
During its meeting on March 24, 2015 the Supervisory Board once again resolved to issue phantom stocks to the Executive Board, namely 125,000 shares to Dr.-Ing. Stefan Rinck and 100,000 shares to Mr. Markus Ehret. The phantom stocks (including the phantom stocks issued in the prior years) are combined with the ratio of the capital reduction (i.e. 160 : 1) resolved in the course of the extra-ordinary general meeting on February 16, 2016.
Due to the currently still difficult economic situation of the company the Executive Board proposed to the Supervisory Board in the course of its meeting on November 26, 2015 to maintain the reduction of the remuneration by 20 % resolved in 2015 until further notice and to waive the right of an adjustment of the remuneration to the contractual level as per January 1, 2016. The Supervisory Board welcomed the initiative of the Executive Board and resolved to maintain the reduction of the fixed salary of both members of the Executive Board by 20 % in view of the still difficult economic situation. For details please refer to the Compensation Report in the Annual Report 2015.
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, which is adapted to the respective current trends. In preparation to the Supervisory Board meeting on November 26, 2015 the Supervisory Board was informed by the Executive Board about the risk management systems and assessed the efficiency of the system during the Supervisory Board meeting. The Supervisory Board regards the monitoring system of the SINGULUS TECHNOLOGIES AG as constructive and satisfactory and shares the risk assessment of the Executive Board. The Risk Report can be found here in the Annual Report 2015.
ANNUAL AND CONSOLIDATED FINANCIAL STATEMENTS AS WELL AS STATUS REPORT
The audited financial accounts of the SINGULUS TECHNOLOGIES AG, the audited consolidated financial statements as well as the combined status report as of December 31, 2015 were subject of the Supervisory Board meeting on March 23, 2016 concerning the adoption of the financial statements. The Executive Board has drawn up the financial statements and the status report of the SINGULUS TECHNOLOGIES AG for the business year 2015 pursuant to the regulations of the German Commercial Code (HGB) and the German 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. The auditor KPMG AG Wirtschaftsprüfungsgesellschaft, Frankfurt am Main (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 focus of the audit of the full-year result audit was already coordinated with KPMG during the Supervisory Board meeting in presence on November 26, 2015.
All members of the Supervisory Board were provided with the audited financial results, the combined status report as well as the audit report of KPMG for review in a timely manner. During the meeting on March 17, 2016 the responsible auditors were 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 establishment of the financial statements and the adoption of the consolidated financial statements as well as combined status report were effected during the course of the Supervisory Board meeting on March 23, 2016 in the presence of the competent auditor after expiry of the legal rescission respites against the resolutions of the bondholder meeting and the extraordinary general meeting on February 15 and 16, 2016, respectively.
The Supervisory Board extensively discussed the financial statements, the consolidated financial statements, the status report as well as the audit by the auditor and did not have any objections. The financial statements and the combined status report did not deviate materially from the interim reports of the Executive Board to the Supervisory Board. The assumptions, on which the going-concern assumption rested, as well as the consequences drawn by the Executive Board and KPMG, were discussed once again. Requests by members of the Supervisory Board were answered by the Executive Board and by present auditors with due elaborateness.
There were no objections on part of the Supervisory Board regarding the annual accounts of the SINGULUS TECHNOLOGIES AG, the consolidated financial statements and the combined status report as of December 31, 2015 as well as regarding the audit by KPMG.
In its meeting on March 23, 2016 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. Accordingly, the annual financial statements and the consolidated financial statements have been adopted.
The Supervisory Board will continue to attend to and support the Executive Board and the company on the difficult path.
The Supervisory Board would like to thank the Executive Board as well as all employees of SINGULUS TECHNOLOGIES for their great commitment in the past business year 2015 and whishes success for the business year 2016.
Kahl am Main, March 2016
Dr.-Ing. Wolfhard Leichnitz
Chairman of the Supervisory Board