To the shareholders of the SINGULUS TECHNOLOGIES AG
Report of the Supervisory Board
The business year 2016 was a critical year for our company. The successful financial restructuring of the company and the safeguarding of the operating activities were a particular challenge for SINGULUS TECHNOLOGIES.
The SINGULUS TECHNOLOGIES AG is a supplier of machines and production equipment in the areas of vacuum thin-film and plasma coating, wet-chemical processes as well as thermal processing technologies.
The operating activities of SINGULUS TECHNOLOGIES were very mixed with respect to the individual segments. In the Solar division the expected large order for production machines for CIGS solar cells was realized in the business year 2016. The business activities in the Optical Disc and the Semiconductor divisions were weak in the business year 2016 similar to the previous years. The delay in order placements of the aforementioned Solar order resulted in delayed recognized sales in the Solar segment and will thus only be realized materially in the business year 2017 and not in 2016.
We still see great opportunities in the Solar segment and we will continue to extensively expand our existing product portfolio in this area in order to benefit from the growth in this market. Details regarding the development of the company are depicted in the Status Report.
The report of the Supervisory Board informs about the focus of the activities of the Supervisory Board in the past business year.
In 2016, 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 and the implemented restructuring, the Supervisory Board 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. It also 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 2016 by the Executive Board of the SINGULUS TECHNOLOGIES AG at any time.
There were no changes in the composition of the Supervisory Board in the business year 2016.
SUPERVISORY BOARD MEETINGS 2016
During the business year 2016 fifteen meetings of the Supervisory Board were convened: There were seven meetings in presence and eight conference calls. The Supervisory Board was completely represented in each of the meetings detailed below.
- Meeting in presence on February 9, 2016
- Conference call on March 3, 2016
- Meeting in presence on March 17, 2016
- Conference call on March 23, 2016
- Conference call on May 12, 2016
- Conference call on June 1st, 2016
- Meeting in presence on June 7, 2016
- Conference call on August 11, 2016
- Meeting in presence on August 30, 2016
- Meeting in presence on August 31, 2016
- Conference call on September 19, 2016
- Meeting in presence on October 5, 2016
- Conference call on October 6, 2016
- Meeting in presence on November 9, 2016
- Conference call on December 20, 2016
ADVICE AND OVERSIGHT BY THE SUPERVISORY BOARD
During its meetings the Supervisory Board dealt in detail with the financial restructuring of the company and the course of business of the SINGULUS TECHNOLOGIES AG in the business year 2016. The basis for the reporting by the Executive Board were the respective key figures with respect to the trends of order intake, sales and earnings trends as well as the continuous reporting on the liquidity situation and the development of shareholders’ equity. The actual course of business in the year 2016 was compared with the projected company’s budgets and all deviations as well as required measures for potential adjustments were deliberated with the Executive Board. 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 Supervisory 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 Supervisory Board was provided with all interim reports as well as half-year reports for the year 2016 in a timely manner ahead of 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 the profit-and-loss statement as well as specific balance sheet items explained in detail. The recommendations of the Supervisory Board with regard to individual interim reports as well as to the half-year report 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 as well as financial key figures such as the development of the liquidity or the shareholders’ equity of the SINGULUS TECHNOLOGIES Group including a forecast. The liquidity of the company was documented and continuously monitored during the entire course of the year. 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 was directly involved in all decisions, which were of fundamental importance to the company.
Economic situation of the company and financial restructuring
The difficult economic situation of the company and the realization of an organizational and financial restructuring were also in the spotlight of the Supervisory Board meetings in the first couple of months. The background of the still weak development of the Optical Disc division, the delays in the order placement for production machines for solar cells as well as the weak trend 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 2016, the Executive Board monitored the going-concern assumption of the company until the completion of the financial restructuring and reported on this to the Supervisory Board. 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 PricewaterhouseCoopers 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.
Following negotiations with the joint representative of the bondholders, who was appointed by the bondholder meeting on October 29, 2015, the company had reached an agreement on December 21, 2015 with respect to a concept for the financial restructuring of the company. The Supervisory Board agreed to this concept. It presented a good solution to appropriately account for the interests of the bondholders and the shareholders respectively and to offer the company a perspective to once again act successfully on the market and to return to profitability.
The bondholder meeting of the SINGULUS TECHNOLOGIES AG approved the restructuring of the SINGULUS bond on February 15, 2016, based on the presented concept, which the extraordinary general meeting on February 16, 2016 subsequently also approved. Accordingly, the SINGULUS TECHNOLOGIES AG was then able to implement the resolved restructuring of the SINGULUS bond in a timely manner. In particular, the respite of the interest payment under the SINGULUS bond until March 23, 2017 and the temporary waiver of certain termination rights already became effective in the first quarter 2016.
The resolution of the extraordinary general meeting with respect to the reduction of the nominal capital was effected on June 6, 2016 and the conversion of the listing of the shares of SINGULUS TECHNOLOGIES was implemented with a ratio of 160 : 1 at the Frankfurt Stock Exchange.
In addition, the bondholders of the SINGULUS bond had resolved on February 16, 2015 to transfer the certificates of the SINGULUS bond to the settlement agent and in return to receive for each certificate of the SINGULUS bond respective purchase rights for new shares and for the newly secured bonds. Within the purchase period, the former bondholders were then able to exercise the overall held purchase rights.
The new shares and new bonds that were not subscribed in the course of the purchase offer were publicly offered to the former bondholders, subscription right-entitled shareholders and individual subscribers and were sold based on the submitted offers.
As a final step of the financial restructuring, SINGULUS TECHNOLOGIES has issued 2,021,938 new shares for a subscription price of EUR 3.25 per new share in the course of the subscription right capital increase. All of the offered shares were subscribed through the execution of subscription rights and the oversubscription of subscription right holders. The nominal capital of the company of EUR 6,065,814 was increased by EUR 2,021,938 by this to then EUR 8,087,752.
For further information please refer to page 50 of this Annual Report.
FURTHER DEVELOPMENT OF THE COMPANY
The Executive Board provided the Supervisory Board for all meetings of the business year 2016 with the current analyses and insights with respect to the products of SINGULUS TECHNOLOGIES in the various market segments.
The expected recovery of the solar market gained momentum in the business year 2016. The large order for production machines for CIGS solar cells signed in mid-2016 was discussed in all steps and the Executive Board kept the Supervisory Board informed about the ongoing negotiations with the customer. The due prepayments for the machines for the first production site were received in the second half of the business year 2016. Furthermore, the Executive Board informed the Supervisory Board about all additional large solar projects and presented their respective status.
The weak production volumes for Optical Disc suggest a weak market for new Blu-ray Disc production machines in the future. The hesitant introduction of the new Blu-ray Disc format “Ultra HD Blu-ray” for the current business year does not provide stimulus for new investments. SINGULUS TECHNOLOGIES is in talks with all major disc producers, but currently only sees a limited willingness of the customers to invest into the new machine technology BLULINE III for Blu-ray Discs with a storage capacity of up to 100 GB. However, for the foreseeable future continuing stable service and replace part activities are expected for this segment.
The Supervisory Board was also informed about the challenges in the Semiconductor segment and discussed with the Executive Board the further development of this division.
The Supervisory Board extensively discussed with the Executive Board the required structural change of the company and talked about the strategic positioning of SINGULUS TECHNOLOGIES on new application and business areas. The Executive Board presented the Supervisory Board potential new application areas of the relevant technologies and discussed these respective growth opportunities.
SUPERVISORY BOARD MATTERS
The members of the Supervisory Board appointed by the Annual General Meeting on August 31, 2016, namely Dr.-Ing. Wolfhard Leichnitz, Ms. Christine Kreidl, WP/StB, and Dr. rer. nat. Rolf Blessing convened for a constituting Supervisory Board meeting following the acceptance of their appointments. All members of the Supervisory Board waived the adherence of the legal and statutory requirements with respect to form and notice of the convening and holding of the meeting.
Dr.-Ing. Wolfhard Leichnitz was appointed Chairman of the Supervisory Board. The appointment is effective until the completion of the Annual General Meeting, which resolved about the discharge for the fourth business year after the start of the mandate, while the business year, in which the mandate starts, is not included. Dr.-Ing. Leichnitz accepted the appointment. Ms. Christine Kreidl, WP/StB, was appointed Deputy Chairwoman of the Supervisory Board. The appointment is effective until the completion of the Annual General Meeting, which resolved about the discharge for the fourth business year after the start of the mandate, while the business year, in which the mandate starts, is not included. Ms. Kreidl, WP/StB, accepted the appointment.
In the business year 2016, the Supervisory Board continued to refrain from forming audit, nomination and other Supervisory Board committees, since a proper attainment of the tasks of the Supervisory Board is given for the full Supervisory Board with a three-member Supervisory Board. In this case, committees will neither provide enhancements in efficiency nor an improved handling of complex subject matters nor a more efficient or improved fulfillment of the duties of the Supervisory Board with respect to issues regarding accounting principles, risk management or auditing can be expected from such committees.
DIRECTIVE 2014/56/EU AMENDING DIRECTIVE 2006/43/EC ON STATUTORY AUDITS AS WELL AS REGULATION (EC) NO. 537/2014 ON SPECIFIC REQUIREMENTS REGARDING STATUTORY AUDIT OF PUBLIC-INTEREST ENTITIES
As a consequence of the financial market crisis on a European level, Directive 2014/56/EU amending directive 2006/43/EC on statutory audits as well as regulation (EC) No. 537/2014 on specific requirements regarding statutory audit of public-interest entities were passed. At a national level, the regulation 2014/56/EC was implemented through the Abschlussprüferaufsichtsreformgesetz (Auditor Oversight Reform Act) and the Abschlussprüfungsreformgesetz (AReG / Audit Reform Act), which also includes the regulations for the implementation of the directly applicable regulation (EC) No. 537/2014.
The aforementioned regulations in particular affect the previous approval of non-audit services, which are provided by auditors. They include increased qualifications with respect to the Supervisory Board and Audit Committee members, respectively, and govern the appointment process for auditors to be appointed in the future.
The Supervisory Board reviewed the respective consequences for the SINGULUS TECHNOLOGIES AG in detail and resolved an amendment of the bylaws for the Supervisory Board and the Executive Board. In addition, during its meeting on January 26, 2017 the Supervisory Board resolved guidelines, which govern the approval of certain non-auditing services. To ensure a Group-wide adherence to the guidelines the company has set up a central function position, which approves the non-auditing services before placing the assignment.
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 on page 33 of this Annual Report 2016).
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 2017. For a detailed representation of the Corporate Governance Report as well as the current Declaration of Conformity please refer to pages 24 to 33 of the Annual Report 2016.
EXECUTIVE BOARD MATTERS
In its meeting on March 17, 2016 the Supervisory Board discussed and approved agreements on objectives for the business year 2016 with the Executive Board. The target agreements form the basis for the determination of the variable compensation components of the Executive Board members. In its meeting on March 14, 2017 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 all personal targets individually and reviewed the respective levels of target achievement. Overall, the Supervisory Board recognized the achievements of the Executive Board in the past business year and made positive representations about the dedication, commitment and the qualitative results.
Due to the currently difficult economic situation of the company, the Executive Board had proposed to the Supervisory Board to maintain in 2016 the salary cuts of 20 % resolved in the prior year as well and to refrain from adjusting the compensation to the contractual level in 2016. The Supervisory Board had welcomed the initiative of the Executive Board and resolved to maintain the reduction of the fixed salary for the business year 2016 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 on the pages 92 to 103 of the Annual Report 2016.
According to relevant regulations of stock corporation and commercial laws the SINGULUS TECHNOLOGIES AG is subject to special requirements with respect to an internal risk management system. The relevant monitoring system is adjusted to the respective current developments. During the course of the Supervisory Board meeting on November 9, 2016 the Supervisory Board was informed by the Executive Board about the risk management systems and assessed the efficiency of the system with regard to contents. 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 in all aspects (the Risk Report can be found on page 76 of the Annual Report 2016).
During the second half of the past business year, Executive and Supervisory Board members participated in a workshop for the implementation of the compliance guidelines in practice. In this connection, the Supervisory Board has assured itself that the Executive Board has set up an appropriate compliance system.
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, 2016 were subject of the Supervisory Board meeting on March 14, 2017 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 2016 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 respective 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 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 14, 2017 the responsible auditors were present, who explained the results of the audit and answered the questions of the Supervisory Board members in detail.
The Supervisory Board extensively continued to discuss the financial statements, the consolidated financial statements, the combined 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, 2016 as well as regarding the audit by KPMG.
In its meeting on March 14, 2017 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 would like to thank the Executive Board and all employees for their great commitment in the past business year 2016 and wishes success for the business year 2017.
Kahl am Main, in March 2017Dr.-Ing. Wolfhard Leichnitz
Chairman of the Supervisory Board