Corporate Governance

Competent and responsible corporate governance is an essential component of our management philosophy. It promotes trust from investors, financial markets, business partners, and employees, as well as the public.

Corporate Governance Declaration in accordance with section 289a HGB

The Executive and Supervisory Boards report on corporate governance at STS Group AG in accordance with Section 3.10 of the German Corporate Governance Code. The Corporate Governance Report also contains the Corporate Governance Declaration in accordance with Section 289f German Commercial Code (HGB) and Section 315d HGB in conjunction with Section 289f HGB. The Remuneration Report is part of the Combined Management and Group Management Report.

The Corporate Governance Code is a voluntary code of conduct that outlines recommendations and suggestions regarding the management and control of publicly traded companies aimed at strengthening trust among investors and the public.

The STS Group is strongly committed to responsible, sustainable and transparent corporate governance as the basis for a relationship of trust between ourselves and our investors and business partners, which in turn is the essential basis for the long-term success of the Company.

The STS Group Executive and Supervisory Boards thus adhere to the recommendations per German Corporate Governance Code as revised, with the exceptions noted in the Declaration of Compliance.

The compensation system for Executive Board members resolved by the Supervisory Board on June 01, 2021 was approved by the Annual General Meeting on July 23, 2021.

Declaration of Compliance 2021

Declaration of Conformity 2021

Declaration of the Management Board and the Supervisory Board of
STS GROUP AG
on the recommendations of the
Government Commission of the German Corporate Governance Code
pursuant to Sec. 161 of the German Stock Corporation Act (Aktiengesetz)

 

The Management Board and Supervisory Board of the STS Group AG with its registered office in Hallbergmoos, District of Freising, (the “Company”) declare the following:

The Company has complied with the recommendations of the Government Commission on the German Corporate Governance Code in its latest version dated 16 December 2019, published in the Federal Gazette (Bundesanzeiger) on 20 March 2020 (the “Code”), since the last Declaration of Conformity in February 2021 and will continue to comply with them in the future, in each case with the following exceptions:

 

1. Recommendation B.5 of the Code:

The Code recommends that an age limit be specified for members of the Management Board and stated in the Corporate Governance Declaration.

The Supervisory Board has not passed any resolution specifying a concrete age limit for members of the Management Board, which is why no information can be provided in the Corporate Governance Declaration. The Supervisory Board is of the opinion that the decisive factor in the selection of candidates is that they are persons who have the knowledge, skills and professional and personal experience required to properly perform their duties. The Company is convinced that these requirements are not linked to a specific age, which is why the Company does not consider a specific age limit for members of the Management Board to be suitable for ensuring that the persons concerned have the necessary skills.

 

2. Recommendation C.1 of the Code:

The Code recommends that the Supervisory Board should specify concrete objectives for its composition and draw up a competence profile for the entire body. In doing so, the Supervisory Board should pay attention to diversity. Proposals by the Supervisory Board to the Annual General Meeting should take these objectives into account and at the same time aim to fill out the competence profile for the entire body. The status of implementation shall be published in the Corporate Governance Declaration. This shall also provide information on the number of independent shareholder representatives on the Supervisory Board, as deemed appropriate by the shareholder representatives, and the names of these members.

The Supervisory Board has not passed any resolution specifying concrete objectives regarding the composition of the Supervisory Board or a competence profile for the entire body. The Company is of the opinion that the current composition of the Supervisory Board complies with the requirements of the recommendation C.1 of the Code. When selecting candidates to be proposed for election to the Supervisory Board, the Company always ensures that these are persons who possess the knowledge, skills and professional and personal experience required to properly perform their duties. For this reason, the Company concludes that set objectives in terms of specific composition are unsuitable for the election of an efficient and qualified Supervisory Board.

 

3. Recommendation C.2 of the Code:

The Code recommends that an age limit be specified for members of the Supervisory Board and stated in the Corporate Governance Declaration.

The Supervisory Board has not passed any resolution specifying a concrete age limit, which is why no information can be provided in the corporate governance declaration. With reference to the above comments on the recommendation C.1, the Company is of the opinion that the decisive factor in the selection of candidates is that they are persons who possess the knowledge, skills and professional and personal experience required to properly perform their duties. The Company is convinced that these requirements are not linked to a specific age, which is why the Company does not consider a specific age limit for Supervisory Board members to be suitable for ensuring that the persons concerned have the necessary skills.

 

4. Recommendation C.10 of the Code:

The Code recommends that the Chairman of the Supervisory Board, the Chairman of the Audit Committee and the Chairman of the Committee dealing with the compensation of the Management Board should be independent of the Company and the Management Board. The Chairman of the Audit Committee should also be independent of the controlling shareholder.

It is the conviction of the Company that the Chairman of the Supervisory Board is independent of the Company and the Management Board. However, as the Supervisory Board of the Company consists of only three persons in accordance with the Articles of Association, no committees are formed, with the exception of the Audit Committee, which is now mandatory under Sec. 107 para 4 of the German Stock Corporation Act (AktG). Accordingly, the Company does not have a Chairman of the Committee dealing with the compensation of the Management Board, but only a Chairman of the Audit Committee. The latter is in the conviction of the Company also independent of the Company and the Management Board but not independent of the controlling shareholder due to his position on the board of the majority shareholder. The primary objective of the Company was initially to comply with the new statutory obligation to establish an Audit Committee without at the same time adding further members to the Supervisory Board. In view of the extraordinary workload of the Chairman of the Supervisory Board, which would be associated with a combination of the duties of Chairman of the Supervisory Board and Chairman of the Audit Committee, it was more important from the point of view of the Company that the Chairman of the Supervisory Board should not at the same time be Chairman of the Audit Committee, which is why the lack of independence of the Chairman of the Audit Committee vis-à-vis the controlling shareholder will be accepted for the foreseeable future, especially as the Company is convinced that the institutional separation of the Audit Committee and the Management Board already ensures a high degree of independence.

 

5. Recommendation D.1 of the Code:

The Code recommends that the Supervisory Board should adopt Rules of Procedure and make them available on the Company's website.

Although the Supervisory Board has adopted Rules of Procedure, it has deliberately decided not to publish them on the Company's website. The Supervisory Board is of the opinion that the Rules of Procedure contain very detailed regulations for cooperation within the Supervisory Board and with the Management Board, but that these only relate to internal processes within the body or between the bodies and that making the Rules of Procedure accessible therefore offers no added value for investors. Conversely, however, the Rules of Procedure also contain confidential statements with regard to measures requiring approval, which are deliberately not intended to be published.

 

6. Recommendation D.2, D.3 sentence 1, D.4, D.5 and D.11 of the Code:

The Code recommends that the Supervisory Board should form professionally qualified committees depending on the specific circumstances of the Company and the number of its members. The respective committee members and the respective chairman of each committee should be named in the Corporate Governance Declaration. The Supervisory Board shall set up an Audit Committee which - insofar as no other committee or the Supervisory Board as a whole, is entrusted with this task - shall deal in particular with the financial audit, the monitoring of the financial auditing process, the effectiveness of the internal control system, the risk management system and the internal auditing system, as well as the final financial audit statements and compliance. The Chairman of the Audit Committee shall have special knowledge and experience in the application of financial auditing principles and internal control procedures and shall be familiar with the final financial audit statements as well as being independent. The Chairman of the Supervisory Board shall not chair the Audit Committee. The Supervisory Board shall form a Nomination Committee composed exclusively of shareholder representatives which nominates suitable candidates to the Supervisory Board for its proposals to the Annual General Meeting for the election of Supervisory Board members. The Audit Committee shall regularly assess the quality of the final financial audit statements.

As the Supervisory Board of the Company consists of only three persons in accordance with the Articles of Association, no committees are formed - apart from the Audit Committee, which is mandatory by law (cf. Sec. 107 para 4 of the German Stock Corporation Act (AktG)). Accordingly, the above recommendations do not apply to the Company in this respect, or the Company cannot comply with the above recommendations. Due to the fact that the Audit Committee is also the body of the Supervisory Board, all members of the Audit Committee, in addition to the body, deal in particular with the financial audit, the monitoring of the financial auditing process, the effectiveness of the internal control system, the risk management system and the internal auditing system, as well as the final financial audit statements and compliance. The Chairman of the Audit Committee also has special knowledge and experience in the application of financial auditing principles and internal control procedures and does not simultaneously hold the office of Chairman of the Supervisory Board. However, the Chairman of the Audit Committee is not in depth familiar with the final financial audit statements and - as explained in Section C.10 - is not independent of the controlling shareholder. The primary objective of the Company was initially to comply with the new statutory obligation to establish an Audit Committee without at the same time adding further members to the Supervisory Board. In view of the extraordinary workload of the Chairman of the Supervisory Board, which would be associated with a combination of the duties of Chairman of the Supervisory Board and Chairman of the Audit Committee, it was more important from the point of view of the Company that the Chairman of the Supervisory Board should not at the same time be Chairman of the Audit Committee, which is why on the one hand the lack of independence of the Chairman of the Audit Committee vis-à-vis the controlling shareholder and on the other hand the lack of familiarity with the final financial audit statements are accepted for the foreseeable future. This is particularly the case against the background that the Supervisory Board, due to its size, corresponds to the Audit Committee and thus the Chairman of the Supervisory Board, who is also familiar with the audit of the financial statements, is also a member of the Audit Committee, which, in the view of the Company, ensures the appropriate competence of the Audit Committee.

 

7. Recommendation D.12 of the Code:

The Code recommends that the Company should provide appropriate support for the members of the Supervisory Board during their induction into office and during training and development measures, and report on the measures taken in the Supervisory Board's report.

The Company did provide appropriate support to the Supervisory Board members newly appointed by the Annual General Meeting in July 2021 during their induction into office. However, no training or continuing education measures were carried out by the Supervisory Board members during the relevant period, due in particular to the limited opportunities in connection with the CoViD19 pandemic. For the future, the Company again intends to provide appropriate support for the members of the Supervisory Board in terms of training and continuing education measures; discussions with providers of corresponding training courses are currently underway; training courses are intended for the current fiscal year.

 

8. Recommendation F.2 of the Code:

The Code recommends that the Consolidated Financial Statements and the Group Management Report should be publicly accessible within 90 days of the end of the fiscal year, and the mandatory Interim Financial Information within 45 days of the end of the reporting period.

With regard to the legal requirement to publish the Consolidated Financial Statements within the first four months of the Group's fiscal year, the Company complies with the legal requirements. They were published on 07 April 2021, just a few days after the recommended deadline by the Code. Due to the time required for the careful preparation of Interim Reports, the Company has also followed the statutory publication deadlines for the respective interim reports. However, the Company endeavours to reduce the time required for the publication of Consolidated Financial Statements and Interim Financial Information to an absolute minimum.

 

9. Recommendation G.3 of the Code:

The Code recommends that, in order to assess the customary nature of the specific total compensation of the members of the Management Board in comparison with other companies, the Supervisory Board uses a suitable comparison group of other companies (peer group comparison), the context of which it discloses.

The contractual documents regarding the compensation of the members of the Management Board does not currently provide for a comparison with the compensation of the Management Board of other companies. Nevertheless, the compensation of the Management Board should be based on the Management Board compensation system resolved at the Annual General Meeting on 23 July 2021, which provides for a comparison with other suitable companies under item 3. An additional explicit mention in the contractual basis of the compensation of the Management Board was therefore not considered necessary. In addition, the previous Management Board member's contract was ultimately an interim contract with a probationary period, which had to be drawn up very quickly due to the change of the Management Board member at short notice in the middle of last year which is why there was insufficient time for a genuine peer group comparison. In the case of the new Management Board member, a peer group comparison is to be carried out promptly and taken into account when determining the customary level of specific total compensation.

 

10.Recommendation G.4 of the Code:

For the purpose of assessing customary practice within the Company, the Code recommends that the Supervisory Board takes into account the ratio of the compensation of the Management Board to that of senior executive level and the workforce as a whole, and this also in terms of its development over time.

This recommendation is currently not taken into account, as the Company is undergoing a period of upheaval in the fiscal year 2021 and probably still in fiscal year 2022 as a result of the takeover by the new majority shareholder. In addition, the Company had only two employees at the same time below the senior executive level in fiscal year 2021. As the only comparison subjects, these two are not sufficiently meaningful. The Management Board also currently consists of only one sole Management Board member, so that a comparison with the compensation of other Management Board members is also ruled out. Nevertheless, it is intended to take into account the compensation of senior executives and the workforce as a whole in the future, if and to the extent that a comparison appears meaningful.

 

11. Recommendation G.6 of the Code:

The Code recommends that the variable compensation resulting from the achievement of long-term goals should not exceed the share resulting from the achievement of short-term goals.

This recommendation has not been implemented as the compensation of the Management Board has been affected by the aforementioned takeover process. However, the recommendation can be implemented in the foreseeable future; the Supervisory Board intends to adjust the contractual basis accordingly.

 

12. Recommendation G.10 of the Code:

The Code recommends that the variable compensation amounts granted to the Management Board member should be invested by the respective member mainly in shares of the Company, taking into account the respective tax burden, or be granted accordingly, share-based.

This recommendation was not implemented as the contractual basis for this was lacking and was not implementable in the current situation of the Company and will not be implementable in the foreseeable future.

 

13. Recommendation G.11 of the Code:

The Code recommends that the Supervisory Board should have the possibility to take account of extraordinary developments to an appropriate extent. In justified cases, it should also be possible to withhold or demand the return of variable compensation.

This recommendation was not implemented because the Company assumed that the variable compensation model already takes extraordinary developments into account through its automatic mechanism. Firstly, specific criteria are redefined for each Management Board member at the beginning of each year. Secondly, a payable variable compensation only arises if at least 80% of the target, such as EBITDA, is achieved.

 

14. Recommendation G.12 of the Code:

The Code recommends that in the event of termination of a Management Board contract, the payment of any outstanding variable compensation components attributable to the period up to the termination of the contract should be granted in accordance with the originally agreed objectives and comparison parameters and in accordance with the due dates or holding periods specified in the contract.

From the Company's point of view, this recommendation is achieved by other means: the compensation of the Management Board modifies the recommendation in such a way that the payment of the variable compensation components is even waived if the due date for payment falls on a date after the termination of the Management Board contract. The Company assumed that the Management Board member should only be able to participate in the achievement of the agreed objectives if he or she has an existing Management Board contract, as this was the only arrangement that would bind the Management Board member to the Company. A change is not planned in the foreseeable future.

 

15. Recommendation G.15 of the Code:

The Code recommends that where members of the Management Board hold Supervisory Board mandates within the Group, the compensation should be credited.

This recommendation was indirectly implemented, but does not contain the envisaged automatism: The contractual basis for the compensation of the Management Board stipulates that prior approval by the Company is required for cases of intra-Group Supervisory Board mandates. In addition, it should only be agreed how to deal with the further intra-Group Supervisory Board mandate once approval has been obtained. The implementation of the recommendation is therefore laid down in the contractual basis and, therefore, can be implemented. The Supervisory Board shall ensure that in cases of intra-Group Supervisory Board mandates the recognition of compensation is also guaranteed in the future.

 

16. Recommendation G.16 of the Code:

The Code recommends that in the case of the assumption of Supervisory Board mandates from outside the Group, the Supervisory Board should decide whether and to what extent the compensation is to be credited.

This recommendation has been implemented in accordance with the aforementioned explanations to the recommendation G.15: The contractual basis for the compensation of the Management Board also provides for an agreement on how to deal with such mandates in individual cases. The implementation of the recommendation is therefore also laid down in the contractual basis and can therefore be implemented. The Supervisory Board shall ensure that in cases of Supervisory Board mandates from outside the Group the compensation is also taken into account in the future.

 

17. Recommendation G.17 of the Code:

The Code recommends that the compensation of Supervisory Board members should take appropriate account of the greater time commitment of the Chairman and Vice Chairman of the Supervisory Board and of the chairman and members of committees.

The compensation of Supervisory Board members currently takes into account the Chairman of the Supervisory Board, but not the Vice Chairman of the Supervisory Board or the chairman or membership of committees. In determining the compensation system for the members of the Supervisory Board, the Company assumed that, in view of the intended division of tasks or work among the members of the Supervisory Board, the Chairman of the Supervisory Board would probably have a significantly higher time commitment, but not the Vice Chairman compared with the third member of the Supervisory Board. For this reason, the compensation of the Supervisory Board members only takes appropriate account of the higher time commitment of the Chairman. The Chairman of the Audit Committee is not taken into account because the Company does not anticipate any significant additional expenses in this respect either. As the Company has not formed any committees, apart from the Audit Committee, given the size of the Supervisory Board (three members), the above recommendation is not relevant to the members of committees.

 

 

Hallbergmoos, February 2022

STS Group AG

Management Board

Supervisory Board

Declaration of Compliance 2020

Declaration by the Executive and Supervisory Boards of STS GROUP AG on the recommendations in accordance with the Government Commission on German Corporate Governance Code in accordance with Section 161 AktG

The Executive Board and Supervisory Board of STS Group AG, headquartered in Hallbergmoos, Freising (the “Company”), hereby declare:

 

Part A: Period until March 19, 2020

The company complied with the recommendations of the “Government Commission on the German Corporate Governance Code” in the version dated February 7, 2017 (the “old Code”) since the last  declaration of conformity in December 2019 until March 19, 2020 with the following exceptions:

 

1. Section 3.8 (3) of the old Code:

The old Code recommended that any D&O insurance policy taken out for a Supervisory Board member have a deductible of at least 10% of the loss up to at least the amount of one and a half of the fixed annual compensation of the Supervisory Board member.

The Company’s D&O insurance does not envisage a deductible of this kind for Supervisory Board members. The Company is of the opinion that a deductible is not a suitable means of influencing the motivation and responsibility of Supervisory Board members positively. The deductible would not be appropriate either given that the Supervisory Board members do not receive variable compensation and neither do they participate in any positive corporate development.

 

2. Section 4.1.3 Sentences 2 and 3 of the old Code:

The old Code recommends that the Executive Board ensure there is an adequate compliance manage-ment system in line with the risk situation of the enterprise and disclose the salient points of this system. In addition, employees and third parties should have a suitable method of providing protected tips in respect to legal violations in the enterprise.

The Company did not have in the relevant period a compliance management system in place, nor a ‘whistleblowing’ system enabling employees and third parties to call attention to legal violations in the company in a suitable, identity-protected fashion. To meet these requirements, the company examined the implementation of a digital compliance management system that provides these functionalities.

 

3. Section 4.2.3. Sentences 4 and 5 of the old Code:

The old Code recommended that care should be taken when concluding Executive Board contracts to ensure that payments made to Executive Board members on premature termination of their contract, including fringe benefits, do not exceed two years’ compensation (so-called severance payment cap) and compensate no more than the remaining term of the contract.

A severance payment cap will be considered in the future when new Executive Board contracts are concluded. This did not apply to existing contracts and extensions of contracts which did not include a severance payment cap. To this extent these Executive Board contracts were granted grandfathering.

 

4. Section 5.3.1 to 5.3.3 of the old Code:

The old Code recommended that the Supervisory Board should form professionally qualified committees depending on the specific circumstances of the company and the number of its members. The Supervisory Board shall set up an Audit Committee which - to the extent that no other committee is entrusted with this task – shall deal with the monitoring of accounting, the accounting process, the effectiveness of the internal control system, the risk management system, the internal audit system, the audit of the financial statements and compliance. The Chairman of the Audit Committee shall have special knowledge and experience in the application of accounting principles and internal control procedures. He or she shall be independent and not a former member of the Executive Board of the Company whose appointment ended less than two years ago. The Chairman of the Supervisory Board shall not chair the Audit Committee. The Supervisory Board shall form a Nomination Committee composed exclusively of shareholder representatives which nominates suitable candidates to the Supervisory Board for its proposals to the Annual General Meeting for the election of Supervisory Board members.

The Company’s Supervisory Board consists of only three persons; thus, no committees had been formed. Accordingly, the above recommendations did not apply to the Company.

 

5. Section 5.4.1 (2) of the old Code:

The old Code recommended that the Supervisory Board shall specify concrete objectives regarding its composition which, whilst considering the specifics of the enterprise, take into appropriate account the international activities of the enterprise, potential conflicts of interest, the number of independent Supervisory Board members within the meaning of Section 5.4.2, an age limit to be specified and a regular limit of length of membership to be specified for the members of the Supervisory Board as well as diversity.

The Supervisory Board had not adopted any resolutions for the relevant period defining concrete objectives goals regarding the composition of the Supervisory Board. The Company believes that the current composition of the Supervisory Board meets the requirements in line with Section 5.4.1 (2) of the old Code. When selecting candidates to be proposed for election to the Supervisory Board, the Company always ensures that candidates have the required knowledge, ability, and personal experience. The Company has thus determined that adopting concrete objectives in respect to composition was  not a suitable means for ensuring that the Supervisory Board was composed of qualified members capable of working efficiently.

 

6. Section 5.4.6 (1) Sentence 2 of the old Code:

The old Code also recommended that the Chair and Deputy Chair positions in the Supervisory Board as well as the chair and membership in committees be considered when deciding the compensation of Supervisory Board members by resolution of the General Meeting or in Articles of Association.

The compensation scheme for Supervisory Board members took in the relevant period into account the offices of Supervisory Board Chair, Vice-Chair, and committee chairs, but does not take into account committee membership. In view of the size of the Supervisory Board, namely three members, the Company did not consider this necessary.

 

7. Section 7.1.2 Sentence 3 of the old Code:

The old Code recommended that the consolidated financial statements be made publicly accessible within 90 days after the end of the financial year and interim reports be publicly accessible within
45 days after the end of the reporting period.

The Company met legal requirements to publish the consolidated financial statements within the first four months of the Group’s financial year. Because of the time required to carefully prepare interim reports, until further notice the Company observed the same legal deadlines for publication for the respec-tive interim reports. However, the Company endeavoured to minimize the amount of time required for publication of the consolidated financial statements to the extent possible.


Part B: Period as of March 20, 2020

The Company has complied with the recommendations of the “Government Commission on the German Corporate Governance Code” in its latest version of December 16, 2019, published in the Federal Gazette on March 20, 2020 (the “Code”), since March 20, 2020 and will continue to comply with them in the future, in each case with the following exceptions:

 

8. Section B.2 of the Code:

The Code recommends that the Supervisory Board should work together with the Management Board to ensure long-term succession planning; the approach should be described in the corporate gover-nance statement.

The corporate governance statement for the financial year 2019, which was published in the relevant period, did not yet contain a description of the approach to long-term succession planning for the Executive Board. Continuity was nevertheless ensured by the Supervisory Board for the 2020 financial year, particularly as the Executive Board member appointed in this period was appointed for an initial period of three years and the incumbent Executive Board member is a relatively very young Executive Board member. In the meantime, the Supervisory Board has worked with the Executive Board to ensure long-term succession planning; the corresponding procedure is to be described for the future and thus already in the management report and corporate governance statement for the 2020 financial year.

 

9. Section B.5 of the Code:

The Code recommends that an age limit be specified for Executive Board members and stated in the corporate governance declaration.

The Supervisory Board has not passed a resolution specifying a concrete age limit for members of the Management Board, which is why no information can be provided in the corporate governance state-ment. The Supervisory Board is of the opinion that the decisive factor in the selection of candidates is that they are persons who have the knowledge, skills and professional and personal experience required  to properly perform their duties. The Company is convinced that these requirements are not linked to a specific age, which is why the Company does not consider a specific age limit for members of the Board of Management to be suitable for ensuring that the persons concerned have the necessary skills.

 

10. Section C.1 of the Code:

The Code recommends that the Supervisory Board should specify concrete objectives for its compo-sition and draw up a competence profile for the entire body. In doing so, the supervisory board shall pay attention to diversity. Proposals of the Supervisory Board to the Annual General Meeting should take these objectives into account and at the same time strive to fill out the competence profile for the entire body. The status of implementation shall be published in the corporate governance declaration. This shall also provide information on the number of independent shareholder representatives on the Supervisory Board, as deemed appropriate by the shareholder representatives, and the names of these members.

The Supervisory Board has not passed any resolution formulating concrete objectives regarding the composition of the Supervisory Board or a competence profile for the entire body. The Company is of the opinion that the current composition of the Supervisory Board complies with the requirements of Section C.1 of the Code. When selecting candidates to be proposed for election to the Supervisory Board, the Company always ensures that these are persons who have the knowledge, skills and professional and personal experience required to properly perform their duties. For this reason, the Company concludes that targets set regarding the specific composition are unsuitable for the election of an efficient and qualified Supervisory Board.

 

11. Section C.2 of the Code:

The Code recommends that an age limit be set for Supervisory Board members and stated in the corporate governance declaration.

The Supervisory Board has not passed any resolution specifying a concrete age limit, which is why no disclosure can be made in the corporate governance statement. With reference to the above explanations on section C.1, the Company is of the opinion that the decisive factor in the selection of candidates is that they are persons who have the knowledge, skills and professional and personal experience required to properly perform their duties. The Company is convinced that these requirements are not linked to  a specific age, which is why the Company does not consider a specific age limit for Supervisory Board members to be suitable for ensuring that the persons concerned have the necessary skills.

 

12. Section C.10 of the Code:

The Code recommends that the Chairman of the Supervisory Board, the Chairman of the Audit Committee, and the Chairman of the committee dealing with Executive Board compensation should be indepen-dent of the Company and the Executive Board.

The Chairman of the Audit Committee should also be independent of the controlling shareholder. It is the conviction of the Company that the Chairman of the Supervisory Board is independent of the Company and the Executive Board. However, as the Supervisory Board of the Company consists of only three persons in accordance with the Articles of Association, no committees are formed. Accordingly, the Company has neither a Chairman of the Audit Committee nor a Chairman of the committee dealing with the compensation of the Executive Board.

 

13. Section D.1 of the Code:

The Code recommends that the Supervisory Board should adopt rules of procedure and make them available on the Company’s website.

Although the Supervisory Board has adopted rules of procedure, it has at the same time deliberately decided against publishing the rules of procedure on the Company’s website. The Supervisory Board is of the opinion that the rules of procedure contain very detailed regulations for cooperation within the Supervisory Board and with the Executive Board, but that these only concern internal processes within the body or between the bodies and that making the rules of procedure accessible therefore offers no added value for investors. Conversely, however, the Rules of Procedure also contain confidential state-ments regarding measures requiring approval, which are deliberately not intended to be published.

 

14. Section D.2, D.3 sentence 1, D.4, D.5 and D.11 of the Code:

The Code recommends that the Supervisory Board should form professionally qualified committees depending on the specific circumstances of the company and the number of its members. The respective committee members and the committee chairman should be named in the corporate governance statement. The Supervisory Board shall set up an Audit Committee which - insofar as no other committee or the full Supervisory Board is entrusted with this task – shall deal with the audit of the financial statements, the monitoring of the financial reporting process, the effectiveness of the internal control system, the risk management system, and the internal auditing system, as well as the audit of the financial statements and compliance. The Chairman of the Audit Committee shall have special knowledge and experience in the application of accounting principles and internal control procedures and shall be familiar with and independent of the audit of the financial statements. The Chairman of the Supervisory Board shall not chair the Audit Committee. The Supervisory Board shall form a Nomination Committee composed exclusively of shareholder representatives which nominates suitable candidates to the Supervisory Board for its proposals to the Annual General Meeting for the election of Supervisory Board members. The Audit Committee shall regularly assess the quality of the audit of the financial statements.

As the Supervisory Board of the Company consists of only three persons in accordance with the Articles of Association, no committees are formed. Accordingly, the above recommendations do not apply to the Company or the Company cannot comply with the above recommendations.

 

15. Section D.12 of the Code:

The Code recommends that the Company should provide appropriate support for members of the Supervisory Board in their induction into office and in training and development measures, and report on measures carried out in the Report of the Supervisory Board.

It is true that the Company provided appropriate support to the new Supervisory Board members, who were initially appointed by the courts and subsequently confirmed by the Annual General Meeting, during their induction into office. However, no training or continuing education measures were carried out by the Supervisory Board members in the relevant period, due to the limited opportunities in connec-tion with the CoViD19 pandemic. In the future, the Company intends to again provide appropriate support for the members of the Supervisory Board in terms of training and continuing education measures.

 

16. Section F.2 of the Code:

The Code recommends that the consolidated financial statements and the Group management report should be publicly accessible within 90 days of the end of the financial year, and the mandatory interim financial information within 45 days of the end of the reporting period.

Regarding the statutory requirement to publish the consolidated financial statements within the first four months of the Group’s fiscal year, the Company follows the legal requirements. They were published on April 09, 2020, just a few days after the deadline recommended by the Code. Due to the timing required for careful preparation of interim reports, the Company has also followed the statutory publication dead-lines for the respective interim reports. Due to the change of stock exchange segment from the Prime Standard to the General Standard, the Company is no longer obliged to publish quarterly reports, which is why the second part of the recommendation will in future only refer to the Company’s half-yearly financial report. However, the Company endeavours to shorten the period required for the publication of consolidated financial statements and interim reports to an absolute minimum.

 

17. Section G.2 of the Code:

The Code recommends that, on the basis of the compensation system, the Supervisory Board should first determine the specific target total compensation for each member of the Board of Management, which should be commensurate with the duties and performance of the member of the Board of Management and the situation of the company and should not exceed the usual compensation without special justification.
The recommendation was only feasible to a limited extent in the relevant period due to the change of Executive Board members and the appointment of the incumbent Executive Board member at short notice. Nevertheless, in the current situation the Supervisory Board is satisfied that the target total compensation of the incumbent Executive Board is commensurate with the situation of the Company and does not exceed the customary compensation for such a position.

 

18. Section G.7 of the Code:
The Code recommends that the Supervisory Board should determine the performance criteria for all variable compensation components for each member of the Board of Management for the upcoming financial year, which – in addition to operational - should be based primarily on strategic objectives. The Supervisory Board should determine the extent to which individual targets for individual Executive Board members or targets for all Executive Board members together should be decisive.

This recommendation was implemented by the Supervisory Board for the 2019 and 2020 financial years based on the contractual provisions, but implementation was overshadowed by the change in the Executive Board, with the result that no performance criteria have yet been defined for the current Executive Board.

 

19. Section G.9 of the Code:

The Code recommends that after the end of the financial year, the Supervisory Board should determine the amount of compensation components to be granted individually for that year, depending on target achievement. The achievement of targets should be comprehensible in terms of reason and amount.

This recommendation was implemented by the Supervisory Board regarding the departing Executive Board members for the 2019 financial year on the basis of the contractual provisions. In the absence  of defined criteria for the Executive Board member appointed in the meantime, it was not possible to determine the amount of the compensation components to be granted individually for this year.

 

20. Section G.10 of the Code:

The Code recommends that the variable compensation amounts granted to the Executive Board member should be invested by him predominantly in shares of the Company, considering the respective tax burden, or granted accordingly on a share-based basis. The Executive Board member should not be able to dispose of the long-term variable grant amounts until after four years.

This recommendation was not implemented as there was no contractual basis for it and it was not feasible in the current situation of the company and will not be feasible in the foreseeable future.

 

21. Section G.17 of the Code:

The Code recommends that the compensation of Supervisory Board members should take appropriate account of the greater time commitment of the Chairman and Deputy Chairman of the Supervisory Board, as well as the Chairman and members of committees.

The compensation of Supervisory Board members currently considers the chairmanship and deputy chairmanship of the Supervisory Board, but not as well as the chairmanship or membership of com-mittees. The Company does not consider this necessary in view of the size of the Supervisory Board of three members, especially as the Supervisory Board has not formed any committees due to its size.


Hallbergmoos, January 2021

 

STS Group AG

The Executive Board
The Supervisory Board

Declaration of Compliance 2019

Declaration by the Executive and Supervisory Boards of STS GROUP AG on the recommendations in accordance with the „Government Commission on German Corporate Governance Code”  in accordance with Section 161 AktG

 

“The Executive Board and Supervisory Board of STS Group AG, headquartered in Hallbergmoos, Freising (“the Company”), hereby declare:

The Company has been in conformance with the recommendations per the “Government Commission on German Corporate Governance Code” as amended on February 7, 2017 and will continue to do so, with the following exceptions:

 

1. Section 3.8 (3) of the Code:

The Code recommends that any D&O insurance policy taken out for a Supervisory Board member have a deductible of at least 10% of the loss up to at least the amount of one and a half fixed the fixed annual compensation of the Supervisory Board member. The Company’s D&O insurance does not envisage a deductible of this kind for Supervisory Board members. The Company is of the opinion that a deductible is not a suitable means of influencing the motivation and responsibility of Supervisory Board members positively. The deductible would not be appropriate either given that the Supervisory Board members do not receive variable compensation and neither do they participate in any positive corporate development.

 

2. Section 4.1.3 Sentences 2 and 3 of the Code:

The Code recommends that the Executive Board ensure there is an adequate compliance management system in line with the risk situation of the enterprise and disclose the salient points of this system. In addition, employees and third parties should have a suitable method of providing protected tips in respect to legal violations in the enterprise. The Company does not have a compliance management system in place, nor a ‘whistleblowing’ system enabling employees and third parties to call attention to legal violations in the enterprise in suitable, identity-protected fashion. In order to meet these requirements, the Company is currently examining the implementation of a digital compliance management system that provides these functionalities.

 

3. Section 5.3.1 and 5.3.3 of the Code:

The Code recommends that depending on the specifics of the enterprise and the number of its members, the Supervisory Board should form committees with sufficient expertise. The Company’s Supervisory Board consists of only three persons, thus no committees have been formed.

 

4. Section 5.4.1 (2) of the Code:

The Code recommends that the Supervisory Board shall specify concrete objectives regarding its composition which, whilst considering the specifics of the enterprise, take into appropriate account the international activities of the enterprise, potential conflicts of interest, the number of independent Supervisory Board members within the meaning of Section 5.4.2, an age limit to be specified and a regular limit of length of membership to be specified for the members of the Supervisory Board as well as diversity. The Supervisory Board has not adopted any resolutions defining concrete objectives goals regarding the composition of the Supervisory Board. The Company believes that the current composition of the Supervisory Board meets the requirements in line with Section 5.4.1 (2) of the Code. When selecting candidates to be proposed for election to the Supervisory Board, the Company always ensures that candidates have the required knowledge, ability and personal experience. The Company has thus determined that adopting concrete objectives in respect to composition is not a suitable means for ensuring that the Supervisory Board is composed of qualified members capable of working efficiently.

 

5. Section 5.4.6 (1) Sentence 2 of the Code:

The Code also recommends that the Chair and Deputy Chair positions in the Supervisory Board as well as the chair and membership in committees be taken into account when deciding the compensation of Supervisory Board members by resolution of the General Meeting or in Articles of Association. The compensation scheme for Supervisory Board members currently takes into account the offices of Supervisory Board Chair, Vice-Chair and committee chairs, but does not take into account committee membership. In view of the size of the Supervisory Board, namely three members, the Company does not consider this necessary.

 

6. Section 7.1.2 Sentence 3 of the Code:

The Code recommends that the consolidated financial statements be made publicly accessible within 90 days of the end of the financial year. The Company meets legal requirements to publish the consolidated financial statements within the first four months of the Group’s financial year, and will publish the Code Declaration of Conformity together with the consolidated financial statements.

Hallbergmoos, December 2019

 

STS Group AG

The Executive Board

The Supervisory Board

Declaration of Compliance 2018

DECLARATION OF COMPLIANCE IN ACCORDANCE WITH SECTION 161 OF THE GERMAN STOCK CORPORATION ACT

In accordance with Section 161 AktG, the Executive and Supervisory Boards of publicly traded companies must issue an annual declaration of which recommendations made by the Government Commission on German Corporate Governance Code (“the Code”), which are published by the Federal Ministry of Justice in the official disclosures section of the Federal Gazette, the Company is and will be in conformity with, stating what recommendations have not been or will not be adopted. This declaration must be made permanently accessible on the Company"s website. Companies are therefore free not to adopt the recommendations per the Code, but then are obliged to disclose this annually, stating explanations. This enables companies to reflect sector and enterprise-specific requirements. Thus, the Code contributes to more flexibility and more self-regulation in the German corporate constitution.

 

Declaration by the Executive and Supervisory Boards of STS GROUP AG on the recommendations in accordance with the Government Commission on German Corporate Governance Code in accordance with Section 161 AktG

“The Executive Board and Supervisory Board of STS Group AG, headquartered in Hallbergmoos, Freising (“the Company”), hereby declare: The Company has been in conformance with the recommendations per the “Government Commission on German Corporate Governance Code” as amended on February 7, 2017, published in the Federal Gazette on April 24, 2017, with correction announced in the Federal Gazette on May 19, 2017 (“the Code”) since June 1, 2018, which is the date of initial inclusion of the Company’s shares in the regulated market of the Frankfurt Stock Exchange (Prime Standard), and will continue to do so, with the following exceptions:
 

1. Section 3.8 (3) of the Code:

The Code recommends that any D&O insurance policy taken out for a Supervisory Board member have a deductible of at least 10% of the loss up to at least the amount of one and a half fixed the fixed annual compensation of the Supervisory Board member. The Company’s D&O insurance does not envisage a deductible of this kind for Supervisory Board members. The Company is of the opinion that a deductible is not a suitable means of influencing the motivation and responsibility of Supervisory Board members positively. The deductible would not be appropriate either given that the Supervisory Board members do not receive variable compensation and neither do they participate in any positive corporate development.
 

2. Section 4.1.3 Sentences 2 and 3 of the Code:

The Code recommends that the Executive Board ensure there is an adequate compliance management system in line with the risk situation of the enterprise and disclose the salient points of this system. In addition, employees and third parties should have a suitable method of providing protected tips in respect to legal violations in the enterprise. The Company does not have a compliance management system in place, nor a ‘whistleblowing’ system enabling employees and third parties to call attention to legal violations in the enterprise in suitable, identity-protected fashion. The Company believes that both the above recommendations are highly relevant and proper, and thus has created capacity for their implementation and prepared corresponding measures in the course of the year.
 

3. Section 4.2.3 (4 and 5) of the Code:

The Code recommends that when concluding Executive Board contracts that payments made to an Executive Board member on premature termination of his contract, including fringe benefits, do not exceed the value of two years’ compensation (severance pay cap) and compensate no more than the remaining term of the employment contract. A severance payment cap clause will be included in new Executive Board contracts. This shall not apply to existing contracts or to renewals of contracts which do not provide for a severance cap, i.e. Executive Board contracts are subject to a grandfathering.
 

4. Section 5.3.1 and 5.3.3 of the Code:

The Code recommends that depending on the specifics of the enterprise and the number of its members, the Supervisory Board should form committees with sufficient expertise. The Company’s Supervisory Board consists of only three persons, thus no committees have been formed.
 

5. Section 5.4.1 (2) of the Code:

The Code recommends that the Supervisory Board shall specify concrete objectives regarding its composition which, whilst considering the specifics of the enterprise, take into appropriate account the international activities of the enterprise, potential conflicts of interest, the number of independent Supervisory Board members within the meaning of Section 5.4.2, an age limit to be specified and a regular limit of length of membership to be specified for the members of the Supervisory Board as well as diversity. The Supervisory Board has not adopted any resolutions defining concrete objectives goals regarding the composition of the Supervisory Board. The Company believes that the current composition of the Supervisory Board meets the requirements in line with Section 5.4.1 (2) of the Code. When selecting candidates to be proposed for election to the Supervisory Board, the Company always ensures that candidates have the required knowledge, ability and personal experience. The Company has thus determined that adopting concrete objectives in respect to composition is not a suitable means for ensuring that the Supervisory Board is composed of qualified members capable of working efficiently.
 

6. Section 5.4.6 (1) Sentence 2 of the Code:

The Code also recommends that the Chair and Deputy Chair positions in the Supervisory Board as well as the chair and membership in committees be taken into account when deciding the compensation of Supervisory Board members by resolution of the General Meeting or in Articles of Association. The compensation scheme for Supervisory Board members currently takes into account the offices of Supervisory Board Chair, Vice-Chair and committee chairs, but does not take into account committee membership. In view of the size of the Supervisory Board, namely three members, the Company does not consider this necessary.
 

7. Section 7.1.2 Sentence 3 of the Code:

The Code recommends that the consolidated financial statements be made publicly accessible within 90 days of the end of the financial year; interim reports be publicly accessible within 45 days of the end of the reporting period. The Company meets legal requirements to publish the consolidated financial statements within the first four months of the Group"s financial year, and will publish the Code Declaration of Conformity together with the consolidated financial statements. Because of the time required to carefully prepare interim reports, until further notice the Company is observing the same legal deadlines for publication for the respective interim reports. However, the Company endeavors to minimize the amount of time required for publication of the consolidated financial statements and interim reports to the extent possible.

Hallbergmoos, December 2018

 

STS Group AG 

Der Vorstand
Der Aufsichtsrat