OF FRANCOTYP-POSTALIA HOLDING AG (FP GROUP)
With this report, the Supervisory Board provides details of its activities in accordance with section 171 para. 2 of the German Stock Corporation Act (Aktiengesetz - AktG).
In 2013 the Supervisory Board performed the duties required of it according to prevailing law, the Articles of Association and company standing orders, while taking the associated decisions as and when necessary. The Supervisory Board regularly advised the Management Board on the management of the company, monitored its work and dealt continuously with the course of business and situation of the FP Group. The Supervisory Board was directly involved in all important decisions from an early stage. The Management Board informed the members of the Supervisory Board regularly, comprehensively, and in good time of the company's circumstances.
Whenever a decision was required from the Supervisory Board regarding individual measures of the Management Board, the Supervisory Board passed resolutions on this, if necessary by written procedure. A total of eight meetings were held by personal attendance in the past year, and one Supervisory Board meeting was held via telephone conference. Of these, four were ordinary meetings and five were extraordinary meetings. One of the extraordinary meetings by personal attendance was a constitutive meeting. The agenda for one meeting by personal attendance was dealt with on two dates because of the state of health of a member of the Supervisory Board. With the exception of the constitutive meeting of the Supervisory Board after the Annual General Meeting and two extraordinary meetings, the Management Board took part in all meetings of the Supervisory Board.
The meetings focused on the following issues:
– Progress in the introduction of De-Mail in Germany
– The “Aufbruch 2015” initiative
– Conclusion of new group financing
– Net assets, financial position and results of operations
The joint meetings of the Supervisory Board and Management Board were on 12 February, 9 April, 23 April, 26 June, 19 September and 12 December 2013 (budget meeting). The Supervisory Board met without participation of the Management Board on 9 April, 27 June and 15 and 25 November 2013. The meeting on 15 and 25 November 2013 was one meeting held on two days.
Cooperation between the management board and supervisory board in ongoing dialogue
The 2013 financial year was marked in operating business by progress in the introduction of De-Mail and Aufbruch 2015:
After Francotyp-Postalia and its subsidiary Mentana-Claimsoft GmbH (previously AG) were accepted on 6 March 2012 by the German Federal Office for Information Security (BSI) as the first company for accreditation as a De-Mail provider in Germany, the goal in the previous financial year was to push ahead with the introduction of De-Mail. The FP Group linked the first two major customers, Deutsche Rentenversicherung and Süddeutsche Krankenversicherung, with its own De-Mail network. Moreover, other new clients included small and medium-sized enterprises, local authority IT consulting firms and authorities were gained.
Another important development in the expansion of the area of fully electronic mail communication is the acquisition of additional shares in Mentana-Claimsoft GmbH. On 6 November 2013 the Supervisory Board approved in a written procedure the 24.5% increase to 75.5% in the FP Group's holding in Mentana-Claimsoft GmbH. The acquisition was by mutual agreement without effect on liquidity after it emerged that there may be a warranty violation by the seller with regard to the purchase contract of 3 March 2011.
The Management Board and Supervisory Board discussed the “Aufbruch 2015” initiative regularly in the past year, both in the Supervisory Board meetings (12 February, 23 April, 26 June, 19 September, and 12 December) and outside these. Aufbruch 2015 with its subprojects for a new distribution strategy, strengthening the dealer channel and optimising operating costs is an important project which is aimed at achieving the ambitious corporate goals for 2015 set by the Management Board.
A central issue for the new distribution strategy is enhancing distribution activities, to be achieved by better qualification of incoming enquiries, more efficient organisation of the sales process, and a newly-defined industry-specific customer approach strategy. In line with the FP Group's strategic orientation, the company is evolving consistently from a franking machine manufacturer to a solution provider.
However, with over 3.6 million companies in Germany alone, FP Sales cannot contact them all directly. This is why the establishment of a specialist retail channel alongside direct distribution and distribution through dealer partners is an important element of Aufbruch 2015.
There is also potential for optimisation in costs. For example, the lease for the Birkenwerder site expires at end-2014. At the meetings on 26 June, 19 September and 12 December, possible relocation plans and available premises for lease were discussed in detail by the Management Board and Supervisory Board. On 12 December the Supervisory Board gave its approval for the Management Board to sign the lease for a new office in Berlin at Prenzlauer Promenade 28. In October 2014, the FP Group will relocate its headquarters in Berlin.
Besides progress in the introduction of De-Mail in Germany and Aufbruch 2015, the decertification in the USA of old franking machines still on the market was an important topic in the Supervisory Board meetings (9 April, 23 April, 26 June, 19 September and 12 December). The decertification announced surprisingly by the US Post Office USPS at end-2012 for the period from the start of 2013 to end-2015 affects some 50% of the franking machines installed by FP on the US market (T1000). The Management Board provided the Supervisory Board with regular updates at the Supervisory Board meetings on the positive progress in exchanging new franking machines for old ones.
Net assets, financial position, and result of operations
The Management Board reported to the Supervisory Board on the net assets, financial position and results of operations of the FP Group. Issues of particular importance were discussed in detail between the Supervisory Board and the Management Board.
The positive trend in the net assets, financial position and results of operations is also due to the restructuring completed in financial year 2012.
The financial year began with the successful conclusion of a new consortium loan agreement under Deutsche Postbank AG as mandated lead arranger and agent and Commerz AG as mandated lead arranger and security agent. This secured group financing for the next 3.5 years, with an option to extend for a further 1.5 years. The new consortium loan prematurely replaced liabilities in connection with the financing of approximately EUR 36 million, originally running until the end of February 2014. The overall volume of the new consortium loan stands at a total of EUR 45 million. A noteworthy positive feature in the group financing is that the banks rewarded both the improved balance sheet structure and the growth of the FP Group as a whole. The expanded financial scope means that the company can push ahead consistently with its projects and secure planned growth, particularly in the USA leasing market and Germany.
In financial year 2013 the FP Group generated total revenue of EUR 168.9 million as forecast, compared with EUR 165.6 million in the previous year. The increase is
largely explained by the expansion of business in the Mail Services and Software segments. This also explains the increase in cost of materials to EUR 77.9 million, compared with EUR 72.5 million in the previous year. Other factors were the increase in capitalised own work for leased products and the change in inventory from EUR -0.2 million in the previous year to EUR -0.5 million. Financial year 2013 also saw personnel expenses rise slightly to EUR 54.0 million, compared with EUR 53.3 million in the previous year. This is due primarily to the formation of an extraordinary provision of EUR 0.5 million in connection with the departure of Andreas Drechsler as a member of the Management Board.
Despite these expenses, the FP Group increased EBITDA in the past financial year to EUR 22.2 million (previous year: EUR 19.0 million) and EBIT to EUR 10.4 million (previous year: EUR 9.1 million). This meant that expectations were met for both revenue and earnings.
The budget for the following year prepared annually by the Management Board was discussed in detail by the Supervisory and Management Boards at the meeting on 12 December 2013. The Supervisory Board approved the budget.
Composition of the supervisory board and management board
After deputy Supervisory Board member Felix Hölzer notified the company on 19 February 2013 that he was resigning his seat on the Supervisory Board on 31 March 2013 and leaving the FP Supervisory Board, the Management Board and Supervisory Board jointly applied to the Neuruppin District Court to appoint Klaus Röhrig as a new Supervisory Board member. On 1 April Klaus Röhrig took over from Felix Hölzer in the position of Deputy Chairman of the Supervisory Board. At the extraordinary meeting of 9 April the Supervisory Board elected Mr Röhrig Chairman of the Supervisory Board, replacing Dr. Gerckens, who had been Chairman of the Supervisory Board since 27 June 2012 and was elected Deputy Chairman at the same meeting.
On 25 April 2013 Dr. Claus Gerckens notified that he was resigning his seat on the FP Supervisory Board at the end of the Annual General Meeting on 27 June 2013.
As Robert Feldmeier had also been appointed by the court to the Supervisory Board on 28 July 2012 after the resignation of Christoph Weise, this year's FP Annual General Meeting on 27 June 2013 had to confirm or elect all three members of the Supervisory Board. The Supervisory Board accordingly nominated Robert Feldmeier as a successor to Christoph Weise and Klaus Röhrig as a successor to Felix Hölzer. Following his resignation Dr. Claus Gerckens was nominated as a member of the Supervisory Board for re-election.
In opposition to the nominations of the Supervisory Board, shareholder Rudolf Heil submitted an alternative nomination to the 2013 Annual General Meeting and moved that Botho Oppermann be elected as a member of the Supervisory Board. The Annual General Meeting voted to elect Robert Feldmeier, Klaus Röhrig and Botho Oppermann as members of the Supervisory Board.
In the subsequent constitutive meeting Klaus Röhrig was elected Chairman of the Supervisory Board and Robert Feldmeier was elected Deputy Chairman.
None of the current members of the Supervisory Board were at any time members of the Management Board or Managing Director of Francotyp-Postalia Holding AG, or any of its subsidiaries. In accordance with Number 5.5.2 of the Corporate Governance Code, members of the Supervisory Board must report any potential conflicts of interest. In the last financial year, none of the Supervisory Board members disclosed conflicts of interest.
In connection with Aufbruch 2015 and the associated expansion of sales to include the specialist retail model, the Supervisory Board discussed a new appointment as member of the Management Board responsible for sales. After detailed consideration on 31 May the Supervisory Board decided to revoke the appointment of Andreas Drechsler as a member of the Management Board with effect from 3 June 2013 and to appoint Thomas Grethe as a member of the Management Board with effect from 15 June 2013.
Effective 1 January 2014 the existing Management Board contract with Hans Szymanski was prematurely extended by three years to 31 December 2016. Mr. Szymanski has been CFO since December 2008 and, since November 2010, CEO and CFO of Francotyp-Postalia Holding AG. The extension to the contract ensures ongoing stability and continuity in the Management Board. The Supervisory Board is very pleased that Hans Szymanski's management competence will make it possible to continue the company's chosen course successfully.
Work on committees
Due to the corporate size of Francotyp-Postalia Holding AG and the fact that the Articles of Association prescribe that the Supervisory Board must have three members, no other committees were formed. As long as the Supervisory Board continues to be limited to three persons, the Board as a whole assumes the duties of an Audit Committee.
In this capacity, the Supervisory Board examines and monitors the financial reporting process as well as the effectiveness of the internal monitoring system, risk management system and internal audit system. Examination and monitoring is based on the regular reports of the Management Board.
Audit of the annual and consolidated financial statements discussed in detail
The Supervisory Board has the task of examining the annual financial statements, management report, consolidated financial statements and Group management report prepared by the Management Board. The same applies to the report and conclusions reached by the independent auditor and independent auditor for the Group. KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin, has audited the annual financial statements and management report of Francotyp-Postalia Holding AG to 31 December 2013 as well as the consolidated financial statements and Group management report to 31 December 2013, and in each case has issued an unqualified opinion thereof.
In accordance with section 315a German Commercial Code (Handelsgesetzbuch – HGB), the Group management report and consolidated financial statements were drawn up according to International Financial Reporting Standards (IFRS). The independent auditor conducted his audit in accordance with the generally accepted standards for the audit of financial statements promulgated by the IDW Institute of Public Auditors in Germany. As the Supervisory Board did not form its own audit committee, the Supervisory Board as a whole conducted the audit of the documents specified. The Management Board submitted these documents, together with the audit reports by KPMG AG, to the Supervisory Board in good time.
During the balance sheet meeting held by the Supervisory Board on 3 April 2014, in the presence of the independent auditor, who reported on his main audit findings, the 2013 annual financial statements, 2013 consolidated financial statements and associated management reports and audit reports were subjected to detailed scrutiny. The Supervisory Board concurs with the Management Board's presentation of the state of the company in its reports and annual financial statements as well as with the results of the audit reports. Accordingly, the Supervisory Board raises no objections thereto. The Supervisory Board approved the financial statements drawn up by the Management Board in a resolution on 9 April 2014. The annual financial statements 2013 has thus also adopted in accordance with section 172 AktG.
The Management Board and Supervisory Board issued a Declaration of Compliance with the German Corporate Governance Code (the Code) pursuant to section 161 AktG, which now forms part of the Declaration on Corporate Governance pursuant to section 289a HGB, and will make this declaration permanently available to shareholders on the Francotyp-Postalia Holding AG website. The Management Board and Supervisory Board broadly comply with the proposals and recommendations of the Code. The Declaration on Corporate Governance, which also forms part of the 2013 Annual Report, and the Declaration of Compliance give detailed explanations of points where the Management Board and Supervisory Board depart from the Code's proposals and recommendations.
In accordance with the compliance guidelines introduced worldwide in 2011, the Supervisory Board receives regular reports on compliance in the FP Group.
Expression of thanks
In 2013 the efforts of the FP Group in earlier years became apparent in the planned positive effects. This demonstrates that the FP Group has chosen the correct course for the future and the profitable and sustainable growth of the company. The Management Board is consistently following this course with Aufbruch 2015. The Supervisory Board thanks the former Supervisory Board member Dr. Claus Gerckens for his contributions over many years and constructive cooperation on behalf of the company. It would also like to thank Felix Hölzer for his work as member of the FP Supervisory Board and the former Management Board member Andreas Drechsler. Finally, the Supervisory Board would like to thank Management Board members Hans Szymanski and Thomas Grethe, all employees and the Works Council for their commitment. Likewise, it would like to thank the shareholders for the confidence they have shown in the company.
The Supervisory Board
Francotyp-Postalia Holding AG