Report of the Supervisory Board
ACTIVITIES OF THE SUPERVISORY BOARD
In this report, the Supervisory Board provides information in accordance with Section 171(2) of the German Stock Corporation Act (AktG) on its activities in the financial year 2010 and on the results of its review of the annual financial statements and consolidated financial statements. The Supervisory Board carried out with due care the control and consultation duties with which it is entrusted under law, the company’s articles of association and its own rules of procedure.
The Supervisory Board regularly advised the Board of Management on the running of the company, oversaw its work, and continually followed business developments and the situation of MTU. The Supervisory Board was informed and consulted in a direct and timely manner on all decisions of consequence for the company. The members of the Supervisory Board were briefed by the Board of Management in a regular, timely and comprehensive manner on the situation of the company, and received monthly written reports on the company’s earnings, financial situation, and net asset position as well as on important business transactions. The Supervisory Board was also informed in detail of any new plans.
The Supervisory Board met with the Board of Management to discuss strategy issues and all major projects. After careful deliberation and examination, the Supervisory Board endorsed the strategic orientation of the company. All transactions requiring the approval of the Supervisory Board under the provisions of the law, the company’s articles of association or the Board of Management’s rules of procedure were reviewed and discussed with the Board of Management prior to approval.
In 2010, the Supervisory Board devoted special attention to MTU’s system of internal controls, with particular emphasis on the company’s risk management system, its auditing practices and the conformity of its corporate governance system with the relevant legal provisions and all aspects of compliance. The Supervisory Board examined these aspects with reference to the documents submitted to it and in dialog with the Board of Management.
The Compliance Board presented status reports at the Supervisory Board’s meetings in July and December. The internal auditors presented their findings to the Audit Committee at its regular meetings in March and October, with the latest developments in the field of compliance being one of the subjects discussed.
MEETINGS OF THE SUPERVISORY BOARD
During the financial year 2010, the Supervisory Board convened five ordinary meetings and one conference call, in the course of which resolutions were adopted. The average attendance rate at Supervisory Board meetings was 95%, and no member had an individual attendance rate below 50%. Between official meetings, the chairman of the Supervisory Board was regularly briefed on the company’s current situation, significant business transactions and important pending decisions.
At its meetings with the Board of Management, the Supervisory Board discussed the business performance of MTU and all its affiliates and associated companies. The situation on the commercial and military engine markets was analyzed in detail, as was MTU’s market position compared with its competitors. One recurring item on the agenda was the company’s earnings, including its risk situation and risk management activities. Other topics of note included the progress being made in the development of the TP400-D6 engine program for the new Airbus A400M military transporter and the GEnx program for the Boeing 787 Dreamliner and Boeing 747-8. In addition to utilization levels at the Vancouver location, the conclusion of a profit and loss transfer agreement with MTU Maintenance Berlin-Brandenburg, and the planned acquisition of the company premises of MTU Maintenance Hannover, the Supervisory Board concerned itself with the U.S. dollar exchange rate movements, and the results of the employee satisfaction survey 2010. Other issues to which the Supervisory Board devoted its attention included the approval of the operational business plans and budget for 2011, the renewal of the contracts of Board of Management members Egon Behle and Reiner Winkler, the Act on Appropriateness of Management Board Compensation (VorstAG) and its provisions relating to pension agreements, and amendments to the German Corporate Governance Code.
The Supervisory Board firmly believes that good corporate governance is of fundamental importance to a company’s business success. For this reason, in 2010 the Supervisory Board again closely studied the application and development of the relevant corporate governance standards and the way in which they are implemented at MTU. In doing so, it also reviewed the efficiency of its own activities. In particular, it examined the amendments to the German Corporate Governance Code made by the Government Commission. In this context, it discussed the composition of both the Board of Management and the Supervisory Board with respect to diversity and especially the fair representation of women in these bodies. The envisaged goal is to raise the number of women holding seats on the Supervisory Board to two or more within the next two periods of office and, as in the past, to ensure an ‘international’ background of its members. In addition, the Supervisory Board has explicitly stated that, in the nomination proposals it makes to the Annual General Meeting, it will also take into account the principles already in place concerning the avoidance of conflicts of interest. The Supervisory Board also aims to enhance diversity within the Board of Management and, when searching for suitably qualified candidates to fill vacant positions on the Board of Management, will pay particular attention to the fair representation of women.
The Supervisory Board still has a sufficient number of independent members. During 2010, the members of the Supervisory Board took part in training measures on their own responsibility and received appropriate support from the company in their endeavors.
Cooperation between the Supervisory Board and the Board of Management, and among the members of the Supervisory Board, was again judged to be of a very high quality. No conflicts of interest arose between MTU and any member of its Board of Management or Supervisory Board. The Supervisory Board assured itself that the company has complied with the recommendations laid down in the German Corporate Governance Code, as stated in its declaration of conformity.
In its joint declaration with the Board of Management dated December 16, 2010, pursuant to the requirements of Section 161 of the German Stock Corporation Act (AktG), the Supervisory Board states that MTU Aero Engines Holding AG fully complies with the recommendations of the German Corporate Governance Code, with one exception only. The company’s declaration is reproduced on page 20 of this annual report together with a more detailed description of the company’s corporate governance system; the declaration has also been posted on the company’s website.
By convention, the Supervisory Board has three committees equally representing the workforce and the management of the company: the Audit Committee, the Personnel Committee and the Mediation Committee – the latter formed to comply with Section 27(3) of the German Co-Determination Act (MitbG). Each of the committees reports regularly to the full Supervisory Board on its work.
Pursuant to the recommendations of the German Corporate Governance Code, a Nomination Committee, too, was set up in 2007. It is the task of this committee, which meets on an ad hoc basis, to identify suitable candidates for election to the Supervisory Board, who are then recommended to the Annual General Meeting by the Supervisory Board. Its members are Klaus Eberhardt and Dr. Jürgen M. Geißinger. No circumstances requiring the convocation of the Nomination Committee arose during the financial year 2010.
The Personnel Committee consists of Klaus Eberhardt, Dr. Jürgen M. Geißinger and the two employee representatives Josef Hillreiner and Michael Leppek. The Personnel Committee met three times in 2010 to discuss matters including the results of the Supervisory Board’s efficiency audit, the renewal of the contracts of Board of Management members Egon Behle and Reiner Winkler, and the compensation system for members of the Board of Management, including performance targets and pension agreements.
The Mediation Committee, whose members are identical with those of the Personnel Committee, was not called upon to convene in 2010.
The members of the Audit Committee are Prof. Dr. Joachim Rauhut (Chair), Klaus Eberhardt, Babette Fröhlich and Josef Hillreiner. The Audit Committee met five times in the course of 2010 and also passed one resolution through the submission of written votes. The committee was primarily concerned with reviewing the annual financial statements, consolidated financial statements and group management report of MTU Aero Engines Holding AG as well as the company’s financial situation and quarterly reports.
The committee also specified the key areas for audit in the 2010 financial statements, reviewed the proposed fees to be paid for the services of the accounting firm Deloitte & Touche, and recommended that the Supervisory Board should award the contract. In addition, the committee obtained the auditor’s statement of independence pursuant to Section 7.2.1 of the German Corporate Governance Code and also monitored the auditor’s independence.
To aid the committee members in their tasks, they and all other members of the Supervisory Board were supplied with copies of the reports prepared by Deloitte & Touche concerning the auditing of the annual financial statements and consolidated financial statements, the management report and the group management report. These documents were thoroughly reviewed in the presence of the auditor. In conclusion, the committee recommended that the Supervisory Board should adopt the financial statements, approve the management reports and consent to the Board of Management’s profit distribution proposal.
In accordance with the legal requirements, the Audit Committee monitored the financial reporting process as well as the efficacy of the company’s risk management system, its system of internal controls, and its internal auditing.
In addition to examining the company’s compliance with the relevant rules and legal provisions, the Audit Committee was also briefed by the Board of Management on individual audit reports, on the planned profit and loss transfer agreement with MTU Maintenance Berlin-Brandenburg, and on the progress and results of the audit carried out by the Financial Reporting Enforcement Panel (FREP).
ADOPTION OF THE ANNUAL FINANCIAL STATEMENTS, THE APPROVED CONSOLIDATED FINANCIAL STATEMENTS, AND THE MANAGEMENT REPORT
MTU Aero Engines Holding AG’s annual financial statements, consolidated financial statements, management report and group management report for the financial year 2010 were audited and fully certified by the accounting firm Deloitte & Touche, Munich, whose appointment had been confirmed by the Annual General Meeting. The audit reports and documents to be reviewed were submitted in a timely manner to all members of the Supervisory Board. The Supervisory Board thoroughly reviewed the annual financial statements, consolidated financial statements, management report and group management report of MTU Aero Engines Holding AG for 2010 and the Board of Management’s profit distribution proposal on the basis of the preliminary audit by the accounting firm Deloitte & Touche, on which the chair of the Audit Committee had presented a full report to the Supervisory Board.
The auditor attended the meetings of the Audit Committee of MTU Aero Engines Holding AG on January 24, and March 2, 2011, and the balance sheet meeting of the Supervisory Board on March 15, 2011, and presented the main findings of the audit. The Supervisory Board reviewed the annual financial statements, consolidated financial statements, management report, group management report and the Board of Management’s profit distribution proposal, and raised no objections. The company’s annual financial statements and consolidated financial statements for the financial year 2010 as submitted by the Board of Management were approved at the Supervisory Board meeting on March 15, 2011. The annual financial statements are thereby adopted. The Supervisory Board agreed to the Board of Management’s profit distribution proposal after giving due consideration to the interests of the company and its shareholders. At its meeting, the Supervisory Board took note that MTU Aero Engines Holding AG had not entered into any change-of-control agreements. The only instance in which a change of control might have indirect consequences for MTU Aero Engines Holding AG is in the case of contracts containing change-of-control clauses entered into by group companies. More information on this can be found in the group management report on page 98.
NO BOARDROOM CHANGES
There were no changes in the membership of the Supervisory Board in the financial year 2010.
The Supervisory Board wishes to thank the Board of Management and all MTU employees for their successful work and the great commitment shown in 2010. It also thanks the works council for its constructive cooperation and, last but not least, all the shareholders who have placed their trust in MTU over the past financial year.
Munich, March 15, 2011
Chairman of the Supervisory Board