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Report of the Supervisory Board

Dear Stockholders,

Foto: Dr. Rolf Stomberg, Vorsitzender des Aufsichtsrats

2012 marked another very successful year for LANXESS. The company achieved new sales and earnings records despite an extremely challenging economic climate in the second half of the year. Thanks to the corporate strategy of focusing on sustainable growth, the stock also posted gains, culminating in the company’s admission to Germany’s lead index, the DAX. Although conditions were more volatile, the clear focus on global growth markets in the three main business areas contributed to the company’s very gratifying performance.

During the reporting year, the Supervisory Board duly and fully performed the tasks and duties incumbent upon it under the law, the articles of association and the rules of procedure for the Supervisory Board. It advised the Board of Management regularly on the management of the company and monitored its work.

The Supervisory Board was directly involved in all decisions of fundamental importance for the company. The Board of Management informed us regularly and in good time in detailed written and oral reports about business performance, the situation of the Group, including the risk situation, strategic development and current issues. On the basis of these reports, we discussed significant business transactions in detail. We thoroughly examined the reports and the resolutions proposed by the Board of Management and discussed them at length in meetings of the full Supervisory Board and its committees. If the law, articles of association or other provisions required the Supervisory Board to approve the actions of the Board of Management, we discussed these actions and adopted resolutions on them.

The Chairman of the Supervisory Board, the Chairman of the Board of Management and the other members of the Board of Management were in regular contact outside of the Supervisory Board’s meetings. We regularly discussed the present state of the company, matters of strategy, planning, business performance, risks, risk management and compliance, as well as material events.

Focus of deliberations by the Supervisory Board

The Supervisory Board met a total of six times in fiscal 2012.

We regularly discussed the sales and earnings performance of the company and its segments, as well as the financial condition. Additionally, the Board of Management kept us updated about the overall state of the economy, the situation in the chemical industry, the performance of LANXESS stock, and investment and acquisition plans. Other important issues addressed by the Supervisory Board are presented below.

The focus of the Supervisory Board meeting held in March was the review of the financial statements and consolidated financial statements for fiscal 2011, the proposal for use of the distributable profit, and preparation of the motions for resolution by the Annual Stockholders’ Meeting. The Supervisory Board also dealt at length with issues relating to corporate governance and approved the execution of additional financing agreements. The Board of Management reported on the successfully completed integration into the Group of a recent acquisition. With regard to human resources issues, the Supervisory Board adopted the necessary resolutions concerning the attainment of performance targets for variable compensation components and the granting of a performance bonus to the members of the Board of Management.

At the meeting in May, the Supervisory Board approved a partial adjustment of the conditions defined in December 2011 for the Board of Management’s variable compensation components for fiscal 2012 in order to provide added incentive for the members of the Board of Management. It also approved a related update of the declaration of compliance. In addition, the Board of Management reported on the company’s current innovation projects. We were given information about the Board of Management’s Diversity & Inclusion initiative, including the announcement of a very specific target for the proportion of women in management roles.

At the meeting that took place immediately prior to the Annual Stockholders’ Meeting, the Board of Management reported on the status of preparations for the relocation of company headquarters to Cologne.

In August, the Supervisory Board approved the construction of a production plant for EPDM rubber in Changzhou, China. It also adapted its rules of procedure to reflect changes made to the German Corporate Governance Code.

At the meeting in late October, the Board of Management reported to us on the company’s control, risk management and auditing systems. It also presented an ongoing Group-wide initiative on occupational, process and plant safety. In addition, the Supervisory Board approved the placement of a long-term €500 million Eurobond.

At its December meeting, the Supervisory Board reviewed in full and reached a decision on the corporate planning for 2013 as proposed by the Board of Management. It also discussed the company’s strategic alignment and capital expenditure policy and dealt with issues relating to corporate governance. Lastly, we defined the conditions for the Board of Management’s variable compensation components for fiscal 2013.

All members of the Supervisory Board and its committees performed their duties diligently and conscientiously. The Supervisory Board’s meetings in 2012 were attended by all members, with the exception of one meeting at which one of the twelve members was absent. Committee meetings were attended by all members, with the exception of one meeting that two members were unable to attend. The stockholder representatives and employee representatives to the Supervisory Board worked together in a spirit of trust. They regularly held separate meetings at which they prepared the meetings of the full Supervisory Board.

Work of the committees

The Supervisory Board has four committees. The membership of these committees is shown in the report. The committees are tasked with preparing the topics and resolutions to be discussed at meetings of the full Supervisory Board. They also, at times, exercise decision-making powers conferred on them by the Supervisory Board.

The Audit Committee met four times during the year. It dealt in particular with the financial statements and management report of LANXESS AG for fiscal 2011, the consolidated financial statements and Group management report for fiscal 2011, the interim reports issued during fiscal 2012, and the condensed consolidated financial statements and interim management report included in the 2012 half-year financial report. It also extensively reviewed the risk management and internal control systems. Other topics discussed were the significant findings by the internal audit department, corporate planning, corporate governance, compliance, tax matters, accounting-related topics, strategies for IT security and the determination of the principal areas of focus for the audit of the 2012 financial statements. The external auditor attended three of the Audit Committee’s four meetings and reported on the auditing activities.

The Presidial Committee convened five times during 2012 to prepare the meetings of the Supervisory Board and to discuss personnel issues. A chief focus of its deliberations was the preparation of the decisions to be reached by the full Supervisory Board concerning the Board of Management’s variable compensation components.

The Committee formed pursuant to Section 27 (3) of the German Codetermination Act and the Nominations Committee did not convene in fiscal 2012.

The chairmen of the committees each reported on the meetings and the work of the committees at the meetings of the full Supervisory Board.

Corporate governance and declaration of compliance

In the year under review, the Supervisory Board discussed the German Corporate Governance Code (the Code) and its further development arising from the amendments of May 15, 2012. In connection with the Code’s recommendations, we extensively reviewed and defined goals for the composition of the Supervisory Board. No conflicts of interest on the part of Supervisory Board members became known last year.

Stockholders can download the joint declaration of compliance by the Board of Management and Supervisory Board pursuant to Section 161 of the German Stock Corporation Act from the company’s website at any time. As expressed in the declaration, LANXESS AG complies with the Code’s recommendations and suggestions except in a few justified cases. More information about corporate governance can be found in the section on corporate governance.

Financial Statements of LANXESS AG and Consolidated Financial Statements of the LANXESS Group

The Board of Management of LANXESS AG prepared the financial statements for the 2012 fiscal year in accordance with the rules of the German Commercial Code, the consolidated financial statements for fiscal 2012 in accordance with the International Financial Reporting Standards (IFRS) and the combined management report for 2012. These were all audited by PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, the auditor appointed by the Annual Stockholders’ Meeting and engaged by the Supervisory Board. The auditor issued an unqualified opinion in each case.

The Supervisory Board satisfied itself of the independence of the auditor and the persons acting on the auditor’s behalf.

The audit reports and the documents relating to the financial statements were discussed at length with the Board of Management and the auditor at the Audit Committee meeting held on March 14, 2013. They were also discussed in detail on the basis of the required documents and notes at the Supervisory Board’s financial statements meeting held on March 19, 2013. The responsible auditor was present for the discussions concerning the financial statements of LANXESS AG and the consolidated financial statements of the LANXESS Group. He reported on the material results of the audits. He was also available to the Audit Committee and full Supervisory Board to provide additional information.

Based on the recommendation of the Audit Committee as well as on its own review and in-depth discussions about the financial statements of LANXESS AG, the consolidated financial statements of the LANXESS Group, the combined management report and the proposal for appropriation of the profit, the Supervisory Board endorsed the auditor’s conclusions and had no objections to raise. The Supervisory Board has approved the financial statements of LANXESS AG and the consolidated financial statements of the LANXESS Group, which were prepared by the Board of Management. We endorsed the Board of Management’s proposal for use of the distributable profit after close examination and extensive deliberations that carefully weighed the best interests of the company and the stockholders.

The Supervisory Board thanks the Board of Management, all of the Group’s employees and the employee representatives for their enormous dedication and tremendous work.

Leverkusen, March 19, 2013

The Supervisory Board

Dr. Rolf Stomberg


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