Corporate Governance Report

Appropriate corporate governance has been a central component of CENTROTEC’s corporate philosophy for many years. The Supervisory Board and Management Board have considered the German Corporate Governance Code at length in each amended version and incorporated the recommendations into their actions. As a result, CENTROTEC complies in all key respects with the recommendations of the Code. The Declaration of Compliance below indicates and clarifies the departures.

Management and governance structure
In keeping with the German Stock Corporation Act, CENTROTEC has a two-tier management and governance structure that comprises a three-member Management Board (at the reporting date of December 31, 2019) and, as laid down in its Articles of Association, a three-member Supervisory Board. The Management Board and Supervisory Board work together closely in the interests of the company. The Management Board coordinates both the strategic direction and principal transactions with the Supervisory Board.

The Management Board, which currently has three members, is independently responsible for the running of the company and conducts its business. In doing so, it focuses on achieving a lasting increase in the value of the company. It is bound by the law, the provisions of the Articles of Association and the rules of internal procedure for the Management Board, as well as by the resolutions of the Annual General Meeting. The Management Board informs the Supervisory Board regularly and promptly of all relevant topics concerning the strategy and its implementation, the targets, the company’s current performance, the risk exposure, and risk management. The Supervisory Board monitors and advises the Management Board. It specifies the duties of the Management Board to report and inform.

The Supervisory Board issues and amends the rules of internal procedure for the Management Board. It in addition appoints and dismisses the members of the Management Board. It may appoint a Management Board Chairman. It regularly monitors the effectiveness of the internal control and risk management system, as well as the auditing of the financial statements. The members of the Supervisory Board are appointed until the Annual General Meeting that gives discharge for the fourth financial year after the start of their term of office. The financial year in which the term of office commences is discounted.

Supervisory Board
Taking account of the company’s specific situation, the Supervisory Board has identified specific targets in respect of its composition, such as the appropriate participation of members with international experience and efforts to ensure that women participate adequately. The Supervisory Board is moreover to include an adequate number of independent members. The Supervisory Board will take account of these targets when proposing candidates to the electoral bodies, and in particular the Annual General Meeting.

The Annual General Meeting of Shareholders on June 18, 2019 elected Mr Andreas Freiherr von Maltzan as a member of the Supervisory Board. Mr Freiherr von Maltzan had already sat on the Supervisory Board since July 1, 2018 by court appointment. The curricula vitae of the Supervisory Board members as well as disclosures on material activities alongside their Supervisory Board mandate are published on the company’s website. There were no cases of conflicts of interest concerning Management Board or Supervisory Board members, which are to be disclosed to the Supervisory Board without delay.

Shareholders and Annual General Meeting
The shareholders exercise their rights through the Annual General Meeting and make use of their voting rights there. Each share carries one vote. Every shareholder is entitled to take part in the Annual General Meeting. The Annual General Meeting takes decisions concerning in essence the appropriation of profits, discharge of the Management Board and Supervisory Board, the Articles of Association and amendments thereto, key entrepreneurial measures, and measures that change the capital such as the issuance of new shares, the acquisition of treasury stock and the conditional capital. The participants of the Annual General Meeting elect the Supervisory Board members and determine their remuneration.

Remuneration system of the Management Board and Supervisory Board
The Supervisory Board is responsible for determining the remuneration of the Management Board, including the principal contractual features. The remuneration system of the Management Board and Supervisory Board is presented in detail in the remuneration report, which forms part of this report.

Third-party financial loss insurance (D&O cover) has been taken out for the company’s Management Board and Supervisory Board members, incorporating an appropriate excess for the Management Board members in accordance with the statutory provisions. An appropriate excess has also been agreed for the members of the Supervisory Board, in agreement with the Corporate Governance Code. The managing directors and supervisory/ administrative board members of subsidiaries are included in this D&O cover.

Transparency
CENTROTEC has acted openly and responsibly ever since its establishment, and was therefore already doing so before the company pledged to observe the Corporate Governance Code. The overriding objective of CENTROTEC’s corporate communications is to provide prompt, continuous, comprehensive and consistent information to all target groups and to maintain a relationship with its shareholders that is characterised by transparency. In addition to financial data, the financial calendar listing all key dates for CENTROTEC, ad hoc information and press releases, the latest developments regarding the Corporate Governance Code as well as changes in the principal investments and in the overall voting rights pursuant to Sections 26 and 26a of German WpHG are published on the CENTROTEC homepage, following disclosure to the German Financial Supervisory Authority and the stock market.

Article 19 of the Market Abuse Regulation specifies the immediate disclosure obligation for transactions by Management Board or Supervisory Board members or by related parties involving shares or debt instruments of CENTROTEC or related financial instruments if the value of the transactions reaches or exceeds the amount of EUR 5 thousand within one calendar year. CENTROTEC has passed on notices of all such transactions reported to it to BaFin without delay and published them in accordance with the statutory requirements.

Legal transactions with companies in which members of the Supervisory Board and management hold or might hold an interest were also conducted in the financial year. As presented in detail in the Declaration of Compliance, these did not give rise to any conflict of interests.

The mandates held by the Management Board and Supervisory Board members on statutorily constituted supervisory boards or similar regulatory bodies are listed on page 117.

As in previous years, a dependency report was issued by the Management Board as a precautionary measure.

We refer to the contents of the dependency report for details.
At December 31, 2019 the current members of the Management Board held no (previous year no) shares. At that date the members of the Supervisory Board held 5,279,976 (previous year 2,400,000) shares.

Financial reporting and auditing of financial statements
The Consolidated Financial Statements are prepared by the Management Board, audited by the independent auditors and approved by the Supervisory Board. The Consolidated Financial Statements and interim reports are prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU, and published in both German and English.

The continuous, systematic management of entrepreneurial opportunities and risks is part of corporate governance for CENTROTEC. The Management Board reports regularly to the Supervisory Board on the latest developments in material risks within the Group. This process helps to identify risks promptly and to manage them. The Management Board and Supervisory Board therefore regularly monitor the effectiveness of the financial reporting process and the internal control and risk management system.

Compliance
Appropriate corporate governance and compliance has been a central component of CENTROTEC’s corporate philosophy for many years. A Group-wide, systematic risk analysis covering all divisions serves as the basis. The continuous, systematic management of entrepreneurial opportunities and risks is part of the corporate culture at CENTROTEC. The Management Board regularly examines the developments and work in the compliance and corporate governance areas. Timely access to important information on early risk detection and the combating of maladministration as well as limiting losses and maladministration by implementing measures and preventive action are the key objectives. Key features of the control and risk management system are indicated in the opportunity and risk report.

As part of its compliance work, CENTROTEC has taken various measures to assure the lawful conduct of employees, the company and the management. The CENTROTEC compliance programme comprises various building blocks that have been implemented in all corporate areas and thus together form the Compliance Management System. Key building blocks are the control and risk management system for financial reporting purposes, compliance in the sphere of capital market law, a competence and conduct guideline for all companies of the Group, as well as guidelines on IT security. Further principles are reflected in a guideline on the handling of gifts and invitations, as well as in the Group-wide Code of Conduct, which specifies the key principles and rules for conduct within the company and vis-à-vis outside parties. The reporting system for compliance incidents also includes a digitalised whistleblower portal for the anonymous reporting of suspected cases.

Further information on corporate governance 
Further information on corporate governance can be found in the Corporate Governance Statement on the company’s website.

Declaration by the Management Board and Supervisory Board of CENTROTEC Sustainable AG, Brilon, on the German Corporate Governance Code (Section 161 of German Stock Corporation Act)

The background
On February 26, 2002 the “Government Commission on the German Corporate Governance Code” first presented a code of practice for listed companies. This Code was last updated on February 7, 2017 and published in the Federal Gazette on April 24, 2017.

Pursuant to Section 161 of German AktG, the Management Board and Supervisory Board of a company listed on the stock exchange are obliged to declare once a year whether and to what extent the code has been and is complied with:

Declaration of Compliance
The Management Board and Supervisory Board of CENTROTEC Sustainable AG declare that the recommendations of the “Government Commission on the German Corporate Governance Code” in the version dated February 7, 2017 are and have been complied with since the last Declaration of Compliance, dated March 2019, with the exceptions stated below.

1) Article 4.2.1 of the Code recommends that the Management Board should have a Chairman or CEO. The Management Board duties are performed jointly and with equal rights by the members of the Management Board. We believe that in view of the size of the Management Board and its structure, it is not appropriate or in the interests of the company to appoint a CEO or Chairman.

2) Article 5.3 of the Code recommends the formation of committees on the Supervisory Board. These shall, however, be dependent on the specific circumstances of the company and the number of members of the Supervisory Board. Our Supervisory Board consists of three members, who consider all matters concerning the company jointly. Consequently, we do not regard the creation of committees to be appropriate in our case. We believe that our view is compatible with the Code, but supply this information as a precautionary measure by way of clarification.

3) Under 5.4.1 the Code recommends that the Supervisory Board, when determining the goals for its composition, should also specify a limit to the period for which a member may serve on it. Bearing in mind the number of Supervisory Board members and the shareholder structure, we consider the introduction of a limit to the period of service to be inappropriate in our case.

4) Article 5.4.2 of the Code recommends that the Supervisory Board includes an adequate number of members who – in the board’s own opinion – are deemed to be independent. A member is to be regarded as independent if they have no business or personal relations with the company, its corporate bodies, a controlling shareholder or an affiliated company that could constitute a substantial and not merely temporary conflict of interests. In ist own opinion, our Supervisory Board includes an adequate number of independent members. Although individual members of the Supervisory Board are shareholders and occasionally have business relations with the company, this does not constitute a conflict of interests.

Brilon, January 13, 2020

The Management Board:
Dr Thomas Kneip
[Management Board]
Günther Wühr
[Management Board]
Bernhard Pawlik
[Management Board]

On behalf of the Supervisory Board:
Guido A Krass
[Chairman]

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