BMW Abbreviated Annual Report for 2013
This has been another very successful year for the BMW Group. We have carefully and consistently monitored the board of managing directors and offered them advice and support, through joint discussions. Our collaborative work, both within the supervisory committee and with management, has been trustful, open and constructive.
The Supervisory Committee’s Monitoring and Advisory Activities: Key Points of Interest
We addressed the company’s current situation in detail over the course of five supervisory board meetings. Our advice focused on corporate strategy and corporate planning, especially risk provisioning and risk management. In addition, we took decisions about the make-up and remuneration of the board of directors and reviewed our corporate governance strategies. In 2013, we paid particular attention to developments in the field of electromobility and to the BMW Group’s continued efforts to reduce emissions, with all the challenges this implies.
We also followed the company’s corporate development carefully, outside the context of meetings. The board of directors kept us regularly updated on sales and personnel figures, and kept us informed of specific issues of particular significance, whenever necessary. Board president Dr Reithofer also kept me directly and promptly informed of all important business transactions and plans. I was also in direct communication with Dr Kley, the chair of the advisory committee's audit commission, and Dr Eichiner, the board member responsible for finance and accounting, both inside and outside the context of meetings.
In their regular reports on the company’s standing, the board detailed the economic situation in important world regions, described the sales trends and state of competition in the automobile and motorcycle sectors and kept us informed about the development of personnel figures. In addition, in the context of financial services, the Board shared details of the development of the new end consumer business; the contract portfolio, containing dealers and end consumers; total volume of business; and developments in residual vehicle values in important markets.
The reports also addressed current activities and proposals of importance to the BMW Group, such as the current situation with regard to the restructuring of BMW Motorcycles and the progress of cooperation talks and projects with Toyota. The supervisory committee also reported on and discussed the intermittent delays in the supply of spare parts last summer, together with the causes of those delays and the countermeasures undertaken.
A supervisory committee meeting took place at our Berlin factory. There we inspected the production of BMW motorcycles. The board of directors and management representatives also brought us up to date on the strategic restructuring of the motorcycle business sector, with its focus on the premium segment. The board detailed the concepts on the product side, as well as the production, distribution and marketing measures designed to win over new customer groups and access new emergent markets with the appropriate product offerings.
We also focused extensively on the regulatory parameters — both for vehicles with internal combustion engines and for vehicles with alternative propulsion systems — in important markets, particularly the European Union, China, the US and Japan. The Board proposed various possibilities for the further reduction of CO2 emissions, through modifications to conventional vehicles. They also outlined the objectives which could be realised through the further expansion of electromobility in a variety of markets. In our talks with the board, we also discussed the future emission targets which have been the subject of recent political debate: examining the proposals submitted in this context, their effects on the BMW Group as a premium manufacturer and the current state of competition.
The needs and expectations of the purchasers of electric vehicles were the subject of extensive debate in the supervisory committee. We thoroughly examined the production and market concepts for the BMW i3, including supplementary services and measures developed in response to specific customer needs, such as the BMW Battery Certificate and Range Extender. Business and product strategy, together with long-term business planning, were the central focus of a two-day meeting of the supervisory committee. The meeting also provided an opportunity to address technical and marketing topics in detail. In the first part of the meeting, we discussed the results of the annual review of Business Strategy Number ONE with the board. This included a consideration of various possible crisis scenarios. In their report, the board also focused on the distribution of sales and added value, in particular, the current situation of projects in China, as well as plans to establish further production sites in Brazil, Russia and the NAFTA region.
As part of the vehicle presentations, members of the supervisory committee were able to personally test drive several vehicles from the BMW, MINI and Rolls Royce brands, including the BMW i3 and BMW i8, on a test circuit. In addition, area managers provided us with more detailed information on selected marketing and technical topics relating to the field of electromobility.
Following the annual strategy review, in the second part of the meeting we addressed the long-term business plans set out by the board for the years 2014 to 2019. We examined these in depth and, after extensive consideration and discussion, gave our assent to the plans. We consider the BMW Group’s strategic orientation, as implemented by the board, to continue to be robust and sustainable.
The board gave us a detailed report on the business development and strategic orientation of the financial services sector of the business, including its internal management and organisation. We also examined the financial sector’s role within the company and discussed the effects of increasing regulation with the board.
We carefully examined the annual planning statement for the 2014 business year, as proposed by the board in November, 2013. We support the board’s focus on growth and quality of results.
The board provided us with carefully differentiated reports on product quality, quality perception and concept acceptance in regional customer evaluations. The board also detailed the procedures and measures undertaken in support of quality assurance and improvement. These have been designed to take a diverse range of customer expectations — shaped by region and culture — into account. The board emphasised their high target requirements.
In 2013, the board and supervisory committee engaged in several joint discussions of the BMW Group’s corporate governance. Following a decision at a general meeting in May, 2013, members of the supervisory committee are no longer remunerated on a variable basis. Remuneration of the supervisory committee is now structured in accordance with all the relevant recommendations of the Government Commission on German Corporate Governance Code (15 May, 2013 version of the Code), applicable without exception.
The personnel and supervisory committees also examined the structure and level of remuneration for members of the board of directors. In order to validate the suitability of the system and the appropriateness of its outcomes, we undertook a review which compared the development of the company with the development of the board’s remuneration, over the course of several years. We took the remuneration of top-level management into account, as well as the development of BMW plc.’s complete domestic workforce over time. We drew on the expertise of a remuneration consultant who was independent of both the board and the company and we evaluated remuneration studies for DAX. In view of the consistency of the company’s remuneration model, we also gathered information from the personnel committee on the structure of management remuneration and the situation with regard to proposals for its future development. We discussed the results of these investigations in a plenary session. We concluded that we did not believe that fundamental change to the system of management remuneration was indicated.
We also examined the levels of company pensions. At the suggestion of the personnel committee, and after consulting independent remuneration experts, we decided to create a more differentiated tiered system of payment which takes members’ length of service on the board and their previous activities into consideration. We also decided to increase individual payments, in response to developments in the comparative DAX index. We took the anticipated effects on total remunerations into account, as well as the projected value of pensions.
In compliance with the recommendations of the Government Commission on German Corporate Governance, we set upper limits on the amounts of the individual, variable components of the board’s remuneration, as well as on the total remuneration of board members, with effect from the 2014 business year. The board members’ target remunerations remained unchanged. The acting board members’ employment contracts were altered, with their agreement, with effect from 1st January, 2014. Detailed information on the remuneration of the board, together with an overview of the upper limits set, can be found in the remuneration report.
In the course of the corporate governance review, the board also reported to both the personnel committee and the supervisory committee on the current situation regarding the implementation of a diversity policy for the BMW Group, a policy which will not be restricted to a focus on gender, but will also encourage diversity in other areas, particularly cultural diversity, and promote an internationally-oriented workforce. We also investigated the ratio of and development possibilities for female managers, particularly among top-level management, especially the top tier of management immediately below board level. We looked at proposed measures to further increase this ratio.
In 2010, the supervisory committee defined concrete hiring goals with regard to its own membership, on the basis of a detailed staffing profile. These are defined in detail in the corporate governance report. They were not altered in 2013.
There were no conflicts of interest involving board or supervisory committee members in the past business year. Material transactions involving members of the supervisory committee and other related persons, including family members and intermediary companies, as defined by IAS 24, are monitored at regular quarterly intervals.
We continually monitor and strive to improve the efficiency of our activities within the supervisory committee and other supervisory bodies. Both the head of the audit commission and I welcome suggestions and feedback from members at any time. The supervisory committee’s efficiency review was also the focus of a specific annual agenda item and a statement, prepared with the assistance of a questionnaire.
Individual participation in five supervisory committee board meetings was tracked through the payment of attendance fees, as recorded in the remuneration report. Attendance averaged over 95% in 2013. No member of the supervisory committee was absent from more than two board meetings during his or her term of office. Both executive and board meetings overwhelmingly enjoyed full attendance.
Executive and Board Meeting Findings
In order to work more efficiently and be better able to research more complex topics and decisions, the supervisory committee formed an executive committee and several boards. These committees’ tasks, personnel and working methods are detailed in the corporate governance report.
The chairs of the supervisory committee’s plenary meeting provided prompt and detailed information on the work of the executive committee and the boards. I personally provided the shareholder representatives within the supervisory committee with prompt and detailed accounts of the activities of the nomination committee. There were four executive committee meetings in total. These focused on the preparation of agenda items for the supervisory committee’s plenary meetings, provided these did not fall within the remit of a specific board. The presentation of complex topics, such as long-term business planning and strategy reviews, was prepared in detail, in cooperation with members of the board of managing directors and area managers, and with the aid of reports and statements. For example, the area manager responsible for financial services provided us with detailed information on that sector’s business development and strategies, in addition to developments with regard to credit risks and residual value risks in the area of car leasing, and the current status of specific strategic projects. The executive committee selected further topics for the supervisory committee meeting and offered the Board of Directors proposals for reports to be submitted at the supervisory committee’s plenary meeting.
The audit commission held three meetings and three phone conferences in 2013, the year under review. In the course of the phone conferences, we discussed interim reports with the board of directors before publishing them. Representatives of the external auditor also took part in the phone conference on the half-year financial report, which was subject to an audit review.
In early 2013, a meeting of the audit commission focused on the preparation of an account review session. Having first obtained a statement of independence from the auditing company KPMG plc. on the part of the audit commission, we went on to recommend that the supervisory committee plenary meeting propose KPMG as an external auditor at the 2013 annual general meeting.
The audit commission also discussed the scope and make-up of the non-audit services, including tax advisory services, which the KPMG company has provided for businesses. We did not establish anything indicating grounds for exclusion or bias or anything which might jeopardise the external auditor’s independence.
The audit commission expressed satisfaction with the remuneration offered for the audit of the 2013 annual and consolidated financial statements and for the audit review of the half-year report. Following the 2013 annual general meeting, the audit commission of the KPMG plc. auditing company issued the appropriate contracts and, taking the proposals made at the plenary session of the supervisory committee into consideration, defined the key audit tasks. These included the evaluation of warranty provisions and pension provisions, as well as the capitalisation of the development costs associated with co-operation agreements.
The area manager responsible for group reporting provided the audit commission with a report on the BMW Group’s risk management procedures. There was a further, more detailed report on the internal monitoring system (IMS) which provides the basis for financial reporting. The examples provided — of a factory, a sales company and a financial services company — clearly demonstrated the ways in which we can assess the maturity of a particular specialist department’s IMS, within the framework of the system.
The chair of the BMW Group’s compliance committee enlightened the audit commission as to the current compliance situation, which continues to be classified as unremarkable. While there had been information received and proven violations in individual cases, there were no indications of serious or systematic compliance violations.
The head of internal auditing provided the audit commission with a report on the key findings of the audit assessments undertaken by the internal auditing department in the industrial and financial services sectors and presented us with suggestions for improvement derived from those findings.
The audit commission was in agreement with the board of directors’ decision to raise the company’s share capital by €265.570, in accordance with Art. 4 (5) of the Articles of Association (authorised capital 2009) and to issue a corresponding number of new non-voting preference bearer shares with a nominal value of €1 to employees, on preferential terms, as part of the employee share scheme.
The personnel committee met a total of four times in the course of the 2013 business year. In preparation for the plenary meetings, the personnel committee examined the structure and appropriateness of the board of directors’ remuneration, including pension provisions. We discussed proposals to create a tiered system of benefit contributions and to implement measures in response to the new recommendations of the Government Commission on German Corporate Governance, with regard to remuneration and to the adaptation of employment contracts. In one case, we approved a board member’s assumption of a group-external mandate in a supervisory body.
The nominations committee held two meetings over the course of this past business year. In these meetings, we discussed medium and long-term succession plans for the positions of stockholder representatives and offered advice on proposed candidates for the supervisory board elections scheduled to take place during the 2013 and 2014 annual general meetings, taking the hiring goals defined by the supervisory committee into account.
The statutory mediation committee (Art 27 (3) of the Codetermination Act) did not have to be called during the 2013 business year.
Personnel and Structure of the Board of Directors
With regret, but also with respect and understanding, we agreed to Mr Frank-Peter Arndt’s decision to resign his mandate as the board member responsible for production, for health reasons, with effect from 31st March, 2013. We expressed our particular gratitude to Mr Arndt for many years of conscientious service and for his personal contributions to our success. The arrangements we came to with Mr Arndt in connection with his departure from the company are described in detail in the remuneration report.
In the course of the resulting reallocation of duties, the board of directors entrusted Mr Harald Krüger with executive responsibilities for the production department, with effect from 1st April, 2013. Mr Krüger had previously served on the board as leader of the MINI, Motorcycle, Rolls Royce and BMW Group Aftersales department, a department created in 2012. The supervisory committee appointed Mr Peter Schwarzenbauer as a member of the board of directors, with effect from 1st April, 2013. Mr Schwarzenbauer has many years’ management experience in the premium segment of the car industry. In the course of the reallocation of duties within the board of directors, Mr Schwarzenbauer took over as head of the MINI, Motorcycle, Rolls Royce and BMW Group Aftersales department, replacing Mr Krüger, with effect from 1st April, 2013. In one case, the supervisory committee decided on the reappointment of a board member.
Personnel on the Supervisory Committee, Executive Committee and Other Boards
Following Mr Oliver Zipse’s resignation of his mandate as representative of the executive employees with effect from 31st March, 2013, in favour of a new leadership position within the BMW Group, the Munich District Court appointed Dr Markus Schramm, area manager for aftersales business management and BMW Group mobility services, as a member of the supervisory committee, to represent the executive employees for the remainder of the term of office, at the suggestion of the executive employees themselves. Ms Maria Schmidt retired on the 30th June, 2013 and therefore resigned from the supervisory committee. The supervisory committee thanked the departing members for their constructive work as part of the committee. The Munich District Court appointed Ms Brigitte Rödig a member of the board of directors in the capacity of employee representative for the remainder of the term of office. The percentage of women on the supervisory committee therefore remained at 20%.
After being voted onto the supervisory committee once again, at the 2013 annual general meeting, I myself was re-elected chair of the supervisory committee by the committee members, as well as elected a member of the audit commission. In accordance with the company’s rules of procedure, I also took over as head of the personnel and nominations Committees. Following his re-election to the supervisory committee, Dr Kley was once again elected 4th vice chairman of the supervisory committee, as well as a member of the personnel and nominations committees and a member and chair of the audit commission. The corporate governance report contains a summary of the personnel on the supervisory committee and related bodies.
Accounting and Appropriation of Net Income Audits
The auditing company KPMG plc. subjected the abbreviated interim consolidated financial statement and the interim group management report for the first half of the 2013 business year to an audit review. The results were also presented to the audit commission verbally. The audit review did not reveal any circumstances which suggested that the abbreviated interim consolidated financial statement and the interim group management report had not, in all material respects, been drawn up in agreement with the relevant legal requirements.
The auditing company KPMG plc. audited Bayerische Motoren Werke (BMW) limited company’s annual financial and consolidated financial statements for the year ending 31st December, 2013, as presented by the board of directors on 20th February, 2014, together with the consolidated financial report summarised in the management report. They issued an unconditional audit certificate.
The financial statements, together with a summary of the management report, the external auditor’s audit reports and the board of directors’ proposal for the appropriation of net income, were made available to all the members of the supervisory committee in a timely fashion. We first reviewed and discussed these documents extensively at a meeting of the audit commission on 5th March, 2014. At the 13th March, 2014 meeting of the supervisory committee, the chair of the audit commission first reported on the audit commission’s meeting, following which the supervisory committee examined the documents in detail. At both meetings, the board of directors provided a detailed analysis of the financial reports they were presenting. Representatives of KPMG also took part in both meetings, reporting on the key results of their audit and answering follow-up questions from members of the supervisory committee. The external auditor’s representatives confirmed that the risk management system put in place by the board of directors is capable of the early detection of developments which might jeopardise the company’s continued existence and declared that they were unable to establish any substantial weaknesses in the internal monitoring or the risk management systems as far as the accounting process was concerned. In the course of the audit review, the auditors were also unable to establish any facts which contradicted the compliance statement presented by the board of directors and the supervisory committee.
Following our own detailed examination of the audit review, the audit commission and supervisory committee expressed their agreement with the results of the audit. The final results of the review by the audit commission and the supervisory committee did not suggest any grounds for objections. We therefore approved Bayerische Motoren Werke (BMW) limited company’s annual financial statement and consolidated financial statement for the 2013 business year, as presented by the board of directors in a meeting on 13th March, 2014.
This officially confirms our annual financial statement.
The audit commission and the supervisory committee also reviewed the board of directors’ proposal to distribute a dividend for the sum of €2.60 per dividend-bearing ordinary share and for the sum of €2.62 per non-voting preference share. Taking the company’s current economic situation into account, we consider this suggestion to be appropriate and endorse the proposal.
We are aware that the motivation and commitment of all our staff at the BMW Group have been important factors in the company’s success and future sustainability. We would like to express our warmest thanks to the members of the board of directors together with all the BMW Group employees worldwide, for their hard work, which has helped to contribute to the successful completion of the 2013 business year!
Munich, 13th March, 2014
On behalf of the supervisory committee
Chair of the supervisory committee
13th March, 2014
Source Text: http://geschaeftsbericht2013.bmwgroup.com/reports/bmwgroup/annual/2013/gb/German/3010/bericht-des-aufsichtsrats.html