In the financial year 2011 the Supervisory Board worked well and effectively with the Executive Board led by the new CEO Christoph Franz. We carried out the duties conferred on us by statute, the Company’s Articles of Association and its internal regulations: to supervise the work and advise the Executive Board.
The Executive Board provided us with full and timely information on the competitive environment, all strategically significant operating decisions and planned Company policy. Projected capital expenditure and equity investments as well as planned Group financing activities were coordinated with us. The Executive Board’s reporting obligations and the list of transactions requiring authorisation have been laid down in internal regulations.
Chairman of the Supervisory Board
As Chairman of the Supervisory Board I read the minutes of the Executive Board meetings and discussed the current course of business with Mr Franz on an ongoing basis.
In 2011 the Supervisory Board held four ordinary meetings, on 16 March, 2 May, 29 September and 7 December. All members of the Supervisory Board attended all meetings.
In September we held in-depth discussions with the Executive Board about the further strategic development of the Group. In December we carried out the regular review of the efficiency of our working practices and together with the Executive Board issued an updated declaration of compliance with the German Corporate Governance Code. There were no conflicts of interest requiring disclosure in 2011.
In the declaration of compliance the Supervisory Board reaffirmed its support for the fundamental importance of a diverse Supervisory Board membership for the Company. At the same time, it would like to see more women represented. Notwithstanding the recommendation in 5.4.1 of the Code, a decision was again taken, however, not to set concrete targets for this in the form of quotas or absolute figures. When proposing candidates for election to the Annual General Meeting, the Supervisory Board will be guided by the knowledge, skills and professional experience of the potential nominees.
The Supervisory Board meetings focused on economic developments at Lufthansa and its consolidated and investee companies. Particular attention was given to the effects of the earthquake off the coast of Japan in spring 2011, the political unrest in North Africa and the Middle East, and the ruling issued by the Hesse administrative court in October imposing a temporary ban on night-flights from Frankfurt. The Supervisory Board also received detailed information about the assessment of a strategic partnership for Lufthansa Systems AG and the difficult economic situation at British Midland. As a turnaround remained out of reach at British Midland, despite considerable efforts by management and staff, we approved the sale of the company to International Airlines Group in December.
Other important items on the agenda in the reporting year related to approvals for the purchase of 47 aircraft of different models for the airlines in the Group, new cabin products on Lufthansa Passenger Airlines and Austrian Airlines wide-bodied aircraft, the implementation of a joint venture with All Nippon Airways, and the reorganisation of company law structures at LSG Sky Chefs Deutschland GmbH and its facilities.
The Executive Board informed us regularly of changes in the shareholder structure, transactions with derivative instruments, and allocations to and returns from the Lufthansa pension fund. The statements made in the management reports by the Executive Board in accordance with Sections 289 Paragraph 4 and 315 Paragraph 4 German Commercial Code require no further explanation.
Information on the Supervisory Board Committees’ work was provided at the beginning of the Supervisory Board meetings.
On the recommendation of the Steering Committee the Supervisory Board adopted a new remuneration structure for the Executive Board in September 2010, which applies to all Executive Board members from the financial year 2011. The Supervisory Board was keen to align the remuneration structure more closely with the sustainable development of the Company and to smooth the remuneration of the Executive Board, which in the cyclical airline business had fluctuated far more than average in recent years. We therefore reduced the short-term financial incentives in the variable component by converting part of the one-year variable bonus into basic salary and largely basing the variable remuneration on performance over several years. The overall level of average remuneration was not altered. The new structure, which was adopted by an overwhelming majority at the 2011 Annual General Meeting, is described in full in the remuneration report.
The Steering Committee met four times in the financial year 2011. Neither the Arbitration Committee required under Section 27 Paragraph 3 German Codetermination Act nor the Nomination Committee needed to be convened during the reporting period. The Audit Committee, which met four times in 2011, three of which in the presence of the auditors, discussed the interim reports with the CFO before publication. The committee also dealt with supervision of accounting processes and the effectiveness of the internal control system, the risk management system and the internal audit system. The members received regular reports on risk management, compliance and the work of the Group’s internal audit department. The committee also received detailed information from the Board members of Austrian Airlines and British Midland on the economic situation at their respective companies.
We appointed PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Dusseldorf, who were elected as auditors for the parent company and the Group at the Annual General Meeting 2011, to audit the financial statements and the consolidated financial statements, the management reports and the risk management system. The Audit Committee acknowledged the declaration of independence provided by PricewaterhouseCoopers and discussed the main topics of the audit. No potential grounds for disqualifying the auditors or doubting their impartiality came to light during the course of the audit.
The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), taking account of interpretations by the International Financial Reporting Interpretations Committee (IFRS IC) as applicable in the European Union (EU). The auditors audited the annual financial statements and consolidated financial statements of Deutsche Lufthansa AG and the combined management report as of 31 December 2011 in accordance with the legal requirements, and had no reservations to make. They further confirmed that the risk management system set up by the Executive Board is suitable for the early identification of developments which could endanger the Company’s continued existence. During their audit the auditors did not come across any facts in contradiction with the declaration of compliance.
In early March 2012 the Audit Committee discussed the audit reports in detail with the CFO in the presence of the two auditors who had signed the financial statements. At the Supervisory Board accounts meeting the auditors reported on their audit findings and answered questions. We examined the financial statements and the consolidated financial statements of Deutsche Lufthansa AG, the combined management report and the proposal for profit distribution in detail and had no objections to make. The financial statements and the consolidated financial statements were approved. The 2011 annual financial statements of Deutsche Lufthansa AG as prepared by the Executive Board have thereby been adopted. We agree with the proposal for profit distribution.
We would like to express our particular thanks to the Executive Board and to all the employees in the Group and its associated companies for their personal contribution to the Lufthansa Group’s success in the financial year 2011.
Cologne, 14 March 2012
For the Supervisory Board
Jürgen Weber, Chairman