Corporate Governance Statement

Corporate Governance statement pursuant to section 289f and 315d of the German Commercial Code.

General

In this statement, the Management Board of Maschinenfabrik Berthold HERMLE AG - also on behalf of the Supervisory Board - provides information on corporate governance issues pursuant to Sections 289f and 315d of the German Commercial Code (HGB). The following breakdown conforms to the breakdown as per Section 289f.

1. Declaration of compliance pursuant to Section 161 of the German Stock Corporation Act (AktG)

In accordance with the regulations of Section 161 of the AktG, the Management Board and the Supervisory Board of Maschinenfabrik Berthold HERMLE AG have issued a declaration detailing adherence to or deviation from the recommendation of the German Corporate Governance Code (version of December 16, 2019, that entered into force on March 20, 2020, GCGC 2020) This statement is permanently available to the general public on the HERMLE website at www.hermle.de (menu item: Investor Relations/Pflichtveröffentlichungen/Kodex §161 AktG) and is detailed below:

The Management Board and the Supervisory Board declare that apart from various individual points the recommendations of the Government Commission on the German Corporate Governance Code as amended on 16 December 2019, which came into force on 20 March 2020 (GCGC 2020), are not complied with. This is justified in that Maschinenfabrik Berthold HERMLE AG conducts its operations in accordance with the principles of open information policy that it has put in place to date, which were implemented as part of the rules of procedure of the Management Board and the Supervisory Board. The legal requirements, including the Act Implementing the Second Shareholders’ Rights Directive (ARUG II), which came into force on 1 January 2020, are fully complied with.

The Management Board and the Supervisory Board hold the view there are various reasons for not implementing recommendations of the GCGC 2020 that extend beyond this. As detailed below, Maschinenfabrik Berthold HERMLE AG therefore deviates considerably from the recommendations of the GCGC 2020, whereby it may be assumed for the following statements that all GCGC 2020 recommendations that are not identified as being positively regarded in the following have been deviated from.

The recommendations under B. regarding the appointment of members to the Management Board are largely not complied with. In view of the successful, decade-long practice in the appointment of Management Board members and the continuity in the Management Board, the previous framework conditions for the appointment of board members shall essentially be retained and no further restrictions shall be deliberately imposed, albeit in compliance with legal framework conditions.

The recommendations under C. on composition, under D. on working methods, under E. on conflicts of interest and under F. on transparency and external reporting of the Supervisory Board are largely not complied with, as the applicable legal regulations together with the rules of procedure of the Management Board and the Supervisory Board are judged to be fully sufficient for the topics dealt with there. Furthermore, we believe that the Code recommendations under C. to F. are geared towards international major DAX-listed Groups but not to an SME with a limited number of ordinary shareholders who, in part and also on the basis of a right of delegation under the articles of association, are represented personally in the supervisory committees.

Finally, the recommendations on the remuneration of the Management Board and the Supervisory Board under G. (GCGC 2020) are predominantly not complied with. In addition to the basic provisions for the remuneration of Management Board members in accordance with Section 87 of the AktG for DAX-listed companies in Section 87 a of the AktG, the legislator has regulated the obligation to establish a remuneration system that is to be put before the Annual General Meeting (AGM) in accordance with Section 120 a, Para. 1 of the AktG, whereby with only a few exceptions the specified, comprehensive individual requirements of the remuneration system are only then to be implemented in the remuneration system if they are indeed part of contractual agreements with Management Board members. Correspondingly, in accordance with Section 162 of the AktG the obligation pertains to draw up a remuneration report containing, in particular, evidence of compliance with the remuneration system. In accordance with Section 120 a, Para. 4 of the AktG, this is to be approved by the AGM for the respective previous business year. To date, Maschinenfabrik Berthold HERMLE AG has completely fulfilled all these legal requirements within the timespan prescribed by the legislator and will also do this in future. Maschinenfabrik Berthold HERMLE AG also considers these requirements by the legislator to be absolutely sufficient to ensure appropriate remuneration for the Management Board and the Supervisory Board and also transparency in this regard. In particular, we expressly view the individual complexities designated in G. of the GCGC 2020 as being unsuitable for a company of our dimensions with regard to ensuring fair and transparent remuneration of the Management Board members that remains beneficial to the company as well. In addition, in the past Maschinenfabrik Berthold HERMLE AG had variable remuneration based on the company's results, but no share-based remuneration for the board members, and from today's perspective such share-based remuneration is not planned for the future.

Overall, in view of the relative lower market capitalisation of the company, the shareholder structure, the very lean and therefore efficient company organisation to date as well as the additional costs associated with full implementation, Maschinenfabrik Berthold HERMLE AG has decided in favour of a merely very limited implementation of the GCGC.

However, Maschinenfabrik Berthold HERMLE AG complies with various individual regulations of the GCGC 2020, which are listed below:

Recommendation A.1 Observance of diversity when filling management positions

Recommendation A.2 Compliance Management System with disclosure of the principles

Recommendation B.1 Observance of diversity in the composition of the Management Board

Recommendation B.4 Reappointment of the Management Board before the end of one year prior to the end of the term of appointment only in the case of special circumstances

Recommendation C.4 Multiple mandates of Supervisory Board members

Recommendation C.11 Supervisory Board mandates for former Management Board members

Recommendation C.12 Position of Supervisory Board members towards competitors

Recommendation D.6 Consultation of the Chair of the Supervisory Board with the Management Board on issues of strategy, business development, risk situation, risk management and compliance of the company

Recommendation D.8 Information on Supervisory Board meetings in the report of the Supervisory Board

Recommendation D.9 Agreement on immediate notification of the Supervisory Board by the auditor in the event of significant findings and occurrences

Recommendation D.10 Agreement on the provision of information to the Supervisory Board by the auditor in the event that incorrect declarations regarding the Code are identified

Recommendation E.3 Secondary activities of Management Board members

Recommendation F.3 Publication of quarterly reports or information during the year on significant changes in the business outlook and the risk situation

Recommendation F.5 Publication of the declaration of compliance on the website for five years

Recommendations G.12-G.14 Benefits in the event of termination of contracts of Management Board members

Recommendation G.15 Offsetting the remuneration for intra-group Supervisory Board mandates in the Management Board remuneration

Recommendation G.16 Decision of the Supervisory Board on the offsetting of remuneration for Supervisory Board mandates outside the group in the Management Board remuneration

Recommendation G.18 Fixed remuneration of Supervisory Board members

 

 

2. Remuneration system remuneration report pursuant to Section 162 of the AktG

The Management Board and the Supervisory Board of Maschinenfabrik Berthold HERMLE AG have drawn up a remuneration report for the 2021 financial year in accordance with the regulations of Section 162 of the AktG. This report is permanently available for perusal on the HERMLE website at www.hermle.de together with the final auditor’s remarks. This is also the location where the current remuneration system pursuant to Section 87a of the AktG as well as the latest remuneration resolution pursuant to Section 113, Para. 3 of the AktG can be viewed.

 * The remuneration report will follow shortly.

3. Corporate governance practices

There are no corporate governance practices to be reported beyond what is legally required and fulfilled by Maschinenfabrik Berthold HERMLE AG.

4. Modus operandi of the Management Board and Supervisory Board

Maschinenfabrik Berthold HERMLE AG is a public limited company (Aktiengesellschaft) under German law. A basic principle of German corporate law is the dual management system consisting of a management board and a supervisory board, both of which have independent competences. The Management Board and the Supervisory Board of HERMLE AG manage and oversee the work of the company together in a trustworthy and honest manner.
The structure of the corporate management and supervision of Maschinenfabrik Berthold HERMLE AG is as follows:

The shareholders of Maschinenfabrik Berthold HERMLE AG exercise their rights at the company’s AGM. The AGM is always held in the first eight months of the business year. The AGM is chaired by the Chair of the Supervisory Board. The AGM decides on all matters assigned to it by law and the articles of association. The ordinary shares of the company are entitled to vote. Subject to mandatory legal provisions, reference shares do not grant voting rights.
Invitation to and participation in the AGM are in accordance with the statutory provisions and the articles of association.

Supervisory Board
In accordance with Sections 96, Para. 1 and 101, Para. 1 of the AktG, Sections 1 Para. 1 and 4 Para. 1 of the Drittelbeteiligungsgesetz (One-Third Participation Act) in conjunction with Section 8, Para. 1 of the Statutes, the Supervisory Board of Maschinenfabrik Berthold HERMLE AG consists of six members, of whom four members are appointed by the shareholder side (by direct appointment of at most one member in accordance with Section 8 (2) of the Statutes and the election of the remaining members by the AGM, whereby currently four members are elected by the AGM). Two Supervisory Board members are elected by the employees. This ensures the interests of shareholders and employees are represented on the Supervisory Board. The Chair of the Supervisory Board is elected by the Supervisory Board from among its members. The Supervisory Board was elected for five years at the Annual General Meeting held on 7 July 2021. In accordance with the regulations of Section 100, Para. 5 of the AktG, the Supervisory Board will ensure that election recommendations for future new appointments to the Supervisory Board provide for at least one member having expertise in the field of financial reporting and at least one member having expertise in the field of final auditing.
The Supervisory Board appoints the members of the Management Board. It supervises and advises the Management Board in the management of the company. Fundamental decisions taken by the Management Board require the approval of the Supervisory Board. The Supervisory Board holds two meetings per calendar half-year. As a rule, there should be one meeting per calendar quarter. The Supervisory Board shall constitute a quorum if at least four members participate in the passing of resolutions. Resolutions of the Supervisory Board are usually passed in meetings. Outside of meetings, resolutions may be adopted in writing, by telex, by telephone, by fax or by email at the direction of the Chair of the Supervisory Board. Such resolutions shall be recorded in writing by the Chair and circulated to all members. The rules of procedure of the Supervisory Board stipulate that committees may be formed. A presidential committee was formed consisting of the Chair and two deputies. It was not necessary for the Supervisory Board to convene at other times in 2021. In addition, in its meeting on 3 March 2022 the Supervisory Board of Maschinenfabrik Berthold HERMLE AG formed an audit committee in accordance with the requirements of Section 107, Paras. 3 and 4 of the AktG.

Management Board
The Management Board’s role is to manage the company on its own responsibility and in accordance with the statutory provisions, the articles of association and the rules of procedure for the Management Board. The Board consists of three members. Management Board meetings are usually held once a week and additionally to address individual topics, as required. Due to the size of the Management Board, no committees were formed.

Information on Sections 76, 111 of the AktG and diversity policy
The diversity policy for the Management Board and the Supervisory Board of Maschinenfabrik Berthold HERMLE AG ensures that people of various age groups, professional qualifications, educational or vocational backgrounds and, if possible, genders are represented on both boards. In principle, the best qualified person from the group of applicants shall be considered for all positions. The increase in the proportion of women is planned for the entire workforce. More information about the respective measures and implementation as well as the results for the 2021 financial year are to be found in the employee section of the group management report.
As part of the Act on Equal Participation of Women and Men in Management Positions, the Supervisory Board of Maschinenfabrik Berthold HERMLE AG has decided that the number of women on the Supervisory Board, which currently includes one woman, should remain constant. The Supervisory Board has set this target for the period until expiry of the current term of office of the Supervisory Board elected on 7 July 2021, i.e. until the next AGM in 2026.

With regard to the composition of the Management Board, the Supervisory Board has decided that the number of women on the Management Board, which currently does not include any women, should remain constant. The Supervisory Board has set this target for the period until 30 November 2024, as the Supervisory Board intends to secure the very successful services of the previous members of the Management Board for HERMLE AG by extending their contracts beyond 31 December 2022 at least until this time and there are currently no plans to increase the size of the board.

 

The Management Board of Maschinenfabrik Berthold HERMLE AG has decided that the proportion of women at the first management level below the Management Board (senior executives) should remain constant at the current level of 10% and remain constant at the current level of 5% at the second management level (employees not paid according to collective wage agreements). In the event of new appointments, the most professionally and personally suitable applicants shall continue to be considered. These targets apply until 30 June 2024.
The target proportion at the first level is currently slightly exceeded, and at the second level it is slightly underachieved on account of maternity leave.

This Corporate Governance Statement pursuant to Sections 289f and 315d of the German Commercial Code (HGB) can also be accessed on our website www.hermle.de under the menu item Investor Relations/Pflichtveröffentlichungen/Erklärung zur Unternehmensführung.

The documents referred to in Section 289 Paragraph 2 (1a) of the German Commercial Code (HGB) will be prepared within the statutory provisions and will subsequently also be available on the aforesaid website.