Review of annual financial statements of the parent company and consolidated financial statements for the 2017 financial year

The Board of Management submitted the annual financial statements, the consolidated financial statements, and the combined management report, together with its proposal for the appropriation of net income, to us in good time.

PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, Frankfurt/Main, which was appointed as auditor of the single-entity financial statements and auditor of the consolidated financial statements (external auditor) for the 2017 financial year by the shareholders’ meeting on the recommendation of the Audit Committee and proposed for appointment by the entire Supervisory Board, audited the annual financial statements as of December  31,  2017, which were prepared in accordance with the provisions of the German Commercial Code (Handelsgesetzbuch – HGB), and the combined management report, as well as the consolidated financial statements as of December 31, 2017, which were prepared in accordance with IFRS as adopted by the EU and the additional requirements of German commercial law pursuant to § 315e (1) HGB, and the combined management report, and issued an unqualified audit opinion for each document.

Before the Audit Committee passed a resolution on its recommendation to the Supervisory Board for the proposal for appointment to be submitted to the shareholders’ meeting, the external auditor confirmed that there are no business, financial, personal or other relationships between itself, its executive bodies and audit managers on the one hand and the Company and its executive body members on the other that may cast doubt on its independence. The auditor also stated to what extent non-audit services were rendered for the Company in the previous financial year and to what extent such services have been contracted for the following year. On this basis, the Audit Committee verified and confirmed the external auditor’s requisite independence. It informed us of the outcome of this review before we prepared our resolution to propose to the shareholders’ meeting the appointment of said independent auditor.

The external auditor also confirmed to the Audit Committee and the Supervisory Board in their financial statement review meetings on February 20 and February 21, 2018, respectively, that there are no circumstances that may give rise to doubts about the external auditor’s impartiality. In this context, the auditor also reported on any services rendered in addition to auditing services. At its meeting on February 20, 2018, the Audit Committee informed us about its monitoring of the auditor’s independence while taking account of the non-audit services provided, and of its conclusion that the auditor continues to be independent as necessary.

The external auditor submitted its reports on the nature and extent as well as the result of its audits (audit report) to us. The aforementioned documentation on the financial statements, the external auditor’s audit report, and the Board of Management’s proposal for the appropriation of net income were made available to the members of the Supervisory Board in good time.

We conducted our own review of the documents submitted by the Board of Management and the external auditor’s audit reports.

In preparation, the Audit Committee had conducted a thorough review of the aforementioned documents. The annual financial statements, the consolidated financial statements, and the combined management report, as well as the Board of Management’s proposal for the appropriation of net income were explained in detail by the Board of Management to the members of the Audit Committee at its meeting on February 20, 2018. The members of the Board of Management also answered the committee members’ questions. Moreover, the external auditor also attended this meeting and reported on its audit, in particular the key audit areas defined in agreement with the Audit Committee and the Supervisory Board, the main findings of its audit, and its audit report. The external auditor did not identify any material weaknesses in the internal control system at Group level, in the risk management system, or in the accounting process. The members of the Audit Committee acknowledged and critically reviewed the audit report and audit opinion, and discussed them, as well as the audit itself, with the external auditor. The review included questions about the nature and extent of the audit and about the audit findings. The Audit Committee satisfied itself that the audit and the audit report were compliant. In particular, its members had assured themselves that the audit report and the audit conducted by the external auditor met the legal requirements. The Audit Committee agrees with the external auditor that there are no material weaknesses, in particular with regard to the accounting process, in the internal control or risk management systems at Group level. The Audit Committee recommended that we approve the results of the audit conducted by the external auditor and, since it had no objections to the documents submitted by the Board of Management, that we approve the annual financial statements and the consolidated financial statements, as well as the combined management report, and support the Board of Management’s proposal for the appropriation of net income.

We performed the final review of the annual financial statements, the consolidated financial statements, and the combined management report, as well as the Board of Management’s proposal for the appropriation of net income, at the Supervisory Board meeting on February 21, 2018, taking into account the report and recommendations of the Audit Committee and the external auditor’s audit report. The Board of Management attended this meeting, explained the documents they had submitted, and answered our questions. The external auditor also attended this meeting and reported on its audit and the main findings of its audit, explained its audit report, and answered our questions, in particular relating to the nature and extent of the audit and the audit findings. Based on this and the report presented by the Audit Committee, we were satisfied that the audit and the audit report were compliant. We followed the Audit Committee’s recommendation and approved the result of the external auditor’s audit.

Based on the final outcome of our review of the annual financial statements, the consolidated financial statements, and the combined management report, as well as the Board of Management’s proposal for the appropriation of net income, no objections need be raised. The same applies to the Corporate Governance Statement even insofar as it is not to be audited by the external auditor. We followed the Audit Committee’s recommendation and approved the annual financial statements and the consolidated financial statements.

The approval of the Supervisory Board constitutes formal approval of the annual financial statements.

The Supervisory Board’s assessment of the position of the Company and the Group is the same as that which the Board of Management presented in its combined management report. It followed the Audit Committee’s recommendation and approved these documents.

When dealing with the budget and medium-term planning on December 20, 2017, we conducted an in-depth examination of financial and investment plans, discussing in particular the development of earnings, free cash flow, and balance sheet ratios. The Board of Management’s proposal concerning the appropriation of net income was examined by the Audit Committee on February 20, 2018, and by the Supervisory Board on February 21, 2018. The external auditor was present at both meetings. We followed the Audit Committee’s recommendation to approve and support the Board of Management’s proposal to pay out shareholder remuneration of around EUR 3,082 million and to carry forward EUR 2,845 million to unappropriated net income.