Varta : Remuneration system Management Board 2022

Remuneration Report of VARTA AKTIENGESELLSCHAFT, Ellwangen (Jagst)

financial year 2022

This Remuneration Report describes the remuneration granted and owed to individual current and former members of the Executive Board and Supervisory Board of VARTA AKTIENGESELLSCHAFT (the "Company" below) for financial year 2022, covering the period from 1 January 2022 to 31 December 2022.

The report provides a detailed explanation, for each individual, of the structure and amount of each component of Executive Board and Supervisory Board remuneration. The Remuneration Report was prepared jointly by the Executive Board and the Supervisory Board. It is in line with the requirements of the German Stock Corporation Act (Section 162 of the Aktiengesetz (AktG)) and complies with the applicable recommendations of the German Corporate Governance Code (Deutscher Corporate Governance Kodex, DCGK). The present Remuneration Report will be submitted to the Annual General Meeting on 11 July 2023 for approval.

Table of contents
I. Remuneration of the Executive Board members of VARTA AKTIENGESELLSCHAFT	3
1.	Introduction	3
a. Remuneration in financial year 2022	3
b. Change in the composition of the Executive Board	4
2.	Review of financial year 2022	4
3. Principles of determining remuneration	4
a. Determining the target remuneration	6
b. Compliance with maximum remuneration	8
c.	Review of appropriateness	9
4.	Application of the remuneration system in financial year 2022	9
a.	Fixed remuneration components	9
b.	Variable remuneration components	9
c.	Malus & clawback	14
d. Information on benefits in the event of leaving the Company	14
e. Information on benefits provided by third parties	14
5. Information on the amount of Executive Board remuneration in financial year 2022	14
a. Information on the remuneration granted and owed	15
II. Remuneration of the Supervisory Board members of VARTA AKTIENGESELLSCHAFT	16
1.	Change in the composition of the Supervisory Board	17
2.	Supervisory Board's remuneration system	17
3. Remuneration of the Supervisory Board in financial year 2022	17
III.	Comparison of changes in remuneration and earnings	18
IV.	Other matters	19

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1. Remuneration of the Executive Board members of VARTA AKTIENGESELLSCHAFT

1. Introduction

The current remuneration system for members of the Company's Executive Board ("Executive Board Members" below) has been in place since 13 April 2021 and was approved by a majority of 96.40% at the Annual General Meeting held on 17 June 2021. Further information is available at www.varta-ag.com/de/ueber-varta/unternehmen/vorstand-der-varta-ag.

The Executive Board's remuneration system is designed to promote implementation of the corporate strategy and the Company's long-term development, while avoiding disproportionate risks. It seeks to establish appropriate incentives for increasing earnings and sales growth and for other relevant strategic issues aimed at the sustainable development of the Company.

The remuneration for Executive Board Members as described in the present Remuneration Report is based entirely on the above remuneration system for the Chief Financial Officer, Mr Armin Hessenberger, the Chief Technical Officer, Mr Rainer Hald, and the Speaker of the Executive Board, Dr. Markus Hackstein. The remuneration for the former Chairman of the Executive Board, Mr Herbert Schein, was granted up to and including September 2021 on the basis of the provisions of the service contract applicable to him. In addition to a moderate fixed remuneration, as short-term variable remuneration, for this period Mr Schein will receive an amount equal to 3% of the operating EBIT generated by the Company on a consolidated basis. Mr Schein's service contract, which covered the period from October 2021 to 31 December 2022, complied with the requirements of the remuneration system.

As the 2021 Annual General Meeting was the first to decide on approval of the Remuneration Report in accordance with Section 162 of the German Stock Corporation Act (AktG) and the current remuneration system was only approved by the shareholders with a very large majority at last year's Annual General Meeting, the Executive Board and the Supervisory Board saw no reason to question the reporting or the application of the remuneration system or to make adjustments.

In accordance with Section 120a (1) sentence 1 of the AktG, the Annual General Meeting of a listed company shall decide on the approval of the remuneration system for Executive Board Members as presented by the Supervisory Board whenever there is a significant change in the remuneration system, but at least every four years, i.e. at the latest again at the Annual General Meeting in 2025.

1. Remuneration in financial year 2022

The Executive Board's remuneration is largely based on the success of the Company. In particular, above-average performance is rewarded, while failure to achieve targets has a negative impact on Executive Board remuneration. The Company's net result for the year declined compared to the previous year, which is also reflected in the Executive Board remuneration. The relevant benchmark for measuring the success of the Executive Board's work was EBITDA. Individual targets relating to innovation and organisational development were also part of the short-term and long-term variable Executive Board remuneration.

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1. Change in the composition of the Executive Board

The Executive Board of VARTA AG was expanded to include Mr Rainer Hald as Chief Technical Officer with effect from 1 January 2022. With Mr Herbert Schein as CEO and Mr Armin Hessenberger as CFO, the Board therefore consisted of three members at that time.

The service contract of Mr Armin Hessenberger (CFO) was extended to 1 October 2022.

Dr. Markus Hackstein was appointed as an additional member of the Executive Board with effect from 1 August 2022. Dr. Markus Hackstein initially held overall responsibility for the V4Drive (E- Mobility), Energy Storage Systems and Power Pack Solutions business units.

Effective from 1 October 2022, Dr. Markus Hackstein was appointed Speaker of the Executive Board of VARTA AG. Herbert Schein resigned his position as Chairman of the Executive Board at the same time, handing over all operational matters to Dr. Markus Hackstein.

Mr Herbert Schein stepped down from the Executive Board on 31 December 2022. His service contract also ended on 31 December 2022.

2. Review of financial year 2022

The overall economic environment in financial year 2022 became far gloomier compared to the previous year, with the VARTA AG Group looking back on a challenging financial year in 2022. Financial year 2022 saw a -10.6% drop in Group sales compared to the previous year. Alongside an increase in material, personnel and other expenses, the Group's operating income fell disproportionately by EUR 213.4 million to EUR 69.5 million.

On 15 November 2022, the Company presented a package of consistent cost-cutting measures to address weak demand for lithium-ion CoinPower cells. An extensive restructuring programme was adopted in March 2023, aimed at improving profitability and optimising cash flow. The measures include temporary short-time working and the phasing out of temporary employment contracts for the CoinPower business unit in Nördlingen, overhead cost reductions in sales and administration, together with optimisation and renegotiation of purchasing arrangements for raw materials, energy and components. Special attention is being given to measures aimed at reducing working capital. The focus here is on reducing stocks of raw materials, supplies and operating materials. The cost savings also affect personnel, with 819 full-time positions to be cut across the Company. In addition, a capital increase with exclusion of subscription rights was carried out from authorised capital in the amount of around EUR 51 million in March. The proceeds are earmarked for targeted investment in growth areas. The investment program will be limited to absolutely essential measures and for growth initiatives with high cash flow and very low payback periods. Growth initiatives for rechargeable lithium-ion batteries (CoinPower) will also be boosted. The Group continues to see growth opportunities through intensive R&D for existing products, and for promising and innovative technologies.

3. Principles of determining remuneration

Executive Board Members receive fixed and variable remuneration components. The fixed performance-unrelated remuneration components comprise the fixed annual salary and fringe benefits. The variable, performance-related remuneration components comprise a short-term incentive (STI) and a long-term incentive (LTI). Executive Board Members are required to invest the LTI amount in Company shares, subject to a four-year minimum holding period. Malus and clawback rules are in place for the variable remuneration.

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The key components of the remuneration system, its underlying objectives and its connection with the strategy are set out below, along with the specific structure in financial year 2022.

Overview of fixed and variable components in the remuneration system

Fixed

remuneration

Variable remuneration components

components

Fixed

remuneration

including

STI

LTI

fringe benefits

Proportion of total

approx. 53%

approx. 23.5%

approx. 23.5%

target

remuneration

Structure

in

Fixed remuneration is paid in 12

Target

The amount of the LTI

remuneration

equal instalments.

achievement

is equal to the STI

system

Fringe benefits include:

from 0

-

200%

amount.

possible.

The LTI is invested in

Allowance

for private

Performance

-

criteria

are

Company shares held

pension insurance,

corporate

and

in

trust

by VARTA,

-

Accident insurance,

individual

after deduction

of

-

Legal

expenses

targets.

is

paid

individual

taxes

and

insurance,

The

STI

charges,

and

is

- Use of a company car,

out

in the

next

subject to a four-year

-

Health and

nursing

financial year.

holding period.

care

insurance

contributions.

Application

in

The fixed

remuneration

was

STI

amount

The amount of the LTI

2022

paid in monthly instalments.

based on target

is

equal

to

the

Fringe benefits were paid as

EBITDA at Group

respective

STI

level.

Target

amount.

required.

achievement

The LTI is invested in

from 0

-

200%

possible.

Company

shares, in

the name and for the

account

of

the

Executive

Board

Member,

and

is

subject to a four-year

holding period.

Connection

with

The fixed salary ensures an

Incentivises

Incentivises

the strategy

appropriate

basic

income

for

achievement of

sustainable and long-

Executive Board Members and

corporate

and

term

corporate

is intended to prevent them

individual

development.

from taking unreasonably high

targets.

risks. The amount of fixed

salary varies depending on the

Executive

Board

Member's

experience

and

area

of

responsibility.

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