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Home Governance Report of the Supervisory Board A. Supervision

A. Supervision
Main events in 2012

Schiphol Group faced a number of significant challenges in 2012. It was a year with different faces; the  socio-economic function of Schiphol Group played a central role throughout the year. In this report, the Supervisory Board explains how it exercised its supervision and supported the Management Board in an advisory role. This report also examines the major issues that attracted the Board's involvement this year.

Top Connectivity and Sustainable Performance

Schiphol fulfils an important  socio-economic function. Not only does it connect the Netherlands and Dutch passengers to the rest of the world, Schiphol is also a crucial economic driving force. Consequently, it is Schiphol's task to contribute to and promote the continuity, quality and network development of the airport as a vital link in the Dutch economy. In the fulfilment of its task, Schiphol strives for constant improvement of its facilitating function in the interest of multimodal transport for passengers and cargo.

The cooperation between Schiphol Group, KLM and the government is crucial for the success of the Mainport. Schiphol Group and KLM reinforce each other. Schiphol Group provides high quality airport infrastructure, which is structured largely in accordance with the airport's function as a hub; KLM provides the majority of the destination network for the Mainport.

Operationally, the cooperation between Schiphol and KLM is excellent. However, recently the relationship has come under pressure regarding strategic and commercial issues. Topics of discussion were, in particular, Schiphol's charges for airlines, the evaluation of the Aviation Act, competition, selectivity and the expansion plans of Schiphol. As a result of the discussions regarding selectivity, at the initiative of the government, KLM and Schiphol, the Shared Vision Committee was appointed in August 2012 under the chairmanship of Mr Alders. Representatives of the government, KLM and Schiphol are part of this committee. Mr Hazewinkel, a member of the Supervisory Board of Schiphol, is a member of the committee on behalf of Schiphol. The investigation carried out by the committee concerns two issues: compliance with the agreements regarding selectivity and the future development of the airport, including the related airportcharges. In December 2012, the committee published an interim report on selectivity in which it also announced its intention to continue its investigation in 2013.

As is the case for the committee and the Management Board of Schiphol Group, the Supervisory Board is also of the opinion that it is crucial that Schiphol Group and KLM work on restoring trust. So that, the existing cooperation can be developed into a true partnership in order to ensure that the successful cooperation in the past will continue in the future.

The Supervisory Board shares the opinion of the Shared Vision Committee that the government plays an important role in the success of the Mainport. The government creates the necessary preconditions. This concerns first and foremost an unambiguous policy by the various ministries. The Aviation Policy Document specifies various objectives for Schiphol, whereby the support of the hub network is regarded as crucial. In the interests of the passenger, the benefit of competition is also acknowledged. The government demands that Schiphol Group must meet specific requirements with regard to profitability and financial independence. To this end, it is necessary that the economic regulations establish a clear framework that is feasible and sustainable. At the same time, Schiphol is expected to serve the passenger as well as possible in view of its public role. This also involves fulfilling the wishes of major airlines to the best of its ability, while Schiphol must also be able to independently balance the interest of the Mainport as a whole.

As always, Schiphol was often in the news in 2012. This underlines the socio-economic role that the company has in the Netherlands. Although Schiphol was often in the news positively, there was also criticism. This mainly concerned the relationship between Schiphol Group and the airlines. The Supervisory Board weighs this criticism carefully.

All in all, the Supervisory Board regards the  socio-economic function of the Schiphol Group as inextricably linked to KLM and the government. Only when all three parties contribute and work together, can the success of the Mainport be continued in the future.

Excellent Visit Value and Competitive Marketplace

In 2012, Schiphol booked good operating results together with its partners. After a strong increase in the traffic and transport figures in 2011, the number of passengers at Schiphol increased again during the past year. That resulted, certainly in the summer months, in extra pressure on Schiphol's operations. Due to the very good operational cooperation with KLM and sector partners, the quality of the services both for final destination and for transfer passengers remained unimpaired and 2012 can be viewed as the best operational year to date.

The Supervisory Board is also proud of Schiphol's employees. The Supervisory Board applauds the fact that the office personnel of Schiphol provided assistance in the terminal as service assistants in the busy summer months. This demonstrates a large degree of involvement in the operational processes. The same also applies with regard to the employees who keep the runways free of snow in wintertime.

One of the important objectives of Schiphol is to develop a competitive market place, both for the airport and for the Schiphol area. Due to increasing competition from airports in the Middle East and Turkey, the success of Schiphol can no longer be taken for granted. The changing world is also visible in the entire sector, where new airline companies are changing the playing field. Not only is the competition from low-cost airlines increasing, but airlines from the Middle East are also continuing to further expand their operations in Europe and are servicing the market with increasingly larger aircraft.

Again in 2012, the on-going economic crisis also had a major impact on the aviation business. This is not only visible in the confidence and the budgets of governments, companies and passengers, the airline companies that service Schiphol are also under pressure due to deteriorating economic conditions and high fuel prices. Consequently, Schiphol has adopted a moderate airport charges policy for the past several years which takes into account the challenging circumstances under which airlines have to operate. For that reason, the Management Board has prepared a moderate and phased proposal in 2012 for investments in the coming years, which has been approved by the Supervisory Board. This long-term investment plan is an investment programme that ensures that Schiphol can continue to function as a high quality Mainport in the future. The Supervisory Board supports the manner in which the Management Board has prepared these plans for the future which were calculated in a modular fashion and in various scenarios.

When drawing up these plans, the financial interests of the airline companies at Schiphol were, of course, taken into account. However, Schiphol also has its own responsibility to ensure that it invests sufficiently in improving quality and increasing capacity to facilitate the growth in the number of passengers and the use of larger aircraft. The investments are based on the expected growth in air traffic. As a first part of the long-term investment plan, the Supervisory Board approved the investments in 2012 in connection with the project Central Security Non-Schengen. The increasingly stringent European regulation in the field of security was one of the factors that gave rise to this project.

In the interest of passengers, the expansion of the airport is necessary; however, the pre-conditions governing expansion must always be clear. In order to be able to take decisions about large investments, it is essential that Schiphol obtains clarity with regard to the economic regulations framework and about the profitability requirements of our shareholders. The consequences of investments for the airport charges were also an important theme in 2012 in the consultations with both the government and KLM and the other airline companies. In addition, it is of great importance for the continuity of the Mainport that Schiphol remains able to attract funding independently and that it maintains its credit rating.

Other subjects
  • In 2012, Schiphol modified its planning process by presenting a three-year plan in addition to a five-year plan. In August 2012, the Supervisory Board discussed and approved the five-year Strategic Plan 2013-2017 including the investment and finance plan. In December, the three-year Tactical Plan 2013-2015, including the budget 2013, was discussed and approved. The budget also contained a sensitivity analysis for the various uncertainties such as numbers of passengers, real estate development and the outcome of the evaluation of the Aviation Act.
  • In the summer of 2012, two extra Supervisory Board meetings were held to discuss the long-term investment plan, the modified and phased investment programme and the evaluation of the Aviation Act. The developments in connection with the Shared Vision Committee were also discussed.
  • Strategy days were held in April and in October; during these meetings, the Supervisory Board discussed the Schiphol Group with the Management Board in a broader context and discussed developments in the longer term. During both meetings, attention was given to Schiphol's international strategy. A topic of discussion was the relationship between the attention for Mainport Schiphol, on the one hand, and the international activities, on the other hand.
  • Furthermore, through its Audit Committee, the Supervisory Board discussed the internal and external risk management systems and the most important risks confronting Schiphol Group. The Supervisory Board endorses and supports the internal risk management system (as described in the Risk management section of this Annual Report). The Supervisory Board also reviewed risk management in October. The risk appetite regarding, for instance, foreign activities was also discussed and the possible simultaneous occurrence and accumulation of various risks was examined. Together with the Management Board, the Supervisory Board concludes that the risks that remain after risk mitigation measures have been taken, have increased in recent years.
  • Corporate Responsibility is an integral part of Schiphol's strategy. Consequently, Corporate Responsibility was an important subject on the agenda of the Supervisory Board. The Supervisory Board is very pleased with the progress that Schiphol has made in the CR area, both with regard to strategic issues and with regard to the awareness within the organisation.
  • During various meetings, the Supervisory Board and the Management Board discussed the relationship with the Schiphol shareholders. This concerned matters such as the evaluation of the Aviation Act, requirements regarding profitability, policy with regard to airport charges, the remuneration policy and the appointment of new and the reappointment of existing Management Board members.
  • In December 2012, the Management Letter of the external auditor was discussed with the Audit Committee. During this meeting, attention was paid to ICT processes and the compliance with processes for business operations carried out by third parties.

Financial reporting

Every month, the Supervisory Board received reports from the Management Board, in which the actual results were compared with the budget for 2012, the latest estimate for the year 2012 and the results of 2011. These reports were also discussed in the joint meetings. Subjects that were discussed included the development of the operating and commercial results and costs, the development of traffic and transport figures and the impact of this on the budget, the development of profitability as well as the funding and liquidity position of the company.

In view of the difficult economic conditions, the Supervisory Board monitored the effect of the development of profitability, balance sheet ratios and the equity position on the creditworthiness of the company very closely. The Supervisory Board is pleased to observe that the credit ratings of Standard & Poor's and Moody's were maintained in 2012. In 2012, a funding plan was drawn up to safeguard the company's financing for the present and the future.

In 2012, Schiphol entered into a real-estate collaboration with Aéroports de Paris. In the consultations and decision-making process regarding the transaction, the double role of Mr Graff was taken into account, as he was both a Supervisory Board member at Schiphol and President of Aéroports de Paris. Also in general, attention was paid to Mr Graff's double role (which also applies to his successor) in matters such as discussing competition-sensitive information and projects where the interests of Aéroports de Paris do not run exactly parallel. No other transactions took place whereby there were conflicting interests of Management Board members, Supervisory Board members, shareholders and/or external auditors that were of material significance for the company and/or the relevant Management Board members, Supervisory Board members, shareholders and/or external auditors.

Central works council

In 2012, the Supervisory Board, the Management Board and the Central Works Council (CWC) discussed issues such as the evaluation of the Aviation Act and the long-term investment plan. Members of the Supervisory Board attended three consultative meetings between the Management Board and the Central Works Council. The members of the Supervisory Board found these meetings to be constructive and informative.