Report of the Supervisory Board

In continuation of its development in the previous year which was characterized by a steady recovery and positive uptrend, Salzgitter AG held the pace in the financial year 2011, especially in the Steel and Tubes divisions, buoyed by the generally favorable economic environment in the first six months. In the second half of the year, however, the macroeconomic risks were exacerbated by the sovereign debt crisis in the euro monetary union, which caused purchasing reluctance in various customer industries.

The Supervisory Board received both extensive written and verbal reports on the business performance, the financial and earnings position of the company, as well as the business policy pursued. It was provided with timely and comprehensive information on the existing economic risks. The Supervisory Board held four meetings to discuss the performance, the situation and the outlook of the Group extensively with the Executive Board. Divergences between the course of business and the plans and goals defined were explained and discussed. Decisions requiring the approval of the Supervisory Board were thoroughly deliberated on. Moreover, the Chairman of the Supervisory Board maintained regular and extensive contact with the Chief Executive Officer. The current situation of the company and material transactions were discussed together.

One member of the Supervisory Board attended less than half the Supervisory Board meetings in 2011. The average attendance rate was 90 %. No conflicts of interest were brought to the attention of the Supervisory Board, neither by the Supervisory Board members nor by members of the Executive Board.

In accordance with the current challenges and those anticipated in the future, the supervisory and advisory activities of the Supervisory Board were focused on the key topics of releasing optimization potential and strengthening the company’s competitiveness on a long-term basis through, among other measures, developing products in line with customer requirements and investing in cutting-edge machinery and facilities. Based on the reports submitted by the Executive Board on the current performance in the divisions, important projects, the likely development of the respective markets as well as the opportunities and risks and the competitive positions of individual Group companies were discussed.

We informed ourselves extensively about the impact on the Salzgitter Group of the European Commission’s decision on a more limited allocation of the CO₂ certificates from 2013 onwards and on the activities initiated to protest against the allocation criteria.

The topics for consultation and decisions by the entire Supervisory Board were prepared in the four committees of the Supervisory Board. The committee chairmen reported on their work at the meetings of the Supervisory Board.

The Presiding Committee met five times in the financial year. Matters addressed in these meetings included important issues relating to the development of business and the reviewing of the employment contracts of members of the Executive Board, including the remuneration.

The Audit Committee met four times during the period under review. In these meetings the Committee addressed issues relating to the accounting, the effectiveness of the risk management, the internal control system and the internal audit system as well as the ongoing development of the compliance system. The members of the Committee assured themselves of the efficiency and appropriateness of the way systems are currently organized within the Group. Moreover, the financial reports compiled during the course of the year were discussed in detail with the Executive Board and key audit areas were defined for the annual auditing of the 2011 accounts. The meeting on March 9, 2012, focused on the audit conducted on the separate and consolidated 2011 financial statements. To this end, the Committee had the Executive Board and the independent auditor explain the details of the financial statements and discussed any questions which arose. Its recommendation was for the entire Supervisory Board to ratify the financial statements.

The Strategy Committee met once in the period under review. Together with the Executive Board, it discussed the strategy for the sustainable development and securing of the independence of the Salzgitter Group.

The Nomination Committee held one meeting during the reporting period to address the topic of the imminent changes to the composition of the Board from the new election of the Supervisory Board in 2013.

In our meeting on March 29, 2012, we closely examined the financial statements of Salzgitter AG and of the Group, both drawn up as of December 31, 2011, as well as the joint management report on the company and the Group for the financial year 2011. Prior to this meeting, the independent auditor PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Hanover, Germany, selected by the General Meeting of Shareholders, reviewed both sets of financial statements and issued an unqualified auditor’s opinion. The auditor thereby confirmed that the accounting, valuation and consolidation carried out in the consolidated financial statements complied with the International Financial Reporting Standards (IFRS). Furthermore, as part of its assessment of the early risk detection system, the auditor ascertained that the Executive Board had taken the steps required by the German Stock Corporation Act (AktG) for the early recognition of risks that could endanger the company as a going concern.

The annual financial statements of Salzgitter AG, the consolidated financial statements of the Group, the joint management report on the company and the Group, the Executive Board’s proposals for the appropriation of the retained earnings, as well as the auditor’s reports were available to us for examination. The representatives of the auditor took part in the discussions of the annual financial statements and the consolidated financial statements at the Supervisory Board meeting on March 29, 2012, and elaborated on the most important findings of their audit.

Our examination of the annual financial statements, the consolidated financial statements and the joint management report did not lead to any objections. We therefore approved the findings of the auditor’s review and ratified the annual financial statements and the consolidated financial statements. The annual financial statements are thereby adopted. After due consideration, we gave our approval to the proposal made by the Executive Board on the appropriation of retained earnings.

Mr. Jürgen Peters, employee representative on the Supervisory Board and Vice Chairman, laid down his Supervisory Board mandate on August 25, 2011. In his place, the competent Registry Court appointed Mr. Bernd Lauenroth as a member of the Supervisory Board. Mr. Manfred Bogen, also an employee representative, retired from the Supervisory Board on September 30, 2011. He has been replaced by the new member Mr. Frank Markowski. The term of office of Mr. Udo Pfante as employee representative ended on December 31, 2011. Mr. Bernhard Breemann took up office as his successor on January 1, 2012.

The Supervisory Board would like to thank the aforementioned members who are leaving the Supervisory Board for their huge dedication, also in the context of committee work, to promoting the development of the Salzgitter Group.

The Supervisory Board elected Dr. Hans-Jürgen Urban as Vice Chairman of the Supervisory Board and successor to Mr. Peters and as a member of the Presiding Committee and the Strategy Committee. The current members of the Supervisory Board are listed in the Management Report on the Group with reference to other mandates which they exercise.

May we thank the Executive Board and all the employees of the Group for their work and commitment in the financial year 2011.

Salzgitter, March 29, 2012

The Supervisory Board

Rainer Thieme
Chairman