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 /  /  / The Annual Financial Statements of Salzgitter AG

The Annual Financial Statements of Salzgitter AG

The annual financial statements of Salzgitter AG (SZAG) for the financial year 2016 have been drawn up in application of the accounting policies and valuation methods of the German Commercial Code, taking account of the supplementary provisions set out under the German Stock Corporation Act, and have been approved without qualification by the auditor PricewaterhouseCoopers Aktiengesellschaft, Wirtschaftsprüfungsgesellschaft, Hanover. The complete text is published in the German Federal Gazette.

As before, SZAG as the management holding company heads up the Group's business units that are responsible at the operational level. Consequently, the profitability of the company depends on the business progress made by its subsidiaries and shareholdings and on the extent to which they retain their value.

The main associated companies are held through the wholly-owned company Salzgitter Mannesmann GmbH (SMG) via its wholly-owned subsidiary Salzgitter Klöckner-Werke GmbH (SKWG). There are no profit transfer agreements, neither between SZAG and SMG nor between SMG and SKWG. There is however a contractual agreement on the voluntary assumption of losses.

As a non-operational holding company, SZAG is an integral part of the Salzgitter Group's management and control concept and is therefore subject to the same control parameters and the same opportunities and risks as the Salzgitter Group. The legal requirements placed on managing and controlling SZAG have been taken into account here.

Balance sheet of Salzgitter AG (condensed)

In € m 2016/12/31 % 2015/12/31 %
Non-current assets 59.0 6.8 50.9 5.4
Property, plant and equipment1) 20.7 2.4 19.0 2.0
Financial investments 38.3 4.4 31.9 3.4
Current assets 808.6 93.2 896.2 94.6
Inventories 0.1 0.0 0.0 0.0
Trade receivables and other assets2) 808.5 93.2 896.2 94.6
Cash and cash equivalents 0.0 0.0 0.0 0.0
Assets 867.7 100.0 947.1 100.0
In € m 2016/12/31 % 2015/12/31 %
Equity 391.0 45.1 385.0 40.6
Provisions 282.2 32.5 314.7 33.2
Liabilities 194.4 22.4 247.5 26.1
due to banks [0,0] [0,0]
Equity and liabilities 867.7 100.0 947.1 100.0

The receivables from the liquidity (€ 707 million) provided to the subsidiary SKWG as part of a groupwide cash management continue to form the main items on the assets side. The treasury shares are disclosed separately from equity in accordance with the regulations prescribed by the German Commercial Code (HGB).

On the liabilities side, in particular pension obligations of € 262 million as well as residual repayment obligations (€ 168 million) in respect of the Dutch issuer of a convertible bond are disclosed, alongside equity. The reduction in liabilities is attributable to the repayment of a convertible bond (€ 57 million), thereby resulting in an increase in the equity ratio to 45.1 % (previous year: 40.6 %).

Income statement of Salzgitter AG (condensed)

In € m 2016 2015
Sales 22.3 0.0
Other operating income 23.0 26.5
Personnel expenses 19.1 48.6
Depreciation/amortization1) 1.3 1.3
Other operating expenses 29.4 29.0
Income from shareholdings 42.5 80.9
Net interest result -10.1 -12.8
Income tax 0.3 0.0
After-tax result 28.3 15.6
Other taxes -8.8 -1.7
Net income for the financial year 19.5 13.8

Sales revenues largely comprise earnings from the levying of a Group contribution, which was attributable to the first-time application of the German Accounting Directive Implementation Act (BilRUG) in 2016. In the previous year, these earnings were disclosed under other operating income. Other operating income in 2016 includes allocations to non-current financial investments, among other items, as well as the reversal of accruals. Personnel expenses were impacted in the previous year by one-off allocations to pension provisions of € 29.6 million. Income from shareholdings consisted almost exclusively of the contribution to the result received by SMG. As of December 31, 2016, the company had a workforce of 159 employees.

Disclosures pursuant to Sections 289 para. 4 and 315 para. 4 of the German Commercial Code (HGB)

Subscribed capital consisted of 60,097,000 ordinary bearer shares with a notional value per share of € 2.69 in the capital stock on the reporting date. All shares are subject to the same rights and obligations laid out under the German Stock Corporation Act (AktG).

To the knowledge of the Executive Board, the only restrictions on the voting rights or the assignment of shares on the reporting date were as follows: The company was not entitled to any voting rights from its treasury shares (6,009,700 units), and the members of the Executive and Supervisory boards were not entitled to any voting rights from their shares in respect of the resolution passed on their own ratification and discharge.

A participating interest of more than 10 % of the voting rights as per the reporting date accrued to Hannoversche Beteiligungsgesellschaft Niedersachsen mbH (HanBG), Hanover, that announced in its notification on April 2, 2002, that it owned 25.5 % of the voting rights in Salzgitter AG (SZAG); as a proportion of the total number of shares issued that has fallen since then, this corresponds to a share of 26.5 % in the voting rights. Sole shareholder of HanBG is the Federal State of Lower Saxony.

There are no shares with special rights that confer powers of control. The Executive Board does not know of any employees participating in the capital who do not exercise their power of control directly.

The appointing and dismissing of members of the Executive Board and amendments to the Articles of Incorporation are carried out solely within the provisions set out under the German Stock Corporation Act (AktG).

Based on the resolutions passed by the General Meeting of Shareholders, the Executive Board has the following three options of issuing or buying back shares:

  • Upon approval by the Supervisory Board, the Executive Board may issue 30,048,500 new no par bearer shares against payment in cash or in kind on or before May 23, 2017 (Authorized Capital 2012), whereby a maximum of 12,019,400 units may be issued excluding the subscription rights of the shareholders (20 % of all shares issued on May 24, 2012). The 20 % cap is reduced by the proportionate amount in the capital stock to which the following relate: the option or conversion rights and the option or conversion obligations attached to the warrants, convertible bonds, profit participation rights and/or participating bonds or a combination of these instruments which have been issued, with subscription rights excluded, since May 24, 2012.
  • Moreover, upon approval by the Supervisory Board, the Executive Board may issue bonds in a total nominal amount of up to € 1 billion on or before May 22, 2018, and grant the holders of the respective bonds conversion rights to shares of the company in a total amount of up to 26,498,043 units (Contingent Capital 2013). These shareholders' subscription rights can be precluded up to a total nominal amount of bonds with which conversion rights to shares are combined, of which the pro rata amount in the capital stock may not exceed 10 % of the capital stock. Bonds with conversion rights excluding shareholder subscription rights may be issued only if shares making up a proportion of 20 % of the capital stock, excluding subscription rights, from the Authorized Capital have not been issued since May 23, 2013. By the reporting date no shares had been issued from the Authorized Capital since May 23, 2013. On June 5, 2015, the Executive Board made use of the authorization to issue a bond in the form of a convertible bond to the exclusion of shareholder subscription rights with conversion rights pertaining to up to 3,548,407 new shares from contingent capital (Contingent Capital 2013), exercisable until May 26, 2022. By the reporting date, no holder of bonds forming part of the issue had yet exercised their conversion rights.
  • The Executive Board is authorized to purchase the company’s own shares equivalent to a proportion of the capital stock of up to 10 % in the period on or before May 27, 2020, and to use these shares for all purposes permitted under the law.

Subject to the condition of change of control following a takeover offer, there are material agreements of the company that have the following effects:

  • In the case of the 2015 convertible bond of € 168 million and the 2010 bond of € 295 million exchangeable into shares, all bondholders are entitled to request the repayment of their bonds within a certain period in the event of a change of control; moreover, should bondholders exercise their conversion and/or exchange rights within a certain period, the convertible and/or exchangeable ratio will be adjusted in application of a specific formula.
  • Under a contract agreed in 2012 with a banking syndicate on a credit line of € 500 million, each syndicate bank is entitled in the event of a change of control to terminate its participation in the credit line and, if desired, to request repayment.
  • Under an agreement of the shareholders of EUROPIPE GmbH, Mülheim an der Ruhr, 50 % of whose shares are held by the Group, the company may, if there is a change of control, retract shares without the consent of the shareholder affected in the event that the business activities of the third party that has attained a controlling influence stand in direct competition to the company’s business activity. In place of retracting the shares, the other shareholders may request that shares are assigned to a designated purchaser.

In the event of a takeover offer, the members of the Executive Board have the right to terminate their contracts of employment under certain preconditions and are entitled to settlement in an amount of the total remuneration over the residual term of their respective contracts. There is, however, a cap on the maximum amount of this entitlement.

Appropriation of the profit of Salzgitter AG

SZAG reported annual net income of € 19.5 million in the financial year 2016. Including the profit carryforward (€ 1.6 million), unappropriated retained earnings amount to € 21.1 million.

The Executive Board and the Supervisory Board will propose to the General Meeting of Shareholders that these unappropriated retained earnings (€ 21.1 million) be used to fund payment of dividend of € 0.30 per share (based on the capital stock of € 161.6 million divided into 60,097,000 shares) and that the remaining amount be carried forward to new account.

If the company holds treasury shares on the day of the General Meeting of Shareholders, the proposed appropriation of profit will be adjusted accordingly at the Meeting as treasury shares are not eligible for dividend.

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