Report of the Supervisory Board

The Salzgitter Group’s financial year 2020 was determined by the repercussions of the Corona pandemic, as was all global economic activity. The effects and the resulting recession also impacted Europe’s steel industry from mid-March onward. The weakness of important customer groups, such as the automotive industry and mechanical engineering, caused demand to plunge in almost all the Salzgitter Group’s companies. Immediate measures cushioned the impact on the earnings situation to the greatest possible extent. A partial recovery took place in the fourth quarter on the back of an upturn in the order intake of the Strip Steel, Trading and Technology business units. In this environment, the Group was unable to deliver a positive result. Uncertainty continues to prevail in 2021 against the backdrop of the virtually unforeseeable nature of the general economic development.

In the financial year, the Salzgitter Group rigorously expedited its existing efficiency and growth programs, also enabling it to counteract the poor economic conditions through these activities. The goal of producing low CO2 steel in the future was vigorously pursued. A wind farm with seven turbines was taken into operation at the Salzgitter site to produce hydrogen from renewable energies, with the associated hydrogen electrolysis currently in the ramping up stage. The contract to build pilot facilities for the direct reduction of iron ore has been awarded. Furthermore, the Group continued to lobby at all political levels to gain necessary financial support for its SALCOS® (SAlzgitter Low CO2 Steelmaking) concept and for creating the necessary framework conditions to promote the transformation from coal-based to low CO2 steel production.

Monitoring and advising the Executive Board in the exercising of its management duties

The Supervisory Board kept itself continuously informed in the financial year 2020 about the situation of the Group and the development of business. The Executive Board informed the Supervisory Board by way of detailed written quarterly reports about the Group’s result of operations, the current financial position and the net assets, as well as about the development of the relevant markets, the course of business and the investments in the individual business units. The reports also comprised information on the developments and activities in the area of human resources as well as detailed estimates on the opportunities and risks over the course of the year. Moreover, the Supervisory Board held five meetings to obtain detailed reports on the respective current situation of the Group and the important Group companies, as well as on material business transactions and relevant changes. The development of business compared with corporate planning was explained to the Supervisory Board. Any deviations from planning were elaborated on, and then queried and discussed by the Board. Compensatory measures were discussed. In addition, meetings focused on the stage reached in the implementation of the groupwide “FitStructure SZAG” efficiency program and progress made in realizing the “Salzgitter AG 2021” growth program. In this financial year as well, the Supervisory Board devoted special attention to the long-term corporate strategy and planning. Business transactions requiring the consent of the Supervisory Board were approved by the Board after thorough examination and consultation. Furthermore, between meetings, the Chairman of the Supervisory Board was kept regularly informed by the Executive Board Chairman on current topics.

With regard to the special challenges presented by the Corona crisis, we agreed “Corona reports” with the Executive Board that were presented to us in written form six times in total over the period from May through November. The individual reports were followed up by telephone conferences between the Executive Board and the Supervisory Board during which discussions were held on the key issues in the current situation and any questions answered. Emphasis must be placed on the fact that the Executive Board presented scenarios enabling the company’s situation, based on the respective results, to be reviewed at all times in relation to the pandemic and the measures implemented by the Executive Board.

The Supervisory Board held regular meetings in the reporting year, in the months of March, May, September and December, and convened an extraordinary meeting in October. The attendance rate at the Supervisory Board meetings totaled 94 %. The Supervisory Board met mainly with the Executive Board attending. However, it discussed topics such as Executive Board remuneration and other matters affecting the Executive Board in the absence of the Executive Board members. Regular preliminary discussions, partly with and partly without the attendance of the Executive Board, served the purpose of initial consultation on the current situation and imminent decisions. No conflicts of interest were brought to the attention of the Supervisory Board in the reporting year, neither by the Supervisory Board members nor by members of the Executive Board.

Focus of the consultations of the Supervisory Board

In its meeting on March 12, 2020, and as is customary in March meetings, the Supervisory Board focused primarily on the financial statements of Salzgitter AG and of the Group, both drawn up as of December 31, 2019, as well as on the combined management report on the company and the Group for the financial year 2019. The representatives of PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, the auditor selected by the Annual General Meeting of Shareholders, explained the key findings of their audit and answered the questions put to them by the Supervisory Board members. Following a detailed examination of the documentation pertaining to the financial statements with the aid of the report of the auditor, the Supervisory Board ratified the separate and consolidated annual statements and gave its consent to the proposed appropriation of unappropriated retained earnings put forward by the Executive Board. Furthermore, the Supervisory Board determined the extent to which defined targets were achieved, based on fixed performance criteria, to ascertain the Executive Board’s variable remuneration in 2019. In addition, it adopted its report to the Annual General Meeting of Shareholders and proposals for resolutions on the individual items of the agenda for the 2020 Annual General Meeting, in particular the proposal to select Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft as the new external auditor. The Supervisory Board also consulted on the recommendations of the thoroughly revised version of the German Corporate Governance Code from December 16, 2019, on the business development, especially in the large-diameter tubes segment, and on the endeavors of the steel industry to address decarbonization in steel production. Moreover, the Supervisory Board decided, on the basis of the Presiding Committee’s recommendation, to reappoint Mr Burkhard Becker as a member of Salzgitter AG’s Executive Board for a term of office from February 1, 2021 through January 31, 2024, including the corresponding renewal of his employment contract, and to extend the term of office of Mr Volker Schult as head of the Trading Business Unit from January 1, 2021 through December 31, 2023.

The main topics of consultation addressed by the Supervisory Board in its meeting on May 28, 2020 that took place in the form of a web conference due to the Corona pandemic included the Supervisory Board’s assessment of itself (efficiency audit), the status reached by major investments, as well as the efficiency and growth program. Moreover, the Supervisory Board deliberated in detail on the current business situation with respect to the Corona pandemic. Beyond this, it approved the holding of the regular 2020 Annual General Meeting of Shareholders as a virtual meeting and resolved a change in the proposal for the distribution of profit.

In its meeting on September 17, 2020, the Supervisory Board addressed the issue of the future composition of the Executive Board as from mid-2021 and the most recent business development, in particular the stage reached by the investment undertaking at Salzgitter Flachstahl GmbH (“Hot Dip Galvanizing Line 3”) and at Ilsenburger Grobblech GmbH (“New Heat Treatment Line”). The Supervisory Board also kept itself informed about progress made with the SALCOS® project, including the next steps toward decarbonizing steel production and about discussions held with policymakers on this topic. The Supervisory Board also had the Executive Board report in writing and orally on the Group’s compliance management system and on investigated activities. The Supervisory Board consulted in detail about the current consequences of the Corona pandemic and the potential impact on the development of business.

Along with the current challenges in the steel market, the Supervisory Board discussed the issue of the future composition of the Executive Board in its meeting on October 17, 2020. As Chief Executive Officer Prof. Dr.-Ing. Fuhrmann is due to retire on June 30, 2021, the Supervisory Board appointed Dipl.-Ing. Gunnar Groebler, subsequent to a search and selection process, as a member of the Executive Board over the period from May 15, 2021 through September 30, 2024, and to the position of Chief Executive Officer and Chairman of the Executive Board, effective July 1, 2021.

On December 2, 2020, the Supervisory Board and the Executive Board intensively discussed the corporate plan submitted and explained by the latter for the financial years 2021 through 2023. The Supervisory Board was also brought up to date on the SALCOS® project. Other topics of consultation in this meeting, included the imminent defining of qualitative criteria for assessing the performance of the individual Executive Board members as well as the stakeholder objectives for the performance period from 2021 through 2024. The Supervisory Board also concerned itself with the recommendations of the German Corporate Governance Code for purpose of submitting the Declaration of Conformity for 2020.

Work of the Committees

In order to prepare for its consultations and decisions, the Supervisory Board has formed presiding, audit, strategy and nomination committees.

The Presiding Committee met five times in 2020. These meetings covered particularly important questions on how business was developing, especially in view of the impact of the Corona pandemic, and on the corporate strategy. The Presiding Committee dealt with the components of the Executive Board’s variable remuneration and the Supervisory Board’s self-assessment. In addition, the recommendations of the extensively revised version of the German Corporate Governance Code constituted an important topic.

The members of the Audit Committee held four meetings in the period under review. In March, it discussed the audit of the 2019 annual financial statements at company and at Group level in the presence of the whole Supervisory Board and of representatives from the auditor, in particular by way of in-depth consultation on the respective audit reports and the oral report by the representatives of the auditor on the key findings of the audit. In the context of its audit, the Audit Committee saw no reason to raise objections and recommended that the whole Supervisory Board approve the annual financial statements. In the same way, the members of the Audit Committee examined the 2019 non-financial report on the Group in preparation. The consultations of further meetings of the Audit Committee focused on IT security and IT structures, monitoring the accounting process, as well as the effectiveness of the internal control system and risk management system. Moreover, the Audit Committee obtained detailed information on the Group’s compliance management system and compliance measures. The risk assessment of Internal Audit and its audit planning were discussed. The Audit Committee also dealt with preparing the proposal of the Supervisory Board for the appointing of the statutory auditor for the financial year 2020 by the Annual General Meeting of Shareholders, the assignment of the audit mandate, and agreeing the fees with the statutory auditor. It monitored the effectiveness of the financial statements audit and the independence of the statutory auditor, in this context including the scope of non-audit services provided by the auditor in addition to the audit of the financial statements. The quarterly financial reporting of the Group was discussed in detail with the Executive Board before publication.

In March 2021, following a detailed preliminary review, the Audit Committee recommended that the full Supervisory Board approve the 2020 annual financial statements at company and at Group level. Its preliminary review of the 2020 non-financial report on the Group did not give rise to any objections either.

The Strategy Committee met once in 2020. A central issue in this context concerned the stage reached by the implementation of the key strategic cornerstones for the Group’s further development, following on from previous years when emphasis was placed on topics such as the principles of the corporate strategy, digitalization and a review of the status of the current corporate portfolio.

The Nomination Committee held one meeting in 2020.

Participation of the Supervisory Board members in Supervisory Board and committee meetings in the financial year 2020

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Audit of the Annual Financial Statements of Salzgitter AG and the Consolidated Financial Statements

In its meeting on March 10, 2021, the Supervisory Board examined the financial statements of Salzgitter AG (SZAG) and of the Group, both drawn up as of December 31, 2020, as well as the joint management report on the company and on the Group for the financial year 2020. Prior to this meeting, the independent auditor Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Hanover, Germany, selected by the General Meeting of Shareholders, reviewed both sets of financial statements and issued an unqualified “Independent auditor’s report”. 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 SZAG, 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 the Supervisory Board for examination. The representatives of the independent auditor took part in the discussions of the annual financial statements and the consolidated financial statements and elaborated on the most important findings of their audit.

Based on the final results of its own examination of the annual financial statements at company and at group level and the combined management report, the Supervisory Board did not raise any objections. The Board 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.

Non-financial report on the Group

In its meeting on March 10, 2021, the Supervisory Board also addressed the topic of the non-financial Group report for 2020. Prior to this, KPMG AG Wirtschaftsprüfungsgesellschaft conducted an audit on the report on behalf of the Supervisory Board and issued the following opinion:

“Based on the audit activities performed and the audit evidence obtained, no matters have come to our attention that cause us to believe that the report of Salzgitter for the period from January 1 to December 31, 2020 is not prepared, in all material respects, in accordance with Sections 315b, 315c in conjunction with Sections 289c through 289e of the German Civil Code (HGB).”

Following its own examination, the Supervisory Board concurred with the findings of the audit performed by KPMG.

Changes to the Supervisory Board

There were no changes in the composition of the Supervisory Board in the reporting period.

Our thanks go to the Executive Board and to all the employees of the Group for their dedicated work and sound commitment throughout the financial year 2020.

Salzgitter, March 10, 2021

The Supervisory Board

Heinz-Gerhard Wente
Chairman



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