Report of the Supervisory Board
The year 2022 was determined geopolitically by Russia’s invasion of Ukraine while, in macroeconomic terms, remaining impacted by extremely fragile supply chains, energy prices rising by leaps and bounds, along with the steep uptrend in global inflation rates. Against this backdrop, all steel products recorded exceptionally upbeat price and demand trends in the first half of the year before a deterioration in the environment set in from the summer months onward. Business developed much more positively overall than was originally anticipated at the start of the year. Following an already very successful year in 2021, the financial year 2022 delivered the second best operating pre-tax result in the company’s history. Given that inflation and energy prices are running at high levels, especially in Europe, the Executive Board and the Supervisory Board anticipate an increasingly clouding environment and moderate business developments.
At the start of the year, the Group's strategic realignment was announced for the next decade, with a clear focus on the circular economy. As part of this focus, the SALCOS® (Salzgitter Low CO2 Steelmaking) program is now scheduled to have been fully implemented by 2033. To this end, the Group continued to lobby at all political levels to gain the necessary financial support for the SALCOS® program while campaigning for the requisite framework conditions conducive to the transformation from coal-based toward low carbon steel production be set in place. At the same time, the Group forged ahead with the technical and financial planning, preparation and implementation of SALCOS®. In July 2022, the Supervisory Board approved funds of € 723 million from the company to be released for the necessary investments. At the start of October 2022, the EU Commission also declared the permissibility of the application for government funding up to an amount of one billion euros. Aside from this, the Salzgitter Group continued to rigorously implement its efficiency and growth program in the financial year 2022, which also enabled it to achieve the result.
Monitoring and advising the Executive Board in the exercising of its management duties
In the financial year 2022, the Supervisory Board kept itself continuously apprised of 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 developments in 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 and the effects of the COVID-19 pandemic. 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, the meetings also addressed the status of implementation of the groupwide “FitStructure 2.0” efficiency program. The Supervisory Board devoted special attention to the new “Salzgitter AG 2030” corporate strategy and the long-term planning, as well as to the status of the SALCOS® program. Both in the meetings of the Supervisory Board and in additional one-on-one discussions between the chairmen of the Executive Board and of the Supervisory Board, topics of intensive and regular debate included the impact of Russia’s war of aggression against Ukraine, particularly its impact on energy, raw materials and steel prices, disrupted supply chains and customers’ changed ordering patterns. 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.
Two of the largest investment projects in the company’s history were also brought to completion in the year 2022. Supervisory Board members had the function of the Ilsenburg heat treatment plant explained to them and also participated in the inauguration and commissioning of the Hot Dip Galvanizing Line 3 in Salzgitter.
The Supervisory Board held regular meetings in the reporting year, in the months of March, June, September and December, and convened an extraordinary meeting in July. The attendance rate at the Supervisory Board meetings, held without exception as plenary meetings with individual members attending via online connection, if necessary, stood at 94 %. The Supervisory Board met mainly with the Executive Board attending. However, it regularly discussed topics such as Executive Board remuneration and the key findings of the audit conducted on the annual financial statements in the absence of the Executive Board members. Regular preliminary discussions – partly with and partly without the attendance of the Executive Board – in separate meetings with owner and employee representatives 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.
No new members joined the Supervisory Board in the financial year, so that carrying out Salzgitter AG’s proven on-boarding program was not required.
Focus of the consultations of the Supervisory Board
In its meeting on March 17, 2022, 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, 2021, as well as on the combined management report on the company and the Group for the financial year 2021. The representatives of Ernst & Young 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. 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 2021. In addition, it adopted its report to the Annual General Meeting of Shareholders, the remuneration report to be prepared for the first time as a separate report, proposals for resolutions on the individual items of the agenda for the 2022 Annual General Meeting, and approved the Executive Board’s suggestion of again holding the Annual General Meeting of Shareholders as a virtual meeting. Furthermore, the Supervisory Board also consulted on the 2021 non-financial report and, following its own detailed examination, approved the audit findings in the report by the auditor. The Supervisory Board continued to follow the development of business. It gave its approval to a new Group structure under the “Salzgitter AG 2030” strategy, with four in place of formerly five business units. Furthermore, the Supervisory Board kept abreast of current geopolitical developments, with their potential impact on Salzgitter AG, as well as the EU Taxonomy regulation and its significance for the company. Special information and training sessions on the latter were held by the head of Salzgitter AG’s Legal Department for the Supervisory Board members.
The main topics addressed by the Supervisory Board in its meeting on June 1, 2022 concerned business development and the efficiency and growth program, along with the status of the SALCOS® program.
In its board meeting on July 13, 2022, the Supervisory Board essentially focused on the Executive Board’s investment application pertaining to the SALCOS® program’s first stage of development. Following intensive consultation, the Supervisory Board gave its approval for the release of the company funds amounting to € 723 million.
In its meeting on September 29, 2022, the Supervisory Board discussed the results of a selfassessment and a review of the efficiency of its work conducted with the aid of external support. The Supervisory Board elected Mr Papenburg as an additional member of the Nomination Committee, Messrs Ackermann and Papenburg as additional members of the Presiding Committee, Ms Seeman as successor to Mr Ackerman, effective January 1, 2023, to sit on the Audit Committee, and Ms Karin Hardekopf, member of GP Günter Papenburg AG’s Management Board, contingent on her appointment by the court as a member of Salzgitter AG’s Supervisory Board (subsequently effective as of January 1, 2023), as a member of the Audit Committee. Furthermore, the Supervisory Board deliberated on the review of Executive Board remuneration, discussed the most recent business development and informed itself about the current status of the SALCOS® program.
The Supervisory Board also had the Executive Board report in writing and orally on the Group’s compliance management system and on investigated activities.
On December 8, 2022, the Supervisory Board and the Executive Board discussed the corporate plan submitted and explained by the latter for the financial years 2023 through 2025. The Supervisory Board was also brought up to date on the SALCOS® program. Other topics of consultation in this meeting, included the imminent defining of the qualitative criteria determining variable Executive Board remuneration in 2022 for assessing the performance of the individual Executive Board members, as well as the stakeholder objectives for the performance period from 2022 through 2026. The Supervisory Board also concerned itself with the recommendations of the German Corporate Governance Code for purpose of submitting the Declaration of Conformity for 2022.
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 held four plenary meetings in 2022. The committee consulted in detail on business development and on the SALCOS® program in particular. Moreover, the Presiding Committee concerned itself with members newly appointed to the Supervisory Board’s committees, successor planning at Executive Board level, corporate planning, reviewing Executive Board remuneration, the components of variable Executive Board remuneration, and the recommendations of the German Corporate Governance Code, along with planning and carrying out the Supervisory Board’s self-assessment.
The members of the Audit Committee held five meetings during the reporting period, the first as a web conference and all other meetings with physical attendance. As is customary in March, it prepared the audit of the 2021 annual financial statements at company and at Group level in the by the whole Supervisory Board in the presence 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. To this end, the Audit Committee met twice: on March 7 exclusively with representatives of the statutory auditor and again on March 15 with these auditor representatives and the Executive Board. In the context of its audit, the Audit Committee saw no reason to raise objections and recommended that the full Supervisory Board approve the annual financial statements.
In the same way, the members of the Audit Committee examined the 2021 non-financial report in preparation and discussed the results of reviewing the remuneration report to be drawn up for the first time as a separate report. In addition, the Audit Committee once again focused on the independence of the external auditor as a routine task, in particular the scope of non-audit services provided by the auditor and the quality of the audit. The consultations of further meetings of the Audit Committee concerned IT security and IT structures, monitoring the accounting process, as well as the effectiveness of the internal control system, the risk management system, and the internal audit system. Moreover, the Audit Committee obtained detailed information on the Group’s compliance management system and compliance measures. The Audit Committee also dealt with preparing the proposal of the Supervisory Board for the appointing of the statutory auditor for the financial year 2022 by the Annual General Meeting of Shareholders, the assignment of the audit engagement, and agreeing the fees with the statutory auditor. The quarterly financial reporting of the Group was discussed in detail with the Executive Board before publication. The Chairman of the Audit Committee also maintained regular dialog with the statutory auditor between meetings.
In March 2023, following a detailed preliminary review, the Audit Committee recommended that the full Supervisory Board approve the 2022 annual financial statements at company and at Group level. The committee’s preliminary review of the 2022 non-financial report did not give rise to any objections either.
The Strategy Committee held one meeting with members personally attending in 2022. The main topics addressed the current situation, including the market and the economy, along with energy, an update on the “Salzgitter AG 2030” strategy, and the status quo and outlook regarding ESG.
The Nomination Committee held four meetings in 2022, two of which requiring physical attendance and two by telephone, to consult in particular on successors for Messrs Flach and Hilbers.
Audit of the Annual Financial Statements of Salzgitter AG and the Consolidated Financial Statements
In its meeting on March 23, 2023, the Supervisory Board conducted a detailed examination of the financial statements of SZAG and of the Group, both drawn up as of December 31, 2022, as well as of the combined management report on the company and on the Group for the financial year 2022. Prior to this meeting, the independent auditor Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Hanover, Germany, selected by the Annual General Meeting of Shareholders, reviewed both sets of financial statements and the management report on the Group 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) as applicable within the EU. Moreover, it was confirmed that the management report on the Group provides an accurate picture of the Group’s position. As part of its assessment of the early risk detection system, the auditor also 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 combined management report on the company and the Group, the Executive Board’s proposals for the appropriation of 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. We gave our approval to the proposal made by the Executive Board on the appropriation of retained earnings.
In its meeting on March 23, 2023, the Supervisory Board also addressed the topic of the separate combined non-financial report for 2022. Prior to this, KPMG AG Wirtschaftsprüfungsgesellschaft, Hanover, mandated by the Supervisory Board, examined the report to obtain limited assurance (Opinion). The auditor confirmed that no matters came to its attention that would cause it to believe that the report had not been prepared in all material respects in accordance with Section 315c in conjunction with Sections 289c through 289e of the German Civil Code (HGB) and the Taxonomy Regulation.
Following its own examination, the Supervisory Board concurred with the findings of the audit performed by KPMG AG.
Changes to the Supervisory Board
Over the course of the financial year 2022, with the exception of the aforementioned changes in the composition of its committees, there were no changes to the Supervisory Board. That said, Messrs Flach and Hilbers, both shareholder representatives, each laid down their mandates effective December 31, 2022, and Mr Keller, employee representative, laid down his mandate effective January 31, 2023.
Through to the expiration of the Supervisory Board’s current period of office, the following new members were appointed by the court as successors:
- Ms Karin Hardekopf as successor to Mr Flach, effective January 1, 2023,
- Mr Gerald Heere as successor to Mr Hilbers, effective January 3, 2023, and
- Mr Marco Gasse as successor to Mr Keller, effective February 21, 2023.
Changes to the Executive Board
There were no changes to the Executive Board in the financial year 2022.
The Supervisory Board thanks Messrs Flach, Hilbers and Keller for their long-standing activities to promote the good of the company.
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 2022.