The financial year 2017 proved to be a successful one overall for the Group, although performance varied very widely in the individual business units. While the Strip Steel and Trading business units benefited from the favorable market development, the earnings of the Plate / Section Steel Business Unit were clearly negative due to unsatisfactory selling prices in fiercely competitive markets and impairment. Despite expenses for structural measures, the Mannesmann Business Unit raised its result notably in comparison with the previous year but nevertheless reported a marginally negative result. The Technology Business Unit fell short of expectations, also due to burdens from the introduction of further measures to enhance efficiency.
The “FitStructure” efficiency program and the first effects of the growth program under the “Salzgitter AG 2021” strategy made remarkable contributions to improving earnings throughout the Group. In 2018, the emphasis will continue to be placed on the rigorous implementation of these programs in order to achieve satisfactory results, also in the long term.
The Supervisory Board kept itself continuously informed about the situation of the Group and the development of business in the financial year 2017. 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 in the relevant months of the financial year. The reports also comprised information on the developments and activities in the area of human resources and detailed estimates on the opportunities and risks over the course of the year. Moreover, the Supervisory Board obtained detailed oral reports on the respective current situation of the Group and the important Group companies, as well as on material business transactions and relevant changes in four meetings. The development of business compared with corporate planning was explained to the Supervisory Board. Any deviations from planning were explained in detail, and then queried and discussed by the Board. In addition, the meetings focused on the stage reached in the implementation of the groupwide “FitStructure SZAG” efficiency program and progress made in realizing the “SZAG 2021” growth program. In this financial year as well, the Supervisory Board devoted special attention to the 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.
During the reporting year, the Supervisory Board convened in March, June, September and December at one meeting in each month respectively. In addition, several decisions were adopted by means of a written procedure. The attendance rate at the Supervisory Board meetings totaled 97.6 %. Two Supervisory Board members did not take part in one meeting respectively. 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 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, either by the Supervisory Board members or by members of the Executive Board.
In its meeting on March 23, 2017, the Supervisory Board focused primarily on the financial statements of Salzgitter AG and of the Group, both drawn up as of December 31, 2016, as well as of the combined management report on the company and the Group for the financial year 2016. The representatives of PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, the auditor selected by the 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 Board gave its consent to the proposed appropriation of unappropriated retained earnings and signed off its report to the General Meeting of Shareholders and the resolutions proposed for the individual items on the agenda requiring approval by the General Meeting of Shareholders in 2017. In addition, the Supervisory Board determined the variable portion of the Executive Board’s remuneration for the financial year 2016 and resolved to reappoint Mr Michael Kieckbusch as a member of the Executive Board and the company’s Labor Relations Director.
In its meeting on June 1, 2017, the Supervisory Board deliberated on the development of business in the individual business units during the first months of 2017 and the progress made with the efficiency and growth program. Further topics of discussion included the new requirements under the German Commercial Code (HGB) placed on the Supervisory Board and the new and also relevant recommendations of the German Corporate Governance Code. In addition the Supervisory Board also determined the key areas for the auditing of the annual financial statements 2017 of the company and of the Group.
In its meeting on September 28, 2017, the Supervisory Board concentrated on discussing the most recent development of business, as well as the corporate strategy and a major investment project in the Strip Steel Business Unit. Following initial consultation in the Strategy Committee, the Supervisory Board discussed the strategic aspects arising for the company from the growing digitalization of the working and business world. Regarding the investment undertaking, the Supervisory Board gave its approval having carefully investigated the construction of a hot-dip galvanizing line for rolled steel strip planned by Salzgitter Flachstahl GmbH (SZFG) and one of the most significant investments for the Group’s strategic development. Furthermore, the Supervisory Board had the Executive Board inform it in detail about the Group’s compliance management system.
On December 7, 2017, the Executive Board presented its corporate planning for the financial years 2018 to 2020 to the Supervisory Board, and elaborated on plans for the further development of the business units. Consultations in this meeting also focused on a proposal for restructuring Executive Board remuneration prepared by the Presiding Committee with the aid of external expertise. Following a recommendation of the German Corporate Governance Code, the Supervisory Board decided on a remuneration structure for future employment contracts that provides for an essentially forward looking multi-year assessment basis for variable remuneration components. Moreover, the Supervisory Board determined objectives for its own composition, defined a competence profile for the Supervisory Board, and approved a diversity concept for the composition of the Executive Board and Supervisory Board. Finally, after discerning preparation, it concerned itself in detail, with the aid of expert external support and based on a comparison with the working practices of similar companies, with the efficiency of its own work. The members of the Supervisory Board judged the work in plenary and in the committees to be efficient overall but nevertheless decided to investigate possibilities of further improvements more closely.
In order to prepare for its consultations and decisions, the Supervisory Board has formed presiding, audit, strategy and nomination committees.
The Presiding Committee met four times in 2017. The topics of these meetings covered important questions concerning performance, considerations on the development of the Strip Steel Business Unit, including investments and adjustments appropriate in the Technology Business. The Presiding Committee drafted a proposal for restructuring the Executive Board remuneration and prepared the implementation of further new recommendations by the German Corporate Governance Code pertaining to the Supervisory Board.
The members of the Audit Committee held four meetings in the period under review. In March, they deliberated on the audit of the 2016 annual financial statements at company and at Group level by the full Supervisory Board in a prior meeting attended by representatives of the auditor. The committee recommended to the Supervisory Board that the annual financial statements and the dividend proposal be approved. In this and also in subsequent meetings, the committee dealt in detail with the independence of the auditor, in particular with the providing of non-audit services, and at the March meeting with the selection of the auditor for the annual financial statements as of December 31, 2017. The committee prepared the defining of key audit areas by the whole Supervisory Board. It had the Executive Board present the internal control system, the internal audit system and the risk management system and convinced itself of the effectiveness of these systems. The quarterly financial reporting of the Group was discussed in detail with the Executive Board before publication.
Regarding the duty of the Supervisory Board of reviewing the non-financial report to be prepared for the first time for the financial year 2017, it put its recommendation to the whole Supervisory Board that an external auditor provide support. In addition, the Board gave special consideration to the measures concerning the IT structure and IT security, as well as to issues of compliance.
The Strategy Committee met once in 2017. It discussed the topic of “Digitalization/Industry 4.0” in detail with the Executive Board, options for dealing with this topic and the measures already implemented.
The Nomination Committee met twice during the reporting period and discussed the nomination of successors, which has become necessary at Supervisory Board level. After the reporting date, it applied itself to selecting suitable candidates for the imminent new election in the Annual Meeting of Shareholders in 2018 of shareholder representatives on the Supervisory Board. The guidelines used in this instance comprised the objectives defined by the Supervisory Board for its composition, as well as the competence profile defined by the Board and the diversity concept.
In its meeting on March 15, 2018, the Supervisory Board examined the financial statements of Salzgitter AG (SZAG) and of the Group, both drawn up as of December 31, 2017, as well as the joint management report on the company and the Group for the financial year 2017. Prior to this meeting, the independent auditor PricewaterhouseCoopers GmbH 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 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. We gave our approval to the proposal made by the Executive Board on the appropriation of retained earnings.
Moreover, in its meeting on March 15, 2018, the Supervisory Board deliberated on the non-financial Group report that is to be submitted for the first time for 2017. Prior to this meeting, KPMG AG Wirtschaftsprüfungsgesellschaft audited the report on behalf of the Supervisory Board and issued the following audit opinion:
“Based on the audit procedures and the audit evidence obtained, we are not aware of any issues that would lead us to the conclusion that the report of Salzgitter for the period from January 1 through December 31, 2017, was not prepared in all material respects in accordance with Sections 315b, 315c in conjunction with Sections 289c to 289e of the German Commercial Code (HGB).”
Upon completion of its own examination, the Supervisory Board concurred with the findings of the audit conducted by KPMG.
Prof. Dr. Hannes Rehm, shareholder representative, passed away on September 1, 2017. The Braunschweig Local Court appointed Prof. Dr. Joachim Schindler to the Supervisory Board as his successor, effective November 24, 2017, over the period through to the end of the next Annual General Meeting of Shareholders. Mr. Peter-Jürgen Schneider, also a shareholder representative, laid down his mandate effective December 31, 2017. The Braunschweig Local Court appointed Reinhold Hilbers as his successor, effective January 18, 2018, over the period through to the end of the next Annual General Meeting of Shareholders The newly appointed Supervisory Board members were each familiarized with the Group’s business by way of an onboarding event.
The Supervisory Board thanks Mr.Peter-Jürgen Schneider for his dedicated work on the Supervisory Board over a period of more than four years after having served the Group on the Executive Board for many years. The company owes special thanks to Prof. Rehm. He had been a member of the Supervisory Board of SZAG since 2000 and was the long-standing Chairman of the Audit Committee. In addition, he was a member of the Strategy Committee and, on occasion, of the Presiding Committee. The Supervisory Board pays tribute to the enormous dedication and the in-depth expertise of Prof. Rehm and his service to the company. His endeavors had a significant impact on the work of the Supervisory Board.
Our thanks go to the Executive Board and all the employees of the Group for their dedicated work and sound commitment throughout the financial year 2017.
Salzgitter, March 15, 2018
The Supervisory Board