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 /  /  / Report of the Supervisory Board

Report of the Supervisory Board

Chairman of the Supervisory Board Heinz-Gerhard Wente
Picture of Heinz-Gerhard Wente

The financial year 2019 was characterized by conditions on the steel market deteriorating as the year progressed. Demand declined notably due to the slowdown in general economic growth, both in Europe and on a global scale. At the same time, raw material costs rose steeply. The Group achieved a positive operating result despite the extremely challenging conditions over the year as a whole, due not least to the rigorous implementation and effects of the profit improvement programs in recent years. Competition law proceedings in the heavy plate business, however, led to a negative annual result overall. Asset impairment applied following a detailed impairment test placed an additional pressure on the result, while nevertheless forming the basis for easing the burden on coming periods.

The Technology Business Unit developed well. With a view to realizing future low CO2 steel production, the Group continues to engage intensively in lobbying the regional government, the German federal government and the European Commission to win support for its SALCOS® (SAlzgitter Low CO2 Steelmaking) concept. The necessary framework conditions must be created, also by the politicians, in order to facilitate the transition away from coal to other sources of energy in 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 2019 about the situation of the Group and the development of business. The Executive Board informed the Supervisory Board by way of detailed written monthly 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 obtained 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 us. 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.

During the reporting year, the Supervisory Board convened in March, May, September and December at one meeting in each month respectively. The attendance rate at the Supervisory Board meetings totaled 92 %. 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, neither by the Supervisory Board members nor by members of the Executive Board. The new system for the variable remuneration of the Executive Board that was launched on January 1, 2019 also comprises the topics of occupational safety and continuous professional development, along with the stakeholder objectives. The Supervisory Board places special importance on these aspects in particular from the standpoint of employer attractiveness in consideration of a potential skills shortage. 

Focus of the consultations of the Supervisory Board

In its meeting on March 21, 2019, and as is customary in the March meetings, the Supervisory Board focused primarily on the financial statements of the separate company and of the Group, both drawn up as of December 31, 2018, as well as of the combined management report on the company and the Group for the financial year 2018. 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 and gave its consent to the proposed appropriation of unappropriated retained earnings put forward by the Executive Board. Furthermore, it signed off its report to the General Meeting of Shareholders, the corporate governance report and the resolutions proposed for the individual items on the agenda requiring approval by the General Meeting of Shareholders in 2019. In addition, the Supervisory Board determined the variable part of the Executive Board members’ remuneration for the financial year 2018. It conferred with the Executive Board members about adapting their employment contracts to the new remuneration structure that follows the recommendations of the German Corporate Governance Code. Moreover, the Supervisory Board deliberated on the development of business, particularly regarding the Group’s steel operations, and the share price trend.

In its meeting on May 23, 2019, the consultations of the Supervisory Board focused on the current situation, including the risks and the outlook, as well as progress made in the efficiency and growth program. Furthermore, the Supervisory Board determined key audit areas for the audit of the annual financial statements 2019 at company and at Group level by the statutory auditor to be selected by the Annual General Meeting of Shareholders.

In its meeting on September 26, 2019, the Supervisory Board dealt with the most recent developments in business and the status of the investment undertaking involving the construction of a new heat treatment plant at Ilsenburger Grobblech GmbH. The Supervisory Board was kept abreast of the actual status concerning the cartel proceedings in the heavy plate business. Having discussed and duly considered the situation, it gave its consent to seeking a mutually agreed end to the anti-trust proceedings. Moreover, the Supervisory Board, acting on the recommendation of the Presiding Committee, decided to appoint Mr. Dipl.-Wirtsch.-Ing Kai Acker as head of the Group’s “Technology” Business Unit for the period from October 1, 2019 through to October 31, 2023, as well as Dr.-Ing. Sebastian Bross as head of the Group’s “Plate / Section Steel” Business Unit for the period from October 1, 2019 through September 30, 2024. The Supervisory Board received detailed written and verbal reports on the Group’s compliance management system and on cases investigated on the grounds of a possible breach. In addition, it took the decision, acting on the recommendation of its Audit Committee, to propose to the 2020 Annual General Meeting of Shareholders that Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Hanover, be selected as the statutory auditor of the separate annual financial statements and the consolidated financial statements of Salzgitter AG (SZAG), including the auditing of the condensed group management report on the company and on the group for the financial year 2020. This decision was preceded by a public tender for the auditing process and an evaluation of the offers by the Audit Committee.

The Executive Board submitted and explained the corporate planning for the financial years 2020 through 2022 to the Supervisory Board on December 5, 2019. The Supervisory Board was also brought up to date on the SALCOS® project. Other topics of consultation in this meeting included the review of Executive Board remuneration and, regarding the variable Executive Board remuneration in 2020, determining the qualitative criteria for assessing individual performance, as well as the stakeholder objectives for the performance period from 2020 through 2023. The Supervisory Board also concerned itself with the recommendations of the German Corporate Governance Code, including the submission of the Declaration of Conformity for 2019.  

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 2019. Matters addressed in these meetings included important issues relating to the development of business, the corporate strategy and personnel matters at senior management level. In addition, the Presiding Committee deliberated on the increasingly difficult economic environment in the steel business and discussed pending decisions.

The members of the Audit Committee held four meetings in the period under review. In March, it discussed the audit of the 2018 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 non-financial report on the Group in preparation. The consultations of further meetings of the Audit Committee focus on IT security, monitoring the accounting process, the effectiveness of the internal control system, as well as of the compliance and risk management system. Furthermore, 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 2019 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, as well as the non-audit services provided by the auditor in addition to the audit of the financial statements. The Audit Committee was involved in the selection procedure for appointing the statutory auditor for the financial year 2020, in accordance with Section 16 of EU Directive No. 537/2014 (requirements regarding statutory auditing) and drew up the corresponding recommendation for the Supervisory Board. The quarterly financial reporting of the Group was discussed in detail with the Executive Board before publication.

In March 2020, following a detailed preliminary review, the Audit Committee recommended that the full Supervisory Board approve the 2019 annual financial statements at company and at Group level. Its preliminary review of the 2019 non-financial report on the Group did not give rise to any objections either.

The Strategy Committee met once in 2019. The central topic of this meeting was a review of the status of the current corporate portfolio and, derived from this, ultimately, the company’s portfolio strategy, the focal point having been placed on the principles of the corporate strategy in 2016, the topic of “digitalization” in 2017 and on the “Strategy 2021” in 2018. Following the withdrawal of Mr. Ulrich Kimpel from the Supervisory Board and the Strategy Committee on July 31, 2019, the Supervisory Board voted unanimously in its meeting on May 23, 2019 to appoint Mr. Konrad Ackermann as a member of the Strategy Committee, effective August 1, 2019, for the remainder of the Supervisory Board’s election period.

No meeting of the Nomination Committee was necessary in 2019. 

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

In its meeting on March 12, 2020, the Supervisory Board examined the financial statements of SZAG and of the Group, both drawn up as of December 31, 2019, as well as the joint management report on the company and the Group for the financial year 2019. 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 “audit certificate”. 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. 

Non-financial report on the Group

In its meeting on March 12, 2020, the Supervisory Board also addressed the topic of the non-financial report on the Group for 2019. 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, 2019 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

Mr. Ulrich Kimpel, employee representative, laid down his mandate with effect from July 31, 2019. The Supervisory Board thanks him for his activities to promote the good of the company. The Braunschweig Local Court appointed Mr. Norbert Keller as the successor to Mr. Kimpel, effective August 30, 2019, for the period until the end of the current term of office.

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 2019.

Salzgitter, March 12, 2020

The Supervisory Board

[Translate to Englisch:] Signature of Heinz-Gerhard Wente

Heinz-Gerhard Wente
Chairman


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