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 /  /  / Report of the Supervisory Board

Report of the Supervisory Board

The Salzgitter Group can look back on a good financial year 2018. Earnings improved again significantly, and the Group delivered the best result since the financial and economic crisis. Along with generally more favorable market conditions, the measures carried out in recent years to achieve structural improvements had a positive impact. The Strip Steel and Plate / Section Steel business units benefited from the healthy economic activities in industry and the construction sector. The result of the Mannesmann Business Unit remained at the year-earlier level due to an accounting adjustment to the assets of the precision tubes group. The Trading Business Unit achieved another very gratifying result. The Technology Business Unit that operates in the machinery and plant engineering sector raised its earnings substantially. Fierce competition on the Group’s markets that is more likely to intensify in the wake of the increase in steel imports into the EU and the slowing domestic economy will necessitate the rigorous implementation of further structural improvements in the future as well.

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

The Supervisory Board kept itself continuously informed about the situation of the Group and the development of business during the financial year 2018. 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 and 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 the Supervisory Board. Any deviations from planning were explained in detail, and then queried and discussed by the Board. 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 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 and, in addition, subsequently at a constituent meeting following the election of the new Supervisory Board by the Annual General Meeting of Shareholders. In addition, several decisions were adopted by means of a written procedure. The attendance rate at the Supervisory Board meetings totaled 92 %. One Board member did not participate in two meetings, and six members did not attend one of the meetings respectively. The Supervisory Board met mainly with the Executive Board attending. It discussed topics such as Executive Board remuneration and other matters affecting the Executive Board, however, 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.

Focus of the consultations of the Supervisory Board

In its meeting on March 15, 2018, the Supervisory Board concentrated primarily on the financial statements of Salzgitter AG and of the Group, both drawn up as of December 31, 2017, as well as on the combined management report on the company and the Group for the financial year 2017, submitted respectively by the Executive Board. 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. Furthermore, the Board gave its consent to the proposed appropriation of unappropriated retained earnings and signed off its report to the Annual General Meeting of Shareholders and the resolutions proposed for the individual items on the agenda requiring approval by the General Meeting of Shareholders in 2018. In addition, the Supervisory Board determined the variable component of the Executive Board’s remuneration for the financial year 2017 and approved the restructuring of the future Executive Board remuneration geared to the recommendations of the German Corporate Governance Code.

In its meeting on May 24, 2018, the Supervisory Board deliberated on the development of business during the year, the acquisition of the stainless steel precision tubes specialist SOTEP (Société Technique d’Etirage de Précision) by Mannesmann Stainless Tubes GmbH, the current status and the progress made with the efficiency and growth program. Other points on the agenda included business with inherent risks. In addition, the Supervisory Board also determined the key areas for the auditing of the 2018 annual financial statements of the company and of the Group by the auditor to be selected by the Annual General Meeting of Shareholders. Following the election of the new Supervisory Board by the Annual General Meeting of Shareholders on May 24, 2018, the Board held a constituent meeting on the same day in its new composition. The Chairman of the Supervisory Board and the Vice Chairman were elected, and the committees were determined and their members appointed. The Supervisory Board also approved the renewed acquisition of additional shares in the context of the participating investment in Aurubis AG.

In its meeting on September 27, 2018, the Supervisory Board concentrated on discussing the most recent development of business, the corporate strategy and the possible acquisition of competitor ArcelorMittal’s strip steel production facilities in Belgium and Luxembourg. Our company submitted a bid that was, however, subsequently not successful in the context of the bidding procedure. Furthermore, the Supervisory Board discussed the stage reached in implementing the corporate strategy and, with this in mind, elaborated on the result of the Strategy Committee’s meeting. Moreover, the Board resolved to proceed with its intention of switching the employment contracts in agreement with the Executive Board members to the new remuneration system decided by the Supervisory Board with effect from 2019, which reflects the most recent recommendations of the German Corporate Governance Code. Furthermore, the Supervisory Board had the Executive Board inform it in detail both orally and in writing about the Group’s compliance management system and about suspected and investigated cases of violations.

On December 6, 2018, the Executive Board principally presented its corporate planning for the financial years 2019 to 2021 to the Supervisory Board, and elaborated on plans for the further development of the business units. Particular challenges were discussed. Other topics of deliberation in this meeting included the recommendations of the German Corporate Governance Code pertaining to the Supervisory Board and the issuing of the Declaration of Compliance 2018. In the case of the new Executive Board remuneration structure already be applied for the financial year 2019 in agreement with the Executive Board members, the Supervisory Board also set the criteria for assessing individual performance in 2019 and the stakeholder objectives for the performance period from 2019 to 2022. Finally, the Board decided to put the audit service provided for the auditing of the 2020 separate and consolidated financial statements in line with the new standards prevailing in the EU since 2016 on the statutory audit of public interest entities out to tender.

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 four times in 2018. Matters addressed by these meetings included important issues relating to the development of business, the corporate strategy and the election of the new Supervisory Board. The Presiding Committee also dealt with the restructuring of the Executive Board remuneration and the renewed acquisition of additional shares in Aurubis AG. Significant investments and the aforementioned possible acquisition also formed the topics of detailed discussions.

The members of the Audit Committee held four meetings in the period under review. In March, they prepared for the audit of the 2017 annual financial statements at company and at Group level in a prior meeting attended by representatives of the auditor and recommended to the Supervisory Board that the annual financial statements be approved. Similarly, and in preparation, it examined of the Non-financial Report on the Group 2017. In addition, the committee dealt with the selection of the auditor of the financial statements as at December 31, 2018. At subsequent meetings, the committee dealt in detail with the independence of the auditor, in particular with the provision of non-audit services, the audit strategy and planning. It 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. Its review also concentrated on the structure of the company’s compliance system and the way it works. In addition, the Audit Committee worked on preparations for putting the 2020 annual accounts audits out for tender. The quarterly financial reporting of the Group was discussed in detail with the Executive Board before publication.

In March of 2019, the Audit Committee recommended to the full Supervisory Board after detailed pre-examinations of the Annual and Group Accounts 2018 that the accounts be adopted. Likewise, the examination of the Non-financial Report on the Group 2018 resulted in no objections.

The Strategy Committee met once in 2018. Following on from last year when the topic of “digitalization” was discussed in detail with the Executive Board, a review was conducted this year of the Executive Board’s corporate strategy agreed with the Supervisory Board in 2016. The range of topics covered the analysis and deliberations of the internal and external growth right through to innovative product and application developments and on to the positive qualitative demarcation with regard to relevant competitors.

The Nomination Committee met once during the reporting period and, with regard to the election of the new Supervisory Board in the 2018 Annual General Meeting of Shareholders, discussed in much depth the appropriate composition of the Supervisory Board in the next election period and the selection of suitable candidates for the proposal of the Supervisory Board to be put to the Annual General Meeting for the election of shareholder representatives to 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. 

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

In its meeting on March 21, 2019, the Supervisory Board conducted a detailed examination of the financial statements of Salzgitter AG (SZAG) 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. Prior to this meeting, the independent auditor PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, Hanover, Germany, selected by the Annual 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.

Non-financial report on the Group

In its meeting on March 21, 2019, the Supervisory Board also addressed the topic of the non-financial Group report for 2018. Prior to this, KPMG AG Wirtschaftsprüfungsgesellschaft conducted an audit on the report on behalf of the Supervisory Board and issued the following audit opinion:

“Based on the audit procedures performed and the audit evidence obtained, no matters have come to our attention that cause us to presume that the report of Salzgitter AG for the period from January 1 to December 31, 2018, has not been prepared, in all material respects, in accordance with Sections 315b, 315c in conjunction with Sections 289c through 289e of the German Commercial Code (HGB).”

Following its own examination, the Supervisory Board concurred with the findings of KPMG’s audit.

Changes to the Supervisory Board

The term of office of the Supervisory Board expired at the end of the Annual General Meeting of Shareholders on May 24, 2018. Partly long-serving members retired from the Board: Dr. Thea Dückert, Mr. Karl Ehlerding and Prof. Dr. Jürgen Hesselbach as shareholder representatives, and Mr Ulrich Dickert and Mrs. Tina Dreßen as employee representatives.

The Annual General Meeting of Shareholders elected the following shareholder representatives as new members of the Supervisory Board:

  • Dr. Bernd Drouven,
  • Prof. Dr. Susanne Knorre,
  • Mr. Heinz Kreuzer.


The other shareholder representatives were re-elected.

The following persons have been newly elected by the respective employee representative body:

  • Mrs. Christine Seemann,
  • Mr. Clemens Spiller.


The other employee representatives were re-elected.

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 2018. 

Salzgitter, March 21, 2019

The Supervisory Board

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

Heinz-Gerhard Wente
Chairman


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