Report of the Supervisory Board

After a difficult year in 2020, the company delivered the best pre-tax result for more than a decade in 2021, although the year continued to be impacted by the COVID-19 pandemic. Business developed significantly better than was originally anticipated at the start of the year. Especially the first half of the year saw a gratifying price and demand trend set in, above all in the Strip Steel and Trading business units. As from the end of the summer quarter, however, Salzgitter Group was increasingly affected by supply chain disruptions and their impact, along with rising raw material prices. The earnings forecast was nevertheless revised upward several times over the course of the year and ultimately resulted in the very gratifying performance. Against the backdrop of persistent volatility, however, the year 2022 remains subject to uncertainty as well.

Despite the significant improvement in the general environment, the Salzgitter Group continues to rigorously implement its efficiency and growth program, which contributed to its good performance. The goal of producing low CO2 steel in the future was vigorously pursued. Furthermore, the Group continued to lobby at all political levels to gain the necessary financial support for its SALCOS® (SAlzgitter Low CO2 Steelmaking) program and for creating the necessary framework conditions to promote the transformation from coal-based to low-CO2 steel production. These endeavors were embedded in an extensive examination of the Group’s strategy for the next decade.

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

The Supervisory Board kept itself continuously informed in the financial year 2021 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 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 six meetings to obtain 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. 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 implementing the groupwide “FitStructure 2.0” 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, as well as to the status of the SALCOS® program. 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.

The Supervisory Board held regular meetings in the reporting year in the months of March, May, September and December, and convened extraordinary meetings in February and November. The attendance rate at the Supervisory Board meetings totaled 97.6 %. Due to the restrictions from the coronavirus pandemic, and with the aim of avoiding the risk of infection, a number of the Supervisory Board’s meetings were held exclusively via video conference. 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.

Upon assuming their mandates, members newly appointed to the Supervisory Board in the financial year were supported, as is customary with all new Supervisory Board members, through an onboarding program that includes detailed information on the Group and its various business activities, along with an extensive manual with further information relevant to Supervisory Board activities.

Focus of the consultations of the Supervisory Board

On February 8, 2021, the Supervisory Board convened an extraordinary meeting. This meeting focused on the topic of decarbonization in steel production and on the SALCOS® program. The Supervisory Board had the Executive Board explain its SALCOS® concept and discussed the topic in detail with the Executive Board. In addition, the Supervisory Board had the Executive Board inform it about the current development of business.

In its meeting on March 10, 2021, 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, 2020, as well as on the combined management report on the company and the Group for the financial year 2020. 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 2020. 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 2021 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 2020 non-financial report on the Group and, following its own detailed examination, approved the audit findings in the report by the auditor. The Supervisory Board concerned itself on an ongoing basis with the development of business and with the steel industry’s endeavors in the field of decarbonizing steel production. The transformation program as a whole and the relevant impact and requirements placed on the respective stakeholders were presented and discussed.

The main topics of consultation addressed by the Supervisory Board in its meeting on May 18, 2021 that – similar to the two preceding meetings – took place through the medium of a web conference due to the coronavirus pandemic, was concerned with the development of business and the efficiency and growth program.

In its meeting on September 9, 2021, the Supervisory Board elected Mr. Bloemers as the successor to Mr. Lauenroth to the position of member of the Audit and Strategy Committee. Furthermore, the Supervisory Board 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. It also informed itself about the content of Germany’s Act on Strengthening Financial Market Integrity (FISG) and of the Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz), and the impact of this legislation on the Salzgitter Group.

A special information and training session on this legislation was held by the head of Salzgitter AG’s Legal Department for the Supervisory Board members.

On November 17, 2021, the Supervisory Board had the Executive Board report in detail in the Supervisory Board meeting on the status of deliberations on the “Salzgitter AG 2030” strategy and discussed this in detail with the Executive Board.

On December 16, 2021, the Supervisory Board and the Executive Board discussed the corporate plan submitted and explained by the latter for the financial years 2022 through 2024. Moreover, the Supervisory Board was informed extensively about the status of the SALCOS® program and deliberations on the “Salzgitter AG 2030” strategy. Other topics of consultation in this meeting included the imminent defining of 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 2025. The Supervisory Board also concerned itself with the recommendations of the German Corporate Governance Code for purpose of submitting the Declaration of Conformity for 2021.

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 2021. The committee consulted in detail on the development of business – specifically on the impact and the measures necessary to deal with challenges arising from the pandemic – along with the SALCOS® program and the corporate strategy. In addition, the Presiding Committee addressed the issue of appointing successors to the Supervisory Board, corporate planning, the components of variable Executive Board remuneration, and the recommendations of the German Corporate Governance Code.

The members of the Audit Committee held four meetings in the period under review. In March, as is customary in the March meeting, it prepared the examination of the 2020 annual financial statements at company and at Group level by the full Supervisory Board in the presence of the 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 full Supervisory Board approve the annual financial statements. In the same way, the members of the Audit Committee examined the 2020 non-financial report on the Group in preparation. 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 2021 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.

In March 2022, following a detailed preliminary review, the Audit Committee recommended that the full Supervisory Board approve the 2021 annual financial statements at company and at Group level. Its preliminary review of the 2021 non-financial report on the Group did not give rise to any objections either.

The Strategy Committee held one meeting in 2021. The main emphasis was placed on the status of deliberations on the “Salzgitter AG 2030” strategy. This meeting in September 2021 also concentrated on preparing the extraordinary Supervisory Board meeting on November 17, 2021 that was dedicated to discussing the corporate strategy in a plenary session of the Supervisory Board.

The Nomination Committee held two meetings in 2021.

Participation of the Supervisory Board members in Supervisory Board and committee meetings in the financial year 2021

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

In its meeting on March 17, 2022, the Supervisory Board conducted a detailed examination of the financial statements of SZAG and of the Group, both drawn up as of December 31, 2021, as well as of the joint management report on the company and on the Group for the financial year 2021. Prior to this meeting, the independent auditor Ernst & Young Wirtschaftsprüfungsgesellschaft, Hanover, Germany, selected by the Annual General Meeting of Shareholders, reviewed both sets of financial statements and issued an unqualified “auditors’ 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 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 approved the proposal made by the Executive Board on the appropriation of retained earnings.

Non-financial report on the Group

In its meeting on March 17, 2022, the Supervisory Board also addressed the topic of the non-financial Group report for 2021. Prior to this, KPMG AG Wirtschaftsprüfungsgesellschaft, Hanover, Germany, 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, 2021 has not been 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 AG.

Changes to the Supervisory Board

Dr. Werner Tegtmeier, neutral member of the Supervisory Board, laid down his office at the end of the 2021 Annual General Meeting of Shareholders. Upon the proposal of the shareholder and employee representatives on the Supervisory Board, the Annual General Meeting of Shareholders elected Mr. Frank Klingebiel to the Supervisory Board of Salzgitter AG with effect from the end of the 2021 Annual General Meeting of Share-holders until the end of the Supervisory Board’s current term of office.

Dr. Dieter Köster, shareholder representative, laid down his mandate with effect from June 30, 2021. The Annual General Meeting of Shareholders elected Mr. Klaus Papenburg as a member of the Supervisory Board with effect from July 1, 2021 until the end of the Supervisory Board’s current term of office.

Ms Annelie Buntenbach and Mr. Bernd Lauenroth, both representatives of the employees, also laid down their office. Ms Anja Piel and Mr. Manuel Bloemers were appointed by the court as successors with effect from July 22, 2021 and July 1, 2021 respectively until the end of the Supervisory Board’s current term of office.

Changes to the Supervisory Board

The Supervisory Board appointed Mr. Gunnar Groebler as member of the Executive Board, effective May 17, 2021, and as Chairman of the Executive Board effective July 1, 2021. In the latter function, Mr. Groebler follows on from Prof. Dr.-Ing. Heinz Jörg Fuhrmann who withdrew from the Executive Board on June 30, 2021.

The Supervisory Board thanks Ms Buntenbach, Dr. Köster, Mr. Lauenroth and Dr. Tegtmeier for their many years of service in promoting the company.

The Supervisory Board’s special thanks go to Prof. Fuhrmann who has left his mark on the company in various different lines of business over many decades since the company’s listing in 1998. Despite difficult times, he led the company to profitable growth and paved the way for the decarbonization of steel production at an early stage. This is the foundation for the company’s future successful development under the leadership of the current Executive Board. Our very best wishes accompany Prof. Fuhrmann in the new chapter of his life.

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 2021.

Salzgitter, March 17, 2022

The Supervisory Board

Heinz-Gerhard Wente
Chairman


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