Report of the Supervisory Board

For Salzgitter AG, the year 2009 will go down as one of the most difficult financial years in the history of the Salzgitter Group, founded over 150 years ago. The global financial crisis caused economic output in Germany to decline by around 5 %, despite the extensive economic packages that were put in place. The steel industry, which was still flourishing in mid-2008, was hard hit by the severe recession.

Especially in the first half of the year Salzgitter AG had to absorb the dramatic slump in demand in the steel markets. Alongside a drastic downturn in production in almost all customer groups, the reduction of the excessive material inventories of steel processors and dealers exerted substantial pressure on the market environment.

Thanks to its sound and broad business base and its healthy financial position, our company has mastered the challenges ensuing from the crisis relatively well. A program swiftly launched by the Executive Board was greatly instrumental in stabilizing profit and securing liquidity. Further reaching, profound restructuring measures and severe cutbacks have been avoided up until now. In this context, keeping a steady focus on the cost and earnings situation and our having exercised reticence in the past with regard to acquisitions have proven to be the correct choice. At the end of the financial year 2009, Salzgitter AG nonetheless concededly incurred the largest loss in its company history.

At the start of the second half-year, there were the first hesitant signs of a gradual stabilization in the market, nonetheless at a very low level. Performance in the financial year 2010 will, in our view, depend greatly on the extent to which Europe and North America in particular manage to return to the path of steady growth. The decentralized structure of the Salzgitter Group will enable us to react swiftly for the most part to the future market developments.

We regularly supervised and advised the Executive Board in the exercise of its management duties. Our board received both written and verbal reports on the business performance, financial and earnings position of the company, as well as the business policy pursued.

Moreover, we were provided with timely and comprehensive information on the risks of the company and on divergences between the planned and actual course of business and goals. The causes of the divergences were thoroughly explained and discussed. We were directly involved in all decisions of particular significance for the company and availed ourselves of the opportunity of discussing these decisions in detail with the Executive Board.

There were four regular and one extraordinary meeting in which the Supervisory Board discussed the situation and the development of the Group on the basis of reports submitted by the Executive Board. The average attendance rate of Supervisory Board members was 90 % – including an extraordinary meeting convened at short notice. In addition, there were nine meetings of the Presiding Committee and one meeting of the Nomination Committee. The Audit Committee conferred four times.

The Chairman of the Supervisory Board coordinated the work of the Supervisory Board. He maintained regular contact with the Executive Board, in particular with Prof. Dr.-Ing. h. c. Wolfgang Leese, its Chairman, and discussed with him the current situation of the company, its development and material transactions.

The consultations of the Supervisory Board were essentially focused on the impact of the global financial crisis on our company and the countermeasures initiated. We also had reports submitted to us on the progress made in extensive investment projects commenced in previous years. Moreover, on the basis of authorization granted by the Annual Meeting of Shareholders which took place on May 27, 2009, we approved the issuing of a convertible bond.

In our meeting on December 10, 2009, we discussed the corporate planning for the financial years 2010 through to 2012 submitted by the Executive Board with its pertinent annotations, including investment, finance and personnel planning. We also approved the investment plan of the Group for the financial year 2010 and its financing.

In the meeting on March 25, 2010, we examined the annual financial statements of Salzgitter AG and of the Group, both drawn up as of December 31, 2009, as well as the joint management report on the company and the Group for the financial year 2009. Prior to this, the independent auditor PricewaterhouseCoopers Aktiengesellschaft 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 risk management 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.

Furthermore, the Audit Committee of the Supervisory Board had the auditor and the Executive Board explain the details of the financial statements at an earlier point in time and had discussed various questions. The Committee recommended that the Supervisory Board ratify the financial statements.

The annual financial statements of Salzgitter AG, the consolidated financial statements of the Group, the joint management report on the company and the Group, the Executive Board’s proposal for the appropriation of the retained earnings, as well as the auditor’s reports were available to the members of the Supervisory Board for examination. The representatives of the auditor took part in the discussions of the annual financial statements and the consolidated financial statements at the Supervisory Board meeting on March 25, 2010, and elaborated on the most important findings of their audit.

The examination of the annual financial statements, consolidated financial statements and the joint management report by the Supervisory Board did not lead to any objections. We thus 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. After due consideration, we gave our approval to the proposal made by the Executive Board on the appropriation of the retained earnings.

Mr. Friedrich-Wilhelm Tölkes, employee representative, laid down his Supervisory Board mandate on January 15, 2009. With effect from January 16, 2009, his position was filled by Mr. Ulrich Kimpel, hitherto an elected substitute member.

The current members of the Supervisory Board are listed in the Notes to the Consolidated Financial Statements with reference to other mandates which they exercise.

At his own request, Mr. Dipl.-Ing. Hans Fischer resigned from the Executive Board on December 31, 2009, in order to take up tasks at another company. On November 16, 2009, the Supervisory Board appointed Mr. Dipl.-Wirtsch.-Ing. Johannes Nonn, formerly member of the Board of Directors of the management company overseeing the Steel Division, Salzgitter Stahl GmbH, and Chairman of the Board of Directors of Salzgitter Flachstahl GmbH, Salzgitter, with effect from January 1, 2010, as the member of the Executive Board responsible for the Steel Division.

The Supervisory Board would like to thank the Executive Board and all employees of the Group for their work and commitment throughout the financial year 2009.

Salzgitter, March 25, 2010

The Supervisory Board

Rainer Thieme
Chairman of the Supervisory Board