Report of the Supervisory Board

Following the year 2009 with the huge challenges presented by the global financial and economic crisis, Salzgitter AG staged a steady recovery and resumed its positive performance trend over the course of the financial year 2010. The concerted efforts of the past financial year, as well as Europe’s ongoing economic recovery, particularly in Germany, contributed to this development.

However, the year ended presented us with new challenges which had profound consequences for the entire steel industry: The dramatic increase in the price of raw materials, compounded by raw material suppliers rejecting annual price fixing rounds in favor of quarterly contracts, resulted in the sales component of our traditional business model being fundamentally called into question. Accordingly, we were required to renegotiate our contractual structures with key customer groups.

Despite the difficult environment and persistent uncertainty prevailing in the capital markets, the Salzgitter Group succeeded in boosting its performance steadily over the course of the financial year. Both capacity utilization and selling prices improved notably in most Group companies. It was, however, not possible to achieve the pre-crisis level, and the situation with regard to raw materials costs exerted sustained pressure on margins.

In cases where our management believed that business segments might suffer for extended periods from the consequences of the economic crisis and where performance remained unsatisfactory despite signs of improvement, we initiated programs to improve structures, partly involving reducing personnel, and have already implemented these measures to a great extent. The extensive investment programs launched in recent years to secure the future of the company continued to run their course and have already been concluded in part.

In the financial year ended we also regularly and carefully supervised and advised the Executive Board in the exercise of its management duties with a view to legality, expediency and compliance and agreed on key measures designed to promote the company’s sustainable development. Our Board received both detailed written and oral 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 economic risks of the company and on divergences between the planned and actual course of business and goals. The causes of such divergences were thoroughly explained and discussed. We were always 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 meetings and one extraordinary meeting in which the Supervisory Board of Salzgitter AG 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. Two Supervisory Board members took part in two and one meeting respectively. In addition, there were nine meetings of the Presiding Committee and four meetings of the Audit Committee. The Nomination Committee met once.

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 the current situation of the company, its development and material transactions with him.

The consultations of the Supervisory Board were essentially focused on the efforts of companies belonging to the Group to return to profitability in the wake of the general economic recovery and on the challenges emerging from changes in the framework conditions for procuring raw materials. Moreover, we also obtained information on the implementation status of current investment projects, especially in the Steel Division.

We approved the issuance of a bond with a total volume of € 296 million exchangeable into shares and placed at very favorable conditions in the market.

Alongside issues relating to operations, the Supervisory Board also made a decision on successorship with regard to the positions of Chief Executive Officer and Chief Financial Officer.

In our meeting on March 24, 2011, we examined the annual financial statements of Salzgitter AG and of the Group, both drawn up as of December 31, 2010, as well as the joint management report on the company and the Group for the financial year 2010. Prior to this, the independent auditor PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Hanover, 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 also 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.

Moreover, the Audit Committee of the Supervisory Board had the Executive Board and the auditor explain the details of the financial statements at an earlier point in time and discussed the 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 unappropriated 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 24, 2011, 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 therefore gave our approval to the findings of the auditor’s review and ratified the separate annual financial statements and the consolidated annual financial statements. The annual financial statements are hereby adopted. After due consideration, we gave our approval to the proposal made by the Executive Board on the appropriation of unappropriated retained earnings.