Annual Report 2005

REPORT BY THE BOARD OF DIRECTORS of technological idle time to reset the technological equipment. In 2005, we extended our range of products with a new type of product – a circle profile of 280 mm. At present we can offer our customers a total of 11 types of steel products with circle and rectangular profiles. We produced 181 028 tonnes of seamless hot rolled tubes, i.e. virtually the same volume as last year. During the year the requirements shifted slightly towards a more complex range of products. The seamless tube mill operated continuously in the shift regime during the whole period. In the future the increased performance in this cost centre, as with the steel-mill, will only be possible with a perfect organisation of work and a gradual reduction of production line idle time. Of overall production, 110 823 tonnes of seamless tubes were sold to our customers and the remaining volume was used for further processing in our tube mill – they were used for the production of 51 694 tonnes of precision seamless tubes and 3 577 tonnes of welded tube elbows. The organisation of operations of drawn tube production changed dramatically in 2005, as on 1 April two cost centres merged into one. The main reason for this change was to increase work productivity, centralisation of management and planning, as well as the optimisation of production streams. The improvement of the management of the tube mill is a complex process, and such enhancement will also continue in 2006. A new production line of welded tubes with small diameters was put into use in March 2004. In 2005 it produced 3 506 tonnes of welded calibrated tubes and 427 tonnes of welded cold drawn tubes. As part of the start-up process, these volumes represent three times the volumes produced last year, however, they lagged significantly behind the expectations formulated in the plan. In 2006 we have to make maximum effort to fully utilise the production line. In the production mill for welded tubes with large diameters, we produced and marketed 3 348 tonnes of tubes in the total amount of SKK 122 million. From the tubular product section focusing on the finishing treatment of precision tubes and hydraulic tubes, we have supplied our customers with 4 177 tonnes of products worth SKK 209 million in total, which represents more than a 15% increase year-on-year. When evaluating production performance in 2005, we again demonstrated a significant improvement in the quality of products. This is a result of the implementation of several technological innovations in steel production which represent the achievement of the technical progress plan developed in long-term cooperation with Ústav materiálového výskumu (Institute of Materials’ Research) at the Slovak Academy of Science in Košice. New developments in the area of metal moulding and materials research were presented at the 4th international conference THER TECH FORM 2005 organised by Železiarne Podbrezová, a.s., on the occasion of the 165th anniversary of the establishment of metallurgical production in Podbrezová. In 2005, we supplied our customers with products worth a total of SKK 7 697 million, which represents annual growth of SKK 1 390 million, i.e. more than 22%. A major portion of the products, over 87%, was exported. In 2005, the products of Železiarne Podbrezová were purchased by customers in 43 countries on all continents. The 2005 sales of products which was the highest in our history, was the result of a successful business policy. We took full advantage of the worldwide boom in metallurgy to the benefit of our Company. The positive impact of the boom on steel products prices started in 2004 and continued throughout 2005. With slight stagnation, the mild growth has continued in 2006. With the volume of exported products being considerable, the strengthening of the Slovak currency exchange rate to the EUR that persisted throughout the year (from 1.1. until 31.12.2005 a drop by SKK/EUR 0.90) had a negative impact on overall revenues. On the other hand, overseas exports to America partially made up for losses from prior years, when the exchange rate of the Slovak Crown to the US Dollar dropped by SKK/USD 3.54. The geographical structure of sales did not change fundamentally in 2005 with the dominant market segment still being EU countries in the following order: the Czech Republic, Poland, Germany, Italy, Hungary, and France. Report by the Board of Directors Annual Report 2005 Železiarne Podbrezová 14