Annual Report 2009

A N N U A L R E P O R T 2 0 0 9 30 REPORT BY THE BOARD OF DIRECTORS The increase in financial investments was mainly a result of acquiring the remaining portion of shares (35.18%) of the Spanish company Transformaciones Metalurgicas, S.A., for EUR 5 745 thousand. For details of other additions to/disposals of financial investments in 2009, see the notes to the consolidated financial statements. TRANSMESA and TAP Based on the existing acquisition contract signed last year, Železiarne Podbrezová a.s. became a 100% owner of Transmesa and Tap. This acquisition improved the international position of both companies among European and global competitors in manufacturing and selling precision cold drawn steel tubes. The global economic recession also affected TRANSMESA’s and TAP’s customers, which resulted in a 53% drop in sales compared to the prior year. In 2009 the volume of precision tubes sold by both Spanish companies to their customers totalled 4 855 tonnes, with total revenues from merchandise, products and services amounting to EUR 14 509 thousand. The Spanish market covers 30% of the total sales. EU countries, the USA and Australia continue to hold their dominant position of the market segment. Further export territories include Turkey, India, Iran, Chile, Mexico and Egypt. The companies have available an automated warehouse of finished goods with a capacity of 5 000 tonnes and their own sales network synchronised and centrally controlled by Železiarne Podbrezová a.s., which in 2009 enabled launching products of the Spanish companies to East European markets and vice versa, i.e. launching ŽP GROUP products to Spanish and adjacent markets. Despite the aforementioned activities, annual revenues fell behind the production and financial plans and the Company reported a consolidated loss amounting to EUR 2 215 thousand. The results of operations were considerably affected by the drop in selling prices, high prices of input materials and finished goods from 2008 resulting from the development in prices of scrap steel. The negative results of operations was also affected by the severance payments made to employees dismissed upon changes in the organisational structure and the reduction in the production to 50% of production capacities, which was necessary for cutting operating expenses and mitigating the impact of the crisis. The total consolidated assets as at 31 December 2009 amounted to EUR 23 521 thousand, of which current assets amounted to EUR 13 239 thousand. As at the year end, the share of equity financing in the companies covered 61.7%. As a result of the curtailed production volumes in the manufacturing plants in 2009, the number of employees flexibly and gradually decreased by 25%. Total headcount dropped from 194 to 146 employees. Although 2009 was not a success for the company in terms of reported results, a series of steps aimed at improving future results were implemented: - Not only did the company not lose its customers, it won new customers from its competitors. - The company started selling new products – coated (CNG) and painted tubes. - Cheap but efficient investments helped to increase the flexibility of the production and to accelerate deliveries. - In purchases, the share of input raw materials purchased from Železiarne Podbrezová a.s. increased significantly. - Improved supply logistics from Železiarne Podbrezová a.s. resulted in shorter terms of delivery and reduced the limits on basic raw materials in stock, which contributed to improved cash flows. - In savings in operating expenses, the Company successfully managed to adapt and organise work with reduced headcount. - In the financial area, all existing credit lines were prolonged. Starting in May 2009, the company noted an increase in new contracts. In the future period, the company aims to further increase sales of finished goods and to utilise the existing production capacities in order to report a profit in 2010.