Annual report 2018

Železiarne Podbrezová a.s. ANNUAL REPORT 2018 16 PURCHASE OF STRATEGIC RAW MATERIALS AND ENERGY Železiarne Podbrezová a.s. applies ISO standards in business relationships with suppliers of material inputs and our regular and good communication with suppliers and payment discipline enabled us to maintain a high level of supply activities in terms of quality and delivery times. The continuous growth in the steel industry in 2018 resulted in considerable increases in the input prices of certain raw materials and alloy additions. Fortunately, problems in meeting delivery times for some raw materials from previous year did not recur. Scrap steel and alloy prices were increasing in the first third of 2018, but there was a slight decrease in prices in the rest of 2018. In 2018, we purchased raw materials totalling EUR 157 781 thousand, of which 23.3% were imports. Majority of the purchased raw materials comprised scrap steel, pig iron, alloys, ferro-additives and heat-resistant materials and important spare parts to all production and operational plants. When purchasing raw materials, we traded with 870 business partners in 2018. In 2018, we purchased a total of 335 456 tonnes of scrap steel, of which 86% were supplies from our subsidiaries ŽP EKO QELET a.s. and KBZ s.r.o., as in the previous year. In 2018, we purchased a total of 215 907 MWh of electricity, an 8% increase compared to the previous year. Our small hydroelectric power plants and the co-generation unit produced 59 747 MWh of electricity, which represents a 22% share of internal generation of our total annual consumption. The purchase price of electricity decreased by 1.5% compared to the previous year. In 2018, we purchased 43 million m3 of natural gas from Slovenský plynárenský priemysel, a. s. for our consumption, which is comparable to the previous year. CAPITAL INVESTMENTS AND CARE FOR TECHNOLOGICAL EQUIPMENT The 2018 investment plan took into consideration the economic recovery in the steel sector and a lower level of investment in the previous year. The Company’s medium- term investment plan strategy is intended to ensure the necessary technological renewal and competitiveness of seamless tube production over the next five-years in an environment of continuous wage cost growth and shortages of suitable staff, especially in blue-collar positions. We invested EUR 13 185 thousand in non-current assets in 2018, which significantly exceeds standard annual depreciation. The most important technological investments in 2018 included the rebuilding of the unused tube welding mill hall into a new automated warehouse for finished products to increase storage capacity and make the shipping of finished products to customers more efficient. Another important investment was the installation of a comprehensive automated treatment line, which combines several finishing steps, originally carried out at separate workplaces. It was completed and launched in early 2019. The EAF transformer was replaced at the steel mill. In the tube rolling mill, we upgraded the punching press and stands in the reduction mill. In the drawing mill, we installed another tube division system directly on the drawing bench. We upgraded another part of the central rolling line lubrication system to reduce the environmental burden. An important investment in 2018 was the construction of new facilities for the Skalica football stadium. We rebuilt unused premises in the Piesok residential building into 13 rental flats for the Company’s employees. The Company performed repairs in the total amount of EUR 32 523 thousand, an increase of EUR 4 666 thousand compared to 2017, to ensure the reliable operation of the technological facilities and to maintain structures and buildings. RESEARCH AND DEVELOPMENT In 2018, we spent EUR 1 069 thousand on R&D. R&D was performed primarily by contractual cooperation with the subsidiary, ŽP VVC s.r.o., which worked on eight research tasks for the Company. The tasks focused on research of boiler tubes, tools, optimisation of the technological process for steel casting, modelling of the precision tube drawing process and several smaller operational assignments. REPORT BY THE BOARD OF DIRECTORS ON BUSINESS ACTIVITIES, ASSETS, AND FINANCIAL PERFORMANCE IN 2018 AND INFORMATIONON THE BUSINESS PLAN