Annual Report 2003

REPORT BY THE BOARD OF DIRECTORS ANNUAL REPORT Ž E L E Z I A R N E P O D B R E Z O V Á 2 0 0 3 15 Purchase of strategic raw materials and energy Reliable financing and observing the ISO standards in business relationships with the suppliers of raw materials and materials, resulted in further improvements in the area of supplies, especially relating to the quality and delivery terms. In 2003, we purchased raw materials totalling 2 245 million SKK, of this 21,5 % was for imported goods. Steel scrap was a priority as it is our basic raw material. In 2003 we bought the total of 247 800 tonnes of steel scrap, for 1 065 million SKK, of this only 4 % was imported scrap and mainly from Hungary. The purchase price jumped over the year by 12 %. Indications by the market together with the status quo of early 2004, suggest a more rapid increase in scrap price, by 40 % to 50 % comparison with December 2003. This is due to the purchase of scrap from Central Europe and its subsequent resale to China. In 2003 we purchased a total of 197 502 MWh of electric power. Our own power plants and the co-generation units produced 55 617 MWh of power, this being 22 % of total yearly consumption. We bought from Slovenský plynárenský podnik, a. s., a total of 46 378 thousand m 3 of natural gas. Regulated prices of energy in 2003 caused the price of power to increase by 28 % and of natural gas by 24 %, compared with 2002. In total, energy costs in 2003 compared with 2002 has risen by 142 million SKK. Fixed assets and technology management Investments of 260,5 million SKK were made in 2003 for the purchase of long-term assets. Of this, 20 million SKK was invested in the purchase of non-tangible assets, 12,2 million SKK was placed in land and construction, and 228,3 million SKK, i. e., more than 87 %, in obtaining and reconstructing of technological equipment. The most significant investment was the line supplied by German firm VAI SEUTHE for the production of longitudinally welded precision tubes, with a capacity of 20 000 tonnes per year. Before the end of 2003 the assembly was completed and in early 2004 we began heat testing of the guaranteed parametres. On March 10, 2004 the production started. The new product, precision welded tubes, are a sought after material for the production of components in the automotive industry. Recent enhancement of this industry in Central Europe creates reasonable grounds for returns on such investment worth an expected 200 million SKK. Other major investments: A production line for the preservation of hot rolled tubes by means of UV-hardening varnish to obtain anti-corrosion protection during export overseas; A CNC machine for groove tooling in the stretch reducing line; The modernisation and upgrade of information technologies with the aim of reducing their heterogeneity, extending the communication network and supporting info system safety; Upgrading and extending software and hardware with the aim of creating conditions for providing complete service for other companies within group, especially outsourcing service for daughter company ŽĎAS within the project of uniting the info systems of Železiarne Podbrezová - ŽĎAS. Total cost of repairing machines, equipment, buildings and constructions amounted to 678,5 million SKK (including secondary cost). Major general repairs were on drive converters on the push bench (23,0 million SKK) and for the repair of annealing furnace in tube mill 2 (16 million SKK).