Annual Report 2004

ANNUAL REPORT 2004 Ž E L E Z I A R N E P O D B R E Z O V Á 13 REPORT BY THE BOARD OF DIRECTORS 2004 was the tenth consecutive year when Železiarne Podbrezová a.s. achieved a profit. Only once over the past decade, in 2001, net profit of SKK 222,323 thousand and other positive indicators of profitability were more successful. It shall be highlighted that the beginning of 2004 was impacted by significant increases in scrap steel prices (by 40% - 60%). This increase was a result of high demand for raw materials in the European region due to quantities of scrap steel being exported to China, a country which is facing an enormous construction boom. The changes on the market influenced other components of steel production such as ferro-alloys, driving the prices higher by 50% - 100%. Železiarne Podbrezová a.s. was not able to transpose the surging growth in prices of raw materials into the prices of steel tubes and achieved a loss of SKK 31.8 million in the first quarter of 2004. Later changes in the selling prices of our products were reflected in new contracts based on the individual sales territories. We have fully taken the advantage of the worldwide boom in metallurgy industry. Our sales reached the SKK 6,306 million representing an increase of 26.6%. Other success of 2004 includes the continuing revitalization of subsidiary ŽĎAS, a.s. in the Czech Republic and establishing financial balance in the consolidated group. Comparing to the past, this has had a positive impact on our relationship with suppliers, customers and financial institutions by enhancing their trust in us. BUSINESS ACTIVITIES Production and Sales Sales policies developed centrally by Železiarne Podbrezová a.s. and managed geographically by individual sales companies: PIPEX International AG, PIPEX ITALIA S.p.A., ŽP Trade Bohemia, a.s., and SLOVRUR Sp. z. o. o., ensured the highest level of orders in our history and thereby allowed for the maximum exploitation of our production equipment. Compared to previous year, growth occurred in the volume of production in all cost centers which in addition resulted in the highest levels of steel and hot rolled tubes production. In 2004, we produced in total 342 thousand tonnes of continuous cast steel billets resulting in an annual increase of 16%. Of this production, 111 thousand tonnes were sold to external customers. We have extended the range of continuously cast steel billets by new diameter - circle of 260 mm. At the moment we sell in total 10 types of products. We produced 182,269 tonnes of seamless hot rolled tubes recording a historical increase of 5.8% in comparison to year 2003. The capacity of the seamless tube mill and the steel-mill increased through sophisticated improvement in work organization and a consistent decrease in the idle time of production lines. More than 114 thousand tonnes produced were sold to our customers. The remaining was processed further in our tube mills. Of this we produced 52,435 tonnes of precision cold drawn tubes and 3,584 tonnes of welded tube elbows. Comparing to the previous year, higher volumes of production resulted from changes in the work organization system in some production cost centres. A new production line of welded tubes with small diameters was put into use in March 2004. Since that time, the production of welded calibrated tubes has been continuously increasing. We have produced 1,579 tonnes with 25 different diameters. Expectations related to commenced production of welded tubes lines were not met in 2004, therefore we shall make all efforts in order to utilize the full capacity in 2005. In 2004 we produced 4,004 tonnes of welded tubes with large diameters. From the tubular products section including the finishing treatment of precision tubes and hydraulic and pneumatic tubes, we have supplied our customers with products worth of SKK 181 million in total. on business activities, assets, financial management in 2004, and information about the foreseen business strategy.