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 15 REPORT BY THE BOARD OF DIRECTORS In our evaluation of the production performance, 2004 again demonstrated a significant improvement in the quality of products resulting from the implementa- tion of several technological innovations in steel production, as outlined in the Technical Progress Plan developed in co-operation with Ústav materiálového výskumu (Institute of Materials' Research) at the Slovak Academy of Science in Košice. In 2004, we supplied our customers with products worth SKK 6,306 millions and noted an increase of SKK 1,325 million or 26.6% in comparison to 2003. A major portion, 87%, was placed on foreign markets for customers from 41 countries on all continents. The higher sales volume by more than one quarter in comparison to 2003 resulted from a worldwide boom in the metallurgy industry which we fully took advantage of to the benefit of our Company. The overall growth in sales was due to a higher volume of metallurgy products sold and higher sales prices which experienced a year-to-year increase from 5.5% in sale of welded tubes with large diameters to 31% in sale of steel billets. This occurred despite the effort for firm SKK/EUR exchange rate throughout 2004. Only sales of tube elbows stagnated and a portion of profits were lost on contracts signed with customers from the U.S.A. due to unfavourable exchange rates USD/EUR experienced near the year end. The geographical export structure was fundamentally changed in 2004. Comparing to previous years, most products were exported to Polish customers. Purchase of strategic raw materials and energy Reliable financing and compliance with ISO standards in business relationships with the suppliers of raw material and other materials resulted in further improvements in the supply chain, particularly relating to quality and delivery terms. In 2004, we purchased raw materials totalling SKK 4,387 million, of this 22.3% were imported goods. Scrap steel, ferro-alloys and raw iron were our priorities in purchasing raw materials. In 2004, we bought a total 295,845 tonnes of scrap steel, for SKK 1,990 million. Of this 10% was imported scrap, mainly from Hungary. The high demand for scrap steel on the European market resulted from its export to China and a boom in the metallurgy industry causing an enormous growth in the price level of raw materials in 2004 in comparison to 2003. Over the year the average purchase price of scrap steel increased by 57% and in some months by 90%. The purchase prices of ferro-alloys have increased by 50% - 100%. In 2004, we purchased a total of 217,902 MWh of electricity. Our own power plants and the co-generation unit produced 62,422 MWh of power, 22% of our total yearly consumption. We bought from Slovenský plynárenský priemysel, a. s. 45,595 thousand m 3 of natural gas in total. Fixed assets and technology management Fixed assets investments of SKK 187,350 thousand were made in 2004. Of this SKK 9,085 thousand related to the purchase of intangible assets, mainly in-house developed software. SKK 178,265 thousand was invested in long-term tangible fixed assets, 76% for the acquisition of machinery and on reconstructions of technological equipment, 15% for the purchase of information technology and only 9% for buildings and constructions. The most significant investment into development of new products was the line supplied by German company VAI SEUTHE for the production of longitudinally weld- ed precision tubes, with a capacity of 20,000 tonnes per year for SKK 178.5 million. The main equipment installations were performed in 2003. After heat testing of the guaranteed parameters, production started on 10 March 2004. Total invested funds