Annual Report 2005

2005 was the eleventh consecutive year when Železiarne Podbrezová operated with positive results. When compared to the prior year, the generated net profit of SKK 883 324 thousand, as well as other indicators of profitability, reported a significant dynamic growth. We view the exceptionally successful year 2005 as the fulfilment of the revitalisation process that started back in 1994. Critical to our success was our effective business policy. In 2005, we managed not only to retain the higher prices of metallurgical products as at the end of 2004, but also to increase them further. Within the European Union, Železiarne Podbrezová, a.s. became a major producer of steel precision tubes and the share of products sold on this market reached 8.6%. Favourable selling opportunities enabled the optimum utilisation of our technology, owing to which we retained a sound level of operating costs. A negative impact was brought about by the excessive growth of electricity and gas prices, namely 9.7% and 22.3% respectively. The financial strategy was formed anew when the remaining credit relationships were restructured in the full extent and the bonds of Železiarne Podbrezová, a.s., issued in December 2002, were repaid ahead of schedule following an agreement reached with the association of banking institutions. New financial investments were directed towards strategic areas. We acquired an ownership interest in ŽP EKO QELET, a.s. which operates in the collection, separation and processing of scrap steel; and ŽP PRAKO, s.r.o., a traditional producer of forged items that will become a major supplier for the automotive industry following radical modernisation. We also realised an acquisition of additional shares of ŽÏAS, a.s., to achieve interest exceeding 90% aimed at a full buy-out of shares from its minority shareholders. Significant profits in 2005 enabled us to further improve the debt equity ratio of the Company. It also resulted in the increase of the market price of the shares of Železiarne Podbrezová a.s., (traded on Bratislava Stock Exchange) and opened up the possibility of application of a dividend policy with regard to our shareholders while retaining a high level of technological equipment maintenance, including modernisation. The reported results of operation for 2005 suggest a return of 8.7%. This high level of return is quite atypical in the metallurgical industry and thus it will be extremely difficult to approach the same level again in future. BUSINESS ACTIVITIES Production and sale Critical to the exceptionally positive 2005 results was our successful business policy. The sale directed on a central level from Železiarne Podbrezová a.s., managed territorially by the commercial companies of PIPEX International AG, PIPEX ITALIA S.p.A., ŽP Trade Bohemia, a.s., and SLOVRUR Sp. z o. o., ensured the optimum scope of contracts. This in turn enabled the utilisation of technological equipment of all production centres to the full extent. The production volume expressed in units of volume virtually equalled last year’s level. However, the average selling price per kilogram of our products was SKK 25 678 per tonne: 17% higher than 2004. In 2005, the production of steel was at its highest in the 165 years of the Company’s history. We produced a total of 350 477 tonnes of continuously cast steel billets. Of this produced volume, a total of 124 442 tonnes was sold to international customers. The increase of production capacity compared to the previous year was a result of the increase in the casting sequence, as well as a reduction in the time required for medium repairs to a minimum, and the utilisation REPORT BY THE BOARD OF DIRECTORS on business activities, assets, and financial management in 2005 and information about business strategy Report by the Board of Directors Annual Report 2005 Železiarne Podbrezová 13