Annual Report 2008

REPORT BY THE BOARD OF DIRECTORS on Business Activities, Assets, and Financial Performance in 2008 and lnformation on Business Strategy ŽELEZIARNE PODBREZOVÁ The Board of Directors of Železiarne Podbrezová, a.s. (hereinafter "Železiarne Podbrezová" or the "Company") considers the results of the 2008 financial year successful even though not all of its objectives, which were specified in the business strategy prepared and presented to the Company's shareholders during the global boom in all production industries' activities, were met. Under those circumstances, the Company met its customers' expectations to an extent comparable to the previous year while fully utilising, albeit only for the first three quarters of the year, the technological facilities. In the following months, the Company experienced a decrease in demand for steel tubes across the entire production range,which stabilised below 50%of usual demand. As a result of the global financial and economic crisis, which gradually influenced all industria! production sectors, the reduced demand for products, works and services in late 2008 was also reflected in other group companies to various extents, which in effect negatively affected the Company's consolidated results. In order to mitigate the impacts of the economic crisis, the Board of Directors of Železiarne Podbrezová, as well as other statutory bodies of the group companies, has adopted a set of cost-cutting measures,which include headcount reduction,the effects of which are expected to be seen in 2009. In 2008, we delivered products and services to our customers totalling SKK 9 200.8 million (EUR 305.4 million), which is a 6.5%increase trom 2007 and, in absolute figures, this amount represents the highest sales in the Company's history. Out of all the Company's products, 89%were sold on foreign markets, mostly in the European Union. In 2008, the Company generated a net profit after taxation in the amount of SKK 396 788 thousand (EUR 13 171 thousand ) in line with the lnternational Financial Reporting Standards (IFRS). The equity to asset ratio reached 64%. The Company's funding was balanced and stable throughout the year. In the period before the adoption of the euro as the official currency in the Slovak Republic, the bulk of the reported profit was represented by the currency derivatives as hedging operations against exchange rate risk. In 2008, the profit trom such transactions amounted to SKK 404.7 million (EUR 13.4 million) BUSINESS ACTIVITIES Production and Sale The business policy in 2008 was centrally controlled by Železiarne Podbrezová and managed on a regional basis by the trading companies: PIPEX lnternational AG; PIPEX ITALIA S.p.A.; ŽP Trade Bohemia, a.s.; and SLOVRUR Sp. z o.o. The trading companies contracted an optimum volume ot orders throughout the three quarters. Because of the decreased demand in all territories in late 2008, we did not achieve the planned production volumes of weight units in the core production plants and did not exceed the 2007 levels. In the steel mill, 366 623 tonnes of continuously cast steel billets were produced. In the rolling mill for seamless hot-rolled steel tubes, 183 480 tonnes were produced. In the tube mill, 49 722 tonnes ot drawn seamless tubes were produced in 2008. We produced 3 635 tonnes of welded tube elbows, 3 701 tonnes of welded calibrated tubes, 2 833 tonnes of large-diameter welded tubes, and 2 544 tonnes of secondary metallurgical products for the automotive industry supplies.