Annual Report 2008

REPORT BY THE BOARD OF DIRECTORS BUSINESS PLAN ŽELEZIARNE PODBREZOVÁ The long-term business strategy pursued by Železiarne Podbrezová is based on diversification spread out to three main pillars: metallurgy, heavy engineering, and tourism, with substantial support by own services. While efforts to achieve the quantitative and qualitative growth of the entire production were dominant in the past, the business pian for 2009 is based on a different principle. The global financial crisis affected all aspects of the Company's business operations. As a result, we had to objectively assess our reduced sales opportunities and capabilities and adjust the business plans for 2009 to this situation throughout Železiarne Podbrezová Group Our objective for 2009 is to report positive operating results in all companies of Železiarne Podbrezová Group. Where the objective is unrealistic, we are ready to terminate loss-making businesses and/or companies. Within the parent company (the first piliar), we intend to develop core metallurgical production, focusing on steel production and seamless steel tubes, secondary metallurgical production and the production of precision welded tubes. The technological equipment operations, however, will need to be adjusted to reduced demand per individual products. To fulfil our business pian for 2009, through our trading companies we will ensure the sale of products and services totalling to, at least, EUR 151.7 million (SKK 4 569.5 million), of which more than 92%will be exported to foreign markets. This objective accounts for 53% of last year's sales and is attributable to reduced production volumes and an anticipated decrease in selling prices. As the sales crisis has affected the global market, losses from reduced production can only be mitigated by stringent cost-cutting measures. In late 2008 and early 2009, the Company's Board of Directors adopted a set of measures aimed at generating a profit despite a dramatic reduction in the production and sales volumes. These measures focus primarily on reducing personnel costs (a 23%headcount reduction throughout the entire organisation), reducing the costs of repairs, which we pian to decrease by more than 40% when compared to the previous year, as well as curtailing all other costs, especially overhead. The amount of planned capital investments has also been impacted by the economic crisis. In 2009, we pian to make a total investment of only EUR 4.5 million (SKK 135.6 million), which represents only 64%of simple reproduction. The biggest investment project will be the construction of a tube galvanising plant, which introduces a new product for the Company. We will invest no more than EUR 19.9 million (SKK 599.5 million) in technological equipment repairs. The complete overhaul of a punching press and a rotary hearth furnace in the seamless tubes rolling mill is particularly crucial. To support core metallurgical production, we will continue to develop the technical background of the controlled entities ŽP EKO QELET a.s. and KBZ s.r.o., which are engaged in processing waste metal. In addition, we are ready to present the ecological importance of a new scrap metal processing and waste metal treatment plant in Hliník nad Hronom during the time of the economic crisis. In quality assurance, we will continue to pursue the management system under ISO 9001 :2000 -VDA 6.1 ., ISO/TS 16949:2002, and the Environmental Management System under the ISO 14 001 :2004 standard. Through our subsidiary ŽP VVC s.r.o. we will finance specific projects in applied R&D by allotting EUR 304 thousand (SKK 9.2 million). We are considering extending our cooperation and capital investment in the Technical University in Košice in 2009. The personnel, payroll and social policy programme for the Company's employees will be affected by the impacts of the economic crisis in 2009 and, therefore, the corporate strategy and measures for mitigation of the impacts will also include efficient re-assessment of the headcounts in line with the number of contracts and volume of auxiliary jobs and services. Therefore, we will assess the headcounts, working regimes, salary developments, and all employee care costs on a monthly