Annual Report 2010

2010 ANNUAL REPORT REPORT BY THE BOARD OF DIRECTORS on Business Activities, Assets, and Financial Performance in 201Oand Information on the Business Plan Dear Shareholders, The Board of Directors considers the 201 O financial year to be successful. After the previous crisis period the market has started to recover. Thanks to our focused business policy we gained asufficient amount of work contracts, which helped us to better use the capacity of our technology equipment. Cost-saving measures aimed to eliminate the negative impacts of the global economic and financial crisis, adopted continuously in 2008 and 2009, also remained effective throughout 2010 and had a crucial impact on helping our operations achieve positive results. In 2010, the total revenues from the sales of merchandise, products and services amounted to EUR 216,280 thousand, which was 60%more than in the previous year. Nevertheless, sales reached only 70.8% compared to 2008, which was our most successful year. The net profit for 201 O amounted to EUR 9,853,677, with return on sales revenues of 4.56%. Thanks to high-quality service and short delivery terms we gained many new customers and we have been able to maintain astrong position on the European and global markets. The effectiveness of our operations in 201 O was affected considerably by the unstable price level of input raw materials. In a relatively short period, multinational companies significantly increased the global prices of iron ore.The adverse effect thereof was disproportional growth of scrap steel, raw iron and ferro additives prices and other input materials for metallurgical production. Accordingly, in 201 O we closely monitored the purchasing process. Cost-cutting measures were also introduced in the area of capila! construction. The company invested EUR 3.6 million in new technologies. The major investment projects included modernisation of the heating pian! for anew mill, expansion of the range of steel billets by a 125 mm quadrate, and modernisation of !he boiler tubes production line. For 2011 we have planned to build anew hall for semi-finished goods with an automated tubes warehouse,which will radically improve and speed up materials handling and ultimately enable increasing the rolled tubes production capacity. In 2009,cost-cutting measures were also implemented in the entire group of subsidiaries,and these measures are still in effect. And thanks to !hem,!he financial results of!he subsidiaries for 201 O are very positive. The Board of Directors decided to sell the assets of ŽP Tažírny !rub Svinov, spol. s r.o. and enter it into liquidation. The supply of products to former customers are fully provided by Železiarne Podbrezová a.s. In 2010 we again found that shares of Železiarne Podbrezová a.s. were being bought for speculative purposes and that false information about our company was being distributed. To eliminate such practices,!he Board of Directors called for an extraordinary general meeting, which reached a decision to acquire treasury shares al a fair price. This decision offered all shareholders who wished to appreciate their shares reasonably to sell their shares. As al 31 December 201 O, the company purchased 32,620 treasury shares (1.37%). Throughout the year the company'sfinancing was balanced and stable,with the equity-to-total assets ratio exceeding 70%. In 201 O the existing credit facility used to finance the company's general needs underwent a full restructuring, i.e. the financing in the amount of EUR 20 million was contractually extended up to 31 July 2013.As at 31 December 201 O, the ratio of loans and borrowings to !he total funding of!he company was below 17%. In the last year,our company celebrated a very important and special event. All of our employees,current and former,as well as our business and financial partners, and friends remembered with pride the 170th anniversary of the founding of metallurgical production in Podbrezová. The company was first established to produce rails necessary for developing railway transportation in the Kingdom of Hungary following a decision by the Hungarian Parliament. Since its beginning, the company has always been a leader of European industry. On the occasion of this important anniversary, the company's Board of Directors and all employees received aletter of thanks from the President ofSlovakia, Ivan Gašparovič, and Vladimír Soták,the Chairman of the Board, received the Gold Medal of the Slovak Chamber of Commerce and lndustry from its Chairman,Peter Mihók. Al present, under the conditions in 2011 , we are witnessing a further recovery of the steel products market. We are fully aware, however,that the financial and economic crisis has not yet reached its end. Yet,thanks to new experience,we are ready to respond with knowledge and prudence.We have noticed newtrends and requirements from customers, and in orderto meetthem we have had to hire new employees.The competitive advantage in !he form of high flexibility and newexperience represents guarantees that we will again be successful in the coming periods. 1