Annual Report 2010

2010 ANNUAL REPORT r REPORT BY THE BOARD OF DIRECTORS Purchase of StrategicRaw Materials and Energy Being in compliance with ISO standards in business relationships with suppliers of raw materials and having a stringent payment discipline have enabled us to further improve supply activities,especially in terms of quality and delivery terms. The unstable level of purchase prices has considerably affected the total effectiveness of the company's operations. The ongoing economic crisis enabled multinational companies to significantly increase the global prices of iron are in a relatively short period, which caused a chain reaction of disproportional growth of scrap steel, raw iron and ferro additives prices and other input raw materials far metallurgical production.Accordingly, in 201 O we closely monitored the purchasing process. In 2010,we purchased raw materials totalling EUR 121,442 thousand, of which 14.7% were imported goods. As usual,with regard to our purchase of raw materials, scrap steel, ferro additives,and raw iron, as well as heat-resistant materials and thick tin-sheets, were priorities. In 201 O, we purchased a total of 262,475 tonnes of scrap steel, of which 95% represents supplies from our subsidiaries ŽP EKO QELET a.s. and KBZ s.r.o. In 201 O, we purchased atotal of 184,396 MWh of electricity. Our small hydroelectric power plants and co-generation unit produced 72,634 MWh of electricity, which represents as much as a 29.1%share of interna! generation in our total annual consumption. Record-breaking level of water streams resulted in the record-breaking generation of power by our hydroelectric plants, which represents extraordinarygrowth ofover 17% year-on-year. In 2010, we purchased 43,087 thousand m3 of natural gas from Slovenský plynárenský priemysel, a. s. far our consumption. Average purchase prices of electricity and natural gas were 2.3% and 13.1%,respectively,lower when compared to prices in 2009. Capital lnvestments and Technology Management In 201 O, we acquired non-current assets in the total amount of EUR 3,602 thousand, of which investments in the technology base development accounted far93%. Avery low rate of investment resulted from prudence in the crisis period. In 201 O, the major investment in technology included the modernisation of aheat plantfacused on producing electricity from excess steam. In 2010, as a part of our capital expenditures projects we expanded the range of produced steel billets in the continuous casting mill to include a new parameter - a 125 mm quadrate. Other significant investments include the modernisation and automation of the boiler tubes no. 3 production line, including hexagonal packaging of tubes, which produces boiler tubes with a length up to 22 m. Other investment projects included: • Purchase of emission spectrometer optics farthe chemical analysis of metals; • Newgeneration laser far indelible marking oftubes; • Blast cleaning device far tube elbows;and • Upgrade ofthe reducing milľs visualisation and managementsystem. In order to ensure the reliable operation of technological equipment and the maintenance of the buildings and structures, repairs in the total amount of EUR 22,170 thousand were performed, of which repairs amounting to EUR 2,043 thousand were provided by external suppliers. The costs of repairs increased by EUR 6,943 thousand (45%) on ayear-on-year basis,and the level of costs was similar to the level of costs befare the crisis. ENVIRONMENTAL POLICY Environmentally responsible behaviour is one of the prerequisites far the company to strengthen its position in the competitive environment. The Certified System of Environmental Management implemented under the ISO 14 001 requirements enables managing environmental processes using both planned and systematic methods, through which the environmentally responsible behaviour can be continuously improved. In 2010, functionality and efficiency of the system was verified through a supervisory external audit performed by the certification agency SGS Slovakia spol. s r.o. The results confirmed that the company is continuously striving to improve the environment, and the auditor's recommendations were fully applied in order to ensure the system operates effectively. As in previous years the company carried out 10 environmental projects in 2010, ata cost of EUR 355 thousand, in line with the approved Environmental Management System Programme. 1