Annual report 2016

ANNUAL REPORT 2016 • Železiarne Podbrezová a.s. 13 REPORT BY THE BOARD OF DIRECTORS ON BUSINESS ACTIVITIES, ASSETS, AND FINANCIAL PERFORMANCE IN 2016 AND INFORMATION ON THE BUSINESS PLAN European and global metallurgy is currently facing a long-term crisis, primarily due to the large volume of unused production capacity. The World Steel Associ- ation expected that only 69% of steelmaking capacity would be used globally in 2016. The global imbalance between production and consumption, particularly in China, supports the export of cheap steel to other coun- tries. Additionally, the downward pressure on the pric- es of steel tubes was intensified by very low oil prices, which decreased to approx. USD 50 per barrel in 2015 and oscillated around the same level in 2016. As a re- sult, investment activities in the oil and gas extraction and processing industry substantially declined and, therefore, many steel tube manufacturers specialising in this industry began to focus on our traditional range. Production overcapacity continued to be high in 2016, and some European companies further reduced shift work at their plants, laid off employees and shut plants. A decrease in prices and in demand for the products of Železiarne Podbrezová a.s. continued in 2016 and caused a drop in revenues from the core business ac- tivity by EUR 32 million compared with the previous year. An operating loss was reported despite savings on operating expenses, which were cut by almost EUR 26 million compared with 2015. A further reduction in material and energy consumption standards achieved by further optimisation of the technical parameters of steel mill and rolling mill equipment had a positive im- pact on financial performance. The Company posted a profit for 2016 due to profit from financing activities. At the end of 2016, reported assets totalled EUR 258.3 million and were covered by own funds at 77%. We prepared the 2017 business and financial plan based on data from 2016. We are very pleased that market conditions began to change to our advantage in Q4 2016, and we had a higher number of contracts at the year-end, and the final prices of our products also increased. At the beginning of the year, we adjust- ed the outlook for the 2017 operational results taking into account the above. We are convinced that all the measures taken when market conditions were very unfavourable for us will positively impact this year’s operational results. Both operating and overall results for 2017 will be positive for our Company. BUSINESS ACTIVITY PRODUCTION AND SALES Business strategy has long been centrally controlled by Železiarne Podbrezová a.s. and managed on a geo - graphical basis via subsidiaries, PIPEX ITALIA S.p.A., ŽP Trade Bohemia, a.s., SLOVRUR Sp. z o.o., Pipex Deutschland GmbH and PIPEX SK s.r.o. Despite the extremely unfavourable situation in all territories, our sales staff secured sufficient orders in 2016 to utilise plant capacity, resulting in only a slight reduction in shift work and headcount. In 2016, we produced a total of 293 626 tonnes of steel, a decrease of 21 421 tonnes compared to the previous year and more than a 6% increase compared to the plan. Of the total quantity produced, 217 183 tonnes were used for own production of steel tubes and 76 443 tonnes were sold to external customers. We positively assess the past year’s overall development of key op - erating indicators, i.e. the melting loss and production downtimes. As in previous years, we implemented sev- eral technological changes and innovations in the steel plant in 2016. During the year, we adjusted the steel re- fining process to reduce the amount of non-metallic inclusions in steel. We adjusted the start-up speed pa- rameters of continuous steel casting for all produced formats. On 27 June 2016, we successfully tested the production of the smallest type (a 105 mm quadrate) and standard production was launched in Q1 2017. In 2016, the tube rolling mill produced 173 700 tonnes of tubes, of which 111 832 tonnes were available for sale to external customers and 61 868 tonnes of rolled tubes were further processed by the Company. This is a de- crease of 5 901 tonnes (3.3%) compared to 2015. We carried out a number of technological innova- tions in the rolling mill in 2016. The new control sys- tem for the drawing reduction mill, the New Carta, put into operation in 2015, had an impact in 2016 when we achieved the lowest material inputs per tonne of rolled tubes in the history of the Company.