Annual report 2017

2017 ANNUAL REPORT Železiarne Podbrezová a.s. 16 PURCHASE OF STRATEGIC RAWMATERIALS AND ENERGY The Company applies ISO standards in business relationships with suppliers of material inputs and our good communication and payment discipline enabled us to maintain a high level of supply activities in terms of quality and delivery times. The significant recovery in steelmaking resulted in considerable, even multiple increases in the prices of certain input raw materials, i.e. graphite electrodes and alloy additions, on the global market in 2017, and there were problems in meeting delivery times for some raw materials. Good planning and communication with suppliers helped us avoid a negative impact of supplies on the Company’s production. Scrap steel and cast iron prices were stable in the first half of 2017, but there was a sharp increase in prices in the second half of 2017. In 2017, we purchased raw materials totalling EUR 122 472 thousand, of which 18.5% were imports. Our priorities in 2017 continued to include the purchase of scrap steel, pig iron, alloys, ferro-additives and heat-resistant materials and spare parts. When purchasing raw materials, we traded with more than 800 business partners in 2017. In 2017, we purchased a total of 297 715 tonnes of scrap steel, of which 86% were supplies from our subsidiaries ŽP EKO QELET a.s. and KBZ s.r.o. In 2017, we purchased a total of 200 083 MWh of electricity, a 23% increase compared to the previous year. Our small hydroelectric power plants and the co-generation unit produced 63 904 MWh of electricity, which represents an almost 25% share of internal generation of our total annual consumption. The purchase price of electricity decreased by 8% compared to 2016. In 2017, we purchased 44 million m 3 of natural gas from Slovenský plynárenský priemysel, a.s., for our consumption, a 10% increase compared to the previous year. CAPITAL INVESTMENTS AND CARE FOR TECHNOLOGICAL EQUIPMENT The investment plan for 2017 was prepared during the worst crisis in the steel sector with weak demand and very low prices of our products, which had an impact on shift work and production capacity utilisation. As a result, our investments in technology were limited to EUR 5 739 thousand, which did not even cover depreciation charges. However, we made investments that will be most beneficial for the Company economically. The most significant investments in technology in 2017 included the installation of the tube division system directly on another drawing bench in the tube drawing plant. This technology combined two operations in one, which reduced redundant handling of tubes. In the tube rolling mill, we installed an automatic lock on the Ohler saw, which allows more precise tube division. We also renovated several cranes and control systems. We installed two new pickling vats to reduce the environmental burden. In the energy area, we replaced a gas turbine, including a gearbox, in a cogeneration unit as part of standard maintenance. The most significant construction investment was the complete upgrade of staff quarters into a block of flats to provide flats for rent to our employees as part of our personnel consolidation policy. The Company performed repairs in the total amount of EUR 27 857 thousand, an increase of EUR 3 582 thousand compared to 2016, to ensure the reliable operation of the technical equipment and to maintain the structures and buildings. RESEARCH AND DEVELOPMENT In 2017, we spent EUR 828 thousand on R&D. R&D was performed primarily by contractual cooperation with the subsidiary, ŽP VVC s.r.o., which worked on seven research tasks for the Company. Research was undertaken into tools, optimisation of technological tube rolling processes, cooling of the reduction mill’s rollers and several smaller operative tasks. REPORT BY THE BOARD OF DIRECTORS ON BUSINESS ACTIVITIES, ASSETS, AND FINANCIAL PERFORMANCE IN 2017 AND INFORMATION ON THE BUSINESS PLAN