Annual report 2018

35 Železiarne Podbrezová a.s. ANNUAL REPORT 2018 BUSINESS PLAN After selling engineering and metallurgical companies in 2016, Železiarne Podbrezová a.s. focused on its core business - production of steel, seamless rolled steel tubes and cold-drawn precision tubes. ŽP GROUP covers all important parts of the production and sales process: from the purchase of scrap, as the main raw material, through the production of steel and steel tubes, heat-resistant materials, research into steel production and metal forming, to the sale of products by its trade companies. In line with the medium- term investment plan, the Company’s investments will focus on the modernisation and renewal of technology, with the aim of increasing the efficiency of production processes and labour productivity, to address the unfavourable labour market situation. In 2018, there was a significant increase in revenues, prices of input raw materials and finished products, which resulted in growth in trade receivables and inventories. As a result, the increase in working capital was partly financed by bank loans, and EUR 6 million was drawn in 2018. In early 2019, after a period of strong economic growth, the European Commission forecast a slowdown of the euro area economy. Similarly, the World Steel Association predicts a slowdown in steel production and consumption over the next few years, with growth rates in emerging economies remaining higher than in developed economies. These forecasts reflect external risk factors which could have a negative impact on the steel industry, such as the introduction of barriers to world trade by the US, the EU and China, the slowdown of the Chinese economy, the risk of an uncoordinated Brexit, or the growth of private sector debt resulting from unconventional monetary policy in recent years. In the first four months of 2019, demand for rolled and precision drawn tubes was strong and production efficiency was good. However, the orders for the next period show a clear decline in demand and the second half of 2019 remains uncertain as regards of sales. Lower demand for steel tubes reduces their price and increases competition among producers. It is therefore possible that the Company will also adjust its working hours and, in the event of a larger drop in orders, reduce the number of shifts in the coming months. Given the above problems regarding demand and sales, the plan of Železiarne Podbrezová a.s. for 2019 is ambitious. In 2019, we plan to sell products, goods and services totalling EUR 289 million to all our customary territories via our trade companies. The 2019 investment plan is based on a medium-term plan and it significantly exceeds depreciation at EUR 15.9 million, which is roughly at the level of last year’s investments. The most important technological investments will include the purchase of a three-part toothed bar of the push bench with accessories, a new division on the tube rolling mill line and the replacement of the frame of the steel billet cutter in the tube rolling mill. The most important construction investment in 2019 will be a comprehensive upgrade of the spare parts warehouse. In 2019, we will continue to expand rental housing for employees and reconstruct an unused administrative building into staff quarters. We plan to spend a total of EUR 33.8 million on repairs and maintenance of technological facilities and buildings in 2019. In 2019, we plan to implement 14 internal R&D projects with planned costs of EUR 1 236 thousand via our R&D subsidiary, ŽP Výskumno-vývojové centrum. The research will aim to improve production quality, optimise materials for tools in tube production and optimise production processes. In 2019, we will continue to implement multi- year R&D projects on tools, modelling and the simulation of production processes and material engineering, which can be applied by the Company to production. We will continue to improve the quality management system under ISO 9001:2015 and IATF 16949:2016. The Company will continue to develop and optimise the integrated management system that combines the environmental management system under ISO 14001 and the occupational health and safety management system under OHSAS 18001. The Board of Directors approved a staff, payroll and social policy programme for Company employees for 2019. It provides employees with guaranteed benefits over and above legal requirements, such as contributions to the 3rd pension pillar, subsidised meals, 24-hour insurance outside working hours, retirement payment and severance pay exceeding the legal minimum. We will continue to focus on training qualified staff by supporting their education at our secondary schools: ŽP’s Private Secondary Metallurgy Apprentice School and ŽP’s Private Secondary Grammar School. REPORT BY THE BOARD OF DIRECTORS ON BUSINESS ACTIVITIES, ASSETS, AND FINANCIAL PERFORMANCE IN 2018 AND INFORMATIONON THE BUSINESS PLAN