Annual report 2019

13 Železiarne Podbrezová a.s.: ANNUAL REPORT 2019 In 2019, European and global metallurgy continued to struggle with low utilisation of its production capacities and uneven regional demand for its products. According to the World Steel Association, the global production of steel increased for the third consecutive year (by 3.4% in 2019). This growth added to regional disparities, as steel production grew mainly in Asia (by a strong 5.7%), while it fell by 4.9% in the EU, 0.8% in the US and 0.5% in Russia. As a result, China reinforced its dominant position last year, with over 53% of world steel production (an increase from 51%). Like the entire steel industry, the tube production segment has seen a decline in demand from both wholesalers and end consumers since the end of Q1 2019. This trend continued until the end of 2019 with signs of recovery in early 2020. Železiarne Podbrezová, like most companies in the industry, has already reduced the number of shifts at its plants. Recently, the Company has been producing above-average volumes of products despite vacancies in production, which has helped the Company stabilise the staffing level at a time of declining demand. The decline in demand for steel products has resulted in a decrease in the prices of several key inputs, raw materials and alloy additions. In particular, thepriceofscrapsteel fellcontinuously from March until the end of the year. This decrease was in line with the development of prices of steel products and, therefore, Železiarne Podbrezová saw a significant y/y decrease in operating revenues by almost EUR 38 million (13%). The Company’s operating expenses also decreased significantly, but not at the same pace, and were lower by approximately EUR 26 million (9%) y/y, mainly due to lower prices of input raw materials. On the other hand, personnel expenses increased (by 3%) due to higher extra pay for night and weekend work. For the above reasons, we recorded a significant decrease in operating profit (by 81%). We continued to make a profit due to the optimisation of technological equipment at our plants and a forward-looking plan for energy purchasing. Profit from financing activities supplemented the Company’s operating profit, in particular, dividends from subsidiaries were higher than usual after the successful year of 2018. At the end of 2019, the Company’s assets amounted to EUR 281 million and were covered by own funds at 75%. The business and financial plan for 2020 took into account the market situation at the end of 2019, and information, trends and estimates regarding prices of input rawmaterials, expected volumes and estimated prices of our Company’s final products. The preparation of the financial plan also took into account additional personnel expenses for extra pay for work at night, on weekends and holidays, which are linked to the minimum wage in the Slovak economy and whose significant growth is reflected in personnel expenses of all companies operating non-stop, regardless of the system and the level of average wages of their employees. In late 2018, we launched a programme for employing people from marginalised groups, including intensive training at the Company, in cooperation with the Ministry of Labour, Social Affairs and Family of the Slovak Republic. The programme helped us hire new employees and it will continue until June 2020. The year 2019 was rather challenging for producers of seamless steel tubes. There was a significant decrease in demand, which was reflected in lower production volumes and decreased efficiency at our Company. These revenue losses were not sufficiently offset by cost reductions. There was a slight recovery in demand in Q1 2020, but this was followed by the worldwide spread of COVID-19 from China and Europe and mainly the countries to which we export a significant portion of our products were and still are severely affected by the pandemic and the economic consequences of the restrictions put in place to stop the spread of the virus. The direct impact on the Company at the start of the pandemic was not very severe as revenues fell by up to 25% year-on-year. However, at present, we see a very significant drop in orders and it is virtually impossible to predict the scale of the slump and its duration. REPORT BY THE BOARD OF DIRECTORS ON BUSINESS ACTIVITIES, ASSETS AND FINANCIAL PERFORMANCE IN 2019 AND INFORMATION ON THE BUSINESS PLAN