Annual report 2019

36 Železiarne Podbrezová a.s.: ANNUAL REPORT 2019 BUSINESS PLAN In 2020, Železiarne Podbrezová a.s. celebrates 180 years of its existence. In its modern history, the Company has focused for four decades on its core business: production of seamless rolled steel tubes and cold-drawn precision tubes. The Company has been operating as a joint-stock companyforthelast28yearsandhasconsolidated all important parts of tube production and sales into the ŽP GROUP. From the purchase of scrap, as the main rawmaterial, through the production of heat-resistant materials, steel and seamless steel tubes, research into steel production and metal forming, to the sale of products by its trading companies. In 2018, the Board of Directors prepared a medium-term investment plan to focus investments on theupgradeand renovation of the Company’s technological base, with the aim of increasing production process efficiency and labour productivity, and, ultimately mitigate the unfavourable labour market situation. After a strong previous year, 2019 saw a decline in industrial activity and demand for our products, and the Company’s sales decreased more significantly. As a result, there was a decrease in the Company’s working capital, which reduced credit exposure in 2019 by approx. EUR 3.7 million. The solid economic growth of the last three years is over for the European Union and the global economy. We are entering a recession, whose depth and length cannot be predicted. The forecasts for the growth of the eurozone economy for the near future were already cautious, but after the outbreak of the COVID-19 pandemic and the subsequent dramatic economic slowdown, these forecasts are unrealistic. The World Steel Association predicts that the global industry and economy will take a long time to recover from the current situation caused by the pandemic. The industry and demand will recover faster in the emerging markets in Asia than in Western economies. The recovery will not be the same in all sectors, as some sectors had problems before the pandemic was declared. The recovery of demand in construction, one of the main consumers of steel, depends to a large extent on the investment incentives of governments, whichwill beweakerfinanciallyafterovercoming the pandemic. The automotive industry has seen stagnation in demand over the past year due to market saturation, government pressure on manufacturers due to environmental targets and the shift to electric vehicles. These problems in the automotive sector will be exacerbated by the pandemic, and the decline in consumer confidence will mean lower purchases of new cars worldwide. A longer-term shutdown of comprehensive global subcontracting chains in the engineering and automotive sectors could also be a major problem for the economy. Some firms are unlikely to have enough capital to finance a longer period of low demand, and could go bankrupt if their overheads remain unchanged and they do not receive support. Investments in the energy sector are also partly cyclical and significantly affected by oil and gas prices, where the trend is currently negative. The global economy is now affected by several significant risk factors at the same time, and their elimination will only be possible by a rapid, coordinated and targeted policy of the governments of the world's major economies. In Q1 2020, demand for rolled and precision drawn tubes was at the level of Q4 2019, which means that the Company was unable to fully utilise its production capacity and the selling prices were well below the comparable period in 2018. Nevertheless, there was a slight recovery in demand and there was a possibility of a slight increase in the prices of final products in the coming months at that time. However, the COVID-19 pandemic hit Europe in March 2020, resulting in a significant reduction in production and economic activity across the European Union in March, April and May, as measures are phased out gradually and at different levels, depending on the situation in the individual countries of the European Union. REPORT BY THE BOARD OF DIRECTORS ON BUSINESS ACTIVITIES, ASSETS AND FINANCIAL PERFORMANCE IN 2019 AND INFORMATION ON THE BUSINESS PLAN

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