ANNUAL REPORT 2020

Železiarne Podbrezová a.s. ANNUAL REPORT 2020 36 BUSINESS PLAN Železiarne Podbrezová a.s. planned to celebrate its 180th anniversary last summer, but the planned celebrations were cancelled due to the pandemic. This impressive anniversary shows that the management was able to steer the Company at key moments to meet the needs of its customers and to be competitive and profitable in the long run. In its modern history, the Company has focused for over 40 years on its core business: production of seamless rolled steel tubes and cold-drawn precision tubes. The Company transformed to a joint-stock company almost 30 years ago and has consolidated all important parts of tube production and sales into the ŽP GROUP. The Group integrates the purchase of scrap metal, as the main raw material, production of heat-resistant materials, steel and seamless steel tubes, research into steel production and metal forming and sale of products by its trading companies. The Board of Directors is aware of the importance of continuous investments and follows the medium-term investment plan with the primary goal to increase the efficiency of production processes and labour productivity by modernising and renewing the company’s technology. The year 2019 saw declining demand and prices for producers in the metallurgical industry across Europe. However, 2020 saw a sharp decline in economic activity due to an external factor, the COVID-19 pandemic. In the second half of the year, the demand for our products and, hence, revenues plummeted and the Company made an operating loss. The operating loss, significant investments and higher working capital increased credit exposure by approximately EUR 15.7 million at the end of the year. The world economy is recovering relatively quickly after the challenging year 2020. The economic downturn in 2020 was replaced by strong growth in most sectors in the first half of 2021. Forecasts for 2021 and 2022 are positive and, overall, the economy should return to the 2019 GDP level sooner than economists predicted last autumn. However, there are a number of potentially unfavourable factors that could jeopardize the rapid recovery of economies. The significant drop in economic activity in 2020 has had a profound impact on the production of important raw materials and products: scrap steel, semiconductor chips, flat steel products, chemicals and finished products with high added value. The global logistics chain has been disrupted as we feared a year ago. After the extremely challengingwinter of 2020/2021, with strong waves of the COVID-19 pandemic in all economic powers and with advancing vaccination, it will be very important how governments contain the pandemic, vaccinate as many people as possible and set up prevention systems and processes against new waves of the pandemic. If they succeed and the population will be able to work and live relatively normally, it is likely that the recovery of the economy will be smooth. The European Commission estimates 4% growth for the next two years. According to the World Steel Association, global steel consumption is expected to grow by a strong 5.8% in 2021 and by 10.2% in the EU. The risk for traditional producers, and a strategic issue for the future, is the EU’s strong pressure to reduce carbon dioxide production too fast. The support for electromobility will lead to lower consumption of steel tubes, either directly in the automotive sector or in the downstream sectors of oil extraction and processing, and fuel transport. Similar pressure is being exerted on the production of electricity from non-renewable sources, and the price of emission allowances has risen exponentially in recent years. Prices for the next period of emission allowance trading will be important for producers of energy from coal and later also gas, but also for producers of materials and raw materials with high energy consumption, such as the production of aluminium, steel, chemical semi- finished products, fertilisers etc. Decarbonisation of the largest producers of carbon dioxide will be extremely expensive and the final cost of this process will be paid by consumers due to more expensive production inputs and, consequently, final products or services. In Q1 2021, the demand for rolled and precision drawn tubes was high compared to late 2020. Given the number of orders, there was a faster recovery in demand than the producers are able to cover. This is partly due to the lack of input raw materials in several important sectors. Shortages of REPORT BY THE BOARD OF DIRECTORS ON BUSINESS ACTIVITIES, ASSETS AND FINANCIAL PERFORMANCE IN 2020 AND INFORMATION ON THE BUSINESS PLAN