ANNUAL REPORT 2021

13 Production and product prices in 2021 were also significantly affected by an exceptional increase in energy prices. This was not only related to electricity and natural gas prices, but also to the European Union Emissions Trading System (EU ETS) allowances. All these factors had a major impact on product prices and the Company’s profitability. In 2021, the global metallurgy and steel industry recorded an increase of 3.8% in steel production. After a difficult 2020, when the steel sector stagnated in terms of volumes and product prices significantly decreased, this was a positive signal. Due to anti-pandemic measures, the steel production of the largest global producer – China – declined by approx. 3% for the first time in a number of years. China’s share of global production slightly declined; however, with its 53% market share, it is still a dominant player. TheWorld Steel Association’s analyses show that a majority of developed EU countries, the US and some Asian countries recorded double-digit growth and returned to pre-pandemic levels. In 2021, tube production also recorded a major recovery in demand and producers, including our Company, were unable to meet customers’ requirements in time fromQ1 2021 onwards. Strong demand for our products continued in Q1 and Q2 2022; however, the Company is currently being negatively impacted by exceptionally expensive inputs and high energy prices. Customers are cautious, probably due to inflationary fears and the likelihood of recession. Despite strong demand, our Company was not able to increase the prices of its products rapidly enough to keep up with the speed with which costs increased in the first half of 2021, and it was only able to book an operating profit in the second half of the year. Costs were significantly affected by an unprecedented increase in prices of energy and emission allowances during the previous year. Energy prices, and the uncertain stability of their supplies, could pose a strategic problem for production for the steel industry, and for a number of other steel-dependent industries within the single European market. Despite many different external impacts, our Company was able to cope with the situation thanks to management’s work and achieved positive economic results. Within the vertically- integrated ŽP GROUP, steel scrap processors achieved very good economic results and benefited from higher scrap prices and extraordinary demand almost all year round. Trading companies were also successful as they took advantage of the economic recovery after a difficult year of 2020 and posted excellent results. In summary, the ŽP GROUP posted a consolidated profit and Group companies strengthened their financial stability and long-term market positions. The number of employees of the Company and the Group increased slightly and thanks to efficient management, the Company achieved very good production and sales indicators. Despite this, the Group is suffering from a long-term shortage of employees in selected, highly-specialised positions and as regards less skilled positions. The problems in the mechanical engineering sector and in the manufacturing sector as a whole and the related limited supply of steel scrap caused the steel scrap price to be exceptionally high throughout 2021. Prices of certain important alloy materials also increased by tens of percent. Energy prices significantly increased and emission allowance prices rose by even more. The prices of our products were continuously adjusted, and although the Company did not post a profit until Q3, the Company was able to post an operating profit at the end of the year. Železiarne Podbrezová recorded a significant increase in operating revenues in 2021 by more than EUR 114 million (53%) compared to 2020. The Company’s operating expenses also increased by approx. EUR 105 million (46%) compared to 2020, primarily due to higher prices of input raw materials. Personnel expenses increased by EUR 8million (12%) due to a slight increase in headcount, increased number of shifts and increased wages and salaries. In 2021, the Company generated a moderate operating profit of EUR 2 million, an increase of approx. EUR 10 million compared to 2020. The results of Železiarne Podbrezová were also positively impacted by a profit from financial activities, although dividends received from subsidiaries in the amount of more than EUR 2 million were related to the Group’s lower profit in 2020. These revenues supported the profit and, together with a positive tax impact, resulted in the Company posting a profit after tax of EUR 5.7million. At the end of 2021, the Company’s assets amounted to EUR 325 million and were covered by own funds at 65%. The business and financial plan prepared for 2022 based on the situation in late 2021 and early 2022 included information, trends and estimates regarding prices of input raw materials, and expectedvolumesandpricesof ourCompany’sfinal products. However, in Q1 2022 the development of the situation was affected by the war in Ukraine, which has had a significant negative impact on energy prices in Europe and globally. As a result, REPORT BY THE BOARD OF DIRECTORS ON BUSINESS ACTIVITIES, ASSETS AND FINANCIAL PERFORMANCE IN 2021 AND INFORMATION ON THE BUSINESS PLAN