The Supervisory Board? s Evaluation of the Company?s situation in 2003.

According to the principle no 18 of the Best practices approved by Stalexport SA, the Management Board of Stalexport SA conveys the Supervisory Board? s Evaluation of the Company?s situation in 2003.
Evaluation of the Company?s situation (resulting from applying the principles of the Best Practices.
The Supervisory Board of STALEXPORT SA, acting according to the principles of the Corporate Order adopted by the Company, carried out a brief evaluation of the Company?s situation. This evaluation was conducted on the basis of the knowledge of the members of the Supervisory Board, which was up-to date- as on the day of drawing up the evaluation.
As it results from the STALEXPORT SA annual report for the year 2003, as well as, other materials or information handed over by the Company?s Management Board at the meetings of the Supervisory Board and beyond them, the work of the Management Board in the year 2003 focused upon the execution of assumptions adopted in the ?Programme of executing the strategy of STALEXPORT SA in the years 2002-2007 under the arrangement proceedings?.
After concluding an agreement with creditors in the year 2002, the next considerable step in the range of financial restructuring of STALEXPORT SA was the successful conversion of 35% of liabilities covered by the arrangement into the Company?s capital (emission of the E series shares). As a result of the conversion, the indebtedness of the Company decreased by 189,856 thousand PLN and the Company?s capitals increased by the same amount. Agreements to transform the short-term credits into long-term ones were signed with the majority of off-arrangement creditors.
Thus, further conditions for the more stable functioning of the Company were established.
It should be emphasized that the Management Board of the Company consistently
carries out the strategy adopted in the year 2001. The advancement degree of its execution is different, yet fully compatible with the chosen trend, based upon 5 basic assumptions:

• concentration upon domestic trade and in a niche aspect - on foreign trade,
• withdrawal from production activity,
• a radical decrease of functioning costs,
• consolidation of distribution companies in order to use the synergy effect,
• maintenance of the motorway activity.

The net profit achieved in the year 2003, ie. profit in the amount of 39,678
thousand PLN, in comparison with the loss in the amount of over 280,429
thousand PLN in the year 2002 ? fully confirms the legitimacy of the strategy carried out by the Company.
In the assessment of the Supervisory Board one can see the first positive effects of the introduced changes. The synergy effect occurred, however, not yet in a sufficient degree, resulting from conducting a better coordinated commercial, logistical policy, a more integrated cash management, a significant decrease of stocks and receivables. Simultaneously, the risk of conducted commercial transactions decreased and trade effectiveness increased via allocating means towards more effective transactions. It brought about a considerable increase of the margin of profit on commercial activity from 2.8% in the year 2001 to 4.8% in the year 2003. The possibility to obtain better effects with smaller outlays was possible thanks to monitoring and analysing individual transactions. Such an approach enabled to eliminate transactions, which are too capital-absorptive and do not bring the assumed benefits, eg. due to not effecting payments by customers in time.
Simultaneously with these actions, there was a proceeding radical decrease of general costs (general costs of the management in the year 2003 were decreased by 36% in relation to the year 2002, by 61% in relation to the year 2001 and by 66% in relation to the year 2000) and commercial costs and there was a sale of redundant assets components, out of which financial means aided the commercial activity. Moreover, the organizational structure and the optimalization of employment were further carried out.
Consequently, the functioning effectiveness improved not only in STALEXPORT SA , but in the entire Capital Group as well. This process, however, reached a certain saturation level. Thus a further decrease of the functioning costs of the Capital Group will depend upon the transition to the next stage of the organizational restructuring ? the consolidation of the commercial group of STALEXPORT SA. The reduction of costs in the Capital Group in the year 2003 amounted in total to 29% in relation to the year 2002 and by 36% in relation to the year 2001. We estimate that the conducted consolidation process of the sales network should further lower costs in the capital group by 15 to 20%.
Conducting the financial restructuring in a positive way means that STALEXPORT SA achieved financial stability and conditions to repay the arrangement instalments, it can thus set out to formulate the main assumptions of its further development.
The corporate strategy of STALEXPORT SA after conducting financial restructuring is based upon:

1. the development of the effective commercial activity on the basis of the existing and developing sales network,
2. further organizational restructuring of the Company and the Capital Group aiming at its consolidation,
3. a further decrease of functioning decrease of the Company and the Capital Group,
4. the development of the motorway activity.

At this point one should draw the attention to the fact that the favorable restructuring results caused the increase of STALEXPORT?S SA credibility at the market. Talks were held with suppliers on more favorable cooperation terms. Actions were taken up to establish cooperation with other customers on principles of a commission sale and agency sale.
Currently, in the opinion of both the Supervisory Board, as well as, the Management Board of the Company, there are premises to take up actions to win current assets and to develop the sales network and consequently increase the Company?s value.
Positive financial results achieved by the Company in the year 2003, not only due to the financial restructuring, but also the business and organizational reorientation, can be traced as a distinct increase of the Company?s quotations at the Securities Stock Exchange in Warsaw, at the same time, maintaining high turnovers, what makes the financial investors interested in the Company. An additional element which undoubtedly has an impact upon an increased interest in the Company is the good economic situation at the steel market.
Analysing the interest of stock exchange investors in the shares of STALEXPORT SA, the Management Board of the Company, having obtained the acceptance of the Supervisory Board passed actions, whose goal is to win means from the capital market to develop the Company.
That is why, the Extraordinary General Meeting of Shareholders of the Company was convened on 13th May 2004, a resolution was passed in regard to amendments of the Company?s statutes, authorising the Management Board of the Company to increase the stock capital ? either as a one-off increase or repeatedly by the value of maximum 100,000,000 PLN (one hundred million PLN) until 12th May 2007, constituting the provision capital within the meaning of art. 444 of the Code of commercial companies, by means of issuing up to 50,000,000 ordinary bearer shares of a nominal value of 2 PLN (two PLN) with the reservation of the following conditions:

1. the shares can also be issued in exchange for non-cash contributions, yet upon receiving the consent of the Supervisory Board,
2. the issued shares cannot be priviledged, nor should they lay claim to entitlements from article 354 of the Code of commercial companies.
3. The resolution of the Management Board in regard to determining the emission price requires the consent of the Supervisory Board.

The decisions to introduce the provision capital to the Company?s statutes aims at facilitating a quicker and more