Annual Report 2007

25 Ž E L E Z I A R N E P O D B R E Z O V Á 2 0 0 7 REPORT BY THE BOARD OF DIRECTORS Due to the signing of the loan contract at the end of 2005 with the “Bank Club” comprising four banking houses for a five year period, there was a stabilisation of the Company’s current and non-current financing. Citibank (Slovakia) a.s., HSBC Bank plc., Tatrabanka, a.s. and CALYON S.A. provided Železiarne Podbrezová a.s. with sufficient funds at unified terms, which allowed us to use the positive effect of the “Club financing“ to the full extent. The “Bank Club” accepted as a sole guarantee the goodwill of the Company which results from its long-term economic stability. A share of 85% of foreign currency on the total financing of the credit facility corresponded with the share of export of total sales. Given its economic effectiveness, the Company again used the opportunity to draw short-term loan facilities denominated in SKK to refinance export receivables. The average interest rate amounted to 4.2%. The Company is significantly exposed to the risk of changes in the exchange rate of EUR/SKK, while 65% of sales is denominated in euro. As a result, in 2007 the Company realized financial derivatives in the nominal value of EUR 125.5 million in order to achieve an exchange rate equal to EUR/SKK 34.000 set by the 2007 financial plan. Gain on currency derivatives in the amount of almost SKK 334million significantly contributed to the elimination of a negative impact of the EUR/SKK exchange rate development on the collection of invoiced export receivables. In order to ensure the results of the financial plan in the upcoming two years, the Company concluded financial derivatives in the amount of EUR 87 million and CZK 120 million during 2006 and 2007. The maturity of derivative transactions corresponds with expected cash flows spread within individual commercial banks. With respect to the Company’s exposure to the supply and price of gas, at the beginning of 2007 the Company concluded a commodity swap that enabled the meeting of another significant item of the financial plan. Financial Management Last year, the Company’s financial position was well balanced and stable. The joint stock company timely and duly fulfilled its obligations to all suppliers and constitutional, statutory, and public institutions. Meeting liabilities In 2007, Železiarne Podbrezová a.s. reported profits of SKK 1 013 280 thousand representing the difference between total income of SKK 9 269 522 thousand and total expenses of SKK 8 256 242 thousand. The structure of income has not substantially changed when compared to the previous year. Income from operations represented 98.6% of the total, and was mostly derived from the revenues from sales of own products and services sold 93.2% and from own work capitalized 2.9%. Income from financial activities represented 1.4%. The structure of expenses in 2007 was similar to the previous year: - Costs of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4%; - Consumed material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54.4%; - Consumed energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.9%; Expenses, income and profit for 2007