Annual Report 2009

Ž E L E Z I A R N E P O D B R E Z O V Á REPORT BY THE BOARD OF DIRECTORS Structure of Liabilities as at 31 Dec 2009 23 Interest-bearing loans and borrowings Other non-current liabilities Equity 68% 22% 3% Other current liabilities 7% 100% Financial Management Since 2005, Železiarne Podbrezová a.s. has made use of the “club financing" provided by four banking houses (Citibank Europe plc, the branch of a foreign bank, Credit Agricole CIB S.A., the branch of a foreign bank, HSBC Bank plc, the branch of a foreign bank, and Tatra banka a.s.) to finance the development of its business activities. Club financing has helped to stabilise the disposable short-term and long-term credit facilities, to unify terms for their provision, and to streamline the loan management. Under the integrated documentation, the Company has available variable drawing of financial funds provided in the form of an amortised long-term loan, fixed tranches, or operative financing through overdraft facilities. In 2008, the club financing was used to raise financial funds to acquire an ownership interest in the Spanish company Transformaciones Metalurgicas, S.A. Given the economic efficiency of credit facilities extended by the Export-Import Bank of the SR, in November 2009 the Company replaced the initial annual credit facilities in the amount of EUR 6.3 million by a new increased credit line in the amount of EUR 8 million for a two-year period. The extended loan will be partly amortised in 2011 through regular monthly instalments. In 2009, the average interest rate on credit facilities reached its lowest level in history (2.52% p.a.) The impairment of the Company's results of operations caused by the global financial and economic crisis was the reason why the Company agreed to secure the received loans by establishing a pledge over its tangible and intangible assets. The value of the assets pledged in favour of a bank is equal to the Company's credit exposure with the bank. The adoption of the euro in the Slovak Republic contributed largely to eliminating the Company's FX rate exposure. Consequently, there was no more need to hedge sales against the risk of fluctuations in the EUR/SKK exchange rate. In 2009, the Company entered into currency financial derivatives (forwards, option schemes) with the face value of CZK 14 million and PLN 5 million. The currency derivatives were spread over the year evenly and proportionally to planned cash flows. In 2009 the yield on currency and interest rate hedging transactions reported by the Company amounted to EUR 86 thousand. For the future, the Board of Directors aims to maintain financial stability, with a focus on restructuring the existing club financing and striving for a further gradual reduction of indebtedness.