Annual report 2016

ANNUAL REPORT 2016 • Železiarne Podbrezová a.s. 21 21 30 FINANCIAL RISK MANAGEMENT POLICIES 30.1 Capital risk management The Company manages its capital to ensure that the Company is able to continue as a going concern with the objective of achieving an optimal debt and equity balance. The Company’s overall strategy remains unchanged from 2015. The gearing ratio at the year - end was as follows: 31 December 2016 31 December 2015 Debt (i) (19 570 000) (49 492 754) Cash and cash equivalents 3 725 374 3 894 920 Net debt (15 844 626) (45 597 834) Equity (197 883 756) (190 258 403) Net debt to equity ratio 8% 24% (i) Debt is defined as current and non-current interest bearing loans and borrowings. 30.2 Categories of financial instruments 31 December 2016 31 December 2015 Available - for - sale investments 118 984 119 079 Loans and receivables (including cash and cash equivalents) 41 077 721 31 066 474 Financial assets 41 196 705 31 185 553 Bank loans and borrowings recognised at amortised costs 19 570 000 49 492 754 Trade payables and other liabilities - - Obligations under finance lease 21 698 019 19 945 210 Financial liabilities 41 268 019 69 437 964 a) Financial risk factors The Company’s activities expose it to avariety of financial risks, which include the effects of changes in foreign currency exchange rates and loan and bond interest rates. The Company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company’s financial performance. Credit risk Management has a credit policy in place and exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount. The Company does not require collateral in respect of financial assets. At the reporting date there were no significant concentrations of credit risk. Cash transactions are only carried out using renowned financial institutions. Interest rate risk The Company’s operating income andoperating cash flows are relatively independent of changes in market interest rates. Interest rate risk arises on long - term borrowings, which are issued at variable interest rates and expose the Company to a fair value interest rate risk. Thesensitivity analysis(seebelow) wasdeterminedbased ontheexposureto interestratesforbothderivative andnon - derivative instruments atthe reportingdate.Forfloatingrate liabilities,theanalysis ispreparedunder theassumption thatthe amountof liabilityoutstandingatthereportingdate was outstanding for the whole year. If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Company’s profit for the year ended 31 December2016wouldhave increased/decreasedbyEUR113thousand(2015: increase/decreasebyEUR186thousand).This ismainlyattributable to the Company’s exposure to interest rates for variable rate borrowings. Foreign currency risk The Company incurs foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than the euro. The carrying amount of the Company’s cash assets and cash liabilities denominated in a foreign currency as at the reporting date is as follows: Liabilities Assets 31 December 2016 31 December 2015 31 December 2016 31 December 2015 USD 441 703 80 231 890 207 398 940 CZK 197 771 123 158 1 391 366 515 751 PLN 81 627 4 230 3 699 732 4 301 466 CHF - 3 081 3 318 3 573 The following table presents the Company’s sensitivity to a 25% increase/decrease in the euro against the US dollar, a 20% increase/decrease in the euro against the Czech crown, Polish złoty and Swiss franc. The sensitivity analysis includes monetary items denominated in foreign currencies and adjusts their translation at the end of the reporting period for the aforementioned change in foreign currency rates. Positive balances indicate an increase in profit and other equity items upon a decrease of euros against the relevant currency. Appreciation of the euro against the relevant currency would result in a similar but opposite impact on profit and other equity items, while data presented belowwould be negative. USD CZK PLN CHF 31 December 31 December 31 December 31 December 2016 2015 2016 2015 2016 2015 2016 2015 Profit or loss 112 126 79 677 238 719 78 519 723 621 859 447 664 98 Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash with adequate due date and marketable securities, the availability of funding through an adequate amount of committed credit lines and the ability to close out market positions. The following tables summarise the residual maturity period of the Company’s non - derivative financial liabilities. The tables have been prepared based on undiscounted cash flows from financial liabilities assuming the earliest possible date on which the Company can be required to settle the liabilities. The table includes cash flows from both the interest and principal during the term of a loan agreement. NOTES TO THE SEPARATE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (IN EUROS)