Annual Report 2008

REPORT BY THE BOARD OF DIRECTORS Financial Management ŽELEZIARNE PODBREZOVÁ The signing of the loan contract at the end of 2005 with the "Bank Club'', which comprises four banking houses for a five-year period, resulted in the stabilisation of the Company's current and non-current financing. Citibank (Slovakia) a.s., HSBC Bank plc., Tatrabanka, a.s. and CALYON SA provided Železiarne Podbrezová with sufficient funds at unified terms, which allowed us to fully use the positive effect of the "cl ub financing". An 85%share of a foreign currency on the total financing of the credit facility corresponded with the share of export on total sales. Given our economic effectiveness,we again took advantage of the opportunity to draw short-term loan facilities denominated in Slovak crowns to refinance export receivables in the amount of SKK 200 million (EUR 6.6 million) We appreciate the trust expressed to us by the banks when providing financing to purchase an ownership interest in the Spanish company Transformaciones Metalurgicas, SA, in July 2008. The "Bank Club" and other banking houses accepted the Company's business name as an exclusive guarantee for the credit facility. No other guarantees were required to obtain the financing. Before the Euro conversion in the Slovak Republic, the Company was largely exposed to the SKK/EUR exchange rate risk. As a result, in 2008 the Company performed financial derivatives (forwards, option structures) at the nominal value of EUR 126.5 million (SKK 3 810.9 million) in order to achieve the exchange rate set by the financial pian for 2008 and 2009. Derivatives totalling EUR 93.5 million (SKK 2 816.8 million) became due in 2008 and derivatives in the nominal value of EUR 33.0 million (SKK 994.2 million) fell due in 2009. After the announcement of the SKK/EUR conversion rate,the Company prematurely closed the derivates falling due in 2009; other derivatives were continually closed in 2008. Total gains on hedging transactions in SKK/EUR amounted to SKK 410.0 million (EUR 13.6 million), with the achieved average exchange rate of SKK/EUR 34.918. Given the currency exposure in Czech crowns, the Company concluded SKK/CZK derivatives totalling CZK 180 million with a loss of SKK 5.3 million (EUR 175.8 thousand) and achieved an average exchange rate of CZK/SKK 1.2357 The maturity of the derivative transactions corresponded with expected cash flows within cooperating commercial banks. In 2008, out of the Company's total debt, 85% represented funds denominated in euros. All the borrowed funds bear interest at the EURIBOR floating interest rate. In order to eliminate the risk of variations in the floating interest rate, the Company entered into three interest rate swaps in 2008 and generated a profit of SKK 8.28 million (EUR 274.8 thousand) . Thanks to close co-operation with the banking houses and thorough preparation throughout the year, we successfully managed the conversion !rom the national currency (Slovak crown) to the euro as at 1 January 2009. Satisfaction of Liabilities Last year, the Company's financial position was balanced and stable. We fulfilled our obligations to financial institutions, state and public authorities, as well as to all suppliers and employees in a due and timely manner.