Å kodaAuto ANNUAL REPORT 2003 - Skoda Auto

Škoda Auto SlovenskoDue to the overall state of the Slovakeconomy, the passenger car marketas a whole contracted from 65,312vehicles in 2002 to 57,519 in 2003(down by 11.9%). Sales of the Škodabrand cars moved in line with theoverall market, ending the year at25,728 units, down 3,447 (-11.8%)year-on-year. However, the Škodabrand’s market share was preservedat 44.2% and the Fabia and theOctavia continue to be thebest-selling models in the market.Profit before taxation reached CZK16.0 million (SKK 20.9 million).Financial Risk ManagementIn its business operations, Škoda Autois exposed to a number of risks,including in particular movements inexchange rates and interest rates inthe financial markets. The Company’sgoal is to eliminate or minimisethese risks. This goal is achievedthrough a flexible hedging strategywith the use of various instruments.All hedging transactions areco-ordinated and implemented inco-operation with our parentcompany, Volkswagen AG.Hedging of Exchange Rate RiskRisk exposure arises from thestructure of income and expensesdenominated in foreign currencies.These foreign currency in- and outflows(predicted using a regularlyupdated foreign currency plan) arehedged using the netting principle.Hedging instruments used includeforward currency transactions,currency options and currency swaps,which are entered into for terms of upto 18 months. The most hedgedcurrencies in 2003 were the Euro, thePound Sterling and the Slovak Crown.Hedging of Interest Rate RiskRisk exposure due to movements ofinterest rates results from the mediumandlong-term liabilities of Škoda Autorelating to the Company’s needs toprocure financing for its capitalexpenditures. Interest rate swaps areused to hedge risks in this area.Return on equity after taxation (%)Net liquidity (in CZK mil.)123,000101,500806-1,5004-3,0002-4,500019992000200120022003-6,00019992000200120022003Financial assetsBank loansNet liquidity23