ANNUAL REPORT - KORADO, as

18
FINANCIAL POSITION
The persisting economic crisis again left its mark on KO-
RADO operations in 2010. The drop-off in sales slowed in
2010 compared to the previous two years, despite continuing
to fall another 9 % year-on-year. The Company responded to
the drop in outputs with substantive cost and working capital
savings measures.
Cost-cutting measures
This primarily entailed a 14 % reduction in service costs. The
previous year’s cost-cutting measures helped reduce personnel
costs in 2010 by 5 % year-on-year. There was a radical
headcount reduction in support of still higher productivity.
This change was carried out in November 2010, and we expect
to see most of the associated savings realized in the
years to come.
Working capital and debt optimization
During this difficult period, companies are placing more emphasis
than ever on working capital optimization. KORADO is
no exception. Trade receivable liquidity was improved, days
inventory was optimized, a significant portion of bank loans,
i.e. CZK 153 million (22 %) was repaid, and current payables
decreased year-on-year by CZK 41 million (14 %). Moreover,
we made capital investments in bathroom radiators.
Bank loans
The loan portfolio was refinanced in 2010 and bank debt hit
a record low compared to previous years. The refinancing process
and change from a syndicate to a single bank (Unicredit)
represented a major show of confidence in the Company and
its future growth by the financing bank given the more favourable
financing parameters that were provided (lower interest,
longer maturity, greater flexibility, less collateral, possibility for
acquisitions, etc.).
Investments
In 2010, capital investment of CZK 30 million went into a new
bathroom radiator production fitting line.This should not only
mean cost savings in bathroom radiator production, but will
also bolster the Company’s competitive ability.
The Company successfully underwent audits of its fulfilment
of the conditions for investment incentives in the form of tax
relief granted in 2007. Audits were performed by the Financial
Directorate in Hradec Králové and the Czech Ministry of
Industry and Trade. The deadline for use of the incentive is
ten years.
Risk management
Throughout 2010, the Company further tightened its credit
policy and, it may be generally said, its overall approach to
risk management in terms of financial and, increasingly, other
risks (strategic,marketing, production, etc.). Intensive efforts
to ensure receivable liquidity and supportability caused trade
receivables to report a further year-on-year reduction by 30 %.
Unfortunately, some of our smaller business partners entered
into bankruptcy in 2010. These cases were resolved together
with our credit risk insurer and compensation was received
in accordance with the insurance terms. Secure receivables
of other customers in certain territories were kept to a record
level of 90 % by means of a solid sales and credit policy.
Due to the worsening of the global economic environment,
the risk management system connected with our suppliers is
also perceived to be a key tool in achieving the most competitive
product deliveries possible while guaranteeing full servicing
activity on the part of suppliers.
Greater emphasis on managing other categories of risk led
to a cross-sectional project led by the Risk Management Department
resulting in the creation of a Risk Catalogue containing
a categorization of risks and means of their elimination.
Work on the catalogue will continue.
Annual Report 2010