Financial management and performance

The core objective of financial policy is to ensure solvency and sustainable structure of capital in the long term. Implementation of the financial policy and the determination of the key guidelines in the area of financial management for all companies in the group is the responsibility of the parent company. Capital adequacy and solvency at the Group level were ensured through the effective planning and balancing of cash flows of individual companies, the management of financial debt, short-term and long-term financing within the Group, the optimisation of working capital and cash on the accounts of individual companies and the management of key financial risks.

Highlights in 2014

  1. Total financial liabilities were down 10.3% relative to 2013.
  2. The maturity breakdown improved in favour of long-term financial sources.
  3. Successful first issue of commercial paper.

As liquidity reserves, the Group had at its disposal long-term and short-term revolving credit lines at domestic and foreign banks in the total amount of EUR 196.5 million. The Group’s total liquidity reserves amounted to EUR 229.8 million at the end of 2014. Additional liquidity was provided in the form of cash and overdraft limits on transaction accounts, and short-term bank deposits. Credit lines are subject to periodic rollover.

Nine-month commercial paper in the nominal amount of EUR 50 million and a maturity of December 2014 was issued for the first time in March 2014 with the aim of securing alternative, non-banking sources of financing. The issue was well-received by investors, as interest in purchases exceeded the value of the issue significantly.

The Group’s total financial liabilities stood at EUR 369.3 million at the end of 2014, down 10.3% on 2013 as a result of the regular repayment of loans in accordance with loan agreements, and a reduction in liabilities for the purchase of a participating interest in a subsidiary. The majority of the Group’s financial liabilities comprised issued bonds and long-term bank loans raised by the parent company.

As a rule, subsidiaries secure short-term and long-term borrowings from the parent company, which is responsible for financing the Group. Through internal financing within the Group and the reallocation of cash, we are able to exploit synergies that derive from more favourable financing terms that apply to the parent company and from more efficient cash management, which together ensure the optimisation of net financial flows. At the same time, such financing reduces the Group’s exposure to external borrowing and ensures greater flexibility in managing the liquidity of all Group companies.

Composition of financing and net debt

The ratio of equity to total liabilities of the Telekom Slovenije Group stood at 1.07 at the end of 2014. The Group’s total equity was down primarily due to the payment of dividends by the Telekom Slovenije in the amount of EUR 65.1 million.

In addition to a decrease in the amount of financial liabilities in 2014, there was also a change in the maturity breakdown, with a rise in the proportion of long-term sources of financing, which contributed further to financial stability.

Structure of financing within the Group

Struktura financiranja v skupini

Maturity breakdown of financial liabilities

Struktura ročnosti finančnih obveznosti

Composition of and changes in net financial debt

The Group’s net financial debt amounted to EUR 344.1 million at the end of 2014, an increase of 0.7% relative to 2013, despite a decrease in financial liabilities. This can be attributed to a lower balance of cash and deposits as a result of the payment of dividends in the amount of EUR 65.1 million and the purchase of mobile licences totalling EUR 64.5 million.

Net financial debt

Neto finančni dolg

Market sources of financing and borrowing costs

Structure of market sources of financing

Struktura tržnih virov financiranja

*Note: a part of commercial papers that matured on 5 December 2014 was not paid due to a temporary order issued by the court.

Ratio of variable to fixed (and hedged) financial liabilities

Razmerje med variabilnimi in fiksnimi (in ščitenimi) tržnimi viri financiranja

All loans raised bear variable interest rates, while the coupon rate on issued bonds is fixed at 4.875%. The weighted mark-up on the variable portion of the interest rate on all loans within the Group stood at 5 basis points at the end of the year.

Fulfilment of financial commitments

As lenders, banks require that the Group maintain the predefined contractual values of certain financial items and indicators. Failure to meet those values could result in the forced early repayment of loans. All contractual provisions at the Group level were met as at 31 December 2014.

Credit rating review

In December 2014 the international ratings agency Moody’s Investors Service Ltd. published a new credit rating report in which it confirmed the Company’s credit rating of Ba2 from December 2013 with a negative outlook. According to Moody’s rating, the adverse macroeconomic conditions in Slovenia and increased regulatory and competitive pressures are also expected to have a negative effect on the Telekom Slovenije’s operations and results. Moody’s based its rating on increased pressure on the Company’s liquidity position, particularly in light of the refinancing risk associated with existing liabilities and its high dependence on the domestic banking system. Also affecting the assessment is the uncertainty linked to the intended sale of a stake in the Company.

Risk management

The primary focus of the Group’s financial risk management was on liquidity and solvency risk and on interestrate and credit risk. A detailed description of the financial risk management processes is found in the section 2.4 Risk management.