ANNUAL REPORT 2020

Železiarne Podbrezová a.s. ANNUAL REPORT 2020 54 10 (ii) Associates Associates are companies in which the Group has a substantial but not controlling influence. A substantial influence is the power to participate in decisionsonthefinancialand operating plans ofanassociate, but it does notmeancontrol or jointcontrol oversuch plans. Investments inassociates are recognised using the equity method from the date such a substantial influence originated until the date of its termination. Under the equity method, investments in associates are recognised in the consolidated statement of financial position at cost adjusted for the Group’s shares in changes in equity of an associate after the acquisition date, less any impairment of individual investments. Losses of an associate exceeding the Group’s share in the associate are not recognised. The Group’s associates are listed in Note 5. Any amount by which a cost exceeds the Group’s share in the net fair value of identifiable assets, liabilities and contingent liabilities of an associate recognised as at the acquisition date is recognised as goodwill. Goodwill is included in the carrying amount of an investment and is considered to be a part of the investment when assessing an impairment. All of the Group’s share in the net fair value of identifiable assets, liabilities and contingent liabilities that exceed the cost after the reassessment are reported directly in the statement of comprehensive income. Unrealised gains and losses on transactions between the Group and the associate are eliminated up to the amount of the Group’s share in the associate. The Group’s share in net assets of an associate is recognised as “Investments in associates” in the accompanying statement of financial position and its share in the net profit is recognised as “Share in profit of associates” in the accompanying statement of comprehensive income. The Group’s associates are listed below: Name Ownership interest (%) Voting rights (%) Business activities 2020 2019 2020 2019 TOM- FERR Zrt. Hungary 24.89% 24.89% 24.89% 24.89% Production of steel pipes and products FK Železiarne Podbrezová, a.s., Podbrezová Slovakia 35.02% 100% 35.02% 100% Sport, advertising and promotion Tále ski & golf resorts s. r. o. Slovakia 37.86% - 40.00% - Tourism (d) Foreign currency (i) Transactions in foreign currencies Cash items denominated in a foreign currency are translated to euros using the reference exchange rate determined and announced by the European Central Bank (ECB) or the National Bank of Slovakia (NBS) on the date preceding the transaction date. At each end of a reporting period, cash items denominated in a foreign currency are translated to euros using the reference exchange rate determined and announced by the EuropeanCentralBank(ECB) ortheNational Bank of Slovakia(NBS) onthe reporting date.Non - refundable advances receivedandmade inaforeign currency are not translated as at the reporting date. Non - cash items measured at afair value and denominated in a foreign currency are translated using the exchange rate prevailing at the date of the fair value measurement. Non - cash items measured at a historical cost and denominated in a foreign currency are not translated. For foreign currency purchases and sales in euros, and upon the transfer of funds from an account established in a foreign currency to an account established in euros and from an account established in euros to an account established in a foreign currency, the exchange rates at which these amounts were purchased or sold were applied. If the sale or purchase of a foreign currency is performed at an exchange rate other than the one offered by a commercial bank in its foreign exchange list, the exchange rate offered by such commercial bank in its foreign exchange list on the transaction settlement date is used. If the sale or purchase is not performed with a commercial bank, the reference exchange rate determined and announced by the ECB or the NBS on the date preceding the transaction settlement date is used. (ii) Financial statements of foreign operation The individual financial statements of each entity within the Group are presented in the currency of the primary economic environment in which the entity operates (its functionalcurrency).For the purpose ofthe consolidatedfinancial statements,the resultsand financial position of individual entities are expressed in EUR, which is the functional currency of the Group, and the presentation currency for the consolidated financial statements. Foreign operations are not considered an integral part of the operations of the parent company. The assets and liabilities of foreign operations, with functional currency other than euro, including goodwill and fair value adjustments on consolidation, are translated to EUR using the rate of exchange ruling at the reporting date. The income and expenses of these foreign operations are translated into EUR using the average exchange rate for the period, unless exchange rates fluctuated significantly during the period, in which case the exchange rates at the dates of transactions are used. Exchange rates arising are included in equity as a translation reserve. Such a translation reserve is recognised in the statement of comprehensive income in the period in which the foreign operation is disposed of. (e) Financial instruments Financial assets and financial liabilities are recognised in the Group’s statement of financial position when the Group becomes a party of the contractual provisions of the financial instrument. Financial instruments of the Group represent available - for - sale investments, receivables, interest - bearing loans and borrowings, payables and financial derivatives. (f) Derivative financial instruments The Group’s activities expose it primarily to the financial risks of changes in foreign exchange rates and interest rates. The Group uses derivative financial instruments (primarily foreign currencyand interest rateforward contracts and options) to hedge its risksassociated withforeign currency fluctuations relating to certain firm commitments and forecasted transactions. The Group fulfilled the conditions for accounting for its financial derivatives as hedging derivatives. Derivative financial instruments are initially measured at cost and are remeasured to fair value at the reporting date. The unrealised gain or loss from fixed - term transactions is calculated using the anticipated forward rate based on a standard mathematical formula which takes into account the NBS spot rate and interest rates effective as of the reporting date and is reported in the item “Other financial income, net ” or “Other financial expenses ” in the statement of comprehensive income and in the item “Hedging derivatives” in the shareholder’s equity. Hedging derivatives are defined as derivatives that comply with the Group’s risk management strategy, the hedging relationship is formally documented at the inception of the hedging relationship and the hedge is effective, that is, at inception and throughout the period, changes in the fair value or cash flows of the hedged and hedging items are almost fully offset and the results are within the range of 80% to 125%. TheGroup designates hedging derivatives as hedges of highly - probable futurecashflows attributableto aforecastedtransaction(cashflow hedge). Theeffective portion ofchanges inthefairvalue of derivativesthataredesignatedandqualifyas cashflow hedgesarerecognised inequity.The gain or loss relating to the ineffective portion is recognised immediately in the statement of comprehensive income. Amounts accumulated in equity are recorded to the statement of comprehensive income in the periods in which the hedged item will affect the statement of comprehensive income (for example, when the forecast sale that is hedged takes place). When a hedging instrument expires or is sold, or when a hedge no longer NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (IN EUROS)