2014 ANNUAL REPORT

Consolidated Financial Report |

EXPLANATORY NOTES

2014 Annual Report

Prysmian Group

136

There are currently no cases of this kind in the Prysmian

Group financial statements. The treatment described would

be modified in the event of different interpretations or ac-

counting standards in this regard.

Associates and joint arrangements: joint ventures

and joint operations

Associates are those entities over which the Group has signi-

ficant influence, generally accompanying a shareholding of

between 20% and 50% of the voting rights. Investments in

associates are accounted for using the equity method and are

initially recorded at cost.

Joint arrangements are arrangements in which two or more

parties have joint control. They are classified as either joint

ventures or joint operations depending on the rights and

obligations of the parties to the arrangement.

Joint ventures are those companies characterised by the

presence of an arrangement for joint control whereby the

parties are entitled to a share of the net assets or profit or loss

arising from the arrangement. Joint ventures are accounted

for using the equity method.

Joint operations are arrangements whereby the parties that

have joint control of the arrangement have rights to the

assets and obligations for the liabilities relating to the arran-

gement. The assets, liabilities, revenues and expenses of a

joint operation are consolidated according to the rights and

obligations under the related arrangement.

Under the equity method, used to account for associates and

joint ventures:

• the book value of these investments reflects the value of

equity as adjusted, where necessary, to reflect the appli-

cation of IFRS and includes any higher values identified

on acquisition attributed to assets, liabilities and any

goodwill;

• the Group’s share of profits or losses is recognised from

the date significant influence is acquired until the date

it ceases. If a company valued under this method has

negative equity due to losses, the book value of the

investment is reduced to zero and additional losses

are provided for and a liability is recognised, only to the

extent that the Group is committed to fulfilling legal

or constructive obligations of the investee company;

changes in the equity of companies valued under the

equity method which are not accounted for through profit

or loss, are recognised directly in equity;

• unrealised gains arising from transactions between the

Parent Company/subsidiaries and equity-accounted

companies, are eliminated to the extent of the Group’s

interest in the investee company; unrealised losses are

also eliminated unless they represent impairment.

Special purpose entities

During 2007 the Group had defined and adopted a trade

receivables securitization programme for a number of Group

companies. The securitization programme was terminated on

25 July 2013 upon reaching its end date.

At 31 December 2014, the special purpose entity known

as Prysmian Financial Services Ireland Ltd was essentially

inactive, with the procedures for its liquidation in the process

of being completed.

Translation of foreign company financial statements

The financial statements of subsidiaries, associates and

joint ventures are prepared in the currency of the primary

economic environment in which they operate (the “functio-

nal currency”). The consolidated financial statements are

presented in Euro, which is the Prysmian Group’s functional

and presentation currency for its consolidated financial

reporting.

The rules for the translation of financial statements expressed

in currencies other than the Euro are as follows:

• assets and liabilities are translated using the exchange

rates applicable at the end of the reporting period;

• revenues and expenses are translated at the average rate

for the period/year;

• the “currency translation reserve” includes both the

translation differences generated by translating income

statement items at a different exchange rate from the

period-end rate and the differences generated by transla-

ting opening equity amounts at a different exchange rate

from the period-end rate;

• goodwill and fair value adjustments arising from the

acquisition of a foreign entity are treated as assets and

liabilities of the foreign entity and translated at the

period-end exchange rate.

If a foreign entity operates in a hyperinflationary economy,

revenues and expenses are translated using the exchange

rate current at the reporting date. All amounts in the income

statement are restated by applying the change in the general

price index between the date when income and expenses

were initially recorded in the financial statements and

the reporting date. Corresponding figures for the previous

reporting period/year are restated by applying a general

price index so that the comparative financial statements are

presented in terms of the exchange rate current at the end of

the reporting period/year.

As at 31 December 2014, there are no consolidated companies

that operate in hyperinflationary economies.