2014 ANNUAL REPORT

Consolidated Financial Report |

EXPLANATORY NOTES

2014 Annual Report

Prysmian Group

160

FINANCIAL RISK MANAGEMENT

The Group’s activities are exposed to various forms of risk:

market risk (including exchange rate, interest rate and price

risks), credit risk and liquidity risk. The Group’s risk mana-

gement strategy focuses on the unpredictability of markets

and aims to minimise the potentially negative impact on

the Group’s results. Some types of risk are mitigated using

derivatives.

Monitoring of key financial risks is centrally coordinated by

the Group Finance Department, and by the Purchasing De-

partment where price risk is concerned, in close cooperation

with the Group’s operating companies. Risk management

policies are approved by the Group Finance, Administration

and Control Department, which provides written guidelines

on managing the above risks and on using (derivative and

non-derivative) financial instruments.

The impact on profit and equity described in the following

sensitivity analyses has been determined net of tax, calcula-

ted using the Group’s weighted average theoretical tax rate.

[a] Exchange rate risk

The Group operates worldwide and is therefore exposed to

exchange rate risk caused by changes in the value of trade

and financial flows expressed in a currency other than the

accounting currency of individual Group companies.

The principal exchange rates affecting the Group are:

• Euro/British Pound: in relation to trade and financial

transactions by Eurozone companies on the British

market and vice versa;

• Euro/US Dollar: in relation to trade and financial tran-

sactions in US dollars by Eurozone companies on the

North American and Middle Eastern markets, and similar

transactions in Euro by North American companies on the

European market;

• United Arab Emirates Dirham/Euro: in relation to trade

and financial transactions by Eurozone companies on the

United Arab Emirates market;

• Euro/Norwegian Krone: in relation to trade and financial

transactions by Eurozone companies on the Norwegian

market and vice versa;

• Euro/Qatari Riyal: in relation to trade and financial tran-

sactions by Eurozone companies on the Qatari market;

• Turkish Lira/US Dollar: in relation to trade and financial

transactions in US dollars by Turkish companies on

foreign markets and vice versa;

• Euro/Australian Dollar: in relation to trade and financial

transactions by Eurozone companies on the Australian

market and vice versa;

• Brazilian Real/US Dollar: in relation to trade and financial

transactions in US dollars by Brazilian companies on

foreign markets and vice versa.

• Euro/Swedish Krona: in relation to trade and financial

transactions by Eurozone companies on the Swedish

market and vice versa;

• Euro/Hungarian Forint: in relation to trade and financial

transactions by Hungarian companies on the Eurozone

market and vice versa;

• Euro/Czech Koruna: in relation to trade and financial

transactions by Czech companies on the European market

and vice versa;

• Renmimbi/US Dollar: in relation to trade and financial

transactions in US dollars by Chinese companies on

foreign market and vice versa.

In 2014, trade and financial flows exposed to the above

exchange rates accounted for around 90.0% of the total

exposure to exchange rate risk arising from trade and financial

transactions (85.5% in 2013).

The Group is also exposed to significant exchange rate risks

on the following exchange rates: Euro/Romanian Leu, Euro/

Singapore Dollar, Argentine Peso/US Dollar and Euro/New