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VALUATION TECHNIQUES
Level 1:
The fair value of financial instruments quoted in an
active market is based on market price at the reporting date.
The market price used for derivatives is the bid price, while for
financial liabilities the ask price is used.
Level 2:
Derivative financial instruments classified in this
category include interest rate swaps, forward currency
contracts and metal derivative contracts that are not quoted
in active markets. Fair value is determined as follows:
• for interest rate swaps, it is calculated on the basis of the
present value of forecast future cash flows;
• for forward currency contracts, it is determined using the
forward exchange rate at the reporting date, appropriately
discounted;
• for metal derivative contracts, it is determined using the
prices of such metals at the reporting date, appropriately
discounted.
Level 3:
The fair value of instruments not quoted in an active
market is mainly determined using valuation techniques
based on estimated discounted cash flows.
An increase/decrease in the Group’s credit rating at 31
December 2014 would not have had significant effects on net
profit at that date.
E.
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements requires mana-
gement to apply accounting policies and methods which,
at times, rely on judgements and estimates based on past
experience and assumptions deemed to be reasonable and
realistic according to the related circumstances. The appli-
cation of these estimates and assumptions influences the
amounts reported in the financial statements, meaning the
statement of financial position, the income statement, the
statement of comprehensive income and the statement of
cash flows, as well as the accompanying disclosures. Ultimate
amounts, previously reported on the basis of estimates and
assumptions, may differ from original estimates because of
the uncertain nature of the assumptions and conditions on
which the estimates were based.
The following is a brief description of the accounting policies
that require the Prysmian Group’s management to exercise
greater subjectivity of judgement when preparing estimates
and for which a change in underlying assumptions could
have a significant impact on the consolidated financial
statements.
(a) Provisions for risks and charges
Provisions are recognised for legal and tax risks and reflect
the risk of a negative outcome. The value of the provisions
recorded in the financial statements against such risks
represents the best estimate by management at that date.
This estimate requires the use of assumptions depending
on factors which may change over time and which could,
therefore, have a significant impact on the current estimates
made by management to prepare the Group consolidated
financial statements.
(b) Impairment of assets
Goodwill
In accordance with its adopted accounting standards and
impairment testing procedures, the Group tests annually
whether its goodwill has suffered an impairment loss.
Up to 31 December 2013 goodwill was allocated to the two
operating segments: Energy and Telecomat which level it was
monitored and tested. Following the change in the Group’s
organisational structure, as from 1 January 2014 the Energy
segment has been divided into two operating segments:
Energy Projects and Energy Products. However, the structure
of the Telecom operating segment has remained unchanged.
The Energy Segment’s goodwill has therefore been reallo-
cated to the new operating segments Energy Products and
Energy Projects.
The value of Goodwill has therefore been tested for the
following operating segments: Energy Products, Energy
Projects and Telecom. The recoverable amount has been
determined by calculating value in use, which requires the
use of estimates.
As at 31 December 2014, the Prysmian Group had capitali-
sed Euro 380 million in Goodwill; this Goodwill reflects the
effects of:
• the adoption of IFRS 10 and IFRS 11: this has resulted
in the restatement of the Group’s consolidated figures
with effect from 1 January 2013. In particular, goodwill
has been allocated to the value of the investments in
Yangtze Optical Fibre and Cable Joint Stock Limited
Co. and Yangtze Optical Fibre and Cable (Shanghai) Co.
Ltd, which changed their method of consolidation from
proportionate and line-by-line respectively to the equity