284 348
Parent Company Financial Report |
EXPLANATORY NOTES
2014 Annual Report
Prysmian Group
284
value of estimated future cash flows generated by a subsidiary,
including cash flows from operating activities and the consid-
eration arising from the investment's ultimate sale, net of the
financial position at the valuation date.
If the reasons for a previously recognised impairment loss
cease to apply, the carrying amount of the investment is re-
instated but to no more than its original cost, with the related
revaluation recognised through the income statement.
Treasury shares are reported as a deduction from equity. The original cost of treasury shares and revenue arising from any
subsequent sales are treated as movements in equity.
Prysmian S.p.A. measures and manages its exposure to
financial risks in accordance with the Group's policies.
The main financial risks are centrally coordinated and
monitored by the Group Finance Department. Risk manage-
ment policies are approved by the Group Finance, Admin-
istration and Control Department, which provides written
guidelines on managing the different kinds of risks and on
using financial instruments. The financial risks to which
Prysmian S.p.A. is exposed, directly or indirectly through its
subsidiaries, are the same as those of the companies of which
it is the Parent Company. Reference should therefore be made
to Section D. Financial risk management of the Explanatory
Notes to the Group's Consolidated Financial Statements.
The principal types of risks to which the Company is exposed
are discussed below:
(a) Exchange rate risk
This arises from commercial or financial transactions not yet
completed and from assets and liabilities in foreign currency
already recognised in the accounts. The Company mitigates
this risk by using forward contracts entered into with the
Group's central treasury company (Prysmian Treasury S.r.l.),
which manages the various currency positions. The foreign
currency debtor and creditor positions and related financial
hedging instruments reported by Prysmian S.p.A. at 31
December 2014 were of limited relevance. More information
can be found in Note 7. Derivatives.
(b) Interest rate risk
The interest rate risk to which the Company is exposed is
mainly due to long-term financial liabilities, carrying both
fixed and variable rates.
B.4 TREASURY SHARES
C.
FINANCIAL RISK MANAGEMENT
Fixed rate debt exposes the Company to a fair value risk. The
Company does not operate any particular hedging policies in
relation to the risk arising from such contracts.
The Group Finance Department monitors the exposure to
interest rate risk and adopts appropriate hedging strategies
to keep the exposure within the limits defined by the Group
Finance, Administration and Control Department, arranging
derivative contracts, if necessary.
The net liabilities considered for sensitivity analysis include
variable rate financial receivables and payables and cash and
cash equivalents whose value is influenced by rate volatility.
The Company calculates the pre-tax impact on the income
statement of changes in interest rates.
The simulations carried out for balances at 31 December
2014 indicate that, with all other variables remaining equal,
an increase of 25 basis points in interest rates would have
decreased financial payables by Euro 115 thousand (2013:
decrease of Euro 146 thousand) while a 25-point decrease
would have increased financial payables by Euro 115 thousand
(2013: increase of Euro 146 thousand). This simulation exercise
is carried out on a regular basis to ensure that the maximum
potential loss is within the limits set by management.
(c) Price risk
This risk relates to the possibility of fluctuations in the price of
strategic materials, whose purchase price is subject to market
volatility and for which the Company centrally manages their
purchase from third-party suppliers and their resale to Group
operating companies. The Company is exposed to a residual
price risk on those buying positions that have not been
promptly recharged to Group operating companies. More
information about metal derivatives can be found in Note 7.
Derivatives.