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Consolidated Financial Report |
DIRECTORS’ REPORT
2014 Annual Report
Prysmian Group
92
FINANCIAL RISKS
The Prysmian Group's risk management strategy focuses on
the unpredictability of markets and aims to minimise the
potentially negative impact on the Group's financial perfor-
mance. Some types of risk are mitigated by using financial
instruments (including derivatives).
Financial risk management is centralised with the Group
Finance Department which identifies, assesses and hedges
financial risks in close cooperation with the Group's operating
companies.
The Group Finance, Administration and Control Department
provides written guidelines on monitoring risk management,
as well as on specific areas such as exchange rate risk, interest
rate risk, credit risk, the use of derivative and non-derivative
instruments, and how to invest excess liquidity.
Such financial instruments are used solely to hedge risks and
not for speculative purposes.
Risks associated with availability of financial
resources and their cost
The volatility of the international banking and financial
system could represent a potential risk factor in terms of
raising finance and its associated cost. Prysmian Group
believes that it has significantly mitigated such a risk insofar
as, in recent years, it has always been able to raise sufficient
financial resources, and at a competitive cost. In particular,
in June 2014, the Group obtained a five-year revolving credit
facility for Euro 1,000 million (Credit Agreement 2014) from
a syndicate of premier banks. This agreement is notable not
only for the large sum secured thanks to strong interest by
the lenders involved, but also for its more competitive cost
than existing facilities. The agreement also confirms the
more relaxed level of financial covenants already applied to
the Group for the facility obtained from Mediobanca - Banca
di Credito Finanziario S.p.A. discussed below. On the same
date as entering this new agreement, the Group extin-
guished early the Revolving Credit Facility 2010, originally
due to expire on 31 December 2014 and carrying a maximum
permitted drawdown of Euro 400 million. The Term Loan
Facility 2010, also maturing on 31 December 2014, was ex-
tinguished early on 28 February 2014 with repayment of the
outstanding balance of Euro 184 million. In February 2014,
the Group obtained a five-year revolving facility for Euro
100 million from Mediobanca – Banca di Credito Finanziario
S.p.A. and in December 2013 a loan for Euro 100 million from
the European Investment Bank (EIB) to fund the Group's
European R&D plans over the period 2013-2016. In March
2013, Prysmian completed the placement of a convertible
bond with institutional investors for Euro 300 million, with
a 1.25% coupon and maturity in March 2018. Before this, in
March 2011, the Group had entered into a long-term loan
agreement for Euro 800 million (Credit Agreement 2011)
with a syndicate of leading banks. This five-year agreement
comprises a loan for Euro 400 million (Term Loan Facility
2011) and a revolving facility for Euro 400 million (Revolving
Credit Facility 2011). In addition, the placement of an unrated
bond with institutional investors on the Eurobond market
was completed in March 2010 for a nominal total of Euro 400
million with a 5.25% coupon and maturity in April 2015.
The annual interest rate on the Credit Agreements is equal
to the sum of:
• EURIBOR;
• an annual spread determined on the basis of the ratio
between consolidated net financial position and consoli-
dated EBITDA.
As at 31 December 2014, the Group's total financial resources,
comprising cash and cash equivalents and undrawn
committed credit lines, came to in excess of Euro 1 billion.
A detailed analysis of "Borrowings from banks and other
lenders" can be found in the Explanatory Notes to the Con-
solidated Financial Statements.
Financial covenants
The credit agreements mentioned in the preceding paragraph
contain a series of financial and non-financial covenants
with which the Group must comply. These covenants could
restrict the Group's ability to increase its net debt, other con-
ditions remaining equal; should it fail to satisfy one of the
covenants, this would lead to a default event which, unless
resolved under the terms of the respective agreements,
could lead to their termination and/or an early repayment of
any amounts drawn down. In such an eventuality, the Group