93 348
93
might be unable to repay the amounts demanded early,
which in turn would give rise to a liquidity risk.
The financial covenants are measured at the half-year close
on 30 June and at the full-year close on 31 December. All
covenants, financial or otherwise, were fully observed at 31
December 2014. In particular:
(i) the ratio between EBITDA and Net finance costs, as
defined in the credit agreements, was 5.82x (against a
required covenant of not less than 5.50x for the credit
agreements signed before December 2013 and 4.00x for
those signed in 2014);
(ii) the ratio between Net Financial Position and EBITDA,
as defined in the credit agreements, was 1.50x (against
a required covenant of below 2.50x for the credit agree-
ments signed before December 2013 and 3.00x for those
signed in 2014).
As things stand and in view of the level of the financial
covenants reported above, Prysmian Group believes that
it will not have to face this risk in the near future. A more
detailed analysis of the risk in question can be found in the
Explanatory Notes to the Consolidated Financial Statements.
Exchange rate fluctuation
The Prysmian Group operates internationally and is therefore
exposed to exchange rate risk for the various currencies in
which it operates (principally the US Dollar, British Pound,
Brazilian Real, Turkish Lira and Chinese Renminbi). Exchange
rate risk occurs when future transactions or assets and lia-
bilities recognised in the statement of financial position are
denominated in a currency other than the functional currency
of the company which undertakes the transaction.
To manage exchange rate risk arising from future trade trans-
actions and from the recognition of foreign currency assets
and liabilities, most Prysmian Group companies use forward
contracts arranged by Group Treasury, which manages the
various positions in each currency.
However, since Prysmian prepares its consolidated financial
statements in Euro, fluctuations in the exchange rates used
to translate the financial statements of subsidiaries, origi-
nally expressed in a foreign currency, could affect the Group's
results of operations and financial condition.
A more detailed analysis of the risk in question can none-
theless be found in the "Financial Risk Management" section
of the Explanatory Notes to the Consolidated Financial
Statements.
Interest rate fluctuation
Changes in interest rates affect the market value of the
Prysmian Group's financial assets and liabilities as well as its
net finance costs. The interest rate risk to which the Group is
exposed is mainly on long-term financial liabilities, carrying
both fixed and variable rates.
Fixed rate debt exposes the Group to a fair value risk. The
Group does not operate any particular hedging policies
in relation to the risk arising from such contracts since
it considers this risk to be immaterial. Variable rate debt
exposes the Group to a rate volatility risk (cash flow risk).
The Group uses interest rate swaps (IRS) to hedge this
risk, which transform variable rates into fixed ones, thus
reducing the rate volatility risk. Under such IRS contracts,
the Group agrees with the other parties to swap on specific
dates the difference between the contracted fixed rates and
the variable rate calculated on the loan's notional value. A
potential rise in interest rates, from the record lows reached
in recent years, is a risk factor in coming quarters.
A more detailed analysis of the risk in question can none-
theless be found in the "Financial Risk Management" section
of the Explanatory Notes to the Consolidated Financial
Statements.
Credit risk
Credit risk is the Prysmian Group's exposure to potential
losses arising from the failure of trade or financial counter-
parties to discharge their obligations. This risk is monitored
centrally by the Group Finance Department, while cus-
tomer-related credit risk is managed operationally by the
individual subsidiaries. The Group does not have significant
concentrations of credit risk. It nonetheless has procedures
for ensuring that its trade counterparties are of recognised
reliability and that its financial counterparties have high
credit ratings. In addition, in mitigation of credit risk, the
Group has a global trade credit insurance policy covering all
its operating units.
A more detailed analysis of the risk in question can none-
theless be found in the "Financial Risk Management" section
of the Explanatory Notes to the Consolidated Financial
Statements.