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Consolidated Financial Report |
DIRECTORS’ REPORT
2014 Annual Report
Prysmian Group
94
Liquidity risk
Liquidity risk is the risk that an entity does not have suffi-
cient financial resources to meet its obligations to trade or
financial counterparties on the agreed due dates.
With regard to the Prysmian Group's working capital cash re-
quirements, these increase significantly during the first half
of the year when it commences production in anticipation of
order intake, with a consequent temporary increase in net
financial debt.
Prudent management of liquidity risk involves the main-
tenance of adequate levels of cash, cash equivalents and
short-term securities, the maintenance of an adequate
amount of committed credit lines, and timely renegotiation
of loans before their maturity. Due to the dynamic nature
of the business in which the Prysmian Group operates, the
Group Finance Department favours flexible arrangements for
sourcing funds in the form of committed credit lines.
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 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.
Risks associated with fluctuations in commodity prices
The main commodities purchased by the Prysmian Group are
copper and aluminium, accounting for more than 50% of the
total raw materials used to manufacture its products.
The Group neutralises the impact of possible rises in the
price of copper and its other principal raw materials through
hedging activities and automatic sales price adjustment
mechanisms.
Hedging activities are based on sales contracts or sales
forecasts, which if not met, could expose the Group to risks
of fluctuations in commodity prices.
The Group Purchasing Department performs a central
monitoring and coordination of sales transactions requiring
the purchase of raw materials and of the related hedging
activities carried out by each subsidiary.
In addition, if the oil price were to stabilise at current levels,
this could make the extraction market less appealing, which
in turn could adversely affect revenues from the SURF and
Oil & Gas businesses, although without a significant impact
on the Group. In fact, these businesses account for only 5%
of the Group's Sales and Adjusted EBITDA.
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.