153
At 31 December 2013, the increase/decrease in the fair value
of derivatives designated as cash flow hedges arising from
an increase/decrease of 25 basis points in interest rates on
year-end rates would have respectively increased other equity
reserves by Euro 0.8 million and decreased them by Euro 1.5
million for hedges of underlying transactions in Euro.
At 31 December 2012, the increase/decrease in the fair value
of derivatives designated as cash flow hedges arising from
an increase/decrease of 25 basis points in interest rates on
year-end rates would have respectively increased other equity
reserves by Euro 2.32 million and decreased them by Euro 2.39
million for hedges of underlying transactions in Euro.
(c) Price risk
The Group is exposed to price risk in relation to purchases and
sales of strategic materials, whose purchase price is subject to
market volatility. The main raw materials used by the Group in
its own production processes consist of strategic metals such
as copper, aluminium and lead. The cost of purchasing such
strategic materials accounted for approximately 54% of the
Group’s total cost of materials in 2013 (57% in 2012), forming
part of its overall production costs.
In order to manage the price risk on future trade transactions,
the Group negotiates derivative contracts on strategic metals,
setting the price for planned future purchases.
Although the ultimate aim of the Group is to hedge risks to
which it is exposed, these contracts do not qualify as hedging
instruments for accounting purposes.
The derivative contracts entered into by the Group are
negotiated with major financial counterparties on the basis of
strategic metal prices quoted on the London Metal Exchange
(“LME”), the New York market (“COMEX”) and the Shanghai
Futures Exchange (“SFE”).
The following sensitivity analysis shows the effect on net
profit and consolidated equity of a 10% increase/decrease in
strategic material prices versus prices at 31 December 2013
and 31 December 2012, assuming that all other variables
remain equal.
(in millions of Euro)
2013
2012
-0.25% +0.25% -0.25% +0.25%
Euro
(0.12)
0.12
(0.33)
0.33
US Dollar
0.06
(0.06)
0.14
(0.14)
British Pound
(0.03)
0.03
(0.01)
0.01
Other currencies
(0.44)
0.44
(0.34)
0.34
Total
(0.53)
0.53
(0.54)
0.54
(in millions of Euro)
2013
2012
-10%
+10%
-10%
+10%
LME
(13.85)
13.85
(20.88)
20.88
COMEX
(0.78)
0.78
0.56
(0.56)
SFE
(4.88)
4.88
(3.27)
3.27
Total
(19.51)
19.51
(23.59)
23.59
The potential impact shown above is solely attributable to
increases and decreases in the fair value of derivatives on strategic
material prices which are directly attributable to changes in the
prices themselves. It does not refer to the impact on the income
statement of the purchase cost of strategic materials.
(d) Credit risk
Credit risk is connected with trade receivables, cash and cash
equivalents, financial instruments, and deposits with banks and
other financial institutions.
Customer-related credit risk is managed by the individual
subsidiaries and monitored centrally by the Group Finance
Department. The Group does not have significant concentrations
of credit risk. It nonetheless has procedures aimed at ensuring
that sales of products and services are made to reliable customers,
taking account of their financial position, track record and other
factors. Credit limits for major customers are based on internal
