CONSOLIDATED FINANCIAL STATEMENTS >
EXPLANATORY NOTES
156
| 2013 ANNUAL REPORT | PRYSMIAN GROUP
D.1
CAPITAL RISK MANAGEMENT
The Group’s objective in capital risk management is mainly to
safeguard business continuity in order to guarantee returns
for shareholders and benefits for other stakeholders. The
Group also aims to maintain an optimal capital structure in
order to reduce the cost of debt and to comply with a series
of covenants required by the various Credit Agreements (Note
32. Financial covenants).
The Group also monitors capital on the basis of its gearing ratio
(ie. the ratio between net financial position and capital). Note
12. Borrowings from banks and other lenders contains details
of how the net financial position is determined. Capital is equal
to the sum of equity, as reported in the Group consolidated
financial statements, and the net financial position.
The gearing ratios at 31 December 2013 and 31 December 2012
are shown below:
(in millions of Euro)
2013
2012
Net financial position
834
918
Equity
1,195
1,159
Total capital
2,029
2,077
Gearing ratio
41.10%
44.20%
D.2
FAIR VALUE
With reference to assets and liabilities recognised in the
statement of financial position, IFRS 13 requires that such
amounts are classified on the basis of a hierarchy that reflects
the significance of the inputs used in determining fair value.
The fair value of financial instruments is classified according
to the following hierarchy:
Level 1
: fair value is determined with reference to quoted
prices (unadjusted) in active markets for identical financial
instruments. Therefore, the emphasis within Level 1 is on
determining both of the following:
(a) the principal market for the asset or liability or, in the
absence of a principal market, the most advantageous
market for the asset or liability; and
(b) whether the entity can enter into a transaction for
the asset or liability at the price in that market at the
measurement date.
Level 2
: fair value is determined using valuation techniques
where the input is based on observable market data. The
inputs for this level include:
(a) quoted prices for similar assets or liabilities in active
markets;
(b) quoted prices for identical or similar assets or liabilities in
markets that are not active;
(c) inputs other than quoted prices that are observable for
the asset or liability, for example:
i. interest rate and yield curves observable at commonly
quoted intervals;
ii. implied volatilities; and
iii. credit spreads;
(d) market-corroborated inputs.
Level 3
: fair value is determined using valuation techniques
where the input is not based on observable market data.
