CONSOLIDATED FINANCIAL STATEMENTS >
EXPLANATORY NOTES
158
| 2013 ANNUAL REPORT | PRYSMIAN GROUP
VALUATION TECHNIQUES
Level 1
: The fair value of financial instruments listed on an
active market is based on market price at the reporting date.
The market price used for derivatives is the bid price, while for
financial liabilities the ask price is used.
Level 2
: Derivative financial instruments classified in this
category include interest rate swaps, forward currency
contracts and metal derivative contracts that are not quoted
in active markets. Fair value is determined as follows:
• for interest rate swaps, it is calculated on the basis of the
present value of forecast future cash flows;
• for forward currency contracts, it is determined using the
forward exchange rate at the reporting date, appropriately
discounted;
• for metal derivative contracts, it is determined using the
prices of such metals at the reporting date, appropriately
discounted.
Level 3
: The fair value of instruments not quoted in an active
market is mainly determined using valuation techniques
based on estimated discounted cash flows.
An increase/decrease in the Group’s credit rating at 31
December 2013 would not have had significant effects on net
profit at that date.
The preparation of financial statements requires
management to apply accounting standards and methods
which, at times, rely on judgements and estimates based on
past experience and assumptions deemed to be reasonable
and realistic according to the related circumstances. The
application of these estimates and assumptions influences
the amounts reported in the financial statements,
meaning the statement of financial position, the income
statement, the statement of comprehensive income and
the statement of cash flows, as well as the accompanying
disclosures. Ultimate amounts, previously reported on
the basis of estimates and assumptions, may differ from
original estimates because of the uncertain nature of the
assumptions and conditions on which the estimates were
based.
The following is a brief description of the accounting policies
that require the Prysmian Group’s management to exercise
greater subjectivity of judgement when preparing estimates
and for which a change in underlying assumptions could have
a significant impact on the consolidated financial statements.
(a) Provisions for risks and charges
Provisions are recognised for legal and tax risks and reflect
the risk of a negative outcome. The value of the provisions
recorded in the financial statements against such risks
represents the best estimate by management at that date.
This estimate requires the use of assumptions depending
on factors which may change over time and which could,
therefore, have a significant impact on the current estimates
made by management to prepare the Group consolidated
financial statements.
E.
ESTIMATES AND ASSUMPTIONS
(b) Impairment of assets
Goodwill
In accordance with its adopted accounting standards and
impairment testing procedures, the Group tests annually
whether its goodwill has suffered an impairment loss.
Goodwill has been allocated to the two operating segments:
Energy and Telecom. It is therefore tested at this level. The
recoverable amount has been determined by calculating value
in use. This calculation requires the use of estimates.
More details about the impairment test for goodwill can be
found in Note 2. Intangible assets.
As at 31 December 2013, the Prysmian Group had capitalised
Euro 394 million in Goodwill; this figure has been remeasured
as a result of the following:
• finalisation of the fair value of the assets and liabilities of
Global Marine Systems Energy Ltd (now renamed Prys-
mian PowerLink Services Ltd): leading to a restatement
of the amounts recognised at 31 December 2012 by a total
of Euro 11 million. Goodwill recognised in respect of this
company amounts to Euro 38 million at 31 December 2013.
• finalisation of the values for the acquisition of a majority
interest in Telcon Fios e para Telecomuniçaoes Cabos S.A.,
resulting in an increase of Euro 2 million. Goodwill recog-
nised in respect of this company amounts to Euro 6 million
at 31 December 2013.
Further details can be found in Section F. Business
combinations.
