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EXPLANATORY NOTES
262
| 2013 ANNUAL REPORT | PRYSMIAN GROUP
B.3 INVESTMENTS IN SUBSIDIARIES
B.4 TREASURY SHARES
Investments in subsidiaries are carried at cost, less any
impairment losses.
If there is specific evidence of impairment, the value of
investments in subsidiaries, determined on the basis of cost,
is tested for impairment. This involves comparing the carrying
amount of investments with their recoverable amount,
defined as the higher of fair value, less costs to sell, and value
in use.
The value of investments is tested for impairment in at least
one of the following circumstances:
• the carrying amount of the investment in the separate
financial statements exceeds the carrying amount in the
consolidated financial statements of the investee’s net
assets, including any associated goodwill;
• the investee’s reported EBITDA is less than 50% of the same
amount projected in the business plan, if this performance
indicator is relevant to the company in question;
• the dividend distributed by the investee exceeds the total
comprehensive income of the investee in the period to
which the dividend refers.
Prysmian S.p.A. measures and manages its exposure to
financial risks in accordance with the Group’s policies.
The main financial risks are centrally coordinated and
monitored by the Group Finance Department. Risk
management policies are approved by the Group Finance,
Administration and Control Department, which provides
written guidelines on managing the different kinds of risks
and on using financial instruments.
The financial risks to which Prysmian S.p.A. is exposed,
directly or indirectly through its subsidiaries, are the same as
those of the companies of which it is the Parent Company.
Reference should therefore be made to Section D. Financial
Treasury shares are reported as a deduction from equity. The original cost of treasury shares and revenue arising from any
subsequent sales are treated as movements in equity.
If the recoverable amount of an investment is less than its
carrying amount, then the carrying amount is reduced to the
recoverable amount. This reduction represents an impairment
loss, which is recognised through the income statement.
For the purposes of impairment testing, the fair value of
investments in listed companies is determined with reference
to market value, regardless of the size of holding. The fair
value of investments in unlisted companies is determined
using valuation techniques.
Value in use is determined using the “Discounted Cash
Flow - equity side” method: this involves calculating the
present value of estimated future cash flows generated by a
subsidiary, including cash flows from operating activities and
the consideration arising from the investment’s ultimate sale,
net of the financial position at the valuation date.
If the reasons for a previously recognised impairment loss
cease to apply, the carrying amount of the investment is
reinstated but to no more than its original cost, with the
related revaluation recognised through the income statement.
risk management of the Explanatory Notes to the Group’s
Consolidated Financial Statements.
The principal types of risks to which the Company is exposed
are discussed below:
(a) Exchange rate risk
This arises from commercial or financial transactions not yet
completed and from assets and liabilities in foreign currency
already recognised in the accounts. The Company mitigates
this risk by using forward contracts entered into with the
Group’s central treasury company (Prysmian Treasury S.r.l.),
which manages the various currency positions. Following
the business reorganisation, discussed in Section A. General
C.
FINANCIAL RISK MANAGEMENT
