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in business might have a material impact on its business,
results of operations and financial condition.
Risks associated with the competitive environment
Primarily in the Trade & Installers business area and, to some
extent, in the Power Distribution business line, competitive
pressure due to a possible further reduction in demand could
translate into additional pressure on prices. Many of the
products offered by the Prysmian Group in this business are
made in compliance with specific industrial standards and
are largely interchangeable with those offered by its major
competitors; in such cases, price is therefore a key factor
in customer choice of supplier. Although the competitive
environment for this business may vary by country or region,
one constant is the ever larger number of competitors,
ranging from those capable of competing globally to smaller
ones whose presence, in an individual country or region or an
individual business line, may be comparable to that of the
principal players.
Even though the Prysmian Group believes it will be able to
cut costs in the face of contracting sales volumes, it may not
be able to reduce them sufficiently to match the possible
contraction in sales prices imposed by competitors, with
a consequently adverse impact on its business, results of
operations and financial condition.
In addition, in high value-added segments like High Voltage
underground cables, Optical Cables, and, albeit to a much
lesser extent, Submarine Cables, where barriers to entry,
linked to difficult-to-replicate ownership of technology,
know-how and track record, limit the number of operators able
to compete effectively on a global scale, it is not possible to
rule out potential new entrants in these market segments or
an escalation in competition from operators already on the
market, with possible negative impacts both on sales volumes
and sales prices.
Risks associated with exposure to key customers and
business partners
In the SURF business, the Prysmian Group has a significant
business relationship with Petrobras, a Brazilian oil company,
for the supply of umbilical cables and flexible pipes, developed
and manufactured at the factory in Vila Velha, Brazil. The
exposure to Petrobras currently represents the majority
of sales by the SURF business, which is therefore very
concentrated. Although the Group believes it can maintain
and strengthen this business relationship over time and
despite the steady diversification of the customer portfolio
in other geographical areas, it is not possible to rule out that
a possible decline in demand for umbilical cables and flexible
pipes by Petrobras could have a negative short-term impact
on the Group’s business, results of operations and financial
condition.
Strategy implementation risks
The Prysmian Group’s ability to improve its profitability
depends, among others, on its success in implementing its
business strategy. The Prysmian Group’s strategy is based,
among others: on increasing the proportion of sales from
high value-added business lines, on developing its industrial
structure to support its strategy, on continuously improving
the structure of variable costs, on improving logistics and
customer service and on ongoing research and development of
new products and processes.
The Group intends to achieve its strategy through both
internal and acquisition-led growth; however, it is not possible
to guarantee that this strategy will be fully or partly achieved
in the timescale and manner planned.
M&A/JVs and integration processes - Risks relating to the
Draka Group’s integration process
The public offer for all the shares in Draka Holding N.V. was
completed on 22 February 2011 with acceptances received from
more than 99% of the shares. After the integration process’s
preliminary planning, the new organisational structure was
officially launched with effect from July 2011 and will guide
the new Group with the goal of promoting both the Prysmian
and Draka commercial brands and of realising the expected
synergies.
Over the course of the integration process Prysmian expects
to incur a total of some Euro 250 million in restructuring
costs (net of any divestments) and to generate growing cost
synergies starting from year one of the integration with the
goal of achieving total annual synergies of Euro 175 million
by 2016, mainly by reducing fixed costs, by optimising
the industrial footprint and procurement, by making
organisational savings and improving operating efficiency and
optical fibre sourcing, and by exploiting complementarities
in the product portfolios. However, the Group cannot rule
out potential difficulties or delays in implementing the new
organisational structure and the new operating processes,
with a possible consequent adverse impact both on the timing
and amount of expected synergies and restructuring costs.
Risks relating to changes in the legal and regulatory
framework
The Prysmian Group, as a manufacturer and distributor
of cables, is subject to numerous legal and regulatory
requirements in the various countries where it operates, as
well as technical regulations, both national and international,
applicable to companies operating in the same sector and
to products manufactured and marketed by the Group.
Environmental protection legislation is particularly important
in this regard. Although the Group is constantly engaged in
reducing its exposure to environmental risks and has taken
out insurance against potential liabilities arising from third-
party environmental damage, it is nonetheless possible that
not all environmental risks have been adequately identified
and that not all the insurance coverage is fully effective. In
particular, the enactment of additional regulations applicable
to the Group or its products, or changes in the current
