CONSOLIDATED FINANCIAL STATEMENTS >
DIRECTORS’ REPORT
88
| 2013 ANNUAL REPORT | PRYSMIAN GROUP
OPERATIONAL RISKS
Responsibility for product quality/defects
Any defects in the design and manufacture of the Prysmian
Group’s products could give rise to civil or criminal liability
in relation to customers or third parties. Therefore, the
Group, like other companies in the industry, is exposed to
the risk of legal action for product liability in the countries
where it operates. In line with the practice followed by many
industry operators, the Group has taken out insurance which
it considers provides adequate protection against the risks
arising from such liability. However, should such insurance
coverage be insufficient, the Group’s results of operations and
financial condition could be adversely affected.
In addition, the Group’s involvement in this kind of action
and any resulting liability could expose it to a damage in
reputation, with potential additional adverse consequences
for its results of operations and financial condition.
Contract performance/liability - Risks associated with
delivery dates, product quality and execution of turnkey
contracts
Some supply and/or installation contracts entered into by the
Prysmian Group include penalties if the agreed delivery date or
qualitative standards are not met.
Turnkey contracts, particularly those relating to the
development of submarine links, can include penalties of
this kind. The application of such penalties, the obligation to
compensate any damages as well as the impact of any delayed
delivery or any problems in production on the supply chain and
operating costs, could adversely affect the Group’s business,
results of operations and financial condition.
In order to avert or mitigate such risks the Group conducts
extensive testing of cables and accessories before they are
delivered and installed, and always does its utmost to limit
potential contractual liabilities for penalties or damages;
in addition, it also maintains project specific insurance
policies during the transportation and assembly phases of
all submarine turnkey projects. The scope and level of such
insurance policies, however, may in some cases be limited by
the capacity of the relevant insurance markets. As a result,
some potential liabilities may not be insured or only insured
up to a level which is below contractually agreed limits.
It is not possible to guarantee that in the future the Group
will manage to fully and promptly meet commitments arising
from the occurrence of such risks. To date, however, the Group
has not received any compensation claims such as to cause
material uninsured adverse effects.
Business interruption/Catastrophic events - Risks relating to
the operation of industrial facilities
Being an industrial group, the Prysmian Group is potentially
exposed to the risk of stoppage of production at one or more
of its facilities, due, for example, to machinery breakdown,
cancellation of or challenge to permits and licences by
the competent public authorities (also due to changes in
legislation), strikes or shortage of labour, natural disasters,
major disruptions in the supply of raw materials or energy,
sabotage or terrorist attacks.
Over the last three years there have been some incidences
of business interruption: among the most significant
were the prolonged stoppage in late 2011 at the Aubevoye
plant in France due to the precautionary need for asbestos
decontamination within the production site, the stoppage of
the Cebu plant in the Philippines towards the end of 2013 due
to damage caused by Typhoon Haiyan, and some temporary
strike disruption at all the plants affected by restructuring
(Livorno Ferraris and Battipaglia in Italy, Derby in Great Britain,
Fercable in Spain and Wuppertal in Germany). There were
also other strikes in France (Calais and Douvrin) and Brazil
in connection with wage demands and contract renewals.
These recent events mean that other business interruptions
in the future cannot be ruled out and, if they were to last for
particularly long periods and the cost exceeded the Group’s
current insurance coverage, its business, results of operations
and financial condition could be adversely affected.
In addition, activities relating to the submarine cables
business are closely dependent on certain specific assets,
such as the Arco Felice plant in the province of Naples and the
“Giulio Verne” cable-laying ship. The Prysmian Group believes
that a prolonged stoppage in the operation of these assets
could have a significant adverse impact on its business, results
of operations and financial condition.
In order to prevent such operational risks, the Group
systematically performs a Risk Management and Loss
Prevention review at all its companies in order to identify and
quantify operational risks and define and manage policies
that address such risks. In particular, as part of the “Loss
Prevention” programme, applied to every plant in the pre-
acquisition Prysmian Group and currently being implemented
at the Draka plants (about 2/3 of which were covered by
the programme at the end of 2013), the Risk Management
function periodically inspects the Group’s plants to identify
and prevent potential risks through mitigation and control.
The following classifications are used to establish the level of
risk:
• plants with controlled risks (Excellent HPR - Highly Protected
Risk);
• low risk plants (Good HPR);
• medium-low risk plants (Good not HPR);
• medium risk plants (Fair);
• high risk plants (Poor).
