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PRYSMIAN GROUP | DIRECTORS’ REPORT
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Exchange rate volatility
The Prysmian Group operates internationally and is therefore exposed to exchange rate risk for the various
currencies in which it operates (principally the US Dollar, British Pound, Brazilian Real, Turkish Lira and
Chinese Renminbi). Exchange rate risk occurs when future transactions or assets and liabilities recognised
in the statement of financial position are denominated in a currency other than the functional currency of the
company which undertakes the transaction.
To manage exchange rate risk arising from future trade transactions and from the recognition of foreign
currency assets and liabilities, most Prysmian Group companies use forward contracts arranged by Group
Treasury, which manages the various positions in each currency.
However, since Prysmian prepares its consolidated financial statements in Euro, fluctuations in the
exchange rates used to translate the financial statements of subsidiaries, originally expressed in a foreign
currency, could affect the Group's results of operations and financial condition.
A more detailed analysis of the risk in question can nonetheless be found in the "Financial Risk
Management" section of the Explanatory Notes to the Consolidated Financial Statements.
Interest rate volatility
Changes in interest rates affect the market value of the Prysmian Group's financial assets and liabilities as
well as its net finance costs. The interest rate risk to which the Group is exposed is mainly on long-term
financial liabilities, carrying both fixed and variable rates.
Fixed rate debt exposes the Group to a fair value risk. The Group does not operate any particular hedging
policies in relation to the risk arising from such contracts since it considers this risk to be immaterial. Variable
rate debt exposes the Group to a rate volatility risk (cash flow risk). The Group can use interest rate swaps
(IRS) to hedge this risk, which transform variable rates into fixed ones, thus reducing the rate volatility risk.
IRS contracts make it possible to exchange on specified dates the difference between contracted fixed rates
and the variable rate calculated with reference to the loan's notional value. A potential rise in interest rates,
from the record lows reached in recent years, could represent a risk factor in coming quarters.
A more detailed analysis of the risk in question can nonetheless be found in the "Financial Risk
Management" section of the Explanatory Notes to the Consolidated Financial Statements.
Credit risk
Credit risk is the Prysmian Group's exposure to potential losses arising from the failure of business or
financial partners to discharge their obligations. This risk is monitored centrally by the Group Finance
Department, while customer-related credit risk is managed operationally by the individual subsidiaries. The
Group does not have any excessive concentrations of credit risk, but given the economic and social
difficulties faced by some countries in which it operates, the exposure could suffer a deterioration that would
require more assiduous monitoring. Accordingly, the Group has procedures in place to ensure that its
business partners are of recognised reliability and that its financial partners have high credit ratings. In
addition, in mitigation of credit risk, the Group has a global trade credit insurance policy covering almost all
its operating companies.