97 / 278
PRYSMIAN GROUP | DIRECTORS’ REPORT
97
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 legal action and any resulting liability could expose it to
reputational damage, with potential additional adverse consequences for its results of operations and
financial condition.
Risks associated with non-compliance with the contractual terms of turnkey projects
Projects relating to submarine or underground connections with high/medium voltage cables feature
contractual forms that entail "turnkey" project management and so require compliance with deadlines and
quality standards, guaranteed by penalties calculated as an agreed percentage of the contract value and
even involving the possibility of contract termination.
The application of such penalties, the obligation to compensate any damages as well as indirect effects on
the supply chain in the event of late delivery or production problems, could significantly affect project
performance and hence the Group's margins (for example, the Western HVDC Link project). Possible
damage to market reputation cannot be ruled out.
Given the complexity of "turnkey" projects, Prysmian has implemented a quality management process
involving extensive testing of cables and accessories before delivery and installation, as well as specific ad
hoc insurance coverage, often through insurance syndicates, able to mitigate exposure to risks arising from
production through to delivery.
Moreover, the ERM findings for this particular risk have led the Risk Management department, with the
support of the Commercial area, to implement a systematic process of risk assessment for "turnkey" projects
from as early as the bidding stage, with the aim of identifying, assessing and monitoring over time the
Group's exposure to specific risks and of taking the necessary mitigation actions. The decision to present a
bid proposal to the customer therefore also depends on the results of risk assessment
.
Risk of business interruption through dependence on key assets
The submarine cables business is heavily dependent on certain key assets, such as the Arco Felice plant in
Italy for the production of a particular type of cable and the cable-laying ships, the "Giulio Verne" and the
"Cable Enterprise", some of whose technical capabilities are hard to find on the market. The loss of one of
these assets due to unforeseen natural disasters (eg. earthquakes, storms, etc.) or other accidents (eg. fire,
terrorist attacks, etc.) and the consequent prolonged business interruption could have a critical economic
impact on the Group's performance.
Prysmian addresses this risk through its systematic Loss Prevention program, under which specific
inspections of the above assets allow it to identify the level of local risk and define actions that could be
necessary to mitigate such risk.
As at 31 December 2015, all of the plants inspected were classified as "Excellent HPR", "Good HPR" or
"Good not HPR"; no plant was classified as medium or high risk. In addition, specific disaster recovery plans