101
FINANCIAL RISKS
The Prysmian Group’s risk management strategy focuses
on the unpredictability of markets and aims to minimise
the potentially negative impact on the Group’s financial
performance. Some types of risk are mitigated by using
financial instruments (including derivatives).
Financial risk management is centralised with the Group
Finance Department which identifies, assesses and hedges
financial risks in close cooperation with the Group’s operating
units.
The Group Finance, Administration and Control Department
provides written guidelines on monitoring risk management,
as well as for specific areas such as exchange rate risk, interest
rate risk, credit risk, the use of derivative and non-derivative
instruments, and how to invest excess liquidity.
Such financial instruments are used only to hedge risks and
not for speculative purposes.
Risks associated with sources of finance
The effects of the recent major instability in the international
banking and financial system could represent a potential
risk factor in terms of obtaining financial resources and
the associated cost. Prysmian Group believes that it has
significantly mitigated such a risk after taking advantage
of favourable market conditions to enter into a long-term
loan agreement in March 2011 for Euro 800 million (Credit
Agreement 2011) with a syndicate of major banks. This
five-year agreement comprises a loan for Euro 400 million
(Term Loan Facility 2011) and a revolving facility for Euro
400 million (Revolving Credit Facility 2011). It will be recalled
that in January 2010 Prysmian entered into a forward start
credit agreement for Euro 1,070 million, of which Euro 670
million related to a Term Loan Facility and Euro 400 million
to a Revolving Credit Facility, maturing on 31 December 2014.
This agreement was used on 3 May 2012 to replace at its
natural maturity the Credit Agreement entered into in 2007. In
addition, the placement of an unrated bond with institutional
investors on the Eurobond market was completed in March
2010 for a nominal total of Euro 400 million with a 5.25%
coupon and maturity in April 2015.
The annual interest rate on the cash credit facilities is equal to
the sum of:
• LIBOR or EURIBOR, depending on the currency;
• an annual spread determined on the basis of the
ratio between consolidated net financial position and
consolidated EBITDA.
As at 31 December 2012, the Group had financial resources,
including cash and cash equivalents and undrawn committed
credit lines, in excess of Euro 1 billion.
A detailed analysis of “Borrowings from banks and other
lenders” can be found in the Explanatory Notes to the
Consolidated Financial Statements.
Financial covenants
The credit agreements mentioned in the preceding paragraph
all contain a series of financial and non-financial covenants
with which the Group must comply. These covenants could
restrict Prysmian’s ability to increase its net debt, other
conditions remaining equal; should it fail to satisfy one of the
covenants, this would lead to a default event which, unless
resolved under the terms of the respective agreements, could
lead to their termination and/or an early repayment of any
amounts drawn down. In such an eventuality, the Group might
be unable to repay the amounts demanded early, which in turn
would give rise to a liquidity risk.
The financial covenants are measured at the half-year close
on 30 June and at the full-year close on 31 December. All
covenants, financial or otherwise, were fully observed at 31
December 2012. In particular:
(i) the ratio between EBITDA and Net finance costs, as
defined in the two credit agreements, was 6.78 (against a
required covenant of not less than 4.25x);
(ii) the ratio between Net Financial Position and EBITDA, as
defined in the two credit agreements, was 1.32 (against a
required covenant of below 3.00x).
Furthermore, during February 2011, concurrently with the
Draka acquisition, the Group had obtained from the syndicate
of financing banks a significant extension to its financial
covenants, as reported above, with respect to the previous
ones.
As things stand and in view of the above widening of the
financial covenants, Prysmian Group believes that it will not
have to face this risk in the near future.
