Consolidated Financial Statements >
CONSOLIDATED FINANCIAL STATEMENTS AND EXPLANATORY NOTES
The Group’s activities are exposed to various forms of risk:
market risk (including exchange rate, interest rate and
price risks), credit risk and liquidity risk. The Group’s risk
management strategy focuses on the unpredictability of
markets and aims to minimise the potentially negative impact
on the Group’s results. Some types of risk are mitigated using
derivatives.
Monitoring of key financial risks is centrally coordinated
by the Group Finance Department, and by the Purchasing
Department where price risk is concerned, in close cooperation
with the Group’s operating units. Risk management policies
are approved by the Group Finance, Administration and Control
Department, which provides written guidelines on managing
the above risks and on using (derivative and non-derivative)
financial instruments.
The impact on profit and equity described in the following
sensitivity analyses has been determined net of tax, calculated
using the Group’s weighted average theoretical tax rate.
[a] Exchange rate risk
The Group operates worldwide and is therefore exposed to
exchange rate risk caused by changes in the value of trade
and financial flows expressed in a currency other than the
accounting currency of individual Group companies.
The principal exchange rates affecting the Group are:
• Euro/British Pound: in relation to trade and financial
transactions by Eurozone companies on the British market
and vice versa;
• United Arab Emirates Dirham/Euro: in relation to trade and
financial transactions by Eurozone companies on the United
Arab Emirates market;
• Euro/US Dollar: in relation to trade and financial transactions
in US dollars by Eurozone companies on the North American
and Middle Eastern markets, and similar transactions in Euro
by North American companies on the European market;
• Euro/Swedish Krona: in relation to trade and financial
transactions by Eurozone companies on the Swedish market
and vice versa;
• Euro/Qatari Riyal: in relation to trade and financial
C. FINANCIAL RISK MANAGEMENT
transactions by Eurozone companies on the Qatari market;
• Euro/Czech Koruna: in relation to trade and financial
transactions by Eurozone companies on the Czech market
and vice versa;
• Euro/Danish Krone: in relation to trade and financial
transactions by Eurozone companies on the Danish market
and vice versa;
• Turkish Lira/US Dollar: in relation to trade and financial
transactions in US dollars by Turkish companies on foreign
markets and vice versa;
• Euro/Hungarian Forint: in relation to trade and financial
transactions by Hungarian companies on the Eurozone
market and vice versa;
• Brazilian Real/US Dollar: in relation to trade and financial
transactions in US dollars by Brazilian companies on foreign
markets and vice versa.
In 2012, trade and financial flows exposed to these exchange
rates accounted for around 88.1% of the total exposure to
exchange rate risk arising from trade and financial transactions
(86.4% in 2011).
The Group is also exposed to significant exchange rate risks
on the following exchange rates: Euro/Canadian Dollar, Euro/
Norwegian Krone, Euro/Australian Dollar, Euro/Romanian Leu;
none of these exposures, taken individually, accounted for more
than 1.6% of the overall exposure to transactional exchange
rate risk in 2012 (1.4% in 2011).
It is the Group’s policy to hedge, where possible, exposures in
currencies other than the accounting currencies of its individual
companies. In particular, the Group hedges:
• Certain cash flows: invoiced trade flows and exposures
arising from loans and borrowings;
• Expected cash flows: trade and financial flows arising from
firm or highly probable contractual commitments.
The above hedges are arranged using derivative contracts.
The following sensitivity analysis shows the effects on net
profit of a 5% and 10% increase/decrease in exchange rates
relative to closing exchange rates at 31 December 2012 and 31
December 2011.
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| 2012 annual report prysmian group
