Annual Report and Consolidated Account
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legislation in force. Derivatives financial instruments
negotiation is carried out by the Group, on behalf of
their subsidiaries, by the financial department under
the policies approved by the Board of directors. De-
rivative financial instruments are initially measured
at the transaction date fair value, being subsequently
measured at each reporting date fair value. Gains or
losses of fair value changes are recognised as follows:
Fair value hedge
In an operation to hedge the exposure to fair value of
an asset or liability (“fair value hedge”) determined as
effective hedges, the fair value changes are recognised
in the income statement jointly with the fair value
changes of the risk component of the hedged item.
Cash flow hedge
In an operation to hedge the exposure to future cash-
flows of an asset or liability (“cash-flow hedge”), the
effective part of the fair value changes in the hedging
derivative are recognizes in equity; the ineffective part
of the hedging is recognized in the income statement
when it occurs.
Net investment hedge
Currently there are no foreign operational units (sub-
sidiaries) in currencies other than the euro, there-
fore the Group is not exposed to foreign currency
exchange-rate risks.
The Group has well identified the nature of the in-
volved risks, guarantees through its software that each
hedge instrument is followed under the Group’s risk
policy, recording thorough and formally the hedges
relationships; the hedges goal and strategy; classifi-
cation of the hedges relationship; description of the
nature of the risk that’s being cover; identification of
the hedge instrument and covered item; descrip-
tion of initial measure and future effectiveness of the
hedge; identification of the excluded, if any, part of
the hedge instrument.
The Group will consider discontinued an hedge in-
strument when it is sold, expires or is realised; the
hedge ceases to fulfil the hedge accounting criteria;
for the cash flow hedge the expected transaction in
unlikely or unexpected; the Group cancels the hedge
instruments for managing reasons.
3. FINANCIAL RISK MANAGEMENT
3.1 FINANCIAL RISK FACTORS
The group’s activities are exposed to a number of fi-
nancial risk factors: market risk (including currency
exchange risk, fair value risk associated to the inter-
est rate and price risk), credit risk, liquidity risk and
cash flow risks associated to the interest rate. The
group maintains a risk management program that
focuses its analysis on financial markets to minimise
the potential adverse effects of those risks on the
group’s financial performance.
Financial risk management is headed by the Finan-
cial Department based on the policies approved by
the Board of Directors. The treasury identifies, evalu-
ates and employs financial risk hedging measures in
close cooperation with the group’s operating units.
The Board provides principles for managing the risk
as a whole and policies that cover specific areas,
such as the currency exchange risk, the interest rate
risk, the credit risk and the investment of surplus li-
quidity.
