ANNUAL REPORT 2016
The Group will consider discontinued an hedge instrument when it is sold, expires or is rea-
lised; 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 financial risk factors: market risk (inclu-
ding currency exchange risk, fair value risk, fair value risk associated to the interest 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 Financial Department based on the policies
approved by the Board of Directors. The treasury identifies, evaluates and employs financial
risk hedging measures in close cooperation with the Group’s operating units. The Board pro-
vides 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 liquidity.
a) Market risk
i) Currency exchange risk
With regard to exchange rate risk, the Group follows a natural hedge policy using financing in
local currency. Since the Group is mainly present in the Iberian market, bank loans are mainly
denominated in euros and the volume of purchases outside the Euro zone are of irrelevant
proportions.
The main source of the Group’s exposure arises from the investment outside the euro area
of operation that develops in Angola, although it is still small is growing and consequently to
gain weight in the Group activity. The reduction of oil prices is to lead to a shortage of foreign
currency in Angola by the devaluation of the kwanza is a risk to consider. The financing of the
Angolan subsidiary in foreign currency in the amount of $ 1.500.000, does not have large ex-
posure due to the reduced amount. The remaining financing concerning Angolan subsidiaries
are denominated in the local currency, the same in which the income is generated.
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