IBERSOL | Annual Report 2020

ANNUAL REPORT 2020 Financial It is the task of the Financial Management to ensure the management of different financial risks that are intrinsic to the unpredictability of the markets to which the Group is naturally exposed, namely cur- rency exchange, interest rates, credit, liquidity, and capital risks. The Financial Management’s efforts are aimed at mitigating the adverse effects of these possible risks. Exchange rate risks The Ibersol Group follows a policy of natural coverage in this issue, resorting to funding in local currency. Since it is mostly present in the Iberian market, bank loans are mostly in euros and the purchase vol- ume outside of the Euro Zone does not take on relevant proportions. The main source of exposure comes from investment outside of the euro zone, related to the operations developed in Angola, which are small and of decreasing importance in the Group’s activity. Economic imbalances in Angola have led to a scarcity of foreign currency in the country, which makes the devaluation of the Kwanza a risk to consider. Loans contracted by Angolan branches are expressed in local curren- cy, the same in which income is generated. Considering current limits on foreign payments, the Group adopted a policy of monthly monitor- ing of credit balances in foreign currency and their full coverage with the acquisition of Treasury Bonds from the Republic of Angola, which are pegged to the USD. Interest rate risks Except for Angolan State Treasury Bonds, the Ibersol Group does not have remunerated assets with significant interest. Therefore, in- vestment activity profits and cashflow are substantially independent from fluctuations of market interest rates. Regarding the Angolan State Treasury Bonds, pegged to the American Dollar, interest rates are fixed, so there is no risk there either. The main interest rate risk for the Ibersol Group is in its liabilities, namely long-term loans. Loans issued with variable rates expose the Group to cashflow risks associated to the interest rate. Loans issued 65