IBERSOL | 2019 Sustainability Report

SUSTAINABILITY REPORT 2019 Foreign exchange risk In this regard, the Ibersol Group follows a natural hedge policy, obtain- ing financing in local currency. Given that we operate essentially in the Iberian market, bank loans are mostly in euros and purchase volumes, outside of the euro area, do not have a significant weight. Our main source of exposure stems from investment in the Angolan operation, outside the euro operating area, which is still small in size and losing weight within the Group’s activity. The imbalances in the Angolan economy are causing a shortage of foreign currency in An- gola and, therefore, the depreciation of the kwanza is a risk to be taken into account. Funding the Angolan subsidiary in foreign currency, in the amount of USD 500,000, does not expose us too much given that the amount is not very large. Other borrowings by Angolan subsidiaries are denomi- nated in local currency, the same currency in which income is gener- ated. In light of the current limitations to foreign payments, the group has adopted a policy to monitor credit balances in foreign currency on a monthly basis and fully hedging the risk by purchasing Angolan treasury bonds, indexed to the USD. Interest rate risk With the exception of the Angolan Treasury Bonds, the Ibersol Group does not have any significant interest-bearing assets. Thus, profit and cash flows from investment are largely independent of fluctuations in the market interest rate. As regards the Angolan Treasury Bonds, which are indexed to the US dollar, they also do not present a risk as they have a fixed interest rate. The Ibersol Group’s main interest rate risk stems from liabilities, name- ly long-term loans. Variable-rate loans expose the Group to cash flow risks associated with the interest rate. Fixed-rate loans expose the Group to fair value risk associated with the interest rate. With current interest rate levels, the Group’s policy is to set interest rates up to 50% of the amount owed, for long-term financing. 25