Report 2010 - Italcementi Group

Fair value – hierarchy
In determining and documenting the fair value of financial instruments, the Group uses the following hierarchy
based on different measurement methods:
level 1: financial instruments with prices quoted on active markets,
level 2: prices quoted on active markets for similar financial instruments, or fair value determined with other
measurement methods where all significant inputs are based on observable market data;
level 3: fair value determined with measurement methods where no significant input is based on observable
market data.
At December 31, 2010, financial instruments stated at fair value were subdivided as follows:
December 31,
2010
Level 1 Level 2 Level 3
(in millions of euro)
Mutual funds 128.2 128.2
Derivative instruments - assets 52.5 52.5
Equity investments and financial receivables 11.8 11.8
Other equity investments 200.2 88.3 111.9
Derivative instruments - liabilities 47.6 47.6
Purchase commitments on minority interests 63.7 63.7
Financial risk management policy
The Group uses specific financial instruments to hedge the risk of fluctuations in interest rates and exchange
rates in relation to the nature of the debt and international operations.
Interest-rate risk
The Group interest-rate risk management policy is designed to minimize the cost of net financial liabilities and
reduce exposure to fluctuation risks. It hedges two types of risk:
1. the risk of variations in the market value of fixed-rate borrowing and lending transactions. Group fixed-rate
debt is exposed to an “opportunity cost” risk in the event of a fall in interest rates. A change in interest rates will
affect the market value of fixed-rate assets and liabilities and impact the consolidated result in the event of
liquidation or early repayment of these instruments;
2. the risk linked to future flows arising from floating-rate borrowing and lending transactions. A change in
interest rates will have a negligible impact on the market value of floating-rate financial assets and liabilities but
will affect finance costs and, consequently, future profits.
The Group manages this dual risk as part of its general policy, performance targets and risk reduction targets
by giving priority to hedges on future flows over the short- and medium-term and to hedges against the market
value risk over the long term, within the specified limits.
118