Half-yearly financial Report at June 30, 2013 - A2A

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Half-yearly financial report at June 30, 2013Risks and uncertaintiesFinancial risksCommodity price riskGiven the features of the sectors in which it operates, the Group is exposed to commodityprice risk, namely the market risk linked to changes in the price of energy raw materials(electricity, natural gas, coal and fuel oil) and the exchange rates connected with these.On an annual basis, when it approves the budget the Management Board of A2A S.p.A.establishes the commodity risk limits for the Group, meaning the maximum level of variabilityin the result arising from changes in energy commodity prices.Consistent with the Group’s Energy Risk Policy, the Risk Committee ensures compliance withthese limits and where necessary defines the hedging strategies designed to bring risk withinthe set limits.Market risk is managed centrally by means of a netting process applied to the entire exposureof the Group’s portfolio, which is constantly monitored.The objective of stabilizing the cash flows generated by the asset portfolio and outstandingcontracts is sought through the use of derivative financial instruments, thus contributing toensuring that there is economic and financial equilibrium in the Group.217Interest rate riskThe A2A Group’s interest rate risk mainly derives from the volatility of interest expense arisingfrom floating rate debt.The policy for managing interest rate risk has the objective of limiting that volatility first andforemost by selecting a balanced mix of fixed and floating rate loans and then additionally byusing hedging derivative instruments which limit fluctuations in interest rates.In order to analyze and manage the risks relating to interest rate risk the Group has developedan internal model enabling the exposure to this risk to be calculated using the Montecarlomethod, assessing the effect that fluctuations in interest rates have on future cash flows.
Half-yearly financial report at June 30, 2013Risks and uncertaintiesLiquidity riskLiquidity risk regards the Group’s ability to meet its payment commitments through the use ofself-financing, funding on the banking and financial markets and available cash.Taking also into consideration the context in which it does business, which is characterized bygreater volatility and potential situations of uncertainty on the financial markets, the Groupplaces specific emphasis on a constant control of liquidity risk, ensuring that adequate fundsare always available to meet expected commitments for a specific time period as well as aliquidity buffer that is sufficient to meet unexpected commitments.218In this context the Group also has a policy of diversifying the due dates of its debt and otherfunding sources and to this end a Euro Medium Term Note Programme has been set up with aceiling of 2 billion euro which was approved by the Management Board on September 19, 2012,as part of which the following transactions have been carried:• a seven year bond was issued on November 28, 2012 for 750 million euro, aimed atinstitutional investors for the purpose of pre-financing and extending the average debtterm;• a seven and a half year bond was issued on July 10, 2013 for 500 million euro, aimed atinstitutional investors, with the funds being used to make early repayment of an instalmentof the bonds maturing in 2014 and 2015, at the same time extending the average debt term.A loan agreement for 95 million euro was signed with the state investment bank Cassa Depositie Prestiti on June 12, 2013 due in 2013, which has not yet been used.In addition on April 22, 2013 A2A S.p.A. signed a Club Deal revolving credit line with a group ofItalian and international banks for a total of 600 million euro having a five year term andarranged mainly for backup purposes.At June 30, 2013 the Group had 1,640 million euro of unutilized revolving committed lines ofcredit available, medium-long term facilities, forming part of agreements but not yet used,totaling 161 million euro and cash of 710 million euro, of which 489 million euro held by theparent, mainly arising from the bond issue of November 28, 2012.Default risks and covenantsAt June 30, 2013 the parent had issued two public bond loans having a total nominal value of2,750 million euro, of which amounts totaling 500 million euro issued in October 2003 and May2004 and falling due in October 2013 and May 2014 respectively; 1 billion euro issued inNovember 2009 and falling due in November 2016; and 750 million euro issued in November
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Half-yearly financial Report at June 30, 2013 - A2A

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