prysmian group erm project

Prysmian Group ERM Project

A journey

2 Risk Management in Evolution

Prysmian Group

50 COUNTRIES50 COUNTRIES 98 PLANTS98 PLANTS 22,000 PEOPLE22,000 PEOPLE 8 €B SALES

8 €B SALES 21 R&D CENTRES21 R&D CENTRES


1879Società Cavi Pirelli is established in Italy as the cable division of the recently founded Pirelli Group

1902The Company continues to expand its product range and begins its international expansion with the construction of its first overseas plan in Spain

1925Pirelli wins its first transatlantic business, connecting Italy to North and South America with 5,150 km of submarine

cable.

Founded in 2005, Prysmian’s origin has its roots in the history of the Pirelli Group

2005The Prysmian Group is founded in July 2005 through the acquisition of the energy and telecom cables and systems activities of Pirelli.

2007Within two years Prysmian becomes a listed company, quoted in the blue chip sector of the Milan Stock Exchange.

History

2010The Prysmian Group became a full Public Company

2011After the acquisition of Draka Holding Prysmian Group is the Worldwide Leader in Energy and Telecom Cables Industry

1998Pirelli begins targeted acquisitions, including the power cable businesses of Siemens, BICC, Metal Manufacturers Ltd. and NKF

1982The Pirelli Group becomes the first company in Italy to produce optical fibre for telecommunications and data transmission


Sales breakdown - FY 2012 Results

Sales breakdown by geography Sales breakdown by business

N. America14%

EMEA62%

Latin America9%

APAC15%

€ 7.8 bn

T&I27%

Utilities29%

Industrial23%

Other2%

€ 7.8 bn

Telecom19%


Overview of the ERM journey

Project set up Top risks identification & measurement Top risks mitigation Road map definition

1 2 3 4

Framework definition

Prysmian Risk Model

Risk measurement methodologies

First implementation on-field

Top-down approach (involving Senior Management at the early stage)

Top Risk priorities definition

Detailed Top Risk Analysis and Measurement (involving Middle Management)

Detailed Risk Mitigation Strategies and Action Plan

ERM Process

Risk management policy (drafted)

• Common language

• Uniform process

• Consistent risk reporting

ERM Governance

Risk Officer appointment at Group level

Regular reporting to the Executive Management Team

Risk & Control Committee oversight at Board level

From Project … To Process …


Overall results

• PERIOD OF THE ANALYSIS Dec 12 - Mar 13

• PEOPLE INVOLVED IN THE ASSESSMENT PHASE

(through > 40 meetings with the Project Team)> 30

• TOP RISK ANALYZED IN DETAIL

of which quantified: 1723

overall risk ranking

High Medium Low

STRATEGIC RISKS - 4 3

OPERATIONAL RISKS 2 4 4

LEGAL & COMPLIANCE RISKS 1 1 -

FINANCIAL RISKS 1 2 1

TOTAL 4 11 8

Today’s focus

Results discussed on February

Risk Assessment phase

Risk Assessment results

4

11

8


STRATEGIC FINANCIAL OPERATIONAL

LEGAL & COMPLIANCE PLANNING & REPORTING

• Budgeting & Strategic planning

• Tax & Financial planning

• Management reporting

• Financial reporting

• Macroeconomic, demand trends &

Competitive environment

• Stakeholder expectations

• Key customer & business partners

• Emerging country risk

• Law & regulation evolution

• Research & Development

• M&A / JVs and integration process

• Operative CAPEX

• Strategy implementation

• Organizational framework & governance

• Intellectual Property rights

• Compliance to laws and regulations

• Compliance to Code of Ethics, Policies & Procedures

Top Risk Areas selected & n. of related relevant topics

• Raw materials price volatility

• Exchange rate volatility

• Interest rate volatility

• Financial instruments

• Credit risk

• Liquidity risk / Working Capital

risk

• Capital availability / cost risk

• Financial counterparties

• Sales & Tendering

• Production Capacity / Efficiency

• Supply Chain Capacity / Efficiency

• Business interruption / Catastrophic events

• Contract execution / liabilities

• Product quality / liabilities

• Environmental

• Information Technology

• Human Resources

• Outsourcing

Prysmian Risk Model


Risk Assessment Methodology

• For the selected Top Risks, the following information has been gathered and analyzed:

» Likelihood of risk event occurrence over the 3Y Plan (2013-2015)

» Economic impacts on the 3Y Plan EBITDA / Cash Flow (2013-2015 unless otherwise disclosed) net of any existinginsurance/hedging coverage

» Any additional qualitative considerations on reputational and operational effects on the Group, where financial calculation was difficult

» Assumptions forming the basis of the above estimates

» Risk Management Capabilities in place in terms of existing insurance coverage or hedging instruments, specific procedures / control activities, specific organizational or governance protections, etc.

» Final risk ranking resulting from combination of Likelihood, Impact and RM Capabilities

• Simplification: at this stage, no correlation across risks has been considered for risk ranking purposes

HEAT MAP

Level Description Financial impact Reputational impact Operational Impact

4 VERY HIGH• > 50 M Euro onexpected EBITDA / CASH FLOW*

• Negative judgments widespread at global level, significantly affecting, stock exchange performance and firm reputation, public opinion and clients relationships.

Serious threatens to business continuity.

• Consequences on Group ability to undertake "key" strategy for business growth and sustainability

3 HIGH• 20‐50 M Euro onexpected EBITDA / CASH FLOW*

• Negative judgments widespread at national level, affecting firm reputation and image.

• Consequences on efficiency / continuity of one or more critical business processes

2 MODERATE• 5‐20 M Euro onexpected EBITDA / CASH FLOW*

• Competitors' negative judgments expressions in case of negative performances and events

• Consequences on efficiency / continuity of non critical business processes

1 MINOR / INSIGNIFICANT

• < 5 M Euro on expected EBITDA / CASH FLOW

• Competitors' negative and unjustified judgments expressions

• Consequences on efficiency of one non‐critical business process

Level Description Financial impact Reputational impact Operational Impact

4 VERY HIGH• > 50 M Euro onexpected EBITDA / CASH FLOW*

• Negative judgments widespread at global level, significantly affecting, stock exchange performance and firm reputation, public opinion and clients relationships.

Serious threatens to business continuity.

• Consequences on Group ability to undertake "key" strategy for business growth and sustainability

3 HIGH• 20‐50 M Euro onexpected EBITDA / CASH FLOW*

• Negative judgments widespread at national level, affecting firm reputation and image.

• Consequences on efficiency / continuity of one or more critical business processes

2 MODERATE• 5‐20 M Euro onexpected EBITDA / CASH FLOW*

• Competitors' negative judgments expressions in case of negative performances and events

• Consequences on efficiency / continuity of non critical business processes

1 MINOR / INSIGNIFICANT

• < 5 M Euro on expected EBITDA / CASH FLOW

• Competitors' negative and unjustified judgments expressions

• Consequences on efficiency of one non‐critical business process

Level Description Likelihood

4 PROBABLE• >50% likelihood of occurrence on an annual basis

• The future event or events are expected to occur in most circumstances (with a likelihood greater than 50%)

3 LIKELY• 25‐50% likelihood of occurrence on an annual basis

• The chance of the future event or events is less than likely but still with a good possibility to occur

2 UNLIKELY• 5‐25% likelihood of occurrence on an annual basis

• The chance of the future event or events occurring is slight

1 REMOTE• <5% likelihood of occurrence on an annual basis

• The future event or events may occur only exceptional circumstances.

Level Description Likelihood

4 PROBABLE• >50% likelihood of occurrence on an annual basis

• The future event or events are expected to occur in most circumstances (with a likelihood greater than 50%)

3 LIKELY• 25‐50% likelihood of occurrence on an annual basis

• The chance of the future event or events is less than likely but still with a good possibility to occur

2 UNLIKELY• 5‐25% likelihood of occurrence on an annual basis

• The chance of the future event or events occurring is slight

1 REMOTE• <5% likelihood of occurrence on an annual basis

• The future event or events may occur only exceptional circumstances.

RISK SCORING SCALES (rif. Annex 2)

RM CAPABILITIES

IMPACT

LIKELIHOOD

1

2

3


STRATEGIC

S.1

S.2

S.3

S.4

S.5

S.6

S.7 1

3

4

IMP

A C

T

2

LIKELIHOOD

<5%

2 3 4

>50%

1

<5

>5

05

-20

20

-50

5-25% 25-50%

Strategic Risks Heat Map

S.4a

S.4b

S.1

S.2

S.3

S.5

S.6S.7

Risks quantified in terms of financial / economic impacts

Risk positioning based on qualitative estimate

€m

RISK BEYOND INFLUENCE

RISK TO BE ADDRESSED

RISK BEYOND INFLUENCE


Other Risks Heat Map

1

3

4

IMP

A C

T

2

LIKELIHOOD

<5%

2 3 4

>50%

1

<5

>5

05

-20

20

-50

5-25% 25-50%

OPERATIONAL

O.1

O.2

O.3

O.4

O.5

O.6

O.7

O.8

O.9

O.10

LEGAL & COMPLIANCE

C.1

C.2

FINANCIAL

F.1

F.2

F.3

F.4

€m

O.1O.2

O.3O.4

O.5O.6

O.7

O.8O.9 O.10

C.1

C.2

F.1

F.2

F.3

F.4

Risk positioning based on quantitative estimate

Risk positioning based on qualitative estimate

RISK TO BE PREVENTED


2013 2014

jun julaug sep oct nov dec jan feb mar apr jun

O.1

O.2

O.3

O.4

O.5

O.6

C.1

C.2

F.1

F.2

Top Risks Action Plan

Today


new ERM Governance – Risk Officer

» Annual Risk Assessment updates

» Periodic monitoring of Top Risks and related responses

» Mitigation action plans monitoring

» Periodic Reporting to CEO/Senior Management, Risk & Control Committee, Statutory Board

» Ad-hoc / extraordinary risk analysis

On-going ERM process development and maintenance is under Risk Officer responsibility:

• Facilitate the Group ERM process in accordance with the guidelines defined

• Establish and communicate the risk management philosophy across the organization

• Implement an appropriate infrastructure of processes, tools, methodologies and policies for managing and monitoring key risks

• Implement appropriate risk reporting to senior management and the Board

• Integrate risk management with strategy-setting and business planning

• Facilitate the Group ERM process in accordance with the guidelines defined

• Establish and communicate the risk management philosophy across the organization

• Implement an appropriate infrastructure of processes, tools, methodologies and policies for managing and monitoring key risks

• Implement appropriate risk reporting to senior management and the Board

• Integrate risk management with strategy-setting and business planning

RO responsibilities On-going main activities


• Frequency and time of CRC updates (4 times a year close to BoD Meeting Vs. specifically dedicated meeting)

• Content and format of reporting to CRC− Main focus on action plan status− Reporting by exception on changes in existing

risks/new risks− Reporting by exception on changes on risk

quantification/likelihood• Timing of annual update and revision of Risk ranking and

quantification− Proposal to coincide with BoD to approve full year

financial statement

Reporting cycling

prysmian group erm project

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