Main risks

Risks connected with the results of the group

The CIR group operates, among other things, in the automotive components sector, which is subject to cyclical factors, and in the media sector which is more sensitive to trends in the economic cycle, whereas the health sector depends significantly on commercial relationship with public bodies, such as municipalities and regions.

It is difficult to forecast the extent and duration of these various cycles. However, any macroeconomic event, such as a significant decline in a particular market, volatility in the financial markets, a rise in energy prices, fluctuations in commodity prices, etc. could have an impact on the group’s prospects and business activities, as well as on its results and financial position. In addition, any decrease in the expenditure capacity of Government and other public bodies could affect the activities of the health sector, its economic situation and financial position.

Risks connected with borrowing requirements

The CIR group expects to be able to meet its borrowing requirements in terms of maturing loans and investment needs with its operating cash flows, available liquidity and by renewing or refinancing its bank loans or bonds. Even in the current market context, the group aims to maintain a sufficient capacity to generate funds from ordinary operations.

The group invests any free cash flow, spreading its investments over a suitable number of prime counterparties, matching the residual life of these investments with the maturity of its obligations on the funding side. However, in light of the current financial crisis, it cannot be ruled out that there may be banking or money market situations that could obstruct the normal functioning of the financial system.

Risks connected with fluctuations in exchange and interest rates

A significant part of group borrowings involves the payment of interest at floating rates, mainly linked to Euribor. So any rise in interest rates could result in higher funding costs or more costly debt refinancing on the part of group companies.

In order to limit the risk of interest rate fluctuations, the group uses interest rate derivatives to keep them within a predetermined range.

Some group companies, particularly in the Sogefi group, do business in European countries that do not belong to the Euro‐zone and non‐EU countries that use different currencies, exposing them to the risk of fluctuations in foreign exchange rates against the euro.

In line with its risk management policies, the group takes out hedges to limit this risk.

Despite this hedging, sudden fluctuations in exchange or interest rates could have a negative impact on the group’s economic and financial results.

Risks connected with customer and supplier relations

In its relations with customers, the Group manages the demand concentration by suitably diversifying its customer portfolio, both geographically and in terms of distribution channels. In relations with suppliers the approach differs according to the business segment.

For example, the Sogefi group diversifies its sourcing by using several suppliers operating in different parts of the world, which enables the group to reduce its risk of commodity price fluctuation and avoid relying too heavily on key suppliers.

Risks connected with competitiveness in the group’s business segments

The group operates in markets with genuine entry barriers against new competitors thanks to technology or quality gaps, the need to make substantial initial investments and the fact that it operates in segments that are highly regulated, requiring special authorisations from the competent authorities.

It is important as the ability to develop and deliver innovative products would allow group companies to achieve results in line with the strategic forecasts.

Risks connected with environmental policies

The group operates in segments that are subject to a host of environmental rules and regulations (at local, national and supranational level) and they are often revised to become more restrictive. Having to comply with these regulations, especially if they continue to change, could lead to very high costs that potentially could impact the group’s profit margins.

Risks connected with the regulatory and reference framework

Some group companies carry on their activities in segments regulated by European, national and regional laws and regulations. It cannot be ruled out that the regulatory provisions, which will be issued from time to time by the European Union, the Italian Republic, the regions in which the companies of the group operate, could have a significant impact on the group’s results and financial situation.

Risks connected with the result of the referendum in Great Britain

In accordance with the ESMA/2016/1528 Document of 28 February 2016 – European Common Enforcement Priorities for 2016 Financial Statements. The CIR group, whose activities have no significant direct representation in the United Kingdom, has a limited exposure to the risks associated with Brexit, unless this comes ‐ in both economic and financial terms ‐ from a more general impact on the entire Italian economic and industrial system from uncertainty about the timing and ways in which the Great Britain leaves the European Union.