Prysmian S p A: GESCHÄFTSBERICHT JAHR 2019

Fostering global evolution

Annual Report

Contents

Disclaimer

This document contains forward-looking statements, speciﬁcally in the sections entitled "Signiﬁcant events after the reporting period" and "Busi- ness outlook", that relate to future events and the operating, economic and ﬁnancial results of Prysmian Group. By their nature, forward-looking statements involve risk and uncertainty because they depend on the occurrence of future events and circumstances. Actual results may diﬀer materially from those reﬂected in forward-looking statements due to multiple factors.

LETTER TO

SHAREHOLDERS

page 4

Group Annual Report

DIRECTORS'

REPORT

page 11

CONSOLIDATED

FINANCIAL

STATEMENTS

page 131

EXPLANATORY NOTES

page 139

CERTIFICATION OF

THE CONSOLIDATED

FINANCIAL STATEMENTS

pursuant to art.81-terof Consob regulation 11971 dated 14 may 1999 and subsequent amendments and additions

page 262

INDEPENDENT AUDITORS' REPORT

page 263

Letter to Shareholders

Valerio Battista

Chief Executive Oﬃcer Prysmian Group

Work to consolidate the integration of General Cable within the Prysmian Group continued during 2019. The resulting generation of synergies worth Euro 140 million has exceeded all expectations.

This integration has helped the Prysmian Group to build a position as the only global leader with a model balanced by business segment and optimal geographical diversiﬁcation. The absorption of General Cable has also signiﬁcantly consolidated our ability to innovate and develop new solutions that satisfy the highest expectations of our cus- tomers, generating value for the Group.

Prysmian Group

Annual Report 2019

Results for the year

The Prysmian Group achieved satisfactory results in 2019, with strong cash generation, even more than expected, and an adjusted EBITDA in excess of one billion Euro (Euro 1.007 billion). The established proﬁtability objectives were therefore achieved, with a 31.4% increase compared to Euro 767 million in 2018.

EBITDA rose to Euro 907 million (Euro 501 million in 2018, accounting for General Cable from 1 June 2018), including net expenses for corporate reorganisations, non-recurring net expenses and other non-operating net expenses, totalling Euro 100 million (Euro 192 million in 2018). Net proﬁt improved signiﬁcantly to Euro 296 million from Euro 58 million in 2018 (including General Cable since 1 June 2018). Group revenues totalled Euro 11.519 billion, in line with 2018.

The Energy division performed well, especially in terms of proﬁtability, which increased by 35.9%; in particular, power distribution achieved a solid growth with an improving proﬁtability.

A signiﬁcant contribution was also made by the Projects business. The order backlog now exceeds Euro 2 billion once again, following the acquisition of major power interconnection work and projects for the cabling of oﬀshore wind farms. These activities allow us to strengthen our position as an enabler of the transition to renewable sources of energy.

The performance of the Telecom business was also good. In this area we introduced a number of important innovations, such as a new cable with 6,912 ﬁbres, the largest number in the industry, allowing ease of use and improved ﬁbre management, and the ﬁrst ﬁbre in the world that can be bent at will - just 180 micron in diameter - with an unprecedented size reduction that allows for the miniaturisation of cables.

R&D leading innovation in the sector

With 900 professionals and 25 research centres throughout the world, the Prysmian Group is constantly committed to providing customers with the best cable infrastructure solutions. Addressing ever more sophisticated technological requirements, these solutions facilitate the power and data transmission processes while, at the same time, lowering the overall cost of cabling solutions for the customer.

The Group is also striving to develop technological innovations that lower energy and water consumption and reduce the greenhouse gas emissions of our manufacturing facilities. The Design to Cost (DTC) programme is committed to use the best materials, adopting eﬃcient processes and implementing innovative projects to achieve cost savings in excess of Euro 45 million, with over 1,300 projects completed at our manufacturing plants during 2019.

R&D investment of Euro 106 million in 2019 was mainly dedicated to the ever more advanced search for EHV electricity transmission systems that can be buried, for longer and more eﬃcient cables that can be laid at ever greater depth and for optical ﬁbre solutions with the largest number of cables in a miniaturised space for easy use in the ﬁeld. In order to achieve this, the Prysmian Group collaborates with more than 50 research centres and universities and launched about 180 new product families during 2019, not least thanks to the acceleration driven by General Cable from the third quarter onwards. The Group's new products generated Euro 800 million, compared to Euro 496 million in 2018, with a 12.3% ongoing growth - 10.1% in Q3 2018 - led by North America and the Telecom area. Today, the Prys- mian Group holds around 5,900 patents.

We have achieved world leadership in the sector of cables and systems for power distribution and tele- communications, with over 80 new products in the context of innovation and more than 500 new solutions in the product development area.

Integrated sustainability

Sustainability has always been in our DNA, enabling us to direct the strategies of the Prysmian Group towards the provision of concrete help in tackling the greatest global challenges, with a clear and determined action plan.

As a consequence of this, the Group also improved its ranking in the main sustainability indexes during 2019, and was included for the ﬁrst time - as the only player in the sector - in the Dow Jones Sustainability World and STOXX Global ESG Indexes, reaching the Ecovadis Gold level and conﬁrming the good performance achieved in other ESG indexes, such as CDP Climate Change, Standard Ethics and FTSE4Good.

In addition, a new set of medium-term sustainability goals has been deﬁned and constant eﬀorts are being made to improve the sustainability of production processes, with a view to lowering CO2 emissions by 2-3% by 2022.

In fact, our new ambitious goal is to generate 50% of Group revenues from low carbon-enabling products in 2022, in line with our eﬀort to tightly integrate ESG topics within the growth strategy.

On the People front, the Group makes Diversity & Inclusion a central activity, with a view to raising the percentage of women executives to 14-18% (12% in 2019) and ensuring that 40% of white-collar new hires are women.

In order to further improve the commitment of the entire organisation to achieve the 2022 sustainability goals, the annual and long-term employee incentive plans have been linked to a signiﬁcant selection of those objectives. We have also launched a share incentive plan for 800 key people within the Group, which includes ESG goals among the four key drivers of value creation. This Plan envisages granting new ordinary shares serviced by a bonus increase in share capital, in order to strengthen the commitment of the company and management to the creation of sustainable value over time for all stakeholders.

Prysmian Group

Annual Report 2019

Prysmian for the energy transition

Signature of the new Green Plan by the European Commission in December 2019 seeks to make Europe carbon neutral by 2050, highlighting the priority need for an integrated energy market that is both digitalised and interconnected with renewable sources. That said, the development of renewable energy in Europe, North America and the Asian countries with the largest impact on CO2 emissions is still heavily restricted by the high cost of production and the need for substantial investment.

Accordingly, the Prysmian Group is deeply committed to promoting the development of smarter and more sustainable electricity grids. In order to achieve the ambitious decarbonisation objective set by Europe, the European Commission estimates that oﬀshore wind energy needs will reach 450 GW by 2050. To deliver this, the oﬀshore wind power sector will need an eﬃcient, sustainable and reliable electricity transmission system, capable of supporting the transition to renewable energy at ever more competitive costs.

In practical terms, it will only be possible to achieve the objectives set recently by the European Commission and the UN SDGs for the coming decade if eﬀorts are made to lower the production cost of renewables to the level enjoyed by fossil fuels.

The Prysmian Group seeks to be the go-to technology player in this scenario, facilitating the production and transmission of cleaner, more intelligent, more eﬃcient and competitive energy, so that power can be transferred from the location of renewable production (oﬀshore wind farms) to the place of consumption (communities and urban centres).

Creation of value for our shareholders

Based on the positive results achieved in 2019, we are glad to recommend to the Shareholders' Meeting an increased dividend of Euro 0.5 per share, conﬁrming the ability of the Group to generate value for its shareholders.

Group Annual Report

01_DIRECTORS' REPORT

Directors and Auditors

Preface

Financial highlights

Highlights 2019

The Prysmian Group, a global leader

Global presence

Vision, Mission, Values

Business Areas

A business model balanced by segment and geographical area

Prysmian Group for the energy transition

Sustainability in Prysmian Group

Corporate Governance

Prysmian and the financial markets

Significant Events During The Year

Business environment

Group performance and results

Review ofProjectsOperating Segment

Review ofEnergyOperating Segment

Review ofTelecomOperating Segment

Results by Geographical Area

Group Statement of Financial Position

Alternative performance indicators

Risk factors and uncertainties

Sustainable innovation

110

Protection of intellectual property

124

Incentive plans

126

Business outlook

127

Other information

128

Certification pursuant to art. 262 of the Italian

129

Stock Exchange market regulations

02_CONSOLIDATED FINANCIAL STATEMENTS

131

Consolidated Statement of Financial Position

133

Consolidated Income Statement

134

Other Comprehensive Income

134

Consolidated Statement of changes in Equity

135

Consolidated Statement of Cash Flows

136

03_EXPLANATORY NOTES

139

Certification of the Consolidated Financial Statements

pursuant to art.81-terof Consob regulation 11971 dated

262

14 May 1999 and subsequent amendments and additions

Independent Auditors' Report

263

GROUP ANNUAL REPORT

Directors'

Report

Prysmian Group

Directors' Report

Directors and Auditors

BOARD OF DIRECTORS(3)

Chairman

Claudio De Conto(*)(2)

Chief Executive Oﬃcer &

Valerio Battista

General Manager

Directors

Maria Elena Cappello(**)

Monica de Virgiliis(**)(2)

Francesco Gori(**)(1)(4)

Joyce Victoria Bigio(**)(1)

Massimo Battaini

Pier Francesco Facchini

Maria Letizia Mariani(**)(1)

Fabio Ignazio Romeo

Paolo Amato(**)(2)

Mimi Kung(**)

BOARD OF STATUTORY AUDITORS(4)

Chairman

Pellegrino Libroia

Standing Statutory Auditors

Laura Gualtieri

Paolo Francesco Lazzati

Alternative Statutory Auditors

Michele Milano

Claudia Mezzabotta

Independent Auditors(5)EY S.p.A.

(*)

Independent director as per Italian Legislative Decree 58/1998.

(**)

Independent director as per Italian Legislative Decree 58/1998 and Italy's Corporate Governance Code issued by Borsa Italiana S.p.A.

Prysmian Group

Annual Report 2019

Preface

In compliance with the provisions of art. 5, par. 3 (b) of Italian Legislative Decree 254/2016, the Group has prepared its Consolidated Non-Financial Statement in a separate document (Sustainability Report 2019). This document, covering environmental, social and personnel-related matters, respect for human rights, and the ﬁght against active and passive corruption, aims to provide its users with an understanding of the Group's business, its performance, results and impact.

The Consolidated Non-Financial Statement 2019, drawn up in accordance with the GRI Sustainability Reporting Standards (published by the GRI - Global Reporting Initiative - in 2016), was approved by the Board of Directors on 5 March 2020. As required by Italian Legislative Decree 254/2016, this document is submitted to a limited review by the independent auditors, in accordance with the International Standard on Assurance Engagement (ISAE 3000 Revised). The document is available on the Group's website at www.prysmiangroup.com.

Prysmian Group

Directors' Report

Financial highlights

MAIN FINANCIAL AND OPERATING DATA(*)

(in millions of Euro)

2019

2018

2018(***)

% change

2017

Combined(**)

Combined

Sales

11,519

11,523

10,104

0.0%

7,904

Adjusted EBITDA before share of net proﬁt/

983

708

634

38.9%

694

(loss) of equity-accounted companies

Adjusted EBITDA (1)

1,007

767

693

31.4%

736

EBITDA (2)

907

501

660

Adjusted operating income (3)

689

466

559

Operating income

569

215

424

Proﬁt/(loss) before taxes

444

103

325

Net proﬁt/(loss)

296

237

(in millions of Euro)

31.12.2019

31.12.2018 (***)

Change

31.12.2017

Net capital employed

5,236

5,059

177

2,430

Employee beneﬁt obligations

494

463

355

Equity

2,602

2,374

228

1,639

of which attributable to non-controlling

187

188

(1)

188

interests

Net ﬁnancial debt

2,140

2,222

(82)

436

(in millions of Euro)

2019

2018

% change

2017

Net capital expenditure (4)

248

278

-10.8%

254

Of which for acquisition of Huan Shen Huan

assets

Employees (at period-end)

28,714

29,159

-1.5%

21,050

Earnings/(loss) per share

- basic

1.11

0.24

1.14

- diluted

1.11

0.24

1.11

Number of patents (5)

5,881

5,627

4,871

Number of plants

106

112

The 2019 ﬁgures include the impact of applying IFRS 16 for the ﬁrst time, with eﬀect from 1 January 2019 using the modiﬁed retrospective method, meaning that prior year comparatives are unaﬀected by the new standard. In addition, the 2017 ﬁgures reﬂect no impact from the consolidation of General Cable, eﬀective as from 1 June 2018.

Prysmian Group

Annual Report 2019

SALES 2019 BY GEOGRAPHICAL AREA

€11,519 million

SALES 2019 BY BUSINESS AREA

€11,519 million

54%EMEA(*)

30%North America

8% Latin America

|… 1'!'o!

(*) Europe - MiddleEast - Africa

16% Projects

70% Energy

46% of whichi Energy & Infrastructure

22% of which Industrial

& Network Components

2% of which other

14% Telecom

Source IPCC

Prysmian Group

Directors' Report

KEY FINANCIALS

Amounts in millions of Euro - Percentages on sales

SAKES (1)

Organic Growth

-0.9%

2.6%

11,519

10,104

7,904

2017

2018

2019

ADJ.EBITDA (2)

1,007

736

693

9.3%

8.7%

6.9%

2017

2018

2019

ADJ. OPERATING INCOME (3)

689

559

466

7.0%

6.0%

4.6%

2017

2018

2019

NET OPERATING WORKING CAPITAL (4)

749

707

6.3%

6.5%

106

1.3%

2017

2018

2019

NET FINANCIAL

DEBT

2,222

2,140

436

2017

2018

2019

Prysmian Group

Annual Report 2019

Highlights 2019

The ﬁngerprint of cables that provides information in real time

PRY-ID is the intelligent, innovative solution launched by Prysmian that provides real- time access to key information about cables and accessories: case type, length, source, components connected. This represents a type of "ﬁngerprint" for cables, which translates into cost savings and enhanced safety by making it easier to locate cables and components reliably within buildings

Intelligent virtual assistant for managing drums and electrical cables

ALESEA is the new IoT solution that provides virtual assistance in the management of drums: this is the ﬁrst innovation from Corporate Hangar, the innovation hub of Prysmian. An intelligent device is installed on the drum and cloud infrastructure makes it possible to ﬁle and process the data, accessible via an intuitive web platform. To date, over 1,000 Alesea devices have been tested in 7 countries.

Innovative technology for monitoring networks

PRY-CAM is proprietary Prysmian technology for monitoring, managing and assessing the condition of electrical systems, innovatively drawing on a series of products to record all key parameters (partial discharges, current, voltage, temper- ature, humidity etc.) and facilitate eﬃcient management using a predictive approach.

A Brand of Prysmian Group

FLEXRIBBON

FlexRibbon is the optical ﬁbre cable with the largest number of ﬁbres in the world: using extremely ﬂexible ﬁbre ribbons, almost 7,000 ﬁbres can be ﬁtted into a low-diameter cable. This makes it possible to insert the largest possible number of ﬁbres into the space available, miniaturising the cable.

The leonardo da vinci, the largest cable-laying ship in the world, has a low environmental impact

Prysmian has begun construction of the "Leonardo da Vinci", the largest cable-laying ship in the world. This vessel is designed to be the most eﬃcient and eﬀective on the market, with increased capacity and greater versatility for the implementation of projects. The ship will be equipped with leading systems for reaching and holding position at sea, while its engines and propulsion systems have been designed speciﬁcally to reduce the environmental impact. The new vessel will be fully operational by 2Q 2021.

Prysmian Group

Directors' Report

BENDBRIGHTXS180μm - Revolutionary innovation for broadband

Prysmian has launched the ﬁrst ﬁbre in the world that can be bent at will, with a diameter of 180 microns that allows cable miniaturisation at a level never before achieved. Optical ﬁbre cables are a crucial part of the global transition to ﬂexible and reliable connectivity. Their large number of ﬁbres and reduced diameter makes installation quicker and cheaper. This innovation conﬁrms the commitment of Prysmian to support the evolution of high density optical networks.

Interconnectionof the Cycladic islands

Prysmian is achieving a new ﬁrst thanks to a new cable with synthetic sheathing that is about 30% lighter than steel, thus paving the way to new scenarios in which installations at great depth, up to 3,000 metres, will be possible.

The Group is using this new technology for the undersea electrical interconnection of the Cycladic Islands, Evia, Andros and Tinos, involving the design, supply and installation of two high voltage AC cables that will increase energy transmission between the islands, ensuring solidity, reliability and sustainability.

VIKING, THE RECORD-BREAKING CABLE

Prysmian will implement the Viking Link project, the record interconnection that will link the United Kingdom and Denmark. The Group will be responsible for the turnkey design, production and installation of the longest power interconnection in the world, with 1,250 km of submarine cables and about 135 km of terrestrial cables in the United Kingdom.

Dow Jones Sustainability Index 2019: important recognition

The Prysmian Group was included in the Dow Jones Sustainability World for the ﬁrst time in 2019. This is the largest international index for the assessment of performance in environmental, social and governance (ESG) terms. Inclusion in this index recognises the eﬀorts made by Prysmian to deﬁne a sustainable business approach and serve as an enabler in developing the best cable and optical ﬁbre technologies, thus supporting the transition towards a more sustainable use of energy resources, digitalisation and the decarbonisation of economies.

The DJSI is based on the appraisals of RobecoSAM ESG, which awarded Prysmian a score of 84/100 and a Silver Sustainability Yearbook Award 2020.

Prysmian Group

Annual Report 2019

The Prysmian Group, a global leader

World leader in the supply of power and telecom cables.

With sales in excess of Euro 11.5 billion, approximately 29,000 employees and 106 plants in more than 50 coun- tries, the Group has a consolidated presence in technologically advanced markets. The broadest range of prod- ucts, services, technologies and know how are oﬀered to manufacturers that use cabling systems in the production and distribution of energy and telecommunications.

Established at the end of the 1800s as Pirelli Cables, the Prysmian Group has grown by acquisitions: from absorption of the activities of Siemens and Nokia in the power cables sector, to the more recent acquisition of the Draka group, based in the Netherlands, and, in 2018, to the takeover of General Cable, a US group.

The history of the Group spans the entire cables industry, with aggregations that sustained expansion of the products and services oﬀered, with constant innovations, improving standards and a greater geographical pres- ence, which is a signiﬁcant strength when serving regional market needs.

Industry leadership extends to business control and a proven ability to identify synergies and lower costs rapid- ly, ensuring operational eﬃciency at the highest level within the sector.

1879

1998

2005

2007

The history of Prysmian

Società Cavi Pirelli began a

n July 2005, Prysmian was

Prysmian was listed on

Group begins with the

series of targeted

established following the

the Milan stock Exchange

Pirelli Group. Società Cavi

acquisitions,

acquisition of the Cables

placing on the Market

Pirelli was founded in Italy

incorporating activities in

and Energy Systems and

46% of the shares held by

as the Cables Divison of

the power cable sectors of

the Cables Telecom and

Goldman Sachs Group.

the recently established

companies such as

Systems businesses of

Pirelli Company.

Siemens, BICC, Metal

Pirelli.

Manufacturers Ltd. and

NFK.

1910

1970

1986

1987

Draka was founded under

The company was

A buyout operation

Then began two decades

the name Hollandsche

bought by Philips and

financed by Parcom and

of worldwide acquisitions,

Draad 8 Kabel Fabriek.

became part of the

Flint Beheer led to the

including concerns such

Wire & Cable Division.

division becoming

as Philips Optical Fiber and

independent and taking

Alcatel.

the name Draka.

2011

The merger of the two market-leading

companies led to 2018 the creation of

the Prysmian Group.

General Cable joined the Prysmian Group.

1927

1990

2005

2007

2012

It was originally

established in New Jersey (USA), incorporating several companies founded in the nineteenth century.

Acquisition of Carol Cable Company and Carol® Brand line, including electrical cords, cords for connectors and industry-leading automotive products.

Acquisition of Silec, leader in the energy and industrial sectors, and Helix/HiTemp, a manufacturer of high-end solutions for corporate networks.

Acquisition of Stabiloy and Nual, two brands of aluminium construction

cables and Colombian company Procables, plus Prestolite Wire, which mainly supplies OEMs and distributors.

Acquisition of Stabiloy and Nual, two brands of aluminium construction cables and Colombian company Procables, plus Prestolite Wire, which mainly supplies OEMs and distributors.

Prysmian Group

Directors' Report

A history of innovation

At the start of the 20th century, Prysmian Group laid the ﬁrst telecommunications cables that linked the Americas and Europe. Cables and optical ﬁbres supplied by Prysmian Group comprise a signiﬁcant part of the main electricity grids and telecommunications networks around the world, with installations in such iconic buildings as the Burj Khalifa in Dubai, The Shard in London, the World Trade Center in New York and the Guggenheim Museum in Bilbao.

Prysmian submarine cables are integral to numerous key projects of global importance: from the Hudson Transmission Project linking New York and New Jersey to the Empire Wind project, which is one of the ﬁrst oﬀshore wind farm projects on a commercial scale developed by Equinor in New York State, as well as Vineyard WIND 1, the ﬁrst large-scale oﬀshore wind farm project in the United States, which is situated more than 15 miles oﬀ the coast of Massachusetts.

THE SHARD. LONDRA

HUDSON TRANSMISSION PROJECT. NEW YORK-NEW JERSEY

BURJI KHALIFA. DUBAI

GUGGENHEIM MUSEUM. BILBAO

WTC. NEW YORK

Prysmian Group

Annual Report 2019

Global presence

Nogales

Piedras Negras

Durango

Tetla

Saguenay

St. Jerome

St. Maurice

Heredia

Prescott

Lincoln

Manchester

Bogotá

Marion Williamsport

North Dighton

Willimantic

Indianapolis

S. Haven

Bridgewater

Sedalia

Du Quoin

Lawrenceburg

Paragould

Claremont

-!)7-3,2',

Abbeville

Marshall

Jackson

Lexington

Vila Velha

Sorocaba Boa Vista

Poços de Caldas

Sorocaba Eden

Joinville

La Rosa

Santiago

NORTH AMERICA

LATAM

EUROPE

MEAT

APAC

CANADA

ARGENTINA

CZECH REPUBLIC

ANGOLA

AUSTRALIA

U,S,A,

BRAZIL

ESTONIA

IVORY COAST

CHINA

CHILE

FINLAND

OMAN

INDIA

COLOMBIA

FRANCE

TUNISIA

MALAYSIA

COSTA RICA

GERMANY

TURKEY

INDONESIA

ECUADOR

HUNGARY

NEW ZEALAND

MEXICO

ITALY

PHILIPPINES

NORWAY

THAILAND

PORTUGAL

ROMANIA

RUSSIA

SLOVAKIA

SPAIN

SWEDEN

THE NETHERLANDS

U,K,

plants

Prysmian Group Directors' Report

Oulu

Drammen

Pikkala

Keila Rybinsk

Nassjo

Washington

Wrexham

Nordenham

Emmen

Schwerin

Aberdare

Delft

N. Berger

Berlin

Bishopstoke

Eindhoven

Wuppertal

Velke Mzirici

Calais

Neustadt

Nurnberg

Presov

Amfreville

Douvrin

Montreau

Cornimont

Balassagyarmat

Sainte Geneviève

Paron

Kistelek

Gron

Quattordio

Merlino

Slatina

Chavanoz

Santander

Charvieu

Milcov

Livorno

Manlleu

S. Perpetua

Pignataro M.

Giovinazzo

Arco Felice

Battipaglia

Montcada

Abrera

Villanueva

Morelena

Key

Energy

Telecom

Shared

Grombalia

Mudanya

Tianjin

Yixing

Zhongyao

Haixun

Suzhou

Sohar

Wuxi

Cebu

Muscat

Chiplun

Melaka

Abidjian

Cikampek

Luanda

Dee Why

Liverpool

Auckland

+50

106

about

countries

plants

R&D

29 thousand

ships

centers

employees

equipped

Prysmian Group

Annual Report 2019

Vision, Mission, Values

VISION

We believe in the eﬃcient, eﬀective and sustainable supply of energy and information as the main driver for the development of community.

MISSION

The Prysmian Group provides its customers worldwide with superior cable solutions based on pioneering technology and consistent excellence in execution, ultimately delivering sustainable growth and proﬁt.

VALUES

DRIVE. Our objective is to guide the evolution of our sector: we develop our people and our business, following a clear strategy while anticipating customer needs.

TRUST. We intend to create an environment that inspires trust, where diversity and collaboration are recognised and people are empowered to make decisions with integrity.

SIMPLICITY. Our challenge is to simplify all that we can, focusing on activities that generate considerable value and timely decisions that enhance the results achieved by the Group.

Prysmian Group

Directors' Report

Business Areas

Following the acquisition of General Cable (2018), the structure of the Group - with applications in over one hundred sectors - was organised into a matrix of reference markets and business units.

Energy

The Energy business area comprises businesses oﬀering a complete and innovative product portfolio designed to meet the many diverse demands of the market. It is organised as follows: Energy & Infrastructure, which includes Trade & Installers, Power Distribution and Overhead Transmission Lines, and Industrial and Network Compo- nents, which includes Oil & Gas, Downhole Technology, Elevators, Automotive, Network Components and Specialties & OEM, serving in turn the following sectors: Cranes, Mining, Railways, Rolling Stock, Marine and Renewables (cables for applications in the solar energy industry and for the operation of wind turbines).

Projects

This business area comprises high-tech and high value-added businesses focused on the design, production and customisation of HV cabling systems for terrestrial and submarine applications. The Group develops pioneering "turnkey" submarine cable systems for installation at depths of up to 3,000 metres, assisted by its cable-laying ﬂeet comprising the Giulio Verne, the Cable Enterprise and the Ulisse. Prysmian Group also oﬀers advanced services for submarine interconnections between countries and between oﬀshore wind farms and the mainland, used for both the generation and distribution of electricity.

Telecom

The Telecom business area comprises businesses devoted to making the cabling systems and connectivity products used in tlc networks. The product portfolio includes optical ﬁbre, optical cables, connectivity components and accessories, OPGW (Optical Ground Wire) and copper cables. The Group is also among the leaders in the production of optical ﬁbre - the essential component of all types of optical cables. A wide range of optical ﬁbres is designed and made using proprietary technology to cater to the broadest possible spectrum of customer applications: single-mode, multimode and specialty ﬁbres. In both cables and connectivity, the Group focuses on the design of products that provided greater density in a smaller diameter, with ease of use and optimal ﬁbre management.

The PROJECT business area generated Euro 1,844 million in 2019, representing 16% of the Group's total reve- nues, while the ENERGY business area generated Euro 8,027 million or 70% of revenues; lastly, the TELECOM business area generated Euro 1,648 million, contributing 14% of revenues.

Prysmian Group

Annual Report 2019

A business model balanced

by segment and geographical area

The diversiﬁed portfolio of activities is a strength for the Prysmian Group, as the only global leader with a business model balanced among areas with diﬀering proﬁles, where each segment plays a precise role in the overall strategy, considering stability, growth potential and the generation of opportunities.

Historically, the Energy area has delivered the most stable results, while the Projects and Telecom areas have been marked by greater volatility.

Acquisitions have always ﬁt in with the strategy of maintaining balance: General Cable enabled the Group to diversify geographically, with strong exposure to the North American market, which is structured diﬀerently with more consolidated dynamics.

Additionally, while the positioning of the Prysmian Group as a cable manufacturer remains central, part of its activities make it a network solution provider, drawing on the ability to integrate ever more closely the various components - engineering, installation, network monitoring and after-sales services - in order to provide value-added services that ensure recurring revenue streams and build long-term partnerships with customers.

Alongside this, the Group is also able to identify and develop value-added market niches - such as elevator ca- bles, cables for multimedia applications, solutions produced by Prysmian Electronics - while releasing the synergies needed to be cost-eﬀective and oﬀer end-to-end solutions integrated with advanced digital equipment.

Prysmian Group

Directors' Report

Prysmian Group

for the energy transition

The energy transition from fossil fuels to renewable sources is one of the greatest and most urgent challenges faced by humanity.

The production of electricity and heat generates 25% of all global CO2 emissions.

Europe was one of the ﬁrst economies to make formal commitments, establishing the objectives for 2030: 40% reduction in greenhouse gas emissions with respect to the 1990 level; 32% of energy needs met by renewable sources and an improvement in energy eﬃciency by at least 32.5%1. Signature of the new Green Plan by the Eu- ropean Commission in December 2019 seeks to make Europe carbon neutral by 2050, highlighting the priority need for an integrated energy market that is digitalised and interconnected with renewable sources.

That said, the development of renewable energy in Europe, North America and the Asian countries with the largest impact on CO2 emissions is still heavily restricted by the need for substantial investment.

CO2 EMISSIONS BY SECTOR: TACKLING THE ELECTRICITY SECTOR WILL NOT BE ENOUGH

25%

Electricity and Heat Production

24%

Agriculture, Forestry and Other Land Use

Buildings

14%

Transportation

21%

Industry

10%

Other Energy

Source: IPCC.

Accordingly, the Prysmian Group is deeply committed to supporting the development of smarter and more sustainable electricity grids. In order to achieve the ambitious decarbonisation objective set by Europe, the European Commission estimates that the oﬀshore wind energy needed by 2050 will total 450 GW.

To deliver this, the oﬀshore wind power sector will need an eﬃcient, sustainable and reliable electricity transmission system, capable of supporting the transition to renewable energy at ever more competitive costs

(1) The 2030 climate and energy framework published by the European Commission.

Prysmian Group

Annual Report 2019

As the cost of oﬀshore wind has declined. installations have soared

Oﬀshore wind: Global installed capacity (GW. navy bars) vs LCOE in Europe (€/MWh)

27 GW

151

147

144

23 GW

140

122

19 GW

102

14 GW

12 GW

8 GW

7 GW

4 GW

5 GW

3 GW

2 GW

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Goldman Sachs Global Investment Research. IRENA.

So it is necessary to develop a grid that facilitates a cost-eﬀective energy transition, maintaining adequate resources while, at the same time, enabling system operators to cope with variable models of consumption and demand. In a "No Grid" scenario by 2040, ENTSO-E has shown that failure to invest in the transmission system could increase the marginal price by 3% -29%, depending on the region, and endanger the security of the electricity supply as well.

{by 2040

114

{by 2030

EURO

investments in

extra cost

grid infrastructure

YEAR

of 'no grid'

for transmission

scenario

and storage projects

Data source: ENTSO-E.

In concrete terms, it will only be possible to achieve the objectives set recently by the European Commission and the UN SDGs for the coming decade if eﬀorts are made to lower the production cost of renewables to the level enjoyed by fossil fuels.

The Prysmian Group seeks to be the go-to technology player in this scenario, facilitating the production and transmission of cleaner, more intelligent and more eﬃcient and competitive energy, so that power can be transferred from the location of renewable production (oﬀshore wind farms) to the place of consumption (commu- nities and urban centres).

Cable technology will be decisive in this scenario, making it possible to improve the grids needed for this energy transition, while optical ﬁbre will enable the digitalisation of society as an essential step in the development of a low-carbon economy and a new growth model.

The Prysmian Group promotes cable solutions that support the move towards this low-carbon economy, with positive eﬀects on climate change. Indeed, in 2019, 48% of total Group revenues were attributable, based on the Climate Bond Initiative taxonomy, to products that facilitate achievement of the target set by COP 21 in the 2015 Paris Agreements and, in general, an energy transition that contributes to the decarbonisation of the economy and the digitalisation of networks.

Prysmian Group

Directors' Report

THE LARGEST CABLE-LAYING VESSEL IN THE WORLD

The Leonardo da Vinci cable-laying vessel is now under construction. Named after the celebrate genius, inventor and engineer, this ship will strengthen the ability of Prysmian to execute projects and our reputation as a "one-stop-shop" service provider. The Leonardo da Vinci, which joins the current Prysmian ﬂeet of three vessels, will be the best performing cable-laying vessel in the world.

With a length of about 170 m and a beam of about 34 m, the Leonardo da Vinci is designed to guarantee greater capacity and versatility in the execution of projects, due to such advanced functionality as: ability to install at depths of more than 3,000 m, due in part to a new generation of cable technology with lighter shielding; maximum speed in excess of 14 knots; 2 carousels of 7,000 and 10,000 tonnes, representing the greatest capacity available on the market and reducing the plant-site transportation time and, therefore, improving overall project eﬃciency; 2 independent laying lines to increase operational ﬂexibility; pulling force in excess of 180 tonnes that enables complex installation operations to be carried out, supporting a series of burial systems and equipment, such as the submarine plough and the Hydroplow. The ship will be equipped with leading DP3 systems for reaching and holding position at sea, while its engines and propulsion systems have been designed speciﬁcally to ensure their reduced environmental impact. All equipment for the handling and installation of cables was designed by Prysmian.

length of about

170m

beam of about

34m

Prysmian Group

Annual Report 2019

As an industry leader, we seek to make a stable contribution to the modernisation of the entire sector and to improve Group processes constantly, in a proactive manner, in order to make them more eﬃcient and sustain- able. We achieve this by collaborating with international research centres and universities, with our suppliers throughout the entire production chain and with our customers, with which we have developed long-termco-innovation processes and partnerships.

The Prysmian Group is committed to making constant innovations that enhance the performance of terrestrial and submarine HV cables, which are key to the development of power grids.

Cable technology in support of the energy transition

Cables (especially HV terrestrial and submarine cables) are and will be an essential component in completing the energy transition, as they are responsible for the generation of electricity by oﬀshore wind farms and for the interconnections between systems and countries, thus supporting the implementation of more integrated, eﬃcient and sustainable electricity grids.

More speciﬁcally:

cables represent the backbone of electricity grids, the components without which it would not be possible to transmit and transport energy from one country to another;

cables (especially terrestrial and submarine cables) make the entire electricity grid more eﬃcient, facilitating the exchange of energy between diﬀerent countries / consumption areas with diﬀerent consumption models, thus enabling consumers to obtain access to cheaper and cleaner energy;

submarine cables transmit electricity from the sea, where the wind farms are located, to the land, where the primary distribution network is located;

Terrestrial cables transmit electricity from the areas in which it is generated (the landfall of submarine cables) to the places in which it is consumed.

Prysmian roadmap for innovation

In particular, research eﬀorts are focused on a number of main objectives:

cables that can be installed at ever greater depths and in any marine environment, even reaching a depth of 3,000 metres;

ever longer interconnections, to link countries that are far apart;

cables for the wind farms furthest from land (e.g. ﬂoating wind farms), located in the most wind- swept areas;

increase the intrinsic reliability of cables, limiting their dispersion, and equipping them with sensors capable of monitoring the system;

increase cable productivity, contributing to a signiﬁcant reduction in system installation costs. In par- ticular, more productive and reliable cables help to optimise installation costs (fewer trenches and therefore easier access to the permits needed to complete an interconnection).

In the same way, the objective in the optical ﬁbre sector is to ensure ever greater levels of ﬂexibili- ty, without loss of signal quality, and to prepare for the 5G challenge that will require the market to install new infrastructure to an almost unprecedented extent.

Prysmian Group

Directors' Report

Sustainability in Prysmian Group

SUSTAINABILITY IS IN OUR DNA

Sustainability plays a central role for the Prysmian Group, committed to promoting a business model that integrates economic, social and environmental responsibility in all aspects and activities of the Group.

The Prysmian Group promotes a business model based on the concept of shared value through a strategic approach that considers the following elements to be key: listening to and actively involving all internal and external stakeholders, dedicating constant attention to the evolving global and industry context, and planning for the future in a responsible manner that considers the environment and society.

The strength of this approach is the constant monitoring of the Group's sustainability performance along the entire value chain, with the aim not only of assessing performance ex post, but also of developing a proactive attitude in decision-making processes, able to anticipate and seize the new opportunities. ESG (Environment, Social and Governance) matters are absolutely integral to the sustainability strategy adopted by the Group, which has four main aspects:

PUBLIC COMPANY

We are a public company and, as such, it is fundamental to align the interests of the Group with those of our stakeholders. We have always maintained open and transparent dialogue with our shareholders, employees,

customers and suppliers, the institutions and the communities in which we work. In order to ensure their confidence and support, we strive to maintain high governance standards and practices: for example, 67% of Board members are independent. As a public company, the shareholders' meetings of the Prysmian Group provide an important opportunity for discussion, involvement and agreement among all shareholders. Participation is

lively and proactive. For example, the meeting held to approve the 2018 financial statements was attended by more than 1,530 shareholders, in person or by proxy, representing 61% of the share capital of Prysmian Group. In addition, our open and transparent relations with the market and investors translate into over 500 meetings each year, as well as other contacts.

Integrity as a corporate value is expressed using a series of instruments: the Code of Ethics, the anti-corruption policy, privacy and data protection, and the Helpline programme for reporting actual, apparent or potential infringements of the law. Prysmian Group is a company made of people: out of 29,000 employees, more than 9,200, owning about 1.5% of the share capital, have subscribed to the "YES" share ownership programme - in-

vesting directly and expressing their confidence in the Company.

{

1,530

{approval

of Board

Shareholders

who attended the

members are

2018 Financial

Independent

Statements

Prysmian Group

Annual Report 2019

ESG IS INTEGRAL TO THE GROUP STRATEGY

We strive to align the management objectives of the Group with the sustainability KPIs and, to this end, we have adopted a scorecard that enables us to manage social, economic and environmental matters as a part of our business activities. The Prysmian Group's scorecard comprises 14 objectives with a business impact. These are clear and measurable objectives identiﬁed with reference to 3 parameters: the 17 Sustainable Development Goals for 2030 (SDGs) deﬁned by the United Nations, requests from major International Sustainability Indexes and the needs and expectations of our stakeholders, which are mapped each year via the Group's stakeholder engagement initiatives.

Scorecard 14 objectives

REMUNERATION POLICY ALIGNED WITH ESG CRITERIA

The incentive scheme for all managers within the Prysmian Group is linked to the achievement of objectives for the improvement of our ESG parameters. The 2019 Remuneration Policy adopted by the Group includes a system of variable remuneration based partly on performance on sustainability matters and, in particular, on the positioning of the Group in the three main sustainability indexes - Dow Jones Sustainability Index, CDP In- dex, EcoVadis Index - and partly on the progress made on implementing the action plans for three matters of importance to the business: the level of gender diversity in management, the reduction of CO2 emissions and occupational health and safety.

GENDER BALANCE

EMISSIONS

HEALTH AND SAFETY

Prysmian Group

Directors' Report

A CLEAR AND AMBITIOUS ACTION PLAN

The Prysmian Group has implemented concrete actions designed to achieve the sustainability objectives identi- ﬁed in the scorecard. The main actions include:

MAKE CITIES AND HUMAN SETTLEMENTS INCLUSIVE, SAFE, RESILIENT AND SUSTAINABLE

Increase the percentage of cables covered by the carbon footprint calculation: to this end, a platform has been implemented that can calculate the carbon footprint of various types of cable (Common Analysis).

ENSURE ACCESS TO AFFORDABLE, RELIABLE, SUSTAINABLE AND MODERN ENERGY FOR ALL

Develop innovative solutions that contribute actively to the transition towards the use of renewable sources and the digitalisation of networks, such as cables for the production and distribution of solar and wind energy, undersea cables for interconnections between countries and optical ﬁbre cables.

TAKE URGENT ACTION TO COMBAT CLIMATE CHANGE AND ITS IMPACTS, REGULATING EMISSIONS AND PROMOTING THE DEVELOPMENT OF RENEWABLE ENERGY

Increase the number of plants with environmental, health and safety management certiﬁcation. Investments and other initiatives designed to reduce GHG emissions.

ENSURE SUSTAINABLE CONSUMPTION AND PRODUCTION PATTERNS

Increase third-party audits in speciﬁc areas, such as governance, the environment and human resources.

ACHIEVE GENDER EQUALITY AND EMPOWER ALL WOMEN AND GIRLS

Increase the percentage of women in executive positions via the adoption of speciﬁc "diversity and inclusion" programmes, such as the "Side-by-Side" project for the promotion of diversity within the business, and the mentoring of female talents, such as the WLP (Women Leadership Programme).

The long-term strategy translates into a search for stable equilibrium, balancing the adoption of innovative and eﬃcient processes [organisation], the responsible management of performance throughout the entire value chain [operations], the safeguarding of personnel and the recognition of talent [people].

Sustainability therefore plays a central role for the Group, which is committed to promoting a business model that integrates economic, social and environmental responsibility in all its aspects.

Our approach recognises the key importance of listening to and actively involving all internal and external stakeholders, dedicating constant attention to the evolution of the global and industry context, and acting responsibly towards the environment and society as a whole.

In this sense, the Prysmian Group recognises the responsibility deriving from our industry leadership role in facilitating the energy and digital transition to a new development model focused on renewable energy and decarbonisation.

As such, the objectives of the Prysmian Group include designing the advanced infrastructure for the transmission and distribution of energy and data needed for the development of economies, and well as for growth and progress in developing countries.

Prysmian Group

Annual Report 2019

Corporate Governance

Eﬀective and eﬃcient, in order to create long-term sustainable value and produce a virtuous circle with business integrity at its core.

Prysmian is aware of the importance of a good corporate governance system in order to achieve strategic objectives and create long-term sustainable value, by having a system that is eﬀective in complying with the legal and regulatory framework, eﬃcient in terms of cost-eﬀectiveness, and fair towards all the Group's stakeholders.

Accordingly, Prysmian Group keeps its corporate governance system constantly in line with latest recommendations and regulations, adhering to national and international best practices.

In addition, the Group has adopted principles, rules and procedures that govern and guide the conduct of activities by all its organisational and operating units, as well as ensuring that all business transactions are carried out in an eﬀective and transparent manner.

Once again in 2019, Prysmian continued to abide by the Corporate Governance Code(1). Further information about:

can be found in the "Report on Corporate Governance and Ownership Structure", approved by the Board of Directors and available in the Investor Relations/Corporate Governance section of the company website at www.prysmiangroup.com.

Corporate Governance Structure

The model of governance and control adopted by Prysmian is the traditional one, with the presence of a general meeting of the shareholders, a Board of Directors and a Board of Statutory Auditors. Prysmian's corporate governance structure is based on the central role of the Board of Directors (as the most senior body responsible for managing the company in the interests of shareholders) in shaping strategy, in ensuring the transparency of the decision-making process and in establishing an eﬀective system of internal control and risk management, including decision-making processes for both internal and external aﬀairs.

Prysmian Group

Directors' Report

An overview of the Company's corporate governance structure now follows, along with a description of its main features.

GOVERNANCE STRUCTURE

SHAREHOLDERS'

MEETING

LEGAL AUDITING FIRM

BOARD OF STATUTORY AUDITORS

EY S.p.A.

P. Libroia (Chairt)

P.F. Lazzati

L. Gualtieri

BOARD OF DIRECTORS

Chair - Independent Director

C. De Conto

Independent

Executives

Directors

V. Battista

P. Amato

AD e DG

J.V. Bigio

P. F. Facchini

M.E. Cappello

SUPERVISORY BODY

CFO

EXECUTIVES

M. de Virgiliis

F. I. Romeo

RESPONSIBLE FOR

pursuant to Decree 231/01

F. Gori

PREPARING CORPORATE

V.P. Strategy and Dev,

M.L. Mosconi (Chair)

M.L. Mariani

REPORTS

M. Battaini

S. Corbella

M. Kung

A. Brunetti and C. Soprano

A. Nespoli

CEO North America

AUDIT AND RISKS

REMUNERATION, NOMINATIONS AND

COMPLIANCE

COMMITTEE

SUSTAINABILITY COMMITTEE

AND AUDIT OFFICER

F. Gori (Chair)

M. de Virgilis (Chair)

J.V. Bigio

P. Amato

A. Nespoli

M.L. Mariani

C. De Conto

Prysmian Group

Annual Report 2019

In compliance with the provisions of art. 14 of the By-laws, the Company is currently managed by a Board of Directors consisting of twelve members - who will remain in oﬃce until the date of the annual general meeting called to approve the ﬁnancial statements for the year ended 31 December 2020 - of whom eight are non-executive.

Seven of the Directors are men and ﬁve women, with ﬁve of them in the 45-55 age bracket and seven in the over-55 bracket.

The Board of Directors is vested with the broadest possible powers of ordinary and extraordinary management of the business, except those which by law are the exclusive prerogative of the shareholders in general meet- ing. In line with the recommendations of the Corporate Governance Code, the non-executive Directors are suﬃ- ciently numerous and have enough authority to ensure that their judgement carries signiﬁcant weight in Board decision-making. Seven of the non-executive Directors are independent within the meaning of art. 148, par. 3 of Legislative Decree 58 dated 24 February 1998 (known as the Uniﬁed Finance Act) and of art. 3.C.1. and art. 3.C.2. of the Corporate Governance Code, while one non-executive Director is independent within the meaning of art. 148, par. 3 of the Uniﬁed Finance Act. The Board of Directors has appointed a Chief Executive Oﬃcer and General Manager from among its members and granted him all the authority and powers of ordinary management of the company necessary or useful for conducting its business.

Management of the business is the responsibility of the Directors, who take the actions necessary to implement the corporate purpose. The Board of Directors is also responsible for the Group's internal control and risk management system, requiring it to verify the system's adequacy and adopt speciﬁc guidelines; in so doing the Board acts with the support of other bodies involved in the internal control and risk management system, namely the Control and Risks Committee, the Director in charge of the internal control and risk management system, the Chief Audit & Compliance Oﬃcer, the Board of Statutory Auditors and the Managers responsible for preparing corporate accounting documents.

Completing the Prysmian corporate governance structure is a Compensation, Nominations and Sustainability Committee and a Monitoring Board instituted under Legislative Decree 231/2001.

Further information regarding (i) the corporate governance system of Prysmian S.p.A. (ii) its ownership struc- ture, as required by art.123-bis of the Uniﬁed Finance Act and (iii) Directors' disclosures about directorships or statutory auditor appointments held in other listed or relevant companies, can be found in the "Report on Corporate Governance and Ownership Structure", prepared in accordance with art. 123-bis of the Uniﬁed Finance Act and available in the Investor Relations/Corporate Governance section of the company website at www.prysmiangroup.com.

Prysmian Group

Annual Report 2019

CORPORATE STRUCTURE

The companies consolidated on a line-by-line basis at 31 December 2018 are presented below

Draka

PRYSMIAN S.P.A.

Holding B.V.

100%

Draka Cableteq

100%

Asia Pacific

Holding Pte Ltd.

Prysmian

Fibre Ottiche

Prysmian

100%

Pension Scheme

Cavi e Sistemi

PowerLink S.r.l.

Sud - FOS S.r.l.

Treasury S.r.l.

Trustee Ltd.

Italia S.r.l.

S.r.l.

Suzhou Draka

95%

100%

91.844%

Cable Co. Ltd.

Prysmian

99.999985%

PowerLink

Comergy Ltd.

Cabos e Sistemas

Saudi LLC

Electronics S.r.l.

do Brasil S.A.16

Draka Cables

83.746%

67%

100%

(Hong Kong) Ltd.23

Turk Prysmian

Prysmian Tianjin

Prysmian

Prysmian Cables

100%

Kablo Ve

MKM Magyar

Cables Co. Ltd.

Chile S.P.A.

Sistemleri A.S.22

Kabel Muvek KFT

Draka Offshore

59.74%

95%

100%

Asia Pacific Pte Ltd.

99.999991%

Prysmian Energia

40.01%

Prysmian Consultora

Prysmian

Jaguar

70.250172%

Cables y Sistemas

Conductores e

Wuxi Cable

(China) Investment

Hong Kong

Communication

de Argentina S.A.20

Instalaciones SAIC4

Company Ltd.

Holding Ltd.

Consultancy Services

MCI-Draka

Private Ltd.8

Cable Co. Ltd.11

50%

100%

Prysmian

Prysmian Cable

Prysmian Technology

Prysmian

Cables and Systems

Sindutch Cable

Systems Pte Ltd.1

(Shanghai) Co. Ltd.

Jiangsu Co. Ltd.

Australia Pty Ltd.

Canada Ltd.

Manufacturer

Sdn Bhd

100%

Prysmian Cables

Prysmian Re

Prysmian

Singapore Cables

Asia-Pacific Pte Ltd.

Company Designated

New Zealand Ltd.

Manufacturers

Activity Company

Pte Ltd.

99.48%

99.9995%

99.995%

100%

P.T. Prysmian 2

Prysmian

Cable Supply and

Cabluri Si Sisteme

Cables Indonesia

Kablo s.r.o7

OEKW GmbH

Consulting

S.A.

Company Pte Ltd.

100%

99%

100%

LLC

Limited Liability

50.998%

Prysmian

100%

Prysmian (French)

Company Prysmian

Cables et Systemes

"Rybinskelektrokabel"

RUS6

Auto Cables

France SAS

Holdings S.A.S.

Draka (Malaysia)

Tunisie S.A.

Sdn Bhd

99.970 %

100%

77.7972%

Draka Marketing

Eurelectric

and Services

Tunisie S.A.3

Prysmian Group

Sdn Bhd

Finland OY9

19,93%

51%

SICABLE

100%

Societé Ivoirienne

de Cables S.A.

Prysmian Group

Draka NK Cables

NK Mexico

Baltics AS

(Asia) Pte Ltd.

Holdings S.A. de CV

100%

99.996%

99.999998%

99.9983%

100%

Prysmian Group

Draka Mexico

Prysmian

Draka Durango

Cables y Sistemas

Prysmian Group

Holdings

Cables and Systems

Denmark A/S

North Europe AB

de Mexico

S. De R.L. de C.V.

S.A. de CV10

Norge AS

(US) INC.

S. De R.L.De C.V.

100%

Prysmian Group

Prysmian

Prysmian Cables

Construction

and Systems

Sverige AB

Services Inc

USA LLC

99.9999975%

100%

Draka

Draka Elevator

Draka Transport

Draka

Philippines Inc.

France S.A.S.

Products

Products, Inc.

USA, LLC

Incorporated

100%

60%

75%

Draka

Draka Comteq

Draka

P.O.R. S.A.S.

Nantong Zhongyao

Nantong Haixum

Paricable S.A.S

France S.A.S.

Fileca S.A.S.

Draka Elevator

Products Co. Ltd.

Continues on next page

Prysmian Group

Directors' Report

Continues from previous page

Continua nella pag. successiva

100%

Draka Comteq

Draka

Prysmian

Prysmian UK

Draka U.K.

Draka Distribution

Prysmian

Netherlands

Singapore Pte Ltd.

Comteq B.V.

Group Ltd.

Aberdeen Ltd.

Draka U.K. Ltd.

Powerlink

Holding B.V.

Services Ltd.

100%

Draka Comteq

Cable

Germany

Draka Comteq

Prysmian

75%

Draka Comteq

Verwaltungs

Fibre B.V.

UK Ltd.

Cables & Systems

Makers Properties

Germany GmbH

GmbH

Ltd.

and Services Ltd.

& Co. KG

99.9999454%

55%

100%

Prysmian Cables

Draka Shanghai

Tasfiye Halinde19

100%

Draka Comteq Kablo

Prysmian

(2000) Ltd.

Optical Fibre

Limited Sirketi

Cable Co. Ltd.

Netherlands B.V.

49.352319%

Prysmian

100%

Draka Comteq

Construction

Company Ltd.

Cabos Brasil S.A.17

Draka Kabel

Donne

NKF Vastgoed

B.V.

Draad B.V.

III B.V.24

99%

100%

51.17%

Draka Deutschland

NKF Holding

Zweite

(Deutschland)

Oman Cables

Beteiligungs

GmbH i.L.

Industry (S.A.O.G.)

GmbH

100%

90%

10%

49.9%

Associated

Oman Aluminum

Draka Deutschland

Draka Comteq

Cables PVT Ltd.

Processing

Erste Beteiligungs

GmbH

Berlin GmbH

Industires LLC

GmbH

& Co. KG15

100%

98.52%

Hohn GmbH

Kaiser Kabel

GmbH

Draka

Belgium N.V.12

100%

93.75%

100%

Draka Service

Prysmian Kabel

Draka Deutschland

Wholly owned

Und Systeme

Verwaltungs

Draka Kabely s.r.o.

GmbH

GmbH14

GmbH

100%

Third-party ownership

99%

Prysmian

Italy

Unterstuetzun-

gseinrichtung

UK - Ireland

NKF Vastgoed I

Lynen GmbH

B.V.13

France

100%

Netherlands

Draka Holding, S.L.

Prysmian Cables

(Sociedad

Spain S.A.

Nordics

Unipersonal)

(Sociedad

Unipersonal)

Germany

Spain

Danubian Area

Switzerland

Oceania

ASEAN

China

Prysmian Cables & Systems Ltd. 50%

12.

Draka Kabel B.V. 1.48%

Russia

Prysmian Cavi e Sistemi S.r.l. 0.52%

13.

Prysmian Netherlands B.V. 1%

Prysmian (French) Holdings S.A.S. 0.005%,

14.

Prysmian S.p.A. 6.25%

Prysmian Cavi and Sistemi S.r.l. 0.005%

15.

Prysmian Netherlands B.V. 50.10%

South America

Prysmian Cavi and Sistemi S.r.l. 5%

16.

Prysmian S.p.A. 0.0401%

Prysmian Cavi and Sistemi S.r.l. 0.0005%

Draka Holding B.V. 1.6874%

North America

Prysmian Cavi and Sistemi S.r.l. 1%

Draka Comteq B.V. 6.42828%

Prysmian S.p.A. 0.005%

17.

Prysmian Cabos and Sistemas do Brasil S.A. 50.647681%

Turkey

Prysmian S.p.A. 0,000009%

18.

Draka Mexico Holdings S.A. de CV 0.0017%

Draka Comteq B.V. 2.27%

19.

Prysmian Netherlands B.V. 0.0000546%

Africa

10.

Draka Comteq B.V. 0.000002%

20.

Prysmian Cabos and Sistemas do Brasil S.A. 0,11%

11.

Draka (Malaysia) Sdn Bhd 0.000023%,

21.

Turk Prysmian Kablo Ve Sistemleri A.S. 0.705%

Luxembourg

Sindutch Cable Manufacturer Sdn Bhd 0.000023%,

22.

Draka Holding B.V. 0.004%

Singapore Cables Manufacturers Pte Ltd 0.000023%

23.

Cable Supply and Consulting Co. Pte Ltd. 0.0000015%

Oman

24.

Prysmian Netherlands B.V. 1.00%

Prysmian Group

Annual Report 2019

GENERAL CABLE

Structure chart as of 31 December 2018

100%

Continues from previous page

General Cable

Corporation

(US-Delaware)

100%

GK Technologies,

Inc.

(US-New Jersey)

100%

99.995%

100%

99.8%

95.5%

General Cable

General de Cable

Caribbean S.r.l.

de Mexico

Holdings

Holdings (UK)

Trinidad Limited

Industries, Inc.

(Dominican

del Norte, S.A.

Netherlands CV

Limited (England)

(Trinidad)

(US-Delaware)

Republic)9

de CV (Mexico)10

100%

(Netherlands)11

100%

GC Global Holdings,

General Cable

Inc.

Services Europe

(US-Delaware)

Limited

(England)

100%

99.8%

80.41734%

Phelps Dodge

Phelps Dodge Enfield

Prestolite Wire

Prestolite de Mexico,

General Cable

General Cable de

International

Technologies

Corporation

(Shanghai)

S.A. de CV

Corporation

Mexico S.A. de CV

Co. Ltd. (China)

(US-Delaware)

(Mexico)

(US-Delaware)

(Mexico)14

19.58%

100%

69.3%

30.7%

99.998%

Phelps Dodge

National Cables

Servicios

National Cables

Latinoamericanos

(Pty) Ltd

Corporation

GC S.A. de CV

(South Africa)

(US-Delaware)

(Mexico)13

100%

General Cable

Botswana

Industries, LLC

(Pty) Ltd.

(US-Delaware)

(Botswana)

100%

General Cable Canada

100%

Holdings LLC

(US-Delaware)

General Cable

Company Ltd.

100%

(Canada)

Diversified

100%

Contractors, Inc.

(inactive)

YA Holdings Ltd.

(US-Delaware)

(Cayman Islands)

66.67%

Phelps Dodge Yantai

China Holdings, Inc.

(Cayman Islands)

Prysmian Group

Directors' Report

86.17%

General Cable

Holdings

New Zealand

(New Zealand)8

100%

99.349%

General Cable

Cahosa S.A.

General Cable

Investments,

Phoenix South Africa

Trading

Overseas Holdings,

Holdings (Spain),

SGPS S.A.

(Panama)

Pty. Ltd.

(Mauritius)

LLC (US-Delaware)

S.L. (Spain)6

(Madeira)

(South Africa)

100%

General Cable

New Zealand Limited

(New Zealand)

100%

GC Specialty

100%

General Cable

Middle East

(Mauritius)

100%

General Cable Asia

Pacific & Middle

East Company

Limited (Thailand)

93.75%

100%

59.39%

67.14%

100%

Grupo General Cable

General Cable Celcat,

Alambres y Cables

Electroconductores

Cables Electricos

GC Latin America

Energia e

Sistemas, S.L.

de Panama S.A.

de Honduras

Ecuatorianos C.A.

Holding, S.L.

Telecomunicaçoes

S.A. de CV

(Spain)1

S.A. (Portugal)

(Panama)2

CABLEC (Ecuador)

(Spain)

(Honduras)4

78.08%

99.80%

Cobre Cerrillos S.A.

99.80%

73.52%

(Chile)

General Cable Condel,

Conducen, SRL

99.99%

Cabos de Energia

e Telecomunicaçoes

(Costa Rica)5

99.96%

General Cable Brasil

S.A. (Angola)

Industria e Comercio

99%

Productora de Cables

de Condutores Eletricos

Procables S.A.S.

Ltda. (Brazil)3

Proveedora de Cables

(Colombia)7

100%

y Alambres PDCA

Guatemala, S.A.

99.99999%

General Cable

(Guatemala)

Nordic A/S

100%

General Cable Peru

(Norway)

S.A.C.

(Peru)

100%

Alcap Comercial S.A.

(Panama)

General Cable

Italia Sarl

99.95%

(Italy)

Conducen Phelps Dodge

100%

Centroamerica-El

Salvador, S.A. de CV

Norddeutsche

NSW Technology

(El Salvador)

Seekabelwerke

Limited

GmbH

99.998%

(Scotland, UK)

(Germany)

PDIC Mexico,

100%

S.A. de CV

(Mexico)

Wholly owned

Silec Cable, SAS

Third-party ownership

(France)

Italy

UK - Ireland

France

Netherlands

Nordics

Germany

1. GC Latin America Holdings, S.L. 6.25%

2. Cahosa S.A. 21.92%

Spain

3. General Cable Holdings (Spain) S.L. 0.01%

Cahosa S.A. 40.61%

Portugal

Cahosa S.A. 26.48%

General Cable Overseas Holdings, LLC 0.6510%

Oceania

GK Technologies, Incorporated 0.04%

8. General Cable Industries, Inc. (US-Delaware) 12.96%

GC Global Holdings, Inc. (US-Delaware) 0.87%

ASEAN

Diversified Contractors, Inc. 0.005%

10.

General Cable Industries, Inc. (US-Delaware) 0.2%

China

11.

GC Global Holdings, Inc. (US-Delaware) 1%

Phelps Dodge National Cables Corporation (US-Delaware) 3.5%

South America

12.

GK Technologies, Incorporated 0.20%

13.

General Cable Technologies Corporation (US-Delaware) 0.002%

14.

General Cable Technologies Corporation 0.00000015%

North America

GK Technologies, Incorporated 0.00000015%

Africa

Prysmian Group

Annual Report 2019

ORGANISATIONAL STRUCTURE(*)

BOARD OF DIRECTORS

Audit and

Compliance

A. Nespoli

CEO

V. Battista

GROUP

Research &

Hr &

Finance Admin

Corporate

Communication

Corporate

Digital

Development

Organization

& Control & It

Aﬀairs

Strategy & Dev.

Innovation

FUNCTIONS

S. Siripurapu

F. Rutschmann

P. F. Facchini

J. Zirulla

L. Caruso

F. Romeo

S. Brandinali

Also reporting

To CFO as CIO

BUSINESS

Energy

Telecom

Projects

AREA

F. Fanciulli

P. Vanhille

H. Ozmen

E&I

Oil & Gas

Industrial

Connectivity

Telecom

High

Specialties

Solutions

Voltage

R. Van Veen

A. I. Fanciulli

C. Biggiogera

G. Imparato

A. Bosch

B. Sehovac

Including

T&I and PD

Elevators

Automotive

Network

Electronics

Mms

Opgw

Optical

Submarine

Components

&Specials

Fiber

S. Lloyd

G. Mazzantini

F. Adamini

R. Candela

L. Roberts

J. M. Macia

E. Stoltz

R. Gil

OPERATIONS

Power Telecom Oﬀshore

Specialties

R. Gil

A. Bhargava M. Tomassini

Operations

A. Pirondini

REGIONS/

North

South(**)

Europe(1)

Europe(2)

COUNTRIES

M. Del Brenna

J. M. Arata

L. Tardif

Cent.East

North

(5)

Europe(3)

America(4)

Latam

F. Persson

M. Battaini

J. Mogollon

Middle East,

China

Osea(6)

Africa

& Turkey

A. Habaj

M. Bavaresco

E. Aydogdu

Intermediate BU

Integrated BU

Prysmian Group

Annual Report 2019

TOP MANAGERS

Directors

VALERIO BATTISTA

Chief Executive Oﬃcer & General Manager.

Chief Executive Oﬃcer Prysmian Group.

Born in Arezzo on 8 January 1957, Valerio Battista holds a degree in Mechanical

Engineering from Florence University.

With more than 30 years of experience, he has extensive knowledge and a deep understanding of the industrial sector, gained ﬁrst with Pirelli Group and then with Prysmian Group, which he has led since 2005.

He held positions of increasing responsibility within Pirelli Group, including for the restructuring and reorganisation of Pirelli Cavi, transformed between 2002 and 2004 into one of the most proﬁtable and competitive organisations in its industry. In 2005, he played a key role in the creation of Prysmian Group, leading to its listing on the Stock Exchange in 2007.

The Group of which he is currently CEO is world leader in the energy and tel- ecom cables industry, with approximately 29,000 employees and 106 plants worldwide. He has been President of Europacable since June 2014 and a member of the Board of Directors of Brembo S.p.A. since April 2017 serving as Lead Independent Director. He has sat on the Prysmian Board of Directors since De- cember 2005.

He was elected for the current term of oﬃce by the Shareholders' Meeting on 12 April 2018 from the slate submitted by the Board of Directors, which obtained the majority of votes

Prysmian Group

Directors' Report

MASSIMO BATTAINI

North America Chief Executive Oﬃcer.

Executive Director Prysmian Group.

Massimo Battaini is Chairman and CEO of Prysmian Group North America (Cana- da and United States), in charge of overseeing the entire North American business and the recent acquisition of General Cable. As part of this role, he focuses on customer relationships, sustainability and promotion of innovation to create new solutions for communities throughout the region and around the world. He has sat on the Prysmian Group Board of Directors since 2014. Before becoming North America CEO in June 2018, he was Senior Vice President and Executive Director of Prysmian Group's Energy Projects business.

Starting his career in Pirelli Group in 1987, he held various positions in R&D and Operations over an 18-year period. In charge of Business Development for the Tyres, Energy Cables and Telecom Cables businesses from 2000 to 2002, he was subsequently appointed Operations Director of Pirelli Group's Energy Cables and Telecom Cables divisions.

Following the creation of Prysmian Group in 2005 with the acquisition of Pirel- li's energy and telecom cables divisions, he was appointed CEO of Prysmian UK. From 2011 to 2014 he served as Prysmian Group's Chief Operating Oﬃcer and later as Senior Vice President Energy Projects and Chairman and CEO of Prysmian PowerLink S.r.l. He became CEO of Prysmian Group North America in June 2018.

Battaini holds a degree in Mechanical Engineering from the Polytechnic University of Milan and an MBA from SDA Bocconi.

PIER FRANCESCO FACCHINI

Chief Financial Oﬃcer.

Executive Director.

Born in Lugo (Ravenna) on 4 August 1967, he obtained a degree in Business Economics from the "Luigi Bocconi" University in Milan in 1991 and then joined Nestlè Italia, where he held diﬀerent posts in the Accounting and Finance department between 1991 and 1995. From 1995 to 2001, he worked for the Panalpina Group where he held the position of Regional Financial Controller for the Asia-Paciﬁc region and CFO of Panalpina Korea (Seoul) and Panalpina Italia Trasporti Internazionali S.p.A.. In April 2001 he was appointed Finance Director of Fiat Auto's Consumer Services business unit, leaving in 2003 to become CFO of the Benetton Group, a post he held until November 2006. He has sat on the Prysmian Board of Directors since February 2007. He was elected for the current term of oﬃce by the Shareholders' Meeting on 12 April 2018 from the slate submitted by the Board of Directors, which obtained the majority of votes.

Prysmian Group

Annual Report 2019

FABIO IGNAZIO ROMEO

Chief Strategy and Development Oﬃcer.

Executive Director.

Born in Rho (Milan) on 25 August 1955, he earned a degree in Electronic Engineering from the Polytechnic University of Milan in 1979, later followed by a Master›s degree and a Ph.D. in Electronic Engineering and Computer Sciences from the University of California, Berkeley, awarded in 1986 and 1989 respectively. Mr. Romeo began his career in 1981 at Tema (part of the ENI Group) as a designer of control systems for chemical plants. He moved to Honeywell in 1982 as a member of Technical Staff, later becoming Technical Advisor to the CEO. He joined Magneti Marelli›s Electronics Division in 1989 as Innovation Manager. In 1995, he was appointed Managing Director of the Rearview Mirrors Division, and in 1998 Managing Director of Magneti Marelli›s Electronic Systems Division. In 2001, he moved to Pirelli & C. S.p.A. Group as Director of the Truck Division within the Pirelli Tyre business unit. A year later, he took up the post of Utilities Director at the Pirelli Cables Division. In December 2004, he became Head of Prysmian Group›s Energy Cables and Systems Business Unit, holding this position until December 2013, when he was named Chief Strategy and Development Officer.

He has sat on the Prysmian Board of Directors since February 2007. He was elected for the current term of office by the Shareholders› Meeting on 12 April 2018 from the slate submitted by the Board of Directors, which obtained the majority of votes.

Senior Managers

ANDREA PIRONDINI

Chief Operating Oﬃcer.

Andrea Pirondini has been Chief Operating Oﬃcer of Prysmian Group since Jan- uary 2014.

He holds a degree in Business Administration from the "Luigi Bocconi" University in Milan. He started his career in Pirelli Group in 1989, holding various positions in the UK, Italy, Turkey, Russia and Egypt over a 25-year period, both in the Tyres and Cables & Systems businesses, where he was involved in restructuring the manufacturing footprint of energy cables.

In 2012 he was appointed Chief Commercial Oﬃcer of Pirelli Tyre S.p.A, a position he held until December 2013.

Prysmian Group

Directors' Report

FRANCESCO FANCIULLI

Senior Vice President Energy.

Francesco Fanciulli has been Senior Vice President of the Energy segment since February 2018. He holds a degree in Law from the Cattolica University of Milan. In 1988, he joined Procter and Gamble, where he held various leadership roles within sales and marketing, culminating in his appointment as Head of Mass Retail for Italy. He moved to Pirelli in 1998 as Marketing Director for its Tyres division and subsequently held various sales-management positions in this di- vision, eventually becoming Senior Vice President Sales & Marketing. He has been with Prysmian since 2008, contributing his vast experience in sales and marketing and occupying various positions of regional responsibility, such as CEO India, CEO Turkey and CEO Danube Area. Since 2015 - when the Central Eastern Europe region was created - he has been CEO CEE Region, responsible for integration of Germany and the Danube Area and development of the region's industrial footprint.

PHILIPPE VANHILLE

Senior Vice President Telecom.

Philippe Vanhille has been Senior Vice President Telecom since May 2013. After graduating as a Mechanical Engineer in Lyon (France) in 1989, he began his career as a Research Engineer for Renault Formula 1 development, and then moved to the cable industry, joining Alcatel Cable in 1991. Over a 20-year period he held a number of senior Operations and General Management positions within the cable industry for Alcatel and Draka, and subsequently in the energy, copper telecom and optical ﬁbre sectors. He was head of Draka's Optical Fibre Business Unit at the time of the Prysmian merger, holding the same position in Prysmian Group until his appointment as Senior VP Telecom.

HAKAN OZMEN

Senior Vice President Projects.

Hakan Ozmen has been Senior Vice President Projects and Chairman and Chief Executive Oﬃcer of Prysmian PowerLink S.r.l. since June 2018. After graduating as an Industrial Engineer, he began his career in 1993 as Internal Audit Manager and Corporate Secretary at Siemens AS in Istanbul. In August 1999, he received an MBA from Yeditepe University in Istanbul. He joined Pirelli S.p.A. in Septem- ber 1999 as Internal Audit Manager for the EMEA region, completing audits in Germany, Italy, Finland, UK, Turkey, Romania and the Czech Republic. In Janu- ary 2001, he became Chief Financial Oﬃcer & Board Member at Turk Pirelli in Is- tanbul, later becoming Chairman. After holding the position of Global Director of Prysmian Telecom for two years, he served as Chairman and CEO of Prysmian Group North America from 2011 to May 2018.

Prysmian Group

Annual Report 2019

Prysmian and the ﬁnancial markets

OWNERSHIP STRUCTURE

Prysmian Group has been a Public Company to all intents and purposes for many years with a free ﬂoat of 100% of capital, of which around 70% held by institutional investors.

The listing of Prysmian's ordinary shares, resulting from the sale of 46% of the shares held by the Goldman Sachs Group Inc., took place on 3 May 2007 at a price of Euro 15.0 per share, corresponding to a capitalisation of Euro

2.7 billion. Subsequent to the listing, the Goldman Sachs Group Inc. gradually reduced its interest in the compa- ny, control of which it had acquired in July 2005, by placing the remaining 54% of the shares with institutional and selected investors in several successive stages: i) approx. 22% in November 2007, ii) approx. 14% in Novem- ber 2009, iii) approx. 17% in March 2010. Valerio Battista, Prysmian's Chief Executive Oﬃcer, announced on occa- sion of the last sale that he had purchased 1,500,000 shares, corresponding to around 0.8% of share capital and taking his total shareholding to 1.2%, raised to approximately 1.5% over the course of subsequent years.

At 31 December 2019, the Company's free ﬂoat was equal to 100% of the outstanding shares and signiﬁcant shareholdings (in excess of 3%) accounted for approximately 23% of total share capital, meaning there were no majority or controlling interests. Prysmian is now one of Italy's few globally present industrial concerns to have achieved true Public Company status in recent years.

At 31 December 2019, the share capital of Prysmian S.p.A. amounted to Euro 26,814,424.60, comprising 268,144,246 ordinary shares with a nominal value of Euro 0.1 each. The ownership structure at this date is shown below.

SHARE OWNERSHIP BY TYPE AND MAJOR SHAREHOLDERS

71.0%

Institutional investors

4.6%

BlackRock, Inc.

8.3%

Retail

4.6%

Crédit Agricole S.A.

1.8%

Treasury shares

4.5%

Clubtre S.p.A.

18.9%

Others*

3.2%

UBS AG

3.1%

T. Rowe Price Group, Inc.

3.0%

Sun Life Financial, Inc.

2.9%

The Vanguard Group, Inc.

2.5%

Standard Life Aberdeen plc

2.1%

AXA S.A.

69.5%

Others

*Mainly comprises shares held by non-institutional investors and by third-party holders of shares for trading purposes.

Source: Nasdaq, December 2019.

Prysmian Group

Directors' Report

INSTITUTIONAL INVESTORS

BY GEOGRAPHICAL AREA

BY INVESTMENT STYLE

28%

36%

Growth

21%

17%

GARP

13%

Italy

17%

Value

12%

France

16%

Index

Norway

Hedge Fund

Germany

12%

Others

Switzerland

13%

Rest of Europe

Rest of the World

Source: Nasdaq, December 2019.

The geographical ownership structure shows a predominant presence of the United States, which represents 28% of the institutional investor total, followed by the United Kingdom, which accounted for 21%, both basically the same as the previous year. Italy accounted for around 13% of the capital held by institutional investors, down from 2018, while France's share was slightly higher than the year before at about 12%. The proportion of Asian investors (primarily from Japan and Hong Kong) was basically stable.

Approximately 70% of the share capital held by institutional investors is represented by investment funds with Value, Growth or GARP strategies, therefore focused on a medium to long-term investment horizon. The proportion of investors adopting an Index investment strategy, based on the principal stock indexes, was stable compared with 2018, while the Hedge Fund component, focused on a shorter time horizon, decreased in weight to 2% of the total.

Prysmian Group

Annual Report 2019

ANNUAL GENERAL MEETING

The Annual General Meeting saw participation by over 61% of share capital, with more than 1,530 shareholders present, in person or by proxy.

The Annual General Meeting of the shareholders of Prysmian S.p.A. was held, in single call, on 5 June 2019 to adopt resolutions on a number of items, including approval of the 2018 ﬁnancial statements, allocation of proﬁt for the year and declaration of a dividend, appointment of one Director, appointment of the Board of Statutory Auditors and its Chairman for the period 2019-2021, determination of the fees due to members of the Board of Statutory Auditors, authorisation of a share buyback programme, and consultation on remuneration policies. The meeting, attended in person or by proxy by over 1,530 shareholders, representing more than 61% of share capital, approved every item on the agenda by a wide majority.

The Annual General Meeting also approved the declaration of a dividend of Euro 0.43 per share, in line with the amount distributed the previous year. The dividend was paid on 26 June 2019, involving a total pay-out of approximately Euro 113 million.

FINANCIAL CALENDAR

5 March 2020

Approval of the draft ﬁnancial statements and consolidated ﬁnancial statements as of 31 December 2019

28 April 2020

Shareholders' Meeting to approve the Annual Report as of 31 December 2019

12 May 2020

Approval of the quarterly ﬁnancial report as of 31 March 2020

30 July 2020

Approval of the half-year ﬁnancial report as of 30 June 2020

29 October 2020

Approval of the quarterly ﬁnancial report as of 30 September 2020

Prysmian Group

Directors' Report

SHAREHOLDERS' MEETING: REPRESENTED CAPITAL

Public Company (no controlling shareholders)

70%

60%

50%

40%

30%

20%

10%

2008

2009

2010

Jan 2011

Apr 2011

2012

2013

2014

2015

2016

2017

2018

2019

Capital represented in the Shareholders' Meeting Participation of the main shareholder in the Shareholders' Meeting

ASSEMBLEA AZIONISTI: SHAREHOLDERS' MEETING: NUMBER OF PARTICIPANTS PRESENT OR REPRESENTED

Public Company (no controlling shareholders)

1,800

1,600

1,400

1,200

1,000

800

600

400

200

2008

2009

2010

Jan 2011

Apr 2011

2012

2013

2014

2015

2016

2017

2018

2019

Number of shareholders attending the meeting

Prysmian Group

Annual Report 2019

FINANCIAL MARKET PERFORMANCE

Financial markets had a very positive year in 2019, with the main indexes sharply up, despite the accompanying uncertainties, including Brexit and the US-China trade negotiations.

Prysmian S.p.A. was ﬂoated on the Italian Stock Exchange on 3 May 2007 and since September 2007 has been included in the FTSE MIB index, comprising the top 40 Italian companies by capitalisation and stock liquidity. The Prysmian stock has since entered the principal world and sector indexes, including the Morgan Stanley Capital International index and the Stoxx Europe 600, made up of the largest companies by capitalisation, and the FTSE4Good, composed of a select basket of listed companies that demonstrate excellent Environmental, Social and Governance (ESG) practice. In 2019, Prysmian Group was also included for the ﬁrst time in the Dow Jones Sustainability World, one of the most important international sustainability indexes for tracking the ESG performance of some 2,700 companies.

The main Eurozone stock indexes enjoyed a positive performance in 2019, primarily driven by those in Italy (FTSE MIB +28.3%), followed by France (CAC40 +26.4%) and Germany (DAX30 +25.5%). The indexes in Spain and the UK grew by a more sedate but positive +11.8% (IBEX 35) and +12.1% (FTSE 100) respectively. The US stock market also had a very strong 2019, with all three main indexes sharply up: S&P 500 +28.9%; Nasdaq Composite +35.2% and Dow Jones Industrial +22.3%. Among the major emerging country indexes, the Brazilian market index (Bovespa) recorded a 31.6% increase, supported by encouraging signs of economic rebound and newfound political stability. In China, the Shanghai Composite index climbed by 22.3%, while the Hang Seng index in Hong Kong managed a more subdued +9.1%, reﬂecting the uncertainty created by the protests aﬀecting the country during the year.

The Prysmian stock gained 27.4% in 2019, closing the year at Euro 21.49 per share compared with Euro 16.87 at the end of 2018. Its performance tracked that of the Italian market and was slightly below that of its sector of reference (Capital Goods Industrial Services), whose STOXX Europe 600/Ind Goods & Svcs index closed 2019 up 32.1%.

The average share price was Euro 18.55 in 2019, down from Euro 22.17 in 2018. Including dividend pay-outs, the Total Shareholder Return (TSR) oﬀered by the Prysmian stock was +30.5% in 2019 and +97.4% since its date of listing. Excluding the contribution of dividends and so just considering the change in price, the performance was +27.4% in 2019 and +48.2% since listing.

Looking at the stock's performance over the four quarters of 2019, the last three quarters saw a steadily rising trend, in contrast with a ﬂat ﬁrst-quarter (0.0%), partly in response to the technical faults detected in the Western Link in February 2019. More details about the Western Link can be found in "Signiﬁcant Events during the Year" in the next section of this report.

The Group's solidity, the gradual recognition of the high potential of the General Cable acquisition to create shareholder value, thanks to the synergies achieved and expected, the high geographical complementarity achieved by combining the two companies, and the expectations for growth, have allowed the Prysmian stock to retain its strong market appeal, conﬁrmed by ﬁnancial analyst recommendations at year end, of which 75% were "Buy" and 19% "Hold".

Prysmian Group

Directors' Report

PERFORMANCE OF PRYSMIAN STOCK SINCE IPO

Price - Euro

Volume - Mln shares

20.0

18.0

16.0

14.0

12.0

10.0

8.0

6.0

4.0

2.0

0.0

May-07

Nov-07

May-08

Nov-08

May-09

Nov-09

May-10

Nov-10

May-11

Nov-11

May-12

Nov-12

May-13

Nov-13

May-14

Nov-14

May-15

Nov-15

May-16

Nov-16

May-17

Nov-17

May-18

Nov-18

May-19

Nov-19

Volumes

Prysmian

PERFORMANCE OF PRYSMIAN STOCK

220

200

180

160

140

120

100

May-07

Nov-07

May-08

Nov-08

May-09

Nov-09

May-10

Nov-10

May-11

Nov-11

May-12

Nov-12

May-13

Nov-13

May-14

Nov-14

May-15

Nov-15

May-16

Nov-16

May-17

Nov-17

May-18

Nov-18

May-19

Nov-19

Prysmian

FTSE MIB

EURO STOXX 600 Industrial Goods & Services

During 2019, the stock's liquidity saw average daily trading volumes of approximately 1.7 million shares, with an average daily turnover of Euro 31 million.

Prysmian Group

Annual Report 2019

PRYSMIAN STOCK: PRINCIPAL DATA

(€)

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007*

Price at 31

21.49

16.87

27.19

24.40

20.26

15.15

18.71

15.01

9.60

12.75

12.19

11.10

16.89

December

Change over period

27.4%

-38.0%

11.4%

20.4%

33.7%

-19.0%

24.7%

56.4%

-24.7%

4.6%

9.8%

-34.3%

12.6%

Average price

18.55

22.17

26.31

20.93

19.10

16.38

16.68

13.00

12.90

13.13

10.60

13.76

18.36

Maximum price

22.06

28.54

30.00

24.42

22.23

19.54

19.30

15.43

15.95

15.81

13.84

18.54

21.00

Minimum price

14.93

14.97

23.34

16.45

14.43

12.78

14.03

9.77

9.25

11.27

6.10

6.21

15.34

Market capitalization at period end

Average capitalization

Average daily trading volume

Average daily turnover

Number of shares at 31 December

5.762 Mil

4.523 Mil

5.913 Mil

5.288 Mil

4.319 Mil

3.283 Mil

4.015 Mil

3.220 Mil

2.057 Mil

2.321 Mil

2.209 Mil

2.004 Mil

3.040 Mil

4.975 Mil

5.361 Mil

5.701 Mil

4.536 Mil

4.140 Mil

3.521 Mil

3.578 Mil

2.787 Mil

2.701 Mil

2.388 Mil

1.918 Mil

2.482 Mil

3.305 Mil

1.7 Mil

1.3 Mil

1.0 Mil

1.4 Mil

1.2 Mil

1.5 Mil

2.2 Mil

2.3 Mil

1.9 Mil

1.3 Mil

1.0 Mil

31 Mil

28 Mil

26 Mil

20 Mil

27 Mil

23 Mil

20 Mil

28 Mil

30 Mil

19 Mil

18 Mil

17 Mil

268,144,246

217,482,754

216,720,922

216,712,397

214,591,710

214,508,781

214,393,481

182,029,302

181,235,039

180,546,227

180,000,000

Source: data derived from Nasdaq Inc.

Prysmian Group

Directors' Report

INVESTOR RELATIONS

Transparency in communication, growth in market conﬁdence in the company and promotion of a long-term investment approach to its stock.

Creating value for shareholders, and other stakeholders, is a key priority for Prysmian, whose policy of strategic and ﬁnancial communication is based on the highest standards of accuracy, clarity and transparency. Its conduct and procedures are designed to provide the market with credible information, with the goal of boosting market conﬁdence in the group by seeking to encourage a long-term investment approach, avoiding unequal access to information and ensuring eﬀective compliance with the principle that all existing and potential investors have the right to receive the same information so as to make informed investment decisions.

On occasion of the publication of its quarterly results, Prysmian organises conference calls with institutional investors and ﬁnancial analysts and also invites industry press representatives to take part. In addition, it promptly informs existing and potential shareholders of any action or decision that could have a material impact on their investment.

Intense contact with the ﬁnancial market during 2019 on more than 500 occasions involved conference calls and one-to-one or group meetings at Prysmian's oﬃces. Prysmian also undertook numerous road shows in the major ﬁnancial centres of Europe, North America and Asia, and took part in conferences organised by leading international brokers. In addition, the increasing attention paid to the Group's activities by socially responsible investors (SRI) was conﬁrmed by the growing numbers at dedicated SRI meetings and road shows. Lastly, the Group organised several visits during the year for institutional investors and ﬁnancial analysts to tour its factories and R&D centres, in order to give them a deeper understanding of its products and production pro- cesses.

Coverage of the Prysmian stock remained very high and geographically diversiﬁed. There are 19 independent analysts who regularly cover the Prysmian stock: Banca Akros, Banca Proﬁlo, Banca IMI, Barclays Capital, BofA Merrill Lynch, Citi, Credit Suisse, Equita, Exane BNP Paribas, Fidentiis, Goldman Sachs, Hammer Partners, HSBC, Intermonte, JP Morgan, Kepler Cheuvreux, Mediobanca, Morgan Stanley and Société Générale.

The Investor Relations oﬃce has also maintained regular contacts with institutional investors through the group website www.prysmiangroup.com, which contains recordings of conference calls and presentations to the ﬁnancial community, corporate documents, press releases and all other information concerning the Group, in both English and Italian. The Investor Relations section also includes the ﬁnancial calendar, documents relating to shareholders' meetings, the Code of Ethics, the contact details of analysts who cover the stock as well as speciﬁc sections about Corporate Governance, Risk Factors and Share Performance.

Investor Relations contact details:

Investor Relations

Maria Cristina Bifulco - IR Director

+39 02 6449 1

+39 02 6449 51400

[email protected]@prysmiangroup.com

Prysmian Group

Annual Report 2019

Signiﬁcant events during the year

MERGERS & ACQUISITIONS

Binding oﬀer from Carlisle Companies Incorporated to acquire the business of Draka Fileca SAS

On 22 October 2019, the Group announced it had received a binding oﬀer of Euro 73 million from Carlisle Companies Incorporated to acquire the business of Draka Fileca SAS (directly or through one of the Carlisle subsidi- aries).

The transaction is subject to consultation with Fileca's employee representative bodies in France and to regulatory clearance.

Fileca was acquired by Prysmian in 2011 as part of the Draka acquisition and is a global supplier of cable solutions for the space and aerospace industries. The company, based in Sainte-Geneviève, France, generated revenues of Euro 44 million and Adjusted EBITDA of around Euro 5 million in 2018.

The transaction is expected to complete by the end of the H1 2020.

FINANCE ACTIVITIES

Mediobanca loan and partial repayment of the Bridge Loan

On 20 February 2019, the Group entered into an agreement with Mediobanca for a Euro 100 million long-term loan for 5 years from the date of signing, with a bullet repayment at maturity. In parallel, a partial repayment of Euro 100 million against the Bridge Loan was instructed on 25 February 2019 and executed on 6 March 2019.

New revolving credit facility agreement

On 3 April 2019, the Group renewed its Euro 1,000 million long-term revolving credit facility with a syndicate of leading Italian and international banks. The ﬁve-year credit facility replaces the Syndicated Revolving Credit Facility 2014, which was extinguished at the same time. The funds are available for business and working capital needs, including the reﬁnancing of existing facilities.

Intesa Sanpaolo loan and partial repayment of the Bridge Loan

On 11 October 2019, the Group entered into an agreement with Intesa Sanpaolo for a Euro 150 million long-term loan for 5 years from the date of signing, with a bullet repayment at maturity. A partial repayment of Euro 150 million against the Bridge Loan was made on 18 October 2019. On the same date, the value of interest rate swaps arranged against the Bridge Loan was reduced by Euro 50 million to bring notional value into line with the underlying hedged amount.

Prysmian Group

Directors' Report

CDP Loan

On 28 October 2019, the Group entered into an agreement with Cassa Depositi e Prestiti Spa (CDP) for a Euro 100 million long-term loan for four and a half years from the date of signing, with a bullet repayment at maturity. The purpose of this loan is to ﬁnance part of the Group's capital expenditure and expenditure on research, development and innovation in Italy and Europe.

Long-term incentive plan 2018-2020

In light of the eﬀects of the Western Link project on the Group's results, the Board of Directors has decided, as recommended by the Compensation, Nominations and Sustainability Committee, to revoke the long-term incentive plan 2018-2020 approved by the Shareholders' Meeting on 12 April 2018. At the Committee's recom- mendation, the Board will present the forthcoming Shareholders' Meeting with a proposal to adopt a long-term incentive plan structured in accordance with best market practices. As a result of this decision, the 2019 MBO has been recognised in proﬁt or loss for the year since it will no longer be co-invested following the long-term incentive plan's revocation. This has had the result of raising personnel costs by Euro 12 million, reﬂecting the combined eﬀect of recognising the 2019 MBO of Euro 15 million and reversing the fair value of stock options for Euro 3 million.

NEW INDUSTRIAL PROJECTS AND INITIATIVES

Development of power transmission grid in Washington D.C.

On 6 February 2019, the Group signed an agreement to participate in a project to upgrade the US capital district's power transmission system. The multi-stage project is worth approximately USD 190 million and is scheduled to run between 2019 and 2026.

Contract to develop a new submarine cable system in Canada (Fundy Isles)

On 11 February 2019, the Group was awarded a contract worth Euro 17 million by New Brunswick Power Corporation (NB Power), the largest electric utility in Canada. The so-called Fundy Isles project involves building a new submarine cable link to upgrade the capacity of the existing transmission system in the Passamaquoddy Region of the Bay of Fundy. The new submarine power cable will connect Deer Island, Campobello Island and Grand Manan Island to the Canadian province's mainland power grid.

Contract to develop cable system for the ﬁrst "ﬂoating" oﬀshore wind farm in France

On 19 March 2019, the Group signed a letter of award with PGL (Provence Grand Large), part of EDF Renewables. The project, worth approximately Euro 30 million for the construction of an end-to-end submarine cable solu- tion, is expected to be commissioned in 2021.

Prysmian Group

Annual Report 2019

Contract to develop cable system for a "ﬂoating" oﬀshore wind farm in the United States

On 16 May 2019, the Group was awarded a contract worth approximately Euro 200 million by Vineyard Wind LLC to develop a submarine power cable system which will deliver renewable energy to the mainland power grid.

The Group will be responsible for the engineering, manufacture, installation and commissioning of an HVAC (High Voltage Alternating Current) cable system composed of two 220 kV three-core cables with extruded XLPE insulation, requiring a total of 134 km in submarine cables which will be manufactured at the Group's centres of excellence in Pikkala (Finland) and Arco Felice (Italy).

Dolwin5 project to connect new wind farms to mainland German grid

On 18 June 2019, the Group was awarded a major contract worth approximately Euro 140 million by the Dutch-German grid operator TenneT for the connection of new oﬀshore wind farms to the mainland German grid.

The end-to-end solution will link the DolWin epsilon oﬀshore converter platform, located approximately 100 km oﬀshore in the German North Sea, to the mainland Emden/Ost converter station, with the purpose of transmitting the renewable energy generated to the German grid.

The Group's centres of excellence in Pikkala (Finland) and Gron (France) will manufacture the submarine and land cables required for this project, which is scheduled for completion by mid-2024.

Successful completion of qualiﬁcation testing of P-Laser and XLPE HVDC 525 kV cable systems

On 1 July 2019, the Group announced it had successfully completed stringent qualiﬁcation testing in accordance with international standards, meaning it is now ready to launch two new 525 kV extruded land cable systems, one qualiﬁed with P-Laser and the other with XLPE insulation. These cable systems are designed for extra high voltages and have large conductor cross-sectional areas to ensure high power transmission capacity over long distances with less environmental impact on the land crossed.

P-Laser is the ﬁrst 100% recyclable eco-friendlyhigh-performance cable technology, utilising a 'zero-gas' process which reduces CO2 emissions by up to 30%, while the XLPE qualiﬁed system uses a new insulating compound specially for HVDC applications.

Contract for Viking Link project

On 23 July 2019, the Group received a letter of award from National Grid Viking Link Limited and Energinet for the construction of Viking Link, the ﬁrst submarine cable connection between the United Kingdom and Denmark. Worth close to Euro 700 million, the end-to-end contract involves the engineering, manufacture and installation of the world's longest interconnector, with 1,250 km of cable for the submarine route and approximately 135 km of land cables on the UK side, corresponding to 4 out of the 5 lots awarded. The project is due to be completed by the end of 2023.

Contract for inter-array cables for oﬀshore wind farms in the Netherlands

On 29 July 2019, the Group was awarded a project worth around Euro 30 million by Vattenfall, a leading European energy company, to supply submarine inter-array cable systems for the Hollandse Kust Zuid III and IV oﬀshore wind farms in the Netherlands.

The cables, which will be manufactured at the Prysmian centre of excellence in Nordenham (Germany), are due to be delivered in 2022.

Prysmian Group

Directors' Report

Contract to supply wind turbine cable solutions in 2020

On 21 October 2019, the Group was awarded a global contract by Siemens Gamesa Renewable Energy, world leader in the wind power industry, to supply it with wind turbine tower and nacelle cable solutions. The contract includes products and services from Prysmian Group's wind portfolio of low voltage cable solutions for nacelle platforms, low voltage tower cables and medium voltage tower solutions, speciﬁcally designed and optimised to operate under high torsion, mechanical and chemical stress as well as wide temperature swings.

Successful completion of HDVC testing of the submarine COBRAcable linking the Netherlands and Denmark

On 4 November 2019, the Group announced it had successfully completed the HVDC test on the COBRAcable submarine interconnector linking the Netherlands and Denmark.

The announcement was made during COBRAcable's oﬃcial inauguration, held simultaneously in Eemshaven (Netherlands) and Endrup (Denmark), in the presence of Dutch and Danish oﬃcials, conﬁrming successful completion of trial operations by the contractors.

Prysmian had been awarded this project in February 2016 by TenneT TSO B.V. and Energinet SOV, operators of the Dutch and Danish transmission systems respectively.

Successful completion of the DolWin3 oﬀshore wind farm project

On 13 November 2019, the Group announced the successful commissioning of electrical connections for the Dol- Win3 oﬀshore wind farm in the North Sea to the German transmission grid.

The Group had been awarded this contract in February 2013 by Alstom Grid (now GE Grid GmbH) acting on behalf of TenneT, the Dutch-German transmission system operator.

The cables were produced at Prysmian Group's centres of technological and manufacturing excellence in Arco Felice (Italy), Pikkala (Finland) and Delft (Netherlands).

Successful completion of MON.ITA interconnector

On 15 November 2019, the Group announced the inauguration of the MON.ITA interconnector, the contract for which awarded by Terna Rete Italia S.p.A. in October 2012.

Contract to connect an oﬀshore wind farm to the UK electricity grid

On 28 November 2019, the Group announced it had been awarded a contract worth over Euro 100 million by EDF Renewables for the construction of submarine and land cable systems to connect the Neart na Gaoithe (NnG) oﬀshore wind farm to the Scottish mainland power grid. The Group is to provide an end-to-end service comprising the engineering, supply, installation and commissioning of two high voltage three-core extruded submarine export cables connecting the oﬀshore wind farm to Thorntonloch, in East Lothian, Scotland. The Group will also supply two 220 kV extruded land cable circuits linking the point of landfall to the Crystal Rig substation and two 400 kV extruded land cable circuits to connect the Crystal Rig substation to the Scottish Power substation. The project will involve a 38 km submarine section and a 12 km onshore section.

The submarine cables, to be manufactured at the Prysmian centre of excellence in Pikkala (Finland), will be installed in 2021, while the land cables will be produced in Gron (France) and installed in 2020 and 2021. Oﬀshore cable installation will be carried out by one of the Group's state-of-the-artcable-laying vessels. Project completion is scheduled for 2021.

Prysmian Group

Annual Report 2019

Agreement for the supply of inter-array cables for the Empire Wind project

On 5 December 2019, the Group and Equinor announced an agreement for the supply of an inter-array submarine cable system for the Empire Wind project, an 816 MW oﬀshore wind farm due to be built in New York State. The Group will be responsible for the engineering, supply and storage of approximately 150 km of inter-array cables, which will transmit power at twice the current industry standard ensured by 33 kV systems. The cables will be manufactured at the Prysmian centres of excellence in Montereau (France) and Nordenham (Germany), with this process scheduled for completion in summer 2022 followed by installation in 2023 and 2024.

Contract with Red Eléctrica de España for a new submarine power cable

On 12 December 2019, the Group was awarded a new contract worth about Euro 27 million by Red Eléctrica de Es- paña (REE), Spain's transmission system operator, to connect two Canary Islands (Lanzarote and Fuerteventura).

The submarine and land cables will be produced, respectively, at the Prysmian centres of technological and manufacturing excellence located in Arco Felice (Italy) and Vilanova (Spain). Installation activities will be carried out by one of the Group's state-of-the-art cable laying vessels. Project handover and commissioning are scheduled for 2021.

Prysmian Group

Directors' Report

Agreements with Terna to develop cable systems to upgrade the power grid in preparation for the Cortina Olympics and in Southern Italy

On 19 December 2019, following a public tender, the Group signed two major new cable solution agreements with Terna, through its subsidiary Terna Rete Italia S.p.A..

The ﬁrst contract, worth Euro 50 million (inclusive of safety costs), is for a 150 kV HVAC cable to link the Zuel and Somprade power stations in the province of Belluno. Installation is scheduled for completion by the end of 2020 in time for the upcoming 2021 Alpine World Ski Championships in Cortina.

The second for a 150 kV HVAC cable is a framework agreement in support of investments to improve the performance and increase the reliability of the power transmission system in Southern Italy. This agreement is worth Euro 26 million, with an option for an additional Euro 26 million.

The cables for both projects will be manufactured at the plants in Pignataro Maggiore (Italy) and Gron (France).

OTHER SIGNIFICANT EVENTS

Western Link

Some faults were detected on 19 February 2019 and 6 April 2019 in the Western Link interconnector, resulting in its temporary switch-oﬀ.

In view of these faults and based on assessments by the technical experts, the Board of Directors decided to recognise provisions of Euro 95 million in the ﬁnancial statements at 31 December 2018. These provisions were against contractual penalties, costs of repair, incidental expenditure, costs of producing an extra length of cable for any future repairs and costs of other repairs that might possibly be necessary in the foreseeable future.

Work to repair the above faults was completed in June 2019.

On 23 November 2019, the Group announced that the customer (National Grid Electricity Transmission and Scot- tish Power Transmission) had taken over operation of the cable.

On 12 January 2020, the Group was informed that the Western HDVC Link had tripped on 10 January 2020. Repairs were successfully completed on 7 February 2020 with the link restored to normal service and once more available to the customer, with whom there is an ongoing exchange to arrive at an acceptable deﬁnition of mutual expectations.

Approval of ﬁnancial statements at 31 December 2018 and dividend distribution

On 5 June 2019, the shareholders of Prysmian S.p.A. approved the ﬁnancial statements for 2018 and the distribution of a gross dividend of Euro 0.43 per share, for a total of some Euro 113 million. The dividend was paid out from 26 June 2019 to shares outstanding on the record date of 25 June 2019, with the shares going ex-dividend on 24 June 2019.

Prysmian Group

Annual Report 2019

Plan to close the Manlleu and Montcada i Reixac production facilities in Spain

On 2 October 2019, it was formally announced that a collective dismissal procedure for organisational and production reasons would be initiated for the entire workforce at the Manlleu and Montcada i Reixac production facilities in Catalonia, Spain.

The process of consulting the unions and negotiating the terms of plant closure commenced on 22 October 2019 with a ﬁrst formal meeting with a trade union delegation of worker representatives from both sites.

On 22 November, after several meetings, the parties reached an agreement which was ratiﬁed the following day by worker assemblies at the two factories, with an overwhelming 98% level of approval.

The total number of workers involved is 487 (of whom 334 in Manlleu and 153 in Montcada i Reixac).

On the basis of the agreements reached so far, the directors have decided to recognise appropriate provisions in the ﬁnancial statements.

Antitrust: European Commission ruling against Group companies (formerly part of General Cable)

In a ruling handed down on 14 November 2019, the Court of Justice of the European Union dismissed General Cable's appeal against the European Commission's Antitrust decision dated 2 April 2014, thus conclusively con- ﬁrming the ﬁne previously imposed under that same decision. As a result, the Group has gone ahead and paid a ﬁne for Euro 2 million.

Plan to close the production facility in Neumünster (Germany)

On 29 November 2019, the German company Prysmian Kabel und Systeme GmbH announced it intended to commence a process of informing and consulting employees about a collective redundancy procedure for the entire workforce of the Neumünster plant (Germany), which would aﬀect 14 employees.

The Neumünster facility performs harnessing activities which will be transferred to the plants in Wuppertal and Neustadt.

Industrial activities are expected to cease by the end of March 2020, resulting in the plant's closure. A social plan has been drawn up with the factory union, which oﬀers employees the option of relocating to other German plants or a redundancy incentive for those who decide to leave the Group.

Exclusion of PIS and COFINS taxes from calculation of ICMS tax in Brazil

During the last part of the year ended 31 December 2019, ﬁnal rulings were handed down on 10 tax cases that granted the Group's Brazilian companies the right to exclude the taxes PIS and COFINS for the years from 1992 to 2018 from the calculation base of ICMS (a state tax on the movement of goods, the provision of transportation services between states and municipalities and telecommunication services). The consolidated income statement at 31 December 2019 reports a positive impact of Euro 28 million on the net result for the year.

Prysmian Group

Directors' Report

Business environment

MACROECONOMIC ENVIRONMENT

Global macroeconomic conditions softened progressively over the course of 2019. The world economy continued to grow, but by less than in 2018 due to a slowing in advanced economies, including the Eurozone, as well as emerging ones (India).

After a positive start to the year, trade tensions, especially between the US and China, gradually increased, triggering signiﬁcant tariﬀ rises between these countries and a general deterioration in global business sentiment. The macroeconomic indicators for Europe also signal a slowdown in the economic cycle. According to the latest International Monetary Fund estimates*, global growth in 2019 is expected to be +2.9%, the lowest level in 10 years. This growth rate, well below the +3.6% recorded in 2018, reﬂects slower growth in both developed economies (from +2.2% in 2018 to +1.7% estimated in 2019) and emerging ones (from +4.5% to +3.7%).

Many factors of uncertainty and risk have weighed on the expansion of international economic activity: trade negotiations between the US and China, growing geopolitical tensions (particularly those between the US and Iran) and the process and manner of the UK's departure from the European Union.

As regards the Eurozone, economic growth was weaker than in 2018, despite the European Central Bank's continued pursuit of expansionary monetary policies. In addition to trade tensions, the slowdown was also aﬀected by speciﬁc factors, such as the high uncertainty surrounding a negative outcome to the Brexit negotiations or the turmoil in the automotive sector, causing production to falter in the main car-making nations (Germany, Italy). The Eurozone is expected to have grown by +1.2% in 2019, down from +1.9% in 2018, with GDP growth in retreat for basically all the continent's major economies: in Germany, down from +1.5% to +0.5%, Italy from +0.8% to +0.2%, France from +1.7% to +1.3% and Spain from +2.4% to +2.0%.

In the UK, growth should have stayed at +1.3%, in line with 2018 after slowing from +1.8% in 2017.

The United States is estimated to have grown by +2.3% in 2019, down from +2.9% in 2018 and partly reﬂecting the eﬀects of the US Administration's expansionary ﬁscal policies.

China is estimated to have grown by +6.1%, down from +6.6% in the previous year. The Brazilian economy is estimated to have grown for the third year in a row (+1.2%), in the wake of the 2016 recession.

Prysmian Group

Annual Report 2019

GDP GROWTH BY COUNTRY 2018-2019

-2%

-4%

World

USA

Euro

Area

Germany

France

Italy

Spain

Japan

Russia

China

India

Brazil

2018

2019

(*) Source: IMF, World Economic Outlook Update - January 2020.

CABLE INDUSTRY TRENDS

2019 was a weak year for the global cables market, for both power and optical cables, mainly due to worse-than-expected demand in China and India and a signiﬁcant contraction in Western Europe.

World demand for power cables was subdued in 2019, mainly because of softer-than-expected demand in China and India and a signiﬁcant contraction in Western Europe, particularly in Germany, the country most aﬀected by automotive industry downturn. Demand in China, alone by far the largest market for power cables, was weighed down not only by the automotive industry and trade tensions with the United States, but also by waning government investment in the electricity network. On the positive side, Spain continued to record one of the highest rates of growth in demand, driven mainly by the construction sector. In the United States, production of power cables grew at a faster pace than the previous year, also beneﬁting from protectionist measures implemented by the Administration.

In the case of the optical cables market, it was a year of soft demand, excess capacity, rising stock levels and falling ﬁbre prices. Demand for optical ﬁbre cables was slightly down on 2018, mainly due to the retreat in the Chinese market, which alone accounts for more than 50% of the global total. In India, the third largest optical cable market in the world, telecom operators cut back their consumption of optical cables in 2019 mainly due to ﬁnancial problems. In North America and Europe, consumption of optical ﬁbre cables continued to expand, although at a slower pace than in 2018. Partly thanks to renewed political stability, South America saw resumed investment by its major telco's, primarily in optical cables.

The various segments of Prysmian Group's market had a mixed performance in 2019, featuring higher demand for optical ﬁbre cables in the ﬁrst half of the year followed by a slower second half, a solid trend for the Energy

Prysmian Group

Directors' Report

The submarine cables business saw signs of a market recovery in 2019, with a number of large strategic contracts awarded during the year, including Viking Link, the ﬁrst submarine cable interconnector between the UK and Denmark, worth nearly Euro 700 million, and contracts for the cabling of oﬀshore wind farms like the Vineyard in the USA and Dolwin5 in Germany.

Tendering activities, initiated in late 2018, for the major Suedlink, Suedostlink and A-Nord underground HVDC cable projects in Germany, are progressing as expected, with negotiations and award of the initial contracts due in the ﬁrst half of 2020.

The market is expected to grow over the medium term, especially the Oﬀshore Wind segment, fostered by the continuous reduction in electricity generation costs.

During 2019, the Trade & Installers business saw a slight dip in demand not only in most of the European countries served, especially in North Europe and the UK due to Brexit-related uncertainties, but also in North Amer- ica and the Middle East. APAC, however, reported a positive trend, in line with market expectations. The Power Distribution business conﬁrmed the signs of market recovery emerging in the last quarter of 2018 within Eu- rope. Beyond Europe, demand grew in North America and Oman, while remaining stable in APAC; the situation in LATAM remained challenging, with recent changes in the utilities market still in the process of consolidation. The Overhead Transmission Lines business saw a year-on-year decline in its North American volumes, in line with market expectations, although more than oﬀset by growth in LATAM.

Trends in Industrial cable markets displayed considerable inconsistencies within the various business lines and between the diﬀerent geographical areas. In fact, while some market segments showed growing demand, like certain OEM sectors (such as Nuclear, Mining, Marine, and Infrastructure), and others were stable, like Rolling stock, other segments reported lower volumes in speciﬁc countries due to delays in investment projects in areas of national interest, like Railways and Cranes. The Renewables business experienced an uptick in demand for Solar products but a lull in the Wind sector.

The Automotive market saw volumes contract in North America and signs of slowing in Europe as well, while remaining largely stable in LATAM and APAC. The Elevator market recorded growth in all geographical areas, particularly in North America and APAC.

With regard to its Telecom business, the Group enjoyed a good ﬁrst half of the year, primarily due to steady growth in demand for optical ﬁbre and special cables serving major investment projects. However, this growth turned negative in the second half of 2019, reﬂecting a slowing in order intake due to overstocking by some customers.

Volume trends in Europe were positive and prices stable. Among the Group's major contracts are those with leading operators in Europe engaged in the construction of backhaul links and FTTH connections. In North America, the development of new ultra-broadband networks is generating a steady increase in domestic demand from which Prysmian Group is beneﬁting. Australia, on the other hand, reported less brisk demand than in the previous year.

Growth in the Multimedia Solutions business reﬂected increased volumes in the North American market, primarily related to the acquisition of General Cable, and in the European market for copper data transmission ca- bles. A similar, albeit weaker, trend to the European one was observed in South America.

Lastly, copper cables continued their steady decline with the retirement of traditional networks in favour of new-generation ones.

Prysmian Group

Annual Report 2019

Group performance and results

INTRODUCTION

In keeping with the integration process, initiated last year, as from ﬁnancial year 2019 the Group's results are being analysed as a whole (with no distinction between the two groups of Prysmian and General Cable). The ﬁg- ures for 2019 are compared respectively with those reported in the prior year Consolidated Financial Statements and, in the case of the key performance indicators (Sales and Adjusted EBITDA), with combined amounts, which incorporate General Cable's results as if consolidated from 1 January 2018.

The combined ﬁgures are not to be treated as pro-forma ones, even if they have been restated using Prysmian Group's main accounting principles and policies.

Prysmian Group

Directors' Report

FINANCIAL PERFORMANCE

(in millions of Euro)

2019

2018 -

2018(**)

% change

2017

Combined (*)

Combined

Consol

Sales

11,519

11,523

10,104

0.0%

14.0%

7,904

Adjusted EBITDA before share of net proﬁt/

983

708

634

38.9%

55.0%

694

(loss) of equity-accounted companies

% of sales

8.5%

6.1%

6.3%

8.8%

Adjusted EBITDA

1,007

767

693

31.4%

45.3%

736

% of sales

8.7%

6.7%

6.9%

9.3%

EBITDA

907

501

81.0%

660

% of sales

7.9%

5.0%

8.4%

Fair value change in metal derivatives

(48)

Fair value stock options

(6)

(49)

Amortisation, depreciation, impairment and

(354)

(232)

(199)

impairment reversal

Operating income

569

215

164.7%

424

% of sales

4.9%

2.1%

5.4%

Net ﬁnance income/(costs)

(125)

(112)

(99)

Proﬁt/(loss) before taxes

444

103

331.1%

325

% of sales

3.9%

1.0%

4.1%

Taxes

(148)

(45)

(88)

Net proﬁt/(loss)

296

410.3%

237

% of sales

2.6%

0.6%

3.0%

Attributable to:

Owners of the parent

292

241

Non-controlling interests

(4)

Reconciliation of Operating Income/EBITDA

to Adjusted Operating Income/Adjusted

EBITDA

Operating income (A)

569

215

164.7%

424

EBITDA (B)

907

501

81.0%

660

Adjustments:

Company reorganisation

Non-recurring expenses/(income)

(32)

Other non-operating expenses/(income)

Total adjustments (C)

100

192

Fair value change in metal derivatives (D)

(15)

(12)

Fair value stock options (E)

(1)

Assets impairment and impairment reversal (F)

Adjusted operating income (A+C+D+E+F)

689

466

47.9%

559

Adjusted EBITDA (B+C)

1,007

693

45.3%

736

Prysmian Group

Annual Report 2019

The Group's Adjusted EBITDA for 2019 was up on the corresponding combined ﬁgure for 2018, reﬂecting all the various factors described below.

The Projects segment posted a decline in Adjusted EBITDA, excluding Western Link eﬀects, but a strong fourth-quarter.

During the year, successful project execution resulted in the completion of major contracts worth in excess of Euro 2 billion (Borwin 3, Cobra, Dolwin 3, Mon.Ita, Western Link).

Order intake in the period took the segment's order backlog back above the Euro 2 billion mark, of which Euro

1.3 billion for the Submarine business. The new orders were won also thanks to the ongoing transition of energy systems to renewable sources.

The Energy and Infrastructure business, with a solid performance in North America and LATAM, posted a positive set of results, especially for Power Distribution. There was also a recovery in the Overhead Transmission Lines business in North America and LATAM.

The Industrial & Network Components business improved its proﬁtability, primarily thanks to the OEM, Renewables and Network Components businesses.

The Telecom segment enjoyed solid growth in the ﬁrst six months, turning negative in the second half due to slower order intake. Adjusted EBITDA, excluding the contribution from the associate YOFC and several one-oﬀ eﬀects recorded in the previous year, was up despite the negative impact of lower volumes and price pressure, nonetheless partially absorbed by better cost eﬃciencies. Also of note was the good performance of the Mul- timedia Solutions business in North America. However, the contribution from the associate YOFC more than halved compared with the previous year.

The Group's sales in 2019 came to Euro 11,519 million, compared with Euro 11,523 million on a combined basis for 2018, posting a negative change of Euro 4 million.

The factors behind this change were:

•

negative organic sales growth, excluding eﬀects of the Western Link project, causing a decrease of Euro 104 million (-0.9%);

favourable exchange rate trends and net currency eﬀects accounted for on completion of projects, generating an increase of Euro 341 million (+3.0%);

ﬂuctuation in the price of metals (copper, aluminium and lead), causing a sales price decrease of Euro 241 million (-2.1%).

Negative organic sales growth of -0.9%, excluding Western Link eﬀects, is analysed between the three operating segments as follows:

Prysmian Group

Directors' Report

The Group's Adjusted EBITDA came to Euro 1,007 million, inclusive of Euro 47 million in IFRS 16 eﬀects, posting an increase of Euro 240 million on the corresponding 2018 combined ﬁgure of Euro 767 million (+31.3%). In light of the above eﬀects, Adjusted EBITDA for the Projects segment, excluding Western Link eﬀects of Euro 165 million in 2018, decreased by Euro 41 million, while the Energy segment enjoyed an increase of Euro 109 million. Excluding the smaller contribution of the associate YOFC and other one-oﬀ factors for Euro 37 million, the Telecom segment recorded an increase of Euro 12 million. Adjusted EBITDA was also negatively aﬀected by recognition of the 2019 MBO in proﬁt or loss since it would no longer be co-invested after revoking the long-term incentive plan, adding Euro 15 million to personnel costs. Adjusted EBITDA also beneﬁted from Euro 47 million on ﬁrst-time adoption of IFRS 16.

EBITDA is stated after net expenses for company reorganisation, net non-recurring expenses and other net non-operating expenses, totalling Euro 100 million (Euro 192 million in 2018). These adjustments primarily re- ﬂect Euro 85 million in reorganisation costs.

Amortisation, depreciation and impairment amounted to Euro 354 million in 2019, reporting a year-on-year increase of Euro 122 million, most of which attributable to the consolidation of General Cable for the whole of 2019, rather than just 7 months in 2018, and to the adoption of IFRS 16, accounting for Euro 44 million of the variation. Impairment losses totalling Euro 36 million include Euro 22 million to write oﬀ all the plant and ma- chinery, equipment, other assets and assets under construction in the Energy segment's Oceania South East Asia (OSEA) regional CGU, and Euro 14 million in other write-downs, mainly at the production facilities in Manlleu and Montcada i Reixac (Catalonia, Spain), involved in restructuring processes, more details of which can be found in the section on "Signiﬁcant events during the year". The fair value change in metal derivatives was a positive Euro 15 million in 2019, compared with a negative Euro 48 million in 2018.

The Group's operating income came to Euro 569 million, compared with Euro 215 million in 2018, reﬂecting an increase of Euro 354 million.

Net ﬁnance costs amounted to Euro 125 million in 2019, compared with Euro 112 million in the previous year. The increase is mainly attributable to this year's consolidation of General Cable for a full 12 months as opposed to just 7 months the previous year.

Net proﬁt for 2019 was Euro 296 million, almost all attributable to the Group (Euro 292 million), compared with Euro 58 million in 2018, all attributable to the Group.

The results of the operating segments are analysed in the following pages on a combined basis, therefore incorporating the results of General Cable as from 1 January 2018.

Prysmian Group

Annual Report 2019

Review of Projects Operating Segment

(in millions of Euro)

2019

2018

Var, %

2018**

2017

Combined*

Sales

1,844

1,750

5.4%

1,635

1,533

Adjusted EBITDA before share of net proﬁt/

228

100

128.3%

277

(loss) of equity-accounted companies

% of sales

12.3%

5.7%

5.4%

18.0%

Adjusted EBITDA

228

100

128.3%

278

% of sales

12.4%

5.7%

5.4%

18.0%

Adjustments

(23)

(105)

(20)

EBITDA

205

(16)

258

% of sales

11.1%

-0.9%

16.6%

Amortisation and depreciation

(64)

(54)

(50)

Adjusted operating income

164

228

% of sales

8.9%

2.1%

14.7%

The Projects Operating Segment incorporates the high-tech businesses of High Voltage underground, Submarine Power, Submarine Telecom, and Oﬀshore Specialties, whose focus is projects and their execution, as well as product customisation.

The Group engineers, produces and installs high and extra high voltage cables for electricity transmission both from power stations and within transmission and primary distribution grids. These highly specialised, tech-driven products include cables insulated with oil or ﬂuid-impregnated paper for voltages up to 1100 kV and extruded polymer insulated cables for voltages up to 600 kV. These are complemented by laying and post-laying services, grid monitoring and preventive maintenance services, power line repair and maintenance services, as well as emergency services, including intervention in the event of damage.

In addition, Prysmian Group engineers, produces and installs "end-to-end" submarine cable solutions for power transmission and distribution. The products oﬀered include cables with diﬀerent types of insulation: cables insulated with layers of oil or ﬂuid-impregnated paper for AC and DC transmission up to 700 kV; cables insulated with extruded polymer for AC transmission up to 400 kV and DC transmission up to 600 kV. The Group uses speci ﬁc technological solutions for power transmission and distribution in underwater environments, which satisfy the strictest international standards.

With the acquisition of General Cable, Prysmian Group has re-entered the Submarine Telecom cables business, specialised in the production and installation of data transmission cables.

The Oﬀshore Specialties business incorporates a wide range of products for the oil industry, including umbilical cables, ﬂexible pipes and all electrical, optical and signalling components for oil well management from seabed to oﬀshore platform.

Prysmian Group

Directors' Report

MARKET OVERVIEW

The Submarine Power cables business saw signs of a market recovery in 2019, with a number of large strategic contracts awarded during the second half of the year; in addition, several bids are now at an advanced stage of the tendering process, with their award expected in the next few months. This market is expected to grow over the medium term, especially the Oﬀshore Wind segment, fostered by the continuous reduction in electricity generation costs.

The Submarine Telecom cables business performed well, with the award of a number of major contracts, now in the process of fulﬁlment.

In the High Voltage Underground business, the HVAC market was largely stable in Europe and mixed in other countries, while the HVDC market, typically for interconnections, was very quiet following completion of projects awarded in recent years and the near-term absence of new start-ups since tendering activities are still in progress. North America recorded an upturn in demand, while Southeast Asia enjoyed a partial recovery after a ﬁrst-half downturn. Tendering activities, initiated in late 2018, for the major Suedlink, Suedostlink and A-Nord underground HVDC cable projects in Germany, are progressing as expected, with negotiations and award of the initial contracts due in the ﬁrst half of 2020.

The Oﬀshore Specialties business continued to experience declining prices and volumes.

FINANCIAL PERFORMANCE

Sales to third parties by the Projects segment amounted to Euro 1,844 million in 2019, compared with the 2018 combined ﬁgure of Euro 1,750 million, recording a positive change of Euro 94 million (+5.4%).

The factors behind this change were:

•

negative organic sales growth, excluding eﬀects of the Western Link project, producing a decrease of Euro 101 million (-5.8%)

favourable exchange rate trends and net currency eﬀects accounted for on completion of projects, generating an increase of Euro 195 million (+11.2%)

zero impact on sales prices from metal price ﬂuctuations.

The organic growth of the Projects segment is largely due to a signiﬁcant fourth-quarter recovery in the phasing of ongoing Submarine projects, combined with the fact that business volumes were low in the corresponding quarter of 2018; this eﬀect was partially neutralised by a contraction in volumes and prices in the Oﬀshore Specialties business and by lower sales volumes in some High Voltage markets, primarily France, South America and APAC.

The Submarine Telecom business saw volumes and proﬁtability grow thanks to speciﬁc contracts won during the year and already at an advanced stage of execution.

The main Submarine Power projects on which work was performed during the period were: the interconnector between Norway and the UK (North Sea Link), the interconnector between the Netherlands and Denmark (Co- BRA cable), the interconnection between France and the UK (IFA2), the Hainan2 project in China and the interconnection projects in the Philippines and Bahrain.

Sales in the period were the result of cable manufacturing activities by the Group's industrial facilities (Pikkala in Finland, Arco Felice in Italy, Drammen in Norway and Nordenham in Germany) and installation services, performed with both its own assets and third-party equipment.

Prysmian Group

Annual Report 2019

The value of the Group's Submarine Power order backlog increased during the year, with the award of several major projects (worth Euro 1.3 billion) in the period, including the Viking Link interconnector. The order backlog was worth more than Euro 1.7 billion at the end of 2019, mainly consisting of the following contracts: the inter- connector between Norway and the UK (North Sea Link); the interconnection between France and the UK (IFA2); the interconnection projects in the Philippines and Bahrain; the oﬀshore projects in France; the Capri-Sorrento interconnection project in Italy; and contracts to supply inter-array cables for the Hornsea2 and Borssele III and IV wind farms; also included in the order backlog are the recently acquired contracts for the Dolwin5 oﬀshore wind project in Germany and the interconnector between the UK and Denmark (Viking Link).

The value of the Group's High Voltage order backlog is stable compared with the end of 2018 at around Euro 310 million.

Adjusted EBITDA came to Euro 228 million in 2019, up Euro 128 million from Euro 100 million the year before; excluding the Euro 165 million in extra costs for the Western Link project recorded in 2018, Adjusted EBITDA would have been below the previous year, mainly due to a number of reworks, and to the diﬀerent mix of projects under execution in the Submarine Power business. The High Voltage business performed less well than the year before, during which a number of high margin HVDC interconnection projects were completed. The Oﬀshore Specialties business had a similar performance to the previous year, while the 2019 results of the Submarine Telecom business were considerably higher. The adoption of IFRS 16 beneﬁted Adjusted EBITDA by Euro 7 million in 2019.

Prysmian Group

Directors' Report

Review of Energy Operating Segment

(in millions of Euro)

2019

2018(*)

% change

2018

2017

Combined

Sales

8,027

8,139

-1.4%

6,975

5,113

Adjusted EBITDA before share of net proﬁt/

503

368

36.8%

316

240

(loss) of equity-accounted companies

% of sales

6.3%

4.5%

4.7%

Adjusted EBITDA

505

372

35.9%

320

244

% of sales

6.3%

4.6%

4.8%

Adjustments

(60)

(71)

(23)

EBITDA

445

249

221

% of sales

5.5%

3.6%

4.3%

Amortisation and depreciation

(182)

(126)

(86)

Adjusted operating income

323

194

158

% of sales

4.0%

2.8%

3.1%

The Energy Operating Segment, incorporating those businesses able to oﬀer a complete and innovative portfolio to a variety of industries, is organised around the business areas of Energy & Infrastructure (comprising Trade & Installers, Power Distribution and Overhead Transmission Lines) and Industrial and Network Components (comprising Oil & Gas, Downhole Technology, Specialties & OEM, Elevators, Automotive and Network Compo- nents).

Sales to third parties by the Energy operating segment amounted to Euro 8,027 million in 2019, compared with the 2018 combined ﬁgure of Euro 8,139 million, posting a negative change of Euro 112 million (-1.4%), the main components of which are as follows:

L'Adjusted EBITDA came to Euro 505 million in 2019, up Euro 133 million (+35.9%) from Euro 372 million in 2018. This increase has been partly generated by cost structure rationalisation following the acquisition of General Cable and by adoption of IFRS 16 (beneﬁting the 2019 ﬁgure by Euro 33 million).

The following paragraphs describe market trends and ﬁnancial performance in each of the Energy operating segment's business areas.

Prysmian Group

Annual Report 2019

ENERGY & INFRASTRUCTURE

(in millions of Euro)

2019

2018(*)

% change

2018(**)

2017

Combined

Sales

5,285

5,318

-0.6%

4,462

3,271

Adjusted EBITDA before share of net proﬁt/

307

199

54.1%

163

128

(loss) of equity-accounted companies

% of sales

5.8%

3.7%

3.9%

Adjusted EBITDA

308

202

52.8%

166

130

% of sales

5.8%

3.8%

3.7%

4.0%

Adjusted operating income

185

% of sales

3.5%

1.8%

2.2%

Prysmian produces high and medium voltage cable systems to connect industrial and/or civilian buildings to primary distribution grids and low voltage cables and systems for power distribution and the wiring of buildings. All the products oﬀered comply with international standards regarding insulation, ﬁre resistance, smoke emissions and halogen levels. The low voltage product portfolio includes rigid and ﬂexible cables for distributing power to and within residential and commercial buildings. The Group concentrates product development and innovation activities on high performance cables, such as Fire-Resistant and Low Smoke zero Halogen cables, capable of guaranteeing speciﬁc safety standards. The product range has been lately expanded to satisfy the demand for cables serving infrastructure such as airports, ports and railway stations, by customers as diverse as international distributors, buying syndicates, installers and wholesalers.

MARKET OVERVIEW

The reference markets have distinct geographical characteristics (despite international product standards) both in terms of customer and supplier fragmentation and the range of items produced and sold.

As for Power Distribution, stagnant energy consumption in Europe's principal countries in recent years has adversely aﬀected demand by the major utilities. The latter, operating in a recessionary economic environment, have either maintained cautious positions, given the diﬃculty of forecasting future growth, or else they have concentrated on business restructuring to improve eﬃciency and reduce supply-side costs. This situation has exacerbated the competitive dynamics in terms of price and mix, leaving an extremely challenging environment almost everywhere.

In 2019, the Power Distribution business conﬁrmed the signs of a European market recovery emerging towards the end of 2018, particularly in Germany, the Danube area and North Europe, while experiencing a contraction in demand in South Europe.

Performance also improved in North America, also thanks to Wind market demand which beneﬁted from Production Tax Credit (PTC), a tax incentive based on generated production and which is expected to be extended until mid-2020.

Demand was up in OMAN, while remaining stable in APAC; the situation in LATAM, however, remained challenging with recent changes in the utilities market still in the process of consolidation.

Prysmian Group

Directors' Report

The Overhead Transmission Lines business saw a year-on-year decline in its North American volumes, in line with market expectations, although more than oﬀset by growth in LATAM.

FINANCIAL PERFORMANCE

Sales to third parties by the Energy & Infrastructure business area amounted to Euro 5,285 million in 2019, compared with the 2018 combined ﬁgure of Euro 5,318 million, posting a negative change of Euro 33 million (-0.6%), the main components of which are as follows:

Prysmian Group has carried on its strategy for the Trade & Installers business of focusing on relationships with top international customers and of developing tactical actions to avoid losing sales opportunities, by diﬀerenti- ating its oﬀer in the various markets and by increasing its market share in speciﬁc geographical areas.

The Trade & Installers business enjoyed positive organic sales growth, albeit punctuated by certain geographical diﬀerences, and an improvement in proﬁtability, especially in North America and LATAM.

The Power Distribution business's growth varied by region: strong in North America, positive in East Europe and the Middle East but in retreat in APAC. There was an overall improvement in proﬁtability, driven above all by North America and LATAM, despite strong price pressure in Europe.

Given the factors described above, Adjusted EBITDA for 2019 came to Euro 308 million, compared with Euro 202 million the year before, reﬂecting an increase of Euro 106 million (+52.8%), part of which due to adoption of IFRS 16 (beneﬁting 2019 by Euro 20 million).

INDUSTRIAL & NETWORK COMPONENTS

(in millions of Euro)

2019

2018(*)

% change

2018(**)

2017

Combined

Sales

2,492

2,527

-1.4%

2,277

1,693

Adjusted EBITDA before share of net proﬁt/

195

171

14.3%

155

113

(loss) of equity-accounted companies

% of sales

7.8%

6.8%

6.7%

Adjusted EBITDA

196

172

13.7%

156

115

% of sales

7.9%

6.8%

Adjusted operating income

140

118

% of sales

5.6%

5.2%

The extensive range of cables developed specially for certain industries is characterised by the highly speciﬁc nature of the solutions oﬀered. In the transport market, Prysmian cables are used in the construction of ships and trains, and in the automotive and aerospace industries; in the infrastructure market, the principal applications for its cables are found in railways, docks and airports. The product range also includes cables for the mining industry, for elevators and for applications in the renewable energy ﬁeld (solar and wind power), cables for military use and for nuclear power stations, able to withstand the highest radiation environments.

Prysmian Group

Annual Report 2019

Prysmian also oﬀers a wide range of products for the petrochemicals sector able to serve every onshore and oﬀ- shore need, including the design and supply of systems for power transmission and data communication from oﬀshore platforms and/or ﬂoating hydrocarbon storage vessels to the well-heads; ﬂexible oﬀshore pipes for hydrocarbon transport; Downhole Technology (DHT) solutions, which include steel tubing encased cables to control and power monitoring systems inside extraction wells both oﬀshore and onshore.

The range of products for the petrochemicals industry also includes low and medium voltage power cables, and instrumentation and control cables. The onshore product range is able to support applications in all three segments of the petrochemical production chain: Upstream, Midstream and Downstream.

Lastly, the Group produces accessories and network components, as well as sophisticated control systems; for example, joints and terminations for low, medium, high and extra high voltage cables and submarine systems to connect cables with one another and/or connect them with other network devices, suitable for industrial, construction and infrastructure applications and for use within power transmission and distribution networks.

MARKET OVERVIEW

Markets for Industrial cables displayed considerable inconsistencies within the various business lines and between the diﬀerent geographical areas. In fact, while some market segments showed growing demand, like certain OEM sectors (such as Nuclear, Mining, Marine and Infrastructure), and others were stable, like Rolling stock, other segments reported lower volumes in speciﬁc countries due to delays in investment projects in areas of national interest, like Railways and Cranes. The Renewables business experienced an uptick in demand for Solar products but a lull in the Wind sector.

O&G demand bounced back strongly in Europe and North America compared with the previous year and picked up in APAC, mainly due to project phasing. Oﬀshore activities continued to report a low level of demand, putting pressure not only on the major Asian shipyards (in Singapore and Korea) but also on the oil companies. After a brief revival, mainly in North America, the drilling market remained stable, like the MRO sector (Maintenance, Repair and Overhaul).

The Downhole Technology business showed growth. The ESP (Electro Submersible Pump) business remained stable.

The Elevator market recorded growth in all geographical areas, particularly in North America and APAC.

The Automotive market saw volumes contract in North America and signs of slowing in Europe as well, while remaining stable in LATAM and APAC. Despite strong growth in the market for electric cars and good performance in the premium market, the latter region reported a sharp downturn at the mid and low end of the market. The tendency for cable manufacturers to intercept the market upstream continued.

The network components market reported growing volumes both for medium voltage products and HV and EHV ones.

FINANCIAL PERFORMANCE

Sales to third parties by the Industrial & Network Components business area amounted to Euro 2,492 million in 2019, compared with the 2018 combined ﬁgure of Euro 2,527 million, recording a negative change of Euro 35 million (-1.4%), the main components of which are as follows:

All the Industrial & Network Components business lines had a positive performance in 2019, except for Automotive due to the general market conditions.

Prysmian Group

Directors' Report

The Oil & Gas business witnessed a higher level of demand for onshore projects activities than in the previous year. The business's overall margins remained largely stable despite lower turnover related to project phasing and despite a reduction in higher-margin MRO and oﬀshore volumes.

The Downhole Technology business conﬁrmed the signs of improving demand, primarily thanks to resumed activity in the Middle East.

Specialties, OEM and Renewables recorded growth in North America and LATAM, especially in the areas of min- ing, nuclear and solar applications. The Elevator business upped its proﬁtability after suﬀering the previous year from strong pressures in the Chinese market and from the impact of unfavourable exchange rates on its major exposure in the North American market.

The Automotive business's year-on-year performance reﬂected a reduction in volumes on the American and Eu- ropean markets and continued price pressure on low-margin products; these impacts were partially mitigated by the strategy of focusing on top-end segments and of improving industrial performance.

The Network Components business showed solid growth, primarily driven by the European market and with medium voltage products outperforming high voltage ones.

Given the factors described above, Adjusted EBITDA for 2019 came to Euro 196 million, up from Euro 172 million the year before, reﬂecting an increase of Euro 24 million (+13.7%), part of which due to adoption of IFRS 16 (ben- eﬁting 2019 by Euro 12 million).

OTHER

(in millions of Euro)

2019

2018(*)

2018

2017

Combined

Sales

250

294

236

149

Adjusted EBITDA before share of net proﬁt/

(2)

(1)

(loss) of equity-accounted companies

Adjusted EBITDA

(2)

(1)

Adjusted operating income

(2)

(4)

(3)

This business area encompasses occasional sales by Prysmian Group operating units of intermediate goods, raw materials or other products forming part of the production process. These sales are normally linked to local business situations, do not generate high margins and can vary in size from period to period.

Prysmian Group

Annual Report 2019

Review of Telecom Operating

Segment

(in milioni di Euro)

2019

2018(*)

% change

2018

2017

Combined

Sales

1,648

1,634

0.8%

1,494

1,258

Adjusted EBITDA before share of net proﬁt/

252

240

4.8%

229

177

(loss) of equity-accounted companies

% of sales

15.3%

14.7%

15.4%

14.0%

Adjusted EBITDA

274

295

-7.2%

284

214

% of sales

16.6%

18.0%

19.0%

17.0%

Adjustments

(8)

EBITDA

274

306

206

% of sales

16.6%

20.5%

16.4%

Amortisation and depreciation

(72)

(47)

(41)

Adjusted operating income

202

237

173

% of sales

12.3%

15.9%

13.8%

As partner to leading telecom operators worldwide, Prysmian Group produces and manufactures a wide range of cable systems and connectivity products used in telecommunication networks. The product portfolio includes optical ﬁbre, optical cables, connectivity components and accessories and copper cables.

MARKET OVERVIEW

The global optical ﬁbre cables market experienced a slight contraction in 2019 compared with the previous year. Softer demand in fast-developing markets (China) was partially counterbalanced by growth in the APAC market. Optical ﬁbre cable consumption was stable in North America, but slightly higher in Europe thanks to plans under the Digital Agenda for Europe 2025. The latter envisages the provision of three levels of minimum service depending on the type of user. In fact, government oﬃces and entities like schools and hospitals will beneﬁt from a bandwidth of at least 1 Gb/s. Likewise, the entire residential population will be connected with 100 Mb/s, while all urban areas and transport corridors should have broadband mobile coverage with 5G technology. In Europe, the network architectures used vary as decided by each individual country.

FTTH networks are the preference in France, Spain, Portugal and the Nordics, while G.Fast is the norm in Germa- ny and Britain; although these systems use the last metres of the existing copper network, massive volumes of optical cables are nonetheless required to upgrade the distribution networks. In other places like Italy, the two technologies coexist.

Partly thanks to renewed political stability, South America saw resumed investment by its major teleco's, primarily in optical ﬁbre cables.

Prysmian Group

Directors' Report

The copper cable market is slowing due to the maturity of the products concerned. The decline in this market was increasingly evident in 2019, with high demand for internet access causing major operators to opt to renew their networks using optical ﬁbre, rather than perform maintenance or upgrade work on existing networks. It is still worth remaining in this segment since the gradual decommissioning of assets by competitor cable manufacturers nonetheless oﬀers attractive opportunities.

The MMS cable market reported timid global growth, driven by Asia and, in the case of the optical cables segment, by China. Growth is being fuelled by demand for ever greater bandwidth capacity in professional and oﬃce environments and data centres. Interestingly, this trend applies to both new buildings and projects to renovate existing ones. An important contribution to this growth is coming from industrial applications (Industry 4.0) that require new highly specialised products. Another important source of growth is HDTV cables used for the broadcast of digital content such as sports events or other events of media interest.

FINANCIAL PERFORMANCE

Sales to third parties by the Telecom operating segment came to Euro 1,648 million at the end of 2019, compared with the combined ﬁgure of Euro 1,634 million in 2018.

The change of Euro 14 million (+0.8%) is explained by:

The organic growth in 2019 sales reﬂects the positive trend already observed the previous year, and was primarily the result of year-on-year growth in demand for optical ﬁbre and special cables serving major investment projects. It should be noted, however, that this growth turned negative in the second half of 2019.

Volume trends in Europe were positive and prices stable in the ﬁrst three quarters of the year. A slowing in orders in the last few months of 2019 was accompanied by a drop in prices. Among the Group's major contracts are those with leading operators in Europe engaged in the construction of backhaul links and FTTH connections. In the Netherlands, work continues on the plan to develop the network in rural areas, while Swisscom is in the process of implementing a national plan in Switzerland. In France, the "Trés Haut Débit" broadband project continues to be rolled out. In addition, British Telecom has announced a new FTTH project to connect 3 million "premises" in 8 cities by 2020.

In North America, the development of new ultra-broadband networks generated steady demand compared with the year before. Australia reported less brisk demand than in the previous year.

Brazil and Argentina saw the major telecom carriers increase their investments in optical ﬁbre cables.

Lastly, copper cables continued their steady decline with the retirement of traditional networks in favour of new-generation ones.

The high value-added business of optical connectivity accessories performed well, thanks to the development of new FTTx networks (for last mile broadband access) in Europe, particularly in the Netherlands and the UK.

Prysmian Group

Annual Report 2019

Growth in the Multimedia Solutions business mainly reﬂected increased volumes on the North American market, primarily related to the acquisition of General Cable, and in the European market for copper data transmission cables, also observed, albeit to a lesser extent, in South America. This result has been achieved thanks to the busi- ness's ability to satisfy growing demand with a high level of responsiveness and service. An approach that, along with its strong customer orientation, has been identiﬁed as one of the Group's main strengths.

The return on investments in optical ﬁbre cost reduction and the relocation of some cable manufacturing sources to Eastern Europe also made a substantial contribution to the segment's overall results.

Adjusted EBITDA for 2019 came to Euro 274 million, reporting a decrease of Euro 21 million (-7.2%) from Euro 295 million in 2018. This decline is due to the negative results of the associate Yangtze Optical Fibre and Cable Joint Stock Limited Company in China, involving a negative impact of some Euro 33 million, as only partially oﬀset by the positive eﬀect of Euro 7 million from the ﬁrst-time adoption of IFRS 16 in 2019.

Prysmian Group

Directors' Report

Results by Geographical Area

(in millions of Euro)

Sales

Adjusted EBITDA

2019

2018(*)

2019

2018(*)

Combined

EMEA(**)

6,196

6,239

491

348

North America

3,441

3,298

352

242

Latin America

931

1,003

102

Asia Paciﬁc

951

983

101

Total

11,519

11,523

1,007

767

As stated in the Explanatory Notes to this Annual Report, the Group's operating segments are: Energy, Projects and Telecom, reﬂecting the structure used in the periodic reports prepared to review business performance. The primary performance indicator used in these reports, presented by macro type of business (Energy, Projects and Telecom), is Adjusted EBITDA, deﬁned as earnings (loss) for the period before non-recurring items, the fair value change in metal price derivatives and in other fair value items, amortisation, depreciation and impairment, ﬁnance costs and income and taxes.

In order to provide users of the ﬁnancial statements with information that is more consistent with the Group's greater geographical diversiﬁcation following the General Cable acquisition, Sales and Adjusted EBITDA have been reported above by geographical area, even though the primary operating segments remain those by busi- ness. For this purpose, sales of goods and services are analysed geographically on the basis of the location of the registered oﬃce of the company that issues the invoices, regardless of the geographic destination of the products sold. This type of presentation does not produce signiﬁcantly diﬀerent results from analysing sales of goods and services by destination of the products sold.

EMEA

The EMEA region's organic sales growth, including the impact of Western Link, was negative in 2019 compared with the previous year, at -2.4%. Excluding the Projects operating segment, organic growth would have been -1.3%. Ignoring provisions of Euro 165 million recorded in 2018 for the Western Link project, Adjusted EBITDA was lower, with the decrease due to the Projects operating segment, which nonetheless enjoyed a fourth-quarter upturn, albeit spoiled by a Telecom downturn in the same quarter.

Prysmian Group

Annual Report 2019

North America

North America had positive organic sales growth of +2.6% in 2019 compared with the previous year. Excluding the Projects segment, this growth would have been +1.9%. The E&I business and the Telecom operating seg- ment's MMS business particularly accounted for this positive sales performance, even though Telecom started to ﬂag in the fourth quarter of 2019.

The increase in Adjusted EBITDA also reﬂects the high degree of integration achieved with General Cable.

LATAM

LATAM had positive organic sales growth of +0.7% in 2019 compared with the previous year. Excluding the Projects segment, this growth would have been +2.0%.

The increase in Adjusted EBITDA was driven by strong performance in the Energy operating segment (by both the E&I and Industrial & Network Components businesses), by accelerated integration with General Cable, helping improve margins, and by cross-selling activities allowing the Group to seize new growth opportunities.

APAC

APAC had negative organic sales growth of -4.5% in 2019 compared with the previous year. Excluding the Projects segment, this growth would have been -1.4%.

Adjusted EBITDA turned down sharply on the previous year especially in the Telecom operating segment, partly reﬂecting the smaller contribution from the associate YOFC and lower sales volumes in Australia. The Energy segment result was nonetheless stable.

Prysmian Group

Directors' Report

Group Statement of Financial Position

RECLASSIFIED STATEMENT OF FINANCIAL POSITION

(in millions of Euro)

31.12.2019

31.12.2018 (*)

Change

31.12.2017

Net ﬁxed assets

5,301

5,101

200

2,610

Net working capital

755

692

128

Provisions and net deferred taxes

(820)

(734)

(86)

(308)

Net capital employed

5,236

5,059

177

2,430

Employee beneﬁt obligations

494

463

355

Total equity

2,602

2,374

228

1,639

of which attributable to non-controlling

187

188

(1)

188

interests

Net ﬁnancial debt

2,140

2,222

(82)

436

Total equity and sources of funds

5,236

5,059

177

2,430

NET FIXED ASSETS

(in millions of Euro)

31.12.2019

31.12.2018 (*)

Change

31.12.2017

Property, plant and equipment

2,804

2,629

175

1,646

Intangible assets

2,154

2,162

(8)

735

Equity-accounted investments

314

294

217

Other investments at fair value through other

comprehensive income

Assets held for sale (**)

Net ﬁxed assets

5,301

5,101

200

2,610

planatory Notes: Section C. Restatement of comparative ﬁgures. (**) Excluding the value of ﬁnancial assets and liabilities held for sale.

Prysmian Group

Annual Report 2019

At 31 December 2019, net ﬁxed assets amounted to Euro 5,301 million, compared with Euro 5,101 million at 31 De- cember 2018, posting an increase of Euro 200 million mainly due to the combined eﬀect of the following factors:

•

Euro 274 million in net capital expenditure on property, plant and equipment and intangible assets; Euro 354 million in depreciation, amortisation and impairment charges for the year;

Euro 211 million in increases in property, plant and equipment on adoption of IFRS 16;

Euro 50 million in positive currency translation diﬀerences aﬀecting property, plant and equipment and intangible assets;

Euro 7 million from the disposal of the oﬃces in Barcelona (Spain);

Euro 20 million for the net increase in equity-accounted investments, mainly comprising Euro 24 million for the share of net proﬁt/(loss) of equity-accounted companies, less Euro 9 million in dividend receipts plus Euro 3 million in positive currency translation diﬀerences;

Euro 3 million from the disposal of the plant in Delfzijl (Netherlands);

reclassiﬁcation to Assets held for sale of Euro 14 million in other assets and Euro 10 million in other liabilities in respect of Draka Fileca SAS, for which a binding purchase oﬀer has been received from Carlisle Companies Incorporated.

NET WORKING CAPITAL

The following table analyses the main components of net working capital:

(in millions of Euro)

31.12.2019

31.12.2018 (*)

Change

31.12.2017

Inventories

1,523

1,511

954

Trade receivables

1,475

1,635

(160)

1,131

Trade payables

(2,062)

(2,132)

(1,686)

Other receivables/(payables)

(187)

(307)

120

(293)

Net operating working capital

749

707

106

Derivatives

(15)

Net working capital

755

692

128

Net working capital of Euro 755 million at 31 December 2019 was Euro 63 million higher than the corresponding ﬁgure of Euro 692 million at 31 December 2018. Net operating working capital amounted to Euro 749 million (6.5% of annualised sales) at 31 December 2019, an increase of Euro 42 million from Euro 707 million (6.3% of sales) at 31 December 2018, reﬂecting the following factors:

Prysmian Group

Directors' Report

EQUITY

The following table reconciles the Group's equity and net proﬁt/(loss) for 2019 with the corresponding ﬁgures reported by Prysmian S.p.A., the Parent Company.

(in millions of Euro)

Equity

Net proﬁt/

Equity

Net proﬁt/

at 31 December

(loss)

at 31 December

(loss)

2019

2018

Parent Company Financial Statements

2,161

179

2,102

Share of equity and net proﬁt of consolidated

subsidiaries, net of carrying amount of the

485

289

298

102

related investments

Reversal of dividends distributed to the Par-

(154)

(139)

ent Company by consolidated subsidiaries

Deferred taxes on earnings/reserves distrib-

(30)

(14)

(16)

utable by subsidiaries

Elimination of intercompany proﬁts and

(14)

(4)

(10)

(1)

losses included in inventories

Non-controlling interests

(187)

(4)

(188)

Consolidated Financial Statements

2,415

292

2,186

Prysmian Group

Annual Report 2019

NET FINANCIAL DEBT

The following table provides a detailed breakdown of net ﬁnancial debt:

(in millions of Euro)

31.12.2019

31.12.2018

Change

31.12.2017

Long-term ﬁnancial payables

CDP Loans

100

EIB Loans

118

135

(17)

152

Non-convertible bond

746

745

743

Convertible Bond 2017

478

467

456

Term Loan

995

993

Bridge Loan

500

(500)

UniCredit Loan

199

Mediobanca Loan

100

Intesa Loan

149

Derivatives

Lease liabilities

135

124

Other ﬁnancial payables

Total long-term ﬁnancial payables

3,047

3,169

(122)

1,466

Short-term ﬁnancial payables

CDP Loans

100

EIB Loans

Non-convertible bond

Convertible bond 2013

283

Term Loan

Derivatives

Lease liabilities

Other ﬁnancial payables

(29)

Total short-term ﬁnancial payables

222

106

116

371

Total ﬁnancial liabilities

3,269

3,275

(6)

1,837

Long-term ﬁnancial receivables

Long-term bank fees

Financialassetsatamortisedcost

(1)

Short-term derivatives

Short-term ﬁnancial receivables

(5)

Short-term bank fees

Financial assets at fair value through proﬁt

or loss

Financial assets at fair value through other

comprehensive income

Financial assets held for sale

Cash and cash equivalents

1,070

1,001

1,335

Total ﬁnancial assets

1,129

1,053

1,401

Net ﬁnancial debt

2,140

2,222

(82)

436

Net ﬁnancial debt of Euro 2,140 million at 31 December 2019 has decreased by Euro 82 million from Euro 2,222 million at 31 December 2018. The main factors contributing to this change are summarised in the comments on the statement of cash ﬂows in the next section.

Prysmian Group

Directors' Report

STATEMENT OF CASH FLOWS

(in millions of Euro)

2019

2018

Change

2017

EBITDA

907

501

406

660

Changes in provisions (including employee beneﬁt obligations) and

(72)

147

(219)

other movements

Gains)/losses on disposal of property, plant and equipment, intangi-

(1)

(37)

(2)

ble assets

Share of net proﬁt/(loss) of equity-accounted companies

(24)

(59)

(42)

Net cash ﬂow from operating activities (before changes in net work-

810

552

258

616

ing capital)

Changes in net working capital

Taxes paid

(111)

(110)

(1)

(104)

Dividends from investments in equity-accounted companies

(7)

Net cash ﬂow from operating activities

775

462

313

607

Cash ﬂow from acquisitions and/or disposals

(7)

(1,290)

1,283

(7)

Net cash ﬂow used in operating investing activities

(248)

(278)

(254)

of which for investment in Huan Shen Huan

(35)

Free cash ﬂow (unlevered)

520

(1,106)

1,626

346

Net ﬁnance costs

(94)

(84)

(10)

(70)

Free cash ﬂow (levered)

426

(1,190)

1,616

276

Share buyback

(100)

Dividend distribution

(119)

(105)

(14)

(101)

Capital contributions and other changes in equity

496

(494)

Net cash ﬂow provided/(used) in the year

309

(799)

1,108

Opening net ﬁnancial debt

(2,222)

(436)

(1,786)

(537)

Net cash ﬂow provided/(used) in the year

309

(799)

1,108

Equity component of Convertible Bond 2017

Conversion of Convertible Bond 2013

283

(283)

Net ﬁnancial debt General Cable

(1,215)

1,215

Increase due to IFRS 16

(211)

Other changes

(16)

(55)

(38)

Closing net ﬁnancial debt

(2,140)

(2,222)

(436)

Net cash ﬂow provided by operating activities (before changes in net working capital) amounted to Euro 810 million at the end of 2019.

The decrease in net working capital, described earlier, provided Euro 67 million in cash ﬂow. After Euro 111 million in tax payments and Euro 9 million in dividend receipts, operating activities in 2019 therefore provided a net cash inﬂow of Euro 775 million.

Acquisitions and/or disposals during the year produced a net outﬂow of Euro 7 million, due to the purchase of non-controlling interests in subsidiaries.

Net operating capital expenditure used Euro 248 million in cash in 2019, a large part of which relating to projects to increase and rationalise production capacity and to develop new products.

In addition, Euro 94 million in net ﬁnance costs were paid and Euro 119 million in dividends were distributed during the year.

Although net ﬁnancial debt beneﬁted from Euro 309 million in net cash inﬂows for the year, it was also aﬀected by an increase of Euro 211 million in ﬁnancial liabilities recognised on adoption of IFRS 16.

Prysmian Group

Annual Report 2019

Alternative performance indicators

In addition to the standard ﬁnancial reporting formats and indicators required under IFRS, this document contains a number of reclassiﬁed statements and alternative performance indicators. The purpose is to help users better evaluate the Group's economic and ﬁnancial performance. However, these statements and indicators should not be treated as a substitute for the accepted ones required by IFRS.

In this regard, on 3 December 2015, Consob adopted the ESMA guidelines in Italy with publication of "ESMA Guidelines/2015/1415" which supersede the "CESR Recommendation 2005 (CESR/05-178b)". The alternative performance measures have therefore been revised in light of these guidelines.

The alternative indicators used for reviewing the income statement include:

Prysmian Group

Directors' Report

The alternative indicators used for reviewing the reclassiﬁed statement of ﬁnancial position include:

Prysmian Group

Annual Report 2019

Prysmian Group

Annual Report 2019

Reconciliation between the Reclassiﬁed Statement of Financial Position presented in the Directors' Report and the Statement of Financial Position contained in the Consolidated Financial Statements and Explanatory Notes at 31 December 2019

(in millions of Euro)

31.12.2019

31.12.2018 (*)

Partial

Total

Partial

Total

Note

amounts

from

ﬁnancial

statements

Net ﬁxed assets

Property, plant and equipment

2,804

2,629

Goodwill and other intangible assets

2,154

2,162

Equity-accounted investments

314

294

Other investments at fair value through other

comprehensive income

Assets and liabilities held for sale

Total net ﬁxed assets

5,301

5,101

Net working capital

Inventories

1,523

1,511

Trade receivables

1,475

1,635

Trade payables

(2,062)

(2,132)

Other receivables/payables net

(187)

(307)

of which:

Other receivables - non-current

Tax receivables

Receivables from employees

Advances to suppliers

Other

Other receivables - current

812

659

Tax receivables

227

158

Receivables from employees and pension plans

Advances to suppliers

Other

120

115

Construction contracts

450

360

Other payables - non-current

(11)

(12)

Tax and social security payables

(2)

(3)

Payables to employees

(1)

Other

(8)

(9)

Other payables - current

(969)

(953)

Tax and social security payables

(201)

(163)

Advances from customers

(357)

(332)

Payables to employees

(160)

(176)

Accrued expenses

(139)

(140)

Other

(112)

(142)

Current tax payables

(51)

(32)

Total net operating net working capital

F=B+C+

D+E

749

707

Derivatives

(15)

of which:

Forward currency contracts on commercial

(7)

transactions (cash ﬂow hedges) - current

Forward currency contracts on commercial

(3)

(4)

transactions - current

Metal derivatives - non-current

Metal derivatives - current

(5)

Total net working capital

H = F+G

755

692

Prysmian Group

Directors' Report

(in millions of Euro)

31.12.2019

31.12.2018 (*)

Partial

Total

Partial

Total

Note

amounts

from

ﬁnancial

statements

Provisions for risks and charges - non-current

(60)

(51)

Provisions for risks and charges - current

(717)

(635)

Deferred tax assets

170

190

Deferred tax liabilities

(213)

(238)

Total provisions

(820)

(734)

Net capital employed

L =

A+H+I

5,236

5,059

Employee beneﬁt obligations

494

463

Total equity

2,602

2,374

of which attributable to non-controlling interests

187

188

Net ﬁnancial debt

Total long-term ﬁnancial payables

3,047

3,169

CDP Loans

100

EIB Loans

118

135

Non-convertible bond

746

745

Convertible bond 2017

478

467

Term Loan

995

993

Bridge Loan

500

UniCredit Loan

199

Mediobanca Loan

100

Intesa Loan

149

Derivatives

of which:

Interest rate swaps

Lease liabilities

135

Other payables

Total short-term ﬁnancial payables

222

106

CDP Loans

100

EIB Loans

Non-convertible bond

Term Loan

Derivatives

of which:

Interest rate swaps

Forward currency contracts on ﬁnancial transactions

Lease liabilities

Other payables

Total ﬁnancial liabilities

Q = O+P

3,269

3,275

Long-term ﬁnancial receivables

(2)

Long-term bank fees

(4)

Short-term ﬁnancial receivables

(2)

(7)

Short-term derivatives

(6)

(2)

of which:

Forward currency contracts on ﬁnancial

(6)

(2)

transactions (current)

Short-term bank fees

(2)

(1)

Financial assets at amortised cost

(4)

(5)

Financial assets at fair value through other

(11)

(10)

comprehensive income

Financial assets at fair value through proﬁt or loss

(27)

(25)

Financial assets held for sale

(1)

Cash and cash equivalents

(1,070)

(1,001)

Total ﬁnancial assets

Z =

R+S+

(1,129)

(1,053)

T+U+V

Total net ﬁnancial debt

W = Q+Z

2,140

2,222

Total equity and sources of funds

Y =

M+N+

5,236

5,059

Prysmian Group

Annual Report 2019

Reconciliation between the principal income statement indicators and the Income Statement contained in the Consolidated Financial Statements and Explanatory Notes for 2019

(in millions of Euro)

2019

2018(*)

Amounts

from income

statement

Sales

11,519

10,104

Change in inventories of ﬁnished goods and work in progress

(16)

(84)

Other income

139

Raw materials, consumables and goods

(7,218)

(6,542)

Personnel costs

(1,539)

(1,260)

Other expenses

(1,958)

(1,921)

Operating costs

(10,635)

(9,668)

Share of net proﬁt/(loss) of equity-accounted companies

Fair value stock options

(1)

EBITDA

E =

A+B+C+D

907

501

Other non-recurring expenses and revenues

(94)

Personnel costs for company reorganisation

(69)

(57)

Other costs and revenues for company reorganisation

(16)

(9)

Other non-operating expenses

(47)

(32)

Total adjustments

L =

F+G+H+I

(100)

(192)

Adjusted EBITDA

M = E-L

1,007

693

Share of net proﬁt/(loss) of equity-accounted companies

Adjusted EBITDA before share of net proﬁt/(loss) of

O = M-N

983

634

equity-accounted companies

(in millions of Euro)

2019

2018

Amounts

from income

statement

Operating income

569

215

Other non-recurring expenses and revenues

(94)

Personnel costs for company reorganisation

(69)

(57)

Other costs and revenues for company reorganisation

(16)

(9)

Other non-operating expenses

(47)

(32)

Total adjustments to EBITDA

(100)

(192)

Fair value change in metal derivatives

(48)

Fair value stock options

(6)

Non-recurring impairment and releases

(36)

(5)

Adjusted operating income

F=A-B-C-

D-E

689

466

Prysmian Group Directors' Report

Prysmian Group

Annual Report 2019

Risk factors and uncertainties

Prysmian Group's value creation policy has always been based on eﬀective risk management. Since 2012, by adopting the provisions on risk management introduced by the "Italian Stock Exchange Corporate Governance Code for Listed Companies" (Corporate Governance Code), Prysmian has taken the opportunity to strengthen its governance model and implement an advanced system of Risk Management that promotes proactive management of risks using a structured and systematic tool to support the main business decision-making processes. In fact, this Enterprise Risk Management (ERM) model, developed in line with internationally recognised models and best practices, enables the Board of Directors and management to make informed assessments of risk scenarios that could jeopardise the achievement of strategic objectives, and to adopt additional tools able to antic- ipate, mitigate or manage signiﬁcant exposures. The Group Chief Risk Oﬃcer (CRO), designated to manage the ERM process, is responsible for ensuring, together with management, that the main risks facing Prysmian and its subsidiaries are promptly identiﬁed, assessed and monitored over time. A special Internal Risk Management Committee (consisting of the Group's Senior Management) also ensures, through the CRO, that the ERM process develops dynamically, by taking account of changes in the business, needs and events that have an impact on the Group over time. The CRO reports periodically (at least twice a year) on these developments to senior man- agement. Reference should be made to the "Corporate Governance" section of this report for a discussion of the governance structure adopted and the responsibilities designated to the bodies involved.

The ERM model adopted (and formalised within the Group ERM Policy which incorporates the guidelines for the Internal Control and Risk Management System approved by the Board of Directors back in 2014) follows a top- down approach, meaning it is directed by Senior Management and medium/long-term business objectives and strategies. It extends to all the types of risk/opportunity for the Group, represented in the Risk Model - shown in the following diagram - that uses ﬁve categories to classify the risks of an internal or external nature characterising the Prysmian business model:

•

Strategic Risks: risks arising from external or internal factors such as changes in the market environment, from bad and/or improperly implemented corporate decisions and from failure to react to changes in the competitive environment, which could therefore threaten the Group's competitive position and achievement of its strategic objectives;

Financial Risks: risks associated with the amount of ﬁnancial resources available, with the ability to manage currency and interest rate volatility eﬃciently;

Operational Risks: risks arising from the occurrence of events or situations that, by limiting the eﬀectiveness and eﬃciency of key processes, aﬀect the Group's ability to create value;

Legal and Compliance Risks: risks related to violations of national, international and industry-speciﬁc legal and regulatory requirements, to unprofessional conduct in conﬂict with company ethical policies, exposing the Group to possible penalties and undermining its reputation in the marketplace;

Planning and Reporting Risks: risks related to the adverse eﬀects of incomplete, incorrect and/or untimely information with possible impacts on the Group's strategic, operational and ﬁnancial decisions.

Prysmian Group

Directors' Report

Prysmian Group Risk Model

STRATEGIC

Macroeconomic, demand trends & Competitive environment

Stakeholder expectations and Corporate Social Responsibility

Key customer & business partners

Emerging country risk

Law & regulation evolution

Research & Development

M&A / JVs and integration process

FINANCIAL

OPERATIONAL

Raw materials price volatility

Sales & Tendering

Exchange rate volatility

Production Capacity /

Interest rate volatility

Eﬃciency

Supply Chain Capacity /

Financial instruments

Eﬃciency

Credit risk

Business interruption /

Liquidity risk / Working

Catastrophic events

Capital risk

Contract execution / liabilities

Capital availability / cost risk

Product quality / liabilities

Financial counterparties

Environmental

Information Technology

Human Resources

Operative CAPEX

Strategy implementation

Organizational framework & governance

LEGAL & COMPLIANCE

Intellectual Property rights

Compliance to laws and regulations

Compliance to Code of Ethics, Policies & Procedures

Outsourcing

PLANNING & REPORTING

Budgeting & Strategic planning

Tax & Financial Planning

Management reporting Financial reporting

In compliance with the amendments to the Corporate Governance Code published in July 2015, the Group Risk Model has been revised to include, as part of strategic risks, the area of Corporate Social Responsibility with the purpose of identifying more precisely the Group's economic, environmental and social sustainability risks which, over time, could jeopardise value creation for its shareholders and stakeholders.

The Board of Directors has also given the Compensation, Nominations and Sustainability Committee responsi- bility, with eﬀect from 1 January 2016, for supervising the aspects of sustainability associated with the Group's business, as described in the Corporate Governance Report.

Members of management involved in the ERM process are required to use a clearly deﬁned common method to measure and assess speciﬁc risk events in terms of Impact, Probability of occurrence and adequacy of the existing Level of Risk Management, meaning:

•

economic-ﬁnancialimpact on expected EBITDA or cash ﬂow, net of any insurance coverage and countermeasures in place, and/or qualitative impact on reputation and/or operational eﬃciency/ continuity, measured on a scale that goes from negligible (1) to critical (4);

probability that a particular event may occur within the speciﬁc planning period, measured on a scale that goes from remote (1) to high (4);

level of control meaning the maturity and eﬃciency of existing risk management systems and processes, measured on a scale that goes from adequate (green) to inadequate (red).

Prysmian Group

Annual Report 2019

The overall assessment must also take into account the future outlook for risk, i.e. the possibility that the exposure is increasing, constant or decreasing over the period considered.

The results of measuring exposure to the risks analysed are then represented on a 4x4 heat map, which, by combining the variables in question, provides an immediate picture of the most signiﬁcant risk events.

RISK ASSESSMENT CRITERIA

Assessment Criteria

Impact

Probability

Level of Risk Management

Risk INADEQUATELY covered and/or managed

Risk covered and/or managed but with ROOM FOR IMPROVEMENT

Risk ADEQUATELY covered and/or managed

Negligible Moderate HighCritical

IMPACT

Remote

Low

Medium

High

LIKELIHOOD

This overall picture of the Group's risks allows the Board of Directors and Management to reﬂect upon the level of the Group's risk appetite, and so identify the risk management strategies to adopt, by assessing which risks and with what priority it is thought necessary to implement, improve and optimise mitigation actions or simply to monitor the exposure over time. The adoption of a particular risk management strategy, depends, however, on the nature of the risk event identiﬁed, so in the case of:

•

external risks outside the Group's control, it will be possible to implement tools that support the assessment of scenarios should the risk materialise, by deﬁning the possible action plans to mitigate impacts (e.g. continuous monitoring activities, stress testing of the business plan, taking out of insurance coverage, disaster recovery plans, and so on);

risks partially addressable by the Group, it will be possible to intervene through systems of risk transfer, monitoring of speciﬁc indicators of risk, hedging activities, and so on;

internal risks addressable by the Group, it will be possible, as risks inherent in the business, to take targeted actions to prevent risk and minimise impacts by implementing an adequate system of internal controls and related monitoring and auditing.

ERM is a continuous process that, as stated in the ERM Policy, forms part of the Group's three-year strategic and business planning process, by identifying potential events that could aﬀect its sustainability, and which is updated annually with the involvement of key members of management.

In 2019, this process involved the main business/function managers of the Group, allowing the most sig- niﬁcant risk factors to be identiﬁed, assessed and managed; this process also covered factors related to the Group's economic, environmental and social sustainability, to ensure lasting value creation for shareholders and stakeholders.

The main risk factors to which the Group's particular type of business model is exposed will now be presented according to the classiﬁcation used in the Risk Model described earlier, and describing the strategies adopted to mitigate these risks.

Prysmian Group

Directors' Report

The main risk factors have also considered those able to have an impact on economic, environmental and social sustainability. More details can be found in the annual Sustainability Report, available on the Company's website at www.prysmiangroup.com in the section media/media-library/sustainability-report.

Financial risks are discussed in detail in the Explanatory Notes to the Consolidated Financial Statements in Section D (Financial Risk Management). As stated in the Explanatory Notes to the Consolidated Financial Statements (Section B.1 Basis of preparation), the Directors have assessed that there are no ﬁnancial, operating or other kind of indicators that might provide evidence of the Group's inability to meet its obligations in the foreseeable future and particularly in the next 12 months. In particular, based on its ﬁnancial performance and cash generation in recent years, as well as its available ﬁnancial resources at 31 December 2019, the Directors believe that, barring any unforeseeable extraordinary events, there are no material uncertainties, such as to cast significant doubts upon the business's ability to continue as a going concern.

STRATEGIC RISKS

Risks associated with the competitive environment

Many of the products oﬀered by Prysmian Group, primarily in the Trade & Installers and Power Distribution busi- nesses, are made in conformity with speciﬁc industrial standards and so are interchangeable with those oﬀered by major competitors. Price is therefore a key factor in customer choice of supplier. The entry into mature markets (e.g. Europe) of non-traditional competitors, meaning small to medium manufacturing companies with low production costs, and the need to saturate production capacity, together with the possible occurrence of a contraction in market demand, translate into strong competitive pressure on prices, with possible consequences for the Group's expected margins.

In addition, high value-added segments - like High Voltage underground cables, Optical Cables and Submarine cables - are seeing an escalation in competition from both existing operators and new market entrants with leaner more ﬂexible organisation models, with potentially negative impacts on both sales volumes and selling prices. With particular reference to the Submarine cables business, the high barriers to entry, linked to diﬃ- cult-to-replicate ownership of technology, know-how and track record, are driving large market players to compete not so much on the product as on the related services.

The strategy of rationalising production facilities currently in progress, the consequent optimisation of cost structure, the policy of geographical diversiﬁcation and, last but not least, the ongoing pursuit of innovative technological solutions, all help the Group to address the potential eﬀects arising from the competitive envi- ronment.

Risks associated with changes in macroeconomic conditions and demand

Factors such as trends in GDP and interest rates, the ease of getting credit, the cost of raw materials, and the general level of energy consumption, signiﬁcantly aﬀect the energy demand of countries which, in the face of persistent economic diﬃculties, then reduce investments that would otherwise develop the market. Government incentives for alternative energy sources and for developing telecom networks also face reduction for the same reason. Prysmian Group's transmission business (high voltage submarine cables) and Power Distribution and Telecom businesses, all highly concentrated in the European market, are being aﬀected by shifting contractions of demand within this market, caused by the region's prolonged economic downturn.

To counter this risk, the Group is pursuing, on the one hand, a policy of geographical diversiﬁcation in non-Euro- pean countries and, on the other, a strategy to reduce costs by rationalising its manufacturing footprint around the world in order to mitigate possible negative eﬀects on the Group's performance in terms of lower sales and shrinking margins.

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In addition, the Group constantly monitors developments in the global geopolitical environment which, as a result - for example - of the introduction of speciﬁc industrial policies by individual countries, could require it to revise existing business strategies and/or adopt mechanisms to safeguard the Group's competitive position.

Key customer dependency risks

The many and diverse types of customers (power transmission and telecom systems operators, distributors, in- stallers, etc.) and their distribution across an equally wide number of diﬀerent countries mitigate customer dependency risk at a group level.

However, in some countries and businesses, one customer may account for a signiﬁcant share of the total, like for example the Oﬀshore Specialties business, where Prysmian Group has an important business relationship with Petrobras, a Brazilian oil company, for the supply of umbilical cables, developed and manufactured at the factory in Vila Velha, Brazil. Given this country's ongoing economic problems, in turn depressing the local umbilical cables market, and growing competitive pressures surrounding product technological innovation, business sustainability in Brazil could be impacted, in whole or in part.

While committed to maintaining and strengthening its business relationship with this customer over time, the Group is gradually reorganising the business unit to make its processes more eﬃcient and to concentrate more and more on developing new products whose technical and economic solutions ensure lower production costs.

Risk of instability in the Group's countries of operation

Prysmian Group operates and has production facilities and/or companies in Asia, Latin America, the Middle East, Africa and Eastern Europe. The Group's operations in these countries are exposed to diﬀerent risks linked to local regulatory and legal systems, the imposition of tariﬀs or taxes, exchange rate volatility, and political and economic instability aﬀecting the ability of business and ﬁnancial partners to meet their obligations.

Signiﬁcant changes in the macroeconomic, political, tax or legislative environment of such countries could have an adverse impact on the Group's business, results of operations and ﬁnancial condition; consequently, as already mentioned in an earlier paragraph, the Group constantly monitors developments in the global geopolitical environment which could require it to revise existing business strategies and/or adopt mechanisms to safeguard its competitive position.

FINANCIAL RISKS

Prysmian Group's risk management strategy focuses on the unpredictability of markets and aims to minimise the potentially negative impact on the Group's ﬁnancial performance. Some types of risk are mitigated by using ﬁnancial instruments (including derivatives).

Financial risk management is centralised with the Group Finance department which identiﬁes, assesses and hedges ﬁnancial risks in close cooperation with the Group's operating companies.

The Group Finance, Administration and Control department provides guidelines on risk management, with particular attention to exchange rate risk, interest rate risk, credit risk, the use of derivative and non-derivative instruments, and on how to invest excess liquidity. Such ﬁnancial instruments are used solely to hedge risks and not for speculative purposes

Risks associated with availability of ﬁnancial resources and their cost

The volatility of the international banking and ﬁnancial system could be a potential risk factor in terms of obtaining ﬁnance and its associated cost. In addition, non-compliance with the ﬁnancial and non-ﬁnancial covenants contained in the Group's credit agreements could restrict its ability to increase its net indebted- ness, other conditions remaining equal. In fact, should it fail to satisfy one of these covenants, this would

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trigger a default event which, unless resolved under the terms of the respective agreements, could lead to their termination and/or early repayment of any credit drawn down. In such an eventuality, the Group might be unable to repay the amounts demanded early, in turn giving rise to a liquidity risk.

Given the current amount of ﬁnancial resources and undrawn committed credit lines, totalling in excess of Euro 2 billion at 31 December 2019, and six-monthly monitoring(1) of ﬁnancial covenant compliance (fully satisﬁed at 31 December 2019), the Group is of the opinion that this risk is signiﬁcantly mitigated and that it is able to raise suﬃcient ﬁnancial resources and at a competitive cost. A more detailed analysis of the risk in question, including a description of the Group's principal sources of ﬁnance, can be found in the Explanatory Notes to the Consolidated Financial Statements.

Exchange rate volatility

Prysmian Group operates internationally and is therefore exposed to exchange rate risk on the currencies of the diﬀerent countries in which it operates. Exchange rate risk occurs when future transactions or assets and liabilities recognised in the statement of ﬁnancial position are denominated in a currency other than the functional currency of the company which undertakes the transaction.

To manage exchange rate risk arising from future trade transactions and from the recognition of foreign currency assets and liabilities, most Prysmian Group companies use forward contracts arranged by Group Treasury, which manages the various positions in each currency.

However, since Prysmian prepares its consolidated ﬁnancial statements in Euro, ﬂuctuations in the exchange rates used to translate the ﬁnancial statements of subsidiaries, originally expressed in a foreign currency, could aﬀect the Group's results of operations and ﬁnancial condition. Exchange rate volatility is monitored both locally and centrally, by the Group Finance department, also using speciﬁc indicators designed to intercept potential risk situations which, when thought to exceed the deﬁned tolerance limits, will trigger immediate mitigating actions.

A more detailed analysis of the risk in question can nonetheless be found in the "Financial Risk Management" section of the Explanatory Notes to the Consolidated Financial Statements.

Interest rate volatility

Changes in interest rates aﬀect the market value of Prysmian Group's ﬁnancial assets and liabilities as well as its net ﬁnance costs. The interest rate risk to which the Group is exposed is mainly on long-term ﬁnancial liabilities, carrying both ﬁxed and variable rates. Fixed rate debt exposes the Group to a fair value risk. The Group does not operate any particular hedging policies in relation to the risk arising from such contracts since it considers this risk to be immaterial. Variable rate debt exposes the Group to a rate volatility risk (cash ﬂow risk). The Group is able to use interest rate swaps (IRS) to hedge this risk, which transform variable rates into ﬁxed ones, thus reducing the rate volatility risk. IRS contracts make it possible to exchange on speciﬁed dates the diﬀerence between contracted ﬁxed rates and the variable rate calculated with reference to the loan's notional value. A potential rise in interest rates, from the record lows reached in recent years, could represent a risk factor in coming quarters.

A more detailed analysis of the risk in question can nonetheless be found in the "Financial Risk Management" section of the Explanatory Notes to the Consolidated Financial Statements.

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Credit risk

Credit risk is represented by Prysmian Group's exposure to potential losses arising from the failure of business or ﬁnancial partners to discharge their obligations. This risk is monitored centrally by the Group Finance de- partment, while customer-related credit risk is managed operationally by the individual subsidiaries. The Group does not have any excessive concentrations of credit risk, but given the economic and social diﬃculties faced by some countries in which it operates, the exposure could undergo a deterioration that would require closer mon- itoring. Accordingly, the Group has procedures in place to ensure that its business partners are of proven reliability and that its ﬁnancial partners have high credit ratings. In addition, in mitigation of credit risk, the Group has a global trade credit insurance scheme covering almost all its operating companies; this is managed centrally by the Risk Management department, which monitors, with the assistance of the Group's Credit Management function, the level of exposure to risk and intervenes when tolerance limits are exceeded due to diﬃculty in ﬁnding coverage on the market.

A more detailed analysis of the risk in question can nonetheless be found in the "Financial Risk Management" section of the Explanatory Notes to the Consolidated Financial Statements.

Liquidity risk

Liquidity risk indicates the suﬃciency of an entity's ﬁnancial resources to meet its obligations to business or ﬁnancial partners on the agreed due dates.

With regard to Prysmian Group's working capital cash requirements, these increase signiﬁcantly during the ﬁrst half of the year when it commences production in anticipation of order intake, with a consequent temporary increase in net ﬁnancial debt.

Prudent management of liquidity risk involves the maintenance of adequate levels of cash, cash equivalents and short-term securities, the availability of suﬃcient committed credit lines, and timely renegotiation of loans before their maturity. Due to the dynamic nature of the business in which Prysmian Group operates, the Group Finance department prefers ﬂexible forms of funding in the form of committed credit lines.

As at 31 December 2019, the Group's total ﬁnancial resources and undrawn committed credit lines came to in excess of Euro 2 billion.

A more detailed analysis of the risk in question can nonetheless be found in the "Financial Risk Management" section of the Explanatory Notes to the Consolidated Financial Statements.

Commodity price volatility risk

The main commodities purchased by Prysmian Group are copper and aluminium, accounting for more than 50% of the total raw materials used to manufacture its products. The Group neutralises the impact of possible variations in the price of copper, aluminium and lead, although less relevant, through hedging activities and automatic sales price adjustment mechanisms. Hedging activities are based on sales contracts or sales forecasts, which if not met, could expose the Group to the risk of price volatility in the underlying assets.

A dedicated team within the Group Purchasing department monitors and coordinates centrally those sales transactions requiring the purchase of metals and the related hedging activities carried out by each subsidiary, ensuring that the level of exposure to risk is kept within deﬁned tolerance limits.

A more detailed analysis of the risk in question can nonetheless be found in the "Financial Risk Management" section of the Explanatory Notes to the Consolidated Financial Statements.

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OPERATIONAL RISKS

Liability for product quality/defects

Any defects in the design and manufacture of Prysmian Group's products could give rise to civil or criminal liability in relation to customers or third parties. Therefore, the Group, like other companies in the industry, is exposed to the risk of legal action for product liability in the countries where it operates. In line with the practice followed by many industry operators, the Group has taken out insurance which it considers provides adequate protection against the risks arising from such liability. Should such insurance coverage prove insuﬃcient, the Group's results of operations and ﬁnancial condition could be adversely aﬀected.

In addition, the Group's involvement in this kind of legal action and any resulting liability could expose it to reputational damage, with potential further adverse consequences for its results of operations and ﬁnancial con- dition.

Risks associated with non-compliance with the contractual terms of turnkey projects

Projects for high/medium voltage submarine or underground power cables are characterised by contractual forms entailing a "turnkey" or end-to-end type of project management that therefore demands compliance with deadlines and quality standards, guaranteed by penalties calculated as an agreed percentage of the contract value and that can even result in contract termination.

The application of such penalties, the obligation to pay damages as well as indirect eﬀects on the supply chain in the event of late delivery or manufacturing problems, could signiﬁcantly aﬀect project performance and hence the Group's margins. Possible damage to market reputation cannot be ruled out. Given the complexity of "turnkey" projects, Prysmian has implemented a quality management process involving a wide range of tests on cables and accessories before delivery and installation, as well as speciﬁc ad hoc insurance coverage, often through insurance syndicates, able to mitigate exposure to risks from the manufacturing stage through to de- livery.

In addition, the ERM assessments for this particular risk have led the Risk Management department, with the support of the Sales department, to implement a systematic process of Project Risk Assessment for "turnkey" projects, involving the assignment of a Project Risk Manager, right from the bidding stage, with the aim of iden- tifying, assessing and monitoring over time the Group's exposure to speciﬁc risks and of foreseeing the necessary mitigation actions. The decision to present a bid proposal to the customer will therefore also depend on the results of risk assessment.

With regard to the events involving Western Link, an electrical transmission cable between Scotland, Wales and England, please refer to the section on Signiﬁcant Events in the Year within the Explanatory Notes to the Consolidated Financial Statements.

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Business interruption risk due to dependence on key assets

The submarine cables business is heavily dependent on certain key assets, such as the Arco Felice plant in Italy for the production of a particular type of cable and one of the cable-laying vessels owned by the Group (the "Giulio Verne"), some of whose technical capabilities are hard to ﬁnd on the market. The loss of one of these assets due to unforeseen natural disasters (e.g. earthquakes, storms, etc.) or other incidents (e.g. ﬁre, terrorist attacks, etc.) and the consequent prolonged business interruption could have a critical economic impact on the Group's performance.

Work began in 2018 on building the "Leonardo da Vinci", a new cable-laying vessel with a best-in-class speciﬁca- tion. As a result, the risk of dependence on the "Giulio Verne" has reduced signiﬁcantly.

Prysmian addresses asset dependency risk by having:

•

a systematic Loss Prevention program, managed centrally by the Risk Management department, which, through periodic on-site inspections, allows the adequacy of existing systems of protection to be assessed and any necessary remedial actions decided to mitigate the estimated residual risk. As at 31 December 2019, the Group's operating plants were suﬃciently protected and there were no signiﬁcant exposures to risk. All the plants have been classiﬁed as "Excellent Highly Protected Rated (HPR)", "Good HPR" or "Good not HPR", in accordance with the methodology deﬁned by internationally recognised best practices in the ﬁeld of Risk Engineering & Loss Prevention;

speciﬁc disaster recovery & business continuity plans which allow appropriate countermeasures to be activated as soon as possible in order to minimise the impact of a catastrophic event and to manage any consequent crisis;

speciﬁc insurance schemes covering damage to assets and loss of associated contribution margin due to business interruption, such as to minimise the ﬁnancial impact of this risk on cash ﬂow.

Environmental risks

The Group's production activities in Italy and abroad are subject to speciﬁc environmental regulations, amongst which those concerning the management of raw materials, energy resources and hazardous substances, of water discharges, air emissions, waste, including pollution prevention and minimisation of impacts on environmental factors (soil, subsoil, water resources, atmosphere).

Such regulations are enforcing increasingly strict standards on companies, which are therefore obliged to incur signiﬁcant compliance costs.

Considering the Group's large number of plants, the probability of an accident, with consequences not only for the environment but also for the continuity of production, cannot be ignored or the resulting economic and reputational impact, which could be signiﬁcant. Accordingly, Prysmian adopts a series of controls that keep the risk at an acceptable level. In fact, environmental issues are managed centrally by the HQ Health Safety & Environment (HSE) department which oversees local HSE departments and is responsible for organising speciﬁc training activities, for adopting systems to ensure strict adherence to regulations in accordance with best practices, as well as for monitoring risk exposures using speciﬁc indicators and internal and external auditing activities.

The percentage of Prysmian production sites, including former General Cable ones, certiﬁed under ISO 14001 and OHSAS 18001/ ISO 45001 amounts to 82% and 70% respectively. In addition, other types of organisation within the Group have also been certiﬁed, such as R&D, installation activities, kitting and distribution centres, etc.

With the aim of raising the percentage of certiﬁed sites still further, a four-year program of "new" certiﬁcations has been established involving many former General Cable production units, where the initial objective will be to assess their environmental, health and safety risks, in line with the Group's systematic approach.

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Cyber security risks

The growing spread of web-based technologies and business models allowing the transfer and sharing of sensitive information through virtual spaces (i.e. social media, cloud computing, etc.) carries computing vulnerability risks which Prysmian Group cannot ignore in the conduct of its business. Exposure to potential cyberattacks could be due to several factors such as the necessary distribution of IT systems around the world, and the possession of high value-added information such as patents, technological innovation projects, as well as ﬁnancial projections and strategic plans not yet disclosed to the market, unauthorised access to which could damage a company's results, ﬁnancial situation and image. In partnership with the Risk Management department, the Group's IT Security function periodically performs speciﬁc assessments to identify any vulnerabilities in IT systems locally and centrally that could compromise business continuity.

Furthermore, since 2016 Prysmian Group has started to implement a structured and integrated process for managing cyber security risks which, under the leadership of the Group IT Security function, in partnership with the Risk Management department, aims to strengthen the Group's IT systems and platforms and introduce robust mechanisms to prevent and control any cyberattacks. A precise Information Security strategy has been deﬁned in this regard that clariﬁes the governance structure adopted by the Group and the guidelines for managing cy- ber risk in connection with IT architectures and business processes. A special Information Security Committee, consisting of the key ﬁgures involved in managing cyber risk (2), has been appointed with the mission of deﬁning the strategic and operational Cyber Security objectives, of coordinating the main initiatives undertaken, and of examining and approving policies, operating procedures and instructions. The Committee is convened on a periodic basis (twice a year) and in any case upon the occurrence of any extraordinary events or crises. Lastly, speciﬁc e-learning training sessions have been provided to all the Group's IT staﬀ with the aim of raising their awareness of this issue.

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LEGAL AND COMPLIANCE RISKS

Compliance risks associated with Code of Ethics, Policies and Procedures

Compliance risk generically represents the possibility of incurring legal or administrative sanctions, material ﬁnancial losses or reputational damage as a result of violations of prevailing laws and regulations. Prysmian Group deploys a series of organisational procedures designed to deﬁne the principles of legality, transparency, fairness and honesty through which it operates. In particular, since its inception, the Group has adopted a Code of Ethics, a document which contains the ethical standards and the behavioural guidelines that all those engaged in activities on behalf of Prysmian or its subsidiaries (including managers, oﬃcers, employees, agents, repre- sentatives, contractors, suppliers and consultants) are required to observe. The Group undertakes, through its Internal Audit & Compliance department, to constantly monitor compliance and eﬀective application of these rules, with no type of violation tolerated.

However, despite this ongoing endeavour, strict vigilance and periodic information campaigns, it is not possible to rule out future episodes of misconduct in breach of policy, procedures or the Code of Ethics, and hence of current legislation and regulations, by those engaged in performing activities on Prysmian's behalf, which could result in legal sanctions, ﬁnes or reputational damage, even on a material scale.

Risks of non-compliance with Data Protection (Privacy) legislation

In today's increasingly globalised business environment, with a proliferation of channels and ways to access in- formation, as well as growth in the volume and types of data managed, Prysmian is addressing the various data management issues, ranging from compliance with recent legislation to defence against potential threats to conﬁdentiality, integrity and availability of information.

Accordingly, it is fundamental to have an overall view when managing sensitive information, not only with respect to regulatory compliance - as described in the Group's Annual Report, under Risk Factors and Uncertainties - but also with respect to security and business priorities.

Furthermore, Europe's General Data Protection Regulation (GDPR), which came into force in May 2018, has now become one of the main reference points for a renewed commitment to data protection, particularly personal data.

The personal data protection program adopted by Prysmian is based on the following key elements, involving the entire corporate structure:

•

Implementation of a data-based model, through mapping the personal data processed by company departments and keeping a record of processing activities;

Deﬁnition of a governance model, intended to comply with the requirements of the GDPR and other emerging data protection regulations, featuring:

•

A set of policies and documents supporting the model (company policies, disclosure statements, internal appointments, clauses applicable to suppliers, etc.);

Adoption of appropriate technical and organisational measures to ensure a level of security appropriate to the risk, also with the help of new tools such as Data Protection Impact Assessment introduced by the GDPR;

Deﬁnition of communication and training material speciﬁcally for those parties identiﬁed within the data protection organisational model, so that all the parties involved are aware of the revised regulatory requirements and take steps to fulﬁl them;

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Monitoring and support has been provided to Prysmian's many European legal entities in applying the model to ensure its consistent application and the establishment of an internationally shared corporate culture in this regard.

The activities to comply with the recent European legislation will be capitalised on as much as possible in the compliance activities required by other national regulations, including the "Ley General de Proteccion de Datos" which is about to become applicable in Brazil and is based on the same principles.

Following the acquisition of General Cable, a process of monitoring and support was initiated to roll out Prysmi- an's centrally-deﬁned data protection model to the newly acquired legal entities, again with the aim of implementing a data protection model that is as uniform, consistent and compliant as possible with the GDPR rules and the new data protection regulations applicable to Prysmian.

Risks of non-compliance with anti-bribery legislation

In recent years, legislators and regulators have devoted much attention to the ﬁght against bribery and corrup- tion, with a growing tendency to extend responsibility to legal entities as well as to natural persons. With growing internationalisation, organisations more and more often ﬁnd themselves operating in contexts exposed to the risk of bribery and having to comply with a variety of relevant legislation, such as Italian Legislative Decree 231/2001, Italy's Anti-bribery Law (Law 190/2012), the Foreign Corrupt Practices Act, the UK Bribery Act etc., all with a common objective: to ﬁght and repress corruption.

The Group's business model, with a global presence in over 50 countries and a multitude of product applications, brings it into constant contact with numerous third parties (suppliers, intermediaries, agents and customers). In particular, the management of large international projects in the Energy (submarine and high voltage) and Oil & Gas businesses involves having business relationships even in countries with a potential risk of corruption (as per the Corruption Perception Index (3)), often through local commercial agents and public oﬃcials.

Prysmian Group has therefore implemented a series of actions designed to manage bribery and corruption on a preventive basis; foremost amongst these is the adoption of an Anti-Bribery Policy which prohibits the bribery of both public oﬃcials and private individuals and requires employees to abide by it and to observe and comply with all anti-bribery legislation in the countries in which they are employed or active, if this is more restrictive. In addition, speciﬁc e-learning activities (training and testing) for all Group personnel are periodically conducted to raise awareness about compliance with this legislation.

In continuity with the previous year, Prysmian Group moved forward in 2019 with the activities deﬁned in its Anti-Bribery Compliance Program, inspired by the ISO 37001 guidelines for Anti-bribery management systems, published on 15 October 2016 and intended to strengthen its monitoring of and focus on compliance issues. This program, in addition to providing greater control over the management of bribery risk, also aims to minimise the risk of punishment if crimes of corruption are committed by employees or third parties. The core of the ISO 37001 standard is the control of third parties (suppliers, intermediaries, agents and customers) through a due diligence system designed to reveal any critical issues or negative events that undermine the reputation of third parties with whom Prysmian Group deals.

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In this regard, it is noted that in 2019 the Group implemented a "Third Party Program", a new Group Policy aimed at preventing and managing the risk of corruption arising from relationships with third parties (such as distributor agents, and certain categories of suppliers). In particular, prior to establishing any business relationship with third parties, it is mandatory to perform - through a dedicated online platform - due diligence checks on the third party. As a result, each third party receives a risk rating (high, medium, low) and is consequently submitted to an approval process, diﬀering according to the level of risk.

Following the acquisition of General Cable, Prysmian Group's Anti-Bribery Compliance Program has been updated and expanded to include the additional activities in this area envisaged by the General Cable Compliance Program.

In addition, during 2019 General Cable and Prysmian's compliance policies were revised, updated and merged in order to have single documents valid for the entire Group.

With speciﬁc reference to the anti-bribery program, the relevant Policy and the Policy on Gifts and Entertainment Expenses were both revised.

Lastly, in line with the Group's ongoing commitment to ensure that the ﬁnancial and personal interests of its employees and consultants do not conﬂict with the ability to perform their duties in a professional, ethical and transparent manner, a new policy on Conﬂict of Interest was issued in 2019.

The new policy requires all employees and consultants to disclose all potential conﬂicts of interest, which will then be duly analysed and evaluated in order to agree on any necessary corrective actions to mitigate or eliminate the conﬂict.

Further details about the actions taken by the Group to prevent corrupt practices can be found in the speciﬁc section of the annual Sustainability Report.

Risks of non-compliance with antitrust law

Competition rules on restrictive agreements and abuse of dominant position now play a central role in governing business activities in all sectors of economic life. Its extensive international presence in more than 50 countries means the Group is subject to antitrust law in Europe and every other country in the world in which it operates, each with more or less strict rules on the civil, administrative and criminal liability of parties that violate the applicable legislation. In the last decade, local Antitrust Authorities have paid increasing attention to commercial activities by market players, also involving a tendency for international collaboration between authorities themselves. Prysmian aspires to operate on the market in compliance with the competition rules.

In keeping with the priorities identiﬁed by the ERM process, the Board of Directors has adopted an Antitrust Code of Conduct that all Group employees, Directors and managers are required to know and observe in the conduct of their duties and in their dealings with third parties.

Like with other Policies, following the acquisition of General Cable, the Antitrust Code of Conduct has also been updated in order to have a single document, valid for the entire Prysmian Group and designed to provide an overview of the problems associated with applying antitrust law and the consequent standards of conduct to follow.

In addition, more detailed documents on the antitrust regulations in force in the European Union and North America have been adopted.

The Antitrust Code of Conduct is an integral part of the training program and is intended to provide an overview of the issues concerning application of EU and Italian competition law on collusive practices and abuse of dominant positions, within which speciﬁc situations are assessed on a case-by-case basis. These activities represent a further step in establishing an "antitrust culture" within the Group by promoting knowledge and heightening individual accountability for professional duties arising under antitrust legislation. In this context, speciﬁc

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classroom training continued in 2019, mostly for the Group's sales force and organised in collaboration with external lecturers and legal advisors, as did e-learning modules, available on the company intranet and aimed at continuously supporting and raising awareness of and attention to this issue.

With regard to the antitrust investigations still in progress, details of which can be found in Note 14. Provisions for risks and charges in the Explanatory Notes to the Consolidated Financial Statements, the Group has a provision for risks and charges as at 31 December 2019 of approximately Euro 223 million. Despite the uncertainty of the outcome of the investigations in progress and potential legal action by customers as a result of the Euro- pean Commission's decision adopted in April 2014, as described in the Explanatory Notes (Note 14. Provisions for risks and charges), the amount of this provision is considered to represent the best estimate of the liability based on the information now available.

Brexit risks

In June 2016 the UK electorate voted in a referendum to withdraw from the European Union (EU). In January 2020 the UK Parliament passed the Withdrawal Agreement Bill setting out the terms of Brexit. Since the referendum vote, uncertainty surrounding Brexit has reduced the level of investment in the UK and suppressed GDP growth. Although a withdrawal agreement has now been negotiated in principle, uncertainty will continue to eﬀect investments and consumption, which consequently will impact company proﬁtability. The risk of a no deal Brexit still remains if a long-term relationship agreement is not successfully negotiated; this risk is expected to generate a signiﬁcant negative impact for UK demand and investments in the medium term with a limited impact also at EU level.

Business interruption risk due to the COVID-19 coronavirus

Since January 2020, the spread in China of the new coronavirus, known as COVID-19, has had a signiﬁcant impact on the country's manufacturing and commercial activities and consequently also on its imports from and exports to the rest of the world due to restrictions on the movement of people and goods.

The Group has adopted the highest possible standards of safety and monitoring to manage and control the advance of COVID-19. In particular, it has put mitigation actions in place to protect employees, involving stepped up health and hygiene procedures, especially in the most aﬀected areas of China and Northern Italy. The Group has promoted remote working and to date no employees are infected and all the plants of its subsidiaries are open and operational (including those in China and Northern Italy). Therefore, no signiﬁcant interruption has been recorded in either production or activities involving the supply chain. In addition, a crisis committee has been set up to review the situation on a daily basis.

It cannot be ruled out that the evolution of events both in China and the rest of the world may have signiﬁcant eﬀects. With regard to the associate YOFC, we are unable to make any risk assessment in the absence of public information about it.

PLANNING AND REPORTING RISKS

Planning and reporting risks are related to the adverse eﬀects that irrelevant, untimely or incorrect information might have on the Group's strategic, operational and ﬁnancial decisions. At present, in view of the reliability and eﬀectiveness of internal procedures for reporting and planning, the Group does not consider these risks to be relevant.

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Sustainable innovation

2019 numbers

106

million

invested in R&D(1)

ABOUT

5,900

Patents

covering the main

innovations

Research

Centres

180

900

Product Families

Collaborations

Professionals

launched during

with research centres

the year

and universities

A total of 900 professionals are dedicated to innovation in 25 R&D centres throughout the world. The R&D headquarter is based in Milan, next to the HQ of the Prysmian Group.

Prysmian Group is committed to giving customers - mainly telco operators and utilities - the best cabled infrastructure solutions with the best possible performance in the ﬁeld.

The role of cables - from those for low, medium and high voltage electricity, to those for special applications and communications, and to cables for the transmission and distribution of data and telephony services - is crucial, given that by meeting ever more sophisticated requirements they make possible the transmission of power and data.

The Group focuses on increasing the eﬃciency and reliability of the transmission and distribution of energy from renewable sources, reducing at the same time the total cost of cabling solutions for our customers.

At the same time, the Group is also committed to the development of technological innovations that lower energy and water consumption and reduce the greenhouse gas emissions of our manufacturing facilities. These projects deliver improved productivity and lower the consumption of materials, thus reducing the environmental impact of products.

The Design to Cost (DTC) programme represents a tangible initial example of this orientation. Using the best materials, adopting eﬃcient processes and implementing innovative projects, this programme has achieved cost savings totalling more than Euro 45 million, with more than 1,300 projects completed at our manufacturing plants during 2019.

(1) Euro 96 million in operating expenses and Euro 10 million in investment expenditure.

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INNOVATION ECO-SYSTEM

When carrying out research, the Prysmian Group is aware that today - as evidenced by the SDGs - it is essential to develop partnerships with all relevant stakeholders : from the academic world to independent research centres, from suppliers and all supply chain counterparties to our customers, whose collaboration and feedback are extremely important for the identiﬁcation of those requirements that need the greatest attention.

Accordingly, in order to work on innovation and carry out research, the Prysmian Group has created an eco-system in close contact with customers and suppliers, as well as with the best universities in the world, in order to focus the objectives when releasing synergies and collaborating in the areas of innovation of greatest interest for their environmental impact and the evolution of the sector.

INNOVATION ECO-SYSTEM

Academic centres

Customers

Suppliers

112

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PARTNERSHIPS

Prysmian and General Cable have established consolidated collaborative relations with more than 50 major universities and research centres around the world. These collaborations, strategic for the Prysmi- an Group, support cutting-edge technological research and allow the adoption of state-of-the-art innovations in all areas relevant to the wire and cable industry.

Among the numerous collaborations, those with the following bodies are particularly worthy of mention:

Politecnico di Milano (Italy)

Università degli Studi di Milano, Genova, Salerno, Palermo and Padova (Italy)

National Electrical Energy Research & Application Center (USA)

National Science Foundation High Voltage and Temperature IUCRC (USA)

Rice University (USA)

Purdue University (USA)

University of Cincinnati (USA)

Massachusetts Institute of Technology (USA)

Georgia Institute of Technology (USA)

University of South Carolina (USA)

University of Central Florida (USA)

Electric Power Research Institute (USA) Oak Ridge National Laboratory (USA) University of Quebec at Chicoutimi (Canada)

Centro de Pesquisa e Desenvolvimentoem Telecomunicações (Brazil)

Universidade de São Paulo (Brazil) Universitat Politecnica de Catalunya (Spain) Shanghai TICW (China)

National Chemical Laboratory (India)

Infosys Advanced Engineering Laboratory (India)

University of Applied Science Südwestfalen (Germany)

Fraunhofer Institute (Germany)

University of Lille 1 (France)

Nokia Bell Labs USA and (France)

University of Strasbourg (France)

Technical University of Eindhoven (Holland)

Nano Carbon Enhanced Materials

Consortium (United Kingdom)

Norner (Norway)

The speciﬁc research carried out in 2019 includes:

together with Rice University, the Company is striving to create an inter-sector consortium called Car- bonHub and a think tank for obtaining clean energy from the hydrogen and advanced carbon materials that are co-produced eﬃciently and sustainably from natural gas and petroleum;

together with the Fraunhofer Institute, we have developed optical ﬁbre sensors based on Fibre Bragg Gratings;

together with Università di Padova, we have perfected new materials that can be extruded for the insulation of ﬁre-resistant cables, as a replacement for mica tapes;

together with Politecnico di Milano and the University of Lille, we have developed a coating for optical ﬁbres using bio-derived raw materials;

together within the University of Strasbourg, we have obtained a good understanding of the mechanism for the decomposition of polymers during ﬁres, which will provide a basis for developing a new line of LS0H compounds;

together with Università di Palermo, we are working on the advanced characterisation and testing of high voltage cables and materials.

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SPEAKING PLATFORMS

In the context of sharing the direction of research and best practices, the Prysmian Group and its managers have attended the most important international conferences held around the world, with a view of illustrating the active role played by the Group in guiding the changes currently under way.

In particular:

OFC (Optical Fibre Conference), San Diego March 2019: attended with technical papers on optical ﬁbres;

FTTH Council Europe Conference, Amsterdam March 2019: speaking slot on telecom connectivity;

NExsT Forum, New York, April 2019: event organised by Prysmian Group on the evolution of 5G in North Ameri- ca;

IWCS (International Wire & Cables Symposium), Providence United States, October 2019: attended with technical papers on optical cables;

CRU World Optical Fibre & Cable conference, Charlotte November 2019: presentation on future digital devel- opments;

Wind Europe Oﬀshore 2019 (Copenhagen 2019): participation in the panel session on "How to deliver 450 GW by 2050";

Wind Europe Conference & Exhibition 2019 (Bilbao 2019): participation at the Thought Leaders Forum, in the context of the session on "Innovation in subsea cables".

114

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R&D BY THE PRYSMIAN GROUP: THE FOCUS

Core areas

The main aspect guiding the strategy of the Prysmian Group is the need to concentrate on factors that facilitate the development of cabled infrastructures for the transportation of electricity and information that, today, are essential elements in all current transformations of society, from the new electric mobility to smart cities, from the expansion of 5G to the use of artiﬁcial intelligence to collect and interpret data, and much more.

The ever more advanced search for EHV electricity transmission systems that can be buried, for longer and more eﬃcient cables that can be laid at greater depth, for optical ﬁbre solutions that can contain the largest number of cables in a miniaturised space and that can be used easily in the ﬁeld, are therefore core areas in which the majority of the investment made by the Group is dedicated.

ENABLING ENERGY

TRANSITION & DIGITALIZATION

PUSHING

GOING DEEPER

TRANSFORMING

BOUNDARIES

INTO THE SEA

THE OPTICAL FIBER

OF UHVDC

WITH LONGER

LANDSCAPE

LENGTHS

Industry first

1st high depth

180μm

to qualify both

submarine cable

Fiber Nano Cables

525kV XLPE and

with synthetic

P Laser solutions

armor

250μM 200μM 180μM

Super high density

FlexRibbon up to 6912f

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P-LASER SOLUTION. the ﬁrst technology for fully-recyclable cables with top performance in terms of power and cost reduction

P-Laser power transmission and distribution cables provide an innovative solution that is more reliable and ecological. These cable systems are designed to provide optimal technical solutions for high power transmissions over long distances with minimal ground occupancy. P-Laser is the ﬁrst technology for ecological, fully-recyclable high performance cables that use a "zero gas" process to reduce CO2 emissions up to 30%.

This innovation also has strategic importance in the ﬁeld of HVDC (high voltage direct current) cables, allowing the maximum level of transmissible power to reach 3.5 GW per dipole, with cost reductions up to 30% per MW transmitted. P-Laser cable is based on the use of a thermoplastic material patented by the Group, with a simpliﬁed production process and lower environmental impact than traditional cables insulated with cross-linked polyethylene. The cables can be produced continuously by a single process and no chemical reactions are required to obtain the highly stable electrical properties needed for HVDC systems, thus shortened production times and, consequently, the consumption of energy and related gas emissions. The application of P-Laser technology to underground and subsea HVDC cable systems is a ﬁrst in the cables industry.

High depth submarine cables with synthetic armor

Submarine cables are now one of the most important factors for the energy transition. The production of electricity from renewable sources and the interconnection of grids are two main areas of massive development for subsea energy connections. Prysmian is achieving a new record in this ﬁeld, with a new cable reinforced by synthetic armor that is about 30% lighter than the equivalent steel solution. The Group is using this new technology for the Cycladic Islands project, which involves the design, supply and installation of two HVAC cables, as well as the related land-based civil works. The system will increase energy transmission between the Cy- cladic Islands, ensuring solidity, reliability and sustainability.

BendBrightXS 180μm - the ﬁrst bend insensitive ﬁbre in the world

Prysmian has introduced a revolutionary innovation for the development of broadband tele- communications: the ﬁrst bend insensitive ﬁbre in the world, with a diameter of 180 microns that allows cable miniaturisation at a level never achieved before. Optical ﬁbre cables bend insensitive are, in fact, a crucial part of the global transition to ﬂexible and reliable connectivity. The large number of ﬁbres and reduced diameter make installation quicker and cheaper. This innovation conﬁrms the commitment of Prysmian to support the evolution of high density optical networks.

116

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Another three areas of innovation

Prysmian Electronics, Corporate Hangar and the new area known as Digital Ambition represent further important areas of innovation. Prysmian Electronics has a vast range of sensors and monitoring systems for checking the grid and sending warning signals to our customers. Corporate Hangar is an accelerator of innovation that seeks to generate two start-ups every year in ﬁelds adjacent or complementary to the core business of Prysmi- an. Lastly, the Digital Ambition area strives to optimise business performance using digital solutions and develop new digital products that add value to the growth of the Group.

ENABLING ENERGY

TRANSITION & DIGITALIZATION

DIGITIZATION

ACCELERATING

MONITORING

OF PROCESS AND

INNOVATION WITH

THE GRIDS WITH

PRODUCTS

CORPORATE

PRYSMIAN

HANGAR START-UPS

ELECTRONICS

Smart cable

Pry-Cam

solutions

From Data

to Insight

Pry-Cam DTS

Augmented

user experience

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Corporate Hangar: infrastructure for open innovation by Prysmian Group

Corporate Hangar is an accelerator that supports the open innovation objectives

of the Group, combining business modelling and strategic skills with the technical know-how provided by Prysmian Group employees.

After laying the groundwork for growth during 2018, Corporate Hanger and Prysmian Group founded the ﬁrst two start-ups in 2019: Alesea, which provides virtual support for the management of drums and cables, and Kablee, an e-commerce platform for cables, which supports development of the business in new areas. The two initiatives are currently being developed at the Corporate Hanger accelerator, whose innovation pipeline comprises more than 10 additional ideas, including a full suite of services for operators in the ﬁeld of renewable energy. Together with a network of external partners, Corporate Hanger is carrying out various research projects linked to the production of bioplastics and the creation of materials from the waste generated by industrial processes (e.g. the paper recycling process, the production of tequi- la) or from other green sources (e.g. bamboo), in order to make new, green and sustainable materials available (e.g. for drums). The end objective is to provide the Prysmian Group with alternatives for logistics and packaging that have a lower environmental impact, beneﬁting from the growth opportunities that derive from the more circular use of resources.

Alesea: intelligent virtual assistant for managing cable drums

Alesea is an IoT solution that provides virtual support for the management of drums. The system comprises an in-

telligent device installed on the drums, a cloud infrastructure for ﬁling and processing data, and an intuitive web platform that indicates the location of the drums and the remaining quantity of cable on each. This complete inventory management service helps to reduce the overall cost of cable management, due to the better use of assets, greater operational eﬃciency, optimised logistics and the minimisation of waste, cable scrap and environmental impact. Since formal establishment in September 2019, more than 1,000 Alesea devices have been involved in pilot projects in Sweden, Finland, the United Kingdom, the Netherlands, Italy and now the United States, with the full commercial roll-out due to begin during the ﬁrst quarter of 2020.

118

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INNOVATION CONTEST: 500 ideas from all over the world

Supported by Corporate Hanger, Prysmian Group launched the ﬁrst global innovation contest in spring 2019. Prysmian Group sales and R&D teams were eligible to participate in the innovation contest. Regardless of their roles in the corporate hierarchy, employees were invited to submit innovative ideas and solutions, relying on their profound knowledge of customer requirements and the Group's production processes.

By involving the global community, the purpose of the contest was to gather, select and develop innovative ideas that could strengthen the activities of the Group.

The contest was structured into 4 categories, each assigned to an internal Innovation Champion: Smart Solutions, Servitization, Sustainability and Out of the Box. The innovation contest was a great success, with almost 500 ideas submitted from all geographical areas.

NEW PRODUCTS INTRODUCTION (NPI)

The introduction of new products is tracked using an NPI vitality tool that measures the revenues generated from new products introduced in the last 3 years as a proportion of total revenues from all Group products. The main purpose of this tool is to increase awareness of the growing importance of innovation as a success factor and of the development of new products as a driver for improving the performance of the organisation. The merger with General Cable in 2018 consolidated our ability to create innovation in support of the R&D area and to develop new solutions that satisfy the greatest expectations of our customers, creating value for the Group.

The overall results of the Group were analysed in 2019 (without distinguishing between Prysmian and General Cable), identifying that the integration with General Cable has enhanced the focus on eﬃciency and technological innovation, with a strong contribution from the 866 new product families active in the third quarter of 2019, of which 51 were designed by General Cable North America.

The Group's new products generated Euro 800 million through Q3 2019, compared to Euro 496 million through Q3 2018. The NPI vitality increased from 10.1% in Q3 2018 to 12.3% in Q3 2019 - led by North America and the Telecom area.

The merger of PG and GCC has created a world leader in the supply of cables and systems for energy and telecom- munications, with the following statistics:

over

new products

in the product

in the innovation

development

80{category

500{category

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Directors' Report

119

The huge increase in the innovation category was due to the integration of General Cable NA (in innovation terms, sales of Euro 67 million), with overall growth of 2.0% (+1.4% with respect to Q3 2018).

The good results of the product development category were principally attributable to the Trade & Installers BU (49% of the entire category), up from 7.7% in Q3 2018 to 8.4% in the same quarter of 2019.

OVERALL NP RESULT - 2019 ACTIVE NEW PRODUCT FAMILIES BY REGION

350

318

300

250

210

200

150

133

100

CEE

LATAM

China

Electronics

Number of 866Total families

OVERALL NP RESULT - 2019 ACTIVE NEW PRODUCT FAMILIES BY BUSINESS UNIT

Ac-Network Component

Automotive

Connectivity

Elevators

High Voltage

134

Industrial

183

Mms

Oil & Gas

Pdt

Power Distribution

Surf

Prysmian Electronics

Submarine

233

Telecom

132

Trade & Installer

120

Prysmian Group

Annual Report 2019

INNOVATIVE MATERIALS

Prysmian Group invests in advanced research to push the boundaries of innovation in the context of materials and surface science for the production of cables and accessories. The main results achieved during 2019 include:

development of lead-free insulating compounds for SPEED line HV accessories; materials already tested on model cables in the laboratory, with moulding planned at the Livorno plant;

complete industrialisation of a new sheathing material for the Oil & Gas sector, which will reduce costs due to an improved resistance to oils with respect to the original compound;

new PVC formulations with improved ﬂame-resistant properties, enabling the Giovinazzo plant to produce smaller and more competitive cables;

development of a new LS0H compound for the sheathing of low voltage cables, able to signiﬁcantly improve the speed of extrusion without aﬀecting cable performance;

development of a new class of compounds without halogens but with ﬂame-retardant properties, intended to be lighter with improved performance; in-depth analysis of the combustion mechanism, to better understand the phenomenon and produce compounds whose performance reﬂects those concepts;

development of a new method for measuring the conductivity of gases produced by the combustion of mica glass tapes and compounds for ﬁre-resistant cables consistent with the type of materials used in this appli- cation. This will be used scrupulously to understand the reliability of measurements and their applicability in predicting the quality of a material;

in the ﬁeld of low-weight submarine reinforcements, collaboration continues with a producer of ultra-high molecular weight polyethylene (UHMWPE) ﬁbres, while the industrialisation of aramid ﬁbre reinforcements has been completed;

research into a new formulation for the coating of optical ﬁbres using ecologically sustainable raw materials has been completed. The performance of the primary coating is good, while that of the secondary coating still needs improvement;

completion of the assessment of polyamids, with the introduction of a new class and the start of evaluation work on a new type of polymer with an improved environmental impact, to replace PA for the sheathing of optical cables and electric cables;

evaluation of nanocarbon structures, such as carbon nanotubes (CNTs) and graphene, to replace metal as lightweight high performance conductors.

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121

RATIONALISATION AND MANAGEMENT OF MATERIALS

Work on the approval of alternative materials, especially those of major technical or commercial importance, is continuing throughout the Group to reduce the use of single suppliers. The new version for the preparation of supply speciﬁcations (PrySpec) is currently being introduced in all countries where the Group operates. In addition, the compounds database (CompounDS) has been supplemented by including all compounds normally purchased by the Group. A new formulations database has been created to manage more eﬀectively the use and distribution of compounds at Group level.

MONITORING OF HAZARDOUS SUBSTANCES

Development work is progressing in France on a system for the monitoring of hazardous substances, with a view to report their presence (classiﬁed in accordance with the REACH/RoHS regulations) in all products managed using CA/SAP, and warning about any concentration of hazardous substances that exceeds the maximum allowed threshold. The system is based on a special routine developed in SAP that makes possible to carry out a detailed analysis of the materials (BOM) comprising the product and identify any hazardous substances. This analysis is made possible by applying a speciﬁc ﬂag to the raw materials used to produce cables, in a given country, which contains an hazardous substance. Obviously enough, the ﬁrst task is to gather the necessary information from suppliers about the possible presence of hazardous substances in their raw materials. This information can be obtained from the material safety data sheets (MSDS) or from a speciﬁc declaration released by the supplier.

The system is already in use in France and can provide this type of information, on demand, for a speciﬁc product or a limited series of products. If the concentration of hazardous materials exceeds the maximum allowed threshold, a speciﬁc declaration is prepared for the end customer.

The system is now being extended to other countries in southern Europe (Italy and Spain) and to Germany. These countries are currently collecting information from the suppliers of raw materials, with a view to activating the SAP system in early 2020. This new SAP system may also be applied in other regions/countries during 2020.

122

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CARBON FOOTPRINT (CFP)

The new functionality added to the cable design system - the Common Analisi platform - makes possible to calculate the environmental parameters of each product and is applicable in full within the pre-existing Prysmi- an Group perimeter. There are two outcomes: carbon footprint and recycling potential. The CFP is expressed in kgs of CO2 associated with the standard length (1 km) of the cable and includes the impact of the materials and processes. The recycling potential of the raw materials used to produce the cable is calculated, considering the portion recoverable at the end-of-life and the portion that will have to be treated as waste or incinerated. The new functionality, proprietary to Prysmian, is currently being extended to the General Cable area, where the Common Analisi and SAP1 Client platforms are being implemented. This includes, in particular, the Iberian peninsula, Brazil (operational from July 2019), France and Chile (scheduled for year end). For the remaining ar- eas, especially GCC NA, the new functionality will be included in Cable Builder, the software that (by 2022) will become the cable design tool for the entire Company.

The CFP data for materials obtained from the new version of the Ecoinvent database (Ecoinvent 3.3) was input to the Common Analisi platform in January 2019, replacing the CFP data obtained from the previous version (Ecoinvent 3.2).

Based on the CA calculations, environmental certiﬁcation has been obtained for a series of cables produced for a global operator of power grids (DSO), which is currently adding the environmental impact of cables to its supplier classiﬁcation criteria. This process has been tackled in Italy, Spain and the LATAM countries, in particular. Speciﬁcally, in Argentina, Brazil, Chile and Colombia, ISO 14067:2018 certiﬁcation of the carbon footprint of low and medium voltage cables has been awarded by third-party agencies (SGS and INCOTEC).

The above represents a fundamental initial step towards general regulation of the environmental impact and sustainability of commodities, which can only be implemented in full when the entire value chain achieves a signiﬁcantly greater level of awareness.

CA/SAP data

Prysmian

Certified

Standardized

LCA

and more

expert(s)

3rd party

methodology

From an incidental - though repetitive - semi-structured process using same data to an embedded business process

Environmental

(Harmonized)

Prysmian

product

circularity

carbon

ecodatasheet

declaration

passport

footprint TM

From various customer formats and supplier self declarations to

harmonized, standardized (and possibly digitalized) output

CUSTOMER

REQUIREMENT

AND REGULATION

From nice-to-have

to mandatory

and regulated; and possibly a first mover competitive advantage

124

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Protection of intellectual property

Protecting the portfolio of patents and trademarks is a key part of the Group's business, particularly in relation to its strategy of growth in high-tech market segments. The Group ﬁled new patent applications during the year, especially in segments with higher added value and in support of the signiﬁcant investments made in recent years. At 31 December 2019, the Prysmian Group has a larger number of patents and patent applications under examination globally than in the prior year. This is because more patents were ﬁled than those that expired or were abandoned because no longer of interest.

The number of inventions covered by at least one patent or patent application has increased slightly. The rise was greater in the Energy sector, with a slight decline in the Telecom sector. This statistic reﬂects a good increase in the number of inventions in the Energy sector, which oﬀset the number of patents that expired or were aban- doned. There was a slight fall in the number of inventions covered by at least one patent or patent application in the Telecom sector, which has historically owned a larger number of inventions than the Energy sector, because the portfolio of Telecom patents comprises a considerable number of old patents that resulted from the earlier rush to patent optical ﬁbre technologies.

A total of 41 patent applications were ﬁled during 2019, of which 17 relating to the Energy sector and 24 to the Telecom sector. The reduction in the number of new ﬁlings is a natural eﬀect of the merger of Prysmian Group and General Cable. This decline was also noted in the past, when Prysmian absorbed Draka.

The number of patents granted during the year was essentially the same as in the prior year, with an increase in those granted by the US patents oﬃce. In view of the diﬀerent examination procedures followed in the various countries/regions and their timing, no signiﬁcant conclusions can be drawn from the above information.

Prysmian Group owns a signiﬁcant number of trademarks deriving from the pre-existing Prysmian Group and the pre-existing General Cable group. This portfolio is currently being revised and optimised, in line with the brand protection policies adopted by the Prysmian Group following the merger.

As a consequence, the total number of trademarks and registrations fell in 2019. The trademarks of the Prysmi- an Group protect the main brands and the most important products, typically involving speciﬁc characteristics or production processes that enable them to be identiﬁed in the marketplace and guarantee their uniqueness.

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125

IP HIGHLIGHTS

2019

2018

Patents and patent applications filed

5,881

5,627

Inventions covered by patents and patent applications filed

857

854

Inventions linked to the Energy Products and Projects segment

317

294

Inventions linked to the Telecom segment

540

560

Patent applications filed during the year

Patent applications in the Energy Products and Projects segment

Patent applications in the Telecom segment

Patents granted during the year

217

200

Patents granted by the European Patent Office (EPO)

Patents granted in the USA

Number of trademarks owned

927

1,105

Number of registrations

4,769

5,167

126

Prysmian Group

Annual Report 2019

Incentive plans

LONG-TERM INCENTIVE PLAN 2018-2020

As a result of this decision, the 2019 MBO has been recognised in proﬁt or loss for the year since it will no longer be co-invested following the long-term incentive plan's revocation.

This has had the result of raising personnel costs by Euro 12 million, reﬂecting the combined eﬀect of recognising the 2019 MBO of Euro 15 million and reversing the fair value of stock options for Euro 3 million.

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127

Business outlook

The global macroeconomic scenario has slowed progressively in the course of 2019. After a positive year-start, trade tensions, above all between the United States and China, have gradually intensiﬁed, giving rise to significant tariﬀ increases between the two countries and resulting in a general decline in business sentiment at the global level. According to the International Monetary Fund's latest estimates, global growth in 2019 is expected to reach 2.9%, the lowest level of the last ten years. The expansion of international economic activity is being slowed by a number of factors of uncertainty and risk, such as the outcome of the trade war between the United States and China, possible commercial tensions in addition to those between the US and China, the recent developments relating to the COVID-19 virus and its impact on the global economy, and the circumstances under which the process of the United Kingdom's departure from the European Union will be concluded.

Within this macroeconomic scenario, Prysmian Group expects that the uptrend seen in North and South America in 2019 will continue in 2020. In the Submarine Cables and Systems business, the Group is committed to conﬁrm- ing its leadership in a market expected to grow in the coming years, thanks in part to the development of the oﬀshore wind farms required for renewable energy in support of the energy transition. In the Projects business, in the light of the excellent order intake achieved in 2019, the Group expects its results to improve slightly on the previous year, with more signiﬁcant growth expected starting in 2021, when the projects acquired in 2019 will reach a more advanced stage of execution. In the Telecom business, the Group expects that the slowdown that began in the second half of the year will continue in 2020, with results aﬀected by lower volumes, pressure on prices and recent events in China. In addition, the translation eﬀect resulting from the conversion of the sub- sidiaries' results into the reporting currency used in the consolidated accounts is expected to generate a neutral impact on the Group's operating performance. Finally, the synergies resulting from the integration with General Cable continued to prove excellent. The goal is to reach cumulative synergies of Euro 175 million by 2021 (of which Euro 155 million by the end of 2020).

In light of the foregoing, the Group expects to achieve an Adjusted EBITDA for FY 2020 in the range of Euro 950- 1,020 million. The Group also expects to generate cash ﬂows of approximately Euro 330 million ± 10% (FCF before acquisitions & disposals) in 2020. This ﬁgure includes the planned outlay of approximately Euro 85 million relating to the restructuring and integration activities. This projection is based on the Company's current business scope and does not include the impacts that the ongoing developments relating to the COVID-19 virus may have on business performance. The projection also assumes that the contribution by the subsidiary YOFC will remain stable in 2020, in the absence of public information from the said company regarding its expected results for the current year..

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Other information

Related party transactions

Related party transactions do not qualify as either atypical or unusual but form part of the normal course of business by Group companies. Such transactions take place under market terms and conditions, according to the type of goods and services provided.

The Group has published, including on its website, the procedures adopted to ensure the transparency and substantive and procedural fairness of related party transactions.

Information about related party transactions, including that required by the Consob Communication dated 28 July 2006, is presented in Note 33 to the Consolidated Financial Statements at 31 December 2019.

Atypical and/or unusual transactions

In accordance with the disclosures required by Consob Communication DEM/6064293 dated 28 July 2006, it is reported that no atypical and/or unusual transactions took place during 2019.

Secondary oﬃces and key corporate information

The list of secondary oﬃces and key corporate information of the legal entities making up the Group can be found in Appendix A of the Explanatory Notes to the Consolidated Financial Statements.

Financial risk management

The management of ﬁnancial risks is discussed in the Explanatory Notes to the Consolidated Financial State- ments, in Section D. Financial risk management.

Treasury shares

Information about treasury shares can be found in Note 11 to the Consolidated Financial Statements at 31 De- cember 2019.

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129

Certiﬁcation pursuant to art. 262

of the Italian Stock Exchange market regulations

Suitable measures have been taken to ensure compliance with art. 15 of the Regulations issued by Consob under Resolution no. 20249 of 28 December 2017, concerning conditions for the listing of shares of parent companies that control companies incorporated under and regulated by the law of countries other than EU member states and which are material to the Consolidated Financial Statements, and whose conditions apply to the Company.

Milan, 5 March 2020

ON BEHALF OF THE BOARD OF DIRECTORS

THE CHAIRMAN

Claudio De Conto

GROUP ANNUAL REPORT

Consolidated

Financial

Statements

Prysmian Group

Consolidated Financial Statements 2019

133

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(Euro/million)

Note

31.12.2019

of which

31.12.2018(*)

of which

related parties

Non-current assets

Property, plant and equipment

2,804

2,629

Goodwill

1,590

1,571

Other intangible assets

564

591

Equity-accounted investments

314

294

Other investments at fair value through

other comprehensive income

Financial assets at amortised cost

Derivatives

Deferred tax assets

170

190

Other receivables

Total non-current assets

5,504

5,328

Current assets

Inventories

1,523

1,511

Trade receivables

1,475

1,635

Other receivables

816

667

Financial assets at fair value through proﬁt or

loss

Derivatives

Financial assets at fair value through other

comprehensive income

Cash and cash equivalents

1,070

1,001

Total current assets

4,955

4,868

Assets held for sale

Total assets

10,486

10,199

Equity

Share capital

Reserves

2,096

2,101

Group share of net proﬁt/(loss)

292

Equity attributable to the Group

2,415

2,186

Equity attributable to non-controlling

187

188

interests

Total equity

2,602

2,374

Non-current liabilities

Borrowings from banks and other lenders

3,032

3,161

Employee beneﬁt obligations

494

463

Provisions for risks and charges

Deferred tax liabilities

213

238

Derivatives

Other payables

Total non-current liabilities

3,828

3,934

Current liabilities

Borrowings from banks and other lenders

212

Provisions for risks and charges

717

635

Derivatives

Trade payables

2,062

2,132

Other payables

969

953

Current tax payables

Total current liabilities

4,046

3,891

Liabilities held for sale

Total liabilities

7,884

7,825

Total equity and liabilities

10,486

10,199

134

Prysmian Group

Consolidated Financial Statements 2019

CONSOLIDATED INCOME STATEMENT

(Euro/million)

Note

2019

of which

2018(*)

of which

parties

Sales

11,519

10,104

Change in inventories of ﬁnished goods and

(16)

(84)

work in progress

Other income

139

Total sales and income

11,599

10,159

Raw materials, consumables and supplies

(7,218)

(8)

(6,542)

(20)

Fair value change in metal derivatives

(48)

Personnel costs

(1,539)

(11)

(1,260)

(11)

Amortisation, depreciation, impairment and

(354)

(232)

impairment reversals

Other expenses

(1,958)

(5)

(1,921)

(1)

Share of net proﬁt/(loss) of equity-accounted

companies

Operating income

569

215

Finance costs

(494)

(414)

Finance income

369

302

Proﬁt/(loss) before taxes

444

103

Taxes

(148)

(45)

Net proﬁt/(loss)

296

Of which:

Attributable to non-controlling interests

Group share

292

Basic earnings/(loss) per share (in Euro)

1,11

0,24

Diluted earnings/(loss) per share (in Euro)

1,11

0,24

OTHER COMPREHENSIVE INCOME

(Euro/million)

2019

2018

Net proﬁt/(loss)

296

Other comprehensive income:

A) Change in cash ﬂow hedge reserve:

(10)

- Proﬁt/(loss) for the year

(14)

- Taxes

B) Change in currency translation reserve

(6)

C) Financial instruments at fair value:

(1)

- Proﬁt/(loss) for the year

(1)

D) Actuarial gains/(losses) on employee beneﬁts (**):

(22)

(2)

- Proﬁt/(loss) for the year

(33)

(4)

- Taxes

Total other comprehensive income (A+B+C+D):

(19)

Total comprehensive income/(loss)

343

Of which:

Attributable to non-controlling interests

Group share

335

(**) Components of comprehensive income that will not be reclassiﬁed to proﬁt or loss in subsequent periods.

Prysmian Group

Consolidated Financial Statements 2019

135

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Euro/million)

Share capital

Cash ﬂow hedge reserve

Currency translation reserve

Other reserves

Group share of net prof- it/(loss)

Equity attributable to the Group

Equity attributable to non-controlling interests

Total

Balance at 31 December 2017

(5)

(299)

1,492

241

1,451

188

1,639

Allocation of prior year net

241

(241)

result

Fair value - stock options

Dividend distribution

(96)

(9)

(105)

Capital increase

493

496

Change in scope of consoli-

dation

Conversion of convertible

281

283

bond 2013

Eﬀect of hyperinﬂation

Total comprehensive income/

(9)

(14)

(3)

(loss)

Balance at 31 December 2018

(14)

(313)

2,428

2,186

188

2,374

(in milioni di Euro)

Share capital

Cash ﬂow hedge reserve

Currency translation reserve

Other reserves

Group share of net prof- it/(loss)

Equity attributable to the Group

Equity attributable to non-controlling interests

Total

Balance at 31 December 2018

(14)

(313)

2,428

2,186

188

2,374

Allocation of prior year net

(58)

result

Fair value - stock options

(1)

Dividend distribution

(113)

(6)

(119)

Acquisition of non-controlling

(2)

(5)

(7)

interests

Capital paid in by non-con-

trolling interests

Eﬀect of hyperinﬂation

Total comprehensive income/

(21)

292

335

343

(loss)

Balance at 31 December 2019

(14)

(249)

2,359

292

2,415

187

2,602

136

Prysmian Group

Consolidated Financial Statements 2019

CONSOLIDATED STATEMENT OF CASH FLOWS

(Euro/million)

2019

of wich

2018

of wich

parties

Profit/(loss) before taxes

444

103

Amortisation, depreciation and impairment

354

232

Net gains on disposal of property, plant and equipment

(1)

(37)

Share of net proﬁt/(loss) of equity-accounted

(24)

(59)

companies

Dividends received from equity-accounted companies

Share-based payments

(1)

Fair value change in metal derivatives

(15)

Net ﬁnance costs

125

112

Changes in inventories

(7)

Changes in trade receivables/payables

(4)

108

Changes in other receivables/payables

(184)

(4)

Change in employee beneﬁt obligations

(15)

(21)

Change in provisions for risks and other movements

(57)

168

Net income taxes paid

(111)

(110)

Cash ﬂow from operating activities

775

462

Cash ﬂow from acquisitions and/or disposals

(7)

(1,208)

Investments in property, plant and equipment

(240)

(267)

Disposals of property, plant and equipment and assets

held for sale

Investments in intangible assets

(28)

(18)

Investments in ﬁnancial assets at fair value through

(6)

(7)

proﬁt or loss

Disposals of ﬁnancial assets at fair value through proﬁt

or loss

Cash ﬂow from investing activities

(260)

(1,476)

Capital contributions and other changes in equity

496

Dividend distribution

(119)

(105)

Proceeds of new loans

350

1,900

Repayments of loans

(517)

(613)

Changes in other net ﬁnancial receivables/payables (1)

(70)

(902)

Finance costs paid (2)

(418)

(362)

Finance income received (3)

324

278

Cash ﬂow from ﬁnancing activities

(448)

692

Exchange (losses) gains on cash and cash equivalents

(12)

Net increase/(decrease) in cash and cash equivalents

(A+B+C+D)

(334)

Cash and cash equivalents at the beginning of the

year

1,001

1,335

Cash and cash equivalents at the end of the year

(E+F)

1,070

1,001

Prysmian Group Consolidated Financial Statements 2019

137

GROUP ANNUAL REPORT

Explanatory

Notes

140

Prysmian Group

Consolidated Financial Statements 2019

A. GENERAL INFORMATION

Prysmian S.p.A. ("the Company") is a company incorporated and domiciled in Italy and organised under the laws of the Republic of Italy. The Company has its registered oﬃce in Via Chiese 6, Milan (Italy).

The Company and its subsidiaries (together "the Group" or "Prysmian Group") produce cables and systems and related accessories for the energy and telecommunications industries, and distribute and sell them around the globe.

The consolidated ﬁnancial statements contained herein were approved by the Board of Directors on 5 March 2020.

A.1 SIGNIFICANT EVENTS IN 2019

Mergers & Acquisitions

Binding oﬀer from Carlisle Companies Incorporated to acquire the business of Draka Fileca SAS

The transaction is subject to consultation with Fileca's employee representative bodies in France and to regulatory clearance.

The transaction is expected to complete by the end of H1 2020.

Finance activities

Mediobanca loan and partial repayment of the Bridge Loan

New revolving credit facility agreement

Prysmian Group

Consolidated Financial Statements 2019

141

Intesa Sanpaolo loan and partial repayment of the Bridge Loan

CDP Loan

Long-term incentive plan 2018-2020

New industrial projects and initiatives

Development of power transmission grid in Washington D.C.

Contract to develop a new submarine cable system in Canada (Fundy Isles)

Contract to develop cable system for the ﬁrst "ﬂoating" oﬀshore wind farm in France

142

Prysmian Group

Consolidated Financial Statements 2019

Contract to develop cable system for a "ﬂoating" oﬀshore wind farm in the United States

Dolwin5 project to connect new wind farms to mainland German grid

The Group's centres of excellence in Pikkala (Finland) and Gron (France) will manufacture the submarine and land cables required for this project, which is scheduled for completion by mid-2024.

Successful completion of qualiﬁcation testing of P-Laser and XLPE HVDC 525 kV cable systems

Contract for Viking Link project

Contract for inter-array cables for oﬀshore wind farms in the Netherlands

The cables, which will be manufactured at the Prysmian centre of excellence in Nordenham (Germany), are due to be delivered in 2022.

Prysmian Group

Consolidated Financial Statements 2019

143

Contract to supply wind turbine cable solutions in 2020

Successful completion of HDVC testing of the submarine COBRAcable linking the Netherlands and Denmark

On 4 November 2019, the Group announced it had successfully completed the HVDC test on the COBRAcable submarine interconnector linking the Netherlands and Denmark.

Prysmian had been awarded this project in February 2016 by TenneT TSO B.V. and Energinet SOV, operators of the Dutch and Danish transmission systems respectively.

Successful completion of the DolWin3 oﬀshore wind farm project

On 13 November 2019, the Group announced the successful commissioning of electrical connections for the Dol- Win3 oﬀshore wind farm in the North Sea to the German transmission grid.

The Group had been awarded this contract in February 2013 by Alstom Grid (now GE Grid GmbH) acting on behalf of TenneT, the Dutch-German transmission system operator.

The cables were produced at Prysmian Group's centres of technological and manufacturing excellence in Arco Felice (Italy), Pikkala (Finland) and Delft (Netherlands).

Successful completion of MON.ITA interconnector

On 15 November 2019, the Group announced the inauguration of the MON.ITA interconnector, the contract for which awarded by Terna Rete Italia S.p.A. in October 2012.

Contract to connect an oﬀshore wind farm to the UK electricity grid

144

Prysmian Group

Consolidated Financial Statements 2019

Agreement for the supply of inter-array cables for the Empire Wind project

Contract with Red Eléctrica de España for a new submarine power cable

The turnkey interconnector project will link Playa Blanca, on the island of Lanzarote, to La Oliva, on the island of Fuerteventura, running along a submarine route of some 14 km and an onshore one of about 2 km. The submarine and land cables will be produced, respectively, at the Prysmian centres of technological and manufacturing excellence located in Arco Felice (Italy) and Vilanova (Spain). Installation activities will be carried out by one of the Group's state-of-the-art cable laying vessels. Project handover and commissioning are scheduled for 2021.

Agreements with Terna to develop cable systems to upgrade the power grid in preparation for the Cortina Olympics and in Southern Italy

On 19 December 2019, following a public tender, the Group signed two major new cable solution agreements with Terna, through its subsidiary Terna Rete Italia S.p.A..

The cables for both projects will be manufactured at the plants in Pignataro Maggiore (Italy) and Gron (France).

Prysmian Group

Consolidated Financial Statements 2019

145

Other signiﬁcant events

Western Link

Some faults were detected on 19 February 2019 and 6 April 2019 in the Western Link interconnector, resulting in its temporary switch-oﬀ.

Work to repair the above faults was completed in June 2019.

On 23 November 2019, the Group announced that the customer (National Grid Electricity Transmission and Scot- tish Power Transmission) had taken over operation of the cable.

On 12 January 2020, the Group was informed that the Western HDVC Link had tripped on 10 January 2020.

Repairs were successfully completed on 7 February 2020 with the link restored to normal service and once more available to the customer, with whom there is an ongoing exchange to arrive at an acceptable deﬁnition of mutual expectations.

Approval of ﬁnancial statements at 31 December 2018 and dividend distribution

Plan to close the Manlleu and Montcada i Reixac production facilities in Spain

On 2 October 2019, it was formally announced that a collective redundancy procedure for organisational and production reasons would be initiated for the entire workforce at the Manlleu and Montcada i Reixac production facilities in Catalonia, Spain.

On 22 November, after several meetings, the parties reached an agreement which was ratiﬁed the following day by worker assemblies at the two factories, with an overwhelming 98% level of approval.

The total number of workers involved is 487 (of whom 334 in Manlleu and 153 in Montcada i Reixac).

On the basis of the agreements reached so far, the directors have decided to recognise appropriate provisions in the ﬁnancial statements.

146

Prysmian Group

Consolidated Financial Statements 2019

Antitrust: European Commission ruling against Group companies (formerly part of General Cable)

Plan to close the production facility in Neumünster (Germany)

The Neumünster facility performs harnessing activities which will be transferred to the plants in Wuppertal and Neustadt.

Exclusion of PIS and COFINS taxes from calculation of ICMS tax in Brazil

Prysmian Group

Consolidated Financial Statements 2019

147

B. ACCOUNTING PRINCIPLES

The main accounting principles used to prepare the consolidated ﬁnancial statements and Group ﬁnancial information are discussed below.

B.1 BASIS OF PREPARATION

The consolidated ﬁnancial statements at 31 December 2019 have been prepared on a going concern basis, with the directors having assessed that there are no ﬁnancial, operating or other kind of indicators that might provide evidence of material uncertainties as to the Group's ability to meet its obligations in the foreseeable future and particularly in the next 12 months.

In particular, the Group's estimates and projections have been prepared also taking into account possible developments in the investigations by the European Commission and other jurisdictions into alleged anti-competitive practices in the high voltage underground and submarine cables market, as well as the risk factors described in the Directors' Report.

The assessments carried out conﬁrm Prysmian Group's ability to operate in compliance with the going concern presumption and with its ﬁnancial covenants.

Prysmian Group's consolidated ﬁnancial statements at 31 December 2019 have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), based on the text published in the Oﬃcial Journal of the European Union (OJEU).

The primary ﬁnancial statements adopted have the following characteristics:

•

the consolidated income statement is presented in a stepped format with individual lines classiﬁed by nature and showing other comprehensive income, which report components of proﬁt or loss suspended in equity;

the consolidated statement of ﬁnancial position presents assets and liabilities according to maturity, with current items shown separately from non-current ones;

the statement of cash ﬂows is prepared by presenting cash ﬂows using the "indirect method", as permitted by IAS 7.

In application of art. 264b HGB of the German Commercial Code ("Handelsgesetzbuch"), the present ﬁnancial statements exempt Draka Comteq Berlin GMBH & Co.KG and Draka Comteq Germany GMBH & Co.KG. from the requirement to present statutory ﬁnancial statements.

All the amounts shown in the Group's ﬁnancial statements are expressed in millions of Euro, unless otherwise stated.

B.2 NEWLY ADOPTED STANDARDS

The accounting policies and basis of consolidation used to prepare these ﬁnancial statements are consistent with those used for the 2018 consolidated ﬁnancial statements. More complete details can be found in Note 39. Basis of consolidation and accounting policies.

A description of the standards and interpretations applicable from 1 January 2019 and of their eﬀects will now follow.

IFRS 16 - Leases

Transition

On 13 January 2016, the IASB published IFRS 16 - Leases, a new reporting standard which requires lessees to adopt a uniform accounting treatment for both operating and ﬁnance leases. In fact, IFRS 16 requires the lessee to recognise assets and liabilities for both operating and ﬁnance leases. At the commencement date of a lease, a les-

148

Prysmian Group

Consolidated Financial Statements 2019

see shall recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees are required to recognise separately the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

The Group has applied the new standard using the modiﬁed retrospective approach, meaning that 2018 comparatives have not been restated.

The following table summarises the eﬀects of adopting IFRS 16 at the transition date:

(Euro/million)

01.01.2019

Non-current assets

Property, plant and equipment

- Right-of-use land

- Right-of-use buildings

- Right-of-use plant and machinery

- Right-of-use equipment

- Right-of-use equipment and other assets

Total assets

172

Non-current liabilities

Borrowings from banks and other lenders

128

Current liabilities

Borrowings from banks and other lenders

Total liabilities

172

The net eﬀect of deferred taxes at the transition date (1 January 2019) is neutral; the net eﬀect of deferred taxes in subsequent periods is expected to be immaterial.

As far as the transition requirements are concerned, the Group has elected to adopt the following practical expedients permitted by the reporting standard:

•

contracts that previously qualiﬁed as leases under IAS 17 and IFRIC 4 have not been reassessed and the related right-of-use asset and lease liability at 1 January 2019 have been determined on a consistent basis with that already calculated under IAS 17;

the value of right-of-use assets has been recognised at an amount equal to that of the lease liability, excluding any initial direct costs;

contracts whose lease term ends within 12 months of the transition date have been classiﬁed as short-term leases. The associated lease payments are recognised as an expense through proﬁt or loss;

non-lease components have not been separated out and not accounted for separately. Such components have been treated together with the lease component to determine the lease liability and the related right of use;

contracts identiﬁed as onerous contracts before the adoption of IFRS 16 have not been tested for impairment and have been excluded from the reporting standard's scope of application.

The adoption of this standard has involved the exercise of professional judgement and the use of estimates and assumptions regarding the lease term and the discount rate, as described below:

•

future lease payments have been discounted using the incremental borrowing rate. This is based on the risk- free rate of the country in which the contract is negotiated and on the term of the lease, and is also adjusted for the Group's credit spread;

lease extension options have been considered for the purposes of determining the lease term, if reasonably certain to be exercised.

Prysmian Group

Consolidated Financial Statements 2019

149

The following table presents a reconciliation between the operating lease obligations reported at 31 December

2018 and the ﬁnancial liability recognised at 1 January 2019 on adopting IFRS 16:

(Euro/million)

Operating lease obligations at 31 December 2018

126

Finance lease payments - IAS 17

Short term (-)

(10)

Low value (-)

Renewal options plus other components

Gross lease liabilities at 1 January 2019

212

Discounting

Lease liabilities at 1 January 2019

184

Present value of ﬁnance lease liabilities - IAS 17 (-)

(12)

Lease liabilities at 1 January 2019 on IFRS 16 ﬁrst-time adoption

172

Accounting treatment applicable from 1 January 2019

A lease is a contract that guarantees the right to use an asset (the leased asset) for a period of time in exchange for a payment or a series of payments.

Following adoption of the new reporting standard IFRS 16 - Leases, at the date leased assets become available for use, lessees shall recognise the rights of use as non-current assets and a corresponding ﬁnancial liability.

Lease payments are divided into interest expense, recognised in proﬁt or loss, and repayment of principal, accounted for as a reduction in the ﬁnancial liability. Right-of-use assets are depreciated every month on a straight- line basis over the shorter of the lease term and the estimated useful lives of the assets.

Right-of-use assets and lease liabilities are initially measured at the present value of future lease payments. The present value of lease liabilities includes the following payments:

•

ﬁxed payments;

variable lease payments that depend on an index or a rate;

exercise price of a purchase option reasonably certain to be exercised;

payments of penalties for terminating the lease if the termination option is reasonably certain to be exer- cised;

optional payments after the non-cancellable period, if the lease is reasonably certain to be extended beyond the non-cancellable period.

Right-of-use assets are measured at cost, whose initial amount is equal to the lease liability.

150

Prysmian Group

Consolidated Financial Statements 2019

Eﬀects of IFRS 16

The following table summarises the eﬀects of IFRS 16 on the statement of ﬁnancial position at 31 December 2019:

(Euro/million)

31.12.2019

Eﬀects IFRS 16

31.12.2019

with IFRS 16

Non-current assets

Property, plant and equipment

2,637

167

2,804

Total assets

2,637

167

2,804

Non-current liabilities

Borrowings from banks and other lenders

2,906

126

3,032

Current liabilities

Borrowings from banks and other lenders

169

212

Total liabilities

3,075

169

3,244

Since the eﬀects of deferred tax assets and liabilities (duly oﬀset) are not material, they have not been reported in the previous table.

The following table reports movements during 2019 in right-of-use assets recognised in Property, plant and equipment on adopting IFRS 16:

(Euro/million)

Land

Buildings

Plant and

Equipment

Other

Total

machinery

assets

Balance at 1 January 2019

172

Movements in 2019:

- Investments

- Depreciation

(1)

(17)

(3)

(4)

(19)

(44)

- Impairment

(1)

- Currency translation

diﬀerences

Total movements

(7)

(2)

(3)

(5)

Balance at 31 December 2019

167

Of which:

- Historical cost

107

211

- Accumulated depreciation

(1)

(17)

(3)

(4)

(19)

(44)

and impairment

Net book value

167

Prysmian Group

Consolidated Financial Statements 2019

151

The following table summarises the eﬀects of IFRS 16 on the income statement for 2019:

(Euro/million)

31.12.2019

Eﬀects IFRS 16

31.12.2019

with IFRS 16

Adjusted EBITDA

960

1,007

Amortisation, depreciation and impairment

(310)

(44)

(354)

Finance costs

(489)

(5)

(494)

Net proﬁt/(loss)

298

(2)

296

As for the Statement of cash ﬂows, the negative "Changes in other net ﬁnancial receivables/payables" include Euro 46 million for lease payments which, prior to the adoption of IFRS 16, were classiﬁed in cash ﬂow from operating activities.

IFRIC 23 - Uncertainty over Income Tax Treatments

IFRIC 23 clariﬁes how to apply the recognition and measurement requirements of IAS 12 when there is uncertainty over income tax treatments. In this case, the entity shall recognise and measure its current or deferred tax asset or liability by applying the requirements in IAS 12 on the basis of taxable proﬁt (tax loss), tax bases, unused tax losses, unused tax credits, and tax rates determined by applying IFRIC 23. In assessing whether and how an uncertain tax treatment aﬀects the determination of taxable proﬁt (tax loss), tax bases, unused tax losses, unused tax credits, and tax rates, a reporting entity must assume that a taxation authority will examine amounts it has a right to examine and have full knowledge of all relevant information when doing so. Under the interpretation the reporting entity must determine whether it is probable that a taxation authority will accept an uncertain tax treatment. If a reporting entity concludes it is probable that a taxation authority will accept the uncertain tax treatment, then taxable proﬁt (tax loss), tax bases, unused tax losses, unused tax credits or tax rates shall be determined according to the tax treatment used or planned to be used in the reporting entity's income tax ﬁlings.

Conversely, if a reporting entity concludes it is not probable that a taxation authority will accept the uncertain tax treatment, it must reﬂect the eﬀect of this uncertainty in determining taxable proﬁt (tax loss), tax bases, unused tax losses, unused tax credits or tax rates related to this treatment.

The application of this interpretation has not had any signiﬁcant impact on the Group's ﬁnancial statements.

Other new standards, interpretations and amendments

The following is a list of other new standards, interpretations and amendments whose application became mandatory from 1 January 2019 but which have not had a material impact on the consolidated ﬁnancial statements at 31 December 2019:

152

Prysmian Group

Consolidated Financial Statements 2019

B.3 ACCOUNTING STANDARDS, AMENDMENTS AND INTERPRETATIONS NOT YET APPLICABLE AND NOT ADOPTED EARLY BY THE GROUP

The following new standards, amendments and interpretations had been issued at the date of preparing the present report but had not yet become applicable:

New Standards, Amendments and Interpretations

Mandatory application commencing

Amendments to IFRS 3: Deﬁnition of a business

1 January 2020

Amendments to IAS 1 and IAS 8: Deﬁnition of material

1 January 2020

IFRS 17 Insurance Contracts

1 January 2021

The new standards, amendments and interpretations have no material potential impact on the Group's consolidated ﬁnancial statements.

B.4 PRINCIPAL CHANGES IN THE SCOPE OF CONSOLIDATION

The Group's scope of consolidation includes the ﬁnancial statements of Prysmian S.p.A. (the Parent Company) and of the companies over which it exercises direct or indirect control, which are consolidated from the date when control is obtained until the date when such control ceases.

The changes in the scope of consolidation at 31 December 2019, compared with 31 December 2018, are listed be- low. In any case, such changes have not had a material impact on the Group's consolidated ﬁnancial statements at 31 December 2019.

Liquidations

Liquidated companies

Nation

Date

Conducen Nicaragua y Compania de Responsabilidad Limitada

Nicaragua

9 January 2019

Tasﬁye Halinde Draka Istanbul Asansor İthalat İhracat Üretim Ticaret Ltd

Turkey

9 May 2019

Marmavil, S.L. (Sociedad Unipersonal)

Spain

16 August 2019

PDIC Colombia S.A.

Colombia

31 October 2019

Prysmian Cables and Systems International Ltd

Great Britain

24 December 2019

Prysmian Powerlink Asia Co. Ltd

China

25 December 2019

Mergers

Merged company

Merged into

Nation

Date

Draka Cable Wuppertal GmbH e Draka

Prysmian Kabel und

Germany

25 June 2019

Kabeltechnik GmbH

Systeme GmbH

Name changes

For the sake of better understanding the scope of consolidation, the name changes occurring in the period are as follows:

Original name

New name

Nation

Date

Draka Kabel Sverige AB

Prysmian Group Sverige AB

Sweden

23 January 2019

Draka Holding S.L.

Draka Holding S.L. (Sociedad Unipersonal)

Spain

16 August 2019

Appendix A contains a complete list of the companies included in the scope of consolidation at 31 December 2019.

Prysmian Group

Consolidated Financial Statements 2019

153

C. RESTATEMENT OF COMPARATIVE FIGURES

The consolidated ﬁnancial statements at 31 December 2018, presented in this report for comparative purposes, have been amended relative to the previously published ﬁgures.

General Cable purchase price allocation

After acquiring control of General Cable Corporation on 6 June 2018, the fair values at 31 December 2018 of the assets acquired, liabilities assumed and contingent liabilities were determined on a provisional basis, in accordance with IFRS 3 - Business Combinations, insofar as the related valuation processes were still in progress.

These valuations, subject to revision within twelve months of the acquisition date as permitted by IFRS 3 - Business Combinations, have resulted in the restatement of the Consolidated Financial Statements at 31 December 2018.

Details of these amendments are presented in the following restated statement of ﬁnancial position at 31 De- cember 2018 and income statement at 31 December 2018.

154

Prysmian Group

Consolidated Financial Statements 2019

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AT 31 DECEMBER 2018

(Euro/million)

31.12.2018

General

31.12.2018

published

Cable purchase

restated

price allocation

Non-current assets

Property, plant and equipment

2,629

Goodwill

1,541

1,571

Other intangible assets

591

Equity-accounted investments

294

Other investments at fair value through other comprehensive

income

Financial assets at amortised cost

Derivatives

Deferred tax assets

174

190

Other receivables

Total non-current assets

5,282

5,328

Current assets

Inventories

1,515

(4)

1,511

Trade receivables

1,635

Other receivables

669

(2)

667

Financial assets at fair value through proﬁt or loss

Derivatives

Financial assets at fair value through other comprehensive

income

Cash and cash equivalents

1,001

Total current assets

4,874

(6)

4,868

Assets held for sale

Total assets

10,159

10,199

Equity

Share capital

Reserves

2,101

Group share of net proﬁt/(loss)

Equity attributable to the Group

2,186

Equity attributable to non-controlling interests

188

Total equity

2,374

Non-current liabilities

Borrowings from banks and other lenders

3,161

Employee beneﬁt obligations

463

Provisions for risks and charges

Deferred tax liabilities

238

Derivatives

Other payables

Total non-current liabilities

3,934

Current liabilities

Borrowings from banks and other lenders

Provisions for risks and charges

558

635

Derivatives

Trade payables

2,132

Other payables

990

(37)

953

Current tax payables

Total current liabilities

3,851

3,891

Total liabilities

7,785

7,825

Total equity and liabilities

10,159

10,199

Prysmian Group

Consolidated Financial Statements 2019

155

CONSOLIDATED INCOME STATEMENT AT 31 DECEMBER 2018

(Euro/million)

2018

General Cable

2018

published

purchase price

restated

allocation

Sales

10,105

(1)

10,104

Change in inventories of ﬁnished goods and work in progress

(85)

(84)

Other income

139

Total sales and income

10,159

Raw materials, consumables and supplies

(6,542)

Fair value change in metal derivatives

(48)

Personnel costs

(1,260)

Amortisation, depreciation, impairment and impairment

(232)

reversals

Other expenses

(1,921)

Share of net proﬁt/(loss) of equity-accounted companies

Operating income

215

Finance costs

(414)

Finance income

302

Proﬁt/(loss) before taxes

103

Taxes

(45)

Net proﬁt/(loss)

Of which:

Attributable to non-controlling interests

Group share

Basic earnings/(loss) per share (in Euro)

0,24

Diluted earnings/(loss) per share (in Euro)

0,24

Finalisation of the process of allocating General Cable's purchase price has not resulted in any restatement of the Statement of comprehensive income, of the Statement of equity or the Statement of cash ﬂows at 31 December 2018.

156

Prysmian Group

Consolidated Financial Statements 2019

D. FINANCIAL RISK MANAGEMENT

The Group's activities are exposed to various forms of risk: market risk (including exchange rate, interest rate and price risks), credit risk and liquidity risk. The Group's risk management strategy focuses on the unpredictability of markets and aims to minimise the potentially negative impact on the Group's results. Certain types of risk are mitigated using derivative instruments.

Monitoring of key ﬁnancial risks is centrally coordinated by the Group Finance Department, and by the Purchasing Department where price risk is concerned, in close cooperation with the Group's operating companies. Risk management policies are approved by the Group Finance, Administration and Control Department, which provides written guidelines on managing the above risks and on using (derivative and non-derivative) ﬁnancial in- struments.

The impact on proﬁt and equity presented in the following sensitivity analyses has been determined net of tax, calculated using the Group's weighted average theoretical tax rate.

[a] Exchange rate risk

The Group operates worldwide and is therefore exposed to exchange rate risk caused by changes in the value of trade and ﬁnancial ﬂows expressed in a currency other than the unit of account of individual Group companies.

The principal exchange rates aﬀecting the Group are:

In 2019, trade and ﬁnancial ﬂows exposed to the above exchange rates accounted for around 82% of the total exposure to exchange rate risk arising from trade and ﬁnancial transactions.

Prysmian Group

Consolidated Financial Statements 2019

157

The Group is also exposed to appreciable exchange rate risks on the following exchange rates: Euro/Czech Koru- na, Omani Rial/US Dollar, Brazilian Real/US Dollar, Qatari Riyal/Euro; none of these exposures, taken individually, accounted for more than 1.9% of the overall exposure to transactional exchange rate risk in 2019.

It is the Group's policy to hedge, where possible, exposures in currencies other than the unit of account of its individual companies. In particular, the Group hedges:

Such hedges are arranged using derivative contracts.

The following sensitivity analysis shows the eﬀects on net proﬁt of a 5% and 10% increase/decrease in exchange rates versus closing exchange rates at 31 December 2019 and 31 December 2018.

(Euro/million)

2019

2018

-5%

+5%

-5%

+5%

Euro

(0.68)

0.61

(0.75)

0.67

US Dollar

(2.95)

2.67

(3.33)

3.01

Other currencies

(1.00)

0.91

(4.39)

3.97

Total

(4.63)

4.19

(8.47)

7.65

(Euro/million)

2019

2018

-10%

+10%

-10%

+10%

Euro

(1.43)

1.17

(1.57)

1.29

US Dollar

(6.23)

5.10

(7.02)

5.75

Other currencies

(2.12)

1.73

(9.26)

7.58

Total

(9.78)

8.00

(17.85)

14.62

When assessing the potential impact of the above, the assets and liabilities of each Group company in currencies other than their unit of account were considered, net of any derivatives hedging the above-stated cash ﬂows.

The following sensitivity analysis shows the post-tax eﬀects on equity reserves of an increase/decrease in the fair value of designated cash ﬂow hedges following a 5% and 10% increase/decrease in exchange rates versus closing exchange rates at 31 December 2019 and 31 December 2018.

158

Prysmian Group

Consolidated Financial Statements 2019

(Euro/million)

2019

2018

-5%

+5%

-5%

+5%

US Dollar

2.07

(2.29)

3.29

(3.63)

Euro

1.53

(1.69)

0.00

Qatari Riyal

1.11

(1.23)

1.18

(1.30)

United Arab Emirates Dirham

1.03

(1.14)

1.26

(1.39)

Other currencies

3.79

(4.19)

3.12

(3.45)

Total

9.53

(10.54)

8.85

(9.77)

(Euro/million)

2019

2018

-10%

+10%

-10%

+10%

US Dollar

3.95

(4.83)

6.27

(7.67)

Euro

2.92

(3.57)

0.00

Qatari Riyal

2.12

(2.59)

2.24

(2.74)

United Arab Emirates Dirham

1.97

(2.41)

2.41

(2.94)

Other currencies

7.24

(8.84)

5.95

(7.27)

Total

18.20

(22.24)

16.87

(20.62)

The above analysis ignores the eﬀects of translating the equity of Group companies whose functional currency is not the Euro.

Further details can be found in the individual notes to the ﬁnancial statements.

[b] Interest rate risk

The interest rate risk to which the Group is exposed is mainly on long-term ﬁnancial liabilities, carrying both ﬁxed and variable rates.

Fixed rate debt exposes the Group to a fair value risk. The Group does not operate any particular hedging policies in relation to the risk arising from such contracts.

Variable rate debt exposes the Group to a rate volatility risk (cash ﬂow risk). In order to hedge this risk, the Group can use derivative contracts that limit the impact of interest rate changes on the income statement.

The Group Finance Department monitors the exposure to interest rate risk and adopts appropriate hedging strategies to keep the exposure within the limits deﬁned by the Group Administration, Finance and Control De- partment, arranging derivative contracts, if necessary.

The following sensitivity analysis shows the eﬀects on consolidated net proﬁt of an increase/decrease of 25 basis points in interest rates on the interest rates at 31 December 2019 and 31 December 2018, assuming that all other variables remain equal.

The potential eﬀects shown below refer to net liabilities representing the bulk of Group debt at the reporting date and are determined by calculating the eﬀect on net ﬁnance costs following a change in annual interest rates.

The net liabilities considered for sensitivity analysis include variable rate ﬁnancial receivables and payables, cash and cash equivalents and derivatives whose value is inﬂuenced by rate volatility.

Prysmian Group

Consolidated Financial Statements 2019

159

(Euro/million)

2019

2018

-0.25%

+0.25%

-0.25%

+0.25%

Euro

0.12

(0.12)

0.00

US Dollar

(0.25)

0.25

(0.26)

0.26

British Pound

(0.05)

0.05

(0.21)

0.21

Other currencies

(0.5)

0.5

(0.36)

0.36

Total

(0.68)

0.68

(0.83)

0.83

At 31 December 2019, the Group had interest rate swap agreements in place that transform the variable rate into a ﬁxed one. These agreements have been accounted for as cash ﬂow hedges.

[c] Price risk

The Group is exposed to price risk in relation to purchases and sales of strategic materials, whose purchase price is subject to market volatility. The main raw materials used by the Group in its own production processes consist of strategic metals such as copper, aluminium and lead. The cost of purchasing such strategic materials accounted for approximately 58.8% of the Group's total cost of materials in 2019 (53.4% in 2018), forming part of its overall production costs.

In order to manage the price risk on future trade transactions, the Group negotiates derivative contracts on strategic metals, setting the price of expected future purchases or the value of stocks.

Although the ultimate aim of the Group is to hedge risks to which it is exposed, these contracts do not qualify as hedging instruments for accounting purposes.

The derivative contracts entered into by the Group are negotiated with major ﬁnancial counterparties on the basis of strategic metal prices quoted on the London Metal Exchange ("LME"), the New York market ("COMEX") and the Shanghai Futures Exchange ("SFE").

The following sensitivity analysis shows the eﬀect on net proﬁt and consolidated equity of a 10% increase/de- crease in strategic material prices versus prices at 31 December 2019 and 31 December 2018, assuming that all other variables remain equal.

(Euro/million)

2019

2018

-10%

+10%

-10%

+10%

LME

(26.08)

26.08

(13.93)

13.93

COMEX

(17.18)

17.18

(0.42)

0.42

SME

(1.90)

1.90

(2.73)

2.73

Total

(45.16)

45.16

(17.08)

17.08

The potential impact shown above is solely attributable to increases and decreases in the fair value of derivatives on strategic material prices which are directly attributable to changes in the prices themselves. It does not refer to the impact on the income statement of the purchase cost of strategic materials.

[d] Credit risk

Credit risk is connected with trade receivables, cash and cash equivalents, ﬁnancial instruments, and deposits with banks and other ﬁnancial institutions.

160

Prysmian Group

Consolidated Financial Statements 2019

Customer-related credit risk is managed by the individual subsidiaries and monitored centrally by the Group Finance Department. The Group does not have excessive concentrations of credit risk. It nonetheless has procedures aimed at ensuring that sales of products and services are made to reliable customers, taking account of their ﬁnancial situation, track record and other factors. Credit limits for major customers are based on internal and external assessments within ceilings approved by local country management. The utilisation of credit limits is periodically monitored at local level.

During 2019 the Group had a global insurance policy in place to provide coverage for part of its trade receivables against any credit losses, net of the deductible.

As for credit risk relating to the management of ﬁnancial and cash resources, this risk is monitored by the Group Finance Department, which implements procedures intended to ensure that Group companies deal with inde- pendent, highly rated, reliable counterparties. In fact, at 31 December 2019 (like at 31 December 2018) the vast majority of the Group's ﬁnancial and cash resources were held with investment grade counterparties. Credit limits relating to the principal ﬁnancial counterparties are based on internal and external assessments, within ceilings set by the Group Finance Department.

[e] Liquidity risk

Prudent management of the liquidity risk arising from the Group's normal operations involves the maintenance of adequate levels of cash and cash equivalents and short-term securities as well as ensuring the availability of funds by having an adequate amount of committed credit lines.

The Group Finance Department uses cash ﬂow forecasts to monitor the projected level of the Group's liquidity reserves.

The amount of liquidity reserves at the reporting date is as follows:

(Euro/million)

31.12.2019

31.12.2018

Cash and cash equivalents

1,070

1,001

Financial assets at fair value through proﬁt or loss

Financial assets at fair value through other comprehensive income

Undrawn committed lines of credit

1,000

Total

2,108

2,036

Undrawn committed lines of credit at 31 December 2019 refer to the Revolving Credit Facility 2019 (Euro 1,000 million). The following table includes an analysis, by due date, of payables, other liabilities, and derivatives settled on a net basis; the various due date categories refer to the period between the reporting date and the contractual maturity of the obligations.

(Euro/million)

31.12.2019

Due within

Due between

Due after

1 year

1 - 2 years

2 - 5 years

5 years

Borrowings from banks and other lenders

214

2,946

Lease liabilities

Derivatives

Trade and other payables

3,031

Total

3,324

128

3,001

Prysmian Group

Consolidated Financial Statements 2019

161

(Euro/million)

31.12.2018(*)

Due within

Due between 1 -

Due between 2 -

Due after

1 year

2 years

5 years

Borrowings from banks and other lenders

137

669

2,507

119

Lease liabilities

Derivatives

Trade and other payables

3,085

Total

3,264

685

2,515

126

In completion of the disclosures about ﬁnancial risks, the following is a reconciliation between the classes of ﬁnancial assets and liabilities reported in the Group's consolidated statement of ﬁnancial position and the categories used by IFRS 7 to identify ﬁnancial assets and liabilities:

(Euro/million)

31.12.2019

Financial assets at fair value through proﬁt or loss

Receivables and other assets at amortised cost

Financial assets at fair value through other comprehensive income

Financial liabilities at fair value through proﬁt or loss

Financial liabilities carried at amortised cost

Hedging derivatives

Other investments at fair

value through other compre-

hensive income

Financial assets at fair value

through other comprehensive

income

Financial assets at amortised

cost

Trade receivables

1,475

Other receivables

854

Financial assets at fair value

through proﬁt or loss

Derivatives (assets)

Cash and cash equivalents

1,070

Borrowings from banks and

3,244

other lenders

Trade payables

2,062

Other payables

980

Derivatives (liabilities)

162

Prysmian Group

Consolidated Financial Statements 2019

(Euro/million)

31.12.2018(*)

Financial assets at fair value through proﬁt or loss

Receivables and other assets at amortised cost

Financial assets at fair value through other comprehensive income

Financial liabilities at fair value through proﬁt or loss

Financial liabilities carried at amortised cost

Hedging derivatives

Other investments at fair

value through other compre-

hensive income

Financial assets at fair value

through other comprehensive

income

Financial assets at amortised

cost

Trade receivables

1,635

Other receivables

700

Financial assets at fair value

through proﬁt or loss

Derivatives (assets)

Cash and cash equivalents

1,001

Borrowings from banks and

3,259

other lenders

Trade payables

2,132

Other payables

965

Derivatives (liabilities)

D.1 CAPITAL RISK MANAGEMENT

The Group's objective in capital risk management is primarily to safeguard business continuity in order to guarantee returns for shareholders and beneﬁts for other stakeholders. The Group also aims to maintain an optimal capital structure in order to reduce the cost of debt and to comply with a series of covenants required by the various Credit Agreements (Note 32. Financial covenants).

The Group also monitors capital using a gearing ratio (i.e. the ratio between net ﬁnancial debt and capital). Details of how net ﬁnancial debt is determined can be found in Note 12. Borrowings from banks and other lenders. Capital is equal to the sum of equity, as reported in the Group consolidated ﬁnancial statements, and net ﬁnan- cial debt.

Prysmian Group

Consolidated Financial Statements 2019

163

The gearing ratios at 31 December 2019 and 31 December 2018 are shown below:

(Euro/million)

2019

2018

Net ﬁnancial debt

2,140

2,222

Equity

2,602

2,374

Total capital

4,742

4,596

Gearing ratio

45,13%

48,35%

D.2 FAIR VALUE MEASUREMENT

IFRS 13 requires assets and liabilities recognised in the statement of ﬁnancial position at fair value to be classi- ﬁed according to a hierarchy that reﬂects the signiﬁcance of the inputs used in measuring fair value.

Financial instruments are classiﬁed according to the following fair value measurement hierarchy:

Level 1: Fair value is determined with reference to quoted prices (unadjusted) in active markets for identical ﬁnancial instruments. Therefore, the emphasis within Level 1 is on determining both of the following:

Level 2: Fair value is determined using valuation techniques where the input is based on observable market data. The inputs for this level include:

Level 3: Fair value is determined using valuation techniques where the input is not based on observable market data.

164

Prysmian Group

Consolidated Financial Statements 2019

The following tables present the assets and liabilities that are recurrently measured at fair value:

(Euro/million)

31.12.2019

Level 1

Level 2

Level 3

Total

Assets

Financial assets at fair value:

Derivatives through proﬁt or loss

Hedging derivatives

Financial assets at fair value through proﬁt or loss

Other investments at fair value through other comprehen-

sive income

Financial assets at fair value through other comprehensive

income

Total assets

Liabilities

Financial liabilities at fair value:

Derivatives through proﬁt or loss

Hedging derivatives

Total liabilities

(Euro/million)

31.12.2018

Level 1

Level 2

Level 3

Total

Assets

Financial assets at fair value:

Derivatives through proﬁt or loss

Hedging derivatives

Financial assets at fair value through proﬁt or loss

Other investments at fair value through other comprehen-

sive income

Financial assets at fair value through other comprehensive

income

Total assets

Liabilities

Financial liabilities at fair value:

Derivatives through proﬁt or loss

Hedging derivatives

Total liabilities

Financial assets classiﬁed in fair value Level 3 reported no signiﬁcant movements in either 2019 or 2018.

Given the short-term nature of trade receivables and trade payables, their carrying amounts, net of any allowance for doubtful accounts, are treated as a good approximation of fair value.

During 2019 there were no transfers of ﬁnancial assets and liabilities between the diﬀerent levels of the fair value hierarchy.

Prysmian Group

Consolidated Financial Statements 2019

165

VALUATION TECHNIQUES

Level 1: The fair value of financial instruments quoted in an active market is based on market price at the reporting date. The market price used for derivatives is the bid price, while for financial liabilities the ask price is used.

Level 2: Derivative ﬁnancial instruments classiﬁed in this category include interest rate swaps, forward currency contracts and metal derivative contracts that are not quoted in active markets. Fair value is determined as fol- lows:

Level 3: The fair value of instruments not quoted in an active market is primarily determined using valuation techniques based on estimated discounted cash ﬂows.

An increase/decrease in the Group's credit rating at 31 December 2019 would not have had signiﬁcant eﬀects on net proﬁt at that date.

E. BUSINESS COMBINATIONS

Prysmian Group acquired control of General Cable Corporation on 6 June 2018. The acquisition date was backdated to the end of May 2018 for accounting purposes.

The total consideration paid for the acquisition was approximately Euro 1,290 million.

Acquisition-related costs amounted to around Euro 19 million, before tax eﬀects of some Euro 5 million. These costs have been expensed to income as "Non-operating expenses", of which Euro 15 million accounted for in 2017 and Euro 4 million in 2018.

In compliance with IFRS 3, the fair value of the assets, liabilities and contingent liabilities has been ﬁnalised within twelve months of the acquisition date.

The excess of the purchase consideration over the fair value of net assets acquired has been recognised as good- will, quantiﬁed as Euro 1,113 million.

Such goodwill is primarily justiﬁed by the future earnings expected from integrating the two groups, including the beneﬁts of run-rate synergies. The process of allocating the acquisition purchase price concluded on 30 June 2019.

166

Prysmian Group

Consolidated Financial Statements 2019

Details of the net assets acquired and goodwill are as follows:

(Euro/million)

Cash out

1,303

Derivatives (collar) for acquisition

(13)

Acquisition price (A)

1,290

Fair value of net assets acquired (B)

179

Non-controlling interest

Goodwill (A-B)

1,113

Purchase consideration

1,290

Cash and cash equivalents held by acquiree

(82)

Acquisition cash ﬂow

1,208

Details of the fair values of the assets/liabilities acquired are as follows:

(Euro/million)

Property, plant and equipment

890

Intangible assets

323

Assets held for sale

Financial assets at amortised cost

Derivatives

Deferred taxes

(124)

Inventories

642

Trade and other receivables

697

Trade and other payables

(696)

Borrowings from banks and other lenders

(1,315)

Employee beneﬁt obligations and Provisions for risks and charges

(342)

Cash and cash equivalents

Net assets acquired (B)

179

There now follow some brief comments about the fair value measurement performed as part of the purchase price allocation process.

Property, plant and equipment

The fair value measurement has lifted book value by Euro 464 million.

Intangible assets

The fair value measurement has identiﬁed the following higher values of intangible assets:

Prysmian Group

Consolidated Financial Statements 2019

167

"Goodwill" and other intangible assets previously recorded in the General Cable ﬁnancial statements, amounting to Euro 27 million, have been cancelled against the above higher values.

Trade and other receivables, Trade and other payables

Trade and other receivables and trade and other payables have been measured at fair value.

Inventories

The fair value measurement has lifted book value by Euro 16 million due to the recognition of an inventory step- up for production proﬁt margins.

Provisions for risks

The fair value measurement has lifted book value by Euro 165 million in connection with contingent liabilities.

Deferred taxes

The variation reﬂects recognition of the tax eﬀect of all the above diﬀerences against book value.

F. SEGMENT INFORMATION

The Group's operating segments are:

•

Energy, whose smallest identiﬁable CGU is the Region; this segment encompasses the former Energy Products segment as well as the Core Oil&Gas and DHT businesses;

Projects, whose smallest identiﬁable CGUs are the High Voltage, Submarine Power, Submarine Telecom and Oﬀshore Specialties businesses; this segment encompasses the former Energy Projects segment, the Oﬀ- shore Specialties business and the Submarine Telecom business, new to the Group following the acquisition of General Cable;

Telecom, whose smallest CGU is the operating segment itself.

The comparative ﬁgures reﬂect a reclassiﬁcation within the Energy operating segment between the E&I and Industrial & NWC businesses for better allocation of the ﬁgures of the Omani subsidiary.

Segment information is structured in the same way as the report periodically prepared for the purpose of reviewing business performance. This report presents operating performance by macro type of business (Energy, Projects and Telecom) and the results of operating segments primarily on the basis of Adjusted EBITDA, deﬁned as earnings (loss) for the period before non-recurring items, the fair value change in metal price derivatives and in other fair value items, amortisation, depreciation and impairment, ﬁnance costs and income and taxes. This report also provides information about the statement of ﬁnancial position for the Group as a whole but not by operating segment.

168

Prysmian Group

Consolidated Financial Statements 2019

In order to provide users of the ﬁnancial statements with clearer information, certain economic data is also reported by sales channels and business areas within the individual operating segments:

All Corporate ﬁxed costs are allocated to the Projects, Energy and Telecom operating segments. Revenues and costs are allocated to each operating segment by identifying all revenues and costs directly attributable to that segment and by allocating indirect costs on the basis of Corporate resources (personnel, space used, etc.) absorbed by the operating segments.

Group operating activities are organised and managed separately according to the nature of the products and services provided: each segment oﬀers diﬀerent products and services to diﬀerent markets. Sales of goods and services are analysed geographically on the basis of the location of the registered oﬃce of the company that issues the invoices, regardless of the geographic destination of the products sold. This type of presentation does not produce signiﬁcantly diﬀerent results from analysing sales of goods and services by destination of the products sold. All transfer prices are set using the same conditions applied to other transactions between Group companies and are generally determined by applying a mark-up to production costs.

Assets and liabilities by operating segment are not included in the data reviewed by management and so, as permitted by IFRS 8, this information is not presented in the current report.

Prysmian Group

Consolidated Financial Statements 2019

169

F.1 OPERATING SEGMENTS

The following tables present information by operating segment:

(Euro/million)

2019

Projects

Energy

Telecom

Corporate

Group

E&I

Industrial

Other

Total

total

& NWC

Energy

Sales (1)

1,844

5,285

2,492

250

8,027

1,648

11,519

Adjusted EBITDA

before share of net

proﬁt/(loss) of

equity-accounted

228

307

195

503

252

983

companies

% of sales

12.3%

5.8%

7.8%

6.3%

15.3%

8.5%

Adjusted EBITDA (A)

228

308

196

505

274

1,007

% of sales

12.4%

5.8%

7.9%

6.3%

16.6%

8.7%

Adjustments

(23)

(43)

(19)

(60)

(17)

(100)

EBITDA (B)

205

265

177

445

274

(17)

907

% of sales

11.1%

5.0%

7.2%

5.5%

16.6%

7.9%

Amortisation and

(64)

(123)

(56)

(3)

(182)

(72)

(318)

depreciation (C)

Adjusted operating

164

185

140

(2)

323

202

689

income (A+C)

% of sales

8.9%

3.5%

5.6%

4.0%

12.3%

6.0%

Fair value change in

metal derivatives (D)

Fair value stock options

(E)

Asset (impairment) and

(36)

impairment reversal (F)

Operating income

569

(B+C+D+E+F)

% of sales

4.9%

Finance income

369

Finance costs

(494)

Taxes

(148)

Net proﬁt/(loss)

296

% of sales

2.6%

Attributable to:

Owners of the parent

292

Non-controlling

interests

170

Prysmian Group

Consolidated Financial Statements 2019

(Euro/million)

2018(*)

Projects

Energy

Telecom

Corporate

Group

E&I

Industrial

Other

Total

total

& NWC

Energy

Sales (1)

1,635

4,462

2,277

236

6,975

1,494

10,104

Adjusted EBITDA before

share of net proﬁt/

(loss) of equity-

163

155

(2)

316

229

634

accounted companies

% of sales

5.4%

3.7%

6.8%

4.5%

15.4%

6.3%

Adjusted EBITDA (A)

166

156

(2)

320

284

693

% of sales

5.4%

3.7%

6.8%

4.6%

19.0%

6.9%

Adjustments

(105)

(50)

(21)

(71)

(38)

(192)

EBITDA (B)

(16)

116

135

(2)

249

306

(38)

501

% of sales

-1.0%

2.6%

5.9%

3.6%

20.5%

5.0%

Amortisation and

(54)

(86)

(38)

(2)

(126)

(47)

(227)

depreciation (C)

Adjusted operating

118

(4)

194

237

466

income (A+C)

% of sales

2.1%

1.8%

5.2%

2.8%

15.9%

5.7%

Fair value change in

(48)

metal derivatives (D)

Fair value stock options

(6)

(E)

Asset (impairment) and

(1)

(4)

(5)

impairment reversal (F)

Operating income

215

(B+C+D+E+F)

% of sales

2.1%

Finance income

302

Finance costs

(414)

Taxes

(45)

Net proﬁt/(loss)

% of sales

0.6%

Attributable to:

Owners of the parent

Non-controlling

interests

Prysmian Group

Consolidated Financial Statements 2019

171

F.2 GEOGRAPHICAL AREAS

The following table presents sales of goods and services by geographical area:

(Euro/million)

2019

2018(**)

Sales

11,519

10,104

EMEA*

6,196

5,887

(of which Italy)

1,292

1,261

North America

3,441

2,457

Latin America

931

779

Asia Paciﬁc

951

981

No individual customer accounted for more than 10% of the Group's total sales in either 2019 or 2018.

172

Prysmian Group

Consolidated Financial Statements 2019

1. PROPERTY, PLANT AND EQUIPMENT

Details of this line item and related movements are as follows:

(Euro/million)

Land

Buildings

Plant and machinery

Equipment

Other assets

Assets under construction and advances

Total

Balance at 31 December 2018

294

721

1,191

312

2,629

Movements in 2019:

- Investments

179

255

- Increases for leases (IFRS 16)

107

211

- Disposals

(1)

(6)

(9)

- Depreciation

(1)

(59)

(136)

(17)

(36)

(249)

- Impairment

(1)

(29)

(1)

(3)

(2)

(36)

- Currency translation diﬀerences

(2)

- Reclassiﬁcations (to)/from Assets held

(4)

(9)

(5)

(1)

(20)

for sale

- Monetary revaluation for

hyperinﬂation

- Other

(3)

(148)

(3)

Total movements

100

175

Balance at 31 December 2019

301

821

1,192

105

334

2,804

Of which:

- Historical cost

309

1,203

2,284

165

244

339

4,544

- Accumulated depreciation and

(8)

(382)

(1,092)

(114)

(139)

(5)

(1,740)

impairment

Net book value

301

821

1,192

105

334

2,804

Prysmian Group

Consolidated Financial Statements 2019

173

(Euro/million)

Land

Buildings

Plant and machinery

Equipment

Other assets

Assets under construction and advances

Total

Balance at 31 December 2017

232

528

576

207

1,646

Movements in 2018:

- Business combinations

195

601

890

- Investments

209

267

- Disposals

(1)

- Depreciation

(34)

(109)

(12)

(13)

(168)

- Impairment

(3)

(1)

(5)

- Monetary revaluation for

hyperinﬂation

- Currency translation diﬀerences

(4)

(1)

(2)

(1)

(3)

- Reclassiﬁcations (to)/from Assets held

(3)

(2)

(5)

for sale

- Other

(2)

(122)

Total movements

193

615

105

983

Balance at 31 December 2018

294

721

1,191

312

2,629

Of which:

- Historical cost

301

1,035

2,080

142

150

315

4,023

- Accumulated depreciation and

(7)

(314)

(889)

(92)

(89)

(3)

(1,394)

impairment

Net book value

294

721

1,191

312

2,629

In 2019, gross capital expenditure on property, plant and equipment came to Euro 255 million. Details of this expenditure during the course of 2019 are provided below:

174

Prysmian Group

Consolidated Financial Statements 2019

investments in production capacity increases have been in North America, designed to serve a particularly active and growing market in the years ahead: in particular in Sedalia, in the state of Missouri, investments have been made in the business of special purpose aluminium cables, while in Taunton, Mas- sachusetts, work has begun to increase production capacity for special cables for industrial applications in order to optimise the potential of the new compounding plant, due to become fully operational next year after relocating operations from the nearby plant in North Dighton, also in Massachusetts. Capex by Oman Cables Industry, an associate company, mainly related to the low and medium voltage cables business, serving both local utilities and the large engineering procurement and construction companies active in the Arabian Peninsula.

•

Multiple projects to improve industrial eﬃciency and rationalise production capacity: Euro 60 million (24% of the total).

Structural work: Euro 50 million (19% of the total).

At 31 December 2019, machinery pledged as security against long-term loans has an almost nil value.

During the reporting period just ended, Prysmian Group reviewed whether there was any evidence that its CGUs might be impaired, and then tested for impairment only those CGUs potentially at "risk".

Such impairment testing has resulted in a charge of Euro 22 million to write oﬀ all the Plant and machinery, Equipment, Other assets and Assets under construction in the Energy segment's Oceania South-East Asia (OSEA) regional CGU. The cash ﬂow projection for this CGU has been determined, for 2020, using the post-tax cash ﬂow taken from the Group's 2020 budget, approved by the Board of Directors on 5 March 2020. This forecast was then projected forward to 2021-2022 using the same growth forecasts as those adopted for goodwill. The WACC (Weighted Average Cost of Capital) used to discount cash ﬂows for determining value in use for the Energy seg- ment's OSEA CGU is 6.1%. The perpetuity growth rate (G) projected after 2022 is 2%, consistent with long-term growth forecasts.

The Group has also recognised impairment against other assets which, although belonging to larger CGUs for which there was no speciﬁc evidence of impairment, have presented evidence of impairment due to particular market circumstances. This has led to the recognition of Euro 14 million in impairment losses in 2019, mainly to write down plant and machinery at the Manlleu and Montcada i Reixac production facilities in Catalonia (Spain), both involved in business restructuring processes, more details of which can be found in Section A1. Signiﬁcant events in 2019.

With eﬀect from 1 January 2019 the Group has adopted the new reporting standard IFRS 16 - Leases, whereby it has recognised right-of-use assets worth Euro 211 million as part of its property, plant and equipment. Details of the eﬀects of the new reporting standard can be found in Note B.2 Newly adopted standards.

Prysmian Group

Consolidated Financial Statements 2019

175

2. GOODWILL AND OTHER INTANGIBLE ASSETS

Details of this line item and related movements are as follows:

(Euro/million)

Patents

Concessions, licences, trademarks and similar rights

Goodwill

Software

Other assets

Intangibles in progress and advances

Total

Balance at 31 December 2018 (*)

113

1,571

417

2,162

Movements in 2019:

- Investments

- Amortisation

(3)

(15)

(8)

(43)

(69)

- Currency translation diﬀerences

- Other

(11)

Total movements

(2)

(13)

(34)

(8)

Balance at 31 December 2019

100

1,590

383

2,154

Of which:

- Historical cost

187

1,610

128

615

2,658

- Accumulated amortisation and

(56)

(87)

(20)

(88)

(232)

(21)

(504)

impairment

Net book value

100

1,590

383

2,154

(Euro/million)

Patents

Concessions, licences, trademarks and similar rights

Goodwill

Software

Other intangible assets

Intangibles in progress and advances

Total

Balance at 31 December 2017

438

216

735

Movements in 2018:

- Business combinations

1,113

235

1,436

- Investments

- Amortisation

(3)

(10)

(9)

(37)

(59)

- Currency translation diﬀerences

(1)

- Other

(6)

(11)

Total movements

(1)

1,133

201

1,427

Balance at 31 December 2018 (*)

113

1,571

417

2,162

Of which:

- Historical cost

185

1,591

115

606

2,597

- Accumulated amortisation and

(53)

(72)

(20)

(80)

(189)

(21)

(435)

impairment

Net book value

113

1,571

417

2,162

176

Prysmian Group

Consolidated Financial Statements 2019

In 2019, gross capital expenditure on intangible assets came to Euro 28 million, most of which attributable to ongoing enhancement of information systems and Digital Transformation projects. Work continued in 2019 on completing the "SAP Consolidation" program, based on the innovative SAP HANA infrastructure and intended to standardise back oﬃce processes, involving the platform's roll-out to South-East Asia, Spain, Portugal and France. This has been only the ﬁrst step in the process of extending the platform to the entire Group. The new "SAP BW/4 HANA" Business Intelligence system was also implemented during 2019; both new platforms operate using private cloud computing.

Goodwill

As at 31 December 2019, Prysmian Group is reporting Euro 1,590 million in Goodwill, of which Euro 1,147 million for the General Cable acquisition, details of which can be found in Section E. Business Combinations.

Goodwill impairment test

As reported in Note 39.4 Impairment of property, plant and equipment and ﬁnite-life intangible assets, the Group's activities are organised in three operating segments: Projects, Energy and Telecom. The Projects segment consists of the High Voltage, Submarine Power, Submarine Telecom and Oﬀshore Specialties CGUs; the Energy segment consists of a number of CGUs corresponding to the Regions or Countries in keeping with the new organisation structure; lastly, the Telecom segment consists of a single CGU that coincides with the operating segment itself. Goodwill, acquired on the occasion of business combinations, has been allocated to groups of CGUs, corresponding to the operating segments, which are expected to beneﬁt from the synergies of such combinations and which represent the lowest level at which Management monitors business performance.

Goodwill has therefore been allocated to each of the operating segments: Projects, Energy and Telecom.

The following table reports the amount of goodwill allocated to each operating segment:

(Euro/million)

31.12.2018 (*)

Currency

31.12.2019

translation

diﬀerences

Energy goodwill

1,043

1,055

Projects goodwill

234

238

Telecom goodwill

294

297

Total goodwill

1,571

1,590

The cash ﬂow projection has been determined, for 2020, using the post-tax cash ﬂow taken from the Group's 2020 budget, approved by the Board of Directors on 5 March 2020.

The operating segment cash ﬂow forecasts have been extended to the period 2021-2022 assuming expected annual growth rates of between 1.8% and 2.0% (consistent with the growth rates of the countries concerned). A terminal value has been estimated to reﬂect operating segment value after this period; this value has been determined assuming a 2% perpetuity growth rate, considered consistent with growth rates expected around the world. The rate used to discount cash ﬂows has been determined on the basis of market information about the cost of money and asset-speciﬁc risks (Weighted Average Cost of Capital, WACC). The outcome of the test has shown that the recoverable amount of the individual operating segments is higher than their net invested capital (including the allocation of goodwill). In particular, recoverable amount is signiﬁcantly above carrying amount for the Projects operating segment (216%), and higher for both the Energy operating segment (98%) and the Telecom operating segment (101%).

Prysmian Group

Consolidated Financial Statements 2019

177

The WACC used for the Projects operating segment was 6.53% while the theoretical WACC, for which recoverable amount equals carrying amount, would be 12.55%. In the case of the Energy segment, the WACC used was 6.12% while the theoretical WACC, for which recoverable amount equals carrying amount, would be 9.88%. In the case of the Telecom segment, the WACC used was 6.36% while the theoretical WACC, for which recoverable amount equals carrying amount, would be 10.78%. In the case of growth rates, for recoverable amount to be equal to carrying amount, the growth rate would have to be negative for all segments.

3.EQUITY-ACCOUNTEDINVESTMENTS Details are as follows:

(Euro/million)

31.12.2019

31.12.2018

Investments in associates

314

294

Total equity-accounted investments

314

294

Movements over the period are as follows:

(Euro/million)

31.12.2019

Investments in associates

Opening balance

294

Movements:

- Currency translation diﬀerences

- Share of net proﬁt/(loss)

- Dividends

(9)

- Other movements

Total movements

Closing balance

314

(Euro/million)

31.12.2018

Investments in associates

Opening balance

217

Movements:

- Currency translation diﬀerences

(2)

- Share of net proﬁt/(loss)

- Dividends

(16)

- Other movements

Total movements

Closing balance

294

178

Prysmian Group

Consolidated Financial Statements 2019

Details of investments in equity-accounted companies are as follows:

(Euro/million)

31.12.2019

31.12.2018

Yangtze Optical Fibre and Cable Joint Stock Limited Company

262

246

Yangtze Optical Fibre & Cable (Shanghai) Co. Ltd.

Kabeltrommel Gmbh & Co.K.G.

Elkat Ltd.

Rodco Ltd.

Eksa Sp.Zo.o

Power Cables Malaysia Sdn Bhd

Total investments in equity-accounted companies

314

294

The value of investments includes Euro 24 million for the share of net proﬁt (loss) of equity-accounted companies.

Investments in associates

Information about the nature of the main investments in associates:

Company name

Registered

% owned

oﬃce

Yangtze Optical Fibre and Cable Joint Stock Limited Company

China

23.73%

Yangtze Optical Fibre & Cable (Shanghai) Co. Ltd

China

42.80%

Kabeltrommel Gmbh & Co.K.G.

Germany

43.18%

Power Cables Malaysia Sdn Bhd

Malaysia

40.00%

Elkat Ltd.

Russia

40.00%

Yangtze Optical Fibre and Cable Joint Stock Limited Company is a Chinese company formed in 1988 whose main shareholders are: China Huaxin Post and Telecommunication Economy Development Center, Wuhan Yangtze Communications Industry Group Company Ltd. and Prysmian Group. The company is one of the industry's most important manufacturers of optical ﬁbre and cables. Its products and solutions are sold in more than 50 coun- tries, including the United States, Japan, the Middle East and Africa.

The company was listed on the Main Board of the Hong Kong Stock Exchange in December 2014 and in July 2018 it was also listed on the Shanghai Stock Exchange.

At 31 December 2019, the fair value of the investment in Yangtze Optical Fibre and Cable Joint Stock Limited Company was Euro 318 million (based on the price quoted on the Hong Kong market), compared with a carrying amount of Euro 262 million.

Yangtze Optical Fibre & Cable (Shanghai) Co. Ltd, formed in 2002 and based in Shanghai (China), is an associate company, 25% of whose share capital is held by Prysmian Group and 75% by Yangtze Optical Fibre and Cable Joint Stock Limited Company. The company specialises in the manufacture and sale of optical ﬁbre and cables, oﬀering a wide range of optical ﬁbre cables and accessories, services and FTTx solutions.

Kabeltrommel Gmbh & Co. K.G. is a German company that heads a consortium for the production, procurement, management and sale of disposable and reusable cable carrying devices (drums). The services oﬀered by the company include both the sale of cable drums, and the complete management of logistics services such as drum shipping, handling and subsequent retrieval. The company operates primarily in the German market.

Power Cables Malaysia Sdn Bhd, a company based in Malaysia, manufactures and sells power cables and conduc- tors, with its prime specialism high voltage products.

Prysmian Group

Consolidated Financial Statements 2019

179

Elkat Ltd. is based in Russia and manufactures and sells copper conductors; it is the only company certiﬁed by the LME to test copper cathodes for the local market.

The following table reports key ﬁnancial ﬁgures for the principal investments in associates:

(Euro/million)

Kabeltrommel Gmbh & Co.K.G.

Yangtze Optical Fibre and Cable Joint Stock Limited Company

Elkat Ltd.

Yangtze Optical Fibre & Cable (Shanghai) Co. Ltd

Power Cables Malaysia Sdn Bhd

31.12.2019

30.09.2019(*)

31.12.2019

Non-current assets

n.a

737

n.a

Current assets

n.a

1,024

n.a

Total assets

n.a

1,761

n.a

Equity

n.a

1,132

n.a

Non-current liabilities

n.a

Current liabilities

n.a

564

n.a

Total equity and liabilities

n.a

1,761

n.a

2019

Sales of goods and services

n.a

676

n.a

Net proﬁt/(loss) for the year

n.a

(1)

Comprehensive income/(loss) for

n.a

(1)

the year

Dividends received

180

Prysmian Group

Consolidated Financial Statements 2019

(Euro/million)

Kabeltrommel Gmbh & Co.K.G.

Yangtze Optical Fibre and Cable Joint Stock Limited Company

Elkat Ltd.

Yangtze Optical Fibre & Cable (Shanghai) Co. Ltd

Power Cables Malaysia Sdn Bhd

31.12.2018

Non-current assets

685

Current assets

951

Total assets

1,636

Equity

1,064

Non-current liabilities

149

Current liabilities

424

Total equity and liabilities

1,636

2018

Sales of goods and services

1,455

175

122

Net proﬁt/(loss) for the year

191

(1)

Comprehensive income/(loss) for

185

(1)

the year

Dividends received

4. OTHER INVESTMENTS AND FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHEN- SIVE INCOME

Details are as follows:

(Euro/million)

31.12.2019

31.12.2018

Other investments at fair value through other comprehensive income - non

current

Financial assets at fair value through other comprehensive income - current

Total

Other investments at fair value through other comprehensive income report shareholdings that are not intended for sale in the near term.

Financial assets at fair value through other comprehensive income (current) report securities that either mature within 12 months of the reporting date or could possibly be sold in the near term.

Prysmian Group

Consolidated Financial Statements 2019

181

Other investments at fair value through other comprehensive income are analysed as follows:

(Euro/million)

Type of ﬁnancial asset

% owned by the

31.12.2019

31.12.2018

Group

Ravin Cables Limited

unlisted shares

51%

9.00

Tunisie Cables S.A.

unlisted shares

7.55%

0.91

Cesi Motta S.p.A.

unlisted shares

6.48%

0.59

Voltimum S.A.

unlisted shares

13.71%

0.27

Other

1.81

Total non-current

12.58

Other investments and ﬁnancial assets at fair value through other comprehensive income are denominated in the following currencies:

(Euro/million)

31.12.2019

31.12.2018

Euro

Tunisian Dinar

Indian Rupee

Total

Other investments at fair value through other comprehensive income are classiﬁed in Level 3 of the fair value hierarchy, while ﬁnancial assets at fair value through other comprehensive income fall under Level 1 of the fair value hierarchy.

5. TRADE AND OTHER RECEIVABLES Details are as follows:

(Euro/million)

31.12.2019

Non-current

Current

Total

Trade receivables

1,563

Allowance for doubtful accounts

(88)

Total trade receivables

1,475

Other receivables:

Tax receivables

227

237

Financial receivables

Prepaid ﬁnance costs

Receivables from employees

Pension plan receivables

Construction contracts

450

Advances to suppliers

Other

114

131

Total other receivables

816

854

Total

2,291

2,329

182

Prysmian Group

Consolidated Financial Statements 2019

(Euro/million)

31.12.2018(*)

Non-current

Current

Total

Trade receivables

1,723

Allowance for doubtful accounts

(88)

Total trade receivables

1,635

Other receivables:

Tax receivables

158

164

Financial receivables

Prepaid ﬁnance costs

Receivables from employees

Pension plan receivables

Construction contracts

360

Advances to suppliers

Other

115

134

Total other receivables

667

700

Total

2,302

2,335

The increase in tax receivables mainly refers to the credit for PIS and COFINS taxes recorded by Brazilian compa- nies, details of which can be found in section A1. Signiﬁcant events in 2019.

Trade receivables

The gross amount of past due receivables that are totally or partially impaired is Euro 322 million at 31 December 2019 (Euro 308 million at 31 December 2018).

The ageing of past due impaired receivables is as follows:

(Euro/million)

31.12.2019

31.12.2018

1 to 30 days

133

129

31 to 90 days

91 to 180 days

181 to 365 days

More than 365 days

Total

322

308

The value of trade receivables past due but not impaired is Euro 82 million at 31 December 2019 (Euro 141 million at 31 December 2018). These receivables mainly relate to customers in the Projects operating segment, which, given the nature of the counterparties, are not considered necessary to impair.

Prysmian Group

Consolidated Financial Statements 2019

183

The ageing of receivables that are past due but not impaired is as follows:

(Euro/million)

31.12.2019

31.12.2018

1 to 30 days

31 to 90 days

91 to 180 days

181 to 365 days

More than 365 days

Total

141

The value of trade receivables not past due is Euro 1,159 million at 31 December 2019 (Euro 1,274 million at 31 De- cember 2018). There are no particular problems with the quality of these receivables and there are no material amounts that would otherwise be past due if their original due dates had not been renegotiated.

The following table breaks down trade and other receivables according to the currency in which they are ex- pressed:

(Euro/million)

31.12.2019

31.12.2018 (*)

Euro

883

995

US Dollar

544

533

British Pound

148

Chinese Renminbi (Yuan)

128

129

Omani Rial

127

108

Brazilian Real

122

143

Canadian Dollar

Indonesian Rupiah

Turkish Lira

Swedish Krona

Mexican Peso

United Arab Emirates Dirham

Australian Dollar

Chilean Peso

Philippine Peso

Russian Rouble

Singapore Dollar

Other currencies

Total

2,329

2,335

184

Prysmian Group

Consolidated Financial Statements 2019

The allowance for doubtful accounts amounts to Euro 88 million at 31 December 2019 (the same as at 31 Decem- ber 2018). Movements in this allowance are shown in the following table:

(Euro/million)

31.12.2019

31.12.2018

Opening balance

Movements:

- Business combinations

- Increases in allowance

- Releases

(8)

- Bad debt write-oﬀs

(2)

- Currency translation diﬀerences and other movements

(4)

Total movements

Closing balance

Increases in and releases from the allowance for doubtful accounts are reported in "Other expenses" in the income statement.

Other receivables

Other receivables include "Prepaid ﬁnance costs" of Euro 6 million at 31 December 2019 (Euro 1 million at 31 De- cember 2018), primarily relating to arrangement costs for the Revolving Credit Facility 2019 agreed with a syndicate of leading banks on 3 April 2019.

"Construction contracts" represent the value of contracts in progress, determined as the diﬀerence between the costs incurred plus the related proﬁt margin, net of recognised losses, and the amount invoiced by the Group.

The following table shows how these amounts are reported between assets and liabilities:

(Euro/million)

31,12,2019

31,12,2018(*)

Construction contract revenue to date

10,270

9,113

Amounts invoiced

(10,118)

(9,046)

Net amount due from/(to) customers for construction contracts

152

Of which:

Other receivables for construction contracts

450

360

Other payables for construction contracts

(298)

(293)

Prysmian Group

Consolidated Financial Statements 2019

185

6. INVENTORIES Details are as follows:

(Euro/million)

31.12.2019

31.12.2018 (*)

Raw materials

439

442

of which allowance for obsolete and slow-moving raw materials

(47)

(39)

Work in progress and semi-ﬁnished goods

329

356

of which allowance for obsolete and slow-moving work in progress and semi-ﬁnished

(15)

(13)

goods

Finished goods (**)

755

713

of which allowance for obsolete and slow-moving ﬁnished goods

(78)

(67)

Total

1,523

1,511

(**) Finished goods also include goods for resale.

7. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS Details are as follows:

(Euro/million)

31.12.2019

31.12.2018

Listed securities

Unlisted securities

Total

Financial assets at fair value through proﬁt or loss basically refer to units in funds that mainly invest in short and medium-term government securities. These assets are mostly held by subsidiaries in Brazil and Argentina which invest temporarily available liquidity in such funds.

Movements in these assets are analysed as follows:

(Euro/million)

31.12.2019

31.12.2018

Opening balance

Movements:

- Currency translation diﬀerences

(3)

(5)

- Purchase of securities

- Disposal of securities

(1)

(17)

Total movements

(15)

Closing balance

186

Prysmian Group

Consolidated Financial Statements 2019

8. DERIVATIVES Details are as follows:

(Euro/million)

31.12.2019

Asset

Liability

Non-current

Interest rate derivatives (cash ﬂow hedges)

Forward currency contracts on commercial transactions (cash ﬂow hedges)

Total hedging derivatives

Forward currency contracts on commercial transactions

Metal derivatives

Total other derivatives

Total non-current

Current

Interest rate derivatives (cash ﬂow hedges)

Forward currency contracts on commercial transactions (cash ﬂow hedges)

Total hedging derivatives

Forward currency contracts on commercial transactions

Forward currency contracts on ﬁnancial transactions

Metal derivatives

Total other derivatives

Total current

Total

(Euro/million)

31.12.2018

Asset

Liability

Non-current

Interest rate derivatives (cash ﬂow hedges)

Total hedging derivatives

Metal derivatives

Total other derivatives

Total non-current

Current

Interest rate derivatives (cash ﬂow hedges)

Forward currency contracts on commercial transactions (cash ﬂow hedges)

Total hedging derivatives

Forward currency contracts on commercial transactions

Forward currency contracts on ﬁnancial transactions

Metal derivatives

Total other derivatives

Total current

Total

Prysmian Group

Consolidated Financial Statements 2019

187

Forward currency contracts have a notional value of Euro 2,258 million at 31 December 2019 (Euro 1,787 million at 31 December 2018); total notional value at 31 December 2019 includes Euro 563 million in derivatives designated as cash ﬂow hedges (Euro 438 million at 31 December 2018).

Interest rate derivatives designated as cash ﬂow hedges refer to:

•

interest rate swaps, for an overall notional value of Euro 1,000 million, with the objective of hedging variable rate interest rate ﬂows for the period 2018-2023 on ﬁnancing contracted by the Group to acquire General Cable;

interest rate swaps for an overall notional value of Euro 110 million, with the objective of hedging variable interest rate ﬂows over the period 2018-2024.

At 31 December 2019, like at 31 December 2018, almost all the derivative contracts had been entered into with major ﬁnancial institutions.

Metal derivatives have a notional value of Euro 1,219 million at 31 December 2019 (Euro 691 million at 31 Decem- ber 2018).

188

Prysmian Group

Consolidated Financial Statements 2019

The following tables show the impact of oﬀsetting assets and liabilities for derivative instruments, done on the basis of master netting arrangements (ISDA and similar agreements). They also show the eﬀect of potential oﬀsetting in the event of currently unforeseen default events:

(Euro/million)

31.12.2019

Gross

Amounts

Derivatives

Amounts

Net

derivatives

oﬀset

recognised

not oﬀset (1)

derivatives

in statement

of ﬁnancial

position

Assets

Forward currency

(12)

contracts

Interest rate derivatives

Metal derivatives

(8)

Total assets

(20)

Liabilities

Forward currency

(12)

contracts

Interest rate derivatives

Metal derivatives

(8)

Total liabilities

(20)

(Euro/million)

31.12.2018

Gross

Amounts oﬀset

Derivatives

Amounts

Net

derivatives

recognised

not oﬀset (1)

derivatives

in statement

of ﬁnancial

position

Assets

Forward currency

(7)

contracts

Interest rate derivatives

Metal derivatives

(5)

Total assets

(12)

Liabilities

Forward currency

(7)

contracts

Interest rate derivatives

Metal derivatives

(5)

Total liabilities

(12)

Prysmian Group

Consolidated Financial Statements 2019

189

The following table shows movements in both reporting periods in the cash ﬂow hedge reserve for designated hedging derivatives:

(Euro/million)

2019

2018

Gross reserve

Tax effect

Gross reserve

Tax effect

Opening balance

(20)

(6)

Changes in fair value

(7)

(10)

Reserve for other ﬁnance costs/(income)

(3)

Release to construction contract costs/

(1)

(revenues)

Other

Closing balance

(20)

9. CASH AND CASH EQUIVALENTS Details are as follows:

(Euro/million)

31.12.2019

31.12.2018

Cash and cheques

Bank and postal deposits

1,069

1,001

Total

1,070

1,001

Cash and cash equivalents, deposited with major ﬁnancial institutions, are managed centrally through the Group's treasury company and in its various operating units.

Cash and cash equivalents managed by the Group's treasury company amount to Euro 724 million at 31 Decem- ber 2019, compared with Euro 630 million at 31 December 2018.

The change in cash and cash equivalents is commented on in Note 37. Statement of cash ﬂows.

10. ASSETS AND LIABILITIES HELD FOR SALE Details are as follows:

(Euro/million)

31.12.2019

31.12.2018

Assets held for sale:

Lands

Buildings

Other assets

Financial assets

Total assets held for sale

Liabilities held for sale:

Other liabilities

(10)

Total liabilities held for sale

(10)

190

Prysmian Group

Consolidated Financial Statements 2019

Movements in Assets and Liabilities held for sale are reported below:

(Euro/million)

31.12.2019

Assets

Liabilities

Opening balance

- Disposals

(10)

- Reclassiﬁcation

Total movements

Closing balance

(Euro/million)

31.12.2018

Assets

Liabilities

Opening balance

- Business combinations

- Disposals

(5)

- Reclassiﬁcation

Total movements

Closing balance

At 31 December 2019 assets and liabilities held for sale primarily refer to the assets and liabilities of Draka Fileca SAS, a Group company for which the Group received a binding oﬀer of Euro 73 million on 22 October 2019 from Carlisle Companies Incorporated.

The disposals of Euro 10 million reﬂect Euro 3 million for the sale of the Delfzijl plant in the Netherlands and Euro 7 million for the sale of the oﬃce building in Barcelona (Spain).

Assets held for sale are classiﬁed in Level 3 of the fair value hierarchy.

11. SHARE CAPITAL AND RESERVES

Consolidated equity has recorded a positive change of Euro 228 million since 31 December 2018, mainly reﬂect- ing the net eﬀect of:

•

positive currency translation diﬀerences of Euro 67 million;

a positive post-tax change of Euro 1 million in the fair value of derivatives designated as cash ﬂow hedges; a negative change of Euro 1 million in the share-based compensation reserve linked to stock option plans; the distribution of Euro 119 million in dividends;

a decrease of Euro 22 million in the reserves for actuarial gains and losses on employee beneﬁts;

an increase of Euro 1 million in other reserves arising from the measurement of ﬁnancial instruments at fair value through other comprehensive income;

•

the net proﬁt for the year of Euro 296 million;

an increase of Euro 10 million for the eﬀects of hyperinﬂation;

a negative change of Euro 7 million following the purchase of non-controlling interests in subsidiaries; an increase of Euro 2 million for capital paid in by non-controlling shareholders.

At 31 December 2019, the share capital of Prysmian S.p.A. comprises 268,144,246 shares, each of nominal value Euro 0.10 for a total of Euro 26,814,424.60.

Prysmian Group

Consolidated Financial Statements 2019

191

Movements in the ordinary shares and treasury shares of Prysmian S.p.A. are reported in the following table:

Ordinary shares

Treasury shares

Total

Balance at 31 December 2017

217,482,754

(6,494,881)

210,987,873

Capital increase (1)

50,661,492

Allotments and sales (2)

1,397,668

Balance at 31 December 2018

268,144,246

(5,097,213)

263,047,033

Azioni ordinarie

Azioni proprie

Totale

Balance at 31 December 2018

268,144,246

(5,097,213)

263,047,033

Allotments and sales (3)

206,051

Balance at 31 December 2019

268,144,246

(4,891,162)

263,253,084

Treasury shares

Movements in treasury shares during 2019 refer to the allotment and sale of treasury shares serving the employee share purchase plan.

The following table reports movements in treasury shares during the year:

Number of

Total

% of share

Average unit

Total

nominal value

capital

value

carrying

(in Euro)

value (in Euro)

Balance at 31 December 2017

6,494,881

649,488

2,99%

20,23

131,387,074

- Allotments and sales

(1,397,668)

(139,767)

19,92

(27,841,547)

Balance at 31 December 2018

5,097,213

509,722

1,90%

20,31

103,545,528

- Allotments and sales

(206,051)

(20,605)

19,92

(4,104,536)

Balance at 31 December 2019

4,891,162

489,117

1,82%

20,33

99,440,992

Authorisation to buy and dispose of treasury shares

The Shareholders' Meeting of Prysmian S.p.A. held on 5 June 2019 authorised a buyback and disposal of treasury shares, revoking at the same time the previous authorisation under the shareholder resolution dated 12 April 2018. The authorisation provides the opportunity to purchase, on one or more occasions, a maximum number of ordinary shares whose total must not exceed, at any one time, 10% of share capital. Purchases may not exceed the amount of undistributed earnings and available reserves reported in the most recently approved annual ﬁnancial statements. The authorisation to buy back treasury shares lasts for 18 months commencing from the date of the Shareholders' Meeting, while the authorisation to dispose of treasury shares has no time limit.

192

Prysmian Group

Consolidated Financial Statements 2019

12. BORROWINGS FROM BANKS AND OTHER LENDERS Details are as follows:

(Euro/million)

31.12.2019

Non-current

Current

Total

Borrowings from banks and other lenders

230

153

383

Term Loan

995

996

UniCredit Loan

199

Mediobanca Loan

100

Intesa Loan

149

Non-convertible bond

746

760

Convertible Bond 2017

478

Lease liabilities

135

179

Total

3,032

212

3,244

(Euro/million)

31.12.2018

Non-current

Current

Total

Borrowings from banks and other lenders

246

328

Term Loan

993

994

Bridge Loan

500

UniCredit Loan

199

Non-convertible bond

745

759

Convertible Bond 2017

467

Lease liabilities

Total

3,161

3,259

Borrowings from banks and other lenders and Bonds are analysed as follows:

(Euro/million)

31.12.2019

31.12.2018

CDP Loans

200

100

EIB Loans

135

152

Term Loan

996

994

Bridge Loan

500

UniCredit Loan

199

Mediobanca Loan

100

Intesa Loan

149

Other borrowings

Borrowings from banks and other lenders

1,827

2,021

Non-convertible bond

760

759

Convertible Bond 2017

478

467

Total

3,065

3,247

Prysmian Group

Consolidated Financial Statements 2019

193

The Group's principal credit agreements in place at the reporting date are as follows:

Revolving Credit Facility 2019 and Syndicated Revolving Credit Facility 2014

EIB Loans

On 18 December 2013, Prysmian S.p.A. entered into a ﬁrst loan agreement with the European Investment Bank (EIB) for Euro 100 million, to fund the Group's research & development (R&D) programmes in Europe over the period 2013-2016.

The EIB Loan was particularly intended to support projects developed in the Group's R&D centres in six countries (France, Great Britain, the Netherlands, Spain, Germany and Italy) and represented about 50% of the Prysmian Group's investment expenditure in Europe during the period concerned.

The EIB Loan, received on 5 February 2014, is repayable in 12 equal half-yearly instalments commencing 5 August 2015 and ending 5 February 2021.

On 10 November 2017, Prysmian S.p.A. entered into a second loan agreement with the EIB for Euro 110 million to support the Group's R&D programmes in Europe over the period 2017-2020. The loan was received on 29 No- vember 2017 and involves a bullet repayment at maturity on 29 November 2024. Interest rate swaps have been arranged in respect of this loan, for an overall notional value of Euro 110 million, with the objective of hedging variable interest rate ﬂows over the period 2018-2024.

At 31 December 2019, the fair value of the EIB Loans approximates their carrying amount. Fair value has been determined using valuation techniques that refer to observable market data (Level 2 of the fair value hierarchy).

After repayments against the EIB Loan 2013, the outstanding balance on the EIB Loans as at 31 December 2019 was Euro 135 million.

CDP Loans

On 25 September 2017, Prysmian S.p.A. entered into an agreement with Cassa Depositi e Prestiti S.p.A. (CDP) for a long-term cash loan for a maximum total amount of Euro 100 million. This loan, maturing on 30 Septem- ber 2020, was drawn down in its entirety on 29 September 2017. It has been used solely for the Group's general purposes, including capital expenditure, expenditure on research, development and innovation, as well as on energy eﬃciency and environmental stewardship. At 31 December 2019, the fair value of the CDP Loan 2017 approximates its carrying amount.

On 28 October 2019, the Group entered into a second agreement with Cassa Depositi e Prestiti Spa for a Euro 100 million long-term loan for 4 years and 6 months from the date of signing, with a bullet repayment at maturity. The purpose of this loan is to ﬁnance part of the Group's capital expenditure and expenditure on research, development and innovation in Italy and Europe. At 31 December 2019, the fair value of the CDP Loan 2019 approximates its carrying amount.

194

Prysmian Group

Consolidated Financial Statements 2019

Financing for the General Cable acquisition

On 2 March 2018, Prysmian S.p.A. entered into a credit agreement (the Acquisition Financing Agreement) with the aim of securing the ﬁnancial resources needed to pay the consideration for the acquisition of General Cable, to reﬁnance the existing debt of General Cable and its subsidiaries and to ﬁnance acquisition-related fees, com- missions, costs and expenses.

This ﬁnancing consisted of two lines of credit:

•

"Term Loan": a term loan for Euro 1 billion, repayable on the ﬁfth anniversary of the acquisition closing date (6 June 2023);

"Bridge Loan": a term loan for Euro 700 million, initially intended to be repaid in a bullet payment within 2 years of the acquisition closing date (8 June 2020) but now totally extinguished.

The interest rates applied to both these loans are indexed to 6M and 3M Euribor, as the company so chooses.

Both lines were drawn down in full upon acquiring General Cable.

At 31 December 2019, the residual value of the Bridge Loan is zero, after making early repayments of Euro 200 million during 2018 and of Euro 500 million during 2019.

At 31 December 2019, the fair value of the Term Loan approximates its carrying amount.

UniCredit Loan

On 15 November 2018, Prysmian S.p.A. entered into an agreement with UniCredit for a long-term cash loan for a maximum amount of Euro 200 million for 5 years from the date of signing. The agreement envisages a bullet repayment at maturity. The interest rate applied is indexed to 6M and 3M Euribor, as the company so chooses. As at 31 December 2019, this loan was drawn down in full and had a fair value approximating its carrying amount.

Mediobanca Loan

On 20 February 2019, the Group entered into an agreement with Mediobanca for a Euro 100 million long-term loan for 5 years from the date of signing, with a bullet repayment at maturity. The interest rate applied is indexed to 6M and 3M Euribor, as the company so chooses. As at 31 December 2019, this loan was drawn down in full and had a fair value approximating its carrying amount.

Intesa Sanpaolo Loan

Prysmian Group

Consolidated Financial Statements 2019

195

The following tables summarise the committed lines available to the Group at 31 December 2019 and 31 Decem- ber 2018:

(Euro/million)

31.12.2019

Total lines

Drawn

Undrawn

Revolving Credit Facility 2019

1,000

CDP Loans

200

(200)

EIB Loans

135

(135)

Term Loan

1,000

(1,000)

UniCredit Loan

200

(200)

Mediobanca Loan

100

(100)

Intesa Loan

150

(150)

Total

2,785

(1,785)

1,000

(Euro/million)

31.12.2018

Total lines

Drawn

Undrawn

Syndicated Revolving Credit Facility 2014

1,000

CDP Loan

100

(100)

Term Loan

1,000

(1,000)

Bridge Loan

500

(500)

EIB Loans

152

(152)

UniCredit Loan

200

(200)

Total

2,952

(1,952)

1,000

The Revolving Credit Facility is intended to ﬁnance ordinary working capital requirements and can also be used for the issue of guarantees.

Bonds

Non-convertible bond issued in 2015

On 30 March 2015 Prysmian S.p.A. completed the placement with institutional investors of an unrated bond, on the Eurobond market, for a total nominal value of Euro 750 million. The bond, with an issue price of Euro 99.002, has a 7-year maturity and pays a ﬁxed annual coupon of 2.50%. The individual bonds, maturing on 11 April 2022, have minimum denominations of Euro 100,000, plus integral multiples of Euro 1,000.

The bond settlement date was 9 April 2015. The bond was admitted to the Luxembourg Stock Exchange, where it is traded on the related regulated market.

At 31 December 2019, the fair value of the non-convertible bond is Euro 781 million. Fair value has been determined with reference to the quoted price in the relevant market (Level 1 of the fair value hierarchy).

196

Prysmian Group

Consolidated Financial Statements 2019

Convertible Bond 2017

At the meeting held on 12 April 2017, the Company's shareholders authorised:

•

the convertibility of the Equity-Linked Bond;

the proposal to increase share capital for cash, in single or multiple issues with the exclusion of pre-emptive rights, by a maximum nominal amount of Euro 1,457,942.70, by issuing, in single or multiple instalments, up to 14,579,427 ordinary shares of the Company, with the same characteristics as its other outstanding ordinary shares, exclusively and irrevocably to serve the Bond's conversion.

The conversion price of the bonds of Euro 34.2949 was set by applying a 41.25% premium to the weighted average price of the Company's ordinary shares recorded on the Milan Stock Exchange between the start and end of the book-building process during the morning of 12 January 2017.

In addition, there is an option to call all (but not just a part) of the outstanding bonds at their principal amount from 1 February 2020, should the value of the shares exceed 130% of the conversion price for a speciﬁed period of time.

The placement has allowed the Company to diversify its ﬁnancial resources more widely by raising funds on the capital market. These funds will be used to pursue the Company's potential external growth opportunities; to ﬁnance, in line with the shareholders' authorisation of the share buyback, the buyback of the Company's shares that will be used to fulﬁl potential conversion rights requirements and/or as consideration to ﬁnance the Com- pany's growth strategy and for general corporate purposes.

On 16 May 2017, the Company sent a physical settlement notice to holders of the bonds, granting them the right, with eﬀect from 29 May 2017, to convert them into the Company's existing or new ordinary shares. On 30 May 2017, the Bond was admitted to trading on the Third Market (a multilateral trading facility or MTF) on the Vienna Stock Exchange.

The accounting treatment for the Convertible Bond 2017 has resulted in the recognition of an equity component of Euro 48 million and a debt component of Euro 452 million, determined at the bond issue date.

(Euro/million)

Issue value of convertible bond

500

Equity reserve for convertible bond

(48)

Issue date net balance

452

Interest - non-monetary

Related costs

(3)

Balance at 31 December 2019

478

At 31 December 2019, the fair value of the Convertible Bond 2017 (equity component and debt component) is Euro 498 million, of which the fair value of the debt component is Euro 491 million. In the absence of trading on the relevant market, fair value has been determined using valuation techniques that refer to observable market data (Level 2 of the fair value hierarchy).

Prysmian Group

Consolidated Financial Statements 2019

197

General Cable convertible bond

This bond, originating from the acquisition of General Cable, was issued on 18 December 2009 for an amount of USD 429.5 million; it allowed bondholders the option, in the event of an acquisition, to request repayment of the nominal value plus a premium. The Bond was extinguished in the two months following the acquisition, with the remaining debt at 31 December 2019 equal to USD 0.4 million.

Other borrowings from banks and other lenders and Lease liabilities

The following tables report movements in Borrowings from banks and other lenders:

(Euro/million)

CDP Loans

EIB Loans

Conv. Bond

Non-Conv. Bond

Loans for General Cable acquisition

UniCredit, Medi- obanca and Intesa Loans

Other borrowings/ Lease liabilities

Total

Balance at 31 December 2018

100

152

467

759

1,494

199

3,259

Currency translation

(2)

diﬀerences

New funds

100

250

365

Repayments

(17)

(500)

(85)

(602)

Amortisation of bank and

ﬁnancial fees and other

(1)

expenses

Adoption IFRS 16

211

Interest and other

(1)

movements

Total movements

100

(17)

(498)

249

139

(15)

Balance at 31 December 2019

200

135

478

760

996

448

227

3,244

198

Prysmian Group

Consolidated Financial Statements 2019

(Euro/million)

CDP Loan

EIB Loans

Conv. Bonds

Non-Conv. Bond

Loans for General Cable acquisition

UniCredit Loan

Other borrowings/ Lease liabilities

Total

Balance at 31 December 2017

100

169

739

757

1,836

Business combinations

396

919

1,315

Currency translation

diﬀerences

New funds

1,700

200

1,929

Repayments

(17)

(396)

(200)

(943)

(1,556)

Amortisation of bank and

ﬁnancial fees and other

(7)

(1)

(5)

expenses

Conversion of Convertible

(283)

Bond 2013

Interest and other

movements

Total movements

(17)

(272)

1,494

199

1,423

Balance at 31 December 2018

100

152

467

759

1,494

199

3,259

With eﬀect from 1 January 2019 the Group has adopted the new reporting standard IFRS 16 - Leases, whereby it has recognised lease liabilities worth Euro 211 million as part of its ﬁnancial obligations. Details of the eﬀects of the new reporting standard can be found in Note B.2 Newly adopted standards.

Prysmian Group

Consolidated Financial Statements 2019

199

The following tables provide an analysis by maturity and currency of borrowings from banks and other lenders (excluding lease liabilities) at 31 December 2019 and 2018:

(Euro/million)

31.12.2019

Variable interest rate

Fixed interest rate

Total

Euro

USD

Other

Euro

USD

Other

currencies

Due within 1 year

124

167

Due between 1 and 2 years

Due between 2 and 3 years

1,225

1,226

Due between 3 and 4 years

1,194

1,195

Due between 4 and 5 years

459

467

Due after more than 5 years

Total

1,785

1,251

3,065

Average interest rate in period, as

1.0%

3.0%

4.6%

2.1%

8.9%

5.1%

1.5%

per contract

Average interest rate in period,

1.4%

3.0%

4.6%

2.1%

8.9%

5.1%

1.7%

including IRS eﬀect (a)

(Euro/million)

31.12.2018

Variable interest rate

Fixed interest rate

Total

Euro

USD

Other

Euro

USD

Other

currencies

Due within 1 year

Due between 1 and 2 years

616

618

Due between 2 and 3 years

Due between 3 and 4 years

1,212

Due between 4 and 5 years

1,191

Due after more than 5 years

110

119

Total

1,955

1,239

3,247

Average interest rate in period, as

0.9%

3.1%

5.0%

2.1%

9.4%

4.6%

1.4%

per contract

Average interest rate in period,

1.3%

3.1%

5.0%

2.1%

9.4%

4.6%

1.7%

including IRS eﬀect

Risks relating to sources of ﬁnance and to ﬁnancial investments/receivables are discussed in the section entitled "Risks factors and uncertainties" forming part of the Directors' Report.

200

Prysmian Group

Consolidated Financial Statements 2019

NET FINANCIAL DEBT

(Euro/million)

Note

31.12.2019

31.12.2018

Long-term ﬁnancial payables

CDP Loans

100

EIB Loans

118

135

Non-convertible bond

746

745

Convertible Bond 2017

478

467

Term Loan

995

993

Bridge Loan

500

UniCredit Loan

199

Mediobanca Loan

100

Intesa Loan

149

Lease liabilities

135

Interest rate swaps

Other ﬁnancial payables

Total long-term ﬁnancial payables

3,047

3,169

CDP Loans

100

EIB Loans

Non-convertible bond

Term Loan

Lease liabilities

Interest rate swaps

Forward currency contracts on ﬁnancial transactions

Other ﬁnancial payables

Total short-term ﬁnancial payables

222

106

Total ﬁnancial liabilities

3,269

3,275

Long-term ﬁnancial receivables

Long-term bank fees

Financial assets at amortised cost

Forward currency contracts on ﬁnancial transactions (current)

Short-term ﬁnancial receivables

Short-term bank fees

Financial assets at fair value through proﬁt or loss

Financial assets at fair value through other comprehensive income

Financial assets held for sale

Cash and cash equivalents

1,070

1,001

Total ﬁnancial assets

1,129

1,053

Net ﬁnancial debt

2,140

2,222

Prysmian Group

Consolidated Financial Statements 2019

201

The following table presents a reconciliation for the periods concerned of the Group's net ﬁnancial debt to the amount reported in compliance with Consob Communication DEM/6064293 issued on 28 July 2006 and the CESR recommendation dated 10 February 2005 "Recommendations for the consistent implementation of the European Commission's Regulation on Prospectuses":

(Euro/million)

Note

31.12.2019

31.12.2018

Net ﬁnancial debt - as reported above

2,140

2,222

Long-term ﬁnancial receivables and other assets

Long-term bank fees

Net forward currency contracts on commercial transactions

Net metal derivatives

(8)

Recalculated net ﬁnancial debt

2,144

2,244

13. TRADE AND OTHER PAYABLES Details are as follows:

(Euro/million)

31.12.2019

Non-current

Current

Total

Trade payables

2,062

Total trade payables

2,062

Other payables:

Tax and social security payables

201

203

Advances from customers

357

Payables to employees

160

161

Accrued expenses

139

Other

112

120

Total other payables

969

980

Total

3,031

3,042

(Euro/million)

31.12.2018 (*)

Non-current

Current

Total

Trade payables

2,132

Total trade payables

2,132

Other payables:

Tax and social security payables

163

166

Advances from customers

332

Payables to employees

176

Accrued expenses

140

Other

142

151

Total other payables

953

965

Total

3,085

3,097

202

Prysmian Group

Consolidated Financial Statements 2019

Trade payables include around Euro 236 million (Euro 218 million at 31 December 2018) for the supply of strategic metals (copper, aluminium and lead), whose payment terms are longer than normal for this type of transaction.

Advances from customers include the liability for construction contracts, amounting to Euro 298 million at 31 December 2019 compared with Euro 223 million at 31 December 2018. This liability represents the excess of amounts invoiced by the Group over costs incurred plus accumulated proﬁts (or losses), recognised using the percentage of completion method.

The following table breaks down trade and other payables according to the currency in which they are expressed:

(Euro/million)

31.12.2019

31.12.2018 (*)

Euro

1,326

1,398

US Dollar

724

660

British Pound

233

234

Chinese Renminbi (Yuan)

176

190

Brazilian Real

United Arab Emirates Dirham

114

Bahraini Dinar

Omani Rial

Romanian Leu

Canadian Dollar

Philippine Peso

Australian Dollar

Indonesian Rupiah

Sweden Krona

Qatari Riyal

Norwegian Krone

Hungarian Forint

Malaysian Ringgit

Other currencies

123

Total

3,042

3,097

Prysmian Group

Consolidated Financial Statements 2019

203

14. PROVISIONS FOR RISKS AND CHARGES Details are as follows:

(Euro/million)

31.12.2019 (*)

Non-current

Current

Total

Restructuring costs

Legal, contractual and other risks

468

494

Environmental risks

107

Tax risks

104

Total

717

777

(Euro/million)

31.12.2018 (*)(**)

Non-current

Current

Total

Restructuring costs

Legal, contractual and other risks

402

428

Environmental risks

107

109

Tax risks

110

Total

635

686

(**) Provisions for risks at 31.12.2018 include contingent liabilities for Euro 170 million.

The following table presents the movements in these provisions during the reporting period:

(Euro/million)

Restructuring

Legal,

Environmental

Tax risks

Total

costs

contractual

risks

and other risks

Balance at 31 December 2018(*)

428

109

110

686

Increases

134

206

Utilisations

(32)

(24)

(3)

(2)

(61)

Releases

(6)

(98)

(1)

(7)

(112)

Currency translation diﬀerences

(1)

Other

(6)

Total movements

(2)

(6)

Balance at 31 December 2019

494

107

104

777

The provision for legal, contractual and other risks amounts to Euro 494 million at 31 December 2019 (compared with Euro 428 million at 31 December 2018). This provision mainly includes provisions related to and arising from business combinations, provisions for risks on ongoing and completed contracts and the provision for Antitrust investigations, details of which now follow.

204

Prysmian Group

Consolidated Financial Statements 2019

Antitrust - European Commission proceedings in the high voltage underground and submarine cables business

The European Commission started an investigation in late January 2009 into several European and Asian electrical cable manufacturers to verify the existence of alleged anti-competitive practices in the high voltage underground and submarine cables markets.

On 2 April 2014, the European Commission adopted a decision under which it found that, between 18 February 1999 and 28 January 2009, the world's largest cable producers, including Prysmian Cavi e Sistemi S.r.l., adopted anti-competitive practices in the European market for high voltage submarine and underground power cables. The European Commission held Prysmian Cavi e Sistemi S.r.l. jointly liable with Pirelli & C. S.p.A. for the alleged infringement in the period 18 February 1999 - 28 July 2005, sentencing them to pay a ﬁne of Euro 67.3 million, and it held Prysmian Cavi e Sistemi S.r.l. jointly liable with Prysmian S.p.A. and The Goldman Sachs Group Inc. for the alleged infringement in the period 29 July 2005 - 28 January 2009, sentencing them to pay a ﬁne of Euro

37.3 million. Prysmian ﬁled an appeal against this decision with the General Court of the European Union along with an application to intervene in the appeals respectively lodged by Pirelli & C. S.p.A. and The Goldman Sachs Group Inc. against the same decision. Both Pirelli & C. S.p.A. and The Goldman Sachs Group Inc. in turn submitted applications to intervene in the appeal brought by Prysmian against the European Commission's decision.

The applications to intervene presented by Prysmian, Pirelli and The Goldman Sachs Group Inc. were accepted by the General Court of the European Union. Prysmian did not incur any ﬁnancial outlay as a result of this decision having elected, pending the outcome of the appeals, to provide bank guarantees as security against payment of 50% of the ﬁne imposed by the European Commission (amounting to approximately Euro 52 million) for the alleged infringement in both periods. As far as Prysmian is aware, Pirelli & C. S.p.A. also provided the European Commission with a bank guarantee for 50% of the value of the ﬁne imposed for the alleged infringement in the period 18 February 1999 - 28 July 2005.

On 12 July 2018, the General Court of the European Union issued rulings on the appeals lodged by the Prysmian Group, including General Cable. These rulings have dismissed the appeals and conﬁrmed the previously imposed ﬁnes. The Prysmian Group, including General Cable, did not agree with the conclusions reached by the General Court of the European Union and has appealed to the Court of Justice of the European Union. The appeal ﬁled by Prysmian was heard on 23 October 2019. In a ruling handed down on 14 November 2019, the Court of Justice of the European Union dismissed General Cable's appeal, thus conclusively conﬁrming the ﬁne previously imposed under that same decision. As a result, the Group has gone ahead and paid a ﬁne for Euro 2 million.

However, the ruling on the appeal brought by Prysmian is still pending.

Pirelli & C. S.p.A. has brought a civil action against Prysmian Cavi e Sistemi S.r.l. in the Milan Courts, in which it demands to be held harmless for all claims made by the European Commission in implementation of its decision and for any expenses related to such implementation. Prysmian Cavi e Sistemi S.r.l. started legal proceedings in February 2015, requesting that the claims brought by Pirelli & C. S.p.A. be rejected in full and that it should be Pirelli & C. S.p.A. which holds harmless Prysmian Cavi e Sistemi S.r.l., with reference to the alleged infringement in the period 18 February 1999 - 28 July 2005, for all claims made by the European Commission in implementation of its decision and for any expenses related to such implementation. The proceedings have since been stayed by order of the court concerned in April 2015, pending the outcome of the appeals made against the European Commission's decision by both Prysmian and Pirelli in the European Courts. Pirelli has challenged this decision before the Court of Cassation, Italy's highest court of appeal, which has conﬁrmed the stay of execution ordered by the Milan Courts. In view of the circumstances described and also with the support of the Group's legal advisors and consistent with the accounting policies, the Directors have recognised a level of provisions deemed appropriate to cover the potential liabilities related to the matters in question.

Prysmian Group

Consolidated Financial Statements 2019

205

Antitrust - Other proceedings in the high voltage underground and submarine cables business in jurisdictions other than the European Union

In Brazil, the local antitrust authority started an investigation into several manufacturers of high voltage underground and submarine cables, amongst whom Prysmian, notiﬁed of this investigation in 2011. Prysmian's preliminary defence was rejected by the local competition authority in a statement issued in February 2015. On 3 January 2019, the authority informed Prysmian that the investigative stage had been completed, in response to which Prysmian submitted its brief on 18 January 2019. The general superintendence of the Brazilian antitrust authority (Administrative Council for Economic Defense - "CADE") published a Technical Note in the Brazilian Federal Oﬃcial Gazette on 11 February 2019. The Technical Note sets out the conclusions of CADE's investigations which recommended imposing a ﬁne on Prysmian of between 15% and 20% of its 2009 Brazilian turnover. In any case, this recommendation is not binding. The CADE Tribunal's decision, which will be issued at the end of a public hearing, will be provisionally enforceable but can be challenged before the Brazilian courts.

A public hearing before the CADE Tribunal on 11 June 2019 ended without a decision and postponement of the case to a future hearing. Further hearings were held on 11 November 2019 and 5 February 2020 but again without any decision being taken. Discussion of the case has therefore been once again postponed to a future hearing.

In view of the circumstances described and also with the support of the Group's legal advisors and consistent with the accounting policies, the Directors have adjusted the provisions for risks in the ﬁnancial statement to what is considered an adequate level to cover the potential liabilities related to the matter in question.

Antitrust - Claims for damages as a result of the European Commission's 2014 decision

During 2015, National Grid and Scottish Power, two British operators, ﬁled claims in the High Court of London against certain cable manufacturers, including Prysmian Group companies, to obtain compensation for damages purportedly suﬀered as a result of the alleged anti-competitive practices condemned by the European Commission in the decision adopted in April 2014. The Group companies concerned were notiﬁed of this initial court ﬁling during the month of May 2015 and presented their defence early in October 2015, along with the summons of other parties censured in the European Commission's decision. Among the parties involved in this action, Pire- lli & C. S.p.A. has requested the London High Court to decline its jurisdiction or nonetheless to stay the proceedings in its regard pending the outcome of the civil action previously brought by Pirelli against Prysmian Cavi e Sistemi S.r.l. in the Milan Courts, in which it demands to be held harmless for all claims made by the European Commission in implementation of the latter's decision and for any expenses related to such implementation. The proceedings have since been stayed, as agreed between the parties, pending the outcome of the action brought by Pirelli in the Milan Courts. A similar agreement has also been reached with The Goldman Sachs Group Inc., another company involved in the actions discussed above. The other actions brought by Prysmian Group companies against other cable manufacturers censured in the European Commission decision have in turn been stayed pending the outcome of the main action brought by National Grid and Scottish Power. The main proceedings are still pending, with a date recently set for the court case to begin in November 2020 when the merits of the dispute will be addressed.

During the ﬁrst few months of 2017, in addition to those mentioned in the preceding paragraph, other operators belonging to the Vattenfall Group ﬁled claims in the High Court of London against certain cable manufacturers, including companies in the Prysmian Group, to obtain compensation for damages purportedly suﬀered as a result of the alleged anti-competitive practices condemned by the European Commission.

On 2 April 2019, a statement of claim was served, on behalf of Terna S.p.A., on Pirelli, Nexans and companies in the Prysmian Group, demanding compensation for damages purportedly suﬀered as a result of the alleged anti -competitive practices condemned by the European Commission in its April 2014 decision. This action has been brought before the Court of Milan. On 24 October 2019, the Prysmian Group companies concerned responded by presenting their preliminary defence.

206

Prysmian Group

Consolidated Financial Statements 2019

In addition, on 4 April 2019, the Group learned that the following legal actions had been brought in the Court of London, both of which involving claims for damages purportedly suﬀered as a result of the alleged anti-competitive practices condemned by the European Commission:

•

action by Scottish and Southern Energy (SSE) Group companies against certain Prysmian Group companies involving a series of onshore and submarine projects. On 5 September 2019, the statement of claim was served in which the plaintiﬀs substantiated and quantiﬁed their claim for damages. On 5 November 2019, the Prysmian Group companies concerned responded by presenting their preliminary defence.

action by Greater Gabbard Oﬀshore Winds Limited and SSE companies against certain Group companies. On 5 September 2019, the statement of claim was served in which the plaintiﬀs substantiated and quantiﬁed their claim for damages. On 5 November 2019, the Prysmian Group companies concerned responded by presenting their preliminary defence.

In view of the circumstances described and also with the support of their legal advisors, the Directors have recognised a level of provisions deemed appropriate to cover the potential liabilities related to the matters in question.

Prysmian S.p.A. and Prysmian Cavi e Sistemi S.r.l. have been summoned by Nexans France SAS and Nexans SA to appear before the Court of Dortmund (Germany) in notiﬁcations dated 24 and 25 May 2018 respectively. The plaintiﬀs have asked the Court concerned to ascertain the existence of joint and several liability between Prys- mian S.p.A. and Prysmian Cavi e Sistemi S.r.l., on the one hand, and Nexans France SAS and Nexans SA, on the other, for any damages suﬀered by third parties in Germany as a result of the alleged cartel in the market for high voltage underground and submarine power cables condemned in the European Commission's decision. The Court concerned has issued a stay of execution dated 3 June 2019 pending the outcome of the appeal against the European Commission's decision brought before the European Courts by both Prysmian and Nexans.

On 2 April 2019, certain Group companies received a letter sent on behalf of Tennet TSO BV claiming compensation for damages purportedly suﬀered as a result of the alleged anti-competitive practices condemned by the European Commission. However, the letter does not include any quantiﬁcation of the damages and explicitly states that its purpose, among others, is to avoid expiry of the statute of limitations. Even though a negative outcome is considered likely, the Directors have been unable to estimate the amount to provide against this and the other actions listed above because the plaintiﬀs have not quantiﬁed their claims.

On 2 April 2019, a statement of claim was served, on behalf of Electricity & Water Authority of Bahrain, GCC Interconnection Authority, Kuwait Ministry of Electricity and Water and Oman Electricity Transmission Company, on certain cable manufacturers, including companies in the Prysmian Group, on Pirelli & C. S.p.A. and The Gold- man Sachs Group Inc. This action has been brought in the Court of Amsterdam and once again involves a claim for compensation for damages purportedly suﬀered as a result of the alleged anti-competitive practices condemned by the European Commission. The statement of claim does not contain any quantiﬁcation of the dam- ages. On 18 December 2019, the Prysmian Group companies concerned presented their preliminary defence. Based on the information currently available, the Directors are of the opinion not to make any provision.

Lastly, Prysmian Cavi e Sistemi S.r.l. and Prysmian S.p.A. were served with a writ of summons on 24 October 2019 from Pirelli & C. S.p.A. in which the latter seeks to be released from any third-party claim for damages relating to the practices forming the subject of the European Commission's decision and to be compensated for the damages allegedly incurred and quantiﬁed, which it has suﬀered through Prysmian having sought, in certain pending proceedings, to attribute liability to Pirelli for the illegal practices determined by the European Commission in the period from 1999 to 2005. Based on the information currently available, and believing this potential liability unlikely to crystallise, the Directors are of the opinion not to make any provision.

Prysmian Group

Consolidated Financial Statements 2019

207

Antitrust - Other claims for damages

On 22 March 2019, National Grid communicated that it had brought a new action in the High Court of London against certain Group companies in which it claims compensation for damages purportedly suﬀered through alleged anti-competitive practices employed over a period running from the 1970s until 1997. On 12 June 2019, a statement of claim was served in which National Grid substantiated and quantiﬁed its claim for damages. On 18 October 2019, the Prysmian Group companies concerned responded by presenting their preliminary defence.

In view of the preliminary status of the litigation and the uncertainty surrounding the grounds of the plaintiﬀ's claim, the Directors, also assisted by their legal advisors, have not considered it necessary to recognise any pro- vision.

Antitrust - Other investigations

At the end of February 2016, the Spanish antitrust authorities initiated proceedings to verify the existence of anti-competitive practices by local low voltage cable manufacturers and distributors, including the Group's local subsidiaries. The Spanish competition authority then sent a statement of objections to some of the Group's local subsidiaries in January 2017.

On 24 November 2017, the local competition authority notiﬁed the Group's Spanish subsidiaries of a decision under which they were held liable for the alleged infringements in the period from June 2002 to June 2015 and were jointly and severally sentenced to pay a ﬁne of Euro 15.6 million. The Group's Spanish subsidiaries have appealed against this decision. The appeal decision is still pending.

The decision of 24 November 2017 also held the Spanish subsidiaries of General Cable liable for breach of local antitrust law. However, they have obtained immunity from paying the related ﬁne (quantiﬁed at about Euro 12.6 million) having ﬁled for leniency and collaborated with the local competition authority in its investigations. The Spanish subsidiaries of General Cable have also appealed against the decision of the local competition authori- ty; the appeals are still pending.

In view of the circumstances described and also with the support of the Group's legal advisors and consistent with the accounting policies, the Directors have adjusted the related provisions for risks to a level deemed appropriate to cover the potential liabilities for the matters in question.

Antitrust - Claims for damages ensuing from other investigations

In February 2020, a statement of claim was served on a number of cable manufacturers, including Prysmian Group's Spanish subsidiaries, under which companies belonging to the Iberdrola Group have claimed compensation for damages supposedly suﬀered as a result of the alleged anti-competitive practices condemned by the Spanish competition authority in its decision of 24 November 2017. The case is pending before the Court of Bar- celona.

Based on the information currently available, and believing this potential liability unlikely to crystallise, the Directors are of the opinion not to make any provision.

As at 31 December 2019, the provision for the above Antitrust issues amounts to approximately Euro 223 million.

Despite the uncertainty of the outcome of the investigations and legal action in progress, the amount of this provision is considered to represent the best estimate of the liability based on the information now available.

15. EMPLOYEE BENEFIT OBLIGATIONS

The Group provides a number of post-employment beneﬁts through programmes that include deﬁned beneﬁt plans and deﬁned contribution plans.

208

Prysmian Group

Consolidated Financial Statements 2019

The deﬁned contribution plans require the Group to pay, under legal or contractual obligations, contributions into public or private insurance institutions. The Group fulﬁls its obligations through payment of the contribu- tions. At the ﬁnancial reporting date, any amounts accrued but not yet paid to the above institutions are recorded in "Other payables", while the related costs, accrued on the basis of employee service, are recognised in "Personnel costs".

The deﬁned beneﬁt plans mainly refer to Pension plans, Statutory severance beneﬁt (for Italian companies), Medical beneﬁt plans and other beneﬁts such as seniority bonuses.

The liabilities arising from these plans, net of any assets serving such plans, are recognised in Employee beneﬁt obligations and are measured using actuarial techniques.

Employee beneﬁt obligations are analysed as follows:

(Euro/million)

31.12.2019

31.12.2018

Pension plans

409

379

Italian statutory severance beneﬁt

Medical beneﬁt plans

Termination and other beneﬁts

Total

494

463

Pension plan amendments in 2019

There were no signiﬁcant amendments to existing pension plans during 2019. The following notes provide more details about the three main types of beneﬁt: pension plans, statutory severance beneﬁt and medical beneﬁt plans.

PENSION PLANS

Pension plans relate to deﬁned beneﬁt pension schemes that can be "Funded" or "Unfunded".

Pension plan liabilities are generally calculated according to employee length of service with the company and the remuneration paid in the period preceding cessation of employment.

Liabilities for "Funded pension plans" are funded by contributions paid by the employer and, in some cases, by employees, into a separately managed pension fund. The fund independently manages and administers the amounts received, investing in ﬁnancial assets and paying beneﬁts directly to employees. The Group's contributions to such funds are deﬁned according to the requirements established in the individual countries.

Liabilities for "Unfunded pension plans" are managed directly by the employer who sees to paying the beneﬁts to employees. These plans have no assets to cover the liabilities.

Prysmian Group

Consolidated Financial Statements 2019

209

Pension plan obligations and assets are analysed as follows at 31 December 2019 and 31 December 2018:

(Euro/million)

31.12.2019

Germany

Great

France

United

Other

Total

Britain

States

countries

Funded pension obligations:

Present value of obligation

214

151

460

Fair value of plan assets

(131)

(2)

(127)

(83)

(343)

Asset ceiling

Unfunded pension

obligations:

Present value of obligations

237

292

Total

237

409

(Euro/million)

31.12.2018

Germany

Great

France

United

Other

Total

Britain

States

countries

Funded pension obligations:

Present value of obligation

179

142

405

Fair value of plan assets

(113)

(2)

(112)

(71)

(298)

Asset ceiling

Unfunded pension

obligations:

Present value of obligations

218

272

Total

218

379

At 31 December 2019, the net value of funded plans in "Other countries" of Euro 10 million mainly refers to Can- ada, Mexico and Spain.

At 31 December 2019, unfunded plans in "Other countries" primarily refer to Sweden and Chile, whose present value of obligations amounts to Euro 9 million and Euro 4 million respectively.

210

Prysmian Group

Consolidated Financial Statements 2019

Changes during the year in pension plan obligations are analysed as follows:

(Euro/million)

2019

2018

Opening deﬁned beneﬁt obligation

677

442

Business combinations

261

Current service costs

Interest costs

Administrative costs and taxes

Actuarial (gains)/losses recognised in equity - experience

(5)

Actuarial (gains)/losses recognised in equity - demographic assumptions

(5)

Actuarial (gains)/losses recognised in equity - ﬁnancial assumptions

(14)

Disbursements from plan assets

(26)

(20)

Disbursements paid directly by the employer

(15)

(18)

Currency translation diﬀerences

Reclassiﬁcations and legislative amendments to existing plans

Reclassiﬁcation to assets and liabilities held for sale

(2)

Total movements

235

Closing deﬁned beneﬁt obligation

752

677

Changes during the year in pension plan assets are analysed as follows:

(Euro/million)

2019

2018

Opening plan assets

298

173

Business combinations

148

Interest income on plan assets

Actuarial gains/(losses) recognised in equity

(20)

Contributions paid in by the employer

Contributions paid in by plan participants

Disbursements

(39)

Plan settlements

Currency translation diﬀerences

Total movements

125

Closing plan assets

343

298

At 31 December 2019, pension plan assets consisted of equities (35.3% versus 36.1% in 2018), government bonds (11.6% versus 11% in 2018), corporate bonds (21.4% versus 18.4% in 2018), and other assets (31.7% versus 34.5% in 2018).

The value of the asset ceiling was zero at 31 December 2019, like at 31 December 2018.

Prysmian Group

Consolidated Financial Statements 2019

211

Pension plan costs recognised in the income statement are analysed as follows:

(Euro/million)

2019

Germany

Great

France

United

Other

Total

Britain

States

countries

Personnel costs

Interest costs

Expected returns on plan

(3)

(5)

(2)

(10)

assets

Total pension plan costs

(Euro/million)

2018

Germany

Great

France

United

Other

Total

Britain

States

countries

Personnel costs

Interest costs

Expected returns on plan

(3)

(1)

(8)

assets

Total pension plan costs

More details can be found in Note 21. Personnel costs.

As evident from the preceding tables, the most signiﬁcant plans at 31 December 2019 in terms of accrued employ-

Pension plans in these countries account for more than 90% of the related liability. The principal risks to which they are exposed are described below:

Germany

There are fourteen pension plans in Germany. These are mostly ﬁnal salary plans in which the retirement age is generally set at 65. Although most plans are closed to new members, additional costs may need to be recognised in the future. As at 31 December 2019, the plans had an average duration of 14.4 years (14.0 years at 31 December 2018).

Total plan membership is made up as follows:

31.12.2019

31.12.2018

Number of

participants

Active

1,336

1,403

Deferred

1,040

1,042

Pensioners

2,180

2,120

Total membership

4,556

4,565

212

Prysmian Group

Consolidated Financial Statements 2019

The German plans do not have any assets that fund the liabilities, in line with the practice in this country; the Group pays these beneﬁts directly.

The beneﬁts payable in 2020 will amount to Euro 9 million (Euro 9 million at 31 December 2018 for 2019). The increase in beneﬁts, and so in the recorded liability and in service costs, mainly depend on inﬂation, salary growth and the life expectancy of plan members. Another variable to consider when determining the amount of the liability and of service costs is the discount rate, identiﬁed by reference to market yields of AA corporate bonds denominated in Euro.

Great Britain

Two deﬁned beneﬁt plans were in operation at 31 December 2019: the Draka pension fund and the Prysmian pension fund. Both are ﬁnal salary plans, in which the retirement age is generally set at 65 for the majority of plan participants. Neither plan has admitted any new members or accrued any new liabilities since 2013. Currently all employees participate in deﬁned contribution plans.

As at 31 December 2019, the plans had an average duration of approximately 19.7 years (approximately 21.1 years at 31 December 2018).

Total plan membership is made up as follows:

31.12.2019

31.12.2018

Draka

Prysmian

Total

Draka

Prysmian

Total

pension

fund

Number of

participants

Active

Deferred

492

547

1,039

492

547

1,039

Pensioners

458

379

837

458

379

837

Total membership

950

926

1,876

950

926

1,876

Both plans operate under trust law and are managed and administered by a Board of Trustees on behalf of members and in accordance with the terms of the Trust Deed and Rules and current legislation. The assets that fund the liabilities are held by the Trust, for both plans.

For the purposes of determining the level of funding, the Trustees appoint an actuary to value the plans every three years, with annual updates. The latest valuations of the Draka pension fund and the Prysmian pension fund were conducted as at 31 March 2018 and 31 December 2017 respectively. The contribution levels are also set every three years when performing the above valuations to determine the level of plan funding, but can also be revised annually.

The beneﬁts payable in 2020 will amount to Euro 4 million (Euro 4 million at 31 December 2018 for 2019).

The Trustees decide on the investment strategy in agreement with the company. The strategies diﬀer for both plans. In particular, the Draka pension fund has invested its assets as follows: 17% in equities, 38% in bonds and 45% in other ﬁnancial instruments. The Prysmian pension fund has invested its assets as follows: 35% in bonds and the remaining 65% in other ﬁnancial instruments.

In Great Britain, the main risk for the Group is that mismatches between the expected return and the actual return on plan assets would require contribution levels to be revised.

Prysmian Group

Consolidated Financial Statements 2019

213

The liabilities and service costs are sensitive to the following variables: life expectancy of plan participants and future growth in beneﬁt levels. Another variable to consider when determining the amount of the liability is the discount rate, identiﬁed by reference to market yields of AA corporate bonds denominated in GB pounds.

France

There were ﬁve pension plans in operation in France at 31 December 2019, of which four are unfunded retirement beneﬁt plans and one is a partially funded pension plan.

All the plans generally set the retirement age at 63. They are all open to new members, except for the funded plan which does not admit new members or accrue new liabilities. As at 31 December 2019, the plans had an average duration of approximately 11.4 years (11.1 years at 31 December 2018).

Total plan membership is made up as follows:

31.12.2019

31.12.2018

Number of

participants

Active

2,517

2,689

Deferred

N/A

Pensioners

Total membership

2,542

2,714

In France, the principal risk for the Group is salary growth, which aﬀects the beneﬁts that the company has to pay the employee. In the case of the retirement beneﬁt plans, the beneﬁts vest only upon attaining retirement age; consequently, the cost to the company will depend on the probability that an employee does not leave the company before that date. There are no life expectancy risks relating to these plans. The liabilities and service costs are sensitive to the following variables: inﬂation, salary growth, life expectancy of plan participants and the discount rate, identiﬁed by reference to market yields of AA corporate bonds denominated in Euro.

The main risks for the funded plan are connected to inﬂation and life expectancy, both of which aﬀect contribution levels. The plan's assets are entirely invested in insurance funds, whose main risk is that a mismatch between the expected return and the actual return on plan assets would require contribution levels to be revised.

United States

There were four pension plans in operation in the United States at 31 December 2019, of which two are funded plans that pay an income upon retirement; one is a supplementary unfunded plan and another is an unfunded deferred compensation plan.

All the plans generally set the retirement age at 65. They are all closed to new members and do not envisage future payments in, except for the "Master Pension Plan" into which it is still possible to pay. As at 31 December 2019, the plans had an average duration of approximately 9 years (8.6 years at 31 December 2018).

Total plan membership is made up as follows:

31.12.2019

31.12.2018

Number of

participants

Active

490

532

Deferred

631

677

Pensioners

2,968

2,990

Total membership

4,089

4,199

214

Prysmian Group

Consolidated Financial Statements 2019

The beneﬁts and contributions payable in 2020 will amount to Euro 6 million (Euro 6 million al 31 December 2018 for 2019).

The weighted average actuarial assumptions used to value the pension plans in the principal countries (Germa- ny, Great Britain, France and United States) are as follows:

31.12.2019

Germany

Great Britain

France

United States

Interest rate

1.00%

1.90%

0.75%

3.20%

Expected future salary increase

2.21%

N/A

1.83%

2.50%

Expected increase in pensions

1.75%

N/A

1.00%

0.00%

Inﬂation rate

1.75%

3.20%

1.83%

3.00%

Life expectancy at age 65:

Male

Female

Male

Female

Male

Female

Male

Female

People currently aged 65

20.20

23.70

21.30

23.20

24.20

27.60

20.10

22.00

People currently aged 50

22.30

25.40

22.00

24.10

26.20

29.80

21.30

23.30

31.12.2018

Germany

Great Britain

France

United States

Interest rate

1.75%

3.00%

1.50%

4.20%

Expected future salary increase

2.20%

N/A

1.83%

2.50%

Expected increase in pensions

1.75%

3.11%

1.00%

0.00%

Inﬂation rate

1.75%

3.60%

1.82%

3.00%

Life expectancy at age 65:

Male

Female

Male

Female

Male

Female

Male

Female

People currently aged 65

20.05

23.56

21.80

23.70

24.16

27.63

20.07

22.38

People currently aged 50

22.16

25.91

22.60

24.60

26.23

29.84

21.33

23.64

The following table presents a sensitivity analysis of the eﬀects of an increase/decrease in the most signiﬁcant actuarial assumptions used to determine the present value of beneﬁt obligations, namely the interest rate, in- ﬂation rate and life expectancy.

Inﬂation rate sensitivity includes those eﬀects relating to assumptions about salary increases and increases in beneﬁts.

31.12.2019

Germany

Great Britain

France

United States

Interest rate

-0.50%

+ 0.50%

-0.50%

+0.50%

-0.50%

+ 0.50%

-0.50%

+0.50%

Change in pension plans

7.43%

-6.76%

10.19%

-9.10%

5.83%

-5.49%

4.50%

-4.16%

Inﬂation rate

-0.25%

+ 0.25%

-0.25%

+ 0.25%

-0.25%

+ 0.25%

-0.25%

+0.25%

Change in pension plans

-2.68%

2.74%

-3.54%

3.71%

-2.89%

3.00%

-0.04%

0.04%

31.12.2019

Germany

Great Britain

France

United States

1-year increase in life

5.70%

3.51%

1.71%

2.94%

expectancy

Prysmian Group

Consolidated Financial Statements 2019

215

31.12.2018

Germany

Great Britain

France

United States

Interest rate

-0.50%

+ 0.50%

-0.50%

+ 0.50%

-0.50%

+ 0.50%

-0.50%

+ 0.50%

Change in pension plans

7.15%

-6.41%

10.16%

-9.07%

5.66%

-5.21%

4.22%

-3.92%

Inﬂation rate

-0.25%

+ 0.25%

-0.25%

+ 0.25%

-0.25%

+ 0.25%

-0.25%

+ 0.25%

Change in pension plans

-2.59%

2.51%

-3.55%

3.73%

-2.83%

2.94%

-0.04%

0.04%

31.12.2018

Germany

Great Britain

France

United States

1-year increase in life

4.87%

3.53%

1.86%

2.52%

expectancy

STATUTORY SEVERANCE BENEFIT

Statutory severance beneﬁt refers to Italian companies only and is analysed as follows:

(Euro/million)

2019

2018

Opening balance

Actuarial (gains)/losses recognised in equity

Disbursements

(1)

(2)

Total movements

(2)

Closing balance

Net actuarial gains of Euro 1 million were recognised at 31 December 2019, most of which reﬂecting variations in the associated economic parameters (the discount and inﬂation rates).

Under Italian law, the amount due to each employee accrues with service and is paid when the employee leaves the company. The amount due upon termination of employment is calculated on the basis of the length of service and the taxable remuneration of each employee. The liability is adjusted annually for the oﬃcial cost of living index and statutory interest, and is not subject to any vesting conditions or periods, or any funding obliga- tion; there are therefore no assets that fund this liability.

The beneﬁts are paid in the form of capital, in accordance with the related rules. In certain circumstances, the beneﬁt plan also allows the payment of partial advances against the full amount of the accrued beneﬁt. The main risk is the volatility of the inﬂation rate and the interest rate, as determined by the market yield on AA corporate bonds denominated in Euro.

The actuarial assumptions used to value statutory severance beneﬁt are as follows:

31.12.2019

31.12.2018

Interest rate

0.75%

1.50%

Expected future salary increase

1.50%

Inﬂation rate

1.50%

216

Prysmian Group

Consolidated Financial Statements 2019

31.12.2019

31.12.2018

Interest rate

-0.50%

+0.50%

-0.50%

+0.50%

Change in statutory severance beneﬁt

5.04%

-4.80%

4.93%

-4.63%

Inﬂation rate

-0.25%

+0.25%

-0.25%

+0.25%

Change in statutory severance beneﬁt

-1.38%

1.74%

-1.50%

1.54%

MEDICAL BENEFIT PLANS

Some Group companies provide medical beneﬁt plans for retired employees. In particular, the Group ﬁnances medical beneﬁt plans in Brazil, Canada and the United States. The US plans account for more than 90% of the total obligation for medical beneﬁt plans.

Apart from interest rate and life expectancy risks, medical beneﬁt plans are particularly susceptible to increases in the cost of meeting claims. None of the medical beneﬁt plans has any assets to fund the associated obliga- tions, with beneﬁts paid directly by the employer.

Prysmian Group

Consolidated Financial Statements 2019

217

The obligation in respect of medical beneﬁt plans is analysed as follows:

(Euro/million)

2019

2018

Opening balance

Business combinations

Personnel costs

Interest costs

Plan settlements

Actuarial (gains)/losses recognised in equity - experience

(5)

(3)

Actuarial (gains)/losses recognised in equity - demographic assumptions

Actuarial (gains)/losses recognised in equity - ﬁnancial assumptions

Reclassiﬁcations

Disbursements

(2)

(1)

Currency translation diﬀerences

Total movements

(3)

Closing balance

The actuarial assumptions used to value medical beneﬁt plans are as follows:

31.12.2019

31.12.2018

Interest rate

3.34%

4.34%

Expected future salary increase

0.00%

N/A

Increase in claims

5.18%

5.09%

Life expectancy at age 65:

Male

Female

Male

Female

People currently aged 65

20.60

22.60

21.21

23.16

People currently aged 50

22.10

24.30

22.53

24.69

The following table presents a sensitivity analysis of the eﬀects of an increase/decrease in the most signiﬁcant actuarial assumptions used to determine the present value of beneﬁt obligations, such as the interest rate, in- ﬂation rate/growth in medical care costs and life expectancy.

31.12.2019

31.12.2018

Interest rate

-0.5%

+0.5%

-0.5%

+0.5%

Change in medical beneﬁt plans

8.39%

-7.45%

7.89%

-6.73%

Medical inﬂation rate

-0.25%

+0.25%

-0.25%

+0.25%

Change in medical beneﬁt plans

-3.66%

3.89%

-4.40%

4.69%

31.12.2019

31.12.2018

1-year increase in life expectancy

3.94%

4.08%

218

Prysmian Group

Consolidated Financial Statements 2019

Headcount

Average headcount in the period is reported below, compared with closing headcount at the end of each period:

2019

Average

Closing

Blue collar

21,565

73%

21,022

73%

White collar and management

7,861

27%

7,692

27%

Total

29,426

100%

28,714

100%

2018

Media(*)

Finale

Blue collar

16,019

75%

21,051

72%

White collar and management

5,439

25%

8,109

28%

Total

21,458

100%

29,159

100%

16. DEFERRED TAXES

The balance of deferred tax assets at 31 December 2019 is Euro 170 million (Euro 190 million at 31 December 2018) while that of deferred tax liabilities is Euro 213 million (Euro 238 million at 31 December 2018).

Movements in deferred taxes are analysed as follows:

(Euro/million)

Fixed assets

Provisions (1)

Tax losses

Other

Total

Balance at 31.12.2017

(99)

109

Business combinations

(207)

(112)

Currency translation

(3)

(5)

(6)

diﬀerences

Impact on income

(10)

statement

Impact on equity

(1)

(5)

(6)

Other and reclassiﬁcations

Balance at 31.12.2018(*)

(280)

167

(48)

Currency translation

(2)

(1)

(3)

diﬀerences

Impact on income

(48)

(4)

statement

Impact on equity

Balance at 31.12.2019

(266)

205

(6)

(43)

Prysmian Group

Consolidated Financial Statements 2019

219

The Group has not recognised any deferred tax assets on Euro 1,108 million in carryforward tax losses at 31 De- cember 2019 (Euro 1,158 million at 31 December 2018). Unrecognised deferred tax assets relating to the above carryforward tax losses and to deductible temporary diﬀerences amount to Euro 292 million (Euro 291 million at 31 December 2018).

At 31 December 2019, it has however recognised deferred tax assets of Euro 24 million on carryforward tax losses of Euro 85 million (Euro 98 million at 31 December 2018).

The following table presents details of carryforward tax losses:

(Euro/million)

31.12.2019

31.12.2018

Carryforward tax losses

1,193

1,256

of which recognised as deferred tax assets

Carryforward expires within 1 year

Carryforward expires between 2-5 years

Carryforward expires beyond 5 years

140

Unlimited carryforward

1,049

1,030

17. SALES

Details are as follows:

(Euro/million)

2019

2018(*)

Finished goods

9,854

8,483

Construction contracts

1,280

1,195

Services

111

124

Other

274

302

Total

11,519

10,104

18. CHANGE IN INVENTORIES OF FINISHED GOODS AND WORK IN PROGRESS Details are as follows:

(Euro/million)

2019

2018(*)

Finished goods

(97)

Work in progress

(25)

Total

(16)

(84)

220

Prysmian Group

Consolidated Financial Statements 2019

19. OTHER INCOME Details are as follows:

(Euro/million)

2019

2018

Rental income

Insurance reimbursements and indemnities

Gains on disposal of property

Other revenue and income

Total

139

20. RAW MATERIALS, CONSUMABLES AND SUPPLIES Details are as follows:

(Euro/million)

2019

2018

Raw materials

7,241

6,565

Change in inventories

(23)

Total

7,218

6,542

21. PERSONNEL COSTS Details are as follows:

(Euro/million)

2019

2018

Wages and salaries and social security

1,370

1,144

Fair value - stock options

(1)

Pension plans

Medical beneﬁt costs

Termination and other beneﬁts

Company reorganisation

Other personnel costs

Total

1,539

1,260

Share-based payments

At 31 December 2019, the Prysmian Group had share-based compensation plans in place for managers and employees of Group companies and for members of the Parent Company's Board of Directors. These plans are described below.

Employee share purchase plan (2016-2021) - YES 2.0

The Plan is based on ﬁnancial instruments reserved for employees of Prysmian S.p.A. and/or of its subsidiaries, including some of the Company's Directors; the Board of Directors has been granted the relevant powers to establish and implement this plan.

Prysmian Group

Consolidated Financial Statements 2019

221

The main objectives of the Plan are:

•

to strengthen the sense of belonging to the Group by oﬀering employees an opportunity to share in its suc- cesses, through equity ownership;

to align the interests of Prysmian Group's stakeholders, employees and shareholders, by identifying a common goal of creating long-term value;

The Plan oﬀers the opportunity to purchase Prysmian's ordinary shares on preferential terms, with a maximum discount of 25% on the stock price, given in the form of treasury shares, except for certain managers, for whom the discount is 15%, and the executive Directors and key management personnel, for whom the discount is 1% on the stock price.

The Plan therefore qualiﬁes as "of particular relevance" within the meaning of art. 84-bis, par. 2 of the Issuer Regulations.

The shares purchased are subject to a retention period, during which they cannot be sold. The Plan contains purchase windows over the next two years.

All those who have signed up for the plan have also received an entry bonus of six free shares, taken from the Company's portfolio of treasury shares, only available at the time of ﬁrst purchase. If an employee had already participated in the 2013 plan, they received eight shares as an entry bonus to the new plan. For those who already purchased shares in a 2017 purchase window, the entry bonus is three shares.

The shares purchased by participants, as well as those received by way of discount and entry bonus, will generally be subject to a retention period during which they cannot be sold and the length of which will vary according to local regulations.

The fair value of the options has been determined using the Montecarlo binomial pricing model, based on the following assumptions:

Window

Grant date

14 November 2016

Share purchase date

from 16 February 2017 to 16 September 2021

End of retention period

from 16 February 2020 to 16 September 2024

Residual life at grant date (in years)

1.71

Share price at grant date (Euro)

23.40

Expected volatility

from 31.74% to 36.05%

Risk-free interest rate

from 0.70% to 0.75%

Expected dividend %

2.07%

Option fair value at grant date (Euro)

from €21.57 to €23.15

Costs of Euro 2 million have been recognised as "Personnel costs" in the income statement at 31 December 2019 for the fair value of options granted under this plan.

222

Prysmian Group

Consolidated Financial Statements 2019

The following table provides details about movements in the plan:

31.12.2019

Number of options

Options at start of year

307,338

Granted

Change in expected participations

49,978

Cancelled

Exercised

(142,316)

Options at end of year

215,000

The information memorandum, prepared under art. 114-bis of Legislative Decree 58/98 and describing the characteristicsoftheaboveplan,ispubliclyavailableontheCompany'swebsite at http://www.prysmiangroup.com/, from its registered oﬃces and from Borsa Italiana S.p.A..

Long-term incentive plan 2018-2020

As at 31 December 2019, there are no outstanding loans or guarantees by the Parent Company or its subsidiaries to any of the directors, senior managers or statutory auditors.

22. AMORTISATION, DEPRECIATION, IMPAIRMENT AND IMPAIRMENT REVERSALS

Details are as follows:

(Euro/million)

2019

2018

Depreciation of buildings, plant, machinery and equipment

188

155

Depreciation of other property, plant and equipment

Amortisation of intangible assets

Depreciation and impairment of right-of-use assets (IFRS 16)

Impairment of property, plant and equipment

Total

354

232

Details of the impairment loss of Euro 35 million against property, plant and equipment can be found in Note 1. Property, plant and equipment.

Prysmian Group

Consolidated Financial Statements 2019

223

23. OTHER EXPENSES Details are as follows:

(Euro/million)

2019

2018

Professional services

Insurance

Maintenance costs

122

110

Selling costs

Utilities

195

166

Travel costs

Vessel charter

113

Increases in/(releases of) provisions for risks

118

Losses on disposal of assets

Sundry expenses

106

173

Other costs

1,042

1,011

Company reorganisation

Non-recurring other expenses

(5)

Total

1,958

1,921

Other costs mainly refer to those incurred for project execution.

The Group expensed Euro 96 million in research and development costs in 2019 (Euro 98 million in 2018), insofar as there are no criteria to justify their capitalisation.

24. SHARE OF NET PROFIT/(LOSS) OF EQUITY-ACCOUNTED COMPANIES Details are as follows:

(Euro/million)

2019

2018

Share of net proﬁt/(loss) of associates

Total

Further information can be found in Note 3. Equity-accounted investments.

224

Prysmian Group

Consolidated Financial Statements 2019

25. FINANCE COSTS Details are as follows:

(Euro/million)

2019

2018

Interest on loans

Interest on non-convertible bond

Interest on convertible bond 2013 - non-monetary component

Interest on convertible bond 2013 - monetary component

Interest on convertible bond 2017 - non-monetary component

Interest Rate Swaps

Interest on lease liabilities

Amortisation of bank and ﬁnancial fees and other expenses

Employee beneﬁt interest costs net of interest on plan assets

Other bank interest

Costs for undrawn credit lines

Sundry bank fees

Non-recurring other ﬁnance costs

Finance costs for hyperinﬂation

Other

Finance costs

118

106

Foreign currency exchange losses

376

308

Total ﬁnance costs

494

414

26. FINANCE INCOME Details are as follows:

(Euro/million)

2019

2018

Interest income from banks and other ﬁnancial institutions

Other ﬁnance income

Finance income

Net gains on forward currency contracts

Gains on derivatives

Foreign currency exchange gains

343

293

Total ﬁnance income

369

302

27. TAXES

Details are as follows:

(Euro/million)

2019

2018

Current income taxes

144

Deferred income taxes

(39)

Total

148

Prysmian Group

Consolidated Financial Statements 2019

225

The following table reconciles the eﬀective tax rate with the Parent Company's theoretical tax rate:

(Euro/million)

2019

Tax rate

2018

Tax rate

Proﬁt/(loss) before taxes

444

103

Theoretical tax expense at Parent Company's nominal

107

24.0%

tax rate

Diﬀerences in nominal tax rates of foreign subsidiaries

1.1%

4.9%

Taxes on distributable reserves

3.2%

(2)

-1.9%

Antitrust provision

(16)

-3.6%

15.5%

Asset impairment

2.0%

0.0%

Release of prior year credit for taxes paid abroad

0.7%

(1)

-0.5%

Deferred tax eﬀect on carryforward tax losses

1.6%

3.1%

IRAP (Italian regional business tax) and US State TAX

1.2%

3.2%

Current taxes for prior years

0.6%

1.9%

Deferred tax assets for prior years

(2)

-0.4%

1.9%

Non-deductible costs/ (non-taxable income) and other

2.9%

(9)

-8.7%

Eﬀective income taxes

148

33.3%

43.7%

28. EARNINGS/(LOSS) AND DIVIDENDS PER SHARE

Both basic and diluted earnings (loss) per share have been calculated by dividing the net result for the period attributable to owners of the parent by the average number of the Company's outstanding shares. Diluted earn- ings/(loss) per share have been aﬀected by the options under the employee share purchase plan (YES Plan). Diluted earnings/(loss) per share have not been aﬀected by the Convertible Bond 2017, whose conversion is currently "out of the money".

(Euro/million)

2019

2018

Net proﬁt/(loss) attributable to owners of the parent

292

Weighted average number of ordinary shares (thousands)

263,139

244,957

Basic earnings per share (in Euro)

1,11

0,24

Net proﬁt/(loss) attributable to owners of the parent for purposes of diluted

292

earnings per share

Weighted average number of ordinary shares (thousands)

263,139

244,957

Adjustments for:

Dilution from incremental shares arising from exercise of stock options

(thousands)

Weighted average number of ordinary shares to calculate diluted earnings per

263,171

244,957

share (thousands)

Diluted earnings per share (in Euro)

1,11

0,24

The dividend paid in 2019 amounted to approximately Euro 113 million (Euro 0.43 per share). A dividend of Euro

0.5 per share for the year ended 31 December 2019 will be proposed at the annual general meeting to be held on

28 April 2020 in a single call; based on the number of outstanding shares, the above dividend per share equates to a total dividend pay-out of approximately Euro 132 million. The current ﬁnancial statements do not reﬂect any liability for the proposed dividend.

226

Prysmian Group

Consolidated Financial Statements 2019

29. CONTINGENT LIABILITIES

As a global operator, the Group is exposed to legal risks primarily, by way of example, in the areas of product liability and environmental, antitrust and tax rules and regulations. The outcome of legal disputes and proceedings currently in progress cannot be predicted with certainty. An adverse outcome in one or more of these proceedings could result in the payment of costs that are not covered, or not fully covered, by insurance, which would therefore have a direct eﬀect on the Group's ﬁnancial position and results.

As at 31 December 2019, the contingent liabilities for which the Group has not recognised any provision for risks and charges, on the grounds that an outﬂow of resources is unlikely, but which can nonetheless be estimated reliably, amount to approximately Euro 128 million.

In addition, with regard to claims for damages arising from the European Commission's April 2014 decision concerning Antitrust, the Group has felt unable to estimate the risk in respect of Tennet TSO BV.

30. COMMITMENTS TO PURCHASE PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS

Contractual commitments already entered into with third parties as at 31 December 2019 and not yet reﬂected in the ﬁnancial statements amount to Euro 244 million for investments in property, plant and equipment (Euro 222 million at the end of 2018); there were no commitments to third parties at 31 December 2019 for investments in intangible assets (like at the end of 2018).

31. RECEIVABLES FACTORING

The Group has factored some of its trade receivables on a without-recourse basis. The amount of receivables factored but not yet paid by customers was Euro 339 million at 31 December 2019 (Euro 336 million at 31 December 2018).

32. FINANCIAL COVENANTS

The credit agreements in place at 31 December 2019, details of which are presented in Note 12, require the Group to comply with a series of covenants on a consolidated basis. The main covenants, classiﬁed by type, are listed below:

The covenants contained in the relevant credit agreements are as follows:

EBITDA/Net ﬁnance costs(1) not less than:

Net ﬁnancial debt / EBITDA(1) not more than:

4.00x

3.00x

b) Non-ﬁnancial covenants

A number of non-financial covenants have been established in line with market practice applying to transactions of a similar nature and size. These covenants involve restrictions on the grant of secured guarantees to third parties and on amendments to the Company›s by-laws.

Prysmian Group

Consolidated Financial Statements 2019

227

Default events

The main default events are as follows:

•

default on loan repayment obligations; breach of ﬁnancial covenants;

breach of some of the non-ﬁnancial covenants;

declaration of bankruptcy by Group companies or their involvement in other insolvency proceedings; pronouncement of particularly signiﬁcant judicial rulings;

occurrence of events that may adversely and signiﬁcantly aﬀect the business, the assets or the ﬁnancial conditions of the Group.

Should a default event occur, the lenders are entitled to demand full or partial repayment of the amounts lent and not yet repaid, together with interest and any other amount due. No collateral security is required.

Actual ﬁnancial ratios reported at 31 December 2019 and 31 December 2018 are as follows:

31.12. 2019

31.12.2018

EBITDA/Net ﬁnance costs (1)

14.42x

10.08x

Net ﬁnancial debt/EBITDA (1)

1.99x

2.57x

The above ﬁnancial ratios comply with both covenants contained in the relevant credit agreements and there are no instances of non-compliance with the ﬁnancial and non-ﬁnancial covenants indicated above.

33. RELATED PARTY TRANSACTIONS

Transactions between Prysmian S.p.A. and subsidiaries with associates mainly refer to:

•

trade relations involving purchases and sales of raw materials and ﬁnished goods;

services (technical, organisational and general) provided by head oﬃce for the beneﬁt of Group companies; recharge of royalties for the use of trademarks, patents and technological know-how by Group companies.

The related party disclosures also include the compensation paid to Directors, Statutory Auditors and Key Management Personnel.

All the above transactions form part of the Group's continuing operations.

228

Prysmian Group

Consolidated Financial Statements 2019

The following tables provide a summary of related party transactions and balances for the years ended 31 De- cember 2019 and 31 December 2018:

(Euro/million)

31.12.2019

Equity-accounted companies

Compensation of directors, statu- tory auditors and key management personnel

Total related parties

Total reported amount

Related party % of total

Equity-accounted

314

100.0%

investments

Trade receivables

1,475

0.5%

Other receivables

854

0.4%

Trade payables

2,062

0.2%

Other payables

980

0.4%

Provisions for risks and

777

0.5%

charges

(Euro/million)

31.12.2018(*)

Equity-accounted companies

Compensation of directors, statu- tory auditors and key management personnel

Total related parties

Total reported amount

Related party % of total

Equity-accounted

294

100.0%

investments

Trade receivables

1,635

0.2%

Other receivables

700

0.7%

Trade payables

2,132

0.2%

Other payables

965

0.1%

Provisions for risks and

686

0.6%

charges

Prysmian Group

Consolidated Financial Statements 2019

229

(Euro/million)

2019

Equity-accounted companies

Compensation of directors, statu- tory auditors and key management personnel

Total related parties

Total reported amount

Related party % of total

Sales

11,519

0.3%

Other income

3.1%

Raw materials.

(8)

(7,218)

0.1%

consumables and supplies

Personnel costs

(11)

(1,539)

0.7%

Other expenses

(4)

(1)

(5)

(1,958)

0.2%

Share of net proﬁt/(loss)

of equity-accounted

100.0%

companies

(Euro/million)

2018(*)

Equity-accounted companies

Compensation of directors, statu- tory auditors and key management personnel

Total related parties

Total reported amount

Related party % of total

Sales

10,104

0.3%

Other income

139

3.6%

Raw materials.

(20)

(6,542)

0.3%

consumables and supplies

Personnel costs

(11)

(1,260)

0.9%

Other expenses

(1)

(1,921)

0.1%

Share of net proﬁt/(loss)

of equity-accounted

100.0%

companies

Transactions with associates

Trade and other payables refer to goods and services provided in the ordinary course of the Group's business. Trade and other receivables refer to transactions carried out in the ordinary course of the Group's business.

230

Prysmian Group

Consolidated Financial Statements 2019

Key management compensation

Key management compensation is analysed as follows:

(Euro/thousand)

2019

2018

Salaries and other short-term beneﬁts - ﬁxed part

7,418

7,736

Salaries and other short-term beneﬁts - variable part

3,662

2,504

Other beneﬁts

610

853

Share-based payments

232

Total

11,690

11,325

of which Directors

6,625

4,924

At 31 December 2019, payables for key management compensation amount to Euro 3.6 million, while employee beneﬁt obligations pertaining to key management personnel are Euro 0.3 million.

34. COMPENSATION OF DIRECTORS AND STATUTORY AUDITORS

The compensation of the executive and non-executive Directors of Prysmian S.p.A. came to Euro 6.6 million in 2019 (Euro 5.52 million in 2018). The compensation of the Statutory Auditors of Prysmian S.p.A. came to Euro

0.2 million in 2019, the same as the year before. Compensation includes emoluments, and any other types of remuneration, pension and medical beneﬁts, received for their service as Directors or Statutory Auditors of Prys- mian S.p.A. and other companies included in the scope of consolidation, and that have constituted a cost for Prysmian.

35. ATYPICAL AND/OR UNUSUAL TRANSACTIONS

In accordance with the disclosures required by Consob Communication DEM/6064293 dated 28 July 2006, it is reported that no atypical and/or unusual transactions took place during 2019.

36. SIGNIFICANT NON-RECURRING EVENTS AND TRANSACTIONS

As required by Consob Communication DEM/6064293 dated 28 July 2006 and in accordance with the ESMA Guidelines/2015/1415, the following table presents the eﬀects of non-recurring events and transactions on the income statement:

(Euro/million)

2019

2018

Non-recurring other income/(expenses):

Antitrust

(94)

Non-recurring other ﬁnance costs:

Non-recurring other ﬁnance costs

(2)

Total

(30)

(96)

37. STATEMENT OF CASH FLOWS

After accounting for a positive change of Euro 67 million in working capital, Euro 111 million in tax payments and Euro 9 million in dividend receipts from associates, net cash ﬂow from operating activities was a positive Euro 775 million at the end of 2019.

Acquisitions and/or disposals during the year produced a net outﬂow of Euro 7 million, due to the purchase of non-controlling interests in subsidiaries.

Prysmian Group

Consolidated Financial Statements 2019

231

Net operating capital expenditure used Euro 248 million in cash in 2019, a large part of which relating to projects to increase and rationalise production capacity and to develop new products. More details can be found in Note 1. Property, plant and equipment of these Explanatory Notes.

Cash ﬂow from ﬁnancing activities was inﬂuenced by the distribution of Euro 119 million in dividends. Finance costs paid, net of ﬁnance income received, came to Euro 94 million.

38. INFORMATION PURSUANT TO ART.149-DUODECIES OF THE CONSOB ISSUER REGULATIONS

Pursuant to art. 149-duodecies of the Consob Issuer Regulations, the following table shows the fees in 2019 for audit work and other services provided by the independent auditors Ernst & Young and companies in the Ernst & Young network:

(Euro/thousand)

Recipient

Supplier of services

Fees for 2019

Fees for 2018

Audit services

Parent Company -

Prysmian S.p.A.

Ernst & Young Italy

1,469

651

Italian subsidiaries

Ernst & Young Italy

417

418

Foreign subsidiaries

Ernst & Young Italy

782

168

Foreign subsidiaries

Ernst & Young Network

2,372

3,075

Certiﬁcation services

Parent Company -

Prysmian S.p.A.

Ernst & Young Italy

182

Italian subsidiaries

Ernst & Young Italy

Foreign subsidiaries

Ernst & Young Network

Other services

Parent Company -

Prysmian S.p.A.

Ernst & Young Italy

Italian subsidiaries

Ernst & Young Italy

Foreign subsidiaries (1)

Ernst & Young Network

364

Total

5,593

4,450

39. BASIS OF CONSOLIDATION AND ACCOUNTING POLICIES

The ﬁnancial statements of Group operating companies used for consolidation purposes have been prepared for the ﬁnancial year ended 31 December 2019 and that ended 31 December 2018. They have been adjusted, where necessary, to bring them into line with Group accounting policies and standards; for those companies with different ﬁnancial years to the calendar year, the consolidation has used ﬁnancial information approved by the respective Boards of Directors that reﬂects the Group's ﬁnancial year.

Subsidiaries

The Group consolidated ﬁnancial statements include the ﬁnancial statements of Prysmian S.p.A. (the Parent Company) and the subsidiaries over which the Parent Company exercises direct or indirect control. Subsidiaries are consolidated from the date control is acquired until the date such control ceases. Speciﬁcally, control exists when the parent Prysmian S.p.A. has all of the following:

The existence of potential voting rights exercisable at the reporting date is also taken into consideration for the purposes of determining control.

232

Prysmian Group

Consolidated Financial Statements 2019

Subsidiaries are consolidated on a line-by-line basis commencing from the date control is eﬀectively obtained by the Group; at the date of obtaining control, the carrying amount of an investment is eliminated against the corresponding portion of the investee's equity by allocating its fair value to individual assets, liabilities and contingent liabilities. Any residual diﬀerence, if positive, is recognised as "Goodwill". If the acquisition is achieved in stages, the entire investment is remeasured at fair value on the date control is obtained; after this date, any additional acquisitions or disposals of equity interests, without a change of control, are treated as transactions between owners recognised in equity. Costs incurred for the acquisition are always expensed immediately to proﬁt or loss; changes in contingent consideration are recognised in proﬁt or loss. The share of equity and share of the result for the period attributable to non-controlling interests are presented separately within the ﬁnan- cial statements. Investees cease to be consolidated from the date control is transferred to third parties; the disposal of an equity interest involving a loss of control results in the recognition in proﬁt or loss (i) of the gain or loss arising on the diﬀerence between the sale consideration and the respective share of equity transferred to third parties, (ii) any gain or loss relating to the company sold and recorded in other comprehensive income that may be reclassiﬁed to proﬁt or loss and (iii) the gain or loss from adjusting the fair value, calculated at the date of lost control, of any non-controlling interest retained by Prysmian Group.

Associates and joint arrangements: joint ventures and joint operations

Associates are those entities over which the Group has signiﬁcant inﬂuence. Investments in associates are accounted for using the equity method and are initially recorded at cost.

Companies managed under contractual arrangements whereby two or more parties, who share control through unanimous consent, have the power to make relevant decisions and govern the exposure to variable future re- turns, qualify as joint operations and as such are accounted for in the joint operator's accounts directly in proportion to the interest held in the joint operation. In addition to recording the relevant share of assets, liabilities, revenues and expenses, a joint operator also recognises its obligations under the related arrangement. Equally, if a party participates in, but does not have joint control of, a joint operation, it nonetheless recognises in its own ﬁnancial statements its share of the joint operation's assets and liabilities, revenues and expenses as well as its contractual obligations under the arrangement.

Other investments in joint ventures, over which signiﬁcant inﬂuence is exercised but which do not qualify as joint operations, are accounted for using the equity method.

Translation of foreign company ﬁnancial statements

The assets and liabilities of foreign consolidated companies expressed in currencies other than the Euro are translated using the closing exchange rate on the reporting date; revenues and expenses are translated at the average exchange rate prevailing in the reporting period. The resulting translation diﬀerences are recognised in equity, speciﬁcally in the "Reserve for other comprehensive income", until the related foreign company is disposed of.

Foreign currency transactions are recorded at the exchange rate prevailing on the date of the transaction. Monetary assets and liabilities are translated at the closing exchange rate on the reporting date. Exchange diﬀerences arising on translation and those realised on the extinguishment of transactions are recorded in ﬁnance income and costs.

Hyperinﬂationary economies

IAS 29 - Financial Reporting in Hyperinﬂationary Economies establishes that if a foreign entity operates in a hyper- inﬂationary economy, revenues and expenses are translated using the exchange rate current at the reporting date; accordingly, all amounts in the income statement are restated by applying the change in the general price index between the date when income and expenses were initially recorded in the ﬁnancial statements and the reporting date.

Prysmian Group

Consolidated Financial Statements 2019

233

Since ﬁnancial year 2018, companies operating in Argentina and Angola have been treated as belonging to high inﬂation economies, therefore requiring the application of IAS 29 - Financial Reporting in Hyperinﬂationary Economies , which lays down speciﬁc procedures for restating the ﬁnancial statements of companies operating in this type of economy.

With reference to the income statement, income and expenses are restated by applying the change in the general price index, in order to reﬂect the loss of the local currency's purchasing power at the reporting date. The income statements thus restated have been translated into Euro at the closing rates at 31 December 2019 instead of at the average rates for the reporting period. The eﬀect of applying the standard, all of which attributable to the Argentine company, has been to increase net sales by Euro 3 million and to decrease net proﬁt by Euro 8 million.

With reference to the statement of ﬁnancial position, monetary items have not been restated because they are already expressed in terms of the monetary unit current at the end of the reporting period; non-monetary assets and liabilities have been restated to reﬂect the loss in the local currency's purchasing power from the date the assets and liabilities were originally recorded through until the reporting date. The eﬀect arising in 2019 is a net cost of Euro 2 million, which has been recognised in the income statement within Net ﬁnance income (costs).

234

Prysmian Group

Consolidated Financial Statements 2019

The exchange rates applied are as follows:

Closing rates at

Period average rates

31.12.2019

31.12.2018

2019

2018

2018(*)

Europe

British Pound

0.851

0.895

0.878

0.885

Swiss Franc

1.085

1.127

1.112

1.155

Hungarian Forint

330.53

320.98

325.297

318.89

Norwegian Krone

9.864

9.948

9.851

9.597

9.584

Swedish Krona

10.447

10.255

10.589

10.258

Czech Koruna

25.408

25.724

25.67

25.647

Danish Krone

7.472

7.467

7.466

7.453

Romanian Leu

4.783

4.664

4.745

4.654

Turkish Lira

6.663

6.039

6.36

5.689

Polish Zloty

4.257

4.301

4.298

4.261

Russian Rouble

69.956

79.715

72.455

74.042

North America

US Dollar

1.123

1.145

1.119

1.181

1.154

Canadian Dollar

1.46

1.561

1.485

1.529

South America

Colombian Peso

3,689

3,722

3,675

3,487

3,503

Brazilian Real

4.528

4.437

4.417

4.316

4.468

Argentine Peso

67.28

43.167

53.968

33.203

Costa Rican Colón

844.86

694.775

786.893

756.941

Chilean Peso

642.012

794.37

657.623

681.444

769.037

Mexican Peso

21.22

22.492

21.557

22.705

22.527

Peruvian Sol

3.726

3.863

3.736

3.879

3.828

Oceania

Australian Dollar

1.6

1.622

1.611

1.58

New Zealand Dollar

1.665

1.706

1.7

1.706

Africa

CFA Franc

655.957

Angolan Kwanza

540.037

n.a

406.169

n.a

Tunisian Dinar

3.139

3.43

3.28

3.111

Asia

Chinese Renminbi (Yuan)

7.821

7.875

7.735

7.808

United Arab Emirates Dirham

4.126

4.205

4.111

4.337

Hong Kong Dollar

8.747

8.968

8.772

9.256

Singapore Dollar

1.511

1.559

1.527

1.593

Indian Rupee

80.187

79.73

78.836

80.733

Indonesian Rupiah

15,596

16,500

15,835

16,803

Japanese Yen

121.94

125.85

122.006

130.396

Thai Baht

33.415

37.052

34.757

38.164

Philippine Peso

56.9

60.113

57.985

62.21

Omani Rial

0.432

0.44

0.43

0.454

Malaysian Ringgit

4.595

4.732

4.637

4.763

Qatari Riyal

4.089

4.168

4.075

4.299

Saudi Riyal

4.213

4.294

4.198

4.429

Prysmian Group

Consolidated Financial Statements 2019

235

39.1 TRANSLATION OF TRANSACTIONS IN CURRENCIES OTHER THAN THE FUNCTIONAL CURRENCY

Transactions in currencies other than the functional currency of the company which undertakes the transaction are translated using the exchange rate applicable at the transaction date.

Draka NK Cables (Asia) Pte Ltd (Singapore), Draka Philippines Inc. (Philippines), Draka Durango S. de R.L. de C.V., Draka Mexico Holdings S.A. de C.V., Prysmian Cables y Sistemas de Mexico S. de R.L. de C.V. and NK Mexico Holdings S.A. de C.V. (Mexico) present their ﬁnancial statements in a currency other than that of the country they operate in, as their main transactions are not conducted in the local currency but in the reporting currency.

Foreign currency exchange gains and losses arising on completion of transactions or on the year-end translation of assets and liabilities denominated in foreign currencies are recognised in the income statement.

Exchange diﬀerences arising on loans between group companies that form part of the reporting entity's net investment in a foreign operation are recognised in other comprehensive income and reclassiﬁed from equity to proﬁt or loss on disposal of the net investment.

39.2 PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at the cost of acquisition or production, net of accumulated depreciation and any impairment. Cost includes expenditure directly incurred to prepare the assets for use, as well as any costs for their dismantling and removal which will be incurred as a consequence of contractual or legal obligations requiring the asset to be restored to its original condition.

Depreciation is charged on a straight-line, monthly basis using rates that allow assets to be depreciated until the end of their useful lives. When assets consist of diﬀerent identiﬁable components, whose useful lives diﬀer signiﬁcantly from each other, each component is depreciated separately using the component approach.

The indicative useful lives estimated by the Group for the various categories of property, plant and equipment are as follows:

Land

Not depreciated

Buildings

25-50 years

Plant

10-15 years

Machinery

10-20 years

Equipment and Other assets

3-10 years

The residual values and useful lives of property, plant and equipment are reviewed and adjusted, if appropriate, at least at each ﬁnancial year-end.

IFRS 16 - Leases became eﬀective on 1 January 2019 as a result of which the Group has recorded right-of-use assets related to leases as part of its Property, plant and equipment. Note B.2 - Newly adopted standards contains details of the impact of this standard on the ﬁnancial statements at 31 December 2019 and of the accounting rules adopted.

236

Prysmian Group

Consolidated Financial Statements 2019

39.3 GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

Goodwill represents the diﬀerence between the cost incurred for acquiring a controlling interest (in a business) and the fair value of the assets and liabilities identiﬁed at the acquisition date. Goodwill is not amortised, but is tested for impairment at least annually to identify any impairment losses. This test is carried out with reference to the cash-generating unit ("CGU") or group of CGUs to which goodwill is allocated and at which level it is moni- tored. Greater information can be found in Note 2. Goodwill and Other intangible assets.

Other intangible assets

Other intangible assets are recognised in the ﬁnancial statements at acquisition cost and/or production cost, including all costs directly attributable to make the assets available for use, net of accumulated amortisation and any impairment. Amortisation commences when the asset is available for use and is calculated on a straight-line basis over the asset's estimated useful life. Other intangible assets have a ﬁnite useful life.

Other intangible assets include Patents, concessions, licences, trademarks and similar rights and Software.

Patents, concessions, licences, trademarks and similar rights

These assets are amortised on a straight-line basis over their useful lives.

Software

Software licence costs are capitalised on the basis of purchase costs and costs to make the software ready for use. These costs are amortised on a straight-line basis over the useful life of the software.

39.4 IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT AND FINITE-LIFE INTANGIBLE ASSETS

Property, plant and equipment and ﬁnite-life intangible assets are analysed at each reporting date for any evidence of impairment. If such evidence is identiﬁed, the recoverable amount of these assets is estimated and any impairment loss relative to carrying amount is recognised in proﬁt or loss. The recoverable amount is the higher of the fair value of an asset, less costs to sell, and its value in use, where the latter is the present value of the estimated future cash ﬂows of the asset. The recoverable amount of an asset which does not generate largely independent cash ﬂows is determined in relation to the cash-generating unit to which the asset belongs. In calculating an asset's value in use, the expected future cash ﬂows are discounted using a discount rate reﬂect- ing current market assessments of the time value of money, in relation to the period of the investment and the speciﬁc risks associated with the asset.

Following adoption of IFRS 16, the carrying amount of the cash-generating units has been increased to include right-of-use assets. The calculation of value in use excludes payments for lease liabilities.

Further details about the determination of the cash-generating units can be found in Note 40. Estimates and assumptions.

Prysmian Group

Consolidated Financial Statements 2019

237

39.5 FINANCIAL ASSETS

In accordance with IFRS 9 - Financial instruments, ﬁnancial assets are initially recorded at fair value and classiﬁed in one of the following categories on the basis of their nature and the purpose for which they were acquired:

Financial assets are derecognised when the right to receive cash ﬂows from the instrument expires and the Group has substantially transferred all the risks and rewards relating to the instrument and its control.

(a) Financial assets at amortised cost

The Group classiﬁes receivables and securities that it expects to hold to maturity under this category, meaning that it receives payments of interest and capital from such assets on speciﬁed due dates. Assets at amortised cost are classiﬁed in the statement of ﬁnancial position as "Financial assets at amortised cost" and presented as current or non-current assets depending on whether their contractual maturity is less or more than twelve months from the reporting date.

These assets are reported at amortised cost and written down if any impairment is identiﬁed.

(b) Financial assets at fair value through proﬁt or loss

Financial assets classiﬁed in this category are represented by securities held for trading, having been acquired for the purpose of selling in the near term.

Financial assets at fair value through proﬁt or loss are measured at fair value, with gains and losses from changes in fair value reported in the income statement under "Finance income" and "Finance costs", in the period in which they arise.

Assets in this category are classiﬁed as current assets.

The Group uses this category to record investments it does not expect to dispose of in the near term and with which it has no controlling relationship, classiﬁed as non-current assets, and securities in which it Group invests its liquidity and whose disposal date is not known, classiﬁed as current assets.

The above investments are measured at fair value through OCI, where fair value belongs to Level 3 of the fair value hierarchy. Dividends from such investments are recognised in ﬁnance income.

Securities classiﬁed in this category are measured at fair value through OCI, with any impairment recognised in proﬁt or loss if such impairment is considered permanent. The fair value of these securities belongs to Level 1 of the fair value hierarchy. Interest from these securities is recognised in ﬁnance income. When these securities are sold, the related equity reserve is recycled to proﬁt or loss.

238

Prysmian Group

Consolidated Financial Statements 2019

39.6 DERIVATIVES

Metal derivatives

Metal derivatives are recognised at fair value through proﬁt or loss. The related income and expenses are classi ﬁed in operating income and expenses. The fair value of these derivatives belongs to Level 2 of the fair value hierarchy. They are recognised as current assets or liabilities in the statement of ﬁnancial position if they mature within twelve months, otherwise they are classiﬁed as non-current assets or liabilities.

Interest rate derivatives

Interest rate derivatives not designated as hedging instruments are recognised at fair value through proﬁt or loss. The related income and expenses are classiﬁed in ﬁnance income and costs. They are recognised as current assets or liabilities in the statement of ﬁnancial position if they mature within twelve months, otherwise they are classiﬁed as non-current assets or liabilities.

Interest rate derivatives designated as hedging instruments are recognised at fair value through other comprehensive income. When the derivative matures, the related reserve is recycled to proﬁt or loss as ﬁnance income and costs.

The relationship between the hedged item and the designated interest rate hedge must be documented. The eﬀectiveness of each hedge is reviewed both at the derivative's inception and during its life cycle. In particular, interest rate derivatives designated as hedging instruments are intended to hedge the risk of cash ﬂow volatility linked to ﬁnance costs arising from variable rate debt.

The fair value of interest rate derivatives belongs to Level 2 of the fair value hierarchy.

Currency derivatives

Currency derivatives not designated as hedging instruments are recognised at fair value through proﬁt or loss. The related income and expenses are classiﬁed in ﬁnance income and costs. They are recognised as current assets or liabilities in the statement of ﬁnancial position if they mature within twelve months, otherwise they are classiﬁed as non-current assets or liabilities.

Currency derivatives designated as hedging instruments are recognised at fair value through other comprehensive income. When the derivative matures, the related reserve is recycled to proﬁt or loss as ﬁnance income and costs.

The relationship between the hedged item and the designated currency hedge must be documented. The effectiveness of each hedge is reviewed both at the derivative's inception and during its life cycle. In particular, currency derivatives designated as hedging instruments are intended to hedge exchange rate risk on contracts or orders. These hedging relationships aim to reduce cash ﬂow volatility due to exchange rate ﬂuctuations affecting future transactions. In particular, the hedged item is the value in the company's unit of account of a cash ﬂow expressed in another currency that is expected to be received/paid under a contract or an order whose amount exceeds the minimum thresholds set by the Group Finance Committee: all cash ﬂows thus identiﬁed are therefore designated as hedged items in the hedging relationship. The reserve originating from changes in the fair value of derivative instruments is transferred to the income statement according to the stage of completion of the contract itself, where it is classiﬁed as contract revenue/costs.

The fair value of currency derivatives belongs to Level 2 of the fair value hierarchy.

Prysmian Group

Consolidated Financial Statements 2019

239

39.7 TRADE AND OTHER RECEIVABLES

Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost, net of the allowance for doubtful accounts. Impairment of receivables is recognised on the basis of Expected Credit Loss (ECL). ECLs are based on the diﬀerence between the contractual cash ﬂows due in accordance with the contract and all the cash ﬂows that the Group expects to receive, discounted at an original eﬀective interest rate.

The expected cash ﬂows will include cash ﬂows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

ECLs are recognised in two stages.

•

For credit exposures for which there has not been a signiﬁcant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12 months (a 12-month ECL).

For those credit exposures for which there has been a signiﬁcant increase in credit risk since initial recogni- tion, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

For trade receivables and contract assets, the Group applies a simpliﬁed approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experi- ence, adjusted for forward-looking factors speciﬁc to the debtors and the economic environment.

The Group makes use of without-recourse factoring of trade receivables. These receivables are derecognised because such transactions transfer substantially all the related risks and rewards of the receivables to the factor.

39.8 INVENTORIES

Inventories are recorded at the lower of purchase or production cost and net realisable value, represented by the amount which the Group expects to obtain from their sale in the normal course of business, net of selling costs. The cost of inventories of raw materials, ancillaries and consumables, as well as ﬁnished products and goods is determined using the FIFO (ﬁrst-in,ﬁrst-out) method.

The exception is inventories of non-ferrous metals (copper, aluminium and lead) and quantities of such metals contained in semi-ﬁnished and ﬁnished products, which are valued using the weighted average cost method.

The cost of ﬁnished and semi-ﬁnished products includes design costs, raw materials, direct labour costs and other production costs (calculated on the basis of normal operating capacity).

39.9 CONSTRUCTION CONTRACTS

Construction contracts (hereafter also "contracts") are recognised at the value agreed in the contract, in accordance with the percentage of completion method, taking into account the progress of the project and the expected contractual risks. The progress of a project is measured by reference to the contract costs incurred at the reporting date in relation to the total estimated costs for each contract. When the outcome of a contract cannot be estimated reliably, the contract revenue is recognised only to the extent that the costs incurred are likely to be recovered. When the outcome of a contract can be estimated reliably, and it is probable that the contract will be proﬁtable, contract revenue is recognised over the term of the contract. When it is probable that total contract costs will exceed total contract revenue, the potential loss is recognised immediately as an expense.

240

Prysmian Group

Consolidated Financial Statements 2019

If the contract contains a warranty other than those used in standard market practice, this warranty is recognised separately.

The Group reports as assets the gross amount due from customers for construction contracts, where the costs incurred, plus recognised proﬁts (less recognised losses), exceed the billing of work-in-progress; such assets are reported in "Other receivables". Amounts invoiced but not yet paid by customers are reported under "Trade re- ceivables".

The Group reports as liabilities the gross amount due to customers for all construction contracts where billing exceeds the costs incurred plus recognised proﬁts (less recognised losses). Such liabilities are reported in "Other payables".

39.10 CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise cash, demand bank deposits and other short-term investments, with a maturity of three months or less. Current account overdrafts are classiﬁed as ﬁnancial payables under current liabilities in the statement of ﬁnancial position.

39.11 ASSETS AND LIABILITIES HELD FOR SALE

Assets and liabilities held for sale are classiﬁed as such if the carrying amount will be recovered principally through a sale transaction; for this to be the case, the sale must be highly probable and the related assets/liabili- ties must be available for immediate sale in their present condition. Assets/Liabilities held for sale are measured at the lower of carrying amount and fair value less costs to sell.

39.12 TRADE AND OTHER PAYABLES

Trade and other payables are initially recognised at fair value and subsequently measured at amortised cost.

39.13 BORROWINGS FROM BANKS AND OTHER LENDERS

Borrowings from banks and other lenders are initially recognised at fair value, less directly attributable costs. Subsequently, they are measured at amortised cost, using the eﬀective interest method. If the estimated expected cash ﬂows should change, the value of the liabilities is recalculated to reﬂect this change using the present value of the expected new cash ﬂows and the eﬀective internal rate originally established. Borrowings from banks and other lenders are classiﬁed as current liabilities, except where the Group has an unconditional right to defer their payment for at least twelve months after the reporting date.

Borrowings from banks and other lenders are derecognised when they are extinguished and when the Group has transferred all the risks and costs relating to such instruments.

Prysmian Group

Consolidated Financial Statements 2019

241

39.14 EMPLOYEE BENEFITS

The Group operates both deﬁned contribution plans and deﬁned beneﬁt plans.

Deﬁned contribution plans

A deﬁned contribution plan is a plan under which the Group pays ﬁxed contributions to third-party fund managers and to which there are no legal or other obligations to pay further contributions should the fund not have suﬃcient assets to meet the obligations to employees for current and prior periods. In the case of deﬁned contribution plans, the Group pays contributions, voluntarily or as established by contract, to public and private pension insurance funds. The Group has no obligations subsequent to payment of such contributions, which are recognised as personnel costs on an accrual basis. Prepaid contributions are recognised as an asset which will be repaid or used to oﬀset future payments, should they be due.

Deﬁned beneﬁt plans

In deﬁned beneﬁt plans, the total beneﬁt payable to the employee can be quantiﬁed only after the employment relationship ceases, and is linked to one or more factors, such as age, years of service and remuneration; the related cost is therefore charged to the period's income statement on the basis of an actuarial calculation. The liability recognised for deﬁned beneﬁt plans corresponds to the present value of the obligation at the reporting date, less the fair value of the plan assets, where applicable. Obligations for deﬁned beneﬁt plans are determined annually by an independent actuary using the projected unit credit method. The present value of a deﬁned beneﬁt plan is determined by discounting the future cash ﬂows at an interest rate equal to that of high-quality corporate bonds issued in the liability's settlement currency and which reﬂects the duration of the related pension plan. Actuarial gains and losses arising from the above adjustments and the changes in actuarial assumptions are recorded directly in equity.

Past service costs resulting from a plan amendment are recognised immediately as an expense in the period the plan amendment occurs.

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