Investor Relations

With regard to the Refining & Marketing Division, in 2010 a specific analysis and benchmarking project led to a partial revision of the risk management strategy, in particular with the introduction of V@R (Value at Risk) as an instrument to manage the risk associated with inventory level, expressed in millions of Euro and monitored through specific computer systems.
 

In relation to the activity of the Power & Gas Divisions, in 2009 a specific risk management strategy based on the definition of risk capital amounting to millions of euro that the company must manage in the context of a pre-defined industrial, non-speculative policy.
 

The Group’s operations, equity and financial position can be affected by multiple factors forming the macroeconomic framework, including changes in gross national product, the unemployment rate, interest rate and foreign exchange rate trends, mainly between the euro and dollar, and the cost of raw materials, particularly petroleum raw materials and energy commodities.

The ERG Group operates principally in sectors that are historically subject to high levels of criticality and extreme cyclicity. Its performance is significantly influenced by the prices of crude oil and petroleum products, as well as by the prices of the energy commodities that are linked to the prices of the oil industry, determined by international supply and demand and subject to numerous other exogenous factors, among which are noteworthy the financial speculation phenomena that characterised the industry.
As an operator in the energy sector, the Group needs a continuous supply of crude oil and natural gas for its activities. Crude oil and natural gas are largely supplied by countries that are normally subject to greater political, social and economic uncertainties than those found in countries with consolidated economic and/or political stability.

The Group operates on the domestic and international markets in the Energy sector. This exposes it to market risks connected with fluctuations in currency exchange rates (particularly to the US dollar), interest rates and prices, which are particularly volatile in the case of petroleum and energy commodities.
The ERG Group uses different forms of financing to hedge the requirements of its industrial activities. Any changes in interest rates can cause the cost of financing to go up or come down.
In accordance with its market risk management policies, the ERG Group uses hedging financial instruments to manage this volatility; despite these hedging transactions, sudden changes in currency exchange, interest rates and prices may have a negative impact on the Group's operations and financial position.
 

The Group operates on the domestic and international markets in the Energy sector. This exposes it to market risks connected with fluctuations in currency exchange rates (particularly to the US dollar), interest rates and prices, which are particularly volatile in the case of petroleum and energy commodities.
The ERG Group uses different forms of financing to hedge the requirements of its industrial activities. Any changes in interest rates can cause the cost of financing to go up or come down.
In accordance with its market risk management policies, the ERG Group uses hedging financial instruments to manage this volatility; despite these hedging transactions, sudden changes in currency exchange, interest rates and prices may have a negative impact on the Group's operations and financial position.
 

Owing to the characteristics typical of the ERG Group’s industrial production facilities, there is a risk of injury in the event of a fire, explosion, emissions and other unexpected and hazardous factors. Accidents of a certain magnitude could have a negative impact on the Group’s operations, equity and financial position.
The ERG Group mitigates these risks through appropriate plant management policies aimed at pursuing levels of safety and excellence in line with the best industrial practices. Furthermore, the ERG Group transfers its own industrial risk to third parties via the insurance market, thereby providing a high level of protection for its structures, even in the event of an interruption of activity.
Notwithstanding existing levels of cover, the Group could incur costs that exceed the maximum coverage limits of insurance policies, in case of difficulties experienced by the international insurance market in raising adequate capital.
 

The activities of the ERG Group are subject to numerous laws and regulations (at local, national and supranational level) that could have a negative impact on the Group’s various businesses, particularly those where the regulatory environment can drive the choice of capital expenditures effected (renewable energies and thermoelectric sectors, towards which the Group is adopting a risk management strategy aimed at assessing existing opportunities and, for equal economic attractiveness, to pursue growth in environments characterised by low or reduced riskiness).
Furthermore, the ERG Group is subject to environmental laws and regulations that in recent years have been subject to greater scrutiny by European Union institutions and consequently, greater restrictions. It has also adopted an environmental policy that is able to comply and favour any stricter environmental standards than those required by current regulations, anticipating their adoptions.
In this context, ERG publishes a Sustainability Report every year, thereby demonstrating its willingness to be transparent in disclosing, internally and externally, its commitments and the initiatives put in place to create value in a way that is sustainable over time, by protecting the rights of all parties that may be affected by the company’s activities.

Exposure to credit risk, inherent in the possibility of default by a counterparty or in the deterioration of its creditworthiness, is managed by means of appropriate analyses and evaluations of individual counterparties, with each of these being assigned an internal credit rating (internal-ratings-based approach). The assignment of the rating category provides an estimate of the probability of default by a particular counterparty. A degree of reliability is indicated for each level, which is carefully monitored and must never be exceeded. A specific Function within the Finance Department is tasked with monitoring credit risk exposure and a Credit Committee makes decisions on this matter.
Inherent in the credit risk is also the risk of concentration, in terms of both customers and segments; it is also monitored continuously, however, critical situations have never occurred.
The choice of counterparties for both the industrial and financial transactions underlies the group's high credit ratings.

The management of operational risks is based on the adoption of the best international standards for the identification, measurement, treatment and monitoring of such risks.
As regards production processes, particular attention is paid to the prevention and control of the related risks, through the implementation of risk assessments, business impact analyses and the development of a business continuity plan, with the aim of ensuring operational continuity.

In view of its status as a publicly listed Company and of the multiplicity of business in which it operates, for ERG the risks connected to compliance of the significant number of regulations disciplining its activities (so-called multi-compliance) have become progressively more important.
Implementation of an ERM method has meant, in this area, the shift from an approach focused on the specific management of individual compliance risk areas (TUF, Consob, Borsa Italiana, Legislative Decree 81/08, etc.) by specialised internal organisations, to an integrated and coordinated approach.
Lastly, with regard to the risks related to the company’s liability for illegal acts giving rise to criminal offences (pursuant to Italian Legislative Decree 231/01), the management strategy aims at the adoption of high ethical standards, formalised in an Code of Ethics to which all personnel must adhere, and it is focused on prevention through a structured process, consistent with best practices and being integrated with the Enterprise Risk Management process.