IBERSOL | Annual Report 2020

ANNUAL REPORT 2020 Cash and cash equivalents Cash and cash equivalents include amounts recorded in the statement of financial position with a maturity of less than three months from the balance sheet date, which includes cash and cash equivalents at credit institutions. It also includes other short-term investments, of high liquidity, of insignificant risk of change in value and convertible into cash, as well as mandatory sight deposits with Banco de Portugal in order to satisfy the legal requirements of minimum cash reserves. 3. FINANCIAL RISK MANAGEMENT 3.1 FINANCIAL RISK FACTORS The group’s activities are exposed to a number of financial risk factors: market risk (including currency exchange risk, fair value risk associated to the interest rate and price risk), credit risk, liquidity risk and cash flow risks associated to the interest rate. The group maintains a risk management program that focuses its analysis on finan- cial markets to minimise the potential adverse effects of those risks on the group’s financial performance. Financial risk management is headed by the Financial Department based on the policies approved by the Board of Directors. The treasury identifies, evaluates and employs financial risk hedging measures in close cooperation with the group’s op- erating units. The Board provides principles for managing the risk as a whole and policies that cover specific areas, such as the currency exchange risk, the interest rate risk, the credit risk and the investment of surplus liquidity. a) Market risk i) Currency exchange risk With regard to exchange rate risk, the Group follows a natural hedge policy using financing in local currency. Since the Group is mainly present in the Iberian market, bank loans are mainly denominated in euros and the volume of purchases outside the Euro zone are of irrelevant proportions. The Group’s main source of exposure comes from investment outside the Euro zone, namely from the operation it is being developed in Angola, which is still small and losing importance in the group’s activity. The imbalances of the Angolan economy lead to a shortage of foreign currency in Angola, so the devaluation of the Kwanza 333