IBERSOL | Annual Report 2021

ANNUAL REPORT 2021 2.24 STATE GRANTS AWARDED Government grants are government assistance in the form of transferring resources to an entity in exchange for past or future compliance with certain conditions relat- ing to the entity’s operating activities. Subsidies granted by the State to finance staff training actions are recognized as income in the consolidated income statement during the period during which the Group incurred the respective training costs. Government grants are recognized in profit or loss on a systematic basis during the periods in which the entity recognizes the related costs as expenses. Subsidies granted by the State to finance investments in tangible or intangible as- sets are deferred and recorded as liabilities. Investment subsidies are recognized in the consolidated income statement over the estimated useful life of the subsidized assets under the heading “Other operating income / (costs)”. 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 give rise to significant exchange rate variations of the kwanza, so it is to be con- 359