136

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ECEMBER

2017

Main risks and uncertainties to which the Parent Company and consolidated Group

companies are exposed

As described in the Report on Operations, the DeA Capital Group operates through, and is structured as, two business areas,

Private Equity Investment and Alternative Asset Management.

The risks set out below take into account the features of the market and the operations of the Parent Company DeA Capital

S.p.A. and the consolidated Group companies, the main findings of a risk assessment carried out in 2017, as well as the

periodic monitoring conducted partly through the regulatory policies adopted by the Group.

The Group has adopted a modern corporate governance system that provides effective management of the complexities

of its operations, and enables both individual companies and the Group to achieve their strategic objectives. Furthermore,

the assessments carried out by the organisational units and the directors confirm the non-critical nature of these risks and

uncertainties, as well as the DeA Capital Group’s financial solidity.

With reference to the specific risks relating to Migros, the main private equity investment, please see the Migros Annual Report

(available on the Migros website).

A. Contextual risks

A.1 Risks relating to general economic conditions

The operating performance and financial position of the DeA Capital Group are affected by the various factors that make up

the macro-economic environment in the countries in which the Group has invested, including GDP performance, investor and

consumer confidence, interest rates, inflation, the costs of raw materials and unemployment. The ability to meet medium- to

long-term objectives could be affected by general economic trends, which could slow the development of sectors the Group

has invested in and/or the business of the investee companies.

A.2 Socio-political events

In line with its own strategic growth guidelines, one of the DeA Capital Group’s activities is private equity investment in

companies and funds in different jurisdictions and countries around the world which, in turn, invest in a number of countries

and geographical areas. The DeA Capital Group may have invested in foreign countries whose social, political and economic

conditions put the achievement of its investment objectives at risk.

A.3 Regulatory changes

Group companies conduct their operations in regulated sectors and markets. Any changes to or developments in the legislative

or regulatory framework that affect the costs and revenues structure of investee companies or the tax regime applied could

have negative effects on the Group’s financial results and necessitate changes to the Group’s strategy. To combat this risk, the

Group has established procedures to constantly monitor sector regulation and any changes thereto, in order to take advantage

of business opportunities and respond promptly to any changes to the prevailing legislation and regulations.

A.4 Performance of the financial markets

The Company’s ability to meet its strategic and management objectives could depend on the performance of financial

markets. A negative trend in financial markets could have an effect on the Private Equity Investment sector in general, making

investment and divestment transactions more complex, and, in particular, on the Group’s capacity to increase the value of its

investments. The value of shareholdings held directly or indirectly through funds in which the Company has invested could be

affected by factors such as comparable transactions concluded on the market, sector multiples and market volatility. These

factors, which cannot be directly controlled by the Group, are constantly monitored in order to identify appropriate response

strategies that involve both the provision of guidance for the management of Group companies, and the investment and value

enhancement strategy for the assets held.

A.5 Exchange rates

Holding investments in currencies other than the euro exposes the Group to changes in exchange rates between currencies.

The investment in Kenan Investments is managed as a special case, since although it was made in euro, the underlying asset

is expressed in Turkish lira. Taking into account the time horizon of the investment, it is believed that the expected return on

the investment could absorb any devaluation of the underlying currency, if this is in line with the outlook.