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38. Financial instruments cont.
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Presented below are fair values and carrying amounts of financial assets and liabilities.
31 December 2013 | 31 December 2012 | |||||
---|---|---|---|---|---|---|
Category according to IAS 39 | Level of the fair value hierarchy | Fair value | Carrying amount | Fair value | Carrying amount | |
Loans granted to third parties | A | 2 | 124 | 124 | 228 | 228 |
Trade and other receivables | A | 2 | 369,868 | 369,868 | 338,547 | 338,547 |
Interest rate swaps | B | 2 | (8,041) | (8,041) | (15,321) | (15,321) |
Cross-currency interest rate swaps | B | 2 | (4,054) | (4,054) | (10,700) | (10,700) |
Cash and cash equivalents | A | 2 | 342,251 | 342,251 | 270,354 | 270,354 |
Loans and borrowings | C | 2 | (516,472) | (485,883) | (936,191) | (867,611) |
Senior Notes | C | 1 | (1,553,126) | (1,438,669) | (1,565,014) | (1,413,735) |
Finance lease liabilities | C | 2 | (442) | (463) | (727) | (784) |
Accruals | C | 2 | (136,024) | (136,024) | (155,426) | (155,426) |
Trade and other payables and deposits | C | 2 | (195,142) | (195,142) | (251,493) | (251,493) |
Total | (1,701,058) | (1,556,033) | (2,325,743) | (2,105,941) | ||
Unrecognized gain/(loss) | (145,025) | (219,802) |
A – loans and receivables
B – hedges
C – other liabilities
It is assumed that the fair value of cash and cash equivalents is equal to their nominal value, therefore no evaluation methods were used in order to calculate their fair value.
When determining the fair value of finance lease liabilities, forecasted cash flows from the reporting date to December 2015 (assumed date of lease agreements termination) were analyzed. The discount rate for each month was calculated as a WIBOR interest rate plus a margin regarding the Group’s credit risk.
Trade and other receivables, trade and other payables and deposits comprise mainly receivables and payables which will be settled no later than at the end of the first month after the reporting date. It was therefore assumed that the effect of their valuation, taking into account the time value of money, would approximately be equal to their nominal value. Evaluation methods used to calculate fair values of loans granted to related and non-related parties are based on observable market data – WIBOR interest rates.
As at 31 December 2013 loans and borrowings comprised senior facility. When determining the fair value of senior facility, forecasted cash flows from the reporting date to 31 December 2015 (assumed date of repayment of the loan) were analyzed. The discount rate for each payment was calculated as a sum of implied WIBOR interest rate and a margin regarding the Group’s credit risk.
The fair value of interest rate swaps and cross-currency interest rate swaps is assumed in accordance to the valuation of the Bank, with which the Group concluded agreements.
The fair value of bonds was calculated as their closing bid price as at the balance sheet date as quoted by Reuters multiplied by the EUR/PLN exchange rate as at the balance sheet date.
As at 31 December 2013, the Group held the following financial instruments carried at fair value on the statement of financial position.
31 December 2013 | Level 1 | Level 2 | Level 3 | |
---|---|---|---|---|
Interest rate swaps | (8,041) | |||
Cross-currency interest rate swaps | (4,054) | |||
Total | - | (12,095) | - |
As at 31 December 2012, the Group held the following financial instruments measured at fair value:
31 December 2012 | Level 1 | Level 2 | Level 3 | |
---|---|---|---|---|
Cross-currency interest rate swaps | 478 | |||
Total | - | 478 | - |
31 December 2012 | Level 1 | Level 2 | Level 3 | |
---|---|---|---|---|
Interest rate swaps | (15,321) | |||
Cross-currency interest rate swaps | (11,178) | |||
Total | - | (26,499) | - |
For the period from 1 January 2013
Interest expense on loans and borrowings | Senior Notes | Hedging instruments | Total | |
---|---|---|---|---|
Interest expense on loans and borrowings | (64,578) | - | (10,092) | (74,670) |
Interest expense on Senior Notes | - | (109,057) | (8,149) | (117,206) |
Foreign exchange rate differences | - | (20,135) | - | (20,135) |
Total finance costs | (64,578) | (129,192) | (18,241) | (212,011) |
Total gross profit/(loss) | (64,578) | (129,192) | (18,241) | (212,011) |
Hedge valuation reserve | - | - | 14,404 | 14,404 |
For the period from 1 January 2012 to 31 December 2012
Interest expense on loans and borrowings | Senior Notes | Hedging instruments | Total | |
---|---|---|---|---|
Interest expense on loans and borrowings | (109,760) | - | (1,107) | (110,867) |
Interest expense on Senior Notes | - | (108,926) | 1,734 | (107,192) |
Foreign exchange rate differences | - | 112,143 | - | 112,143 |
Total finance costs | (109,760) | 3,217 | 627 | (105,916) |
Total gross profit/(loss) | (109,760) | 3,217 | 627 | (105,916) |
Hedge valuation reserve | - | - | (31,345) | (31,345) |
At 31 December 2013, the Group held a number of interest rate swaps, designated as hedges of floating interest payments on senior facility denominated in PLN. The interest rate swaps are being used to hedge the interest rate risk of the Group’s floating rate financing in PLN.
The terms of the interest rate swaps have been negotiated to match the terms of the floating rate financing in PLN. There were no highly probable transactions for which hedge accounting has been claimed that have not occurred and no significant element of hedge ineffectiveness requiring recognition in the income statement.
Table below presents the basic parameters of IRS designed as hedging instrument, including the periods in which cash flows occur due to cash flow hedges, periods they will affect the financial results and their fair value in PLN of hedging instruments as at 31 December 2013.
31 December 2013 | 31 December 2012 | |
---|---|---|
Type of instrument | Interest rate swap | Interest rate swap |
Exposure | Floating rate interest payments in PLN | Floating rate interest payments in PLN |
Hedged risk | Interest rate risk | Interest rate risk |
Notional value of hedging instrument | 978,008 | 1,111,008 |
Fair value of hedging instruments | (8,041) | (15,321) |
Hedge accounting approach | Cash Flow Hedge | Cash Flow Hedge |
Expected period the hedge item affect income statement | Until 31 March 2015 (termination date) | Until 31 March 2015 (termination date) |
Change in fair value of cash flow hedges is presented below (pre tax):
For the period from 1 January 2013 to 31 December 2013 | For the period from 1 January 2012 to 31 December 2012 | |
---|---|---|
Opening Balance | (15,321) | (6,687) |
Effective part of gains or losses on the hedging instrument | (2,812) | (9,741) |
Amounts recognized in equity transferred to the profit and loss statement, of which: | 10,092 | 1,107 |
- adjustment of interest costs | 10,092 | 1,107 |
- adjustment due to inefficiency of the hedge relationships | - | - |
Closing Balance | (8,041) | (15,321) |
At 31 December 2013, the Group held a number of cross-currency interest rate swaps, designated as hedges of interest payments on senior facility denominated in euro. The cross-currency interest rate swaps are being used to hedge the foreign exchange risk of the Group’s financing denominated in euro.
The terms of the cross-currency interest rate swaps have been negotiated to match the terms of the financing in euro. There were no highly probable transactions for which hedge accounting has been claimed that have not occurred and no significant element of hedge ineffectiveness requiring recognition in the income statement.
Table below presents the basic parameters of CIRS designed as hedging instrument, including the periods in which cash flows occur due to cash flow hedges, periods they will affect the financial results and their fair value in PLN of hedging instruments as at 31 December 2013.
31 December 2013 | 31 December 2012 | |
---|---|---|
Type of instrument | Cross-currency interest rate swap | Cross-currency interest rate swap |
Exposure | interest payments in euro | interest payments in euro |
Hedged risk | Foreign exchange risk | Foreign exchange risk |
Notional value of hedging instrument (EUR) | 350,000 | 700,000 |
Fair value of hedging instruments | (4,054) | (10,700) |
Hedge accounting approach | Cash Flow Hedge | Cash Flow Hedge |
Expected period the hedge item affect income statement | Until 20 May 2014 (termination date) | Until 20 May 2014 (termination date) |
Change in fair value of cash flow hedges is presented below (pre tax):
2013 | 2012 | |
---|---|---|
Opening Balance | (10,700) | 13,706 |
Effective part of gains or losses on the hedging instrument | (1,503) | (22,672) |
Amounts recognized in equity transferred to the profit and loss statement, of which: | 8,149 | (1,734) |
- adjustment of interest costs | 8,149 | (1,734) |
- adjustment due to inefficiency of the hedge relationships | - | - |
Closing Balance | (4,054) | (10,700) |
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