NATS-Annual-Report-2015

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Annual Report and Accounts 2015 | NATS Holdings Limited Financial Statements 130 Notes forming part of the consolidated accounts (continued) 19. Financial instruments (continued) The following table sets out the maturity profile of the group’s derivative financial liabilities. Cash flows under the index-linked swap are not fixed and are subject to movements in inflation. Accordingly, the cash flows associated with the index-linked swap have been derived from the group’s long term forecasts of inflation as used for business planning purposes. The table shows undiscounted net cash inflows/ (outflows) on these derivatives. Due within one year or less Due between one and two years Due between two and five years Due in more than five years Total £m £m £m £m £m 2015 Net settled: Index-linked swap receivable/(payable) 1.8 (2.4) (30.5) (125.6) (156.7) Gross settled: Foreign exchange forward contract receivables 191.6 12.3 2.5 - 206.4 Foreign exchange forward contract payables (190.8) (13.9) (2.9) - (207.6) 2.6 (4.0) (30.9) (125.6) (157.9) 2014 Net settled: Index-linked swap receivable/(payable) 2.0 1.7 (22.7) (142.6) (161.6) Gross settled: Foreign exchange forward contract receivables 153.9 - - - 153.9 Foreign exchange forward contract payables (153.7) - - - (153.7) 2.2 1.7 (22.7) (142.6) (161.4) Fair value measurements The information set out below provides information about how the group determines fair values of various financial assets and financial liabilities. The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable. - Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. - Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). - Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). Financial Statements
Annual Report and Accounts 2015 | NATS Holdings Limited Financial Statements 131 Notes forming part of the consolidated accounts (continued) 19. Financial instruments (continued) Fair value measurements recognised on the balance sheet 2015 2014 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total £m £m £m £m £m £m £m £m Financial assets Derivative financial instruments in designated hedge accounting relationships - 4.0 - 4.0 - 0.4 - 0.4 Financial liabilities Derivative financial instruments in designated hedge accounting relationships Derivative financial instruments classified as held for trading - (5.2) - (5.2) - (0.3) - (0.3) - (127.4) - (127.4) - (128.9) - (128.9) - (132.6) - (132.6) - (129.2) - (129.2) There were no transfers between individual levels in the year. Valuation techniques and key inputs The fair value of the financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the balance sheet date. The fair values of the financial instruments held at fair value have been determined based on available market information at the balance sheet date and the valuation methodologies listed below: - the fair values of forward foreign exchange contracts are calculated with reference to well recognised proprietary financial models used by bank counterparties and verified using discounted cash flow modelling; - the fair value of the index-linked swap is calculated by adding a credit value adjustment to an amount provided by bank counterparties using proprietary financial models. This is validated using discounted cash flow modelling and observable forward inflation indices at the reporting date and contracted inflation rates, discounted at a rate that reflects the credit risk of the various counterparties. The credit value adjustment is determined by the group to reflect own credit risk by reference to bank margins appropriate to NERL’s credit rating; and - the fair value of the £600m bond has been derived from its externally quoted price. Except as detailed in the following table, the directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements approximate to their fair values: Carrying amount Fair value 2015 2014 2015 2014 £m £m £m £m Financial liabilities £600m 5.25% Guaranteed Secured Amortising Bond (498.0) (527.5) (587.0) (593.4) Financial Statements
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NATS-Annual-Report-2015

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