ETX-10829_Etex-AR2017_WEB_2018_DEF2 (2)

6.1
Financial report
Consolidated financial statements
Etex Annual Report 2017
Financial report
Consolidated financial statements
A. Cash flow hedges
At 31 December 2017, the Group holds forward exchange contracts designated as hedges of expected future raw material purchases
from suppliers for purchases denominated in US Dollar and Japanese Yen, of expected future sales denominated in Polish Zloty, and of
expected future purchases denominated in Euro by companies whose functional currency is the British Pound and Polish Zloty.
At 31 December 2017, the Group had interest rate swap agreements in place with a notional amount of €250,000 thousand (€250,000
thousand in 2016) whereby it receives a variable interest rate based on Euribor three or six months, as the case may be, and pays a
fixed rate on the notional amount. The swaps are being used to hedge the exposure to interest rate risk on its floating debt. The floating
rate debt and the interest rate swaps have the same critical terms.
The Group did not recognise any ineffectiveness in 2017 and 2016.
The following tables indicate the period in which the undiscounted cash flows are or were expected to occur. This is the same period as
the period in which the cash flows are expected to impact the income statement (cost of sales if relating to forward exchange contracts
covering sales and purchases in foreign currencies and interest expense if concerning interest rate swaps):
At 31 December 2017
In thousands of EUR
Carrying
amount
Total expected cash
flows 1 year or less 1-2 years 2-5 years
More than 5
years
Foreign currency
Foreign exchange contracts
Assets 1,155 1,155 1,155 - - -
Liabilities -2,742 -2,742 -2,742 - - -
Interest rate
Interest rate swaps
Assets - - - - - -
Liabilities -21,600 -22,677 -7,356 -7,650 -7,671 -
At 31 December 2016
16.3 Financial instruments – fair values
Fair values of the financial assets and liabilities approximate their carrying amounts.
Unquoted equity instruments are measured either at fair value using a valuation technique or at cost. Further explanation is provided in
note 13.
The fair value of trade and other receivables is estimated at the present value of future cash flows, discounted at the market interest rate
at reporting date.
The fair value of forward exchange contracts is based on their listed market price, if available. If a listed market price is not available,
then the fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the
residual maturity of the contract using a risk free interest rate (based on government bonds).
The fair value of interest rate swaps is calculated by discounting estimated future cash flows based on terms and maturity of each
contract and using market interest rates for a similar instrument at reporting date.
The fair value of interest bearing loans and borrowings has been calculated by discounting the expected future cash flows (principal and
interest cash flows) at prevailing interest rates at reporting date.
Fair value hierarchy
The Group uses the following hierarchy to determine and disclose the fair value of financial instruments by valuation technique:
Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2: Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or
indirectly.
Level 3: Techniques which use inputs which have a significant impact on the recorded fair value that are not based on observable market
data.
2017
In thousands of EUR
Carrying
amount
Total expected cash
flows 1 year or less 1-2 years 2-5 years
More than 5
years
Foreign currency
Foreign exchange contracts
Assets 4,140 4,140 4,140 - - -
Liabilities -1,318 -1,318 -1,318 - - -
Interest rate
Interest rate swaps
Assets - - - - - -
Liabilities -28,488 -30,430 -7,602 -7,644 -15,184 -
B. Derivatives without hedging relationship
Certain derivative transactions, while providing effective hedges under the Group’s risk management policy, may not qualify for hedge
accounting due to the complexity of the instruments. There are no such derivative transactions in 2017.
In thousands of EUR Level 2
Assets measured at fair value
Derivatives – used for hedging (cash flow hedging) 339
Liabilities measured at fair value
Derivatives – used for hedging (cash flow hedging) 1,692
During 2017 and 2016 there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of
Level 3 fair value measurements.
2016
In thousands of EUR Level 2
Assets measured at fair value
Derivatives – used for hedging (cash flow hedging) 374
Liabilities measured at fair value
Derivatives – used for hedging (cash flow hedging) 496
As stated in note 11, assets held for sale are measured at the lower of carrying amount and fair value less costs to sell in 2017 and 2016
since no observable fair value could be obtained.
The investment properties are measured at amortised cost, we refer to note 10.
Etex Annual Report 2017 p. 41
Etex Annual Report 2017 p. 42
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