Annual Report 2012 - Development Securities PLC

Financial Statements continued
Notes to the Consolidated Financial Statements continued
For the 14-month period ended 29th February 2012
18 Financial assets and financial liabilities continued
d) Derivative financial instruments
98 Development Securities PLC / Annual Report 2012
29th February
2012
£’000
31st December
2010
£’000
Cash flow hedge: cross-currency interest rate swap (1,925) 3,302
Derivative financial instruments at fair value through profit or loss
Interest rate swaps, caps and collars (544) 6
Derivative financial instruments (2,469) 3,308
At 29th February 2012, the Group held one cross-currency interest rate swap designated as a hedge of expected future cash flows arising from
€47,000,000 variable rate loan notes issued in September 2007. The cross-currency swap is used to hedge the EURIBOR interest rate exposure to a fixed
rate of 7.97 per cent and Euro currency exposure from the loan notes fixed at a rate of €1.43:£. The terms of the derivative have been negotiated to match
the terms of the loan notes.
The cash flow hedge of the expected future loan note cash flows was assessed to be 100.0 per cent effective. The mark-to-market movement in the foreign
currency leg of the swap of £959,000 (31st December 2010: £1,352,000) has been recycled through profit or loss to offset the re-translation of the
€47,000,000 loan. The mark-to-market movement on the interest leg of this swap of £4,268,000 loss (31st December 2010: £2,819,000 loss) is included
within the net unrealised gain/(loss) reserve in equity.
At 29th February 2012, the Group held interest rate swaps, caps and collars designated as economic hedges and not qualifying as effective hedges under
IAS 39. The derivatives are used to mitigate the Group’s interest rate exposure to variable rate loans of £56,045,000 (31st December 2010: £6,565,000).
The fair value of the derivatives amounting to £544,000 is recorded as a financial liability at 29th February 2012 (31st December 2010: £6,000 asset)
with the fair value (loss)/gain taken to finance costs.
Fair value estimation
From 1st January 2009, the Group adopted the amendment to IFRS 7 for financial instruments that are measured in the Balance Sheet at fair value,
which requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:
(i) Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
(ii) Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly
(that is, derived from prices) (level 2).
(iii) Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). Discounted cash flows are used
to determine fair values of these instruments.
The following table presents the Group’s assets and liabilities that are measured at fair value at 29th February 2012.
Level 1
£’000
Level 2
£’000
29th February 2012 31st December 2010
Assets
Derivative financial instruments:
Cross-currency interest rate swap — — — — — 3,302 — 3,302
Derivative financial instruments at fair value through
profit or loss — — — — — 6 — 6
Available-for-sale financial assets — — 25,921 25,921 — — 18,726 18,726
Total assets — — 25,921 25,921 — 3,308 18,726 22,034
Liabilities
Derivative financial instruments:
Cross-currency interest rate swap — (1,925) — (1,925) — — — —
Derivative financial instruments at fair value through
profit or loss — (544) — (544) — — — —
Total liabilities — (2,469) — (2,469) — — — —
Level 3
£’000
Total
£’000
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000