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Consolidated Financial Statements as of December 31, 2015
Notes to the Consolidated Financial Statements
Derivative financial instruments
Examples of fair value hedges include swaps set up to convert fixed
rate bonds and notes to variable rate. The hedged portion of the
The Group uses derivative financial instruments to hedge its exposure
underlying financial liability is remeasured at fair value. Changes in fair
to risks arising in the course of business, mainly currency and interest
value are recognized in the income statement and are offset by the
rate risks. Exceptionally, the risk of changes in the prices of certain
effective portion of symmetrical changes in the fair value of the interest
commodities – mainly diesel – may also be hedged.
rate swaps.
Derivatives are initially recognized at fair value. They are subsequently
Other derivative instruments
(ii)
measured at fair value with the resulting unrealized gains and losses
recorded as explained below.
Other derivative instruments are measured at fair value, with changes
in fair value recognized in profit or loss. Hedging instruments used by
Derivatives designated as hedging instruments
(i)
the Group include interest rate swaps and vanilla interest rate options.
Hedge accounting is applied if, and only if, the following conditions are
met:
Fair value calculation method
at the inception of the hedge, there is formal designation and
●
documentation of the hedging relationship;
The fair values of currency and interest rate instruments are
determined using market-recognized pricing models or prices quoted
the effectiveness of the hedge is demonstrated at inception.
●
by external financial institutions.
The derivatives used by the Group may be qualified as either cash flow
hedges or fair value hedges. The Group does not currently hedge its net
Values estimated using pricing models are based on discounted future
investment in foreign operations.
cash flows for futures and forward contracts or, for options, the Black &
Scholes option pricing model. The models are calibrated using market
Cash flow hedges
data such as yield curves and exchange rates obtained from recognized
For instruments qualified as cash flow hedges, the portion of the financial data services.
change in fair value determined to be an effective hedge is recognized
The fair value of long-term borrowings is estimated based on the
directly in "Other comprehensive income" and accumulated in
quoted market price for bonds and notes or the value of future cash
shareholders’ equity until the hedged transaction affects profit. The
flows discounted based on market conditions for similar instruments
ineffective portion of the change in fair value is recognized in the
(in terms of currency, maturity, interest rate and other characteristics).
income statement, under "Financial income and expense".
Fair value measurements of derivative financial instruments
The main cash flow hedges consist of interest rate options and swaps
incorporate counterparty risk in the case of instruments with a positive
that convert variable rate debt to fixed rate debt, and forward
fair value, and own credit risk for instruments with a negative fair
purchases of foreign currencies that hedge future goods purchases in
value. Credit risk is measured using the mathematical models
foreign currency.
commonly used by market analysts. At December
31, 2015 and 2014,
Fair value hedges
the effect of incorporating these two types of risk was not material.
Changes in fair value of instruments qualified as fair value hedges are
recognized in the income statement, with the effective portion
offsetting changes in the fair value of the hedged item.
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