| SELECTED ACCOUNTING PRINCIPLES
Derivative financial instruments within the scope of IFRS 9 Financial Instruments are classified as financial assets/liabilities measured at a fair value through profit or loss, except for derivatives designated as hedging instruments and covered by hedge accounting. Derivative instruments for the purchase and sale of non-financial assets acquired and held for internal purposes as excluded from the scope of IFRS 9 Financial Instruments are not measured at the balance sheet date. Derivatives subject to the scope of IFRS 9 Financial Instruments are disclosed as assets if their value is positive or as liabilities if their value is negative. As at the balance sheet date, the Group holds the following derivatives subject to the scope of IFRS 9 Financial Instruments: |
Table 1
Export to Excel| Classification | Instruments type | Recognition in consolidated statment of comprehensive income |
|---|---|---|
| Derivatives subject to hedge accounting | Interest Rate Swaps (IRS) concluded to hedge against interest rate risk related to borrowings. Subject to hedge accounting. |
|
| Derivatives not subject to hedge accounting, classified as “assets/liabilities measured at fair value through profit or loss” |
|
– finance income/ (costs) |
|
– operating income/ (costs) | |
|
– finance income/ (costs) |
Hedge accounting
In order to hedge the interest rate risk, the Group uses IRS (Interest Rate Swap) contracts. These instruments hedge cash flows related to the debt. Such transactions are subject to hedge accounting.
At the inception of the hedge the Group formally designates and documents the hedging relationship as well as the risk management objective and the strategy underlying establishing of the hedge.
Cash flow hedges are accounted for as follows:
- the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in
other comprehensive income; and - the ineffective portion of the gain or loss on the hedging instrument shall be recognised in profit or loss for the period.
Gain or loss from revaluation of the hedging instrument disclosed in other comprehensive income is recognized directly in profit or loss in the same period during which the hedged item affects profit or loss for the period. For IRS, interest costs arising from debt are adjusted accordingly.
PROFESSIONAL JUDGEMENT AND ESTIMATES
The Group measures fair value at each balance sheet date. The methodology is presented below. The Group tests the effectiveness of the hedge at each balance sheet date.
Table 2
Export to Excel| Derivative instrument | Methodology of determining fair value |
|---|---|
| IRS | Difference between the discounted interest cash flows based on the floating and fixed interest rates. Reuters’ interest rate curve is the input data. |
| CCIRS | Difference between the discounted interest cash flows of the payable and receivables streams, in two various currencies, denominated in the measurement currency. Reuters’ interest rate curve, basis spreads and NBP fixing for relevant currencies are the input data. |
| Forward currency contracts | Difference between the discounted future cash flows between the future price as at the valuation date and the transaction price multiplied by the par value of the FX contract. Reuters’ NBP fixing and the interest rate curve implied from fx swap transaction for a relevant currency is the input data. |
| Commodity (forwards, futures) | The fair value of forwards for the purchase and sale of CO2 emission allowances, electricity and other commodities is based on prices quoted on an active market or based on cash flows being the difference between the price reference index (forward curve) and the contract price. |
| Due to the delay in commissioning the power unit in Jaworzno, as at the balance sheet date, the Group had a significant surplus of CO2 emission allowances contracted to be purchased for redemption by a subsidiary in connection with the emissions for 2020. As at the balance sheet date, the Group intended to acquire CO2 emission allowances in maturity date, therefore these contracts were recognized as excluded from IFRS 9 Financial Instruments and therefore were not measured at fair value as at the balance sheet date. |
As of 31 December 2020, the Group holds the following derivative instruments:
Export to Excel| Instrument | Description |
|---|---|
| Derivatives subject to hedge accounting | |
| IRS | IRS (Interest Rate Swap) instruments are used to hedge a portion of interest rate risk in relation to cash flows associated with exposure to WIBOR 6M determined under a dynamic risk management strategy, i.e:
Under the terms of the transaction, the Company pays interest based on a fixed interest rate in PLN, while receiving |
| Derivatives at fair value through profit or loss not subject to hedge accounting | |
| CCIRS | The CCIRS (Coupon Only Cross Currency Swap fixed-fixed) derivative consists of an exchange of interest payments on a total notional amount of EUR 500,000 thousand. The transaction matures in July 2027. Under the terms of the transaction, the Company pays interest based on a fixed interest rate in PLN while receiving payments at a fixed interest rate in euro. CCIRS derivatives to hedge currency flows generated by interest payments on issued Eurobonds. |
| Forward/futures commodities | Commodity derivatives (futures, forwards) include forward transactions for the purchase and sale of CO2 emission allowances and other commodities. |
| Currency forwards | Currency forward derivatives to hedge currency flows generated from operations. |
The measurement of derivatives as at the respective balance sheet dates is presented in the table below:
Export to Excel| As at 31 December 2020 | As at 31 December 2019 | |||||||
|---|---|---|---|---|---|---|---|---|
| Charged to profit or loss |
Charged to other comprehensive income |
Total | Charged to profit or loss |
Charged to other comprehensive income |
Total | |||
| Assets | Liabilities | Assets | Liabilities | |||||
| Derivatives subject to hedge accounting |
||||||||
| IRS | (6,230) | (83,831) | – | (90,061) | 121 | 19,341 | 19,462 | – |
| Derivatives measured at fair value through profit or loss |
||||||||
| CCIRS | 3,268 | – | 5,023 | (1,755) | (12,885) | – | – | (12,885) |
| Commodity forwards/futures | 2,321 | – | 86,089 | (83,768) | 4,248 | – | 86,067 | (81,819) |
| Currency forwards | 67,734 | – | 67,734 | – | (29,823) | – | – | (29,823) |
| Total | 158,846 | (175,584) | 105,529 | (124,527) | ||||
| Non-current | 36,041 | (73,739) | 20,352 | (16,848) | ||||
| Current | 122,805 | (101,845) | 85,177 | (107,679) | ||||
The fair value hierarchy for derivative financial instruments was as follows:
Export to Excel| As at 31 December 2020 | As at 31 December 2019 | |||
|---|---|---|---|---|
| Level 1 | Level 2 | Level 1 | Level 2 | |
| Assets | ||||
| Derivative instruments – commodity | 86,089 | – | 86,067 | – |
| Derivative instruments – currency | – | 67,734 | – | – |
| Derivative instruments-IRS | – | – | – | 19,462 |
| Derivative instruments-CCIRS | – | 5,023 | – | – |
| Total | 86,089 | 72,757 | 86,067 | 19,462 |
| Liabilities | ||||
| Derivative instruments – commodity | 83,768 | – | 81,819 | – |
| Derivative instruments – currency | – | – | – | 29,823 |
| Derivative instruments-IRS | – | 90,061 | – | – |
| Derivative instruments-CCIRS | – | 1,755 | – | 12,885 |
| Total | 83,768 | 91,816 | 81,819 | 42,708 |