52.3.2 Currency risk

TAURON Group companies are exposed to transaction and translation currency risk. Group companies are mainly exposed to changes in the EUR/PLN, CZK/PLN, USD/PLN and GBP/PLN exchange rates in connection with their operating and financing activities. The following tables show the Group’s exposure to currency risk by class of financial instrument. Significant exposure relates to EUR/PLN and CZK/PLN exchange rate movements. The Group’s exposure to other currencies is immaterial.

Table 1

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Classes of financial instruments As at 31 December 2020 Stan na 31 grudnia 2019
Total carrying
amount in PLN
EUR CZK Total carrying
amount in PLN
EUR CZK
in currency in PLN in currency in PLN in currency in PLN in currency in PLN
Financial assets
Receivables from buyers 2,473,416 2,022 9,330 61,124 10,715 2,290,746 2,170 9,251 50,029 8,384
Other financial receivables 176,924 11,153 51,470 20,342 3,566 499,219 49,784 212,005 20,346 3,410
Cash and cash equivalents 921,345 26,767 123,524 29,458 5,164 1,237,952 4,187 17,832 48,443 8,119
Derivatives (assets) 158,846 17,529 80,894 105,529 14,214 60,531
Total 57,471 265,218 110,924 19,445 70,355 299,619 118,818 19,913
Financial liabilities
Bank overdrafts 2,261 487 2,249 23,339 5,304 22,585
Issued bonds 7,522,209 857,840 3,958,759 6,257,022 851,101 3,324,412
Liabilities to suppliers 1,021,364 12,363 57,053 8,340 1,462 850,628 5,770 24,572 8,884 1,489
Capital commitments 880,373 14,985 63,813 765,357
Other financial liabilities 245,623 15,867 73,221 223,920 2,530 10,774
Derivatives (liabilities) 175,584 17,026 78,573 124,527 13,206 56,238
Total 918,568 4,233,668 8,340 1,462 877,911 3,738,581 8,884 1,489
Net currency position (861,097) (3,968,450) 102,584 17,983 (807,556) (3,438,962) 109,934 18,424

As part of its currency risk management, the TAURON Group uses forward contracts. The purpose of these transactions was to hedge the Group against currency risk arising in the course of its trading activities, mainly due to the purchase of CO2 emission allowances and to hedge currency exposure generated by interest payments on acquired financing in EUR.

The fair value measurement of currency forward contracts and CCIRS contracts is exposed to the risk of changes in the EUR/PLN exchange rate. Transactions entered into to hedge against currency risk are not subject to hedge accounting.

Sensitivity analysis

For the needs of the analysis of sensitivity to changes in market risk factors the Group uses the scenario analysis method. The Group relies on expert scenarios reflecting its judgement concerning the behaviour of individual market risk factors in the future. The scope of the analysis includes only those items which meet the IFRS definition of financial instruments.

The potential changes in foreign exchange rates have been determined within a horizon until the date of the next financial statements and calculated on the basis of annual implied volatility for FX options quoted on the interbank market for a given currency pair as at the end of the reporting period or, in the absence of quoted market prices, on the basis of historical volatility for a period of one year preceding the balance sheet date.

The Group identifies its exposure to foreign currency risk related to EUR/PLN, CZK/PLN, USD/PLN, GBP/PLN. Significant risk exposure regards EUR, mainly due to external financing contracted in EUR. Other currencies do not generate material risk for the Group.

The table below presents sensitivity of the gross profit/loss as well as other comprehensive income (gross) of the Group to reasonably possible changes in foreign exchange rate EUR/PLN within a horizon until the date of the next financial statements, assuming that all other risk factors remain unchanged.

Table 2

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Classes of finacial instruments 31 December 2020 Sensitivity analysis for
currency risk as at 31
December 2020
31 December 2019 Sensitivity analysis for
currency risk as at
31 December 2019
Carrying
amount
EUR/PLN Carrying
amount
EUR
Value at
risk
exchange
rate
EUR/PLN
+5.78%
exchange
rate
EUR/PLN
-5.78%
Value at
risk
exchange
rate
EUR/PLN
+4.24%
exchange
rate
EUR/PLN
-4.24%
Receivables from buyers 2,473,416 9,330 539 (539) 2,290,746 9,251 392 (392)
Other financial receivables 176,924 51,470 2,975 (2,975) (2,975) 212,005 8,989 (8,989)
Cash and cash equivalents 921,345 123,524 7,140 (7,140) 1,237,952 17,832 756 (756)
Derivatives (assets) 158,846 153,651 160,819 (160,819) 105,529 60,531 2,567 (2,567)
Overdraft 2,261 2,249 (130) 130 23,339 22,585 (958) 958
Bonds issued 7,522,209 3,958,759 (228,816) 228,816 6,257,022 3,624,412 (153,675) 153,675
Liabilities to suppliers 1,021,364 57,053 (3,298) 3,298 850,628 24,572 (1,042) 1,042
Capital commitments 880,373 63,813 (3,688) 3,688 76, 357
Other financial liabilities 245,623 73,221 (4,232) 4,232 223,920 10,774 (457) 457
Derivatives (liabilities) 175,584 80,328 (1,370) 1,370 124,527 98,946 79,408 (79,408)
Total (70,061)  70,061 (64,020) 64,020

The risk exposure as at 31 December 2020 and as at 31 December 2019 is representative of the Group’s risk exposure during the preceding one-year period.