147 348
147
B.10 DERIVATIVES
Derivatives are accounted for at fair value at the contract
inception date and, unless accounted for as hedging
instruments, any changes in the fair value following initial
recognition are recorded as finance income or costs for the
period, except for fair value changes in metal derivatives.
If derivatives satisfy the requirements for classification as
hedging instruments, the subsequent changes in fair value
are accounted for using the specific criteria set out below.
The Group designates some derivatives as hedging instru-
ments for particular risks associated with highly probable
transactions (“cash flow hedges”). For each derivative which
qualifies for hedge accounting, there is documentation on its
relationship to the item being hedged, including the risk ma-
nagement objectives, the hedging strategy and the methods
for checking the hedge’s effectiveness. The effectiveness of
each hedge is reviewed both at the derivative’s inception and
during its life cycle. In general, a cash flow hedge is consi-
dered highly “effective” if, both at its inception and during
its life cycle, the changes in the cash flows expected in the
future from the hedged item are largely offset by changes in
the fair value of the hedge.
The fair values of the various derivatives used as hedges are
disclosed in Note 8. Derivatives. Movements in the “Cash
flow hedge reserve” forming part of equity are reported in
Note 11. Share capital and reserves.
The fair value of a hedging derivative is classified as a non-
current asset or liability if the hedged item has a maturity
of more than twelve months; if the maturity of the hedged
item is less than twelve months, the fair value of the hedge
is classified as a current asset or liability.
Derivatives not designated as hedges are classified as
current or non-current assets or liabilities according to their
contractual due dates.
Cash flow hedges
In the case of hedges intended to neutralise the risk of
changes in cash flows arising from the future execution of
contractual obligations existing at the reporting date (“cash
flow hedges”), changes in the fair value of the derivative
following initial recognition are recorded in equity “Cash flow
hedge reserve”, but only to the extent that they relate to the
effective portionof thehedge.When the effects of thehedged
item are reported in profit or loss, the reserve is transferred
to the income statement and classified in the same line
items that report the effects of the hedged item. If a hedge
is not fully effective, the change in fair value of its ineffective
portion is immediately recognised in the income statement
as “Finance income” or “Finance costs”. If, during the life of
a derivative, the hedged forecast cash flows are no longer
considered to be highly probable, the portion of the “Cash
flow hedge reserve” relating to the derivative is taken to the
period’s income statement and treated as “Finance income”
or “Finance costs”. Conversely, if the derivative is disposed
of or no longer qualifies as an effective hedge, the portion of
“Cash flow hedge reserve” representing the changes in the
instrument’s fair value recorded up to then remains in equity
until the original hedged transaction occurs, at which point it
is then taken to the income statement, where it is classified
on the basis described above.
At 31 December 2014, the Group had designated derivatives
to hedge the following risks:
• exchange rate risk on construction contracts or orders:
these hedges aim to reduce the volatility of cash flows
due to changes in exchange rates on future transactions.
In particular, the hedged item is the amount of the cash
flow expressed in another currency that is expected to
be received/paid in relation to a contract or an order for
amounts above the minimum limits identified by the
Group Finance Committee: all cash flows thus identified
are therefore designated as hedged items in the hedging
relationship. The reserve originating from changes in
the fair value of derivatives is transferred to the income
statement according to the stage of completion of the
contract itself, where it is classified as contract revenue/
costs;
• exchange rate risk on intercompany financial transac-
tions:
these hedges aim to reduce volatility arising from
changes in exchange rates on intercompany transactions,
when such transactions create an exposure to exchange
rate gains or losses that are not completely eliminated
on consolidation. The economic effects of the hedged
item and the related transfer of the reserve to the income
statement occur at the same time as recognising the
exchange gains and losses on intercompany positions in
the consolidated financial statements;
• interest rate risk:
these hedges aim to reduce the vo-
latility of cash flows relating to finance costs arising on
variable rate debt.