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Held-to-maturity financial assets: These are assets subject to a fixed or determinable redemption amount with a fixed maturity date. The
Group declares its intention and its capacity to keep these in its power from the date of acquisition to their maturity date.
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Outstanding loans and accounts receivable generated by the Company: These are financial assets generated by the companies in exchange
for deliveries of cash or the supply of goods or services.
Negotiable financial assets are valued after their acquisition at fair value, and any changes are included in the net profit/loss for the financial year.
Fair value of a financial instrument on a given date is (construed as) the amount for which it could be bought or sold on that same date by two
knowledgeable parties acting freely and prudently under conditions of mutual independence.
Held-to-maturity financial assets and accounts receivable issued by the Group are valued at their depreciated cost and any interest accrued is
recognised in the consolidated comprehensive profit and loss statement on the basis of their effective interest rate. Depreciated cost is construed
as the initial cost minus any charges or depreciation of the principal, considering any potential reductions arising from impairment or default.
As regards valuation corrections made to trade and other accounts receivable in particular, the criterion used by the Group to calculate the
corresponding valuation corrections, if any, generally consists of provisioning for any balances expired at more than 180 days.
4.7.2
Cash and cash equivalents
This item of the consolidated balance sheet reflects the position of cash, demand accounts and other highly liquid short-term investments that
can be quickly converted into cash and which are not subject to any value change risks.
4.7.3
Financial liabilities
Bank loans
Any loans received from banking institutions are booked at the amount received, net of any costs incurred in the transaction. They are subsequently
valued at depreciated cost. Financial expenses are booked on an accrual basis in the consolidated comprehensive profit and loss statement using
the effective interest rate method, and their amount is added to liabilities to the extent to which they are not settled in the period they were
produced.
Trade creditors and other accounts payable
Trade accounts payable are initially booked at fair value and are subsequently valued at depreciated cost using the effective interest rate
method.
Derivatives and hedge accounting
Derivatives used to hedge against the risks the Group’s operations are exposed to, mainly exchange and interest rate risks, are valued at market
value on the date they are contracted. Any subsequent changes in their market value are booked as follows:
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Concerning fair value hedges, the differences produced in both the hedging elements as well as in the hedged elements (regarding the kind
of risk hedged) are directly recognised in the consolidated comprehensive profit and loss statement.
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For cash flow hedges, valuation differences in the effective part of the hedge elements are temporarily booked in the equity item “Equity
valuation adjustments” and not recognised as results until the losses or gains of the hedged element are booked in profit or loss or until
the hedged element matures. The ineffective part of the hedge is directly entered into the consolidated comprehensive profit and loss
statement.
Hedge accounting is interrupted when the hedging instrument expires or is sold or finalised or exercised, or when it no longer meets the hedge
accounting criteria. At that time, any cumulative gain or loss corresponding to the hedging instrument that has been booked in equity is kept
there until the expected transaction is undertaken.
When the transaction covered by the hedge is not expected to take place, the net cumulative gains or losses recognised in equity are transferred
to the profit or loss for the period. Any changes in the fair value of derivatives which fail to meet hedge accounting criteria are recognised in the
consolidated comprehensive profit and loss statement as they arise.
The derivatives involved in other financial instruments or in other important agreements are booked separately as derivatives only when their risks
and characteristics are not closely related to those of the important agreements and as long as such important agreements are not valued at fair
value through the recognition of any changes occurred to fair value in the consolidated comprehensive profit and loss statement.
Valuation techniques and hypotheses that apply to the measurement of fair value
The fair values of financial assets and liabilities are determined as follows:
•
The fair value of financial assets and liabilities under standard terms and conditions which are traded in active liquid markets are based on
market prices.
•
The fair value of other financial assets and liabilities (excluding derivatives) is determined in accordance with generally accepted valuation
models on the basis of cash flow discounting using the price of observable market transactions and contributor listings of similar instruments.
•
In order to determine the fair value of interest rate derivatives, cash flow discounting is used based on the implicit flow determined by the
interest rate curve according to market conditions. In order to determine the fair value of options, the Group uses the Black-Scholes valuation
model and its variants, using for this purpose market volatilities for the strike and maturity prices of said options.
Any financial instruments valued after their initial recognition at fair value are classified as level 1 to 3 based on the extent to which fair value can
be observed:
•
Level 1: Includes any instruments indexed to listed prices (without adjustment) of identical assets or liabilities in active markets.
•
Level 2: Includes any instruments indexed to other observable inputs (which are not the listed prices included under Level 1) for assets or
liabilities, be it directly (i.e., prices) or indirectly (i.e., derived from prices).
•
Level 3: Includes any instruments indexed to valuation techniques, which include inputs for assets or liabilities that are not based on observable
market data (unobservable inputs).
74
REPORT ON THE CONSOLIDATED
FINANCIAL STATEMENTS
