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4.6.2 Cash and cash equivalents
“Cash and Cash Equivalents” in the consolidated balance sheet includes cash, demand deposits and other short-term, highly liquid investments that
can be realised in cash quickly and are not subject to a risk of changes in value.
4.6.3 Financial liabilities
Issues of bonds and other securities
Debt issues are initially recognised at the fair value of the consideration received, less the costs directly attributable to the transaction. They are
subsequently valued at their amortised cost using the effective interest rate method. Bonds with a maturity date greater than twelve months are
classified under non-current liabilities; those with a maturity date of less than twelve months are included in current liabilities.
Convertible bond issues are recognised at the time of their issue, distributing the fair value of the consideration received between their equity and
liability components, assigning the residual value obtained after deducting the amount established separately for the liability component, from the
fair value of these instruments as a whole, to the equity instrument. The value of any derivative embedded in the compound financial instrument
other than the equity component will be included in the liability component.
Bank loans
Loans received from banking institutions are recognised at the amount received, net of costs incurred in the transaction. They are subsequently
valued at amortised cost. Financial expenses are recognised 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 and other payables
Trade accounts payable are initially recognised at fair value and are subsequently valued at amortised cost using the effective interest rate method.
Derivatives and hedge accounting
Derivatives used to hedge the risks to which the Group’s operations are exposed, 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 recognised as follows:
- 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.
- For cash flow hedges, valuation differences in the effective part of the hedge elements are temporarily recognised in the equity item “Equity
valuation adjustments” and not recognised as results until the losses or gains of the hedged element are recognised 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 recognised in equity is kept
there until the expected transaction is undertaken.
The Group hedges exchange rate exposure through various financial instruments with maturities of less than one year. These financial instruments
are classified in Level 1. These financial instruments were contracted with various credit entities over the second half of 2014. These exchange rate
hedges guarantee the NH Group a fixed purchase price, regardless of changes in the quoted value of the EUR/USD in 2015. On maturity, NH Hotel
Group, S.A. will buy the nominal value set in USD at the fixed rate of 1.2857.
The change in fair value at 31 December 2014 contributed €2,787 thousand to the consolidated comprehensive profit and loss statement for 2014.
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.
Derivatives embedded in other financial instruments or in other main contracts are recognised separately as derivatives only when their risks and
characteristics are not closely related to those of the main contract and providing such main contracts are not valued at fair value with changes
through consolidated comprehensive profit and loss.
Valuation techniques and assumptions applying 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.
REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS
