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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.
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.
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).
During 2014 the Group contracted some exchange rate insurances, of which, at the end of 2015, one is still active for an amount of 16,000 thousand
US dollars. During January 2016 part of the nominal value has been bought amounting to 5,000 thousand US dollars at the agreed exchange rate of
1.27964. The remaining nominal of 11,000 thousand US dollars expires at 15 March of 2016 with an exchange rate of 1.2813.
The change in fair value as of 31 December 2015 of these hedges has had a positive effect concerning the 2015 consolidated comprehensive profit
and loss statement of 4,530 thousand euros (2,787 thousand euros in 2014).
These derivatives have not been registered as hedging products.
4.6.4 Equity instruments
An equity instrument represents a residual interest in the equity of the Parent Company once all its liabilities are subtracted.
Equity instruments issued by the Parent Company are recognised in equity for the amount received, net of the issue expenses.
4.7 Non-current assets and associated liabilities held for sale and discontinued operations
Assets and liabilities the carrying amount of which is recovered through a sale and not from continued use are classified as non-current assets held
for sale and liabilities associated with non-current assets held for sale. This condition is considered to be met only when the sale is highly probable
and the asset is available for immediate sale in its current state, and it is estimated that the sale will be completed within one year from the date of
classification.
Non-current assets and associated liabilities classified as held for sale are measured at the lower of carrying amount and fair value less selling
expenses.
Discontinued operations represent components of the Group which will be disposed of. These components are activities and cash flows that can be
clearly distinguished from the rest of the Group, both operationally and for the purposes of financial reporting, and represent lines of business or
geographical areas which can be considered as separate from the rest.
REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS
