2021 Universal Registration Document

FINANCIAL STATEMENTS

Consolidated financial statements

Bank borrowings e) Interesting-bearing bank loans and overdrafts are initially measured at fair value, and are subsequently measured at amortized cost, using the effective interest rate method. Any difference between the proceeds (net of direct issue costs) and the settlement of redemption or borrowing is recognized in profit or loss over the term of the borrowing in accordance with this method. Trade payables f) See Note 14. Equity instruments g) Equity instruments issued by the parent company are recorded at the proceeds received, net of direct issue costs. Derivative financial instruments and hedge accounting h) The Group’s activities expose it primarily to the financial risk of changes in foreign exchange and interest rates. The Group uses derivative financial instruments (primarily over-the-counter foreign currency forward contracts and currency options) to hedge its risk associated with foreign currency fluctuations relating to certain firm commitments and forecasted transactions, a technique the Group designates as cash flow hedges. The use of financial derivatives is governed by the Group’s policies approved by the Board of Directors, which provide written guidelines on the use of financial derivatives consistent with the Group’s risk management strategy. The Group does not use derivative financial instruments for speculative purposes. Measurement and presentation Derivatives are initially recognized at fair value of received counterpart on the contract date and are remeasured to fair value at subsequent reporting dates. They are disclosed in the balance sheet in current assets and/or liabilities for the part within one year and in non-current assets and/or liabilities for the part beyond one year. The fair value of over-the-counter forward exchange contracts and currency swaps is determined by discounting future cash flows, using closing-date market rates (exchange and interest rates). The fair value of foreign exchange options is taken from the valuation reports provided by financial institutions and is determined using the interest rate curves, exchange rates as well as the volatility of each currency. Counterparty risk was measured under IFRS 13 – Fair value measurement, and is not significant. Hedge accounting The treatment of derivatives designated as hedging instruments depends on the type of hedging relationship: cash flow hedge; ● hedge of a net investment in a foreign operation. ● The Group clearly identifies the hedging instrument and the hedged item as soon as the hedge is set up, and formally documents the hedging relationship stating the hedging strategy, the risk hedged and the method used to determine the effectiveness of the hedge. This documentation is subsequently updated, such that the effectiveness of the designated hedge can be demonstrated. Hedge accounting uses specific measurement and recognition methods for each category of hedge: cash flow hedges : no adjustment is made to the value of the hedged item; only the hedging instrument is adjusted to fair value. The ● counterpart of this adjustment is recorded, net of taxes, in equity. The cumulative amount included in equity is transferred to the income statement when the hedged item has an impact on net income. If the cash flow hedge of a commitment or forecasted transaction results in the recognition of a non-financial asset or a liability, then, at the time the asset or liability is recognized, the associated gains or losses on the derivative that had previously been recognized in equity are included in the initial carrying amount of the non-financial asset or liability. For foreign exchange derivatives, changes in the time value of options and changes in premiums/deferrals are also recorded in other comprehensive income. For hedges that do not result in the recognition of an asset or a liability, amounts transferred to equity are recognized in the income statement in the same period in which the hedged item affects net income. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument initially recognized directly in equity while the hedge was effective, is retained in equity until the forecast transaction occurs.

251

• BIC GROUP - 2021 UNIVERSAL REGISTRATION DOCUMENT •