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4.5 Financial assets and liabilities by category
Accounting policies
Financial assets
The Group classifies its financial assets into the following categories:
- financial assets at fair value through profit or loss
- available-for-sale financial assets
- loans and receivables
The classification at initial recognition depends on the purpose for which the financial asset was acquired.
Regular way purchases or sales of financial assets are recognised on trade date. Financial assets are classified as non-current, if they have a maturity of more than 12 months after the balance sheet date. If financial assets are expected to be settled within 12 months, they are classified as current. Financial assets at fair value through profit or loss are classified as current.
Financial assets are derecognised in the balance sheet when the rights to receive cash flows from the financial asset have expired or have been transferred from the Group, and when the risks and rewards of ownership have been transferred from the Group.
At each date of the financial statements, the Group assesses whether there is evidence that a financial asset is impaired. If any such indication exists, the recoverable amount of the asset is estimated. The recoverable amount is the fair value based on the market price or the present value of cash flows. The fair value of financial assets is determined on the basis of a maturity based interest rate quotation. An impairment loss is recognised if the carrying amount of financial assets exceeds the recoverable amount. Impairment losses are recognised within the financial items of the income statement.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include instruments initially classified as financial assets at fair value through profit or loss (the fair value option). These instruments are managed based on fair value and they include investments in money market funds, as well as investments in other interest-bearing instruments with maturities of over three months, as defined by the Group's treasury policy. The interest income from these financial assets and changes in their fair values, as well as any commissions returned by the funds are presented on a net basis in the interest income of the relevant class in the income statement.
In addition, financial assets at fair value through profit or loss include all derivatives that do not qualify for hedge accounting in compliance with IAS 39. Derivatives are carried at fair value using prices quoted in active markets. The results of derivatives used for hedging purchases and sales are recognised in other operating income or expenses. The result of derivatives used for hedging financial items is recognised in financial items, unless the derivative has been designated as a hedging instrument.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative assets designated as available for sale at the date of initial recognition. Available-for-sale financial assets are measured at fair value at the balance sheet date and the changes in their fair values are recognised in equity and presented in other comprehensive income. The fair value of publicly quoted financial assets is determined based on their market value. Financial assets not quoted publicly are measured at cost if their fair values cannot be measured reliably.
Dividends from equity investments included in available-for-sale financial assets are recognised in financial items in the income statement. The interest income from available-for-sale financial assets is recognised in the financial items of the relevant class. When an available-for-sale financial asset is sold, the accumulated changes in fair value recognised in equity are included in other financial income/expenses in the income statement.
Loans and receivables
Loans and receivables are non-derivative assets with fixed or measurable payments, and they are not quoted in active markets. Loans and receivables also include trade receivables and other receivables. They are recognised at amortised cost using the effective interest rate method.
Cash and cash equivalents
Cash and cash equivalents include cash on hand and deposits with banks. The cash and cash equivalents in the consolidated balance sheet also include amounts relating to the retail operations of the division parent companies, used as cash floats in stores, or amounts being transferred to the respective companies.
Financial liabilities
Financial liabilities have initially been recognised at fair value, net of transaction costs. In the financial statements, financial liabilities are measured at amortised cost using the effective interest rate method. Arrangement fees paid on the establishment of loan facilities and financial liabilities are amortised over the period of the facility to which it relates. Financial liabilities having maturities of more than 12 months after the balance sheet date are classified as non-current liabilities. Those maturing within 12 months after the balance sheet date are classified as current liabilities.
Derivative financial instruments and hedge accounting
When derivative contracts are entered into, they are recognised at fair value and in the financial statements, they are re-measured at their fair value. The recognition of changes in the fair value of derivatives depends on whether the derivative instrument qualifies for hedge accounting or not and, if so, on the hedged item. When entered into, derivative contracts are treated either as fair value hedges of receivables or liabilities, or in the case of interest rate risk and electricity price risk, as cash flow hedges, as hedges of net investments in a foreign entity, or as derivative contracts that do not meet the hedge accounting criteria. If the hedge accounting criteria are not met, the results of instruments hedging a commercial foreign exchange risk are recognised in profit or loss within other operating income or expenses. Concerning derivatives hedging financial transactions, the amount to be recognised in the income statement is included in financial items.
When a hedging arrangement is entered into, the relationship between the hedged item and the hedging instrument, as well as the objectives of the Group's risk management are documented. The effectiveness of the hedge relationship is tested regularly and the effective portion is recognised, according to the nature of the hedged item, against the change in the fair value of the hedged item, in translation differences in equity, or in the revaluation reserve. The ineffective portion is recognised, according to its nature, either in financial items or other operating income and expenses. The effective portion of changes in the fair value of instruments used for hedging cash flows, such as long-term credit facilities, is recognised in the revaluation reserve. A change in the fair value of foreign currency derivatives relating to the credit facility is recognised in borrowings, and a change in the fair value of interest rate derivatives in other non-interest-bearing receivables or liabilities.
Hedge accounting is discontinued when the hedging instrument expires or is sold, or when the contract is terminated or exercised. Any cumulative gain or loss existing in equity at that time remains in equity until the forecast transaction has occurred.
Measurement principles
The fair value of forward rate agreements is determined by reference to the market prices at the balance sheet date. The fair value of interest rate swaps is calculated on the basis of the present value of future cash flows, using the market prices at the balance sheet date. The fair value of foreign exchange forward contracts is determined by measuring the forward contracts at the forward rate at the balance sheet date. Currency options are measured using the counterparty's price quotation, but the Group also verifies the price by applying the Black−Scholes method. Electricity derivatives are measured at fair value using the market quotations at the balance sheet date.
Hedging a net investment in foreign operations
During the financial year, the Group has not hedged net investments in foreign operations. If a hedge is initiated, the Group applies hedge accounting in accordance with IAS 39 to hedge foreign currency net investments in foreign operations. Foreign exchange forward contracts or foreign currency borrowings are used as hedging instruments. Spot price changes in foreign exchange forward contracts are recognised in translation differences under equity, and disclosed in other comprehensive income. The premiums of forward contracts are recognised as income under financial items. The exchange difference of foreign currency borrowings is recognised in translation differences under equity. When a foreign operation is partially or wholly disposed of or wound up, cumulative gains or losses from the hedging instruments are recognised in profit or loss.
Embedded derivatives
The Group has prepared method descriptions for identifying embedded derivatives and applies fair value measurement to them. In Kesko Group, embedded derivatives can be included in binding commercial contracts denominated in a currency which is not the functional currency of either party and not commonly used in the economic environment in which the transaction takes place. The fair value of embedded derivatives is determined using the market prices at the measurement date and the change in fair value is recognised in the income statement.
As at 31 December 2017
Balance, € million Financial
assets/
liabilities
at fair value
through
profit or loss
Loans
and
receiv-
ables
Available-
for-sale
financial assets
Financial
liabilities at amortised cost
Derivatives
used for
hedging
Carrying
amounts of
assets as per
balance sheet
Fair value
Non-current financial assets
Available-for-sale financial assets 23.0 23.0 23.0
Non-current non-interest-bearing receivables 2.6 2.6 2.6
Derivatives 0.1 0.1 0.1
Total non-current non-interest-bearing receivables 2.6 0.1 2.7 2.7
Total non-current interest-bearing receivables 62.7 62.7 62.7
Total non-current financial assets 65.3 23.0 0.1 88.4 88.4
Current financial assets
Trade and other non-interest-bearing receivables 1,031.8 1,031.8 1,031.8
Derivatives 0.4 0.2 0.6 0.6
Total trade and other non-interest-bearing receivables 0.4 1,031.8 0.2 1,032.4 1,032.4
Interest-bearing receivables 1.5 1.5 1.5
Financial assets at fair value through profit or loss 171.0 171.0 171.0
Available-for-sale financial assets 94.2 94.2 94.2
Total current financial assets 171.3 1,033.3 94.2 0.2 1,299.1 1,299.1
Carrying amount by category 171.3 1,098.6 117.3 0.3 1,387.5 1,387.5
Balance, € million Financial
assets/
liabilities
at fair value
through
profit or loss
Loans
and
receiv-
ables
Available-
for-sale
financial assets
Financial
liabilities at amortised cost
Derivatives
used for
hedging
Carrying
amounts of
assets as per
balance sheet
Fair value
Non-current financial liabilities
Non-current interest-bearing liabilities 129.2 129.2 132.8
Derivatives 0.1 0.1 0.1
Total non-current interest-bearing liabilities 129.2 0.1 129.3 132.9
Non-current non-interest-bearing liabilities 31.0 31.0 31.0
Derivatives 0.4 0.4 0.4
Total non-current non-interest-bearing liabilities 31.0 0.4 31.4 31.4
Total non-current financial liabilities 160.2 0.5 160.7 164.3
Current financial liabilities
Current interest-bearing liabilities 404.6 404.6 403.6
Trade payables 1,023.7 1,023.7 1,023.7
Other non-interest-bearing liabilities 188.0 188.0 188.0
Derivatives 0.6 0.6 0.6
Total other non-interest-bearing liabilities 188.0 0.6 188.6 188.6
Accrued expenses 306.3 306.3 306.3
Derivatives 2.3 2.3 2.3
Total accrued expenses 2.3 306.3 308.5 308.5
Total current non-interest-bearing liabilities 2.3 1,517.9 0.6 1,520.8 1,520.8
Total current financial liabilities 2.3 1,922.5 0.6 1,925.4 1,924.4
Carrying amount by category 2.3 2,082.7 1.1 2,086.1 2,088.7
As at 31 December 2016
Balance, € million Financial
assets/
liabilities
at fair value
through
profit or loss
Loans
and
receiv-
ables
Available-
for-sale
financial assets
Financial
liabilities at amortised cost
Derivatives
used for
hedging
Carrying
amounts of
assets as per
balance sheet
Fair value
Non-current financial assets
Available-for-sale financial assets 15.1 15.1 15.1
Non-current non-interest-bearing receivables 1.8 1.8 1.8
Derivatives 0.0 0.0 0.0
Total non-current non-interest-bearing receivables 1.8 0.0 1.9 1.9
Non-current interest-bearing receivables 58.1 58.1 58.1
Derivatives 2.7 2.7 2.7
Total non-current interest-bearing receivables 58.1 2.7 60.8 60.8
Total non-current financial assets 59.9 15.1 2.7 77.8 77.8
Current financial assets
Trade and other non-interest-bearing receivables 1,028.0 1,028.0 1,028.0
Derivatives 1.5 0.2 1.7 1.7
Total trade and other non-interest-bearing receivables 1.5 1,028.0 1,029.7 1,029.7
Interest-bearing receivables 3.7 3.7 3.7
Financial assets at fair value through profit or loss 93.3 93.3 93.3
Available-for-sale financial assets 156.8 156.8 156.8
Total current financial assets 94.8 1,031.7 156.8 0.0 1,283.5 1,283.5
Carrying amount by category 94.8 1,091.6 171.9 2.7 1,361.3 1,361.3
Balance, € million Financial
assets/
liabilities
at fair value
through
profit or loss
Loans
and
receiv-
ables
Available-
for-sale
financial assets
Financial
liabilities at amortised cost
Derivatives
used for
hedging
Carrying
amounts of
assets as per
balance sheet
Fair value
Non-current financial liabilities
Non-current interest-bearing liabilities 358.7 358.7 364.8
Non-current non-interest-bearing liabilities 39.6 39.6 39.6
Derivatives 0.6 0.6 0.6
Total non-current non-interest-bearing liabilities 39.6 0.6 40.2 40.2
Total non-current financial liabilities 398.2 0.6 398.8 405.0
Current financial liabilities
Current interest-bearing liabilities 156.0 156.0 156.1
Trade payables 1,069.2 1,069.2 1,069.2
Other non-interest-bearing liabilities 190.2 190.2 190.2
Derivatives 1.3 1.3 1.3
Other non-interest-bearing liabilities 190.2 1.3 191.6 191.6
Accrued expenses 311.7 311.7 311.7
Derivatives 4.6 4.6 4.6
Total accrued expenses 4.6 311.7 316.2 316.2
Total current non-interest-bearing liabilities 4.6 1,571.1 1.3 1,577.0 1,577.0
Total current financial liabilities 4.6 1,727.1 1.3 1,733.0 1,733.1
Carrying amount by category 4.6 2,125.3 1.9 2,131.8 2,138.1
Prepaid expenses and accrued expenses do not include income tax assets of €11.1 million (€21.2m) or income tax liabilities of €5.6 million (€8.7m).
Prepayments received of €38.5 million(€35.3m) are not categorised as financial liabilities and are not included in the table above.
The fair values of borrowings have been calculated based on the present value of future cash flows using the 0.1%−1.5% market rates of interest of the balance sheet date. The fair value of current interest-bearing liabilities has been estimated to approximately equal their balance sheet value. The maturity structure of non-current borrowings has been presented in note 4.3.