29. Financial instruments

The Aurubis Group is exposed to market risks, liquidity risks and default risks as a result of the use of financial instruments.

Market risks

Market risks arise as a result of a possible change in risk factors that lead to a decrease in the market value of the transactions affected by these risk factors. The following groups of general risk factors are relevant for the Aurubis Group: currency exchange rate risks, interest rate risks and other price-related risks.

Currency exchange rate risks

As a result of its business operations, the Aurubis Group is exposed to currency exchange rate fluctuations. Changes in exchange rates can lead to losses in the value of financial instruments. Foreign currency forward and option contracts are concluded to limit currency risks. These mainly relate to the US dollar. For this purpose, the daily foreign currency positions from underlying transactions are offset against each other each day and any remaining open positions are squared by means of foreign exchange derivatives. Aurubis works exclusively with business partners with good credit standing on all foreign exchange transactions.

Furthermore, foreign currency forward and option contracts were concluded in the past fiscal year to hedge future receipts. Provided the criteria for cash flow hedges were fulfilled, the results of these hedge transactions were recognized in the accompanying financial statements initially in other comprehensive income in the amount of the effective part of the hedge transaction. These results are recognized in profit or loss as soon as the underlying hedged transaction is recognized in profit or loss. Fundamental shifts in currency relationships, in particular between the euro and the USD, can, however, only be hedged for a limited time.

Information on the management of exchange rate risks is provided in the Risk Report in the Management Report.

The foreign currency risk represents the risk position for the following period. This corresponds to the net amount of the nominal volume of the non-derivative and derivative financial instruments held, which are exposed to exchange rate risks. In addition, planned revenue transactions of the following periods are included to the extent that these are taken into account for currency risk management purposes to show the risk position for the following period.

Foreign currency risk

    T 087
     
  EUR/USD
     
in € thousand 9/30/2015 9/30/2014
     
Risk position deriving from recognized transactions (674,465) (772,313)
Budgeted revenues 631,827 539,336
Forward foreign exchange contracts 327,652 528,297
Put option transactions (117,826) (76,293)
     
Net exposure 167,188 219,027
      
Certain prior-year figures have been adjusted.

IFRS 7 requires a sensitivity analysis to be performed for each type of risk to indicate the market risks. The use of sensitivity analyses determines the potential impacts on profit or loss and on equity as at the balance sheet date of a change in the respective risk variable for each type of risk. The impacts for the periods are determined by relating the hypothetical changes in the risk variables to the amount reported as at the balance sheet date. In doing so, it is assumed that the amount reported as at the balance sheet date is representative for the entire year.

In order to determine the exchange rate risk, a sensitivity analysis is performed for the foreign currencies that pose a significant risk for the business, in this instance, the US dollar. For the purpose of the sensitivity analysis for the currencies, it was assumed that the exchange rate of the euro compared with the US dollar would change by +/– 10 %.

If the euro had been 10 % stronger or weaker against the US dollar on September 30, 2015 or September 30, 2014 as compared to the rate prevailing on the balance sheet date, equity and net income for the year would have changed to the extent shown in the following table. All relevant items in the statement of financial position and the budgeted revenues included in the foreign currency risk have been included in the calculation.

Currency sensitivity

    T 088
     
  EUR/USD
     
in € thousand 2014/15 2013/14
     
Closing rate 1.1203 1.2583
     
     
Devaluated rate (EUR against USD) 1.0083 1.1325
Effect on net income 68,859 59,953
thereof budgeted revenues 70,203 59,926
thereof non-derivative transactions 34,647 36,925
thereof derivative transactions (35,991) (36,898)
Effect on equity (35,601) (26,482 )
     
     
Appreciated rate (EUR against USD) 1.2323 1.3841
Effect on net income (54,676) (48,426)
thereof budgeted revenues (57,439) (49,031)
thereof non-derivative transactions (26,683) (29,585)
thereof derivative transactions 29,446 30,190
Effect on equity 26,740 20,995
      
Certain prior-year figures have been adjusted.

Interest rate fluctuation risks

Interest rate fluctuation risks arise due to potential changes in market interest rates and can result in a change in the fair value of fixed-­interest financial instruments and interest payment fluctuations for variable interest rate financial instruments. Any interest rate risks that arise are hedged by interest rate swaps. Interest rate fluctuation risks are of significant importance in the financial sector. Provided the ­criteria for cash flow hedges are fulfilled for the hedging of variable interest payments, the results of these hedge transactions are initially recognized in other comprehensive income in the amount of the effective portion of the hedge transaction. They are recognized in profit or loss as soon as the underlying hedged transaction is recognized in profit or loss in the respective fiscal year.

Details of how interest rate risks are managed are provided in the Risk Report in the Management Report.

The following table shows the net exposure for variable interest-­bearing risk positions.

Variable interest risk positions

                T 089
                 
  Total amount up to 1 year 1 to 5 years more than 5 years
                 
in € thousand 9/30/2015 9/30/2014 9/30/2015 9/30/2014 9/30/2015 9/30/2014 9/30/2015 9/30/2014
                 
Loans/time deposits 427,342 157,910 427,342 157,910 0 0 0 0
Other risk items (319,106) (308,461) (248,106) (219,961) (58,000) (88,500) (13,000) 0
of which hedged against the interest rate risk 71,000 88,500 0 0 58,000 88,500 13,000 0
                 
Net exposure 179,236 (62,051) 179,236 (62,051) 0 0 0 0
                  
Certain prior-year figures have been adjusted.

In accordance with IFRS 7, interest rate fluctuation risks are presented in a sensitivity analysis, which reflects the effects of a change in market interest rates on interest income, interest expense and equity.

In the event of an increase (decrease) in all relevant interest rates by 100 basis points (50 basis points), equity and earnings for the year as at September 30, 2015 and September 30, 2014 would change as shown by the following table. The same items have been included in the calculation as for the determination of the net exposure presented above.

Interest rate sensitivities

        T 090
         
  9/30/2015 9/30/2014
         
in € thousand +100 BP – 50 BP +100 BP – 50 BP
         
Effect on earnings 1,792 (899) (621) 310
Effect on equity 2,412 (1,255) 1,638 (836)
          
Certain prior-year figures have been adjusted.

Other price risks

As a result of its business operations, the Aurubis Group is exposed to commodity price risks. Among other measures, non-ferrous metals futures contracts are entered into in order to mitigate these risks. The contracts are mainly focused on the hedging of the copper price. For this purpose, incoming and outgoing metal quantities from underlying transactions are offset against each other each day and remaining open positions are squared by means of metal exchange transactions. We work exclusively with business partners with good credit standing on all metal hedge transactions.

If price-fixed metal delivery agreements for non-ferrous metals are accounted for as derivative financial instruments to cover the expected raw material requirement or the expected sale of finished products, market value changes are recognized in profit or loss. Gains and losses from the contrary development of the fair value of the hedged items and the hedge transactions are therefore recognized directly in profit or loss.

Details of metal price risk management processes are provided in the Risk Report in the Management Report.

The Aurubis Group has secured its electricity consumption by concluding a long-term agreement with an energy utility. Aurubis is exposed to an electricity price risk from the measurement of part of this agreement.

The nominal volumes of the derivative financial instruments covering copper, silver, gold, as well as electricity, coal and CO₂, which result from the gross total of the nominal amounts of the individual purchasing and sales contracts, are as follows.

Nominal volumes of the derivatives

    T 091
     
in € thousand 9/30/2015 9/30/2014
     
Copper 1,794,749 1,602,155
Silver 104,825 133,898
Gold 398,103 372,421
Electricity, coal, CO₂ 96,385 116,426
     
  2,394,062 2,224,900
      
Certain prior-year figures have been adjusted.

In accordance with IFRS 7, commodity price risks are shown in the form of a sensitivity analysis, which reflects the effects of a change in the commodity prices on the net income for the period.

In the event of a 10 % increase (decrease) of all relevant commodity prices, equity and earnings for the year would be changed as at September 30, 2015 and September 30, 2014 as shown in the following table. The calculation includes all derivatives for copper, silver, gold, as well as electricity, coal and CO₂ as at the balance sheet date.

Commodity price sensitivity

                T 092
                 
  Copper Silver Gold Electricity, coal, CO
                 
in € thousand 9/30/2015 9/30/2014 9/30/2015 9/30/2014 9/30/2015 9/30/2014 9/30/2015 9/30/2014
                 
Price increase                
Effect on earnings 43,782 56,518 8,735 9,781 26,760 29,384 3,656 4,603
                 
Price decrease                
Effect on earnings (43,782) (56,518) (8,735) (9,781) (26,760) (29,384) (3,656) (4,603)
                  
Certain prior-year figures have been adjusted.

The effects on earnings shown in the commodity price sensitivity table for metals are partially or completely compensated through the measurement of the purchase or sales contracts that are not yet fixed, since these positions are provisionally measured at the respective price on the reporting date.

Derivative financial instruments

The Aurubis Group uses derivative financial instruments to hedge exchange rate, interest rate and other price risks. Provided the criteria for the application of hedge accounting are fulfilled, these are reflected by cash flow hedges.

Financial derivatives

                T 093
                 
  ASSETS LIABILITIES
                 
  9/30/2015 9/30/2014 9/30/2015 9/30/2014
in € thousand Carrying
amount
Nominal
volume
Carrying
amount
Nominal
volume
Carrying
amount
Nominal
volume
Carrying
amount
Nominal
volume
                 
Interest rate swaps                
without a hedging relationship 0 0 0 0 0 0 0 0
as cash flow hedges 45 13,000 0 0 93 58,000 6,084 88,500
                 
Foreign exchange forward contracts                
without a hedging relationship 25,209 604,582 46,378 974,952 5,988 470,248 7,785 233,121
as cash flow hedges 126 26,851 0 0 30,483 287,300 14,807 228,115
                 
Forward foreign exchange options                
without a hedging relationship 0 0 0 0 0 0 0 0
as cash flow hedges 342 30,380 120 56,157 313 84,587 1,279 13,027
                 
Metal futures contracts                
without a hedging relationship 36,420 1,043,090 12,315 529,506 81,061 1,303,316 57,721 1,630,791
as cash flow hedges 0 0 0 0 0 0 0 0
                 
Other transactions                
without a hedging relationship 0 0 41 821 21,787 96,385 24,897 115,606
as cash flow hedges 0 0 0 0 0 0 0 0
                  
Certain prior-year figures have been adjusted.

The nominal volume of the derivative financial instruments is the sum of the nominal amounts of the individual purchase and sales contracts. By contrast, the fair value is based on the measurement of all contracts at the prices applicable on the measurement date. It indicates the potential impact on income of the prompt settlement of all derivatives as at the balance sheet date, without considering the hedged transactions.

The impact on earnings of changes in the fair value of financial derivatives that relate to a cash flow hedge is recognized in equity through other comprehensive income in the amount of the effective portion. The effective portion of the changes in the value of derivative ­financial instruments, which was recognized in equity through other comprehensive income in the period reported, amounts to € –55,675 thousand (previous year: € –18,002 thousand). The amount that was transferred during the period from equity into the income statement in the context of cash flow hedge accounting was € –43,576 thousand (previous year: € 1,225 thousand) and is mainly included in the income statement item “Cost of materials”.

The ineffective portion of the fair value change is by contrast recognized directly in profit or loss.

As was the case in the previous year, no ineffective portions of the change in fair value of the hedge instruments were identified that had to be recognized during the fiscal year reported.

The following two tables show when the cash flows from cash flow hedges will occur and when they will influence the income statement:

Cash flow hedges as at September 30, 2015

          T 094
           
Occurrence and impact on income statement
in € thousand
Carrying
amount
Nominal
volume
less than 1 year 1 to 5 years more than
5 years
           
Interest rate swaps          
Assets 45 13,000 0 0 13,000
Liabilities 93 58,000 0 58,000 0
           
Forward foreign exchange contracts          
Assets 126 26,851 26,851 0 0
Liabilities 30,483 287,300 207,768 79,532 0
           
Foreign currency options          
Assets 342 30,380 30,380 0 0
Liabilities 313 84,587 42,410 42,177 0

Cash flow hedges as at September 30, 2014

          T 095
           
Occurrence and impact on income statement
in € thousand
Carrying
amount
Nominal
volume
less than 1 year 1 to 5 years more than
5 years
           
Interest rate swaps          
Assets 0 0 0 0 0
Liabilities 6,084 88,500 0 88,500 0
           
Forward foreign exchange contracts          
Assets 0 0 0 0 0
Liabilities 14,807 228,115 161,640 66,475 0
           
Foreign currency options          
Assets 120 56,157 56,157 0 0
Liabilities 1,279 13,027 13,027 0 0
            
Certain prior-year figures have been adjusted.

Liquidity risks

Liquidity risks represent the risk that the business cannot meet its own obligations. The contractually agreed undiscounted interest and redemption payments of the financial liabilities are shown in Note 27.

The adequate sourcing of the Group with cash and cash equivalents is ensured not only by the Group’s cash flow but also by the existing short-term and long-term credit lines with our banks. Fluctuations in cash flow can therefore be cushioned. An autonomous executive committee monitors the development of Aurubis’ liquidity position on a timely and regular basis and reports to the Executive Board. Further management measures taken regarding liquidity risks are described in the Risk Report in the Management Report.

Default risks

Default risks exist for all classes of financial instruments, in particular for trade accounts receivable. The concentration of the credit risk is limited due to the wide-ranging and heterogeneous customer base. The largest individual customer account receivable balances are regularly controlled. The credit risk arising from derivative financial instruments is limited since the corresponding contracts are only concluded with contractual parties and banks that have a good credit standing.

The customers are classified by their credit rating within the context of the credit risk management process and each customer is given a specific credit limit.

The carrying amounts of the financial assets in the statement of financial position, less any write-downs, represent the maximum potential default risk without taking into account the value of any securities received or other risk-mitigating agreements.

Furthermore, to minimize default risks, we monitor the receivables from our business associates on a regular basis. Apart from instruments that are customary within the market, such as letters of credit and guarantees, we also make particular use of commercial credit insurance to safeguard against potential bad debts. If receivables are sold under factoring agreements, this is done without recourse.