Derivatives

The Group’s derivative instruments comprise interest rate derivatives and electricity derivatives. The Group uses interest rate derivatives to hedge against interest risks arising from non-current borrowings and to hedge against a result volatility. Electricity derivatives are used as a hedge against result volatility caused by variation in electricity prices.

All derivative instruments, that are not applied the hedge accounting as defined under IAS 39, are included in the category financial assets and liabilities at fair value through profit or loss. IFRS requires derivative instruments to be initially booked at fair value and subsequently measured at their fair values determined at the end of the each reporting period. Previously VVO Group did not measure derivative instruments at fair value after the initial recognition, with the exception for interest swaption contracts.

The method of recognizing gains and losses arising from fair value changes depends on the purpose of use of the derivative. The fair value changes arising from derivatives that are designated and qualify as hedging instruments are presented congruent with the hedged item. VVO Group has decided to apply hedge accounting, as defined under IAS 39, to majority of interest rate derivatives (cash flow hedging). Fair value changes of the hedging interest rate derivatives are recognized in other comprehensive income, net of tax, and presented in the fair value reserve under equity. Changes in fair value of the derivatives to which hedge accounting is not applied, are recognized in profit or loss in the period in which they arise. VVO Group does not apply hedge accounting to electricity derivatives and certain interest rate derivatives.

The balance sheet adjustments resulting from the changes to the accounting practice of hedging instruments were as follows:

The aggregate change in fair value of the interest rate derivatives designated as hedging instruments, arisen in the financial year 2014 and amounting to EUR -19.5 million, has been recognized in other comprehensive income. In 2014, the aggregate fair value changes of the instruments to which hedge accounting is not applied, was EUR -1,4 million for interest rate derivatives and EUR 0.2 million for electricity derivatives, which had not been recognized in profit or loss previously.