30. 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 US dollar, 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 constitutes a cash flow risk and 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 090
 
  EUR/USD
     
in € thousand 9/30/2016 9/30/2015
     
Risk position deriving from recognized transactions (592,946) (674,465)
Budgeted revenues 768,540 631,827
Forward foreign exchange contracts 290,495 327,652
Put option transactions (172,028) (117,826)
 
Net exposure 294,061 167,188

IFRS 7 requires a sensitivity analysis to be performed for each type of risk to indicate the market risks. The use of sensitivity analyses deter-mines 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 was 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 %, respectively.

If the Euro had been 10 % stronger or weaker against the US dollar on September 30, 2016 or September 30, 2015 as compared to the rate prevailing on the balance sheet date, then – from a foreign currency risk perspective – equity and net income for the year would have changed to the extent shown in the following table. All relevant recognized foreign currency items have been included in the calculation, as well as the budgeted revenues of the following period that were considered in the foreign currency risk exposure assessment.

Currency sensitivity

T 091
     
  EUR/USD
     
in € thousand 9/30/2016 9/30/2015
     
Closing rate 1.1161 1.1203
     
Devaluated rate (EUR against USD) 1.0045 1.0083
Effect on net income 83,845 68,859
thereof budgeted revenues 85,393 70,203
thereof non-derivative transactions 9,478 34,647
thereof derivative transactions (11,026) (35,991)
Effect on equity (32,931) (35,601)
     
Appreciated rate (EUR against USD) 1.2277 1.2323
Effect on net income (64,491) (54,676)
thereof budgeted revenues (69,867) (57,439)
thereof non-derivative transactions (3,645) (26,683)
thereof derivative transactions 9,021 29,446
Effect on equity 21,125 26,740

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 fluctuation risks are managed are provided in the Risk Report in the Management Report.

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

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, 2016 and September 30, 2015 would change as shown by the following table. The same items have been included in the calculation as were considered for the determination of the net exposure presented above. Furthermore, all interest-bearing financial instruments that will expire in the following period were included. In each such case, their substitution applying a sensitivity-adjusted interest rate was assumed from the date of maturity onwards.

Variable interest risk positions

T 092
 
  Total amount up to 1 year 1 to 5 years more than 5 years
                 
in € thousand 9/30/2016 9/30/2015 9/30/2016 9/30/2015 9/30/2016 9/30/2015 9/30/2016 9/30/2015
                 
Loans/time deposits 438,092 427,342 438,092 427,342 0 0 0 0
Other risk items (303,088) (319,106) (232,088) (248,106) (58,000) (58,000) (13,000) (13,000)
of which hedged against the interest rate risk 71,000 71,000 0 0 58,000 58,000 13,000 13,000
 
Net exposure 206,004 179,236 206,004 179,236 0 0 0 0

Interest rate sensitivities

T 093
 
  9/30/2016 9/30/2015
         
in € thousand +100 BP –50 BP +100 BP –50 BP
         
Effect on earnings 2,024 (1,672) 1,792 (899)
Effect on equity 1,846 (954) 2,412 (1,255)

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 094
 
in € thousand 9/30/2016 9/30/2015
     
Copper 1,015,407 1,794,749
Silver 97,680 104,825
Gold 398,173 398,103
Electricity, coal, CO₂ 94,598 96,385
 
  1,605,858 2,394,062

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) in all relevant commodity prices, equity and earnings for the year would be changed as at September 30, 2016 and September 30, 2015 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 095
                 
  Copper Silver Gold Electricity, coal, CO
                 
in € thousand 9/30/2016 9/30/2015 9/30/2016 9/30/2015 9/30/2016 9/30/2015 9/30/2016 9/30/2015
                 
Price increase                
Effect on earnings 26,637 43,782 5,310 8.735 27,630 26,760 4,118 3,656
 
Price decrease                
Effect on earnings (26,637) (43,782) (5,310) (8,735) (27,630) (26,760) (4,118) (3,656)

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 096
 
  Assets Liabilities
                 
  9/30/2016 9/30/2015 9/30/2016 9/30/2015
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 0 0 45 13,000 1,457 71,000 93 58,000
 
Foreign exchange forward contracts                
without a hedging relationship 2,646 458,959 25,209 604,582 1,675 225,412 5,988 470,248
as cash flow hedges 2,257 214,263 126 26,851 5,719 80,462 30,483 287,300
 
Forward foreign exchange options                
without a hedging relationship 0 0 0 0 0 0 0 0
as cash flow hedges 231 71,385 342 30,380 286 98,377 313 84,587
 
Metal futures contracts                
without a hedging relationship 25,841 774,802 36,420 1,043,090 16,692 777,100 81,061 1,303,316
as cash flow hedges 0 0 0 0 0 0 0 0
 
Other transactions                
without a hedging relationship 1,869 6,171 0 0 16,865 88,427 21,787 96,385
as cash flow hedges 0 0 0 0 0 0 0 0

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, amounted to € –5,510 thousand (previous year: € –55,675 thousand). The amount that was transferred during the period from equity into the income statement in the context of cash flow hedge accounting was € –33,561 thousand (previous year: € –43,576 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, 2016

T 097
 
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 1,457 71,000 0 58,000 13,000
 
Forward foreign exchange contracts          
Assets 2,257 214,263 129,234 85,029 0
Liabilities 5,719 80,462 80,462 0 0
 
Foreign currency options          
Assets 232 71,385 28,528 42,857 0
Liabilities 286 98,377 56,442 41,935 0

Cash flow hedges as at September 30, 2015

T 098
 
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