1.6. Financial instruments

1.6.1. Non-derivative financial instruments

Non-derivative financial instruments are trade and other receivables, cash and cash equivalents, borrowings, trade and other payables and the category other under financial fixed assets. The Group classifies these non-derivative financial instruments under the category borrowings and receivables. On initial recognition (transaction date), non-derivative financial instruments are recognised at fair value, with directly attributable transaction costs included on initial recognition. Subsequent to the initial recognition, non-derivative financial instruments are carried at amortised cost, using the effective interest method, less impairment losses. These impairment losses are recognised in the statement of profit or loss.

1.6.2. Derivatives

Various Hydratec companies have concluded interest rate swaps (IRS) to lower the risk of interest rate fluctuations on corporate finance. This finance is provided at a variable interest rate and fixed by means of the interest rate swap. In addition, derivatives such as forward exchange contracts (Forwards) and foreign exchange swaps (FX Swaps) are used to hedge the risk of projects paid in foreign currencies. All these derivatives are designated as ‘cash flow hedge’ and are measured initially at the fair value on the contract date and, on subsequent reporting dates, at the fair value applicable on those dates.

The effective portion of movements is recognised directly in shareholders’ equity in a separate shareholders’ equity component: the hedge reserve. Any ineffective portion is recognised in the statement of profit or loss. Hydratec only designates the spot component of forward exchange contracts as hedging instruments.

1.6.3. Maturity of assets/liabilities

Financial assets and liabilities are classified as current if they are expected to be realised, sold, consumed or settled in the normal operating cycle, they are held primarily for trading purposes, their remaining term to maturity is expected to be less than 12 months, or there is no unconditional right to defer settlement of the liability for at least 12 months beyond the reporting period.

All other assets and liabilities are presented as non-current.

Deferred tax assets and liabilities are classified as non-current assets and liabilities.

1.6.4. Measurement of fair value

Fair value is the price that would be received on the sale of an asset or that would be paid on transfer of a liability in an orderly transaction between market parties. Please refer to other financial instruments for an explanation of how fair value is determined for derivatives used for hedge accounting. The fair value of all other financial instruments is determined using generally accepted measurement models (level 2 or 3 measurement). The fair values are only explained if they differ significantly from the carrying amount.