NOTES TO THE FINANCIAL STATEMENTS - NOTE 14


 

    Group and company    
    2014         2013    
      Assets     Liabilities     Notional
amount
        Assets     Liabilities     Notional
amount
   
      Rm     Rm     Rm         Rm     Rm     Rm    
14. Derivatives held for risk management                                          
  Derivatives held for economic hedging   2 344     840     50 959         1 020     485     40 664    
  Foreign exchange derivatives   2 289     837     48 324         1 017     481     40 379    
     Foreign exchange contracts   1 950     833     45 355         1 017     240     37 589    
     Cross-currency swap   339     4     2 969             241     2 790    
  Commodity derivatives   51         855         3     4     285    
  Credit default swap   4     3     1 780                    
  Derivatives held for cash flow hedging   9 829     667     60 969         6 306     927     38 425    
  Foreign exchange derivatives   9 829     667     60 969         6 306     355     34 625    
     Foreign exchange contracts   685     165     15 904         862     136     15 709    
     Cross-currency swap   9 144     502     45 065         5 444     219     18 916    
  Interest rate swap                       572     3 800    
  Total derivatives held for risk management   12 173     1 507               7 326     1 412          
  Maturity analysis   12 173     1 507               7 326     1 412          
  Derivatives held for economic hedging   2 344     840               1 020     485          
  Non-current   339     3                   215          
  Current   2 005     837               1 020     270          
  Derivatives held for cash flow hedging   9 829     667               6 306     927          
  Non-current   9 022     307               5 420     625          
  Current   807     360               886     302          
                                             
  The hedging practices and accounting treatment are disclosed in note 2.11.3 in the accounting policies.

The group uses forward exchange contracts, cross-currency swaps and interest rate swaps for cash flow hedging.

Foreign exchange contracts: used to hedge the changes in the cash flows resulting from the purchase of services and goods denominated mainly in US dollars, euro and yen
Cross-currency swaps: used to hedge the currency and interest rate risk arising from the foreign fixed rate bonds and foreign fixed or floating borrowings (denominated in US dollar, euro and yen) issued by the group
Interest rate swaps: used to hedge the interest expense variability of the issued floating rate notes

During the year a R254 million gain (2013: R109 million gain) was recognised in profit or loss as ineffectiveness arising from cash flow hedges (refer to note 39). There were no transactions for which cash flow hedge accounting had to be ceased in the current or comparative financial years as a result of highly probable cash flows no longer being expected to occur.

Credit default swap

The group has entered into a credit default swap transaction that could result in the payment by one party to the other party on the occurrence of a credit event or an event of default by Eskom (includes bankruptcy, failure to pay, obligation acceleration, repudiation or moratorium or restructuring of any obligation on Eskom bonds).

Cash flow hedges

Contractual cash flows are a function of forward exchange rates and forward interest rates and is a point in time calculation that is impacted by market conditions at that time. This may result in future contractual cash outflows or inflows even though the fair value of the derivative may be reflected as an asset or liability.

The periods in which the cash flows of derivatives designated as cash flow hedges are expected to occur are:

  Group and company  
  Carrying
amount
Rm
  Undiscounted
cash flows
Rm
  0-3 months

Rm
  4-12 months

Rm
  1-5 years

Rm
  More than
5 years
Rm
 
2014                        
Forward exchange contracts                        
   Assets 685   741   378   363      
   Liabilities (165)   (149)   (27)   (122)      
Cross-currency swaps                        
   Assets 9 144   19 753   (15)   (9)   (1 466)   21 243  
   Liabilities (502)   719   (69)   (1 707)   (2 653)   5 148  
  9 162   21 064   267   (1 475)   (4 119)   26 391  
2013                        
Forward exchange contracts                        
   Assets 862   627   242   385      
   Liabilities (136)   (231)   (44)   (187)      
Interest rate swaps                        
   Liabilities (572)   (756)   (37)   (97)   (409)   (213)  
Cross-currency swaps                        
   Assets 5 444   11 295   (38)   (715)   (1 717)   13 765  
   Liabilities (219)   (80)   (46)   (42)   (105)   113  
  5 379   10 855   77   (656)   (2 231)   13 665  

Gains or losses recognised in the hedging reserve in equity are first recognised in the initial cost carrying amount of the asset or liability when the forecast transaction results in the recognition of a non-financial asset or non-financial liability. Therefore, gains and losses recognised in the hedging reserve in equity will affect profit or loss in the periods during which the relevant non-financial assets are depreciated or finance cost is recognised for the relevant financial liability.

The periods in which the cash flows associated with derivatives are expected to impact profit or loss are:

  Group and company  
  Carrying
amount
Rm
  Undiscounted
cash flows
Rm
  0-3 months

Rm
  4-12 months

Rm
  1-5 years

Rm
  More than
5 years
Rm
 
2014                        
Forward exchange contracts                        
   Assets 685   741   378   363      
   Liabilities (165)   (2 967)   (27)   (122)   (130)   (2 688)  
Cross-currency swaps                        
   Assets 9 144   19 753   (15)   (9)   (1 466)   21 243  
   Liabilities (502)   719   (69)   (1 707)   (2 653)   5 148  
  9 162   18 246   267   (1 475)   (4 249)   23 703  
2013                        
Forward exchange contracts                        
   Assets 862   627   242   385      
   Liabilities (136)   1 357   (44)   (187)   67   1 521  
Interest rate swaps                        
   Liabilities (572)   (756)   (37)   (97)   (409)   (213)  
Cross-currency swaps                        
   Assets 5 444   11 295   (38)   (715)   (1 717)   13 765  
   Liabilities (219)   (80)   (46)   (42)   (105)   113  
  5 379   12 443   77   (656)   (2 164)   15 186  

Day-one gain/loss

The group recognises a day-one gain/loss on initial recognition of cross-currency, credit default and interest rate swaps held as hedging instruments where applicable.

    Group and company  
    2014
Rm
  2013
Rm
 
  Loss at beginning of the year 252   325  
  Day-one (gain)/loss recognised (329)   13  
  Amortised to profit or loss (91)   (86)  
  (Gain)/loss at end of the year (168)   252  
  The day-one (gain)/loss is included within debt securities and borrowings in the statement of financial position.