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NOTES
108 • Consolidated financial statements
PANDORA ANNUAL REPORT 2016
SECTION 4: CAPITAL STRUCTURE AND NET FINANCIALS, CONTINUED
DERIVATIVE FINANCIAL INSTRUMENTS
4.5
Hedge
Carrying
reserve,
DKK million
Assets
Liabilities
amount
net of tax
2016
Commodities
20
-158
-138
-109
Foreign exchange
141
-98
43
35
Total derivative financial instruments
161
-256
-95
-74
2015
Commodities
4
-127
-123
-92
Foreign exchange
61
-87
-26
-19
Total derivative financial instruments
65
-214
-149
-111
Financial assets and liabilities are measured at cost with
the exception of derivative financial instruments (forward
contracts etc.), which are measured at fair value.
PANDORA uses a number of derivative financial
Classification according to the fair value hierarchy
The fair value at 31 December 2016 and 2015 of
PANDORA’s derivative financial instruments was measured
in accordance with level 2 in the fair value hierarchy (IFRS
7). Level 2 is based on non-quoted prices, observable
either directly (i.e. as prices) or indirectly (i.e. derived from
prices). PANDORA uses input from third-party valuation
specialists to quote prices for unrealised derivative financial
instruments. The value of unrealised silver and gold
instruments is tested against the prices observable at LBMA
(London Bullion Market Association). The value of unrealised
foreign exchange instruments is tested against observable
foreign exchange forward rates.
Accounting policies
Derivative financial instruments are initially recognised at
fair value at the date on which a contract is entered into
and are subsequently measured at fair value. For derivative
financial instruments not traded in an active market, the fair
value is determined using appropriate valuation methods.
Such methods may include comparison with recent arm’s
length market transactions, reference to the current fair
value of another instrument that is substantially the same or
discounted cash flow analysis.
instruments to hedge its exposure to fluctuations in
commodity prices and exchange rates.
Derivative financial instruments include forward
commodity contracts and forward exchange contracts.
PANDORA has designated certain derivative financial
instruments as cash flow hedges as defined under IAS
39. Hedge accounting is classified as a cash flow hedge
when hedging variability in cash flow is attributable to a
highly probable forecast transaction. PANDORA uses a
range of 80% to 125% for hedge effectiveness, and any
relationship with an effectiveness that falls outside this
range is deemed to be ineffective and hedge accounting
is suspended. PANDORA designates and documents all
hedging relationships between commodity contracts and
transactions.
Derivative financial instruments that qualify for cash flow
hedge accounting
The effective portion of the unrealised gain or loss on
all hedging instruments is recognised directly as other
comprehensive income in the equity hedging reserve. The
ineffective portion is recognised in net financials.
The effective portion of the realised gain or loss on a
commodity hedging transaction is recognised in Group
inventories whereas the ineffective portion is realised in net
financials. The realised gain or loss on all forward exchange
contracts is recognised in net financials.