IFRS 9 para B 6.6.15, separate presentation of amounts reclassified from OCI when cash flow hedging net offsetting amounts

Victrex plc – Annual report – 30 September 2018

Industry: manufacturing

Basis of preparation (extract)
A number of standards, amendments and interpretations have been issued and endorsed by the EU but are not yet effective and, accordingly, the Group has not yet adopted them. These include:
– IFRS 9 – Financial Instruments: this standard is effective from 1 January 2018 and will be adopted by the Group on 1 October 2018. This standard replaces IAS 39 – Recognition and Measurement. The main changes the new standard introduces are: uunew requirement for the classification and measurement of financial assets;
– new impairment model for financial assets held at amortised cost based on expected credit losses; and
– changes to hedge accounting by aligning hedge accounting more closely to an entity’s risk management objectives.

The Group has performed a detailed assessment of the three areas of the new standard. The main impacts are assessed as:
(1) The Group’s approach to currency hedging meets the criteria to be net hedged under IFRS 9. In accordance with IFRS 9, this will result in a presentational change on the face of the income statement for the year ended 30 September 2019, with the fair value gains and losses recognised on cash flow hedges being disclosed separately within gross margin, rather than included within the line item of the underlying hedged transaction. Revenue, cost of sales and sales, marketing and administration expenses will, therefore, be recognised at the average exchange rate prevailing at the date of the transaction. The revised presentation will potentially result in an increase in gross margin percentage volatility.

The Group will apply this change prospectively and will use the practical expedient allowed to de-designate the old IAS 39 hedging relationships in existence on 1 October 2018 and start a new hedging relationship under the new IFRS 9 model.
(2) Revision of the Group’s existing incurred loss provisioning model for its trade receivables to the required expected credit loss model. The resulting reassessment of existing provisions will be immaterial on the net assets of the Group. As such any impact will be included in the income statement for the year ending 30 September 2019, with no modified retrospective adjustment recognised to the opening balance sheet as at 1 October 2018.

There will be no significant changes required in classification or measurement base in the transition to IFRS 9 for Victrex’s financial assets. See note 14 for further details.