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 2019

Industry: manufacturing

1. Basis of preparation (extract)
New accounting standards and amendments to existing standards (extract)
IFRS 9 – Financial Instruments
This standard was adopted by the Group on 1 October 2018, using the modified retrospective approach. This standard replaces IAS 39 – Recognition and Measurement. The main changes the new standard introduces are:

  •  a new requirement for the classification and measurement of financial assets;
  •  a 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 main impacts for the Group of adopting IFRS 9 have been:

(1) The Group’s approach to currency hedging meets the criteria to be net hedged under IFRS 9. In accordance with IFRS 9, this has resulted 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 items are, therefore, now recognised at the exchange rate prevailing at the date of the transaction. For the year ended 30 September 2019, a loss of £5.9m has been recognised separately and note 21 provides the average exchange rates applied. The revised presentation will potentially result in an increase in gross margin percentage volatility.

The Group has applied this change prospectively and used 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. Accordingly, no adjustment to the comparative is required.

(2) Revision of the Group’s existing incurred loss provisioning model for its trade receivables to the required expected credit loss model. The Group has applied the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the trade receivables. The resulting reassessment of the existing provisions on adoption was highly immaterial on the net assets of the Group. As such no modified retrospective adjustment has been recognised to the opening balance sheet as at 1 October 2018, with the impact of moving to the expected credit loss model being included in the income statement in the current period.

It is noted that cash and deposits are also subject to the impairment requirements of IFRS 9; however, there was no identified impairment loss on these balances.

There has been 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.