3 MATERIAL ACCOUNTING POLICIES (CONTINUED) (ab) Derivative financial instruments and hedging activities (continued) Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss within ‘finance income/(costs)’ and ‘foreign exchange losses’. Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss (for example, when the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognised in profit or loss and presented separately after net operating profit. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to profit or loss within ‘finance income/(costs)’ and ‘foreign exchange losses’. The Group will apply the following Phase 1 reliefs provided by the Amendments to MFRS 9 and MFRS 7 ‘Interest Rate Benchmark Reform’ until the uncertainty arising from IBOR reform no longer being present: • When considering the ‘highly probable’ requirement, the Group has assumed that the IBOR interest rate on which the Group’s hedged borrowings is based does not change as a result of IBOR reform. • In assessing whether the hedge is expected to be highly effective on a forward-looking basis the Group has assumed that the IBOR interest rate on which the cash flows of the hedged borrowings and the interest rate swap that hedges it are based is not altered by IBOR reform. • The Group has not recycled the cash flow hedge reserve for designated hedges that are subject to the IBOR reform. The Group has applied the following reliefs provided by the Amendments to MFRS 9 and MFRS 7 ‘Interest Rate Benchmark Reform – Phase 2’: • Hedge designation: When the Phase 1 amendments cease to apply, the Group will amend its hedge designation to reflect changes which are required by IBOR reform, but only to make one or more of the following changes: a) designating an alternative benchmark rate (contractually or non-contractually specified) as a hedged risk; b) amending the description of the hedged item, including the description of the designated portion of the cash flows or fair value being hedged; or c) amending the description of the hedging instrument. The Group amends its hedge documentation to reflect this change in designation by the end of the reporting period in which the changes are made. These amendments to the hedge documentation do not require the Group to discontinue its hedge relationships. • Amounts accumulated in the cash flow hedge reserve: When the Group amends its hedge designation as described above, the accumulated amount outstanding in the cash flow hedge reserve is deemed to be based on the alternative benchmark rate. For discontinued hedging relationships, when the interest rate benchmark on which the hedged future cash flows were based has changed as required by IBOR reform, the amount accumulated in the cash flow hedge reserve is also deemed to be based on the alternative benchmark rate for the purpose of assessing whether the hedged future cash flows are still expected to occur. Notes to the Financial Statements For the financial year ended 31 December 2024 53
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