11.1 Financial instrument

Financial assets

The Group classifies financial assets into the following measurement categorie

• measured at amortised cost,
• measured at fair value through profit or loss,
• measured at fair value through other comprehensive income.

The classification depends on the model adopted by the Group to manage financial assets and on the terms of contractual cash flows. The Group reclassifies investments in debt instruments only when the management model changes.

The Group assesses the model of managing debt financial assets (including trade receivables) based on the following three possible criteria:

• held to collect cash flows,
• held to collect cash flows and sell,
• other (effectively meaning assets held for disposal).

Measurement upon initial recognitio

On initial recognition, the Group measures a financial asset at fair value plus transaction costs that are directly attributable to the acquisition of the financial asset if it is not measured at fair value through profit or loss. Transaction costs related to financial assets at fair value through profit or loss are recognised in profit or loss

Derecognition

Financial assets are recognised when the Group becomes a party to the contractual provisions covering the instrument. Financial assets are derecognised when the rights to receive cash flows from financial assets have expired or have been transferred, and the Group has transferred substantially all risks and rewards related to ownership of assets.

Measurement after initial recognitio

Financial assets measured at amortised cos

Debt instruments held to collect contractual cash flows which comprise solely payments of principal and interest (“SPPI”) are measured at amortised cost. Interest income is calculated using the effective interest rate method and recognised under interest income in profit or loss. Impairment losses are recognised in accordance with the accounting policy set out in Note 10.3.1 and presented under Impairment losses on financial assets.

In this category, the Group classifies in particul:

• trade receivables other than factoring receivables within the factoring limit granted to the Group,
• loans that meet the SPPI classification test and, in line with the business model, are recognised as ‘held to collect cash flows’,
• cash and cash equivalents,
• deposits, security deposits, investment receivables and other financial receivables.

Financial assets measured at amortised cost are classified as non-current assets if they mature more than 12 months after the reporting date.

If the effect of time value of money is material, the value of receivables is determined by discounting the projected future cash flows to their present value using a pre-tax discount rate reflecting the current market estimates of the time value of money.

Financial assets measured at fair value through other comprehensive income

Debt instruments giving rise to cash flows which are solely payments of principal and interest and which are held to collect contractual cash flows and to sell are measured at fair value through other comprehensive income. Changes in the carrying amount are recognised through other comprehensive income, except for impairment gains and losses, interest income and foreign exchange gains and losses, which are recognised in profit or loss. If a financial asset is derecognised, the total gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss and recognised as other gains/(losses). Interest income on such financial assets is calculated using the effective interest rate method and recognised in the line item Interest income. Impairment due to expected credit losses is recognised in accordance with the accounting policy applicable to impairment of financial assets and presented in the line item Impairment allowance for expected credit losses.

Financial assets at fair value through profit or los

Assets which do not meet the criteria for measurement at amortised cost or at fair value through other comprehensive income are measured at fair value through profit or loss.

In particular, the Group classifies loans that do not meet the SPPI test (i.e. cash flows from these loans are not solely payments of principal and interest) at fair value through profit or loss.

The fair value of trade receivables subject to factoring within the limit available as at the last day of the reporting period is determined on the basis of the factoring agreement with the factor.

Gain or loss on fair value measurement of debt investments is recognised in profit or loss and presented under ‘Gains/(losses) on changes in the fair value of financial instruments’ in the period in which they arise. Gains/(losses) on fair value measurement include interest received on financial instruments classified as measured at fair value.

The instruments classified at fair value through profit or loss include the derivative instruments described in Note 10.11 .

Equity instruments measured at fair value through other comprehensive income

Interests in other entities include such equity instruments in other entities which do not confer control, joint control or significant influence over such entities.

Interests in other entities are initially recognised at fair value plus transaction costs. Subsequently, they are measured at fair value. For all its investments, the Group has elected to present gains and losses on changes in the fair value of equity instruments in other comprehensive income as such investments are not held for short-term returns. If such election is made, gains and losses on changes in fair value are not reclassified to profit or loss when the investment is derecognised.

Dividends from such investments are recognised in profit or loss once the Group’s right to receive payment is establishe

Financial liabilities are initially recognised at fair value less transaction costs and subsequently at amortised cost using the effective interest rate method.

Under financial liabilities at amortised cost, the Group recognises mainly trade payables, investment commitments and other liabilities, bank and non- bank borrowings, and debt instruments. Such liabilities are recognised in the statement of financial position under: Bank and non-bank borrowings, notes and lease liabilities; Trade payables; Other liabilities and provisions.

Financial liabilities denominated in foreign currencies are translated into the functional currency using the exchange rate prevailing at the date of the transaction. Foreign exchange gains and losses on settlement of those liabilities and translation at the exchange rates prevailing at the reporting date are recognised in profit or loss unless their recognition in other comprehensive income is deferred when they qualify as cash flow hedging.

If contractual terms of a financial liability are modified in a way that does not result in derecognition of the existing liability, the gain or loss is immediately recognised in profit or loss. Profit or loss is calculated as the difference between the present value of modified and original cash flows, discounted using the original effective interest rate of the liability.

Fair value of financial instrument

The fair value of financial instruments for which no active market exists is measured using appropriate valuation techniques. In selecting the methods and assumptions appropriate for these objectives, the Group relies on professional judgement.